Q1 2024 RumbleOn Inc Earnings Call
Operator: Greetings and welcome to the RumbleON Incorporated 1st Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Zalewski, Vice President of Finance and Treasurer. Thank you, and please go ahead.
Greetings and welcome to the Rumble on Incorporated's first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
My pleasure to introduce your host Tom Zalewski, Vice President Finance and Treasurer. Thank you and please go ahead.
Tom Zalewski: Thank you, Operator. Good morning, everyone, and thank you for joining us on this conference call to discuss RumbleON's first quarter 2024 financial results. Joining me on the call today are Mike Kennedy, RumbleON's Chief Executive Officer, and Blake Lawson, RumbleON's Chief Financial Officer. Our Q1 results are detailed in the press release we issued earlier this morning, and supplemental information will be available in our first quarter Form 10-2 once filed
Tom Zalewski: Thank you operator, good morning, everyone and thank you for joining US on this conference call to discuss Rumblings first quarter 2020 for natural results. Joining me on the call today are Mike Kennedy Rumble on Chief Executive Officer, and Blake Larson Rumblings, Chief Financial Officer. Our Q1 results are detailed in the press release.
Tom Zalewski: We issued earlier. This morning is that mental information will be available in our first quarter Form 10-Q, when filed before we started like to remind you that the following discussion contains forward looking statements, including but not limited Q number lines market opportunities and future financial results and involves risks and uncertainties that may cause.
Tom Zalewski: Before we start, I'd like to remind you that the following discussion contains forward-looking statements, including, but not limited to, RumbleON's market opportunities and future financial results, and involves risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in RumbleON's periodic and other SEC filings. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and RumbleON assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except if required by law. Also, the following discussion contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, please see our earnings release issued earlier this morning.
Tom Zalewski: Actual results to differ materially from those discussed here additional information.
Tom Zalewski: Formation that could cause actual results to differ from forward looking statements can be found on roomba lines periodic and other SEC filings. The forward looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and rule of law and assumes no obligation to update or revise them.
Tom Zalewski: Whether as a result of new developments or otherwise, except as required by law.
Tom Zalewski: The following discussion contains non-GAAP financial measures for a reconciliation of these non-GAAP financial measures. Please see our earnings release issued earlier this morning, and now I'll turn the call over to Mike Kennedy from Milan CEO Mike.
Tom Zalewski: Now I'll turn the call over to Mike Kennedy, RumbleON's CEO. Mike? Thanks, Tom.
Michael W. Kennedy: Thanks, Tom. Good morning, everyone.
Thanks, Tom.
Michael W. Kennedy: Good morning, everyone and thank you for your interest in Rome, Milan and for joining US This morning.
Michael W. Kennedy: And thank you for your interest in RumbleON and for joining us this morning. Earlier this morning, RumbleON reported our first quarter financial results. That release and this call are significant as we begin to talk about our company performance and results through the new company framework described in our call back in March and detailed in our 10K filing. I'm excited to talk about the very early stages of work and results that point us to our vision 2026.
Michael W. Kennedy: Earlier this morning Rumble on reported our first quarter financial results.
Michael W. Kennedy: That release in this call are significant as you begin to talk about our company's performance and results to the New company framework described on our call back in March and detail in our 10-K filing.
Michael W. Kennedy: I'm excited to talk about the very early stages of work and results that point us to our vision 2026.
Michael W. Kennedy: I will begin with a recap of our recent performance delivered during the quarter. But first, I want to take a moment to acknowledge the announcement and our recent 8K related to Blake Lawson's decision to leave RumbleON. Blake is leaving on a very positive note.
Michael W. Kennedy: I'll begin with a recap of our recent performance delivered during the quarter.
Michael W. Kennedy: But first I want to take a moment to acknowledge the ignorance, but in our recent 8-K related to Blake loss in his decision to leave Rumble on leakage.
Michael W. Kennedy: On a very positive note. It continues to lead the finance functions of our company and he will remain in place through our annual meeting on June 4th.
Michael W. Kennedy: He continues to lead the finance functions of our company, and he will remain in place through our annual meeting on June 4th. Although we've only worked together for a short period of time, I can see that his dedication to RumbleON has been remarkable, and he has truly been an asset in the turnaround of the company. We wish him well in his future endeavors.
Michael W. Kennedy: Although we have only worked together for a short period of time I can see that his dedication to rumble on has been remarkable and he has truly been an asset and the turnaround of the company, we wish him well in his future endeavors.
Michael W. Kennedy: Now, turning to the results from the quarter, let me first kick things off with an overview of our PowerSports Stewardship Group. The team retailed 15,508 total PowerSports major units during the quarter, which is down 4.4% from the same quarter last year. Total new PowerSports major unit sales were 10,503, or up 0.6% from the same quarter last year, while pre-owned unit sales totaled 5,005, or down 13.4%.
Michael W. Kennedy: Now turning to the results from the quarter, Let me first kick things off with an overview of our power sports viewership group.
Michael W. Kennedy: Teen retail 15508 totals power sports major units during the quarter, which was down four 4% from the same quarter last year.
Michael W. Kennedy: Total new power sports major unit sales were 10503 or up 6% for the same quarter last year, while pre owned unit sales totaled 5005 or down 13, 4%.
Michael W. Kennedy: As I stated on our last call, on a day-to-supply basis, our new inventory levels are heavy, and our pre-owned inventory is light. Our team continues to work closely with our manufacturer partners to align new inventory levels to the current market reality. Gross margin for major unit sales was challenged on new vehicles and positive on pre-owned, trends we expect to continue throughout 2024. New unit gross margins for the quarter were 12.4% compared to 15.2% the same quarter last year, driven by overstocking in the industry and compounded by our decision to exit non-core product lines and assorted brands not aligned with our vision for 2026.
Michael W. Kennedy: I stated on our last call on a day supply basis, our new inventory levels are heavy in our pre owned inventory is late our team continues to work closely with our manufacturer partners to align new inventory levels to the current market realities.
Michael W. Kennedy: Gross margin for major unit sales was challenged on new and positive on pre owned trends, we expect to continue throughout 2024.
Michael W. Kennedy: New unit gross margins for the quarter were 12, 4% compared to 15, 2% in the same quarter last year, driven by Overstocking in the industry and compounded by our decision to exit noncore product lines and over assorted brands not aligned with our vision 2026.
Michael W. Kennedy: I'm excited to report pre-owned gross margins of 17.5% for the quarter compared to 11% in the same quarter last year. This performance is important to highlight as it shows the progress made by the entire team of our Vision 2026 strategy to leverage our cash offer technology to grow the pre-owned business. I'll share some additional analysis within the quarter on this segment. Of the 5,000 pre-owned units sold during the quarter, over 50% of those were not impacted by the fourth-quarter inventory write-down.
Michael W. Kennedy: I am excited to report pre owned gross margins of 17, 5% for the quarter compared to 11% in the same quarter last year.
Michael W. Kennedy: This performance is important to highlight as it shows the progress on the execution by the entire teams of our vision 2026 strategy to leverage our cash offer technology to grow the pre owned business.
Michael W. Kennedy: I'll share some additional analysis within the quarter on this segment.
Michael W. Kennedy: Of the 5000 pre owned units sold during the quarter over 50% of those were not impacted by the fourth quarter inventory write down.
Michael W. Kennedy: And when we study the acquisition costs of our inventory acquired through cash offers, we are seeing very nice improvements on a per-unit basis. So, while it's early days, we are encouraged that everyone is working as one team and in one direction, and the results from an acquisition cost and gross margin perspective are what we expect. As a related and important note, following up from our previously announced intention to open up our first pre-owned center sometime this year, I'm now excited to share that we expect to open this Greenfield location by July. Final details of the site are being worked out by the team, and we'll announce the launch along with other details this summer.
Michael W. Kennedy: And when we studied the acquisition cost of our inventory acquired through cash offers we are seeing very nice improvement on a per unit basis.
Michael W. Kennedy: So while it's early days, we are encouraged that everyone is working as one team and in one direction and the results from an acquisition cost and gross margin perspective are what we expect.
Michael W. Kennedy: As it related and important note following up from our previously announced intention to open up our first pre owned center sometime this year.
Michael W. Kennedy: I'm excited to share that we expect to open this greenfield location by July.
Michael W. Kennedy: Final details of the site are being worked out by the team well announce the launch along with other details this summer.
Michael W. Kennedy: Our parts, service, and accessories, or fixed operations business, delivered $52.9 million of revenue and $23.6 million of gross profit, or a GPU of $1,522, down $160, or 9.5%. The decrease comes primarily from accessories, apparel, and motor clothes, offset slightly by parts. We believe this decrease is also attributable to a couple of elements, including the macro environment with inflationary pressures and high interest rates and a reduction in pre-owned inventory and unit volume that impacts the amount of internal work we run through our system.
Michael W. Kennedy: Our parts service and accessories or fixed operations business delivered $52 $9 million of revenue and $23 6 million of gross profit or GPU of $522 down $160 or nine 5% the.
Michael W. Kennedy: The decrease comes primarily from accessories apparel and motor clothes offset slightly by parts.
Michael W. Kennedy: We believe this decrease is also attributable to a couple of elements, including the macro environment with inflationary pressures and high interest rates and a reduction in pre owned inventory and unit volume as that impacts the amount of internal work, we run through our system to prepare those units for sale.
Michael W. Kennedy: Prepare those units for sale. Our F&I teams delivered impressive results with $25.8 million in revenue or $1,664 per GPU, down just 0.9% year-over-year, despite elevated consumer interest rates and a challenged macro environment. We believe this trend will continue based on a strong set of OEM-supported finance offerings combined with our team's strength in this area and our own internal processes and capability. So all in, revenue from our Power Sports Stewardship Group was $293.5 million, down 8.2% to the same quarter last year. The decrease in revenue is attributed to lower pre-owned volume, a lower total major unit average selling price, or AST, by $500, and a decrease in volume coming from our fixed operation.
Michael W. Kennedy: Our F&I team has delivered impressive results with $25 8 million in revenue or <unk> thousand $664 of GPU down just <unk>, 9% year over year, despite elevated consumer interest rates in a challenged macro environment. We believe this trend will continue based on a strong set of OEM supported.
Michael W. Kennedy: <unk> offerings combined with our team's strength in this area and our own internal process and capability.
Michael W. Kennedy: So all in revenue from our power sports viewership group was $293 5 million down eight 2% to the same quarter last year.
Michael W. Kennedy: The decrease in revenue is attributed to lower pre owned volume a lower total major unit ever selling price or ASP by $500 and decrease in volume coming from our fixed operations.
Michael W. Kennedy: Total GPU for the group was $5,099, down $250, or 4.7%, to the same quarter last year, and in line with our expectations as we manage coming off COVID and navigate the headwinds of inflated industry inventories in a high interest rate environment. Looking at our EBITDA for our PowerSports viewership group, we are pleased that our first quarter EBITDA was $17.7 million compared to $17.8 million for the Although our PowerSports group had lower revenue and gross profit compared to last year, we were able to effectively manage expenses at the dealership level to maintain a similar level of EBITDA, which reflects that we are operating more efficiently. Turning now to our Asset Light Vehicle Transportation Services Operating Group. For the first quarter, Wholesale Express revenue was down 3.4%, while EBITDA grew nearly 8% to $1.4 million.
Michael W. Kennedy: Total GPU for the group was $5 99 down $250 or four 7% for the same quarter last year and in line with our expectations as we manage coming off COVID-19 navigate the headwinds of inflated industry inventories and a high interest rate environment.
Michael W. Kennedy: Looking at our EBITDA for our power sports viewership group. We are pleased that our first quarter EBITDA was $17 7 million compared to $17 8 million for the first quarter last year.
Michael W. Kennedy: Although our power sports group had lower revenue and gross profit compared to last year, we were able to effectively manage expenses at the dealership level to maintain a similar level of EBITDA, which reflects that we are operating more efficiently.
Michael W. Kennedy: Turning now to our asset light vehicle transportation services operating group for.
Michael W. Kennedy: For the first quarter wholesale express revenue was down three 4%, while EBITDA grew nearly 8% to $1 4 million. Thanks again to our focus on managing costs.
Michael W. Kennedy: Thanks again for our focus on managing costs. We continue to uncover ways to operate more efficiently, and this is showing up in our corporate headquarters expense, which was $10.1 million during the quarter, down from $15.1 million last year. As a result of these initiatives, total company EBITDA increased from $4 million last year to $9 million this year for the first quarter. Now, let's talk about SG&A expenses for the quarter because this has been such a key component of our work over the past several months.
Michael W. Kennedy: We continue to uncover ways to operate more efficiently and this is showing up in our corporate headquarters expense, which was $10 1 million during the quarter down from $15 1 million last year. As a result of these initiatives total company EBITDA increased from 4 million last year to $9 million. This year for the first quarter.
Michael W. Kennedy: Total company SG&A expenses totaled $73.9 million, or 89.5% of gross profit, compared to the same quarter last year of $86.3 million, or 95.6% of gross profit. SG&A expenses were 14.3% lower than the same quarter last year.
Michael W. Kennedy: Let's talk about SG&A expenses for the quarter as this has been such a key component of our work over the past several months.
Michael W. Kennedy: Total company SG&A expenses totaled $73 9 million or <unk> 89, 5% of gross profit compared to the same quarter last year of $86 3 million or <unk> 95, 6% of gross profit.
Michael W. Kennedy: G&A expenses were $14, 3% lower than the same quarter last year.
Michael W. Kennedy: This reduction was in line with our expectations, and we expect this trend to continue as we move through the year. Finally, let's turn to our balance sheet. We ended the quarter with $63.4 million in total cash, and non-vehicle net debt was roughly $203 million. Availability under our short-term revolving for-fine credit facilities totaled approximately $149 million. Total available liquidity, defined as unrestricted cash availability under four planned credit facilities, totaled approximately $213 million.
Michael W. Kennedy: This reduction was in line with our expectations and we expect this trend to continue as we move through the year.
Michael W. Kennedy: Finally, let's turn to our balance sheet.
Michael W. Kennedy: We ended the quarter with $63 4 million and total cash and non vehicle net debt was roughly $203 million avere.
Michael W. Kennedy: Availability under our short term revolving floorplan credit facilities totaled approximately $149 million.
Michael W. Kennedy: Total available liquidity defined as unrestricted cash and availability under floorplan credit facilities totaled approximately $213 million.
Michael W. Kennedy: Cash flow provided by operating activities was $3 million, but the three months ended March 31, which was positively impacted by the completion of the RumbleON finance loan portfolio sale in early 2024. Delivering positive free cash flow in 2024 is our expectation for the year, even while paying the high rates on our corporate debt and with the elevated floor plan expense with a current cash interest expense run rate of around 50 million.
Michael W. Kennedy: Cash flow provided by operating activities was $3 million for the three months ended March 31, which was positively impacted by the completion of the <unk> finance loan portfolio sale in early 2024.
Michael W. Kennedy: Delivering positive free cash flow in 2024 is our expectation for the year, even while paying the high rates on our corporate debt and with the elevated floorplan expense with a current cash interest expense run rate of around $50 million.
Michael W. Kennedy: Lastly, I'd like to share some thoughts relative to the early days of our execution of Vision 2026. As a reminder, by the end of calendar year 2026, we expect to have annual revenues in excess of $1.7 billion. Annual Adjusted EBITDA of greater than $150 million and Annual Adjusted Free Cash Flow of $90 million or more. While the Q1 results were largely in line with our expectations, when looking at each operating segment, HQ cost reductions, and the company as a whole, we delivered some solid performance in a tough environment. The PowerSports segment delivered nearly flat earnings on an 8% reduction in revenue.
Michael W. Kennedy: Lastly, I'd like to share some thoughts relative to the early days of our execution of vision 2026.
Michael W. Kennedy: As a reminder, by the end of calendar year 2026, we expect to have annual revenues in excess of $1 7 billion.
Michael W. Kennedy: Annual adjusted EBITDA of greater than $150 million in annual adjusted free cash flow of $90 million or more.
Michael W. Kennedy: While our Q1 results were largely in line with our expectations when looking at each operating segment HQ cost reductions in the company as a whole we delivered some solid performance in a tough environment.
Michael W. Kennedy: The power Sports segment delivered nearly flat earnings on an 8% reduction in revenue and overall the company was able to deliver an 8% improvement in adjusted EBITDA on an 8% top line reduction through effective cost management.
Michael W. Kennedy: And overall, the company was able to achieve an 8% improvement in adjusted EBITDA on an 8% top-line reduction through effective cost management. As I said back in March, we remain steadfast in achieving Vision 2026, while recognizing we are operating in a dynamic environment that might get us to our target sooner, or alternatively, it may take us a bit longer. But make no mistake, achieving Vision 2026 is the plan. Let me briefly touch on the three strategic pillars.
Michael W. Kennedy: As I said back in March we remain steadfast in achieving vision 2026, while recognizing we are operating in a dynamic environment that might get us to our target sooner or alternatively, it may take us a bit longer but make no mistake achieving vision 2026 is the plan.
Michael W. Kennedy: Let me briefly touch on the three strategic pillars.
Michael W. Kennedy: Remember the lead-off strategy, leveraging international scale to run the best performing dealerships in America, supported by an aligned and efficient corporate office. Now that we've had a chance to share our vision and strategic pillars with key manufacturing partners, important credit partners, and key vendors, I'd like to share some initial reflections. I'm confident that our quest to run the best performing dealerships is focusing our leadership team on what is most important. Aligning to our key manufacturing partners and putting our energy and focus on driving local market performance. While delivering great rider experiences is building momentum within the operation, plans are being fine-tuned and adjusted as needed as we align the organization to drive the business through this lens.
Michael W. Kennedy: One of the lead off strategy leverage international scale to run the best performing dealerships in America supported by an aligned and efficient corporate office now.
Michael W. Kennedy: Now that we've had a chance to share our vision and strategic pillars with key manufacturing partners important credit partners and key vendors I'd like to share some initial reflections.
Michael W. Kennedy: I'm confident that our quest to run the best performing dealerships is focusing our leadership team on what is most important.
Michael W. Kennedy: Aligning to our key manufacturing partners and putting our energy and focus on driving local market performance, while delivering great writer experiences is building momentum within the operations plans are being fine tuned and adjusted as needed as we align the organization to drive the business through this lens.
Michael W. Kennedy: Secondly, as demonstrated in our first quarter SG&A performance, we are pleased with the progress thus far and ready to extract additional savings to gain more operating leverage through developing an aligned and efficient HQ. The second pillar of our strategy has us focused on growing our right now cash offer tool as a point of differentiation to grow the pre-owned business. While it's certainly early days, the gross margin performance on pre-owned is very encouraging.
Michael W. Kennedy: <unk> has demonstrated in our first quarter SG&A performance. We are pleased with the progress thus far and ready to extract additional savings to gain more operating leverage to developing an aligned and efficient HQ.
Michael W. Kennedy: Second pillar of our strategy has focused on growing our right now cash offer tool as a point of differentiation to grow the pre owned business. While its certainly early days the gross margin performance on pre owned is very encouraging as.
Michael W. Kennedy: As we enjoy a lower overall acquisition cost through cash offers and gear up for our first pre-owned stand-alone dealership, we are optimistic about this work and its meaningful point of differentiation in our business, providing a competitive advantage in the marketplace and potentially a potentially very large area of high return growth for our company. And lastly, I'd like to touch on the third pillar of our Vision 2026 plan, capital allocation, and our focus on generating long-term per share value for our shareholders.
Michael W. Kennedy: As we enjoy a lower overall acquisition costs through cash offer and gear up for our first pre owned stand alone dealership. We are optimistic about this work and it's meaningful point of differentiation in our business providing.
Michael W. Kennedy: Our competitive advantage in the marketplace and potentially very large area of high return growth for our company.
Michael W. Kennedy: And lastly, I'd like to touch on the third pillar of our vision 2026 plan capital allocation and our focus on generating long term per share value for our shareholders.
Michael W. Kennedy: As a leading consolidator in the power sports dealership industry, I'm often asked why I haven't acquired a dealership lately. I tend to think about the quote from one of my favorite books, The Outsiders, where author Will Thorndike writes, with acquisitions, patience is a virtue, as is occasional boldness.
Michael W. Kennedy: As a leading consolidator in the power sports viewership industry I'm, often asked why haven't you acquired viewership lately.
Michael W. Kennedy: I tend to think about the quote from one of my favorite books, the outsiders, where author will foreign rates with acquisitions patience is a virtue.
Michael W. Kennedy: As is occasional boldness.
Michael W. Kennedy: We continue to be in discussions with a growing pipeline of acquisition opportunities, and we believe we are close to finalizing what will be my first deal as CEO of the company. We are also excited to announce the opening of a new Greenfield franchise location this month, which will be called Indian Motorcycle of Cincinnati. It's an exciting move that demonstrates confidence from the team at Indian in our capabilities and adds our second dealership to the Cincinnati market and our 55th dealership in our company.
Michael W. Kennedy: We continue to be in discussions with a growing pipeline of acquisition opportunities and we believe we are close to finalizing what is my first deal as CEO of the company.
Michael W. Kennedy: We are also excited to announce the opening of a new Greenfield franchise location this month, which will be called Indian motorcycle of Cincinnati.
Michael W. Kennedy: As an exciting move that demonstrates confidence from the team at Indian and our capabilities and as our second viewership to the Cincinnati market and our 50 50 dealership and our company.
Michael W. Kennedy: Our position as a leading consolidator in the industry, along with our distinct advantages in the pre-owned market, put us in a position to deploy our capital effectively in both acquiring dealerships and opening greenfield locations. Before we turn it over to questions, I'd like to take a moment and talk about our team. We are proud of our team's performance in the first quarter, and we are focused on adapting to the challenging market dynamics.
Michael W. Kennedy: Our position as a leading consolidator in the industry along with our distinct advantages in the pre owned market put us in a position to deploy our capital effectively and both acquiring dealerships and opening greenfield locations.
Speaker Change: Before we turn it over for questions I'd like to take a moment and talk about our team.
Speaker Change: We are proud of our team's performance in the first quarter and we are focused on adapting to the challenging market dynamics. This includes working with our manufacturing partners and analyzing store operations to ensure we have the right level of focus on profitable operations and rider experiences. While also ensuring the necessary tools are in place to deliver on our vision.
Speaker Change: We will never lose sight of our first principle generating long term per share value for our shareholders.
Michael W. Kennedy: This includes working with our manufacturing partners and analyzing store operations to ensure we have the right level of focus on profitable operations and rider experiences, while also ensuring the necessary tools are in place to deliver on our vision. We will never lose sight of our first principle of generating long-term per share value for our shareholders. This concludes our prepared remarks, and we look forward to answering any questions you may have. Thank you.
Speaker Change: This concludes our prepared remarks, and we look forward to answering any questions you may have.
Speaker Change: You very much.
Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number 1 on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any button. Your first question comes from the line of Eric Wold from B. Reilly Securities. Please go ahead.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone, you'll hear a prompt that your hand has been raised should you wish to decline from the polling process. Please press star followed by the number too.
Speaker Change: If you are using a speaker phone please lift the handset before pressing any fees.
Speaker Change: Your first question comes from the line of Erik <unk> from <unk> Securities. Please go ahead.
Eric Christian Wold: Thank you. Good morning, everyone.
Erik: Thank you and.
Erik: Hey, good morning, everyone.
Erik: A few questions.
Erik: I guess first of all I.
Erik: The March quarter is typically one.
Erik: Of the inventory build.
Erik: The selling season, and we saw that in the numbers can you talk about how that compared to what you would normally see.
Erik: Build period in prior years and then if you also remain on track for your goal of reducing inventory by $60 million. This year.
Eric Christian Wold: A few questions. First off, I know the March quarter is typically one of the inventory build kind of into the selling season, and we saw that in the numbers. But can you talk about how that compared to what you would normally see in a build period in prior years? And then, will you also remain on track for your goal of reducing inventories by $60 million this year?
Erik: Yes, Thanks, Eric This is Mike.
Michael W. Kennedy: I'll take a stab at answering that question.
Michael W. Kennedy: Yeah, thanks, Eric. This is Mike.
Michael W. Kennedy: So first off we feel really good about our project.
Michael W. Kennedy: To get inventories down, which what we communicated back in March was a target for the year of $60 million I would say within the quarter.
Michael W. Kennedy: I'll take a stab at answering that question. So, first off, we feel really good about our project to get inventories down, which we communicated back in March was a target for the year of 60 million. I would say within the quarter, you know, probably January, inventory came in pretty heavy from momentum from the fall and, you know, depending on the OEM, the odoring window and lead times are different for every different OEM.
Michael W. Kennedy: Probably January inventory inventory came in pretty heavy from momentum from the fall in <unk>.
Michael W. Kennedy: Depending on the OEM the ordering window in lead times and there are different for every different OEM.
Michael W. Kennedy: And then as we started to exit the quarter, things came down, which would be the reverse of what we typically see in Q1, right? Usually, they grow throughout Q1 and even at the beginning of Q2 as we come into the full season. So, the plan's coming in well, nice, we're positive about the results, the team's working really hard, and partnering with our manufacturing partners to make sure we do it the right way.
Michael W. Kennedy: And then and then as we started to exit the quarter things came down which would be in reversal. We typically see in Q1 right. The usually they grow throughout Q1.
Michael W. Kennedy: And even at the beginning of Q2 as we come into the full full season. So.
Michael W. Kennedy: Their plans coming in well nicely, we're positive about the results team's working really hard and its partners are manufacturing.
Gartner is to make sure we do it the right way.
Michael W. Kennedy: Perfect. And then the new standalone pre-owned retail center. Let's talk about what the plans are for that location, and what you expect to see from it. Is this to act as a hub for acquiring refurbishing vehicles for other dealerships, or will it essentially be acting as a standalone, autonomous operation and not do anything for other dealerships?
Speaker Change: Perfect and then the new Standalone.
Speaker Change: Pre owned retail center.
Speaker Change: Do you think about the plans are for that location I guess, what do you like to see from it.
Speaker Change: To activate hub.
Speaker Change: For acquiring refurbishing vehicles, where other dealerships or will essentially be.
Speaker Change: And sort of a standalone autonomous operation.
Speaker Change: Do anything for other dealerships.
Michael W. Kennedy: Yeah, so I missed a piece of that question, but let me give you a little bit of color around it, Eric. We're excited about it. As a reminder, this is a pilot for us, right? We've not done this before.
Speaker Change: Yes, so I missed a piece of that question, but let me let me give you a little bit of Colorado, Erik we're excited by it.
Speaker Change: As a reminder, as a pilot for US right. We've not done this we've not done this yet we haven't announced the specific location.
Michael W. Kennedy: We haven't announced the specific location, but the ideal location for this pilot, for our kind of conditions of success, was a healthy, strong motorcycle market overall. And, ideally, a market that the RideNow network is not in today. And so the idea is we're going to leverage the fact that we buy more pre-owned motorcycles in the country than anybody else and feed that into, you know, a good solid location in this market, and then put the right now processes into place and see if we can't make a big impact.
Speaker Change: The ideal location for this pilot for for our.
Speaker Change: Kind of condition to success.
Speaker Change: A healthy strong motorcycle market overall and ideally a market that the right now network is not in today and so the idea is we're going to leverage the fact that we buy more pre owned motorcycles in the country than anybody else.
Michael W. Kennedy: You know, it's a different ballgame going into the market without an OEM, right? An OEM brand, you put the put the sign out front, and that brings a lot of energy. There is a lot of leverage with that OEM brand to drive traffic, interest, and awareness. So this will be a new test for our team from a marketing perspective to stand up on our own. But we feel good about it. Our team is very optimistic about the financials and the return, and we're real excited about it. Now, take us to the other part of the question.
Speaker Change: And feedback to good solid location in this market and then bring the right now processes into place and <unk> and.
Speaker Change: And see if we can't make a big impact, it's a different ballgame going into market without an OEM and OEM brand you put the put the sign out front and that brings a lot of energy.
Speaker Change: A lot of a lot of leverage with that OEM brand to drive traffic and interest and awareness. So this will be a new test for our team from marketing perspective to stand up on our own but we feel good about our team is very optimistic about the financials and the return and we're real excited about it.
Eric Christian Wold: So I guess the other part of the question was, is that location essentially just going to be acquiring vehicles for it and it only, or will there be some acquisitions of vehicles that will be refurbished in that location and then sent to other dealerships in the network?
Speaker Change: The other part of the question.
Speaker Change: Is that that location that since youre, just going to be acquiring vehicles for and it only or with their recent acquisition of vehicles there'll be refurbished application and then two other dealerships that network.
Speaker Change: Okay.
Blake Lawson: Hey Eric, this is Blake. If I understand your question correctly, it's not going to be like a distribution center for other dealerships where we do the used vehicle reconditioning there. It's going to be a location where we acquire, through our cash offer tool, a lot of good quality inventory in that market and put it in that particular dealership.
Blake Lawson: Eric This is Blake.
Blake: I understand your question correctly, it's not going to be like a distribution center or other dealerships where we.
Blake: Due to the used vehicle reconditioning there.
Blake: It's going to be a location, where we acquire through our cash offer tool a lot.
Blake: Good quality inventory in that market and put it in that particular dealership.
Eric Christian Wold: Perfect. That helps, Blake. And then the final question for me, as you continue to pay down debt in the first quarter, I know it's going to be tough without guidance out there for 24, but is there some level of an estimate of, you know, how much additional debt you think you could pay down this year, maybe at a minimum? And when do you think you'll be in a position, you know, if the market accommodates, to restructure or refinance the high-rate O3 debt?
Blake: Perfect.
Speaker Change: And then just the final question for me.
Speaker Change: Obviously, you continue to pay down debt in the first quarter.
Speaker Change: Let me talk about guiding to out there for 24 or is there.
Speaker Change: Some level of an estimate of how much debt you think you could pay down this year, maybe at a minimum.
Speaker Change: When do you think youll be in a position.
Speaker Change: If the market accommodates to restructure refinance.
Speaker Change: The high rate <unk> debt.
Blake Lawson: Yeah, so we don't really have any requirements to pay down debt. This year, we've met all of our principal payments. And so anything we did would be voluntary, I guess, and it would be out of, you know, free cash generated that made sense for our business and our balance sheet. But we don't have any requirements, and so I don't, I don't anticipate that we will be paying down any of our debt.
Speaker Change: Yes, so we.
Speaker Change: We don't really have any requirements to pay down debt. This year, we've met all of our principal payments and so anything we did would be.
Speaker Change: Voluntary I guess and it would be.
Speaker Change: Free cash generated that made sense for our business and our balance sheet, but we don't have any requirements and so I don't anticipate that we will.
Speaker Change: Okay paying down any any of our term debt.
Speaker Change: Alright, Thank you for sure that it can really answered your question.
Eric Christian Wold: No, you did. I mean, obviously, I know one of the risks or one of the issues you had is that it's not a revolving credit facility. So, I understand that.
Speaker Change: Thank you.
Speaker Change: I mean, obviously I was going to have one of the one of the risks reservoir.
Speaker Change: One of the issues you had.
Blake Lawson: You probably would not want to pay down that with cash. You would not be able to get back until you kind of restructure that into a more accommodating structure. When do you think that might come into play? How much does the pre-payment period or the need for better interest rates or a better market environment? Is this something you think you can do in the back half of this year? It might be more in 2025 before you can look to address that.
Speaker Change: Revolving credit facility so again.
Speaker Change: You, probably would not want to pay down debt.
Speaker Change: Kashi, we don't be able to get get back until you get into peak restructuring I know more accommodating.
Speaker Change: Structured.
Speaker Change: When do you think that might come into play how much does the.
Speaker Change: The prepayment period or the need for better interest rates or market environment.
Speaker Change: Can do in the back half of this year this might be more in 2025.
Speaker Change: Can you address that.
Blake Lawson: We're looking at all options right now. I think... You know, it's probably... Depending on, you know, what we can structure, it's probably early 2025. The prepayment runs out in August if it's only 1%, but we're definitely exploring all of our options right now to be ready to do that when the time is right.
Speaker Change: We're looking at all options right now.
Speaker Change: Thank you.
Speaker Change: <unk>.
Speaker Change: It's probably.
Speaker Change: Depending on what we can structure, it's probably in early 2025.
Speaker Change: Thing.
Speaker Change: The prepayment runs out in August.
Speaker Change: That's only 1% so.
Speaker Change: But we are definitely exploring.
Speaker Change: All of our options right now to be ready to do that when the time is right.
Speaker Change: Perfect. Thank you guys.
Speaker Change: Yes.
Speaker Change: Thanks, Eric.
Operator: Your next question is from the line of Seth Basham from Wedbush Securities. Please go ahead.
Speaker Change: Your next question is from the line of Seth Basham from Wedbush Securities. Please go ahead.
Speaker Change: Okay.
Seth Mckain Basham: Thanks a lot and good morning. My first question is on the new market. If you could provide some color on how you think the spring season is shaping up, and updates on incentives and promotional pressure in the industry, that would be helpful.
Seth Mckain Basham: Thanks, a lot and good morning. My first question is on the new market and he can provide some color on how you think the.
Seth Mckain Basham: Spring season is shaping up updates on incentives and promotional pressure in the industry now.
Seth Mckain Basham: That would be helpful.
Michael W. Kennedy: Yeah, thanks, Seth. You know, we don't normally talk about mid-quarter performance.
Seth Mckain Basham: Yes. Thanks.
Speaker Change: We don't normally.
Speaker Change: Talk about mid quarter performance.
Michael W. Kennedy: But I, you know, I'll give you a couple of reflections. I think the promotional activity coming from OEMs is extremely high right now, across the board. I mean, I've never, never seen in with some brands haven't seen this level of activity and potency in the marketplace. So, you know, on the negative side, it's a, you know, high inflation reality coming off of COVID, you know, high interest rates are sort of the negatives on the positives.
Speaker Change: But I.
Speaker Change: I'll give you a couple of.
Speaker Change: A couple of reflections I think.
Speaker Change: The promotional activity coming from Oems is extremely high right now.
Speaker Change: I mean across the board I mean, I've never never seen.
Speaker Change: With some brands haven't seen this level of activity in.
Speaker Change: And potent of activity in the marketplace. So I think for.
Speaker Change: On the negative side.
Speaker Change: High inflation realities.
Speaker Change: Coming off of Covid high interest rates are sort of the negatives on the positives.
Michael W. Kennedy: You know, there's a lot of selection of inventory in the marketplace, and incentives are pretty strong, whether it's factory rebates or interest rate buydown. So, you know, I think. I think there are some challenges out there, which we're all feeling. But at the same time, you know, OEMs are responding and have responded here just in the last few weeks with even more power in the marketplace. And so I think that's, you know, there'll be some offset in there, has been managed through the spring.
Speaker Change: There's a lot of selection of inventory in the marketplace and incentives are pretty strong whether it's factory rebates or interest rate buy downs.
So I think.
Speaker Change: I mean, I think there is some challenges out there, which we're all feeling at the same time Oems are responding and have responded here just in the last few weeks with even more.
Speaker Change: We are in the marketplace and so I think thats there'll be some offset in there.
Speaker Change: As we managed through the spring.
Speaker Change: Okay.
Michael W. Kennedy: That's helpful. And on the pre-owned side, how much of the decline in units is being driven by the market versus your own inventory initiatives, and when should we see some stabilization in use volume?
Speaker Change: That's helpful and on the pre owned side.
Speaker Change: Uh huh.
Speaker Change: How much of the dike.
Speaker Change: A decline in units is being driven by the market versus your own inventory news Jayson when should we see some stabilization in used volumes.
Speaker Change: Okay.
Michael W. Kennedy: Yeah, that's a great question. I think it's a combination of a couple, you know, a few different things. You know, I think going back to new inventories, right? You heard my remarks that are in new inventories heavy on a day supply. And, you know, I think there are some buyers that walk in and say, Hey, I'm going to buy a new motorcycle or, you know, our sports unit, and then there are some that are dead set on pre-owned.
Jayson: Yes, that's a great question I think it's a combination of a few different things I think going back to new inventories right you heard in my remarks that.
Jayson: Our inventory is heavy on.
Jayson: On a day supply.
Jayson: And I think there are some buyers that walk in and say, hey, I'm going to buy a new motorcycle or.
Jayson: Our sport unit and then there are some that are dead set on pre owned and then there are some that just shop for a deal or a specific.
Jayson: Unit that they fall in love with.
Michael W. Kennedy: And then there are some that just shop for, you know, a deal or a specific unit that they fall in love with. Right now, the whole industry, and us included, is heavy on the new perspective; we are light on the pre-owned. Some of that's coming off of COVID, some of that's cleaning our own house up. So I think the growth or the lack of growth in pre-owned unit sales in Q1 is probably a combination of being heavy on new.
Jayson: Right now the whole industry and US included are heavy on a new perspective, we are light on pre owned.
Jayson: Some of Thats coming off of Covid, some of Thats cleaning our own house up so.
Jayson: So I think.
Jayson: I think the the.
Jayson: Growth or the lack of growth in pre owned unit sales in Q1 is probably a combination of being heavy on new our inventory is light.
Michael W. Kennedy: Our inventory is light, but the team is rooting out all kinds of avenues of acquiring more product and keeping it in the stores. You know, adequately filled, even though it's light on a day's supply. I think the turns will probably surprise us. And as you saw with the gross margins, they're really, really good.
Jayson: But the team is the team is rooting out all kinds of avenues of acquiring more and more product and we're keeping the stores.
Jayson: Adequately filled even though it's late on a base supply and if it turns out we will probably surprise us and as you saw on our gross margins are really really good.
Jayson: Yeah.
Michael W. Kennedy: Okay. And then, lastly, go ahead. Sorry, Blake.
Speaker Change: Okay, and then lastly go.
Speaker Change: Go ahead sorry.
Blake Lawson: I was just going to add one more caveat to that, you know, this It's pre-COVID days prior to the RumbleON right now merger. I don't think we would say that we were really low in used inventory. We actually have a lot more used inventory than we historically had or that Freedom Power Sports had. It's just that our model does call for, you know, a good mix of used and new. And so we feel like we're a little bit light on used because of that, but you sell what you have.
Speaker Change: I was just going to add one more caveat to that.
Speaker Change: Pre COVID-19 days prior to the Rumble on right now merger I don't think we would say that we were really low it used inventory, we actually have a lot more inventory than we historically or that freedom power sports had.
Speaker Change: It's just that our model does call for.
Speaker Change: A good mix of used and do and so we feel like we're a little bit light is used because of that.
Blake Lawson: And right now, we've got more new. You know, we're really, I'm extremely pleased with the margins that we're seeing on used right now, and we did a nice... We recently put into place around our used inventory purchasing is going to pay dividends down the road. And it's exciting to see because we all knew that the use right down would probably help margins in the first quarter, but that's not where it's being driven.
Speaker Change: What you have and right now we've got more new.
Blake Lawson: That's helpful, and it's a good segue to my last question: just thinking about those GPUs on pre-owned, how different are they for the units acquired via cash offer versus trade-ins versus other methods?
Speaker Change: So that's what's happening but.
Speaker Change: We're really extremely.
Speaker Change: We are pleased with the margins that we're seeing on used right now and we did a nice.
Speaker Change: A big write down at the end of the year, but those units are not weather driving these used margins.
Speaker Change: The used margins are being driven by our cash off our tool and the trade ins were taking at the right value so that discipline that we have.
Speaker Change: We have recently put into place around our used inventory purchasing is going to pay dividends down the road.
Speaker Change: And.
Speaker Change: It's exciting to see because we all knew that the used right downward.
Speaker Change: Would probably help margins in the first quarter, but that's not where it's being driven from.
Speaker Change: That's helpful. That's a good segue to my last question is just thinking about those gpus on pre LNG how different are they for the units acquired via cash out for versus trade ins versus other methods.
Blake Lawson: Yeah, so we, as you can imagine, we did a deep dive on that particular question because we wanted to just make sure that You know, the inventory reset that we did at year-end wasn't the sole driver. When we looked at the 5,000-plus units that we sold in the first quarter, half of them came through the cash offer, roughly, and the other half came through the normal channels. The cash offer margin was right up there with the trade-ins in the 20, 19, 20% range. And the write-down units were actually around 17%. So the units that we're taking in right now through the cash offer are actually very strong in margin, and we anticipate that will continue.
Speaker Change: Yeah. So we as you can imagine we did a deep dive on that particular question because we wanted to just make sure that.
Seth Mckain Basham: Got it. Thank you very much.
Speaker Change: The inventory.
Speaker Change: Tori reset that we did at year end wasn't the sole driver.
Speaker Change: No.
Speaker Change: When we looked at the site.
Speaker Change: Plus units that we sold in the first quarter half of them came through cash offer roughly and the other half came through the normal channels.
Speaker Change: <unk>.
Speaker Change: The cash offer.
Speaker Change: Margin was was right up there.
Speaker Change: With the trade ins.
Speaker Change: And the 2019% to 20% range and the write down units were actually around 17%. So the units that were taking in right now through cash offer.
Speaker Change: They are actually.
Speaker Change: Very strong in margin and we anticipate that will continue.
Speaker Change: Got it thank you very much.
Operator: Ladies and gentlemen, just a reminder, if you have a question, please press star, then number one on your telephone keypad. Your next question is from the line of Mike Baker from DA Davidson. Please go ahead.
Speaker Change: Ladies and gentlemen, just a reminder, if you have a question. Please press Star then the number one on your telephone keypad your.
Speaker Change: Your next question is from the line of Mike Baker from D. A Davidson. Please go ahead.
Michael Allen Baker: Hi, thanks. I just wanted to ask about where you think you are in terms of the expense savings. Remind us how much in cost you think you've taken out. And you had said in the prepared remarks that you think there's more to go. So if you could just help us frame that up.
Michael Allen Baker: Hi, Thanks, I just wanted to ask about where you think you are in terms of the expense savings.
Michael Allen Baker: Remind us how much in cost you think you've taken out and you had said in the prepared remarks that you think there's more to go. So if you could just help us help us frame that up thanks.
Michael W. Kennedy: Yeah, I think our previous remarks back in March, Blake reminded me I think we said what was the total annualized cost taken out. We were worth $50 million. Yeah, worth $50 million.
Speaker Change: Yes, I think.
Speaker Change: Previous remarks back in March.
Speaker Change: Blake remind me I think we said what was the total annualized cost taken out with it.
Speaker Change: We were north of $50 million $50 million my remarks today.
Michael W. Kennedy: My remarks today are more about having a continuous improvement mindset in the business. Because there's always costs coming at the business, Mike, whether it's inflationary or compliance or other things that are coming at the business. So our mentality is that we're always looking to improve the business. And when you improve the business, a lot of times, you find waste. You can drive that out. That gives you headroom on your margins, or it gives you headroom in SG&A, and it helps you then offset some of the inflation pressures that are coming our way.
Speaker Change: It's more about having a continuous improvement mindset on the business.
Speaker Change: Because there's always costs coming out of the business, Mike whether it's inflationary or.
Speaker Change: Compliance or other other things that are coming out of the business. So our mentality is that we're always looking to improve the business and when you improve the business by the time you find ways you can drive that out.
Speaker Change: It gives you a headroom on your margins or it gives you a head rooms.
Speaker Change: And SG&A or and it helps you then offset some of the inflation pressures that are coming our way. So I don't have a number to share with you on go gurt number that we're going after but it's more of a cultural thing to build into our everyday mindset of driving cost out and looking at waste and just getting better as an organization.
Michael W. Kennedy: So I don't have a number to share with you on the go get number that we're going after. But it's more of a cultural thing to build into our everyday mindset of driving costs out and looking at waste and just getting better as an organization.
Michael Allen Baker: Got it. Okay, that makes sense. One more question, if I could.
Michael Allen Baker: Any color on trends by product category? In other words, off-road versus on-road or even by brands? You know, there's a lot of excitement around Harley-Davidson's new new launch. Any color on how that's performed?
Speaker Change: Got it okay that makes sense.
Speaker Change: One more question if I could.
Speaker Change: Any color on trends by product category in other words off road versus versus on road.
Speaker Change: Or even by brands.
Speaker Change: There was a lot of.
Speaker Change: Excitement around Harley Davidson's, new launch any color on how that's performed.
Michael W. Kennedy: Yeah, great, great question. Yeah, there's a lot to think about in our business. Relative to that, I'll just keep the remarks sort of pretty high level.
Speaker Change: Yes, great Great question, Yes, there's a lot to think about in our business relative to that I'll, just I'll keep the remarks sort of pretty high level. We did see you heard my comments at our ASP came down some of that was driven by mix.
Michael W. Kennedy: You know, we did see you, and you heard my comments that our ASP came down. Some of that was driven by mix. A little bit away from side-by-sides, which generally have a higher ASP and more on-road motorcycles and a little bit also of off-road motorcycles. And Harley hit the ground running here in January with their 24-touring lineup, and they were able to deliver a good supply. They also had really high carryover levels in touring product with some incredibly strong incentives both on factory rebates as well as buy-downs. So I think it was a nice perfect storm, if you will, for Harley in the early days of the year. We'll see how that plays out as we go through the riding season.
Speaker Change: A little bit away from side by sides, which generally have a higher ASP.
Speaker Change: And more on road motorcycles.
Speaker Change: A little bit also off road motorcycles.
Speaker Change: Harley early hit the ground running here in January with their 24.
Speaker Change: Turing lineup and they were able to deliver good supply you also had really high carryover levels in touring product with some incredibly strong incentives both on factory rebates as well as buy down so I think it was a.
Speaker Change: Nice perfect Storm, if you will for early in the early days of the year, we'll see how that plays out as it goes through the school through the riding season.
Michael W. Kennedy: Great. I appreciate the call, Eric. Thank you.
Speaker Change: Great I appreciate the color. Thank you. Thanks. Thanks.
Operator: Your next question is from the line of Kevin Condon from Baird. Please go ahead.
Speaker Change: Your next question is from the line of Kevin Condon from Baird. Please go ahead.
Kevin Condon: Hi, good morning, everyone. This is Kevin. I'm here on behalf of Craig.
Kevin Condon: Hi, Good morning, everyone. This is Kevin on for Craig Thanks for taking my question.
Kevin Condon: In the prepared remarks, you mentioned rationalizing out some.
Kevin Condon: Thanks for taking my question. I think in your prepared remarks, you mentioned rationalizing out some other brands or tertiary brands of inventory that you had taken on amid some of the shortages. I'm just wondering if there's a way to think about how far into that process you are and maybe what portion of the inventory that you're going to work down is going to come from that versus, you know, just managing inventory lower across the board. Yeah, thanks, Kevin. Good question.
Kevin Condon: Are there other brands or tertiary brands.
Kevin Condon: Inventory that you had taken on and then.
Kevin Condon: Some of the shortages I'm just wondering if there's a way to think about how far into that process you are.
Kevin Condon: And maybe what.
Kevin Condon: A portion of the inventory that you are going to work down is going to come from that versus just managing inventory lower across the board.
Speaker Change: Yes, Thanks, Kevin Good question.
Michael W. Kennedy: We're yeah, I don't have any specific comments to share around the brands, the categories that we exited. As a reminder, you know, we We exited a number of niche brands, we exited... Most of the marine products that we're in obviously stand for PWCs and a couple of small boat brands, but that's a chunk of what's going to get us down at 60 million. But the biggest chunk that's going to get us more healthy inventory is watching that data supply and just getting more efficient in terms of managing our data supply across the board with all of our current lines.
Speaker Change: Yes, I don't have any specific comments to share around the brands.
Speaker Change: Categories that we exited as a reminder, we we.
Speaker Change: We exited a number of niche brands we exited.
Speaker Change: Most of the marine products that were in with obviously standing pwc's.
Speaker Change: A couple of small bolt brands, but.
Speaker Change: That's a chunk of what's going to get us down $60 million, but the biggest chunk that's going to get us.
Speaker Change: More healthy inventory is watching that day supply and just getting getting more efficient in terms of managing our day supply across the board with all of our current lines.
Speaker Change: Understood. Thank you.
Michael W. Kennedy: I understand. Thank you. There are no further questions at this time, ladies and gentlemen.
Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation, and you may now disconnect.
Speaker Change: There are no further questions at this time.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you very much for your participation and you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.