Q2 2024 RumbleOn Inc Earnings Call
Operator: Greetings and welcome to RumbleON Incorporated's second 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 Zelewski, Vice President, Finance, and Treasurer. Thank you.
Greetings and welcome to Rumble on incorporated second quarter 2024 earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode.
Tom's, Alaska: 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's, Alaska, Vice President Finance and Treasurer.
Speaker Change: Please go ahead.
Tom's Alaska: Thank you operator, good morning, everyone and thank you for joining US on this conference call can discuss <unk> second quarter 2024 financial results. Joining me on the call today are Mike Kennedy from belongs Chief Executive Officer, and Tiffany Christ from Milan, Chief Financial Officer, Our Q2 results are detailed.
Unknown Executive: Our Q2 results are detailed in the press release we issued earlier this morning. 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 as required by law.
Tom's Alaska: In the press release, we issued earlier this morning.
Tom's Alaska: Supplemental information will be available in our second quarter Form 10-Q, one style.
Tom's Alaska: Before I start I would like to remind you that the following discussion contains forward looking statements, including but not limited to from a large 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.
Tom's Alaska: Statements can be found in Rumble lines periodic and other SEC filings.
Tom's Alaska: The forward looking statements and risks in this conference call, including responses to your questions are based on current expectations as of today and Rumble on assumes no obligation to update or revise them.
Speaker Change: Whether as a result of new developments or otherwise, except as required by law.
Tom's Alaska: 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, Our CEO Mike.
Mike Kennedy: Thank you Tom and good morning, everyone.
Speaker Change: Thank you for your interest in Rome, Milan and for joining us on the call. This morning.
Speaker Change: Joining me on today's call is Tiffany case, our new Chief Financial Officer appointed in June.
Speaker Change: He brings over 25 years of experience and financial leadership roles for public and private companies or experience with growth focused multi location retail businesses makes her a perfect fit for <unk> as we continue to transform our business and drive our performance to our vision 2026 goals.
Tiffany case: Tiffany is already finding ways to positively impact the business and to better align our reporting industry standards and you'll hear about those elements shortly.
Unknown Executive: Her experience with growth-focused, multi-location retail businesses makes her a perfect fit for RumbleON as we continue to transform our business and drive our performance to our Vision 2020 SIX goals. And also on the call, you heard from Tom earlier, and also joining us is Elliot Wagner, our Vice President of Finance.
Speaker Change: But also on the call you heard photon earlier and also joining US is Elliott Wagner Vice President of finance.
Unknown Executive: Our second quarter performance reflects the strength of our PowerSports dealership group as we continue to progress on our turnaround. As an example, you've heard me mention our building of a composite culture and continuous improvement mindset to run the best performing viewerships in America, supported by an aligned and efficient corporate office. Towards the end of the second quarter, we continue to make improvements in optimizing our cost structure. We've made the decision to streamline our workforce as we accelerate our actions to drive towards our Vision 2026 goals. These actions resulted in a reduction in force of approximately 10%, as well as some corporate and marketing reductions.
Speaker Change: Our second quarter performance reflects the strength of our power sports viewership group as we continue to progress on our turnaround.
Speaker Change: It is a challenging time for the power sports industry as we navigate a high interest rate environment, a cautious consumer and inflated new major unit inventories despite.
Speaker Change: Despite these challenges I'm proud of the way our team has responded and we continue to focus on our goal to run the best power Sports dealerships in America.
Speaker Change: The team's effort delivered positive free cash flow during the first six months of 2024, and we expect to continue to deliver positive free cash flow in the back half of 2024.
Speaker Change: We remain laser focused on achieving our vision 2026 goals, which we outlined in March of this year.
Speaker Change: When I joined the company in November I was excited about the opportunity I saw in the business. My excitement has grown as we gained traction in each of the three pillars of our vision 2026 strategy and align our team.
Speaker Change: As an example, you've heard me mentioned our building of a composite culture and continuous improvement mindset to run the best performing dealerships in America supported by an aligned and efficient corporate office.
Speaker Change: Towards the end of second quarter, we continue to make improvements and optimizing our cost structure. We've made the decision to streamline our workforce as we accelerate our actions to drive towards our vision 2026 goals.
Speaker Change: These actions resulted in a reduction in force of approximately 10% as well as some corporate and marketing reductions, we expect to generate $15 million in savings in the back half of 2024 and $30 million annualized going forward as a result of driving our strategy and aligning our team this vision.
Unknown Executive: We expect to generate $15 million in savings in the back half of 2024 and $30 million annually going forward as a result of driving our strategy and aligning our team with Vision 2026. As we continue to focus on growth and value creation, I wanted to provide an update on our previously announced intention to open our first pre-owned center this year. I'm excited to announce that right now, Powersports of Houston is now open and fully operational after some early setbacks from Hurricane Beryl.
Speaker Change: 2026.
Speaker Change: Continuing on with our focus on growth and value creation I wanted to provide an update on our previously announced intention to open our first pre owned centers this year.
Speaker Change: I am excited to announce that right now power sports of Houston is now open and fully operational after some early setbacks from hurricane barrel.
Unknown Executive: Houston is a great new power sports market for us, and the team is excited about the momentum this new store opening builds. We are poised to continue growth via acquisitions and greenfield opportunities as they arise. And with that, I'd like to turn the call over to Tiffany to walk us through this quarter's financial performance and talk about some of the financial reporting changes we're implementing to better align with industry standards.
Speaker Change: Houston is a great new power sports market for us and the team is excited about the momentum. This new store opening builds we are poised for continued growth via acquisitions and greenfield opportunities as they arise.
Speaker Change: As a reminder, this Houston project is a pilot and we are focused on analyzing its operating results and our ability to scale this new model across more markets.
We're also very close on the previously mentioned first acquisition since my arrival at the company.
Speaker Change: We remained focus on our acquisition pipeline activity and we are encouraged by the number of opportunities.
Speaker Change: We will be selective and only deploy capital where it makes financial sense and builds per share value.
Speaker Change: And with that I'd like to turn the call over to Tiffany to walk us through this quarter's financial performance and talk about some of the financial reporting changes, we are implementing to better align to industry standards.
Thank you, Mike and I am thrilled to join the <unk> team and I'm fully aligned with the company's goals and objectives.
Tiffany: I spent the last few weeks internally assessing the business and we wanted to highlight a few key reporting changes we have made regarding adjusted SG&A adjusted EBITDA.
Tiffany: Going forward, we define adjusted SG&A SG&A adjusted charges and expenses that are not considered part of our core business operations.
Tiffany: Clearly an indicator of our run rate SG&A.
Unknown Executive: These adjustments are similar to those we make to Adjusted EBITDA. We plan to use Adjusted SG&A as one of our measures to evaluate our progress towards our Vision 2026 goal. We have also revised our non-vehicle net debt calculation to exclude restricted cash, which primarily relates to four plant facilities.
Tiffany: These adjustments are similar to those we make to adjusted EBITDA.
Tiffany: To use adjusted SG&A was one of our measures to evaluate our progress towards our vision 2026.
Tiffany: We have also revised our non vehicle net debt calculation to exclude restricted cash, which primarily relates to four plants and facilities.
Tiffany: Additionally, beginning with this quarter and to align with dealership industry practice adjusted EBITDA is reduced by floor plan interest expense.
Tiffany: Our industry typically treats interest expense some floor plan debt as an operating expense.
Tiffany: <unk> the floor plan debt from the balance sheet leverage calculation as floor plan debt as an integral to our operations and collateralized by our power sports vehicles.
Tiffany: We have included a supplemental schedule in our earnings release to retroactively recalculate prior period.
Tiffany: Now that we've outlined our reporting changes I would like to provide detail on our second quarter results.
Tiffany: We generated revenue of $336 8 million and adjusted EBITDA of $16 2 million in the second quarter 2024 revenue was down 12% year over year and adjusted EBITDA was down 19, 8% year over year.
Tiffany: Total company adjusted SG&A expenses totaled $70.8 million, or 78.7% of gross profit compared to the same quarter last year of $87.8 million, or 82.5% of gross profit. As a reminder, we are targeting adjusted SG&A to be 75% of gross profit within our Vision 2026 timeframe. Total new PowerSports major unit sales were approximately 12,000, down 8.5% to the same quarter last year, while pre-owned unit sales totaled approximately 4,800, down 21.9%. We are pleased to report pre-owned gross margins of 17% for the quarter, compared to 14.5% for the same quarter last year.
Tiffany: Total company adjusted SG&A expenses totaled $70 8 million or 78, 7% of gross profit compared to the same quarter last year of $87 8 million or 82, 5% of gross profit.
Tiffany: As a reminder, we are targeting adjusted SG&A to be 75% of gross profit within our vision 2026 timeframe.
Tiffany: Adjusted SG&A expenses were $19, 4% lower than the same quarter last year.
Speaker Change: Starting with the power sports dealership group the team retail 16800 total power sports major units during the quarter, which is down 12, 8% from the same quarter last year.
Speaker Change: Total new power sports major unit sales were approximately 12000 down eight 5% for the same quarter last year, while pre owned unit sales totaled approximately 4800 down 21, 9%.
Speaker Change: As previously shared on our last call on a day supply basis, our new inventory levels are heavy in our pre owned inventory continues to be like our team is working closely with our OEM partners to align new inventory levels to current market reality.
Speaker Change: Made progress over the last 90 days and expect to see a significant reduction in our inventories in the back half of the year.
Speaker Change: Gross margins for major unit sales continued to be challenged on new and continued to improve on pre owned in the second quarter and we expect this trend to remain throughout 2024.
Speaker Change: New unit gross margins for the quarter were 12, 2% compared to 15, 4% in the same quarter last year driven by Overstocking in the industry compounded by our decision to exit noncore product line and oversaw the brands not aligned with vision 2020.
Speaker Change: We are pleased to report pre owned gross margins of 17% for the quarter compared to 14, 5% of the same quarter last year, we continue to leverage right now a cash offer to improve the pre owned business.
Tiffany: We continue to leverage Ridenow's cash offer to improve the pre-owned bid. Our parts, services, and accessories for fixed operations business delivered $56.9 million of revenue and $26.2 million of gross profit for GPU of $1,560, down $19.00 or 1.2%. We believe this decrease is also attributable to a couple of elements, including the macro environment and our reduction in pre-owned unit volume, impacting the amount of service department labor used to prepare those units for sale.
Speaker Change: Our parts services and accessories, our fixed operations business delivered $56 $9 million of revenue and.
Speaker Change: And $26 2 million of gross profit for GPU 1560 down $19, a one 2%.
Speaker Change: The decrease comes primarily from accessories and services.
Speaker Change: We believe this decrease is also attributable to a couple of elements, including the macro environment and a reduction in pre owned unit volume impacting the amount of service Department labor used to prepare those units for sale.
Speaker Change: Our financing and insurance team delivered impressive results with $29 7 million in revenue. Our GPU was 1768 up two 7% year over year, despite elevated consumer interest rates in a challenged macro environment.
Tiffany: We believe this trend will continue based on our team's strength in this area, our internal processes and capabilities, as well as a strong set of OEM-supported finance options. Total GPU for the group was $5,168, down $182, or 3.4%, to the same quarter last year and in line with our expectations as we continue to manage the industry headwinds of inflated inventories and high interest rates. Turning now to our AssetLight Vehicle Transportation Services Operating Group. For the second quarter, wholesale express revenue was up 5.6%, while gross profit dropped nearly 8.8% to $3.1 million, driven by industry pricing pressures.
We believe this trend will continue based on our team's strength in this area, our internal processes and capabilities as well a strong set of OEM supported by property.
Speaker Change: So all in revenue from our power Sports dealership group was $321 6 million down 12, 7% in the same quarter last year.
Speaker Change: The decrease in revenue is attributed to lower major unit volume decrease in volume coming from our fixed operations and essentially a flat ASP.
Speaker Change: Total GPU for the group was 5168 down $182 or three 4% the same quarter last year and in line with our expectation as we continue to manage the industry headwinds of inflated inventories and high interest rates.
Speaker Change: Turning now to our asset light vehicle transportation services operating group.
Speaker Change: For the second quarter wholesale express revenue was up five 6%, while gross profit dropped nearly eight 8% to $3 1 million driven by industry pricing pressures.
Speaker Change: Lastly, turning to our balance sheet, we ended the quarter with $71 1 million and total cash and restricted cash and non vehicle debt was $209 1 million.
Tiffany: Availability under our short-term evolving 4-point credit facilities totaled approximately $143.1 million as of June 30. Total Available Liquidity, defined as unrestricted cash plus availability under four prime credit facilities on June 30th, totaled $201.2 million. I'm also happy to report that we've signed a credit agreement amendment with our existing term loan lenders, which relaxes certain covenants for this quarter through the remainder of the year, providing further flexibility within our capital structure. Agreement with our lenders provides relief for certain financial leverage covenants from June 30th until December 31st.
Speaker Change: Availability under our short term evolving for clean credit facilities totaled approximately $143 1 million as of June 30.
Speaker Change: Total available liquidity defined as unrestricted cash plus availability under our corporate credit facility on June 30 totaled $201 2 million.
Speaker Change: Cash flow provided by operating activities was $29 2 million for the six months ended June 30th.
Speaker Change: I'm also happy to report that we signed a credit agreement amendment with our existing term loan lenders, which relaxes certain covenants for this quarter through the remainder of the year, providing further flexibility within our capital structure.
Speaker Change: This agreement with our lenders provides relief for certain financial leverage Covenant from June 30th until December 31.
Tiffany: As part of the agreement, our minimum unrestricted cash covenant has increased from $25 million to $30 million. With that, we'd like to begin the question and answer session. I'll turn the call back over to the operator now to open it.
Speaker Change: As part of the agreement are minimum unrestricted cash covenant has increased from $25 million to $30 million.
Speaker Change: As of June 30, we had unrestricted cash available of approximately $58 1 million.
Speaker Change: With that we'd like to begin the question and answer session I will turn the call back over to the operator now to open the lines.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Could you have a question. Please press star followed by the number one on your Touchtone phone.
Speaker Change: You'll hear a prompt that your hand has been in place should you wish a decline from the polling process. Please press star followed by the number too.
Speaker Change: If you are using a speaker phone. Please leave the handset before pressing any keys one moment. Please for your first question.
Operator: And your first question comes from the line of Mike Baker of D.A. Davidson. Please go ahead. Your line is open.
Speaker Change: And your first question comes from the line of Mike Baker of D. A Davidson. Please go ahead. Your line is open.
Mike Baker: Excuse me. Okay. Thank you.
Mike Baker: Excuse me Okay. Thank you two questions one just in terms of the overall environment.
Mike Baker: Two questions. One, just in terms of the overall environment, you know, sales down and decelerated, it just feels like macro-wise things are getting a little bit worse and even worse through the quarter. I guess, could you comment on that and how these top-line results are relative to your internal expectations? And then my second question, on the inventory, as you said, still heavy and new as you talked about last quarter, but just wondering, you know, how much progress are you making on that?
Mike Baker: Sales down and decelerated it just feels like macro wise things are getting a little bit worse, and even worse through the quarter I guess could you comment on that.
Speaker Change: And how would these topline results relative to your internal expectations and then my second question on the inventory as you said still heavy in new.
Speaker Change: As you talked about last quarter, but just wondering how much progress are you making on that how much.
Mike Baker: How much, you know, how heavy you are versus last quarter? And I guess you said you expected to have that resolved by year-end, but if you could just sort of give us some order of magnitude of where you are in that process, thank you.
Speaker Change: How heavy are you versus last quarter and I guess, you said you expect to have that resolved by year end, but if you could just sort of give us some order of magnitude of where you are in that process. Thank you.
Michael Kennedy: You bet. Thanks, Mike. This is Mike Kennedy.
Speaker Change: You bet. Thanks, Mike This is Mike Kennedy.
Michael Kennedy: You asked a couple of different questions there. First, on volume and macro issues. I think from a volume perspective, we're experiencing pretty much what we expected. Our new volume is down. When we started the year, we said, hey, it's a tough macro environment. We weren't expecting much help from interest rates. We haven't seen that.
Speaker Change: A couple of you asked a couple of different questions. There first I think on the on the volume and the macro.
Speaker Change: Issues I think from a <unk>.
Speaker Change: From a volume perspective, we're experiencing pretty much what we expected our new volume is down and when we started the year, we said hey.
Speaker Change: It's a tough macro environment, we werent expecting much help from.
Speaker Change: Interest rates, we haven't seen that we know customers are coming out of Covid times.
Michael Kennedy: We know customers are coming off of COVID times, and industry inventories are inflated, and I think OEMs have been a little bit delayed in reacting to that, which probably leads me to the second part of the question, which is the gross margin. And that's probably a bit of a surprise for us, that our new gross margins are more challenged throughout the year than we had expected. And so we're dealing with that within our operations.
Speaker Change: And industry.
Speaker Change: Inventories are slated I think Oems have been a little bit delayed and reacting to that which which probably leads me to the second part of the question, which is the gross margin performance and Thats, probably a bit of a surprise for us.
Speaker Change: Our new gross margins are more challenged throughout.
Speaker Change: Throughout the year than we had expected.
Speaker Change: And so we're dealing with that within our operations.
Speaker Change: The second piece of your question was around inventory I think.
Speaker Change: And how we're doing in terms of that.
Speaker Change: I would say that we're probably a little bit behind my expectations of where I would like to be at this point. However, we are making at the same time, we're making really really good headway in terms of.
Speaker Change: Keeping our inventory.
Speaker Change: In line with day supply you heard me mentioned in previous calls that that's our goal is to get our inventories healthy relative to a day's supply perspective.
Speaker Change: And as you might imagine some stores in some Oems, we're making great progress and we're really in great shape.
Speaker Change: Other stores and other Oems not so much and we're working through that and maybe one piece of color around that the pwc market has been more challenged this year than we expected.
Michael Kennedy: Other stores and other OEMs, not so much, and we're working through that. You know, maybe one piece of color around that: the PWC market's been more challenged this year than we expected relative to the other categories we perform in, like UTVs, on-road motorcycles, off-road motorcycles, and whatnot. And so, you know, we're dealing with that, but we feel good and confident still in terms of delivering on our target for this year to reduce new inventories by $60 million by the end of the year.
Speaker Change: Relative to the other categories, we performed in like Utv's on road motorcycles off our motorcycles and whatnot.
Speaker Change: So we're dealing with that but we feel good.
Speaker Change: And confidence still in terms of delivering our our target for this year to reduce new inventories by $60 million by the end of the year.
Speaker Change: Yeah.
unknown: Okay, two follow-ups, if I could. PwC, that's a pretty small part of your business, right? If you could remind us what percent that is, And then one other, just clarification, the cost savings program, it's an annualized number of $30 million. Is that right? It's not $15 million this year and then another $30 million next year; it's annualized at $30 million. Is that the right interpretation? That's correct. Okay, great. And PwC as a percent of sales? I don't think so...
Speaker Change: Okay, just two follow ups, if I could.
unknown: Thank you.
Pwc, that's a pretty small part of your business right. If you could remind us.
Speaker Change: What percent that is and then one other just just clarification.
Speaker Change: Cost savings program.
Speaker Change: It's an annualized number of $30 million is that right its not $15 million. This year and then another 30 million next year annualized at about $30 million is that the right interpretation.
Speaker Change: That's correct.
Speaker Change: Okay, great Pwc as a percent of sales.
Speaker Change: I don't think we've shared in the past category specific stuff in terms of volte.
Speaker Change: Volume, but you're you're Directionally correct Pwc is not one of our top categories that we sell but it's but it's still it's still a meaningful piece of our business.
Speaker Change: Understood.
Speaker Change: Thank you.
Thank you.
Speaker Change: Your next question comes from Eric Wold of B Riley Securities. Please go ahead. Your line is open.
Eric Wold: Thank you good morning.
Eric Wold: Couple of questions and it really kind of follow ups too.
Eric Wold: Prior questions I guess I guess, one on the expense reduction plan.
Michael Kennedy: Correct me if I'm wrong, but the $15 million slash $30 million that you talked about today is incremental to anything else that you talked about before. And if that's the case, can you kind of give the total amount that you've taken out or I guess have planned to take out this year on a kind of a run rate basis starting next year?
Speaker Change: That's correct me if I'm wrong.
Speaker Change: <unk> million dollars in flash 30 million that you've talked with you that's incremental to what you would be.
Speaker Change: Incremental to anything else that you talked about before and if that's the case could you kind of give the total amount of debt.
Speaker Change: You've taken out.
Speaker Change: Or I guess plan to take out this year on a kind of a run rate basis, starting next year.
Speaker Change: Okay.
Speaker Change: Eric This is Mike again, let me.
Michael Kennedy: Let me first address the first piece of your question, which is easy to address. We made a number of moves aligned with our strategy of running the best stores in America. And, you know, what I'm most proud of is the way the team is embracing the strategy and aligning around it. And I think the strategy is giving the team clarity around what we really need to focus on and what we can let go of.
Eric Wold: Let me let me first address the first piece of your question, which is easy to address so.
Speaker Change: We made a number of moves align with our strategy.
Speaker Change: Around running the best stores in America.
Speaker Change: And what I'm most proud of is the way the team is embracing the strategy and aligning around it and I think the strategy is giving the team clarity around what we really need to focus on and what we can let go of.
Michael Kennedy: I think the other piece of that in optimizing our cost structure is we're starting to really learn how to leverage our scale. Whether that's marketing tools or lead and contact management platforms, you know, aligning better with our OEMs in terms of driving demand, whatever you want to talk about. Also, developing standards within our stores and just creating efficiencies in terms of managing those standards as opposed to doing things 50 different ways.
Speaker Change: I think the other piece of that in.
Speaker Change: Optimizing our cost structure is we're starting to really learn how to leverage our scale.
Speaker Change: Whether thats in marketing tools.
Speaker Change: We even contact management platforms.
Speaker Change: Aligning better with our Oems in terms of driving demand.
Speaker Change: Whatever you want to talk about also developing standards within our stores.
Speaker Change: Creating efficiencies in terms of managing those standards as opposed to doing things 50 different ways.
All of that has given us a confident view that we took.
Speaker Change: We had a $15 million of costs out of the back half of this year to confirm what you asked for and then that annualized to $30 million, how that relates to the other.
Speaker Change: Cost cuts we've done.
Michael Kennedy: This is incremental, so I wanted to make sure that was a piece of your question, and this is definitely incremental and new optimization work that we've delivered. So, does that answer your question? If it does, I guess combining that would be
Speaker Change: This is incremental so I'm wondering if that was a piece of your question and this is definitely incremental and new.
Speaker Change: Optimization work that we've delivered.
Speaker Change: So does that answer your question.
Michael Kennedy: It does. I guess combining that new 30 million run rate, I guess starting next year. Since you've come on board, as you kind of started this conversation, what is the total... annualized run rate costs he's taken out, including the new 30.
Speaker Change: It does I guess, combining that new $30 million run rate starting next year.
Speaker Change: Since you've come on board.
Speaker Change: I started this question actually what is the total.
Speaker Change: Annualized run rate cost, you've taken out including the new 30.
Speaker Change: Great question and I don't have any answer for you.
Speaker Change: It's something we'd have to follow up with you I forgot sorry, yes.
Speaker Change: Yes, we'd have to do some math on that.
Michael Kennedy: I think it's a difficult question to answer with great clarity because I walked in in November, and there were already some discontinued operations that were moving, there was some cost cutting that was going on, I know there were some numbers, there were some targets that I walked into midstream then, and then we kind of went to work through my eyes. Listen, I feel really good about our ability to optimize the cost structure, and I feel really good about how the team is embracing the strategy. And again, I think the strategy is giving us clarity on what we need to focus on and what we can let go of and expect good returns going forward.
Speaker Change: Okay.
Speaker Change: Walked in I think it's I think it's a difficult question to answer with great clarity because I walked in November and there were already some discontinued.
Speaker Change: Operations that were moving there were some cost cutting that was going on I know there were some numbers that there were some targets that I walked into midstream then.
Speaker Change: And then and then we kind of went to work through my eyes. So.
Speaker Change: Listen I feel really good about.
Speaker Change: Our ability to optimize the cost structure and I feel really good about how the team is embracing the strategy and again I think the strategy has given us clarity around what we need to focus on and what we can let go of and in Blue.
Speaker Change: Blip good returns going forward.
unknown: Okay, no, that's fair. I appreciate that.
Speaker Change: Okay, that's fair.
Speaker Change: Great I appreciate that and then.
Speaker Change: Hey, going back to the Columbus around that new vehicle inventory remaining too heavy.
Speaker Change: Oems are reacting late but you expect kind of to get more success on that our progress on that in the back half of the year has had the higher new vehicle inventory.
unknown: And then, kind of going back to the comments around the new vehicle inventory remaining too heavy, OEM is kind of reacting late, but you expect to see more success on that or progress on that in the back half of the year. Has the higher new vehicle inventory pressured or impacted your ability to bring in more used vehicles right now, you know, just because you don't want to have an overall inventory too high, you know, cash flow, etc. ?
Speaker Change: Is that.
Speaker Change: <unk> impacted your ability to bring in more used vehicles right now just because you don't want to have overall inventory too high cash flow sorry that pressured your ability to bring into used vehicles that might be more attractive to the customer base and then as you think to.
unknown: Has that pressured your ability to bring in used vehicles that might be more attractive to your customer base? And then, as you think about wanting to reduce that new vehicle inventory in the back half of the year, how much of that is going to be? incremental help from the OEMs versus
Speaker Change: You want a reduction reduced our new vehicle inventory in the back half of the year.
Speaker Change: That is going to be.
Speaker Change: Incremental help from the Oems versus <unk>.
Speaker Change: Born on your margins.
Speaker Change: In the back half to get that to get that done.
Okay.
Speaker Change: Okay. So a couple of different questions in there.
Speaker Change: So first off we are we are making some good headway and again, we're a little bit behind my expectations around our initiatives to reduce our new inventory.
Speaker Change: We are getting great help from all the Oems and you know when we talk to the Oems I think I mentioned this previously we sit down with them, we've talked with them multiple times on this issue and principally were entirely aligned the.
Speaker Change: The Oems don't want us to have.
Speaker Change: I don't know a healthy balance of inventory at retail and certainly we don't and we can't afford to carry it.
Speaker Change: I just think some manufacturers can respond at different speeds than others and so we're working through that you can see in our gross margin we're paying the price right Oems are paying the price that <unk> all talked about all the domestics, we've talked about the increase in promotional activity that's caution than you.
Tiffany: You can see our gross margins are compressed on new Tiffany mentioned that Thats, obviously costs in our business a lot I think if there is.
Michael Kennedy: You know, a silver lining in this whole thing, and the customer wins. I think the rider wins in this environment because there are really attractive finance rates, and there's attractive pricing in the marketplace.
Tiffany: A silver lining this whole thing into customer wins, I think the rider wins in this environment because there is really attractive.
Tiffany: Finance rates as attractive pricing in the marketplace.
Tiffany: I do think that that impacts.
Tiffany: Impacts the pre owned business in a couple of different ways.
Michael Kennedy: Not so much on our buy side, but I think in the showroom, when a customer walks in, and they can see what they can get a new vehicle for, and maybe that customer was previously thinking they would buy a pre-owned unit, and now they have an incredibly attractive finance rate, or, you know, the pricing is really aggressive, and that might influence them to buy a new unit versus a pre-owned unit. And I think we're experiencing some of that in our stores.
Tiffany: Not so much on our buy side, but I think in the showroom when a customer walks in and they can see what they can get a new vehicle for and maybe that customer was previously thinking they would buy a pre owned unit and now they have an incredibly attractive finance rate or the pricing is really aggressive and that might influence them into a new unit versus <unk>.
Tiffany: And I think we're experiencing some of that in our stores.
Michael Kennedy: But not so much on the acquisition piece. So I think overall, I feel confident that we're going to get our new inventory in line by the end of the year, probably during that same time frame. If we're successful, we'll bring our pre-owned inventory up in anticipation for the 25th.
Tiffany: But not so much on the acquisition piece. So I think overall I feel confident that we're going to get our new inventory in line by the end of the year probably during that same timeframe. If we're successful we'll bring our pre owned inventory up in anticipation for the 25 season.
Speaker Change: Got it and then last question for me.
Speaker Change: Youre still confident they're reaching the 2026 achieved plan announced.
Speaker Change: Earlier this year it seems that.
Speaker Change: The starting baseline of this year.
Speaker Change: Is weaker on a number of fronts whether its units.
Speaker Change: Or margin I know, you've taken more costs out on annualized basis, so that helps.
Speaker Change: Okay.
unknown: The starting baseline for this year is talking to confidence is still reaching that 206 plan that, you know, given probably was going to be a lower baseline this year.
Speaker Change: I'm talking the confidence is still reaching that Twilio has explained given probably going to be a lower base I misheard that assume kind of.
Speaker Change: The.
Speaker Change: Snapped back to meaningfully more normalized trends next year are kind of.
Speaker Change: Understand that.
Speaker Change: The confidence is kind of what gets us there.
Michael Kennedy: Yeah, no, I appreciate that question. It's a great question.
Speaker Change: Yes, no I appreciate that question, it's a great question and listen I'm not I'm not an economic forecast grew at all.
Michael Kennedy: And listen, I'm not, you know, I'm not an economic forecast guru at all. I've just spent 30 plus years in the power sports industry. And I know that we go through cycles and, you know, we get great OEM partners who are working hard at bringing innovation and new product plans and evolutions to product categories that, you know, BRP and Polaris and Harley and so on and so forth. So we know we're going to get some help in that regard. We know we're going to get through the economic challenges that we're in today. You know, it's an election year.
Speaker Change: <unk> spent 30 plus years in the power sports industry and I know that we go through cycles.
Speaker Change: We've got great OEM partners, who are working hard at bringing innovation and new product plans.
Speaker Change: Evolution of the product categories that ERP employers and Harley and so on and so forth. So we know we're going to get some help in that regard we know we're going to get through the economic challenges that were in today.
Speaker Change: <unk> year. So we knew this year was going to be a challenge and dynamic and we're seeing that.
Michael Kennedy: So we knew this year was going to be, you know, a challenge and dynamic. And we're seeing that. You know, we saw that in Q1 month to month, we saw that in Q2 month to month. And so it's probably going to play out like that through the rest of the year.
Speaker Change: We saw that in Q1 month to month, we saw that in Q2 month to month and so it's probably going to play like that through the rest of the year, but when I think about this business and I think about the opportunities we have to continue to optimize the cost structure.
Michael Kennedy: But when I think about this business, and I think about the opportunities we have to continue to optimize the cost structure, and continue to get the team excited about running the best dealerships in the country, the pre-owned opportunity is really exciting. I'm happy to announce that we opened up Houston here just recently. And we have got to get through some startup issues, mostly related to the storm down there. But that's really exciting. We're going to watch that.
Speaker Change: To get the team excited about running the best dealerships in the country are pre owned opportunity is really exciting happy to announce that we opened up Houston here, just recently and we got to get.
Speaker Change: Through some startup issues, mostly relative to the storm down there, but that's really exciting we're going to watch that that's that's a scalable opportunity on the horizon for us.
Speaker Change: And I still think acquisitions are going to certainly going to play a big piece of the future for this company.
Michael Kennedy: That's a scalable opportunity on the horizon for us, and I still think acquisitions are going to play a big piece of the future for this company. So I, you know, all in all, I'm very excited about it. The team's excitement is building. We're building a team out here with Tiffany Ambrore, and so my optimism just grows.
Speaker Change: So all in all.
Speaker Change: Very excited about it the teams.
Speaker Change: Statement is building well.
Speaker Change: We're building the team out here with Tiffany onboard and so my optimism just grows.
Speaker Change: Yeah.
Speaker Change: Good morning.
Speaker Change: Got it thank you guys.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Craig Kennison of Baird. Please go ahead. Your line is open.
unknown: Hey, good morning. And thank you for taking my questions. Mike, you were talking about Houston. And just a moment ago, I was curious what the startup cost was.
Craig Kennison: Hey, good morning, and thank you for taking my questions. Mike you were talking about Houston.
Craig Kennison: Just a moment ago I'm curious what the startup costs are for a project like that and how you finance the inventory whether that's something you can use floorplan financing for as well.
Speaker Change: Yes. So thanks, Craig appreciate the question.
Speaker Change: So.
Speaker Change: The cost for the Houston project is pretty minimal in terms of the capital outlay. It really is we were we were lucky to find a facility that met our needs keep in mind. This is a pilot rates. So we want to we want to try and.
Be smart about the investment be smart about.
Speaker Change: The commitment that we are signing up for in terms of property, but we were able to find something that we liked and fit all the criteria we were looking for.
Speaker Change: In terms of the inventory, we are bringing that inventory through normal channels, and we can floorplan that inventory in.
Speaker Change: Whether we're acquiring that through <unk>.
Speaker Change: Cash offer or trading transferred in from other stores.
Speaker Change: We can floorplan net inventory and Thats what were doing right. Now we also have a nice accessory lineup in that store.
Speaker Change: With the partner and so we're excited about all with all of that brings.
unknown: How quickly can it generate cash flow to be used to pay off debt?
Speaker Change: How quickly can it generate cash flow to be used to pay off debt for example.
Speaker Change: That particular story Youre question is around.
unknown: Yeah, or any use of cash like this. I think there are investors who find the vision you have promising but the level of debt this organization has.
Speaker Change: Yes.
Speaker Change: Any use of cash like look I think there are investors who fine.
Speaker Change: The vision you have promising but the level of that this organization has.
Speaker Change: As to be almost an investable and you've got a capital investment.
Speaker Change: Some kind in.
Speaker Change: And Houston, but if it generates cash quickly it's great. If it's a use of cash.
Speaker Change: Deviates from debt reduction I, just feel like it makes it makes it hard on those investors who are just unwilling to to look at this kind of leverage.
Craig Kennison: Yes, Craig.
Craig Kennison: I absolutely appreciate that question.
Speaker Change: <unk> added.
Craig Kennison: The added aspect around it.
Craig Kennison: The the.
Craig Kennison: The cash.
Michael Kennedy: The return on that particular project is pretty good. I'm not going to share specifics about it, but it's pretty good.
Craig Kennison: Return on that particular project is is pretty good and we're not going to share specifics around it but it's pretty good and I want to make sure I also address the other piece of your question, which is our debt level and.
Michael Kennedy: And I want to make sure I also address the other piece of your question, which is our debt level and give investors confidence around it. So our expectation is that we pay off our convertible bonds in early 25 with the cash on our balance sheet that we're going to generate throughout this year. As you saw in the release, or you will see in the release, we were cash positive in the front part of the year, and we expect to be cash positive in the back part of the year.
Craig Kennison: And give investors confidence John it's our our expectation is that we.
John: We pay off our converts and early 25 with the cash on our balance sheet that we're going to generate throughout this year as you saw in the release what Youll see in our release, we are cash positive.
John: In the front part of the year and we expect to be cash positive in the back part of the year.
Michael Kennedy: And we fully expect to grow into a leverage that makes everybody more comfortable. We're comfortable where we are today. We're comfortable with the debt we have today. And we think there's a huge opportunity to grow the top line, but more importantly, grow the bottom line and generate more free cash flow as we go forward.
John: And we fully expect to grow into.
John: Our leverage that makes everybody more comfortable we're comfortable where we are today, we're comfortable with the debt. We have today and we think there's huge opportunity to grow the top line, but more importantly grow the bottom line and generate more free cash flow as we go forward.
John: And the same.
John: This pilot could be.
unknown: Thanks, Mike. And I guess the other side of that is, you know, we could be in front of a reduction in interest rates. We all know. Just curious, either you or Tiffany, how you see a meaningful cut in rates flowing through your business.
Michael Kennedy: Interest Cash Expense and stuff like that. I think, you know, I think an interest rate cut will help our showrooms, I think, pretty immediately. While an interest rate, you know, if you do the math on our ASP and, you know, what a normal term is and what the rate is today, what interest rate will bring about a change in a payment, some people might say that's not overly significant, but I just think the atmosphere, our customers are pinched in other areas. And so I think any kind of interest rate relief will have a fairly immediate impact on our riders' mindset in terms of, you know, maybe trading or...
John: Asps.
Speaker Change: What a normal term is and what the rate is today when interest rate.
Speaker Change: Bringing to a change on a payment.
Speaker Change: People might say, that's not overly significant but I just think the atmosphere.
Speaker Change: Our customers are pinched in other areas and so I think and.
Speaker Change: Any kind of interest rate relief, we will have a fairly soon impact on our riders mindset in terms of.
Speaker Change: Maybe trading or.
Speaker Change: Buying a new unit or whatnot.
Speaker Change: I think interest rates are good for us in terms of what what customers are thinking about in our showroom I'll, let Tiffany kind of talk about how the deal.
Speaker Change: Other side of the business will get impacted yes, hi, Greg This Tiffany yes.
Tiffany: Our converts are fixed rates, so they won't be it won't be impacted plus to come and do very shortly.
Speaker Change: Term debt and our Floorplan debt that does have a variable rate to it.
Speaker Change: If you had about a 25 bps change it would be about a $1 million on an annualized basis of savings, but keep in mind that those impacts don't change immediately so there would be a little bit of a time lag as far as that affecting the P&L and the cash outflow.
Speaker Change: Alright.
unknown: Great. Hey, thank you.
Speaker Change: Great.
Speaker Change: Thank you.
Greg: Thanks, Greg.
Speaker Change: Thank you and your next question comes from Fred Wightman of Wolfe Research. Please go ahead. Your line is open.
Fred Wightman: Hey, guys. Good morning, I, just wanted to come back to the inventory levels didn't really move a ton sequentially from <unk> into <unk>, but if we look back last quarter, Mike you talked about.
Speaker Change: Some positive signs of improvement to start <unk>. So I'm wondering what changed if it was the retail softened. If it was that you saw an increase in shipments from Oems, what sort of drove that disconnect versus the prior commentary.
Speaker Change: Yes.
Michael Kennedy: Yeah, thanks. I don't know if it's a disconnect from what I said earlier. You know, I think Q2 typically absorbs a pretty heavy inflow of seasonal product, in particular watercraft. And so that's probably when I look at the inventory, kind of puts and takes. And that's why I feel comfortable with where we are today, although I'd like it to be lower. But I feel comfortable in terms of our ability to hit the target, which we previously mentioned, for the year.
Mike: Yes, Thanks, I don't know if it's a disconnect.
Speaker Change: From what I said earlier I think the Q2 typically absorbs a pretty heavy inflow of seasonal product in particular with watercraft.
Speaker Change: And so that's that's probably when I look at the inventory kind of puts and takes.
And Thats why I feel comfortable with where we are today, although I would like to be lower by feel comfortable in terms of our ability to hit the target, which which improved as you mentioned for the year.
Michael Kennedy: And so that's probably what you're seeing in the overall numbers. And, you know, also remember that in the inventory numbers, we don't we don't dissect pre-owned and new and P&A. And so it's just all one number. So, yeah, but you're right. At least lower would be better at this point in time. Less cost and less clutter in the showrooms. And that's the goal going
unknown: And if you think about just the elevated new inventories that you've talked about, I mean, it seems like that's pretty emblematic of what other dealers are experiencing, and so I'm wondering if you think that's a fair characterization, if you guys feel like you're better positioned in terms of either total inventory levels or current versus non-currents when you look at across the market at your peers, and maybe what that means for front-end GPUs on the new side going forward.
Speaker Change: So.
unknown: But that's clearly an industry issue, and that's why you're seeing that compression on the gross margin.
Speaker Change: But that's clearly an industry issue.
Speaker Change: And that's why you're seeing that compression on our gross margin.
unknown: Great, and then just lastly, was there any impact from the CDK outage in the quarter in your reported results, either from a CRM perspective or ability to close deals?
Speaker Change: Great and then just lastly was there any impact from.
Speaker Change: The CDK outage in the quarter in your reported results either from CRM perspective, or built it to close.
Speaker Change: Yes.
unknown: Yeah, great question. We did have some impact throughout the quarter because of the CDK. To be clear, our DMS, or dealer management system, is not connected to CDK, so it was not impacted. Thus, our impact was minimal compared to the auto industry. Our CRM platform, as well as a titling administrative platform in the state of Florida, were impacted. There were manual workarounds for both of those. There certainly was some impact, but we concluded it wasn't a meaningful impact.
Speaker Change: Yes, great question.
Speaker Change: We did have some impact throughout the quarter because of the CDK to be clear our Dms dealer management system is not connected to CDK. So it was not impacted and so our impacts were minimal compared to the auto industry, our CRM platform as well as titling administrative platform and state of flat floor.
Speaker Change #100: <unk> was impacted there were manual workarounds around both of those.
Speaker Change #100: There certainly was some impact that we have concluded it wasn't a meaningful impact on the quarter.
Speaker Change #101: Okay perfect. Thank you.
Speaker Change #101: Thank you.
Speaker Change #102: And your next question comes from Seth Basham of Wedbush Securities. Please go ahead. Your line is open.
Seth Basham: Thanks, a lot and good morning. My first question is just on the top line outlook given the weakened demand environment and the results. We've posted this quarter, how should we be thinking about top line trends for the balance of the year.
Seth Basham: Yes, Jeff This is Mike Kennedy.
Seth Basham: Made.
Speaker Change #104: Prior decision not to guide going forward.
Speaker Change #105: And so.
Speaker Change #106: Probably going to.
Speaker Change #106: Refrain from forecasting what we think the top line is going to be but.
Speaker Change #106: I think generally speaking.
Speaker Change #106: It might seem remarks from past.
Speaker Change #106: Challenging environment, we've got inflated inventories were getting closer to an election.
Speaker Change #106: And obviously the macro issues, so I think until any of those things pass or change.
Speaker Change #106: Probably going to experience the same what we experienced in the previous two quarters.
Kathy: Okay, and then a reminder, teasingly use related that Kathy.
Kathy: Weaker from a top line perspective in the first half and that's the appropriate way to think about it this year as well.
unknown: Yeah, I don't have the numbers in front of me, but
Yes.
Speaker Change #108: I don't have the.
Speaker Change #108: Excuse me on the numbers in front of me, but.
Speaker Change #108: I recall Q3 top line is still pretty strong.
Speaker Change #108: And then Q4, obviously drops off especially towards the back half of that.
Speaker Change #108: Yes.
Speaker Change #108: But it's I mean, it's a traditional kind of bell curve as you go through the year, So Q3's and important quarter for us.
Speaker Change #109: Got it okay. Thanks, and then my next question is around the change in gross margin year over year this quarter.
unknown: Okay, thanks. My next question is around the change in gross margin year over year. This quarter, you attributed the decline to a few different factors, overstocking, I presume, being the predominant one. But if you could help us understand the degree of magnitude from that relative to the exiting non-core product lines and brands, that would be helpful.
Speaker Change #110: Pivoted the decline to a few different factors overstocking I presume being the predominant one.
Speaker Change #111: You could help us understand the degree of magnitude from that relative to exiting noncore product lines in our brands.
Speaker Change #111: That would be helpful.
Speaker Change #113: Yes for sure the vast majority of the gross margin compression is from the inflated inventories.
Speaker Change #113: In the in the industry as well as US no question about it I think just an adder to that is the fact that it doesn't help when you exit a bunch of brands and a bunch of stores and the team is trying to clean up that inventory, but the vast majority of the gross new gross margin pressures coming from inflated inventories and we can see that when we study.
Speaker Change #113: The brands gross margin at the brand level gross margin in the category level again, when I say category I mean on road motorcycles off road Pwc ATV UTV.
Speaker Change #113: Yield product also expanded quite a bit in the marine.
Speaker Change #114: Sector and so we have.
Speaker Change #115: Most entirely exited the marine business other than Pwc, and some Yamaha jet boat product.
Speaker Change #115: So we were in the pontoon.
Speaker Change #115: Products, we were in the big <unk>.
Speaker Change #115: Saltwater boats and we've entered we exited pretty much all of that and then we've exited a number of brands that were kind of niche products and then on top of that we've also exited Seth we've exited some brands in stores I call them micro decisions, where it just didn't make sense in terms of the brand assortment in that store.
Speaker Change #116: Got it thank you so much.
Speaker Change #116: Thank you.
Speaker Change #117: Again, if you would like to ask a question. Please press star followed by the number one on your Dutch Stonestown.
Speaker Change #117: Okay.
Speaker Change #117: And there are no further questions at this time I'd now like to turn the call back over to Michael Kennedy CEO for closing comments.
Unknown Executive: Thank you very much for your time today and your continued interest in RumbleON. That concludes our call.
Speaker Change #117: [music].