RumbleOn, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. The filing identifies the registrant as RumbleOn, Inc. (Nasdaq: RMBL), a powersports dealership and vehicle-logistics company. The wholesale automotive business wind-down was completed by June 30, 2023 and is reported as discontinued operations. Dollar amounts below are in millions unless noted.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $382.7 | $412.2 | $717.1 | $746.7 |
| Gross profit | $106.4 | $133.1 | $196.7 | $234.8 |
| Operating income | $0.8 | $31.0 | $0.1 | $53.9 |
| Net income (loss) | $(13.6) | $14.0 | $(30.5) | $23.2 |
| Adjusted EBITDA (non-GAAP) | $23.6 | $43.6 | $34.4 | $75.2 |
Q2 gross margin was approximately 27.8%, down from 32.3%. Continuing-operations basic loss per share was $0.78 for Q2 and $1.81 for the first half. Adjusted EBITDA is a non-GAAP measure; the filing provides a reconciliation.
Q2 powersports revenue was $368.3 million, including $269.7 million of vehicle revenue. Total powersports units sold were 20,277, versus 20,713 a year earlier; gross profit per vehicle fell to $5,349 from $6,504. Vehicle logistics revenue was $14.4 million in Q2 and $29.3 million for the first half.
For the first half, continuing-operations cash flow was $(6.3) million from operations, $(10.4) million from investing, and $16.8 million from financing. Cash and restricted cash totaled $57.1 million at June 30, including $44.4 million unrestricted cash. Reported available borrowing under floorplan facilities was $45.3 million; the company described committed liquidity resources of $89.7 million.
At June 30, total debt principal was $648.4 million, or $621.4 million net of unamortized discounts and issuance costs; this excludes operating lease liabilities. Vehicle floorplan debt was $246.4 million. Operating lease liabilities were $162.9 million. Stockholders’ equity was $182.6 million.
Material changes versus the prior comparable period
- Q2 revenue declined 7.1%; gross profit fell about 20%, and operating income dropped to $0.8 million from $31.0 million. The first half moved from $23.2 million net income to a $30.5 million net loss.
- Management attributed weaker powersports results to lower used-vehicle sales and per-unit revenue, narrower new- and used-vehicle gross profit, a mix shift toward new units, and softer demand and pricing. Higher interest expense also weighed on results: $18.3 million in Q2 versus $12.8 million, and $35.9 million for the half versus $23.4 million.
- SG&A increased by $4.1 million in Q2 and $16.0 million for the half, including proxy-contest and board-reorganization costs, professional fees, severance and increased stock compensation. Logistics gross profit improved despite lower Q2 revenue.
- Cash from continuing operations declined from $29.0 million provided in the first half of 2022 to $6.3 million used in 2023. Investing outflows were substantially lower year over year, primarily because the prior-year period included the Freedom Powersports acquisition.
Outlook, liquidity, risks and unusual items
- Debt covenant amendment: The company was out of compliance with certain Oaktree leverage covenants at June 30. An August 9, 2023 amendment waived testing for the June and September 2023 quarters and relaxed later covenants through June 2024. It requires at least $100 million of net equity proceeds by December 1, 2023, efforts to sell certain non-core real estate and monetize consumer loans, and issuance of warrants to the lender. Certain proceeds must reduce Oaktree debt. Management said it expects to meet the amended covenants and obligations for at least 12 months; this depends on completing required actions.
- A standby purchase agreement provides binding commitments of up to $100 million from certain existing shareholders if the planned rights offering is not fully subscribed. Equity issuance may substantially dilute existing holders. Oaktree debt carried a 13.41% interest rate at June 30; an additional 0.50% interest accrues under the amendment through June 2024, payable in cash or in kind.
- The company planned to sell its consumer loan portfolio in the second half of 2023. It reported the portfolio at approximately $24.9 million, net of allowance, as held for sale, against an $18.0 million consumer-finance facility balance classified as current.
- Management identified annualized SG&A savings of approximately $42 million, with full effects expected in 2024. This is a target, not reported realized savings. No specific revenue or earnings guidance was provided.
- Disclosure controls were assessed as ineffective at June 30 because of an ongoing material weakness involving accounting resources and controls over intercompany eliminations, reconciliations, estimates and non-routine transactions. Management reported additional procedures to support the financial statements and is pursuing remediation.
- The filing describes an ongoing investigation into allegations concerning a former CEO’s use of company resources. The former CEO resigned and indicated intent to pursue legal claims; the company disputes his assertions, and the parties were proceeding to mediation. No lawsuit had been filed as of the filing date.
- A prior-period immaterial misstatement was corrected by reducing 2022 powersports revenue and cost of sales by equal amounts ($18.1 million for Q2 and $32.8 million for the first half), with no effect on gross profit or net income.
Important facts for investors to verify
- Whether the company completes the equity raise of at least $100 million by December 1, 2023, and complies with all amended lender requirements.
- Actual proceeds and timing from planned real-estate dispositions and the consumer-loan portfolio sale, and the resulting debt paydown and liquidity.
- Whether powersports unit economics, gross profit per vehicle and cash generation stabilize amid softer demand and lower pricing.
- Progress toward the stated annualized cost savings, including the timing and costs of implementation.
- Remediation and testing of the material weakness, and developments in the former CEO investigation and mediation.