RumbleOn, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. The filing identifies the registrant as RumbleOn, Inc. (not “Ridenow Group, Inc.”). The company operates an online marketplace for buying and selling pre-owned vehicles, initially focused on motorcycles and other powersports vehicles.
Key financial results
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 |
|---|---|---|---|
| Revenue | $13.9 million | $22.0 million | $0.12 million Q2; $0.16 million six months |
| Gross profit | $1.26 million | $1.82 million | $1,879 Q2; $6,080 six months |
| Operating loss | $4.50 million | $8.03 million | $1.82 million Q2; $2.53 million six months |
| Net loss | $4.74 million | $8.35 million | $1.89 million Q2; $2.82 million six months |
| Net loss per share, basic and diluted | $(0.36) | $(0.64) | $(0.19) Q2; $(0.33) six months |
| Cash used in operating activities | Not separately stated | $8.80 million | $2.75 million six months |
- Revenue growth reflected a rapid scale-up from a very small 2017 base: vehicle sales were $13.82 million for Q2 and $21.85 million for the first half. Other revenue was $96,418 and $148,942, respectively.
- Reported total gross margin was approximately 9.1% in Q2 and 8.3% for the first half. Management’s vehicle metrics report Q2 gross margin of 11.2% and gross profit of $798 per vehicle; gross sales margin was 14.7%, with gross sales profit of $1,046 per vehicle.
- For Q2, the company sold 2,013 vehicles; average selling price was $7,113 and average days to sale was 28. For the first half, it reported 2,891 vehicles sold, an average selling price of $7,757 and average days to sale of 32.
- SG&A rose to $5.55 million in Q2 and $9.43 million for the first half, driven notably by advertising and marketing expense of $2.23 million and $3.35 million, respectively.
- Cash was $5.53 million and restricted cash $0.26 million at June 30, 2018, versus cash of $9.17 million at year-end 2017. Current assets were $11.82 million and current liabilities $5.52 million.
- Total debt carrying value was $8.61 million: $3.62 million classified current and $5.00 million long-term. Total liabilities were $10.52 million. Stockholders’ equity fell to $6.87 million from $14.37 million, primarily reflecting the first-half net loss.
Material changes and financing
- Vehicle sales increased substantially as unit sales expanded from nine in the comparable 2017 periods. Management attributed growth to increased website traffic, consumer and dealer cash-offer requests, greater inventory, marketing and brand awareness.
- Average selling price declined as the company broadened its mix beyond higher-priced Harley-Davidson motorcycles. Management said it expected lower average prices to be partly offset by greater unit volume and anticipated gross margin percentage would remain stable or improve.
- The company entered into an Ally floor-plan facility in February, providing up to $25 million secured by inventory and other assets. Borrowings are payable as financed vehicles are disposed of; Ally may demand payment, and the arrangement requires restricted cash.
- In April, Hercules funded a $5 million term loan under a facility that may provide up to $15 million subject to conditions. The loan is secured by substantially all borrower assets, carries a stated minimum interest rate of 10.25% (the effective rate reported at June 30 was 22.0%), and included a warrant for Class B shares. Additional tranches are subject to operating targets and other conditions.
- On July 20, 2018, after quarter-end, the company completed a public offering of 2,328,750 Class B shares for approximately $12.9 million in net proceeds. It planned to use proceeds for working capital and general corporate purposes, including inventory, marketing and capital expenditures.
Outlook, risks and other notable items
- Management said existing liquidity was expected to fund operations for at least 12 months, while also warning that planned investments in inventory, marketing, technology and infrastructure were expected to increase operating losses and negative operating cash flow in the near term. This statement preceded the July equity offering.
- Management expected vehicle sales to continue growing, but emphasized that the business is early-stage and exposed to execution, growth-management, technology, market and funding risks. Sales are seasonal, typically strongest in the first half and weakest in the fourth quarter.
- Debt includes demand-payable floor-plan borrowings and secured obligations; defaults could accelerate repayment. The Hercules loan also has conditional future funding and warrant-related dilution provisions.
- No material litigation was reported, and the company said there were no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2018; no material change in internal control over financial reporting was reported.
- The company reported no income tax benefit because it maintained a full valuation allowance against deferred tax assets. Goodwill was $1.85 million, with no impairment identified as of June 30.
Important facts for investors to verify
- Reconcile reported vehicle counts: the operating table reports 2,013 Q2 and 2,891 first-half units, while cost disclosures separately describe 1,947 and 2,825 consumer/dealer units plus 66 wholesale units.
- Assess the quality and sustainability of gross profit and per-vehicle margins as sales mix, pricing, reconditioning and freight costs change.
- Review cash burn against available liquidity, the timing and conditions for Hercules’ additional tranches, Ally’s demand rights, and the use of the July offering proceeds.
- Evaluate marketing and operating cost growth relative to revenue, and potential dilution from RSUs and warrants.