RumbleOn, Inc. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed March 28, 2024. The request names “Ridenow Group,” but the filing is for RumbleOn, Inc. The company operates powersports dealerships and a vehicle-transportation brokerage. Its automotive wholesale and exotic-retail operations were wound down by June 30, 2023 and are reported as discontinued operations.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $1,366.4 million | $1,458.9 million | Down 6.3% |
| Gross profit | $359.9 million | $441.7 million | Down 18.5% |
| Gross margin | 26.3% | 30.3% | Down about 4.0 percentage points |
| Operating loss | $(69.5) million | $(260.1) million | Improved by $190.6 million |
| Net loss | $(215.5) million | $(261.5) million | Improved by $46.0 million |
| Interest expense | $77.2 million | $52.1 million | Up 48.2% |
| Cash used in operating activities, continuing operations | $38.9 million | $46.7 million | Use decreased by $7.8 million |
- Powersports revenue was $1,310.2 million, down 6.7%; transportation-services revenue was $56.2 million, up 4.1%. Powersports vehicle gross profit fell to $118.9 million from $194.2 million.
- New retail units sold increased 9.7% to 45,706, while pre-owned retail units fell 22.4% to 21,840. Total powersports units sold declined 1.0%. Gross profit per retail unit decreased 16.8% to $5,125.
- Transportation services delivered 91,774 vehicles, up 9.0%; segment gross profit rose 15.1% to $13.7 million.
- Net loss from continuing operations was $214.4 million, compared with $233.5 million in 2022. The 2023 results included a $59.3 million income-tax provision despite a pre-tax loss, largely associated with a $92.9 million increase in the deferred-tax valuation allowance.
Liquidity, debt and financial position
- At December 31, cash was $58.9 million and restricted cash was $18.1 million. Management reported total available liquidity of $242.0 million, including $165.0 million available under powersports inventory financing facilities.
- Reported debt principal was $642.9 million; debt net of unamortized discounts and issuance costs was $613.6 million. Principal included $291.3 million of vehicle floorplan financing, a $248.7 million term loan, $38.8 million of convertible notes, and a $49.8 million finance-lease obligation.
- Total liabilities were $820.7 million and stockholders’ equity was $105.6 million. Current liabilities were $395.0 million versus current assets of $480.8 million.
- Financing cash flows included $98.4 million of net rights-offering proceeds, $50.0 million from the real-estate sale-leaseback transaction, and $111.7 million of debt repayments, including finance leases. The sale-leaseback did not qualify for sale accounting and was recorded as financing debt.
- The company said working capital, operating results and existing financing arrangements were sufficient to fund operations for at least one year from the financial-statement date, while noting additional financing might be needed for longer-range plans.
Material changes and unusual items
- Revenue and vehicle pricing normalized toward pre-pandemic levels. A $12.6 million fourth-quarter write-down reduced pre-owned inventory to net realizable value after vehicles acquired at elevated prices lost value.
- Goodwill and franchise-rights impairment charges totaled $60.1 million in 2023, versus $324.3 million in 2022. The 2023 charges comprised $23.1 million for goodwill and $37.0 million for franchise rights in the powersports reporting unit.
- SG&A declined 2.0% to $347.3 million. Management identified approximately $60 million in annualized expense reductions, partially implemented during 2023, and expected the full effects in 2024. 2023 expenses included $5.3 million of personnel restructuring costs and $5.1 million related to a proxy contest and board reorganization.
- Interest expense rose with higher borrowing costs, floorplan borrowing levels and term-loan prepayment fees. The Oaktree term loan carried a 13.90% rate at year-end. The company breached certain leverage covenants at June 30, 2023; lenders amended the terms, waived the specified covenant tests for certain periods and required asset monetization and an equity raise. The company reported compliance with covenants at December 31, 2023.
- The consumer-loan portfolio was sold on December 29, 2023, with a $7.9 million loss on sale. The related $12.2 million secured facility was repaid January 2, 2024. Management reported approximately $3.0 million of net cash proceeds from settlement and said proceeds and working capital were used to repay $11.2 million of Oaktree debt.
- The company issued 18.2 million shares in the rights offering at $5.50 per share, materially increasing the share count. It also issued lenders warrants for up to 1,212,121 shares, with a year-end exercise price of $11.25.
Outlook, risks and contingencies
- The company’s Vision 2026 strategy emphasizes dealership performance, expanding pre-owned sourcing through its Cash Offer technology, cost reduction, and organic growth and acquisitions. No specific consolidated revenue or earnings guidance is provided in the supplied filing text.
- Management cited powersports seasonality, with sales generally strongest in spring and summer. Demand is exposed to consumer confidence, inflation, interest rates, credit availability, fuel costs, weather and vehicle pricing. Variable-rate debt and floorplan financing expose the company to higher interest costs.
- Polaris, BRP and Harley-Davidson accounted for 29.3%, 25.6% and 11.3%, respectively, of new-vehicle revenue, creating material manufacturer and product-allocation exposure. Inventory availability, brand demand and franchise restrictions are additional risks.
- Management identified material weaknesses in internal control over financial reporting: insufficient accounting resources and deficiencies in user access and segregation of duties for financial-reporting systems. Disclosure controls were deemed ineffective, and the auditor issued an adverse opinion on internal control effectiveness, while issuing an unqualified opinion on the financial statements. Remediation is ongoing, with no assurance as to completion timing.
- Former CEO Marshall Chesrown filed suit on March 13, 2024, seeking $7.5 million in termination compensation, $50 million in general and reputational damages, punitive damages, fees and costs. The company intends to defend the claims; the outcome is uncertain. The filing also describes an ongoing investigation into allegations concerning use of company resources.
- Related-party leases cover 24 properties; related-party operating lease liabilities were $158.0 million at year-end. The filing also identifies substantial voting-power concentration among three stockholders who were directors.
Investor verification priorities
- Review the cash-flow and debt disclosures, including floorplan availability, covenant terms, maturities, interest rates and the February 2024 amendment to the Oaktree agreement.
- Assess whether the announced cost savings are being realized in 2024 and whether powersports gross profit and pre-owned inventory values stabilize.
- Track remediation and independent testing of the material weaknesses, particularly staffing, reconciliations, journal entries, system access and segregation of duties.
- Monitor the Chesrown litigation, the related investigation and any resulting financial or governance disclosures.
- Evaluate dilution from the rights offering and warrants, and the company’s ability to fund operations while servicing debt and lease obligations.