RumbleOn, Inc. — 2018 Form 10-K
Issuer and period: The filing identifies the registrant as RumbleOn, Inc., not Ridenow Group, Inc. It is an annual report for the fiscal year ended December 31, 2018; it does not provide standalone fourth-quarter results. The financial statements received an unqualified audit opinion.
Business context
RumbleOn operates an online marketplace and vehicle-distribution business focused initially on powersports, with a growing automotive business. It also provides vehicle logistics and transportation services. The October 30, 2018 acquisitions of Wholesale, Inc. and Wholesale Express expanded the company into automotive distribution and transportation; their results are included only from the acquisition date.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $156.4 million | $7.3 million |
| Gross profit | $12.6 million; 8.1% margin | $0.3 million; 3.8% margin |
| Operating loss | $23.4 million | $8.0 million |
| Net loss | $25.2 million; $1.70 per share | $8.6 million; $0.86 per share |
| Cash used in operations | $23.5 million | $9.6 million |
- Revenue growth principally reflects vehicle sales growth and the Wholesale acquisition. The company sold 12,529 vehicles versus 678 in 2017; 4,005 automotive sales were recorded during the brief post-acquisition period.
- Gross profit increased, but selling, general and administrative expenses rose to $35.1 million from $7.6 million, including $11.5 million of advertising and marketing expense. Operating losses therefore widened substantially.
- Cash and cash equivalents totaled $15.8 million at year-end, including $6.65 million classified as restricted cash; unrestricted cash was $9.1 million. Inventory was $52.2 million and total current assets were $77.5 million.
- Total debt, net of discounts, was $67.3 million: $58.6 million current and $8.8 million long-term. Much of the current balance was vehicle floorplan financing, payable as inventory is sold and, under facility terms, potentially on demand. Year-end balances included $47.5 million under the NextGear facility and $8.9 million under Ally; Hercules debt was $10.9 million. Hercules covenants were reported as satisfied at year-end.
- Financing cash inflows of $47.6 million included equity proceeds and borrowing; investing cash outflows of $17.6 million largely reflected acquisitions and capitalized technology development. Year-end stockholders’ equity was $30.8 million.
Changes versus prior period
- Revenue increased sharply, but comparison is not like-for-like: 2018 includes automotive and transportation operations acquired in late October 2018, with no corresponding 2017 contribution.
- Powersports revenue was $61.2 million, up from $7.2 million. Units sold rose to 8,524, while average selling price declined to about $7,180 from about $10,576 as the mix broadened beyond higher-priced Harley-Davidson motorcycles. Powersports gross margin improved to 11.2% from 7.1%.
- The acquired automotive business generated $90.1 million of vehicle revenue during the acquisition period, with a reported 5.3% vehicle gross margin. Transportation segment revenue was $4.9 million before $1.1 million of intercompany eliminations.
- Operating cash use increased from $9.6 million to $23.5 million, and net loss expanded from $8.6 million to $25.2 million. The company also raised capital through a July public offering and an October private placement.
Outlook, risks and unusual items
- Management said available liquidity was expected to fund operations for at least 12 months, while warning that substantial investment in inventory, marketing, technology and infrastructure would likely sustain operating losses and negative operating cash flow in the near term. No specific revenue, earnings or margin guidance was provided.
- Management cited seasonal demand, weather, consumer spending, inventory prices and mix, competition, customer-acquisition costs, partner and data-provider dependence, logistics costs, and regulatory and privacy obligations as business risks. It also emphasized integration, synergy, retention and potential undisclosed-liability risks associated with the Wholesale acquisitions.
- The acquisitions’ stated consideration was $19.0 million for Wholesale, including $12.4 million cash and 1,317,329 preferred shares, plus $4.0 million cash for Wholesale Express, subject to customary adjustments. The preferred shares converted into Class B common stock on March 4, 2019.
- Subsequent events included the February 2019 Autosport acquisition, with cash, convertible and other notes and potential earn-outs, and a February 2019 stock offering that generated approximately $6.5 million net proceeds.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end, but excluded Wholesale and Wholesale Express from the internal-control assessment under the acquired-entity accommodation. Those businesses represented substantial portions of year-end assets and 2018 revenue. The auditor did not attest to internal-control effectiveness.
- The filing describes no material legal proceeding and no material off-balance-sheet arrangement. The company had cumulative operating losses of $34.2 million at year-end and stated it had never paid, and did not expect to pay, common-stock dividends in the foreseeable future.
Most important facts to verify
- Confirm the requested company identity: the supplied filing is for RumbleOn, Inc.; the request metadata names Ridenow Group, Inc.
- Review audited statements and acquisition pro formas to separate organic growth from the late-2018 acquisitions; the pro forma presentation reports 2018 revenue of $727.3 million and a $24.4 million net loss, but is not the reported consolidated result.
- Reconcile cash availability, restricted-cash requirements, inventory financing balances, maturities and demand features, especially the NextGear facility’s scheduled reduction and expiration.
- Assess whether vehicle-level gross profit and margins can support the company’s elevated marketing, personnel and corporate costs, and whether acquisition integration delivers the anticipated benefits.
- Check subsequent financing, share dilution and conversion effects, including the 2019 offering, preferred-stock conversion and Autosport-related notes and potential earn-outs.