Business context and reporting period
RumbleOn, Inc. (not “Ridenow Group, Inc.” as stated in the request metadata) filed this unaudited Form 10-Q for the quarter ended September 30, 2017. The company was building an online marketplace for used motorcycles and other recreation vehicles, alongside dealer software and related services. It acquired substantially all of NextGen Dealer Solutions’ assets in February 2017; the marketplace launched during 2017, so the comparable 2016 periods had no reported revenue.
Financial results and liquidity
| Metric | Three months ended September 30, 2017 | Nine months ended September 30, 2017 |
|---|---|---|
| Revenue | $3.71 million | $3.86 million |
| Cost of revenue | $3.48 million | $3.63 million |
| Gross profit / margin | $228,018 / 6.2% | $234,098 / 6.1% |
| SG&A | $2.33 million | $4.69 million |
| Operating loss | $(2.23) million | $(4.76) million |
| Net loss | $(2.32) million | $(5.13) million |
| Basic and diluted loss per share | $(0.23) | $(0.56) |
| Cash used in operating activities | Not provided for the quarter | $(4.39) million |
- Q3 revenue comprised $1.63 million consumer vehicle sales, $1.75 million dealer sales, $171,560 auction sales, $134,573 other sales and revenue, and $27,197 subscription and other fees. The company reported 313 units sold in the quarter and average gross margin of $760 per unit.
- Cash was $656,220 at September 30, 2017, versus $1.35 million at December 31, 2016. Current assets were $2.52 million and current liabilities $3.43 million, implying a $911,430 working-capital deficit and a current ratio of about 0.73.
- Debt carrying value was $2.93 million, comprising $1.51 million current and $1.41 million long term. Total liabilities were $4.87 million. Investing cash use was $1.79 million; financing provided $5.48 million during the nine months.
- Total assets were $8.05 million, including $3.24 million goodwill, $2.17 million net property and equipment, and $1.24 million vehicle inventory. Stockholders’ equity was $3.18 million.
Changes versus the prior comparable period
Revenue grew from zero in the 2016 comparable periods as the company launched its marketplace and began vehicle sales. For the nine months, the company sold 323 units, generated $3.86 million revenue, and incurred a $5.13 million net loss versus a $66,991 loss in 2016. Operating cash use increased from $62,116 to $4.39 million. The expansion drove sharply higher marketing, personnel, technology, professional, and interest costs. The filing notes a $196,076 interest expense charge upon conversion of a related-party note, reflecting the remaining debt discount.
Outlook, risks and unusual items
- No quantified revenue, earnings, or cash-flow guidance is provided. Management expected continued investment in inventory, marketing, technology, and infrastructure, with higher operating losses and negative operating cash flow at least in the near term; returns on investment were not assured.
- On October 23, 2017, after quarter-end, RumbleOn completed a public offering of 2.91 million Class B shares at $5.50 per share, receiving approximately $14.5 million net. It used $1.66 million to repay the $1.65 million senior secured notes plus accrued interest. Remaining proceeds were intended for working capital and general corporate purposes. The stock began trading on Nasdaq on October 19.
- On November 2, the company entered a $2 million floor-plan credit line. The stated effective rate was 6.5% as of that date; advances were payable on demand and generally no later than 150 days, secured by vehicle inventory and other subsidiary assets, with a parent guarantee.
- Management highlighted its limited operating history, evolving business model, growth and execution challenges, dependence on financing, competition, seasonality, and risk that expansion investments may not earn a return. It expected SG&A and technology spending to rise. The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, and no material off-balance-sheet arrangements.
- Related-party exposures merit attention: a dealer financed by the CEO generated $924,069 of Q3 revenue and owed $264,464 at quarter-end; payments under a director-related technology services agreement were $678,766 for the nine months. Some officers and directors also participated in financing, including the senior secured notes subsequently repaid.
- Class A shares held by specified insiders carry ten votes per share; Class B shares carry one vote per share. The filing says disclosure controls were effective at September 30, while internal-control evaluation following the NextGen acquisition was ongoing.
Most important facts for investors to verify
- Whether the post-quarter $14.5 million offering proceeds and new floor-plan facility provide adequate liquidity given operating cash burn and planned investment.
- Whether unit growth, inventory turnover, and gross margin per unit can improve beyond the reported 6.1% nine-month gross margin.
- The sustainability and arm’s-length nature of revenue and balances involving the CEO-linked dealer, and the terms and amounts of director-related service and financing arrangements.
- The acquisition accounting and future recoverability of $3.24 million goodwill and capitalized technology assets, and the potential effect of impairment or further development spending.
- The impact of the dual-class voting structure, equity incentives, and subsequent offering-related dilution, including the underwriters’ option and warrants.