RDNW

RumbleOn, Inc. (RMBL) - Q2 2024 10-Q Summary

Business Context and Reporting Period

This summary covers the quarterly period ended June 30, 2024. RumbleOn, Inc. operates as the largest powersports retail group in the U.S., managing 55 retail locations across 13 states. The company operates through two segments: the Powersports Dealership Group (sales of new/pre-owned vehicles, parts, service, and F&I) and Wholesale Express (vehicle transportation brokerage). The company is classified as a smaller reporting company and an accelerated filer.

Key Financial Metrics

Liquidity: As of June 30, 2024, the company held $58.1M in cash and $13.0M in restricted cash. Total committed liquidity resources were $214.2M, including $143.1M in availability under inventory financing facilities.

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 12.0% in Q2 and 10.1% YTD compared to 2023. This was primarily driven by a 30.0% drop in pre-owned vehicle retail revenue due to lower inventory levels and reduced unit sales.
• Profitability Improvement: Despite lower revenue, Operating Income improved significantly to $15.4M in Q2 (vs. $0.8M in Q2 2023) and $20.6M YTD (vs. $0.1M in YTD 2023). This was achieved through aggressive cost-cutting, reducing SG&A expenses by 28.9% in Q2 and 22.1% YTD.
• Unit Sales: Total vehicles sold decreased 12.7% in Q2 (17,707 units vs. 20,277) and 8.5% YTD. Pre-owned retail unit sales dropped 21.9% in Q2.
• Interest Expense: Total interest expense decreased to $16.2M in Q2 (from $18.3M in Q2 2023) due to lower principal balances on the term loan and the payoff of the RumbleOn Finance facility in January 2024.

Outlook, Risks, and Contingencies

• Debt Covenant Amendments: As of June 30, 2024, the company was not in compliance with leverage ratios under its Term Loan Credit Agreement and the "Minimum EBITDA" covenant under its J.P. Morgan Floor Plan Line. On August 6, 2024, the company executed Amendment No. 8 to the Term Loan and amended the J.P. Morgan line to relax covenants, extend terms, and increase minimum liquidity requirements to $30.0M. Lenders agreed no event of default exists as of June 30, 2024.
• SEC Investigation: On June 28, 2024, the company received an SEC subpoena requesting documents from January 2021 to present regarding internal investigations into the use of company resources by Marshall Chesrown, related-party transactions, and disclosures regarding the "Cash Offer" technology. The company is cooperating but cannot predict the outcome.
• Delaware Litigation: Former executive Marshall Chesrown filed suit in March 2024 seeking $57.5M in damages (termination, general, and reputational) alleging he resigned with good reason. The company intends to defend vigorously.
• Internal Controls: Management concluded disclosure controls were not effective as of June 30, 2024, due to material weaknesses related to insufficient accounting resources and IT user access/segregation of duties. Remediation plans are underway.

Investor Verification Checklist

• Covenant Compliance: Verify the company's ability to maintain the revised leverage and liquidity covenants under Amendment No. 8 and the amended J.P. Morgan line through the next 12 months.
• SEC Investigation Status: Monitor for updates on the SEC subpoena regarding related-party transactions and the Chesrown investigation, as this could lead to fines or restatements.
• Inventory Levels: Assess the impact of reduced pre-owned inventory on future revenue, as this was the primary driver of the revenue decline.
• Internal Control Remediation: Track progress on hiring accounting resources and fixing IT segregation of duties to ensure future financial reporting reliability.
• Convertible Notes: Note the $38.8M in 6.75% convertible senior notes due January 2025 and the requirement to submit compliance certificates upon any cash settlement.