RumbleOn, Inc. (NASDAQ: RMBL) — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. The filing registrant is RumbleOn, Inc.; RideNow was acquired on August 31, 2021, so reported results include RideNow only from the closing date (principally September). Unless indicated otherwise, dollar amounts below are in millions.
Business context and reporting period
RumbleOn operates powersports retail and wholesale, wholesale automotive, and vehicle logistics and transportation businesses. The RideNow acquisition expanded the powersports business and added new-vehicle, parts-and-service, and finance-and-insurance revenue streams. The acquisition was funded with cash, stock, a public offering, and secured debt.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $221.2 | $117.3 | $493.8 | $345.7 |
| Gross profit | $37.4 | $16.8 | $68.1 | $23.9 |
| Gross margin | 16.9% | 14.3% | 13.8% | 6.9% |
| Operating income (loss) | $(22.7) | $3.0 | $(24.8) | $(14.5) |
| Net income (loss) | $(22.5) | $1.5 | $(30.4) | $(19.5) |
| Operating cash flow | Not separately provided | Not separately provided | $(29.8) | $26.2 |
| Investing cash flow | Not separately provided | Not separately provided | $(374.8) | $(1.8) |
| Financing cash flow | Not separately provided | Not separately provided | $472.4 | $(22.2) |
Q3 diluted loss per share was $3.25, compared with income per share of $0.67. Nine-month loss per share was $7.27, compared with a loss of $9.01. The Q3 and nine-month results include $23.9 million of stock-based compensation and other issuances tied to accelerated and modified awards associated with the RideNow transaction. Q3 also included a $10.7 million income tax benefit and a $6.5 million loss from change in derivative liability. Management reported adjusted EBITDA, a non-GAAP measure, of $3.6 million for Q3 and $6.7 million for the first nine months, versus $4.7 million and a loss of $3.1 million, respectively.
At September 30, cash was $68.3 million and restricted cash was $3.0 million. The company reported $201.9 million of committed liquidity resources, including $130.5 million available under short-term revolving facilities. Current assets were $289.6 million and current liabilities $167.0 million. Inventory was $171.5 million, versus $21.4 million at year-end 2020.
Balance-sheet senior secured debt was $252.8 million net of discount; the Oaktree term loan had $280.0 million principal and a 9.25% rate at quarter-end. Total debt, net of discounts and issuance costs, was reported as $375.6 million, including $87.2 million of floor-plan borrowings and convertible notes. Operating and finance lease liabilities totaled approximately $134.3 million. The Oaktree facility includes leverage and minimum-liquidity covenants, including a $25 million minimum liquidity requirement; the filing does not state a quarter-end covenant compliance calculation.
Material changes versus prior periods
- Revenue increased 88.7% in Q3 and 42.8% for the nine months year over year, but comparisons are substantially affected by the RideNow acquisition and the inclusion of its results only from August 31, 2021.
- Q3 powersports revenue rose to $105.5 million from $7.5 million, including RideNow-related new-vehicle, finance-and-insurance, and parts-and-service revenue. Automotive revenue increased modestly in Q3, while units sold declined; automotive gross profit fell to $6.5 million from $12.8 million.
- Nine-month gross profit improved versus 2020, which included an $11.7 million automotive inventory impairment related to the 2020 Nashville tornado. The 2021 increase also reflected higher vehicle prices and acquisition effects.
- Operating cash flow shifted from $26.2 million provided to $29.8 million used, principally reflecting a $33.3 million inventory increase; investing outflow was dominated by $365.9 million of net cash consideration for RideNow.
- Cash increased substantially, primarily due to $191.2 million of net equity proceeds and $261.5 million of Oaktree debt proceeds. Class B shares outstanding rose from 2.2 million at year-end 2020 to 14.9 million at September 30, 2021.
Outlook, commentary, risks, and unusual items
- Management expected reduced new-vehicle production, chip shortages, and transportation constraints (“Demand/Supply Imbalances”) to persist through Q4 2021. These conditions contributed to lower inventory and unit sales but higher vehicle prices and margins. Management expected inventory purchasing and revenue to increase as conditions abate and market penetration grows, while unusually high industry gross profit per vehicle was expected to return toward historical levels. No quantified earnings or revenue guidance was provided.
- Management cited COVID-19 and supply-chain uncertainty as risks and gave no assurance about when these effects would abate. Other key risks include integrating RideNow, possible unanticipated integration costs, and the acquired entities’ controls not yet being included in the company’s internal-control assessment. Management said disclosure controls were effective, while integration of RideNow controls was ongoing.
- The RideNow purchase consideration was preliminarily estimated at $566.9 million, including $365.9 million cash net of acquired cash and $201.0 million in stock. Purchase-price allocation remained open and could be materially adjusted.
- The Oaktree facility provides a $120 million delayed-draw acquisition facility, subject to conditions, and up to $100 million of incremental financing under the agreement. Debt is secured by substantially all company and subsidiary assets, subject to stated exceptions, and carries restrictive covenants.
- The company had received $564,000 of forgiveness on its $5.2 million PPP loans; forgiveness of the remaining $4.6 million was still under SBA review, with no assurance of approval.
- Insurance recoveries relating to the Nashville tornado remained partly unsettled. The inventory claim was disputed over policy limits, and the business-interruption claim remained under negotiation; the company cautioned that recovery amounts and timing were uncertain.
- Related-party matters include 24 RideNow leases with entities controlled by company directors/executives, with initial combined base rent of about $1.2 million per month and 2% annual increases, and director-affiliated participation in reinsurance profits from certain products. The Audit Committee was reviewing terms and rates of the reinsurance arrangements.
- Subsequent event: on November 8, 2021, RumbleOn agreed to acquire Freedom Powersports businesses for approximately $100 million net of about $27.8 million of mortgage debt to be assumed or refinanced. The proposed consideration may include cash and up to 30% stock; closing remained conditional, including on manufacturer consents.
- A shareholder lawsuit challenging disclosures related to the RideNow transaction was voluntarily dismissed without prejudice on October 13, 2021. The filing states that ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- How RideNow performs on a full-quarter basis, and how much reported growth reflects acquisition versus organic performance; the filing’s pro forma results are estimates, not reported operating results.
- Whether the preliminary RideNow purchase-price allocation, working-capital and debt adjustments, and acquired-asset valuations are finalized without material changes.
- Cash generation, inventory requirements, and covenant headroom under the Oaktree facility, including the $25 million minimum-liquidity test and any delayed-draw borrowing conditions.
- Progress in integrating RideNow operations and internal controls, and whether the company identifies control deficiencies or material weaknesses.
- Resolution of remaining PPP forgiveness and tornado insurance claims, including timing and amounts ultimately received.
- Funding, closing conditions, and potential share dilution associated with the proposed Freedom Powersports acquisition, alongside the company’s existing debt and lease commitments.