RumbleOn, Inc. (NASDAQ: RMBL) — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2021; comparisons are with the three and six months ended June 30, 2020, unless noted. The filing is by RumbleOn, Inc.; RideNow is the proposed acquisition target, not the registrant.
Business context and reporting period
RumbleOn operates an e-commerce platform and vehicle businesses spanning pre-owned powersports and automotive sales, plus vehicle logistics and transportation. Management’s strategy centers on combining its platform with RideNow’s retail dealership network to create an omnichannel powersports business.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $168.3 million | $84.3 million | $272.6 million | $228.5 million |
| Gross profit | $19.5 million | $8.5 million | $30.7 million | $7.1 million |
| Gross margin | 11.6% | 10.0% | 11.3% | 3.1% |
| Operating income (loss) | $0.8 million | $2.4 million | $(2.1) million | $(17.5) million |
| Net income (loss) | $(3.4) million | $1.0 million | $(7.8) million | $(21.0) million |
| Adjusted EBITDA (non-GAAP) | $3.0 million | $(1.3) million | $3.1 million | $(8.0) million |
Q2 revenue nearly doubled, while first-half revenue increased about 19%. Automotive remained the largest business, contributing 75% of Q2 revenue. Powersports revenue rose to $28.0 million from $8.4 million, and automotive revenue rose to $127.3 million from $68.3 million. Logistics and transportation revenue was $14.5 million, up from $8.3 million. Stronger vehicle prices and gross profit per vehicle supported results, but Q2 operating income was lower year over year as SG&A increased to $18.1 million from $11.2 million. The Q2 net loss included a $2.2 million unfavorable change in derivative and warrant liabilities.
For the first half, the smaller net loss versus 2020 partly reflects the prior-year $11.7 million automotive inventory impairment associated with the Nashville tornado. First-half revenue and gross profit improved, but operating results remained negative.
Cash flow, balance sheet and liquidity
- Cash and cash equivalents were $25.0 million at June 30, 2021, with restricted cash of $3.0 million; together, cash and restricted cash totaled $28.0 million. Management reported $31.2 million of committed liquidity resources, including $3.1 million available under short-term revolving facilities.
- First-half operating cash flow was negative $17.5 million, versus positive $0.6 million in 2020. The company attributed the cash use largely to higher receivables, including finance receivables, and working-capital needs. Investing cash use was $1.0 million.
- Financing provided $43.0 million in the first half, including $36.8 million net proceeds from an April 2021 stock offering. Cash increased $24.5 million over the period.
- Total debt, net of unamortized discounts and issuance costs, was $60.4 million, excluding operating lease liabilities and derivative liability. The company reported $27.3 million of current long-term debt and $92.1 million of total liabilities.
- Management said available working capital and financing arrangements were expected to fund operations for at least the next twelve months. It also disclosed a history of losses and negative operating cash flow and said additional capital may be needed.
Material changes, outlook and risks
- Market conditions: Management said supply constraints, lower new-vehicle production, and elevated used-vehicle prices supported selling prices and gross profit per vehicle, while constrained inventory and liquidity affected purchasing and sales volumes. It expected these conditions to continue through Q3 2021, with margins and inventory levels potentially returning toward historical patterns as disruptions abate. No quantified revenue or earnings guidance was provided.
- RideNow transaction: The announced combination contemplated consideration of up to $575.4 million, including $400.4 million cash and approximately 5.8 million RumbleOn Class B shares, with the cash portion expected to be funded by up to $280 million of debt and additional equity. The filing expected a Q3 2021 closing, subject to financing, manufacturer and regulatory approvals, and other conditions. Shareholders approved transaction-related proposals on July 30; the outside date was later extended to September 12, 2021. Closing and final financing terms remained uncertain at filing.
- Financing and dilution: The company recorded a $13.2 million liability for the Oaktree warrant at quarter-end, including a $2.2 million Q2 fair-value expense. It also had $38.75 million principal of 6.75% convertible senior notes due 2025 and a $2.5 million bridge loan bearing 12% interest, maturing earlier upon specified financing or by September 2021. The April stock offering and contemplated acquisition equity financing involve potential shareholder dilution.
- PPP loans: The company had $5.2 million of PPP loans and applied for forgiveness in July 2021, but gave no assurance that any amount would be forgiven. Scheduled payments were to begin September 2021 if not forgiven.
- Tornado insurance: The 2020 Nashville tornado caused inventory, property and business-interruption losses. Inventory insurance recovery remained disputed; the insurer had advanced $8.75 million toward that claim by July 2021. Property and business-interruption claims were not fully settled, and the company cautioned that ultimate recoveries and timing were uncertain.
- Other risks: A shareholder lawsuit filed July 29, 2021 sought to enjoin the RideNow transaction or obtain additional disclosures and other relief. The company said it would defend the claims. The filing also identified reliance on third-party wholesale vehicle auction providers and continuing COVID-19 and supply-chain uncertainty.
- Unusual items: The prior-year comparison includes a $11.7 million inventory impairment and a $5.6 million insurance recovery. Q2 2021 included non-cash warrant and derivative liability remeasurement expense. Adjusted EBITDA is a non-GAAP measure and should not be viewed as a substitute for GAAP results or cash flow.
Important facts for investors to verify
- Whether the RideNow transaction closed, its final purchase consideration, debt and equity financing, and resulting dilution.
- Whether elevated vehicle prices and gross profit per vehicle persisted, and how inventory availability and sales volumes evolved after Q2.
- Whether operating cash use and receivables growth improved, and whether reported liquidity remained adequate as obligations came due.
- The outcome of PPP forgiveness and the timing and amount of remaining tornado insurance recoveries.
- The effect of convertible debt, the Oaktree warrant, and other financing terms on future interest expense, liabilities and share count.