RumbleOn, Inc. — Form 10-Q summary
Entity note: The request metadata names Ridenow Group, Inc., but the supplied filing is for RumbleOn, Inc. This summary reflects the filing. Reporting period: quarter and six months ended June 30, 2019; filed August 13, 2019.
Business context and reporting period
RumbleOn operates an online marketplace and vehicle distribution business, supported by vehicle logistics and transportation services. Its vehicle mix includes powersports and automobiles. Comparisons with 2018 are substantially affected by acquisitions: Wholesale and Wholesale Express were acquired in October 2018, and Autosport in February 2019. Accordingly, 2018 results do not include comparable acquired-business operations for these periods.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $270.2 million | $13.9 million | $493.4 million | $22.0 million |
| Gross profit | $15.6 million | $1.3 million | $29.6 million | $1.8 million |
| Gross margin | 5.8% | 9.1% | 6.0% | 8.3% |
| Operating loss | $9.8 million | $4.5 million | $16.6 million | $8.0 million |
| Net loss | $13.0 million | $4.7 million | $21.3 million | $8.4 million |
| Net loss per share | $0.58 | $0.36 | $1.00 | $0.64 |
- Q2 revenue included $233.9 million of automotive sales, $30.3 million of powersports sales, and $6.0 million of transportation revenue after intercompany eliminations. The automotive business generated $9.9 million gross profit at a 4.2% margin; powersports generated $4.2 million at a 13.8% margin.
- Q2 selling, general and administrative expense was $25.0 million, versus $5.5 million a year earlier. Six-month SG&A was $45.4 million, versus $9.4 million. Management attributed the increase to growth, acquisitions, expanded staffing, marketing, technology, and corporate costs.
- Adjusted EBITDA, a non-GAAP measure, was a loss of $6.9 million in Q2 and $11.6 million for the six months, compared with losses of $3.9 million and $6.9 million, respectively, in 2018.
- Six-month operating cash flow was negative $33.5 million, investing cash flow negative $2.7 million, and financing cash flow positive $39.7 million. Cash increased by $3.4 million to $19.2 million, including $6.7 million of restricted cash; unrestricted cash on the balance sheet was $12.5 million.
- At June 30, current assets were $100.5 million and current liabilities $81.7 million. Inventory was $68.0 million. Total liabilities were $104.4 million and stockholders’ equity $34.6 million.
- Notes payable were $66.3 million, all classified as current; convertible debt had a carrying amount of approximately $20.4 million, of which $1.1 million was current. The principal floor-plan facilities were payable on demand and secured by inventory and other assets. These balances imply approximately $86.8 million of notes and convertible debt at carrying value, before other liabilities.
Material changes versus the prior comparable period
- Revenue rose sharply as the company expanded into automotive distribution through acquisitions, alongside increased vehicle volumes. Vehicles sold in the distribution segment were 13,928 in Q2 versus 2,013 a year earlier; the 2019 total included acquired automotive operations, for which there is no comparable 2018 segment volume in the filing.
- Gross profit increased in dollars, but consolidated gross margin declined to 5.8% in Q2 from 9.1%, reflecting the much larger share of lower-margin automotive and dealer sales.
- Losses and operating cash use increased substantially as the company scaled operations and invested in inventory, marketing, staff, and technology.
- The company issued $30.0 million of 6.75% convertible senior notes due 2024, receiving approximately $27.3 million net proceeds, and raised approximately $8.6 million net from a private stock placement. It used $11.1 million to repay and terminate its Hercules loan, recording a $1.5 million early-extinguishment loss. A February public stock offering generated approximately $6.5 million net.
- Class B common shares outstanding increased from 17.5 million at December 31, 2018 to 22.1 million at June 30, 2019. The notes’ initial conversion price was approximately $5.75 per share; conversion conditions had not been met as of quarter-end.
Outlook, commentary, and risks
- Management said existing liquidity was expected to fund operations for at least the next 12 months, while also warning that planned investment in inventory, marketing, technology, and infrastructure would increase operating losses and negative cash flow at least in the near term. No specific financial guidance was provided.
- Management anticipated continued vehicle-sales growth and said SG&A and marketing spending may rise in absolute dollars but decline as a percentage of revenue. It also noted seasonal demand, typically lowest in the fourth quarter.
- Key exposures include inventory valuation and resale prices, sales mix and margins, customer return and cancellation estimates, reliance on third-party auctions and transport providers, and the availability and terms of floor-plan financing. The company reported cumulative losses of $55.5 million.
- The NextGear facility required $5.5 million of cash collateral, and Ally financing required restricted cash. The filing also describes demand-repayment and default provisions in floor-plan arrangements. Management reported no material pending or threatened litigation and no material change to previously disclosed risk factors.
- The company adopted lease accounting standard ASC 842 on January 1, 2019, recognizing an operating lease liability of $3.1 million and right-of-use asset of $3.1 million.
Important facts for investors to verify
- How much of reported revenue growth and future performance is attributable to acquired businesses, and how comparable organic volumes and margins are.
- Whether automotive gross margins can improve, and how inventory growth, turnover, and valuation reserves affect cash generation and profitability.
- Current borrowing availability, demand features, collateral requirements, and refinancing or repayment risks for the floor-plan facilities and convertible notes.
- Whether unrestricted liquidity can support the stated 12-month operating horizon given cash use, acquisition integration, and planned investment.
- The filing contains inconsistent figures in some narrative disclosures, including an automotive cost-of-revenue amount; investors should reconcile such figures to the audited or interim financial statements and notes.