RumbleOn, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. The filing identifies the registrant as RumbleOn, Inc.; the request metadata says Ridenow Group, Inc. The filing describes an early-stage online marketplace for buying, selling, trading and financing used recreational vehicles, initially focusing on larger on-road motorcycles.
Financial results and liquidity
- Revenue: Q2 revenue was $116,522, including $81,940 wholesale vehicle sales and $34,582 subscription fees. Six-month revenue was $155,411. No revenue was reported for comparable 2016 periods; the marketplace began generating revenue in May 2017.
- Profit and margins: Q2 net loss was $1.892 million, or $0.19 per share; six-month net loss was $2.815 million, or $0.33 per share. Gross profit was $1,879 for Q2 and $6,080 for the six months, implying gross margins of approximately 1.6% and 3.9%, respectively. Operating losses were $1.820 million and $2.532 million.
- Costs and unusual items: Q2 SG&A was $1.709 million, versus $10,825 in Q2 2016. Six-month SG&A was $2.364 million. Six-month interest expense was $283,606 and included a $196,076 charge related to conversion of a related-party note.
- Cash flow: For the first six months, operating cash use was $2.746 million and investing cash use was $1.534 million, partly offset by $3.980 million of financing cash inflows. Cash declined $300,334 to $1.050 million. Operating cash use included a $1.284 million increase in vehicle inventory.
- Balance sheet at June 30: Current assets were $2.613 million, current liabilities $1.296 million, and working capital $1.317 million. Total assets were $8.019 million; total liabilities were $2.679 million; stockholders’ equity was $5.340 million.
- Debt: Notes payable had a reported carrying value of $1.373 million after a $627,375 debt discount. The notes include $1.333 million owed to NextGen and $667,000 of private-placement notes, with stated interest rates rising from 6.5% to 8.5% and maturities in 2020. The NextGen note is secured by substantially all NextGen Pro assets.
Material changes versus comparable periods
- Results reflect a major shift from a dormant former software business to the RumbleOn marketplace, the February 2017 acquisition of NextGen, and the launch of marketplace activity. Consequently, 2016 comparisons are not representative of an established operating business.
- The NextGen acquisition had stated consideration of $4.750 million: $750,000 cash, $2.667 million in shares, and a $1.333 million note. The purchase accounting included $3.240 million of goodwill.
- Cash-funded and noncash financing increased substantially. The company reported $3.313 million of stock-sale proceeds and $667,000 in note proceeds in financing cash flows; the acquisition also involved share issuance and debt.
- Outstanding shares at June 30 were 1.0 million Class A and 9.019 million Class B. Class A shares carry ten votes each, versus one vote per Class B share.
Outlook, risks and contingencies
- Management expected increased investment in inventory, marketing, technology and infrastructure, with operating losses and negative operating cash flow likely to continue in the near term. It provided no quantified revenue or earnings guidance.
- The company stated that without additional funding it might be unable to continue in business for the next 12 months. Continued operations depend on raising additional capital and ultimately achieving significant revenue and positive cash flow.
- Management expected to begin earning revenue from merchandise sales and commissions on vehicle financing and service contracts in the second half of 2017; none had been recorded for those products as of June 30.
- Management cited early-stage business risks, limited operating history, execution and growth challenges, evolving market conditions, and uncertainty that planned investments will earn a return. Vehicle sales are seasonal, typically strongest in spring and summer.
- The filing reported no material legal proceedings, no material changes to previously disclosed risk factors, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective as of June 30; internal-control evaluation was ongoing following the NextGen acquisition.
Key facts for investors to verify
- How quickly marketplace sales, dealer subscriptions and per-vehicle gross profit can grow from the very low reported revenue base.
- Cash runway, expected financing needs and access to capital, given the going-concern warning and six-month operating cash use.
- Debt terms, debt-discount accounting, security arrangements and the effect of future interest costs.
- NextGen’s contribution to revenue and operations, and the assumptions supporting the $3.240 million goodwill balance.
- Execution of the expected second-half 2017 launches and the related-party relationships and transactions disclosed in the filing.