RumbleOn, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2018. The filing registrant is RumbleOn, Inc. (not Ridenow Group, Inc.). RumbleOn operates an online marketplace for buying, selling and financing pre-owned vehicles, initially focused on motorcycles and other powersports vehicles. Its marketplace launched in April 2017, so the prior-year quarter largely predates vehicle sales operations.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $8.08 million | $38,889 |
| Operating loss | $3.53 million | $711,092 |
| Net loss | $3.61 million ($0.28 per share) | $922,895 ($0.13 per share) |
| Operating cash flow | $(2.89) million | $(186,172) |
| Investing cash flow | $(207,964) | $(920,133) |
| Cash and restricted cash at quarter-end | $5.58 million | $4.02 million |
- Pre-owned vehicle sales were $8.03 million from 878 vehicles. Other revenue was $52,525.
- Cost of revenue was $7.52 million, leaving a reported gross profit of approximately $559,000, or about 6.9% of total revenue. SG&A was $3.88 million and depreciation and amortization was $206,000.
- At March 31, current assets were $9.26 million and current liabilities were $1.93 million. Inventory was $3.13 million. Reported total liabilities were $3.44 million; total assets were $14.52 million.
- Notes payable, net of debt discount, totaled approximately $2.09 million. The company had drawn $585,072 under a new Ally floor-plan facility at quarter-end; the facility permits up to $25 million, is secured by inventory and other assets, and requires restricted cash equal to 10% of advances. Advances are payable on demand or when financed vehicles are disposed of.
Changes and operating metrics
- Revenue growth reflects the launch and expansion of vehicle sales; the year-over-year comparison is not a like-for-like operating comparison. Vehicle sales were zero in Q1 2017.
- SG&A rose from $655,208, principally due to higher compensation, marketing and business-development costs. Advertising and marketing expense increased to $1.12 million from $26,130.
- Management reported 42 average days to sale, 1,056 vehicles listed on the website at quarter-end, and a $9,185 average total vehicle selling price in its operating metrics. It also reported average gross sales profit of $1,132 per vehicle and gross sales margin of 12.3%.
- Most vehicles sold were acquired by dealers (91%); 69% of units sold were Harley-Davidson. Management said it was broadening the mix toward lower-priced powersports brands.
Outlook, risks and notable items
- Management expects to invest heavily in inventory, marketing, technology and infrastructure, with near-term operating losses and negative operating cash flow expected to continue. It stated that existing liquidity was expected to fund operations for at least 12 months.
- Management anticipated lower average selling prices as the vehicle mix broadened, partly offset by higher unit volume, and said gross-margin percentage could remain stable or improve. The filing provides no quantified revenue, earnings or cash-flow guidance.
- On April 30, 2018, after quarter-end, the company entered a $15 million senior secured credit facility with Hercules Capital. $5 million was to be funded at closing; additional tranches are conditional on operating targets. The facility has an initial 36-month maturity and 10.5% initial interest rate, and included a warrant for 81,818 Class B shares at $5.50 per share.
- Key risks include early-stage operations, ongoing losses and cash use, execution and scaling of the business, marketing effectiveness, inventory valuation and resale, vehicle-return and contract-cancellation estimates, and seasonal demand. The company reported no material pending litigation and no material change to the risk factors in its 2017 Form 10-K.
- Related-party arrangements include business with a dealership financed by the CEO, warehouse rent paid to that dealership, and payments to a software-services firm led by a company director. The filing also reports amounts payable to a director-affiliated entity.
- Management concluded disclosure controls were effective as of March 31, 2018 and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the reported per-vehicle operating metrics and margins with the revenue and cost-of-revenue figures in the financial statements; the filing’s figures do not appear to align on their face.
- Confirm average selling-price disclosures: the operating-metrics table reports $9,185, while the MD&A discussion reports $9,143 for vehicles sold.
- Review the classification and reconciliation of related-party notes and accrued interest disclosed in Note 11 against the balance sheet and notes-payable disclosures.
- Monitor cash burn, available unrestricted cash, use and terms of the Ally floor-plan facility, and the conditions for drawing the Hercules facility’s additional tranches.
- Assess whether vehicle volumes and gross profit can support elevated marketing, staffing and technology costs as the vehicle mix changes.