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Operator
Greetings and welcome to the Rumble On Second Quarter 2021 Earnings Call. At this time, all lines are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Hilary Sumnich. Thank you. You may begin.
Hilary Sumnich
Thank you, Operator. Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss RumbleOn's second quarter 2021 financial results. Joining me on the call today are Marshall Chesrong, Chairman and Chief Executive Officer, and Beverly Rath, Interim Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the investor relations section of the website at investors.rumbleon.com. Please note that this call will be simultaneously webcast on our investor relations section of the company's corporate website. This conference call is the property of RumbleOn, and any taping or other reproduction is expressly prohibited without prior written consent. Before we start, I'd like to remind you that the following discussion contains forward-looking statements, including, but not limited to, RumbleOn's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ maturely from those disclosed here. Additional information that could use actual results to differ from forward-looking statements can be found in Rumble On, Periodic, and other SEC filings. Forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Rumble On assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Also, the following discussion may contain non-GAAP financial measures. For reconciliation of these non-GAAP financial measures, please see our earnings release issued earlier this morning. Now, I'll turn the call over to Marshall. Marshall?
Marshall Chesrong
Thank you, Hillary, and thank you everyone for joining us this morning. Our entire team at RumbleOn is very excited to share with you the results of a fantastic second quarter and many other updates for both the business and the merger with RightNow. However, before we jump in, I want to speak to something very unfortunate in the quarter. As most of you know, we suffered a tragic loss in June with the unexpected and sudden passing of Steve Berard, our co-founder, CFO, and a dear friend. For those lucky enough to have known Steve, you know he was a larger-than-life figure with a long history in the public markets with the likes of Blockbuster, AutoNation, and many other successful companies. And RumbleOn would not be in the position it is today without his tremendous knowledge, experience, and contributions. Steve was a true leader and made an impression on everyone he met. We suffered a great loss, but I'm so proud of the entire Rumble On team for stepping up and supporting each other and committing to their work each and every day to carry out the vision. Before turning to the progress we made this quarter, I'd like to introduce our interim CFO, Beverly Rapp, and welcome other recent executive appointments. Beverly, our controller, has stepped in as interim CFO to lead us through our pending combination with Ride Now. Beverly is a seasoned financial executive who has been a key part of our finance organization, working alongside Steve for many years. Beverly continues to make tremendous contributions to the organization, and we're excited to have her assist in filling some very big shoes with Steve's passing. We started the search for a new CFO. In the meantime, I'm proud and inspired by the way our team has risen to the challenges. We also announced the appointment of our chief operating officer, Peter Levy, to the board of directors. Peter has a deep understanding of our business and has been instrumental in the evolution of RumbleOn. Peter has been on our executive team since 2017 and is a natural fit to join our board as we enter the next stage of phenomenal growth. Finally, we're excited that our trusted legal advisor, Michael Francis, has joined the RumbleOn team as executive legal counsel. Michael worked with Steve for nearly 25 years, including helping AutoNation build a dominant national brand through dealership acquisitions. His long track record of success and familiarity with Steve's strategy and business style will be an invaluable asset to rumble on as we combine with Ride Now and consolidate the highly fragmented power sports industry. As many of you know, Steve Berard was not just a credits and debits guy. He was a dealmaker first and foremost. Michael knew his strategy and style better than anyone. And we are confident that he will bring incredible expertise to our leadership team. We have a world-class leadership team and we'll continue to add top talent as the company grows and evolve. On Friday, July 30th, 2021, RumbleOn announced that its stockholders approved the proposed business combination with RideNow at the special meeting of stockholders. The business combination is expected to close very soon. subject to the satisfaction of the remaining closing conditions. Not only are we hard at work on the pending business combination with RightNow, but we delivered another stellar quarter for RumbleOn. RumbleOn delivered $168.3 million in total revenue, up 100% year-over-year and 61% quarter-over-quarter. We grew gross profit to $19.5 million, up 131% year-over-year and 74% compared to Q1. Gross margin was 11.6%, representing gross margin expansion of 90 basis points from Q1 and 160 basis points from Q2 last year. We also reported another quarter with positive adjusted EBITDA of $3 million. We also made significant progress across our strategic priorities, We continue to add new dealers to RumbleOn.com and have over 60,000 new, used, and private party listings on our site today. And with over 500 dealers using our B2B inventory redistribution capabilities and more in the pipeline to be onboarded, we are seeing strong demand and remain confident in our strategy to offer virtual inventory distribution, both retail and wholesale, nationwide on our platform. RumbleOn.com enables dealers to reach consumers online, and our B2B inventory redistribution component within the website gives dealers nationwide an inventory advantage and a place to not only acquire inventory but sell unwanted inventory to other dealers, regardless of their manufacturer affiliation. We launched the next generation of RumbleOn.com late last summer to help drive quality leads to participating dealers and enhance the online experience for consumers and dealers. By doing so, we unlocked a massive opportunity for traditional brick and mortar power sports dealers across the country, enabling dealers to leverage technology to stay competitive as consumers demand a digital first customer experience. Since the launch, there has been significant traction among dealers and we continue to see strong adoption. Our dealer count was up over 40% from Q1 and a total available listings as of the end of the quarter were up 10% due to a continued reduction in the average dealer inventory driven primarily by the lack of new vehicle supply. Based on our dealer count, we estimate that we would have in excess of 100,000 listings on the site once stocking levels are normalized, which manufacturers anticipate at best to be months away, and over 200,000 listings on our site long-terms. We believe that the ongoing inventory shortages, lack of selection, and higher prices should be building significant levels of pent-up demand that could take more than a year to normalize once shipments return to normal levels. RumbleOn is benefiting from the supply and demand imbalance in the market. Pre-owned vehicle pricing remains strong as sourcing new inventory continues to be an industry challenge due to the pandemic-related shutdowns and manufacturing delays. These factors combine to create tailwinds for our business. Not only is our ability to source inventory electronically from consumers a strong advantage, but our strategy to enable dealers to thrive in a competitive market is winning. The global pandemic impacted customer behavior and refined modern business. There has been increased demand for online buying and at-home delivery as consumers become comfortable making large purchases online and opting to digitize all steps of the purchase journey. At the same time, consumers crave human interaction. Many still want to walk into a store and connect with a trusted professional face-to-face. Powersports is a lifestyle, and that passion for the sport creates the need for an omnichannel solution. We are combining with Ride Now to give enthusiasts nationwide the freedom to purchase their next experience completely online and have it delivered to their home or in store and drive away on their next adventure. Consumers want to escape their home, their office, their gym, and seek new and exciting experiences, and there is no better escape than power sports. Not only is it a hobby, a passion, and a lot of fun, It promotes the involvement of the whole family, which has become an increasingly significant priority coming out of COVID-19. Our business combination with RideNow couldn't come at a more opportune time in this industry. If you consider our current technology-enabled solution and the expansive opportunities that our pending business combination with RideNow will bring, combined with the powerful macro and secular tailwinds, we are poised to benefit from some of the most durable shifts in consumer behavior. We will become the only omnichannel customer experience available in power sports and offer the best team, best locations, and an unparalleled mix of quality inventory available in the market today. Manufacturers are embracing our vision. We have seen significant support and enthusiasm, and we are already getting inbound interest from many dealers. The transaction is viewed as positive and transformative. Providing the first public capital access to dealers in Powersports is monumental in all regards. We are excited to become a valuable working partner with all manufacturers and to provide incredible support for their initiatives as we jointly make meaningful improvements to the customer experience through the first omnichannel offering in Powersports. RightNow has been a fantastic dealer partner over their 30 plus years. And the addition of RumbleOn will create synergies and opportunities unparalleled in the power sports segment. The opportunity to consolidate a highly fragmented industry is very evident to us. We believe the dealer interest level is high. If a dealer wants to retire, we can tuck them in in our existing infrastructure. Or if a group simply wants to grow faster and more efficiently, like right now, RumbleOn can be a huge win for those dealers who, in many cases, have spent a lifetime building their businesses. Manufacturers will benefit from public company involvement with unparalleled capabilities to enhance their initiatives, move them along quickly and professionally, and support their desire for each of their individual brands to provide unmatched customer experiences. Following our shareholder approval last week, we are in the final inning of completing our proposed business combination with Ridenhouse. We are confident that the integration of RideNow's extensive geographic footprint and strong retail brand combined with RumbleOn's technology platform will make power sports vehicles more accessible to the enthusiast and importantly, to the novice. Bringing new riders to the sport continues to be a mission of most manufacturers. Access to our pre-owned inventory is beneficial to all dealers because we are introducing affordability, which is a key in bringing more buyers into the sport. First-time buyers getting hooked on the adventure of power sport vehicle ownership will have long-term positive effects on new vehicle sales. We will remain focused on leveraging technology to streamline the entire vehicle transaction, in-store or online, and improving access to high-quality pre-owned inventory through our proprietary pre-owned vehicle sourcing. Turning to our outlook, we entered the second half of the year with strong momentum. We exceeded our prior revenue and gross profit expectations for Q2 and delivered adjusted EBITDA in line with our expectations. We have had a solid start to 2021, and we are very optimistic about the trajectory and opportunities in front of us. We are taking a prudent approach towards guidance and are maintaining our prior expectations for the full year 2021. Assuming a combination completed as of January 1, 2021, the company expects full-year 2021 revenue for the combined company in the range of $1.45 billion to $1.55 billion and adjusted EBITDA in a range of $110 million to $115 million. Both represent double-digit growth. We have multiple growth levers to pull and are extremely confident in the present guidance as well as our longer-term goal of $5 billion of revenue and 10% adjusted EBITDA margin. There are many unknowns going forward, primarily in regards to when and to what extent gross margins will begin to normalize, and we believe it would be imprudent to revise guidance at this time. We will provide an update on our results and outlook on our third quarter earnings call, as well as the initiatives surrounding our long-term goals. We believe that the best people managing the best consumer experience, whether online or off, with unmatched selection and a national distribution and service footprint, creates a unique opportunity to absolutely dominate the power sports industry over time. We are excited about the road ahead. We remain confident that the robust growth and continued evolution of our business positions us to deliver long-term, sustainable value for our shareholders. I'll now turn the call over to Beverly to discuss our second quarter financial results.
Hillary
Thanks, Marshall. I am honored to assume the interim CFO role and speak with everyone today. It has been my privilege to be a member of the Rumble On team since the very beginning. Steve is greatly missed and has large shoes to fill. But he and I work very closely and I am confident in the strength of our finance functions and team here at RumbleOn and look forward to continuing to deliver. We had another strong quarter with gross margin expansion outpacing strong revenue growth. Revenue was up 100% year over year and 61% sequentially. Gross profit was up 131% year over year and 74% sequentially. Total gross margin for the quarter was 11.6%, up from 10% in the year-ago period and up from 10.7% in Q1. Gross profit was again aided by elevated pricing due to constrained supply of new inventory as well as market tailwinds. We expect gross margins to normalize once supply and demand imbalances return to more normal levels. As projected by some manufacturers, that could be several months away. Advertising and marketing expense was just under $2 million in the quarter, and total operating expenses were 11% of total Q2 revenue, an improvement from 13% in Q1, demonstrating the progress we are making rationalizing our cost structure. We continue to make investments in our technology platform to enhance our customer experience, and expand our business, adding new features and functionality to our website and mobile application. We generated operating profit for the first time in RumbleOn's history of approximately $770,000 in Q2, improved from a Q1 operating loss of $2.8 million and a loss of $3.2 million in Q2 of 2020. exclusive of the $5.6 million insurance adjustment realized during that period. As our sales volume increases, our improvement of inventory turn results in a reduction of floor plan liability. We improved our net loss to approximately 2% of the total revenue and generated another positive EBITDA quarter. Adjusted EBITDA was $3 million in quarter two, up from $21,000 in quarter one, and significantly improved from an EBITDA loss of $1.3 million in Q2 of 2020. As of June 30th, 2021, RumbleOn had $28 million in cash, including $3 million in restricted cash, and had over $9.2 million available on current lines of credit. As a reminder, we completed an equity raise of 36.8 million during Q2. Subsequent to the quarter end, we received over 3.1 million in additional insurance proceeds that will be reflected in Q3 2021 financials. We continue to demonstrate our disciplined approach to cash management. We will provide a more in-depth discussion of the pending business combination with RightNow upon closing, but I do want to take a moment to address our financing plans for this transaction. As a reminder, we have a commitment letter from Oak Tree Capital, which provides $280 million for the transaction, plus another $120 million for future endeavors, whether that be acquisition or working capital. The balance of the purchase price will come from the issuance to sellers or sell of additional equity. We understand that this is at the top of our investors' minds, but we cannot offer additional commentary around financing plans at this point, but we will provide an update after closing. On July 1st, We filed a proxy which included historical financials for RightNow, and we included certain Q2 preliminary results in today's earnings release. RightNow benefited from similar market tailwinds as we described for RumbleOn in the first half of 2021. For the second quarter of 2021, RightNow sold 13,080 units and generated $268.2 million of total revenue. RightNow realized an increase in miscellaneous income related to 19 million in forgiveness of its PPP loan debt, which is a benefit to net income, but adjusted out of adjusted EBITDA. As such, the company reported net income of 54.5 million and adjusted EBITDA of 36.8 million. Excluding this one-time event, RightNow's net income would have been 35.4 million for the second quarter, and there is no impact on adjusted EBITDA. We expect the pending business combination with RightNow to close very soon. As such, we will be reporting RumbleOn and RightNow financial results in aggregate, and thus will not be providing guidance for RumbleOn as a standalone company. I'll now pass the call back to Marshall before we open the call to questions. Marshall?
Marshall Chesrong
Thanks, Beverly. RumbleOn and RideNow are very excited to become instrumental in the future transformation of the power sports industry through the soon-to-close merger. I am optimistic about the future of our combined company and our ability to drive sustainable long-term value for our shareholders as we enter our next phase of growth. Thank you to all of our customers for your continued trust, to our employees for your hard work, and to our shareholders for your continued support. Operator, we're ready for questions.
Operator
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. If you want to. It may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you each keep to one question and one follow-up. Our first question comes from the line of Ron Josie with J&P Security. Please proceed with your question.
Ron Josie
Great. Thank you, Marshall and Beverly, for the question and, of course, our thoughts on Steve. I want to ask two questions really quick. Marshall, you mentioned in your opening remarks that listings could be $100,000 now, $200,000 longer term. Just talk to us about what needs to happen to get that call at $100,000, you know, to get to $100,000 and really the path to $200,000 going forward. I think that would be Very helpful. And then on the margins in ASP, you know, average selling prices in power sports, I think, was up another 7.5% sequentially. You know, we talked a lot about supply and demand, that getting more into balance could take a year, I think, going forward. So maybe just tell us more about where you think or how you think gross margins could just trend here on the Core Rumble now, you know, business as we await the merger to be completed. So one on just listings and getting to 200,000, and the second is on margins. Thank you. Okay, great.
Marshall Chesrong
Yeah, I think the 100,000 comment really comes from our analysis prior to launching the RumbleOn.com back in September. We were obviously doing a lot of analysis of average dealer listings, how many dealers on sites such as CycleTrader. What we see is that the average inventory on CycleTrader specifically new vehicles, is down, like way down. And used and pre-owned because of the turn rate and the high demand, they're also off on an average dealer count. So if we were just to say in normal times pre-pandemic, what would the average dealer have times the amount of dealers that we have on the site and we estimate it to be in excess of 100,000. As far as the 200,000, Keep in mind there's 7,000 licensed power sports dealers out there. A little bit of a misnomer from the standpoint that there's a lot of private individuals that have a dealer license and so forth. But we certainly think that with over 500 dealers we have today, we could easily get that to over 1,000 dealers in a reasonable window of time. And, again, just the straight line math, if 500 did 100,000, obviously double that would be well in excess of 200,000. Secondly is with regards to margins and ASP. Obviously, ASP, as you heard me say many times, Ron, that we don't control in our world now. It will be much more controlled with the addition of right now because of the advent of new vehicle sales. But we don't choose what mom and dad put into our cash offer tool. And so, thus, you can see our ASP has moved around, you know, sometimes fairly significantly. I think it's, you know, calmed down a lot. But I would tell you that the average gross margin continues to be up. We are certainly seeing stabilization in that regard. And because of our change of business model as far as how we redistribute and the fact that we don't use third parties anymore, and some of the things that we've talked about before where we're not paying fees, we're collecting fees and so forth, we do see the margins being, you know, significantly higher than, say, 2019 or even early 2020. But, you know, it's questionable to how long they stay at these kind of abnormal levels. I mean, if you look at it on a combined company basis, if you take the pro forma and look at the total vehicle sales with RumbleOn and RideNow, 2020 was an average of about $4,128 a unit. This is all inclusive of variables, so it includes finance, et cetera. In Q1, it was $4,835, and in Q2, it was $5,307. So we think, you know, at the low being 2020 at $4,128, the high today being at $5,307, we think obviously it settled in somewhere between those two levels. at much higher volume levels, obviously. As you can see from our numbers, you know, we sold a lot more units. If you look at gross margin as a percent, which I know you guys do, you know, it's fairly flat with consensus, et cetera. But if you look at it in total gross margin in raw dollars, it's up significantly.
Ron Josie
Great. Thank you.
Operator
Thank you. Our next question comes from the line of Michael Baker with DA Davidson. Please proceed with your question.
Michael Baker
Hi. Just one quick clarification and then a longer-term question. I think you said that 2Q sales and gross margins were ahead of plan, but EBITDA was in line. I think the implication there would be that there was some cost or something that maybe was a little bit higher such that EBITDA also didn't beat. Did I hear that right? And so... If sales and gross margins be, why wouldn't EBITDA have been better than plan?
Marshall Chesrong
Well, I'm not exactly clear what plan we're referring to, but if we look at – there are a couple of effects here that everybody should consider with regards to – and I know you mentioned EBITDA, but we'll get there. On the EPS side, we have had an adjustment, 10.9 million, which was a balance sheet adjustment in Q1. but we had a additional adjustment to P&L in Q2 of about $2.2 million. So EPS, I believe this morning, is at negative $1.05. This is in reference to the oak tree warrant, which obviously has not taken place yet, but required under GAAP and under SEC regulations. We have to take those expenses. Obviously, it's not a cash entry. It's an accounting entry, but We have the net EPS at about 0.36. As far as the EBITDA, again, could you clarify for me which guidance you're referring to?
Michael Baker
I guess I'm just referring to the prepared comments. As I heard them, and there's a transcript that I'm following here, it says something along the lines of, Sales and gross margin were ahead of plan, and then it said EBITDA was in line. But it's a minor point, so I guess it wouldn't work. We exceeded our prior revenue gross profit expectations and delivered EBITDA in line. So it's the exceed versus the in line. It's not a big point. Let me ask another question. if I could, and I guess on this one, the answer is probably just conservatism, but I'm wondering if there's something more to the idea that, you know, your 2021 EBITDA dollar guidance is actually lower than the last 12 months pro forma guidance, I believe, or pro forma what you've delivered. So, you know, implies back up pretty conservative. Is there anything specific we should be Worried about the back half, or is it just the idea that you think gross profit per unit should normalize, and like you said, just being prudent?
Marshall Chesrong
Well, we definitely felt that it was imprudent to adjust guidance. Obviously, you can do the straight line math and talk about run rate. You can see from the past that now that they're public numbers, you can see from right now's experience because of their emphasis On the Sunbelt, they have not had hardly any seasonality from first half to second half, unlike Rumble On, which has had some of that. So as a combined company, I think it's very, very little effect in that regard. We just felt that it was imprudent with the fact that we have an integration that's going to take place. We think there's still a lot of unknowns out there with regards to COVID and all these new variances. When do the manufacturers actually ramp production. Some of them are now talking about possibly before they can get back to any normal levels a year or so. So we just think there's a lot of unknowns. And I think the important part is we want to make sure as a total company that we've set the expectations at a level and we set that as an example of how we plan to operate going forward, that these will be numbers that we can beat or exceed. And like I said, we certainly talked about it a lot internally, but we just think it would be important to adjust at this time. We are very confident of our guidance where we have it.
Michael Baker
Right. Yeah, makes sense. Understood. Thank you. I'll turn it over to someone else now.
Marshall Chesrong
Thank you.
Operator
Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Chesron for any final comments.
Marshall Chesrong
I think that's it. We appreciate everybody joining us today. Obviously, we've got a lot of stuff going on. We will update everyone as soon as we are able to with regards to Ride Now and, you know, any improvements, I guess, to getting closer to closing. We're down to the final what I consider nits and nats of our checklist to get this to the finish line. And, you know, as I've told many, we kind of feel as a team that we're about on the one-yard line. So I think you'll hear some things very, very, very soon from us. And we are even more excited as we get more and more introduced to the Right Now group. And I think there's a high level of enthusiasm there as well. So lots of good stuff ahead from our management's perspective for 2021. And certainly we think 2022 is going to have a lot of legs. So appreciate your time. I look forward to speaking to you all soon.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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