This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: thank you for standing by this is the conference operator and welcome to the rumble on second quarter 2022 earnings conference call as a reminder all participants are in listen-only mode and the conference is being recorded after the presentation there will be an opportunity to ask questions to join the question queue you may press star then one on your telephone keypad should you need assistance during the conference call you may signal an operator by pressing star and zero i would like now to turn the conference over to will newell investor relations officer. Please go ahead.
spk10: Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us on this conference call to discuss Rumble On's second quarter 2022 financial results. Joining me on the call today are Marshall Chesrone, Rumble On's chairman and chief executive officer, and Narendra Sahai, Rumble On's chief financial officer. Our Q2 results are detailed in the press release we issued this morning, and supplemental information will be available in our second quarter form 10Q, that will be filed later today. 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 involves risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in RumbleOn's periodic and other SEC files. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and RumbleOn 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 contains non-GAAP financial measures. For reconciliation of non-GAAP financial measures, please see our earnings release issued earlier this morning.
spk06: Now, I'll turn the call over to Marshall. Marshall? Thank you, Will. Good morning, everyone, and thank you for joining us today.
spk09: We saw strong demand for our offering in the second quarter and delivered another quarter of profitable growth while driving gross margin expansion and robust cash generation. We are building the future of PowerSports by delivering an unparalleled customer experience through our unique omni-channel offering, and we continue to capture market share. It's a pleasure to be reporting another quarter of record results. During today's call, I'm going to focus on three main themes. First, we are executing on our financial and operational goals as we continue to take share in the power sports industry, led primarily by our high-quality used vehicle offering, which uniquely positions us to continue building market share against the backdrop of a challenging macroeconomic environment. Second, we are investing prudently in core areas of the business that will provide us the sustainable long-term competitive advantage and scale. And finally, we remain true to our North Star, providing customers an unparalleled choice of products and services, as well as an unmatched buying, selling, and service experience, both online and in our retail locations. We delivered over a half a billion in quarterly revenue for the first time in RumbleOn's history, expanded our gross profit margin to over 25%, and we increased net income 54% and adjusted EBITDA 41% quarter over quarter. And we are reiterating our full year financial outlook of 1.9 to 2 billion in revenue and at least 145 million in adjusted EBITDA. We sold over 20,700 PowerSports units led by over 41% growth in used retail units quarter over quarter, delivered more than 414 million in PowerSports revenue and grew PowerSports gross profit to $130 million. In a quarter marked by macroeconomic uncertainty, we are executing, and we are capturing market share. Our strategic competitive advantage, our highly differentiated used PowerSports retail and online inventory acquisition strategy certainly drives our outperformance. Our used acquisition strategy, driven by unmatched technology, is driving incredible results. Used inventory is not subject to supply chain constraints and will continue to be an important organic growth driver for RumbleOn. Looking at the second quarter, as compared to Q4 in 2021, which was our first quarter as a combined company, we grew used retail power sports sales 86% from $66 million in Q4 to over $122 million by Q2. This is due to continuous improvements in our processes, And by leveraging the use of our unparalleled data, we nearly doubled the total sales with just a 10% increase in used inventory. And day supply went down from 123 days to just 77 days in Q2, which is an improvement of 45 days. Further in that regard, we also improved the vehicle GPU from $1,920 in Q4 to now over $2,600 in Q2. We achieved an increase in GPU from the increased used vehicle flow in parts and service, as well as F&I and merchandise. The affordability factor of used inventory is giving consumers options for ownership that didn't exist in the past, even more so in times of uncertainty in the economic backdrop. Our offering has been well received, as evidenced by our continued growth in our used business amid tightening household budgets, higher interest rates, and discretionary spending pressures. While we are monitoring these macro headwinds closely, our consumer has proven resilient. We are not immune, but we are insulated. Our business model affords us flexibility to move rapidly in reaction to market changes. We are uniquely positioned to provide high-quality affordable funds with our depth and breadth of used inventory sourced directly from the consumer and our captive finance options. Additionally, thanks to the real-time versatility of our cash offer tool, we are nimble in our ability to control inventory level and day supply. We are presently the largest retailer of new and used power sports in the country. Our next objective is to launch a fully online, paperless, and friction-free experience to transact power sports. RumbleOn's omni-channel experience will bring together the largest inventory in a no-hassle format without boundaries for the consumer, and will be the next leg up of organic growth for the company. We are building RumbleOn for the future and continue to invest in our mission to deliver unparalleled value to our customers. At the beginning of the year, we laid out the strategic priorities for 2022 to invest prudently in technology, facilities, people, and processes. We continue to make measurable progress in all these areas. On facilities, We are building our fulfillment center network for efficient inventory acquisition, distribution, and fulfillment for new, used parts and merchandise. We opened a fulfillment operation in Concord, North Carolina in Q2 and just opened our second location in Orlando, Florida last week. We believe a streamlined fulfillment network will be a significant advantage and plan to expand into more strategic locations as we continue to scale. Further, the majority of our stores are located in the Sunbelt region, which provides minimal seasonality in the winter months. However, we do see some seasonality softness in the hottest summer months. Q2 is typically the seasonally strongest quarter of the year, whereas Q3 is the weakest, attributable to the temperatures across the markets in July and August. As we continue to strengthen our national presence, we will continue to evaluate opportunities outside of the Sunbelt. We are making big strides designing our first ever customer experience center in Dallas, Fort Worth market. We are creating a destination for power sports enthusiasts to interact and engage with not only the products they desire, but also the broader power sports community and with our brand. We are in the design phase now and look forward to moving into execution phase in the coming months. We expect to add this location to our fulfillment network by the end of the year. and look forward to a grand opening of our largest power sports center in 2023. We believe this will be a game changer for RumbleOn and power sports enthusiasts around the country. On technology, we are testing new ways to leverage both our technology and data advantage. We continue to march towards full digital inventory integration of our retail locations via new innovative websites, integrated CRMs, and centralized inventory. which is all on track for later this year. Our cash offer tool, a key differentiator for us, has been rolled out in all 55 RumbleOn locations and continues to increase our capture rates. We're also building a system for improved lead management and customer assistance strategies, which will support our vision in creating a paperless, friction-free experience for customers regardless of their location or the location of what unit they might be interested in. On people and processes, we've already reached extraordinary benefits and efficiencies from the regional management structure that we implemented in Q1, enshrining our unique culture and ensuring stable footing for our continued growth. And in Q2, we expanded deeper into the organization, adding resources across critical SG&A functions. By broadening and deepening our in-house processes and core competencies, we are building a solid foundation. for the future organic and acquisition growth of RumbleOn. At RumbleOn, we are never satisfied with the status quo, and we will never stand still in the pursuit of our North Star. We have worked hard to create a culture based on innovation and the constant desire to excel, and we've been heads-down testing and learning countless ways we can improve the customer experience, from pricing strategies, hours of operations, and customer service techniques, online engagement, and lead management. Through all of this, we are remaining focused on our commitment, providing customers an unparalleled choice of products and services and an unmatched buying, selling, and servicing experience, both in our retail locations and online. And with that, I'll now pass the call over to Narendra, and then I'll rejoin you for some closing comments.
spk02: Thank you, Marshall, and good morning, everyone. We entered the second quarter with strong momentum. While the macro environment has changed meaningfully since we last reported earnings in May, we have established ourselves as a market leader in new and used power sports, and we continue to see resilient consumer demand. We are focused on driving profitable growth, and our exceptional second quarter results demonstrate the progress we have made, all while investing in our business. Please refer to our earnings press release and Form 10Q to be filed later today for full details of the quarter. Unless otherwise specified, all of the second quarter growth figures cited in my remarks today are quarter-over-quarter or sequential comparisons. Moving on to some key highlights. In the second quarter, we sold 23,330 total units, up over 20% sequentially, and grew total power sports unit sales by over 23.5%. PowerSports unit sales were driven by a 41% increase in used retail units, offset by a decline in wholesale units as we continue to channel more used units to our retail locations. New units were up approximately 17.5% sequentially. The contribution from the Freedom PowerSports acquisition, which closed on February 18, 2022, was a tailwind to unit growth. Our used vehicle acquisition model enables us to have significant control over our inventory, enabling us to react quickly to changing demand environments. We delivered record revenue of over $546 million in the seasonally strong second quarter. Revenue from finance and insurance net grew 34%, and parts, service, and accessories grew over 19% from the first quarter. These revenue increases are highly correlated with retail unit sales. Total gross profit for the second quarter was approximately $138 million, up 31% from the first quarter. Total gross profit margin was 25.3%, up 239 basis points from 22.9% in the first quarter. Total SG&A expenses were approximately $100 million, or 18.3% of revenue compared to over 78 million or 17% of revenue in the first quarter. As a percentage of gross profit, SG&A improved 160 basis points sequentially. We have continued to make prudent investments in the near-term priorities we outlined at the beginning of the year, technology, facilities, and people and processes. We are pursuing strategic technology projects focused on inventory management, infrastructure, and integration efforts, which will be a continued focus area for RumbleOn. Additionally, our SG&A reflects our marketing activity focused on used inventory acquisition, general and administrative costs focused on a larger organization, and incremental facility lease expenses. We are focused on hiring personnel in strategic positions to continue to build our world-class team. The investments we are making will provide the foundation for long-term sustainable growth as we continue to scale Rumble on. However, we do not expect leverage from SG&A expenses this year. Within SG&A, total stock base compensation was approximately $2.8 million, up from $1.9 million in the first quarter. As you saw in our press release, we introduced adjusted net income this quarter. which was $19.3 million, and adjusted diluted earnings per share, which was $1.20. Adjusted net income and adjusted diluted earnings per share were $31.3 million and $1.98, respectively, for the six months ended June 30, 2022. We believe that adjusted net income, which excludes charges and credits primarily related to purchase accounting, transaction costs, and other associated expenses provides greater clarity into the earnings power of the business and enables normalized sequential and year-over-year comparisons. Adjusted EBITDA was over $44 million in the second quarter, up 41% over the first quarter, and nearly $76 million year-to-date, or 7.5% of first-half revenues. Year-to-date, we've generated $50 million in cash flow from operations. As of June 30th, cash and cash equivalents, including restricted cash was $77 million. Our total liquidity defined as cash and cash equivalents, including restricted cash, plus availability under our short-term revolving credit facilities, totaled approximately $270 million. As a reminder, We have over $86 million of equity in owned used PowerSports inventory, which could provide additional liquidity if we choose to finance this inventory. We will continue to prioritize our investments to areas that we believe will drive the most long-term value for all of our stakeholders. Our top capital allocation priority remains to invest in our business. These investments will take both organic and inorganic forms. We are fortunate to have an incredible investment opportunity set, talent, and capital to execute on both. As I have said before, we will balance our investments with a continuing focus on profitability, margin improvement, and cash generation. We are monitoring the macro environment and industry trends closely. While we are not immune to the impact of inflation, rising interest rates, and economic uncertainty, are having on consumers, it is important to understand and acknowledge two things. One, we are not currently seeing any measurable reduction in demand indicators for our power sports segment or any evidence of customers trading down. So we are continuing to fulfill this demand with available new and used inventory. Second, we remain prepared and are confident in our ability to respond to any changes quickly and prudently. We have several levers that enable us to move with agility. Because we acquire used PowerSports inventory directly from consumers, either through our cash offer tool online or trades at our retail locations, we are uniquely positioned to ensure our used inventory acquisition matches demand in near real time. Our sales data informs our used inventory in not only make, model, and price, but also our pace of use inventory acquisition. For new inventory, we are only really constrained by availability due to manufacturers' production or distribution constraints, as demand continues to be quite resilient. Finally, Rumble on Finance provides us the flexibility to offer financing solutions to our customers. Now turning to Outlook. We delivered exceptional growth during the seasonally strongest second quarter and are pleased to reiterate our full year 2022 outlook for revenue in the range of $1.9 to $2 billion and adjusted EBITDA of at least $145 million. While there is minimal seasonality between the first half and the second half of the year, we do experience some seasonality on a quarterly basis, as Marshall noted earlier. With the second quarter being the seasonally strongest quarter of the year, and the third quarter being the weakest. As such, we anticipate the third quarter revenue to decline sequentially with the return to sequential growth in the fourth quarter. As you will recall, we gave our full year 2022 guidance in mid-March when we reported our fourth quarter earnings. At that time, due to ongoing manufacturer supply chain constraints, our full year outlook assumed new power sports units would be flat to slightly down on a year-over-year basis. However, since then, and normalized for freedom, new power sports unit volumes have declined in the mid-single digits in the first half of this year on a year-over-year basis. So our reaffirmed outlook now assumes that new power sports units for the full year will decline in the mid-single digits on a year-over-year basis. Consistent with our prior expectations, which remains unchanged, we anticipate growth in the used retail power sports units to be in excess of 50% year-over-year, offsetting the year-over-year decline in the new power sports units for the year. For used power sports, we will continue to align our supply with demand, adjusting used inventory levels, and channeling this inventory through our retail locations. we believe that used power sports represent a significant opportunity for RumbleOn to gain market share. For non-power sports segments, we now expect revenue from these segments in the second half of the year to be approximately consistent with the first half. The progress we are making with the integration of RightNow and Freedom Acquisitions, as well as accelerating the used power sports units to our omnichannel platform, are important performance levers while we make prudent investments in our business. As a reminder, our adjusted EBITDA outlook includes up to $20 million of incremental operating and capital investments in key strategic areas we previously discussed. RumbleOn has a durable business model with unique advantages, enabling us to continue to deliver revenue growth and profitability. with strong unit economics and robust gas generation. I will now pass the call back to Marshall for closing remarks before we open the call for questions.
spk09: Thanks, Narendra. I want to close by saying the progress we've made to this point wouldn't be possible without the incredible hard work and dedication of our team. They're working tirelessly to provide a personalized, multi-touch, and seamless omni-channel customer experience. We will stay focused on pursuing initiatives to deliver unparalleled value for our customers and capture market share, including the investments we are making to transform the customer experience, enhance our technology stack, and further develop and improve our people and processes. Operator, we're ready for questions.
spk03: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. The first question comes from Eric Wold with B. Reilly Securities. Please go ahead.
spk04: Thanks. Good morning. Thanks, Marshall and Andrew, for taking my questions. A few questions. I guess... One, I just want to dive in a little bit more on the comments around seasonality that you've been focused on in your opening comments. Anything different in these trends from what you've seen in prior years that may be exacerbated by recent weather, regional economic changes, anything like that? Or is this really going to be a normal course for you? And then just how large of a seasonal decline do you think we could see in Q3 versus Q2?
spk09: Thanks, Eric. Good question, and I'm happy to expand on it. As we've talked about in the past in numbers that we have reported on a pro forma basis, it was pretty clear that pre-COVID and through COVID that, for instance, the Right Now group was about 51% in the first half and 49% in the second half. So, you know, typically not the swing that you would expect. And I think what drives that is a couple of things, and I'll get a little bit more detail in just a second. But if we look at it overall, you know, Rumble On originally was buying from, you know, all over the country and redistributed into the dealer channel. And the dealer channel nationwide has significant seasonality, primarily, you know, weather-driven, obviously. Because of our focus with 52 of our 55 locations in the Sunbelt, we almost have a reverse effect. As we drilled into the numbers and met with the management teams that have been doing this for a long, long time, it was very clear and pretty surprising really for me to see that the down months were really July and August. And if you think about it, where our locations are, you know, heavy saturated in Arizona, Arizona, we do primarily off-road. It's by far the majority of our business. And the areas in which they utilize those vehicles aren't even open this time of year because of the heat. In Dallas, Texas, we haven't had a day under 100, I don't think, since May. So if you're a motorcycle rider or an ATV-er, it really isn't a very comfortable opportunity. Even the point of personal watercraft is too hot. And then our next market would be Florida. And, of course, the same things exist. So we aren't expecting a significant amount of seasonality presently. And, again, if you look at our previous recorded numbers, it shows more seasonality. But, again, that was because we were feeding it all into the dealer channel, and the dealer channel as a whole does have a fairly significant seasonality.
spk06: So hopefully that explains it a little better. No, that is helpful.
spk04: Thank you. And then... Narendra, when you're talking about the outlook and the updated or the kind of reform guidance, you said you're not seeing any measurable evidence of declines in demand for PowerShare vehicles or any kind of evidence of consumers trading down. I know you're also not immune, as you talked about. Is there anything on the margin at all that would get you concerned about any parts of the business, whether you're seeing regional changes in demand or specific price points, seeing more pressure, credit availability, anything that would give you a sense, or is it truly just still remaining robust across the board?
spk02: Yeah, it's really nothing in any of those things you mentioned. I think it's really, if you look at the units, and if you look at it from a new PowerSport standpoint, I think that's where we think from a volume standpoint, you know, it's going to be, you know, for the full year going to be down in the mid single digits. You know, on the used side, obviously, you know, we continue to, you know, source that inventory from our consumers directly, not seeing any, you know, measurable change there. And when we think about it, you know, flow through on the sales side, again, not really any measurable change where People are looking for new, and they're trading down to, say, used because they can't afford it anymore. Don't see that either. So it's been really fairly consistent, except the seasonality factor that Marshall mentioned. So nothing really of note there, Eric.
spk09: Eric, I would add to that. I don't see any pressures, surprisingly. But I think what happens a lot of times, because there isn't another public comp out there on the power sports side, we kind of get thrown in with the automotive group. And the automotive group, keep in mind, has a significantly higher price point. And thus, the difference in APU, I mean, in average selling price, ASP, actually causes some of that constraint, if you will, on the customer's ability to buy. So And we are not dependent, as you can see from our gross margin makeup, we are not solely dependent on finance. And although we do extremely well in finance and we see that continuing to improve and we feel we can continue that march, we certainly feel the same on pre-owned. As the data gets better and better, our customer experience continues to improve. We are clearly seeing we can improve margins in that regard. And then the last piece on that, is with regards to the other things that increased use volume does for the business. If you look at the growth in our parts service and merchandise as an example, obviously with less new vehicles being sold because of lack of availability, and by the way, on the availability side, primarily driven by Harley-Davidson, we have a significant downturn in availability in that regard. We are starting to see some relief in some of the others, whether that be some of the bigger players, whether it be Polaris or BRP or others. And so we do see some light at the end of that tunnel. But with that, obviously with less new vehicle sales that do get a lot of additional items added to them, which affects your parts and service, we're more than making that up on the use side because of reconditioning, the ability to put parts on vehicles and and certainly the after-sale opportunity, because a lot of our buyers today on the used side are first-time buyers, and I think that is such a huge message for the industry, because from my perspective and management's perspective, we really feel that's been the missing link. This has been an industry that hasn't spent a lot of time on the future riders, and I think that this affordability factor of pre-owned is really changing that dynamic, and I think we'll actually see our total addressable market grow over time.
spk04: That's fantastic. Final question, if I may. You got to hit on it a little at the end, Marshall, around new vehicle availability and Harley being the main issue. I guess, how constrained were you on new vehicles? Obviously, up nicely sequentially from where it was in Q1. Any sense of just how much you were constrained? And then I know, Narendra, you said that people aren't trading to use because of Are you seeing people go to use because they can't get the new they want and just want to get a vehicle now or really because of leverage your used vehicle platform for that or are they waiting for new?
spk09: Yeah, I think, you know, the new vehicle buyer remains the new vehicle buyer. I think a lot of people are sitting on the sidelines. I think we have an unmeasured amount of pent-up demand that we haven't been able to fulfill yet. I mean, all the fast-moving product, all the high gross margin product that is in high demand is virtually unavailable. I mean, I had a request yesterday from a longtime friend for four personal watercrafts. And out of 55 stores, we did not have a single unit in stock to sell them and nothing inbound in 2022. So we have to now convert him to a 2023 buyer. And I think that's just one example, but I think that's pretty widespread. Another thing about this particular issue is the cost increases. The cost increases from the manufacturers have been fairly minimal. But again, because our ASP is where it is, it really isn't visible to the customer. And the effect is so small with regards to payments. And really that's what it comes down to, right, is how much am I comfortable spending on my toys on a monthly basis, and are we able to fill that need?
spk06: Awesome. Thank you both. Thanks, Eric.
spk03: The next question comes from Mike Baker with DA Davidson. Please go ahead. Hi. Thanks.
spk08: I actually wanted to follow up on that. inventory question, both new and used. So that story you just told, Marshall, sounds like it's still very tight in the new vehicle inventory area. But then you had said that besides hog, it's getting better. And we're hearing that from other channel checks. So could you just clarify that if there's zero available in watercraft, how is that getting better? And then on the used inventory side, You're not seeing any economic concerns in terms of demand, but is it easier to acquire inventory because people are playing out their garage and trying to sell stuff to make a little bit of money?
spk09: Thanks. Well, I'll start with used. Obviously, the finding of the used inventory has really become a situation where the brand is very, very well known now and synonymous with creating cash liquidity for consumers. Our ability to acquire the inventory has been extremely consistent. We continue to ramp that opportunity. As said before, the majority of our marketing spend, which is, you know, as a percent of, whether you look at it as a percent of gross margin or you look at it per unit basis, is, you know, is extremely low from our perspective. It is generating a significant interest. As far as additional interest in vehicles being offered for sale because of the economy. We have not seen it demonstrated in the capture rates. But again, a lot of what we're seeing, I think, is a little bit masked just because of execution on the pre-owned side. And quite honestly, the lack of competition has really, you know, the traffic in the showroom floor, as an example, or the traffic I've talked about on our website, We have just not seen any downturn in that regard. And again, the question is, how much pent-up demand do we really have? On the inventory you asked about, we are seeing an increase. I used an example of probably a low-production product, be it personal watercraft. But if you look in our mainstream stuff, like off-road in Phoenix, Arizona, it's just turning as fast as it hits the floor. So if you look at our inventory, say on rightnow.com, you'll see that that new inventory continues to shrink, but our turn is significantly higher. On the used side, the thing that I tried to explain in my remarks is that we have more than doubled the sales over the last six months. And we're ending with only 10% more inventory at the end of the month. That's really strategically done. You know, we think that 90 days of inventory in power sports is a very reasonable number. We don't have the depreciation factors that they have in the automobile business. You know, my history was probably about 2% a month on the pre-owned side. The industry on the pre-owned used has not fluctuated like it has in automotive, and it certainly hasn't been under any pressure that we've seen. And really, the last three years, we did not see the normal downturn in valuations of pre-owned inventory in fourth quarter, and we're not anticipating it this year either. We watch the auctions. We don't buy at auction. We sell non-retail units through auction, but we're watching the auction values, and they continue to be extremely robust on the power source.
spk08: Okay. Thanks for that, caller. If I could ask one more question. And any color you're willing to provide in terms of different types of vehicles, you know, motorcycles versus personal watercrafts or ATVs, et cetera, and also any color by brand in terms of where you're seeing better or worse trends?
spk09: Well, on the new, literally, we're just, you know, we're selling whatever they send us. So we don't get too caught up in what we're seeing on the trend side. But as you know, as we've shared before, our business remains as a company remains over 50% off road and about 40% of that, and I'm talking about new, ends up being on road and about 10% is personal watercraft. With that said, that is not the mix on our pre-owned side. And that's primarily because of the the inventory that's available has a heavy lean towards Harley-Davidson. And on-road vehicles is significantly more than 40% on the pre-owned side. If you think about the type of vehicle when people are using them off-road, just to put it simply, they beat the death out of them. And it's a little bit harder to acquire those in volume. We're working on several different initiatives and tests to try to improve that and increase it. And we have been able to make fairly large improvements. And then the last thing on that that drives that used mix being heavy to Harley-Davidson, which is fine. We do very, very well with Harley-Davidson with really great margins. But one thing that drives that is Harley has a much higher percentage of people that have debt on those vehicles. many of the non-Harley branded vehicles, because of price point, are three and third titles. So the demand is, you know, we expect the Harley-Davidson demand to continue to be robust because there are people now that need to sell their toy and get out from under that $500 a month payment.
spk08: Sure. Yeah, makes sense. Okay. I appreciate the caller. Thank you.
spk03: Thanks, Mike. The next question comes from Craig Kennison with Baird. Please go ahead.
spk07: hey good morning thanks for taking my questions as well i think marshall you mentioned that prices use prices remain robust i'm just wondering what the impact on affordability is especially in a period of rising interest rates as well um we just uh we have not seen the effect as we've said and obviously you can see that demonstrated in numbers uh you know we talk about seasonality um
spk09: But, you know, we continue to see growth and a march forward through, you know, current, as current as now. I think that, you know, interest rates at some point obviously will have an impact on those vehicles that are financed. But the finance penetration on used is not equal to the finance penetration on new. And again, it's because of ASP. you know, you're selling a $5,000 or $6,000 asset, it has a high likelihood of being a cash transaction. So this is, you know, it really has different dynamics. And we've never been under pressure on the interest rate side. And as I mentioned earlier, you know, our business model is just not dependent on financing. I think that some of the messiness you're seeing in the used car business right now really revolves around models that are dependent on gross margin from financing activities. And as those interest rates go up, those models become really, really challenging. So you might have seen that we haven't talked about cars much, but I want to touch on it just real quick since you brought up pricing. Obviously, we sell a lot of used. Keep in mind, our used is purely wholesale distribution. We sell to dealers. So we have absolutely zero reliance on consumer financing as part of our strategy and as part of our margin makeup. And with that, we made a very conscious decision, as you can see from our numbers, to not chase volume, to chase profitability, and we will continue to do that. It is a very, very messy world out there right now in the used car business, but it is 180 degrees from what we're seeing in the power sports business.
spk07: Thanks for that. And then another question difficult to ask, I'm trying to figure out, you know, as you make acquisitions and enter new markets, there's an opportunity for you to be discovered by people who might be selling their units. Just shed any light that you can on how, when you bought like Freedom, for example, how do you encourage, I guess, discovery about, you know, the RumbleOn platform as a place to sell your vehicles and, sell consumer vehicles, and is there any metric you can share that just shows how that adoption curve evolves in time?
spk09: Well, we haven't shared any metrics, but what I will share with you is some concepts. Keep in mind, all of our websites are being completely rebuilt internally, and we plan to launch that per our previous conversations. Right now we use third party providers. They are very old school from our perception website. They are not omnichannel functional. But one thing we have done is we've added the rumble on cash offer tool for trade evaluation on the majority of our websites, even using third party. And that's really been a huge mover of our ability to acquire But more importantly, I think what it has done for the stores is when the customer comes into the showroom floor now, much like a CarMax transaction, he feels like he's somewhat armed, right? In some of our stores, we're testing some different pricing strategies as well. But with regards to the trade, he walks in with a fixed price on his trade, and that's one piece that he doesn't have to feel he has to negotiate. And we just think that giving the people the opportunity online get pre-approved which we now have executed on is proven very very successful the fact that they can get a fair trade value on their vehicle before they come to the showroom floor these are the beginnings of building a true omni-channel transaction and once we have the infrastructure of centralized inventory control uh and you know integrated crms and integrated uh common websites you will see a significant change. And that will launch the first opportunity for us to be the only one. Today, no transactions in this industry are transacted 100% online. There is no way to buy online. If you live in South Dakota and you see an asset in Ocala, Florida, there is no dealer facilitating that today. RumbleOn already has the technology to do the full transaction. because we were doing them before, obviously. But now what we have to have is we have to have all the infrastructure underneath that, such as websites and CRM and so forth, so that we can standardize that process. And that, we see, is a very exciting future opportunity to be another big leg up in organic growth. You touched on acquisitions. I'll just cover real quick. Obviously, second quarter was a quiet quarter. That was intentional. Our phone continues to ring off the hook. We are in discussions with many, many dealers. I would tell you that we continue to be extremely excited because we think that these are going to be very accretive to our business model, number one. But number two, even these really well-run stores that we are having the opportunity to acquire aren't in the used bike business. And we already know what we can do by adding additional inventory into an existing store that is not in that business and what that will do to drive the business. So we think the acquisitions, you know, we'll continue to make them. We're probably more disciplined and prudent with the current economic situation, making sure that we're making great moves. And Narender has got his both hands around the purse strings. I have to negotiate diligently to release those.
spk06: That's great. Thanks so much, Marshall. You bet.
spk03: As a reminder, if you wish to ask a question, please press star, then 1. The next question comes from Seth Basham with Wedbush Securities. Please go ahead.
spk05: Yeah, hi. This is Nathan Friedman for Seth Basham. Thanks for taking my questions. You experienced another strong sequential gross margin improvement this quarter. It doesn't seem to be one time in nature, which is nice to see. Just curious if you could share your expectations for gross margins and GPUs for the back half of the year and any key drivers that may cause a significant change in a given quarter, one versus the other.
spk09: Thanks. Okay, let's start with new. I think if new continues to be constrained as we presently see, And the mix of the inventory that we are given from the OEMs does not change dramatically. We really don't see anything that's going to pressure that. We continue to see increases in finance and insurance, and we anticipate that going forward. With regards to pre-owned, you know, Nate, we have a lot of enthusiasm around what we think we can do over time. We're going to march, you know, diligently. But once we have complete control over the inventory being centralized and have control over the pricing, we really think there's a huge, huge opportunity there. If we look at the difference of GPU on a per-store basis, it's all over the board. And a lot of that is because data and technology is not driving that pricing strategy. And that's what will happen going forward. So we think... We think we can continue to march all departments. And I think the one that probably gets left out, and I really, when we looked at acquiring, you know, getting into the retail channel through the acquisition of RightNow, I think the one opportunity that I missed was with regards to service. These service departments are overwhelmed. The level of customer service is extremely poor in my estimation. And we just think that fulfillment of getting that used vehicle processing, the bolting together of new vehicles that come in in a box, all those types of functions outside of these dealerships and allow these dealerships to concentrate on better customer service that is very high margin, right? As you can see from our numbers, we think there's a tremendous amount of opportunity in service as well. And we would expect that even if new GPU stays flat, we think we can continue to march those gross profits. With regard back to the service one, though, just as a flag, we don't intend to build the percentage of gross profit in that. We intend to do significantly more work. And the example is we have a lot of stores that in our estimation are capable of doing twice as much service work. And with 80% gross margins, if we can do twice as much work and by paying technicians more, only realize, and I'm not suggesting this is a number, but we only realize 70% growth. I would much rather have 70% growth on twice as much business than 80% on half as much. And so just tons of opportunity on the GPU side. Give us time. Let us get some of this organization done. Let us continue to work on the customer experience that just has a wealth of opportunity. And that should be reflective in GPU, at least in my experience, it always has been in other businesses.
spk02: Yeah, and just to add a couple of points to that, I think two areas continue to be focused. I think maintaining the discipline on pricing on the use side of the business, I mean, that's where we will continue to focus, continue to look at the data, continue to drive that. And as Marshall mentioned, the second thing I think we definitely have opportunity on is on the service side of the house. So, you know, that's where we are focused as well. So, I mean, I wouldn't model anything significantly different than what you have seen in the first half of the year versus the back half of the year. You know, there is some small seasonality like we talked about, but nothing really noticeable from a margin standpoint that we can see.
spk05: Got it. Thank you for the color there. I wanted to just shift over to cash flow. Seems like you're operating in a period with still elevated demand for your business. How should we be thinking about free cash flow? Do you view that this is the right run rate moving forward as the business environment starts to normalize and maybe pent-up demand comes down? Any puts and takes there would be appreciated.
spk02: Yeah, so Nate, we haven't given, you know, specifically, we haven't put a free cash flow number out there or haven't talked about how we think about free cash flow. But if you look at, you know, two main components of that, one is, you know, cash from operations, and the other is, you know, what we're doing and how we're investing that cash. If you look at cash from operations, I think you will probably see some, you know, gyrations quarter over quarter, and that's going to be primarily driven by how we see the volumes coming in and how we see the seasonality kind of flowing through the numbers. I wouldn't expect a significant change in the key drivers in the cash flow from operations. We continue to monitor inventory, so I wouldn't model anything significantly different there. Obviously, we look at all components of working capital, receivables and payables and all those things that you know, make up the cash from operations will continue to drive, you know, gap profitability, continue to make sure, you know, we are, you know, seeing the flow through of that down to the net income line. So I think, you know, if you look at that, you know, I would just look at how you are thinking about the volumes and how you're thinking about, you know, the key components as far as the working capital goes. As far as the investment side of the house goes, I think the first half of the year should give you a fairly good indication on where we are focused. You know, they will be continuing investments on the technology side. You know, for the first six months, you see about $2.5 million we spent on technology. There's some more coming for the back half of the year. There's definitely some investments in our property and facilities that we will do. And that's all, you know, included in our, you know, guide for the full year. So if you think in those discrete pieces about that impact, free cash flow, that should get you to a pretty good spot.
spk05: Got it. Thank you for that. One more, if I could sneak it in. It seems like it's still in its early stages, but can you share the latest regarding your Rumble on Finance platform and any key metrics at this point in time that we should be considering?
spk02: Yeah, so Rumble on Finance, you know, obviously is a key differentiator for us. That business is fairly small today. We continue to scale that business. Nothing we have shared, you know, publicly on those in terms of the metrics. And, you know, what I would say is that business, you know, continues to show consistent, you know, growth, you know, month over month and week over week. continue to maintain the key metrics that we follow in that business. So I wouldn't point out anything to you there that you should be modeling in for 2022.
spk09: I would just add to that as well, kind of repeat what we've talked about before. The ability to have rumble on finance is really to backstop any opportunities that are not available to our captives. we're the largest consumer retail contract provider for Harley-Davidson Financial Services as we use Polaris Financial and Yamaha Financial and all the others. So how our system works, we aren't building our platform based on our success in our captive finance. This is really about being there to provide financing when it doesn't fit the current portfolio makeup for the captives. And that really becomes important on the use side because that isn't something that they have really ever been focused on, nor have they needed to be. So that's one thing. The second thing is there's a lot of other opportunities. For instance, some of these off-road vehicles end up getting thousands and thousands of dollars of parts and accessories bolted to them at the time of sale. And the traditional finance companies really don't dabble in that. So it requires a significantly higher down payment. We're able to step in on those kinds of situations as well. So it's really about just being a backstop where we see opportunities. The success of the portfolio and the growth of the portfolio is on track where we anticipated it to be. And the last thing I would say in that regard is I think we have a management team that runs that company out of Nevada for us that are as seasoned as it gets. And as I like to say, they've already seen the movie several times. So we're very comfortable with the position there. And as you know, we don't take on a lot of risk on our balance sheet. So that's where we're going to stay with the finance program, at least through 2022. And maybe we'll talk about other opportunities as we go forward.
spk05: Understood. Thanks so much for the time. Congrats on the next quarter and best of luck.
spk03: Thank you so much. The next question comes from Romo Dionizio with Aegis Capital. Please go ahead.
spk00: Good morning. Thanks. I wonder if you could just, without asking for specific transactions, obviously, just maybe characterize the acquisition pipeline that you see today. A lot of moving parts with interest rates, oil prices, inflation, all the rest. I wonder if you could just give us a feel for what you're seeing in terms of multiples, opportunities. Are they still present for you as you look to perhaps expand geographically here in the U.S. through acquisition? Thanks.
spk09: Yeah, our cash offer tool continues to grow daily, weekly, monthly, so forth. Our capture rates through this economic period here have really not changed. We typically are plus or minus half a percent in our capture rate. So it's really about driving more into the funnel. We continue to see more and more repeat visitors. And our capture rate on repeat visitors is extremely higher than the first time. And what drives some of that, Rommel, is the guy puts it in and he gets a $10,000 offer. He thinks it's way too low. Then he goes and sees a dealer, and the dealer either doesn't want the trade because he isn't able to from a capital perspective or whatever, or he hits him at 50 cents on the dollar. And so we see a higher number as we continue to build that on the repeat businesses. We measure our cash offers on unique VIMs, and we don't believe there's any better pre-owned data out there to drive that. So we are expecting, if it continues, that we'll see a little bit of more opportunity in the higher cost units, primarily because if people need to sell them to get out from under the debt, We'll be there to back that up. Last thing on cash offer tool, keep in mind, this is all real-time data. So if there are fluctuations both up and down, whether that be seasonality-driven, whether it be economically-driven, our system is capturing that real-time and making adjustments. So as long as we manage our day supply and we have very little risk on the depreciation side, we're going to continue to press hard to continue to add to these stores. We still have several of the Freedom stores, as an example, that we haven't even hardly started with supplying because the Right Now guys, which came in first, are turning it so fast we're having to feed those mouths first.
spk06: Great. That's very helpful. Thanks, Marshall.
spk03: This concludes the question and answer session. I would like now to turn the conference back over to Marshall Chestron, CEO, for any closing remarks.
spk09: We're basically out of time, so I'll just thank everybody for joining us again. As you know, we're all very accessible, so feel free to reach out to Will or any of us, and we're happy to dive more into our business. But thanks, everybody, for all your support. We look forward to some great calls in the future. So have a great day, and we'll look forward to seeing many of you on the roadshow here in the next few weeks. Thank you.
spk03: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Disclaimer