RumbleOn, Inc.

Greetings and welcome to the Rumble On, Inc. fourth quarter and full year 2022 earnings conference call. At this time, all participants are on a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Will Newell, Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us on this conference call to discuss Rumble On's fourth quarter and fiscal year 2022 financial results. Joining me on the call today are Marshall Chesrone, Rumble On's chairman and chief executive officer, and Blake Lawson, Rumble On's chief financial officer. Our Q4 and full year results are detailed in the press release we issued this morning, and supplemental information will be available in our year-end 2022 Form 10-K. It 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, Rumble On's market opportunities and future financial results that involve 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 Rumble On's periodic and other SEC filings. The forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Rumball 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 a reconciliation of non-GAAP financial measures, please see our earnings release issued earlier this morning. Now, we'll turn the call over to Marshall. Marshall?

Thanks, Will. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2022 earnings call. Before we begin, let me start by welcoming Blake Lawson, who is participating today in his first RumbleOn earnings call since being named CFO in February. Having previously served as CFO of RideNow since 2016, Blake has deep knowledge of our company and the power sports industry with more than 20 years of experience, helping him seamlessly transition to his new role. and we are certainly thrilled to have him lead our financial team. I'll start this morning with a review of our 2022 performance, highlights, and actions taken, followed by the same for the fourth quarter, and then discuss our 2023 objectives and guidance before turning it over to Blake to discuss important financial metrics in more detail on our outlook. In 2022, The RumbleOn team made progress towards our performance initiatives while navigating the challenging economic environment during the second half of the year. We are encouraged by the progress made in reducing expenses, simplifying the business, leveraging technology, and improving the balance sheet while maintaining robust unit sales and revenue. We generated $120 million in adjusted EBITDA for the year compared to RumbleOn as a reported adjusted EBITDA of 31 million in 2021. We sold over 73,000 total PowerSports units in 2022 as we capitalized on the opportunity to gain market share in the extremely fragmented PowerSports business while continuing to integrate 55 privately owned retail locations into our public company. Our long-term plan is to be the leading destination for all things PowerSports by providing the best-in-class customer experience, with clear focus on the lifetime value of our customers. We are proud of our team's hard work throughout the year and remain fully committed to our completely self-funded business model for growth and increased market share far into the future. Along with this, we will actively manage the reduction and potential restructuring of debt in 2023. In fact, we prepaid $15 million of principal in Q4, and have plans to reduce non-floor plan debt by a similar amount early this year. We are compliant with all our lender covenants and are comfortable with our future plans to remain fully sold. New inventory supply normalized in the second half of 2022 more rapidly than manufacturers anticipated and what power sports retailers expected. OEMs also raised prices throughout the second half of 2022. Due to their cost increases, all while our customers' spendable incomes were challenged by macroeconomic headwinds, including increasing inflation and interest rates. These headwinds and not a lack of interest in our products resulted in margin pressures primarily on new units in Q4. Although we expect the first half this year will continue to be bumpy, we anticipate supply levels and the overall economy to normalize as the year progresses. To right-size our inventory, We strategically reduced our used power sports inventory in the quarter, and as of now, we've reduced it by more than $40 million since the peak in Q3. The challenges we face are primarily related to new vehicle supply and GPU. As used clearly is in our control, and the reduced GPU is reflective of our plan to utilize the quarter to achieve more appropriate day's supply levels. Additionally, as our new vehicle business normalizes over the first half of 2023, we expect OEMs will increase incentives and programs, easing margin pressures somewhat. We will continue to improve inventory turns and reduce days of supply in several ways. We implemented software to manage total inventory. And we now have the ability to manage every model of our inventory by manufacturer and then using the data to make sure the right unit is available at the right location, at the right price, and at the right time. Inventory control in the current economic environment is crucial, and our management team has years of expertise in this regard. In the meantime, our parts, service, merchandise, and finance and insurance remain strong and stable, demonstrating the resiliency and durability of our business. As you can see from our past performance, those categories of gross profit track in line with unit sales on a per unit basis. Thus, our business is not dependable on vehicle margin alone, but is mostly determined by unit sales, which in turn drives all categories of gross margin. Our fourth quarter unit sales and revenue were in line with our expectations, and adjusted EBITDA came in moderately below. As a reminder, we announced in Q3 that we would be exiting the wholesale automotive business, of which the cost to do so once complete is anticipated to be less than $3 million. So most of our comments today are about our core power sports and transportation businesses only. We sold 17,550 power sports units in Q4, and this level of sales sequentially reflects typical seasonality prior to COVID-19. Blake will expand upon our fourth quarter financials in more detail. During the quarter, manufacturer recalls caused the reduction in a number of key products, and severe storms were a direct hit to our large North Florida operations, which caused multiple days of complete operation shutdowns. Despite these uncontrollable issues, our unit sales clearly signal the success of our efforts to gain market share in all economic conditions, And we remain focused on the lifetime value of the customers by never passing on the opportunity to gain a new customer or to be helpful to customers that have done business with us before. We continued to build out our fulfillment strategy in Q4. We are now operating fulfillment centers in Orlando, Concord, North Carolina, and Las Vegas, Nevada. And in the first half of 23, we will add capacity in Bristol, Pennsylvania, our first entry into the highly populated Northeast. This warehouse location will be open to the public for buying and selling. We made important strides in implementing key technology, which we will discuss shortly. We were awarded over 60 new franchises during the year, and in Q4, we acquired two full-line Polaris franchises and one Honda franchise in all cash transactions totaling approximately $4.8 million. These three tuck in acquisitions to our existing Texas locations demonstrates our disciplined approach to accretive growth. Further, opening certain fulfillment locations to the public for a warehouse-type experience looks encouraging as we continue those tests. We are very early in implementing the fulfillment center model, and we have not included any contributions from these facilities to our financial guidance for 2023. Looking forward, and mindful of our immediate challenges and opportunities, we took several decisive actions during the quarter. First, we executed over 15 million of annualized cost reductions that will impact 2023 in areas such as professional fees, outside services, reducing corporate headcount by approximately 8% sequentially, and other compensation-related expenses. We also made meaningful adjustments around low-performing marketing expenses for 2023 budgets and have now centralized the majority of our company-wide advertising and marketing spend. With these expense reductions and others that will be implemented in the first half of 2023, our experience management team understands the cost of overreacting to economic slowdowns and then not having the proper trained staff, inventory, and resources to take advantage as the economy improves. While we grew productive headcount in the first two quarters of 2022 by more than 200 team members at the store level, which is less than four people per store, we expect amplified payback since over 70% of those increases address gaps in productive areas of sales, parts, and service. Our headcount growth should support the improvements of our customer experience plan. We also put in place a hiring freeze company-wide in Q4 for nonproductive positions, eliminated various duplicative management and corporate positions, paid no executive bonuses for the fourth quarter, and realigned company-wide benefits in the fourth quarter, which will take effect with our new benefit enrollments effective April 1st. Importantly, we identified additional expense levers that can be deployed quickly. based on market and business trends up or down as needed in 2023. We will stay on mission to be self-funded and manage debt responsibly while focusing on technology, customer experience, and other important long-term growth initiatives. Second, we right-sized our inventory during the quarter. Total new inventories increased on a dollar basis sequentially by 34 million, while used inventory decreased dramatically. We saw used pricing data begin to weaken early in the quarter and deliberately slowed the purchase of used power sports units in response, maintaining our mark to market approach when valuing inventories. Importantly, we control our destiny on used inventory due to our unique acquisition strategy, allowing us to acquire well over 95% of our used inventory directly from consumers without facing any meaningful competition. We will work with manufacturers to achieve appropriate levels of new inventory across our platform, but there is seasonality on that front as well. A good example would be that many of the products we sell, such as personal watercraft and others, are allocated annually or semi-annually in many situations, causing some ups and downs in days of supply throughout the year as we prepare for seasonal demand in advance of sales. Lastly, We continue to widen our lead in technology by augmenting our technology stack. During the quarter, we worked on standardizing and integrating multiple CRMs at the retail store level, tying together multiple legacy platforms into one. We believe we have an incredible competitive advantage since we now have a combined consumer database of over 3 million legacy customers of Rumble On, Ride Now, and Freedom. which we will begin to leverage with low-cost digital marketing beginning the first half of 2023. Our customers are extremely sticky due to the fact that we sell to people's passion for experiences, which are wants, not needs. And we have determined through testing that if we serve up meaningful online content, we can be in constant contact. Notably, we completed our total inventory aggregation. Now the entirety of our inventory can be compiled in one data location. During the quarter, we implemented a new proprietary inventory management software that allows data-driven decision making on where to best physically locate a vehicle within our system. Finally, we integrated one single source hiring platform to streamline HR processes with focus on acquiring the best talent available. This new HR process will be a key part of our future growth plans as best talent equals best results. We are making adjustments based on what we currently see and know. Bottom line, we are positioned to fully deploy our growth roadmap while navigating any temporary dislocations and macro volatility. Our plan provides for quick acceleration of initiatives or deceleration in spending for those initiatives as the marketplace dictates, all while remaining self-funded in our operations and expansion plans. Turning to our key priorities for 2023, we are focused on the five pillars of our strategy. Self-funding, reduction and restructure of debt, technology, continuing to improve the customer experience, and lastly, increasing market share through organic and immediately accretive M&A growth. First, we're committed to remain a self-funded business. While the near-term outlook may be somewhat unpredictable, Our team has responded to this dynamic environment by focusing on controlling the controllables. As I earlier discussed, the steps we are taking with respect to SG&A ensure that we will continue to be self-funding in 2023 and beyond. Second, we are focused on the reduction and restructuring of our debt. We are comfortable with our cash position at present as it continues to improve. Currently, as of two days ago, March 14th, We had a cash in bank balance of over $60 million, as well as immediately available liquidity on our $75 million JP Morgan used unit financing line of over $50 million. Due to higher interest costs, we have not and will not draw on credit facilities until such time as there is a need for the appropriate use of funds. On the big picture side of the balance sheet, this month we signed an engagement letter with JP Morgan to review our balance sheet objectives and options for 2023. We continue our work towards securing the most optimal capital structure for our business in fixed debt at the best rates, augmented by revolving debt appropriate for good cash management, and additional inventory financing options that can be leveraged over time as we scale. Third, we are expanding our competitive dominance with leading edge technology. driving towards online selling without geographic boundaries. We will launch our new corporate website in April and the all new master right now quickly thereafter. This was slightly delayed primarily due to foundational software being built and implemented to drive and support the new consumer platforms, which is needed to create the customer experience objective, as well as meeting SOX compliant electronic processes during the quarter, as we further integrate these private businesses into public company requirements. The RightNow site will have unmatched features for our customers, allowing them to see all inventory in one place, and it will have the ability to push inventory to individual dealer websites, resulting in a better online presence and customer experience. The plan calls for the constant rollout of new features as our online presence improves and matures. In conjunction with our integrated CRM, we plan to launch online soft and hard credit polls and lending pre-qualifications, just to name a few of the exciting features. Lastly, in the first half of 2023, we are rolling out a new internally developed reporting technology that will increase visibility, improve sales reporting, and provide real-time actionable data at the store level. Store managers will now see how they are performing versus expectations and how they compare real time to their peers in the company. Fourth, we remain focused on initiatives that create better experiences for our customers in-store and online. We offer the best, most diverse selection of brands at our retail locations without compare. We continue to augment our offerings by recent additions of top-rated brands to our existing locations. Further, we offer instant liquidity for our customers' assets in the form of our cash offer tool that now has nearly 1 million unique inputs. We remain committed to developing innovative solutions to positively address our customers' pain points. We are testing multiple customer service improvements in the stores, such as more transparent pricing and iPad selling, enabling one customer, one team member sales system that is faster and respects our customers' time while improving the overall sales experience and our own costs and efficiencies. And fifth, we are focused on increasing market share through both organic and acquisition growth. We continue to review M&A opportunities and are taking a cautious balanced approach. We are pleased to share with you that we recently closed on a very important multi-line store in Tallahassee, Florida earlier this month, further expanding our dominance in North Florida. This too was an all cash transaction for approximately 3.3 million. On the organic side, The continued implementation of our fulfillment strategy is a long-term game changer and should have dramatic positive effects on many facets of the store's future success. The early results exceed our expectations. However, we continue to refine this transformational concept. Fulfillment drives bricks and mortar efficiencies in sales and service, all while setting the foundation and infrastructure for the ultimate objective of pure online sales. Our fulfillment strategy will improve sell-through and efficiencies in our service departments, which we expect will then expand margin, increase revenue, and most of all, improve the customer experience. Our first early stage fulfillment centers are exemplary cases in point and in early signs are very positive. Again, we have not included impacts from fulfillment in our guidance. although we have analyzed in detail what these cost and profit-related financial impacts should be over time. We will update everyone on those expected successes each quarter as we progress through the coming year. We look forward to expanding fulfillment in the Sun Belt and the Northeast. While we do not anticipate any further M&A in the first half of 2023, we look forward to opportunities in the latter half of 2023 and beyond and would expect more favorable acquisition pricing. Now let me frame our thinking for 2023 in context of the priorities and actions I just discussed, as well as the anticipated consumer demand outlook being shared by most adjacent industries where inflation, wages, spendable incomes, and other dynamics are playing a role. We want to be realistic in setting expectations due to all of the unknowns in the economy that exists. We are prudently planning the year with sales at 1.4 billion to 1.6 billion, and adjusted EBITDA of 95 to 105 million. It is our objective to show progressive improvement against our priorities and actions as we move through the year. And whatever unknowns the economy provides, positive or negative, we are prepared to react timely and appropriately. With that, I will hand it over to Blake to walk through our 2022 financials and outlook in more detail.