RumbleOn, Inc.

Greetings and welcome to Rumble On, Incorporated, second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Zaleski, Vice President, Finance and Treasurer. Thank you, please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for joining us on this conference call to discuss Rumble On's second quarter 2024 financial results. Joining me on the call today are Mike Kennedy, Rumble On's Chief Executive Officer, and Tiffany Kice, Rumble On's Chief Financial Officer. Our Q2 results are detailed in the press release we issued earlier this morning, and supplemental information will be available in our second quarter Form 10-Q once filed. Before I start, I would 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 and 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 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 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 contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, please see our earnings release issued earlier this morning. Now I'll turn the call over to Mike Kennedy, our CEO. Mike?

Thank you, Tom, and good morning, everyone. Thank you for your interest in Rumble On and for joining us on the call this morning. Joining me on today's call is Tiffany Kice, our new Chief Financial Officer appointed in June. Tiffany brings over 25 years of experience in financial leadership roles for public and private companies. Her experience with growth-focused, multi-location retail businesses makes her a perfect fit for Rumble On as we continue to transform our business and drive our performance to our Vision 2020 six goals. Tiffany is already finding ways to positively impact the business and to better align our reporting to industry standards, and you'll hear about those elements shortly. And also on the call, you heard from Tom earlier, and also joining us is Elliot Wagner, our Vice President of Finance. Our second quarter performance reflects the strength of our PowerSource viewership group as we continue to progress on our turnaround. It is a challenging time for the PowerSource industry as we navigate a -interest-rate environment, a cautious consumer, and inflated new major unit inventories. Despite these challenges, I'm proud of the way our team has responded, and we continue to focus on our goal to run the best PowerSource dealerships in America. The team's effort delivered positive free cash flow during the first six months of 2024, and we expect to continue to deliver positive free cash flow in the back half of 2024. We remain laser-focused on achieving our Vision 2026 goals, which we outline in March of this year. When I joined the company in November, I was excited about the opportunity I saw in the business. My excitement has grown as we gain traction on each of the three pillars of our Vision 2026 strategy and align our team. As an example, you've heard me mention our building of a composite culture and continuous improvement mindset to run the best-performing dealerships in America supported by an aligned and efficient corporate office. Towards the end of second quarter, we continue to make improvements in optimizing our cost structure. We've made the decision to streamline our workforce as we accelerate our actions to drive towards our Vision 2026 goals. These actions resulted in a reduction in force of approximately 10 percent, as well as some corporate and marketing reductions. We expect to generate $15 million in savings in the back half of 2024 and $30 million annualized going forward as a result of driving our strategy and aligning our team to Vision 2026. Continuing on with our focus on growth and value creation, I wanted to provide an update on our previously announced intention to open our first pre-owned center this year. I'm excited to announce that right now, PowerSports of Houston is now open and fully operational after some early setbacks from Hurricane Barrel. Houston is a great new PowerSports market for us, and the team is excited about the momentum this new store opening builds. We are poised to continue growth via acquisitions and greenfield opportunities as they arise. As a reminder, this Houston project is a pilot, and we are focused on analyzing its operating results and our ability to scale this new model across more markets. We're also very close on the previously mentioned first acquisition since my arrival at the company. We remain focused on our acquisition pipeline, activity, and we are encouraged by the number of opportunities. We will be selective and only deploy capital where it makes financial sense and builds per share value. And with that, I'd like to turn the call over to Tiffany to walk us through this quarter's financial performance and talk about some of the financial reporting changes we're implementing to better align the industry standards.

Thank you, Mike, and I am thrilled to join the Rumble On team and am fully aligned with the company's goals and objectives. I've spent the last few weeks internally assessing the business and wanted to highlight a few key reporting changes we've made regarding adjusted SG&A and adjusted e-DEDEP. Going forward, we define adjusted SG&A as SG&A adjusted to deduct charges and expenses that are not considered a part of our core business operations and are not necessarily an indicator of our run rate SG&A. These adjustments are similar to those we make to adjusted e-DEDEP. We plan to use adjusted SG&A as one of our measures to evaluate our progress towards our Vision 2026 goal. We have also revised our non-vehicle net debt calculation to exclude restricted cash, which primarily relates to floor plan facilities. Additionally, beginning with this quarter and to align with dealership industry practice, adjusted e-DEDEP is reduced by floor plan interest expense. Our industry typically treats interest expense and floor plan debt as an operating expense and excludes the floor plan debt from the balance sheet leverage calculation, as floor plan debt is an integral to our operations and is collateralized by our PowerSports vehicles. We have included a supplemental schedule in our earnings release to retroactively recalculate prior periods. Now that we've outlined our reporting changes, I would like to prize detail on our second quarter results. We generated revenue of $336.8 million and adjusted EBITDA of $16.2 million in the second quarter of 2024. Revenue was down 12% year over year and adjusted EBITDA was down .8% year over year. Total company adjusted SG&A expenses totaled $70.8 million, or .7% of gross profit compared to the same quarter last year of $87.8 million or .5% of gross profit. As a reminder, we are targeting adjusted SG&A to be 75% of gross profit within our Vision 2026 timeframe. Adjusted SG&A expenses were .4% lower than the same quarter last year. Starting with the PowerSports dealership group, the team retailed 16,800 total PowerSports major units during the quarter, which is down .8% from the same quarter last year. Total new PowerSports major unit sales were approximately 12,000, down .5% to the same quarter last year, while pre-owned unit sales totaled approximately 4,800, down 21.9%. As previously shared on our last call, on a day's supply basis, our new inventory levels are heavy and our pre-owned inventory continues to be light. Our team is working closely with our OEM partners to align new inventory levels to current market realities. We have made progress over the last 90 days and expect to see a significant reduction in our new inventories in the back half of the year. Gross margins for major unit sales continue to be challenged on new and continued to improve on pre-owned in the second quarter, and we expect this trend to remain throughout 2024. New unit gross margins for the quarter were .2% compared to .4% in the same quarter last year, driven by overstocking in the industry, compounded by our decision to exit non-core product lines, and over-assorted brands not aligned with Vision 2026. We are pleased to report pre-owned gross margins of 17% for the quarter compared to .5% in the same quarter last year. We continue to leverage right now's cash offer to improve the pre-owned business. Our parts, services, and accessories, our fixed operations business, delivered $56.9 million of revenue and $26.2 million of gross profit, our GPU of $1,560, down $19.00 of 1.2%. The decrease comes primarily from accessories and service. We believe this decrease is also attributable to a couple of elements, including the macro environment and our reduction in pre-owned unit volume, impacting the amount of service department labor used to prepare those units for sale. Our financing and insurance teams delivered impressive results, with $29.7 million in revenue, our GPU of $1,768, up .7% -over-year, despite elevated consumer interest rates in a challenged macro environment. We believe this trend will continue based on our teams' strength in this area and our internal processes and capabilities, as well as a strong set of OEM-supported finance offerings. So all in, revenue from our PowerSports dealership group was $321.6 million, down .7% in the same quarter last year. The decrease in revenue is attributed to lower major unit volume, a decrease in volume coming from our fixed operations, and essentially a flat ASP. Total GPU for the group was $5,168, down $182, or .4% the same quarter last year, and in line with our expectations, as we continue to manage the industry headwinds of inflated inventories and high-interest rates. Turning now to our AssetLight vehicle transportation services operating group. For the second quarter, wholesale express revenue was up 5.6%, while gross profit dropped nearly .8% to 3.1 million, driven by industry pricing pressures. Lastly, turning to our balance sheet, we ended the quarter with $71.1 million in total cash and restricted cash, and non-vehicle debt was $209.1 million. Availability under our short-term evolving floor plan credit facility totaled approximately $143.1 million as of June 30th. Total available liquidity defined as unrestricted cash plus availability under floor plan credit facilities on June 30th totaled $201.2 million. Cash flow provided by operating activities was $29.2 million for the six months ended June 30th. I'm also happy to report that we signed a credit agreement amendment with our existing term loan lenders, which relaxed a certain covenants for this quarter through the remainder of the year, providing further flexibility within our capital structure. This agreement with our lenders provides relief for certain financial leverage covenants from June 30th until December 31st. As part of the agreement, our minimum unrestricted cash covenants has increased from $25 million to $30 million. As of June 30th, we had unrestricted cash available of approximately $58.1 million. With that, we'd like to begin the question and answer session. I'll turn the call back over to the operator now to open the line.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish a decline from the polling process, please press star followed by the number two. If you are using a speakerphone, please leave the handset before pressing any keys. One moment, please, for your first question. And your first question comes from the line of Mike Baker of D.A. Davidson. Please go ahead. Your line is open.

Excuse me. Okay. Thank you. Two questions. One, just in terms of the overall environment, you know, sales down and decelerated. It just feels like macro-wise things are getting a little bit worse and even worse through the quarter. I guess could you comment on that and how were these top line results relative to your internal expectations? And then my second question, on the inventory, as you said, still heavy and new, as you talked about last quarter. But just wondering, you know, how much progress are you making on that? How heavy are you versus last quarter? And I guess you said you expect to have that resolved by year end. But if you could just sort of give us some order of magnitude of where you are in that process. Thank you.

You bet. Thanks, Mike. This is Mike Kennedy. You asked a couple of different questions there. First, I think on the volume and the macro issues, I think from a volume perspective, you know, we're experiencing pretty much what we expected. You know, our new volume, you know, is down. When we started the year, we said, hey, it's a tough macro environment. We weren't expecting much help from interest rates. We haven't seen that. We know customers are coming off of COVID times and, you know, industry inventories are, you know, inflated. And I think OEMs have been a little bit delayed in reacting to that, which probably leads me to the second part of the question, which is the gross margin of performance. And that's probably a bit of a surprise for us that our new gross margins are more challenged throughout the year than we had expected. And so we're dealing with that within our operations. The second piece of your question was around inventory, I think, and how we're doing in terms of that. You know, I would say that we're probably a little bit behind my expectations of where I'd like to be at this point. However, we are making, at the same time, we're making really, really good headway in terms of keeping our inventory in line with day supply. You heard me mention in previous calls that that's our goal is to get our inventory healthy relative to a day supply perspective. And, you know, as you might imagine, you know, some stores and some OEMs are making great progress and we're really in great shape. Other stores and other OEMs, not so much, and we're working through that. You know, maybe one piece of color around that, the PwC market's been more challenged this year than we expected relative to the other categories we perform in like UTVs, on-road motorcycles, off-road motorcycles and whatnot. And so, you know, we're dealing with that. But we feel good and confident still in terms of delivering our target for this year to reduce new inventories by 60 million by the end of the year.

Okay, two follow-ups, if I could. PwC, that's a pretty small part of your business, right? If you could remind us what percent that is. And then one other, just clarification. The cost savings program, it's an annualized number of $30 million, is that right? It's not 15 million this year and then another 30 million next year. It's annualized at 30 million. Is that the right interpretation? That's correct.

Okay, great. PwC is a percent of sales? I don't think we've shared in the past

category-specific stuff in terms of volume, but you're directionally correct. PwC is not one of our top categories that we sell. But it's still a meaningful piece of

our business. Understood. Thank you. Thank you. Your next question comes from Eric Wald of B. Riley Security. Please go ahead. Your line is open. Thank you. Good morning.

A couple questions and really kind of follow-ups to the prior questions. I guess one, on the expense reduction plan, correct me if I'm wrong, but the 15 million slash 30 million that you talked today, that's incremental to what you would, incremental to anything else that you talked about before. And if that's the case, can you kind of give the total amount that you've taken out or, I guess, plan to take out this year

on kind of an open-race basis starting next year? Okay. Eric, this is Mike again.

Let me first address the first piece of your question, which is easy to address. So we made a number of moves aligned with our strategy around running the best stores in America. And what I'm most proud of is the way the team is embracing the strategy and aligning around it. And I think the strategy is giving the team clarity around what we really need to focus on and what we can let go of. I think the other piece of that in optimizing our cost structure is we're starting to really learn how to leverage our scale, whether that's in marketing tools or lead and contact management platforms, aligning better with our OEMs in terms of driving demand, whatever you want to talk about, also developing standards within our stores and just creating efficiencies in terms of managing those standards as opposed to doing things 50 different ways. All of that has given us a confident view that we took, we're going to take $15 million of cost out of the back half of this year to confirm what you asked for, and then that annualizes to $30 million. How that relates to the other cost cuts we've done, this is incremental, so I want to make that was a piece of your question, and this is definitely incremental and new optimization work that we've delivered.

So does that answer your question? It does. I guess combining that new $30 million, starting next year, since you've come on board, since you've kind of started this cost reduction line, what is the total annualized run rate

cost you've taken out, including the new $30 million? Great question, and I don't have the answer for you.

That's something we'd have to follow up with you, I guess. I think it's a difficult question to answer with great clarity because I walked in in November, and there were already some discontinued operations that were moving, there were some cost cutting that was going on, I know there were some numbers that there were some targets that I walked into midstream then, and then we kind of went to work through my eyes. Listen, I feel really good about our ability to optimize the cost structure, and I feel really good about how the team is embracing the strategy, and again, I think the strategy is giving us clarity on what we need to focus on, and what we can let go of and look at the returns going forward.

Okay, that's fair, I appreciate that. And then, kind of going back to the comments around the new vehicle inventory remaining too heavy, OEMs kind of reacting late, but you expect kind of to get more success on that, or progress on that in the back half of the year, has the higher new vehicle inventory, has that pressured or impacted your ability to bring in more used vehicles right now, just because you don't want to have overall inventory too high, cash flow, et cetera, has that pressured your ability to bring in the used vehicles that might be more attractive to customer base, and then as you think to want to reduce that new vehicle inventory in the back half of the year, how much of that is going to be incremental help from the OEMs versus born on your margins in the back half to get that done?

Okay, so a couple different questions in there. So first off, we are making some good headway, and again, we're a little bit behind my expectations around our initiative to reduce our new inventory. We are getting great help from all the OEMs, and when we talk with the OEMs, I think I mentioned this previously, we sit down with them, we've talked with them multiple times on this issue, and principally, we're entirely aligned. The OEMs don't want us to have a healthy balance of inventory at retail, and certainly we don't, and we can't afford to carry it. I just think some manufacturers can respond at different speeds than others, and so we're working through that. You can see on our gross margin, we're paying the price, right? OEMs are paying the price. They've all talked about, all the domestics talked about their increase in promotional activity that's costing them dollars. You can see our gross margins are compressed on new. Tiffany mentioned that. That's obviously costing our business a lot. I think if there's a silver lining, this whole thing, the customer wins. I think the rider wins in this environment because there's really attractive finance rates, there's attractive pricing in the marketplace. I do think that that impacts the pre-owned business in a couple different ways. Not so much on our buy side, but I think in the showroom, when a customer walks in and they can see what they can get a new vehicle for, and maybe that customer was previously thinking they would buy a pre-owned unit, and now they have an incredibly attractive finance rate, or the pricing is really aggressive, and that might influence them into a new unit versus pre-owned. I think we're experiencing some of that in our stores, but not so much on the acquisition piece. I think overall, I feel confident that we're going to get our new inventory in line by the end of the year, probably during that same timeframe, if we're successful, bringing our pre-owned inventory up in anticipation for the 25 season. Got

it. Last question, for me, you talked about you're so confident in reaching the 2026 Cheat plan announced earlier this year. It seems that the starting baseline of this year is weaker on a number of fronts, whether it's units or margin. I know you've taken more costs out on the analyze basis, so that helps, but can I just talk to the confidence of still reaching that 2026 plan, given probably it's going to be a lower baseline this year, does that assume the snap back to meaning to more normalized trends next year, or help understand that confidence, and what gets it there?

Yeah, I appreciate that question. It's a great question. Listen, I'm not an economic forecast guru at all. I've just spent 30 plus years in the power source industry, and I know that we go through cycles, and we get great OEM partners who are working hard at bringing innovation and new product plans, and evolution is the product categories that BRP and Polaris and Harley and so on and so forth. So we know we're going to get some help in that regard. We know we're going to get through the economic challenges that we're in today. You know, it's an election year, so we knew this year was going to be a challenge and dynamic, and we're seeing that. You know, we saw that Q1 month to month. We saw that Q2 month to month, and so it's probably going to play like that for the rest of the year. But when I think about this business and I think about the opportunities we have to continue to optimize the cost structure, continue to get the team excited about running the best dealerships in the country, the pre-owned opportunity is really exciting. I'm happy to announce that we opened up Houston here just recently, and we got to get through some startup issues, mostly relative to the storm down there, but that's really exciting. We're going to watch that. That's a scalable opportunity on the horizon for us. And I still think acquisitions are going to certainly going to play a big piece of the future for this company. So, all in all, I'm very excited about it. The team's excitement is building. We're building a team out here with Tiffany on board, and so my optimism just grows.

Got it. Thank you, guys. Thank you. Your next question comes

from Craig Kenison of Baird. Please go ahead. Your line is open.

Hey, good morning and thank you for taking my questions. Mike, you were talking about Houston just a moment ago. I'm curious what the startup costs are for a project like that and how you finance the inventory, whether that's something you can use for plan financing for as well. Yeah,

so

thanks,

Craig. Appreciate the question. So, the cost for the Houston project is pretty minimal in terms of the capital outlay. It really is. We were lucky to find a facility that met our needs. Keep in mind this is a pilot, right? So, we want to try and be smart about the investment, be smart about the commitment that we're signing up for in terms of property, but we were able to find something that we liked and fit all the criteria we were looking for. In terms of the inventory, we're bringing that inventory through normal channels and we can floor plan that inventory and whether we're acquiring that through cash offer or transferring in from other stores, we can floor plan that inventory and that's what we're doing right now. We also have a nice accessory lineup in that store with a partner and so we're excited about all that brings.

How quickly can it generate cash flow

to

be used to pay

off debt, for example? That particular store, your question is, Ron?

Yeah, or any use of cash like this. Look, I think there are investors who find the vision you have promising, but the level of debt this organization has, you know, just to be almost uninvestable. And you've got a capital investment of some kind in Houston, but if it generates cash quickly, it's great. If it's a use of cash, you know, deviates from debt reduction, I feel like it makes it hard on those investors who are just unwilling to look at this kind of leverage.

Yeah, well, Craig, I absolutely appreciate that question and I appreciate the added aspect around it. So the cash return on that particular project is pretty good. We're not going to share specifics around it, but it's pretty good. And I want to make sure I also address the other piece of your question, which is our debt level and give investors confidence around it. So our expectation is that we pay off our converts in early 25 with cash on our balance sheet that we're going to generate throughout this year, as you saw in the release, or you'll see in the release, we were cash positive in the front part of the year and we expect to be cash positive in the back part of the year. And we fully expect to grow into a leverage that makes everybody more comfortable. We're comfortable where we are today. We're comfortable with the debt we have today. And we think there's huge opportunity to grow the top line, but more importantly, grow the bottom line and generate more free cash flow as you go forward. And this is in this pilot. This pilot could be, you know, this pilot could be a scalable item for us going forward in the future, and we'll determine that as we go forward. Right. If it isn't, if it doesn't do a great job in terms of generating cash, then we'll walk away from it. And, you know, we won't we won't get burned with cash down in Houston. And by the way, my team is extremely optimistic about the opportunities of growing the pre-owned business and doing that through a dedicated pre-owned store.

Thanks, Mike. And I guess the other side of that is, you know, we could be in front of a reduction in interest rates. We all know. Just curious, either you or Tiffany, how you see, you know, meaningful cut and rates flowing through your business model.

Well,

let me let me start by

kind of talking on the retail end of interest rate cuts. I'll let Tiffany kind of talk about the impact to, you know, our debt interest cash expense and stuff like that. I think, you know, I think an interest rate cut will help our our showrooms. I think pretty immediately. Well, an interest rate, you know, if you do the math on our ASP and, you know, what a normal term is and what the rate is today, what interest rate will bring to a change on a payment. You know, some people might say that's not overly significant, but I just think the atmosphere, our customers are pinched in other areas. And so I think any kind of interest rate relief will have a fairly soon impact on our riders mindset in terms of, you know, maybe trading or. Or what not. So I think interest rates will do good for us in terms of what what customers are thinking about in our showroom. I'll let Tiffany kind of talk about how the other side of the business will get impacted.

Hi, Greg. This is Tiffany. Yes. You know, our converts are fixed rates, so they won't be they won't be impacted. Plus, they're coming due very shortly. It's our term debt and our floor plan debt that does have a variable rate to it. If you had about a 25 bit change, it'd be about a million dollars on an annualized basis of savings. But keep in mind that those impacts don't change immediately. So there would be a little bit of a time lag as far as that affecting the PNL and the cash outflow.

Great. Hey, thank you. Thanks Greg. Thank you.

And your next question comes from Fred Whiteman of world research. Please go ahead. Your line is open.

Hey guys. Good morning. I just wanted to come back to the inventory levels. Didn't really move a ton sequentially from one queue into two queue. But if we look back last quarter, Mike, you talked about. Some positive signs of improvement to start to queue. So I'm wondering what changed if it was the retail softened, if it was that you saw an increase in shipments from OEMs. What sort of drove the disconnect versus the prior commentary?

Yeah, thanks. I don't know if it's a disconnect from from what I said earlier. You know, I think the queue to typically absorbs a pretty heavy inflow of seasonal product in particular with watercraft. And so that's that's probably when I look at the inventory kind of puts and takes. And that's why I feel comfortable with where we are today. Although I'd like to be lower, but I feel comfortable in terms of our ability to hit the target, which we previously mentioned for the year. And so that's probably what you're seeing in the overall numbers. And also remember that in the inventory numbers, we don't we don't dissect pre owned and new and P and A. And so it's just all one number. So yeah, but you're right. I'd listen lower would be better at this point in time, less cost and less clutter in the showrooms. And that's the goal going forward.

And if you think about just the elevated new inventories that you've talked about, I mean, it seems like that's pretty emblematic of what other dealers are experiencing. And so I'm wondering if you think that's a fair characterization if you guys feel like you're better positioned in terms of either total inventory levels or current versus noncurrents when you look at across the market at your peers. And maybe what that means for front end GPUs on the new side going forward.

Yeah, no, I think I think the entire industry is is dealing with inflated major unit inventories. I don't know how other dealers are taking that on. And we're focused on our on our game and our strategy. And we want to do it right. Clearly the gross margin compression on new that you're seeing in our numbers is real. And that that is a cause of, you know, as Tiffany said in remarks, that's a cause of the industry being overinflated and everybody's trying to get their inventories down. I think maybe our numbers are a little bit influenced negatively because of the decisions we made to exit some brands. And so when you make a decision to exit a brand, we exit a bunch of marine products, a bunch of niche products, even some major brands in stores where we just think didn't think it was a good fit. And, you know, that that also puts pressure on those gross margins because we're anxious to get that product out and move on. So, but that's clearly an industry issue. And that's why you're seeing that compression on the gross margin.

Great. And then just lastly, was there any impact from the CDK outage in the quarter in your report results either from CRM perspective or ability to close deals?

Yeah, great question. We did have some impact throughout the quarter because of the CDK. To be clear, our DMS, Deer Management System is not connected to CDK. So it was not impacted. So our impacts were minimal compared to the auto industry, our CRM platform, as well as a titling administrative platform in the state of Florida was impacted. There were manual workarounds around both of those. There certainly was some impact, but we concluded it wasn't a meaningful impact on the quarter. Okay, perfect. Thank you. Thank

you. And your next question comes from Seth

Basham of Web Bush Securities. Please go ahead. Your line is open.

Thanks a lot and good morning. My first question is just on the top line outlook. Given the weakened demand environment and the results you've posted this quarter, how should we be thinking about top line trends for the balance of the year?

Yes,

this is Mike Kennedy.

You know, we made the prior decision not to guide going forward. And so, you know, I'm probably going to refrain from forecasting what we think the top line is going to be. But, you know, I think generally speaking, you know, my same remarks from past to challenging environment, you know, we got inflated inventories, we're getting closer to an election and, and obviously the macro issues. So I think until any of those things pass or change, you know, probably going to experience the same what we experienced in the previous two quarters.

Okay, and then remind us, seasonally, usually the back half is weaker from a top line perspective than the first half. And that's the appropriate way to think about it this year as well.

Yeah, I don't have

the numbers in front of me, but I recall Q3 top line is still pretty strong. And then Q4 obviously drops off, especially towards the back half of that. But it's, you know, I mean, it's a traditional kind of bell curve as you go through the year. So Q3 is an important quarter for us. Okay,

thanks. And my next question is around the change in gross margin year over year this quarter. You attributed the decline to a few different factors overstocking, I presume being the predominant one. But if you could help us understand the degree of magnitude from that relative to the exiting non-core product lines and brands, that would be helpful.

Yeah, for sure. The vast majority of the gross margin compression is from the inflated inventories in the industry as well as us. No question about it. I think just an adder to that is the fact it doesn't help when you exit a bunch of brands in a bunch of stores and the team's trying to clean up that inventory. But the vast majority of the new gross margin pressure is coming from inflated inventories. And we can see that when we study the brands at the gross margin at the brand level, gross margin at the category level. Again, when I say category, I mean on-road motorcycles, off-road, PWC, ATV, UTV. So we can definitely see that. And we see some relief in some of those areas as well, which gives us the confidence once we get through this inflated inventory levels, better days ahead in terms of that new gross margin.

Relative to your expectations entering the quarter, did you get less support to clear that inventory from the OEMs or did the competitive environment get more aggressive, leading you to take additional price cuts to try to clear the inventory when on your margin?

I think what we probably saw in this past quarter, especially towards the end, and we've seen it in all the domestic public manufacturer announcements in terms of their production levels and volumes planned for the back half of the year. I think that's probably the biggest lever that they're doing. Some exciting news out of the Polaris meeting in terms of their off-road vehicle and some of the redesign and new pricing, aggressive pricing on those products. So more features at less price. So that's a good sign for days ahead. Again, I think the rider in this whole environment really wins because when the rider walks into the showroom, there's great product and pricing is very aggressive.

And the last one for me for now, can you remind us what product lines you're exiting and what brands you're exiting?

I don't think we shared the actual brands that we exited, but I think we shared earlier that during COVID, the company picked up pretty much anything they could in power sports, in any kind of wheel product. Also, they expanded quite a bit in the marine sector. And so we have almost entirely exited the marine business other than PWC and some Yamaha jet boat product. So we were in the pontoon products. We were in big saltwater boats and we've exited pretty much all of that. And then we've exited a number of brands that were kind of niche products. And then on top of that, we've also exited some brands in stores, I call micro decisions, where it just didn't make sense in terms of the brand assortment in that store.

Got it. Thank you so much. Thank

you.

Again, if you would like to ask a question, please press star followed by the number one on

your touchtone phone. And there are no further questions

at this time. I'd like to turn the call back over to Michael Kennedy, CEO for closing comments.

Thank you, everyone. I'd like to close out and just mention just two important things. First, I want to take a moment to express my appreciation and gratitude to the entire team throughout the company who continue to impress me by keeping our riders as our top priority. And take on the current environment with conviction and termination. So thank you very much, team. Lastly, I'd like to close by emphasizing that we are committed to Vision 2026 and maximizing on our long term per share value. While confidence builds on delivering our key targets of annual revenue in excess of 1.7 billion, annual adjusted EBITDA of greater than 150 million, and annual adjusted free cash flows of 90 million or more. And as I mentioned earlier, and I said from the moment we talked about Vision 2026, we are operating in a dynamic environment that might get us to our targets sooner or alternatively, it may take us a bit longer. Regardless of the timing, we as a management team and company are laser focused on achieving Vision 2026. And we'll make decisions in the best interest of long term per share value creation at every turn. Thank you very much for your time today and your continued interest

in RumbleOn. That concludes our call. Ladies and gentlemen, this includes today's conference. We thank you for

participating and ask that you please disconnect your lines.