RumbleOn, Inc. (RMBL) is the largest powersports retailer in North America, offering a wide selection of new and pre-owned motorcycles, all-terrain vehicles (ATVs), utility terrain or side-by-side vehicles (SXSs), personal watercraft (PWCs), snowmobiles, and other powersports products. The company has grown primarily through strategic acquisitions, the largest being the 2021 acquisition of the RideNow business and the 2022 acquisition of the Freedom Powersports business, which added 54 powersports dealerships to the company.
Company History and Business Overview RumbleOn was incorporated in 2013 and completed its initial public offering in 2017. The company operates through two main segments: the powersports dealership group and Wholesale Express, LLC, a transportation services provider. As of September 30, 2024, RumbleOn operated 56 retail locations with powersports franchises in 14 states, representing all major manufacturers and their respective brands.
The powersports dealership group is the primary driver of RumbleOn's business, accounting for over 95% of the company's total revenue. The segment offers a full suite of powersports products, including new and pre-owned vehicles, parts, accessories, finance and insurance (F&I) products, and maintenance and repair services. The vehicle transportation services segment, Wholesale Express, provides asset-light brokerage services facilitating vehicle transportation primarily between and among dealers.
In 2023, RumbleOn faced challenges when it began an internal investigation into allegations surrounding the use of company resources by former executive Marshall Chesrown. This led to Mr. Chesrown's resignation and subsequent lawsuit against the company, which the parties are currently engaged in the initial stages of discovery. Additionally, in June 2024, RumbleOn received a subpoena from the SEC requesting documents related to the internal investigation, related party transactions, and other matters. The company continues to cooperate with the SEC's inquiry.
Despite these challenges, RumbleOn has continued to execute on its strategy of growth through acquisition and leveraging its national scale to run high-performing powersports dealerships. The company has made progress in optimizing its inventory levels and reducing costs, though it has experienced some margin compression in recent quarters due to industry pressures and its efforts to right-size its inventory.
Financial Performance and Metrics For the nine months ended September 30, 2024, RumbleOn reported total revenue of $939.6 million, a decrease of 10.9% compared to the same period in 2023. This decline was primarily driven by lower sales volumes in the powersports dealership group segment, as the company worked to reduce its new vehicle inventory levels. Gross profit for the nine-month period was $246.8 million, with a gross profit margin of 26.3%.
The company's adjusted SG&A expenses for the nine months ended September 30, 2024, were $211.2 million, or 85.6% of gross profit, compared to $271.6 million, or 94.1% of gross profit, in the prior-year period. This improvement was the result of the company's cost optimization initiatives, which included $30 million in annualized cost savings.
RumbleOn reported a net loss of $22.2 million for the nine months ended September 30, 2024, compared to a net loss of $46.0 million in the same period of 2023. The company's liquidity position remained strong, with $66.7 million in total cash and restricted cash as of September 30, 2024, and $121.5 million in available capacity under its powersports inventory financing credit facilities.
Strategic Initiatives and Vision 2026 In March 2024, RumbleOn unveiled its Vision 2026 strategy, which aims to position the company as the best-performing powersports dealership group in the United States. The key elements of this strategy include:
1. Leveraging the company's national scale to run the best-performing powersports dealerships, supported by an aligned and efficient corporate office. 2. Continuing to optimize inventory levels and mix to improve gross margins and working capital efficiency. 3. Executing on strategic acquisitions and greenfield opportunities to expand the company's footprint and market share. 4. Driving cost savings and operational efficiencies to improve profitability and free cash flow generation. 5. Enhancing the customer experience through technology and digital initiatives.
To support the execution of Vision 2026, RumbleOn recently announced a $30 million capital commitment from its three largest shareholders, including a $10 million fully backstopped equity rights offering. This additional capital, along with the company's ongoing cost optimization efforts and inventory management initiatives, are expected to provide the financial flexibility needed to navigate the current macroeconomic challenges and position RumbleOn for long-term success.
Risks and Challenges RumbleOn operates in a highly competitive powersports retail industry, which can be impacted by macroeconomic factors, such as consumer spending, interest rates, and supply chain disruptions. The company's ability to effectively manage its inventory levels, optimize costs, and execute on its strategic initiatives will be critical to its long-term performance.
Additionally, RumbleOn's substantial indebtedness and the need to comply with the financial covenants in its credit agreements pose risks to the business. Any failure to meet these covenants could have a material adverse effect on the company's financial condition and operations.
Financials For the nine months ended September 30, 2024, RumbleOn reported: - Total revenue: $939.6 million (10.9% decrease year-over-year) - Gross profit: $246.8 million - Gross profit margin: 26.3% - Adjusted SG&A expenses: $211.2 million (85.6% of gross profit) - Net loss: $22.2 million
For the most recent quarter (Q3 2024), RumbleOn reported: - Revenue: $295 million - Net income: -$11.2 million - Operating Cash Flow (OCF): $41.4 million - Free Cash Flow (FCF): $41.2 million - Year-over-year revenue growth: -12.7%
The decrease in revenue was primarily due to lower sales volume of vehicles. The company has been focused on right-sizing inventory levels, which has led to margin compression in the quarter. However, the company has made progress on its cost optimization initiatives, with adjusted SG&A as a percentage of gross profit improving compared to the prior year quarter.
Liquidity As of September 30, 2024, RumbleOn's liquidity position included: - Total cash and restricted cash: $66.7 million - Available capacity under powersports inventory financing credit facilities: $121.5 million - Cash: $50.1 million - Debt/Equity ratio: 7.50x - Current ratio: 1.12 - Quick ratio: 0.29
The company also had a $8 million floor plan line of credit with JPMorgan Chase, of which $5.7 million was drawn as of September 30, 2024. Subsequent to the quarter end, the company paid off the JPMorgan Chase line and it is no longer available.
Segment Performance
Powersports Segment: For the third quarter of 2024, the powersports segment generated $279.9 million in revenue, a decrease of $44.2 million compared to the same period in 2023. This decline was primarily driven by lower sales volumes of both new and pre-owned vehicles. New retail vehicle revenue decreased $12.5 million, while pre-owned vehicle revenue decreased $16.2 million. The lower vehicle sales also contributed to decreases in F&I revenue, which fell $5.0 million, and PSA revenue, which fell $10.5 million. However, the segment was able to partially offset the revenue decline through a $397 increase in average revenue per new vehicle sold.
Gross profit for the powersports segment was $70.8 million in the third quarter, a decrease of $17.8 million compared to the prior year period. The lower sales volumes were the primary driver of the reduced gross profit, as the segment saw decreases of $5.4 million in new vehicle gross profit and $3.1 million in pre-owned vehicle gross profit. F&I gross profit also declined $5.0 million, while PSA gross profit decreased $4.3 million. Despite the overall gross profit decline, the segment was able to maintain a total gross profit per vehicle of $4,960, only a slight decrease of $425 per vehicle compared to the prior year.
Vehicle Transportation Services Segment: In the third quarter of 2024, the vehicle transportation services segment generated $15.1 million in revenue, an increase of $1.1 million compared to the same period in 2023. This increase was driven by higher volumes, with the segment delivering 25,080 vehicles during the quarter, up from 22,930 vehicles in the prior year period. Gross profit for the segment was $3.5 million, an increase of $0.1 million year-over-year, resulting in a gross profit per vehicle transported of $140, down $8 from the prior year.
Guidance and Future Outlook RumbleOn had previously set a goal to reduce new inventories by $50 million for the full year 2024. As of the end of Q3 2024, they had achieved a 53.8% reduction in total inventory compared to the prior year. The company has also fully executed on its previously announced $30 million in annualized cost savings.
Looking forward, RumbleOn is targeting adjusted SG&A to be 75% of gross profit within their Vision 2026 plan. In Q3 2024, adjusted SG&A as a percent of gross profit was 86.5%, an improvement from 89.2% in the same quarter last year. The company expects this metric to improve further in 2025 based on the actions executed and further cost optimization actions planned.
To strengthen its financial position, RumbleOn has received $30 million in incremental capital commitments from their three largest shareholders, including $10 million from a fully backstopped common equity rights offering. This is intended to enable full repayment of the convertible notes due on January 1, 2025 and help position the company for successful refinancing. Additionally, RumbleOn has engaged an investment bank to explore a refinancing of the company's debt to optimize their capital structure, lower their cost of capital, and extend the debt maturity profile.
Conclusion RumbleOn's position as the largest powersports retailer in North America, coupled with its strategic Vision 2026 plan and recent capital commitments, positions the company to navigate the current industry challenges and drive long-term value creation for shareholders. While the company faces risks related to macroeconomic conditions and its debt obligations, its focus on inventory optimization, cost savings, and strategic growth initiatives appear to be the right steps to strengthen its competitive position and financial performance. The company's ability to execute on its Vision 2026 strategy, particularly in optimizing its SG&A expenses and improving its capital structure, will be crucial in determining its future success in the competitive powersports retail landscape.