UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,September 30, 2023
or
| | | | | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-38248
| | | | | | | | | | | | | | |
| RumbleOn, Inc. (Exact name of registrant as specified in its charter) | |
| Nevada | | 46-3951329 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
| | | | |
| 901 WW. Walnut Hill Lane, Suite 110A Irving, Texas | | 75038 | |
| (Address of principal executive offices) | | (Zip Code) | |
| | |
(214) 771-9952 |
(Registrant's telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Class B Common Stock, $0.001 par value | | RMBL | | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "a smaller"smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | o | Accelerated filer | x |
Non-accelerated filer | o | Smaller reporting company | x |
| | Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
The number of shares of Class B Common Stock, $0.001 par value, outstanding on May 9,November 3, 2023 was 16,404,55716,809,299 shares. In addition, 50,000 shares of Class A Common Stock, $0.001 par value, were outstanding on May 9,November 3, 2023.
QUARTERLY PERIOD ENDED MARCH 31,SEPTEMBER 30, 2023
Table of Contents to Report on Form 10-Q
| | | | | | | | |
| FINANCIAL INFORMATION | |
| | |
| Financial Statements | |
| Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Quantitative and Qualitative Disclosures About Market Risk | |
| Controls and Procedures | |
| | |
| OTHER INFORMATION | |
| | |
| Legal Proceedings | |
| Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. | Defaults Upon Senior Securities | |
Item 4. | Mine Safety Disclosures | |
| Other Information | |
| Exhibits | |
| |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
RumbleOn, Inc.
Condensed Consolidated Balance Sheets
(Dollarsdollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
ASSETS | | | |
Current assets: | | | |
Cash | $ | 51,784 | | | $ | 48,579 | |
Restricted cash | 10,000 | | | 10,000 | |
Accounts receivable, net | 34,086 | | | 33,758 | |
Inventory | 333,151 | | | 331,721 | |
Prepaid expense and other current assets | 38,092 | | | 7,424 | |
Total current assets | 467,113 | | | 431,482 | |
Property and equipment, net | 76,727 | | | 76,078 | |
Right-of-use assets | 163,556 | | | 161,822 | |
Goodwill | 24,003 | | | 21,142 | |
Intangible assets, net | 244,900 | | | 247,413 | |
Deferred tax assets | 59,814 | | | 58,115 | |
Other assets | 1,765 | | | 31,158 | |
Total assets | $ | 1,037,878 | | | $ | 1,027,210 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable and other current liabilities | $ | 85,535 | | | $ | 82,618 | |
Vehicle floor plan note payable | 245,008 | | | 225,431 | |
Current portion of long-term debt and line of credit | 21,036 | | | 3,645 | |
Total current liabilities | 351,579 | | | 311,694 | |
Long-term liabilities: | | | |
Senior secured note | 322,727 | | | 317,494 | |
Convertible debt, net | 32,626 | | | 31,890 | |
Line of credit and notes payable | 430 | | | 25,000 | |
Operating lease liabilities | 129,518 | | | 126,695 | |
Other long-term liabilities | 8,974 | | | 8,422 | |
Total long-term liabilities | 494,275 | | | 509,501 | |
Total liabilities | 845,854 | | | 821,195 | |
Commitments and contingencies (Notes 2, 3, 5, 8, and 10) | | | |
Stockholders' equity: | | | |
Class A common stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and outstanding as of March 31, 2023 and December 31, 2022 | 0 | | | 0 | |
Class B common stock, $0.001 par value, 100,000,000 shares authorized, 16,295,735 and 16,184,264 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | 16 | | | 16 | |
Additional paid-in capital | 588,848 | | | 585,937 | |
Accumulated deficit | (392,521) | | | (375,619) | |
Class B common stock in treasury, at cost, 123,089 shares as of March 31, 2023 and December 31, 2022 | (4,319) | | | (4,319) | |
Total stockholders' equity | 192,024 | | | 206,015 | |
Total liabilities and stockholders' equity | $ | 1,037,878 | | | $ | 1,027,210 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
ASSETS | (Unaudited) | | |
Current assets: | | | |
Cash | $ | 41,406 | | | $ | 46,762 | |
Restricted cash | 18,046 | | | 10,000 | |
Accounts receivable, net | 33,679 | | | 28,040 | |
Inventory | 358,654 | | | 323,473 | |
Prepaid expense and other current assets | 5,654 | | | 7,422 | |
Loans receivable held for sale | 21,555 | | | 33,662 | |
Current assets of discontinued operations | — | | | 11,377 | |
Total current assets | 478,994 | | | 460,736 | |
Property and equipment, net | 78,608 | | | 76,078 | |
Right-of-use assets | 167,236 | | | 161,822 | |
Goodwill | 23,897 | | | 21,142 | |
Intangible assets, net | 240,457 | | | 247,413 | |
Deferred tax assets | 68,251 | | | 58,115 | |
Other assets | 1,574 | | | 1,881 | |
Assets of discontinued operations | 35 | | | 23 | |
Total assets | $ | 1,059,052 | | | $ | 1,027,210 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable and other current liabilities | $ | 81,830 | | | $ | 79,439 | |
Vehicle floorplan notes payable | 287,135 | | | 220,176 | |
Current portion of long-term debt and line of credit | 14,893 | | | 3,645 | |
Current liabilities of discontinued operations | 513 | | | 8,434 | |
Total current liabilities | 384,371 | | | 311,694 | |
Long-term liabilities: | | | |
Secured debt | 271,671 | | | 317,494 | |
Convertible debt, net | 34,196 | | | 31,890 | |
Financing obligation and notes payable | 49,174 | | | 25,000 | |
Operating lease liabilities | 135,726 | | | 126,695 | |
Other long-term liabilities | 8,783 | | | 8,422 | |
Total long-term liabilities | 499,550 | | | 509,501 | |
Total liabilities | 883,921 | | | 821,195 | |
Commitments and contingencies | | | |
Stockholders' equity: | | | |
Class A Common Stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and outstanding | — | | | — | |
Class B Common Stock, $0.001 par value, 100,000,000 shares authorized, 16,735,391 and 16,184,264 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | 17 | | | 16 | |
Additional paid-in capital | 602,026 | | | 585,937 | |
Accumulated deficit | (422,593) | | | (375,619) | |
Treasury stock, at cost | (4,319) | | | (4,319) | |
Total stockholders' equity | 175,131 | | | 206,015 | |
Total liabilities and stockholders' equity | $ | 1,059,052 | | | $ | 1,027,210 | |
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Revenue: | | | | | | | |
Vehicle sales | | | | | | | |
Powersports | | | | | $ | 233,283 | | | $ | 239,914 | |
Automotive | | | | | 11,885 | | | 110,729 | |
Parts, service and accessories | | | | | 59,069 | | | 54,737 | |
Finance and insurance, net | | | | | 27,227 | | | 27,470 | |
Vehicle logistics | | | | | 14,840 | | | 12,351 | |
Total revenue | | | | | 346,304 | | | 445,201 | |
| | | | | | | |
Cost of revenue: | | | | | | | |
Powersports | | | | | 201,040 | | | 193,512 | |
Automotive | | | | | 11,186 | | | 107,154 | |
Parts, service and accessories | | | | | 31,790 | | | 29,455 | |
| | | | | | | |
Vehicle logistics | | | | | 11,253 | | | 9,867 | |
Total cost of revenue | | | | | 255,269 | | | 339,988 | |
| | | | | | | |
Gross profit | | | | | 91,035 | | | 105,213 | |
| | | | | | | |
Selling, general and administrative | | | | | 87,095 | | | 78,076 | |
Depreciation and amortization | | | | | 4,741 | | | 4,474 | |
| | | | | | | |
Operating income (loss) | | | | | (801) | | | 22,663 | |
| | | | | | | |
Interest expense | | | | | (17,746) | | | (11,181) | |
Other income | | | | | 42 | | | — | |
Change in derivative liability | | | | | — | | | 39 | |
| | | | | | | |
Income (loss) before provision for income taxes | | | | | (18,505) | | | 11,521 | |
| | | | | | | |
Income tax provision (benefit) | | | | | (1,603) | | | 2,380 | |
Net income (loss) | | | | | $ | (16,902) | | | $ | 9,141 | |
| | | | | | | |
Weighted average number of common shares outstanding - basic | | | | | 16,224,122 | | | 15,693,900 | |
Earnings (loss) per share - basic | | | | | $ | (1.04) | | | $ | 0.58 | |
Weighted average number of common shares outstanding - diluted | | | | | 16,224,122 | | | 15,718,441 | |
Earnings (loss) per share - diluted | | | | | $ | (1.04) | | | $ | 0.58 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenue: | | | | | | | |
Powersports vehicles | $ | 235,132 | | | $ | 271,877 | | | $ | 738,136 | | | $ | 806,382 | |
Parts, service and accessories | 59,727 | | | 62,216 | | | 184,205 | | | 182,268 | |
Finance and insurance, net | 29,288 | | | 31,569 | | | 89,658 | | | 95,830 | |
Vehicle logistics | 13,964 | | | 15,002 | | | 43,227 | | | 42,870 | |
Total revenue | 338,111 | | | 380,664 | | | 1,055,226 | | | 1,127,350 | |
Cost of revenue: | | | | | | | |
Powersports vehicles | 202,788 | | | 221,631 | | | 634,091 | | | 647,891 | |
Parts, service and accessories | 32,754 | | | 33,074 | | | 99,542 | | | 96,473 | |
| | | | | | | |
Vehicle logistics | 10,624 | | | 11,516 | | | 32,946 | | | 33,732 | |
Total cost of revenue | 246,166 | | | 266,221 | | | 766,579 | | | 778,096 | |
Gross profit | 91,945 | | | 114,443 | | | 288,647 | | | 349,254 | |
Selling, general and administrative | 84,957 | | | 93,822 | | | 271,557 | | | 264,428 | |
Depreciation and amortization | 7,275 | | | 6,554 | | | 17,271 | | | 16,872 | |
Operating income (loss) | (287) | | | 14,067 | | | (181) | | | 67,954 | |
Other income (expense): | | | | | | | |
Interest expense | (19,828) | | | (12,209) | | | (55,756) | | | (35,622) | |
Other income | 75 | | | 26 | | | 208 | | | 230 | |
PPP Loan forgiveness | — | | | 2,509 | | | — | | | 2,509 | |
Change in derivative liability | — | | | — | | | — | | | 39 | |
Total other expense | (19,753) | | | (9,674) | | | (55,548) | | | (32,844) | |
Income (loss) from continuing operations before income taxes | (20,040) | | | 4,393 | | | (55,729) | | | 35,110 | |
Income tax provision (benefit) for continuing operations | (3,556) | | | 678 | | | (9,706) | | | 8,166 | |
Income (loss) from continuing operations, net | (16,484) | | | 3,715 | | | (46,023) | | | 26,944 | |
Loss from discontinued operations | — | | | (858) | | | (1,100) | | | (1,151) | |
Income tax benefit for discontinued operations | — | | | (182) | | | (149) | | | (420) | |
Loss from discontinued operations, net | — | | | (676) | | | (951) | | | (731) | |
Net income (loss) | $ | (16,484) | | | $ | 3,039 | | | $ | (46,974) | | | $ | 26,213 | |
Basic shares | 16,665,709 | | | 16,020,296 | | | 16,452,254 | | | 15,859,134 | |
Earnings (loss) per share - basic from continuing operations | $ | (0.99) | | | $ | 0.23 | | | $ | (2.80) | | | $ | 1.70 | |
Earnings (loss) per share - basic from discontinued operations | $ | — | | | $ | (0.04) | | | $ | (0.06) | | | $ | (0.05) | |
Diluted shares | 16,665,709 | | | 16,067,395 | | | 16,452,254 | | | 15,922,484 | |
Earnings (loss) per share - diluted from continuing operations | $ | (0.99) | | | $ | 0.23 | | | $ | (2.80) | | | $ | 1.69 | |
Earnings (loss) per share - diluted from discontinued operations | $ | — | | | $ | (0.04) | | | $ | (0.06) | | | $ | (0.05) | |
See Notes to the Condensed Consolidated Financial Statements.
RumbleOn, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Dollars in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in Capital | | Accumulated Deficit | | Class B Common Shares in Treasury | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
Balance as of December 31, 2022 | 50,000 | | | $ | 0 | | | 16,184,264 | | | $ | 16 | | | $ | 585,937 | | | $ | (375,619) | | | 123,089 | | | $ | (4,319) | | | $ | 206,015 | |
Issuance of common stock for restricted stock units | — | | | — | | | 111,471 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | — | | | — | | | 2,911 | | | — | | | — | | | — | | | 2,911 | |
| | | | | | | | | | | | | | | | | |
Net loss | — | | | — | | | — | | | — | | | — | | | (16,902) | | | — | | | — | | | (16,902) | |
Balance as of March 31, 2023 | 50,000 | | | $ | 0 | | | 16,295,735 | | | $ | 16 | | | $ | 588,848 | | | $ | (392,521) | | | 123,089 | | | $ | (4,319) | | | $ | 192,024 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in Capital | | Accumulated Deficit | | Class B Common Shares in Treasury | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
June 30, 2023 | 50,000 | | | $ | — | | | 16,565,389 | | | $ | 17 | | | $ | 593,051 | | | $ | (406,109) | | | 123,089 | | | $ | (4,319) | | | $ | 182,640 | |
Issuance of common stock for restricted stock units | — | | | — | | | 170,002 | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | | — | | | — | | | — | | | 3,077 | | | — | | | — | | | — | | | 3,077 | |
Tax withholding related to vesting of restricted stock units and other | — | | | — | | | — | | | — | | | (202) | | | — | | | — | | | — | | | (202) | |
Issuance of warrant | — | | | — | | | — | | | — | | | 6,100 | | | — | | | — | | | — | | | 6,100 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (16,484) | | | — | | | — | | | (16,484) | |
September 30, 2023 | 50,000 | | | $ | — | | | 16,735,391 | | | $ | 17 | | | $ | 602,026 | | | $ | (422,593) | | | 123,089 | | | $ | (4,319) | | | $ | 175,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in Capital | | Accumulated Deficit | | Class B Common Shares in Treasury | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
Balance as of December 31, 2021 | 50,000 | | | $ | 0 | | | 14,882,022 | | | $ | 15 | | | $ | 550,055 | | | $ | (114,106) | | | 123,089 | | | $ | (4,319) | | | $ | 431,645 | |
Issuance of common stock for restricted stock units | — | | | — | | | 450,703 | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock in acquisition | — | | | — | | | 1,048,718 | | | 1 | | | 26,510 | | | — | | | — | | | — | | | 26,511 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 1,879 | | | — | | | — | | | — | | | 1,879 | |
Net income | — | | | — | | | — | | | — | | | — | | | 9,141 | | | — | | | — | | | 9,141 | |
Balance as of March 31, 2022 | 50,000 | | | $ | 0 | | | 16,381,443 | | | $ | 16 | | | $ | 578,444 | | | $ | (104,965) | | | 123,089 | | | $ | (4,319) | | | $ | 469,176 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in Capital | | Accumulated Deficit | | Class B Common Shares in Treasury | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
December 31, 2022 | 50,000 | | | $ | — | | | 16,184,264 | | | $ | 16 | | | $ | 585,937 | | | $ | (375,619) | | | 123,089 | | | $ | (4,319) | | | $ | 206,015 | |
Issuance of common stock for restricted stock units | — | | | — | | | 551,127 | | | 1 | | | — | | | — | | | — | | | — | | | 1 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 10,898 | | | — | | | — | | | — | | | 10,898 | |
Tax withholding related to vesting of restricted stock units and other | — | | | — | | | — | | | — | | | (909) | | | — | | | — | | | — | | | (909) | |
Issuance of warrant | — | | | — | | | — | | | — | | | 6,100 | | | — | | | — | | | — | | | 6,100 | |
Net loss | — | | | — | | | — | | | — | | | — | | | (46,974) | | | — | | | — | | | (46,974) | |
September 30, 2023 | 50,000 | | | $ | — | | | 16,735,391 | | | $ | 17 | | | $ | 602,026 | | | $ | (422,593) | | | 123,089 | | | $ | (4,319) | | | $ | 175,131 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in Capital | | Accumulated Deficit | | Class B Common Shares in Treasury | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
June 30, 2022 | 50,000 | | | $ | — | | | 15,940,866 | | | $ | 16 | | | $ | 581,197 | | | $ | (90,932) | | | 123,089 | | | $ | (4,319) | | | $ | 485,962 | |
Issuance of common stock for restricted stock units | — | | | — | | | 194,324 | | | — | | | — | | | — | | | — | | | — | | | — | |
Stock-based compensation | — | | — | | | — | | | — | | | 2,606 | | | — | | | — | | | — | | | 2,606 | |
| | | | | | | | | | | | | | | | | |
Net income | — | | | — | | | — | | | — | | | — | | | 3,039 | | | — | | | — | | | 3,039 | |
September 30, 2022 | 50,000 | | | $ | — | | | 16,135,190 | | | $ | 16 | | | $ | 583,803 | | | $ | (87,893) | | | 123,089 | | | $ | (4,319) | | | $ | 491,607 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in Capital | | Accumulated Deficit | | Class B Common Shares in Treasury | | Total Stockholders' Equity |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
December 31, 2021 | 50,000 | | | $ | — | | | 14,882,022 | | | $ | 15 | | | $ | 550,055 | | | $ | (114,106) | | | 123,089 | | | $ | (4,319) | | | $ | 431,645 | |
Issuance of common stock for restricted stock units | — | | | — | | | 206,896 | | | — | | | — | | | — | | | — | | | — | | | — | |
Issuance of common stock in acquisition | — | | | — | | | 1,048,718 | | | 1 | | | 26,511 | | | — | | | — | | | — | | | 26,512 | |
Stock-based compensation | — | | | — | | | — | | | — | | | 7,237 | | | — | | | — | | | — | | | 7,237 | |
Escrow shares returned -Freedom acquisition | — | | | — | | | (2,446) | | | — | | | — | | | — | | | — | | | — | | | — | |
Net income | — | | | — | | | — | | | — | | | — | | | 26,213 | | | — | | | — | | | 26,213 | |
September 30, 2022 | 50,000 | | | $ | — | | | 16,135,190 | | | $ | 16 | | | $ | 583,803 | | | $ | (87,893) | | | 123,089 | | | $ | (4,319) | | | $ | 491,607 | |
RumbleOn, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income (loss) | $ | (16,902) | | | $ | 9,141 | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 4,741 | | | 4,474 | |
Amortization of debt discount | 2,324 | | | 1,935 | |
Stock based compensation expense | 2,911 | | | 1,879 | |
Gain from change in value of derivatives | — | | | (39) | |
Deferred taxes | (1,699) | | | (1,966) | |
Originations of loan receivables, net of principal payments received | (121) | | | — | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
Accounts receivable | (4,220) | | | (10,565) | |
Inventory | 1,241 | | | (1,279) | |
Prepaid expenses and other current assets | 2,612 | | | 658 | |
Other assets | 12 | | | (12,276) | |
Other liabilities | 1,736 | | | 8,787 | |
Accounts payable and accrued liabilities | 2,844 | | | 17,304 | |
Floor plan trade note borrowings | 13,376 | | | 13,221 | |
Net cash provided by operating activities | 8,855 | | | 31,274 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Acquisitions, net of cash received | (3,300) | | | (64,916) | |
Purchase of property and equipment | (1,881) | | | (1,319) | |
Technology development | (502) | | | (1,752) | |
Net cash used in investing activities | (5,683) | | | (67,987) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from new secured debt | — | | | 84,500 | |
Repayment of debt and notes payable | (4,043) | | | (31,597) | |
Proceeds from issuance of notes | — | | | 6,541 | |
Increase (decrease) in borrowings from non-trade floor plans | 4,076 | | | (5,843) | |
Net cash provided by financing activities | 33 | | | 53,601 | |
NET CHANGE IN CASH | 3,205 | | | 16,888 | |
Cash and restricted cash at beginning of period | 58,579 | | | 51,974 | |
Cash and restricted cash at end of period | $ | 61,784 | | | $ | 68,862 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net income (loss) | $ | (46,974) | | | $ | 26,213 | |
Loss from discontinued operations | (951) | | | (731) | |
Net income (loss) from continuing operations | $ | (46,023) | | | $ | 26,944 | |
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities of continuing operations: | | | |
Depreciation and amortization | 17,271 | | | 16,872 | |
Amortization of debt discount and issuance costs | 7,324 | | | 3,936 | |
Stock-based compensation expense | 10,898 | | | 7,237 | |
Forgiveness of PPP loan | — | | | (2,509) | |
Gain from change in value of derivatives | — | | | (39) | |
Deferred taxes | (10,136) | | | 3,946 | |
Originations of loan receivables, net of principal payments received | 5,006 | | | (23,676) | |
Valuation allowance charge for loan receivable held for sale | 5,971 | | | — | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
Accounts receivable | (5,639) | | | 1,239 | |
Inventory | (29,983) | | | (93,133) | |
Prepaid expenses and other current assets | 1,779 | | | (494) | |
Other assets | 177 | | | (3,766) | |
Other liabilities | 1,461 | | | (2,813) | |
Accounts payable and accrued liabilities | 3,729 | | | (2,131) | |
Floorplan trade note payable | 18,840 | | | 38,746 | |
Net cash provided by (used in) operating activities of continuing operations | (19,325) | | | (29,641) | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Payments for acquisitions, net of cash received | (3,300) | | | (65,976) | |
Purchases of property and equipment | (7,803) | | | (4,334) | |
Technology development | (1,758) | | | (6,188) | |
Net cash used in investing activities of continuing operations | (12,861) | | | (76,498) | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from new secured debt | — | | | 84,500 | |
Proceeds from sale leaseback transaction | 49,718 | | | — | |
Proceeds from ROF credit facility for the purchase of consumer finance loans | — | | | 22,925 | |
Repayment of debt and line of credit | (59,048) | | | (34,082) | |
Payments for notes payable and finance leases | — | | | (2,116) | |
Net borrowings from non-trade floor financing plans | 45,993 | | | 34,067 | |
Debt issuance costs | (1,787) | | | — | |
Net cash provided by financing activities of continuing operations | 34,876 | | | 105,294 | |
CASH FLOWS FROM DISCONTINUED OPERATIONS | | | |
Net cash provided by operating activities | 3,438 | | | 11,372 | |
Net cash used in financing activities | (5,254) | | | (13,286) | |
Net cash used in discontinued operations | (1,816) | | | (1,914) | |
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH | 874 | | | (2,759) | |
Cash and restricted cash at beginning of period-continuing operations | 56,762 | | | 49,458 | |
Cash and restricted cash at beginning of period-discontinued operations | 1,816 | | | 2,516 | |
Cash and restricted cash at end of period, including discontinued operations | 59,452 | | | 49,215 | |
Less cash at end of period - discontinued operations | — | | | (602) | |
Cash and restricted cash at end of period | $ | 59,452 | | | $ | 48,613 | |
See Notes to the Condensed Consolidated Financial Statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1 –DESCRIPTION– DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Unless the context requires otherwise, references in these financial statements to “RumbleOn,” the “Company,” “we,” “us,” and “our” refer to RumbleOn, Inc. and its consolidated subsidiaries.
RumbleOn is the nation's first, largest powersports retailer in North America, offering a wide selection of new and only publicly-traded, technology-based platformused motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and other powersports products, including parts, apparel, accessories, and aftermarket products from a wide range of manufacturers. Additionally, we offer a full suite of financing, parts, repair, and maintenance services, and our logistics services company, Wholesale Express, LLC ("Wholesale Express"), provides freight brokerage services facilitating transportation for dealers and consumers. As of September 30, 2023, we operated more than 55 retail locations representing 30 brands primarily in the powersports industry. HeadquarteredSun Belt.
We source high quality pre-owned inventory via our proprietary cash offer website, which allows us to purchase pre-owned units directly from consumers.
We seek to provide customers with a seamless experience, broad selection, and access to our specialized and experienced team members, including sales staff and technicians. Our network of convenient retail locations allows us to offer services throughout the vehicle life cycle.
Of our retail locations, 42 were acquired in 2021 in conjunction with the purchase of RideNow Powersports ("RideNow"). On February 18, 2022 we completed the acquisition of Freedom Powersports, LLC ("Freedom Powersports") and Freedom Powersports Real Estate, LLC (together with Freedom Powersports, the "Freedom Entities"). We are headquartered in the Dallas Metroplex RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more peoplecompleted our initial public offering in more places than ever before. We are transforming the powersports customer experience by giving consumers what they want - a wide selection, great value and quality, transparency, and an easy, friction-free transaction. Every element of our business, from inventory procurement to fulfillment to overall ease of transactions, whether online or on-site at one of our 55 retail locations, has been built for a singular purpose – to create an unparalleled customer experience in the powersports industry.2017.
Although our primary focus is on the customer experience and building market share in the powersports industry, during 2022 andThrough June 30, 2023, we participated in the automotive industry through our wholly-ownedwholly owned wholesale distributor of used automotive inventory, Wholesale, Inc. ("Wholesale Inc."), and our exotics retailer AutoSport USA, Inc., which doesdid business under the name Got Speed. InSpeed and was previously reported in the Automotive segment. We began to wind this business down beginning in the third quarter of 2022, we announced we would be winding down2022. The results of operations of this segment of our wholesale automotive business which we expect to complete duringare reported as discontinued operations within these Condensed Consolidated Financial Statements.
Since the second or third quarteracquisitions of 2023. Our logistics services company, Wholesale Express, LLC ("Wholesale Express"), provides freight brokerage services facilitating transportation for dealers and consumers.
On August 31, 2021 (the “RideNow Closing Date”), RumbleOn, Inc. completed its business combination with RideNow Powersports, the nation's largest powersports retailer group (“RideNow”). On February 18, 2022 (the “Freedom Closing Date”), the Company completed its acquisition of Freedom Powersports, LLC (“Freedom Powersports”) and Freedom Powersports, Real Estate, LLC (“Freedom Powersports - RE,” and together with Freedom Powersports,we have made a handful of smaller acquisitions. We plan to continue the “Freedom Entities”), a retailer group with 13 locations in Texas, Georgia, and Alabama.growth of our powersports footprint through strategic acquisitions.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim information and with the instructions on Form 10-Q and Rule 10-01 of Regulation S-X pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The Condensed Consolidated Financial Statements include the accounts of RumbleOn, Inc. and its subsidiaries, which are all wholly owned, including RideNow and the Freedom Entitiesall our acquisitions from the dates thesesuch businesses were respectively acquired. In accordance with those rules and regulations, the Company has omitted certain information and notes required by U.S. GAAP for annual consolidated financial statements. In the opinion of management, the Condensed Consolidated Financial Statements contain all adjustments, except as otherwise noted, necessary for the fair presentation of the Company’s financial position and results of operations for the periods presented. The year-end condensed balance sheet data was derived from audited financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statementsconsolidated financial statements and Notesnotes thereto included in the Company’s Annualour Current Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).8-K filed on September 27, 2023. The results of operations for the three and nine months ended March 31,September 30, 2023 are not necessarily indicative of the results expected for the entire fiscal year. All intercompanyIntercompany accounts and material intercompany transactions have been eliminated.
Use of Estimates
The preparation of these Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions. Certain accounting estimates involve significant judgments, assumptions, and estimates by management that have a material impact on the carrying value of certain assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenue and expenses during the reporting period, which management considers to be critical accounting estimates. The judgments, assumptions, and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. BecauseDue to the inherent uncertainty involved with estimates, actual results may differ materially.
Liquidity and Management’s Plans
As described more completely in Note 5, the Company recently took steps to improve its liquidity and temporarily make certain debt covenants more favorable to the Company.
On August 9, 2023, the Company and Oaktree Fund Administration, LLC ("Oaktree") executed Amendment No. 5 to the Oaktree Credit Agreement (each as defined in Note 5), which provides the Company a covenant waiver as of June 30, 2023 and as of September 30, 2023, and more favorable financial covenants for each quarter through the second quarter of 2024. Amendment No. 5 also requires the Company to undertake certain actions to generate additional liquidity that will be used to repay a portion of the natureoutstanding balance of the judgmentsOaktree Credit Agreement. These actions include divesting of certain assets and assumptions madecompleting a proposed $100,000 fully backstopped Rights Offering (as defined below).
The Company completed a sale-leaseback transaction pertaining to eight properties that is more fully discussed in Note 5. This transaction generated net cash proceeds of $48,237 that were used to reduce outstanding debt under the Oaktree Credit Agreement. In addition, the Company has classified RumbleOn Finance loans receivable, that we are actively marketing, as held for sale at September 30, 2023.
On August 9, 2023, we announced our intention to conduct a proposed $100,000 rights offering (the "Rights Offering") to the Company's existing shareholders whereby holders of record of our common stock will be granted a dividend of subscription rights to purchase a designated number of shares of Class B Common Stock at a price to be determined by management, actual results could differ materiallythe Special Committee of the Board. If the Rights Offering is not fully subscribed for, any stockholders who exercise their basic subscription rights will have an over-subscription right to purchase additional shares of Class B Common Stock that would otherwise remain unsubscribed for at the expiration date for the Rights Offering. No fractional shares of Class B Common Stock will be issued in the Rights Offering. The subscription rights are not transferable, and there will be no public market for the subscription rights. The subscription period for the Rights Offering is expected to commence on or about November 13, 2023 and terminate approximately 16 calendar days thereafter, on November 28, 2023. The Company also entered into a Standby Purchase Agreement on August 8, 2023 (the "Standby Purchase Agreement") with Mark Tkach, William Coulter, and Stone House Capital Management, LLC, a Delaware limited liability company ("Stone House" and collectively, the "Standby Purchase Agreement") that provides a binding commitment to purchase up to $100,000 of shares of Class B Common Stock in the aggregate from the Standby Purchasers if the Rights Offering is not fully subscribed. The net proceeds of the Rights Offering are intended to be used to repay a portion of the debt under the Oaktree Credit Agreement and to fund the growth and development of the Company's business, including through possible acquisitions and other corporate purposes.
The Company monitors its working capital and determines what operating adjustments it needs to make in order to stay compliant with its various debt covenants. These adjustments can include a liquidation of inventory, expense reductions, and changes to capital expenditures. Management has considered these judgmentsplans, including if they are within the control of the Company, in evaluating ASC 205-40, Presentation of Financial Statements. Management believes the above actions are sufficient to allow the Company to meet its obligations as they become due for a period of at least 12 months from the issuance of these financial statements and estimates. In particular,to comply with the continuing adverse impacts to macro economic conditions, as well asamended financial covenants of Amendment No. 5. Management believes that its plans alleviate substantial doubt regarding the Company’s operations,ability to continue as a going concern.
In the event the Company is not able to conduct the Rights Offering or otherwise fails to close the Rights Offering by December 1, 2023, absent extension or further agreement, the Company would not be in compliance with its covenants under the Oaktree Credit Agreement as amended. Under those circumstances, and in accordance with the terms of the Oaktree Credit Agreement, Oaktree would have the right to demand payment of the outstanding indebtedness and the Company would be required to satisfy the obligation or negotiate further amendments to the agreement. If this were to occur, the Company would likely seek new or additional sources of financing or seek additional capital through public offerings, either of which may impact future estimates including, butor may not limitedbe possible at terms acceptable to inventory valuations, fair valuethe Company, or at all.
measurements, asset impairment charges and discount rate assumptions. These conditions include, but are not limited to, recession, inflation, interest rates, unemployment levels, the state of the housing market, gasoline prices, consumer credit availability, consumer credit delinquency and loss rates, personal discretionary spending levels, and consumer sentiment about the economy in general. These conditions and the economy in general could be affected by significant national or international events such as a global health crisis, acts of terrorism, or acts of war. If these economic conditions worsen or stagnate, it can have a material adverse effect on consumer demand as well as the availability of credit to finance powersports and vehicle purchases, which could adversely impact our business and results of operations.
Correction of an Immaterial Misstatement Related to Prior Periods
During the fourth quarter ended December 31,of 2022, the Company identified a misstatement in its accounting for internal powersports revenue and internal powersports cost of sales, which were included in the consolidated statements of operations rather than being eliminated, which resulted in an overstatement of both revenue and cost of sales, with no impact to gross profit, operating income (loss), or net income (loss). The misstatement impacted the unaudited Condensed Consolidated Financial Statements of Operations for the three month periods ended March 31, 2022, June 30, 2022, and September 30, 2022.
The Company evaluated the misstatement and concluded that the impact was not material, either individually or in the aggregate, to its current or previously issued consolidated financial statements. The Company has corrected the Condensed Consolidated Financial Statements of Operations by decreasing powersports revenue and cost of sales for the three months ended March 31,September 30, 2022 by $14,719$19,614 and $14,719, respectively.for the nine months ended September 30, 2022 by $52,426.
Recent Pronouncements
Adoption of New Accounting Standards
In June 2016,On January 1, 2023, the FASB issued ASUCompany adopted Accounting Standards Update ("ASU") 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which amendsamended the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company adopted ASU 2016-13 on January 1, 2023. The standard did not have a material impact on the Company's Condensed Consolidated Financial Statements for the threenine months ended March 31,September 30, 2023.
In March 2020, the FASBFinancial Accounting Standards Board ("FASB") issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This (Topic 848), and in December 2022 subsequently issued ASU provides optional guidance for a limited time2022-06, to temporarily ease the potential burden in accounting for reference rate reform. The new guidance providesstandards provide optional expedients and exceptions for applying U.S. GAAP to existing contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.reform. The amendmentsstandards only apply only to contracts and hedging relationships that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to reference rate reform. Additionally, entities can elect to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain conditions are met. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope.” This ASU refines the scope of ASC 848 and clarifies some of its guidance as part of the Board's monitoring of global reference rate reform activities. The ASU permits entities to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected by changes in the interest rates used for discounting cash flows, for computing variation margin settlements, and for calculating price alignment interest in connection with reference rate reform activities. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848." This ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. These new standards were effective upon issuance and can generally can be applied to applicable contract modifications. While ourthrough December 31, 2024. Our senior secured debt and manymost of our floorplan arrangements utilizetransitioned from LIBOR as a benchmark for calculatingto the applicable interest rate, someuse of our floorplan arrangements have already transitioned to utilizingthe Secured Overnight Financing Rate ("SOFR") as an alternative benchmark rate. We are continuing to evaluaterate effective July 1, 2023 under the impactOaktree Credit Agreement, as amended. The Company adopted this guidance as of the transition from LIBOR to alternative reference interest rates. We cannot predict the effect of the potential changes to or elimination of LIBOR, the establishment of alternative rates or benchmarks,July 1, 2023, and the corresponding effects on our cost of capital but dostandard did not expecthave a significantmaterial impact on our consolidated financial position, results of operations, and cash flows.the Company's Condensed Consolidated Financial Statements for the nine months ended September 30, 2023.
Accounting Standards Not Yet Adopted
In October 2021,August 2020, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for Contract Assetsconvertible debt instruments by reducing the number of accounting models and Contract Liabilitiesthe number of embedded conversion features that could be recognized separately from Contracts with Customers.the primary contract. This ASU 2021-08 requires contract assets and contract liabilities acquired in a business combinationconvertible debt instrument to be recognizedaccounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and measured byrecognition as derivatives. This ASU requires an entity to use the acquirer onif-converted method in the acquisition date in accordance with ASC 606 instead of being recorded at fair value. The Company early adopted these requirements prospectivelydiluted earnings per share calculation for convertible instruments. This ASU will be effective for us in the first quarter of 2022.
Table2024, and permits the use of Contentseither the modified retrospective or fully retrospective method of transition. We are evaluating the timing and effects of our adoption of this ASU on our financial statements.Accounting for Business Combinations
Total consideration transferred for acquisitions is allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and other fair value adjustments with respect to certain assets acquired and liabilities assumed. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our Condensed Consolidated Statements of Operations.
We use the income approach to determine the fair value of certain identifiable intangible assets including franchise rights. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased franchise rights and non-compete intangible asset amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third-party would pay for the assets.
NOTE 2 - ACQUISITIONS
Freedom Transaction
On November 8, 2021,February 18, 2022, RumbleOn entered into a Membership Interest Purchase Agreement to acquireacquired 100% of the equity interests of the Freedom Entities and completed the acquisition on the Freedom Closing Date (the “Freedom Transaction”). The Freedom Entities own and operate powersports retail dealerships, including associated real estate, involving sales, financing, and parts and service of new and used motorcycles, ATVs, UTVs,all-terrain vehicles ("ATVs"), utility task vehicles ("UTVs"), scooters, side-by-sides, sport bikes, cruisers, watercraft, and other powersports vehicles.vehicles in Texas, Alabama, and Georgia. We completed this acquisition to increase our powersports footprint.
We accounted for the Freedom Transaction as a business combination under ASC 805, Business Combinations.combination. Under the terms of the Membership Interest Purchase Agreement,agreement governing the Freedom Transaction, all outstanding equity interests of the Freedom Entities were acquired for total consideration of $97,237, consisting of $70,569 paid in cash, including certain transaction expenses paid on behalf of the Freedom Entities' equity holders, and the issuance of 1,048,718 shares of Class B Common Stock with a value of $26,511 on the Freedom Closing Date.date of the acquisition. On June 22, 2022, 2,446 shares of Class B Common Stock held in escrow were cancelled as part of the final purchase price adjustment.
The following table summarizes the final components of consideration transferred by the Company for the Freedom Transaction: | | | | | | | | |
Cash | | $ | 70,569 | |
Class B Common Stock | | 26,511 | |
Acquiree transaction expenses paid by the Company at closing | | 157 | |
Total purchase price consideration | | $ | 97,237 | |
Freedom Transaction Estimated Fair Value of Assets and Liabilities Assumed
On February 18, 2022, the Company completed its acquisition of the Freedom Entities. The Company finalized its accounting for consideration transferred, assets acquired, and liabilities assumed during the quarter ended March 31, 2023.2023, in connection with the acquisition of the Freedom Entities. All
such adjustments were recorded within the measurement period that ended on February 17, 2023. Total goodwill acquired as part of the Freedom Entities acquisition was $29,359.
All ofFreedom Entities' acquired assets and liabilities, including goodwill recognized as a result of the Freedom Transaction,have been included in the Company’sPowersports reporting segment, as the Freedom Entities business is entirely within the Company’s Powersports segment.
The Company finalized its valuation of assets acquired, including intangible assets, and has recorded appropriate adjustments to the purchase price allocation during theone-year measurement period. The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenue and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believesbelieved to be reasonable. However, actual results may differ from these estimates. Total goodwill from the acquisition of the Freedom Entities acquisition was $29,359.
All of the assets and liabilities acquired through the acquisition of the Freedom Entities, including goodwill, have been included in the Company’s Powersports reporting segment, as the Freedom Entities business is entirely within the Company’s Powersports reporting segment.
The Company usesused the income approach to determine the fair value of certain identifiable intangible assets including franchise rights. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. The Company basesbased its assumptions on estimates of future cash flows, expected growth rates, retention factors, etc. Discount rates used to arrive at a present value as of the date of acquisition are based on the time value of money and certain industry-specific risk factors. The Company believes the estimated purchased franchise rights and non-compete agreements amounts so determined representrepresented the fair value at the date of acquisition, and dodid not exceed the amount a third-partythird party would pay for such assets.
The following amounts represent the final determination of the fair value of the identifiable assets acquired and liabilities assumed as a result of the Freedom Transaction.
| | | | | |
Estimated fair value of assets: | |
Cash | $ | 6,381 | |
Contracts in transit | 1,170 | |
Accounts receivable | 1,089 | |
Inventory | 24,809 | |
Prepaid expenses | 214 | |
Property & equipment | 50,228 | |
Right-of-use assets | 2,876 | |
Other intangible assets | 2,167 | |
Franchise rights | 39,661 | |
Other assets | 21 | |
Total assets acquired | $ | 128,616 | |
Estimated fair value of liabilities assumed: | |
Accounts payable, accrued expenses and other current liabilities | $ | 5,407 | |
Notes payable - floor plan | 18,337 | |
Lease liabilities | 2,002 | |
Deferred revenue | 3,495 | |
Mortgage notes | 26,809 | |
Notes payable | 4,688 | |
Total liabilities assumed | 60,738 | |
Total net assets acquired | 67,878 | |
Goodwill | 29,359 | |
Total purchase price consideration | $ | 97,237 | |
The Company assumed notes payable and mortgage notes liabilities of $31,497 on the Freedom Closing Date. The outstanding balance of these liabilities were repaid in the first quarter of 2022 and are reflected as cash outflows from financing activities in the Condensed Consolidated Statements of Cash Flows. The Company funded the cash portion of the Freedom Transaction, transaction expenses, notes payable, and mortgage note repayments through an $84,500 draw on the Oaktree Credit Agreement (as defined below) and approximately $11,347 of available cash resources.
The Company expects it will be able to amortize, for tax purposes, $29,359 of goodwill.
Acquisition related costs of $284 were incurred for the three months ended March 31, 2022 and are included in Selling, General and Administrative expenses in the Condensed Consolidated Statement of Operations.
Red Hills Powersports Acquisition
On March 3, 2023, the Company acquired Red Hills powersports, a single retail location representing 10 OEMs in Tallahassee, Florida, for total consideration approximating $3,300 in cash.
Pro Forma Information for AcquisitionsAcquisition (Unaudited)
The Company recognized revenue from the Freedom Entities of $56,437 for the three months ended March 31, 2023. The Company has included the operating results of the Freedom Entities in its consolidated statements of operations since February 18, 2022. The following unaudited pro forma financial information presents consolidated information of the
Company as if the Freedom Transaction washad been completed at December 31,January 1, 2021. The pro forma impact to our operating results for the nine months ended September 30, 2023 was not materially different from our reported results. | | | | | | | | |
| | Nine Months Ended September 30, 2022 |
Pro forma revenue | | $ | 1,151,060 | |
Pro forma net income (loss) from continuing operations | | $ | 27,102 | |
Earnings (loss) per share from continuing operations - basic | | $ | 1.71 | |
Earnings (loss) per share from continuing operations - diluted | | $ | 1.70 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| | | | | (unaudited) |
Pro forma revenue | | | | | $ | 346,304 | | | $ | 468,913 | |
Pro forma net income (loss) | | | | | $ | (16,902) | | | $ | 9,141 | |
Earnings (loss) per share - basic | | | | | $ | (1.04) | | | $ | 0.58 | |
Weighted average number of shares - basic | | | | | 16,224,122 | | | 15,693,900 | |
Earnings (loss) per share - fully diluted | | | | | $ | (1.04) | | | $ | 0.58 | |
Weighted average number of shares - fully diluted | | | | | 16,224,122 | | | 15,718,441 | |
Red Hills Powersports Acquisition
On March 3, 2023, the Company acquired Red Hills powersports, a single retail location representing 10 original equipment manufacturers ("OEMs") in Tallahassee, Florida, for total consideration approximating $3,300 in cash. This transaction was accounted for as a business combination and has been included in the Company's Powersports reporting segment. Pro forma results are not provided for this transaction as the acquisition was not material to our operations.
NOTE 3 – LEASES
Lease Commitments
We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. We use these options in determining our capitalized financing and right-of-use assets and lease liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. To determine the discount rate to use in determining the present value of the lease payments, we use the rate implicit in the lease if determinable, otherwise we use our incremental borrowing rate.
On September 8, 2023, the Company sold eight properties to a third party for $49,958, which generated net cash proceeds of $48,237 after transaction fees, and concurrently entered into an agreement to lease the properties back from the buyer. The initial term of the lease is 15 years and contains five renewal option terms of five years each, which the Company has currently assumed will be exercised, for a total of 40 years. Due to the control over the locations maintained by the Company, this transaction will be accounted for using the failed sale-leaseback accounting model, with the land and buildings remaining on the Company's balance sheet and the treatment of the lease as a financing obligation. Annual rental expense is $3,747 collectively, with rent increasing annually by the lesser of two times the Consumer Price Index or 2% during the initial term and all option periods. See Note 5 for additional information.
The following table reflects the balance sheet presentation of our operating lease assets and liabilities: | Leases | Leases | | Classification | | March 31, 2023 | | December 31, 2022 | Leases | | Classification | | September 30, 2023 | | December 31, 2022 |
Assets: | Assets: | | | | | | | Assets: | | | | | | |
Operating | Operating | | Right of use assets | | $ | 163,556 | | | $ | 161,822 | | Operating | | Right-of-use assets | | $ | 167,236 | | | $ | 161,822 | |
Finance | | Property and equipment, net | | — | | | — | | |
Total right-of-use assets | Total right-of-use assets | | $ | 163,556 | | | $ | 161,822 | | Total right-of-use assets | | $ | 167,236 | | | $ | 161,822 | |
| Liabilities: | Liabilities: | | Liabilities: | |
Current: | Current: | | Current: | |
Operating | Operating | | Accounts payable and other current liabilities | | $ | 24,170 | | | $ | 24,075 | | Operating | | Accounts payable and other current liabilities | | $ | 24,723 | | | $ | 24,075 | |
Finance | | Accounts payable and other current liabilities | | — | | | — | | |
Non-Current: | Non-Current: | | Non-Current: | |
Operating | Operating | | Long-term portion of operating lease liabilities | | 129,518 | | | 126,695 | | Operating | | Operating lease liabilities | | 135,726 | | | 126,695 | |
Finance | | Other long-term liabilities | | — | | | — | | |
Total lease liabilities | | $ | 153,688 | | | $ | 150,770 | | |
Total | | Total | | $ | 160,449 | | | $ | 150,770 | |
The weighted-average remaining lease term and discount rate for the Company's operating and financing leases are as follows: | | | March 31, 2023 | December 31, 2022 | | September 30, 2023 | | December 31, 2022 |
Weighted average lease term-operating leases | Weighted average lease term-operating leases | 14.4 years | 14.6 years | Weighted average lease term-operating leases | 14.0 years | | 14.6 years |
Weighted average discount rate-operating leases | Weighted average discount rate-operating leases | 13.9% | 14.0% | Weighted average discount rate-operating leases | 14.0% | | 14.0% |
The following table provides information related to the lease costs of finance and operating leases, including an immaterial amount of short-term lease expense, for the three and nine months ended March 31,September 30, 2023 and 2022:
| Lease Expense | Lease Expense | | Income Statement Classification | | | | Three Months Ended March 31, | Lease Expense | | Income Statement Classification | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | | | | 2023 | | 2022 | | | | | 2023 | | 2022 | | 2023 | | 2022 |
Operating | Operating | | Selling, general and administrative expenses | | | | $ | 8,149 | | | $ | 6,863 | | Operating | | Selling, general and administrative expenses | | $ | 8,825 | | | $ | 7,894 | | | $ | 25,499 | | | $ | 22,961 | |
Finance: | Finance: | | | | Finance: | |
Amortization of ROU assets | | Depreciation and amortization expense | | | | — | | | 41 | | |
Amortization of assets under lease | | Amortization of assets under lease | | Depreciation and amortization expense | | — | | | — | | | — | | | — | |
Interest on lease liabilities | Interest on lease liabilities | | Interest expense | | | | — | | | 124 | | Interest on lease liabilities | | Interest expense | | — | | | — | | | — | | | — | |
Total lease costs | Total lease costs | | | | $ | 8,149 | | | $ | 7,028 | | Total lease costs | | $ | 8,825 | | | $ | 7,894 | | | $ | 25,499 | | | $ | 22,961 | |
In connection with the acquisition of the RideNow companies on August 31, 2021 (the "RideNow Transaction"), the Company entered into related party leases for 24 properties. The following table provides information related to the portion of lease assets and liabilities which are attributable to related party leases at March 31,September 30, 2023:
| Leases | Leases | | Balance Sheet Classification | | March 31, 2023 | | December 31, 2022 | Leases | | Balance Sheet Classification | | September 30, 2023 | | December 31, 2022 |
Assets: | Assets: | | | | | | | Assets: | | | | | | |
Right of use assets – related party | Right of use assets – related party | | $ | 104,619 | | | $ | 105,264 | | Right of use assets – related party | | $ | 108,527 | | | $ | 105,264 | |
All other right-of-use assets | All other right-of-use assets | | 58,937 | | | 56,558 | | All other right-of-use assets | | 58,709 | | | 56,558 | |
Total | Total | | Right-of-use assets | | $ | 163,556 | | | $ | 161,822 | | Total | | Right-of-use assets | | $ | 167,236 | | | $ | 161,822 | |
| Liabilities: | Liabilities: | | Liabilities: | |
Current: | Current: | | Current: | |
Current portion of lease liabilities – related party | Current portion of lease liabilities – related party | | $ | 13,947 | | | $ | 14,492 | | Current portion of lease liabilities – related party | | $ | 14,120 | | | $ | 14,492 | |
Current portion of lease liabilities – all other leases | | 10,223 | | | 9,583 | | |
Current portion of lease liabilities – other operating leases | | Current portion of lease liabilities – other operating leases | | 10,603 | | | 9,583 | |
Total | Total | | Accounts payable and other current liabilities | | $ | 24,170 | | | $ | 24,075 | | Total | | Accounts payable and other current liabilities | | $ | 24,723 | | | $ | 24,075 | |
Non-Current: | Non-Current: | | | | | Non-Current: | | | | |
Long-term portion of lease liabilities – related party | Long-term portion of lease liabilities – related party | | 95,695 | | | 93,713 | | Long-term portion of lease liabilities – related party | | $ | 96,568 | | | $ | 93,713 | |
Long-term portion of lease liabilities – all other leases | Long-term portion of lease liabilities – all other leases | | 33,823 | | | 32,982 | | Long-term portion of lease liabilities – all other leases | | 39,158 | | | 32,982 | |
Total | Total | | Operating lease liabilities | | $ | 129,518 | | | $ | 126,695 | | Total | | Operating lease liabilities | | $ | 135,726 | | | $ | 126,695 | |
Total lease liabilities | Total lease liabilities | | $ | 153,688 | | | $ | 150,770 | | Total lease liabilities | | $ | 160,449 | | | $ | 150,770 | |
|
Supplemental cash flow information related to operating leases for the threenine months ended March 31,September 30, 2023 and 2022 was as follows:
| | | Three Months Ended March 31, | | | | Nine Months Ended September 30, |
| | 2023 | | 2022 | | | | 2023 | | 2022 |
Cash payments for operating leases | Cash payments for operating leases | $ | 6,991 | | | $ | 5,996 | | Cash payments for operating leases | | | $ | 21,869 | | | $ | 18,643 | |
ROU assets obtained in exchange for new operating lease liabilities | ROU assets obtained in exchange for new operating lease liabilities | $ | 2,786 | | | $ | 13,675 | | ROU assets obtained in exchange for new operating lease liabilities | | | $ | 14,383 | | | $ | 15,912 | |
The following table summarizes the future minimum payments for operating leases at March 31,September 30, 2023 due in each year ending December 31:
| Year | Year | Operating Leases | Year | Operating Leases |
2023 | $ | 21,656 | | |
Remainder of 2023 | | Remainder of 2023 | $ | 7,774 | |
2024 | 2024 | 28,389 | | 2024 | 30,318 | |
2025 | 2025 | 26,669 | | 2025 | 28,601 | |
2026 | 2026 | 24,859 | | 2026 | 26,927 | |
2027 | 2027 | 23,701 | | 2027 | 26,131 | |
Thereafter | Thereafter | 270,655 | | Thereafter | 282,415 | |
Total lease payments | Total lease payments | 395,929 | | Total lease payments | 402,166 | |
Less: imputed interest | Less: imputed interest | (242,241) | | Less: imputed interest | (241,717) | |
Present value of operating lease liabilities | Present value of operating lease liabilities | $ | 153,688 | | Present value of operating lease liabilities | $ | 160,449 | |
NOTE 4 –GOODWILL AND INTANGIBLE ASSETS
The carrying amount of goodwill, franchise rights, and other intangible assets as of March 31, 2023 and December 31, 2022 is as follows:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Goodwill | $ | 24,003 | | | $ | 21,142 | |
| | | |
Other intangible assets | | | |
Franchise rights - indefinite life | $ | 236,678 | | | $ | 236,678 | |
Other intangibles - definite lived | 23,795 | | | 23,795 | |
| 260,473 | | | 260,473 | |
Less: accumulated amortization | 15,573 | | | 13,060 | |
Intangible assets, net | $ | 244,900 | | | $ | 247,413 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Goodwill, gross | $ | 242,543 | | | $ | 239,788 | |
Accumulated impairment | (218,646) | | | (218,646) | |
Goodwill, net | $ | 23,897 | | | $ | 21,142 | |
| | | |
Other intangible assets: | | | |
Franchise rights (indefinite-lived) | $ | 236,728 | | | $ | 236,678 | |
Non-compete agreements and other (definite-lived)) | 23,796 | | | 23,795 | |
| 260,524 | | | 260,473 | |
Less: accumulated amortization | (20,067) | | | (13,060) | |
Intangible assets, net | $ | 240,457 | | | $ | 247,413 | |
The following summarizes the changes in the carrying amount of goodwill, net, by reportable segment from December 31, 2022 to March 31,September 30, 2023. | | | | | | | | | | | | | | | | | | | | | | | |
| Powersports | | Automotive | | Vehicle Logistics | | Total |
Balance at December 31, 2022 | $ | 20,294 | | $ | — | | $ | 848 | | $ | 21,142 |
Acquisition of store in Tallahassee, FL | 2,600 | | — | | — | | 2,600 |
Freedom Powersports purchase accounting adjustments | 261 | | — | | — | | 261 |
Balance at March 31, 2023 | $ | 23,155 | | $ | — | | $ | 848 | | | $ | 24,003 |
| | | | | | | | | | | | | | | | | | | |
| Powersports | | | | Vehicle Logistics | | Total |
Balance at December 31, 2022 | $ | 20,294 | | | | $ | 848 | | $ | 21,142 |
Acquisition of Red Hills Powersports | 2,600 | | | | — | | 2,600 |
Purchase accounting adjustments for prior year acquisitions | 155 | | | | — | | 155 |
Balance at September 30, 2023 | $ | 23,049 | | | | $ | 848 | | | $ | 23,897 |
In addition to annual impairment testing, the Company continuously monitors for events and circumstances that could indicate that it is more likely than not that its goodwill, indefinite lived intangible assets, finite lived intangible assets, and other long-lived assets are impaired or not recoverable (a triggering event), requiring an interim impairment test. During the quarter ended March 31,September 30, 2023, the Company considered a number of factors including, but not limited to, current macroeconomic conditions such as inflation, economic growth, and interest rate movements, industry and market considerations, stock price performance (including performance relative to peers), and overall financial performance of the Company. Based on the analysis of relevant events and circumstances, the Company concluded a triggering event had not occurred as of March 31,September 30, 2023. The Company will continue to monitor both macroeconomic and company-specific events and circumstances in future periods and if a triggering event is identified prior to the Company’s fourth quarter annual impairment test, management will complete an interim impairment test at that time.
Estimated annual amortization expense related to other intangibles:our definite-lived intangible assets:
| 2023 | $ | 5,397 | | |
Remainder of 2023 | | Remainder of 2023 | $ | 909 | |
2024 | 2024 | 2,655 | | 2024 | 2,675 | |
2025 | 2025 | 99 | | 2025 | 99 | |
2026 | — | | |
Thereafter | Thereafter | — | | Thereafter | — | |
| $ | 8,151 | | |
Total | | Total | $ | 3,683 | |
NOTE 5 – NOTES PAYABLE AND LINES OF CREDITSECURED DEBT
Notes payableSenior secured debt consisted of the following as of March 31,September 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Term Loan Credit Agreement maturing on August 31, 2026. Amortization payments are required quarterly. Interest rate at March 31, 2023 was 12.98%. | | $ | 346,066 | | | $ | 346,066 | |
RumbleOn Finance line of credit maturing on February 4, 2025. Interest rate at March 31, 2023 was 9.94%. | | 20,952 | | | 25,000 | |
Note payable for leasehold improvements | | 514 | | | — | |
Total principal amount | | 367,532 | | | 371,066 | |
Less: unamortized debt issuance costs | | (23,340) | | | (28,572) | |
Total long-term debt | | 344,192 | | | 342,494 | |
Less: Current portion of long-term debt | | (21,036) | | | (3,645) | |
Long-term debt, net of current portion | | $ | 323,156 | | | $ | 338,849 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Term Loan Credit Agreement maturing on August 31, 2026. Payments are required quarterly. Interest rate at September 30, 2023 was 13.75%. | $ | 297,680 | | | $ | 346,066 | |
Financing obligation | 47,933 | | | |
ROF Consumer Finance Facility maturing on February 4, 2025. Interest rate at September 30, 2023 was 10.42%. | 14,606 | | | 25,000 | |
Notes payable for leasehold improvements and other | 1,528 | | | — | |
Total principal amount | 361,747 | | | 371,066 | |
Less: unamortized debt issuance costs | (26,009) | | | (28,572) | |
Total secured debt | 335,738 | | | 342,494 | |
Less: Current portion of secured debt | (14,893) | | | (3,645) | |
Secured debt, net of current portion | $ | 320,845 | | | $ | 338,849 | |
Floor planFloorplan notes payable as of March 31,September 30, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Floor plans notes payable - trade | $ | 88,763 | | | $ | 75,387 | |
Floor plans notes payable - non-trade | 156,245 | | 150,044 |
Floor plan notes payable | $ | 245,008 | | | $ | 225,431 | |
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Floorplan notes payable - trade | $ | 94,227 | | | $ | 75,387 | |
Floorplan notes payable - non-trade | 192,908 | | | 144,789 | |
Floorplan notes payable | $ | 287,135 | | | $ | 220,176 | |
Term Loan Credit Agreement
On the RideNow Closing Date, theThe Company entered intohas a new Term Loan Credit Agreementterm loan credit agreement (the “Oaktree Credit Agreement”) among the Company, as borrower, the lenders party thereto (the "Lenders"), and Oaktree, Fund Administration, LLC, as administrative agent and collateral agent (the “Administrative Agent”).agent. The Oaktree Credit Agreement provides for secured credit facilities in the form of a $280,000 principal amount of initial term loans (the “Initial Term Loan Facility”) and a $120,000 in aggregate principal amount of delayed draw term loans (the “Delayed Draw Term Loans Facility”). The proceeds from the Initial Term Loan Facility were used to consummate the RideNow Transaction and to provide for working capital. Loans under the Delayed Draw Term Loans Facility arewere subject to customary conditions precedent for facilities of this type including the need to meet certain financial tests and becamewere available six (6) months after the RideNow Closing Date and were unavailable to be drawn afterup to March 1, 2023. Warrants that the eighteen (18) month anniversaryCompany had granted to purchase $40,000 of shares of Class B Common Stock to Oaktree Capital Management, L.P. and its lender affiliates in consideration of the RideNow Closing Date, which occurred on March 1,initial loan expired in April 2023.
On February 18, 2022, in conjunction with the Freedom Transaction, the Company drew down $84,500 against the Oaktree Credit Agreement. During the fourth quarter of 2022, the Company made a voluntary principal repayment of $15,000 to the Oaktree Credit Facility. As of March 31, 2023, the Oaktree Credit Agreement does not provide for any available financing under the Delayed Draw Term Loans Facility.
The loan is reported on the balance sheet as senior secured debt, net of debt discount and debt issuance costs of $23,340, including the fair value of stock warrants of $10,950. Borrowings under the Oaktree Credit Agreement bear interest at a rate per annum equal, at the Company’s option, to either (a) LIBORSOFR (with a floor of 1.00%), plus an applicable margin of 8.25%, which replaced a LIBOR rate effective July 1, 2023 with the fourth amendment to the Oaktree Credit Agreement, or (b) a fluctuating adjusted base rate in effect from time to time, plus an applicable margin of 7.25%, provided that Amendment No. 5 (as defined below) provides that an additional 0.50% of interest will accrue from the Amendment No. 5 Effective Date (as defined below) through June 30, 2024 (which additional interest may be paid in cash or paid in kind). At the Company’s option, one percent (1.00%)1.0% of such interest may be payable in kind. The interest rate on March 31, 2023, was 12.98%. Interest expense for the three and nine months ended March 31,September 30, 2023 was $13,587 and 2022 were $12,942 and $8,691,$39,882, respectively, which included
amortization of $1,588$1,758 and $1,276,$5,018, respectively, related to the discount and debt issuance costs. WhileInterest expense for the Oaktree Credit Agreement notes that Secured Overnight Financing Rate ("SOFR") may be selected asthree and nine months ended September 30, 2022 was $9,605 and $29,305, respectively, which included amortization of $1,152 and $4,388, respectively for the alternative benchmark rate, this has not been determined asdiscount and debt issuance costs.
Obligations under the Oaktree Credit Agreement are secured by a first-priority lien on substantially all of the assets of the Company and its wholly-ownedwholly owned subsidiaries (the “Subsidiary Guarantors”), although certain assets of the Company and Subsidiary Guarantors are subject to a first-priority lien in favor of floor planfloorplan lenders, and such liens and priority are subject to certain other exceptions. The Subsidiary Guarantors also guarantee the obligations of the Company under the Oaktree Credit Agreement.
We provided customary representationsAt June 30, 2023, the Company was not in compliance with certain leverage ratio financial covenants under the Oaktree Credit Agreement. On August 9, 2023 (the "Amendment No. 5 Effective Date"), the Company, the Subsidiary Guarantors party thereto, Oaktree, and the Lenders party thereto executed Amendment No. 5 to the Oaktree Credit Agreement (the “Amendment No. 5”), pursuant to which, among other things: (i) all leverage ratio financial covenants under the Oaktree Credit Agreement were (a) eliminated and not tested for the for the quarters ending June 30, 2023 and September 30, 2023 and (b) made less restrictive for the quarters ending December 31, 2023, March 31, 2024, and June 30, 2024; (ii) additional performance covenants were added requiring the Company and its subsidiaries to use commercially reasonable best efforts to dispose of certain non-core real estate and monetize its consumer loan portfolios (with corresponding requirements to use such proceeds of such sales to pay down the term loans under the Oaktree Credit Agreement); (iii) an additional performance covenant was added requiring the Company raise net cash proceeds of not less than $100,000 from the issuance of common equity interests in the Company by December 1, 2023 (with a corresponding requirement to use certain of such equity proceeds to pay down the term loans under the Oaktree Credit Agreement), and (iv) an additional performance covenant was added requiring the Company to issue warrants, exercisable for an anticipated aggregate of 1,212,121 shares at an anticipated price of $12 per share, in a form to be agreed upon, to the Lender.In connection with Amendment No. 5, the Company agreed to pay a fee which includemay be paid in cash or paid in kind. The warrants were issued on August 14, 2023. See Note 8- "Common Stock Warrants" for additional information.
The elimination of the June 30, 2023 leverage ratio financial covenants was made effective as of June 30, 2023, and collateral performance covenants. Thethe Lenders agreed in Amendment No. 5 that no event of default existed from such leverage ratio financial covenants as of such date.
Based on the amended terms of the Oaktree Credit Agreement, the Company isbelieves that it will be in compliance with all covenants under the Oaktree Credit Agreement, as amended by Amendment No. 5, for the 12-month period from the issuance of March 31, 2023.these financial statements. As of September 30, 2023, the Company has classified obligations under the Oaktree Credit Agreement as a non-current liability.
Financing Obligation
On September 8, 2023, certain subsidiaries of the Company (collectively, the "Tenant") and a third party, as the landlord entered into a sale and leaseback transaction related to eight of the Company's properties, which generated net cash proceeds of $48,237. The transaction, however, did not transfer control of the properties to the landlord. As a result, the Company accounted for this transaction as a failed sale-leaseback transaction, in which the assets remain on the financial statements and a financing liability was recorded for the proceeds from the sale. The Company incurred $1,787 in transaction costs related to the sale-leaseback, which are therefore considered debt issuance costs and will be amortized as interest expense over the expected life of the lease.
The resulting Lease Agreement is considered a triple net lease, which requires the Tenant to pay substantially all costs associated with the properties, and has a contractual term of 15 years, with five separate renewal options at the Company's option. The renewal terms are effective to all, but not less than all, of the property subject to the Lease Agreement. The Company has assumed an expected lease life of 40 years to include all renewals. The initial annual rent under the Lease Agreement is $3,747, and the lease provides for rent increasing annually by the lesser of two times the Consumer Price Index or 2% during the initial term and all option periods.
The Company imputed the interest rate on the lease based upon the contractual minimum payments and the proceeds from the sale. Based on this, the Company has determined the effective interest rate on the debt to be 7.4%. Any changes in payments due to the annual rental escalations will be recorded as interest expense as incurred.
RumbleOn Finance Line of Credit
On February 4, 2022, RumbleOn Finance and ROF SPV I, LLC ("ROF"), an indirect subsidiary of RumbleOn, entered into a consumer finance facility ("ROF Consumer Finance Facility") primarily to provide up to $25,000 for the underwriting of consumer loans underwritten by ROF. Credit Suisse AG, New York Branch (“Credit Suisse”) is the managing agent of the loan agreement,ROF Consumer Finance Facility, and RumbleOn Finance is the borrower. All loans under this agreement are secured by certain collateral including the consumer finance loans purchased by the ROF Consumer Finance Facility.
We provided customary representations and covenants under the related agreements which include financial covenants and collateral performance covenants. Loans sold to or in the ROF Consumer Finance Facility are subject to certain eligibility criteria, concentration limits and reserves.
As of March 31,September 30, 2023, RumbleOn Finance did not meet the interest rate spread requirement set forth in the ROF Consumer Finance Facility as a result of increased interest rates and limited growth of our consumer finance business. The lender has indicated no current intention to request early repayment of the principal balance due under the ROF Consumer Finance Facility as of March 31,September 30, 2023. We intend to sell the loan portfolio held at RumbleOn Finance and pay off the outstanding balance during the secondfourth quarter of 2023. As of March 31,September 30, 2023, the outstanding balance due under the ROF Consumer Finance Facility was $20,952,$14,606, which is reflectedincluded in the current portion of long-term debt and line of credit in the accompanying Condensed Consolidated Balance Sheets.
The value of the loanloans receivable assets held by RumbleOn Finance, which are recorded at the lower of cost or fair value and which approximated $30,450 net of allowance$21,555 are classified as loan receivable assets held for loan losses, is included in prepaid expense and other current assetssale in the accompanying Condensed Consolidated Balance Sheets as of March 31, 2023. The loan receivable assets are considered assets held for sale as of March 31,September 30, 2023.
Floor PlanFloorplan Notes Payable
The Company relies on its floorplan vehicle financing credit lines (“Floorplan Lines”) to finance new and used vehicle inventory at its retail locations and for the wholesale segment. Floor planFloorplan notes payable - trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventory with corresponding manufacturers' captive finance subsidiaries (“trade lenders”). Floor planFloorplan notes payable - non-trade represents amounts borrowed to finance the purchase of specific new and used vehicle inventories with non-trade lenders. Changes in vehicle floor planfloorplan notes payable - trade are reported as operating cash flows and changes in floor planfloorplan notes payable - non-trade are reported as financing cash flows in the accompanying Consolidated Statements of Cash Flows.
Inventory serves as collateral under floor planfloorplan notes payable borrowings. The inventory balance in its entirety also serves as collateral under the Oaktree Credit Agreement.
On August 31, 2021, Wholesale Inc. entered into a Floorplan Line with AFC (the “AFC Credit Line”) to replace an existing line of credit. Advances under the AFC Credit Line are limited to $35,000 as of March 31, 2023. Interest expense on the AFC Credit Line for the three months ended March 31, 2023 and 2022 was $144 and $363, respectively.
On October 26, 2022, theThe Company entered intohas a Floorplan Line with J.P. Morgan (the “J.P. Morgan Credit Line”Line"). that terminates October 25, 2024 and provides for an interest rate of SOFR plus 2.0% based on the Company's fixed charged coverage ratio, as defined in the agreement that governs it. As of March 31,September 30, 2023, advances under the J.P. Morgan Credit Line are limited to $75,000 and the outstanding balance was $28,126.$31,215. Interest expense on the J.P. Morgan Credit Line for the three and nine months ended March 31,September 30, 2023 was $387.$474 and $1,282, respectively.
As of September 30, 2023, the Company was in compliance with the covenant terms of its floorplan agreements.
Restricted Cash
Amounts included in restricted cash are primarily comprised of the deposits required under the Company's various Floorplan Lines and RumbleOn Finance line of credit.
NOTE 6 – CONVERTIBLE NOTES
As of September 30, 2023 and December 31, 2022, the outstanding convertible senior notes net of unamortized debt discount and issue costs are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Principal Amount | | Debt Discount and Issue Costs | | Carrying Amount | | Principal Amount | | Debt Discount and Issue Costs | | Carrying Amount |
Convertible senior notes | $ | 38,750 | | | $ | (4,554) | | | $ | 34,196 | | | $ | 38,750 | | | $ | (6,860) | | | $ | 31,890 | |
Less: Current portion | — | | | — | | | — | | | — | | | — | | | — | |
Long-term portion | $ | 38,750 | | | $ | (4,554) | | | $ | 34,196 | | | $ | 38,750 | | | $ | (6,860) | | | $ | 31,890 | |
Convertible Senior Notes
The convertible senior notes (the "Notes") were issued on January 14, 2020 pursuant to an Indenture (the "Indenture"), by and between the Company and the trustee. The Indenture includes customary representations, warranties and covenants by the Company. The Notes bear interest at 6.75% per annum, payable semiannually on January 1 and July 1 of each year. The Notes may bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the Indenture or if the Notes are not freely tradable as required by the Indenture. The Notes mature on January 1, 2025, unless earlier converted, redeemed or repurchased pursuant to their terms.
The initial conversion rate of the Notes is 25 shares of Class B Common Stock per $1 principal amount of Notes, which is equal to an initial conversion price of $40.00 per share. The conversion rate is subject to adjustment in certain events as set forth in the Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a "make-whole fundamental change", the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert the Notes in connection with such make-whole fundamental change. Before July 1, 2024, the Notes will be convertible only under circumstances as described in the Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental change adjustment will result in a conversion rate greater than 62 shares per $1 in principal amount.
The Indenture contains a “blocker provision” which provides that no holder (other than the depository with respect to the Notes) or beneficial owner of Notes shall have the right to receive shares of the Class B Common Stock upon conversion to the extent that, following receipt of such shares, such holder or beneficial owner would be the beneficial owner of more than 4.99% of the outstanding shares of the Class B Common Stock.
The Notes are subject to events of default typical for this type of instrument. If an event of default, other than an event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant subsidiary, occurs and is continuing, the trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all the Notes then outstanding to be due and payable. The Notes also contain conversion features related to certain events, which include liquidation or dissolution, as well as fundamental changes to the structure or ownership of the Company.
The Company may redeem for cash all or any portion of the Notes, at its option, if the last reported sale price of the Class B Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100.0% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Notes.
The Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company (including trade payables). Interest expense recognized with respect to the Notes for the three and nine months ended September 30, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30 | | |
| 2023 | | 2022 | | 2023 | | 2022 | | | | |
Contractual interest expense | $ | 657 | | | $ | 657 | | | $ | 1,972 | | | $ | 1,970 | | | | | |
Total interest expense | 799 | | | 672 | | | 2,296 | | | 1,934 | | | | | |
| $ | 1,456 | | | $ | 1,329 | | | $ | 4,268 | | | $ | 3,904 | | | | | |
NOTE 67 – STOCKHOLDER EQUITYSTOCK-BASED COMPENSATION
Stock-Based Compensation
On June 30, 2017,The Company has a shareholder-approved stock incentive plan (as amended, the Company’s shareholders approved a Stock Incentive Plan (the “Plan”) allowing for the issuance of restricted stock units ("RSUs"), stock options, and other equity awards (collectively “Awards”). As of March 31,September 30, 2023, the number of shares authorized for issuance under the Plan was 2,700,0003,291,461 shares of Class B Common Stock. To date, most RSURSUs and Option awardsstock options awarded under the Plan are generally service/time based vestedtime-based and vest over a period of up to three years. In connection with the closing of the RideNow Transaction, the Company accelerated all the outstanding RSU awards for all participants and waived certain market-based share price hurdles for all market-based awards on the RideNow Closing Date. This waiver was accounted for as a modification of the awards. The fair value of the awards was remeasured as of effective date of the waiver.
The Company estimates the fair value of all awards granted under the Plan on the date of grant. In the case of time or service based RSU awards, the fair value is based on the share price of the Class B Common Stock on the date of the award, with the fair value expense on a straight line basis over the vesting period.
The following table reflects the stock-based compensation expense for the three and nine months ended March 31,September 30, 2023 and 2022:
| | | | Three Months Ended March 31, | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2023 | | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Restricted Stock Units | Restricted Stock Units | | $ | 2,911 | | | | $ | 1,879 | | Restricted Stock Units | $ | 3,077 | | | $ | 2,606 | | | $ | 10,898 | | | $ | 7,237 | |
Stock Options | Stock Options | | — | | | | — | | Stock Options | — | | | — | | | — | | | — | |
Total stock-based compensation | Total stock-based compensation | | $ | 2,911 | | | | $ | 1,879 | | Total stock-based compensation | $ | 3,077 | | | $ | 2,606 | | | $ | 10,898 | | | $ | 7,237 | |
As of March 31,September 30, 2023, there was 1,323,598were 820,916 unvested RSUs outstanding. The total unrecognized compensation expense related to outstanding equity awards was approximately $18,948,$9,914, which the Company expects to recognize over a weighted-average period of approximately 2619 months. Total unrecognized equity-based compensation expense will be adjusted for actual forfeitures.
Security OfferingPending Stock Option Grant to New Chief Executive Officer
As partIn connection with Michael W. Kennedy's appointment as Chief Executive Officer, the Company granted Mr. Kennedy an award of performance-based stock options to purchase 825,000 shares ("Options") of the Freedom Transaction, the Company issued to Freedom's security holders 1,048,718 shares of RumbleOnCompany's Class B Common Stock totaling $26,511(the "Performance Option Award"), which will vest in installments over a maximum period of five years starting on February 18, 2022. On June 22, 2022, 2,446the grant date, subject to meeting certain stock performance thresholds ranging from $12.00 to $40.00 for a period of 30 days and Mr. Kennedy's continued service with the Company through each such vesting date. The award was granted as an inducement to Mr. Kennedy's entry into employment and was approved by the Compensation Committee of the Company's Board of Directors, in accordance with Nasdaq Listing Rule 5635(c)(4). The award was granted outside of the Plan, as amended. The Performance Option Award will be granted two trading days after the completion of the Rights Offering and the exercise price per share of the Options will be equal to the closing price of the Class B Common Stock on the day before the grant, subject to the terms in Mr. Kennedy's employment agreement and award agreement .
NOTE 8 – COMMON STOCK WARRANTS
In connection with entering into Amendment No. 5, on August 14, 2023 the Company issued warrants to Oaktree and the Lenders to purchase up to 1,212,121 shares of Class B Common Stock heldat an exercise price of $12.00 per share. Such warrants are exercisable for up to five years following the date of issuance.
The Company has classified the warrants as equity in escrow were cancelled as partaccordance with ASC 815. The fair value of the finalwarrants is being amortized as interest expense over the term of the loan. The fair value of the warrants was determined at issuance using a Black-Scholes pricing model with the following estimates:
| | | | | |
| August 14, 2023 Warrants Issued |
Exercise price per share | $ | 12.00 | |
Stock price on date of issuance | $ | 7.20 | |
Fair value per share | $ | 5.01 | |
Volatility | 100 | % |
Expected term (years) | 5 |
Risk-free interest rate | 4.27 | % |
Dividend yield | — | % |
Total fair value at issuance date | $ | 6,100 | |
In addition, warrants issued in conjunction with a previous financing agreement to purchase 1,048 shares of the Company's Class B Common Stock at an exercise price adjustment.of $143.13 per share expired on October 30, 2023.
NOTE 9 – INCOME TAXES
The Company's benefit from income taxes on continuing operations for the three months and nine months ended September 30, 2023 was $3,556 and $9,706, respectively, representing effective income tax rates of 17.7% and 17.4%, respectively. The difference between the federal income tax rate of 21.0% and RumbleOn’s overall income tax rate for the three and nine months ended September 30, 2023 was primarily due to the tax effect of non-deductible executive compensation, non-deductible interest expense, and discrete tax impacts of stock compensation vesting in the quarter.
The Company's provision for income taxes on continuing operations for the three months and nine months ended September 30, 2022 was $678 and $8,166, respectively, representing effective income tax rates of 15.4% and 23.3%, respectively. The difference between the federal income tax rate of 21.0% and the Company’s overall income tax rate for the three months and nine months ended September 30, 2022 was primarily due to income tax expense on non-deductible expenses, valuation allowance expense associated with state net operating losses, and state income taxes, partially offset by a benefit associated with the change in the Company's effective state income tax rate.
NOTE 10 – EARNINGS (LOSS) PER SHARE
The Company computes basic and diluted earnings (loss) per share in conformity with the two-class method required for participating securities. Basic earnings (loss) per share from continuing operations is calculated by dividing income (loss) from continuing operations, net, by the weighed-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share from continuing operations is computed giving effect to all dilutive potential common stock equivalents outstanding for the period. Per share calculations pertaining to discontinued operations use the same number of shares as are used in the calculations for continuing operations.
For purposes of these calculations, warrants to purchase 1,212,121 shares of Class B Common Stock having an exercise price of $12.00 per share and warrants to purchase 1,048 shares of Class B Common Stock having an exercise price of $143.13 were considered common stock equivalents that were antidilutive for the periods ended September 30, 2023. Warrants that expired earlier in 2023 were also antidilutive for all periods that they were outstanding. Unvested RSUs have been included in the calculation of diluted earnings per share to the extent the shares would be dilutive. Additionally, the Company’s senior unsecured convertible notes were antidilutive for the periods ended September 30, 2023 and 2022.
NOTE 711 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncashnon-cash investing and financing activity for the threenine months ended March 31,September 30, 2023 and 2022:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cash paid for interest | $ | 15,843 | | | $ | 10,777 | |
Cash paid for (refunds from) taxes | $ | (47) | | | $ | — | |
Capital expenditures and technology development costs included in accounts payable and other current liabilities | $ | 125 | | | $ | 3,344 | |
Capital expenditures included in line of credit and notes payable | $ | 514 | | | $ | — | |
Fair value of 1,048,718 Class B Common Stock issued in the Freedom Transaction | $ | — | | | $ | 26,511 | |
The following table shows the cash and restricted cash reported within the accompanying Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Cash | $ | 51,784 | | | $ | 48,579 | |
Restricted cash (1) | 10,000 | | | 10,000 | |
Total cash, cash equivalents, and restricted cash | $ | 61,784 | | | $ | 58,579 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Supplemental Disclosure of Cash Flow Information: | | | |
Cash paid for interest | $ | 54,498 | | | $ | 36,021 | |
Cash paid for taxes | $ | 894 | | | $ | 6,304 | |
Non-cash Investing and Financing Activities: | | | |
Capital expenditures and technology development costs included in accounts payable and other current liabilities | $ | 87 | | | $ | 1,500 | |
Capital expenditures included in line of credit and notes payable | $ | 48,896 | | | $ | — | |
Fair value of warrants issued as financing costs | $ | 6,100 | | | $ | — | |
Fair value of Class B Common Stock issued for Freedom Transaction | $ | — | | | $ | 26,511 | |
(1)Amounts included in restricted cash are primarily comprised of the deposits required under the Company's various floor plan lines of credit and RumbleOn Finance line of credit.
NOTE 8 – INCOME TAXES
The Company's provision for (benefit from) income taxes for the three months ended March 31, 2023 and 2022 was ($1,603) and $2,380, respectively, representing effective income tax rates of 8.7% and 17.9%, respectively. The difference between the U.S. federal income tax rate of 21.0% and RumbleOn’s overall income tax rate for the three months ended March 31, 2023 was primarily due to the tax effect of non-deductible executive compensation, non-deductible interest expense, and discrete tax impacts of stock compensation vesting in the quarter.
The difference between the U.S. federal income tax rate of 21.0% and the Company’s overall income tax rate for the three months ended March 31, 2022 was primarily due to income tax expense on non-deductible expenses, valuation allowance expense associated with state net operating losses, and state income taxes, offset by a benefit associated with the change in the Company's effective state income tax rate.
NOTE 9– EARNINGS (LOSS) PER SHARE
The Company computes basic and diluted earnings (loss) per share attributable to common stockholders in conformity with the two-class method required for participating securities. Basic earnings (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighed-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period.
For purposes of this calculation for the quarter ended March 31, 2023, 1,323,598 of unvested RSUs, 2,340 of stock options, 1,212,121 of Oaktree Warrants to purchase shares of Class B Common Stock, 16,531 of other warrants to purchase shares of Class B Common Stock and 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
For purposes of this calculation for the quarter ended March 31, 2022, 805,183 of unvested RSUs, 2,425 of stock options, 1,212,121 of warrants to purchase shares of Class B Common Stock, 16,531 of other warrants to purchase shares of Class B Common Stock and 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
The weighted average number of shares outstanding of Class A Common Stock and Class B Common Stock, giving effect to all potential dilutive common stock equivalents outstanding, were 50,000 and 16,174,122, and 50,000 and 15,668,441, for the three months ended March 31, 2023 and 2022, respectively.
NOTE 1012 – RELATED PARTY TRANSACTIONS
Promissory Notes
In connection with the acquisition of RideNow, the Company assumed two promissory notes totaling principal and accrued interest of $2,821 as of August 31, 2021 due to entities controlled by former directors and executive officers of the Company. Amounts due under these two promissory notes have been paid in full as of March 31, 2023 and totaled $791 as of March 31, 2022.
RideNow Leases
In connection with the RideNow Transaction, theThe Company entered intohas related party leases for 24 properties consisting of dealerships and offices.offices in connection with the RideNow acquisition. Each related party lease is with a wholly owned subsidiary of the Company as the tenant and an entity controlled by Mark Tkach, our former directorsInterim Chief Executive Officer and executive officersa director of the Company until November 1, 2023, and William Coulter, a director of the Company, as the landlord. The initial aggregate base rent payment for all 24 leases iswas approximately $1,229 per month, and each lease commenced a new 20-year term on September 1, 2021, with each lease containing annual 2% increases on base rent. Rent expense associated with thethese leases approximated $4,324was $4,625 and $4,606$13,855 and $4,457 and $13,372, during the three and nine months ended March 31,September 30, 2023 and 2022, respectively, and areis included in Selling, Generalselling, general and Administrativeadministrative ("SG&A") expenses in the Condensed Consolidated Statement of Operations.
Payments to RideNow Management, LLLP
The Company made $0paid $2 and $116 in payments$6 to RideNow Management, LLLP, an entity owned equally by two former directorsMessrs. Coulter and executive officersTkach, during the three and nine months ended March 31,September 30, 2023 and 2022, respectively. In addition, the Company paid off a loan to RideNow Management LLLP of approximately $673 on June 27, 2022.
Payments to Coulter Management Group, LLLP
The company madeCompany paid $62 and $72, and $5 and $120 in payments$242 to Coulter Management Group, LLLP ("Coulter Management"), an entity owned by two former directorsMr. Coulter, during the three and executive officersnine months ended September 30, 2023 and 2022, respectively. These payments were made to cover certain proportionate costs of the Company, duringincluding health plan and IT contract expenses, that were shared among Coulter Management and the three months ended March 31, 2023 and 2022.RideNow entities for a period of time after the RideNow Transaction date.
Bidpath Software License
On January 19, 2022, the Audit Committee approved, and the Company entered into two agreements with Bidpath Incorporated ("Bidpath"), a company owned by Adam Alexander, a former director of the Company, that providesprovided the Company with (i) a perpetual, non-exclusive license to the then-current source code, as well as all future source code, of foundational technology for our inventory management platform, and (ii) support and maintenance services, all of which remain in development as of March 31, 2023.
The Company made cash payments for the license totaling $0 and $1,080, respectively, during the three months ended March 31, 2023 and 2022. The Company also pays, on monthly basis since the agreement was signed, $30 for development of the platform.services. The initial term iswas thirty-six (36) months but cancould be terminated by either party at any time by providing sixty (60) days' notice to the other party. On June 30, 2023, the Company notified Bidpath of its intent to terminate the contract. The contract was terminated effective August 31, 2023, and the Company recognized a $2,610 impairment for the remaining amount of capitalized costs.
The Company made no cash payments for the license during the three and nine months ended September 30, 2023 and $0 and $3,600 during the three months and nine months ended September 30, 2022, respectively. The Company also paid monthly platform development costs of $30 while the contract was in effect.
Ready Team Grow, LLC
The Company paid $42$0 and $54$100, and $52 and $162 to Ready Team Grow, LLC for employee recruiting services during the three and nine months ended March 31,September 30, 2023 and 2022.2022, respectively. Ready Team Grow, LLC is an entity owned by the domestic partner of the Company’s former Chief Executive Officer.Officer, Mr. Chesrown.
Death Benefit to a former Chief Financial Officer ("CFO") and Director
On September 30, 2021,As approved by the Audit Committee approved the issuance of 154,731 shares of the Company’s Class B Common Stock as a giftBoard of Directors in September 2021, the Company is paying a death benefit to the widowestate of a former CFO and childrendirector of the Company's former Chief Financial Officer and Director. Also, on September 30, 2021, the Audit Committee approved a giftCompany comprised of a death benefit to the widow and children of Mr. Berrard in an amount equal to (1) $1,338, which shall be paid individed into equal weekly installments beginning October 1, 2021 and ending June 30, 2024 and (2) the cash bonus paid to the Company’s Chief Executive Officer ("CEO") each quarter over the same period ending June 30, 2024, if and when paid to the Chief Executive OfficerCEO in accordance with the Company’s Executive Incentive Program. A total of $123$115 and $123$474, and $262 and $778 in cash payments were made under these awards during the three and nine months ended March 31,September 30, 2023 and 2022.
2022, respectively.
Employment of Immediate Family Members
WilliamMr. Coulter a former executive officer and director of the Company, hashad one immediate family member who was employed by the Company during 2021 and until August 30, 2022. This family member received aggregate gross pay of approximately $0$50 and $100 during$200 for the three and nine months ended March 31, 2023 andSeptember 30, 2022, respectively. No payments have been made in 2023.
MarkMr. Tkach a former executive officer and director of the Company, has two immediate family members that are,were, or have been,continue to be, employed by the Company between January 1, 2021, and the date hereof.Company. One of these family members was employed by the Company during 2021 and until February 21, 2022. This family member received aggregate gross pay of approximately $0 and $100 during$81, for the three and nine months ended March 31, 2023 andSeptember 30, 2022, respectively. No payments were made during 2023. The other family member
has received aggregate gross pay of approximately $109$137 and $100$331, and $89 and $239 during the three and nine months ended March 31,September 30, 2023 and 2022, respectively, and cumulative grants of restricted stock units with respect to 15,000representing 42,273 shares of Class B Common Stock during 2021.Stock.
NOTE 1113 - SEGMENT REPORTING
Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Our operations are organized by management into operating segments by line of business. We have determined that we have threetwo reportable segments as defined in U.S. GAAP for segment reporting: (1) powersports (2) automotive, and (3)(2) vehicle logistics. Our powersports and automotive segments consistsegment consists principally of the sale of new and used vehicles. The powersports segment consists of the distribution principally of motorcycles and other powersports vehicles, whileservice parts and accessories, together with the automotive segment distributes carsassociated costs to source and trucks.service the vehicles, parts and accessories. Our vehicle logistics segment provides nationwide transportation brokerage services between dealerships and auctions. Our vehicle logistics reportable segment has been determined to represent one
Information about continuing operations by operating segment and reporting unit.
Reportable segment financial information for the three and nine months ended March 31,September 30, 2023 and 2022 were as follows:
| | | Powersports | | Automotive | | Vehicle Logistics | | Eliminations(1) | | Total | | Powersports | Vehicle Logistics | Eliminations (1) | Total | |
Three Months Ended September 30, 2023 | | Three Months Ended September 30, 2023 | | |
| Revenue | | Revenue | $ | 324,147 | | $ | 14,005 | | $ | (41) | | $ | 338,111 | | |
Operating income (loss) | | Operating income (loss) | $ | (1,702) | | $ | 1,415 | | $ | — | | $ | (287) | | |
Depreciation and amortization | | Depreciation and amortization | $ | 7,265 | | $ | 10 | | $ | — | | $ | 7,275 | | |
Interest expense | | Interest expense | $ | (19,828) | | $ | — | | $ | — | | $ | (19,828) | | |
| Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2022 | | |
| Revenue (2) | | Revenue (2) | $ | 365,726 | | $ | 15,527 | | $ | (589) | | $ | 380,664 | | |
Operating income (loss) | | Operating income (loss) | $ | 12,734 | | $ | 1,398 | | $ | (65) | | $ | 14,067 | | |
Depreciation and amortization | | Depreciation and amortization | $ | 6,544 | | $ | 10 | | $ | — | | $ | 6,554 | | |
Interest expense | | Interest expense | $ | (12,209) | | $ | — | | $ | — | | $ | (12,209) | | |
| Three Months Ended March 31, 2023 | | | | | | | | | | |
Total assets | $ | 1,888,163 | | | $ | 11,215 | | | $ | 5,014 | | | $ | (866,514) | | | $ | 1,037,878 | | |
Nine Months Ended September 30, 2023 | | Nine Months Ended September 30, 2023 | | |
Revenue | Revenue | $ | 319,543 | | | $ | 11,921 | | | $ | 14,999 | | | $ | (159) | | | $ | 346,304 | | Revenue | $ | 1,011,999 | | $ | 43,605 | | $ | (378) | | $ | 1,055,226 | | |
Operating income (loss) | Operating income (loss) | $ | (2,144) | | | $ | (88) | | | $ | 1,431 | | | $ | — | | | $ | (801) | | Operating income (loss) | $ | (4,506) | | $ | 4,325 | | $ | — | | $ | (181) | | |
Depreciation and amortization | Depreciation and amortization | $ | 4,717 | | | $ | 14 | | | $ | 10 | | | $ | — | | | $ | 4,741 | | Depreciation and amortization | $ | 17,241 | | $ | 30 | | $ | — | | $ | 17,271 | | |
Interest expense | Interest expense | $ | (17,602) | | | $ | (144) | | | $ | — | | | $ | — | | | $ | (17,746) | | Interest expense | $ | (55,756) | | $ | — | | $ | — | | $ | (55,756) | | |
Change in derivative liability | Change in derivative liability | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Change in derivative liability | $ | — | | $ | — | | $ | — | | $ | — | | |
| Three Months Ended March 31, 2022 | | |
Total assets | $ | 1,854,998 | | | $ | 54,673 | | | $ | 16,805 | | | $ | (705,670) | | | $ | 1,220,806 | | |
Revenue | $ | 322,095 | | | $ | 110,755 | | | $ | 13,612 | | | $ | (1,261) | | | $ | 445,201 | | |
Nine Months Ended September 30, 2022 | | Nine Months Ended September 30, 2022 | | |
Revenue (2) | | Revenue (2) | $ | 1,084,480 | | $ | 45,774 | | $ | (2,904) | | $ | 1,127,350 | | |
Operating income (loss) | Operating income (loss) | $ | 21,768 | | | $ | (262) | | | $ | 1,067 | | | $ | 90 | | | $ | 22,663 | | Operating income (loss) | $ | 64,183 | | $ | 3,746 | | $ | 25 | | $ | 67,954 | | |
Depreciation and amortization | Depreciation and amortization | $ | 4,447 | | | $ | 17 | | | $ | 10 | | | $ | — | | | $ | 4,474 | | Depreciation and amortization | $ | 16,842 | | $ | 30 | | $ | — | | $ | 16,872 | | |
Interest expense | Interest expense | $ | (10,662) | | | $ | (518) | | | $ | (1) | | | $ | — | | | $ | (11,181) | | Interest expense | $ | (35,621) | | $ | (1) | | $ | — | | $ | (35,622) | | |
Change in derivative liability | Change in derivative liability | $ | 39 | | | $ | — | | | $ | — | | | $ | — | | | $ | 39 | | Change in derivative liability | $ | 39 | | $ | — | | $ | — | | $ | 39 | | |
Total assets by operating segment at were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Powersports | | Vehicle Logistics | | Eliminations (1) | | Continuing Operations | | Discontinued Operations | | Total |
Total assets at September 30, 2023 | $ | 1,926,226 | | | $ | 2,837 | | | $ | (870,046) | | | $ | 1,059,017 | | | $ | 35 | | | $ | 1,059,052 | |
Total assets at December 31, 2022 | $ | 1,872,201 | | | $ | 3,857 | | | $ | (860,247) | | | $ | 1,015,811 | | | $ | 11,399 | | | $ | 1,027,210 | |
(1)Intercompany investment balances relatedprimarily relate to the acquisitions of RideNow, Freedom Entities, Wholesale Inc. and Wholesale Express, and receivables and other balances related to intercompany freight services of Wholesale Express are eliminated in the Condensed Consolidated Balance Sheets. Revenue and costs for these intercompany freight services have been eliminated in the Condensed Consolidated Statements of Operations.
(2)Revenue for Powersports has been adjusted by $19.6 million and $52.4 million, respectively, for the three and nine months ended September 30, 2022. See "Correction of an Immaterial Misstatement Related to Prior Periods" in Note 1.
NOTE 14 - DISCONTINUED OPERATIONS AND LOAN RECEIVABLE ASSETS HELD FOR SALE
Discontinued Operations
In the fourth quarter of 2022, the Company announced plans to wind down its automotive business. As of September 30, 2023, the Company had completed all substantial activities pertaining to the wind down of its automotive business, which represents a strategic shift having a major effect on our operations and financial results.
We have classified all direct revenues, costs, and expenses related to commercial operations of the wholesale automotive business, within income (loss) from discontinued operations, net of tax, in the Condensed Consolidated Statements of Operations for all periods presented. We have not allocated any amounts for shared general and administrative operating support expenses to discontinued operations.
While ASC 205-20 does not explicitly require assets and liabilities of a discontinued operation to be separately presented in prior periods when the disposal is other than by sale, we have presented related assets and liabilities as assets and liabilities of discontinued operations in our Condensed Consolidated Balance Sheets as of December 31, 2022.
Discontinued operations for three and nine months ended September 30, 2023 and September 30, 2022 consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three-Months Ended | | Nine Months Ended |
| | September 30, 2023 | | September 30, 2022 | | September 30, 2023 | | September 30, 2022 |
Income (loss) from operations of discontinued Automotive segment | | $ | — | | | $ | (858) | | | $ | (1,100) | | | $ | (1,151) | |
Income tax provision (benefit) | | — | | | (182) | | | (149) | | | (420) | |
Income (loss) from discontinued operations | | $ | — | | | $ | (676) | | | $ | (951) | | | $ | (731) | |
The following were the carrying amounts of the assets and liabilities of discontinued operations:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
Cash | $ | — | | | $ | 1,816 | |
Accounts receivable, net | — | | | 1,311 | |
Inventory | — | | | 8,248 | |
Prepaid expense and other current assets | — | | | 2 | |
Other assets | 35 | | | 23 | |
Total assets of discontinued operations | $ | 35 | | | $ | 11,400 | |
| | | |
Accounts payable and accrued expenses | $ | 513 | | | $ | 3,137 | |
Vehicle floorplan notes payable | — | | | 5,254 | |
Accrued interest payable | — | | | 43 | |
Total liabilities of discontinued operations | $ | 513 | | | $ | 8,434 | |
Loans Receivable Held For Sale
As approved by our Board of Directors, the Company plans to sell the loan portfolio held by RumbleOn Finance. Upon the classification of the loans receivable as held for sale, the allowance for credit losses was reversed and a valuation allowance was recorded. To mark the loan receivable assets down to the lower of cost or fair value, the Company recorded a valuation allowance of $5,971 in the nine months ended September 30, 2023. This charge was classified as SG&A expenses. The fair value of the loan receivable assets is classified as loan receivable assets held for sale in the accompanying Condensed Consolidated Balance Sheets. We expect that anticipated proceeds from sale of the loan receivable assets will be used to pay down the RumbleOn Finance line of credit, which approximated $14,606 and is included in current portion of long-term debt and line of credit in the accompanying Condensed Consolidated Balance Sheets as of September 30, 2023. We anticipate the sale of the loan portfolio to be completed during the fourth quarter of 2023.
NOTE 15 – SUBSEQUENT EVENT
New Chief Executive Officer
Michael W. Kennedy became Chief Executive Officer and director of the Company effective as of November 1, 2023. Mr. Kennedy, age 56, previously served as the President and Chief Executive Officer of Vance & Hines, LLC from April 2019 until October 2023. Prior to that Mr. Kennedy served as Founder and Managing Partner of MWK Partner Advisors from December 2017 until March 2019. Mr. Kennedy is an accomplished Powersports industry veteran with over three decades of experience in strategy, commercial operations, financial management, and manufacturing at leading Powersports companies. See Note 7 - "Stock-Based Compensation".
In connection with Mr. Kennedy’s appointment as Chief Executive Officer and effective as of the same date, Mr. Tkach resigned from his roles as Interim Chief Executive Officer and as a director of the Company. Upon his resignation, Mr. Tkach was appointed to serve as a Board observer.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our 2022 Form 10-K, as well asthe consolidated financial statements and notes thereto included in our Current Report on Form 8-K filed on September 27, 2023, and our unaudited Condensed Consolidated Financial Statements and the accompanying notes included in Item 1 of this Quarterly Report on Form 10-Q. All dollars are reported in thousands except per share and per unit amounts.
Forward-looking statements throughout this Quarterly Report on Form 10-Q are not guarantees of future performance and may involve risks and uncertainties that could cause actual results to differ materially from those projected. Refer to the "Forward-Looking and Cautionary Statements" section below and in our 2022 Form 10-K and Current Report on Form 8-K filed on September 27, 2023 for a discussion of these risks and uncertainties.
Overview
RumbleOn is the nation’s first, largest and only publicly-traded, technology-based online and in-store marketplacepowersports retailer in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisitionNorth America, offering a wide selection of supply through distribution of retail and wholesale. RumbleOn provides an unparalleled technology suite and ecommerce experience, a national footprint of physical locations, and full-line manufacturer representation to transform the entire customer experience. Our goal is to integrate the best of both the physical and the digital, and make the transition between the two seamless.
We buy and sell new and used motorcycles, all-terrain vehicles, through multiple company-owned websitesutility terrain vehicles, personal watercraft, and affiliate channels, as well asother powersports products, including parts, apparel, accessories, and aftermarket products from a wide range of manufacturers. Additionally, we offer a full suite of financing, parts, repair, and maintenance services, and our logistics services company, Wholesale Express, LLC ("Wholesale Express"), provides freight brokerage services facilitating transportation for dealers and consumers. As of September 30, 2023, we operated more than 55 retail locations representing 30 brands primarily in the Sun Belt.
We source high quality pre-owned inventory via our proprietary cash offer toolwebsite, which allows us to purchase pre-owned units directly from consumers.
We seek to provide customers with a seamless experience, broad selection, and access to our specialized and experienced team members, including sales staff and technicians. Our network of 55 company-ownedconvenient retail locations as of March 31, 2023, primarily located in the Sunbelt. Deepening our presence in existing markets and expanding into new markets through strategic acquisitions helps perpetuate our flywheel. Our cash offer technology brings in high quality inventory, which attracts more riders and drives volume in used unit sales. This flywheel enablesallows us to quickly and effectively gain market share.offer services throughout the vehicle life cycle. As a result of our growth to date, RumbleOn enjoys a leading first-mover position in the highly fragmented $100 billion+ powersports market.
RumbleOn’sOf our retail locations, 42 were acquired in 2021 in conjunction with the purchase of RideNow Powersports ("RideNow"). On February 18, 2022 we completed the acquisition of Freedom Powersports, LLC ("Freedom Powersports") and Freedom Powersports Real Estate, LLC (together with Freedom Powersports, the "Freedom Entities"). We are headquartered in the Dallas Metroplex and completed our initial public offering in 2017.
Through June 30, 2023, we participated in the automotive industry through our wholly owned wholesale distributor of used automotive inventory, Wholesale, Inc. ("Wholesale Inc."), and our exotics retailer AutoSport USA, Inc., which did business under the name Got Speed. We began winding this business down in the third quarter of 2022. The results of operations of this segment of our business are reported as discontinued operations in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Since the acquisitions of RideNow and Freedom Powersports, we have made a handful of smaller acquisitions. We plan to continue to grow our powersports footprint through strategic acquisitions.
RumbleOn's powersports business offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and all other powersports products, parts, apparel, and accessories. Facilitating our platform, RumbleOn’s retail distribution locations represent all major OEMs and their representative brands,accessories from a wide range of manufacturers, including those listed below.
| | | | | | | | |
RumbleOn’s Representative Brands |
Alumacraft | HuricaneHonda | Soul E Bikes |
Argo | Hurricane Boats | Specialized (bicycles) |
ArgoBenelli | Indian Motorcycles | Speed/UTV |
BenelliBlazer Boats | Karavan Trailers | SSR |
Blazer BoatsBMW | Kawasaki | STACYC (electric) |
BMWCan-Am | Kayo | Suzuki |
Can-AmCF Moto | KTM | Tidewater (Boats)Boats |
CF MotoClub Car | Lynx (Snowmobiles) | Timbersled (Snow)(snow bikes) |
Club CarContinental Trailers | MAGICTILT Trailers | Trailmaster (off-road/gocarts) |
Continental TrailersCrevalle Boats | Manitou | Triton Trailers |
Crevalle BoatsCub Cadet | Manitou (Boats)(pontoon boats) | Triumph |
Cub CadetDucati | Mercury (Boats)(boat engines) | Vanderhall |
DucatiGas-Gas | Polaris | Wellcraft (Boats)(boats) |
Gas-GasGodfrey Pontoon Boats | Scarab | Yamaha |
Hammerhead Off-Road | Sea-Doo | Yamaha Marine |
Harley-Davidson | Segway Powersports | Zero Motorcycles |
Hisun | Ski-Doo | Zieman Trailers |
Honda | Soul E Bikes | |
| | |
RumbleOn leverages technologyRecent Developments
New Chief Executive Officer
Michael W. Kennedy became Chief Executive Officer and datadirector of the Company effective as of November 1, 2023. Mr. Kennedy, age 56, previously served as the President and Chief Executive Officer of Vance & Hines, LLC from April 2019 until October 2023. Prior to streamlinethat Mr. Kennedy served as Founder and Managing Partner of MWK Partner Advisors from December 2017 until March 2019. Mr. Kennedy is an accomplished Powersports industry veteran with over three decades of experience in strategy, commercial operations, improve profitability,financial management, and drive lifetime engagementsmanufacturing at leading Powersports companies.
In connection with Mr. Kennedy’s appointment as Chief Executive Officer and effective as of the same date, Mark Tkach resigned from his roles as Interim Chief Executive Officer and as a director of the Company. Upon his resignation, Mr. Tkach was appointed to serve as a Board observer.
Rights Offering
On August 9, 2023, we announced our customers byintention to conduct a proposed $100,000 rights offering a best-in-class customer experience with unmatched Omnichannel capabilities. Our Omnichannel platform offers consumers the fastest, easiest, and most transparent transactions available in powersports. RumbleOn customers have access(the "Rights Offering") to the most comprehensive powersports vehicle offering, including the ability to buy, sell, trade, and finance online, in store at anyCompany's existing shareholders whereby holders of record of our brick-and-mortar locations,common stock will be granted a dividend of subscription rights to purchase a designated number of shares of Class B Common Stock at a price to be determined by the Special Committee of the Board. If the Rights Offering is not fully subscribed for, any stockholders who exercise their basic subscription rights will have an over-subscription right to purchase additional shares of Class B Common Stock that would otherwise remain unsubscribed for at the expiration date for the Rights Offering. No fractional shares of Class B Common Stock will be issued in the Rights Offering. The subscription rights are not transferable, and there will be no public market for the subscription rights. The subscription period for the Rights Offering is expected to commence on or both. RumbleOn offers financing solutions forabout November 13, 2023 and terminate approximately 16 calendar days thereafter, on November 28, 2023. The Company also entered into a Standby Purchase Agreement on August 8, 2023 (the "Standby Purchase Agreement") with Mark Tkach, William Coulter, and Stone House Capital Management, LLC, a Delaware limited liability company ("Stone House" and collectively, the "Standby Purchase Agreement") that provides a binding commitment to purchase up to $100,000 of shares of Class B Common Stock in the aggregate from the Standby Purchasers if the Rights Offering is not fully subscribed. The net proceeds of the Rights Offering are intended to be used to repay a portion of the debt under the Oaktree Credit Agreement and to fund the growth and development of the Company's business, including through possible acquisitions and other corporate purposes.
consumers; trusted physical retail and service locations; online and in-store instant cash offers, and unparalleled access to pre-owned inventory; and apparel, parts, service, and accessories.
KEY OPERATING METRICS
We regularly review a number of key operating metrics to evaluate our segments, measure our progress, and make operating decisions. Our key operating metrics reflect what we believe will be the primary drivers of our business, including increasing brand awareness, maximizing the opportunity to source vehicles from consumers and dealers, and enhancing the selection and timing of vehicles we make available for sale to our customers.
During the first quarter of 2022, the Company completed its acquisition of the Freedom Entities, a retailer group with 13 retail locations in Texas, Georgia, and Alabama. Please note that results of the Freedom Entities prior to the Freedom Closing Datedate of their acquisition are not reflected in the presentation below. Increases in line items within the powersports segment are primarilypartially the result of the acquisitions and the reader should note that most period-over-period dollar comparisons that incorporate the first quarter of 2022 (as opposed to per unit amounts) are materially impacted by the introduction of the Freedom Powersports businesses (the “Acquisition Effect”).
Powersports and Automotive SegmentsSegment
Revenue
Revenue is comprised of vehicle sales, finance and insurance products bundled with retail vehicle sales (“F&I”), and parts, service and accessories/merchandise (“PSA”). We sell both new and pre-owned vehicles through retail and wholesale channels. F&I and PSA revenue is almost exclusively earned through retail channels. Automotive sales are almost exclusively via wholesale channels, and therefore, contribute to a very small portion of F&I revenue. These sales channels provide us the opportunity to maximize profitability through increased sales volume and lower average days to sale by selling through the channel where the opportunity is the greatest at any given time based on customer demand, market conditions or inventory availability. The number of vehicles sold to any given channel may vary from period to period based on these factors.
A material part of our ability to sell vehicles is predicated on being able to have sufficient inventory, both new and used, to satisfy customer demand or meet our financial objectives. New inventory is ultimately controlled by our OEMs and their willingness to allocate inventory to us and their ability to manufacture and distribute a sufficient number of vehicles given the ongoing environment of manufacturing slowdowns, computer chip shortages, and logistic/transportation challenges (collectively, the “Demand/Supply Imbalances”). Subject to the resulting Demand/Supply Imbalances, we expect pre-owned vehicle sales to increase as we begin to utilize a combination of brand building and direct response channels to efficiently source and scale our addressable markets while expanding our suite of product offerings to consumers who may wish to trade-in or to sell us their vehicle independent of a retail sale. Factors primarily affecting pre-owned vehicle sales include the number of retail pre-owned vehicles sold and the average selling price of these vehicles.
Gross Profit
Gross profit generated on vehicle sales reflects the difference between the vehicle selling price and the cost of revenue associated with acquiring the vehicle and preparing it for sale. Cost of revenue includes the vehicle acquisition cost, inbound transportation cost, and particularly for pre-owned vehicles, reconditioning costs (collectively, we refer to reconditioning and transportation costs as “Recon and Transport”).costs. The aggregate gross profit and gross profit per vehicle vary across vehicle type, make, model, etc. as well as through retail and wholesale channels, and with regard to gross profit per vehicle, are not necessarily correlated with the sale price. Vehicles sold through retail channels generally have the highest dollar gross profit per vehicle, given the vehicle is sold directly to the consumer. Pre-owned vehicles sold through wholesale channels, including directly to other dealers or through auction channels, including via our dealer-to-dealer auction market, generally have lower margins and do not include other ancillary gross profit attributable to financing and accessory.accessories. Factors affecting gross profit from period to period include the mix of new versus used vehicles sold, the distribution channel through which they are sold, the sources from which we acquired such inventory, retail market prices, our average days to sale, and our pricing strategy. We may opportunistically choose to shift our inventory mix to higher or lower cost vehicles, or to opportunistically raise or lower our prices relative to market to take advantage of Demand/Supply Imbalances in our sales channels, which could temporarily lead to gross profits increasing or decreasing in any given channel.
Vehicles Sold
We define vehicles sold as the number of vehicles sold through both wholesale and retail channels in each period, net of returns.period. Vehicles sold is the primary driver of our revenue and, indirectly, gross profit. Vehicles sold also enables
complementary revenue streams, such as financing. Vehicles sold increases our base of customers and improves brand awareness and repeat sales. Vehicles sold also provides the opportunity to successfully scale our logistics, fulfillment, and customer service operations.
Total Gross Profit per Powersports Vehicle (Powersports Segment)
Total gross profit per vehicle is the aggregate gross profit of the powersports segment in a given period, divided by retail powersports vehicles sold in that period. The aggregate gross profit of the powersports segment includes gross profit generated from the sale of new and used vehicles, income related to the origination of loans originated to finance the vehicle, revenue earned from the sale of F&I products including extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, gross profit on the sale of PSA products, and gross profit generated from wholesale sales of vehicles.
Total Gross Profit per Vehicle (Automotive Segment)
Total gross profit per vehicle is the aggregate gross profit of the automotive segment in a given period, divided by total automotive vehicles sold in that period.
Vehicle Logistics Segment
Revenue
Revenue is derived from freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The freight brokerage agreements are fulfilled by independent third-party transporters who must meet our performance obligations and standards. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. In the normal course of operations, Wholesale Express also provides transportation services to Wholesale, Inc.
Vehicles Transported
We define vehicles transported as the number of vehicles delivered from a point of origin to a designated destination under freight brokerage agreements with dealers, distributors, or private parties. Vehicles transported are the primary driver of revenue and in turn profitability in the vehicle logistics segment.
Total Gross Profit Per Vehicle Transported
Total gross profit per vehicle transported represents the difference between the price received from non-affiliated customers and our cost to contract an independent third-party transporter divided by the number of third partythird-party vehicles transported.
Results of Continuing Operations
Three-monthsThree and Nine Months ended March 31,September 30, 2023 Compared to March 31,September 30, 2022
Total Company Metrics (dollars in thousands except per unit)thousands)
| | | | | Three Months Ended March 31, | | | Three Months Ended September 30, | | Nine Months Ended September 30, | |
| | | | 2023 | | 2022 | | YoY Change | | 2023 | | 2022 | | YoY Change | | 2023 | | 2022 | | YoY Change |
Financial Overview | Financial Overview | | | | | | | | Financial Overview | | | | | | | | | | | |
Revenue | Revenue | | | Revenue | |
Powersports | Powersports | | | $ | 319,579 | | | $ | 322,121 | | | $ | (2,542) | | Powersports | $ | 235,132 | | | $ | 271,877 | | | $ | (36,745) | | | $ | 738,136 | | | $ | 806,382 | | | $ | (68,246) | |
Automotive | | | 11,885 | | | 110,729 | | | (98,844) | | |
PSA | | PSA | 59,727 | | | 62,216 | | | (2,489) | | | 184,205 | | | 182,268 | | | 1,937 | |
Finance and insurance, net | | Finance and insurance, net | 29,288 | | | 31,569 | | | (2,281) | | | 89,658 | | | 95,830 | | | (6,172) | |
Vehicle Logistics | Vehicle Logistics | | | 14,840 | | | 12,351 | | | 2,489 | | Vehicle Logistics | 13,964 | | | 15,002 | | | (1,038) | | | 43,227 | | | 42,870 | | | 357 | |
Total revenue | Total revenue | | | $ | 346,304 | | | $ | 445,201 | | | $ | (98,897) | | Total revenue | $ | 338,111 | | | $ | 380,664 | | | $ | (42,553) | | | $ | 1,055,226 | | | $ | 1,127,350 | | | $ | (72,124) | |
Gross Profit | Gross Profit | | | | | | | | Gross Profit | | | | | | | | | | | |
Powersports | Powersports | | | $ | 86,749 | | | $ | 99,154 | | | $ | (12,405) | | Powersports | $ | 32,344 | | | $ | 50,246 | | | $ | (17,902) | | | $ | 104,045 | | | $ | 158,491 | | | $ | (54,446) | |
Automotive | | | 699 | | | $ | 3,575 | | | (2,876) | | |
PSA | | PSA | 26,974 | | | 29,142 | | | (2,168) | | | 84,663 | | | 85,795 | | | (1,132) | |
Finance and insurance, net | | Finance and insurance, net | 29,288 | | | 31,569 | | | (2,281) | | | 89,658 | | | 95,830 | | | (6,172) | |
Vehicle Logistics | Vehicle Logistics | | | 3,587 | | | $ | 2,484 | | | 1,103 | | Vehicle Logistics | 3,339 | | | 3,486 | | | (147) | | | 10,281 | | | 9,138 | | | 1,143 | |
Total Gross Profit | Total Gross Profit | | | $ | 91,035 | | | $ | 105,213 | | | $ | (14,178) | | Total Gross Profit | $ | 91,945 | | | $ | 114,443 | | | $ | (22,498) | | | $ | 288,647 | | | $ | 349,254 | | | $ | (60,607) | |
| Total Operating Expenses | Total Operating Expenses | | | $ | 91,836 | | | $ | 82,550 | | | $ | 9,286 | | Total Operating Expenses | $ | 92,232 | | | $ | 100,376 | | | $ | (8,144) | | | $ | 288,828 | | | $ | 281,300 | | | $ | 7,528 | |
Operating Income (Loss) | Operating Income (Loss) | | | $ | (801) | | | $ | 22,663 | | | $ | (23,464) | | Operating Income (Loss) | $ | (287) | | | $ | 14,067 | | | $ | (14,354) | | | $ | (181) | | | $ | 67,954 | | | $ | (68,135) | |
Income (Loss) from Continuing Operations, net | | Income (Loss) from Continuing Operations, net | $ | (16,484) | | | $ | 3,715 | | | $ | (20,199) | | | $ | (46,023) | | | $ | 26,944 | | | $ | (72,967) | |
Net Income (Loss) | Net Income (Loss) | | | $ | (16,902) | | | $ | 9,141 | | | $ | (26,043) | | Net Income (Loss) | $ | (16,484) | | | $ | 3,039 | | | $ | (19,523) | | | $ | (46,974) | | | $ | 26,213 | | | $ | (73,187) | |
Adjusted EBITDA (1) | Adjusted EBITDA (1) | | | $ | 10,741 | | | $ | 31,428 | | | $ | (20,687) | | Adjusted EBITDA (1) | $ | 13,176 | | | $ | 26,117 | | | $ | (12,941) | | | $ | 47,600 | | | $ | 101,078 | | | $ | (53,478) | |
|
_________________________
(1) Adjusted EBITDA is a non-GAAP measure of operating performance that does not represent and should not be considered an alternative to net income (loss) or cash flow from operations, as determined by U.S. GAAP. We believe that Adjusted EBITDA is a useful measure to us and to our investors because it excludes certain financial and capital structure items that we do not believe directly reflect our core operations and may not be indicative of our recurring operations, in part because they may vary widely across time and within our industry independent of the performance of our core operations. See the section titled “Adjusted EBITDA” for the definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to Net Income (Loss) to Adjusted EBITDA .
Powersports Metrics (dollars in thousands except per unit)
| | | | | Three Months Ended March 31, | | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| | | | 2023 | | 2022 | | YoY Change | | 2023 | | 2022 | | YoY Change | | 2023 | | 2022 | | YoY Change |
Revenue | Revenue | | | | | | | | Revenue | | | | | | | |
New retail vehicles | New retail vehicles | | | $ | 156,350 | | | $ | 152,590 | | | $ | 3,760 | | New retail vehicles | $ | 159,573 | | | $ | 165,373 | | | $ | (5,800) | | | $ | 501,513 | | | $ | 491,187 | | | $ | 10,326 | |
Used vehicles: | Used vehicles: | | | Used vehicles: | |
Retail | Retail | | | 70,249 | | | 81,533 | | | (11,284) | | Retail | 68,736 | | | 100,781 | | | (32,045) | | | 215,562 | | | 299,809 | | | (84,247) | |
Wholesale | Wholesale | | | 6,684 | | | 5,791 | | | 893 | | Wholesale | 6,823 | | | 5,724 | | | 1,099 | | | 21,061 | | | 15,386 | | | 5,675 | |
Total used vehicles | Total used vehicles | | | 76,933 | | | 87,324 | | | (10,391) | | Total used vehicles | 75,559 | | | 106,505 | | | (30,946) | | | 236,623 | | | 315,195 | | | (78,572) | |
Finance and insurance, net | Finance and insurance, net | | | 27,227 | | | 27,470 | | | (243) | | Finance and insurance, net | 29,288 | | | 31,569 | | | (2,281) | | | 89,658 | | | 95,830 | | | (6,172) | |
Parts, service, accessories | | | 59,069 | | | 54,737 | | | 4,332 | | |
Parts, service and accessories | | Parts, service and accessories | 59,727 | | | 62,216 | | | (2,489) | | | 184,205 | | | 182,268 | | | 1,937 | |
Total revenue | Total revenue | | | $ | 319,579 | | | $ | 322,121 | | | $ | (2,542) | | Total revenue | $ | 324,147 | | | $ | 365,663 | | | $ | (41,516) | | | $ | 1,011,999 | | | $ | 1,084,480 | | | $ | (72,481) | |
| Gross Profit | Gross Profit | | | Gross Profit | |
New retail vehicles | New retail vehicles | | | $ | 23,770 | | | $ | 31,193 | | | $ | (7,423) | | New retail vehicles | $ | 22,081 | | | $ | 32,071 | | | $ | (9,990) | | | $ | 74,440 | | | $ | 100,549 | | | $ | (26,109) | |
Used vehicles: | Used vehicles: | | | Used vehicles: | |
Retail | Retail | | | 9,272 | | | 14,739 | | | (5,467) | | Retail | 10,871 | | | 18,691 | | | (7,820) | | | 31,216 | | | 57,538 | | | (26,322) | |
Wholesale | Wholesale | | | (800) | | | 470 | | | (1,270) | | Wholesale | (607) | | | (588) | | | (19) | | | (1,610) | | | 304 | | | (1,914) | |
Total used vehicles | Total used vehicles | | | 8,472 | | | 15,209 | | | (6,737) | | Total used vehicles | 10,264 | | | 18,103 | | | (7,839) | | | 29,606 | | | 57,842 | | | (28,236) | |
Finance and insurance | Finance and insurance | | | 27,227 | | | 27,470 | | | (243) | | Finance and insurance | 29,288 | | | 31,569 | | | (2,281) | | | 89,658 | | | 95,830 | | | (6,172) | |
Parts, service, accessories | | | 27,280 | | | 25,282 | | | 1,998 | | |
Parts, service and accessories | | Parts, service and accessories | 26,973 | | | 29,143 | | | (2,170) | | | 84,663 | | | 85,794 | | | (1,131) | |
Total gross profit | Total gross profit | | | $ | 86,749 | | | $ | 99,154 | | | $ | (12,405) | | Total gross profit | $ | 88,606 | | | $ | 110,886 | | | $ | (22,280) | | | $ | 278,367 | | | $ | 340,015 | | | $ | (61,648) | |
| Vehicle Unit Sales | Vehicle Unit Sales | | | Vehicle Unit Sales | |
New retail vehicles | New retail vehicles | | | 10,436 | | 9,677 | | | 759 | New retail vehicles | 10,851 | | 9,973 | | | 878 | | 34,413 | | 31,016 | | | 3,397 |
Used vehicles: | Used vehicles: | | | Used vehicles: | |
Retail | Retail | | | 5,781 | | 6,101 | | | (320) | Retail | 5,619 | | 7,508 | | | (1,889) | | 17,537 | | 22,228 | | | (4,691) |
Wholesale | Wholesale | | | 1,004 | | 979 | | 25 | Wholesale | 1,103 | | 912 | | 191 | | 3,121 | | 2,619 | | 502 |
Total used vehicles | Total used vehicles | | | 6,785 | | 7,080 | | (295) | Total used vehicles | 6,722 | | 8,420 | | (1,698) | | 20,658 | | 24,847 | | (4,189) |
Total vehicles sold | Total vehicles sold | | | 17,221 | | 16,757 | | 464 | Total vehicles sold | 17,573 | | 18,393 | | (820) | | | 55,071 | | 55,863 | | (792) |
| Revenue per vehicle | Revenue per vehicle | | | Revenue per vehicle | |
New retail vehicles | New retail vehicles | | | $ | 14,982 | | | $ | 15,768 | | | $ | (786) | | New retail vehicles | $ | 14,706 | | | $ | 16,582 | | | $ | (1,876) | | | $ | 14,573 | | | $ | 15,837 | | | $ | (1,264) | |
Used vehicles: | Used vehicles: | | | Used vehicles: | |
Retail | Retail | | | 12,152 | | | 13,364 | | | (1,212) | | Retail | 12,233 | | | 13,423 | | | (1,190) | | | 12,292 | | | 13,488 | | | (1,196) | |
Wholesale | Wholesale | | | 6,657 | | | 5,915 | | | 742 | | Wholesale | 6,186 | | | 6,276 | | | (90) | | | 6,748 | | | 5,875 | | | 873 | |
Total used vehicles | Total used vehicles | | | 11,339 | | | 12,334 | | | (995) | | Total used vehicles | 11,241 | | | 12,649 | | | (1,408) | | | 11,454 | | | 12,685 | | | (1,231) | |
Finance and insurance, net | Finance and insurance, net | | | 1,679 | | | 1,741 | | | (62) | | Finance and insurance, net | 1,778 | | | 1,806 | | | (28) | | | 1,726 | | | 1,800 | | | (74) | |
Parts, service, accessories | | | 3,642 | | | 3,469 | | | 173 | | |
Parts, service and accessories | | Parts, service and accessories | 3,626 | | | 3,559 | | | 67 | | | 3,546 | | | 3,423 | | | 123 | |
Total revenue per retail vehicle | Total revenue per retail vehicle | | | $ | 19,294 | | | $ | 20,049 | | | $ | (755) | | Total revenue per retail vehicle | $ | 19,267 | | | $ | 20,590 | | | $ | (1,323) | | | $ | 19,075 | | | $ | 20,079 | | | $ | (1,004) | |
| Gross Profit per vehicle | Gross Profit per vehicle | | | Gross Profit per vehicle | |
New vehicles | New vehicles | | | $ | 2,278 | | | $ | 3,223 | | | $ | (945) | | New vehicles | $ | 2,035 | | | $ | 3,216 | | | $ | (1,181) | | | $ | 2,163 | | | $ | 3,242 | | | $ | (1,079) | |
Used vehicles | Used vehicles | | | $ | 1,249 | | | $ | 2,148 | | | $ | (899) | | Used vehicles | $ | 1,935 | | | $ | 2,489 | | | $ | (554) | | | $ | 1,780 | | | $ | 2,589 | | | $ | (809) | |
Finance and insurance, net | Finance and insurance, net | | | $ | 1,679 | | | $ | 1,741 | | | $ | (62) | | Finance and insurance, net | $ | 1,778 | | | $ | 1,806 | | | $ | (28) | | | $ | 1,726 | | | $ | 1,800 | | | $ | (74) | |
Parts, service, accessories | | | $ | 1,682 | | | $ | 1,602 | | | $ | 80 | | |
Parts, service and accessories | | Parts, service and accessories | $ | 1,638 | | | $ | 1,667 | | | $ | (29) | | | $ | 1,630 | | | $ | 1,611 | | | $ | 19 | |
Total gross profit per vehicle (1) | Total gross profit per vehicle (1) | | | $ | 5,349 | | | $ | 6,284 | | | $ | (935) | | Total gross profit per vehicle (1) | $ | 5,380 | | | $ | 6,343 | | | $ | (963) | | | $ | 5,358 | | | $ | 6,386 | | | $ | (1,028) | |
(1) Calculated as total gross profit divided by new and used retail powersports units sold.
Revenue
Three-months ended March 31,Three and Nine Months Ended September 30, 2023 Compared to March 31,September 30, 2022
.Total Powersports revenue decreased by $2,542 to $319,579 for the three months ended March 31,September 30, 2023 compared to $322,121 fordecreased 11.4% from the same period in 2022. Revenue2022, primarily driven by a decline in the volume of used vehicles sold through retail as well as generally lower revenue per vehicle. The overall decline in retail sales contributed to a decline in F&I and PSA revenue and reflects the sales volume approaching a more normalized level following the pandemic.
Total Powersports revenue for the nine months ended September 30, 2023 decreased 6.7% compared to the same period in 2022, primarily driven by lower revenue from the sale of used vehicles sold via retail vehicleschannels and lower F&I revenue, accounted for $11,284partially offset by higher revenue from the sale of new vehicles, as well as higher wholesale and $243 of the decrease, respectively, driven primarily by a 9.1% decrease in revenuePSA revenue. Both quantity and price per used vehicle sold via retail unitwere lower than in the prior year. While we sold and a 5.2% decreasemore new vehicles in used retail units sold for the threenine months ended March 31,September 30, 2023 compared to the same period in the prior year, the vehicles were sold at a lower average price that is more indicative of post-pandemic pricing than in the prior year. The mix of new and used vehicles sold was attributable to higher new vehicle inventory and more competitive macroeconomic conditions as compared to the same period in 2022. The overall decrease was partially offset by an increase of 4,332 in PSA revenue, as well as $3,760 in revenue from new vehicles during the three months ended March 31,
Gross Profit
Three and Nine Months Ended September 30, 2023 as comparedCompared to the same period inSeptember 30, 2022 driven primarily by a 7.8% increase in new units sold, and partially offset by a 5.0% decrease in revenue per new unit sold. In addition, the overall decrease was partially offset by an $893 increase in revenue from wholesale used vehicles
Total Powersports gross profit for the three months ended March 31,September 30, 2023 as compared to the same period in 2022.
The total number of vehicles sold increased by 464 to 17,221 for the three months ended March 31, 2023, as compared to 16,757 for the same period in 2022. Overall, the average revenue per retail vehicle sold was $19,294 for the three months ended March 31, 2023, a decrease of $755decreased 20.1% as compared to the same period in 2022, primarily driven by more competitive macroeconomic conditions.
Gross Profit
Three-months ended March 31, 2023 Compared to March 31, 2022.Total Powersportsa 15.2% decrease in gross profit per vehicle sold and a 4.5% decrease in total vehicles sold. Gross profit from used vehicles decreased 43.3%, primarily driven by $12,405 to $86,749 for the three months ended March 31, 2023,lower volume and a 22.3% decrease in gross profit per used vehicle sold as market conditions were less favorable as compared to $99,154 for the same period in 2022. Gross profit from new vehicles used retaildecreased 31.1%, driven by a 36.7% decrease in gross profit per new vehicle sold partially offset by an increase in new vehicle units sold. F&I and PSA gross profit was lower than in the same period in 2022, consistent with lower numbers of vehicles sold and used wholesale vehicles accountedimpacted by our strategic initiative related to RumbleOn Finance.
Total Powersports gross profit for $7,423, 5,467, and 1,270 of the nine months ended September 30, 2023 decreased by $61,648 from the same period in 2022, primarily driven by a 16.1% decrease respectively, driven primarily by lowerin gross profit per vehicle sold. Gross profit from used vehicles decreased 48.8%, primarily driven by a 31.2% decrease in gross profit per used vehicle sold and lowera 16.9% decrease in used retail unit sales. vehicles sold as compared to the same period in 2022. Gross profit from new vehicles sold decreased 26.0%, primarily driven by a 33.3% decrease in gross profit per new vehicle sold, offset by a 11.0% increase in new vehicle units sold as compared to the same period in 2022. F&I gross profit decreased 6.4%, primarily driven by a 4.1% decrease in F&I gross profit per vehicle sold. The overall decreases were partially offset by a 1.1% increase in PSA gross profit as compared to the same period in 2022.
Other contributing factors to the overall decrease in gross profit include a less favorable product mix of vehicle sales, with a greater skew towards new units sold, and softening demand which resulted in lower pricing during the three and nine months ended March 31,September 30, 2023 as compared to the same period in 2022.
Gross profit per vehicle decreased by $935 to $5,349 for the three months ended March 31, 2023, as compared to $6,284 for the same period in 2022. The decrease is primarily attributable to the mix
AutomotiveVehicle Logistics Metrics (dollars in thousands except per unit)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | 2023 | | 2022 | | YoY Change |
Revenue | | | | | | | $ | 11,885 | | | $ | 110,729 | | | $ | (98,844) | |
Gross Profit | | | | | | | $ | 699 | | | $ | 3,575 | | | $ | (2,876) | |
Vehicles sold | | | | | | | 115 | | 2,623 | | (2,508) |
Revenue per vehicle | | | | | | | $ | 103,344 | | | $ | 42,215 | | | $ | 61,129 | |
Gross Profit per vehicle | | | | | | | $ | 6,071 | | | $ | 1,363 | | | $ | 4,708 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2023 | | 2022 | | YoY Change | | 2023 | | 2022 | | YoY Change |
Revenue | $ | 13,963 | | | $ | 15,002 | | | $ | (1,039) | | | $ | 43,226 | | | $ | 42,870 | | | $ | 356 | |
Gross Profit | $ | 3,339 | | | $ | 3,486 | | | $ | (147) | | | $ | 10,280 | | | $ | 9,139 | | | $ | 1,141 | |
Vehicles transported | 22,930 | | | 23,105 | | | (175) | | | 67,528 | | | 66,307 | | 1,221 | |
Revenue per vehicle transported | $ | 609 | | | $ | 649 | | | $ | (40) | | | $ | 640 | | | $ | 647 | | | $ | (7) | |
Gross Profit per vehicle transported | $ | 146 | | | $ | 151 | | | $ | (5) | | | $ | 152 | | | $ | 138 | | | $ | 14 | |
Revenue
Three-months ended March 31,Three and Nine Months Ended September 30, 2023 Compared to March 31, 2022. Total Automotive revenue decreased by $(98,844) to $11,885 for the three months ended March 31, 2023 compared to $110,729 for the same period in 2022. The decrease in automotive revenue was primarily due to a significant decrease in vehicles sold to 115 units for the three months ended March 31, 2023 as compared to 2,623 units for the same period in 2022; partially offset by increases in revenue per vehicle of $61,129 for the three months ended March 31, 2023. The Company is continuing to wind-down its automotive business, in part due to concerns about the market and high wholesale costs as compared to historical levels.September 30, 2022
Gross Profit
Three-months ended March 31, 2023 Compared to March 31, 2022. Total Automotive gross profit decreased by $2,876 to $699 for the three months ended March 31, 2023 compared to $3,575 for the same period in 2022. The decrease is primarily attributable to a 95.6% decrease in vehicles sold during the three months ended March 31, 2023 as compared to the
same period in 2022, partially offset by a $4,708 increase in gross profit per vehicle sold to $6,071 per unit for the three months ended March 31, 2023.
Vehicle Logistics Metrics - before intercompany eliminations (dollars in thousands except per unit)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, | | |
| | | | | | | 2023 | | 2022 | | YoY Change |
| | | | | | | | | | | |
Revenue (1) | | | | | | | $ | 14,999 | | | $ | 13,612 | | | $ | 1,387 | |
Gross Profit | | | | | | | $ | 3,714 | | | $ | 2,640 | | | $ | 1,074 | |
Vehicles transported | | | | | | | 23,775 | | 21,831 | | 1,944 |
Revenue per vehicle transported | | | | | | | $ | 631 | | | $ | 624 | | | $ | 7 | |
Gross Profit per vehicle transported | | | | | | | $ | 156 | | | $ | 121 | | | $ | 35 | |
(1)Before revenue and gross profit from intercompany freight services provided to Wholesale of $159 and $1,261, and $126 and $156, respectively, for the three months ended March 31, 2023 and 2022 are eliminated in the Condensed Consolidated Financial Statements.
Revenue
Three-months ended March 31, 2023 Compared to March 31, 2022.Total Vehicle Logistics revenue increased by $1,387 to $14,999 for the three months ended March 31, 2023 compared to $13,612 for the same period in 2022.The increase in total revenue for the three months ended March 31,September 30, 2023 resulted from increases of approximately 8.9%decreased 6.9%, driven primarily by a 0.8% decrease in the number of vehicles transported to 23,775 vehicles as compared to 21,831 vehicles for the same period of 2022. Additionally, revenue per vehicle transported for the three months ended March 31, 2023 increased by approximately 1.1% to $631 as compared to $624 for the same period in 2022.
Total Vehicle Logistics revenue for the nine months ended September 30, 2023 increased in line with the increase in vehicles transported as compared to the same period in 2022.
Gross Profit
Three-months ended March 31,Three and Nine Months Ended September 30, 2023 Compared to March 31, 2022.September 30, 2022
Total Vehicle Logistics gross profit for the three months ended March 31,September 30, 2023 increased by $1,074 to $3,714, or $156 per vehicledecreased in line with the decrease in the number of vehicles transported as compared to $2,640, or $121 per vehicle transported, for the same period in 2022. The 40.7%
Total Vehicle Logistics gross profit for the nine months ended September 30, 2023 increased 12.5%, driven by the increase in gross profit was attributed to a 28.9%number of vehicles transported, as well as the 10.5% increase in gross profit per vehicle transported in addition to an 8.9% increase in the number of vehicles transported, for the three months ended March 31, 2023 as compared to the same period in 2022.
Selling, General and Administrative
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, | | YoY |
| | | | | 2023 | | 2022 | | Change |
Advertising, marketing and selling | | | | | $ | 5,855 | | | $ | 6,847 | | | $ | (992) | |
Compensation and related costs | | | | | 51,477 | | | 45,935 | | | 5,542 | |
Facilities | | | | | 11,474 | | | 9,690 | | | 1,784 | |
General and administrative | | | | | 14,008 | | | 13,092 | | | 916 | |
Stock based compensation | | | | | 2,911 | | | 1,879 | | | 1,032 | |
Technology development and software | | | | | 1,370 | | | 633 | | | 737 | |
Total SG&A expenses | | | | | $ | 87,095 | | | $ | 78,076 | | | $ | 9,019 | |
Cost Savings InitiativesSelling,In the first quarter of 2023, the Company identified approximately $15,000 of selling, general and administrative ("SG&A") expenses increasedprimarily related to discontinued operations and insurance costs that we began to remove from the business. Actions to reduce SG&A expenses related to discontinued operations were mostly completed by $9,019, respectively,June 30, 2023. During the second quarter of 2023, the Company successfully executed its strategy to reduce annualized insurance costs by approximately $7,000, and took actions to reduce compensation and professional fees.
During the second quarter of 2023, the Company began implementing a plan expected to further reduce annualized SG&A expenses by an additional $15,000. Since our Interim CEO started in late June 2023, we have identified an additional $12,000 in annualized cost savings, which would bring our total annualized SG&A expense reductions to approximately $42,000. We expect to see the full effects of these SG&A expense reductions in 2024, driven by additional headcount reductions, subleases of unused facilities, and cost restructuring at our dealerships.
Three and Nine Months Ended September 30, 2023 Compared to September 30, 2022
The following table compares our SG&A expenses for the three and nine months ended September 30, 2023 to the comparable periods in 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | YoY | | Nine Months Ended September 30, | | YoY |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Advertising, marketing and selling | $ | 7,081 | | | $ | 8,751 | | | $ | (1,670) | | | $ | 21,449 | | | $ | 24,546 | | | $ | (3,097) | |
Compensation and related costs | 48,926 | | | 55,477 | | | (6,551) | | | 157,033 | | | 158,965 | | | (1,932) | |
Facilities | 12,947 | | | 10,812 | | | 2,135 | | | 35,447 | | | 32,095 | | | 3,352 | |
General and administrative | 8,925 | | | 10,754 | | | (1,829) | | | 29,697 | | | 26,643 | | | 3,054 | |
Professional fees | 2,633 | | | 4,952 | | | (2,319) | | | 13,100 | | | 12,872 | | | 228 | |
Stock based compensation | 3,077 | | | 2,605 | | | 472 | | | 10,898 | | | 7,237 | | | 3,661 | |
Technology development and software | 1,368 | | | 471 | | | 897 | | | 3,933 | | | 2,070 | | | 1,863 | |
Total SG&A expenses | $ | 84,957 | | | $ | 93,822 | | | $ | (8,865) | | | $ | 271,557 | | | $ | 264,428 | | | $ | 7,129 | |
SG&A expenses from continuing operations decreased for the three months ended March 31,September 30, 2023 compared to the same period in 2022 as we began to realize reductions from our cost savings initiatives discussed above. Partially offsetting savings from headcount reductions were costs for personnel hired to support our growth. Technology development and software increased primarily due to our strategic technology projects focused on inventory management, infrastructure, and integration efforts.
SG&A expenses for the nine months ended September 30, 2023 increased compared to the same period in 2022. The overall increase was primarily driven by: (1) increased headcount as the Company deploysdeployed its growth initiatives,initiatives; (2) investments in facilities and technologies,technologies; (3) the valuation allowance charge in the nine months ended September 30, 2023 for the loan receivable assets that are being held for sale; (4) professional fees in connection with shareholder proposals for the annual meeting of the shareholder and reorganization of the Board of Directors; (5) executive separation costs; and (6) higher stock based compensation. The increases arewere partially offset by lower advertising, marketing, and selling costs as the Company focused expenditures on its most effective initiatives during the threenine months ended March 31,September 30, 2023 as compared to the same period in 2022. In the case of technology and development, the Company is pursuing strategic technology projects focused on inventory management, infrastructure, and integration efforts which continued to progress during the threenine months ended March 31,September 30, 2023.
Starting in the second quarter of 2023, the Company is implementing a plan to reduce annualized SG&A expenses by approximately $15,000. While subject to change, $8,000 of annualized reductions in compensation and related costs are expected through a hiring freeze and a small workforce reduction in non revenue generating positions, and approximately $7,000 in annualized savings on insurance expenses. In addition, the Company expects to achieve reductions in general and administrative expenses, as professional fees for outside services are replaced with the Company's internal workforce. The reductions to general and administrative expenses are expected to be partially offset by higher legal fees and facilities costs during the remainder of 2023. The Company has targeted additional opportunities to further reduce expenses during the remainder of 2023, as market conditions dictate.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | YoY | | Nine Months Ended September 30, | | YoY |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Depreciation and amortization | $ | 7,275 | | | $ | 6,554 | | | $ | 721 | | | $ | 17,271 | | | $ | 16,872 | | | $ | 399 | |
Depreciation and amortization increased by $267expense for the three and nine months ended March 31,September 30, 2023 as compared towas higher than the same period in 2022. The overall increase is primarily driven by amortizationcomparable 2022 periods because it included a $2,610 impairment of the variousremaining capitalized costs of the Bidpath Software License as we terminated the related contract. The impact of the impairment was partially offset by lower amortization expense related to certain non-compete agreements resulting from the Freedom Transaction, amortization of capitalized software, and minimal increases to depreciation expense across the Company.that became fully amortized.
Interest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | YoY | | Nine Months Ended September 30, | | YoY |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Interest expense | $ | 19,828 | | | $ | 12,209 | | | $ | 7,619 | | | $ | 55,756 | | | $ | 35,622 | | | $ | 20,134 | |
Interest expense increased by $6,565 for the three and nine months ended March 31,September 30, 2023 as comparedfrom the comparable periods in 2022 primarily due to the same period in 2022.higher interest rates and higher average borrowings. Interest expense consists primarily of interest and the amortization of deferred financing costs onfor borrowings under the: (i) Oaktree Credit Agreement; (ii) various floorplan facilities; (iii) private placement notes; (iv) convertible senior notes; and (v) the ROF Consumer Finance Facility.
Derivative Liability
In connection with our various financings, we undertake an analysis of each financial instrument to determine the appropriate accounting treatment, including which, if any, require bifurcation into liability and equity components. We have determined that each of theour convertible senior notes issued on January 10, 2020 (the “New Notes”) and the WarrantWarrants have a liability component that needs to be remeasured each reporting period with the change in value recorded in the Condensed Consolidated Statements of Operations.
New Notes
In connection with the issuance of the New Notes, a derivative liability was recorded at issuance with an interest make-whole provision of $20,673 based on a lattice model using a stock price of $14.60, estimated volatility of 55.0% and risk-free rates over the entire 10-year yield curve.
The change in value of the derivative liability for the three and nine months ended March 31,September 30, 2023 and 2022 were $0 and $39, respectively, and is included in change in derivative liability in the Condensed Consolidated Statement of Operations. The value of the derivative liability as of March 31,both September 30, 2023 and December 31, 2022 was both $26.
Oaktree Warrant
In connection with providing the debt financing for the RideNow Transaction, and pursuant to the commitment letter executed on March 15, 2021, the Company issued Warrants to purchase $40,000 of shares of Class B Common Stock to Oaktree Capital Management, L.P. and its lender affiliates at an exercise price of $33.00 per share. The exercise price was adjusted during the third quarter to $31.50 and the expiration date was extended to July 25, 2023. The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Condensed Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 inputs. Upon closing of the RideNow Transaction, the Warrants were considered equity linked contracts indexed to the Company’s stock and therefore met the equity classification guidance. As a result, the $19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the debt discount related to the Oaktree Credit Agreement. The recognition of the warrant liability and deferred financing charge, and the reclassification of the warrant liability to additional paid-in capital, and the reclassification of the deferred financing charge to debt discount are non-cash items.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity.flows. Non-GAAP financial
measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to U.S. GAAP.
We define Adjusted EBITDA is defined as net income (loss) adjusted to add back interest expense, depreciation and amortization, income tax effects, changes in derivative and warrant liabilities and certain recoveries, charges and expenses, such as an insurance recovery, non-cash stock-based compensation costs, acquisition relatedacquisition-related costs, litigation expenses, restructuring costs, and other non-recurring costs, as these recoveries, charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors, and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it excludes, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and capital investments.
For the three and nine months ended March 31,September 30, 2023 and 2022, adjustments to Adjusted EBITDA arewere primarily comprised of:
•Non-cash stock-based compensation expense recordedIncome associated with the change in value of derivative liability as reported on the Condensed Consolidated Statement of Operations,
•Transaction costs associatedCharges related to the shareholder proposals for the annual meeting of shareholders and reorganization of our Board of Directors, which includes the reimbursement of advisor fees incurred by shareholders in connection with the RideNow Transaction and Freedom Transaction, which primarily include professional fees and third-party costs,proxy contest of $2,500,
•Lease expense associated with favorable related party leases in excess of contractual lease payments,
•Charges associated with litigation outside of our ongoing operations,
•LossImpairment associated with the fair valuereduction of the RumbleOn Finance loan receivables portfolio down to its fair value in preparation of its sale, which areis anticipated to be sold duringoccur in the secondfourth quarter of 2023,
•Other non-recurring costs, which include one-time expenses incurred. For the three and nine months ended March 31,September 30, 2023, the balance was comprised of integration costs and professional fees associated with the RideNow and Freedom Transactions,acquisitions, and a death benefit to the estate of a former officer and director of the Company's former Chief Financial Officer and director.Company. For the three and nine months ended March 31,September 30, 2022, the balance was primarily related to various integration costs and professional fees associated with the Freedom Powersports and RideNow acquisitions, technology implementation, and establishment of the RumbleOn Finance secured loan facility, and integration costs associated with the RideNow and Freedom Transactions,facility.
•Personnel restructuring costs, primarily comprised of severance and charges associated with the separation of former executives, including the Company's former President and Chief Operating Officer, and former Chief Financial Officer,
•Purchase accounting adjustments, which represent one-time charges related to acquisitions,
•Non-cash stock-based compensation expense, and
•Change in derivativeTransaction costs associated with acquisitions, which primarily include professional fees and warrant liabilities.third-party costs.
The following tables reconcile Adjusted EBITDA to net income (loss) for the periods presented:
| | | | | Three Months Ended March 31, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | 2022 |
Net income (loss) | Net income (loss) | | | $ | (16,902) | | | $ | 9,141 | | Net income (loss) | $ | (16,484) | | | $ | 3,039 | | | $ | (46,974) | | | $ | 26,213 | |
Income (loss) from discontinued operations, net | | Income (loss) from discontinued operations, net | — | | | (676) | | | (951) | | | (731) | |
Income (loss) from continuing operations, net | | Income (loss) from continuing operations, net | $ | (16,484) | | | $ | 3,715 | | | $ | (46,023) | | | $ | 26,944 | |
Add back: | Add back: | | | Add back: | |
Interest expense | Interest expense | | | 17,746 | | | 11,181 | | Interest expense | 19,828 | | | 12,209 | | | 55,756 | | | 35,622 | |
Income tax provision (benefit) | | Income tax provision (benefit) | (3,556) | | | 678 | | | (9,706) | | | 8,165 | |
Depreciation and amortization | Depreciation and amortization | | | 4,741 | | | 4,474 | | Depreciation and amortization | 7,275 | | | 6,554 | | | 17,271 | | | 16,872 | |
Income tax provision (benefit) | | | (1,603) | | | 2,380 | | |
EBITDA | EBITDA | | | 3,982 | | | 27,176 | | EBITDA | $ | 7,063 | | | $ | 23,156 | | | $ | 17,298 | | | $ | 87,603 | |
Adjustments: | Adjustments: | | | Adjustments: | |
Stock based compensation | | | 2,911 | | 1,879 | |
Transaction costs - RideNow and Freedom Powersports | | | 22 | | 716 | |
Change in derivative liability | | Change in derivative liability | — | | — | | | — | | | (39) | |
Charges related to proxy contest and Board of Directors reorganization | | Charges related to proxy contest and Board of Directors reorganization | 324 | | — | | | 5,053 | | | — | |
Lease expense associated with favorable related party leases in excess of contractual lease payments | Lease expense associated with favorable related party leases in excess of contractual lease payments | | | 271 | | | — | | Lease expense associated with favorable related party leases in excess of contractual lease payments | 271 | | 177 | | | 813 | | | 706 | |
Litigation settlement expenses | Litigation settlement expenses | | | 79 | | | — | | Litigation settlement expenses | 9 | | — | | | 88 | | | — | |
Loss associated with sale of RumbleOn Finance loan receivables | | | 2,029 | | | — | | |
Loss associated with RumbleOn Finance loan receivables | | Loss associated with RumbleOn Finance loan receivables | 600 | | — | | | 5,971 | | — | |
Other non-recurring costs | Other non-recurring costs | | | 554 | | | 1,697 | | Other non-recurring costs | 64 | | 2,588 | | | 952 | | | 6,514 | |
Restructuring costs | | | 893 | | | — | | |
Change in derivative and warrant liabilities | | | — | | | (39) | | |
Personnel restructuring costs | | Personnel restructuring costs | 1,768 | | — | | | 6,493 | | | — | |
PPP Loan forgiveness | | PPP Loan forgiveness | | (2,509) | | | (2,509) | |
Purchase accounting related | | Purchase accounting related | — | | — | | — | | | 63 |
Stock based compensation | | Stock based compensation | 3,077 | | 2,605 | | 10,898 | | 7,237 |
Transaction costs - acquisitions | | Transaction costs - acquisitions | — | | | 100 | | 34 | | 1,503 |
Adjusted EBITDA | Adjusted EBITDA | | | $ | 10,741 | | | $ | 31,429 | | Adjusted EBITDA | $ | 13,176 | | | $ | 26,117 | | | $ | 47,600 | | | $ | 101,078 | |
Liquidity and Capital Resources
Our primary sources of liquidity are available cash, amounts available under our floor planfloorplan lines of credit, and the monetization of our retail loan portfolio. In 2022,
We had the following liquidity resources available as of September 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | September 30, 2023 | | December 31, 2022 |
Cash | | $ | 41,406 | | | $ | 46,762 | |
Availability under floorplan facilities (1) | | 32,181 | | 50,651 |
Committed liquidity resources available | | $ | 73,587 | | | $ | 97,413 | |
(1)Availability under floorplan facilities is the available amount we completed two public offeringscan borrow under our existing vehicle inventory floorplan credit facilities based on the pledgable value of vehicle inventory on our balance sheet as of September 30, 2023 and December 31, 2022. Availability under floorplan facilities is distinct from the maximum borrowing capacity of these facilities because it represents the current amount available to borrow, rather than amounts available to borrow for future inventory purchases.
Our primary cash requirements include payments related to our debt and lease obligations. Excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness is summarized in the table below. See Note 3 - "Leases", Note 5 - "Secured Debt", and Note 7 - "Stock-based Compensation" to our Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q for more information related to our debt, equity and leases. | | | | | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 | |
Asset-Based Financing: | | | | |
Inventory (floorplan notes) | $ | 287,135 | | | $ | 220,176 | | (1) |
Total asset-based financing | 287,135 | | | 220,176 | | (1) |
| | | | |
Term loan facility | 297,680 | | | 346,066 | | |
Financing obligation | 47,933 | | | — | | |
Unsecured senior convertible notes | 38,750 | | | 38,750 | | |
RumbleOn Finance secured loan facility | 14,606 | | | 25,000 | | |
Note payable for leasehold improvements and other | 1,528 | | | — | | |
Total debt | 687,632 | | | 629,992 | | (1) |
Less: unamortized discount and debt issuance costs | (30,563) | | | (35,432) | | |
Total debt, net | $ | 657,069 | | | $ | 594,560 | | (1) |
(1) Excludes floorplan notes of $5,254 for the Automotive segment that provided net proceedsare reported as liabilities of $191,000discontinued operations.
At June 30, 2023, the Company was not in compliance with certain leverage ratio financial covenants under the Oaktree Credit Agreement. On August 9, 2023 (the “Amendment No. 5 Effective Date”), the Company, the Subsidiary Guarantors party thereto, Oaktree and obtainedthe Lenders party thereto executed Amendment No. 5 to the Oaktree Credit Agreement (the “Amendment No. 5”), pursuant to which, initially provided net proceeds of $261,000 that was used to finance a portion of the cash consideration for the RideNow Transaction. On February 18, 2022, in conjunction the Freedom Transaction, the Company drew down $84,500 against the Oaktree Credit Agreement. As of March 31, 2023,among other things, (i) all leverage ratio financial covenants under the Oaktree Credit Agreement were (a) eliminated and not tested for the for the quarters ending June 30, 2023 and September 30, 2023 and (b) made less restrictive for the quarters ending December 31, 2023, March 31, 2024, and June 30, 2024; (ii) additional performance covenants were added requiring the Company and its subsidiaries to use commercially reasonable best efforts to dispose of certain non-core real estate and monetize its consumer loan portfolios (with corresponding requirements to use such proceeds of such sales to pay down the term loans under the Oaktree Credit Agreement); (iii) an additional performance covenant was added requiring the Company to raise net cash proceeds of not less than $100,000 from the issuance of common equity interests in the Company by December 1, 2023 (with a corresponding requirement to use certain of such equity proceeds to pay down the term loans under the Oaktree Credit Agreement), and (iv) an additional performance covenant was added requiring the Company to issue warrants, in a form to be agreed upon, to the Lenders. In connection with Amendment No. 5, the Company has agreed to pay a fee which may be paid in cash or paid-in-kind. The foregoing description of Amendment No. 5 does not providepurport to be complete and is qualified in its entirety by reference to the full text of Amendment No. 5, included as Exhibit 10.5 attached hereto.
The Company believes that it will be in compliance with all covenants under the Oaktree Credit Agreement, as amended by Amendment No. 5, for any incremental financing for acquisitions orthe next year. Further, Management believes that current working capital, purposes.results of operations of the Oaktree Credit Agreement, as amended by Amendment No. 5, and existing financing arrangements are sufficient to fund operations for at least one year from the date of the financial statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.
Our financial statements reflect estimates and assumptions made by management that affect the carrying values of the Company’s assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. The judgments, assumptions, and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company’s assets and liabilities and the results of operations.
Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least one year from the financial statement date.
We had the following liquidity resources available as of March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Cash | | $ | 51,784 | | | $ | 48,579 | |
Availability under floorplan facilities (1) | | 45,644 | | 50,651 |
Committed liquidity resources available | | $ | 97,428 | | | $ | 99,230 | |
(1)Availability under floorplan facilities is the available amount we can borrow under our existing vehicle inventory floor plan credit facilities based on the pledgable value of vehicle inventory on our balance sheet as of March 31, 2023 and December 31, 2022. Availability under floorplan facilities is distinct from the maximum borrowing capacity of these facilities because it represents the current amount available to borrow, rather than amounts available to borrow for future inventory purchases.
As of March 31, 2023, and December 31, 2022, excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness was $621,827 and $599,815, respectively, summarized in the table below. See Note 5 - Notes Payable and Lines of Credit and Note 6 - Stockholders' Equity to our Condensed Consolidated Financial Statements included above.
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Asset-Based Financing: | | | |
Inventory | $ | 245,008 | | | $ | 225,431 | |
Total asset-based financing | 245,008 | | | 225,431 | |
| | | |
Term loan facility | 346,066 | | | 346,066 | |
Unsecured senior convertible notes | 38,750 | | | 38,750 | |
RumbleOn Finance secured loan facility | 20,952 | | | 25,000 | |
Note payable for leasehold improvements | 514 | | | |
Total debt | 651,290 | | | 635,247 | |
Less: unamortized discount and debt issuance costs | (29,463) | | | (35,432) | |
Total debt, net | $ | 621,827 | | | $ | 599,815 | |
Cash Flows
The following table sets forth a summary of our cash flows for the threenine months ended March 31,September 30, 2023 and 2022:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Net cash provided by operating activities | $ | 8,855 | | | $ | 31,274 | |
Net cash used in investing activities | (5,683) | | | (67,987) | |
Net cash provided by financing activities | 33 | | | 53,601 | |
Net change in cash | $ | 3,205 | | | $ | 16,888 | |
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2023 | | 2022 |
Net cash provided by (used in) operating activities of continuing operations | $ | (19,325) | | | $ | (29,641) | |
Net cash used in investing activities of continuing operations | (12,861) | | | (76,498) | |
Net cash provided by financing activities of continuing operations | 34,876 | | | 105,294 | |
Net change in cash from continuing operations | $ | 2,690 | | | $ | (845) | |
Operating Activities
Our primary sources of operating cash flows result from the salessale of used vehicles and ancillary products. Our primary useuses of cash fromin operating activities are purchases of inventory, cash used to fund operations, and personnel-related expenses. For the threenine months ended March 31,September 30, 2023, net cash provided byused in operating activities was $8,855, a decreaselower than in the comparable 2022 period due in part to the following: (1) the wind down of $22,419 compared to $31,274RumbleOn Finance, our loan origination program in preparation for the three months ended March 31, 2022. The decreasesell-off of its receivables as described in ourNote 14 – “Discontinued Operations and Assets Held For Sale” included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q, (2) a more favorable impact from net cash provided by operating activities was primarily due to a $26,043 decrease in our net income, a $1,874 decrease in non-cash adjustments, and a $1,749 decrease in cash provided by other operating assets.
The majority of the changes in finance receivables are accompanied by changesinventory, (3) the realized impact of management's cost reduction initiatives, (4) lower income taxes paid in line of creditthe 2023 period, and notes payable, which are issued(5) our ongoing initiatives to fund powersports vehicle loans originated by RumbleOn Finance. Proceeds from the RumbleOn Finance line of credit are separately reflected as cash from financing activities. Due to the presentation differences between finance receivables and proceeds from the RumbleOn Finance line of credit on the consolidated statements of cash flows, fluctuations in these amounts can have a significant impact onoptimize our operating and financing cash flows without affecting our overall liquidity, working capital, or cash flows.all of which were partially offset by the impact from lower revenue and higher interest payments.
Investing Activities
Our primary useuses of cash for investing activities is forare business acquisitions, technology development to expand our operations.operations, and capital investments for our stores. Net cash used in investing activities decreased $62,304 to $5,683 forwas lower in the threenine months ended March 31,September 30, 2023 compared to $67,987 forthan in the samecomparable period in 2022. The decrease in our net cash used in investing activities was2022 primarily due to the acquisition of Freedom Powersports, which occurred duringin the three months ended March 31, 2022. In addition, there was a decrease of $562 in outflows for the purchase of property and equipment, offset by an increase of $1,250 in outflows for technology development for the three months ended March 31, 2023 as compared to the same period in 2022.2022 period.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term debt activity and proceeds from equity issuances, which have been used to provide working capital and for general corporate purposes, including paying down our
short-term revolving facilities. Cash provided by financing activities decreased $53,568 to $33 forwas lower in the threenine months ended March 31,September 30, 2023, compared to net cash provided by financing activities of $53,601 for the same period of 2022. The decrease in net cash provided by financing activities for the three months ended March 31, 2023 is primarily attributable to a decrease of $84,500 in proceeds from the Oaktree Credit Agreement, which were utilized to purchase Freedom Powersports during the three months ended March 31, 2022, as well as a decrease of $9,919 in non-trade floor plan borrowings for the three months ended March 31, 2023 as compared to the same period of 2022.
Off-Balance Sheet Arrangements
As This was primarily because we had issued new secured debt in 2022 to fund the purchase of March 31,Freedom Powersports, and we repaid more debt in the nine months ended September 30, 2023 we did not have any off-balance sheet arrangements that have orthan in the comparable 2022 period. Partially offsetting these reductions in net cash provided by operating activities are reasonably likely to havethe proceeds received from the sale-leaseback transaction described in Note 3 - "Leases" included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q (which is being accounted for as a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.failed sale-leaseback transaction).
Critical Accounting Policies and Estimates
See Note 1 - Description"Description of Business and Significant Accounting Policies,Policies", included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q for accounting pronouncements and material changes to our critical accounting policies since December 31, 2022. There have been no other material changes to our critical accounting policies and use of estimates from those described under "Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Form 10-K.10-K and our Current Report on Form 8-K filed on September 27, 2023.
Forward-Looking and Cautionary Statements
This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements other than statements of historical fact. Forward-looking statements represent our current judgment about possible future events and generally can be identified by words such as “anticipates,“anticipate,” “believes,“believe,” “estimates,“could,” “expects,“estimate,” “intends,“expect,” “plans,“intend,” “predicts,“may,” “projects,“plan,” “predict,” “project,” “will, be,” “will continue,” “will likely result,” and similar expressions. Forward-lookingIn making forward-looking statements, we rely on assumptions and analysis based on our experience and perception of historical trends, current conditions and expected future developments as well as other factors we consider appropriate under the circumstances. We believe these judgments are neither historical facts nor assurances of future performance. Thesereasonable, but forward-looking statements are based on our current, reasonable expectationsnot guarantees of any future events or financial results, and assumptions, which expectations and assumptions are subject to risks and uncertainties that could cause our actual results tomay differ materially from those reflected in the forward-looking statements.due to a variety of important factors, many of which are beyond our control. Factors that could cause or contribute to such differences include thosethe following:
•our significant indebtedness and the covenants in our debt agreements;
•increasing interest rates in connection with our debt agreements;
•our ability to acquire additional financing;
•the material weakness in our internal control over financial reporting;
•changes in general economic conditions and demand for our products and services;
•consumers acceptance of our business model;
•our ability to acquire vehicles that satisfy consumer demand;
•the results of investments made in the development, growth and expansion of our business;
•any diversion of management’s attention in connection with acquisitions;
•difficulties integrating acquired businesses;
•any inability to retain or attract qualified personnel;
•any inability to develop, maintain or market our brands;
•any inability to drive traffic to our website and mobile applications;
•any inability to grow our complementary product offerings;
•any failure of third parties to provide financing, extended protection products, or other products or services to our customers;
•any failure of third parties to provide certain operating or administrative functions for us;
•changes to the supply or prices of new or pre-owned vehicles;
•competitive pressures from existing and new companies;
•climate change legislation or regulations restricting emission of greenhouse gases;
•any failure to adequately protect personal information;
•any failure to adequately protect our intellectual property;
•any failure to obtain or maintain adequate insurance coverage;
•adverse conditions affecting one or more of the powersports manufacturers with which we hold franchises;
•any change or deterioration in the relationship with the manufacturers of vehicles we sell;
•any reduction or discontinuing of sales incentive, warranty, or other promotional programs by manufacturers; and
•other factors discussed in Part I, Item 1A in our 2022 Form 10-K and[and Part II, Item 1A of this Quarterly Report on Form 10-Q. 10-Q].
Given these risks and uncertainties, readers are cautioned not to place undue reliance on forward-looking statements. WeForward-looking statements speak only as of the date they are made, and we undertake no obligation to publicly update or revise or any forward-looking statements, except as required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This item is not applicable as we are currently considered a smaller reporting company.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31,September 30, 2023. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31,September 30, 2023, based on the ongoing remediation of a material weakness identified in the 2022 Form 10-K. The material weakness existing in our internal control over financial reporting relates to:
•Insufficient number of accounting resources to facilitate an effective control environment following the integration of the RideNow business and incorporation of the acquired business into the Company’s control environment. Consequently, the Company did not effectively operate process-level control activities related to the elimination of intercompany transactions, review and approval of certain reconciliations, accounting estimates accounting for non-routine transactions, and management review controls.
As set forth below, management has taken and will continue to take steps to remediate the identified material weakness. Notwithstanding the material weakness, we have performed additional analyses and procedures to enable management to conclude that our consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition and results of operations as of and for the periods presented.
Management’s Remediation Plan
In response to the material weakness discussed above, we have implemented and plan to continue efforts already underway to remediate internal control over financial reporting, which include the following:
•We are committed to hiringhave hired an additional accounting resourcesresource with the required technical expertise and clearly defined roles &and responsibilities.
•We are evaluatinghave evaluated system enhancements to automate the consolidation and elimination of intercompany transactions.
•We are enhancinghave enhanced the overall review and approval process relating to elimination of intercompany transactions.
•We are enhancinghave enhanced the review and approval controls related to reconciling certain accruals and accounting estimates.
•We are in the process of implementinghave implemented proper governance and reporting over the execution of these remediation action items, including expansion of mitigating controls where appropriate.
Management and our Audit Committee will monitor these specific remedial measures and the effectiveness of our overall control environment. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of the material weakness will be completed to provide for an effective control environment.
Changes in Internal Control Over Financial Reporting
Other than incorporating the controls and procedures of the acquired Freedom entities and addressing the remediation actions described above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31,September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints that require management to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
We are not a party to any material legal proceedings as set forth in Item 103 of Regulation S-K, other than ordinary routine litigation incidental to our business.
As previously disclosed, the Company is conducting an investigation of certain allegations surrounding Marshall Chesrown’s use of Company resources. The investigation remains ongoing and as of the date of this filing, the Company has made no final determination as to what action to take. On July 7, 2023, Mr. Chesrown provided the Board a letter of resignation (the “Resignation Letter”) describing Mr. Chesrown’s disagreement with several recent corporate governance, disclosure and other actions taken by the Company, the Board and certain of its members, and indicated his intent to pursue legal claims. The Company disagrees with the characterization of the allegations and assertions described in the Resignation Letter. As of the date of this filing, there has been no release or other agreement with Mr. Chesrown, nor has a lawsuit been filed by Mr. Chesrown against the Company. The Company and Mr. Chesrown have conducted a pre-suit mediation, but did not resolve the matter.
Item1A. Risk Factors.
Our business, financial condition, operating results, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our 2022 Form 10-K.10-K and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended June 30, 2023. There have been no material changes to the risk factors previously disclosed in our 2022 Form 10-K, except as described in and in in Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended June 30, 2023, the occurrence of any of which could have a material adverse effect on our actual results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
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Exhibit Number | | Description |
| | |
| | |
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| | |
| | |
| | |
| | Employment Agreement, dated January 19,Form of 2023 between RumbleOn, Inc. and Blake LawsonWarrant. (incorporated by reference to Exhibit 10.14.1 to the Company'sCompany’s Current Report on Form 8-K filed with the SEC on JanuaryAugust 17, 2023). |
| | Separation Agreement, dated July 14, 2023, by and between RumbleOn, Inc. and Michael Francis. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 20, 2023). |
| | Special Advisor Agreement, dated January 19,July 14, 2023, by and between RumbleOn, Inc.Inc and Narinder SahaiMichael Francis (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on JanuaryJuly 20, 2023). |
| | Employment Agreement, dated July 20, 2023, by and between RumbleOn, Inc. and Steven Pully. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on July 26, 2023). |
| | Purchase Agreement, dated as of August 8, 2023, by and among the Company, Mark Tkach, William Coulter and Stone House Capital Management, LLC. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 11, 2023). |
| | Amendment No. 5 to the Term Loan Credit Agreement, dated August 9, 2023, by and among RumbleOn, Inc., the Subsidiary Guarantors party thereto, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent.(incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed on August 8, 2023). |
| | Employment Agreement, dated August 16, 2023, by and between RumbleOn, Inc. and Mark Tkach. (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on August 18, 2023). |
| | Real Estate Purchase and Sale Contract, dated August 22, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 28, 2023). |
| | Unitary Master Lease Agreement dated September 8, 2023 |
| | Executive Employment Agreement, dated October 19, 2023, between Michael Kennedy and RumbleOn, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on October 20, 2023). |
| | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| | Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
| | Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
101.INS101.INS* | | XBRL Instance Document* |
101.SCH101.SCH* | | XBRL Taxonomy Extension Schema* |
101.CAL101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase* |
101.DEF101.DEF* | | XBRL Taxonomy Extension Definition Linkbase* |
101.LAB101.LAB* | | XBRL Taxonomy Extension Label Linkbase* |
101.PRE101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase* |
104104* | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)* |
* Filed herewith.
** Furnished herewith.
+ Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| RUMBLEON, INC. |
| | |
Date: May 10,November 7, 2023 | By: | /s/ Marshall ChesrownMichael W. Kennedy |
| | Marshall ChesrownMichael W. Kennedy |
| | Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)
|
| | |
Date: May 10,November 7, 2023 | By: | /s/ Blake Lawson |
| | Blake Lawson |
| | Chief Financial Officer |
| | (Principal Financial Officer and Principal Accounting Officer) |