| | Three-Months Ended September 30, | Nine-Months Ended September 30, |
| | | | | |
| Pro forma revenue | $3,706,142 | $45,606 | $3,868,079 | $100,006 |
| Pro forma net loss | $(2,317,503) | $(567,401) | $(5,237,814) | $(1,625,690) |
| Loss per share - basic and fully diluted | $(0.23) | $(0.08) | $(0.58) | $(0.23) |
| Weighted-average common shares and common stock equivalents outstanding basic and fully diluted | 10,018,541 | 7,023,809 | 9,105,429 | 7,023,809 |
NOTE 4 – PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of September 30, 2017 and December 31, 2016:
| | |
Vehicles | $472,870
| $-
|
Furniture and equipment | 127,306
| -
|
Technology development | 1,835,097
| -
|
Total property and equipment | 2,435,273
| -
|
Less: accumulated depreciation and amortization | 268,947
| -
|
Property and equipment, net | $2,166,326
| $-
|
At September 30, 2017, capitalized technology development costs were $1,835,097, which includes $1,400,000 of software acquired in the NextGen transaction. For additional information, see Note 3 - “Acquisitions.” Total technology development costs incurred for the nine-month period ended September 30, 2017 were $713,766, of which $435,097 was capitalized and $278,669 was charged to expense in the accompanying Condensed Consolidated Statements of Operations. The amortization of capitalized technology development costs for the three and nine-month periods ended September 30, 2017 was $89,429 and $219,374, respectively. There were no technology development costs incurred and no amortization of capitalized development costs for the same periods in 2016. Depreciation expense on vehicles, furniture and equipment for the three and nine-month periods ended September 30, 2017 was $28,598 and $49,573, respectively. Depreciation on furniture and equipment for the three and nine-month periods ended September 30, 2016 was $475 and $1,425, respectively.
NOTE 5 – INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following at September 30, 2017 and December 31, 2016:
| |
Amortized Identifiable Intangible Assets: | |
| |
Customer agreements | |
Balance at December 31, 2016 | $-
|
Customers acquired | 10,000
|
Amortization | (3,750)
|
Balance at September 30, 2017 | $6,250
|
| |
Non-compete agreements | |
Balance at December 31, 2016 | $ -
|
Agreements | 100,000
|
Amortization | (30,000)
|
Balance at September 30, 2017 | $70,000
|
| |
Unamortized Identifiable Intangible Assets: | |
Domain names | |
Balance at December 31, 2016 | $45,515
|
Domain names acquired | -
|
Impairment or write down | -
|
Balance at September 30, 2017 | $45,515
|
| |
Intangible assets, net at September 30, 2017 | $121,765
|
Amortization expense related to intangible assets for the three and nine-month periods ended September 30, 2017 was $11,250 and $33,750, respectively. The estimated future amortization expenses related to identifiable intangible assets is as follows:
| Remainder through December 31, 2017 | $11,250 |
| 2018 | 45,000 |
| 2019 | 20,000 |
| | $76,250 |
NOTE 6 – ACCOUNTSNOTES PAYABLE AND ACCRUED LIABILITIES
The following table summarizes accounts payable and other accrued liabilities as of September 30, 2017 and December 31, 2016:
| | | |
| Accounts payable | $1,539,572 | $219,101 |
| Sales taxes | 296 | - |
| Accrued compensation and benefits | 354,790 | - |
| Other | 7,885 | - |
| Total accounts payable and accrued liabilities | $1,902,543 | $219,101 |
NOTE 7 – NOTES PAYABLE
LINES OF CREDIT
Notes payable consisted of the following as of September 30, 20172022 and December 31, 2016:2021:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Term Loan Credit Agreement maturing on August 31, 2026. Amortization payments are required quarterly. The interest rate at September 30, 2022 was 10.77%. | | $ | 334,397 | | | $ | 253,438 | |
| RumbleOn Finance line of credit dated February 4, 2022 and maturing on February 4, 2025. Interest rate at September 30, 2022 was 8.09%. | | 22,925 | | | — | |
| PPP Loans maturing on April 1, 2025. Balance was forgiven during the quarter ended September 30, 2022. | | — | | | 2,534 | |
| Unsecured note payable to P&D Motorcycles. | | — | | | 1,031 | |
| Unsecured notes payable to RideNow Management, LLLP, a related party through equal ownership by former two directors of the Company. | | — | | | 907 | |
| Total notes payable and lines of credit | | 357,322 | | | 257,910 | |
| Less: Current portion | | 3,645 | | | 4,322 | |
| Long-term portion | | $ | 353,677 | | | $ | 253,588 | |
| | | |
| Notes payable-NextGen dated February 8, 2017. Interest is payable semi-annually at 6.5% through February 9, 2019 and 8.5% through maturity which is February 8, 2020. | $1,333,334 | $- |
| Notes payable-private placement dated March 31, 2017. Interest is payable at maturity and accrues at 6.5% through March 31, 2019 and 8.5% through maturity which is March 31, 2020. | 667,000 | - |
| Convertible note payable-related party dated July 13, 2016. Interest rate of 6.0% which is accrued and paid at maturity. Note matures on July 26, 2026. Note is convertible into common stock, in whole at any time before maturity at the option of the holder at $.75 per share. | - | 197,358 |
| Senior Secured Promissory Notes dated September 5, 2017. Interest rate of 5.0% through December 31, 2017 and a rate of 10% through maturity which is accrued and paid at maturity. Note matures on September 5, 2018. | 1,650,000 | |
Less: Debt discount
| (725,123) | (196,076) |
| | $ 2,925,211
| $ 1,282
|
Current portion (net of $139,726 of debt discount)
| 1,510,274
| -
|
Long-term portion
| $ 1,414,937
| $ 1,282
|
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Floor plans notes payable - trade | $ | 53,865 | | | $ | 15,119 | |
| Floor plans notes payable - non-trade | 121,431 | | 82,159 |
| Floor plan notes payable | $ | 175,296 | | | $ | 97,278 | |
Convertible Note Payable-Related Party
Term Loan Credit Agreement
On July 13, 2016,the RideNow Closing Date, the Company entered into a new Term Loan Credit Agreement (the “Oaktree Credit Agreement”) among the Company, as borrower, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent (the “Administrative 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. The proceeds from the Delayed Draw Term Loans Facility, if drawn, will be used to finance acquisitions permitted by the Oaktree Credit Agreement and similar investments or “earn-outs” entered into in connection with acquisitions and to pay fees and expenses relating thereto. Loans under the Delayed Draw Term Loans Facility are subject to customary conditions precedent for facilities of this type including the need to meet certain financial tests and become available six (6) months after the RideNow Closing Date and are unavailable to be drawn after the eighteen (18) month anniversary of the RideNow Closing Date. The Oaktree Credit Agreement also provides for incremental draws for up to an unsecured convertible note (the “BHLP Note”additional $100,000 in accordance with the terms set forth in the Oaktree Credit Agreement, which may be used for acquisitions or working capital. The loan is reported on the balance sheet as senior secured debt, net of debt discount and debt issuance costs of $26,669, 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) LIBOR (with a floor of 1.00%), plus an applicable margin of 8.25% or (b) a fluctuating adjusted base rate in effect from time to time, plus an applicable margin of 7.25%. At the Company’s option, one percent (1.00%) with Berrard Holdings, an entity ownedof such interest may be payable in kind. The interest rate on September 30, 2022, was 10.77%. Interest expense for the three and controllednine months ended September 30, 2022 and 2021 were $9,605 and $29,305, and $2,666 and $2,666, respectively, which included amortization of $596 and $4,388, and $509 and $509, respectively, related to the discount and debt issuance costs. While the Oaktree Credit Agreement notes that Secured Overnight Financing Rate ("SOFR") may be selected as the alternative benchmark rate, this has not been determined as of September 30, 2022. As such, the Company cannot predict the effect of the discontinuance of LIBOR or the establishment and use of alternative rates or benchmarks on interest expense as of September 30, 2022.
Obligations under the Oaktree Credit Agreement are secured by a current officerfirst-priority lien on substantially all of the assets of the Company and director, Mr. Berrard,its wholly-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 plan 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.
In connection with providing the debt financing for the RideNow Transaction, and pursuant to whichthe commitment letter executed on March 15, 2021, the Company was requiredissued a warrant to repay $191,858 on or before July 13, 2026 plus interestpurchase $40,000 of shares at 6% per annum. The BHLP Note was also convertible into common stock, in whole, at any time before maturity at the optionan exercise price of the holder at the greater of $0.06 per share or 50% of the price$33.00 per share of the next qualified financing which is defined as $500,000 or greater. Effective August 31, 2016, the principal amount of the BHLP Note was amended to include an additional $5,500 loaned to the Company, on the same terms. On November 28, 2016, the Company completed its qualified financing at $1.50 per share which established the conversion price per share for the BHLP Note of $0.75 per share, resulting in the principal amount of the BHLP Note being convertible into 263,144 shares of Class B Common Stock. As such, November 28, 2016 became the “commitment date” for determining the value of the BHLP Note conversion feature. Because there had been no trading in the Company’s common stock sinceto Oaktree Capital Management, L.P. and its lender affiliates (the “Warrant”). The exercise price was adjusted during the third quarter to $31.50 and the expiration date was extended to July 2014, other than the purchase by Berrard Holdings of 99.5% of the outstanding shares25, 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 a single transaction, the Company used the Monte Carlo simulation to determine the intrinsicfair value of the conversion feature of the BHLP Note, which resulted in a value in excess of the principal amount of the BHLP Note. Thus, the Company recorded a note discount of $197,358 with the corresponding amount as an addition to paid in capital. This note discount was amortized to interest expense until the scheduled maturity of the BHLP Note in July 2026 or until it was converted using the effective interest method. On March 31, 2017, the Company issued 275,312 shares of Class B Common Stock upon full conversion of the BHLP Note, having an aggregate principal amount, including accrued interest, of $206,484 and a conversion price of $0.75 per share. In connection with the conversion of the BHLP Note, the remaining debt discount of $196,076 was charged to interest expensereflected in the Condensed Consolidated Statements of OperationsOperations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 inputs. For the three months ended June 30, 2021, the fair value of the warrant liability was increased $2,224 to $13,174. On August 31, 2021, the fair value of the warrant liability was increased $6,526 to $19,700. Upon closing of the RideNow Transaction, the Warrant was 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 and 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 taxfinancing charge and the reclassification of the warrant liability was credited to additional paidpaid-in capital and the reclassification of the deferred financing charge to debt discount are non-cash items.
Floor Plan 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 plan 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 plan notes payable-non-trade represents amounts borrowed to finance the purchase of specific new and used vehicle inventories with non-trade lenders. Changes in capitalvehicle floor plan notes payable- trade are reported as operating cash flows and changes in floor plan notes payable-non-trade are reported as financing cash flows in the Condensedaccompanying Consolidated Balance Sheets.Statements of Cash Flows.
Note Payable-NextGen
Inventory serves as collateral under floor plan notes payable borrowings. The inventory balance in its entirety also serves as collateral under the Oaktree Credit Agreement.
On February 8, 2017, in connectionAugust 31, 2021, Wholesale, Inc. entered into a Floorplan Line with the acquisitionAFC (the “AFC Credit Line”) to replace an existing line of NextGen, the Company issued a subordinated secured promissory note in favor of NextGen in the amount of $1,333,334. Interest accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the closing date through the second anniversary of such date and (ii) at a rate of 8.5% annually from the second anniversary of the closing date through the Maturity Date. Upon the occurrence of any event of default, the outstanding balancecredit. Advances under the NextGen Note shall become immediately due and payable upon election of the holder. The Company’s obligations under the NextGen NoteAFC Credit Line are secured by substantially all the assets of NextGen Pro, pursuantlimited to an Unconditional Guaranty Agreement (the “Guaranty Agreement”), by and among NextGen and NextGen Pro, and a related Security Agreement between the parties, each dated$29,000 as of February 8, 2017. Under the terms of the Guaranty Agreement, NextGen Pro has agreed to guarantee the performance of all the Company’s obligations under the NextGen Note.September 30, 2022. Interest expense on the NextGen NotesWholesale Floorplan Lines for the three and nine-month periodsnine months ended September 30, 2017 was $21,3702022 and $54,849,2021 were $275 and $1,032, $325 and $969, respectively.
Notes Payable-Private Placement
On March 31, 2017, the Company completed funding The balance of the second trancheAFC Credit Line as of the 2016 Private Placement (as defined below). The investors were issued 1,161,920 sharesSeptember 30, 2022 and 2021 was $20,508 and $28,336, respectively.
Line of Class B Common StockCredit - RumbleOn Finance
ROF SPV I, LLC (“ROF SPV”), an indirect subsidiary of the Company, and promissory notes (the “Private Placement Notes”) inentered into a $25,000 secured loan facility on February 4, 2022 primarily to provide for the amountpurchase by ROF SPV of $667,000, in consideration of cancellation of loan agreements having an aggregate principal amount committedconsumer finance loans originated by RumbleOn Finance, LLC (“ROF”), the purchasers of $1,350,000. Under the terms of the Private Placement Notes, interest shall accrue on the outstanding and unpaid principal amounts until paid in full. The Private Placement Notes mature on March 31, 2020. Interest accrues at a rate of 6.5% annually from the closing date through the second anniversary of such date and at a rate of 8.5% annually from the second anniversary of the closing date through the maturity date. Upon the occurrence of any event of default, the outstanding balanceCompany’s consumer finance subsidiary. Borrowings under the Private Placement Notes shall become immediately due and payable upon election of the holders. Based on the relative fair values attributed to the Class B Common Stock and promissory notes issued in the 2016 Private Placement, the Company recorded a debt discount on the promissory notes of $667,000 with the corresponding amounts as addition to paid in capital. The debt discount is amortized to interest expense until the scheduled maturity of the Private Placement Notes in March 2020 using the effective interest method. The effective interest rate at September 30, 2017 was 26.0%. Interest expense on the Private Placement Notes for the three and nine-month periods ended September 30, 2017 was $94,885 and $184,943, respectively, which included debt discount amortization of $41,979 and $81,603, respectively for the three and nine-month periods ended September 30, 2017.
Notes Payable-Senior Secured Promissory Notes
On September 5, 2017, the Company executed Senior Secured Promissory Notes (the “Notes”) in favor of several investors, including certain executive officers and directors of the Company, in the aggregate principal amount of $1,650,000 (“Principal Amount”), which includes an aggregate original issue discount of $150,000. The proceeds to the Company from the Notes, net of original issuance discount, was $1,500,000. The Notes are secured by an interest in all the Company’s Collateral, as such term is defined in the Notes.The Notes mature on September 5, 2018 andfacility generally bear interest at a rate per annum equal to 5% per annum through December 31, 2017, and a ratethe lesser of 10% per annum thereafter. Interest is payable monthly in arrears. UponSOFR plus an applicable margin of 5%.
ROF SPV may prepay the occurrence of any event of default, the outstandingfull principal balance under the Notes shall become immediately due and payable upon election of the holders.The Principal Amountloan and any unpaid interest accrued thereon may be prepaid byall other obligations and terminate the Companyloan agreement at any time priorafter 24 months following the closing date (the “Revolving Period”), so long as, ROF SPV provides 30 days written notice. Additionally, ROF SPV may prepay the loan in certain circumstances where a loan portfolio is sold, so long as a 1% fee is paid to the maturity date without premium or penalty upon five days prior written noticelenders. ROF SPV has drawn $22,925 on the secured loan facility as of September 30, 2022.
PPP Loans
On May 1, 2020, the Company entered into loan agreements and related promissory notes (the “SBA Loan Documents”) to receive U.S. Small Business Administration Loans (the “SBA Loans”) pursuant to the noteholder. IfPaycheck Protection
Program (the “PPP”) established under the Company consummatesCARES Act, in one or more transactions financingthe aggregate amount of any nature resulting in net proceeds available to the Company of $5,000,000 or more, then the noteholders may require the Company to prepay the Notes on thirty (30) days prior written notice to the Company.$5,177 (the “Loan Proceeds”). The original issue discount is amortized to interest expense until the scheduled maturitybalance of the Notes in September 2018 usingPPP loans was forgiven by the effective interest method. The effective interest rate atSBA during the quarter ended September 30, 20172022.
Derivative Liability
In connection with the convertible senior notes issued on January 10, 2020 (the “New Notes”), a derivative liability was 10.0%. Interest expenserecorded at issuance with an interest make-whole provision of $20,673 based on a lattice model using a stock price of $14.60, and estimated volatility of 55.0% and risk-free rates over the Notesentire 10-year yield curve.
The change in value of the derivative liability for the three and nine-month periodsnine months ended September 30, 2017 was $15,925 which2022 and 2021 were $0 and $39, and $(6,518) and $(8,774), respectively, and is included $10,274in change in derivative liability in the Condensed Consolidated Statement of original issue discount amortization. On October 23, 2017, the Company completed a public offering and used approximately $1,661,075 Operations. The value of the net proceeds of the offering for the repayment of the Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Notes. For additional information, see Note 15 “Subsequent Events.”
NOTE 8 – STOCKHOLDERS’ EQUITY
On November 28, 2016, the Company completed a private placement with certain purchasers, with respect to the sale of an aggregate of 900,000 shares of common stock of the Company at a purchase price of $1.50 per share for total consideration of $1,350,000 (the “2016 Private Placement”). In connection with the 2016 Private Placement, the Company also entered into loan agreements, pursuant to which the purchasers would loan to the Company their pro rata share of up to $1,350,000 in the aggregate upon the request of the Company at any time on or after January 31, 2017 and before November 1, 2020. On March 31, 2017, the Company completed the second tranche of the 2016 Private Placement. For additional information, see Note 7 - “Notes Payable.”
On January 9, 2017, the Company’s Board of Directors approved, subject to stockholder approval, the adoption of the Plan. On June 30, 2017, the Plan was approved by the Company’s stockholders at the 2017 Annual Meeting of Stockholders. The purposes of the Plan are to attract, retain, reward and motivate talented, motivated and loyal employees and other service providers (“Eligible Individuals”) by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, soderivative liability as to strengthen the mutuality of the interests between such persons and the stockholders of the Company. The Plan will allow the Company to grant a variety of stock-based and cash-based awards to Eligible Individuals. Twelve percent (12%) of the Company’s issued and outstanding shares of Class B Common Stock from time to time are reserved for issuance under the Plan. As of September 30, 2017, 9,018,541 shares are issued2022 and outstanding, resulting in up to 1,082,225 shares available for issuance under the Plan. As of September 30, 2017, the Company has granted 560,000 RSUs under the Plan to certain officersDecember 31, 2021 was $26 and employees of the Company. The aggregate fair value of the RSUs was $2,103,500. The RSUs vest over a three-year period as follows: (i) 20% on the first anniversary of the grant date; (ii) 30% on the second anniversary of the grant date; and (iii) 50% on the third anniversary of the grant date. The fair value of the grant is amortized over the period from the grant date through the vesting dates.$66, respectively.
NOTE 6 –STOCKHOLDER EQUITY
Share-Based Compensation expense recognized for these grants for the three and nine-month periods ended September 30, 2017 was $157,763 and $287,550, respectively. The Company has approximately $1,605,600 in unrecognized stock-based compensation, with an average remaining vesting period of three years.
On January 9, 2017, the Company’s Board of Directors and stockholders holding 6,375,000 of the Company’s issued and outstanding shares of common stock approved an amendment to the Company’s Articles of Incorporation (the “Certificate of Amendment”), to change the name of the Company to RumbleOn, Inc. and to create an additional class of common stock of the Company, which was effective on February 13, 2017 (the “Effective Date”).
Immediately before approving the Certificate of Amendment, the Company had authorized 100,000,000 shares of common stock, $0.001 par value (the “Authorized Common Stock”), including 6,400,000 issued and outstanding shares of common stock (the “Outstanding Common Stock, and together with the Authorized Common Stock, the “Common Stock”). Pursuant to the Certificate of Amendment, the Company designated 1,000,000 shares of Authorized Common Stock as Class A Common Stock (the “Class A Common Stock”), which Class A Common Stock ranks pari passu with all of the rights and privileges of the Common Stock, except that holders of the Class A Common Stock are entitled to ten votes per share of Class A Common Stock issued and outstanding, and all other shares of Common Stock, including all shares of Outstanding Common Stock shall be deemed Class B Common Stock (the “Class B Common Stock”), which Class B Common Stock is identical to the Class A Common Stock in all material respects, except that holders of the Class B Common Stock are entitled to one vote per share of Class B Common Stock issued and outstanding.
Also on January 9, 2017, the Company’s Board of Directors and stockholders holding 6,375,000 of the Company’s issued and outstanding shares of common stock approved the issuance to (i) Marshall Chesrown of 875,000 shares of Class A Common Stock in exchange for an equal number of shares of Class B Common Stock held by Mr. Chesrown, and (ii) Steven R. Berrard of 125,000 shares of Class A Common Stock in exchange for an equal number of shares of Class B Common Stock held by Mr. Berrard, effective at the time the Certificate of Amendment was filed with the Secretary of State of Nevada.
On the Effective Date, the Company filed the Certificate of Amendment with the Secretary of State of the State of Nevada changing the Company’s name to RumbleOn, Inc. and creating the Class A and Class B Common Stock. Also on the Effective Date, the Company issued an aggregate of 1,000,000 shares of Class A Common Stock to Messrs. Chesrown and Berrard in exchange for an aggregate of 1,000,000 shares of Class B Common Stock held by them. Also on the Effective Date, the Company amended its bylaws to reflect the name change to RumbleOn, Inc. and to reflect the Company’s primary place of business as Charlotte, North Carolina.
On March 31, 2017, the Company completed the sale of 620,000 shares of Class B Common Stock, par value $0.001, at a price of $4.00 per share for aggregate proceeds of $2,480,000 in the private placement (the “2017 Private Placement”). Officers and directors of the Company acquired 175,000 shares of Class B Common Stock in the 2017 Private Placement. In May 2017, the Company completed the sale of an additional 37,500 shares of Class B Common Stock in the 2017 Private Placement. Proceeds from the 2017 Private Placement were used to complete the launch of the Company’s website, www.rumbleon.com, acquire vehicle inventory, continue development of the Company’s platform, and for working capital purposes.
On June 30, 2017, the Company filedCompany’s shareholders approved a Registration Statement on Form S-1Stock Incentive Plan (the “Registration Statement”“Plan”) withallowing for the SEC coveringissuance of restricted stock units ("RSUs"), stock options, and other equity awards (collectively “Awards”). As of September 30, 2022, the resalenumber of 8,993,541shares authorized for issuance under the Plan was 2,700,000 shares of Class B Common Stock issued in the NextGen acquisition and the 2017 Private Placement and other shares previously held by our stockholders, including our officers and directors. The SEC declared the Registration Statement effective on July 7, 2017.common stock. In connection with, and on the filingsame day as the closing of the RegistrationRideNow Transaction, the Company accelerated the vesting of and waived any market-based vesting hurdles for all then outstanding RSU awards, and waived any market-based share price. This waiver was accounted for as a modification of the awards, with the fair value of the respective awards remeasured as of RideNow Closing Date. The cost of the acceleration of these RSU awards and other stock issuances of $23,943 was included in the Condensed Consolidated Statement our officersof Operations during the three and directors and certain stockholders entered intonine months ended September 30, 2021.
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 lock-up agreement restricting, through December 31, 2017,straight line basis over the resalevesting period. On September 30, 2021, the Company's Audit Committee approved the issuance of an aggregate of 6,848,800154,731 shares of ourthe Company’s Class B common stock held by them and subjectas a gift of a death benefit to the Registration Statement.
NOTE 9 – SELLING, GENERAL AND ADMINISTRATIVE
estate of Mr. Steven R. Berrard, the Company’s former Chief Financial Officer and director.
The following table summarizesreflects the detail of selling, general and administrative expensestock-based compensation for the three and nine-month periodsnine months ended September 30, 20172022 and 2016:September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Restricted Stock Units | $ | 2,605 | | | $ | 24,722 | | | $ | 7,237 | | | $ | 27,142 | |
| Stock Options | — | | | 8 | | | — | | | 23 | |
| Total stock-based compensation | $ | 2,605 | | | $ | 24,730 | | | $ | 7,237 | | | $ | 27,165 | |
| | Three-months ended September 30, | Nine-months ended September 30, |
| | | | | |
| Selling, general and administrative: | | | | |
| Compensation and related costs | $1,028,819 | $- | $1,951,911 | $- |
| Advertising and marketing | 752,017 | - | 1,060,195 | - |
| Professional fees | 192,041 | 34,044 | 724,486 | 49,017 |
| Technology development | 91,967 | - | 278,668 | - |
| General and administrative | 261,199 | 2,662 | 674,956 | 9,118 |
| | $2,326,043 | $36,706 | $4,690,216 | $58,135 |
Security Offering
As part of the Freedom Transaction, the Company issued to Freedom's security holders 1,048,718 shares of RumbleOn Class B common stock totaling $26,511.
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 the Warrant to purchase $40,000 of shares of Class B common stock. The initial warrant liability and deferred financing charge recognized was $10,950 with the warrant liability subject to remeasurement at each balance sheet date and any change in fair value recognized 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. There was no gain or loss recorded related to the Warrant liability during the three months ended March 31, 2021 as there was no significant changes in the fair value between March 15, 2021 and March 31, 2021. For the three months ended
June 30, 2021, the fair value of the warrant liability was increased $2,224 to $13,174. On August 31, 2021, the fair value of the warrant liability was increased $6,526 to $19,700. Upon closing of the RideNow Transaction, the Warrant was considered equity linked contracts indexed to RumbleOn’s stock and therefore met the equity classification guidance under ASC 815-40. As a result, the $19,700 was reclassified to additional paid-in-capital and the $10,950 deferred financing charge was reclassified as part of the debt discount related to the Oaktree Credit Agreement.
NOTE 107 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity for the nine-month periodsnine months ended September 30, 20172022 and 2016.2021:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| Cash paid for interest | $ | 36,021 | | | $ | 3,553 | |
| Fair value of 1,048,718 Class B common stock issued in the Freedom Transaction | $ | 26,511 | | | $ | — | |
| | Nine-Months Ended September 30, |
| | | |
| Cash paid for interest | $42,502 | $- |
| | | |
| Note payable issued on acquisition | $1,333,334 | $- |
| | | |
| Conversion of notes payable-related party | $206,484
| $- |
| | | |
| Issuance of shares for acquisition | $2,666,666 | $- |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Cash and cash equivalents | $ | 39,715 | | | $ | 48,974 | |
Restricted cash (1) | 9,500 | | | 3,000 | |
| Total cash, cash equivalents, and restricted cash | $ | 49,215 | | | $ | 51,974 | |
(1)Amounts included in restricted cash are primarily comprised of the deposits required under the Company's various floor plan lines of credit and ROF line of credit.
NOTE 118 – INCOME TAXES
In projecting theThe Company’s incomeeffective tax expense for the year ended December 31, 2017, management has concluded it is not likely to recognize the benefit of its deferred tax asset, net of deferred tax liabilities, and as a result a full valuation allowance will be required. As such, no income tax benefit has been recordedrate for the three and nine-month periodsnine months ended September 30, 2017 or 2016.2022 was 14.0% and 22.8%, respectively. The effective tax rate for the three and nine months ended September 30, 2021 was 32.1% and 26.0%, respectively. The difference between the U.S. federal income tax rate of 21.0% and RumbleOn’s overall income tax rate for the three and nine months ended September 30, 2022 was primarily due to income tax benefit from non-taxable PPP loan forgiveness, offset by income tax expense on non-deductible expenses and state income taxes.
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 September 30, 2021 was primarily due to the release of the Company's valuation allowance against its deferred tax assets recorded during the quarter ended September 30, 2021.
NOTE 12 — LOSS9– EARNINGS PER SHARE
Net lossThe Company computes basic and diluted earnings per share attributable to common stockholders in conformity with the two-class method required for participating securities. Basic earnings per share attributable to common stockholders is calculated by dividing the net income attributable to common stockholders by the weighed-average number of shares of common stock outstanding during the period. Diluted earnings per share attributable to common stockholders is computed by dividing net loss bygiving effect to all potential dilutive common stock equivalents outstanding for the period.
For purposes of this calculation, warrants to purchase 1,212,121 shares of Class B common stock having an exercise price of $31.50 per share are considered common stock equivalents which are antidilutive at September 30, 2022. Unvested RSUs have been included in the calculation of diluted earnings per share attributable to common stockholders to the extent the shares would be dilutive. Additionally, the Company’s senior unsecured convertible notes were antidilutive for the period ended September 30, 2022.
The weighted average number of common shares outstanding during the period. The computation of diluted net loss per share for the three-month and nine-month periodsnine months ended September 30, 2017 did not include 560,0002022 were 50,000, 15,809,134 and 0, respectively of restricted stock units to purchase shares ofClass A Common Stock, Class B Common Stock, as their inclusion would be antidilutive. There were no restricted stock units outstanding for the three and nine-month periods ended September 30, 2016.Series B Preferred Stock.
NOTE 1310 – RELATED PARTY TRANSACTIONS
Promissory Notes
AsIn connection with the acquisition of December 31, 2015,RideNow, the Company had loans of $141,000assumed two promissory notes totaling principal and accrued interest of $13,002$2,200 as of August 31, 2021 due to an entity that is owned andentities controlled by a family memberformer directors and executive officers of an officer andthe Company. Amounts due under these two promissory notes have been paid in full as of September 30, 2022.
August 2021 Offering
Denmar Dixon, a director of the Company. Interest expense on these loans for the three and nine-month period ended September 30, 2016 was $2,878 and $7,431, respectively. All convertible notes and related party notes outstanding as of July 13, 2016 were paid in full in July 2016.
As of December 31, 2016, the Company, had the BHLP Note payable of $197,358 and accrued interest of $5,508 due to an entity that is owned and controlled by a current officer and director of the Company. On March 31, 2017, the Company issued 275,312purchased 13,636 shares of Class B Common Stock upon full conversioncommon stock in the August 2021 Offering at the public price of $33.00 per share.
RideNow Leases
In connection with the RideNow Transaction, the Company entered into related party leases for 24 properties. Each such lease is with a wholly owned subsidiary of the BHLP Note.Company as the tenant and an entity controlled by a former director and executive officer of the Company, as the landlord. The accrued interestinitial aggregate base rent payment for all 24 leases is 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. The fair value of the right-of-use assets and lease liabilities arising from the RideNow leases are included in accruedthe Condensed Consolidated Balance Sheet at September 30, 2022 and disclosed in Note 3 - Leases.
RideNow Reinsurance Products
The Company sells extended service contracts, prepaid maintenance, GAP insurance, theft protection and tire and wheel products on vehicles sold to customers. Affiliate reinsurance companies previously controlled by and owned primarily by former directors and executives officers of the Company participated in the profits of these products sold through the RideNow locations. The total amount paid by the Company to these affiliated companies totaled approximately $139 during the nine months ended September 30, 2022. The related party relationship ended February 1, 2022.
Payments to RideNow Management, LLLP
The Company made $2 and $233 in payments to RideNow Management, LLLP, an entity owned equally by two former directors and executive officers during the three and nine months ended September 30, 2022.
Beach Agreement
On December 31, 2021, the Company acquired all the business assets of RNBeach, LLC (“Beach”) from former directors and executive officers of the Company. The total purchase price to acquire all the business assets of Beach was approximately $5,528, and cash paid was approximately $5,368.
Bidpath Software License
On January 19, 2022, the Audit Committee approved, and the Company entered into two agreements with Bidpath Incorporated, a company owned by Adam Alexander, a director of the Company that provides 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. The Company has made cash payments totaling $3,600 for the license during the nine months ended September 30, 2022. The Company pays, on monthly basis since the agreement was signed, $30 for the support and maintenance services. The initial term is thirty-six (36) months but can be terminated by either party at any time by providing sixty (60) days' notice to the other party.
NOTE 11 - 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. We have determined that we have reporting units and three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) Powersports, (2) Automotive, and (3) Vehicle Logistics. Our Powersports segment offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and other powersports products, parts, apparel, and accessories, and related finance and insurance products. Our Automotive segment purchases vehicles from dealers or others and sells them through wholesale channels. Our Vehicle Logistics segment brokers nationwide automotive transportation services between dealerships and auctions.
The following table summarizes revenue, operating income (loss), depreciation and amortization and interest under Long-term liabilitiesexpense which are the measure by which management allocates resources to its segments to each of our reportable segments. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Powersports | | Automotive | | Vehicle Logistics | | Eliminations(1) | | Total |
| Three Months Ended September 30, 2022 | | | | | | | | | |
| Total assets | $ | 2,104,086 | | | $ | 41,144 | | | $ | 19,277 | | | $ | (859,925) | | | $ | 1,304,582 | |
| Revenue | $ | 385,341 | | | $ | 69,994 | | | $ | 15,526 | | | $ | (589) | | | $ | 470,272 | |
| Operating income (loss) | $ | 12,734 | | | $ | (476) | | | $ | 1,398 | | | $ | (65) | | | $ | 13,591 | |
| Depreciation and amortization | $ | 6,543 | | | $ | 17 | | | $ | 10 | | | $ | — | | | $ | 6,570 | |
| Interest expense | $ | (12,209) | | | $ | (394) | | | $ | — | | | $ | — | | | $ | (12,603) | |
| | | | | | | | | |
| Three Months Ended September 30, 2021 | | | | | | | | | |
| Total assets | $ | 1,189,868 | | | $ | 443,084 | | | $ | 14,210 | | | $ | (635,310) | | | $ | 1,011,852 | |
| Revenue | $ | 105,547 | | | $ | 105,298 | | | $ | 11,597 | | | $ | (1,228) | | | $ | 221,214 | |
| Operating income (loss) | $ | (27,524) | | | $ | 3,835 | | | $ | 987 | | | $ | — | | | $ | (22,702) | |
| Depreciation and amortization | $ | 1,684 | | | $ | 23 | | | $ | 10 | | | $ | — | | | $ | 1,717 | |
| Interest expense | $ | (4,073) | | | $ | (503) | | | $ | (1) | | | $ | — | | | $ | (4,577) | |
| Change in derivative liability | $ | (6,518) | | | $ | — | | | $ | — | | | $ | — | | | $ | (6,518) | |
| | | | | | | | | |
| Nine Months Ended September 30, 2022 | | | | | | | | | |
| Total assets | $ | 2,104,086 | | | $ | 41,144 | | | $ | 19,277 | | | $ | (859,925) | | | $ | 1,304,582 | |
| Revenue | $ | 1,136,972 | | | $ | 296,510 | | | $ | 45,774 | | | $ | (2,969) | | | $ | 1,476,287 | |
| Operating income | $ | 64,322 | | | $ | 90 | | | $ | 3,746 | | | $ | 25 | | | $ | 68,183 | |
| Depreciation and amortization | $ | 16,842 | | | $ | 51 | | | $ | 30 | | | $ | — | | | $ | 16,923 | |
| Interest expense | $ | (35,621) | | | $ | (1,437) | | | $ | (1) | | | $ | — | | | $ | (37,059) | |
| Change in derivative liability | $ | 39 | | | $ | — | | | $ | — | | | $ | — | | | $ | 39 | |
| | | | | | | | | |
| Nine Months Ended September 30, 2021 | | | | | | | | | |
| Total assets | $ | 1,189,868 | | | $ | 443,084 | | | $ | 14,210 | | | $ | (635,310) | | | $ | 1,011,852 | |
| Revenue | $ | 144,380 | | | $ | 316,655 | | | $ | 36,145 | | | $ | (3,357) | | | $ | 493,823 | |
| Operating income (loss) | $ | (35,604) | | | $ | 8,234 | | | $ | 2,613 | | | $ | — | | | $ | (24,757) | |
| Depreciation and amortization | $ | 2,855 | | | $ | 76 | | | $ | 17 | | | $ | — | | | $ | 2,948 | |
| Interest expense | $ | (6,651) | | | $ | (1,451) | | | $ | (5) | | | $ | — | | | $ | (8,107) | |
| Change in derivative liability | $ | (8,774) | | | $ | — | | | $ | — | | | $ | — | | | $ | (8,774) | |
(1)Intercompany investment balances related to the acquisitions of RideNow, Freedom Entities, Wholesale, Inc. and Wholesale Express, and receivables and other balances related intercompany freight services of Wholesale Express are eliminated in the Condensed Consolidated Balance Sheets. For additional information, see Note 7 - “Notes Payable.”
On March 31, 2017, the Company completed the sale of 620,000 shares of Class B Common Stock in the 2017 Private Placement. OfficersRevenue and directors of the Company acquired 175,000 shares of Class B Common Stock in the 2017 Private Placement. In May 2017, the Company completed the sale of an additional 37,500 shares of Class B Common Stock in the 2017 Private Placement. For additional information, see Note 8 - “Stockholders’ Equity.”
A key component of the Company’s business model is to use dealer partners in the acquisition of motorcycles as well as utilizecosts for these dealer partners to provide inspection, reconditioning and distribution services. Correspondingly, the Company will earn fees and transaction income, and the dealer partner may earn incremental revenue and enhance profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs. In connection with the development of the dealer program, the Company tested various aspects of the program by utilizing a dealership (the “Test Dealer”) to which Mr. Chesrown, the Company’s Chief Executive Officer has provided financing in the form of a $400,000 convertible promissory note. The note matures on May 1, 2019, interest is payable monthly at 5% per annum and can be converted into a 25% ownership interest in the Test Dealer at any time. The Test Dealer is expected to be named a Select Dealer by an agreement with the same material terms as the Company’s other Select Dealer agreements. Revenue generated by the Company from the Test Dealer for the three and nine-month periods ended September 30, 2017 was $924,069 and $946,824, respectively. Included in accounts receivable at September 30, 2017 is $264,464 owed to the Company by the Test Dealer.
In connection with the NextGen acquisition, the Company entered into a Consulting Agreement (the “Consulting Agreement”) with Kartik Kakarala, who formerly served as the Chief Executive Officer of NextGen and now serves as a director of the Company. Pursuant to the Consulting Agreement, Mr. Kakarala serves as a consultant to the Company. The Consulting Agreement may be cancelled by either party, effective upon delivery of a written notice to the other party. Mr. Kakarala’s compensation pursuant to the Consulting Agreement is $5,000 per month. For the three and nine-month periods ended September 30, 2017, the Company paid $15,000 and $35,000, respectively under the Consulting Agreement. These amounts are included in selling, general and administrative expensesintercompany freight services have been eliminated in the Condensed Consolidated Statements of Operations. For additional information, see Note 3 - “Acquisitions.”
In connection with the NextGen acquisition, the Company entered into a Services Agreement (the “Services Agreement”) with Halcyon Consulting, LLC (“Halcyon”), to provide development and support services to the Company. Mr. Kakarala currently serves as the Chief Executive Officer of Halcyon. Pursuant to the Services Agreement, the Company will pay Halcyon hourly fees for specific services, set forth in the Services Agreement, and such fees may increase on an annual basis, provided that the rates may not be higher than 110% of the immediately preceding year’s rates. The Company will reimburse Halcyon for any reasonable travel and pre-approved out-of-pocket expenses in connection with its services to the Company. For the three and nine-month periods ended September 30, 2017 the Company paid $221,400 and $678,766, respectively under the Services Agreement.
As of September 30, 2017, the Company had promissory notes of $370,556 and accrued interest of $12,076 due to an entity controlled by a director and to the director of the Company. The promissory notes were issued in connection with the completion of the 2016 Private Placement on March 31, 2017. Interest expense on the promissory notes for the three and nine-month periods ended September 30, 2017 was $29,392 and $63,416, respectively, which included debt discount amortization of $23,321 and $45,335, respectively for the three and nine-month periods ended September 30, 2017. The interest was charged to interest expense in the Condensed Consolidated Statements of Operations and included in accrued interest under long-term liabilities in the Condensed Consolidated Balance Sheets.
On September 5, 2017, the Company executed Senior Secured Promissory Notes (the “Notes”) in favor of several investors, including certain executive officers and directors of the Company, in the aggregate principal amount of $1,650,000 (“Principal Amount”), which includes an aggregate original issue discount of $150,000. As of September 30, 2017, the Company had Notes of $1,214,144 and accrued interest of $4,144 due to certain executive officers and directors of the Company. Interest expense on the Notes due to certain executive officers and directors for the three and nine-month periods ended September 30, 2017 was $11,678, which included $7,534 of original issue discount amortization. On October 23, 2017, the Company completed a public offering and used $1,661,075 of the net proceeds of the offering for the repayment of the Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Notes. For additional information, see Note 7 - “Notes Payable” and Note 15 “Subsequent Events.”
NOTE 14 – COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions (or settlements) may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
NOTE 1512 – SUBSEQUENT EVENTS
Used Powersports Inventory Financing Credit Facility with J.P. Morgan
On October 23, 2017,26, 2022, the Company completed an underwritten public offering of 2,910,000 shares of Class B common stock atentered into a public offering price of $5.50 per share$75,000 used powersports inventory financing credit facility with J.P. Morgan.
Strategic Alternatives for net proceeds to the Company of approximately $14,500,000 after deducting the underwriting discount and offering fees and expenses payable by the Company (the “Offering”). The Company also granted the underwriters a 30-day option, which expires on November 19, 2017, to purchase up to an additional 436,500 shares of Class B common stock to cover over-allotments.Automotive Segment
The Company used $1,661,075 of the net proceeds of the Offering for the repayment of the Senior Secured Promissory Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Senior Secured Promissory Notes. The Company intends to use the remaining net proceeds of the Offering for working capital and general corporate purposes, which may include purchases of additional inventory held for sale, increased spending on marketing and advertising and capital expenditures necessary to grow the business.
In connection with the Offering, on October 23, 2017, the Company issued to the representatives of the underwriters warrants to purchase 218,250 shares of Class B common stock, which is equal to 7.5% of the aggregate number of shares of Class B common stock sold in the Offering (the “Representatives’ Warrants”). The Representatives’ Warrants are exercisable at a per share price of $6.325, which is equal to 115% of the Offering price per share of the shares sold in the Offering. The Representatives’ Warrants are exercisable at any time and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the registration statement related to the Offering.
Also, in connection with the Offering, on October 19, 2017, the Class B Common Stock uplisted from the OTCQB and began trading on The NASDAQ Capital Market under the symbol “RMBL.”
On November 2, 2017,2022, the Board of Directors reached a decision to explore strategic alternatives for the Company's automotive segment. The Company intends to continue operating the automotive segment while the review is ongoing, and does not have an estimate on the impact of a potential transaction or divestiture on future results.
Global Settlement with Former RideNow Owners
On November 8, 2022, the Company through its wholly-owned subsidiary RMBL Missouri, LLC (the “Borrower”), entered intoreached a floor plan line of credit (the "Credit Line")comprehensive global and binding settlement agreement with NextGear Capital, Inc. (the “Lender”) informer primary RideNow owners. The settlement agreement resolves all claims currently pending before the amount of $2,000,000, or such lesser sum which may be advanced to or on behalf ofDelaware Chancery Court, releases certain potential and future claims between the Borrower from time to time, pursuant to that certain Demand Promissory Noteparties, and Loan and Security Agreement. Any advance under the Credit Line bears interest on a per annum basis from the date of the request of such advance (or date of the financed receivable, as applicable), based upon a 360-day year, and such interest shall be compounded daily until such outstanding advances are paid in full at a rate of interest set forth in schedules published by the Lender. As of November 2, 2017, the effective rate of interest is 6.5%. Advances and interest under the Credit Line are due and payable upon demand, but, in general,results in no event later than 150 days from the dateincremental consideration exchanging hands.
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.
ThisOperations ("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 2021 Form 10-K, as well as our unaudited Condensed Consolidated Financial Statements and the accompanying notes included in Item 1 of this Quarterly Report on Form 10-Q contains forward-looking statements. Any statements contained herein that10-Q. All dollars are not statementsreported in thousands except per share and per unit amounts.
Overview
RumbleOn is the nation’s first technology-based Omnichannel marketplace in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisition of historical fact may be deemedsupply through distribution of retail and wholesale. RumbleOn provides an unparalleled technology suite and ecommerce experience, broad footprint of physical locations, and full-line manufacturer representation to be forward-looking statements. The words “believes,” “anticipates,” “plans,” “expects,” “intends” and similar expressions identify some oftransform the forward-looking statements. Forward-looking statements are not guarantees of performance or future results and involve risks, uncertainties and assumptions. The factors discussed elsewhere in this Form 10-Q and in subsequent Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K could also cause actual results to differ materially from those indicated by the Company’s forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, except as required by law.
OVERVIEW
We operate a capital light disruptive e-commerce platform facilitating the ability of both consumers and dealers to Buy-Sell-Trade-Finance pre-owned motorcycle and other power sport and recreation vehicles (“power/recreation vehicles”) in one online location.entire customer experience. Our goal is to transformintegrate the way motorcyclesbest of both the physical and other power/recreation vehicles are boughtthe digital, while making the transition between the two seamless.
We buy and sold by providing users with the most efficient, timelysell new and transparent transaction experience. Our initial focus is the market for 601cc and larger on-road motorcycles. We will look to extend to additional power/recreation vehicle types and products as the platform matures, including ATVs, personal watercraft, snowmobiles, side-by-sides, boats, and both towable and motor coach RVs.
Serving both consumers and dealers, through our online platform, we make cash offers for the purchase of their vehicles and intend to provide them the flexibility to trade, list, or auction their vehicle through our website and mobile applications. In addition, we offer a large inventory of used vehicles for sale along with third-party financingthrough multiple company-owned websites and associated products. Our operations are designed to be scalable by working through an infrastructure and capital light model that is achievable by virtue of a synergistic relationship with dealer partners. We utilize dealer partners in the acquisition of motorcyclesaffiliate channels, as well as via our proprietary cash offer tool and network of 55+ company-owned retail locations as of September 30, 2022, 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 enables us to provide inspection, reconditioningquickly and effectively gain market share. As a result of our growth to date, RumbleOn enjoys a leading, first-mover position in the highly fragmented $100 billion+ powersports market.
RumbleOn’s powersports business offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and all other powersports products, parts, apparel, and accessories from a wide range of manufacturers, including those listed below.
| | | | | | | | |
| RumbleOn’s Representative Brands |
| Alumacraft | Honda | Sea-Doo |
| Argo | Indian | Slingshot |
| Benelli | Kawasaki | SSR |
| BMW | Kayo Sports | Suzuki |
| Can-Am | KTM | Spyder |
| CF Moto | Manitou | TideWater |
| Ducati | Polaris | Triumph |
| Harley-Davidson | Ryker | Vanderhall |
| Hisun | Scarab | Yamaha |
| | |
RumbleOn leverages technology and data to streamline operations, improve profitability, and drive lifetime engagement by 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 to the most comprehensive powersports vehicle offerings, including the ability to buy, sell, trade, and finance online, in store at any of our bricks-and-mortar locations, or both. RumbleOn offers financing solutions for consumers, trusted physical retail and service locations, online or in-store instant cash offers, and access to pre-owned inventory. We also offer apparel, parts, service, and accessories. In addition to our powersports operations, we operate in complementary businesses including the brokerage of vehicle transportation and the wholesale distribution services. Correspondingly,automotive business.
Outlook
We continue to optimize and broaden the selection of new and used powersports vehicles we earn feesmake available to our customers. Expanding our inventory selection enhances the customer experience by ensuring each visitor, either online or in-store, finds a vehicle that matches his or her preferences. Optimizing our new inventory significantly depends on the allocations
of our manufacturers ("OEM"). Optimizing our used inventory selection depends on our ability to source and transaction income, and dealer partners will earn incremental revenue and enhance profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs.
Our business model is driven byacquire a technology platform we acquired in February 2017, through our acquisition of substantially all of the assets of NextGen. The acquired system provides integrated vehicle appraisal, inventory management, customer relationship and lead management, equity mining, and other key services necessary to drive the online marketplace. Over the past 16 years, the developers of the software have designed and built, for large multi-national clients, asufficient number of dealerappropriate used vehicles, including acquiring more vehicles directly from our customers.
We continue to implement a fulfillment system designed to optimize inventory replenishment and what we believe to be, high quality applications solutions.
Our business combines a comprehensive online buying and selling experience with a vertically-integrated supply chain that allows us to buy and sell vehicles to consumers and dealer partners transparently and efficiently at a value-oriented price. Using our website or mobile application, consumers and dealers can complete most phases of a used vehicle transaction. Our online buying and selling experience allows consumers to:
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Sell us a vehicle.We addressmake the lack of liquidityright powersports units available in the marketright quantities at the right locations for a cash salethe right price. This centralization of a vehicle by dealersinventory will launch company-wide access to all company-owned inventory rather than only the inventory available at one particular location. This access will increase the probability that our customers can find their desired powersports unit on our platform, thereby enhancing the customer experience while eliminating geographic boundaries. With digital inventory integration and consumers through our Sell Us Your Vehicle Program. Dealers and consumers can sell us a vehicle independent of a purchase. Using our free online or mobile appraisal tool, consumers and dealers can complete a short appraisal form and receive a haggle-free, guaranteed 3-day firm cash offer for their vehicle within minutes and, if accepted, receive payment in a few days or less. Our cash offer to buy is based on the use of extensive used retail and wholesale vehicle market data. When a consumer accepts our offer, we ship their vehicles to our closest dealer partner where the vehicle is inspected, reconditioned and stored pending sale. We believe buying used vehicles directly from consumersover 60 individual websites that share content, RumbleOn will be the primary driver of our source of supplytop-of-mind for sale and a key to our ability to offer competitive pricing to buyers. By being onepowersports searches. All of the few sources for consumers to receive cash for their vehicle, we have a significant opportunity to buy product at a lower cost since dealertechnology infrastructure required is under development and auction markup is eliminated from these consumer purchases. In addition, we believe our willingness to appraisewill continue through 2022 and purchase a customer’s vehicle, whether or not the customer is buying a vehicle from us, provides a competitive sourcing advantage for vehicles.
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List a vehicle.The current market for listing motorcycles and other power sport vehicles is inefficient and ineffective in that a majority of the transactions are conducted through peer-to-peer transactions, which do not facilitate making cash offers, accepting trades or providing financing to the buyer. Our listing options and comprehensive transaction support addresses the shortcomings that currently exist in the market for listing a vehicle for sale while allowing dealers and consumers an opportunity to utilize a simple, efficient and effective process. Consumers who do no not accept our cash offer can pay a fee to list their vehicle on RumbleOn.com and other available listing sites. During the listing period, our cash offer is extended, and we manage all sales leads, handle all the documentation necessary to complete a sale and accept a buyer trade and provide a range of third-party finance options and vehicle service contracts to the buyer, if necessary. Upon the sale of a listed vehicle, we earn a fee separate and apart from the listing fee. Dealer partners do not pay a fee to list their vehicles.
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Purchase a used vehicle.Our 100% online approach to retail and wholesale distribution addresses the many issues currently facing the retail and wholesale distribution marketplace for power/recreation vehicles, a marketplace we believe is primed for a disruptive change. We believe the issues facing the marketplace include: (i) heavy use of inefficient listing sites, (ii) a highly fragmented dealer network; (iii) a limited selection of used vehicles for sale; (iv) negative consumer perception of the current buying experience; and (v) a massive consumer shift to online retail. We offer dealers and consumers a large selection of vehicles at a value-oriented price that can be purchased in a seamless transaction in minutes. In addition to a transparent buying experience, our no haggle pricing, coupled with an inspected, reconditioned and certified vehicle, backed by a fender-to-fender warranty and a 3-day money back guarantee, addresses consumer dissatisfaction with the current buying processes in the marketplace. As of October 31, 2017, including vehicles of our dealer partners, we have approximately 550 vehicles listed for sale on our website, where consumers can select and purchase a vehicle, including arranging financing, directly from their desktop or mobile device. Selling used vehicles to dealers and consumers is the key driver of our business.
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Finance a purchase.Customers can pay for their vehicle using cash or we will provide a range of finance options from unrelated third parties such as banks or credit unions. Customers fill out a short online application form, and, if approved, apply the financing to their purchase in our online checkout process.
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Protect a purchase.Customers have the option to protect their vehicle with unrelated third-party branded EPPs and vehicle appearance protection products as part of our online checkout process. EPPs include extended service plans which are designed to cover unexpected expenses associated with mechanical breakdowns and guaranteed asset protection, which is intended to cover the unpaid balance on a vehicle loan in the event of a total loss of the vehicle or unrecovered theft. Vehicle appearance protection includes products aimed at maintaining vehicle appearance.
To enable a seamless dealer and consumer experience, we are building a vertically-integrated used vehicle supply chain, supported by proprietary software systems and data which include the following attributes:
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Vehicle sourcing and acquisition.We acquire a significant percentage of our used vehicle inventory directly from consumers and dealers through our Sell Us Your Vehicle Program. We also, to a lesser extent, acquire vehicles from auctions and directly from used vehicle suppliers, including franchise and independent dealers and finance and leasing companies. Using used retail and wholesale vehicle market data obtained from a variety of internal and external sources, we evaluate a significant number of vehicles daily to determine their fit with consumer demand, internal profitability targets and our existing inventory mix. The supply of used vehicles is influenced by a variety of factors, including: the total number of vehicles in operation; the rate of new vehicle sales, which in turn generate used vehicle trade-ins; and the number of used vehicles sold or remarketed through retail channels, wholesale transactions and at auctions. Based on the large number of vehicles remarketed each year, consumer acceptance of our online vehicle appraisal process, our experience and success in acquiring vehicles from auctions and other sources and the large size of the United States market relative to our needs, we believe that sources of used vehicles will continue to be sufficient to meet our currentmake significant investments in improving and future needs.
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Inspection, reconditioning and logistics. After acquiring a vehicle, we transport it to one of our dealer partners who is paid to perform an inspection and to recondition the vehicle to meet “RumbleOn Certified” standards. High quality photographs are then taken, the vehicle is listed for sale on Rumbleon.com and the dealer partner stores the vehicle pending delivery to the buyer. This process is supported by a custom used vehicle inventory management system, which tracks vehicles through each stage of the inspection, reconditioning and logistic process. The ability to leverage and provide a high margin source of incremental revenue to the existing network of dealer partners in return for providing inspection, reconditioning, logistics and distribution support reduces our need for any significant investment in retail or reconditioning facilities.
Our Strategy
Our strategy is to provide a complete online, direct, pre-owned motorcycle and power/recreation vehicle marketplace solution for both consumers and dealers, while providing dealers access to additional software solutions and services allowing them to earn incremental revenue and enhance profitability through increased sales leads, and fees earned from inspection, reconditioning and distribution programs. The recognition of the need for our solutions is the result of our management team gaining a clear understanding of the key drivers of complete supply chain solutions necessary to create a different and disruptive way to both acquire and distribute cars and trucks online from their deep experience in the automotive sector with disruptive businesses such as: AutoNation, Auto America, and Vroom. We believe that there is a significant opportunity to disrupt the pre-owned marketplace in recreational vehicles as it suffers from many of the same negative consumer sentiments and dealer practices that existed in the automotive sector prior to the advent of and the significant influx of new entrants with improved business models. In addition, the power/recreation vehicle segment lacks the significant competition that exists in the automotive sector due to its fragmented dealer network, relative size and the niche nature of its products. Management believes consumers prefer to purchase and sell through a well-designed online/mobile solution, with a broad selection of vehicles at highly competitive prices. We believe that our applications will provide appraisal, cash-offer, vehicle listing, financing options, and logistics/delivery solutions designed to provide an exceptional consumer experience. We intend to replicate and improve upon the positive attributes of the various “sell us your car” and other related programs that have proven successful in automotive retail for entities such as AutoNation, CarMax, Carvana, Vroom and others.
Our dealer strategy is focused on creating a synergistic relationship wherein dealers will have the ability to leverage the RumbleOn marketplace and dealer services offerings to drive increased revenue through the purchase or sale of vehicles via the online platform and the ability to earn fees from inspection, reconditioning and distribution programs. Dealer partners will have the ability to show the complete RumbleOn vehicle inventory on their website and will have access to preferred pricing on the acquisition of vehicles. Management believes that partners utilizing the platform will significantly enhance their existing online retail strategies. We have agreed to add dealersadding to our network and are in discussions with other dealers regarding joining the network. We believe that our operations, designed to be both capital and infrastructure light, will leverage the dealer network to provide inspection, reconditioning and distribution, thus minimizing the number of warehouse locations, reconditioning centers and logistics facilities we operate. We plan to primarily operate a centralized headquarter, call center, and limited number of strategically located warehouses as needed.
Our initial focus on pre-owned Harley-Davidson motorcycles provides a targeted, identifiable segment to establish the functionality of the platform and the RumbleOn brand. Harley-Davidson is a highly regarded and dominant brand (representing approximately 50% market share of new 601cc+ on-road motorcycles according to both Harley-Davidson public filings and the Motorcycle Industry Council) in the motorcycle market, with a base of over three million pre-owned motorcycles registered for use in the United States. According to Harley-Davidson, as disclosed in their 2017 investor meeting presentation, and management estimates, each year approximately 400,000 pre-owned Harley-Davidsons are sold, with Harley-Davidson dealers selling approximately 125,000 units, 250,000 units sold in private consumer and independent dealer transactions, and 25,000 sold via other means. Further, as Harley-Davidson discussed in its 2017 investor meeting presentation, their objective is to build two million new Harley-Davidson riders in the United States in the next 10 years, principally, we believe, via brand marketing and product development, estimated at $70 million in 2016, dealer hosted experiences and the Harley-Davidson Riding Academy. We believe such efforts will benefit us as, per Harley-Davidson’s 2017 investor meeting presentation, there are 2.4 million owners of non-Harley-Davidson motorcycles, and 15.0 million people who don’t currently own a motorcycle, who have an interest in Harley-Davidson and are planning to purchase a motorcycle within three years. Further, Harley-Davidson’s estimates that there are 7.8. million motorcycle license holders who do not currently own a motorcycle and that the sale of used Harley-Davidson motorcycles to young adults (ages 18-34) was three times the sale of new Harley-Davidson motorcycles to the same age group. These statistics support our contention that there is expected to be a growing market for used Harley-Davison transactions and a more informed buyer.
We believe that we may potentially enjoy a halo effect from Harley-Davidson’s advertising as not all young new buyers will purchase new motorcycles. Our extension into the “metric” brands (Honda, Yamaha, Kawasaki, Suzuki, etc.) essentially doubles the available market and is a natural extension as these vehicles are often sold or traded for Harley-Davidson vehicles. The metric market and dealer profile closely mirror that of the Harley-Davidson market although it is more highly fragmented. In addition, many of the metric dealers also retail ATVs, UTVs, snowmobiles and personal watercraft providing the next organic product extension leveraging existing dealer relationships.
Our Growth Strategy
We intend to transform the way recreational vehicles are bought and sold and thereby significantly grow our business and gain market share by targeting the large number of private consumer peer to peer transactions driven by listing only sites such as Craigslist. Management estimates the market for annual used motorcycle sales today at approximately 800,000 units sold, or approximately $7.5 billion of sales. Management believes approximately 50% or more of these transactions are completed on a peer to peer basis. We believe these transactions are highly inefficient and consumers view the process as cumbersome. Our online consumer direct sourcing strategy, wherein we make a cash offer to a consumer or dealer utilizing our website or mobile application allows us to deliver value pricing on our vehicles for sale. We believe our large-scale inventory of vehicles for sale, coupled with our online platform, transparent selling process, certified and reconditioned vehicles and ability to offer financing and ancillary products provides a unique customer experience as compared to current alternatives when purchasing a vehicle. We believe we can aggressively drive RumbleOn brand recognition and awareness at a relatively low expense by utilizing digital, social media and guerrilla marketing techniques, as there are few national competitors and consumers are very brand focused and loyal. For example, approximately 15 key motorcycle events, such as Daytona Bike Week and the Sturgis Bike Rally attract millions of attendees annually, many of whom are both motorcycle enthusiasts and Harley-Davidson consumers. We intend to have a significant presence at these events, with onsite advertising and sales facilities to build brand awareness. In addition, we anticipate engaging with or sponsoring motorcycle groups, providing us a targeted audience to which to market RumbleOn and showcase the ease with which they can buy, sell, or trade motorcycles. Once motorcycle enthusiasts have sampled our website, we believe the unique experience will be compelling and drive organic growth. Over time, management believes we will build a proprietary database of customers and their interests, which will facilitate customer retention and cross sell activities.
Our Market
We operate in a market with significant scale and breadth of products. The Motorcycle Industry Council estimates that in 2014, 9.2 million people owned 10.1 million motorcycles in the United States. 87% of these were on-highway models, our initial targeted segment. According to the Powersports Business 2016 Market Data Book, or the 2016 Market Datebook, used motorcycle registrations were 1.1 million units in 2015 with new unit sales of approximately 573,000 or approximately $7 billion in new vehicle sales. The owner demographic is favorable to the market outlook as millennials and baby boomers are maturing into the median ranges. The owner group is characterized by brand loyal riding enthusiasts. According to the Motorcycle Industry Council, in 2014 the median owner age was 47 years with a median income of $62,200 which is approximately 10% above the United States’ average. The dealer market is fragmented with an estimated 4,600 retail outlets authorized to sell new motorcycles, scooter, and all-terrain vehicles.
The ATV, UTV/side-by-side, snowmobile and personal watercraft vehicle, or PWC, markets, are a logical next extension for our platform, as there is significant overlap in the motorcycle dealer base with dealers of these products. According to data from Power Product Marketing and the 2016 Market Data Book, there were approximately 630,000 sales of ATV/UTV/Side-by-sides in 2015. There are approximately 1.2 million snowmobiles registered in the United States (another 600,000 in Canada) and in 2016, approximately 95,000 snowmobiles were sold in the United States and Canada. Lastly, according the National Marine Manufacturers Association and the Personal Watercraft Industry Association, in 2015 there were more than 54,000 new PWCs sold in the United States and there are currently approximately 1.2 million PWCs registered in the United States.
As we look to further extend the platform, the two largest adjacent segments are represented by the recreational boating and recreational vehicle (motor vehicle or trailer equipped with living space and amenities found in a home) industries. According to the National Marine Manufacturers Association, there were approximately 15.7 million recreational boats in the United States in 2014, and there were approximately 940,000 sales of pre-owned boats in 2014. Correspondingly, the Recreational Vehicle Industry Association estimates that currently more than 8.9 million households own an RV and in 2017 there will be over 470,000 shipments of RVs from manufacturers to dealers.
Competition
We face competition in all our business segments. The United States used recreational vehicle marketplace is highly fragmented, and we face competition from franchised dealers, who sell both new and used vehicles; independent dealers; online and mobile sales platforms; and private parties.offering. We believe that the principal competitive factors in our industry are delivering an outstanding consumer experience, competitive sourcingcomplexity of vehicles, breadththe traditional powersports retail transaction provides substantial opportunity for technology investment and depth of product selection, and value pricing. Our competitors vary in size and breadth of their product offerings. We believe that our principal competitive advantagesleadership and continued growth will enable us to responsibly invest in used vehicle retailing will include our ability to provide a high degree of customer satisfaction with the buying experience by virtue of our low, no-haggle prices and our online platform including our website and mobile application and our ability to make a cash offer to purchase a vehicle or offer listing alternatives coupled with our customer-friendly sales process and our breadth of selection of the most popular makes and models available on our website. In addition, we believe our willingness to appraise and purchase a customer’s vehicle, whether or notfurther enhancing the customer is buying a vehicle from us, provides a competitive sourcing advantage for retail vehicles allowing us to offer value-oriented pricing. We believeexperience.
From our founding, we have been laying the principal competitive factors for our ancillary products and services include an abilitygroundwork to offer a full suite of products at competitive prices delivered in an efficient mannerfriction-free and fully integrated customer experience both online and in-store. We are building the technology engine to the customer.enable this integration, while methodically expanding our retail footprint. We will compete withcontinue to roll out our new and innovative technology throughout 2022 and beyond, to not only reduce costs and optimize vehicles available, but also to better serve customers and build long term shareholder value.
In order to truly maximize the customer experience, we are investing to build the technology engine across the organization. Our Cash Offer Tool is supplying proprietary data on hundreds of thousands of unique Vehicle Identification Number (VIN) inputs, in addition to actual retail sales and transaction data from RideNow and Freedom Powersports' databases. Marrying this data creates a variety of entitiesdata-driven "market maker" that does not exist in offering these products including banks, finance companies, insurancethe industry today. Integrating real-time pricing and warranty providerssales data from in-store transactions will also enable us to further optimize offers and extended vehicle service contract providers. We believe our competitive strengths in this category will include our ability to deliver products in an efficient manner to customers utilizing ourpricing.
Beyond innovative technology and inventory integration, our ability to partner with key participants in each category55+ retail locations will augment the online experience to offer a full suite of products at competitive prices. Lastly, additional competitors may entersimple, friction-free customer experience. A key component to transforming the businesses in whichcustomer experience to support our growth strategy is enhancing the in-store experience and we will operate.are strategically expanding our retail footprint.
SeasonalityKEY OPERATING METRICS
Historically, the industry has been seasonal with traffic and sales strongest in the spring and summer quarters which tracks closely with the timing of regional riding seasons. Sales and traffic are typically slowest in the fall quarter but increase in February and March, coinciding with tax refund season.
Key Operation Metrics
As our business expands we willWe regularly review a number of key operating metrics to evaluate our business,segments, measure our progress, and make strategicoperating decisions. Our key operating metrics reflect what we believe will be the keyprimary drivers of our growth,business, including increasing brand awareness, maximizing the opportunity to source the purchase of low cost used vehicles from consumers and dealers, whileand enhancing the selection and timing of vehicles we make available for sale to our customers. Our key operating metrics also demonstrate ourenhance management’s ability to translate these driversthis information into sales through multiple sales channels. Please note that results of RideNow and the Freedom Entities before to monetize these retailthe respective acquisition dates are not reflected in the presentation below. The acquired entities have certain lines of business, including new vehicle sales, through a variety of product offerings.
| | Three-Months Ended September 30, | Nine- Months Ended September 30, |
| | | | | |
| Units sold: | | | | |
| Consumer | 106 | - | 106 | - |
| Dealer | 165 | - | 175 | - |
| Auction | 42 | - | 42 | - |
| | 313 | - | 323 | - |
| Number of Dealers | 3 | - | 3 | - |
| Average monthly unique users | 71,180 | - | 42,670 | - |
| Inventory units available on website | 588 | - | 588 | - |
| Average days to sale | 39 | - | 38 | - |
| Total average gross margin per unit$ | $ 760 | $- | $736 | $- |
Units Sold
We define units sold as the number of used vehicles sold to consumers, dealersmaterial finance and at auctions in each period, net of returns under our three-day return policy. We view units sold as a key measure of our growth for several reasons. First, units sold is the primary driver of ourinsurance revenue, and indirectly, gross profit, sinceparts and service revenue, that RumbleOn did not have before the RideNow and Freedom transactions. As such all increases in these line items are exclusively the result of the acquisition's and the reader should note that most period-over-period dollar comparisons (as opposed to per unit sales enable multiple complementary revenue streams, including financing, vehicle service contracts and trade-ins. Second, growth in units sold increases the base of available customers for referrals and repeat sales. Third, growth in units sold is an indicator of our ability to successfully scale our logistics, fulfillment, and customer service operations.
Number of Dealers
Our operationsamounts) are designed to be scalable by working through an infrastructure and capital light model that is achievable by virtue of a synergistic relationship with dealer partners who we refer to as either Select or Appraisal Dealers. We utilize these dealer partners in the acquisition of motorcycles as well as to provide inspection, reconditioning and distribution services. Correspondingly, we earn fees and transaction income, and dealer partners will earn incremental revenue and enhance profitability through increased sales, leads, and fees from inspection, reconditioning and distribution programs. We choose Select or Appraisal Dealers based on their geographic location and abilities as a dealer. As Select and Appraisal Dealers are added throughout the U.S. the cost and time associated with distribution programs will be significantly reduced as the pickup and delivery of motorcycles will become more localized thus lower shipping costs and reduce the average days to sale for vehicles.
Average Monthly Unique Users
We define a monthly unique user as an individual who has visited our website within a calendar month, based on data provided by Google Analytics. We calculate average monthly unique users as the sum of monthly unique users in a given period, dividedmaterially impacted by the number of months in that period. We view average monthly unique users as a key indicatorintroduction of the strengthnew business (the “Acquisition Effect”).
Powersports and Automotive Segments
Revenue
Revenue is comprised of our brand, the effectiveness of our advertisingvehicle sales, finance and merchandising campaignsinsurance products bundled with retail vehicle sales (“F&I”), and consumer awareness.
Inventory Units Available on Website
parts, service and accessories/merchandise (“PSA”).We define inventory units available on Website as the number ofsell both new and pre-owned vehicles listed for sale on our website on the last day of a given reporting period. Until we reach an optimal pooled inventory level, we view inventory units available as a key measure of our growth. Growth in inventory units available increases the selection of vehicles available to consumersthrough retail and dealers on a nationwide basis, which we believe will allow us to increase the number of vehicles we sell
Average Days to Sale
We define average days to sale as the average number of days between vehicle acquisition by uswholesale channels. F&I and deliveryPSA revenue is almost exclusively earned through retail channels. Automotive sales are almost exclusively via wholesale channels, and therefore, contribute to a customer for all used units sold in a period. However, this metric does not include any used units that remain unsold at period end. We view average days to sale as a useful metric due to its impact on used vehicle average selling price. We anticipate that that average days to sale will increase in future periods until we reach an optimal pooled inventory level and fully scale our acquisition and sales channel processes.
Total Average Gross Margin per Unit
We define total average gross margin per unit as the aggregate gross margin in a given period divided by units sold in that period. Total gross margin per unit is driven by salesvery small portion of used vehicles which, in many cases generates finance and vehicle service contractsF&I revenue. We believe gross margin per unit is a key measure of our growth and long-term profitability.
COMPONENTS OF RESULTS OF OPERATIONS
Revenue
Revenue is derived from two primary sources: (1) our online marketplace, which is our largest source of revenue and includes: (i) the sale of used vehicles through consumer, dealers and auction sales channels; (ii) online listing and sales fees; (iii) retail merchandise sales; (iv) vehicle financing; and (v) vehicle service contracts; and (2) subscription and other fees.
The Company recognizes revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement; (ii) the product or service has been provided to the customer; (iii) the amount to be paid by the customer is fixed or determinable; and (iv) the collection of the Company’s payment is probable.
See Note 2 – “Summary of Significant Accounting Policies – Revenue Recognition” for a further description of the Company’s revenue recognition.
Used Vehicle Sales
We sell used vehicles through consumer, dealers and auction sales channels. These multiple sales channels provide us the opportunity to maximize profitability through increased sales volume and lower average days to sale by selling tothrough the channel where the opportunity is the greatest at any given time based on customer demand, market conditions, or inventory availability is the greatest at any given time.availability. The number of used unitsvehicles sold tothrough any given channel may vary from period to period based on customer demand, market conditionsperiod. New inventory is ultimately controlled by our OEMs and available inventory.
their willingness to allocate inventory to us as well as their ability to manufacture and distribute a sufficient number of vehicles given the current environment of manufacturing slowdowns, computer chip shortages, and logistic/transportation challenges (collectively, the “Demand/Supply Imbalances”). Used vehicle sales representinventory is acquired directly from consumers via our online Cash Offer Tool or consumer trade-in transactions. Subject to the aggregate sales of used vehicles to consumers and dealers through our website and sales at auctions. We generate gross profit on used vehicle sales from the difference between the vehicle selling price and our cost of sales associated with acquiring the vehicle and preparing it for sale. WeDemand/Supply Imbalances, as discussed elsewhere in this MD&A, we expect usedpre-owned vehicle sales to increaseremain elevated, both in units and in revenue per
vehicle, over the next several quarters as manufacturers remain impacted by production and supply chain challenges. Given our proven ability to source used vehicle supply via our Cash Offer Tool, we begin to utilize a combination of brand building as well as direct response channelsexpect to efficiently source and scale our addressable markets while expandingas we continue to utilize a combination of brand building and direct response channels. We are comfortable in this market given our suite of product offeringsproven ability to use the internet and other channels to efficiently source vehicles from consumers who may wish to trade-in or to sell us their vehicle independent of a retail sale. Factors primarily affecting usedpre-owned vehicle sales include the number of retail unitspre-owned vehicles sold and the average selling price of these vehicles. At this stage of our development, changes in both retail units sold and in average
Gross Profit
Gross profit generated on vehicle sales reflects the difference between the vehicle selling price will drive changes in revenue.
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, floorplan financing fees, and particularly for pre-owned vehicles, reconditioning costs (collectively, we refer to reconditioning and transportation costs as “Recon and Transport”).The number of used vehicles we sell depends on our volume of website traffic, our inventory selection, the effectiveness of our brandingaggregate gross profit and marketing efforts, the quality of our customer sales experience, our volume of referralsgross profit per vehicle vary across vehicle type, make, model, etc. as well as through retail and repeat customers, the competitiveness of our pricing, competitionwholesale channels, and general economic conditions. On a quarterly basis, the number of used vehicles we sell is also affected by seasonality, with demand for used vehicles reaching the high point in the first half of each year, commensurateregard to gross profit per vehicle, are not necessarily correlated with the timing of tax refunds,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 soldthrough wholesale channels, including directly to other dealers or through auction channels, generally have lower margins and diminishing through the rest of the year, with the lowest relative level of used vehicle sales expecteddo not include other ancillary gross profit attributable to occur in the fourth calendar quarter.
Our average retail selling price depends onfinancing and accessory.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 acquire and hold inacquired such inventory, retail market prices, in our markets, our average days to sale, OEM pricing changes, 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 supply or demand imbalances, which could temporarily lead to average selling prices increasing or decreasing.
The number of vehicles sold at auctions are determined based on a number of factors including: (i) filling auction sales channel market demand opportunities to maximize sales and gross margin; (ii) a need to balance the Company’s overall inventory mix and quantity levels against days to sales targets; and (iii) a need to liquidate those units that do not meet the Company’s quality standards to list or be sold through Rumbleon.com.
Other Sales and Revenue
We generate other sales and revenue primarily through: (i) online listing and sales fees; (ii) retail merchandise sales; (iii) vehicle financing; and (iv) vehicle service contracts.
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Online Listing and Sales Fees. We charge a non-refundable fee for sellers to list their vehicle on the RumbleOn website. During the listing period, we manage all sales leads, handles all the documentation necessary to complete a sale, accepts a buyer’s trade and provides financing through third-party providers to the potential buyer, if necessary. Upon a successful sale, the seller pays a fee based on the difference between the actual retail sales price of the vehicle sold and the net proceeds agreed to be paid by RumbleOn to the seller when the listing agreement was signed.
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Retail Merchandise Sales. We sell branded and other merchandise and accessories.
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Vehicle Financing.Customers can pay for their vehicle using cash or we offer a range of finance options through unrelated third-parties such as banks or credit unions. These third-party providers generally pay us a fee either in a flat amount or in an amount equal to the difference between the interest rates charged to customers over the predetermined interest rates set by the financial institution. We may be charged back for commissions in the event a contract is prepaid, defaulted upon, or terminated.
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Vehicle Service Contracts. At the time of vehicle sale, we provide customers, on behalf of unrelated third parties who are the primary obligors, a range of other related products and services, including extended protection plan (“EPP”) products and vehicle appearance protection. EPP products include extended service plans (“ESPs”), which are designed to cover unexpected expenses associated with mechanical breakdowns and guaranteed asset protection (“GAP”), which is intended to cover the unpaid balance on a vehicle loan in the event of a total loss of the vehicle or unrecovered theft. Vehicle appearance protection includes products aimed at maintaining vehicle appearance. We receive commissions from the sale of these product and service contracts and have no contractual liability to customers for claims under these products. The EPPs and vehicle appearance protection currently offered to consumers provides coverage up to 60 months (subject to mileage limitations), while GAP covers the customer for the term of their finance contract. At that time commission revenue will be recognized at the time of sale, net of a reserve for estimated contract cancellations. The reserve for cancellations will be estimated based upon historical industry experience and recent trends and will be reflected as a reduction of other sales revenue in the accompanying Condensed Consolidated Statements of Operations and a component of accounts payable and accrued liabilities in the accompanying Condensed Consolidated Balance Sheets. Our risk related to contract cancellations is limited to the revenue that we receive.
Subscription and other fees
We generate subscription fees from dealer partners under a license arrangement that provides access to our software solution and ongoing support. Select or Appraisal Dealers pay a monthly subscription fee for access to and ongoing support for portions of the RumbleOn software solution, which includes: (i) a vehicle appraisal process; (ii) inventory management system; (iii) customer relationship and lead management program; and (iv) equity mining. Dealers may also be charged an initial software installation and training fee. Dealers do not have the contractual right to take possession of the software and may cancel the license for these products and services by providing a 30-day notice. Installation and training do not have value to the user without the license and ongoing support and maintenance.
Cost of Revenue
Cost of revenue is comprised of: (i) cost of vehicle sales and (ii) costs of subscription and other fees.
Cost of vehicle sales to consumers, dealers and auctions, includes the cost to acquire vehicles and the reconditioning and transportation costs associated with preparing the vehicles for resale. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply and demand dynamics in the vehicle market. Reconditioning costs are billed by third-party providers and include parts, labor, and other repair expenses directly attributable to specific vehicles. Transportation costs consisted of costs incurred to transport the vehicles from the point of acquisition or delivery. Cost of vehicle sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Cost of subscription fee revenue includes the (i) various data feeds from third parties; (ii) hosting of the customer-facing website; (iii) commissions for new sales; and (iv) implementation and training of new and existing dealers.
Vehicle Gross Margin
Gross margin is generated on used vehicle sales from the difference between the vehicle selling price and our cost of sales associated with acquiring the vehicle and preparing it for sale. The aggregate dollar gross margins achieved from the consumer, dealer and auction sales channels are different. Units sold to consumers through our website generally have the highest dollar gross margin since the unit is sold directly to the consumer. Vehicles sold to dealers are sold at a price below the retail price offered to consumers, thus the dealer and RumbleOn are sharing the gross margin. The dollar gross margin on units sold at auction are usually the lowest due to auction fees. Factors affecting gross margin from period to period include the mix of vehicles we acquire and hold in 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 supply or demand imbalancesDemand/Supply Imbalances in our sales channels, which could temporarily lead to average selling prices and gross marginsprofits increasing or decreasing in any given channel.
Vehicles Sold
Selling, GeneralWe define vehicles sold as the number of vehicles sold through both wholesale and Administrative Expense
Selling, generalretail channels in each period, net of returns. Vehicles sold is the primary driver of our revenue and, administrative (“SG&A”) expenses include costsindirectly, gross profit. Vehicles sold also enables complementary revenue streams, such as financing. Vehicles sold increases our base of customers and expenses for compensationimproves brand awareness and benefits, advertisingrepeat sales. Vehicles sold also provides the opportunity to consumers and dealers, development and operating our product procurement and distribution system, managingsuccessfully scale our logistics, system, establishingfulfillment, and customer service operations.
Total Gross Profit per Unit
Total gross profit per unit is the aggregate gross profit of the Company in a given period, divided by retail units sold in that period. This includes gross profit generated from the sale of the 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.
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 dealer partner arrangements,performance obligations and other corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business development. Selling, general and administrative expenses will increase substantiallystandards. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service.
Vehicles Delivered
We define vehicles delivered as we continue to execute and aggressively expand our business through increased marketing spending and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controls as well as our reporting systems and procedures. SG&A expenses exclude the costs of inspecting, reconditioning and transportationnumber of vehicles whichdelivered from a point of origin to a designated destination under freight brokerage agreements with dealers, distributors, or private parties. Vehicles delivered are includedthe primary driver of revenue and in turn profitability in the vehicle logistics segment.
Total Gross Profit Per Unit
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 sales.
Depreciation and Amortization
Depreciation and amortization is comprised of the: (i) amortization of capitalized and acquired technology development; (ii) amortization of identifiable intangible assets; and (iii) depreciation of vehicle, furniture and equipment. Depreciation and amortization will continue to increase as continued investments are made in connection with the expansion and growth of the business.
Interest Expense
Interest expense includes interest incurred on notes payable and other long-term debt, which was used to fund, startup costs and expenses, technology development, inventory, our transportation fleet, property and equipment and the acquisition of NexGen.
third party vehicles transported.
Results of Operations
Three and Nine months ended September 30, 2022 Compared to September 30, 2021
The following table providesTotal Company Metrics (dollars in thousands except per unit)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2022 | | 2021 | | YoY
Change | | 2022 | | 2021 | | YoY
Change |
| Financial Overview | | | | | | | | | | | |
| Revenue | | | | | | | | | | | |
| Powersports | $ | 291,491 | | | $ | 83,292 | | | $ | 208,199 | | | $ | 858,809 | | | $ | 121,307 | | | $ | 737,502 | |
| Automotive | 69,974 | | | 105,298 | | | (35,324) | | | 296,433 | | | 316,655 | | | (20,222) | |
| Parts, service, accessories | 62,217 | | | 16,075 | | | 46,142 | | | 182,269 | | | 16,075 | | | 166,194 | |
| Finance and insurance, net | 31,588 | | | 6,180 | | | 25,408 | | | 95,906 | | | 6,998 | | | 88,908 | |
| Vehicle Logistics | 15,002 | | | 10,369 | | | 4,633 | | | 42,870 | | | 32,788 | | | 10,082 | |
| Total revenue | $ | 470,272 | | | $ | 221,214 | | | $ | 249,058 | | | $ | 1,476,287 | | | $ | 493,823 | | | $ | 982,464 | |
| Gross Profit | | | | | | | | | | | |
| Powersports | $ | 50,246 | | | $ | 14,997 | | | $ | 35,249 | | | $ | 158,491 | | | $ | 24,114 | | | $ | 134,377 | |
| Automotive | 1,883 | | | 6,525 | | | (4,642) | | | 10,190 | | | 22,905 | | | (12,715) | |
| Vehicle Logistics | 3,486 | | | 2,455 | | | 1,031 | | | 9,139 | | | 6,829 | | | 2,310 | |
| Parts, service, accessories | 29,143 | | | 7,230 | | | 21,913 | | | 85,794 | | | 7,230 | | | 78,564 | |
| Finance and insurance | 31,588 | | | 6,180 | | | 25,408 | | | 95,906 | | | 6,998 | | | 88,908 | |
| Total Gross Profit | $ | 116,346 | | | $ | 37,387 | | | $ | 78,959 | | | $ | 359,520 | | | $ | 68,076 | | | $ | 291,444 | |
| Total Operating Expenses | $ | 102,755 | | | $ | 63,224 | | | $ | 39,531 | | | $ | 291,339 | | | $ | 95,968 | | | $ | 195,371 | |
| Operating Income (Loss) | $ | 13,591 | | | $ | (22,702) | | | $ | 36,293 | | | $ | 68,183 | | | $ | (24,757) | | | $ | 92,940 | |
| Net Income (Loss) | $ | 3,039 | | | $ | (22,544) | | | $ | 25,583 | | | $ | 26,213 | | | $ | (30,385) | | | $ | 56,598 | |
Adjusted EBITDA (1) | $ | 25,669 | | | $ | 3,616 | | | $ | 22,053 | | | $ | 101,416 | | | $ | 6,679 | | | $ | 94,737 | |
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(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 resultsinvestors 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 a reconciliation of Adjusted EBITDA to Net Income (Loss).
Powersports Metrics (dollars in thousands except per unit)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2022 | | 2021 | | YoY
Change | | 2022 | | 2021 | | YoY
Change |
| Revenue | | | | | | | | | | | |
| New retail vehicles | $ | 177,560 | | | $ | 42,943 | | | $ | 134,617 | | | $ | 523,817 | | | $ | 42,943 | | | $ | 480,874 | |
| Used vehicles: | | | | | | | | | | | |
| Used retail vehicles | 108,208 | | | 19,926 | | | 88,282 | | | 319,605 | | | 19,926 | | | 299,679 | |
| Used wholesale vehicles | 5,724 | | | 20,423 | | | (14,699) | | | 15,387 | | | 58,438 | | | (43,051) | |
| Total used vehicles | 113,932 | | | 40,349 | | | 73,583 | | | 334,992 | | | 78,364 | | | 256,628 | |
| Finance and insurance, net | 31,653 | | | 6,180 | | | 25,473 | | | 95,971 | | | 6,998 | | | 88,973 | |
| Parts, service, accessories | 62,216 | | | 16,075 | | | 46,141 | | | 182,268 | | | 16,075 | | | 166,193 | |
| Total revenue | $ | 385,361 | | | $ | 105,547 | | | $ | 279,814 | | | $ | 1,137,048 | | | $ | 144,380 | | | $ | 992,668 | |
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| Gross Profit | | | | | | | | | | | |
| New retail vehicles | $ | 32,071 | | | $ | 8,146 | | | $ | 23,925 | | | $ | 100,549 | | | $ | 8,146 | | | $ | 92,403 | |
| Used vehicles: | | | | | | | | | | | |
| Used retail vehicles | 18,691 | | | 3,139 | | | 15,552 | | | 57,538 | | | 3,139 | | | 54,399 | |
| Used wholesale vehicles | (588) | | | 3,712 | | | (4,300) | | | 304 | | | 12,829 | | | (12,525) | |
| Total used vehicles | 18,103 | | | 6,851 | | | 11,252 | | | 57,842 | | | 15,968 | | | 41,874 | |
| Finance and insurance | 31,653 | | | 6,180 | | | 25,473 | | | 95,971 | | | 6,998 | | | 88,973 | |
| Parts, service, accessories | 29,143 | | | 7,230 | | | 21,913 | | | 85,794 | | | 7,230 | | | 78,564 | |
| Total gross profit | $ | 110,970 | | | $ | 28,407 | | | $ | 82,563 | | | $ | 340,156 | | | $ | 38,342 | | | $ | 301,814 | |
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| Vehicle Unit Sales | | | | | | | | | | | |
| New retail vehicles | 9,973 | | 2,485 | | | 7,488 | | 31,016 | | 2,485 | | | 28,531 |
| Used vehicles: | | | | | | | | | | | |
| Used retail vehicles | 7,508 | | 1,336 | | | 6,172 | | 22,228 | | 1,336 | | | 20,892 |
| Used wholesale vehicles | 912 | | 1,669 | | (757) | | 2,619 | | 5,086 | | (2,467) |
| Total used vehicles | 8,420 | | 3,005 | | 5,415 | | 24,847 | | 6,422 | | 18,425 |
| Total vehicles sold | 18,393 | | 5,490 | | 12,903 | | 55,863 | | 8,907 | | 46,956 |
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| Revenue per vehicle | | | | | | | | | | | |
| New retail vehicles | $ | 17,804 | | | $ | 17,281 | | | $ | 523 | | | $ | 16,889 | | | $ | 17,281 | | | $ | (392) | |
| Used vehicles: | | | | | | | | | | | |
| Used retail vehicles | 14,412 | | | 14,915 | | | (503) | | | 14,378 | | | 14,915 | | | (537) | |
| Used wholesale vehicles | 6,276 | | | 12,239 | | | (5,963) | | | 5,875 | | | 11,491 | | | (5,616) | |
| Total used vehicles | 13,531 | | | 13,429 | | | 102 | | | 13,482 | | | 12,203 | | | 1,279 | |
| Finance and insurance, net | 1,811 | | | 1,617 | | | 194 | | | 1,802 | | | 1,831 | | | (29) | |
| Parts, service, accessories | 3,559 | | | 4,207 | | | (648) | | | 3,423 | | | 4,207 | | | (784) | |
| Total revenue per retail vehicle | $ | 22,045 | | | $ | 27,623 | | | $ | (5,578) | | | $ | 21,355 | | | $ | 37,786 | | | $ | (16,431) | |
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| Gross Profit per vehicle | | | | | | | | | | | |
| New vehicles | $ | 3,216 | | | $ | 3,278 | | | $ | (62) | | | $ | 3,242 | | | $ | 3,278 | | | $ | (36) | |
| Used vehicles | $ | 2,150 | | | $ | 2,280 | | | $ | (130) | | | $ | 2,328 | | | $ | 2,487 | | | $ | (159) | |
| Finance and insurance, net | $ | 1,811 | | | $ | 1,617 | | | $ | 194 | | | $ | 1,802 | | | $ | 1,831 | | | $ | (29) | |
| Parts, service, accessories | $ | 1,667 | | | $ | 1,892 | | | $ | (225) | | | $ | 1,611 | | | $ | 1,892 | | | $ | (281) | |
Total gross profit per retail vehicle (1) | $ | 4,681 | | | $ | 5,542 | | | $ | (861) | | | $ | 4,777 | | | $ | 8,142 | | | $ | (3,365) | |
(1) Calculated as total gross profit attributable to powersports vehicles sold, inclusive of finance & insurance, net and exclusive of parts, service, accessories, and merchandise divided by retail powersports units sold.
Revenue
Three and Nine months ended September 30, 2022 Compared to September 30, 2021.Total Powersports revenue increased by $279,814 and $992,668 to $385,361 and $1,137,048 for the three and nine-month periodsnine months ended September 30, 20172022 compared to $105,547 and September 30, 2016, respectively. This financial information should be read in conjunction with our unaudited Condensed Consolidated Financial Statements and notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
| | For the three-months ended September 30, | For the nine-months ended September 30, |
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Revenue: Used Vehicle Sales: | | | | |
| Consumer | $1,626,864 | $ - | $1,626,864 | $- |
| Dealer | 1,745,948 | - | 1,745,948 | - |
| Auction | 171,560 | - | 253,500 | - |
| Other sales and revenue | 134,573 | - | 134,573 | - |
| Subscription and other fees | 27,197 | - | 100,668 | - |
| Total Revenue | 3,706,142 | - | 3,861,553 | - |
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| Cost of revenue | 3,478,124 | - | 3,627,455 | - |
| Selling, General and administrative | 2,326,043 | 36,706 | 4,690,216 | 58,135 |
| Depreciation and amortization | 129,277 | 475 | 302,697 | 1,425 |
| Total Expenses | 5,933,444 | 37,181 | 8,620,368 | 59,560 |
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| Operating loss | (2,227,302) | (37,181) | (4,758,815) | (59,560) |
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| Interest expense | 90,201 | 2,878 | 373,808 | 7,431 |
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| Net loss before provision for income taxes | $(2,317,503) | $(40,059) | $(5,132,623) | $(66,991) |
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| Benefit for income taxes | - | - | - | - |
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| Net loss | $(2,317,503) | $(40,059) | $(5,132,623) | $(66,991) |
Results of Operations$144,380 for the Threesame periods in 2021. The Acquisition Effect specific to new and Nine-month periodsused vehicles, F&I and PSA revenue accounted for approximately $222,899, $25,473, and $46,141, respectively, of the increase for the three months ended September 30, 20172022, and accounted for approximately $780,553, $88,973, and $166,193, respectively, of the increase for the nine months ended September 30, 2016
Revenue
Online Marketplace
Total2022. The increases in both periods were partially offset by decreases of $(14,699) and $(43,051) in wholesale powersports vehicle revenue for the three and nine-month periodsnine months ended September 30, 20172022 compared to the same periods in 2021, as the Company was now able to sell used vehicles via the more profitable RideNow and Freedom retail channels. The total number of vehicles sold increased by $3,706,14212,903 and $3,861,553,46,956 to 18,393 and 55,863 for the three and nine months ended September 30, 2022, as compared to 5,490 and 8,907 for the same periods in 2021. Overall, the average revenue per retail vehicle sold was $22,045 and $21,355, respectively, for the three and nine months ended September 30, 2022. We believe this is a relatively high number given historical trends for these businesses and we attribute that to a combination of (i) product mix, with in demand vehicles like UTVs and side-by-sides commanding higher prices, supplemented by (ii) elevated pricing of both new and used vehicles given the Demand / Supply Imbalance. We anticipate that unit purchasing levels and sales will continue to grow as we increase penetration in existing markets, build out fulfillment centers and acquire new dealers.
Gross Profit
Three and Nine months ended September 30, 2022 Compared to September 30, 2021.Total Powersports gross profit increased by $82,563 and $301,814 to $110,970 and $340,156 for the three and nine months ended September 30, 2022 compared to $28,407 and $38,342 for the same periods in 2021. The increase in gross profit was primarily due to the Acquisition Effect which accounted for $86,863 and $314,339 of the increase for the three and nine months ended September 30, 2022, partially offset by lower gross profit in the Company’s legacy direct to consumer and wholesale business of $(4,300) and $(12,525) for the three and nine months ended September 30, 2022. Other contributing factors to the overall increase in gross profit include a more favorable product mix of vehicle sales, and a strong demand which resulted in elevated pricing during the three and nine months ended September 30, 2022. Retail vehicle sales accounted for approximately $39,477 and $146,802 of the increase, PSA accounted for approximately $21,913 and $78,564 of the increase, and F&I accounted for approximately $25,473 and $88,973 of the increase during the three and nine months ended September 30, 2022.
Gross profit per retail vehicle sold decreased by $861 and $3,365 to $4,681 and $4,777 for the three and nine months ended September 30, 2022, as compared to $5,542 and $8,142 for the same periods in 2021. The decreases as compared to the same periods in 2016. The increase in revenue was2021 are primarily dueattributable to an increase in the numbermix of used vehicles sold to consumers, dealersthrough retail and at auctions. The increase in unit saleswholesale channels, which was driven by the launch of the RumbleOn website, expanded inventory selection, enhanced social media, aggressive event marketing efforts, increased brand awareness and customer referrals. We anticipate that unit sales will continue to grow as we expand our units of available inventory, while continuing to efficiently source and scale our addressable markets of consumers and dealers through brand building and direct response marketing.
Sales of used vehicles to consumers, dealers and auctionssignificantly skewed towards retail for the three and nine-month periodsnine months ended September 30, 2017 increased by $3,544,3722022 as compared to wholesale channels during the same periods in 2021. Prior to the RideNow Transaction and $3,626,312, respectivelyFreedom Transaction, the Company primarily sold vehicles through wholesale channels. The RideNow Transaction occurred during the three months ended September 30, 2021 and the Freedom Transaction occurred during the first quarter of 2022, and as a result, the calculation of gross profit per retail vehicle sold reflects lower gross profit from wholesale channels and higher retail units sold for the three and nine months ended September 30, 2022 as compared to the same periods in 2016. This increase was driven2021.
Automotive Metrics (dollars in thousands except per unit)
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| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2022 | | 2021 | | YoY
Change | | 2022 | | 2021 | | YoY
Change |
| Revenue | $ | 69,974 | | | $ | 105,298 | | | $ | (35,324) | | | $ | 296,433 | | | $ | 316,655 | | | $ | (20,222) | |
Gross Profit (1) | $ | 1,883 | | | $ | 6,525 | | | $ | (4,642) | | | $ | 10,052 | | | $ | 22,905 | | | $ | (12,853) | |
| Vehicles sold | 1,515 | | 3,028 | | (1,513) | | 6,755 | | 8,822 | | (2,067) |
| Revenue per vehicle | $ | 46,188 | | | $ | 34,775 | | | $ | 11,413 | | | $ | 43,884 | | | $ | 35,894 | | | $ | 7,990 | |
| Gross Profit per vehicle | $ | 1,243 | | | $ | 2,155 | | | $ | (912) | | | $ | 1,488 | | | $ | 2,596 | | | $ | (1,108) | |
(1)Total Gross Profit per vehicle retailed is calculated by dividing the salesum of 313new vehicle, used vehicle, and 323 used units to consumers, dealersfinance and at auctions during the threeinsurance gross profit by total vehicle unit sales.
Revenue
Three and nine-month period endingNine months ended September 30, 2017, respectively. The average selling price of the used units sold2022 Compared to September 30, 2021. Total Automotive revenue decreased by $35,324 to $69,974 for the three and nine-month periodsmonths ended September 30, 2017 was $11,324 and $11,227, respectively. The average selling price of used units sold will fluctuate from period2022 compared to period as a result of changes in the sales mix to consumers, dealers and at auctions in any given period. There were no sales of used vehicles to consumers, dealers or auctions$105,298 for the threesame period in 2021, and nine-month periodsdecreased by $(20,222) to $296,433 for the nine months ended September 30, 2016.
Other sales and revenue2022 compared to $316,655 for the threesame period in 2021. The decrease in automotive revenue was primarily due to a decrease in vehicles sold of 1,513 and nine-month periods ended September 30, 2017 increased by $134,5732,067 as compared to the same periods in 2016.This increase was primarily driven2021; partially offset by the increaseincreases in retail units sold which led to an increase in loans originatedrevenue per vehicle of $11,413 and sold, and vehicle service contracts and retail merchandise sales. There were no online listing and sales fee revenue for thethree and nine-month periods ended September 30, 2016.
Subscription and other fees
Subscription and other fee revenue$7,990 for the three and nine-month periodsnine months ended September 30, 2017 increased2022. The Company made a strategic decision to purchase fewer automotive units during the three and nine months ended September 30, 2022, due to concerns about the market and high wholesale costs as compared to historical levels.
Gross Profit
Three and Nine months ended September 30, 2022 Compared to September 30, 2021. Total Automotive gross profit decreased by $27,197$4,642 and $100,668, respectively$12,853 to $1,883 and $10,052 for the three and nine months ended September 30, 2022 compared to $6,525 and $22,905 for the same periods in 2021. The decreases were attributable to decreased gross profit per vehicle of $912 and $1,108 to $1,243 and $1,488 for the three and nine months ended September 30, 2022 compared to $2,155 and $2,596 for the same periods in 2021 and a decrease in vehicles sold of 1,513 and 2,067 as compared to the same periods in 2016. There were no subscription or other fee2021.
Vehicle Logistics Metrics (dollars in thousands except per unit)
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| Three Months Ended September 30, | | | | Nine Months Ended September 30, | | |
| 2022 | | 2021 | | YoY
Change | | 2022 | | 2021 | | YoY
Change |
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Revenue (1) | $ | 15,527 | | | $ | 11,597 | | | $ | 3,930 | | | $ | 45,774 | | | $ | 36,145 | | | $ | 9,629 | |
| Gross Profit | $ | 3,557 | | | $ | 2,455 | | | $ | 1,102 | | | $ | 9,377 | | | $ | 6,829 | | | $ | 2,548 | |
| Vehicles transported | 23,992 | | 20,284 | | 3,708 | | 71,295 | | 62,693 | | 8,602 |
| Revenue per vehicle transported | $ | 647 | | | $ | 572 | | | $ | 75 | | | $ | 642 | | | $ | 577 | | | $ | 65 | |
| Gross Profit per vehicle transported | $ | 148 | | | $ | 121 | | | $ | 27 | | | $ | 132 | | | $ | 109 | | | $ | 23 | |
(1)Before intercompany freight services provided to Wholesale of $524 and $2,904, and $1,228 and $3,357 respectively for the three and nine months ended September 30, 2022 and 2021 are eliminated in the Condensed Consolidated Financial Statements.
Revenue
Three and Nine months ended September 30, 2022 Compared to September 30, 2021. Total Vehicle Logistics revenue increased by $3,930 and $9,629 to $15,527 and $45,774 for the three and nine months ended September 30, 2022 compared to $11,597 and $36,145 for the same periods in 2021.The increase in total revenue for the three and nine-month periodsnine months ended September 30, 2016.
Expenses
Cost2022 resulted from increases of Revenue
Total costapproximately 18.3% and 13.7% in the number of vehicles transported to 23,992 and 71,295 vehicles as compared to 20,284 and 62,693 vehicles for the same periods of 2021. Additionally, revenue per vehicle transported for the three and nine-month periodsnine months ended September 30, 20172022 increased by $3,478,124approximately 13.1% and $3,627,455, respectively11.3% to $647 and $642 as compared to $572 and $577 for the same periods in 2021.
Gross Profit
Three and Nine months ended September 30, 2022 Compared to September 30, 2021. Total Vehicle Logistics gross profit for the three months ended September 30, 2022 increased by $1,102 and $2,548 to $3,557 and $9,377, or $148 and $132 per vehicle transported, as compared to $2,455 and $6,829, or $121 and $109 per vehicle transported, for the same periods in 2021. The increased gross profit was attributed to increases to the number of vehicles transported and revenue earned per vehicle for the three and nine months ended September 30, 2022 as compared to the same periods in 2016. This increase was driven2021.
Selling, General and Administrative
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Advertising, marketing and selling | $ | 8,852 | | | $ | 4,241 | | | $ | 25,054 | | | $ | 7,799 | |
| Compensation and related costs | 56,291 | | | 15,104 | | | 162,271 | | | 26,983 | |
| Facilities | 11,645 | | | 3,399 | | | 33,469 | | | 4,774 | |
| General and administrative | 16,320 | | | 16,570 | | | 44,315 | | | 28,008 | |
| Stock based compensation | 2,605 | | | 21,507 | | | 7,237 | | | 23,943 | |
| Technology development and software | 472 | | | 686 | | | 2,070 | | | 1,513 | |
| Total SG&A expenses | $ | 96,185 | | | $ | 61,507 | | | $ | 274,416 | | | $ | 93,020 | |
Selling, general and administrative expenses increased by the: (i) sale of used units to consumers, dealers$34,678 and at auctions; and (ii) sale of related products in connection with unit sales to consumers during$181,396, respectively, for the three and nine-month period endingnine months ended September 30, 2017, respectively as2022 compared to the same periods in 2016.2021. In each case, other than technology development and software, the increases were the result of the Acquisition Effect, with over 2,000 additional employees, marketing initiatives at the store level, general and administrative costs associated with a larger team, and lease/facility expense related to 55+ new locations from the RideNow Transaction and Freedom Transaction. In the case of technology and development, in the third quarter of 2021 we began strategic technology projects focused on inventory management, infrastructure, and integration efforts which continued to progress during the three and nine months ended September 30, 2022.
Depreciation and Amortization
Cost of vehicle salesDepreciation and amortization increased by $4,853 and $13,975, respectively, for the three and nine-month periodsnine months ended September 30, 2017 increased by $3,404,480 and 3,489,446, respectively as2022, compared to the same periods in 2016. This2021. Of the increase was drivenfor the three months ended September 30, 2022, approximately $2,098 is associated with the various non-compete agreements related to the RideNow Transaction, approximately $1,915 is associated with amortization of capitalized software, approximately $658 is associated with depreciation resulting from the Freedom Transaction, and approximately $181 is associated with the various non-compete agreements related to the Freedom Transaction.
Of the increase for the nine months ended September 30, 2022, approximately $6,539 is associated with the various non-compete agreements related to the RideNow Transaction, approximately $3,198 is associated with depreciation resulting from the RideNow Transaction, approximately $2,258 is associated with amortization of capitalized software, approximately $1,546 is associated with depreciation resulting from the Freedom Transaction, and approximately $443 is associated with the various non-compete agreements resulting from the Freedom Transaction, partially offset by minimal increases and decreases across the sale of 313Company.
Interest Expense
Interest expense increased by $8,026 and 323 used units to consumers, dealers and at auctions during$28,952, respectively, for the three and nine-month period endingnine months ended September 30, 2017, respectively as2022 compared to the same periods in 2016. The average cost of the used units sold for the three and nine-month periods ended September 30, 2017 was $10,769 and $10,696, respectively.
Cost of other sales and revenue for the three and nine-month periods ended September 30, 2017 increased by $53,754 as compared to the same periods in 2016.This increase was primarily driven by the increase in units sold to consumers which led to an increase in loans originated and sold, vehicle service contracts.
Cost of subscription and other fee revenue, included the (i) various data feeds from third parties; (ii) hosting of the customer facing website; (iii) commissions for new sales; and (iv) implementation and training of new and existing dealers. These costs and expenses are charged to cost of revenue as incurred. Cost of subscription and other fee revenue for the three and nine-month periods ended September 30, 2017 increased by $19,890 and $84,255, respectively as compared to the same periods in 2016.
Selling, General and Administrative
| | For the three-months ended September 30, | For the nine-months ended September 30, |
| | | | | |
| Selling, General and Administrative: | | | | |
| Compensation and related costs | $ 1,028,819 | $ - | $ 1,951,911 | $ - |
| Advertising and Marketing | 752,017 | - | 1,060,195 | - |
| Professional Fees | 192,041 | 34,044 | 724,486 | 49,017 |
| Technology Development | 91,967 | - | 278,668 | - |
| General and Administrative | 261,199 | 2,662
| 674,956 | 9,118 |
| Total Selling, General and Administrative | $2,326,043 | $36,706 | $4,690,216 | $58,135 |
Selling, general and administrative expenses for the three and nine-month periods ended September 30, 2017 increased by $2,289,337 and $4,632,081, respectively as compared to the same periods in 2016. The increase is a result of the significant expansion of our businesses associated with the launch of our website and mobile application which resulted in: (i) an increase in expenses associated with advertising and marketing; (ii) increase headcount associated with the development and operating our product procurement and distribution system, managing our logistics system; (iii) continued investment in technology development; and (iv) other corporate overhead costs and expenses, including legal, accounting, finance, and business development.
Compensation and related costs, which includes all payroll and related costs, including benefits, payroll taxes, and stock-based compensation, for the three and nine-month periods ended September 30, 2017 increased by $1,028,819 and $1,951,911 as compared to the same periods in 2016. The increase was driven by the growth in headcount and related compensation and benefits at our Dallas operations center, and included new hires in our marketing, product and inventory management, accounting, finance, information technology, and administration departments. As our business continues to grow these expenses will increase as we add headcount in all areas of the business.
Advertising and marketing for the three and nine-month periods ended September 30, 2017 increased by $752,017 and $1,060,195 as compared to the same periods in 2016. The increase consists of cost associated with the launch of our website and mobile application, aggressive event marketing and further development of a multi-channel approach to consumers and dealers. We have begun to utilize a combination of brand building as well as direct response channels to efficiently source and scale our addressable markets. Our paid advertising efforts include advertisements through search engine marketing, inventory site listing, retargeting, organic referral, display, direct mail and branded pay-per-click channels. We believe our strong consumer and dealer focus ensures loyalty which will drive both high participation in the buy and selling process while increasing referrals. In addition to our paid channels, we intend to attract new customers through increased media spending and public relations efforts and further investing in our proprietary technology.
Professional fees consist primarily of legal and accounting fees and costs associated with: (i) financing activities; (ii) general corporate matters; (iii) the NextGen acquisition; (iv) the preparation of quarterly and annual financial statements; and (v) the filing of regulatory reports required of the Company for public reporting purposes. Professional fees for the three and nine-month periods ended September 30, 2017 increased by $157,997 and $675,469, respectively as compared to the same periods in 2016. This increase was primarily a result of legal, accounting and other professional fees and expenses incurred in connection with the: (i) NextGen acquisition; (ii) 2017 Private Placement; (iii) second tranche of 2016 Private Placement; (iv) Senior Secured Promissory Notes; (v) the Offering (as defined below); (vi) our Nasdaq listing; and (vii) various corporate matters resulting from the growth and expansion of the RumbleOn business plan. For additional information, see Note 3 - “Acquisitions,” Note 7 - “Notes Payable,” Note 8 - “Stockholders’ Equity,” and Note 15 - “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements.
Technology development costs consist principally of (i) development activities including payroll and related expenses billed by a third-party contractor involved in application, content, production, maintenance, operation, and platform development for new and existing products and services, (ii) technology infrastructure expenses, and (iii) costs of Company employees devoted to the development and maintenance of software products. Technology development expenses for the three and nine-month periods ended September 30, 2017 increased by $91,967 and $278,668, respectively as compared to the same period in 2016. Total technology costs and expenses incurred for the three and nine-month periods ended September 30, 2017 were $236,400 and $713,766 of which $144,433 and $435,097, respectively were capitalized. For the three and nine-month periods ended September 30, 2017, a third-party contractor billed $221,400 and $678,766 respectively, of the total technology development costs. The amortization of capitalized technology development costs for the three and nine-month periods ended September 30, 2017 was $89,429 and $219,374, respectively. There were no technology development costs incurred and no amortization of capitalized development costs for the same periods in 2016. Technology development costs are accounted for pursuant to ASC 350, Intangibles — Goodwill and Other. Technology development costs include internally developed software and website applications that are used by the Company for its own internal use and to provide services to its customers, which include consumers, dealer partners and ancillary service providers. Under the terms of these customer arrangements the Company retains the revenue generating technology and hosts the applications on its servers and mobile applications. The customer does not have a contractual right to take possession of the software during the term of the arrangement and is not permitted to run the software itself or contract with another party unrelated to the entity to host the software. Technology development costs consist principally of (i) development activities including payroll and related expenses billed by a third-party contractor involved in application, content, production, maintenance, operation, and platform development for new and existing products and services, (ii) technology infrastructure expenses, and (iii) costs of Company employees devoted to the development and maintenance of software products. Technology and content costs for design, maintenance and post-implementation stages of internal-use software and general website development are expensed as incurred. For costs incurred to develop new website functionality as well as new software products and significant upgrades to existing internally used platforms or modules, capitalization begins during the application development stage and ends when the software is available for general use. Capitalized technology development is amortized on a straight-line basis over periods ranging from 3 to 7 years. The Company will perform periodic assessment of the useful lives assigned to capitalized software applications. Additionally, the Company from time-to-time may abandon additional development activities relating to specific software projects or applications and charge accumulated costs to technology development expense in the period such determination is made. We expect our technology development expenses to increase as we continue to upgrade and enhance our technology infrastructure, invest in our products, expand the functionality of our platform and provide new product offerings. We also expect technology development expenses to continue to be affected by variations in the amount of capitalized internally developed technology.
General and administrative expenses for the three and nine-month periods ended September 30, 2017 increased by $258,537 and $665,838 as compared to the same periods in 2016. The increase is a result of the cost and expenses associated with the continued progress made in the development of our business, the establishment of our Dallas operations center and meeting the requirements of being a public company. General and administrative costs and expenses include: (i) insurance; (ii) advisor and various filing fees for equity transactions; (iii) office supplies and process application software; (iv) public and investor relations and (v) travel.
Depreciation and Amortization
Depreciation and amortization is comprised of the: (i) amortization of capitalized technology development; (ii) amortization of identifiable intangible assets; and (iii) depreciation of vehicle, furniture and equipment. Depreciation and amortization for the three and nine-month periods ended September 30, 2017 increased by $131,128 and $303,598, respectively, as compared to the same period in 2016. The increase in depreciation and amortization is a result of the investments made in connection with the expansion and growth of the business which for the three and nine-month periods ended September 30, 2017 included: (i) capitalized technology acquisition and development costs of $144,433 and $435,097, respectively; and (ii) the purchase of vehicles, furniture and equipment of $106,587 and $600,175, respectively. For the three and nine-month periods ended September 30, 2017 amortization of: (i) capitalized technology development was $89,429 and $219,374, respectively; (ii) amortization of identifiable intangible was $11,250 and $33,750, respectively; and (iii) depreciation and amortization on vehicle, furniture and equipment was $28,598 and $49,573, respectively. Depreciation and amortization on furniture and equipment for the same periods in 2016 was $475 and $1,425, respectively.
Interest Expense
2021. Interest expense consists of interest and deferred financing costs on the: (i) BHLP Note;Oaktree Credit Agreement; (ii) NextGen Note;various floorplan facilities; (iii) Private Placement Notes;private placement notes; (iv) convertible senior notes; and (iv) Senior Secured Promissory(v) the ROF credit 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 the convertible senior notes issued on January 10, 2020 (the “New Notes”) and the Warrant 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. Interest expense
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-month periodsnine months ended September 30, 2017 increased by $87,3232022 and $366,377,2021 were $0 and $39, and $(6,518) and $(8,774), respectively, as compared to the same periods in 2016. The increase resulted from: (i) interest on a higher level of debt outstanding; (ii) the conversion of the BHLP Note; (iii) the amortization of the beneficial conversion feature on the Private Placement Notes; and (iv) the amortization of the original issue discount on the Senior Secured Promissory Notes. The conversion of the BHLP Note resulted in a $196,076 charge to interest expense for the remaining balance of the beneficial conversion feature, net of deferred taxes and is included in change in derivative liability in the Condensed Consolidated Statement of Operations. The value of the derivative liability as of September 30, 2022 and December 31, 2021 was $26 and $66, respectively.
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. 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.
Adjusted EBITDA is defined as net income (loss) adjusted to add back interest expense, fordepreciation and amortization, changes in derivative liability and certain recoveries, charges and expenses, such as an insurance recovery, non-cash stock-based compensation costs, acquisition related costs, litigation expenses, 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 nine-month periodprimary 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 September 30, 2017. Interest2022 and 2021, adjustments to Adjusted EBITDA are primarily comprised of:
•Non-cash stock-based compensation expense onrecorded in the Private Placement Notes forCondensed Consolidated Statement of Operations,
•Acquisition costs associated with the RideNow Transaction and Freedom Transaction, which primarily include professional fees and third-party costs,
•Purchase accounting adjustments, which represent one-time expenses related to the Freedom Transaction and RideNow Transaction,
•Forgiveness of the PPP loan, and
•Other non-recurring costs, which include items not indicative of our ongoing operating performance. For the three and nine-month periodsnine months ended September 30, 20172022, the balance was $94,855primarily comprised of integration costs and $183,943, respectively which included $41,979professional fees associated with the Freedom Transaction and $81,603the RideNow Transaction, technology implementation, legal matters, and establishment of debt discount amortization forthe ROF secured loan facility. For the three and nine-month periodsnine months ended September 30, 2017, respectively. Interest expense on2021, the NextGen Notesbalance was primarily related to litigation expenses and a death benefit to the estate of the Company’s former Chief Financial Officer and director.
The following tables reconcile Adjusted EBITDA to net income (loss) for the three and nine-month periods ended September 30, 2017 was $21,370 and $54,849 respectively. Interest expense on the Senior Secured Promissory Notes for the three and nine-month periods ended September 30, 2017 was $15,925 which included $10,274 of original issue discount amortization. For additional information, see Note 7 - “Notes Payable” in the accompanying Notes to the Condensed Consolidated Financial Statements.presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net income (loss) | $ | 3,039 | | | $ | (22,544) | | | $ | 26,213 | | | $ | (30,385) | |
| Add back: | | | | | | | |
| Interest expense | 12,603 | | | 4,577 | | | 37,059 | | | 8,107 | |
| Depreciation and amortization | 6,570 | | | 1,717 | | | 16,923 | | | 2,948 | |
| Interest income and miscellaneous income | (38) | | | — | | | (287) | | | — | |
| Income tax provision (benefit) | 496 | | | (10,681) | | | 7,746 | | | (10,681) | |
| EBITDA | 22,670 | | | (26,931) | | | 87,654 | | | (30,011) | |
| Adjustments: | | | | | | | |
| Stock based compensation | 2,605 | | 24,730 | | 7,237 | | 26,457 |
| Transaction costs - RideNow and Freedom | 100 | | | 1,558 | | 1,503 | | 3,515 |
| Purchase accounting related | 177 | | — | | | 769 | | | — | |
| PPP Loan forgiveness | (2,509) | | | (572) | | | (2,509) | | | (572) | |
| Insurance proceeds | — | | (3,135) | | | — | | | (3,135) | |
| Other non-recurring costs | 2,393 | | 1,448 | | | 6,568 | | | 1,651 | |
| Costs attributable to store openings and closures | 233 | | — | | | 233 | | | — | |
| Change in derivative and warrant liabilities | — | | 6,518 | | | (39) | | | 8,774 | |
| Adjusted EBITDA | $ | 25,669 | | | $ | 3,616 | | | $ | 101,416 | | | $ | 6,679 | |
Liquidity and Capital Resources
Our primary sources of liquidity are available cash, amounts available under our floor plan lines of credit, and monetization of our retail loan portfolio. In 2021, we completed two public offerings that provided net proceeds of $191,000 and obtained the Oaktree Credit Agreement, 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 September 30, 2022, the Oaktree Credit Agreement provides for up to $120,000, of which $35,500 is available, in additional financing that may be used for acquisitions and up to an additional $100,000 in incremental financing that may be used for acquisitions or working capital purposes.
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. 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. 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. In particular, the continuing adverse impacts to macro economic conditions, as well as the Company’s operations, may impact future estimates including, but not limited to inventory valuations, fair value measurements, asset impairment charges and discount rate assumptions. Macro economic conditions and the economy in general could be affected by significant national or international events such as a global health crisis (like COVID-19), 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. We will continue to evaluate the nature and extent of macro-economic conditions and the resulting Demand/Supply Imbalances which impact our business and our results of operations and financial condition.
We had the following liquidity resources available as of September 30, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Cash | | $ | 39,715 | | | $ | 48,974 | |
Restricted cash (1) | | 9,500 | | 3,000 |
| Total cash and restricted cash | | 49,215 | | 51,974 |
| Availability under short-term revolving facilities | | 144,554 | | 124,116 |
| Committed liquidity resources available | | $ | 193,769 | | | $ | 176,090 | |
| | | | | | |
| (1) | | Amounts included in restricted cash are primarily comprised of the deposits required under the Company's various floor plan lines of credit and ROF line of credit. |
As of September 30, 2022, and December 31, 2021, excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness was $563,803 and $384,585, 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. | | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Asset-Based Financing: | | | |
| Inventory | $ | 175,296 | | | $ | 97,278 | |
| Total asset-based financing | 175,296 | | | 97,278 | |
| | | |
| Term loan facility | 361,066 | | | 279,300 | |
| Unsecured senior convertible notes | 38,750 | | | 39,006 | |
| Line of credit | 22,925 | | | — | |
| PPP and other loans | — | | | 4,472 | |
| Total debt | 598,037 | | | 420,056 | |
| Less: unamortized discount and debt issuance costs | (34,234) | | | (35,471) | |
| Total debt, net | $ | 563,803 | | | $ | 384,585 | |
The following table sets forth a summary of our cash flows for the nine-month periodnine months ended September 30, 20172022 and 2016:2021:
| | Nine-months ended September 30, |
| | | |
| Net cash used in operating activities | $(4,389,128) | $(62,116) |
| Net cash used in investing activities | (1,785,272) | - |
| Net cash provided by financing activities | 5,480,040 | 63,358 |
| Net change in cash | $(694,360) | $1,242
|
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
| Net cash provided by (used in) operating activities | $ | 4,656 | | | $ | (29,779) | |
| Net cash (used in) investing activities | (76,498) | | | (374,825) | |
| Net cash provided by financing activities | 69,083 | | | 472,405 | |
| Net (decrease) increase in cash | $ | (2,759) | | | $ | 67,801 | |
Operating Activities
NetOur primary sources of operating cash flows result from the sales of used vehicles and ancillary products. Our primary use of cash from operating activities are purchases of inventory, cash used to acquire customers, and personnel-related expenses. For the nine months ended September 30, 2022, net cash provided by operating activities was $4,656, an increase of $34,435 compared to net cash used in operating activities increased $4,327,012 to $4,389,128of $(29,779) for the nine-month periodnine months ended September 30, 2017,2021. The increase in our net cash provided by operating activities was primarily due to a $56,598 increase in our net income, a $(888) decrease in non-cash adjustments, and a $(21,277) decrease in cash provided by other operating assets.
Investing Activities
Our primary use of cash for investing activities is for technology development to expand our operations. Net cash used in investing activities decreased $(298,327) to $76,498 for the nine months ended September 30, 2022, compared to $374,825 for the same period in 2021. The decrease in our net cash used in investing activities was primarily due to a decrease of $(299,970) in outflows of $65,976 for the Freedom Transaction for the nine months ended September 30, 2022 as compared to
outflows of $365,946 for the nine months ended September 30, 2021 for the RideNow Transaction. In addition, there was a decrease of $(3,280) in outflows for the purchase of property and equipment, offset by an increase of $4,922 in outflows for technology development for the nine months ended September 30, 2022 as compared to the same period in 2016. The increase in net cash used is primarily due to a $5,065,632 increase in our net loss offset by an increase in the net change operating assets and liabilities of $138,153 and a $876,775 increase in non-cash expense items. The increase in the net loss for the nine-month period ended September 30, 2017 was a result of the continued expansion and progress made on our business plan, including a significant increase in marketing and advertising spend in connection the launch of the Company’s website, www.rumbleon.com, acquire vehicle inventory, continue development of the Company’s business and for working capital purposes.
Investing Activities
Net cash used in investing activities increased $1,785,272 for the nine-month period ended September 30, 2017, as compared to the same period in 2016. The increase in cash used for investment activities was primarily for the purchase of NextGen, $435,097 in costs incurred for technology development and the purchase of $600,175 of vehicles, furniture and equipment.
On February 8, 2017, the Company acquired substantially all of the assets of NextGen in exchange for $750,000 in cash, plus 1,523,809 unregistered shares of Class B Common Stock of the Company and a subordinated secured promissory note issued by the Company in favor of NextGen in the amount of $1,333,334. The NextGen Note matures on the third anniversary of the closing date. Interest accrues and will be paid semi-annually (i) at a rate of 6.5% annually from the closing date through the second anniversary of such date and (ii) at a rate of 8.5% annually from the second anniversary of the closing date through the Maturity Date. In connection with the closing of the acquisition, certain investors of the Company accelerated the funding of the second tranche of their investment totaling $1,350,000. The investors were issued 1,161,920 shares of Class B Common Stock and promissory notes in the amount of $667,000. For additional information, see “Financing Activities” in Management’s Discussion and Analysis and Note 7 - “Notes Payable” in the accompanying Notes to the Condensed Consolidated Financial Statements.
2021.
Financing Activities
Net cashCash 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 increased $5,416,681decreased $(403,322) to $5,480,040$69,083 for the nine-month periodnine months ended September 30, 2017,2022, compared withto net cash provided by financing activities of $63,358$472,405 for the same period of 2021. The decrease in 2016. This increase is primarily a result of the: (i) 2017 Private Placement of $2,630,000 in Class B Common Stock at a price of $4.00 per share; (ii) second tranche of the 2016 Private Placement of $683,040 in Class B Common Stock and $667,000 in promissory notes; and (iii) Senior Secured Promissory Notes proceeds of $1,500,000. Proceeds from the 2017 Private Placement, the second tranche of the 2016 Private Placement and the Senior Secured Promissory Notes were used to complete the launch of the Company’s website, www.rumbleon.com, acquire vehicle inventory, continue development of the Company’s business and for working capital purposes.
On March 31, 2017, the Company completed funding of the second tranche of the 2016 Private Placement. The investors were issued 1,161,920 shares of Class B Common Stock of the Company and the Private Placement Notes in the amount of $667,000, in consideration of cancellation of loan agreements having an aggregate principal amount committednet cash provided by the purchasers of $1,350,000. Under the terms of the Private Placement Notes, interest shall accrue on the outstanding and unpaid principal amount until paid in full. The Private Placement Notes mature on March 31, 2020. Interest accrues at a rate of 6.5% annually from the closing date through the second anniversary of such date and (ii) at a rate of 8.5% annually from the second anniversary of the closing date through the maturity date. Upon the occurrence of any event of default, the outstanding balance under the Private Placement Notes shall become immediately due and payable upon election of the holder. Based on the relative fair values attributed to the Class B Common Stock and promissory notes issued in the 2016 Private Placement the Company recorded a debt discount on the promissory notes of $667,000 with the corresponding amounts as addition to paid in capital. The debt discount will be amortized to interest expense over the life of the notes using the effective interest method. For additional information, see Note 7 - “Notes Payable” in the accompanying Notes to the Condensed Consolidated Financial Statements.
On July 13, 2016, the Company entered into the BHLP Note with Berrard Holdings, an entity owned and controlled by a current officer and director, Mr. Berrard, pursuant to which the Company was required to repay $191,858 on or before July 13, 2026 plus interest at 6% per annum. The BHLP Note was also convertible into common stock, in whole, at any time before maturity at the option of the holder at the greater of $0.06 per share or 50% of the price per share of the next qualified financing which is defined as $500,000 or greater. Effective August 31, 2016, the principal amount of the BHLP Note was amended to include an additional $5,000 loaned to the Company, on the same terms. On November 28, 2016, the Company completed its qualified financing at $1.50 per share which established the conversion price per shareactivities for the BHLP Note of $0.75 per share, resulting in the principal amount of the BHLP Note being convertible into 263,144 shares of Class B Common Stock. As such, November 28, 2016 became the “commitment date” for determining the value of the BHLP Note conversion feature. Because there had been one trade in January 2016 in the Company’s common stock since July 2014, other than the purchase by Berrard Holdings of 99.5% of the outstanding shares in a single transaction, the Company used the Monte Carlo simulation to determine the intrinsic value of the conversion feature of the BHLP Note, which resulted in a value in excess of the principal amount of the BHLP Note Thus, the Company recorded a note discount of $197,358 with the corresponding amount as an addition to paid in capital. This note discount is amortized to interest expense until the scheduled maturity of the BHLP Note in July 2026 or until it is converted using the effective interest method. The effective interest rate at March 31, 2017 was 7.4%. Interest expense on the BHLP Note for the three-month period ended March 31, 2017 was $2,920 and the amortization of the beneficial conversion feature was $3,558. On March 31, 2017, the Company issued 275,312 shares of Class B Common Stock upon full conversion of the BHLP Note, having an aggregate principal amount, including accrued interest, of $206,484 and a conversion price of $0.75 per share. In connection with the conversion of the BHLP Note, the remaining debt discount of $196,076 was charged to interest expense in the Condensed Consolidated Statements of Operations and the related deferred tax liability was credited to additional paid in capital in the Condensed Consolidated Balance Sheets. For additional information, see Note 7 - “Notes Payable” in the accompanying Notes to the Condensed Consolidated Financial Statements.
On September 5, 2017 the Company executed Senior Secured Promissory Notes (the “Notes”) in favor of several investors, including certain executive officers and directors of the Company, in the aggregate principal amount of $1,650,000 (“Principal Amount”), which includes an aggregate original issue discount of $150,000. The proceeds to the Company from the Notes, net of original issuance discount, was $1,500,000. The Notes are secured by an interest in all the Company’s Collateral, as such term is defined in the Notes.The Notes mature on September 15, 2018 and bear interest at a rate equal to 5% per annum through December 31, 2017, and a rate of 10% per annum thereafter. Interest is payable monthly in arrears. Upon the occurrence of any event of default, the outstanding balance under the Notes shall become immediately due and payable upon election of the holders.The Principal Amount and any unpaid interest accrued thereon may be prepaid by the Company at any time prior to the Maturity Date without premium or penalty upon five days prior written notice to the Noteholder. If the Company consummates in one or more transactions financing of any nature resulting in net proceeds available to the Company of $5,000,000 or more, then the Noteholders may require the Company to prepay the Notes on thirty (30) days prior written notice to the Company. The original issue discount is amortized to interest expense until the scheduled maturity of the Notes in September 2018 using the effective interest method. The effective interest rate at September 30, 2017 was 10.0%. Interest expense on the Notes for the three and nine-month periodsnine months ended September 30, 2017 was $15,925 which included $10,2742022 is primarily attributable to a decrease of original issue discount amortization. On October 23, 2017,$(191,240) in proceeds from the Company completedsale of common stock, a public offeringdecrease of $(176,951) in proceeds from the Oaktree Credit Agreement, an increase of $(28,378) in cash outflows for repayments of debt and used $1,661,075mortgage notes, and a decrease of the net proceeds of the Offering$(6,754) in non-trade floor plan borrowings for the repayment of the Notes in the aggregate principal amount of $1,650,000, plus accrued interest, which resulted in the termination of the Notes. For additional information, see Note 8 - “Stockholders Equity” and Note 15 – “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements.
Investment in Growth
As of September 30, 2017, the Company had a total of $656,220 in available cash. Our cash requirements for the next twelvenine months are significant as we have begun to aggressively invest in the growth of our business and we expect this investment to continue. We plan to invest heavily in inventory, marketing, technology and infrastructure to support the growth of the business. These investments are expected to increase our negative cash flow from operations and operating losses at least in the near term, and there is no guarantee that we will be able to realize the return on our investments. Since inception, we have financed our cash flow requirements through debt and equity financing and on October 23, 2017, the Company completed a public offering of 2,910,000 shares of Class B common stock at a public offering price of $5.50 per share (the "Offering") and received approximately $14,500,000 in proceeds, net of underwriting discounts and commissions and offering expenses. The Companyused $1,661,075 of the net proceeds of the Offering for the repayment of the Senior Secured Promissory Notes in the aggregate principal amount of $1,650,000 plus accrued interestand intend to use the remaining net proceeds of the Offering for working capital and general corporate purposes, which may include purchases of additional inventory held for sale, increased spending on marketing and advertising and capital expenditures necessary to grow the business. Also, on November 2, 2017, we entered into a floor plan line of credit through our subsidiary, RMBL Missouri, LLC, in the amount of $2,000,000. For additional information on the Offering and floor plan line of credit, see Note 15 – “Subsequent Events” in the accompanying Notes to the Condensed Consolidated Financial Statements.However, our limited operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving markets. Such risks for us include an evolving business model, advancement of technology and the management of growth. To address these risks, we must, among other things, continue our development of relevant applications, stay abreast of changes in the marketplace, as well as implement and successfully execute our business and marketing strategy. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.
Critical Accounting Policies
The accompanying unaudited Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We routinely evaluate our estimates based on historical experience and on various other assumptions that management believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. During the nine-month period ended September 30, 2017, we did not experience any significant changes2022 as compared to the same period of 2021.
Global Settlement with Former RideNow Owners
On November 8, 2022, the Company reached a comprehensive global and binding settlement agreement with former primary RideNow owners. The settlement agreement resolves all claims currently pending before the Delaware Chancery Court, releases certain potential and future claims between the parties, and results in estimates or judgments inherent in the preparation of our financial statements. A summary of our significant accounting policies is contained in Note 1 to our financial statements included in our 2016 Annual Report.
no incremental consideration exchanging hands.Off-Balance Sheet Arrangements
As of September 30, 2017,2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have 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.
Critical Accounting Policies and Estimates
Emerging Growth CompanySee Note 1 - Description of Business and Significant Accounting 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, 2021. 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 2021 Form 10-K, other than the use of estimates for the Warrant and changing the date of the Company's annual impairment test for goodwill and indefinite-lived intangible assets from December 31st to October 1st, as described in Note 4 – Intangible Assets and Goodwill.
We
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 generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are an “emerging growth company” under the federal securities lawsneither historical facts nor assurances of future performance. These forward-looking statements are based on our current, reasonable expectations and will beassumptions, which expectations and assumptions are subject to reduced public company reporting requirements. In addition, Section 107 ofrisks and uncertainties that could cause our actual results to differ materially from those reflected in the JOBS Act also providesforward-looking statements. Factors that an “emerging growth company” can take advantage ofcould cause or contribute to such differences include those discussed in our 2021 Form 10-K, which was filed with the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. WeSEC on April 8, 2022 and this Quarterly Report on Form 10-Q. Given these risks and uncertainties, readers are choosingcautioned not to take advantage of the extended transition period for complying with newplace undue reliance on forward-looking statements. We undertake no obligation to publicly update or revised accounting standards.revise or any forward-looking statements, except as required by law.
Item 3.
Quantitative and Qualitative DisclosureDisclosures About Market Risk.
This item is not applicable as we are currently considered a smaller reporting company.
Item 4.
Controls and Procedures.
