10-K: RumbleOn, Inc. Files 2023 Annual Report, Details Strategic Restructuring and Financial Results

RumbleOn, Inc. released its 2023 annual report, highlighting a year of strategic changes, including management restructuring, cost-saving initiatives, and a focus on its powersports business.

Summary

• RumbleOn, Inc. operates primarily through its powersports dealership group and transportation services entity, Wholesale Express, LLC.
• The company experienced significant management and board changes in 2023, including the appointment of Michael Kennedy as CEO.
• RumbleOn implemented cost-saving measures, including an organizational restructuring and headcount reduction.
• The powersports segment is the largest in the U.S., with 54 retail locations and over 500 franchises.
• The company's transportation services segment, Express, provides asset-light brokerage services.
• RumbleOn completed the wind-down of its wholesale automotive business in June 2023.
• The company sold its consumer loans portfolio in December 2023.
• Total revenue for 2023 was $1.366 billion, a decrease from $1.458 billion in 2022.
• Gross profit decreased to $359.9 million in 2023 from $441.7 million in 2022, impacted by a $12.6 million inventory write-down.
• The company reported a net loss from continuing operations of $214.4 million for 2023.
• RumbleOn identified $60 million in annualized SG&A expense reductions, expected to be fully realized in 2024.
• The company had $77 million in cash and restricted cash and $165 million available under powersports inventory financing credit facilities at the end of 2023.
• The company recognized a $60.1 million non-cash impairment charge for goodwill and franchise rights in 2023.
• The company identified material weaknesses in its internal control over financial reporting related to accounting resources and IT systems.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company is a leader in its industry and has taken steps to reduce costs and raise capital, the significant financial losses, inventory write-down, and material weaknesses in internal controls raise concerns. The sentiment is cautiously negative.

Positives

• The company is the largest powersports retail group in the United States.
• The company has a proprietary Cash Offer technology for sourcing pre-owned inventory.
• The company has identified significant cost-saving opportunities.
• The company completed a rights offering, raising net proceeds of $98.4 million.
• The company has a strong presence in the powersports industry with over 500 franchises.

Negatives

• The company experienced a decrease in revenue and gross profit compared to the previous year.
• The company recorded a significant inventory write-down.
• The company reported a net loss from continuing operations of $214.4 million.
• The company identified material weaknesses in its internal control over financial reporting.
• The company incurred a $60.1 million non-cash impairment charge for goodwill and franchise rights.

Risks

• The company has identified material weaknesses in its internal control over financial reporting.
• The company's success depends on its ability to grow both organically and through strategic acquisitions.
• The company may not be able to acquire sufficient powersports vehicles to satisfy consumer demand.
• The company depends on key personnel, and the loss of any senior management could adversely affect the business.
• The company relies on third-party financing providers, and any changes in their services could impact sales.
• The company's sales may be adversely impacted by declining prices for new or pre-owned vehicles.
• The company is dependent on relationships with powersports vehicle manufacturers.
• The company is subject to product liability claims and manufacturer safety recalls.
• The company has incurred significant indebtedness, which could adversely affect its flexibility.
• The company is subject to interest rate risk in connection with its floorplan payables and other debt instruments.
• The powersports industry is sensitive to unfavorable changes in general economic conditions.
• The company operates in a highly competitive market for powersports products and services.
• The company relies on internet search engines to drive traffic to its website.
• The company collects and processes personal information, and failure to protect such data could harm its reputation.
• The company is subject to various legal proceedings, and adverse outcomes could affect its business.

Future Outlook

The company expects to see the full effects of the SG&A expense reductions in 2024 and aims to create long-term per-share value by operating the best performing, most profitable powersports retail group in the United States.

Management Comments

• The company implemented a series of plans to reduce outstanding debt and announced several cost savings initiatives.
• The company continues to focus on reducing its corporate cost structure by identifying and eliminating expenses that do not further strategic goals.
• The company seeks to provide customers with a seamless experience, broad selection, and access to specialized team members.
• The company's incentive-based compensation encourages dealership general managers to think and behave like owners.

Industry Context

The powersports retail marketplace in the United States is highly fragmented, with over 8,500 dealership locations, most of which are owned by a single entity. RumbleOn faces competition from traditional franchised dealers, independent pre-owned powersports dealers, and private parties. The company believes that consumer experience and product selection are key competitive factors.

Comparison to Industry Standards

• RumbleOn's powersports segment is the largest in the U.S. by reported revenue, major unit sales, and dealership locations, indicating a leading position compared to other powersports retailers.
• The company's use of proprietary Cash Offer technology for pre-owned inventory sourcing is a differentiator compared to traditional dealerships.
• The company's financial results, including the decrease in revenue and gross profit, and the significant net loss, suggest a challenging year compared to industry benchmarks, particularly in the context of the broader economic conditions and the normalization of prices after the pandemic.
• The company's identification of $60 million in annualized SG&A expense reductions indicates a proactive approach to cost management, which is crucial for profitability in a competitive market.
• The company's focus on leveraging its national scale and improving dealership performance aligns with industry best practices for large retail groups.

Management Changes

Corporate Governance

Legal Proceedings

• The company is conducting an investigation of certain allegations surrounding Marshall Chesrown's use of company resources.
• Marshall Chesrown filed suit against the company in Delaware Superior Court seeking a declaratory judgment, termination compensation, general and reputational damages, punitive damages, attorney's fees and litigation costs.

Related Party Transactions

• The company leases 24 properties from related parties controlled by William Coulter and Mark Tkach.
• The company made payments to Coulter Management Group LLLP, an entity owned by William Coulter.
• The company made payments to Ready Team Grow, LLC, an entity owned by the domestic partner of former CEO Marshall Chesrown.
• The company entered into a software license agreement with Bidpath Incorporated, a company owned by former director Adam Alexander.
• The company made payments to RideNow Management LLLP, an entity owned by William Coulter and Mark Tkach.

Stakeholder Impact

• Shareholders may be concerned about the company's financial losses and material weaknesses in internal controls.
• Employees may be affected by the organizational restructuring and headcount reductions.
• Customers may benefit from the company's focus on improving the customer experience.
• Suppliers may be impacted by the company's cost-saving initiatives.
• Creditors may be concerned about the company's high level of indebtedness.

Next Steps

• The company will continue to focus on reducing its corporate cost structure.
• The company will continue to evaluate its dealer footprint and may divest locations that are no longer accretive.
• The company will continue to enhance its processes around reviewing privileged access to key financial systems and ensuring appropriate segregation of duties.
• The company will continue to enhance the review and approval controls related to reconciling certain accruals and accounting estimates and assumptions.

Key Dates

Keywords

powersports, dealership, retail, pre-owned vehicles, transportation services, financial results, restructuring, acquisitions, inventory, internal control, debt, management changes