10-Q: RumbleOn Reports First Quarter 2024 Results, Revenue Declines Amidst Competitive Pressures

RumbleOn's first quarter 2024 results show a decrease in revenue and gross profit compared to the same period last year, primarily due to lower pre-owned vehicle sales and competitive pricing pressures.

Summary

• RumbleOn's revenue for the first quarter of 2024 decreased to $307.8 million, down from $334.4 million in the same period last year.
• The company experienced a net loss of $10.3 million, compared to a net loss of $16.9 million in the first quarter of 2023.
• Powersports vehicle revenue declined to $214.8 million from $233.3 million year-over-year.
• Parts, service, and accessories revenue also decreased to $52.9 million from $59.1 million.
• Finance and insurance revenue saw a slight decrease to $25.8 million from $27.2 million.
• Vehicle transportation services revenue was down slightly to $14.3 million from $14.8 million.
• The company sold 16,585 vehicles in total, a decrease from 17,221 in the first quarter of 2023.
• Gross profit decreased to $82.6 million from $90.3 million year-over-year.
• Selling, general, and administrative expenses decreased to $73.9 million from $86.3 million due to cost-saving initiatives.
• The company's cash and restricted cash totaled $63.4 million as of March 31, 2024, down from $77.0 million at the end of 2023.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some improvements in net loss and cost control, but significant declines in revenue and gross profit, along with ongoing legal issues and internal control weaknesses, leading to a negative sentiment overall.

Positives

• The net loss improved by $6.4 million compared to the first quarter of 2023.
• Selling, general, and administrative expenses decreased by $12.4 million due to cost-saving initiatives.
• The company's adoption of ASU 2020-06 reduced non-cash interest expense.
• The company's vehicle transportation services segment saw a 4.4% increase in vehicles transported.
• The company was in compliance with the covenants under the Credit Agreement as of March 31, 2024.

Negatives

• Total revenue decreased by $26.6 million compared to the first quarter of 2023.
• Powersports vehicle revenue decreased by $18.5 million year-over-year.
• Pre-owned retail vehicle sales decreased by 13.4% and revenue per pre-owned retail vehicle sold was down 11.3%.
• Gross profit decreased by $7.7 million compared to the first quarter of 2023.
• Gross profit per vehicle decreased by $250 to $5,099.
• Cash and restricted cash decreased by $13.6 million during the quarter.
• The company's disclosure controls and procedures were deemed not effective as of March 31, 2024, due to ongoing remediation of material weaknesses.

Risks

• The company faces competitive pressures that are impacting pricing and gross profit, particularly in new vehicle sales.
• The company's disclosure controls and procedures were not effective as of March 31, 2024, due to ongoing remediation of material weaknesses.
• The company is involved in ongoing litigation with its former CEO, Marshall Chesrown, who is seeking $57.5 million in damages.
• The company's business is subject to various claims and legal actions that arise in the ordinary course of business.
• The company's financial results are subject to estimates and assumptions that could differ materially from actual results.
• The company's ability to maintain an effective registration statement for its shares is not guaranteed, which could limit the transferability of shares.

Future Outlook

Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least one year from the financial statement date. The company is focused on increasing brand awareness, maximizing vehicle sourcing, and enhancing vehicle selection and timing.

Management Comments

• Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least one year from the financial statement date.
• Management is focused on increasing brand awareness, maximizing the opportunity to source vehicles from consumers and dealers, and enhancing the selection and timing of vehicles made available for sale.

Industry Context

The powersports industry is experiencing competitive pressures, impacting pricing and gross profit. RumbleOn's results reflect these broader trends, with decreased revenue and gross profit in the powersports segment. The company is focusing on cost-saving initiatives and improving operational efficiency to navigate these challenges.

Comparison to Industry Standards

• RumbleOn's decrease in revenue and gross profit is consistent with the challenges faced by other companies in the powersports industry, such as Polaris and BRP, which have also reported softening demand and increased competition.
• Compared to companies like Carvana in the used car market, RumbleOn's focus on powersports and its dealership network provide a different operational model, but both face similar challenges in managing inventory and pricing in a competitive environment.
• The company's gross profit per vehicle of $5,099 is lower than some of the more premium brands in the powersports industry, such as Harley-Davidson, which typically command higher margins due to brand recognition and customer loyalty.
• RumbleOn's cost-saving initiatives are similar to those undertaken by other retailers in response to economic pressures, such as reducing workforce and optimizing operational expenses.

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 seeking a declaratory judgment, termination compensation damages of $7.5 million, general and reputational damages of $50 million, punitive damages, attorney's fees and litigation costs.

Related Party Transactions

• The company has operating leases from related parties for 25 properties, with rent expense of $4.7 million for the quarter.
• Two immediate family members of director Mark Tkach are employed by the company.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and gross profit, as well as the ongoing legal proceedings.
• Employees may be affected by the company's cost-saving initiatives, including workforce reductions.
• Customers may experience changes in pricing and inventory availability due to competitive pressures.
• Suppliers may be impacted by changes in the company's purchasing patterns.
• Creditors may be concerned about the company's decreased cash position and increased debt.

Next Steps

• The company plans to continue efforts to remediate internal control over financial reporting.
• Management will monitor the effectiveness of remedial measures and the overall control environment.
• The company will continue to evaluate system enhancements to automate the consolidation and elimination of intercompany transactions.
• The company will continue to enhance the review and approval process relating to elimination of intercompany transactions.
• 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, vehicles, revenue, gross profit, dealership, transportation, finance, insurance, motorcycles, ATV, UTV, RumbleOn, retail, wholesale