RUMBLEON, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)
This Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”) is provided as a supplement to, and should be read in
conjunction with, our audited Consolidated Financial Statements and the
accompanying notes included in this 2022 Form 10-K. Unless differences among
reportable segments are material to an understanding of our business taken as a
whole, we present the discussion in this MD&A on a consolidated basis. Terms not
defined in this MD&A have the meanings ascribed to them in the Consolidated
Financial Statements. All dollars are reported in thousands, except per share
and per unit amounts.
Organization
as
development and strategic acquisitions into the first and only true Omnichannel
powersports retailer. Headquartered in the
revolutionizing the customer experience for outdoor enthusiasts across the
country and making powersport vehicles accessible to more people, in more places
than ever before.
Overview
marketplace in powersports, leveraging proprietary technology to transform the
powersports supply chain from acquisition of supply through distribution of
retail and wholesale.
ecommerce experience, a national footprint of physical locations, and full-line
manufacturer representation to transform the entire customer experience. Our
goal is to integrate the best of both the physical and the digital, and make the
transition between the two seamless.
We buy and sell new and used vehicles through multiple company-owned websites
and affiliate channels, as well as via our proprietary cash offer tool and
network of more than 55 company-owned retail locations and fulfillment centers
at
existing markets and expanding into new markets through strategic acquisitions
perpetuates our mission to change the customer experience in powersports and
build market share, which together represent our
technology brings in high quality inventory, which attracts more riders and
drives volume in used unit sales. As a result of our growth to date,
enjoys a leading, first-mover position in the highly fragmented
powersports market.
utility terrain vehicles, personal watercraft, and all other powersports
products, parts, apparel, and accessories. Facilitating our platform,
retail distribution locations represent all major OEMs and their representative
brands, including those listed below.
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RumbleOn's Representative Brands
Alumacraft Intense Soul Saver (bicycles)
Argo Kawasaki Specialized (bicycles)
Benelli Kayo Speed/UTV
Bennington (boats) Kayo Sports Spyder
Blazer Boats KTM SSR
BMW Lynx (Snowmobiles) SSR Motorsports
Can-Am MAGICTILT Jet skis STACYC (electric)
CF Moto Manitou Suzuki
Crevalle Boats Manitou (Boats) TideWater
Cub Cadet (mowers) Mercury (Boats) Tidewater (Boats)
Ducati Polaris TIGE (Boats)
Gas-Gas Polaris Slingshot Timbersled (Snow)
Hammerhead Off-Road Ranger Boats Trailmaster (off-road/gocarts)
Harley-Davidson Ryker Triumph
Hisun Scarab Vanderhall
Honda Sea-Doo Wellcraft (Boats)
Huricane Boats Segway Powersports Yamaha
Indian Ski-Doo Yamaha Marine
Indian Motorcycles Slingshot Zero Motorcycles
profitability, and drive lifetime engagements with our customers 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.
most comprehensive powersports vehicle offering, including the ability to buy,
sell, trade, and finance online, in store at any of our brick-and-mortar
locations, or both.
physical retail and service locations; online and in-store instant cash offers,
and unparalleled access to pre-owned inventory; and apparel, parts, service, and
accessories.
KEY OPERATING METRICS
We regularly review a number of key operating metrics to evaluate our segments,
measure our progress, and make operating decisions. Our key operating metrics
reflect what we believe will be the primary drivers of our business, including
increasing brand awareness, maximizing the opportunity to source vehicles from
consumers and dealers, and enhancing the selection and timing of vehicles we
make available for sale to our customers.
nation’s largest powersports retailer group with 41 retail locations, primarily
across the Sunbelt (“RideNow”) on
On
acquisition of
Powersports Real Estate, LLC
Freedom Powersports, the “Freedom Entities”), a retailer group with 13 retail
locations in
The Key Operating Metrics table below includes the results of the Freedom
Entities exclusively from the Freedom Closing Date through
Please note that results of RideNow and Freedom Powersports prior to the RideNow
Closing Date and Freedom Closing Date are not reflected in the presentation
below. Increases in line items within the powersports segment are primarily the
result of the acquisitions and the reader should note that most
period-over-period dollar comparisons (as opposed to per unit amounts) are
materially impacted by the introduction of the new businesses (the “Acquisition
Effect”).
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Powersports and Automotive Segments
Revenue
Revenue of is comprised of vehicle sales, finance and insurance products bundled
with retail vehicle sales (“F&I”), and parts, service and
accessories/merchandise (“PSA”). We sell both new and pre-owned vehicles through
retail and wholesale channels. F&I and PSA revenue is almost exclusively earned
through retail channels. Automotive sales are almost exclusively via wholesale
channels, and therefore, contribute to a very small portion of F&I revenue.
These sales channels provide us the opportunity to maximize profitability
through increased sales volume and lower average days to sale by selling through
the channel where the opportunity is the greatest at any given time based on
customer demand, market conditions or inventory availability. The number of
vehicles sold to any given channel may vary from period to period these factors.
Subject to the resulting Demand/Supply Imbalances, as discussed elsewhere in
this MD&A, we expect pre-owned vehicle sales to increase as we begin to utilize
a combination of brand building and direct response channels to efficiently
source and scale our addressable markets while expanding our suite of product
offerings to consumers who may wish to trade-in or to sell us their vehicle
independent of a retail sale. Factors primarily affecting pre-owned vehicle
sales include the number of retail pre-owned vehicles sold and the average
selling price of these vehicles.
Gross Profit
Gross profit generated on vehicle sales reflects the difference between the
vehicle selling price and the cost of revenue associated with acquiring the
vehicle and preparing it for sale. Cost of revenue includes the vehicle
acquisition cost, inbound transportation cost, and particularly for pre-owned
vehicles, reconditioning costs (collectively, we refer to reconditioning and
transportation costs as “Recon and Transport”). The aggregate gross profit and
gross profit per vehicle vary across vehicle type, make, model, etc. as well as
through retail and wholesale channels, and with regard to gross profit per
vehicle, are not necessarily correlated with the sale price. Vehicles sold
through retail channels generally have the highest dollar gross profit per
vehicle given the vehicle is sold directly to the consumer. Pre-owned vehicles
sold through wholesale channels, including directly to other dealers or through
auction channels, including via our dealer-to-dealer auction market, generally
have lower margins and do not include other ancillary gross profit attributable
to financing and accessory. Factors affecting gross profit from period to period
include the mix of new versus used vehicles sold, the distribution channel
through which they are sold, the sources from which we acquired such inventory,
retail market prices, our average days to sale, and our pricing strategy. We may
opportunistically choose to shift our inventory mix to higher or lower cost
vehicles, or to opportunistically raise or lower our prices relative to market
to take advantage of Demand/Supply Imbalances in our sales channels, which could
temporarily lead to gross profits increasing or decreasing in any given channel.
Vehicles Sold
We define vehicles sold as the number of vehicles sold through both wholesale
and retail channels in each period, net of returns. Vehicles sold is the primary
driver of our revenue and, indirectly, gross profit. Vehicles sold also enables
complementary revenue streams, such as financing. Vehicles sold increases our
base of customers and improves brand awareness and repeat sales. Vehicles sold
also provides the opportunity to successfully scale our logistics, fulfillment,
and customer service operations.
Total Gross Profit per Unit (Powersports Segment)
Total gross profit per unit is the aggregate gross profit of the powersports
segment in a given period, divided by retail powersports units sold in that
period. The aggregate gross profit of the powersports segment includes gross
profit generated from the sale of new and used vehicles, income related to the
origination of loans originated to finance the vehicle, revenue earned from the
sale of F&I products including extended service contracts, maintenance programs,
guaranteed auto protection, tire and wheel protection, and theft protection
products, gross profit on the sale of PSA products, and gross profit generated
from wholesale sales of vehicles.
Total Gross Profit per Unit (Automotive Segment)
Total gross profit per unit is the aggregate gross profit of the automotive
segment in a given period, divided by total automotive units sold in that
period.
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Vehicle Logistics Segment Revenue
Revenue is derived from freight brokerage agreements with dealers, distributors,
or private party individuals to transport vehicles from a point of origin to a
designated destination. The freight brokerage agreements are fulfilled by
independent third-party transporters who must meet our performance obligations
and standards. Wholesale Express is considered the principal in the delivery
transactions since it is primarily responsible for fulfilling the service. In
the normal course of operations, Wholesale Express also provides transportation
services to
Vehicles Delivered
We define vehicles delivered as the number of vehicles delivered from a point of
origin to a designated destination under freight brokerage agreements with
dealers, distributors, or private parties. Vehicles delivered are the 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 third party
vehicles transported.
Results of Operations
Year Ended
Year Ended December 31,
YoY
2022 2021 Change
Revenue
Powersports $ 1,033,919 $ 323,303 $ 710,616
Automotive 334,273 460,888 (126,615)
Parts, service, accessories 247,562 66,969 180,593
Finance and insurance, net 123,576 29,133 94,443
Vehicle logistics 54,038 43,878 10,160
Total revenue $ 1,793,368 $ 924,171 $ 869,197
Gross Profit
Powersports $ 194,151 $ 58,431 $ 135,720
Automotive 10,850 30,746 (19,896)
Vehicle logistics 11,878 9,600 2,278
Parts, service, accessories 112,204 30,267 81,937
Finance and insurance 123,576 29,133 94,443
Total Gross Profit $ 452,659 $ 158,177 $ 294,482
Total SG&A Expenses $ 366,387 $ 164,077 $ 202,310
Operating Loss $ (287,122) $ (8,868) $ (278,254)
Net Loss $ (261,513) $ (9,725) $ (251,788)
Adjusted EBITDA (1) $ 120,096 $ 31,013 $ 89,083
_________________________
(1) Adjusted EBITDA is a supplemental measure of operating performance that does
not represent and should not be considered an alternative to net loss or cash
flow from operations, as determined by GAAP. We believe that Adjusted EBITDA is
a useful measure to us and to our investors because it excludes certain
financial and capital structure items that we do not believe directly reflect
our core business 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 business. See the section titled “Adjusted EBITDA”
below for a reconciliation of Adjusted EBITDA to Net Loss.
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Revenue
Total revenue increased by
31, 2022
and PSA increased
RideNow and Freedom Powersports. The overall increase in revenue was partially
offset by a decrease of
macroeconomic factors in the automotive market and the Company’s decision to
focus growth in its more profitable powersports segment.
On a unit basis, the Company sold 46,271 more vehicles in 2022 than in 2021,
driven by an increase of 53,883 units sold through retail channels resulting
from the Acquisition Effect, partially offset by 7,612 fewer units sold through
wholesale channels.
Gross Profit
Gross profit increased in total by
2022
significantly greater vehicle sales, partially offset by a decrease in the gross
margin dollars per unit sold. Gross profit attributable to powersports vehicles,
F&I, and PSA increased
while gross profit attributable to vehicle logistics and transportation
increased
(
primarily by softening Demand/Supply Imbalances and lower sales volume in the
automotive segment.
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Powersports Metrics (dollars in thousands except per unit)
Year Ended December 31,
YoY
2022 2021 Change
Revenue
New retail vehicles $ 640,972 $ 169,632 $ 471,340
Used vehicles
Retail 371,695 86,072 285,623
Wholesale 21,252 67,599 (46,347)
Total used vehicles 392,947 153,671 239,276
Finance and insurance, net 123,576 29,133 94,443
Parts, service and accessories 247,562 66,969 180,593
Total revenue $ 1,405,057 $ 419,405 $ 985,652
Gross Profit
New retail vehicles $ 125,828 $ 33,278 $ 92,550
Used vehicles
Retail 67,378 10,609 56,769
Wholesale 945 14,545 (13,600)
Total used vehicles 68,323 25,154 43,169
Finance and insurance, net 123,576 29,133 94,443
Parts, service and accessories 112,204 30,267 81,937
Total gross profit $ 429,931 $ 117,832 $ 312,099
Vehicle Unit Sales
New retail vehicles 41,649 10,555 31,094
Used vehicles
Retail 28,151 5,599 22,552
Wholesale 3,613 6,231 (2,618)
Total used vehicles 31,764 11,830 19,934
Total vehicles sold 73,413 22,385 51,028
Revenue per vehicle
New retail vehicles $ 15,390 $ 16,071 $ (681)
Used vehicles
Retail 13,204 15,373 (2,169)
Wholesale 5,882 10,849 (4,967)
Total used vehicles 12,371 12,990 (619)
Finance and insurance, net 1,770 1,803 (33)
Parts, service and accessories 3,547 4,146 (599)
Total revenue per retail vehicle
Gross Profit per vehicle New vehicles$ 3,021 $ 3,153 $ (132) Used vehicles$ 2,151 $ 2,126 $ 25 Finance and insurance, net$ 1,770 $ 1,803 $ (33)
Parts, service and accessories
Total gross profit per vehicle (1)
____________________
(1) Calculated as total gross profit divided by new and used retail powersports
units sold.
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Revenue
Total powersports vehicle revenue increased by
year ended
Effect specific to new vehicles, F&I and PSA revenue accounted for approximately
not sell new vehicles prior to the acquisitions of RideNow and Freedom
Powersports. The total number of vehicles sold increased by 51,028 to 73,413 for
the year ended
new vehicle sales accounted for 31,094 of the increase, used units sold through
retail channels increased by 22,552, offset by 2,618 fewer used units sold
through wholesale channels. During the year ended
earned, on average,
customers than wholesale customers. Overall, the average revenue per vehicle
decreased by
price levels normalizing during the year ended
Demand/Supply Imbalances softened in the overall market.
We believe that average revenue per vehicle 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
Powersports vehicle gross profit increased by
due to the Acquisition Effect;
due to used retail vehicle sales and F&I, and PSA collectively accounted for
offset by a decrease of
sales, as the Company shifted towards selling vehicles through its more
profitable retail channels where feasible. Gross profit per retail vehicle sold
decreased
Macroeconomic conditions were the primary driver of the decrease in gross profit
per unit, as the Demand / Supply Imbalance and impacts of the COVID-19 pandemic
softened throughout the year ended
competitive market pricing.
Year Ended
Automotive Metrics (dollars in thousands except per unit)
Year Ended December 31,
YoY
2022 2021 Change
Revenue $334,273 $460,888 $(126,615)
Gross Profit $10,850 $30,746 $(19,896)
Vehicles sold 7,624 12,381 (4,757)
Revenue per vehicle $43,845 $37,225 $6,620
Gross Profit per vehicle $1,423 $2,483 $(1,060)
Revenue
Total automotive vehicle revenue decreased by
year ended
(4,757) fewer vehicles sold. During the year ended
Company made a strategic decision to purchase and sell fewer automotive units
due to less favorable macroeconomic conditions as compared to the same period in
2021. The decreases are primarily the result of softening macroeconomic
conditions and softening of the Demand/Supply Imbalances during the year ended
Gross Profit
Automotive vehicle gross profit decreased by
ended
the result of a 42.7% decrease in gross profit per vehicle sold and a 38.4%
decrease in automotive vehicles sold during the year ended
compared to the year ended
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Year Ended
Vehicle Logistics Metrics - before intercompany eliminations (dollars in
thousands except per unit)
Year Ended December 31,
YoY
2022 2021 Change
Revenue $57,317 $48,804 $8,513
Gross Profit $12,307 $9,600 $2,707
Vehicles transported 89,685 84,540 5,145
Revenue per vehicle transported $639 $577 $62
Gross Profit per vehicle transported $137 $114 $23
Revenue
Total revenue increased by
resulted from the transport of 89,685 vehicles at revenue per vehicle
transported of
a revenue per vehicle transported of
In the normal course of operations, the Company utilizes transportation services
of its vehicle logistics and transportation services segment. For the years
ended
Wholesale Express were
the consolidated financial statements.
Gross Profit
Total gross profit for the year ended
28.2% to
per vehicle transported in 2021. The increased gross profit was attributed to an
increase in both number of vehicles transported as well as higher revenue per
vehicle transported and gross profit per vehicle transported.
Year Ended
Selling, General and Administrative Expense
Selling, general and administrative expenses include costs and expenses for
compensation and benefits, advertising and marketing, development and operating
our product procurement and distribution system, managing our logistics system,
and other corporate overhead expenses, including expenses associated with
technology development, legal, accounting, finance, and business development.
Selling, general and administrative expenses will continue to increase in future
periods as we 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, but we anticipate they
will decline as a percentage of sales revenue.
December 31, YOY
2022 2021 Change
Compensation and related costs $ 213,300 $ 63,473 $ 149,827
Stock based compensation 9,372 29,219 (19,847)
Advertising and marketing 31,327 14,425 16,902
Technology development and software 3,352 1,992 1,360
Facilities 43,413 9,568 33,845
General and administrative 65,623 45,400 20,223
Total SG&A Expenses $ 366,387 $ 164,077 $ 202,310
Selling, general and administrative expenses increased by
ended
development and software, the increases were the result of the Acquisition
Effect,
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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, the Company
continued to drive forward strategic technology projects focused on inventory
management, infrastructure, and integration efforts.
Depreciation and Amortization
Depreciation and amortization increased by
amortization is a result of the cumulative investments made in connection with
the development of the business which included capitalized technology
acquisition and development costs of
and equipment for the year ended
capitalized technology acquisition and development costs and
to property and equipment for the year ended
ended
non-compete agreements was
compared to
vehicle, furniture, equipment and leasehold improvements was
to
Interest Expense
Interest expense increased
2022
(i) term loan credit agreement (the “Oaktree Credit Facility”); (ii) various
floorplan facilities, including the used powersports inventory financing credit
facility with J.P. Morgan; (iii) private placement notes; and (iv) convertible
senior notes. The increase in interest expense for the year ended
2022
acquisition of Freedom Powersports, as we borrowed
Oaktree Credit Facility to finance the Freedom Transaction. In addition, the
Company assumed floorplan facilities as part of the Freedom Transaction, which
were used throughout the year ended
inventory. Overall higher interest rates on the Company’s borrowings throughout
the year ended
contributed to higher interest expense. See Note 10-Notes Payable and Lines of
Credit for additional discussion.
Seasonality
Historically, both the powersports and automotive industries have been seasonal
with traffic and sales strongest in the spring and summer quarters. Sales and
traffic are typically slowest in the winter quarter but increase typically in
the spring season, coinciding with tax refunds and improved weather conditions.
Given this seasonality, we expect our quarterly results of operations, including
our revenue, gross profit, profit/loss, and cash flow to vary accordingly. Over
time, we expect to normalize to seasonal trends in both segments, using data and
logistics to move inventory to the right place, at the right time, at the right
price.
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 the following financings have such
components:
Convertible Senior Notes
In connection with the issuance of the Convertible Senior Notes, a derivative
liability was recorded at issuance with an interest make whole provision of
based on a lattice model using a stock price of
of 55.0% and risk-free rates over the entire 10-year yield curve.
The change in value of the derivative liability for the year ended
2022
in change in derivative liability in the Consolidated Statement of Operations.
The value of the derivative liability as of
approximately
Oaktree Warrant
In connection with providing the debt financing for the RideNow Transaction, and
pursuant to the commitment letter executed on
warrants to purchase
Capital Management, L.P.
warrant liability and deferred financing charge recognized was
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 Consolidated Statements of Operations. The fair
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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
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.
Stock-Based Compensation
In connection with the closing of the RideNow Transaction and the execution of
the certain Executive Employment Agreements, the Company accelerated the vesting
of and waived certain market-based share price hurdles for all then outstanding
restricted stock units (“RSUs”) for all participants, which resulted in excess
of
31, 2021
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as
an alternative to operating income (loss) or net income (loss) 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
GAAP.
Adjusted EBITDA is defined as net income (loss) adjusted to add back interest
expense, depreciation and amortization, changes in derivative liabilities and
certain recoveries, income tax benefits, and other non-recurring costs, as these
charges and expenses are not considered a part of our core business operations
and are not necessarily an indicator of ongoing, future company performance.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the
financial performance of our business. We present Adjusted EBITDA because we
believe it is frequently used by analysts, investors and other interested
parties to evaluate companies in our industry. Further, we believe it is helpful
in highlighting trends in our operating results, because it excludes, among
other things, certain results of decisions that are outside the control of
management, while other measures can differ significantly depending on long-term
strategic decisions regarding capital structure and capital investments.
For the years ended
Adjusted EBITDA are primarily comprised of:
•Non-cash stock-based compensation expense recorded in the Consolidated
Statement of Operations,
•Transaction 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,
•Lease expense associated with favorable related party leases in excess of
contractual lease payments,
•Charges for the settlement of disputes and claims with former minority
shareholders of RideNow,
•Expenses attributable to a discontinued project in
•Charges for impairment of goodwill and franchise rights,
•Gain on the sale of a dealership,
•Costs attributable to unused lease costs, and
•Other non-recurring costs, which includes items not indicative of our ongoing
operating performance. For the year ended
primarily comprised of integration costs and professional fees associated with
the Freedom Transaction and the RideNow Transaction, technology implementation,
legal matters, establishment
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of the ROF secured loan facility, and a death benefit to the estate of the
Company’s former Chief Financial Officer and director. For the year ended
a death benefit to the estate of the Company’s former Chief Financial Officer
and director.
The following tables reconcile Adjusted EBITDA to net loss for the periods
presented:
December 31,
2022 2021
Net loss $ (261,513) $ (9,725)
Add back:
Interest expense 53,869 16,405
Depreciation and amortization 23,079 6,103
Income tax benefit (72,598) (21,665)
EBITDA $ (257,163) $ (8,882)
Adjustments:
Change in derivative and warrant liabilities (39) 8,799 Costs attributable to store openings and closures 233 $ - Expenses for discontinued project in Fort Worth, Texas 2,141 $ - Gain on sale of dealership (3,898) - Impairment of goodwill and franchise rights 350,315 - Insurance proceeds - (3,135)
Lease expense associated with favorable related party
leases in excess of contractual lease payments
1,340 - Settlement costs 8,381 - Other non-recurring costs 9,792 2,025 PPP Loan forgiveness (2,509) (2,682) Purchase accounting related 177 1,388 Stock based compensation 9,372 29,219 Transaction costs 1,954 4,281 Adjusted EBITDA$ 120,096 $ 31,013 38
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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. On
financing credit facility with J.P. Morgan.
During the year ended
Facility, which was used to finance a portion of the cash consideration for the
Freedom Transaction. On
the Oaktree Credit Facility. As of
Facility provides for up to
acquisitions and up to an additional
be used for acquisitions and 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. 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.
The Company’s consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which assumes the continuity of
operations, the realization of assets and the satisfaction of liabilities as
they come due in the normal course of business. Management believes that current
working capital, results of operations, and existing financing arrangements are
sufficient to fund operations for at least one year from the financial statement
date.
We had the following liquidity resources available as ofDecember 31, 2022 andDecember 31, 2021 : December 31, 2022 2021 Cash$ 48,579 $ 48,974 Restricted cash (1) 10,000 3,000 Total cash and restricted cash 58,579 51,974
Availability under short-term revolving facilities 137,518 124,116
Committed liquidity resources available
$ 196,097 $ 176,090
(1) Amounts included in restricted cash are primarily comprised of the deposits
required under the Company’s various floorplan lines of credit and RumbleOn
Finance line of credit.
As of
derivative liability, the outstanding principal amount of indebtedness was
10-Notes Payable and Lines of Credit, Note 11-Convertible Notes, and Note
12-Stockholders Equity to our consolidated financial statements included in Part
II, Item 8, Financial Statements and Supplementary Data of this 2022 Form 10-K
for further information on our debt.
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December 31,
2022 2021
Asset-Based Financing:
Inventory $ 225,431 $ 97,278
Total asset-based financing 225,431 97,278
Term loan facility 346,066 279,300
RumbleOn Finance secured loan facility 25,000 -
Unsecured senior convertible notes 38,750 39,006
PPP and other loans - 4,472
Total debt 635,247 420,056
Less: unamortized discount and debt issuance costs (35,432) (35,471)
Total debt, net
$ 599,815 $ 384,585
The following table sets forth a summary of our cash flows.
December 31,
2022 2021
Net cash used in operating activities
Net cash used in investing activities (82,204) (378,831)
Net cash provided by financing activities 107,696 459,466
Net increase in cash
$ 6,605 $ 48,458 Operating Activities
Our primary sources of operating cash flows result from the sales of new and
pre-owned vehicles and ancillary products. Our primary uses of cash from
operating activities are purchases of inventory, parts and merchandise, cash
used to acquire customers, technology development, and personnel-related
expenses. For the year ended
activities of
operating activities of
income. Excluding charges for impairment of goodwill and franchise rights of
taxes increased
The majority of the changes in finance receivables are accompanied by changes in
line of credit and notes payable, which are issued to fund powersports vehicle
loans originated by RumbleOn Finance. Proceeds from the RumbleOn Finance line of
credit were
reflected as cash from financing activities. Due to the presentation differences
between finance receivables and proceeds from the RumbleOn Finance line of
credit on the consolidated statements of cash flows, fluctuations in these
amounts can have a significant impact on our operating and financing cash flows
without affecting our overall liquidity, working capital or cash flows.
Investing Activities
Our primary use of cash for investing activities is for technology development
and acquisitions to expand our operations. Cash used in investing activities for
the year ended
2021.
The decrease in cash used in investing activities results was primarily driven
by a decrease of
was primarily comprised of: (i)
Freedom Powersports, (ii)
in
the year ended
received of
of
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The overall decrease for the year ended
by an increase of
to 2021.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term
debt activity and proceeds from equity issuances which have been used to provide
working capital and for general corporate purposes, including paying down our
short-term revolving facilities. Cash provided by financing activities was
decrease of (
2021; (ii) a decrease of (
and (iii) an increase in repayments of deb and mortgage notes of
which includes a voluntary principal repayment of
Facility. The overall decrease was partially offset by (i) an increase of
receivables, and (iii) an increase of
notes during the year ended
2021.
Off-Balance Sheet Arrangements
As of
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.
Acquisition of Freedom Powersports
On
Powersports, which included all business and real estate assets, subject to
customary net working capital and indebtedness adjustments, for an aggregate
consideration of approximately
of approximately
mortgage debt on the real estate assets in the aggregate amount of approximately
from the Company’s delayed draw facility under the Oaktree Credit Facility, and
the issuance of 1,048,718 restricted shares of RumbleOn Class B common stock.
The restricted shares were subject to a six-month lock-up and resale
registration rights.
Funding of
On
subsidiary of
Facility”) primarily to provide up to
loans underwritten by ROF. Credit Suisse AG,
is the managing agent of the loan agreement, and RumbleOn Finance is the
borrower. All loans under this agreement are secured by certain collateral
including the consumer finance loans purchased by the ROF Consumer Finance
Facility.
Credit Suisse provided customary representations and covenants under the
agreements which include financial covenants and collateral performance
covenants. Loans sold to or in the ROF Consumer Finance Facility are subject to
certain eligibility criteria, concentration limits and reserves.
Related Party Software License
On
two agreements with
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, all of which remain in development as
of
The Company has made cash payments totaling
year ended
agreement was signed,
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.
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Repayment of Convertible Note
On
convertible note entered into on
acquisition of
of
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with
(“GAAP”). The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets and
liabilities, revenue and expenses and related disclosures of contingent assets
and liabilities at the date of our financial statements. Actual results may
differ from these estimates under different assumptions or conditions, impacting
our reported results of operations and financial condition.
Certain accounting policies involve significant judgments and assumptions by
management, which have a material impact on the carrying value of assets and
liabilities and the recognition of income and expenses. Management considers
these accounting policies to be critical accounting policies. The estimates and
assumptions used by management are based on historical experience and other
factors, which are believed to be reasonable under the circumstances. The
significant accounting policies and estimates which we believe are the most
critical to aid in fully understanding and evaluating our reported financial
results are described below. Refer to Note 1 – Description of Business and
Summary of Significant Accounting Policies of the consolidated financial
statements included in Part II, Item 8, Financial Statements and Supplementary
Data, of this 2022 Form 10-K, for more detailed information regarding our
critical accounting policies.
Revenue Recognition
We adopted ASC 606, Revenue from Contracts with Customers on
using the modified retrospective method. ASC 606 prescribes a five-step model
that includes: (1) identify the contract; (2) identify the performance
obligations; (3) determine the transaction price; (4) allocate the transaction
price to the performance obligations; and (5) recognize revenue when (or as)
performance obligations are satisfied. Based on the manner in which we
historically recognized revenue, the adoption of ASC 606 did not have a material
impact on the amount or timing of our revenue recognition, and we recognized no
cumulative effect adjustment upon adoption.
For vehicles sold at wholesale to dealers we satisfy our performance obligation
for vehicles sales when the wholesale purchaser obtains control of the
underlying vehicle, which is upon delivery when the transfer of title, risks and
rewards of ownership and control pass to the dealer. We recognize revenue at the
amount we expect to receive for the pre-owned vehicle, which is the fixed price
determined at the auction. The purchase price of the wholesale vehicle is
typically due and collected within 30 days of delivery of the wholesale vehicle.
For vehicles sold to consumers the purchase price is set forth in the customer
contracts at a stand-alone selling price which is agreed upon prior to delivery.
We satisfy our performance obligation for pre-owned vehicle sales upon delivery
when the transfer of title, risks and rewards of ownership and control pass to
the customer. We recognize revenue at the agreed upon purchase price stated in
the contract, including any delivery charges, less an estimate for returns. Our
return policy allows customers to initiate a return during the first three days
after delivery. Estimates for returns are based on an analysis of historical
experience, trends and sales data. Changes in these estimates are reflected as
an adjustment to revenue in the period identified. The amount of consideration
received for pre-owned vehicle sales to consumers includes noncash consideration
representing the value of trade-in vehicles, if applicable, as stated in the
contract. Prior to the delivery of the vehicle, the payment is received, or
financing has been arranged. Payments from customers that finance their
purchases with third parties are typically due and collected within 30 days of
delivery of the pre-owned vehicle. In future periods additional provisions may
be necessary due to a variety of factors, including changing customer return
patterns due to the maturation of the online vehicle buying market, macro- and
micro-economic factors that could influence customer return behavior and future
pricing environments. If these factors result in adjustments to sales returns,
they could significantly impact our future operating results. Revenue excludes
any sales taxes, title and registration fees, and other government fees that are
collected from customers.
Vehicle logistics revenue is generated primarily by entering into freight
brokerage agreements with dealers, distributors, or private party individuals to
transport vehicles from a point of origin to a designated destination. The
transaction price is based on the consideration specified in the customer’s
contract. A performance obligation is created when the customer under a
transportation contract submits a bill of lading for the transport of goods from
origin to destination. These performance obligations are satisfied as the
shipments move from origin to destination. The freight brokerage agreements are
fulfilled by independent third-party transporters. While the Company is
primarily responsible for fulfilling to customers, these transporters
42
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are obligated to meet our performance obligations and standards. Performance
obligations are short-term, with transit days less than one week. Generally,
customers are billed either upon shipment of the vehicle or on a monthly basis,
and remit payment according to approved payment terms, generally not to exceed
30 days. Revenue is recognized as risks and rewards of transportation of the
vehicle is transferred to the owner during delivery. Wholesale Express is
considered the principal in the delivery transactions since it is primarily
responsible for fulfilling the service. As a result, revenue is recorded gross.
In the fourth quarter of 2022 and as first announced on the Company’s third
quarter earnings call which took place on
disclosed its plan to explore strategic alternatives for its automotive segment.
The Company is now expecting to wind down its wholesale automotive business in
the first half of 2023. The Company’s 2023 revenue forecast only includes the
sales of the remaining inventory at
substantial reduction in revenues and earnings compared to historical periods.
Management expects operations of the automotive segment to cease in fiscal year
2023 and its cash flow forecast reflects such facts and timelines.
Business Combinations
Total consideration transferred for acquisitions is allocated to the tangible
and intangible assets acquired and liabilities assumed, if any, based on their
fair values at the dates of acquisition. This purchase price allocation process
requires management to make significant estimates and assumptions with respect
to intangible assets and other fair value adjustments with respect to certain
assets acquired and liabilities assumed. The fair value of identifiable
intangible assets is based on detailed valuations that use information and
assumptions determined by management. Any excess of purchase price over the fair
value of the net tangible and intangible assets acquired is allocated to
goodwill. While we use our best estimates and assumptions to accurately value
assets acquired and liabilities assumed at the acquisition date as well as any
contingent consideration, where applicable, our estimates are inherently
uncertain and subject to refinement. As a result, during the measurement period,
which may be up to one year from the acquisition date, we record adjustments to
the assets acquired and liabilities assumed with the corresponding offset to
goodwill. Upon conclusion of the measurement period or final determination of
the values of assets acquired or liabilities assumed, whichever comes first, any
subsequent adjustments are recorded to our consolidated statements of
comprehensive income.
We use the income approach to determine the fair value of certain identifiable
intangible assets including franchise rights. This approach determines fair
value by estimating after-tax cash flows attributable to these assets over their
respective useful lives and then discounting these after-tax cash flows back to
a present value. We base our assumptions on estimates of future cash flows,
expected growth rates, etc. We base the discount rates used to arrive at a
present value as of the date of acquisition on the time value of money and
certain industry-specific risk factors. We believe the estimated purchased
franchise rights and non-compete intangible asset amounts so determined
represent the fair value at the date of acquisition and do not exceed the amount
a third-party would pay for the assets.
Refer to Note 2. Acquisitions for further discussion of the Company’s business
combinations.
value of the identifiable assets acquired and liabilities assumed in business
combinations.
whenever events or changes in circumstances indicate that an impairment may
exist.
We have three reportable segments, operating segments, and reporting units, as
defined in GAAP for segment reporting and goodwill testing: (1) powersports, (2)
automotive and (3) vehicle logistics, each of which is separately evaluated for
purposes of goodwill testing. We first review qualitative factors to determine
whether it is more likely than not that the fair value of a reporting unit is
less than its carrying amount; if we determine that it is not more likely than
not that the fair value of a reporting unit is less than its carrying amount,
then our goodwill is not considered to be impaired. However, if based on the
qualitative assessment we conclude that it is more likely than not that the fair
value of the reporting unit is less than its carrying amount, or if we elect to
bypass the optional qualitative assessment as provided for under GAAP, we
proceed with performing the quantitative impairment test.
Fair value estimates used in the quantitative impairment test are calculated
using a combination of the income and market approaches. The income approach is
based on the present value of future cash flows of each reporting unit, while
the market approach is based on certain multiples of selected guideline public
companies or selected guideline transactions. The approaches incorporate a
number of market participant assumptions including future growth rates, discount
rates, income tax rates and market activity in assessing fair value and are
reporting unit specific. If the carrying amount exceeds the reporting unit’s
fair value, we recognize an impairment charge for the amount by which the
carrying amount exceeds the reporting unit’s fair value. We recognize any
impairment loss in operating income.
43
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The fair value measurement associated with the quantitative goodwill and
indefinite lived intangible assets test is based on significant inputs that are
not observable in the market and thus represents a Level 3 measurement.
Significant changes in the underlying assumptions used to value goodwill and
franchise rights could significantly increase or decrease the fair value
estimates used for impairment assessments.
As disclosed in Note 8, the Company performed its annual goodwill and franchise
rights impairment test on
quantitative impairment test as of
was identified due to declines in the Company’s market capitalization and other
factors occurring in the fourth quarter of 2022. Impairment amounts recognized
in the Company’s 2022 annual financial statements represent aggregate impairment
charges recognized from both the
impairment tests.
In connection with its fourth quarter 2022 goodwill impairment test, the Company
recognized noncash goodwill impairment charges of
automotive reporting unit and
unit for the year ended
Company’s vehicle logistics reporting unit exceeded its carrying value and no
impairment was required. The Company also recognized noncash franchise rights
impairment charges of
from its fourth quarter 2022 impairment tests.
Newly Issued Accounting Pronouncements
In
(Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU
2016-13”), which amends the guidance on the impairment of financial instruments
by requiring measurement and recognition of expected credit losses for financial
assets held. ASU 2016-13 is effective for fiscal years, and for interim periods
within those fiscal years, beginning after
adoption is permitted beginning in the first quarter of fiscal 2019. In
2019
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):
Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a
two-tier rollout of major updates, staggering the effective dates between larger
public companies and all other entities. This granted certain classes of
companies, including Smaller Reporting Companies (“SRCs”), additional time to
implement major FASB standards, including ASU 2016-13. Larger public companies
will still have an effective date for fiscal years beginning after
2019
are permitted to defer adoption of ASU 2016-13, and its related amendments,
until the earlier of fiscal periods beginning after
Company will adopt ASU 2016-13 for its fiscal year beginning
and does not expect it to have a material impact on its consolidated financial
statements.
In
Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”
This ASU provides optional guidance for a limited time to ease the potential
burden in accounting for reference rate reform. The new guidance provides
optional expedients and exceptions for applying
relationships, and other transactions affected by reference rate reform if
certain criteria are met. The amendments apply only to contracts and hedging
relationships that reference the London Interbank Offered Rate (“LIBOR”) or
another reference rate expected to be discontinued due to reference rate reform.
Additionally, entities can elect to continue applying hedge accounting for
hedging relationships affected by reference rate reform if certain conditions
are met. In
(Topic 848): Scope.” This ASU refines the scope of ASC 848 and clarifies some of
its guidance as part of the Board’s monitoring of global reference rate reform
activities. The ASU permits entities to elect certain optional expedients and
exceptions when accounting for derivative contracts and certain hedging
relationships affected by changes in the interest rates used for discounting
cash flows, for computing variation margin settlements, and for calculating
price alignment interest in connection with reference rate reform activities. In
Deferral of the Sunset Date of Topic 848.” This ASU defers the sunset date of
Topic 848 from
will no longer be permitted to apply the relief in Topic 848. These new
standards were effective upon issuance and generally can be applied to
applicable contract modifications. While our senior secured debt and many of our
floorplan arrangements utilize LIBOR as a benchmark for calculating the
applicable interest rate, some of our floorplan arrangements have already
transitioned to utilizing an alternative benchmark rate. We are continuing to
evaluate the impact of the transition from LIBOR to alternative reference
interest rates. We cannot predict the effect of the potential changes to or
elimination of LIBOR, the establishment of alternative rates or benchmarks, and
the corresponding effects on our cost of capital but do not expect a significant
impact on our consolidated financial position, results of operations, and cash
flows.
In
Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers. ASU 2021-08 requires contract assets and contract liabilities
acquired in a business combination to be recognized and measured by the acquirer
on the acquisition date in accordance with ASC 606
44
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instead of being recorded at fair value. The Company will adopt ASU 2021-08 for
its fiscal year beginning
material impact on the Company’s financial statements.
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