RumbleOn Inc

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our 2023 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. Terms not defined in this MD&A have the meanings ascribed to them in the condensed consolidated financial statements. Unless otherwise noted, comparisons are of results for the quarter ended June 30, 2024, or second quarter, to the quarter ended June 30, 2023. The six months ended June 30, 2024 and 2023 are referred to as the first half of 2024 and 2023, respectively.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements, the accompanying notes, and the MD&A included in our 2023 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. Terms not defined in this MD&A have the meanings ascribed to them in the condensed consolidated financial statements. Unless otherwise noted, comparisons are of results for the quarter ended September 30, 2024, or third quarter, to the quarter ended September 30, 2023.

Previous wording

Our powersports segment is the largest powersports retail group in the United States (as measured by reported revenue, major unit sales and dealership locations), offering a wide selection of new and pre-owned motorcycles, all-terrain vehicles (“ATV”), utility terrain or side-by-side vehicles (“SXS”), personal watercraft (“PWC”), snowmobiles, and other powersports products. We also offer parts, apparel, accessories, finance & insurance products and services (“F&I”), and aftermarket products from a wide range of manufacturers. Additionally, we offer a full suite of repair and maintenance services. As of June 30, 2024, we operated 55 retail locations consisting of hundreds of powersports franchises (representing various brands of motorcycles, ATVs, SXSs, PWCs, snowmobiles, and other powersports products) in Alabama, Arizona, California, Florida, Georgia, Kansas, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Texas, and Washington.

Current wording

Our powersports segment is the largest powersports retail group in the United States (as measured by reported revenue, major unit sales and dealership locations), offering a wide selection of new and pre-owned motorcycles, all-terrain vehicles (“ATV”), utility terrain or side-by-side vehicles (“SXS”), personal watercraft (“PWC”), snowmobiles, and other powersports products. We also offer parts, apparel, accessories, finance & insurance products and services (“F&I”), and aftermarket products from a wide range of manufacturers. Additionally, we offer a full suite of repair and maintenance services. As of September 30, 2024, we operated 56 retail locations consisting of hundreds of powersports franchises (representing various brands of motorcycles, ATVs, SXSs, PWCs, snowmobiles, and other powersports products) in Alabama, Arizona, California, Florida, Georgia, Kansas, Massachusetts, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Texas, and Washington.

Previous wording

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 pre-owned vehicles, any income related to 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.

Current wording

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 pre-owned vehicles; any income related to 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; gross profit on the sale of parts, service and accessories/merchandise; and gross profit generated from wholesale sales of vehicles.

Previous wording

Total powersports revenue for the quarter decreased 12.7% compared to the same period in 2023 primarily due to lower revenue from pre-owned vehicle retail sales on lower inventory of pre-owned vehicles. Revenue from new vehicle sales was also lower in the quarter; however, the impact from the decline in number of new vehicles sold was partially offset by a $506 increase in average revenue per new vehicle sold. The overall decline in retail sales contributed to a decline in F&I and PSA revenue for the quarter.

Current wording

Total powersports revenue for the quarter decreased $44.2 million compared to the same period in 2023 primarily due to lower volume of vehicle units sold. The impact on revenue from the volume was partially offset by a $397 increase in average revenue per new vehicle sold. The lower volume in retail sales of new and pre-owned vehicles contributed to a decline in F&I and PSA revenue for the quarter.

Previous wording

Total powersports revenue decreased $72.8 million for the first half of 2024, with the majority of the decrease coming from lower sales of pre-owned vehicles in the retail channel. Pre-owned retail unit sales and average revenue per pre-owned vehicle were both down. While new retail unit sales were also down, the impact on revenue was partially offset by higher revenue per new vehicle sold.

Current wording

Total powersports revenue decreased $117.0 million for the nine months of 2024, with the decrease coming primarily from lower sales of vehicles in the retail channel. The impact on revenue from lower volume was partially offset by higher revenue per new vehicle sold.

Previous wording

Total Vehicle Transportation Services revenue increased for the second quarter and first half of 2024 compared to the prior year comparable periods. The impact from higher revenue per vehicle transported was partially offset by a lower number of vehicles transported for the second quarter. For the six months ended June 30, 2024, revenue per vehicle transported was slightly lower than the prior year comparable period while the number of vehicles transported in the first half of 2024 was higher. Gross profit was lower in the quarter and first half of 2024 compared to the prior periods.

Current wording

Total vehicle transportation services revenue increased for the third quarter and nine months of 2024 compared to the prior year comparable periods due to higher volume of vehicles transported. Gross profit was comparable in both periods.

Previous wording

Selling, general and administrative expenses (“SG&A”) decreased $28.9 million for the quarter and $41.3 million for the first half of 2024 primarily due to our cost savings initiatives as well as some expenses in 2023 that did not recur in 2024. In last year’s second quarter and first half, SG&A included $4.7 million of charges related to a proxy contest and reorganization of our board of directors and $3.8 million of personnel restructuring costs primarily associated with the separation of a former officer of the Company. In addition, the second quarter of 2023 included $3.4 million and the first half of 2023 included $5.4 million of charges associated with the RumbleOn Finance loan portfolio that was sold at the end of 2023. Facilities expense in the second quarter and first half of 2024 included a $0.9 million gain on the partial termination of a warehouse lease that was no longer needed. SG&A as a percentage of gross profit improved 1,490 basis points for the quarter and 1,070 basis points for the first half.

Current wording

SG&A as a percentage of gross profit improved 850 basis points for the nine months ended September 30, 2024. SG&A decreased primarily due to our cost savings initiatives, as well as certain expenses in 2023 that did not recur in 2024. Facilities expense in the nine months of 2024 included a $0.9 million gain on the partial termination of a warehouse lease that was no longer needed. The nine months ended September 30, 2023 included $5.1 million of charges related to a proxy contest and reorganization of our board of directors, $5.3 million of personnel restructuring costs primarily associated with officer separations from the Company, and $6.0 million of charges associated with the RumbleOn Finance loan portfolio that was sold at the end of 2023.

Previous wording

Depreciation and amortization decreased for the quarter and the first half compared to the same periods in 2023, primarily due to lower amortization expense for non-compete agreements related to prior acquisitions.

Current wording

Depreciation and amortization decreased for the quarter and the nine months compared to the same periods in 2023, primarily due to lower amortization expense for non-compete agreements related to prior acquisitions and lower software amortization costs. Software amortization expense in the 2023 periods included a $2.6 million impairment of the remaining capitalized costs of certain software that was no longer being used.

Previous wording

Other interest expense consists of interest and deferred financing costs on the: (i) term loan facility; (ii) convertible senior notes; (iii) finance lease obligation; and in 2023, (iv) the ROF Consumer Finance Facility. Interest expense decreased for the quarter and first half of 2024 due primarily to lower outstanding principal on the term loan facility and the RumbleOn Finance consumer finance facility being paid off at the beginning of 2024, offset by interest expense on the finance lease obligation that was entered into in September 2023. Other interest expense was also lower due to our adoption of ASU 2020-06, as we are no longer amortizing the debt discount associated with our convertible senior notes. See 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 more details on our adoption of the new accounting standard.

Current wording

Other interest expense consists primarily of interest and deferred financing costs on the: (i) term loan facility; (ii) convertible senior notes; (iii) finance lease obligation; and in 2023, (iv) the ROF Consumer Finance Facility. Interest expense decreased for the quarter and nine months of 2024 due primarily to lower outstanding principal on the term loan facility and the RumbleOn Finance consumer finance facility being paid off at the beginning of 2024, offset by interest expense on the finance lease obligation that was entered into in September 2023. Other interest expense was also lower due to our adoption of ASU 2020-06, as we are no longer amortizing the debt discount associated with our convertible senior notes. See Note 1, Description of Business and Significant Accounting Policies, for more details on our adoption of the new accounting standard and Note 4, Debt, for more detail on the components of our other interest expense.

Previous wording

(2) Amount as of June 30, 2024 included $47.5 million for the JPM Credit Line (as defined below) that was reduced to $12.0 million effective August 6, 2024.

Current wording

(2) Aggregate availability at December 31, 2023 included $47.5 million for the JPM Credit Line (as defined below) that was reduced to $8.0 million as of September 30, 2024. During October 2024, aggregate credit availability was reduced by $22.8 million as a result of our lowering of limits with certain lenders and the reduction of the limits under the JPM Credit Line. Subsequent to November 1, 2024, pursuant to the terms of the agreement, no new amounts may be borrowed under the JPM Credit Line.

Previous wording

At June 30, 2024, the Company was not in compliance with certain leverage ratio financial covenants under the Credit Agreement. On August 6, 2024, the Company, the Subsidiary Guarantors party thereto, Oaktree and the lenders party thereto executed Amendment No. 8 to the Credit Agreement (“Amendment No. 8”), pursuant to which, among other things: (i) the leverage ratios were revised and made less restrictive through December 31, 2024, (ii) the level of liquidity required by the minimum liquidity covenant was increased from $25.0 million to$30.0 million starting June 30, 2024 and continuing through the maturity of the term loan, and (iii) a compliance certificate is required to be submitted affirming compliance with the then effective leverage and liquidity tests upon any full or partial cash settlement of the convertible senior 6.75% promissory notes due January 1, 2025. The Company agreed to pay a one-time fee of 0.5% of the loan amount in cash, and the additional 0.5% of interest was extended through March 31, 2025.

Current wording

At June 30, 2024, the Company was not in compliance with certain leverage ratio financial covenants under the Credit Agreement. On August 6, 2024, the Company, the Subsidiary Guarantors party thereto, Oaktree and the lenders party thereto executed Amendment No. 8 to the Credit Agreement (“Amendment No. 8”), pursuant to which, among other things: (i) the leverage ratios were revised and made less restrictive through December 31, 2024, (ii) the level of liquidity required by the minimum liquidity covenant was increased from $25.0 million to $30.0 million starting June 30, 2024 and continuing through the maturity of the term loan, and (iii) a compliance certificate is required to be submitted affirming compliance with the then effective leverage and liquidity tests upon any full or partial cash settlement of the convertible senior 6.75% promissory notes due January 1, 2025. The Company agreed to pay a one-time fee of 0.5% of the loan amount in cash, and the additional 0.5% of interest was extended through March 31, 2025.

Previous wording

Included in the availability under powersports financing credit facilities is the JPM Credit Line that had an advance limit of $47.5 million, of which $13.2 million was used as of June 30, 2024. At June 30, 2024, the Company was not in compliance with the “Minimum EBITDA” financial covenant as of such date. On August 6, 2024, the JPM Credit Line was amended to relax the applicable financial covenants for the remainder of its term, and the term was extended from October 25, 2024 to December 31, 2024. The Company paid approximately $1.2 million of the outstanding balance of the JPM Credit Line, and the terms of the credit line were revised to reduce the commitment level to $12.0 million initially, to provide for further reductions through the revised maturity date, and to reduce the advance rate of incremental floored units from 75% to 65% of cost.

Current wording

Included in the availability under powersports inventory financing credit facilities as of September 30, 2024 was the JPM Credit Line with an advance limit of $8.0 million, of which $5.7 million was used. The JPM Credit Line was amended on August 6, 2024 after the Company was not in compliance with the “Minimum EBITDA” financial covenant as of June 30, 2024. The amendment revised applicable financial covenants for the remainder of its term, reduced the commitment level, reduced the advance rate of incremental floored units from 75% to 65% of cost, and extended the term from October 25, 2024 to December 31, 2024. On October 23, 2024, the Company paid off the outstanding balance under the JPM Credit Line. Pursuant to the terms of the agreement, no amounts are available to be borrowed under this line after November 1, 2024.

Previous wording

Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures or strategic initiatives, and other business and risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 as amended and supplemented in subsequent filings. We believe that current cash and short-term investment balances plus cash generated from operations will be sufficient to meet both the operating and capital requirements of our ordinary business operations through at least the next twelve months; however, there can be no assurance that we will not require additional financing within this time frame.

Current wording

Our future liquidity and capital requirements will depend upon numerous factors, including our results of operations, the timing and magnitude of capital expenditures or strategic initiatives, and other business and risk factors described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 as amended and supplemented in subsequent filings. We believe that current cash balances plus cash generated from operations and capital commitments received in November 2024 will be sufficient to meet both the operating and capital requirements of our ordinary business operations through at least the next twelve months; however, there can be no assurance that we will not require additional financing within this time frame.

Previous wording

Our primary sources of operating cash flows result from the sales of powersports vehicles and ancillary products. Our primary use of cash from operating activities are purchases of inventory, parts and merchandise; marketing costs; interest payments on trade floor plans, long-term debt, and finance lease obligations; rental costs for facilities; and personnel-related expenses. Operating cash flows for the first six months of 2024 were $34.8 million better than in the comparable period in the prior year, reflecting the Company’s improved operating performance, primarily driven by the impact of our successful cost savings initiatives and the settlement of the sale of the RumbleOn Finance loan portfolio.

Current wording

Our primary sources of operating cash flows result from the sales of powersports vehicles and ancillary products. Our primary use of cash from operating activities are purchases of inventory, parts and merchandise; marketing costs; interest payments on trade floor plans, long-term debt, and finance lease obligations; rental costs for facilities; and personnel-related expenses. Operating cash flows for the first nine months of 2024 were $87.1 million better than in the comparable period in the prior year, reflecting the Company’s improved operating performance, primarily driven by our efforts to reduce inventory days on hand, the benefit of our cost savings initiatives and the settlement of the sale of the RumbleOn Finance loan portfolio.

Previous wording

Our investing activities support and expand our operations. Net cash used in investing activities was lower in the first half of 2024 primarily due to lower purchases of property and equipment and because we purchased a powersports dealership in Florida last year.

Current wording

Our investing activities support and expand our operations. We acquired a powersports dealership in Massachusetts in 2024 and a powersports dealership in Florida in 2023.

Previous wording

Cash flows from financing activities primarily relate to our short and long-term debt activity. In the first half of this year, cash used in financing activities was higher primarily due to higher repayments of debt and a lower increase in non-trade floor plan borrowings.

Current wording

Cash flows from financing activities primarily relate to our short and long-term debt activity. In the first nine months of this year, cash used in financing activities was higher in 2024 primarily due to a reduction in non-trade floor plan borrowings. The prior year also included the proceeds from a sale-leaseback transaction.