RideNow Group Inc (RDNW) 2018 Q3 法說會逐字稿

Good morning. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the RumbleOn third-quarter 2018 earnings conference call. (Operator Instructions). Thank you.

Whitney Kukulka, you may begin your conference.

Before we begin, let me remind you that part of our discussion today may include forward-looking statements, which are based on expectations, estimates, and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict, which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance; and, therefore, undue reliance should not be placed upon them.

We refer all of you to our 2017 Form 10-K and other recent filings with the SEC, including the Form 8-K filed this morning, for a more detailed discussion of the risks that could impact the future operating results and financial condition of RumbleOn, Inc. We disclaim any intentions or obligations to update or revise any forward-looking statements, except as required by law.

With that, I'll turn the call over to Marshall. Marshall?

(technical difficulty) that we have previously communicated. The strategic acquisition of Wholesale will accelerate our mission to transform the way pre-owned vehicles are bought and sold.

For the six months ended June 30, 2018, Wholesale Inc. and Wholesale Express generated $328.6 million in revenue and $2 million in net income, with annual unit sales of more than 20,000 units and average inventory of more than 2,000 units. Wholesale will provide RumbleOn an immediate and accretive method of accessing the 44 million annual unit sales in the pre-owned car and truck business.

Our four primary objectives that we believe will drive our long-term business remains unchanged: grow revenue, vehicle unit sales; increase total profit and margin per vehicle; increase operating leverage; and strengthen our capital structure. In the third quarter, the total unit sales increased to 2,875, up from 2,013 in Q2, representing a 43% quarter-over-quarter increase.

We continue to change and test multiple concepts in these early stages. As an example, in Q3, we raised our terminated cash offers from under 2% year-to-date to over 15%, which has unit sales effect of over 700 units in the quarter. These are important to be doing because we had nothing to benchmark our current business around. We had no statistics to rely on. And everything that we're doing is pioneering in nature. The 15% appears to have been a little bit of an overshoot. We don't see it remaining there. But it should have significant effect as we move forward on our margins; and that is the purpose, obviously, of instituting these tests and changes to our model.

Unit sales to consumers was up 83% Q-over-Q. I think it's important that we realize the total business was up 43%, but our consumer business continues to grow at a faster rate as a percent of the whole than does our total business. Unit sales grew more than 7 times in the nine months from January to September 2018. That means that in January, we sold 140 total units; and in September, we crossed the 1,000 unit mark.

One thing I would share with you is I'm not aware of any online vehicle seller that has ever accomplished 1,000 units in a given month in such a short window of time. And I think you can verify that, obviously, with other vehicle competitors that are out there. So we're very, very excited and very pleased with the amount of growth. And we feel overall that we've just barely scratched the surface on the opportunity in the power sports business.

The total revenue reached $19.3 million, up from $13.9 million in Q2, representing a 38% increase. As you saw this morning, we also announced the pricing of $21.5 million private placement. We plan to use the proceeds from the private placement to acquire the Wholesale entities and for working capital. The private placement is fully subscribed and is expected to close on Monday, October 29, subject to customary closing conditions.

We are building a supply chain solution that will span all pre-owned vehicle segments. We built RumbleOn around inventory acquisition and to optimize our business through a completely agnostic distribution model. We believe that controlling the inventory at the source will prove to be a winning proposition in the supply of vehicles for consumers and dealers.

Wholesale accelerates our plan to entering the huge automobile marketplace, and allows us to do it with meaningful size and scale and without the significant startup costs typically associated with new market entries.

Multiple sales channels allow us to maximize revenue by selling wherever the opportunity exists, based on customer demand, market conditions, or inventory availability at any given time. RumbleOn will be the dominant marketplace in online acquisition of vehicles direct from consumers and dealers, while continuing its agnostic distribution approach of rapid turns of vehicles supplied.

The Wholesale model has scaled over several years with an acquisition strategy that focuses primarily on acquiring inventory direct from dealers and auctions, with a small portion from consumers direct or on trade-in. Overlaying the RumbleOn proprietary software to Wholesale's current manual operations will provide new growth opportunities and enhance operating metrics.

We believe that our cash offer tool, combined with our inventory management software, processes, and guidelines will improve inventory turns, reduce mistakes, and increase margins. By capturing data on all opportunities on the RumbleOn database, our ability to have the right vehicle, at the right time, at the right price is greatly enhanced.

Additionally, the Wholesale Express LLC has become a well-known brand for the movement of thousands of cars and trucks for dealers across the country. We intend to realize cost benefits by moving our logistics across power sports onto the Wholesale Express platform. RumbleOn will market under the Wholesale Inc. brand, independently as a separate channel; and, in parallel, taking advantage of two brands and capitalizing on the associated marketing leverage. RumbleOn has the potential to make a meaningful improvement to the overall retail channel by leveraging our 100% online model. And we believe this will produce pure incremental purchases and sales of highly desirable and profitable inventory for Wholesale Inc.

An important driver of RumbleOn's business plan is inventory acquisition through an increase in more cash offers. Cash offers provide a low-cost vehicle acquisition source while providing liquidity to our customers, both consumers and dealers, and serves as a competitive advantage for RumbleOn. We will integrate our powerful technology with Wholesale, enabling us to acquire cars and trucks direct from consumers, and creating liquidity while maintaining our capital-light and agnostic distribution model that underpins the RumbleOn today.

This new source of inventory will provide incremental volume and improved gross margins to the current Wholesale distribution platform. Further, RumbleOn will market the current Wholesale inventory on RumbleOn.com to provide the same friction-free transaction RumbleOn currently offers to motorcycle and power sports consumers and dealers.

As of September 30, 2018, we have provided more than 100,000 cash offers since we started making these offers in June of 2017. We are thrilled that the consumer acceptance of our cash offer process has reached this huge milestone in such a short period of time, and way ahead of plan. We exceeded our previous expectations and made over 50,000 cash offers in third-quarter of 2018, which is almost double the 29,000 cash offers made during Q2, and over a 12 times multiple Q1's results. The tremendous growth we have seen with our 100% online cash offer process validates our vision of creating easy liquidity where liquidity does not easily exist today.

Through cash offers, we are able to optimize our inventory to meet demand, and believe that our current inventory mix and competitive pricing will drive acceleration across all vehicle types. We expect to continue to grow our cash offers in Q4 and beyond as we work through the integration with Wholesale, and extend our liquidity offer into the car and truck markets.

I would also urge all of you to read the shareholder letter in regards to the on-schedule launch of our RumbleOn classifieds, as well as the recent launch of our dealer direct software and how that works. It's been received extremely well. The classifieds section is under testing as we speak, and should be launching very, very soon and we see a tremendous upside opportunity.

So with that, I'll turn it over to Steve for his comments.

Thank you, Marshall. Just to add on to what Marshall said about the excitement around Wholesale Inc. is the fact that our moat that we've always tried to build wide and deep in terms of competitive thrust -- this makes us that much -- it gives us size and scale. It allows us an opportunity to be unique in the marketplace. We're the only company that (inaudible) power sports and vehicle -- automobiles and trucks.

I think the important thing is that this model is truly capital-light. Again, virtually no facilities on either business, quick inventory turn, buying from consumers and distributing through the auction channel. No refinishing centers for us. It's exactly what we are in power sports.

So if you really think about it, as this Company is now going to move into profitability quicker. But we also don't have to invest any money in -- and take our capital and do things like build facilities, reconditioning centers, warehouses -- what do you call those things?

Vending machines.

Vending machines. We have an opportunity to take all of our capital, all of our profitability, and drive revenue; and bring a unique situation to the marketplace where we can buy from consumers just about any asset they have. Soon we'll be going to boats and RVs. It will be just that much broader of an opportunity.

In looking at the third quarter, Marshall's covered some of the numbers. I'll fill in a little bit.

Gross profit was $2 million, up about 59% from Q2. Gross margin per unit was 12%, up 80 basis points from Q2. I think the primary driver of the gross margin was the fact that our sales margin -- we had a substantial increase; which really is saying that we are buying the products better and better, quarter to quarter. If we go back and look a little bit back to Q1, our sales margin then was running about 12%. Now we've reached in Q3 where it's 15.8%. Our sales margin since Q1 has increased by almost 30%. Our gross margin has increased by almost 40%, while our ASP is down about 26%. So we're clearly making progress.

Our growth in our margins is coming from better buying, better information in the algorithms. There's been virtually little change in freight and reconditioning. So it's purely margin from a better purchasing system, as well as we are -- sorry, we had an 80% increase -- about an 83% increase in consumer sales, Q2 to Q3. So we continue to make progress. The consumer side was about 9.2% of revenue in the quarter, up from around 7% in Q2. Average selling price was $6,788, lower than we had anticipated, but obviously we maintained our margins. It's $0.46 a share loss or about $6.8 million compared to $4.7 million for Q2. Primary difference is we had a $1.8 million increase in marketing spend in Q3 as we continue to drive and try to gain market share while we have the opportunity with so little competitors in sight. And as of September 30, we had about $13 million -- $12.8 million of cash and cash equivalents.

So, in terms of the PIPE transaction, the only thing I'll add there is we sold [3,000,040] shares at a price of $7.10. In addition, we drew an additional $5 million down on just the line of credit that we have, and that basically funded the acquisition. In terms of the acquisition consideration, we gave the sellers $16 million in debt -- we'll give them the $16 million cash when we close, and they'll take $7 million worth of RumbleOn stock. And I think with that, let's just go to questions.

(Operator Instructions). Darren Aftahi, ROTH Capital Partners.

I guess first on the Wholesale transaction, can you just give us some background on how this came about? And then Marshall, you talked about layering on your software onto their platforms to become more efficient and grow units. Can you indulge us and explain how Wholesale does it today, and how quickly of an integration that's going to be in terms of layering RumbleOn? And then I've got a couple follow-ups.

Okay. Yes, I think a couple of things I would say, Darren, is I think that, as we presented to investors, we made it fairly clear that we can probably all debate the knowledge of the management team when they're in the power sports space, but I don't think anybody can debate the knowledge and background of our entire team with regards to automotive. So this is not something that we have not done multiple times before, as far as integrating an automotive business into our current business. So we are very, very comfortable with the smoothness of that transition and transaction will take place.

I have been familiar with Wholesale Inc., and Steve Brewster and Chad and the team for quite some time. My prior background as the Founder of Vroom, we acquired multiple vehicles from them, primarily through their Nashville platform at the time. I watched their significant growth over the last several years. We reached out to them and asked them if they would have any interest in talking to us. We thought that it was a great way and a very inexpensive way to get a huge head start in the automotive side of the business.

Our original plan, as you know, was in 2019, after bringing out boats and RVs, was to roll into cars and trucks sometime later in 2019. But if you look at the cost of what many people have done in the automotive space to build these automotive platforms, it's extensive and it takes a significant amount of time.

If you look at the amount of money invested in many of the online models that are out there -- and most of you know those -- and you look at the amount of time in years and the amount of capital it took to get to a point of 2,000 sales per month and actual profitability, financial statement P&L profitability, is huge. In fact, many haven't even come close to that objective at this point.

So we felt that it was a great way to leapfrog into the automotive space. A couple of things that will happen. They are a very traditional business. They have people on their team that have been buying vehicles for them for over 20 years. Steve Brewster, the owner, who has stayed very, very involved and will continue to run the day-to-day operations as he does today; with the assistance of Chad Cunningham, who has been key; as well as a great CFO in Steve Watson. They will run that entire operation.

And we think that by taking -- their primary business, as it says in the letter, is they buy direct from dealers is their primary business. And then they recondition and re-market into the space, both to consumers and to dealers. On the consumer side, they have two locations in Nashville. They are bricks-and-mortar. They are -- it isn't something that we will expand. But they are profitable, and they sell a reasonable amount of units. They have a great brand awareness for the Wholesale Inc. name in Nashville. There would be no reason to get out of it.

But where the expansion comes is in twofold, Darren. You've got our acquisition software buying direct from consumers is going to be all incremental into their distribution platform from day one. And we can get that -- our software is already set up to do it, as you are aware. And it will take us a few weeks to migrate into the car space. And we will immediately start buying vehicles direct from consumers. We know from past experience -- I think you've heard from many of the automotive competitors out there that acquisition of vehicles direct from consumers is key to profitability.

On the distribution side, where does RumbleOn play, and where are the synergies? Well, clearly, for us to be able to launch onto the RumbleOn website, RumbleOn.com, and start in the car and truck space with 2,000 value-priced vehicles with all the same offerings that we presently offer on power sports, we think is meaningful.

To summarize it, as you've heard me say before, Darren, my belief is a little different than some that are out there from the standpoint that I think the key to the success of this business is on the acquisition. If you buy the right car or right motorcycle at the right time, at the right price, it's half sold when you bought it.

If we dominate the acquisition from consumers -- and we believe we can -- and we control the value proposition because of the source in which we are acquiring, we think that we control the end-user both -- whether it be to a consumer or to a dealer, at the end of the day.

That's helpful, thanks. Couple of follow-ups. I know you called out the termination rate on cash offers went up. I think the math in the third quarter is about 5.6% kind of acceptance. Understanding that maybe you had implemented that within the quarter, which caused some volatility, I'm curious: with October almost done, what have you seen in terms of acceptance rates going forward? And is that going to be a moving target?

And then two other things. When we look at the 2019 guidance, I'm curious what your underlying assumption for Wholesale's growth is in that $900 million to -- I believe it's a $1 billion number. And then last thing is just the mix of hog and metric in the quarter. Thanks.

Okay, I'll start from the end; I'll let Steve take the middle one. The mix of Harley and non-Harley continues to run fairly close to what the total market is with regards to -- in the road bike segment. We are doing significantly more today in the off-road and ATV.

I will tell you that the changes we have made is clearly making a change to our ASP, going forward. Presently, it's up significantly from third quarter, as are the initial glimpse of margins. We are confident the changes will be meaningful.

But on the capture rate, I think, as I said in my opening comments -- I think we probably overshot a little bit. But Darren, in the early stages of these things when we don't have any data to rely on, if we don't overshoot on some of this testing, you never know what the baseline is. So we have since loosened it up a little bit from where we were. We think we -- as I said, I think we overshot a little bit. I think it settles in, at the end of the day, at scale.

Keep in mind, we think our classifieds site, by keeping people in the RumbleOn world for a longer period of time, is going to significantly increase, over time, our ability to capture.

So -- but even without that dynamic, I think we've been running somewhere in the 8% range. The fallout continues to be really consistent, and the fallout is for a plethora of reasons. What I mean by fallout is from the point the customers click accept, which is a much higher number of what we talk about with -- as far as pure capture rate, because what we consider capture rate is what we actually purchase. But there is quite a bit fallout in the -- from the time that you click accept to the time that we actually purchase. Most of it is completely out of our control. Some of it, we continue to improve processes and timing and different things, and communication, primarily.

So we think there's probably a 1% opportunity to increase in that regard. But we'll continue to -- we think it will continue to improve. But I think on a going-forward basis, at scale, probably in the 8% range is a safe number. But again, as we launch the opportunity into classifieds, we think that that could have a net effect over time, for sure. Obviously you've heard my excitement about classifieds. And I know you didn't ask the question, but I'll just touch on it real quick.

We've got about 90,000 people right now -- over 90,000 people in the database that didn't choose to accept our cash offer. And we think that we have got -- we think that the majority of those still have their asset and would still like to liquidate it.

Many of the Harley-Davidson buyers today, they can't liquidate. It isn't -- there is so much negative equity in that space, the way that they've built their business model, that the biggest fallout on Harley-Davidson acceptance is because of the negative equity, which is the most extreme I've ever seen it in my 40 years in the business. I mean, even in the worst days of the automobile business, I haven't seen these levels of negative equity. So those, we can't overcome. But we'll continue to improve as we go forward.

Steve, would you take the middle part of the question?

Yes. The -- you talked about the growth of Wholesale Inc. I think we start with the fact that on the standalone basis before we showed up, they'd been growing at around 15% compounded growth rate on a unit sales basis. In looking at their plan they gave us for 2019, they anticipated that they could grow somewhere in the neighborhood of 18% to 20%.

So on a base -- and you've got to remember now, we're talking an average ASP of $24,500. So, in their respect, 18% of finishing up their base year at [650], there's $120 million or so of additional business. (technical difficulty) by us going in and buying units from consumers and allowing them to put those through the auction lane, we've signed up and believe that we can deliver about 5,000 to 6,000 units during the year, which is an average of about 400 a month, 450 a month. That's another $125 million to $130 million. So that gets -- their $650 million get us to $900 million plus. And we'll also be comfortable with that.

Nehal Chokshi, Maxim Group.

Just want -- I'll ask a question on acquisition in a minute, but first on the preliminary results. Can you prorate us what was the inventory level and the cash level at the end of the quarter?

Yes, there were 932 units in inventory at September 30, and cash was $12.8 million.

Okay.

Nehal, we continue with about an average days in inventory of about 19 days. It's stayed extremely stable through the last four or five months.

Okay. And, therefore, the -- it's pretty clear, then, that the shortfall relative to the units sold relative to your guidance was purely because of the uptick in the termination rate that you guys implemented. Correct?

(multiple speakers) That's correct. And I would expect us to -- again, to bring that down, probably not significantly; but 15% was probably too high. We probably end up, at the end of the day, in the 10% to 12% range. But we do, in the early results -- we didn't do that until mid-quarter, so those vehicles are cycling through the accounting as we speak. And we are seeing very encouraging margin opportunity. And we do think that it's a significantly better model.

The other thing is that the people that we are terminating -- keep in mind, we are going to -- because we didn't actually issue them a cash offer, we're going to reward them for taking the time for about a 14- to 30-day free listing, just for coming to the site and taking the time to do it. The kinds of vehicles that we are move -- that we have moved away from is a vehicle that we don't feel we can realize a minimum of $1,000 of margin on, and we don't feel that we can give the customer what would be perceived as a fair offer. To make somebody and offer for $200 on a $1,200 bike is just not something that is consumer friendly. And we don't think that it helps to build a brand of honesty and trust.

And to (multiple speakers).

I was just going to say to also make sure we finish the loop on this. This same cash offer truncation is probably going to cost us more than 800 units in Q4, as well, based on our original -- what we believe was our original cash offers times closure rate.

Got it, okay. Marshall, just to be clear: when you talk about the offering, the free classified, that's to the consumer? And obviously your cost basis is virtually nothing. And the benefit to RumbleOn is that you will have the opportunity to add on additional services if a sale is consummated through your classifieds. Correct?

And it also -- well, yes. It's even more than that. Number one, it's only free for a short period of time. We just want to reward them in some way for taking the time to post the information and do what we got them to do.

But most importantly, we want to have a brand, at the end of the day, that says: we want to give you the only cash offer available in the market. And if it's not acceptable or we're not able to give you a fair valuation, we want to help you sell it. And so, by bringing them into the fold, we have that opportunity. But that won't be free forever. It will be free for some short window of time to introduce them to RumbleOn classifieds.

Okay. And then on the --

Oh, by the way, on RumbleOn classifieds, Nehal, just one thing for you to understand, because I don't think we've covered this on any of our previous calls. Is every 30 days as that listing renews and we're getting ready to hit your credit card or your PayPal account for the next 30-day fee, we're going to issue you at every 30 days another cash offer. And that cash offer, as long as you are listed on RumbleOn.com, that cash offer is good for that 30-day listing period. So, they can take -- there basically isn't any risk if they're not in a hurry for the cash.

But what you'll find is, because peer-to-peer transactions are just cumbersome in nature, we believe we will see significantly more come back into the flow. And where we came to that conclusion is we see how many people come back just on their own that don't accept it the first time, but then go out to the Craigslists and all that of the world and then cycle back in 90 days and put it back into the tool and start the process over again. And at that point, the acceptance rates is extremely high.

So we think keeping them in the RumbleOn camp, if you will, is going to pay huge dividends over time. But we'll just be getting that live in fourth quarter, and it will be meaningful, come first quarter of 2019.

Okay, thanks. And then on the acquisition, effectively you are acquiring it a little -- I guess 12X net income, which is a pretty attractive price. Why do you think the owners are willing to sell at a low multiple, especially given the growth that they've been able to achieve on their own? And you may have already reviewed this, but what are the incentives that are in place to ensure that they will continue to make sure that the synergies are realized?

Well, I'll let Steve cover some of that. But I think the attractive part is really from our background, and certainly Steve's background, buying 400 dealerships under AutoNation. I think most people did significantly better on their stock than they ever did running their private company. We've got significant personal guarantees in place. There's a whole lot of things at his age that he should be -- that he was thinking about. And also the opportunity to continue to grow. He's got a young management team that have a lot of energy and have a lot of enthusiasm to grow the business. And I'm not so sure, in a private cap world, that he could continue to grow at the rate that they want to grow at.

So you just saw that -- and again, we went after them because we thought that their agnostic approach on the distribution side -- and doing it successfully buying from dealers, which is the second tier of the funnel, if you will, on acquisition -- we just felt by layering on consumer purchasing on top of that becomes a really important deal.

One thing to look at this overall, too, Nehal, is we see ourselves in the supply chain as a supplier. And over time, because again we control the inventory and we control the value proposition, we believe we'll have a -- we'll make a huge -- we'll make huge inroads on the consumer side.

But because of where we are acquiring it, we can redistribute at significant profits. And I think when you -- as we go forward and you see the difference of the gross margin -- and we know this from past experience already, so this isn't something we believe; we've seen it in live and living color -- as we go forward, you're going to see the performance of consumer purchases is significant over dealer purchases or auction purchases.

And as I've said to everybody many times, I believe that success of the CarMax model overall is that their acquisition is direct from consumers. And it's given them a huge leg up on the competition.

Steve, do you want to add?

Yes, the only thing I'd say is I think Steve Brewster, the founder and the owner of the company, I think he made the decision that great entrepreneurs make. He's built a big business over a 27-year period of time. And looking to increase and capitalize on what he built, it just seemed to be, at this time, a better opportunity to take our stock, stay involved, team up with us, have a -- basically go public, if you will, have access to capital, so the business can continue to grow. And at the same time, he's taken some of his hard work off the table. I commend him for that because most people couldn't put together what he's put together and be as successful as he's been.

So I think doing the roll-up of AutoNation, this is where most of the dealers made their money. They made it in taking the stock and joining a public company. On the incentives --

I think it's -- go ahead, I'm sorry.

No, go ahead.

I think the important part, too, is you mentioned the purchase price to value and all those kinds of things. But we look at it even deeper than that from a standpoint of -- and I touched on it earlier -- is -- and this is a 27-year-old company. It's taken him 27 years of sweat to get to this point. What costs the companies today that are trying to compete in the online space and the reason they have to -- they spend the hundreds of millions of dollars of capital to get to the point of -- and some of them don't ever get there -- to 2,000 units a month, is something that we are buying up front.

So if you look at it on the flip side, what would it cost to build it, and that was our intent; on a white sheet, it'd be completely different. And so, we think it's a great opportunity for the seller. He obviously agreed. We think his stock will perform extremely well. He's key to the process. But he can sleep a little better at night, too, because he's got the support group of RumbleOn's team and our expertise layered onto the great team that he already has. So it wasn't -- just for the record, I think both of us saw the opportunity very clearly in a short conversation.

(multiple speakers) question about the incentives. We basically took $3 million out of our RSU pool and we had them allocated to the top 35, 40 people in the company. And those RSUs vest 20%, 30%, 50% in year three. So they've got plenty skin in the game. They've got plenty opportunity to participate in the success of the Company. And they've got a publicly traded stock when it's over. So they're aligned with the shareholders. And we thought it was a good way to keep them excited and motivated to continue to what they've done so well over a long period of time.

We've integrated enough of these to know that the worst thing you can do -- if you're buying a business because you like the business -- is leave their base business alone and work on enhancements that can increase their business over time. So, the worst thing that could possibly happen -- and that's why we issued the amount of equity that we did to the team, out of our existing RSU pool, by the way -- is for that exact reason.

When you've got people with 20 years' experience of buying cars for a company like Wholesale Inc., the worst thing that could happen for the company is to lose those people, and we certainly don't intend to do that.

I don't have a history of doing that in the businesses that I've acquired over the years, nor does Steve. So we think we can create a lot of excitement for their team and keep everybody engaged. And we certainly don't intend to go in there and disrupt their business in any way. We want to enhance it.

Rommel Dionisio, Aegis.

Congratulations on the transaction. So, we had Harley and Polaris report some results recently, and they talked about some slowdown in the overall market for new motorcycles. I obviously realize you don't sell new motorcycles, and you sell used ones. But they did talk about some soft used bike pricing. So I just wanted to see how you felt that had repercussions for the business that you're in; obviously, selling new bikes. Thanks.

Well, I love this one, so I'll try to -- and I'm long-winded at most times, as you can already recognize. But yes, I love this question from a standpoint that two things. Number one, we are in the pre-owned business. If you take the likes of Harley-Davidson and they -- if they cut their production by 50% for the next three decades, it would basically have no effect on the amount of millions of units that are presently in the system. So, that's the nice part of why -- even in automotive, why used never falls, like new does, at the same rate; and the reason why the industry is 3 times that size.

I would tell you that we believe, and we think the data clearly shows -- and by the way, I've met with a couple of the manufacturers, the major one you mentioned -- to discuss exactly that. We have some very interesting data: less than 20% of all the people that have bought a motorcycle from us, own a motorcycle. When they talk about building new ridership, and that's their biggest challenge, the reason it's a challenge is because on the new vehicle side it's not an affordable transaction. How you bring people into your brand is by affordability.

When a guy wants to buy a Harley-Davidson and he can't afford a $25,000 Harley-Davidson, he might be able to afford a $7,000 Harley-Davidson. And quite honestly, I've been riding for 50 years, and I can tell you that -- you ride down the road if you're on a 2008 or a 2011, your buddies don't know the difference.

And so it's all -- from our perspective, it's all about affordability. Our average transaction is far below 50% of what a new transaction is, and that's why the differentiators. I think that also when you look at the buyer that we bring to the table, it is significantly younger than what the likes of Harley-Davidson are experiencing. We have a high penetration with -- much higher with females then I even imagined could be possible in the space. So we don't look at -- we look at it at, quite honestly, as an opportunity.

With regards to the valuations, the only thing I can possibly come up with an explanation for the latest information with regards to Harley prices being -- used Harley prices being low: first off, the bikes that are traditionally sold into the marketplace are not what RumbleOn is bringing to the marketplace. It is primarily Harley Davidson financial services, which is 1- to 3-year-old bikes. They also entered into an agreement with EagleRider on the direct distribution -- which the car guys did many years ago -- for the rental business. So what that dealers have the opportunity to buy today is not exactly -- from a price point perspective -- is not what the market wants, and it is probably oversaturated. Thus, the numbers they are looking at look lower.

I will tell you that our data does not show that the prices are lower. But again, the bike that we're bringing to the marketplace for dealers and consumers is significantly lower in price and significantly higher in quality. And when I say that, this isn't a guess. I mean, you look at our average miles of our bike that's in inventory and compare that to the bikes -- even though they are one and three years old in the Harley-Davidson world, we're significantly less. Our average motorcycle in stock, as of right this minute, is less than 12,000 miles, and it's a 2011 model. Our average inventory is exactly in the sweet spot.

If you were to layer this into the car business, as an example, without question, everyone will tell you that half of the price of a new one is the best-selling, fastest-turning inventory in the car business. We're seeing the same dynamics in the motorcycle business, and it all relates to affordability.

Yes, that's very helpful. Thanks for those insights. Just a quick follow-up. Just some guidance, just to clarify -- sorry if I missed this earlier. But your guidance for 2018 revenues, is that anticipated closing at year-end of the transaction then? So the Wholesale numbers are not in there? And also -- so that's on the revenue line, obviously. And then the cash flow breakeven for the first half of 2019, is that -- that is excluding Wholesale, or is that included? Thanks.

That's excluding on both sides.

Okay. Thanks very much.

Ilya Grozovsky, National Securities.

A couple quick questions. On the presentation that you guys put up -- the slide presentation on the press release -- it has Wholesale's numbers through six months. You've given us your preliminary third-quarter number. What did Wholesale's third-quarter look like from a revenue and profitability perspective?

We haven't gone that far and disclosed that. So we will wait till we close and then we'll address that. But they're on a -- I guess we could -- using the deck as a guide, they are on their pace to do $650 million in revenue for 2018.

Okay. Okay.

And if I could just (multiple speakers) more thing. By the way, 27% of that revenue will be earned in Q3, so maybe that will help.

Right. Okay, that was my (multiple speakers)

Not to add to -- when you are looking at these numbers, too, I think something that everyone should consider is with regards to Wholesale Express, Wholesale Express is a very profitable business, and it is a huge enhancement to what we're doing. Presently, we estimate we are paying somewhere between $50 and $60 a motorcycle in brokerage fees. And we will now capture that internally into our own Company as we layer on our logistics on to the existing platform that we will now own. So it also has a meaningful impact over time on margins on the power sports side.

Okay. Okay. From a seasonality perspective, can you just lay out what Wholesale's quarterly seasonality looks like on an --?

Well, it will match up to the traditional, long-standing information that's out there with regards to automotive. Their first and second quarter, much like the power sports business, is kind of the peak of the market. On the power sports side, we are -- we certainly anticipated this time of year, which is a very slow time of year from a Wholesale valuation perspective. And we think we were really, really close on the mark. And I think it's -- again, it will be reflected. We see some significant upside as we go into first and second quarter for both businesses.

And if you -- once it's all disclosed, if you look at their numbers, you will see that that true in that they typically ramp inventory, as we will, in fourth quarter to get ready for those first-quarter sales. Dealers react on an as-needed basis of what they need today to sell today.

Another one of the strengths of companies like Wholesale and CarMax and others is based on good data, which we think we have some of the best, and we will offer some of the same things to the car and truck side with Wholesale. We think that buying at the right time at the right price is very, very important. And with our balance sheet and our lending capabilities, we can buy in advance of markets, not buy at the real-time. And that creates some interesting arbitrage as we go into different seasonality times.

Okay. (multiple speakers) Wholesale Express, would there be any conflicts in terms of -- from a competitive perspective, that perhaps the Wholesale customers would not want you guys, now that you are all part of the same company? Or in other words, other than moving around your inventory, is there any issue with competitors not wanting to use you guys?

Well, transportation is about speed and price. And they've built a hell of a business around being extremely competitive in that regard with proper guarantees and so forth. So I don't think that has anything to do with it.

I would tell you, on the competitive side, this market is so huge that if you look at the amount of retail that we will do over time, it's going to be meaningful volume numbers. But as a whole, 44 million units a year, it's not very big. It's such a huge market that there's lots of room for everybody. I would tell you that the likes of, like Carvana, as an example, is the second-largest buyer from Wholesale Inc.

So again, look at this more as a supplier as opposed to a competitor. We've positioned ourselves across the board with dealers in the power sports space. They've already done it in the other. And it's all about quick to market, fast turn of inventory at profit. I do believe that as we layer on better data for them to make better decisions, they will see the same results that we have in that your amount of what we call mistakes continue to get significantly better as your data and your algorithms improve over time.

So we're -- we could probably take one more quick one. But we are about six minutes over, at this point. Most of you know how to get in touch with us, so --.

Steve, you want to?

Marshall, just one point I want to make sure we leave people with. We are not getting into a highly competitive retail business. And we're not getting into a highly capitalized, capital-intensive business. This is an asset-light model that's working in the redistribution part of the business. We're not competing with Carvana. We're not competing with Vroom today. We're not competing with AutoNation. We're right now in the middle of that funnel. Yes, we will move into retail, but we will move into retail in a very gradual way.

The opportunity here is we're in the intermediary stage, so we're not going to have to spend billions of dollars to try and get share of voice. We've already got it. Now we're just going to add to the supply chain by taking them out of garages of people, and getting them some of our people that we just talked about, as far of being competitors. Because we are a source of supply and we're providing a great product that they can make a great margin on, as well as we can. So, if there's any message that should be taken away is this is not a capital-intensive business and we're not competing.

We're not Carvana. We're not Vroom. We're not AutoNation. We're in a whole different segment.

So go ahead, I'm sorry.

In a massive supply chain.

That concludes question and answers. Thank you, everybody, for joining the RumbleOn third-quarter 2018 earnings conference call. You may now disconnect.