RideNow Group Inc (RDNW) 2020 Q4 法說會逐字稿

Greetings, and welcome to the RumbleOn and RideNow business combination conference call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Dylan Solomon of Investor Relations. Thank you. You may begin.

Good morning, everyone. Thank you for joining us on a conference call to discuss our full year 2020 results and the proposed business combination of RumbleOn and RideNow. The companies have issued a joint press release and investor presentation regarding the proposed business combination, which can be found on RumbleOn's Investor Relations website at investors.rumbleon.com.

Joining me on the call today are RumbleOn's CEO, Marshall Chesrown; RumbleOn's CFO, Steve Berrard; and RideNow, CEO, Mark Tkach.

Details of our financial results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at investors.rumbleon.com.

Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website.

This conference call is the property of RumbleOn, and any taping or other reproduction is expressly prohibited without prior written consent.

Before we start, I would like to remind you that the following discussion contains forward-looking statements that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in RumbleOn's periodic SEC filings.

The forward-looking statements in this conference call, including responses to your questions, are based on current expectations as of today, and RumbleOn assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law.

Also, the following discussion may contain non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, please see our earnings release.

Now I'll turn the call over to Marshall. Marshall?

Thanks, Dylan. Today is an exciting day for powersports enthusiasts across the country. As you saw in our press release this morning, RumbleOn and RideNow are combining to create the first and only omnichannel powersports platform in the U.S., offering the fastest, easiest and most transparent transaction process available today.

The RideNow Powersports group is the nation's largest powersports retailer with more than 40 full service locations across 11 states. The company sold over 45,000 powersports units in 2020 and generating approximately $899.4 million of revenue, $90.3 million in net income and approximately $96.6 million of adjusted EBITDA. Its footprint is strategically concentrated in the Sunbelt states like Arizona, Texas and Florida that are benefiting from population growth and year-round powersports demand.

Combining RumbleOn's disruptive e-commerce platform with RideNow's dominant retail footprint will provide powersports enthusiasts with a best-in-class transaction experience. For our customers, this is about offering a simple, safe, hassle-free and flexible experience. Shop for your next powersports vehicle from our robust selection of new and used inventory, access financing options 100% online, receive a cash offer for your vehicle you own today or trade in any vehicle type towards your next powersports experience. And now even if you transact online, you'll have the benefit of the best parts and service experience in the industry.

Our business models are complementary to each other, and together, we will revolutionize the powersport transaction experience. Together, we tackle an industry that is more than $100 billion domestically with considerable tailwinds benefiting our customers. Powersport vehicle sales are seeing strong demand and continue to experience significant growth as consumers pursue an outdoor lifestyle. Millennials and Gen X want a unique experience. The average power sports buyer is younger and from a broader demographic than ever before. There has never been a better time to be in the industry, and we are the first to offer this industry a true omnichannel solution.

We will continue to serve our many dealer partners who also stand to benefit from this combination. As a reminder, we launched RumbleOn 3.0 in August 2020 to help drive the powersports industry to the next-generation technology platform. 3.0 will still bring traditional bricks-and-mortar powersports dealers across the country online, including markets not served by our RideNow footprint. We offer the opportunity for incremental sales volume to dealer groups, large or small, regardless of their geographic location. Most do not have the ability to support 100% online transaction efficiently, and certainly not with the technological sophistication and automation that powers RumbleOn. Dealers around the country are choosing RumbleOn's technology solutions to lead their transformation to transact digitally.

We announced the launch of 3.0 in August of 2020. At that time, we had more than 18,000 powersports listings on our site from over 130 dealer locations around the country. We've since massively scaled that offering and currently have more than 50,000 listings from over 300 dealer locations from coast to coast on our platform.

The business combination with RideNow is the natural evolution of our 3.0 strategy. This combination will create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform with more than 7,000 powersports dealers in the U.S., and 85% of these dealers who own only a single location, this industry remains ripe for consolidation.

Our technology, OEM relationships, winning culture and new financial partners make us the partner of choice for dealers around the country. Many of them, like RideNow, will get to know us through RumbleOn 3.0.

Concurrent with the transaction announcement, we released our financial results for the full year of 2020. Before Steve discusses our results and the transaction detail, I'd like to introduce Mark Tkach, RideNow's CEO. Mark and his partner, Bill Coulter, had established a remarkable track record of organic sales growth, accretive acquisitions and consistent profitability. At the closing of this transaction, Mark and Bill will become 2 of the largest shareholders of RumbleOn, and I couldn't imagine better partners with whom to create this transformational combination.

Mark, welcome to the RumbleOn family.

Thanks, Marshall. Today is a transformative day for me and the 1,800 RideNow team members who are dedicated to providing our customers with a best-in-class experience. This combination is about bringing that experience to another level. We began working with RumbleOn in August of last year as part of their RumbleOn 3.0 launch. We listed our entire catalog of new and used inventory with RumbleOn.com. The incremental lead, sales volume and advanced capabilities RumbleOn's technology brought has successfully expanded our online capabilities. We're solidifying this partnership today and believe we can unlock significant synergies as a company. The first omnichannel consumer experience available in powersports enables us to reach more consumers than either company could do independently.

RumbleOn's technology and online capabilities, combined with RideNow's brand, will expand our inventory and product offerings, which will drive an increase in sales and improved monetization. And as Marshall mentioned, operating as a public company will help further our industry consolidation efforts.

We also look forward to servicing future and former RumbleOn customers. We don't just sell vehicles, we sell lifestyle and experience. With RideNow, consumers have the ability to go to a trusted shop for maintenance and repairs as well as apparel and accessories, all of which will allow us to continue the connection with our combined customers, increasing their lifetime value and enhancing this overall powersports experience.

This is a people business, and we've known the RumbleOn team for many years. They are the right people to help us realize the full potential of our combined company. Bill and I are excited to join forces with Marshall and the entire RumbleOn Executive team. We look forward to a partnership that will forever change powersports retail and deliver value to our fellow shareholders. Now I'll pass the call over to Steve.

Thank you, Mark, and good morning, everyone. Before discussing the transaction details, I will first provide a brief overview of RumbleOn's full year 2020 results and some color on what our financial results would look like on a pro forma basis for 2021.

For the full year 2020, RumbleOn sold 18,024 units and generated revenue of $416.4 million as compared to 43,143 units and revenue of $840.6 million in 2019. The decrease in vehicles sold resulted from the adverse impact of the COVID-19 pandemic on commercial activity, resulting in lower levels of inventory available for purchase causing lower unit sales, but higher average selling prices due to the supply-and-demand imbalance; a reduction in the automotive unit sales, resulting from the significant damage of the company's operating facilities and inventory held for resale in Nashville as a result of the March 2020 tornado; our continued disciplined approach to sales volume and margin growth and a reduction in per-vehicle advertising costs.

RumbleOn's full year gross profit was $31.6 million or 7.6% of revenue, an improvement from gross margins of 6% in 2019. The increase was due in part to COVID-19 creating supply-and-demand imbalances, which led to higher average selling prices and margins. The improved gross margins were also a result of our continued disciplined approach to sales volume and margin growth as we take prescriptive steps to drive towards sustainable future profitability.

Total SG&A for the year was $53.7 million, a decrease of nearly $33 million from the $86.6 million reported in 2019. The reduction in SG&A was a result of the decrease in vehicles sold, resulting in a corresponding reduction in selling expenses, sales-related compensation and marketing spend for the year ended December 31, 2020, as compared to 2019; a reduction in automotive vehicle sales resulting from the significant damage to the company's operating facilities and inventory held for sale in Nashville as a result of the tornado; and a reduction in staffing levels and adjusted purchasing levels to align with demand and market conditions; and a deferral of discretionary growth expenditures such as travel, facilities, information technology investments due to the adverse impact of COVID-19 on commercial activity.

For the full year, RumbleOn's net loss of $25 million and adjusted EBITDA loss of $5.8 million was a significant improvement from the $45.2 million net loss and $26.4 million adjusted EBITDA loss in 2019.

On a pro forma basis for 2020, the combined company would have generated approximately $1.3 billion in revenue, $65.3 million in net income and approximately $90.8 million in adjusted EBITDA.

We expect our business combination with RideNow to close in the second or third quarter of this year, so we are not providing guidance for stand-alone RumbleOn for 2021. We believe our business models are highly complementary, and we expect to achieve cost synergies over time while driving incremental growth.

Assuming a combination as of January 1, 2021, we expect a revenue range of $1.45 billion to $1.55 billion and adjusted EBITDA in the range of $100 million to $110 million. We expect to drive sustainable long-term revenue growth and strong unit economics with a long-term revenue target in excess of $5 billion and an adjusted EBITDA margin target in excess of 10%. We will provide historical and pro forma financial statements in future filings with the SEC.

Under the terms of the definitive agreement, RumbleOn will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $424 million of cash and $175 million in RumbleOn Class B stock.

RumbleOn will finance the cash consideration through a combination of up to $280 million of debt and the remainder through the issuance of new equity. We have entered into a commitment letter with Oaktree Capital Management, L.P. to provide for the debt financing subject to certain conditions. The number of shares to be issued to RideNow is subject to adjustment as described in the definitive agreement. The transaction is subject to successful completion of the debt and equity financing, RumbleOn stockholder approval, manufacturer approvals, other federal and state regulatory approvals and other customary closing additions as described in the definitive agreement.

Upon closing, the RideNow executive management team will join RumbleOn's leadership team, and the combined company will continue to be listed on the Nasdaq under the ticker symbol RMBL. We are excited about both the business opportunities that a combination with RideNow will bring to the table and the financial profile of the combined company.

With that, I'll pass the call back to Marshall for closing remarks.

Thanks, Steve. We are creating the only omnichannel solution in the powersports industry, offering an unparalleled customer experience for outdoor enthusiasts across the country. We are thrilled with the combination that will transform the way in which consumers and dealers transact in the powersports industry. We will provide more details on our business combination in the coming months.

Thank you to all of our customers for your continued trust, to our employees for your hard work and dedication and to our shareholders for your continued support. Thank you again for joining us this morning. We will keep you posted on the proposed business combination of RumbleOn and RideNow. We look forward to seeing many of you on the road.

Operator, we're ready for questions.

(Operator Instructions) Our first questions come from the line of Ron Josey with JMP Securities.

Congrats on the transaction. Certainly, big news on a Monday so that's great. I wanted to ask a few questions, if you will, please. Maybe first off, we're 6 months into 3.0 or thereabouts. Can you just talk about how 3.0 has helped to influence the acquisition transaction with RideNow? What -- or did it at all and sort of bigger picture, why acquire a dealership understood -- or at least a platform with 40 dealers. And understood the synergies here, but maybe talk about lessons learned with 3.0 that led to this transaction?

And then, Mark, I think I heard you say that you were using or you were a member of 3.0. If so, can you just provide additional detail on your experience with 3.0 that led you to this transaction to combine with RumbleOn? And if you heard you incorrectly that you weren't a member of 3.0, just tell us a little more about why the transaction? Why now? What do you look to generate from it?

And then just one last thing. Marshall, any thoughts on just autos? Does this impact anything around your -- around RumbleOn's focus on autos as well?

So 3 questions about experience with 3.0. Mark, your experience with 3.0? Why now for the acquisition? And then autos?

All right. Ron, thanks as always. Appreciate you jumping on and I appreciate all your support. First off, to take it in order, obviously, I'll let Mark answer his piece. But 3.0 is really what started this whole endeavor of joining forces. Mark's team had agreed to do a small number of their stores to test 3.0 and to test our listing capabilities and lead generation, et cetera. And Peter and I really wanted to have all their stores, obviously. And so we made a trip. He was gracious enough to invite us to Phoenix. We went down and had a meeting and one thing led to another, and we started talking about the synergies.

So it really -- their participation in 3.0 really started from day 1. Since that participation has started, we have utilized Mark's team to test several different functions within our 3.0 strategy, one being financing, as an example. We've tested with a few of their stores with great success. We've had interesting response from various stores and how each of those facilities or management teams treat leads -- inbound leads and their conversion opportunity on things like cash offer. They have 1 store that has seen significant capture rate with regards to cash offer and -- which, again, gives them an opportunity to acquire more inventory.

And lastly, on that piece, the piece that most of you can't see that is embedded in 3.0 is the dealer log-in side of the equation. And that's really where Mark's team has played a major role since the beginning. We launched our B2B platform we call Dealer Direct about 12 or 13 weeks ago now, and they've been a major participant in that. And that has grown to, I think, week 1, we had about a 60% sell-through rate. The last 2 weeks have both been at 100%. So 100% that is on there has been sold. And we're just on the verge of allowing all dealers to be able to list inventory on that online platform to be able to sell in a B2B fashion.

I'll cover the autos real quick, and then I'll let Mark talk a little bit about his experience with 3.0 as requested. On the auto side, nothing has changed in our auto business other than, obviously, we had a significant amount of disruption last year, as Steve mentioned. And we were very, very cautious coming out of COVID and probably to our detriment in some ways. But I don't think anybody really had a crystal ball. If you listen to some of the other publics, they all talked about how the market came back with significantly more vengeance than any of us anticipated. We think it's very, very important that our platform, long term, has the ability to decipher anything [with a fin]: offer a cash offer, offer financing and so on and so forth. And we still do that today. The only reason that autos, I mean, Ron aren't prevalent on our site today, really relates back to our CarGurus test, which we are still working with them in various ways because we really thought, long-term, a relationship with them and access their eyeballs, as I think you and I have talked about before, could be really, really valuable.

And now with the addition of what is really necessary to provide a complete omnichannel solution by the addition of RideNow and our opportunity to really dominate an industry, our focus is purely on powersports. But make no mistake about it, we are -- we plan to be in the vehicle business of all kinds. And our brand, as I think I've stated in the past the last couple of calls, our brand we really see is revolving around a lifestyle vehicles, clearly, powersports and lifestyle. But when you look at cars and trucks, there's a lot of lifestyle vehicles there as well. The example I always give is nobody goes out and buys a Wrangler or a Corvette because it's wonderful for daily transportation, they buy it because they want one. And that's really what we want to build the brand around RumbleOn long term, is all around wants, not necessarily needs, but we do have to have the ability to redistribute everything on which we have.

We still intend, over time, to bring on boats and RVs. You already see some personal watercraft on our site because a lot of these powersports dealers also have trailers and personal watercraft and so forth, and so it will be a natural expansion as we move forward.

But right now, our belief is we have a window of opportunity here to really create a huge company. And the biggest opportunity to be a dominant player, we feel is in the powersports space. So with that, Mark, do you want to touch on your experience with 3.0 and maybe Dealer Direct? Sure.

Sure. Thanks, Marshall. Ron, I think that Marshall has touched most of the points. The financing, without a doubt, is showing to be a good growth point for RideNow. We're seeing a lot of action on that side. But leads probably even more so right now. The leads that are generated through 3.0, we're getting, as he said, a great capture rate. And we're seeing that spread store to store. So it will spread pretty much coast to coast.

The -- probably the biggest immediate impact we've seen is the product that we're getting out of their auction site. The shortage of used inventory in the powersports business has been a problem for as long as I can remember. And the product that we are getting from them is not normal product that we'd see out of an auction, a public auction or any of the existing auctions. It's -- when they're going directly to the customer the way they are, they're giving us product with very low mileage, very great condition whereas a lot of other auctions will move product that really is inventory dealers don't want. It's got problems, it's old, it's high mileage. So we're seeing a very good success on our profit returns based on the product that we are getting from the RumbleOn 3.0 auction sites. So with that, I think that pretty much covers that question.

Ron, I would just finish it up unless Steve has something in your 3 questions. I think one thing that's really, really important is that what 3.0 is generating and facilitating for dealers is incremental business. If you were just purely a listing site, you might generate some leads for people that might live around your store or maybe even some outside the market, but they don't convert. The listing side is not helping you convert those in any way and not providing any level of service. So when you look at these sales, and that's one of the things that we're really excited about and as you look at this company and you analyze their numbers, RideNow who does a fantastic job compared to the general industry, there are about 3 new to 1 used. I think we all know in the car business that it's significantly better than that and I think it's because of the consolidation of that inventory, which is what we have done and we -- presently, we don't have any competition. We don't expect that to last long. But we certainly think that we can drive that momentum.

And I think that incremental sales is the key. This isn't a cannibalization in any way of what you were already doing. The people that we drive into the showroom floor that wants to sell their asset or look at a specific vehicle, these are, by and large, absolutely incremental sales.

Thanks, Marshall. If I could just follow up or I can get back in the queue, but maybe just one more. Did you always have a view that you would like to acquire a dealer? Or is this sort of the learnings coming out of Dealer Direct or -- and 3.0?

I would say it's a combination of both. I mean, I think you know Steve's and my background, Steve being a Co-Founder of AutoNation, the first public equity to the bricks-and-mortar car business, which now is commonplace. We are the first in the powersports space and we think there's a real opportunity in that regard.

The learning of 3.0 has been interesting from the standpoint of -- in driving our desire to do this sooner than later because of what we see as shortcomings, I guess, in the industry. In general, it has a fairly archaic online presence and we just think that there is a huge opportunity when we see what it takes to integrate with the average dealer, the lack of sophistication with regards to DMS and inventory systems and so forth. It just seems that a high level of modern technology would help the entire industry, and that's where we think we can play a major role.

Ron. Yes, if I could just add one other thing. Obviously, we've always thought about the brick-and-mortar side of it. But for us, if we went too early, it would be a roll-up and we didn't want to roll up. We wanted to be able to take something and transform it into a business that could not only be -- grow through acquisition, but more importantly have a large organic growth component. We thought the technology once proven out and once executed, as we are today, would give us a much better opportunity to discuss how we could consolidate and offer an opportunity for people to look at a model that isn't just hinged on putting a bunch of things together and taking out costs and calling it a business plan.

(Operator Instructions) Our next questions come from the line of Rommel Dionisio with Aegis Capital.

Congratulations on the transaction. Two questions from me. First, it's been in the press, Harley-Davidson's making a push here on the used bike side with the certified preowned program. Could you maybe, Marshall, just walk us through the potential implications of that on your business? Obviously, it's a competitive issue. But could that actually benefit the velocity of used bike transactions in the market overall and obviously benefit you?

And the second question would be, without asking for your results in the quarter, anything like a guidance for the quarter, could you maybe just discuss the COVID situation, some macro indicators indicating some potential for, with the vaccine and all that, improved economic activity?

And also, what would be the impact -- did you see an impact from the January stimulus payment? And might that -- obviously, with another one coming up here, a bigger one coming up here in the next few days and weeks, have put some potential impact on your business overall?

All right. So first thing, your question with regards to Harley-Davidson. We think it's a huge, huge benefit that they are recognizing the advantage of preowned. We're the leader in redistribution of preowned. Mark and Bill and their team does a fantastic job in preowned. But as you stated, they've been short of inventory in their entire 31-year career and we are able to fill that, not just for them, but for a lot of dealers.

It wasn't very long ago that Harley-Davidson was telling their dealers to stay out of the preowned business because it was competitive to their new bike business. I think today, under new management, they've realized that, as you've heard from all of the manufacturers over the last few years, the biggest challenge is to bring new riders into the sport. Well, COVID really, really opened that up to bring new riders into the space. People are looking for ways to get out and get outside in recreation-type vehicles. And I think that dealers have been loud about the advantage of preowned.

People come in to the sport, if you will, and the way they start is with affordability and that's what preowned does. If you compare it to the automobile business, I always like to say, if you're selling for Fiats or Ferraris, you'd better be in the used car business. And part of that is about generating your next generation of customers, and I think Harley is definitely grasping that. We're pretty confident that Polaris and others already have, and we see it as a huge opportunity.

The certification program is really missing from the industry. We have actually talked to several of the manufacturers about that. We think it's a big benefit because certification is something that consumers understand today when it comes to vehicles. And it also helps the valuation of those vehicles if they trade between dealers on our B2B platform. As that grows, dealers will be inclined to trade certified vehicles at a higher valuation because they understand what the potential reconditioning expenses and so forth. So there is nothing in Harley-Davidson's present position with regards to emphasis on used vehicles and the emphasis on a certification program that we don't think is anything but 100% beneficial to us. So -- and again, it really revolves around the new rider situation.

I think the numbers will speak for themselves with regards to the impact of stimulus checks. It might be a little early. But I can tell you that business, as we're coming out of COVID and maybe Mark can add a little bit, it doesn't appear to have slowed in the least from our perspective and the demand seems to be as high, if not higher. And one thing happens is we -- as we continue to aggregate this inventory efficiently and redistribute it through the dealer channel, we're going to create a whole different of volume.

Today, these vehicles, about 70% of them, transact peer-to-peer through the likes of Craigslist and others, right? We know that, that isn't from a pure transactional basis. It's not an efficient redistribution model. And the reason is because these vehicles are expensive today and they do require, in a lot of cases, financing and people have the ability to trade. So if I'm selling you my motorcycle and I live 100 miles away, I really don't have any interest in financing you and I really don't have any interest in taking your trade-in. And that really is what drove 3.0 and what our thought was is as opposed to just putting dealers' inventory up on our site and sending them somebody that's interested in a blue one of these models or that model, we actually send them much like the real estate business.

If you look at the real estate business, they -- very few people go out and shop without preapproved credit. We've been the first to be able to offer a preapproved financing so that when they do decide on what powersports vehicle they want to buy, they are already preapproved and they can move forward. They know what their trade is worth and so on and so forth.

So Mark, could you just touch real quick on the impact of COVID and what you're seeing coming out of COVID? Maybe -- we can't give exact numbers because we're not reporting a quarter, but just talk about how the first couple of months of 2021 are looking in your regards?

Sure, Marshall. We were seeing growth actually in January, February, first couple of months in 2020 before COVID hit. There's no doubt that COVID propelled it even farther. But you're spot on, the getting out, distancing, enjoying your time, it's been a major, major impact. But we see it continuing and now, as COVID is backing off, we're still seeing the growth in January and February of '21 well over '20, which is a good plus for us.

But I think your point is well taken that it's pretty much here to stay. We're seeing a major influx of new customers that are coming into the business. And when that happens, friends like to ride with other friends. So they are our best marketing tool. When we sell products, they have lots of friends that they want to ride with. They bring those customers back in and it just exponentially grows the business.

But I think that -- I honestly think that going forward, the work environment for the country has changed and changed permanently to some degree, which we'll find out down the road. But I think the way that consumers are playing also has changed for good. And we'll find out as well on that end how big the -- how big -- I guess how much it will stay on the direction that it's going.

But buying habits changed, playing habits changed, work habits changed. I think we are seeing a major difference in the future that tie all these together.

There are no further questions at this time. I would like to turn the call back over to management for any closing comments.

Well, great. As always, we're available to speak to anybody at any time. As you know, Steve and I and now Mark are very accessible. And we're happy to discuss the business to any level of detail you prefer.

I want to thank everyone for joining this call today. I hope everyone has or will take time to watch the video provided. The video is at RumbleOn and ridenow.com. And I think it will really give you a good flavor for what the plan is here.

We have a significant opportunity ahead to take a dominant stake in the huge powersports industry. We sincerely appreciate our nearly 2,000 team members, business partners as well as current and future investors joining the endeavor. With Bill, Mark, Peter, Steve, myself and our well-versed Board of Directors, this executive team has the experience to execute such a plan and are more than confident we will create significant shareholder value over time. Thanks, again, for joining today.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.