Greetings, and welcome to the RumbleOn Fourth Quarter and Full Year 2021 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Will Newell, Head of Investor Relations for RumbleOn. Thank you. You may begin.

Thank you, operator. Good morning, ladies and gentlemen. Thank you for joining us on this conference call to discuss RumbleOn's fourth quarter and full year 2021 financial results. Joining me on the call today are Marshall Chesrown, RumbleOn's Chairman and Chief Executive Officer; and Narinder Sahai, RumbleOn's Chief Financial Officer. Full details of our results and additional management commentary are available in our shareholder letter, which can be found on the Investor Relations section of the website at investors.rumbleon.com. Before we start, I would like to remind you that the following discussion contains forward-looking statements, including, but not limited to, RumbleOn's market opportunities and future financial results 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 and other SEC filings. The forward-looking statements and risks 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 contains non-GAAP financial measures. For a reconciliation of these non-GAAP financial measures, please see our earnings release issued earlier this morning. Our earnings release, shareholder letter and supplemental financial results highlight our financial results on an as reported or GAAP basis and on a combined or pro forma basis. In our comments today, we will discuss certain pro forma results and all comparisons will be on a year-over-year basis, assuming a business combination as of January 1, 2020. Now, I will turn the call over to Marshall.

Thanks, Will, and thank you, everyone, for joining us this morning. I'm very pleased to be reporting on our fourth quarter and full year 2021 results. We generated $117.4 million in adjusted EBITDA in the middle of our guidance range of $115 million to $120 million and delivered record revenue of nearly $1.6 billion at the high end of our revenue guidance. We sold a total of over 55,000 powersports units in 2021 and meaningfully increased the number of used retail powersports units sold. I want to start by giving out special thanks to the entire 2,400 person staff of the company. Our integration efforts are well underway, and the reception from everyone has been extremely encouraging. The RideNow and Freedom teams are a fantastic representation of what will be the best foundation possible, as we further build this incredible company, and as we embark on transforming the industry, we all enjoyed. 2021 was a transformational year for RumbleOn, and we ended the year with momentum that is continuing in the early days of 2022. We are reimagining the customer experience, building the future of powersports both online and in-store, and we've made incredible progress on our mission. We delivered on our financial targets, and we continue to execute on our operational objectives. With that said, there is certainly a lot of work ahead. So far this year, we recruited a fantastic finance leader, Narinder Sahai, as our Chief Financial Officer. Appointed our President, Peter Levy, as President and COO. And announced our new regional management structure to support continued and scalable growth. In the last 7 months, we acquired RideNow, completed the acquisition of a Jacksonville-based powersports retail facility, acquired Freedom Powersports and much more. Through these acquisitions, we grew to 55 retail locations and added several additional manufacturer…

Thank you, Marshall, and good morning, everyone. I'm thrilled to be joining my first earnings call as RumbleOn's Chief Financial Officer. Marshall, Peter and the entire RumbleON team have built an impressive organization, with an incredible opportunity ahead. I'm excited to be joining the team as we continue to execute on our mission to transform the powersports industry. For comparison purposes today, I'm going to focus my commentary on unaudited pro forma results which assumes the business combination with RideNow closed on January 1, 2020. We provided a detailed commentary in our shareholder letter, which is available on our Investor Relations website. So instead of walking through our consolidated set of operations, I want to take a moment to highlight some of the progress we have made and our strategic priorities this year before opening the call for questions. Before I get started, I want to quickly highlight one of the many components of Rumbelon's financial model that I believe makes this company a truly compelling opportunity. In 2021, the company generated $45.5 million in net income on a pro forma basis. Adjusting for stock-based compensation, which was largely related to the RideNow transaction, we generated $74.7 million in adjusted net income, and this is before realizing any operating synergies, which we expect to benefit from over time. In the near term, we will be making thoughtful investments to lay the foundation for sustainable growth and profitability. With our balanced and disciplined approach to making these investments, we will continue to grow EBITDA and deliver GAAP profitability. Layer on RumbleOn's scale, relatively short operating history and an attractive total addressable market, I believe that this company provides a truly unique opportunity. RumbleOn made meaningful progress in the last year and exited the year in a position of strength. In 2021,…

Thank you, Narinder. RumbleOn is built on our passion and our customers' passion for the experience as powersports deliver. We're creating the customer experience that will build lifetime relationships with our customers and define the future of powersports, as we embrace the next generations of new and innovative products. We believe RumbleOn will be a primary destination for both innovative manufacturers and all powersports enthusiasts regardless of age, lifestyle or passion. We're very excited about the progress that we've made in a short -- in this very short period of time, but we also have our heads down and laser-focused on executing our plan. We will be visible throughout the first half of 2022 with appearances at investor conferences, and we'll always welcome opportunities to engage with investors to share our exciting story. To find a business segment of this size that has not been affected by new technology and in an industry that has not been -- does not improve the customer experience, but a level that consumers' expectations and behaviors are today, we believe this is a unique to say the least. We strongly believe that our business strategy is right for today's consumer. Based on current performance enhancements, market demand and consumer response thus far, we are more convinced than ever that we are well on our way to lead in the way of change to dominate this market. Thank you again for joining us this morning. And with that, operator, we are ready for questions.

[Operator Instructions] Our first question comes from the line of Eric Wold with B. Riley Securities.

So 2 questions, just 1 question and a follow-up. So I guess, the first question, looking at the Q4 EBITDA that put the full year pro forma number kind of at the midpoint of the guidance range, even though revenues came in at the high end of the range, can you talk about any puts and takes that potentially kept EBITDA from being higher than it was?

Yes, that's a good question. Obviously, there were several items, what I would call, integration items in Q4 that affected the P&L. A couple of examples would be in Q4, we reclassified certain capital leases to operating leases, which, along with miscellaneous other items, we would have just on that one item would have exceeded guidance of the $120 million. I also might point out that I think something else worth sharing in that regard is we had 2.5 million less used powersports wholesale gross profit quarter-over-quarter. And that's due to because we continue to ramp the showroom inventories right now. And this -- and thus, we didn't push these units to the auction as we would have in the past. You've heard -- You guys have all heard me talk about many times and outlined before that what we acquired this quarter or this month is what we will sell next quarter and next month. With Freedom now needing a similar injection of used inventory, this will be a continuation of the diminishing wholesale sales replaced by higher gross margin from the retail channel in subsequent quarters and months. Said differently, our strategy in Q4 to grow inventory at the stores will certainly be reflected in Q1 retail powerstore sales. There were various other integration-related items affecting the P&L, but those are the more meaningful examples.

Helpful. Thanks, Marshall. And then a follow-up question. As you think about the $20 million of technology spending expected this year, how much of that would be considered onetime this year versus a kind of recurring spend in future years? And can you talk about kind of the expected return on that spend and kind of what you expect from kind of an EBITDA tailwind coming from that?

Yes. I think -- Well, first off, obviously, technology is an important piece of this in the early days. For instance, the expenses on things like rebuilding all the websites and integrating all of that, building the inventory control piece of our technology, et cetera, a lot of the things we've talked about in the past are well underway. Most of those will be demonstrated in late Q2 and into Q3. So those would kind of be more onetime situations. We do have a significant need to build a more robust logistics system and that will be an ongoing, probably, for the next couple of years. And then, of course, it just becomes maintenance and so forth. But one of the huge investments in that regard is making sure that we're in a position to that last touch with the customer. Keep in mind, we have 2 customers that we do a last touch with. One is selling an asset to us, one is buying an asset, and we think it's super important over time to build the infrastructure to support that. So as you know, we already have infrastructure in each of the retail locations, such as trucks and trailers and so forth, but we need to integrate that, we need to centralize that and get significantly more efficient and really upgrade the presentation. The WiFi investments that we're making with regards to the stores, and some of this we've discussed before, is really around getting the proper internet capabilities in the stores. The switching required to do that, it's a sizable number. And then, of course, all the technology that follows behind that, it would be impossible to really, change the customer experience on the showroom floor over time if, in fact, we don't have the technology and obviously, the WiFi capability. What were some of the other items on the $20 million?

Yes. So just to add on to that, Eric, we also talk about scaling the organization and building our own capabilities in-house. So clearly, bringing talent in and doing some of those things in-house, obviously, replacing some of the outside services. So we do expect some -- to gain some leverage there as we go along. And then there is some marketing spend focused on the acquisition of inventory. That obviously, as you know, in our conversation that pays for itself over time. So there is a fair bit of investments here, which are onetime. But as we kind of go along, we will measure the return on these. And obviously, we would expect the return to be quite meaningful had happened over a short period of time. But we'll be looking at all those things and be thoughtful about these investments.

Yes. That brings up a good point. One more thing, Eric, in that regard is with regards to marketing. Our entire marketing networks right now revolve around acquisition of the inventory. We do not have an issue, thankfully, with opportunity. In the retail channel, the demand remains extremely high, much more than what we've been able to fill to date. So all of the marketing that you see us, whether that be digital or as we migrate into more traditional, it is going to revolve around acquiring more inventory. When we took our tour of the 13 Freedom locations, it was very, very clear that probably, even more so than the RideNow Group, even has a bigger opportunity on the preowned because they're just really, really have not been in the business. So we've got a huge demand from the consumer. We've got a need for additional inventory, as I call feeding-the-beast, and so that's where our efforts will be spent. And the timing, I think, is good because – [Technical Difficulty]

One moment please. We're having technical difficulties. One moment. [Technical Difficulty]

Sorry, everybody, we lost our connection. So anyway, just to finish up on that thought, the timing is really good because as we develop these new websites and most important, one of the other things in this spend, if you will, is customer service and call center. Right now, leads, an example, are still handled at the store level. And as we combine these websites and so forth, it's going to be necessary to be able to have a more efficient process of handling the internal leads that we have. And it means 24/7 access to talk to someone, whether you want to sell or buy. So just several items, but I would say, from a customer service perspective, the industry is very, very lacking in that regard. It's hard to give a lead answer. It's hard to get your questions answered, and we obviously need to change that. That's a high demand of all consumers today.

Our next question comes from the line of Craig Kennison with Baird.

Narinder, congratulations on your new role. I had a question on the fulfillment strategy. And maybe, just a request that you shed a little more light on where you're headed there. Maybe, how many stores can a fulfillment center serve? How many fulfillment centers might you need long term? And what are the CapEx and sort of operating costs associated with running a fulfillment center?

Well, first off, there will be an organic retail location as well, with an experience center. I think if you were to think through what is this going to look like in next quarter, we'll be showing you what that's going to look like because we will be well down the road in that regard. We have secured a property in Dallas, and we're close in Phoenix, which will be the first 2 that we roll out. If you were to do some type of comparable, I would say, to consider Nebraska Furniture, which is a Warren Buffett concept that has just been very, very well received by consumers. I believe, the one they just opened here not long ago in Dallas is like 22 football fields under roof. I would also say that it would probably be like a Cabela's or a Bass Pro shop on steroids, but all revolving around all the products we represent, which again, remember, our on-road, off-road and personal watercraft. Where this all comes from is this industry -- and this is recognized by the manufacturers, this is something that we dreamed up. But as we went around and tour to stores, the thing that where we were most -- that Peter and I were most surprised about is these facilities that were built 5 years ago or 20 years ago were built primarily for 2-wheel motorcycles. And if you talk to the manufacturers, one of them shared with us the other day that they've done an analysis of 80% of their stores don't even have a door big enough to get the current products into the showroom floor if they had room on the showroom floor. And that goes one step further if their service departments were designed for that same purpose. So…

That's great, Marshall. And then, just a follow-up. Curious, we know all about the supply chain issues with your OEMs, what's the current message from those OEM partners on inventory and supply and their ability to get you what you need?

We are seeing improvements in that regard. We're modeling new fairly flat. But there's some other opportunities for growth here, which again, really plays into the fulfillment piece is a lot of new products, which are really innovative products like the new switch from BRP just as an example, that's something that hasn't existed in the space before. I think we represent that product in, I don't know, 15 or 17 markets. And that product for 2022 is completely sold out. So some of these new products are really additional opportunities that are bringing a different consumer to the showroom. But back to the heart of the question, we are seeing an uptick on certain manufacturers, but we have to listen to what they're telling the world. Most of these are public companies. Their information is out there, and what they're saying is that they don't see any major improvements in days’ supply, at the store level, in 2022. But we're aggressively trying to buy from other dealers, both new product and used products to backfill that. And so we think there's some opportunity there, but we can't kind of buck the trend of what the manufacturers are leading us to.

[Operator Instructions] Our next question comes from the line of Seth Basham with Wedbush Securities.

Yes. This is Nathan Friedman on for Seth. My first question is regarding the pricing environment. Can you share what you're seeing from a broader industry perspective in terms of powersports for both new and used? Has pricing held firm? Or have you seen any changes year-to-date? And to what extent do you see powersports prices moderating in -- over the course of this year?

I'll answer it a couple of ways. Let's talk about new first. Because of supply constraints, new has stayed very, very stable, and I don't see anything on the horizon that would change that. So I think that's pretty solid all through 2022. Keep in mind there, too, as you look at the numbers and you compare our KPIs to say, the automotive guys, you will see that we didn't have nearly the uptick in gross profit on a per unit basis that you saw in automotive. So as it neutralizes, I think it will be -- it will be more than offset or at least equally offset by additional volume by the availability. So that's the new piece. On the used piece, we think that there is some real opportunity here. I mean, the pricing today is not done with proper data science, and we think that we're probably, if anything, leaving some on the table because of the inconsistency in pricing from market to market. The -- not having the proper data when it comes to that pricing. As far as the wholesale values of preowned inventory, which might be what you're referencing, they remain very, very stable. But again, slightly higher, but not really more than what it has been in the past. This is an industry that has a little bit more seasonality effect in wholesale valuation. And so we're in a season that typically, right now, in the spring, the prices do go up. They have gone up from fourth quarter, but you will see that fluctuation as we move forward. And since we're on that, I might touch on something that I have mentioned to several of the analysts is, as we continue to change this mix scenario, we originally said that this group -- the RideNow Group is at 1.3:1. We've obviously cut that in half. We set a long-term goal out there of 1:1 mix. We think that, that 1:1 is probably going to be achieved sooner than later. It was probably a little longer term when we put it out there, but it's certainly looking shorter term at this point. And we are really encouraged with the Freedom Group from a standpoint that they are even more than 3:1 on a new-to-use ratio. And again, we don't see anything that would cause used vehicles to slow down anytime in the next couple of years. But for us to go in and put vehicles in a showroom floor that basically don't have any today, that's going to be a meaningful move. So prices are up, but seasonally, pretty consistent. And we don't see a huge valuation change of what we give a consumer. There's just nothing in the data that would reflect that.

Got it. That's very helpful color. And my follow-up is on GPU. Can you provide some color regarding what weighed on gross profit in the fourth quarter and more specifically, powersports GPU? As well as your GPU expectations for 2022 and what may the key drivers be that formulate your expectations for both new and used retail?

Yes. I think they used gross profit, on a per unit basis, was really affected by kind of shock and awe from an inventory perspective. We took stores that had 10 used bikes and now, have 60 or 80. And stores that had 30 now have 150. And so that has been a situation where -- And because we don't have effective data-driven pricing, I think some things were probably sold too cheap, and we'll address those as we go forward. So we do believe that there is upside. But right now, the mission is to sell everything that we have and continue that turn rate. For new, as an example, we want to make sure that we are not holding back inventory for $100 or $200 more of gross profit because the day will come where we want to have that -- those turn rates driving allocation that will come from these manufacturers. So this is a situation where, yes, you can get more greedy, but it might cost you in the long run by slowing down your turn and so on and so forth. We think there's upside in gross margin. I would tell you that if you look at our total gross margin, you guys heard me say it many times. If you look at all of our gross margin divided by all of our net sales, both retail and wholesale, you will see a number that doesn't exist even remotely close in the automobile business that you all know I've done for many, many years. We have a luxury here of very, very high gross margins. We certainly don't intend to shrink those. But I'll use one more gross margin example is in service. If we have the ability to do [indiscernible] much service, and today, we have 80% gross margins on labor, and we can take those gross margins to 70% and do double the revenue at a 70% gross versus an 80% growth, I'm going to take that math every day of the week. And we believe those kind of opportunities exist. So it will move around a little bit, but it -- just keep in mind, it's very high and it has consistently been very high, even if you go back to the prior years for the likes of RideNow in Freedom.

Thank you. Our next question comes from the line of Rommel Dionisio with Aegis Capital.

Marshall, you talked a lot about customer experience. Certainly, appreciate your comments on a macro basis with regards to parts availability and inventory. You've acquired a lot of locations in the last several months and integrated them. I wonder if you could just talk about the initiatives, you're putting into place for improving the customer experience with a lot of these new dealerships that you brought in, maybe on a more cohesive or national level. So you've got this sort of similar look and feel and branding across the chain.

Yes. I think that's part of our investment strategy that Narinder shared. I think there are significant opportunities that will be executed at the current store level over time. We are already doing some things that were just kind of basic blocking and tackling, making sure that vehicles are priced and those types of things. But to your point, over time, we want to make sure that when you drive by one of our dealerships that it means something. Today, there's a huge disparity between our Nisa store, which would probably be one of the large ones in Phoenix, to one of our lesser quality facilities that -- maybe, in a different market. We need to make sure that -- I think a good example is when you drive by a CarMax store today, you know is CarMax. And that's going to be things that evolve over time. The showroom customer experience is not going to be significantly changed in the near term. We are going to utilize our fulfillment customization centers to re-evaluate all of those. There are some obvious indicators out there in all retail markets, right, of what consumers expect today. We were talking internally about the new Amazon now, right? I mean, a year ago, we thought the same-day delivery is just crazy. How do they affect that? And now, today, we can pay a little bit extra and have it delivered in the next 20 minutes. I mean, these are things that we need to participate in. We need to be the leaders in all regards to customer experience, but we don't intend to blow up dealerships. One last thing, from their current profitability. One thing we are doing is we have chosen 2 low-performing stores in the organization that are not part of any…

Thank you. Ladies and gentlemen, we've come to the end of our question-and-answer session. I'll turn the floor back to Mr. Chesrown for any final comments.

Great. Well, I think we've taken up enough of your time today, but we really, really appreciate everybody's involvement and a lot of you have been with RumbleOn for a long time. And we just got some really, really exciting times ahead. And hopefully, you sense that in the delivery today. And I would tell you that in closing, one of the biggest benefits that we have as a company that I mentioned in my opening is really the team. If you look at the tenure of the team that is now regional directors, the average tenure of those guys is over 20 years with RideNow themselves. Not 20 years in the industry, 20 years with that retail -- with that retailer. And it isn't just that handful of people. As we toured the stores, the most amazing thing that I saw coming from an industry, be it cars, that have pretty much a revolving door of employee turnover, we watch some service departments that have people that have been through 4 ownership changes and have been a mechanic there for 30 years and parts people and so forth. I think we can all agree that the industry is in need of technology changes. But when you have this type of foundation to be able to build a great company on with talent and tenure that the ownership of these companies has provided, we have a lot to look forward to, and I think we can move significantly quicker than most companies at the stage we're in. So with all of that, we really, really appreciate you guys' time today, and we look forward to your follow-up questions as we go through the next few days. And 60 days from now, we're going to be back talking to you again about the Q1, of which we're very excited about. So again, thank you very much. Have a great day.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.