Greetings, and welcome to the RumbleOn Inc. Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Will Newell, Investor Relations. Thank you. Please go ahead.

Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining us on this conference call to discuss RumbleOn's fourth quarter and fiscal year 2022 financial results. Joining me on the call today are Marshall Chesrown, RumbleOn's Chairman and Chief Executive Officer and Blake Lawson, RumbleOn's Chief Financial Officer. Our Q4 and full year results are detailed in the press release we issued this morning and supplemental information will be available in our year-end 2022 Form 10-K that will be filed later today. Before we start, I'd 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's 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 non-GAAP financial measures, please see our earnings release issued earlier this morning. Now I will turn the call over to Marshall. Marshall?

Thanks, Will. Good morning, everyone, and thank you for joining us for our fourth quarter and full year 2022 earnings call. Before we begin, let me start by welcoming Blake Lawson, who is participating today in his first RumbleOn earnings call since being named CFO in February. Having previously served as CFO of RideNow since 2016, Blake has deep knowledge of our company and the powersports industry with more than 20 years of experience, helping him seamlessly transition to his new role, and we are certainly thrilled to have him lead our financial team. I'll start this morning with a review of our 2022 performance, highlights and actions taken, followed by the same for the fourth quarter and then discuss our 2023 objectives and guidance. Before turning it over to Blake to discuss the important financial metrics in more detail on our outlook. In 2022, the RumbleOn team made progress towards our performance initiatives while navigating the challenging economic environment during the second half of the year. We are encouraged by the progress made in reducing expenses, simplifying the business, leveraging technology and improving the balance sheet while maintaining robust unit sales and revenue. We generated $120 million in adjusted EBITDA for the year compared to RumbleOn's reported adjusted EBITDA of $31 million in 2021. We sold over 73,000 total powersports units in 2022 as we capitalized on the opportunity to gain market share in the extremely fragmented powersports business while continuing to integrate 55 privately-owned retail locations into our public company. Our long-term plan is to be the leading destination for all things powersports by providing the best-in-class customer experience with clear focus on the lifetime value of our customers. We are proud of our team's hard work throughout the year and remain fully committed to our completely self-funded…

Thank you, Marshall, and good morning, everyone. I want to thank the team for the warm welcome as RumbleOn's new CFO. During my first 8 weeks, I have had the opportunity to assess our total expense structure and liquidity with enhanced scrutiny. It is clear to me that there are areas we can improve to reach our full potential. As Marshall details, we took a number of proactive measures in the fourth quarter and in the first quarter since my promotion to CFO that will benefit our results throughout 2023. My team is focused on managing our balance sheet and P&L to ensure our plan for self-funding is achieved. For the full year 2022, we sold 41,649 new powersports units and 31,764 used powersports units, which is a 1.31 new-to-used ratio. Total powersports gross profit per unit, GPU, was $6,159 for the year compared to $7,294 in the prior year. GPU is defined as the gross profit attributable to powersports vehicles sold, inclusive of finance and insurance, parts, service and accessories divided by retail powersports units sold. Note that this is a change from previous quarters when parts, service and accessories were excluded from the calculation. We believe this is more reflective of the health of our business as new inventory supplied normalized during the second half of 2022 and margins compressed, we strategically focused on unit sales and market share, all while maximizing margin opportunities where possible. We also reduced used inventory significantly by more than $40 million from the peak to now. This was to ensure that we will be in a position in the spring market to be aggressive on both trade-ins and consumer purchases. While our competitors rely on customer trade-ins or costly auction units as our primary source for used inventory, we have the competitive…

Thank you, Blake. As we take action to navigate the current challenges in the economy post pandemic, we are fortunate to be able to pull the levers on gross profit of our balanced business model, namely our robust used business and our durable and resilient parts, service and merchandise as well as finance and insurance, all while continuing to focus on increasing new unit sales, albeit at slightly lower margins than peak levels during COVID. The entire team is focused on both our near-term and long-term goal. The 5 pillars of our strategy outlined earlier allow us to emphasize our unique strengths while reacting nimbly to changing market conditions. If the economy deteriorates from current expectations, we believe we have a well-defined playbook, which would result in aggressive expense reductions along with slowing the anticipated cost of initiatives to remain on track with our self-funding plan, which is job one. We have taken actions in 2022, establishing the building blocks for sustainable future growth and long-term shareholder value, but we are still in the early innings of our very early stage 18 month old venture into powersports retail. We are the largest powersports retailer in the country with the best people in the industry, fantastic geographic locations, a strategic business plan and the capital to execute the vision of this incredible opportunity. In response to the additional filings consistent with previous messaging by 2 former directors of the company yesterday, these filings are in the hands of our Board of Directors. It would be premature to comment or answer questions today in this regard. You can expect a timely and thoughtful response when appropriate. In the meantime, these filings have no impact on the opportunities ahead of us and the execution of the plan we have outlined today. And in…

[Operator Instructions] Today's first question is coming from Eric Wold of B. Riley Securities.

I guess, not sure who wants to take this. Marshall or Blake I guess, in the guidance you gave for '23, you talked about new and used retail unit growth of 5%. Can you maybe just give us a sense of what you're assuming the industry or the market grows this year and your relative performance or performance to that? And I guess if you could break that down by new and used to give us a sense of how you think those respective kind of customer bases are thinking this year?

Yes. I think in a couple of areas, Eric, on an as-reported basis, obviously, we have 45 days roughly of last year that we didn't have the Freedom stores included. And secondly, on the new vehicle side, I think the addition of 60 new franchises that are fairly small in nature today, but we think have a lot of legs as we move forward. We think that just by itself by having more selection at the store level should reap additional unit sales. Much of the new product that we're bringing in is not direct competitive with the products that we presently sell in volume. So we see some opportunity there. We certainly aren't expecting the market or the amount of traffic or the amount of online traffic to continue to improve from current levels, at least in the first half. On the used side, as you heard me say before, I mean, we really control our own destiny. If you look at the gross margin of Q4, that is purely self-inflicted. Whenever you take $40 million of opportunity of fresh inventory coming into the system that always turns at a faster rate at higher gross profit, and you remove that for any window of time, obviously, it has an effect on that. But we really believe we control our destiny in used volumes. We still think that the stores are capable of doing better than 1:1. And so we see some opportunity there as well.

Great, and my follow-up question, I guess, with year-end inventory of $331 million for 2022, and your goals are kind of continue to improve with days sales throughout the year. If you think about your guidance for '23 on revenues and EBITDA, where would you expect inventories to end the year at? What's the reasonable range for you to expect?

Are we -- well, for speaking total inventory, I think our total inventory levels on the new vehicle side are -- well, in fact, we've actually seen them come down a little bit in the first quarter because obviously, we're ramping into the better seasonality. And if you look at what I mentioned in the script about things like personal watercraft, those are all now on the ground. So we have inflated new inventories that we think will come down. I would tell you that if you look at total inventory today on new and you look back to pre-COVID, these -- our current blended with both Freedom and RideNow are about equal to where RideNow was by themselves in 2018 and 2019. So these are really normalized new vehicle inventories for this time of year. On the used vehicle side, I believe with our processes that still need significant improvement. Our technology that we are implementing as quickly as we possibly can. That today, we manage to about a 90-day supply on the used side. I think over time, with fulfillment and all the processes that we have in motion, that we should be able to work that down to about a 75-day supply. So you can do the math of what that inventory would look like. At the peak, we were close to $140 million on pre-owned. Today, we're just over $90 million. So it's come down dramatically. And by the way, we have turned back on acquisitions in a meaningful way as of the last 3 or 4 weeks, but it takes some time for that to catch up. And we also need to start pumping inventory very soon into our Pennsylvania facility. So I would say that used is probably remains somewhat where it is today. But obviously, as the turns increase, we should be able to manage it to that level. But somewhere south of a 90-day supply.

The next question is coming from Craig Kennison of Baird.

I guess lots of questions on Camping World and the shareholder letter. But with those off limits. I'd just ask maybe about the financing side of the business. What percentage of your powersports units are financed? What is the source of that financing for consumers? And to what extent have you seen any change in behavior in the last week as banks maybe take a different view of risk in the wake of some of the bank failures.

Well, those are certainly things that we have built into our thinking as far as guidance. We started talking this before the -- obviously, we couldn't predict the fall of but [ SVP ] but we certainly talk through that, and we've talked to a lot of you guys about that because if you look back to '08, '09, much like what we're seeing today, we don't have a lack of interest in our products. We have not seen any meaningful reduction of appetite for consumer credit. In fact, we really -- by looking at the percentage that we financed, which is -- it varies the time by time of year because of the average sale price, right, a little lower in December and higher in other months. So let's just use an average of about 65%, what we call penetration. The business -- keep in mind, we sell from soup to nuts. So we're selling $499 mini bikes to a kid, and we're selling a $70,000 Harley to a 70-year-old. So we're all over the place. And obviously, the higher price point, the higher likelihood of retail financing. But as of yet, we really don't see a lot of changes. You asked about the sources. They're the traditional sources. We finance through the likes of Polaris Financial and Yamaha, which -- those types of -- and Honda, those are lenders that are captive. They don't typically change their buying habits in economic times because obviously, they're there also to support the manufacturing process and to keep the flow of goods. So we don't see any change there. And really, even in the past, we didn't see a lot of it. It really comes down more to the banks. Our largest lender is a group called Octane, and they support a lot of our smaller manufacturers. And we actually just met with their top management here at the office a couple of days ago, and we're looking to build that relationship over time. And they did not share any concern whatsoever as far as they're available of capital to continue on buying a widespread of financing paper.

And just following up on the finance piece. What is the shape or what color can you add on JPMorgan advice you intend to pursue? I mean any way to add some color as to what you intend to change as it relates to your balance sheet going forward?

Well, yes, maybe I can be just real to the point. Obviously, our main lender for approximately $350 million of our debt is fixed debt with Oaktree. That debt is typically not a long-term solution. It's more of a bridge from our perspective. And we are working with JPMorgan and are moving along with the process of getting rated and so on and so forth. So that not only can we get more competitive rates. But I think the burdensome covenants that run with the type of credit that we have is problematic for a growth company, long term. And secondly, obviously, we want good rates, but more importantly, it's really more around the covenants and breaking this debt down to 2 tranches so that we have a revolving piece of debt that we can move in and out of. For us to be sitting on -- and we have available credit with no problem, as we mentioned on the call. But to sit on large sums of cash and not have the ability to offset those with liquidity through lines of credit and reduce your interest expense is not the best cash management. So that's really the process. We've been working with -- well, a lot of them, but we did decide to move forward with the JPMorgan. We like the fact that they have a very, very strong local team. We -- certainly seems we have the A team involved, and we're super excited to move forward.

The next question is coming from Seth Basham of Wedbush Securities.

My first question is just a little bit more color on the GPU expectations for 2023. It seems like you expect powersports GPU to improve throughout the year. Is this from new inventory normalization and your view that used inventory is under control at this point in time?

Yes. Certainly, a big piece of it is we think there's quite a bit left on the used side and we think we can move that fairly quickly and dramatically. The new side, we pretty much are projecting stuff that it's going to stay at least through the first half, similar to what we saw in fourth quarter from a GPU perspective. And again, we aren't seeing anything at this point and the quarter is almost over and first quarter, but we aren't seeing any differences in that regard on the new GPU. And we've been able to maintain unit sales in comparison to unit sales -- reported unit sales of last first quarter, which I would say that I think everybody would agree that last first quarter in 2022 was an all-time record quarter. So we're happy with the concentration on market share. And I know you didn't ask market share, but just since it's part of GPU and then how we intend to sell these additional units, I would add a little bit of color there in that the new unit sales from our perspective, when you hear from manufacturers and other adjacent segments, that retail is off in a dramatic fashion, and actually, you see it in some of their reporting. I think the only conclusion you can come to is some of the things that we are working on with regards to market share are beginning to take hold because we are not seeing a reduction in total retail sales. And again, we think there's still a tremendous upside on the used even in a pressured environment because what we caused in the fourth quarter was intentional and self-inflicted. And so we think we will rebound that from those levels very quickly. And we are not experiencing, Seth, the issues with regards to these values moving around as violently as you see in the automobile side. We did see in the data that we were getting -- what we suspected was more in line with past seasonality adjustments on used values. So we went ahead and made an aggressive move. In retrospect, because hindsight is always 2020. I would say it might have overreacted just a hair but not by a significant amount. I think that we're probably -- if we had another $10 million in used inventory right now, a fresh inventory, I would probably be very happy with the decision. But in today's world, if you're a little light, it's probably better than being a little heavy.

Yes, I definitely agree. And when you assess the outlook for the balance of the year, what kind of risk do you assign to the chances that we'll see another step down and use price as a material step down?

I don't really see it. I think the big difference, Seth, in this, and I know you follow a lot of the auto businesses or your firm does for sure. I think that the risks in this industry because we have such an inefficient redistribution supply chain. We don't have a vibrant auction system or any of those types of things. And when you look at customers' ability to sell their vehicle, let's assume that they don't want to stay in the space and they want to liquidate their vehicle, still today, by far, our largest competitor is Craigslist. And that does not -- that is not a major competitor except in low-end junky cars for the automobile business. They have a very efficient supply chain. So we just don't see the prices moving around like that. Now with that said, I'll give you a caveat, alright? Late model Harley-Davidsons that people might have bought throughout COVID, probably one of the risks that we have right now today because our software is mark-to-market, and we just experienced Bike Week in Daytona in the last 10 days, we saw inordinate amounts of negative equity. So again, no downturn in desire to buy the product but when people have significant negative equity driven by how much they paid for it back in the last 2 years, that becomes a deterrent. So I would say with regards to valuation, that puts some pressure on current year and maybe 1- or 2-year old model, but that is not the sweet spot with our used unit program. Our used unit program is really designed to try to price volume vehicles around half of what a new -- the same new vehicle would sell. And the only reason our current ASP doesn't look 50% is because we have -- we're heavily weighted in Harley-Davidson much higher than the actual mix, and that's primarily driven because off-road and personal watercraft are very hard to buy that are retailable condition.

That's really helpful color. And my last follow-up question is just on your outstanding debt. You mentioned that some restricted covenants, which ones do you view as most restrictive? And are there any that you're close to for [indiscernible]?

No. We don't have any covenant issues in that regard. We obviously track them really daily, but we look at them in depth on a monthly basis. Blake has done a significant amount of analysis in that regard. We are very comfortable with the -- with our current position against our covenants and we don't anticipate near term or long term, any issues in that regard. Keep in mind, we prepaid $15 million worth of debt in the quarter. It was not due, right? And really, it's just because we need to offset some of this increase in interest expense if possible. But spending our cash today, we also are an 18-month old company in the retail business. And Seth, we're not out of great ideas yet. And so we don't want to get too aggressive, but we also wanted to signal that we don't have cash problems. We don't anticipate cash problems, and that's why the emphasis around self-funded.

And Seth, this is Blake. I'll just reiterate that the guidance of $95 million to $105 million of adjusted EBITDA, we feel good about where that puts us in relation to our covenants going forward. Of course, you never know all bets are off if the market completely goes bad, but we feel good with our projections and where that will lead us and we anticipate paying off additional long-term debt.

And our projection is too, Seth, just for planning purposes, we've built in a 1% interest rate increase from here. I mean your crystal ball is probably as good as mine. I hear every day that it goes from -- they're going to move 25 to move 2 points. I mean -- but we just felt that we needed to pick a target. And so we have built into our modeling a 1% increase in our interest costs over the term of the year. Hopefully, we can offset whatever interest costs happen with a better finance package as we progress with JPMorgan. As you know, because of the bank collapses of recent -- the commercial markets were just starting to kind of free up and a lot of transactions were starting to be done again, I would make the assumption. I haven't heard this, but I would make the assumption that they're probably won back again until some of this clears. So I wouldn't expect that we will restructure this balance sheet in the first half, but we certainly intend to do it before the end of '23.

In the interest of time, we're going to ask our final analyst to please limit to one question. Today's final question is coming from Fred Wightman of Wolfe Research.

I just wanted to follow up on the comment about the Harley negative equity. Can you sort of expand on that? Is that sort of where across your different verticals you're seeing the most pressure? And sort of how does that impact or influence your retail expectations across the different categories for this year?

I would say the same situation exists for all adjacent segments as well as powersports for high dollar late-model product. I think we all know that people paid up because of supply and demand issues. And those people are the most likely to utilize consumer credit. If you pay $10,000 over sticker for a new -- I'm not picking on Harley, but we do a lot of Harley business, but they're a much more expensive price point. If you take that and you pay $10,000 too much or not too much, but what the market was at the time and now the market is normalized. It creates quite a delta in what you owe. And unfortunately, consumers think there's a relationship between what they owe and what it's worth. And obviously, our system doesn't adjust for that. It's just the current market. So I would say that it would be typical -- I use my Bike Week example. Typically, we would look at a lot of transactions with, say, $5,000 of negative equity. And we saw a lot of transactions last week that were well north of $10,000. And thank you, everybody. We really appreciate your time. Thanks for joining us today, and we look forward to all of our follow-ups here over the next couple of days.

Ladies and gentlemen, thank you for your participation and interest in RumbleOn. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.