Greetings, welcome to RumbleON, Inc. Second Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to Will Newell, Head of Investor Relations. 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 second quarter 2023 financial results. Joining me on the call today are Mark Tkach, RumbleON’s Interim Chief Executive Officer; Steve Pully, RumbleON’s Executive Chairman; and Blake Lawson, RumbleON’s Chief Financial Officer. Our Q2 results are detailed in the press release we issued this morning and supplemental information will be available in our second quarter Form 10-Q 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 and 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. Now, I will turn the call over to Mark. Mark?

Thanks, Will, good morning everyone. Thank you for joining us for our second quarter 2023 earnings call. While I’ve met with some of you in recent months, I would like to explain to everyone why I returned to RumbleON. My longtime business partner, Bill Coulter and I are substantial shareholders in RumbleON. RumbleON, share price performance and financial results over several quarters indicated that it needed significant change. As such, Bill and I ran a proxy contest, which ultimately resulted in me rejoining the company as Interim CEO, along with a refreshed Board of Directors. We are rapidly bringing about the changes that we believe are necessary. I’ve been in the powersports business for over 30 years. In 1989, I Co-Founded RideNow, a powersports retailer with Bill Coulter. Over those years, Bill and I grew RideNow into a premier nationwide destination to buy and sell motorcycles, ATVs, and personal watercraft with 41 dealerships across the United States. Bill and I learned many valuable lessons about how best to serve customers and grow a thriving business, one that can sustain itself in various economic cycles and seasons. I know this industry and business very well and I’m honored to serve as Interim CEO and as a member of the Board of Directors. Fortunately, the team that led right now to its success is largely already in place. You’ve already met Blake Lawson, who was appointed as RumbleON’s CFO in January and previously was RideNow’s CFO. Hundreds of other RumbleON employees have remained steadfast and the work that has driven the company for many years led by the general managers of our dealerships, along with many dedicated people. I’d like to remind everyone here what separates RumbleON from our competitors. RumbleON is well positioned in the powersports market as the largest North…

Thanks, Mark. I want to express my excitement and gratitude for being part of the team at RumbleON and for the hard work the team has done over the past few months, getting us on track to accomplish our initiatives and bring about real change. As Mark mentioned, I was recently appointed Executive Chairman. Over the course of my career, I have served on over 30 boards of public and private companies. I have been the Chief Executive Officer of a retail focused manufacturing company. I’ve also been an investment banker and an attorney. As discussed, one of our immediate priorities has been to work with our partners at Oaktree Capital Management to reach a more optimal capital structure. I’m very pleased to update you on our progress. We have received covenant waivers for the second quarter and third quarter of 2023, and we have negotiated more flexible covenant requirements for the following three quarters, providing us with a good runway over the next 12 months. We are taking steps to meaningfully improve our balance sheet. We have signed a letter of intent to sell our RumbleON finance portfolio of loans. We believe that gross proceeds will be at least $24 million with $15 million available to reduce our debt to our lenders. We anticipate this transaction will close in the third quarter. We also have signed a letter of intent to sell nine properties with leaseback provisions. We expect this transaction to close in the third quarter as well. We anticipate gross proceeds of $56.9 million with approximately $55 million that will be used to reduce our debt. We have leased back these properties for 15 years. The initial annual rent will be $4.3 million and it will increase by no more than 2% per year. We are also…

Thank you, Steve, and good morning everyone. As Mark mentioned, there have been many changes that RumbleON since we last spoke. I’m grateful to be working side by side with Mark again as we endeavor to stabilize and improve the capital structure, grow the business sensibly, and create lasting shareholder value. As Steve mentioned earlier, we have favorably amended our financing agreements with Oaktree providing the necessary runway to execute our business plan. We have begun implementing the $30 million in annualized cost reductions that we outlined in previous conference calls. We also have targeted and additional $12 million in annualized cost savings, bringing our total cost savings to $42 million per year. The full effect of these cost reductions will flow through in 2024. Cutting expenses out of an organization is not always immediately visible and often there is a tail that can lag for a while. For example, we made the decision at the end of Q3 last year to exit the automotive business, which I’m happy to report was finally completed at the end of this quarter. This segment will now be classified as discontinued operations in our financial statements going forward. Our cost reduction so far have largely focused on discontinued operations and corporate level expenses. We are now in the early stages of identifying incremental cost savings at dealers, distribution centers, and at our unused or underused facilities, which result in additional savings down the road. As Mark mentioned, we have already improved our inventory management. We have done so in several ways. Over the last few months, we have dramatically reduced the amount of our used inventory that is more than 90 days old. We will rely on our experienced powersports team to be more precise in adjusting our inventory level to match seasonal…

Thank you. [Operator Instructions] Our first question is from Eric Wold with B. Riley Securities. Please proceed.

Thank you. Good morning everyone. I guess Blake maybe trying to understand the Q2 a little bit more, I guess, $24-ish million of EBITDA, but previously, on the Q1 call, you noted that April EBITDA was above Q1, the call at $11 million. You subsequently noted that May the trends continued into May, so it looks like June really reversed course. Maybe help us understand, what happened so dramatically in June to reverse the strength you were seeing in April and May?

Thank you, Eric, and appreciate the question. I would say, some of the drivers, will continue to see a little bit of issues with credit on the low tier. And obviously it’s been a really hot summer, which on record, which has kind of impacted some of our markets. And just our used inventory as we have to – we had a bunch of inventory over 90 days, that we’ve significantly reduced, and so I would attribute it to that.

Okay. And then my follow up question, what’s, maybe help us understand also, what’s so different or what’s changed with the used inventory procurement process now versus what was in place either under prior management or under the prior system. What’s going to be different now versus what was not being done before?

Hi Eric, this is Mark Tkach, I’ll offer some, some light onto that. I think that I think we’re going to a couple of things. One, we’re fine tuning the process of acquisition basically our cash offer program. I think there can be better buying done at certain times of the year. We need to really load up, for the full selling season and maybe not have to carry that inventory the length that maybe some of it was carried in the past. I think that we need to; I mean, I think we really need to focus on that. Number one, we also save a little bit of money. I think actually there’s a lot of money to save on the freighting of this product. We’ve really spent a lot of money moving product around the country. So we’re going to, without giving you any real too much secret sauce here, we’re going to really cut back on the freight that we’re spending. I think there’s literally millions of dollars freight that could be saved. So, I think that alone will be a massive impact on the handling of our used product, and that’s really our bread and butter.

Perfect. Appreciate it. Thank you both.

Our next question is from Craig Kennison with Baird. Please proceed.

Hey, good morning. Thanks for taking my question as well. I wonder, you provided very helpful EBITDA guidance for 2024. I wonder if you would share with us what the pro forma debt level would be after the backstop secondary and after the sale lease back and any other changes you’re making to the capital structure.

Yes. So our commitment is to eliminate $120 million of debt off of our term loan with Oaktree. And then we’ll also be in conjunction taking out our smaller sector Credit Suisse facility that was used to finance our RumbleOn finance portfolio. I think that’s around $18 million that will also come off of the debt stack.

Got it. So if I do the math right, would that get you to debt-to-EBITDA of three times or less on pro forma basis?

Based on our 2024 guidance? Or the 2023 guidance? 2024?

Yes.

Yes, we, it’ll definitely hit that market. And also, for the first couple of quarters of 2024, our covenant ratio is significantly higher than the 3.75 [ph]. You might be used to. The 3.75 kicks in again in the third quarter of 2024. So we should be well positioned to get our strategy to have the full runway. We need to implement our strategy, which consists of getting the used bike business back going, getting those margins. That’s where the real opportunity is with used margins and then our cost cutting initiatives too. Anything else, Craig?

Just if I could – yes, if I could follow up on that. I understand what you’re saying on the used side, it does feel like a big opportunity. At the same time this quarter you kind of reduced your ratio of used inventory sales and you talked about maybe the aging of that inventory being an issue. Like what’s the strategy to make sure you can grow, used business without necessarily bringing some of those aging issues into play?

Hey Craig, Mark again, I think, we want to be more specific on what we’re buying. We want to buy more of, I know it sounds simple, but it’s not really a simple process. We want to, we really want to buy the right product. We want buy it at the right time. And we want to buy it at the right price. And it’s as simple as, buying low and selling high. I mean, it’s not easy. So but we will turn that inventory, we’re not going to hang onto it. I mean, we’re going to basically go through that process, bring the inventory in if it’s not really what we want or doesn’t turn out to be exactly what we want, or it’s, or if begins to age it’s going to go much quicker and that inventory will be gone within that 90 days as opposed to maybe some of the things that we’re having to unload right now.

Makes sense. Great, thank you.

Thank you.

Our next question is from Michael Baker with D.A. Davidson. Please proceed.

Okay, thanks. I just, I guess more for Mark, just ask a big picture question. If I could just talk about your vision for RumbleON and how that, longer term and how that might differ from the previous management team’s vision. What were they doing wrong besides, I guess evidently not buying the right used inventory at the right time, at the right price, at the right product, but beyond that, are there, I think you sort of touched on everything here, but can you sort of articulate an overall strategy or vision that might be different from your predecessor?

Sure. I appreciate the question, Michael. I think that other than the used inventory, which is a big, big part of the process of what we do here. I think that our acquisition strategy going forward is probably a little different as well. Our history says, we bought product, we bought dealerships that were underperforming generally right now has, again been in the business for 30 plus years. Bill and I have generally bought dealerships at a discount and put in the correct or what we feel were correct processes and procedures, the right people and take those dealerships that maybe we pick up at a free multiple. And we just basically create more profit out of that process and procedure that we’ve done for 30 years. We can take and really increase the return maybe a six or seven. So we’ve done in the past, we’ve bought stores that we’re underperforming at even a six or seven multiple, but they paid for themselves in a year with the right people, the right processes, and the right procedure. So a big part of our acquisition growth is based on that, that type of a philosophy, and it’s been very successful in the past and we expect it to be very successful in the future.

So if I could follow up on that and the inventory question. So one on the acquisition of dealerships. Can you talk about what the pipeline might look like and what, annual store growth might look like? Or how many dealerships over time, just some, flush out that store strategy, if you will. And then on the used inventory, correct me if I’m wrong, but it sounds like, you pulled back in the near term, got rid of old inventory, but this isn’t a pullback on the used business. This is just clearly the decks to get it, to sort of position yourself to do better in that business, but still as committed to that used business as always. Is that the right way to think about it?

Yes, that’s a great notice. I mean, we anticipate well, a couple of things. We anticipate the runway to really expand that.

Yes, I mean, as far as the pipeline goes, I know that we get, and specifically Mark gets new deal opportunities daily, well, at least weekly, if not.

Yes, there’s, again, it’s a very fragmented industry Michael, and there’s probably 8,000 plus dealers out there. A lot of them are mom and pop still. They were enthusiasts. They – they’re ready to get out, especially after the COVID wave that they’ve experienced. They realize they have to get serious about doing business again, and many of them just want to ride into the sunset. So there’s tons of opportunity for consolidation in the markets that we want to be in. So we’re very excited about that. I am getting many calls. We’ve got a couple of deals, we’re looking at right now that we’re not quite at the LOI stage, but we are close.

Michael, just an example of one, we’ve only done one this year right now Tallahassee, but an underperforming store there, I think their building burnt down and anyway, we picked it up because it’s in a market that makes sense to us in Florida, it’s in our footprint and with all the brands, and, we picked it up for $3.3 million and through June it was at $880 million of EBITDA. And so, just double that for the year and it just pays for itself in a couple of years. So…

And a quick comment on your used inventory. Yes, we’re going after that tenfold. I mean, that’s, that’s really one of the unique things about this company. It’s really what connected Bill and I two RumbleON in the first place. And we think that once we get our runway cleaned off here, it’s just wide open. I mean, we’re seeing great results with the small tweaks we’ve made to the cash offer program. We expect to make more get the product in here quicker, get the admin done quicker, get it traded quicker, and flip the product quicker. So that’s really one of the – I’d say three of the main keys to keeping the aging at a minimum.

Got it. Thank you. Appreciate it.

Thank you.

Our next question is from Seth Basham with Wedbush Securities. Please proceed.

Thanks a lot and good morning. My first question is just if you wouldn’t mind adding some clarity on the specific covenants, leverage covered in amendments for the next four quarters, each of the four quarters ahead?

Yes. I don’t have it actually in front of me, but so I don’t want to quote the exact wrong terms, but I can tell you that we’ve got the third quarter, excuse me, second quarter and third quarter of this year are waived. And then we start in the fourth quarter at either 5.75% [ph] or 5.5% and then it goes down, steps down in the first quarter, a little bit steps down in the second quarter a little bit, and then it and then it goes back to normal in the third quarter. So Seth, I will send you those that exact language after this call.

Great, thank you. And then just for purposes of the clarity, based on your guidance for 2023, where do you expect your leverage to be at the end of the year?

Where do we expect our leverage to be at the end of the year?

Yes, your leverage ratio.

4.3 [ph].

Got it. And then my other question is just on the outlook for used versus new over the balance of the year, and how are you thinking about unit sales trends for the back half relative to what you experienced in the second quarter in both users do?

I’d say by the end of the year, we will probably get the ratio down to 1.5 to 1 used to new.

Got it. And by the end of the third quarter, you expect your used inventory days outstanding to be normalized?

We’re hoping by the end of the quarter. We’re running a lot of product through several auctions around the country right now. We’ve got some campaigns that are going to be starting here soon to also finish out the season and some of the northern facilities and dealerships that we’re working with, and everything under the snow belt line, is getting ready to cool off, we hope. This 100 degree weather has not been generous to anybody on a motorcycle, but we hope for that to bait a little bit as well, and will really target the remainder of what we feel is excessive as well as bringing in a lot of the new product to see how fast we can turn it and really test our capabilities on the new tweaks if the cash offer program.

Got it. My last question, you talked pretty extensively about your vision for the business and the used market overall. When you think about some of the facilities that have been built over the last couple years, including the one Orlando or the processing facility, is that still part of the go forward strategy? Or are you going to eliminate that portion of the strategy?

We’re still evaluating. We made a run through all the facilities up and down the east coast and, we see value in certain markets. We just haven’t fully evaluated Seth, which ones to really fight harder for. The nice thing about the facilities that are there currently is an auction company, NPA has got facilities close by. So we don’t have to, if we decide to move some of that product out of there and make that change, it’s not a big problem for us, but we’re still not a 100% committed. There’s a lot to cover here in the last two months, and I – we’re just not a 100% sure what direction we want to go in all the facilities.

Understood. Thank you very much.

Our next question is Eric Wold with B. Riley Securities. Please proceed.

Thanks. Just a follow up question, I appreciate it. So kind of looking at the guidance between 2023 and 2024, it’s about, 10% or so top-line improving to the two years. How much of that is organic versus acquisitions or is there anything acquisitions in there? Would acquisitions all be incremental? And then within kind of that, that guidance improvement or the revenue improvement, when are you expecting consumer demand trends to pivot to be more positive? Or is the driver more that demand will remain relatively constant, but you’ll just benefit from smarter inventory buying and having the right inventory on hand?

Yes, thanks, Eric. So the guidance is baseline. So it’s all, as you see it now without acquisitions. And so that slight increase in revenue is coming from the used side, we – and not really that demand will pick up much, but that we will do a better job of implementing our cash offer tool and getting the right vehicles in the right places at the right time. So…

Eric, the thing about our business people love their toys and it really the demand, it’s not generally it doesn’t really rescind on the consumer end, financing that’s a little bit out of our control. But the people, they just don’t stop coming in the door. They want the new product. And the manufacturers, the great thing about all the manufacturers is they’ve always, they’re all working on new product and nothing cites the consumer more than the latest, greatest thing. So the demand, I think, is always there. We don’t obviously have a crystal ball on how high it’ll go or when it’ll dip, but weather’s a factor. Again 100 degree in the south, it’s been a 100 plus degrees setting records that can hinder the business a little bit. People still come in, but they’re in an air conditioned showroom. They’re not out in the desert suffering the consequences of that. So but demand wise it barely very rarely wanes. And the outside things that we can’t control, well, that’s a little bit of an issue occasionally. But manufacturers are ready to incentivize. They’ve got some incentives going right now. They’re working on buy down rates, trying to keep the financing down around 3.99%, 4%, 5%. And that’s really making it a winner for the consumer.

Got it. Very helpful. Thank you.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing comments.

Well, I just want to thank everyone for the questions, for the interest as RumbleON transitions into our new growth chapter. We appreciate your support for myself as well as the RumbleON team, and we’re excited to make the necessary changes that we feel will drive shareholder value. Thank you very much.

Thank you. This will conclude today’s conference. You may disconnect your lines at this time. And thank you for your participation.