Greetings, and welcome to the RumbleON Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, 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 third quarter 2023 financial results. Joining me on the call today are Mike Kennedy, RumbleON's new Chief Executive Officer; Mark Tkach, RumbleON Board Observer and RideNow Founder; and Blake Lawson, RumbleON's Chief Financial Officer. Our Q3 results are detailed in the press release we issued this morning and supplemental information is available in our third quarter Form 10-Q. Before we start, I would like to remind you 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, 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.

Thanks, Will, and good morning, everyone. Thank you for joining us for our third quarter 2023 earnings call. We're excited to formally introduce Mike Kennedy to all of you as the new Chief Executive Officer. We're pleased to have such a proven leader join RumbleON at such an important time in our history. Mike is a seasoned executive with a proven track record in the powersports industry. I've known Mike for many years, and I'm confident that with his expertise and successful background in the field, he is uniquely qualified to lead RumbleON's transformation plan and enhance value for our shareholders. I want to thank the RumbleON team for their continued hard work and dedication throughout this transition as we make progress towards our goals. In terms of my future role, I will continue to act as a consulting capacity through the term of my employment agreement. I will also be a Board observer and given my significant ownership interest in the company and my passion for the industry, I plan to stay very involved in the business going forward. And with that, I will turn it over to our new CEO, Mike Kennedy. Mike?

Thanks, Mark, and welcome, everyone. I've been on board for a week as RumbleON's CEO. It's been a busy week, and there are already a couple of things that are clear in my mind. First, I've been very impressed with the passion of our team. As most of you know, there have been a lot of change in recent months here at RumbleON, and I'm convinced that the team is focused and is excited about what we can accomplish together. Second, I'm confident that we will deliver an efficient operation and deploy our capital smartly for the benefit of shareholders. In particular, once the rights offering is completed, in a little over 3 weeks, our balance sheet will be greatly strengthened, and we'll be in a position to go on the offense acquiring dealerships and expanding our footprint. I look forward to updating all of you on our progress going forward. For now, I'd like to provide some color on my background before turning it over to Mark to walk through the team's progress towards the exciting future here at RumbleON. I love this industry, and I bring over 3 decades of experience at leading powersports companies. Most recently, I was CEO of Vance & Hines, a private equity-owned leading manufacturer of powersports performance products. I spent the bulk of my career at Harley-Davidson, serving in several capacities across different geographies and commercial aspects. By time at Harley-Davidson [indiscernible] as Vice President and Managing Director of the Americas where I managed a network of 800 dealers throughout North America and Brazil. One of the aspects of this opportunity that really excites me is being close to the showroom. I've often said in my career that the action is in the showroom with our customers. And now I've never been closer to that excitement. I look forward to speaking with all of you in the coming weeks and months. Mark will now walk you through the company's business update in more detail. Go ahead Mark.

Thanks, Mike. After an extensive search, we're excited to entrust the leadership of RumbleON to Mike. We're confident that he will manage our turnaround plan efficiently and effectively by instituting further cost-saving initiatives, repositioning our inventory management process, strengthening our balance sheet, and executing a more disciplined and strategic approach to acquisitions. We look forward to keeping you updated on our progress on these initiatives while Mike forms his vision for driving long-term shareholder value. I will now walk you through what we've done, what we're doing now and what we plan to do going forward. First, during the quarter, we continued to make progress in our plan to right-size the cost structure, specifically in our regional management structure, optimizing positions that were overbuilt in anticipation of a much larger footprint. We're evaluating our options regarding unused or underused facilities in an effort to offset our real estate expenses. Further, we continue to identify incremental cost savings at our dealerships and distribution centers. As you know, we have implemented $30 million in annualized cost reductions and have identified another $12 million, totaling annualized cost savings of $42 million, with the effect of these measures benefiting 2024. We believe we can further reduce expenses, as Blake will describe in more detail. I think expenses out of an organization is not always immediately visible, and often there's a tail, it can lag for a few months. Second, we continue to improve our inventory management. We have implemented a stringent buy sell process at the store level that will continue to self-correct our used inventory levels and at the same time, allow those inventories to be increased and decreased more efficiently, adjusting for our seasonal network meetings. Manufacturers of our new products are assisting us as well through increased rebates and incentives, while…

Thank you, Mark, and good morning, everyone. As the team has detailed, we continue to execute on our strategy during the quarter and are pleased with the progress we have made despite having to make some tough decisions. We have put the company back on solid ground with a plan for growth and value creation for shareholders. Not to diminish the challenges that exist, which are real, heightened interest rates, non-current inventory, inflationary and economic pressures on our consumers and geopolitical unrest to name a few, while options to finance our discretionary products remain available and plentiful, rates are certainly higher, and we are seeing increased pressure on the lower credit consumers. Despite the challenges that exist, we have the utmost confidence that our team of dealership professionals will rise to the occasion, and we look forward with confidence to the future. As you are all aware, we recently favorably amended our financing agreements with our primary lender at Oaktree. As part of these agreements, we have committed to pay down $120 million through the sale of non-core assets and an equity raise. Mark already gave you an update on our real estate sales resulting in the company remitting $47 million directly to Oaktree to reduce outstanding debt under the term loan. Additionally, we believe we will sell our finance portfolio before year-end 2023 and are confident we will be able to pay off an additional $15 million of Oaktree debt from the proceeds of this sale as well as eliminate the finance company's line of credit that supported this loan portfolio, further reducing costs, simplifying our company and reducing debt. I want to provide an update on the $100 million fully backstop rights offering that we announced on our Q2 earnings call in August. As Mark stated, we plan…

[Operator Instructions] Our first questions come from the line of Eric Wold with B. Riley Securities. Please proceed with your question.

Thanks. Good morning. Just couple of questions. Following up on the inventory comments. Given the current guidance that you have for this year, where would you expect inventories to settle out at year-end as you work to push through some of the non-current model year inventory. And then as you think about returning to a normal cadence in '24. How should we think about when you start building inventory back up again into '24, what should look like throughout the year.

Well, we feel good currently with our inventory levels. We're doing well in moving the '23 product. I think we probably have less than 9% of our product is below '23 model year. And we've already done two large campaigns with two of our larger manufacturers moved a lot of that product out. They are assisting, as I said earlier, with incentives, rebates, some additional buydown on the financing, so we're seeing good activity on those promotions. And by the end of the year, I think it was our target to really try to get our used inventory lined up, I think we're in a really good shape.

Hi, Eric. This is Blake. I would just add. From a dollar perspective, I believe not much will change, but we are working, certainly, like Mark mentioned on the mix to make room for the 2024 model year. And then on the used side, we've still got some overhang there. Again, the dollars are probably in line and the days supply are in line, but we've got some aging issues, and we hope to flush that out in Q4. We plan to flesh that out in Q4 and be ready for the selling season in 2024 in the spring.

Got it. Thank you. And then, second question is kind of on the comments earlier on the acquisition pipeline and once you complete the rights offering and you've got some targets that are expected to close in Q1 and then more throughout the remainder of '24. Just give us a sense of kind of what the environment looks like for acquisitions right now. You have the number of willing sellers increasing, you're seeing a greater pool of potential targets coming up because of the environment we're in? And kind of what does that mean for maybe the size of an average target in your pipeline and valuation multiples?

Well, we'll keep them very busy on determining which direction we want to go. We have lots of options, but we really want to focus on what works best for the company, in setting up our platform. I think these will close easily in the first quarter, the two that we're working on currently and the pipeline will carry us throughout the year. I mean there's plenty of opportunities, Eric. It's really just a matter of focusing on what works best for our company and our platform.

Yes, Eric, I think as trailing 12-month EBITDA has normalized or is coming down for a lot of [indiscernible] dealerships and stuff, there's going to even be increased opportunities there at good values.

Thank you. Our next questions come from the line of Michael Baker with D.A. Davidson. Please proceed with your question.

Hey. Thanks guys. I just wanted to ask a very big picture question. As I recall, a couple of years ago when we first started looking at you guys, the idea of the vision was RumbleON was going to sort of combine online and in-store, use the new and the customer would have visibility across the entire portfolio of product, again, new, used, online, et cetera, either walking in the store or on their computer. How has the vision changed? We've been through now a couple of CEO changes. What is the long-term vision for the company? How has that changed and let's say in the last 2 years. Is that still the vision, or it seems now it's a little bit more focused on brick-and-mortar. So just talk about what didn't work, and what's the vision of the company longer term?

Mike, I think the vision has changed a little bit, but we still have the ability to do what you're talking about, which is complete a deal 100% online. We still do that. We have been doing that. There's just a lot more opportunity right now to really grow that. Our cash offer program, which is our acquisition program. And by doing that, I think you'll find the omnichannel probably a lot more successful on the used side of the product with a lot of limitations with OEs on moving new product around the country out of your target market. So that portion of the business really, I think the real growth in that side is on our cash offer program. We can buy the bikes nationally, can sell bikes nationally. We don't have to answer to anybody on the size of that business, where we ship it, what we sell it for, used is definitely still a future of the company.

Okay. And so I guess to follow up on that, where are you. The idea was you needed a big technology investment to get there to make all that work. We understand you're cutting costs and you've got some, I think, some technology people what needs to be reinvested to make all this work? Or is the only investment going forward, just going to be investing in buying stores?

Well, no, we're still moving forward on some of the technology. But frankly, we're really fine-tuning what we already have. I mean, we're making bigger leaps and more success just fine-tuning the admin on the acquisitions of those products, really geo-targeting where we're buying product. And I don't want to give you too much of the secret sauce, but we're really looking at fine-tuning the process that's already in place, we're being very successful with that.

Okay. Thanks for that. I have other questions, but I'll jump back in the line to try to commit to the one question and one follow-up idea.

Thank you. Our next questions come from the line of Seth Basham with Wedbush Securities. Please proceed with your question.

Thanks a lot, and good morning. First, could you give us a little bit more color on how demand trended through the quarter and how you're thinking about the outlook in 4Q and 1Q? Do you think that will hit a bottom? Or do you think that some of the macro pressures are going to further restrict demand?

Well, I wish we had a crystal ball on that. And maybe you could help, but we're just moving forward with what we have to do. And I mean, we're lowering our debt, we've lowered a lot of money out of our SG&A costs. We've made progress on our inventories. And we're doing everything we wanted to do, and it's all moving forward. And that's really all we can do. We can't control the macro environment, we can just do the best we can do and continue to sell product to do things, we do best.

Got it. As you turn the page into 2024, it seems like you're expecting higher demand, you're expecting higher gross profit and your cost base has come down. So that points to a materially higher EBITDA in '24 than '23 million the right interpretation, the way you guys are forecasting the business?

Yes, I would say that our 2024 guidance reflects a little bit of growth. We're being pretty conservative but a little bit of growth in used. GPU is relatively the same and definitely cost reductions, which to your point, does bump up EBITDA.

Can you give us a little bit more color on that GPU expectation into '24, considering that you guys have taken a lot of pain as you move through aged inventory shouldn't we see better trends without that pressure in 2024?

We hope so. The guidance right now is [53.50] [ph], which is pretty squarely in the middle of where we're at right now and anticipate that we will start to see improved margins in used in 2024, but that could be partially offset by new inventory margins, which quite frankly, we've got a lot of new inventory at this point. And so –

We have got 24 products coming in, it is holding a better margin. I mean there's a lot of -- there's always demand for 2024 products. Every new year, our consumers really love their toys. They want to have the coolest, the newest thing that's out there. And there's a lot of that generally gets released by the OEs early '24 models that will come out late in the 23 years. So we're really, I think, focusing on the efficiencies of what we do, covering the expenses again and really trying to offset some of that inventory correction in some of these campaigns that we're running now with the rebate, the incentives, and the '24 product that's coming in, we're getting all the money for the 24 product.

Got it. And my last question is just thinking about the used to new ratio into 2024 with some of the changes to your cash offer, and it seems like a little bit less emphasis on the used business. Should we expect the used to new ratio to change meaningfully next year?

We're running a 2:1 right now to new to used. We're happy with that ratio. We have slowed down a little bit on our acquisitions, but at that time of year. I mean we really don't want to ramp up our acquisitions till January, February and into early March to really ramp everything up for the summer. So we're right where we want to be. We're going to turn that knob and right now, we're loading some of the dated stuff, but we're really leading it up, is going to get ramped up January, February, March, and we'll be ready for the summer with 2 to 1. You might see that even shift a little stronger, maybe 1.75 to 1 in the spring after we load up with that product. It's going to fluctuate a little bit, but on a year annual basis, we're quite content right now with a 2:1 ratio.

Thank you. [Operator Instructions] Our next questions come from the line of Michael Baker with D.A. Davidson. Please proceed with your question.

All right. Jumping back in. Thanks. Maybe it's in your filing somewhere, but remind me, just walk through, again, how the debt goes from, I think you said $311 million to less than 200. And remind us what your revised covenants are in terms of leverage ratios and how long are those revisions permanent or temporary waivers? Just remind us how that works?

Yes. Great question. So $311 million goes to below $200 million, really with the $100 million rights offering, where $50 goes straight to principal debt. And the other $50 million is in your cash account. So which there's also, obviously, we've got one more real estate property, which will get us another $7 million, call it, and the finance portfolio coming off. Right now, the principal balance of that is about $14 million. That will go away as well as some proceeds up to $15 million to pay down debt. So should easily be below $200 million at the end of the year, just with those facts. And as far as our covenant, with Oaktree, we did have relief for Q2 and Q3 being in the form of not even being tested. And then in Q4, that covenant starts at a total net leverage of 5.5, and then in the first quarter it dropped to 5 and that's for both total net leverage and secured net leverage. So 5.5 and then 5. And then in Q2 of 2024, it goes to 4.75 for total net leverage and 4.25 for secured net leverage. And then in Q3 of 2024, it goes to 4.25 billion of total net leverage and 3.75 of secured net leverage, which is where it actually was to begin with. So it goes back to where it was to begin with in next Q3 in a year.

Okay. Maybe these are dumb questions relative to that. But the calculation, so the numerator, I guess, is net debt, right? So you give yourself credit for the cash and the denominator, is that the annual EBITDA outlook or is it trailing 12-months EBITDA, or just remind us.

Trailing 12 months adjusted EBITDA.

Okay. And the numerator is net debt? In other words, you get a credit for the cash?

Exactly.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Mike Kennedy for closing remarks.

Thank you. Let me wrap up and just share a couple of things. First, I want to thank Mark Tkach for his confidence in me as well as his mentorship during the transition period. Mark is an incredibly successful and smart businessman, and I look forward to building on the momentum that he has created here. Secondly, I want to reiterate that we will lay out a clear vision and a set of strategies that will deliver an efficient operation and deploy our capital smartly for the benefit of shareholders. And then lastly, thank you, everyone, for your questions and your interest in RumbleON, and I look forward to speaking with you in the near future.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.