Greetings, and welcome to the RumbleON Inc. Fourth 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. It is now my pleasure to introduce your host, Tom Zelewski, Vice President, Finance, and Treasurer. Thank you. Please go ahead.

Thank you, Operator. Good morning, everyone. My name is Tom Zelewski and I’m RumbleON's Vice President and Treasurer. Thank you for joining us on this conference call today to discuss RumbleON's fourth quarter and full-year 2023 financial results. Joining me on the call today are Mike Kennedy, RumbleON's 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 full-year 2023 Form 10-K once filed. 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, and involve risks and uncertainties that may cause certain results and actuals to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found on 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 Mike Kennedy, RumbleON's CEO. Mike?

Thanks, Tom. Good morning, everyone, and thank you for your interest in RumbleON and for joining us on our call this morning. On the last conference call, since I had only recently joined, my comments were purposely limited. I'd like to take this opportunity to introduce myself to all of you and give some perspectives on our industry, our company, and our recent performance. I'm going to then turn it over to Blake Lawson, our CFO, who will cover our Q4 and 2023 full-year financials, before turning it back to me so I can discuss our turnaround actions and introduce our Vision 2026 long-term targets for the business. I've been in the Powersports industry my entire career. I know RideNow from my years working with them during my time at Harley-Davidson, I have always admired what Bill Coulter and Mark Tkach built, and the success they achieved in this industry. Even with all of Bill and Mark's success over 30 years, we believe they just scratched the surface of what is possible. Since joining the company, I've had the opportunity to visit several of our dealerships, meeting small groups with several employee teams, and have discussions with all of our top OEMs. We also recently kicked off a very important process called composite meetings for our dealership GMs. And so, I had the chance to be in the room with all of our leaders here in Irving. People hear me say the phrase, the bones of this company are really good, and when I say that, I'm primarily referring to our dealership operations. We have some incredibly dedicated people with an impressive set of industry experiences that we are blessed to have on this team. As you know, RumbleON operates primarily through two distinct operating segments, the RideNow Powersports Dealership…

Thank you, Mike, and good morning, everyone. In the fourth quarter and throughout 2023, we accomplished many critical capital and balance sheet initiatives. We favorably amended our credit agreement, successfully completed a $100 million rights offering, sold non-core assets, made significant progress to integrate our prior acquisitions, right-sized pre-owned inventory values, and reduced term debt by $109 million. In early 2024, we further reduced term debt by another $33 million, bringing the total reduction to $142 million with the sale of RumbleON Finance portfolio closing in early January. In addition to the balance sheet improvements, we successfully streamlined the organization by reducing headcount, restructuring our operations management, and reducing corporate overhead on a go-forward basis. Although we believe the retail environment will remain challenging in 2024, we anticipate that the significant changes implemented in 2023, particularly with regard to expense reduction, will drive positive operational free cash flow in 2024. Turning to a review of the fourth quarter, total revenue was $311.1 million, which is down 6.2% or $20.4 million from the prior year due to a decrease in pre-owned units sold, partially offset by an increase in new units. We sold 15,596 retail units, including 11,293 new units, and 4,303 pre-owned units, down 5.8% from the prior year, due entirely to a reduction of pre-owned units. Total fourth quarter gross profit was $71.2 million, down $21.2 million from the prior year, of which $12.6 million was related to a onetime non-cash year-end pre-owned inventory adjustment. Similar to what has been experienced recently in the automotive industry, Powersports wholesale book values dropped 10% to 20% depending upon unit type from April to December 2023. Instead of liquidating our inventory in the wholesale channel at significant losses, only to turn around and buy it back again for the spring selling season,…

Thank you, Blake. RideNow exists to deliver the exhilaration, fun, and adventure that Powersport customers want. This is what inspires our teams and drives our performance. The Powersports customer is at the heart of all of our retail operations, informing thousands of decisions by our teams in our dealerships every day. I couldn't be more excited to be leading the company today, and have more conviction about our opportunity than when I walked in just a few months ago. Today, we're introducing our three-year operating plan called Vision 2026. The Vision 2026 plan was developed by the team and myself over the last few months, and guided by our first principle of creating and maximizing long-term per-share value. In this plan, we expect the following to be achieved by calendar year 2026, annual revenue in in excess of $1.7 billion, annual adjusted EBITDA of greater than $150 million, annual adjusted free cash flow of $90 million or more. We expect to achieve Vision 2026 and maintain a healthy balance sheet within our target lever ratio of 1.5x to 2.5x net debt to EBITDA. To achieve Vision 2026 goals, we have the team focused on three strategic pillars. These are, leverage our national scale to run the best-performing dealerships in America, supported by an aligned and efficient corporate office, grow our differentiated RideNow Cash Offer tool to drive our pre-owned business, and lastly, effectively allocate the capital we create through operations to maximize our long-term per-share value, including strategic accretive acquisitions. Let's start with number one, leveraging our national scale to run the best performing dealerships in America, supported by an aligned and efficient corporate office. When I say the best performing dealerships, we measure that by using net profit and customer satisfaction as our top two goalposts. We put the…

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

Thank you. Good morning. A couple of questions, just follow-up question on the parts of the strategic plan. I guess one, on the last point, you talked about the acquisitions being an important part of the 2026 plan. Maybe give us a sense of how aggressive you want to be on adding dealerships over the coming years, maybe what's included or how much of a driver acquisitions are within those targets, and kind of what valuations in the pipeline look like at this point.

Okay, Eric, thanks. Yes, you asked a few questions in there, so let me try and make sure I get to them all. Your first question was around - just back up for a second and repeat that first part.

How aggressive you are.

Sure. I guess, how aggressive do you want to be on adding acquisitions over the next couple of years? Kind of what's included within those 2026 targets driven by acquisitions?

Yes. So, we don't want to be - we don't want to acquire stores just to acquire stores. We want to be smart and strategic about acquisitions. We certainly are going to hold ourselves accountable to make sure they're accretive to the business. And we don't want to like share all the things we look at in a target because we don't want to share that from a competitive perspective. But I think if there's a silver lining in - coming off of COVID, I think prices are probably coming down from where they were certainly a year ago or two years ago. I think a lot of owner operators realize that they made a lot of money during COVID, and it was relatively easy, and today it’s a lot of work and the return isn't as great. So, maybe there's a silver lining in there in terms of targets that we see. But make no mistake, we're not going to buy stores just to buy stores. We're going to be smart about it. We're going to make sure they're accretive to our business model and strategic in terms of our operation. And so, I think that maybe answers your questions. I don't know if Blake has anything to add, but that's kind of my views.

Yes.

And then just - sorry, go ahead, Blake.

Sorry Eric. Yes, it is definitely part of our strategy, an important part of our strategy going forward for sure. But like Mike said, we don't want to give away our playbook, and it could be a big acquisition. It could be a bunch of small ones. I mean, you just don't really know.

Got it. And then follow-up question …

Go ahead, Eric. Sorry. Go ahead. Okay, go ahead.

So, on the debt balance that you talked about, obviously the 2026 plan, your goal is to get there within the range of 1.5x to 2.5x net debt to EBITDA. Maybe talk about the structure of your current debt with all the changes you made last year with the current debt in place, what are the plans around that debt to make a more flexible structure? And maybe when do you plan on addressing that either this year or next?

Yes, that's a great question. So, we took out a lot of debt in 2023 and then we've taken out even more in early 2024, which is a nice cash flow savings from a debt - from an interest cash perspective. We definitely have, as a key target this year, to do some type of a refinance on that. We're in the very early stages of that, but from all indications, credit markets are opening up. We definitely want to put down some good numbers in 2024 so that we can have more options available to us. But make no mistake, we are focused on doing some type of a refinance this year preferably to both get more flexibility, but really to lower interest as well.

Probably last follow-up maybe just on that point, then I'll move on is, what is - after the debt paydown in Q1, what is the current interest expense run rate for non-floor plan debt?

For non-floor plan debt? So, we are at - let's see here. We're at 218 or 200 and - yes, $218 million of net debt right now. So, backing out the cash at roughly - what are we at Tom, $225 million for Oak Tree? That's at - close to 14%. So, there's a good 40, 38 - $40 million of interest there this year.

Got it. Thank you very much.

Thank you. The next question is coming from Craig Kennison of Baird. Please go ahead.

Hey, good morning. Thanks for the color on your 2026 vision. Very helpful. I wanted to ask just about the current quarter. You're almost done. I'm curious what retail trends you've observed so far in the start of 2024?

Yes, thanks for the question, Craig. Appreciate that. We're not going to share any information mid-quarter. It's just a practice of not doing that. And as you know, Craig, you know this business pretty. March ramps up significantly versus January and February, and honestly the last part of March is a different ball game compared to the first part of March. So, we just don't think it's productive to talk about it mid-quarter here.

Okay, fair enough. And then just with respect to inventory, I think you talked about a situation where the whole industry had excess inventory. Where are we on the path to getting to what you might consider optimal levels of inventory of new units?

Well, I mean, that's a great question. I think for our company overall, overall our inventory is too high, and we look at it kind of from a day supply perspective. Now, it's different brand by brand. So, and that's what the team is working on. But as Blake mentioned in his remarks, because of some OEM line changes and because of just centralizing the ordering, getting more disciplined about managing our new inventory, we expect to take out about $60 million of new inventory throughout the year. So, that won't come together until towards the end of the year. And so, that'll put us in really, really good shape for the following year, Craig. And so, hopefully, that answers your question.

Yes. And maybe just on that last point, $60 million of inventory coming out, is there a way to say how much of that is coming from brands that you are choosing to exit versus brands you think you'll continue to roll with?

Yes, that's a good question. We don't have that information right in front of us. I would say it's probably two thirds with existing lines and one third with lines that we're exiting, yes.

Perfect. No, that helps a lot. Hey, thank you so much.

[Operator instructions]. The next question is coming from Fred Wightman of Wolfe Research. Please go ahead.

Hey guys, good morning. Just to follow up on inventory, is there a way to frame the mix of inventory as far as current and non-current products within sort of what you've reported, and then also maybe that inventory work-down target?

Yes. Thanks, Frank. This is Mike. Yes, when you look at our aged inventory, I mean, we have very little - we look at model year 2022 and later, it's very small. I mean, less than 3% of our total inventory. So, the team's focused on obviously cleaning that up. A lot of OEMs just recently introduced ‘24s. so, a lot of focus and program support from OEMs on model year ‘23s that we're working on, and that's certainly going to be a key piece of the focus here in the selling season. And the good news about all this inventory management is now's the time to address it because we're going into the height of our season. Next four, five months, demand is pretty strong. And so, when the team focuses and gets it done execution-wise, we should have some really, really good results.

Makes sense. And then just thinking about - I know you pulled the annual guidance, but even for sort of the midterm outlook, what do you think the impact of potential rate cuts will be? What have you sort of assumed within those 2024 guideposts that you laid out, and how quickly do you think that rate cuts could potentially drive consumer interest or consumer demand?

Yes, in our modeling and in what we are looking at, we haven't anticipated any - there's no rate cuts in there. So, that would all be very helpful if - we would welcome it both from a debt perspective. It does make a big difference to us as well as from a floor plan interest perspective as well as to our consumer. I just think that psychologically it would be a lift to the customer and the riders to see that. But we haven't baked that into anything in 2024.

Great. Thanks a lot.

Thank you. At this time, I'd like to turn the floor back over to Mr. Kennedy for closing comments.

Thanks for your questions and interest in RumbleON. This is an exciting moment in our company's history as we sharpen our focus on Vision 2026 by leveraging our scale to run the best performing dealerships in America, growing our pre-owned business, and allocating our capital to maximize our long-term per-share value. We constructed a powerful turnaround plan for the company, and we'll be focused on the execution. Thank you very much.

Ladies and gentlemen, thank you for your participation. 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.