Greetings, and welcome to the RumbleOn Incorporated's First Quarter 2024 Earnings Conference Call. [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, and please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us on this conference call to discuss RumbleOn's first quarter 2024 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 Q1 results are detailed in the press release we issued earlier this morning. The supplemental information will be available in our first quarter Form 10-Q when filed. 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 involves 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 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'll 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 this morning. Earlier this morning, RumbleOn reported our first quarter financial results. That release and this call are significant as we begin to talk about our company performance and results to the new company framework described on our call back in March and detailed in our 10-K filing. I'm excited to talk about the very early stages of work and results that point us to our Vision 2026. I'll begin with a recap of our recent performance delivered during the quarter. But first, I want to take a moment to acknowledge the announcement in our recent 8-K related to Blake Lawson's decision to leave RumbleOn. Blake is leaving on a very positive note. He continues to lead the finance functions of our company, and he will remain in place through our annual meeting on June 4. Although we've only worked together for a short period of time, I can see that his dedication to RumbleOn has been remarkable, and he has truly been an asset in the turnaround of the company. We wish him well in his future endeavors. Now turning to the results from the quarter. Let me first kick things off with an overview of our powersports dealership group. The team retailed 15,508 total powersports major units during the quarter, which is down 4.4% from the same quarter last year. Total new powersports major unit sales were 10,503, or up 0.6%, to the same quarter last year, while pre-owned unit sales totaled 5,005, or down 13.4%. As I stated on our last call, on a day supply basis, our new inventory levels are heavy and our pre-owned inventory is light. Our team continues to work closely with our manufacturer partners to…

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

A few questions. I guess, first off, I know that the March quarter is typically one of inventory build kind of into the selling season. I mean we saw that in the numbers. But can you talk about, I guess, how that compared to what you would normally see in a build period in prior years and then if you also remain on track for your goal of reducing inventories by $60 million this year?

Yes. Thanks, Eric. This is Mike. I'll take a stab at answering that question. So first off, we feel really good about our project to get inventories down, which what we communicated back in March was a target for the year of $60 million. I would say within the quarter, probably January inventory came in pretty heavy from momentum from the fall and, depending on the OEM, the ordering window and lead times, and they're different for every different OEM. And then as we started to exit the quarter, things came down, which would be in reverse from what we typically see in Q1, right? Usually, they grow throughout Q1 and even at the beginning of Q2 as we come into the fall season. So the plan is coming in well nicely. We're positive about the results, team's working really hard, and partners are manufacturing partners to make sure we do it the right way.

Perfect. And then the new stand-alone pre-owned retail center, can you talk about the plans are for that location? I guess -- and what do you expect to see from -- is this to act as a hub for kind of acquiring refurbishing vehicles for other dealerships or will essentially be acting as kind of a stand-alone autonomous operation and not do anything for other dealerships?

Yes. So I missed a piece of that question, but let me give you a little bit of color around it, Eric. We're excited by it. As a reminder, it's a pilot for us, right? We've not done this yet. We haven't announced the specific location, but the ideal location for this pilot for our kind of conditions of success was a healthy strong motorcycle market overall and ideally a market that the RideNow network is not in today. And so the idea is we're going to leverage the fact that we buy more pre-owned motorcycles in the country than anybody else and feed that to a good solid location in this market and then bring the RideNow processes into place and see if we can make a big impact. It's a different ball game going into market without an OEM, right? An OEM brand, you put the sign up front, and that brings a lot of energy, a lot of leverage with that OEM brand to drive traffic and interest and awareness. So this will be a new test for our team from a marketing perspective to stand up on our own. But we feel good about it. Our team is very optimistic about the financials and the return, and we're really excited about it.

Taking the other part of the question, that location is essentially just going to be acquiring vehicles for it and it only? Or will there be some acquisition of vehicles that we refurbish in that location and then send to other dealerships in the network?

Eric, this is Blake. If I understand your question correctly, it's not going to be like a distribution center for other dealerships where we do the used vehicle reconditioning there. It's going to be a location where we acquire, through our Cash Offer tool, a lot of good quality inventory in that market and put it in that particular dealership.

Perfect. That helps, Blake. And then just the final question for me. Obviously, you continue to pay down debt in the first quarter. I know it's [indiscernible] to talk about guidance out there for '24. But is there some level of an estimate of how much additional debt you think you can pay down this year, maybe at a minimum? And when do you think you'll be in a position if the market accommodates to restructure, refinance the higher-rate [ OG ] debt?

Yes. So we don't really have any requirements to pay down debt this year. We've met all of our principal payments. And so anything we did would be voluntary, I guess, and it would be out of just free cash generated that made sense for our business and our balance sheet, but we don't have any requirements. And so I don't anticipate that we will be paying down any of our term debt. I'm not sure that totally answered your question.

I mean obviously, one of the risks -- one of the issues you had is it's not a revolving credit facility. So I get that you probably would not want to pay down that with cash. You would not be able to get back until you got to restructure that to more accommodating structured. When do you think that might come into play? And how much does the -- prepayment period or the needs of better interest rates or market environment, this is something you think you'd do in the back half of this year. This might be more in 2025, but when do you get to like, say, address that?

We're looking at all options right now. I think it's probably depending on what we can structure. It's probably an early 2025 thing. The prepayment runs out in August, if there -- it's only 1%. So -- but we're definitely exploring all of our options right now to be ready to do that when the time is right.

Your next question is from the line of Seth Basham from Wedbush Securities.

My first question is on the new market. If you could provide some color on how you think the spring season is shaping up updates on incentives and promotional pressure in the industry, that would be helpful.

Yes. Thanks, Seth. We don't normally talk about mid-quarter performance. But I'll give you a couple of reflections. I think the promotional activity coming from OEMs is extremely high right now. I mean across the board, I mean, I've never seen -- with some brands, haven't seen this level of activity and potent of activity in the marketplace. So I think for -- on the negative side, it's high inflation realities coming off of COVID, high interest rates are sort of the negatives on the positives. There's a lot of selection of inventory in the marketplace, and incentives are pretty strong, whether it's factory rebates or interest rate buydowns. So I think -- I mean, I think there are some challenges out there, which we're all feeling. At the same time, OEMs are responding and have responded here just in the last few weeks with even more power in the marketplace. And so I think that's -- there will be some offset in there as we manage through the spring.

That's helpful. And on the pre-owned side, how much of the decline in units is being driven by the market versus your own inventory initiatives? And when should we see some stabilization in used volumes?

Yes, that's a great question. I think it's a combination of a few different things. I think going back to new inventories, right, you heard in my remarks that our inventory is heavy on a days supply. And I think there are some buyers that walk in and say, "Hey, I'm going to buy a new motorcycle or powersport unit," and then there are some that are dead set on pre-owned. And then there are some that just shop for a deal or a specific unit that they fall in love with. Right now, the whole industry and us included are heavy on a new perspective. We are light on pre-owned. Some of that's coming off of COVID. Some of that's cleaning our own house up. So I think the growth or the lack of growth in pre-owned unit sales in Q1 is probably a combination of being heavy on new. Our inventory is light. But the team is rooting out all kinds of avenues of acquiring more product, and we're keeping the stores adequately filled even though it's light on a base supply. I think the terms will probably surprise us. And as you saw on the gross margins, they're really, really good.

Okay. And then lastly -- go ahead, sorry, Blake.

I was just going to add one more caveat to that. It's -- pre-COVID days prior to the RumbleOn-RideNow merger, I don't think we would say that we were really low in used inventory. We actually have a lot more used inventory than we historically had or that Freedom Powersports had. It's just that our model does call for a good mix of used and new. And so we feel like we're a little bit light in used because of that. But you sell what you have. And right now, we've got more new. So that's what's happening. But we're really extremely pleased with the margins that we're seeing on used right now. And we did a nice big write-down at the end of the year, but those units are not what are driving these used margins. The used margins are being driven by our Cash Offer tool and the trade-ins we're taking at the right value. So the discipline that we've recently put into place around our used inventory purchasing is going to pay dividends down the road. And it's exciting to see because we all knew that the used write-down would probably help margins in the first quarter, but that's not where it's being driven from.

That's helpful. And that's a good segue to my last question. Just thinking about those GPUs on pre-owned. How different are they for the units acquired via Cash Offer versus trade-in versus other methods?

Yes. So we -- as you can imagine, we did a deep-dive on that particular question because we wanted to just make sure that the inventory reset that we did at year-end wasn't the sole driver. And when we looked at the 5,000-plus units that we sold in the first quarter, half of them came through Cash Offer roughly, and the other half came through the normal channels. And the Cash Offer margin was right up there with the trade-ins in the 20 -- 19%, 20% range. And the write-down units were actually around 17%. So the units that we're taking in right now through Cash Offer are actually very strong in margin, and we anticipate that will continue.

[Operator Instructions] Your next question is from the line of Mike Baker from D.A. Davidson.

I just wanted to ask about where you think you are in terms of the expense savings. Remind us how much in cost you think you've taken out, and you had said in the prepared remarks that you think there's more to go. So if you could just help us frame that up.

Yes. I think in our previous remarks back in March -- Blake, remind me, I think we said -- what was the total annualized cost taken out? Was it...

We were north of $50 million.

Yes, $50 million. My remarks today is more about having a continuous improvement mindset on the business because there's always cost coming out of the business, Mike, whether it's inflationary or compliance or other things that are coming at the business. So our mentality is that we're always looking to improve the business. And when you improve the business, a lot of times you find waste. You can drive that out better. That then gives you headroom on your margins, or it gives you headrooms in SG&A or -- and it helps you then offset some of the inflation pressures that are coming our way. So I don't have a number to share with you on a go-get number that we're going after, but it's more of a cultural thing to build into our everyday mindset of driving cost out and looking at waste and just getting better as an organization.

Got it. Okay. That makes sense. One more question, if I could. Any color on trends by product category, in other words, off-road versus on-road or even by brands? There was a lot of excitement around Harley-Davidson's new launch. Any color on how that's performed?

Yes. Great question. Yes, there's a lot to think about in our business relative to that. I'll just -- I'll keep the remarks sort of pretty high level. We did see -- you heard my comments that our ASP came down. Some of that was driven by mix, a little bit away from side-by-sides, which generally have a higher ASP and more on-road motorcycles and a little bit also off-road motorcycles. And Harley hit the ground running here in January with the '24 touring lineup, and they were able to deliver good supply. We also had really high carryover levels in touring product with some incredibly strong incentives, both on factory rebates as well as buydowns. So I think it was a nice perfect storm, if you will, for Harley in the early days of the year. We'll see how that plays out as we go through the riding season.

Your next question is from the line of Kevin Condon from Baird.

This is Kevin on for Craig. I think in the prepared remarks, you mentioned rationalizing out some other brands or tertiary brands of inventory that you had taken on amid some of the shortages. I'm just wondering if there's a way to think about how far into that process you are and maybe what portion of the inventory that you're going to work down is going to come from that versus just managing inventory lower across the board.

Yes. Thanks, Kevin. Good question. Yes, I don't have any specific comments to share around the brands or the categories that we exited. As a reminder, we exited a number of niche brands. We exited most of the marine products that we're in, obviously stand-in PWCs and a couple of small boat brands. But that's a chunk of what's going to get us down at $60 million. But the biggest chunk that's going to get us more healthy inventory is watching that days supply and just getting more efficient in terms of managing our days supply across the board with all of our current lines.

There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation, and you may now disconnect.