UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20212023 | | | | | |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to________________
Commission file number 001-38248
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
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| Nevada | | 46-3951329 |
(State or other jurisdiction of
| | (I.R.S. Employer
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901 WW. Walnut Hill Lane, Suite 110A Irving, Texas | | 75038 |
| (Address of Principal Executive Offices) | | (Zip Code) |
(214) 771-9952
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol(s) | | Name of exchange on which registered |
| Class B Common Stock, $0.001 par value | | RMBL | | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ¨ | Accelerated filer | x |
| Non-accelerated filer | ¨ | Smaller reporting company | x |
| | | Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of June 30, 2021,2023, the aggregate market value of shares of common stock held by non-affiliates of the registrant was approximately $119.6$120.0 million.
The number of shares of Class B Common Stock, $0.001 par value, outstanding on April 5, 2022March 18, 2024 was 15,930,74035,153,241 shares. In addition, 50,000 shares of Class A Common Stock, $0.001 par value, were outstanding on April 5, 2022.March 18, 2024.
Portions of the registrant’s proxy statement relating to its 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of the year ended December 31, 20212023 are incorporated herein by reference in Part III.
Annual Report on Form 10-K
for the Year Ended December 31, 20212023
Table of Contents
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| Item 1C. | Cybersecurity | |
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Annual Report on Form 10-KPART I
for the Year Ended December 31, 2021
ITEM 1. BUSINESS.
InUnless the context otherwise requires, all references in this Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Form 10-K"), "we," "our," "us," "RumbleOn,"section to “we,” “our,” “us,” “RumbleOn,” and the "Company"“Company” refer to RumbleOn, Inc. and its consolidated subsidiaries at December 31, 2021, unless the context requires otherwise.2023.
Forward-Looking and Cautionary Statements
This 20212023 Form 10-K contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "projects," "will“anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be," "will” “will continue," "will” “will likely result,"” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in forward-looking statements. Factors that could cause or contribute to such differences in our actual results include, but are not limited to, those discussed in this 20212023 Form 10-K, and in particular, the risks discussed under the caption "Risk Factors"“Risk Factors” in Item 1A and those discussed in other documents we file with the Securities and Exchange Commission (the "SEC"“SEC”). Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to revise or update forward-looking statements, except as required by law.
Market and Industry Data
Some of the market and industry data contained in this 20212023 Form 10-K areis based on independent industry publications or other publicly available information. Although we believe that these independent sources are reliable, we have not independently verified and cannot assure you as to the accuracy or completeness of this information. As a result, you should be aware that the market and industry data contained herein, and our beliefs and estimates based on such data, may not be reliable.
Our Company
RumbleOn, Inc. operates primarily through two operating segments: our powersports dealership group and our transportation services entity, Wholesale Express, LLC (“Express”). We were incorporated in 2013. We have grown primarily through acquisitions, the largest to date being our 2021 acquisition of the RideNow business followed by our 2022 acquisition of the Freedom Entities. These acquisitions added 54 powersports dealerships to our Company.
During 2023, we experienced significant changes to our management team and board of directors. During the year we added several qualified non-employee directors, including the two co-founders of the RideNow business. On November 1, 2023, Michael Kennedy, an accomplished powersports industry veteran with over three decades of experience in strategy, commercial operations, financial management, and manufacturing at leading powersports companies, joined the Company as chief executive officer and director. In addition, we implemented a series of plans to reduce our outstanding debt and announced several cost savings initiatives, including an organizational restructuring and reduction in headcount.
Powersports Segment
Our powersports business is the nation's first, largest and only publicly-traded, technology-based Omnichannel platformpowersports retail group in the powersports industry. Headquartered in the Dallas Metroplex, RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the countryUnited States (as measured by reported revenue, major unit sales and making powersport vehicles accessible to more people in more places than ever before. We are transforming the powersports customer experience by giving consumers what they want—dealership locations), offering a wide selection great valueof new and quality, transparency,pre-owned motorcycles, all-terrain vehicles (“ATV”), utility terrain or side-by-side vehicles (“SXS”), personal watercraft (“PWC”), snowmobiles, and an easy, friction-free transaction. Every elementother powersports products. We also offer parts, apparel, accessories, finance & insurance products and services, and aftermarket products from a wide range of our business, from inventory procurement to fulfillment to overall easemanufacturers. Additionally, we offer a full suite of transactions, whether online or on-site at onerepair and maintenance services.
As of our now 55December 31, 2023, we operated 54 retail locations or experience centers, has been built forthat offer a singular purpose – creating a customer experience without peerwide variety of brands. Collectively, our dealerships represent over 500 powersports franchises representing 52 different brands of motorcycles, ATVs, SXSs, PWCs, snowmobiles, and other powersports products. Our dealerships are located in the powersports industry.Alabama, Arizona, California, Florida, Georgia, Kansas, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Texas, and Washington.
AlthoughWe source high quality pre-owned inventory online via our primary focus is on disrupting the customer experience in the powersports industry, we participate in the automotive industry through our wholly-owned distributors of used automotive inventory, Wholesale, Inc. ("Wholesale Inc") and Got Speed, Inc. (“Got Speed”). Our logistics services company, Wholesale Express, LLC ("Wholesale Express"), provides freight brokerage services facilitating transportation for dealers andproprietary Cash Offer technology, which allows us to purchase pre-owned units directly from consumers.
Incorporated in Nevada in 2013 as a development stage company, we have been building the RumbleOn brand and vision since 2016. Led by our co-founder, chairman, and Chief Executive Officer Marshall Chesrown, we have achieved and built upon key milestones:
•April 2017: launched RumbleOn.com.
•October 2017: celebrated our initial listing on The Nasdaq Stock Market.
•October 2018: acquired Wholesale Inc and Wholesale Express.
•August 2021: acquired the RideNow companies (the “RideNow Transaction”), a collection of 41 retail powersports locations with a geographic footprint spanning primarily the Sunbelt.
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September 2021: processed the first powersports vehicle
Vehicle Transportation Services Segment
Express provides asset-light transportation brokerage services facilitating automobile transportation primarily between and among dealers. We provide services focused on pre-owned vehicles to clients in all 50 states through our Orlando Fulfillment Center.established network of pre-qualified carriers.
•February 2022: completedFormer Operations
Through June 2023, we participated in the initial funding of our captive consumer finance facility for RumbleOn Finance.
•February 2022: acquired Freedom Powersports (the “Freedom Transaction”), adding ten retail locations in Texas, one in Alabama and two in Georgia.
•February 2022: appointed seasoned finance executive, Narinder Sahai, as Chief Financial Officer and appointed RumbleOn’s President, Peter Levy, to President and Chief Operating Officer.
•February 2022: unveiled the regional management structure, anchored by tenured team members of RideNow.
These key events well-position RumbleOn as the first mover in transforming the powersportswholesale automotive industry through our customer experience focused, technology-based, Omnichannel platform.wholly owned distributor of pre-owned automotive inventory, Wholesale, Inc. and our exotics automotive retailer, AutoSport USA, Inc., which did business under the name Got Speed. We completed the wind down of our wholesale automotive business on June 30, 2023, and financial information attributed to it is reflected as discontinued operations.
On December 29, 2023, the Company sold its consumer loans portfolio underwritten by its subsidiaries, RumbleOn Finance, LLC and ROF SPV I, LLC.
Our Industry and Opportunity
We operate primarily in the powersports industry through our 54 dealership locations, offering significant scale and breadth of products and our Omnichannel platform from which we will provide our only of its kindservices. The powersports customer experience. From our view, powersports includes motorcycles, side-by-sides, ATV, UTV, snowmobile, and personal watercraft ("PWC"). Add in boats and traditional RVs and, according to the US Census Bureau, the total value of the powersports market for traditional retail dealers was approximately $70 billion in 2017. Notably, however, the Census Bureau statistics do not account for a huge peer-to-peer market in used powersports, which RumbleOn believes represents up to 70% of used powersports transactions, providing RumbleOn an outstanding inventory sourcing opportunity and creating a total addressable powersports market in excess of $100 billion.
The powersports marketplace in the United States is highly fragmented.fragmented with over 8,500 dealership locations--most of which are owned by a single entity. We face competition from traditional franchised dealers who sell both new and used vehicles;pre-owned vehicles, independent usedpre-owned powersports dealers; online and mobile sales platforms;dealers, and private parties. We believe that the principal competitive factors in our industry are delivering an outstanding consumer experience competitive sourcing of(sales, delivery, service and after sales care) and quality, inventory, breadth and depth of product selection,selection. Our Cash Offer technology is a point of differentiation that enables us to purchase pre-owned inventory online.
Express operates in the U.S. transportation services industry, which is highly fragmented. We compete against many transportation services companies, including trucking companies, freight brokers, freight forwarders, and value pricing.
Our competitors vary in size and breadth of their product offerings.other brokers. We believe that our principal competitive advantagesdedication to quality, simple and hassle-free transportation services, and our focus on customer relationships drive our business.
Vision 2026
We expect to create long-term per-share value for our shareholders by operating the best performing, most profitable powersports retail group in powersports salesthe United States. In pursuit of these objectives, we have outlined our Vision 2026 plan, which includes the following goals and strategies. In addition to these activities, we continue to focus on reducing our abilitycorporate cost structure by identifying and eliminating expenses that do not further our strategic goals.
Leverage our national scale to run the best performing dealerships in America
We seek to provide customers with a high degreeseamless experience, broad selection, and access to our specialized and experienced team members, including sales staff and technicians. Our network of customer satisfaction withconvenient retail locations allows us to offer services throughout the buying experience by virtuepowersports vehicle life cycle. Our team members are the heart of our Omnichannel platform.operation. Our incentive-based compensation encourages our dealership general managers to think and behave like owners and to focus on profitable operations and great customer experiences. We provide customerssource new inventory from original equipment manufacturers (“OEMs”), and we invest our resources to align with their brand standards and performance objectives. We believe that leveraging our inventory within our large network is a competitive advantage in the opportunityhighly fragmented powersports market with respect to experience RumbleOn's offerings online, in-store,OEMs and throughconsumers. We have also centralized certain activities and decisions with respect to our mobile app, or any combinationinventory mix and supply.
Use our proprietary Cash Offer technology to accelerate growth of those three options. Our ability to make a cash offer to purchase a vehicle with our customer-friendly purchase process, and our breadth ofpre-owned inventory
An expansive selection of the most popular makes and models available online and in-store provides a competitive sourcing and sales.
RumbleOn's Solution - Creating the Future of Powersports
RumbleOn is creating a best-in-class experience in powersports for our customers. Doing so requires offering an unmatched choice and selection and replicating an outstanding customer experience throughout the lifecycle of powersports ownership, one customer at a time.
Customers come to RumbleOn's 55 retail locations as well as our more than 60 websites to shop for new and quality used powersports products and soon for parts, accessories and merchandise. We address the entire powersports market. We are reimagining and revolutionizing the customer experience on the technology-led Omnichannel RumbleOn platform, and we are doing so for everyone — from the enthusiast to the novice, and everyone in between – with a focus on four key initiatives:
•Creating an end-to-end ownership experience enables building lifelong connectivity to our customers in several ways, and the experience we are building is not just about the initial transaction. We are also focused on the touch points that continue to keep our customers engaged throughout their powersports ownership experience. Quality assurance, clear and consistent pricing, professional pickup and delivery, customization, after sale service, and guarantees are just a few of the ways we are building a reliable and consistent customer experience. Our offerings —and our entire customer experience —are designed to turn a single transaction into a lifetime relationship.
•Providing the best selection of high-qualitypre-owned inventory enables us to address the 'wants' of all powersports customers coast to coast. We are well-positioned to acquire high-quality used vehicles through the strength of our online Cash Offer Tool, a unique and important competitive advantage for RumbleOn. Affording our consumers the ability to visit a retail location and receive cash for their used powersports unit instantaneously gives them peace of mind, and provides us the opportunity to drive a meaningful amount of incremental used inventory onto our platform. We are also leveraging robust data from the Cash Offer Tool and now from 55 RideNow and Freedom Powersports retail locations to ensure that the right vehicle is in the right place at the right time —with the right price.
•Becoming the premier destination for used powersports vehicles and introducing more used inventory into our showrooms as well as online attracts new customers to our platform and, most importantly, new riders to the industry due to affordability. On a comparable pro forma basis in Q4 2021, we increased the number of used retail powersport units sold by 87% year-over-year at the RideNow locations. We are focused on both new and used; however, the opportunity to dramatically increase the number of used retail powersports units presents our greatest near-term opportunity. In the current new vehicle supply-constrained environment, we can better control used inventory than new because used is not dependent on a manufacturer's production or distribution constraints. In fact, our broad access to used inventory is — and will continue to be— an important differentiator for RumbleOn in any market environment.
•Offering powersports financing through our wholly-owned captive consumer finance subsidiary RumbleOn Finance is another way we are making powersports ownership easy and accessible to more of our customers. RumbleOn Finance provides an opportunity to bring new entrants to the powersports space by offering competitive financing solutions, especially for those customers for whom financing from traditional financial institutions or manufacturers is not readily available. In the future, our paperless online transactions will further enhance our unmatched, true Omnichannel experience and create incremental sales with no geographic boundaries.
Our Growth Strategies
The key metric to our powersports business is retail vehicle unit sales, both online or in-store. Unit sales drives revenue and provides the opportunity to build additional revenue through financing, parts, merchandise, and accessories, each of which are higher margin revenue streams. As we mature, and expand our Omnichannel customer experience, we will create
additional opportunities to expand revenue streams. However, additional revenue opportunities begin with retail vehicle unit sales and, as a result, our growth strategy is focused on this metric.
Our ability to increase vehicle unit sales is a function of our market penetration in existing markets, the number of markets we operate in, and our ability to build and maintain our brands by offering great value, transparency, and an outstanding customer experience.
Optimize Our Inventory Selection and Centralization
We will continue to optimize and broaden the selection of new and used powersports vehicles we make available to our customers. Expanding our inventory selection enhances the customer experience by ensuring each visitor either online or in-store, findscan find a powersports vehicle that matches his or her preferences. Optimizing our new inventory significantly depends on the allocations of our manufacturers ("OEM"). Optimizing our used inventory selection depends on our ability to source and acquire a sufficient number of appropriate used vehicles, including acquiring more vehicles directly from our customers.
We are also implementing a fulfillment system with near real-time inventory replenishment to make the right powersports unit available in the right quantities at the right locations. This centralization of inventory will launch company-wide virtual selling through access to all company-owned inventory and not just what might be available at an individual location. This will increase the probability that our customers can find their powersports unit on our platform, thereby enhancing the customer experience while eliminating geographic boundaries. With digital inventory integration and over 60 individual websites that share content, RumbleOn will be top-of-mind for powersports searches. All of the technology infrastructure required is under development and will be implemented throughout 2022 and beyond.
Continue to Innovate and Extend Our Technology Leadership
We will continue to make significant investments in improving and adding to our online customer offering. We believe that the complexity of the traditional powersports retail transaction provides substantial opportunity for technology investment and that our leadership and continued growth will enable us to responsibly invest in further enhancing the customer experience.
From our founding, we have been laying the groundwork to offer a friction-free and fully integrated customer experience both online and in-store. We are building the technology engine to enable this integration, while methodically expanding our retail footprint. We plan to begin rolling out our new and innovative technology throughout 2022 and will continuously make improvements to our technology offering.
In order to truly rebuild the customer experience, we are investing to build the technology engine across the organization.preference. Our Cash Offer Tool is supplying proprietary data on hundreds of thousands of unique Vehicle Identification Number (VIN) inputs, in addition to actual retail salestechnology directly connects us with consumers and transaction data from RideNow and Freedom Powersports' databases. Marrying this data creates a data-driven "market maker" that does not exist in the industry today. Integrating real-time pricing and sales data from in-store transactions will also enableallows us to further optimize offersacquire high-quality, pre-owned powersports vehicles at scale. This proprietary technology is a fast and pricing.
Expandefficient mechanism to offer cash for pre-owned vehicles and provides us with a unique source of market data. Our Geographic Markets
Beyond innovativeCash Offer technology is a point of differentiation that enables us to access a nationwide market of pre-owned vehicles and inventory integration, we will useintroduces us to customers outside of our retail locations to augment the online experience—and vice versa —to offer a simple, friction-free customer experience. A key component to transforming the customer experience to support our growth strategy is enhancing the in-store experience and we are strategically expanding our geographicphysical retail footprint. Since the business combination with RideNow, we have acquired 14 additional retail locationsFollowing our organizational restructuring, our pre-owned inventory strategy, including our Cash Offer technology, is led by an experienced senior leader utilizing a centralized set of standards for acquisitions made online, in stores and are currently operating in 55 retail locations, as shown below.
We employ three primary considerations for expanding our bricks-and-mortar presence: (1) find great people, (2) identify desired geography, and (3) implement appropriate and balanced brand mix.
Finding Great People. We believe any great customer experience in powersports begins with great people providing consumers the opportunity to fulfill their passion. From our executive team to our customer facing professionals to our back-office and corporate personnel, the RumbleOn team is singularly focused on transforming the customer experience in powersports, both online and in-store. As we expand our physical presence, whether through new retail locations or as we build out our fulfillment “experience” centers, finding great people who believe in our mission.
Identifying Desired Geography. We believe desired geography means more than finding new markets; it also means making sure we can put the right powersports vehicle in the right place at the right price to maximize our return on the asset. This is a key goal of our fulfillment “experience” centers and we anticipate to roll out two such centers during 2022, first in the Dallas Metroplex and then potentially in Arizona, Nevada, Northeast or Florida markets. And of course, we are always looking for strategic acquisition candidates, whether a large group such as Freedom Powersports or a key tuck-in opportunity to improve the capabilities of an existing location.
Implementing Appropriate Brand Mix. Powersports retail provides the opportunity to put many different new brands under one roof along the proper mix of used inventory. Of course, having that opportunity and taking advantage of that opportunity correctly are two different things. In this current supply-constrained environment, we can better control used inventory than new because used is not subject to manufacturers’ production or distribution constraints. We intend to leverage our key used inventory sourcing advantage to keep our retail locations fully stocked with the right mix of preferred brands based on market share, and thereby further enhance the customer experience.
Develop Broad Consumer Awareness of Our Brand
Important to the future of RumbleOn's brand is creating a unified customer experience across all locations, and the foundation will be our technology, our infrastructure, and our corporate culture. We recently unveiled our new regional management structure, with a new National Senior Vice President of Retail overseeing six Regional Directors who will lead the daily operations of multiple facilities primarily based on geographic location. These Regional Directors will share best practices
in customer serviceGrow organically and general operationsthrough strategic acquisitions
Our Vision 2026 plan includes growing our powersports segment both organically by adding new customers through our online and in-store locations, by adding brands to enhance the overall performance of ourexisting locations and by acquiring new strategic retail locations. This new regional management structure is well-aligned withOur team has substantial experience in identifying suitable acquisition candidates, negotiating purchase terms and conditions and integrating newly acquired businesses. We identify acquisition candidates based on a variety of factors, including authorized brands, geographic location and service offerings. Acquiring additional locations also helps us further leverage our growth initiativescorporate cost structure. We are continually evaluating our dealer footprint and will provide a stable footingmay divest locations that are no longer accretive for our continued growth. We are in the early daysbusiness.
Organizational Structure
The following chart summarizes our organizational structure as of the rollout, but we are encouragedDecember 31, 2023. This chart is provided for illustrative purposes only and does not reflect all legal entities owned or controlled by the impact on performance and the excitement it has clearly created.us:
RumbleOn Technology
Innovative technology continues to underpin every endeavor at RumbleOn through our ongoing mission to disrupt the powersports industry and our focus on the customer experience. We leverage technology and data to drive change. At a high-level, we believe there are two main areas where leveraging these innovations provides us a competitive advantage and improves the customer experience: (1) our proprietary supply chain and distribution software and (2) our Omnichannel and mobile-first web application.
(1) RumbleOn's proprietary supply chain and distribution software:
•Looks at the overall supply chain and reconfigures inventory for the purpose of acquisition and distribution. Our technology aggregates multiple data sources in real-time, tracking and cataloging inventory across the country.
•Analyzes real-time market data to inform our acquisition decisions, continually capturing and archiving such data using advanced algorithms to calibrate pricing and estimate freight and reconditioning expenses. The values are then used in our Cash Offer Tool to quickly determine a fair and reasonable, non-negotiable offer.
(2) RumbleOn's Omnichannel and mobile-first web application strategy:
•Enhances our website and mobile application to provide a compelling customer experience, from the front-end user interface and powerful search tools to enabling secure data, document, and payment exchanges between parties. We also optimize search engine marketing to provide a lower overall cost of customer acquisition.
To deliver our supply chain software and Omnichannel strategies, RumbleOn leverages its proprietary and exclusive-use technology portfolio, which includes:
•a series of modeling tools & technologies for consolidating internal and external data to provide profitability estimates for inventory available for purchase;
•a proprietary series of inventory management and business intelligence technologies that tracks the lifecycle of a vehicle from acquisition through delivery;
•an automated photography technology that combines high-quality photos to produce an interactive, 360-degree virtual tour of the vehicle;
•a catalog of website that includes advanced filtering and search technology that assist multi-lead generation across participating partners;
•a dedicated financing company for leveraging leads for faster turn on sales and delivery; and
•a proprietary transportation management system and assignment technology to optimize the transport of purchased inventory for acquisition and dealer distribution.
In addition to our proprietary/exclusive use technology, we also rely on third party technology, including the following:
•a cloud based network infrastructure for hosting websites and inventory data;
•software libraries, development environments, and tools;
•services to allow customers to digitally sign contracts; and
•customer service call center management software.
In short, our business is driven by data and technology at all stages of the process, from acquisition, inventory purchasing, reconditioning, photography, transportation, and annotation through physical through online merchandising, sales, financing, trade-ins, logistics, and delivery.
We protect our technology and other intellectual property through a combination of trademarks, domain names, copyrights, trade secrets, patented technology, and contractual provisions and restrictions on access and use of our proprietary information and technology. We have a portfolio of trademark registrations in the United States, including registrations for "RumbleOn,"“RideNow,” the RumbleOnRideNow logo, "RideNow,"“RumbleOn,” and the RideNowRumbleOn logo. We are the registered holder of a variety of domestic and international domain names, including "rumbleon.com."
Operational Structure
The following chart summarizes our organizational structure as of December 31, 2021, but includes Freedom Powersports, which we acquired on February 18, 2022. This chart is provided for illustrative purposes only and does not reflect all legal entities owned or controlled by us:
Seasonality
Historically, both theThe powersports and automotive industries have beenindustry is a seasonal business with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the winter quarter but increase typically in the spring season, coinciding with tax refunds and improved weather conditions.months. Given this seasonality, we expect our quarterly results of operations, including our revenue, gross profit, net income (loss), and cash flow to vary accordingly. Over time, we expect to normalize to seasonal trends in both segments, using data and logistics to move inventory to the right place, at the right time, at the right price.
Government Regulation
Various aspects of our business are or may be subject directly or indirectly, to U.S. federal and state laws and regulations.regulations, including state and local dealer licensing requirements, federal and state consumer finance laws, the United States Department of Transportation motor-carrier rules and regulations, federal, state and local environmental laws and regulations, including the U.S. Environmental Protection Act, federal, state, and local wage and hour and anti-discrimination laws, and antitrust laws. Failure to comply with such laws or regulations may result in the suspension or termination of our ability to do business in affected jurisdictions or the imposition of significant civil and criminal penalties, including fines or the award of significant damages against us and our dealers in class action or other civil litigation.
Vehicle Sales. Our sale and purchase of vehicles, both new and pre-owned, related products and services and third-party finance products, are subject to the state and local dealer licensing requirements in the jurisdictions in which we have retail or wholesale locations. Regulators of jurisdictions where our customers reside, but in which we do not have a dealer or financing license could require that we obtain a license or otherwise comply with various state regulations. Despite our belief
that we are not subject to the licensing requirements of those jurisdictions in which we do not have a physical presence, regulators may seek to impose punitive fines for operating without a license or demand we seek a license in those jurisdictions, any of which may inhibit our ability to do business in those jurisdictions, increase our operating expenses and adversely affect our financial condition and results of operations.
Consumer Finance. The financing we offer customers is subject to federal and state laws regulating the advertising and provision of consumer finance options, the collection of consumer credit and financial information, along with requirements related to online payments and electronic funds transfers, of whether RumbleOn Finance or a third-party is the entity extending credit to such customers. Most states regulate retail installment sales, including setting a maximum interest rate, caps on certain fees, or maximum amounts financed. In addition, certain states require that finance companies file a notice of intent or have a sales finance license or an installment sellers license in order to solicit or originate installment sales in that state.
Logistics and Transportation. Our Wholesale Express logistics operations, which brokers and facilitates the transportation of vehicles primarily between and among dealers, is subject to motor-carrier rules and regulations promulgated by the United States Department of Transportation ("DOT") and the states through which their customers' vehicles are transported. Additionally, the vendors whom Wholesale Express relies upon are subject to federal and state regulation concerning transport vehicle dimensions, transport vehicle conditions, driver motor vehicle record history, driver alcohol and drug testing, and driver hours of serves. More restrictive limitations on vehicle weight and size, condition, trailer length and configuration, methods of measurement, driver qualifications, or driver hours of service may increase the costs charged to Wholesale Express by its vendors, which may adversely affect our financial condition, operating results, and cash flows. If we fail to comply with the DOT regulations or if those regulations become more stringent, we could be subject to increased inspections, audits, or compliance burdens. Regulatory authorities could take remedial action including imposing fines, suspending, or shutting down our Wholesale Express operations.
Environmental Laws and Regulations. We are subject to a variety of federal, state, and local environmental laws and regulations that pertain to our operations. The regulations concern material storage, air quality, waste handling, and water pollution control. The regulations also regulate our use and operation of gasoline storage tanks, gasoline dispensing equipment, oil tanks, and paint booths among other things. Our business involves the use, handling, and disposal of hazardous materials and wastes, including motor oil, gasoline, solvents, lubricants, paints, and other substances. We manage our compliance through permitting and operational control.
Facilities and Personnel. Our facilities and business operations are subject to laws and regulations relating to environmental protection and health and safety, and our employment practices are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. We may also be liable for employee misconduct and violations of laws or regulations to which we are subject.
Federal Advertising Regulations. The Federal Trade Commission ("FTC") has authority to take actions to remedy or prevent advertising practices that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that any aspect of our business constitutes an unfair or deceptive advertising practice, responding to such allegations could require us to pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our products and services, any or all of which could result in substantial adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability.
Federal Antitrust Laws. The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. Some of the information that we may obtain from dealers may be sensitive and, if disclosed inappropriately, could potentially be pre-owned by dealers to impede competition or otherwise diminish independent pricing activity. A governmental or private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and adversely impact our ability to maintain and grow our business.
In addition, governmental or private civil actions related to the antitrust laws could result in orders suspending or terminating our ability to do business or otherwise altering or limiting certain of our business practices, including the manner in which we handle or disclose pricing information, or the imposition of significant civil or criminal penalties, including fines or the award of significant damages against us in class action or other civil litigation.
Other. In addition to these laws and regulations that apply specifically to our business, we are also subject to laws and regulations affecting public companies, including securities laws and the listing rules of The Nasdaq Stock Market ("Nasdaq"(“Nasdaq”).
The violation of any of these laws or regulations could result in administrative, civil, or criminal penalties or in a cease-and-desistcease- and-desist order against our business operations, any of which could damage our reputation and have a material adverse effect on
our business, sales and results of operations. We have incurred and will continue to incur capital and operating expenses and other costs to comply with these laws and regulations.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to continuous change. The enactment of new laws and regulations or the interpretation of existing laws and regulations in an unfavorable way may affect the operation of our business, directly or indirectly, which could result in substantial regulatory compliance costs and civil or criminal penalties, including fines, adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability. Further, investigations by government agencies, including the FTC, into allegedly anticompetitive, unfair, deceptive or other business practices by us, could cause us to incur additional expenses and, if adversely concluded, could result in substantial civil or criminal penalties and significant legal liability.penalties.
Employees
As of December 31, 2021,2023, we had approximately 1,9492,357 full time and 7055 part-time employees.
Available Information
Our Internet website is www.rumbleon.com.located at www.rumbleon.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”), are available free of charge, under the Investor Relations tab of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Additionally, the SEC maintains a website located at www.sec.gov that contains the information we file or furnish electronically with the SEC.
ITEM 1A. RISK FACTORS.
Described below are certain risks to our business and the industry in which we operate. You should carefully consider the risks described below, together with the financial and other information contained in this 20212023 Form 10-K and in our other public disclosures. If any of the following risks occurs, our business, financial condition, results of operations, cash flows, or prospects could be materially and adversely affected. As a result, our future results could differ materially from historical results and from guidance we may provide regarding our expectations for future financial performance and the trading price of our Class B common stock could decline.
Business and Operational Risks Relating to Our Business
We are subject to the auditor attestation requirement on the assessment of our internal control over financial reporting for our year ended December 31, 2021 and
In recent periods, we and our auditors have identified a number of material weaknesses in our internal control over financial reporting as disclosed in this 2021 Form 10-K.
The Company is now subject to the requirement to include in this 2021 Form 10-K our auditor’s attestation report on its assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act (“SOX”). We and our auditors have identified deficiencies in our internal control over financial reporting as disclosed in this 2021 Form 10-K as required under Section 404 of SOX. As some of these deficiencies are deemed material weaknesses in internal control over financing reporting, our auditors have issued an adverse opinion in their assessment of our internal control over financial reporting. The issuance of an adverse opinion regarding our internal control over financial reporting could adversely impact investor confidence in the accuracy, reliability, and completeness of our financial reports.
WeMost recently, we have identified material weaknesses in our internal control over financial reporting.two areas, as disclosed in this 2023 Form 10-K. If we are unable to effectively remediate these material weaknesses and maintain an effective system of internal control over financial reporting, we may not beable to accurately report our financial results or prevent fraud. As a result, investors could lose confidence in our financial and other public reporting, which would harm our business.
Effective
We are required to comply with Section 404 of the Sarbanes-Oxley Act (“SOX”), which requires public companies to maintain effective internal control over financial reporting (“ICOFR”). In particular, we must perform system and process evaluation and testing of our ICOFR to allow management to report on the effectiveness of our ICOFR. In addition, we are required to have our independent registered public accounting firm attest to the effectiveness of our ICOFR. The standard of effectiveness for ICOFR is necessary for us to provide reliable financial reports and, together with adequate disclosurethat we have controls and procedures is designed to prevent fraud. In connection with the preparation of our consolidatedin place that provide “reasonable assurance that we can produce accurate financial statements ason a timely basis.” This process of December 31, 2021implementation, evaluation, and 2020attestation is costly and for the years then ended, we identified material weaknesses intime-consuming. We have hired and may need to continue to employ both internal and external resources with appropriate public company experience and technical accounting knowledge to maintain and evaluate our internal control over financial reporting. ICOFR.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,our ICOFR, such that there is a reasonable possibility that a material misstatement of the Company’sour annual or interim financial statements will not be prevented or detected on a timely basis. The followingWe have identified material weaknesses in our internalICOFR in recent periods. For example, we identified and disclosed a material weakness in our 2022 Form 10-K, which has been partially remediated. In addition, as discussed in this 2023 Form 10-K, we have identified material weaknesses in our ICOFR for the year ended December 31, 2023. These material weaknesses relate to (i) an insufficient number of accounting resources to facilitate an effective control over financial reporting have been identified:
•Information technology general controls particularly as such controls related toenvironment following the integration of the RideNow business and incorporation of that business into the Company’s control environment and (ii) user access program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of our financial statements.
•Controls over the period end close process, including the review and approval process of journal entries, balance sheet account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries.
•Documentation and design of controls over the recording and reconciliation of inventory.
•Review of key assumptions and estimates related to purchase accounting for significant acquisitions.
•The control environment, risk assessment, control activities,certain information and communication, and monitoring components oftechnology systems that support the Company’s internal control frameworkfinancial reporting processes. As a result of these identified material weaknesses, our disclosure controls and procedures as of December 31, 2023 and 2022, respectively, were determined not to be effective at a reasonable assurance level as of each of those dates.
Part II, Item 9A of this 2023 Form 10-K describes the remediation plan for the material weaknesses affecting our ICOFR as of December 31, 2023. We cannot assure that the measures we are taking to remediate these material weaknesses will be sufficient or that such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated in a timely manner.
measures will prevent future material weaknesses. If we are unable to effectively remediate these material weaknesses and maintain effective internal control over financial reporting,ICOFR, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.
The RideNow and Freedom Powersports entities we acquired were not subject to SOX regulations and they may lack the internal control over financial reporting required of a public company, which could ultimately affectOur success depends in part on our ability to ensure compliance withgrow our business both organically and through strategic acquisitions, and our plans and strategies may not be realized.
Our strategic plan includes leveraging our nation-wide network of dealerships, using our proprietary Cash Offer technology to grow our pre-owned inventory, reducing our cost structure, and acquiring strategic retail locations. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisition opportunities. These activities can divert management time and focus from operating our business to addressing acquisition challenges. We may encounter unforeseen expenses, difficulties, complications, and delays relating to the requirementsdevelopment and operation of Section 404 of SOX.
The RideNow and Freedom Powersports entities we acquired were not previously subject to SOX regulations and accordingly were not required to establish and maintain an internal control infrastructure meeting the standards promulgated under SOX. Our management's assessment of internal control over financial reportingour business and the auditor attestation, both includedexecution of our business plan, including our organic and acquisition growth strategies. Achieving the anticipated benefits of acquisitions depends in significant part upon our integrating any acquired entity’s businesses, operations, processes, and systems in an efficient and effective manner. We have incurred, and expect to continue to incur, a number of non-recurring costs associated with our
in this 2021 Form 10-K, did not include
acquisitions. Our failure to identify, acquire or address the internal control environment of the RideNow entities, which were acquired during the quarterly period ended September 30, 2021, or the Freedom entities, which were acquired during the quarterly period ending March 31, 2022.
We are in the process of integrating our internal control over financial reporting and our other control environments with those of the acquired RideNow and Freedom Powersports entities. In the course of integration, we may encounter difficulties and unanticipated issues combining our respective accounting systems due to the complexity of our financial reporting processes. We may also identify errors or misstatements thatsuccessfully integrate additional retail locations could require accounting adjustments. If we are unable to integrate and maintain effective internal control over financial reporting, timely or at all, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class B common stock may decline.
Powersports consumers may not accept our transformative business model.
As described throughout this 2021 Form 10-K, we are transforming the traditional powersports customer experience and building the first and only true Omnichannel experience in the industry. If customers do not accept our products, services, and offerings we may not benefit from the investments needed to build this transformative customer experience to the extent anticipated or at all. Also, in building the first and only true Omnichannel experience, we expect to incur significant expenses and face various other challenges, such as expanding our customer experience team and building out a fulfillment and logistics network. Any of these risks, if realized, could materially and adversely affect our business, financial condition, and results of operations.operation.
We may not be able to acquire the number of powersports vehicles to satisfy consumer demand or our expectations for the business.
A material part of our plan is predicated on being able to have sufficient inventory of powersports vehicles, both new and used,pre-owned, to satisfy customer demand or meet our financial objectives. New inventory is ultimately controlled by our OEMs and their willingness to allocate inventory to us and their ability to manufacture and distribute a sufficient number of vehicles given a current environment of manufacturing slowdowns, computer chip shortages, and logistic/transportation challenges (collectively, the “Demand/Supply Imbalances”). Usedpowersports vehicles. Pre-owned inventory is acquired directly from consumers via our onlineproprietary Cash Offer Tooltechnology or consumer trade-in transactions.transactions or auctions. If either channelthe channels for usednew or pre-owned vehicle acquisition were disrupted, for example as a result of another COVID-like lockdown, technology challenges, continued acceptancecustomers holding onto their vehicles due to significant valuation decreases and negative equity positions, non-acceptance of online transactions, poor customer ratings, or other such events, the Company may not have enough used vehiclesinventory to meet customer demand, which may adversely affect our business, financial condition, and results of operations.
We have and may continue to acquire strategic retail locations and other complementary businesses and technologies, which could divert management's attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and impact our operating results.
Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, other constituents within the powersports industry, and competitive pressures. In the past, we have met these demands in part by acquiring complementary businesses and technologies.
The identification of suitable acquisition candidates can be difficult; time-consuming, and costly, and we may not be able to successfully complete identified acquisition opportunities. The risks we face in connection with our acquisition strategy include:
•diversion of management time and focus from operating our business to addressing acquisition integration challenges;
•integration of the acquired company's accounting, management information, human resources, and other administrative systems;
•coordination of technology, research and development, and sales and marketing functions;
•retention of employees from the acquired company;
•cultural challenges associated with integrating employees from the acquired company into our organization;
•the need to implement or improve controls, procedures, and policies at a business that before the acquisition may have lacked effective controls, procedures, and policies;
•potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period; and
•liability for activities of the acquired company before the acquisition.
Our failure to address these risks or other matters encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition.
We may require additional financing or capital to pursue our growth challenges or unforeseen circumstances. If financing or capital is not available on terms acceptable to us or at all, we may not be able to develop and grow our business as anticipated and our business, operating results, and financial condition may be harmed.
We intend to continue to make investments to support the development and growth of our business, including expanding our inventory base and growing our RumbleOn Finance business. Additional financing or capital may not be available when we need it, on terms that are acceptable to us, or at all.
If we raise additional capital through issuances of equity or debt, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition, and prospects could be adversely affected.
Investments made in the development, growth, and expansion of our business may not yield our expected results and may not result in successful growth of our business.
We expect to make significant investments in the further development and expansion of our business and these investments may not result in the development, growth or expansion of our business on a timely basis or at all. We may not generate sufficient revenue and we may incur significant losses in the future for several reasons, including a lack of demand for our products and services, increasing competition, and weakness in the powersports industry generally. We may encounter unforeseen expenses, difficulties, complications, and delays, relating to the development and operation of our business as well as our organic and acquisition growth strategies. Accordingly, we may not be able to successfully develop, grow, and expand our business, generate revenue, or achieve and maintain profitability.
We may experience difficulties integrating acquired businesses.
Achieving the anticipated benefits of our acquisitions will depend in significant part upon our integrating any acquired entity's businesses, operations, processes and systems in an efficient and effective manner. We may not be able to accomplish the integration process smoothly, successfully, or on a timely basis, which may result in unforeseen expenses or the failure to recognize the anticipated benefits of acquired businesses. The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences in business backgrounds, corporate cultures, and management philosophies may increase the difficulties of integration. Companies operate numerous systems and controls, including those involving management information, accounting and finance, legal and regulatory compliance, inventory intake and control, sales, billing, employee benefits, and payroll. The integration of an acquired company's operations requires the dedication of significant internal and external resources, which may divert management’s attention from the day-to-day business of the company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the Company. Any inability of management to successfully and timely integrate an acquired company could have a material adverse effect on the business and results of operations of the Company and result in not achieving the anticipated benefits of the acquisition.
To the extent we acquire additional businesses, we may incur substantial costs.
We have incurred, and expect to continue to incur, a number of non-recurring costs associated with our acquisitions. The substantial majority of these non-recurring costs will consist of transaction and regulatory costs related to acquisitions. We will also incur transaction fees and costs related to formulating and implementing integration plans, including system consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional
unanticipated costs may be incurred from the acquisitions and integration. Although we anticipate that the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
We have incurred significant indebtedness, which could adversely affect us, including our business flexibility, and will increase our interest expense.
We have substantially increased indebtedness following completion of the RideNow and Freedom transactions, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We also incurred various costs and expenses related to the financing of the RideNow and Freedom transactions. The increased levels of indebtedness following completion of the RideNow and Freedom transactions, including the applicable interest payments, could also reduce funds available for working capital, capital expenditures, and other general corporate purposes, and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected synergies and cost savings from the RideNow and Freedom transactions, or if our financial performance does not meet our current expectations, then our ability to service the indebtedness may be adversely impacted.
We depend on key personnel to operate our business, and if we are unable to retain, attract, and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.
We believe our success will depend on the efforts and talents of our executives and employees, including Marshall Chesrown,Michael Kennedy, our Chairman and Chief Executive Officer.chief executive officer. In addition, the loss of any senior management regional directors, or other key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our future success depends on our continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. A limited number of our employees are subject to employment agreements that include restrictive covenants. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we fail in attractingto attract well-qualified employees or retainingretain and motivatingmotivate existing employees, our business could be materially and adversely affected.
Our annual and quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expectrely on third-party financing providers to finance a substantial portion of our operating resultscustomers' powersports vehicle purchases and to be subject to annual and quarterly fluctuations, and they will be affected by numerous factors, including:
•a change in consumer discretionary spending;
•a shift in the mix and type of vehicles we sell which could result in lower sales price and lower gross profit;
•the timing and cost of development and operating activities relatingsupply extended protection products (“EPP”) to our business, which may change from time to time;customers.
•expenditures that we will or may incur to advance our growth strategies; and
•future accounting pronouncements or changes in our accounting policies.
If our annual or quarterly operating results fall below the expectations of investors or securities analysts, the price per share of our Class B common stock could fluctuate or decline substantially. We believe that annual and quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
The failure to develop and maintain our brand could harm our ability to grow unique visitor traffic.
Developing and maintaining the RumbleOn brand will depend largely on the success of our efforts to maintain the trust of and deliver value to our users. If our potential users perceive that we are not focused on providing them with a better pre-owned powersports experience, our reputation and the strength of our brand will be adversely affected.
Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, data privacy and security issues, and other aspects of our business, irrespective of their validity, could diminish users' confidence in and the use of our products and services and adversely affect our brand. There can be no assurance that we will be able to develop, maintain, or enhance our brand, and failure to do so would harm our business growth prospects and operating results.
If we are not ableWe rely on third-party financing providers to maintainfinance a substantial portion of our customers' powersports vehicle purchases and enhance our retail brands and reputation or to attract consumerssupply EPP products to our own sales channels,customers. Accordingly, our revenue and results of operations are partially dependent on the actions of these third parties. Financing and EPP are provided to qualified customers through several third-party financing providers. If one or if events occur that damagemore of these third-party providers cease to provide financing or EPP to our retail brands, reputation,customers, provide financing to fewer customers or sales channels,no longer provide financing on competitive terms, make changes to their products or no longer provide their products on competitive terms, it could have a material adverse effect on our business, sales, and financial results may be harmed.
Our continued success will dependof operations. Additionally, if we were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse effect on our ability to maintainbusiness, sales, and enhance the valueresults of our retail brands across all of our sales channels, including in the communities in which we operate, and to attract consumers to our Omnichannel experience.operations.
Consumers are increasingly shopping for new and used vehicles, vehicle repair and maintenance services, and other vehicle products and services online and through mobile applications, including through third-party online and mobile sales platforms, with which we compete, that are designed to generate consumer sales leads that are sold to vehicle dealers. If we fail to preserve the value of our retail brands, maintain our reputation, or attract consumers to our Omnichannel offering, our business could be adversely impacted.
An isolated business incident at a single store could materially adversely affect our other stores, retail brands, reputation, and sales channels, particularly if such incident results in adverse publicity, governmental investigations, or litigation. In addition, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about RumbleOn, RideNow, Freedom, or any of our brands, locations, or websites could materially damage our retail brands, reputation, and sales channels.
The success of our business relies heavily on our marketing and branding efforts especially with respect to the RumbleOn website and our branded mobile applications,ability to attract new customers, and these efforts may not be successful.
We believe that an important component of our development and growth will be the business derived from the RumbleOn websiteoperate dealership locations and our branded mobile applications. Because RumbleOn is a consumer brand,Cash Offer technology under our RideNow brand. In addition, we operate certain dealership locations under OEM brands, such as Harley-Davidson, BMW and Indian. Our growth depends on our ability to attract and retain customers to our retail and online locations. We rely heavily on marketing and advertising to increase the visibility of this brandour operations with potential users of our products and services.
Our business model relies on our ability to scale rapidlycustomers and to decrease incremental user acquisition costs as we grow.drive traffic to our retail and online locations. Some of our methods of marketing and advertising may not be profitable because they may not result in the acquisition of sufficient users visiting our website and mobile applications such that we may recover these costs by attaining corresponding revenue growth. If we are unable to recover our marketing and advertising costs, through increases in user traffic and in the number of transactions by users of our platform, it could have a material adverse effect on our growth, results of operations and financial condition.
Our efforts to maintain the trust of and deliver value to our users depend on our ability to develop and maintain our RideNow brand and on the reputation of brands we represent in our dealership locations. If our current and potential customers perceive that we are not focused on providing them with a better powersports experience, our reputation will be adversely affected. Consumers are increasingly shopping for new and pre-owned powersports vehicles, vehicle repair and maintenance services, and other vehicle products and services online and through mobile applications, including through third-party online
and mobile sales platforms, with which we compete. If we fail to preserve the value of our retail brands, maintain our reputation, or attract consumers, our business could be adversely impacted.
Our sales of powersports vehicles and gross profit may be adversely impacted by declining prices for new or pre-owned vehicles and short supply of new or pre-owned vehicles.
We believe when prices for pre-owned powersports vehicles have declined, it can have the effect of reducing demand among retail purchasers for new vehicles at or near manufacturer's suggested retail prices. Further, powersports vehicle manufacturers can and do take actions that influence the markets for new and pre-owned vehicles. For example, introduction of new models with significantly different functionality, technology, or other customer satisfiers can result in increased supply of pre-owned vehicles, and a corresponding decrease in price of pre-owned vehicles. Also, while historically manufacturers have taken steps designed to balance production volumes for new vehicles with demand, those steps have not always proven effective. In other instances, manufacturers have chosen to supply new vehicles to the market in excess of demand at reduced prices which has the effect of reducing demand for pre-owned vehicles.
During COVID-19, we experienced an imbalance in demand and supply for new and pre-owned powersports vehicles and the price for pre-owned vehicles increased. As a result, we acquired certain pre-owned inventory at elevated prices to ensure a continuous level of supply. As supply of new powersports improved and selling prices returned to more normal, pre-pandemic levels, we were impacted by a $12.6 million write-down of inventory to net realizable value in 2023. If we fail to acquire new or pre-owned inventory in sufficient amounts at competitive market pricing, our sales and gross profit could be materially and adversely affected.
Adverse conditions affecting one or more of the powersports manufacturers with which we hold franchises, or their inability to deliver a desirable mix of vehicles could have a material adverse effect on our new powersports vehicle retail business.
Historically, our retail locations have generated most of their revenue through new powersports vehicle sales and related sales of higher-margin products and services, such as finance and insurance products and vehicle-related parts and service. As a result, our business and results of operations depend on various aspects of vehicle manufacturers’ or OEM’s operations, which are outside of our control. Our ability to sell new powersports vehicles is dependent on our manufacturers’ ability to design and produce, and willingness to allocate and deliver to us, a desirable mix of popular new vehicles that consumers demand. Popular vehicles may often be difficult to obtain from manufacturers for several reasons, including the fact that manufacturers generally allocate their vehicles based on sales history. Further, if a manufacturer fails to produce desirable vehicles or develops a reputation for producing undesirable vehicles or produces vehicles that do not comply with applicable laws or government regulations, our revenue could be adversely affected as consumers shift their vehicle purchases away from that brand.
Although we seek to limit dependence on any one OEM, there can be no assurance the brand mix allocated and delivered to us will be sufficiently diverse to protect us from a significant decline in the desirability of vehicles manufactured by a particular manufacturer or disruptions in a manufacturer’s ability to produce vehicles. For the year ended December 31, 2023, OEMs representing 10% or more of RumbleOn’s revenue from new powersports vehicle sales were as follows:
| | | | | | | | |
| Manufacturer (Powersports Vehicle Brands): | | % of Total
New Vehicle Revenue |
| Polaris | | 29.3% |
| BRP | | 25.6% |
| Harley-Davidson | | 11.3% |
In addition, the powersports manufacturing supply chain spans the globe. As such, supply chain disruptions may affect the flow of vehicle and parts inventories to an OEM’s manufacturing partners or to us. Such continued disruptions could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
We are dependent on our relationships with the manufacturers of powersports vehicles we sell and are subject to restrictions imposed by these vehicle manufacturers. Any of these restrictions or any changes or deterioration of these relationships could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We are dependent on our relationships with the manufacturers of the vehicles we sell, which can exercise a great deal of control and influence over our day-to-day operations, as a result of the terms of our agreements with them. We may obtain new powersports vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ trademarks only to the extent permitted under these agreements. The terms of these agreements may conflict with our interests and objectives and may impose limitations on key aspects of our operations, including our acquisition strategy.
For example, manufacturers can set performance standards with respect to sales volume, sales effectiveness, and customer satisfaction, and require us to obtain manufacturer consent before we can acquire dealerships selling a manufacturer’s vehicles. From time to time, we may be precluded under agreements with certain manufacturers from acquiring additional franchises, or subject to other adverse actions, to the extent we are not meeting certain performance criteria at existing stores until performance improves in accordance with the agreements, subject to applicable state franchise laws. In addition, many vehicle manufacturers place limits on the total number of franchises that any group of affiliated dealerships may own and certain manufacturers place limits on the number of franchises or share of total brand vehicle sales that may be maintained by an affiliated dealership group on a national, regional or local basis, as well as limits on store ownership in contiguous markets. If we reach any of these limits, we may be prevented from making further acquisitions, or we may be required to dispose of certain dealerships, which could adversely affect our future growth. We cannot provide assurance that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy.
Manufacturers can also establish new franchises or relocate existing franchises, subject to applicable state franchise laws. The establishment or relocation of franchises in our current markets could have a material adverse effect on the business, financial condition, and results of operations of our retail locations in the market in which the action is taken.
We may be subject to product liability claims if people or property are harmed by the products we sell, and we may be adversely impacted by manufacturer safety recalls.
We may be subject to product liability claims if people or property are harmed by the products we sell and may be adversely impacted by manufacturer safety recalls. Some of the products we sell may expose us to product liability claims relating to personal injury, death, or environmental or property damage, and may require product recalls or other actions. Although we maintain liability insurance, we cannot be certain that our insurance coverage will be adequate for losses actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, even if a product liability claim is not successful or is not fully pursued, the negative publicity surrounding a product recall or any assertion that the products sold by the Company caused property damage or personal injury could damage brand image and our reputation with existing and potential consumers and have a material adverse effect on our business, financial condition and results of operations. In the event of a manufacturer safety recall, we may be required to stop selling certain vehicles, which could impact our revenue and profitability.
Failure to adequately protect our intellectual property could harm our business and operating results.
We rely on a combination of patent, trademark, trade secret, and copyright law and contractual restrictions to protect our intellectual property, including our proprietary Cash Offer technology. These mechanisms may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software, and functionality or obtain and use information that we consider proprietary. Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. The failure to protect our intellectual property, including from unauthorized uses, could erode consumer trust and our brand and have a material adverse effect on our business.
Financial Risks
Wehaveincurredsignificantindebtedness,whichcouldadverselyaffectus,includingourbusiness flexibility.
We have a substantial amount of debt, which has had and will continue to have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions, and we have a substantial amount of interest expense. The level of indebtedness, including the applicable interest payments, could also reduce funds available for working capital, capital expenditures, and other general corporate purposes, and may create competitive disadvantages for us relative to
competitors with lower debt levels. If our financial performance does not meet our current expectations, then our ability to service the indebtedness may be adversely impacted.
At June 30, 2023, the Company was not in compliance with certain leverage ratio financial covenants under the Oaktree Credit Agreement. In consideration of additional covenants with requirements for the Company to monetize certain assets and raise capital through an equity offering and use part of the proceeds to pay down debt, as well as issuing warrants to the lenders, the lenders agreed to eliminate certain performance covenants and make certain financial covenants less restrictive for certain periods, all as discussed in more detail in Note 9. The elimination of the June 30, 2023 leverage ratio financial covenants was made effective as of June 30, 2023, and the lenders agreed that no event of default existed from such leverage ratio financial covenants as of such date. The Company has established internal controls in place to monitor compliance with the financial covenants. In the event that the Company is unable to comply with the current less restrictive covenants, or the original covenants in the future, there is no assurance that the Company will be able to obtain a subsequent adjustment of such financial covenants. The failure to meet financial covenants under the Oaktree Credit Agreement, or to obtain a waiver, would have a material adverse effect on our business, financial condition, and results of operation.
We may require additional financing or capital to pursue acquisitions or because of unforeseen circumstances. If financing or capital is not available on terms acceptable to us or at all, we may not be able to develop and grow our business as anticipated and our business, operating results, and financial condition may be harmed.
We intend to continue making investments to support the development and growth of our business and to make strategic acquisitions. Additional financing or capital may not be available when we need it, on terms that are acceptable to us, or at all. Although we intend to self-fund our growth initiatives, if we determine to raise additional capital through issuances of equity or debt, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. In addition, we may need to refinance all or a portion of our existing debt. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition, and prospects could be adversely affected.
We are subject to interest rate risk in connection with our floorplan payables and our other debt instruments that could have a material adverse effect on our profitability.
Our floorplan payables, revolving credit facility, and other debt instruments are subject to variable interest rates. Accordingly, our interest expense will fluctuate with changing market conditions and will increase if interest rates rise. Instability or disruptions of the capital markets, including credit markets, or the deterioration of our financial condition due to internal or external factors, could restrict or prohibit our access to capital markets and increase our financing costs. In addition, our net new inventory carrying cost (new vehicle floorplan interest expense net of floorplan assistance that we receive from powersports manufacturers) may increase due to changes in interest rates, inventory levels, and manufacturer assistance. A significant increase in interest rates or decrease in manufacturer floorplan assistance could have a material adverse effect on our business, financial condition, results of operations, or cash flows.
Restrictive covenants in our debt agreements could limit the implementation of our business strategy.
Our debt agreements impose operating and financial restrictions on us. These restrictions limit our ability and that of our subsidiaries to, among other things: (i) incur additional indebtedness; (ii) make investments or loans; (iii) create liens; (iv) consummate mergers and similar fundamental changes; (v) make restricted payments; (vi) make investments in unrestricted subsidiaries; (vii) enter into transactions with affiliates; and (viii) use proceeds from asset sales.
We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under our debt agreements. The restrictions contained in the covenants could: (i) limit our ability to plan for or react to market conditions, to meet capital needs, or otherwise to restrict our activities or business strategy; and (ii) adversely affect our ability to finance our operations, enter into acquisitions or divestitures or engage in other business activities that would be in our interest.
A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our debt agreements that, if not cured or waived, could result in acceleration of all
indebtedness outstanding thereunder and cross-default rights under our other debt. In addition, in the event of default under our credit facilities, the affected lenders could foreclose on the collateral securing such credit facility and require repayment of all borrowings outstanding thereunder. If the amounts outstanding under the credit facilities or any of our other indebtedness were to be accelerated, our assets may not be sufficient to repay in full the amounts owed to the lenders or to our other debt holders.
Industry Risks
The powersports industry is sensitive to unfavorable changes in general economic conditions and various other factors that could affect demand for our products and services, which could have a material adverse effect on our business, our ability to implement our strategy and our results of operations.
Our performance is impacted by general economic conditions, such as changes in employment levels, consumer demand, preferences and confidence levels, the availability and cost of credit, fuel prices, levels of discretionary personal income, inflation, and interest rates. Recently, inflation has increased throughout the U.S. economy. Inflation can adversely affect us by increasing the costs of labor, fuel and other costs as well as by reducing demand for powersports vehicles. In addition, rapid changes in fuel prices can cause shifts in consumer preferences that are difficult to accommodate given the long lead-time of inventory acquisition. Inflation is also often accompanied by higher interest rates, which could reduce the fair value of our outstanding debt obligations. Changes in interest rates can also significantly impact new and pre-owned powersports vehicle sales and vehicle affordability due to the direct relationship between interest rates and monthly loan payments, a critical factor for many powersports buyers, and the impact interest rates have on customers’ borrowing capacity and disposable income. We have experienced, and continue to experience, increases in the prices of labor, fuel, and other costs of providing service. These impacts related to inflation could have a material adverse effect on our business, financial condition, and results of operation.
Retail powersports sales are cyclical and historically have experienced periodic downturns characterized by oversupply and weak demand, which could result in a need to lower the prices at which we sell our powersports offering, which would reduce revenue per vehicle sold and margins. Additionally, a shift in consumer’s vehicle preferences driven by pricing, fuel costs or other factors may have a material adverse effect on our revenue, margins, and results of operations.
We participate in a highly competitive market for powersports products and services, and pressure from existing and new companies may adversely affect our business and operating results.
The powersports retail and service industry is highly competitive with respect to price, service, location, and selection.
Our competition includes: (i) franchised powersports dealerships in its markets that sell the same or similar new and pre-owned vehicles; (ii) privately negotiated “peer-to-peer” sales of pre-owned powersports vehicles; (iii) other pre-owned powersports vehicle retailers, including regional and national rental companies; (iv) internet-based pre-owned powersports vehicle brokers that sell pre-owned vehicles to consumers; (v) service center and parts supply chain stores; and (vi) independent service and repair shops.
We do not have a material cost advantage over other retailers in purchasing new powersports vehicles from manufacturers. We typically rely on our advertising, merchandising, sales expertise, service reputation, strong local branding, and location to sell our products. Because our dealer agreements grant only a non-exclusive right to sell a manufacturer’s product within a specified market area, our revenue, gross profit, and overall profitability may be materially adversely affected if competing dealerships expand their market share. Further, our vehicle manufacturers may decide to award additional franchises in our markets in ways that negatively impact our sales.
We believe that our proprietary Cash Offer technology provides us with a competitive advantage in purchasing pre-owned powersports vehicles directly from customers. However, there are low barriers to enter the online marketplace for powersports and we expect that competitors, both new and existing, will continue to enter the online marketplace with competing brands, business models, products, and services, which could make it difficult to acquire inventory, attract customers, and sell vehicles at a profitable price. Some of these companies have significantly greater resources than we do and may be able to provide customers access to a greater inventory of powersports vehicles at lower prices or purchase vehicles from consumers at higher prices while delivering a competitive overall experience.
Our current and potential competitors may have significantly greater financial, technical, marketing, and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their products and services. Additionally, they may have more extensive industry relationships, longer operating histories, and greater name recognition than we have. As a result, these competitors may be able to respond more quickly with new technologies and to
undertake more extensive marketing or promotional campaigns. If we are unable to compete with these companies, the demand for our vehicles, products, and services could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our revenue, business, and financial results.
There is substantial competition in the transportation services industry.
Competition in the transportation services industry is intense and broad-based. We compete against traditional and non-traditional companies, including transportation providers that own or operate their own equipment, third-party freight brokers, technology services companies, freight brokers, carriers offering transportation services services, and on-demand transportation service providers. In addition, customers can bring in-house some of the services we provide to them. Increased competition could reduce our market opportunity and create downward pressure on rates, which could adversely affect our revenue, gross profit and results of operation. Many of our competitors are larger than us and may devote resources to the development of services and technologies. If we are unable to compete with these additional offerings, or the breadth of services offered by some of our competitors, we may be unable to retain, or attract, customers, which would adversely affect our business.
If powersports vehicle manufacturers reduce or discontinue sales incentive, warranty, or other promotional programs, our financial condition, results of operations, and cash flows may be materially adversely affected.
We benefit from sales incentive, warranty, and other promotional programs of powersports vehicle manufacturers that are intended to promote and support their respective new vehicle sales. Key incentive programs include: (i) customer rebates on new vehicles; (ii) dealer incentives on new vehicles; (iii) special financing or leasing terms; (iv) warranties on new and pre-owned vehicles; and (v) sponsorship of pre-owned vehicle sales by authorized new vehicle dealers. Vehicle manufacturers often make changes to their incentive programs. Any reduction or discontinuation of manufacturers’ incentive programs for any reason, including a supply and demand imbalance, may reduce our sales volume which, in turn, could have a material adverse effect on our results of operations, cash flows, and financial condition.
Seasonalityorweathertrendsmaycausefluctuationsinourrevenueandoperatingresults.
Our revenue trends are likely to be a reflection of consumers' powersports vehicle buying patterns. Because different types of vehicles are designed for different seasons, our revenue may be cyclical. Historically, the powersports industry has been seasonal, with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the winter but increase in spring and summer, coinciding with tax refund season and the coming warmer months. Our business is also impacted by cyclical trends affecting the overall economy, as well as by actual or threatened severe weather events.
We provide transportation services through external carriers to transport vehicles, including transportation providers that own or operate their own equipment, and we are subject to business risks and costs associated with the transportation industry.
We provide transportation services through external carriers to transport vehicles between and among customers or distribution network providers, and auction partners. As a result, we are exposed to risks associated with the transportation industry such as weather, traffic patterns, gasoline prices, recalls affecting our service providers, local and federal regulations, vehicular crashes, insufficient internal capacity, rising prices of external transportation vendors, fuel prices, taxes, license and registration fees, insurance premiums, self-insurance levels, difficulty in recruiting and retaining qualified drivers, disruption of our technology systems, and increasing equipment and operational costs. Our failure to successfully manage our transportation services and fulfillment process could cause a disruption in our inventory supply chain and distribution, which may adversely affect our operating results and financial condition.
Technology Risks
We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline, and our business would be adversely affected.
We depend in part on Internet search engines and social media such as Google™, Bing™, and Facebook™ to drive traffic to our website.corporate website and to the websites of our dealer network. For example, when a user searches the internet for a particular type of powersports or recreational vehicle, we will rely on a high organic search ranking of our webpages in these search results to refer the user to our website.websites. However, our ability to obtain such high, non-paid search result rankings is not within our control. Our competitors' Internet search engine and social media efforts may result in their websites receiving a higher search result page ranking than ours, or Internet search engines could revise their methodologies in a way that would adversely affect our search result rankings. If Internet search engines or social media companies modify their search algorithms or display technologies in ways that are detrimental to us, or if our competitors' efforts are more successful than ours, overall growth in our usercustomer base could slow or our usercustomer base could decline. Internet search engine providers could provide recreationpowersports vehicle dealer and pricing information directly in search results, align with our competitors or choose to develop competing services. Any reduction in the number of users directed to our websitewebsites through Internet search engines could harm our business and operating results.
A significant disruption in service on our website or of our mobile applicationswebsites could damage our reputation and result in a loss of consumers, which could harm our business, brand, operating results, and financial condition.
Our brand, reputation, and ability to attract consumers, affinity groups and advertisers depend on the reliable performance of our technology infrastructure and content delivery. We may experience significant interruptions with our systems in the future.systems. Interruptions in these systems, whether due to system failures, computer viruses, or physical or electronic break-ins, could affect the security or availability of our products on our website and mobile application,websites, and prevent or inhibit the ability of consumers to access our products. Problems with the reliability or security of our systems could harm our reputation, result in a loss of consumers dealers and affinity group marketing partners,dealers, and result in additional costs.
We intend to locate our communications, network, and computer hardware used to operate our website and mobile applications at facilities in various parts of the country to minimize the risk and create an environment where we can remain online if one of the facilities in which our equipment is housed goes offline. Nevertheless, we do not own or control the operation of these facilities, and our systems and operations may be vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes, and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail.
Problems faced by any third-party web hosting providers we may utilize could adversely affect the experience of our consumers. Any third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by any third-party web hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.
Any errors, defects, disruptions, or other performance or reliability problems with our network operations could cause interruptions in access to our products, as well as delays and additional expense in arranging new facilities and services, and could harm our reputation, business, operating results, and financial condition.
We may be unable to maintain or grow relationships with information data providers or may experience interruptions in the data feeds they provide, which may limit the information that we are able to provide to our users and regional partners as well as adversely affect the timeliness of such information and may impair our ability to attract or retain consumers and our regional partners and to timely invoice all parties.
We expect to receive data from third-party data providers, including our partner network, dealer management system data feed providers, data aggregators and integrators, survey companies, purveyors of registration data and possibly others. There may be some instances in which we use this information to collect a transaction fee from those dealers and recognize revenue from the related transactions.
From time to time, we may experience interruptions in one or more data feeds that we receive from third-party data providers, in a manner that affects our ability to operate our business. These interruptions may occur for a number of reasons, including changes to the software used by these data feed providers and difficulties in renewing our agreements with third-party data feed providers. Additionally, when an interruption ceases, we may not always be able to collect the appropriate fees and any such shortfall in revenue could be material to our operating results.
Our ability to grow our complementary product offerings may be limited, which could negatively impact our development, growth, revenue and financial performance.
As we introduce or expand additional offerings to our platform, such as recreation vehicle trade-ins, lead management, transaction processing, financing, maintenance and insurance, we may incur losses or otherwise fail to enter these markets successfully. Our expansion into these markets may place us in competitive and regulatory environments with which we are unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, if at all. In attempting to establish such new product offerings, we may incur significant expenses and face various other challenges, such as expanding our sales force and management personnel to cover these markets and complying with complicated regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these ancillary products to consumers or dealers, and failure to do so would compromise our ability to successfully expand into these additional revenue streams.
We rely on third-party financing providers to finance a portion of our customers' vehicle purchases.
In addition to RumbleOn Finance, our captive consumer financing entity, we rely on third-party financing providers to finance a portion of our customers' vehicle purchases. Accordingly, our revenue and results of operations are partially dependent on the actions of these third parties. We provide financing to qualified customers through a number of third-party financing providers. If one or more of these third-party providers cease to provide financing to our customers, provide financing to fewer customers or no longer provide financing on competitive terms, it could have a material adverse effect on our business, sales and results of operations. Additionally, if we were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse effect on our business, sales and results of operations.
We rely on third-party providers to supply extended protection products ("EPP")to our customers.
We rely on third-party providers to supplyEPP products to our customers. Accordingly, our revenue and results of operations will be partially dependent on the actions of these third parties. If one or more of these third-party providers cease to provide EPP, make changes to their products or no longer provide their products on competitive terms, it could have a material adverse effect on our business, revenue and results of operations. Additionally, if we were unable to replace the current third-party providers upon the occurrence of one or more of the foregoing events, it could also have a material adverse effect on our business, revenue and results of operations.
Our sales of powersports vehicles may be adversely impacted by increased supply of and/or declining prices for pre-owned vehicles and excess supply of new vehicles.
We believe when prices for pre-owned vehicles have declined, it can have the effect of reducing demand among retail purchasers for new vehicles (at or near manufacturer's suggested retail prices). Further, vehicle manufacturers can and do take actions that influence the markets for new and pre-owned vehicles. For example, introduction of new models with significantly different functionality, technology, or other customer satisfiers can result in increased supply of pre-owned vehicles, and a corresponding decrease in price of pre-owned vehicles. Also, while historically manufacturers have taken steps designed to balance production volumes for new vehicles with demand, those steps have not always proven effective. In other instances, manufacturers have chosen to supply new vehicles to the market in excess of demand at reduced prices which has the effect of reducing demand for pre-owned vehicles.
We rely on a number of third parties to perform certain operating and administrative functions for us.
We rely on a number of third parties to perform certain operating and administrative functions for us. We may experience problems with outsourced services, such as unfavorable pricing, untimely delivery of services, or poor quality. Also, these third parties may experience adverse economic conditions due to difficulties in the global economy that could lead to difficulties supporting our operations. In light of the amount and types of functions that we will outsource, these service provider risks could have a material adverse effect on our business and results of operations.
We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.
We face significant competition from both existing powersport retailers as well as companies that provide listings, information, lead generation, and powersport-buying and selling services designed to reach businesses and consumers and enable dealers to reach these consumers and inventory sources.
Our current and future competitors may include:
•traditional powersport dealerships that could increase investment in technology and infrastructure to compete directly with our online model;
•internet and online powersports sites that could change their models to directly compete with us, such as Amazon, eBay Motors, Google, and CycleTrader; and
•manufacturers seeking to have a direct relationship with customers or to support their dealer networks.
We also expect that competitors, both new and existing, will continue to enter the online and traditional powersports retail industry with competing brands, business models, products, and services, which could make it difficult to acquire inventory, attract customers, and sell vehicles at a profitable price. For example, traditional dealerships could transition their selling efforts to the internet, allowing them to more efficiently sell powersports across state lines and compete directly with our online offering and no-haggle pricing model. Some of these companies have significantly greater resources than we do and may be able to provide customers access to a greater inventory of vehicles at lower prices or purchase vehicles from consumers at higher prices while delivering a competitive overall experience.
Our competitors may also impede our ability to reach consumers in certain jurisdictions. For example, our competitors may increase their search engine optimization efforts and outbid us for search terms on various search engines.
Our current and potential competitors may have significantly greater financial, technical, marketing, and other resources than we have, and the ability to devote greater resources to the development, promotion and support of their products and services. Additionally, they may have more extensive industry relationships, longer operating histories, and greater name recognition than we have. As a result, these competitors may be able to respond more quickly with new technologies and to
undertake more extensive marketing or promotional campaigns. If we are unable to compete with these companies, the demand for our used vehicles, products, and services could substantially decline.
In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our current or future data providers, technology partners, or other parties with whom we have relationships, thereby limiting our ability to develop, improve, and promote our solutions. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our revenue, business, and financial results.
Restrictive covenants in certain of our debt agreements could limit our growth and implementation of our business strategy.
Our debt agreements impose operating and financial restrictions on us. These restrictions limit our ability and that of our subsidiaries to, among other things: (i) incur additional indebtedness; (ii) make investments or loans; (iii) create liens; (iv) consummate mergers and similar fundamental changes; (v) make restricted payments; (vi) make investments in unrestricted subsidiaries; (vii) enter into transactions with affiliates; and (viii) use of proceeds of asset sales.
We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under certain of our debt agreements. The restrictions contained in the covenants could: (i) limit our ability to plan for or react to market conditions, to meet capital needs or otherwise to restrict our activities or business strategy; and (ii) adversely affect our ability to finance our operations, enter into acquisitions or divestitures to engage in other business activities that would be in our interest.
A breach of any of these covenants or our inability to comply with the required financial ratios or financial condition tests could result in a default under our debt agreements that, if not cured or waived, could result in acceleration of all indebtedness outstanding thereunder and cross-default rights under our other debt. In addition, in the event of an event of default under our credit facilities, the affected lenders could foreclose on the collateral securing such credit facility and require repayment of all borrowings outstanding thereunder. If the amounts outstanding under the credit facilities or any of our other indebtedness were to be accelerated, our assets may not be sufficient to repay in full the amounts owed to the lenders or to our other debt holders.
The phase-out of the London Interbank Offered Rate (LIBOR), or the replacement of LIBOR with a different reference rate, may adversely affect interest rates.
On March 5, 2021, the administrator for LIBOR announced that it will permanently cease to publish most LIBOR settings beginning on January 1, 2022 and cease to publish the overnight, one-month, three-month, six-month, and 12-month LIBOR settings on July 1, 2023. The replacement of LIBOR with an alternative rate or benchmark may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows, and liquidity. We cannot predict the effect of the discontinuance of LIBOR or the establishment and use of alternative rates or benchmarks. We may need to amend certain contracts or enter into new ones and cannot predict what alternative rate or benchmark would be negotiated. This may result in an increase to our interest expense.
Seasonality or weather trends may cause fluctuations in our unique visitors, revenue and operating results.
Our revenue trends are likely to be a reflection of consumers' vehicle buying patterns. While different types of recreation vehicles are designed for different seasons (motorcycles are typically for non-snow seasons, while snowmobiles are typically designed for winter), our revenue may be cyclical if, for example, powersport and recreation vehicles represent a large percentage of our revenue. Historically, the used vehicle industry has been seasonal with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the fall quarter but increase in February and March, coinciding with tax refund season. Our business will also be impacted by cyclical trends affecting the overall economy, as well as by actual or threatened severe weather events.
We collect, process, store, share, disclose and use personal information and other data, and our actual or perceived failure to protect such information and data could damage our reputation and brand and harm our business and operating results.
We collect, process, store, share, disclose, and use personal information and other data provided by consumers, dealers and auctions. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information. We may need to expend significant resources to protect against security breaches or to address problems
caused by breaches. Any failure or perceived failure to maintain the security of personal and other data that is provided to us by consumers and dealers could harm our reputation and brand and expose us to a risk of loss or litigation and possible liability, any of which could harm our business and operating results. In addition, from time to time, it is possible that concerns will be expressed about whether our products, services, or processes compromise the privacy of our users. Concerns about our practices with regard to the collection, use or disclosure of personal information or other privacy related matters, even if unfounded, could harm our business and operating results.
There are numerous federal, state, and local laws around the world regarding privacy and the collection, processing, storing, sharing, disclosing, using, and protecting of personal information and other data, the scope of which are changing, subject to differing interpretations, and which may be costly to comply with and may be inconsistent between countries and jurisdictions or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices or that new regulations could be enacted. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to consumers or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which may include personally identifiable information or other user data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause consumers and vehicle dealersour OEM partners to lose trust in us, which could have an adverse effect on our business. Additionally, if vendors, developers, or other third parties that we work with violate applicable laws or our policies, such violations may also put consumer or dealer information at risk and could in turn harm our reputation, business, and operating results.
Failure to adequately protect our intellectual property could harm our business
Regulatory and operating results.Government Risks
A portion of our success may be dependent on our intellectual property, the protection of which is crucial to the success of our business. We expect to rely on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. In addition, we will attempt to protect our intellectual property, technology, and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements. These agreements may not effectively prevent unauthorized use or disclosure of our confidential information, intellectual property, or technology and may not provide an adequate remedy in the event of unauthorized use or disclosure of our confidential information, intellectual property, or technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our website features, software, and functionality or obtain and use information that we consider proprietary.
Competitors may adopt service names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of the term "RumbleOn" or "RMBL."
We currently hold numerous Internet domain names. The regulation of domain names in the United States is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the name RumbleOn or RMBL.
We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.
We may from time-to-time face allegations that we have infringed the trademarks, copyrights, patents and other intellectual property rights of third parties, including from our competitors or non-practicing entities. Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering some features, purchase licenses or modify our products and features while we develop non-infringing substitutes or may result in significant settlement costs.
In addition, we use open-source software in our products and will use open-source software in the future. From time to time, we may face claims against companies that incorporate open-source software into their products, claiming ownership of, or demanding release of, the source code, the open-source software or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open-source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our platform or services, any of which would have a negative effect on our business and operating results.
Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results and our reputation.
We provide transportation services and rely on external logistics to transport vehicles. Thus, we are subject to business risks and costs associated with the transportation industry. Many of these risks and costs are out of our control, and any of them could have a material adverse effect on our business, financial condition and results of operations.
We provide transportation services and rely on external logistics to transport vehicles between and among customers or distribution network providers, and auction partners. As a result, we are exposed to risks associated with the transportation industry such as weather, traffic patterns, gasoline prices, recalls affecting our vehicle fleet, local and federal regulations, vehicular crashes, insufficient internal capacity, rising prices of external transportation vendors, fuel prices, taxes, license and registration fees, insurance premiums, self-insurance levels, difficulty in recruiting and retaining qualified drivers, disruption of our technology systems, and increasing equipment and operational costs. Our failure to successfully manage our logistics and fulfillment process could cause a disruption in our inventory supply chain and distribution, which may adversely affect our operating results and financial condition.
A failure to obtain or maintain adequate insurance coverage could adversely affect our results of operations.
Although we have been able to obtain reasonably priced insurance coverage to meet our requirements in the past, there is no assurance that we will be able to do so in the future. For example, catastrophic events can result in decreased coverage limits, more limited coverage, and increased premium costs or deductibles. If we are unable to obtain adequate insurance coverage, we would be subject to increased out-of-pocket expenses in the event of a claim and we may not be able to procure certain contracts, either of which could materially adversely affect our financial position, results of operations, cash flows, or liquidity.
The COVID-19 pandemic and associated impacts on economic activity have and may continue to have material adverse effects on our business, results of operations, financial condition, and cash flows.
The onset of the COVID-19 pandemic and associated impacts on economic activity, including lower new powersports vehicle production due to Demand/Supply Imbalances, have had adverse effects on our results of operations and financial condition during the year ended December 31, 2021. We expect these conditions to continue through 2022. The effect of these Demand/Supply Imbalances required that we adjust our inventory management to align with market conditions. The COVID-19 pandemic and associated impacts on economic activity, including the Demand/Supply Imbalances, may have material adverse effects on our business, results of operations, financial condition, and cash flows, and we can provide no assurance as to the duration of the adverse impacts of COVID-19 and the Demand/Supply Imbalances.
Risks Relating to the Powersports Retail Industry and our Retail Locations
The powersports retail industry is sensitive to unfavorable changes in general economic conditions and various other factors that could affect demand for our products and services, which could have a material adverse effect on our business and results of operations.
Future performance at our retail locations will be impacted by general economic conditions including: changes in employment levels; consumer demand, preferences and confidence levels; the availability and cost of credit; fuel prices; levels of discretionary personal income; and interest rates. We are also subject to economic, competitive, and other conditions prevailing in the various markets in which we operate our retail locations, even if those conditions are not prominent nationally.
Retail powersports sales are cyclical and historically have experienced periodic downturns characterized by oversupply and weak demand, which could result in a need to lower the prices at which we sell our powersports offering, which would reduce revenue per vehicle sold and margins. Additionally, a shift in consumer’s vehicle preferences driven by pricing, fuel costs or other factors may have a material adverse effect on our revenue, margins, and results of operations.
Adverse conditions affecting one or more of the powersports manufacturers with which we hold franchises, or their inability to deliver a desirable mix of vehicles could have a material adverse effect on our new vehicle retail business.
Historically, our retail locations have generated most of their revenue through new vehicle sales and related sales of higher-margin products and services, such as finance and insurance products and vehicle-related parts and service. As a result,
business and results of operations depends on various aspects of vehicle manufacturers’ operations, many of which are outside of its control. Our ability to sell new vehicles is dependent on its manufacturers’ ability to design and produce, and willingness to allocate and deliver to us, a desirable mix of popular new vehicles that consumers demand. Popular vehicles may often be difficult to obtain from manufacturers for a number of reasons, including the fact that manufacturers generally allocate their vehicles based on sales history and associated capital expenditures. Further, if a manufacturer fails to produce desirable vehicles or develops a reputation for producing undesirable vehicles or produces vehicles that do not comply with applicable laws or government regulations, our revenue could be adversely affected as consumers shift their vehicle purchases away from that brand.
Although we seek to limit dependence on any one OEM, there can be no assurance the brand mix allocated and delivered to us will be sufficiently diverse to protect us from a significant decline in the desirability of vehicles manufactured by a particular manufacturer or disruptions in a manufacturer’s ability to produce vehicles. For the year ended December 31, 2021, OEMs representing 10% or more of RumbleOn’s revenue from new powersports vehicle sales were as follows:
| | | | | | | | |
Manufacturer (Vehicle Brands): | | % of Total
New Vehicle Revenue |
Polaris | | 33.5% |
BRP | | 22.6% |
Harley-Davidson | | 16.1% |
In addition, the powersports manufacturing supply chain spans the globe. As such, supply chain disruptions may affect the flow of vehicle and parts inventories to an OEM’s manufacturing partners or to us. Until such time as current Demand/Supply Imbalances are resolved, we will continue to experience disruptions in the supply of vehicle and parts inventories. Such continue disruptions could have a material adverse effect on our business, results of operations, financial condition, and cash flows.
Our retail powersports sales may be materially adversely affected by changes in costs or availability of consumer financing.
A significant portion of our retail powersports sales are financed through RumbleOn Finance and other third-party consumer finance lenders. Reductions in the availability of credit to consumers have contributed to declines in our sales in past periods. Reductions in available consumer credit or increased costs of that credit could result in a decline in sales, which would have a material adverse effect on our financial condition and results of operations.
Lenders that have historically provided financing to those buyers who, for various reasons, do not have access to traditional financing, including those buyers who have a poor credit history or lack the down payment necessary to purchase a vehicle, are often referred to as subprime lenders. If market conditions cause subprime lenders to tighten credit standards, or if interest rates increase, the ability to obtain financing from subprime lenders for these consumers to purchase vehicles could become limited, resulting in a decline in vehicle sales, which in turn, could have a material adverse effect on our financial condition and results of operations.
Substantial competition in powersports sales and services may have a material adverse effect on our business.
The powersports retail and service industry is highly competitive with respect to price, service, location, and selection. Our competition includes: (i) franchised powersport dealerships in its markets that sell the same or similar new and used vehicles; (ii) privately negotiated sales of used powersport vehicles; (iii) other used powersport vehicle retailers, including regional and national rental companies; (iv) internet-based used powersport vehicle brokers that sell used vehicles to consumers; (v) service center and parts supply chain stores; and (vi) independent service and repair shops.
We do not have a material cost advantage over other retailers in purchasing new vehicles from manufacturers. We typically rely on our advertising, merchandising, sales expertise, service reputation, strong local branding, and location to sell our products. Because our dealer agreements grant only a non-exclusive right to sell a manufacturer’s product within a specified market area, our revenue, gross profit, and overall profitability may be materially adversely affected if competing dealerships expand their market share. Further, our vehicle manufacturers may decide to award additional franchises in our markets in ways that negatively impact our sales.
We are dependent on our relationships with the manufacturers of vehicles we sell and are subject to restrictions imposed by these vehicle manufacturers. Any of these restrictions or any changes or
deterioration of these relationships could have a material adverse effect on our business, financial condition, results of operations, and cash flows.
We are dependent on our relationships with the manufacturers of the vehicles we sell, which have the ability to exercise a great deal of control and influence over its day-to-day operations, as a result of the terms of its dealer, framework, and related agreements. We may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ trademarks only to the extent permitted under these agreements. The terms of these agreements may conflict with our interests and objectives and may impose limitations on key aspects of our operations, including our acquisition strategy.
For example, manufacturers can set performance standards with respect to sales volume, sales effectiveness, and customer satisfaction, and require us to obtain manufacturer consent before we can acquire dealerships selling a manufacturer’s vehicles. From time to time, we may be precluded under agreements with certain manufacturers from acquiring additional franchises, or subject to other adverse actions, to the extent we are not meeting certain performance criteria at existing stores until performance improves in accordance with the agreements, subject to applicable state franchise laws. In addition, many vehicle manufacturers place limits on the total number of franchises that any group of affiliated dealerships may own and certain manufacturers place limits on the number of franchises or share of total brand vehicle sales that may be maintained by an affiliated dealership group on a national, regional or local basis, as well as limits on store ownership in contiguous markets, which limits may be applicable to the Company as a result of the Transaction. If we reach any of these limits, we may be prevented from making further acquisitions, or we may be required to dispose of certain dealerships, which could adversely affect our future growth. We cannot provide assurance that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of our acquisition strategy.
Manufacturers can also establish new franchises or relocate existing franchises, subject to applicable state franchise laws. The establishment or relocation of franchises in our current markets could have a material adverse effect on the business, financial condition, and results of operations of our retail locations in the market in which the action is taken.
If vehicle manufacturers reduce or discontinue sales incentive, warranty, or other promotional programs, our financial condition, results of operations, and cash flows may be materially adversely affected.
We benefit from sales incentive, warranty, and other promotional programs of vehicle manufacturers that are intended to promote and support their respective new vehicle sales. Key incentive programs include: (i) customer rebates on new vehicles; (ii) dealer incentives on new vehicles; (iii) special financing or leasing terms; (iv) warranties on new and used vehicles; and (v) sponsorship of used vehicle sales by authorized new vehicle dealers.
Vehicle manufacturers often make changes to their incentive programs. Any reduction or discontinuation of manufacturers’ incentive programs for any reason, including a supply and demand imbalance, may reduce our sales volume which, in turn, could have a material adverse effect on its results of operations, cash flows, and financial condition.
If state laws that protect powersports retailers are repealed, weakened, or superseded by our framework agreements with manufacturers,weakened, our retail locations may be more susceptible to termination, non-renewal, or renegotiation of their dealer agreements, which could have a material adverse effect on our business, results of operations, and financial condition.
Applicable state laws generally provide that a vehicle manufacturer may not terminate or refuse to renew a dealer agreement unless it has first provided the dealer with written notice setting forth “good cause” and stating the grounds for termination or non-renewal. Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the manufacturer’s criteria within a notice period to avoid the termination or non-renewal. Our agreements with certain manufacturers contain provisions that, among other things, attempt to limit the protections available to dealers under these laws, and, though unsuccessful to date, manufacturers’ ongoing lobbying efforts may lead to the repeal or revision of these laws. If these laws are repealed in the states in which we operate, manufacturers may be able to terminate our franchises without providing advance notice, an opportunity to cure or a showing of good cause. Without the protection of these state laws, it may also be more difficult for us to renew dealer agreements upon expiration. Changes in laws that provide manufacturers the ability to terminate our dealer agreements could materially adversely affect our business, financial condition, and results of operations.
21Climate change legislation or regulations restricting emission of greenhouse gases could result in increased operating costs and reduced demand for the powersports vehicles we sell.
The U.S. Environmental Protection Agency has adopted rules under existing provisions of the federal Clean Air Act that require: (1) a reduction in emissions of greenhouse gases from motor vehicles; (2) certain construction and operating permit reviews for greenhouse gas emissions from certain large stationary sources; and (3) monitoring and reporting of greenhouse gas emissions from specified sources on an annual basis. The adoption of any laws or regulations requiring significant increases in fuel economy requirements or new federal or state restrictions on emissions of greenhouse gases from our operations or on vehicles and automotive fuels in the U.S. could adversely affect demand for those vehicles and require us to incur costs to reduce emissions of greenhouse gases associated with our operations.
We operate in a highly regulated industry and are subject to a wide range of federal, state and local laws and regulations. Failure to comply with current or new laws and regulations could have a material adverse effect on our business, results of operations, financial condition, cash flows and reputation.
We are subject to a wide range of federal, state, and local laws and regulations, such as those relating to motor vehicle, retail installment sales, leasing, finance and insurance, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety. The regulatory bodies that regulate our business include, at the federal level: the Consumer Financial Protection Bureau, the FTC, the DOT, the Occupational Health and Safety Administration, the Department of Justice, and the Federal Communications Commission; at the state level: various state dealer licensing authorities, state consumer protection agencies including state attorney general offices, and state financial and insurance regulatory agencies; and at the municipal level our business is regulated by various municipal authorities covering licensing, zoning, occupancy, and tax obligations. We are subject to compliance audits of our operations by many of these authoritiesauthorities.
Vehicle Sales. Our sale and purchase of powersports vehicles, both new and pre-owned, related products and services and third-party finance products, are subject to the state and local dealer licensing requirements in the jurisdictions in which we have retail or wholesale locations. Regulators of jurisdictions where our customers reside, but in which we do not have a dealer or financing license could require that we obtain a license or otherwise comply with various state regulations. Despite our belief that we are not subject to the licensing requirements of those jurisdictions in which we do not have a physical presence, regulators may seek to impose punitive fines for operating without a license or demand we seek a license in those jurisdictions, any of which may inhibit our ability to do business in those jurisdictions, increase our operating expenses and adversely affect our financial condition and results of operations.
Consumer Finance. The financing we offer customers is subject to federal and state laws regulating the advertising and provision of consumer finance options, the collection of consumer credit and financial information, along with requirements related to online payments and electronic funds transfers, of whether RumbleOn Finance or a third-party is the entity extending credit to such customers.transfers. Most states regulate retail installment sales, including setting a maximum interest rate, caps on certain fees, or maximum amounts financed. In addition, certain states require that finance companies file a notice of intent or have a sales finance license or an installment sellers license in order to solicit or originate installment sales in that state.
Logistics and Transportation. Our Wholesale Express logistics operations,transportation services operation, which brokers and facilitates the transportation of vehicles primarily between and among dealers, is subject to motor-carrier rules and regulations promulgated by the DOT and the states through which their customers’ vehicles are transported. Additionally, the vendors whom Wholesale Express relies upon are subject to federal and state regulation concerning transport vehicle dimensions, transport vehicle conditions, driver motor vehicle record history, driver alcohol and drug testing, and driver hours of serves.service. More restrictive limitations on vehicle weight and size, condition, trailer length and configuration, methods of measurement, driver qualifications, or driver hours of service may increase the costs charged to Wholesale Express by its vendors, which may adversely affect our financial condition, operating results, and cash flows. If we fail to comply with the DOT regulations or if those regulations become more stringent, we could be subject to increased inspections, audits, or compliance burdens. Regulatory authorities could take remedial action including imposing fines, suspending, or shutting down our Wholesale Express operations.
Environmental Laws and Regulations. We are subject to a variety of federal, state, and local environmental laws and regulations that pertain to our operations. The regulations concern material storage, air quality, waste handling, and water pollution control. The regulations also regulate our use and operation of gasoline storage tanks, gasoline dispensing equipment, oil tanks, and paint booths among other things. Our business involves the use, handling, and disposal of hazardous materials and wastes, including motor oil, gasoline, solvents, lubricants, paints, and other substances. We manage our compliance through permitting and operational control.
Facilities and Personnel. Our facilities and business operations are subject to laws and regulations relating to environmental protection and health and safety, and our employment practices are subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. We may also be liable for employee misconduct and violations of laws or regulations to which we are subject.
Federal Advertising Regulations. The FTC has authority to take actions to remedy or prevent advertising practices that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that any aspect of our business constitutes an unfair or deceptive advertising practice, responding to such allegations could require us to pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our products and services, any or all of which could result in substantial adverse publicity, loss of participating dealers, lost revenue, increased expenses, and decreased profitability.
Federal Antitrust Laws. The antitrust laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. Some of the information that we may obtain from dealers may be sensitive and, if disclosed inappropriately, could potentially be pre-ownedused by dealers to impede competition or otherwise diminish independent pricing activity. A governmental or private civil action alleging the improper exchange of information, or unlawful participation in price maintenance or other unlawful or anticompetitive activity, even if unfounded, could be costly to defend and adversely impact our ability to maintain and grow our dealer network.In addition, governmental or private civil actions related to the antitrust laws could result in orders suspending or terminating our ability to do business or otherwise altering or limiting certain of our business practices, including the manner in which we handle or disclose pricing information, or the imposition of significant civil or criminal penalties, including fines or the award of significant damages against us in class action or other civil litigation.
Other. In addition to these laws and regulations that apply specifically to our business, we are also subject to laws and regulations affecting public companies, including securities laws and Nasdaq listing rules. The violation of any of these laws or regulations could result in administrative, civil or criminal penalties or in a cease-and-desist order against our business operations, any of which could damage our reputation and have a material adverse effect on our business, sales and results of operations. We have incurred and will continue to incur capital and operating expenses and other costs to comply with these laws and regulations.
The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to evolving interpretations and continuous change. Violation of the laws or regulations to which we are subject could result in consumer class actions or other lawsuits, government investigations, and administrative, civil, or criminal sanctions against us and, which may include significant fines and penalties that could have a material adverse effect on our business, financial condition and future prospects.
We are subject to risks associated with imported product restrictions or limitations, foreign trade and currency fluctuations.
Our business involvesvarious legal proceedings. If the saleoutcomes of vehicles, parts, or vehicles composed of parts thatthese proceedings are manufactured outside the United States. As a result, its operations are subjectadverse to risks of doing business outside of the United States and importing merchandise, including import duties, exchange rates, trade restrictions, work stoppages, natural or man-made disasters, and general political and socio-economic conditions in other countries. The United States or the countries from which our products are imported may, from time to time, impose new quotas, duties, tariffs, or other restrictions or limitations, or adjust presently prevailing quotas, duties, or tariffs. The imposition of new, or adjustments to prevailing, quotas, duties, tariffs, or other restrictions or limitationsus, it could have a material adverse effect on our business, financial condition, results of operations and cash flows. Relative weaknessfinancial condition.
We are subject to various legal proceedings. If the outcomes of the U.S. dollar against foreign currencies in the future may result in an increase in coststhese proceedings are adverse to us, it could have a material adverse effect on our business, results of operations and in the retail price of such vehicles or parts,financial condition. We are subject to various litigation matters from time to time, which could discourage consumers from purchasing such vehicleshave a material adverse effect on our business, results of operations and adversely impact its revenuefinancial condition. Claims arising out of actual or alleged violations of law could be asserted against us by individuals, either individually or through class actions, or by governmental entities in civil or criminal investigations and profitability.proceedings. These claims could be asserted under a variety of laws including, but not limited to, consumer finance laws, consumer protection laws, intellectual property laws, privacy laws, labor and employment laws, securities laws, employee benefit laws, tax laws and environmental laws. These actions could expose us to adverse publicity and to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil fines and penalties including, but not limited to, suspension or revocation of licenses to conduct business.
Risks Related to Ownership of our Class B Common Stock
Our largest stockholders may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.
At April 5, 2022, twoMarch 18, 2024, three of our stockholders beneficially owned approximately 31.5%54.3% of the Company’s voting power.power and are members of our Board of Directors. As a result, these individuals may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.stockholders, including the election of directors and the approval of any merger, consolidation, or sale of all or substantially all of our assets. This concentration of voting power could delay, defer, or prevent a change in control or delay or prevent a merger, consolidation, takeover, or other business combination involving us on terms that other stockholders may desire, which, in each case, could adversely affect the market price of our Class B common stock. Also, in the future, these stockholders may acquire or dispose of shares of our Class B common stock and thereby increase or decrease their ownership stake in us. Significant fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our Class B common stock.
The market price of our Class B common stock has been, and may continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.
Our Class B common stock has experienced extreme volatility in recent periods. The fluctuations in the market price of our Class B common stock are in response to numerous factors, including factors that have little or nothing to do with us or our performance, and these fluctuations could materially reduce the price of our Class B common stock. These factors include, among other things, business conditions in our markets and the general state of the securities markets, changes in capital markets that affect the perceived availability of capital to companies in our industry, governmental legislation or regulation, and general economic and market conditions, such as recessions and downturns in the United States or global economy. In addition, the stock market historically has experienced significant price and volume fluctuations. These fluctuations are often unrelated to the operating performance of particular companies. These broad market fluctuations may cause declines in the market price of our Class B common stock, which may make it difficult for you to resell shares of our Class B common stock owned by you at times or at prices that you find attractive.
If securities analysts issue adverse or industry analysts do notmisleading opinions regarding our stock or cease to publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.
The trading market for our Class B common stock may be influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us issue an adverse or misleading opinion regarding us, our business model, our intellectual property, or our stock performance, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not currently or for the foreseeable future intend to pay dividends on our common stock.
We have never declared or paid any cash dividends on our common stock. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earningearnings in the development and expansion of our business. As a result, any return on your investment in our common stock will be limited to the appreciation in the price of our common stock, if any.
We are currently subject to reduced reporting requirements so long as we are considered a "smaller“smaller reporting company"company” and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are currently subject to reduced reporting requirements so long as we are considered a "smaller“smaller reporting company."” We cannot predict if investors will find our common stock less attractive because we currently rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Anti-takeover provisions may limit the ability of another party to acquire us, which could adversely impact our stock price.
Nevada law and our charter, bylaws, and other governing documentscontainprovisionsthatcoulddiscourage,delayor prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our stock price to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 1C. CYBERSECURITY.
We believe cybersecurity is a critical part of our overall risk management and key to enabling our digital operations. As a company that heavily relies on our website to buy and market powersports, we face a multitude of cybersecurity threats common to most industries, such as phishing/malware, ransomware and denial-of-service, as well as threats common to retailers, such as theft of customer and employee data. Our customers, suppliers, and subcontractors face similar cybersecurity threats, and a cybersecurity incident impacting us or any of these entities could materially adversely affect our operations, performance and results of operations. These cybersecurity threats necessitate an appropriate focus on cybersecurity.
The Board of Directors oversees management’s processes for identifying and mitigating risks, including cybersecurity risks, to help align our risk exposure with our strategic objectives. Senior leadership, including our Senior Director of Information Security, regularly briefs the Board of Directors on our cybersecurity and information security posture and the Board of Directors is apprised of cybersecurity incidents deemed to have a moderate or higher business impact, even if immaterial to us. The full Board retains oversight of cybersecurity because of its importance to RumbleOn. We are finalizing our IT Risk Management Program that will outline the steps to be followed in the event of an incident, from incident detection to mitigation, recovery, and notification, including notifying functional areas (e.g. legal), as well as senior leadership and the Board, as appropriate.
Our corporate information security team is responsible for our overall information security strategy, policy, security engineering, operations and cyber threat detection and response. The current Senior Director of Information Security has extensive information technology and program management experience. The corporate information security organization manages an enterprise security structure with the ultimate goal of preventing cybersecurity incidents to the extent feasible, while simultaneously increasing our system resilience in an effort to minimize the business impact should an incident occur. Central to this effort will be our technical solution that we are implementing that will provide near real time monitoring of our data and enterprise computing networks. Employees outside of our corporate information security organization also have a role in our cybersecurity defenses and they are immersed in a corporate culture supportive of security, which we believe improves our cybersecurity.
Assessing, identifying, monitoring, and managing cybersecurity-related risks are being included in our overall risk management processes. Cybersecurity-related risks are included in the population of risks that are evaluated to assess top risks to the Company on an annual basis. To the extent a heightened cybersecurity related risk is identified, risk owners will be assigned to develop risk mitigation plans, which are then tracked to completion. The annual risk assessment will be presented to the Board of Directors.
We rely heavily on third parties to deliver our products and services to our customers, and a cybersecurity incident at a key supplier or subcontractor could materially adversely impact us. We include security and privacy addenda to our contracts where applicable. In addition, any subcontractors connecting to our network are instructed to report cybersecurity incidents to us so that we can assess the impact of the incident on us.
Notwithstanding the approach we take to cybersecurity, we may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on us. While RumbleOn maintains cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully insured. No previous cybersecurity incidents have materially affected us, including our business strategy, results of operations or financial condition. Future cybersecurity threats or incidents may materially affect our business strategy, results of operations or financial condition. No previous cybersecurity incidents have materially affected us, including our business strategy, results of operations or financial condition. Future cybersecurity threats or incidents may materially affect our business strategy, results of operations or financial condition.
ITEM 2. PROPERTIES.
At December 31, 2021,2023, we operated 54 powersports retail locations. The following were our operations comprised 41 powersportskey facilities, including retail locations and 19 other facilities that serve our automotive operations, logistics business, fulfillment and vehicle storage, and regional corporate and administrative needs. Following completion of the Freedom Transaction, we operate 55 powersports retail and fulfillment center locations, primarily across the Sunbelt, as set forth below.centers:
| | | | | | | | | | | | | | | | | |
| Powersports Retail Locations and Fulfillment CenterCenters |
| BMW Motorcycles of Huntsville+1 | AL | | Indian Motorcycle Kansas City+4 | KS |
| RideNow Powersports Huntsville+1 | El Cajon AL | | RideNow Powersports Kansas City+4 | KS |
| Harley-Davidson Saquaro (Tucson) | AZ | | Indian Motorcycle Concord+5 | Hammond Harley-Davidson | LANC |
| Harley-Davidson of Tucson | AZ | | Baton Rouge Harley-Davidson | LA |
| Old Pueblo Harley-Davidson | AZ | | Indian MotorcycleRumbleOn Fulfillment Concord+5
| NC |
| RideNow Powersports Apache Junction | AZ | | Ducati Las Vegas+6 | NV |
| RideNow Powersports Goodyear | AZ | | Indian Las Vegas+6 | NV |
| RideNow Powersports on Ina | AZ | | RideNow Powersports on Boulder | NV |
| RideNow Powersports on InaSurprise | AZ | | RideNow Powersports on Rancho | NV |
| RideNow Powersports SurpriseTucson | AZ | | RumbleOn Fulfillment - Las Vegas | NV |
| Tucson Indian | AZ | | Powder Keg Harley-Davidson | OH |
| RideNow Powersports TucsonArrowhead Harley-Davidson | AZ | | Fort Thunder Harley-Davidson | OK |
| Tucson IndianHarley-Davidson Scorpion (Chandler) | AZ | | RideNow Powersports Sturgis | SD |
| Indian Motorcycle Chandler+2 | AZ | | Black Gold Harley-Davidson | TX |
| Arrowhead Harley-DavidsonRideNow Powersports Chandler+2
| AZ | | FreedomRideNow Powersports Burleson* | TX |
| BMW Chandler Harley-Davidson+2 | AZ | | FreedomRideNow Powersports Decatur | TX |
| Indian Motorcycle ChandlerPeoria+3 | AZ | | FreedomRideNow Powersports Fort Worth* | TX |
| Indian MotorcycleRideNow Powersports Peoria+3
| AZ | | FreedomRideNow Powersports Hurst*Hurst*+7
| TX |
| RideNow Fulfillment 3333 Phoenix | AZ | | BMW Motorcycles of Fort WorthHurst*+7 | TX |
| RideNow Powersports Phoenix | AZ | | RumbleOn Fulfillment - Fort Worth | TX |
| Roadrunner Harley-Davidson | AZ | | Central Texas Harley-Davidson | TX |
| Roadrunner Harley-Davidson El Patron (El Cajon) | AZCA | | Dallas Harley-Davidson | TX |
| RideNow SoCal | CA | | FreedomRideNow Powersports Dallas* | TX |
| RideNow Gainesville | FL | | FreedomRideNow Powersports Farmers BranchDenton | TX |
| RideNow Powersports Beach Blvd | FL | | RideNow Powersports Farmers Branch | FreedomTX |
| RumbleOn Fulfillment - Ocala | FL | | RideNow Powersports Lewisville* | TX |
| RumbleOn Fulfilment CenterIndian Motorcycle Daytona Beach#
| FL | | FreedomRideNow Powersports Weatherford* | TX |
| Indian Motorcycle Daytona BeachRideNow Powersports Ocala | FL | | FreedomRideNow Powersports McKinney* | TX |
| Indian Motorcycle Ocala | FL | | RideNow Austin | TX |
| RideNow Powersports Daytona Beach | FL | | RideNow Powersports Austin+8 | TX |
| RideNow Powersports Jacksonville | FL | | BMW Austin+8 | TX |
| RideNow Powersports Tallahassee | FL | | RideNow Powersports Forney | TX |
| RideNow Powersports JacksonvilleWarhorse Harley-Davidson | FL | | RideNow Powersports Georgetown | TX |
| Warhorse Harley-DavidsonRideNow Powersports Canton | FLGA | | Rattlesnake Mountain Harley-Davidson | WA |
| FreedomRideNow Powersports CantonMcDonough* | GA | | RideNow Powersports Tri-Cities | WA |
| | Freedom Powersports McDonough* | GA | | |
| (*) Location included in the 2023 failed sale-leaseback transaction and is being accounted for as a finance lease. |
| | | | | (+) These locations share the same building with one of our other dealerships. |
| (*)(#) Owned property, subject to lien. All our other properties are leased. | |
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any material legal proceedings as set forth in Item 103 of Regulation S-K, other than ordinary routine litigation incidental to our business.
As previously disclosed, the Company is conducting an investigation of certain allegations surrounding Marshall Chesrown’s use of Company resources. The investigation remains ongoing and as of the date of this filing, the Company has made no final determination as to what action to take. On July 7, 2023, Mr. Chesrown provided the Board a letter of resignation (the “Resignation Letter”) describing Mr. Chesrown’s disagreement with several recent corporate governance, disclosure and other actions taken by the Company, the Board and certain of its members, and indicated his intent to pursue legal claims. The Company disagrees with the characterization of the allegations and assertions described in the Resignation Letter. The Company and Mr. Chesrown conducted a pre-suit mediation in October 2023, as required in his employment agreement, but did not resolve the matter. On March 13, 2021, Plaintiff William Miller voluntarily dismissed without prejudice a previously2024, Mr. Chesrown filed complaintsuit against the Company in Delaware Superior Court for the claims asserted in his Resignation Letter. Mr. Chesrown is seeking a declaratory judgment that he resigned with good reason, termination compensation damages in the amount of $7.5 million, general and its Boardreputational damages in connection with the RideNow Transaction.amount of $50 million, punitive damages, attorney's fees and litigation costs. We intend to defend these claims vigorously; however, we can provide no assurance regarding the outcome of this matter.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
Market Information
As of October 29, 2017, ourOur Class B Common Stock has beenis listed on the Nasdaq Global Select Market (“NASDAQ”) under the symbol “RMBL.” Before October 29, 2017, our common stock traded on the OTCQB Market under the symbol “RMBL,” and before January 1, 2017, our common stock was not traded, except for 250 shares, which traded on the OTC Markets Pink Sheets on January 22, 2016.
Holders of Common Stock
As of April 5, 2022,March 18, 2024, we had approximately 32050 stockholders of record of 15,930,74035,153,241 outstanding shares of Class B Common Stock and two holders of record of 50,000 outstanding shares of Class A Common Stock.
Dividends
We have never declared or paid any cash dividends. We currently do not intend to pay cash dividends in the foreseeable future on the shares of common stock. We intend to reinvest any earningearnings in the development and expansion of our business. Any cash dividends in the future to common stockholders will be payable when, as and if declared by our board of directors, based upon the Board's assessment. Therefore, there can be no assurance that any dividends on the common stock will ever be paid.
ITEM 6. [RESERVED.]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
\This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying notes included in this 20212023 Form 10-K. Unless differences among reportable segments are material to an understanding of our business taken as a whole, we present the discussion in this MD&A on a consolidated basis. Terms not defined in this MD&A have the meanings ascribed to them in the Consolidated Financial Statements. All dollarsUnless otherwise noted, comparisons are reported in thousands, except per share and per unit amounts.
Organization
RumbleOn was incorporated in October 2013 underof results for the laws ofyear ended December 31, 2023 (2023 or “this year”) to those for the State of Nevada as SmartServer, Inc. In 2016, following the acquisition of SmartServer by RumbleOn founders Marshall Chesrown and Steven Berrard, we changed our name to RumbleOn, Inc. Since that time, we have grown our business through organic development and strategic acquisitions into the first and only true Omnichannel powersports retailer. Headquartered in the Dallas Metroplex, RumbleOn is revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more people, in more places than ever before.year ended December 31, 2022 (2022 or “last year”).
Overview
RumbleOn, Inc. operates primarily through two operating segments: our powersports dealership group and Wholesale Express, LLC (“Express”), a vehicle transportation services provider. We were incorporated in 2013. We have grown primarily through acquisitions, the largest to date being our 2021 acquisition of the RideNow business followed by our 2022 acquisition of the Freedom Powersports, LLC (“Freedom Powersports”) and Freedom Powersports Real Estate, LLC (together with Freedom Powersports, the “Freedom Entities”). These acquisitions added 54 powersports dealerships to our Company.
Powersports Segment
Our powersports segment is the nation’s first technology-based Omnichannel marketplacelargest powersports retail group in the United States (as measured by reported revenue, major unit sales and dealership locations), offering a wide selection of new and pre-owned motorcycles, all-terrain vehicles (“ATV”), utility terrain or side-by-side vehicles (“SXS”), personal watercraft (“PWC”), snowmobiles, and other powersports leveraging proprietary technology to transform theproducts. We also offer parts, apparel, accessories, finance & insurance products and services, and aftermarket products from a wide range of manufacturers. Additionally, we offer a full suite of repair and maintenance services. As of December 31, 2023, we operated 54 retail locations consisting of over 500 powersports supply chain from acquisitionfranchises (representing 52 different brands of supply through distribution of retailmotorcycles, ATVs, SXSs, PWCs, snowmobiles, and wholesale. RumbleOn provides an unparalleled technology suiteother powersports products) in Alabama, Arizona, California, Florida, Georgia, Kansas, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Texas, and ecommerce experience, national footprint of physical locations, and full-line manufacturer representation to transform the entire customer experience. Our goal is to integrate the best of both the physical and the digital, and make the transition between the two seamless.Washington.
We buy and sell new and used vehicles through multiple company-owned websites and affiliate channels, as well assource high quality pre-owned inventory online via our proprietary cash offer tool and network of more than 41 company-owned retail locations at December 31, 2021 primarily located in the Sunbelt. Deepening our presence in existing markets and expanding into new markets through strategic acquisitions helps perpetuate our flywheel. Our cash offerCash Offer technology, brings in high quality inventory, which attracts more riders and drives volume in used unit sales. This flywheel enablesallows us to quickly and effectively gain market share. As a result of our growth to date, RumbleOn enjoys a leading, first-mover position in the highly fragmented $100 billion+purchase pre-owned units directly from consumers.
Our powersports market.
RumbleOn’s powersports business offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and all other powersports products, parts, apparel, and accessories. Facilitating our platform, RumbleOn’s retail distribution locations represent all major manufacturers, or OEMs, and their representative brands, including those listed below.
| | | | | | | | |
RumbleOn’sPowersports’ Representative Brands |
| Alumacraft | HondaHurricane Boats | Sea-DooSki-Doo |
| Argo | IndianHusqvarna | SlingshotSoul E Bikes |
| Benelli | Indian Motorcycles | Specialized (bicycles) |
| Blazer Boats | Karavan Trailers | Speed/UTV |
| BMW | Kawasaki | SSR |
BMWCan-Am | Kayo Sports | Suzuki |
Can-Am | KTM | TideWaterSTACYC (electric) |
| CF Moto | KTM | Suzuki |
| Club Car | Lynx (Snowmobiles) | Tidewater Boats |
| Continental Trailers | MAGICTILT Trailers | Timbersled (snow bikes) |
| Crevalle Boats | Manitou | Triton Trailers |
| Cub Cadet | Manitou (pontoon boats) | Triumph |
| Ducati | Mercury (boat engines) | Wellcraft (boats) |
| Gas-Gas | Polaris | VanderhallYamaha |
| Godfrey Pontoon Boats | Royal Enfield | Yamaha Marine |
| Harley-Davidson | RykerScarab | YamahaZero Motorcycles |
| Hisun | ScarabSea-Doo | SpyderZieman Trailers |
| Honda | Segway Powersports | |
| | |
RumbleOn leverages technology
Vehicle Transportation Services Segment
Express provides asset-light transportation brokerage services facilitating automobile transportation primarily between and data to streamline operations, improve profitability, and drive lifetime engagement by offering a best-in-class customer experience with unmatched Omnichannel capabilities. Our Omnichannel platform offers consumers the fastest, easiest, and most transparent transactions available in powersports. RumbleOn customers have access to the most comprehensive powersports vehicle offering, including the ability to buy, sell, trade, and finance online, in store at any of our bricks-and-mortar locations, or both. RumbleOn offers financing solutions for consumers; trusted physicalamong dealers.
Discontinued Operations
Through June 30, 2023, we participated in the automotive industry through our wholly owned wholesale distributor of pre-owned automotive inventory, Wholesale, Inc., and service locations; online or in-store instant cash offers, and access to pre-owned inventory; and apparel, parts, service, and accessories. In addition to our powersports operations, we operateexotics retailer AutoSport USA, Inc., which operated under the name Got Speed. We began winding this business down in complementary businesses including the brokeragethird quarter of vehicle transportation and the wholesale distribution2022. The results of this automotive business.segment are reported as discontinued operations. See Note 19-Discontinued Operations for more information.
KEY OPERATING METRICS
We regularly review a number of key operating metrics to evaluate our segments, measure our progress, and make operating decisions. Our key operating metrics reflect what we believe will be the primary drivers of our business, including increasing brand awareness, maximizing the opportunity to source vehicles from consumers and dealers, and enhancing the selection and timing of vehicles we make available for sale to our customers. Our key operating metrics also enhance management’s ability to translate this information into sales through multiple sales channels. The Key Operations Metrics table below includes the results of the RideNow Entities exclusively from August 31, 2021 (the “Acquisition Date”) through December 31, 2021. Please note that RideNow’s results prior to the Acquisition Date are not reflected in the presentation below. The Acquired Entities have certain lines of business, including new vehicle sales, material finance and insurance revenue, and parts and service revenue, that RumbleOn did not have prior to the RideNow Transaction. As such all increases in these line items are exclusively the result of the acquisition and the reader should note that most period-over-period dollar comparisons (as opposed to per unit amounts) are materially impacted by the introduction of the new business (the “Acquisition Effect”)
Powersports and Automotive SegmentsSegment
Revenue
Revenue of is comprised of powersports vehicle sales, finance and insurance products bundled with retail vehicle sales (“F&I”), and parts, service and accessories/merchandise (“PSA”).We sell both new and pre-owned powersports vehicles through retail and wholesale channels. F&I and PSA revenue is almost exclusively earned through retail channels. Automotive sales are almost exclusively via wholesaleRetail channels and therefore, contribute to a very small portion of F&I revenue. These sales channels provide us the opportunity to maximize profitability throughby increased sales volume and lower average days to sale and are impacted by selling through the channel where the opportunity is the greatest at any given time based on customer demand, market conditions and inventory availability. The wholesale channel provides the opportunity to move excess inventory or inventory availability.that does not meet our needs for retail. The number of vehicles sold to any given channel may varyvaries from period to period due to these factors. Subject to the lingering impact of COVID-19 and the resulting Demand/Supply Imbalances, as discussed elsewhere in this MD&A, we expect pre-owned vehicle sales to increase as we begin to utilize a combination of brand building and direct response channels to efficiently source and scale our addressable markets while expanding our suite of product offerings to consumers who may wish to trade-in or to sell us their vehicle independent of a retail sale. Factors primarily affecting pre-owned vehicle sales include inventory levels and the availability of inventory, as well as the number of retail pre-owned vehicles sold and the average selling price of these vehicles.
Gross Profit
Gross profit generated on vehicle sales reflects the difference between the vehicle selling price and the cost of revenue associated with acquiring the vehicle and preparing it for sale. Cost of revenue includes the vehicle acquisition cost, inbound transportation cost, and particularly for pre-owned vehicles, reconditioning costs (collectively, we refer to reconditioning and transportation costs as “Recon and Transport”).costs. The aggregate gross profit and gross profit per vehicle vary across vehicle type, make, model, etc. as well as through retail and wholesale channels, and with regard to gross profit per vehicle, are not necessarily correlated with the sale price. Vehicles sold through retail channels generally have the highest dollar gross profit per vehicle given the vehicle is sold directly to the consumer.Pre-owned vehicles soldthrough wholesale channels, including directly to other dealers or through auction channels, including via our dealer-to-dealdealer-to-dealer auction market, generally have lower margins and do not includeenable any other ancillary gross profit attributable to financing and accessory.accessories. Factors affecting gross profit from period to period include the mix of new versus usedpre-owned vehicles sold, the distribution channel through which they are sold, the sources from which we acquired such inventory, retail market prices, our average days to sale, and our pricing strategy. We may opportunistically choose to shift our inventory mix to higher or lower cost vehicles, or to opportunistically raise or lower our prices relative to market to take advantage of Demand/Supply Imbalancesdemand/supply imbalances in our sales channels, which could temporarily lead to gross profits increasing or decreasing in any given channel.
Vehicles Sold
We define vehicles sold as the number of vehicles sold through bothretail and wholesale and retail channels in each period, net of returns.period. Vehicles sold is the primary driver of our revenue and indirectly, gross profit. Vehicles sold also enablesimpacts complementary revenue streams, such as financing.financing and accessories. Vehicles sold increases our base of customers and improves brand
awareness and repeat sales. Vehicles sold also provides the opportunity to successfully scale our logistics, fulfillment, and customer service operations.
Total Gross Profit per Unit
Total gross profit per unit is the aggregate gross profit of the Companypowersports segment in a given period, divided by retail powersports units sold in that period includingperiod. The aggregate gross profit of the powersports segment includes gross profit generated from the sale of the new and usedpre-owned vehicles, any income related to the origination of loans originated to finance the vehicle, revenue earned from the sale of F&I products including extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, gross profit on the sale of PSA products, and gross profit generated from wholesale sales of vehicles.
Vehicle LogisticsTransportation Services Segment
Revenue
Revenue is derived from freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The freight brokerage agreements are fulfilled by independent third-party transporters who must meet our performance obligations and standards. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. In the normal course of operations, Wholesale Express also providesprovided transportation services to Wholesale, Inc. prior to the wind down of Wholesale, Inc. Express provided an immaterial amount of transportation services to our powersports segment.
Vehicles Delivered
We define vehicles delivered as the number of vehicles delivered from a point of origin to a designated destination under freight brokerage agreements with dealers, distributors, or private parties. Vehicles delivered are the primary driver of revenue and, in turn, profitability in the vehicle logisticstransportation services segment.
Total Gross Profit Per Unit
Total gross profit per vehicle transported represents the difference between the price received from non-affiliated customers and our cost to contract an independent third-party transporter divided by the number of third partythird-party vehicles transported.
Results of Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | $ Change | | % Change |
| Revenue | | | | | | | |
| Powersports vehicles | $ | 951.4 | | | $ | 1,033.9 | | | $ | (82.5) | | | (8.0) | % |
| Parts, service, accessories | 241.8 | | | 247.6 | | | (5.8) | | | (2.3) | % |
| Finance and insurance, net | 117.0 | | | 123.4 | | | (6.4) | | | (5.2) | % |
| Vehicle transportation services | 56.2 | | | 54.0 | | | 2.2 | | | 4.1 | % |
| Total revenue | 1,366.4 | | | 1,458.9 | | | (92.5) | | | (6.3) | % |
| Gross Profit | | | | | | | |
| Powersports vehicles | 118.9 | | | 194.2 | | | (75.3) | | | (38.8) | % |
| Parts, service, accessories | 110.3 | | | 112.2 | | | (1.9) | | | (1.7) | % |
| Finance and insurance | 117.0 | | | 123.4 | | | (6.4) | | | (5.2) | % |
| Vehicle transportation services | 13.7 | | | 11.9 | | | 1.8 | | | 15.1 | % |
| Total Gross Profit | 359.9 | | | 441.7 | | | (81.8) | | | (18.5) | % |
| SG&A expenses | 347.3 | | | 354.5 | | | (7.2) | | | (2.0) | % |
| Impairment of goodwill and franchise rights | 60.1 | | | 324.3 | | | (264.2) | | | (81.5) | % |
| Depreciation and amortization | 22.0 | | | 23.0 | | | (1.0) | | | (4.3) | % |
| Operating Loss | (69.5) | | | (260.1) | | | 190.6 | | | (73.3) | % |
| Non-operating income (expense): | | | | | | | |
| Interest expense | (77.2) | | | (52.1) | | | (25.1) | | | 48.2 | % |
| Other income (expense) | (8.4) | | | 4.2 | | | (12.6) | | | NM |
| Forgiveness of PPP loan | — | | | 2.5 | | | (2.5) | | | (100.0) | % |
| Loss from continuing operations before income taxes | (155.1) | | | (305.5) | | | 150.4 | | | (49.2) | % |
| Income tax provision (benefit) - continuing operations | 59.3 | | | (72.0) | | | 131.3 | | | NM |
| Loss from continuing operations | $ | (214.4) | | | $ | (233.5) | | | $ | 19.1 | | | (8.2) | % |
NM = not meaningful.
Results of Operations
Year Ended December 31, 2021 Compared to December 31, 2020
| | | | | | | | | | | | | | | | | | | | |
| RumbleOn Total Company Metrics | |
| | | | Year Ended December 31, | |
| | | | 2021 | 2020 | YoY
Change |
| Total Company | | Financial Overview ($ in 000s) | Revenue | | | |
| Powersports | $ | 323,303 | | $ | 46,654 | | $ | 276,649 | |
| Automotive | 460,888 | | 337,085 | | 123,803 | |
| Vehicle logistics | 43,878 | | 31,816 | | 12,062 | |
| Parts and service and other | 66,969 | | — | | 66,969 | |
| Finance and insurance | 43,402 | | 872 | | 42,530 | |
| Total revenue | 938,440 | | 416,427 | | 522,013 | |
| Gross Profit | | | |
| Powersports | 58,431 | | 6,594 | | 51,837 | |
| Automotive | 30,746 | | 28,284 | | 2,462 | |
| Vehicle logistics | 9,600 | | 7,616 | | 1,984 | |
| Parts and service and other | 30,267 | | — | | 30,267 | |
| Finance and insurance | 29,133 | | 872 | | 28,261 | |
| Total Gross Profit | $ | 158,177 | | $ | 43,366 | | $ | 114,811 | |
| Effect of the Nashville Tornado | $ | — | | $ | (1,215) | | $ | 1,215 | |
| Gross Profit reported in the consolidated statements of operations (1) | $ | 158,177 | | $ | 31,627 | | $ | 126,550 | |
| Total SG&A Expenses | $ | 164,077 | | $ | 53,659 | | $ | 110,418 | |
| Operating Loss | $ | (8,868) | | $ | (18,560) | | $ | 9,692 | |
| Net Loss | $ | (9,725) | | $ | (24,999) | | $ | 15,274 | |
| Adjusted EBITDA (2) | $ | 31,013 | | $ | (5,791) | | $ | 36,804 | |
| | | | | |
| Unit Metrics | Vehicles Sold | | | |
| Retail | 16,154 | | 458 | | 15,696 | |
| Wholesale | 18,612 | | 17,566 | | 1,046 | |
| Total Vehicles Sold | 34,766 | | 18,024 | | 16,742 | |
| Revenue per Unit Sold | | | |
| Retail | $ | 18,516 | | $ | 13,541 | | $ | 4,975 | |
| Wholesale | $ | 28,395 | | $ | 21,542 | | $ | 6,853 | |
| Other | $ | 3,330 | | $ | 1,991 | | $ | 1,339 | |
| Total Revenue | $ | 26,993 | | $ | 23,330 | | $ | 3,663 | |
| Gross Profit per Unit | | | |
| Retail | $ | 4,520 | | $ | 5,114 | | $ | (594) | |
| Wholesale | $ | 2,433 | | $ | 1,902 | | $ | 531 | |
| Other | $ | 1,147 | | $ | 1,904 | | $ | (757) | |
| Total Gross Profit | $ | 4,550 | | $ | 2,425 | | $ | 2,125 | |
_________________________
(1)Automotive gross profit for the year ended December 31, 2020 included an inventory reserve adjustment on $7,879 related to the Nashville Tornado.
(2)Adjusted EBITDA is a supplemental measure of operating performance that does not represent and should not be considered an alternative to net loss or cash flow from operations, as determined by GAAP. We believe that Adjusted EBITDA is a useful measure to us and to our investors because it excludes certain financial and capital structure items that we do not believe directly reflect our core operations and may not be indicative of our recurring operations, in part because they may vary widely across time and within our industry independent of the performance of our core operations. See the section titled “Adjusted EBITDA” below for a reconciliation of Adjusted EBITDA to Net Loss.
Revenue
Total revenue for 2023 was $92.5 million lower than in 2022, primarily due to the decline in revenue from powersports vehicles sold, partially offset by higher revenue from vehicle revenue increased by $522,013 to $938,440 fortransportation services. Sales prices and the year ended December 31, 2021quantity of vehicles sold were more consistent with pre-pandemic levels as compared to $416,427 in 2020. The Acquisition Effect specific to new vehicles, F&I and PAS revenue accounted for approximately $279,131 of the increase, with $169,632 of new vehiclelast year’s pandemic-driven sales which the Company did not sell before the RideNow Transaction. On a unit basis, the Company sold 16,742 more vehicles in 2021 than in 2020, again, primarily related to the Acquisition Effect.levels.
Gross Profit
Gross profit increaseddecreased in total by $114,811 during the year ended December 31, 2021$81.8 million in 2023 compared to 2020,the prior year, driven collectively by the Acquisition Effectlower level of significantly morerevenue from powersports vehicles, sales, an increase in the average selling price perpartially offset by higher gross profit from vehicle and an increase in the gross margin dollars per unit sold.transportation services. Gross profit increase were evident across all businesses, including both new and used powersport vehicle sales, F&I, PAS, automotive, and transportation and logistics. The Acquisition Effect was also impacted by a $12.6 million write-down of certain pre-owned powersports vehicles to their net realizable value, as selling prices generally came down from their inflated values driven by the primary driverpandemic-related shortage of the powersport vehicle gross profit, while Demand/Supply Imbalances drove automotive gross profit as well as vehicle logistics and transportation gross profit.supply.
Segment Operating Performance
Year Ended December 31, 2021 Compared to December 31, 2020
| | | | | | | | | | | | | | | | | | | | |
| RumbleOn Powersports Metrics | |
| | | | Year Ended December 31, | |
| | | | 2021 | 2020 | YoY
Change |
| | | | | | |
| | | | | | |
| Powersports | | Revenue $ in 000s) | New retail vehicles | $ | 169,632 | | $ | — | | $ | 169,632 | |
| Used vehicles | | | |
| Used vehicles retail | 86,072 | | 5,330 | | 80,742 | |
| Wholesale | 67,599 | | 41,324 | | 26,275 | |
| Total used vehicle revenue | 153,671 | | 46,654 | | 107,017 | |
| Finance and insurance | 43,402 | | 872 | | 42,530 | |
| Parts and service and other | 66,969 | | — | | 66,969 | |
| Total revenue | $ | 433,674 | | $ | 47,526 | | $ | 386,148 | |
| | | | | |
| Gross Profit ($ in 000s) | New retail vehicles | $ | 33,278 | | $ | — | | $ | 33,278 | |
| Used vehicles | | | |
| Retail | 10,609 | | 1,470 | | 9,139 | |
| Wholesale | 14,545 | | 5,124 | | 9,421 | |
| Total used vehicle gross profit | 25,154 | | 6,594 | | 18,560 | |
| Finance and insurance | 29,133 | | 872 | | 28,261 | |
| Parts and service and other | 30,267 | | — | | 30,267 | |
| Total gross profit | $ | 117,832 | | $ | 7,466 | | $ | 110,366 | |
| | | | | |
| Vehicle Sales | New retail vehicles | 10,555 | 0 | 10,555 |
| Used vehicles | | | |
| Retail | 5,599 | 458 | 5,141 |
| Wholesale | 6,231 | 4,825 | 1,406 |
| Used vehicle | 11,830 | 5,283 | 6,547 |
| Total vehicles sold | 22,385 | 5,283 | 17,102 |
| | | | | |
| Revenue per vehicle | New retail vehicles | $ | 16,071 | | $ | — | | $ | 16,071 | |
| Used vehicles | | | |
| Retail | 15,373 | | 11,638 | | 3,735 | |
| Wholesale | 10,849 | | 8,745 | | 2,104 | |
| Used vehicle | 12,990 | | 8,831 | | 4,159 | |
| Finance and insurance | 2,687 | | 1,905 | | 782 | |
| Parts and service and other | 4,146 | | — | | 4,146 | |
| Total revenue per retail vehicle | $ | 22,662 | | $ | 13,541 | | $ | 9,121 | |
| | | | | |
| Gross Profit per vehicle | New vehicle | $ | 3,153 | | $ | — | | $ | 3,153 | |
| Used vehicle | 2,126 | | 3,210 | | (1,084) | |
| Finance and insurance | 1,803 | | 1,904 | | (101) | |
| Parts and service | 1,874 | | — | | 1,874 | |
| Total gross profit per retail vehicle (1) | $ | 6,394 | | $ | 5,114 | | $ | 1,280 | |
Powersports
| | | | | | | | | | | | | | |
| ($ in millions except per vehicle) | 2023 | 2022 | Change | % Change |
| | | | |
| | | | |
| Revenue | | | | |
| New retail vehicles | $ | 658.5 | | $ | 641.0 | | $ | 17.5 | | 2.7 | % |
| Pre-owned vehicles | | | | |
| Retail | 260.9 | | 371.7 | | (110.8) | | (29.8) | % |
| Wholesale | 32.0 | | 21.2 | | 10.8 | | 50.9 | % |
| Total pre-owned vehicles | 292.9 | | 392.9 | | (100.0) | | (25.5) | % |
| Finance and insurance, net | 117.0 | | 123.4 | | (6.4) | | (5.2) | % |
| Parts, service and accessories | 241.8 | | 247.6 | | (5.8) | | (2.3) | % |
| Total revenue | $ | 1,310.2 | | $ | 1,404.9 | | $ | (94.7) | | (6.7) | % |
| | | | |
| Gross Profit | | | | |
| New retail vehicles | $ | 95.0 | | $ | 125.8 | | $ | (30.8) | | (24.5) | % |
| Pre-owned vehicles | | | | |
| Retail | 27.1 | | 67.4 | | (40.3) | | (59.8) | % |
| Wholesale | (3.3) | | 0.9 | | (4.2) | | (466.7) | % |
| Total pre-owned vehicles | 23.8 | | 68.3 | | (44.5) | | (65.2) | % |
| Finance and insurance, net | 117.0 | | 123.4 | | (6.4) | | (5.2) | % |
| Parts, service and accessories | 110.3 | | 112.2 | | (1.9) | | (1.7) | % |
| Total gross profit | $ | 346.2 | | $ | 429.8 | | $ | (83.6) | | (19.5) | % |
| | | | |
| Vehicle Units Sold | | | | |
| New retail vehicles | 45,706 | 41,649 | 4,057 | 9.7 | % |
| Pre-owned vehicles | | | | |
| Retail | 21,840 | 28,151 | (6,311) | (22.4) | % |
| Wholesale | 5,116 | 3,613 | 1,503 | 41.6 | % |
| Total pre-owned vehicles | 26,956 | 31,764 | (4,808) | (15.1) | % |
| Total vehicles sold | 72,662 | 73,413 | (751) | (1.0) | % |
| | | | |
| Revenue per vehicle | | | | |
| New retail vehicles | $ | 14,407 | | $ | 15,390 | | $ | (983) | | (6.4) | % |
| Pre-owned vehicles | | | | |
| Retail | 11,945 | | 13,204 | | (1,259) | | (9.5) | % |
| Wholesale | 6,263 | | 5,882 | | 381 | | 6.5 | % |
| Total pre-owned vehicles | 10,866 | | 12,371 | | (1,505) | | (12.2) | % |
| Finance and insurance, net | 1,733 | | 1,768 | | (35) | | (2.0) | % |
| Parts, service and accessories | 3,580 | | 3,547 | | 33 | | 0.9 | % |
| Total revenue per retail vehicle | $ | 18,923 | | $ | 19,823 | | $ | (900) | | (4.5) | % |
| | | | |
| Gross Profit per vehicle | | | | |
| New vehicles | $ | 2,080 | | $ | 3,021 | | $ | (941) | | (31.1) | % |
| Pre-owned vehicles | 883 | | 2,151 | | (1,268) | | (58.9) | % |
| Finance and insurance, net | 1,733 | | 1,768 | | (35) | | (2.0) | % |
| Parts, service and accessories | 1,633 | | 1,608 | | 25 | | 1.6 | % |
Total gross profit per vehicle(1) | 5,125 | | 6,157 | | (1,032) | | (16.8) | % |
____________________(1)Per vehicle values calculated Calculated as revenue ortotal gross profit as applicable, divided by its respectivenew and pre-owned retail powersports units sold, except the other and total categories which are divided by total used units sold.
Total powersports vehicle revenue increasedin 2023 for decreased by $386,148 to $433,674 for the year ended December 31, 2021$94.7 million compared to $47,526 in 2020. The Acquisition Effect specific to new2022, with 751 fewer vehicles F&I and PAS revenue accounted for approximately $169,632, $42,530, and $66,969, respectively, of the increase;sold. During 2023, the Company did not sell new vehicles prior to the RideNow Transaction. The total number of vehicles sold increased by 17,102 to 22,385 for the year ended December 31, 2021, driven primarily from the Acquisition Effect; new vehicle sales accounted for 10,555 of the increase, used units increased by 6,547. It is notable that 78.5% of the used unit increase is to retail consumers, whoearned, on average, pay over $2,700$12,660 more in total revenue per vehicle from retail customers than wholesale customers. Overall, the average revenue per vehicle increaseddecreased by $9,121 from $13,541 to $22,662,$900, much of which is attributable to higher price pointlevels continuing to normalize to pre-pandemic levels as demand/supply imbalances softened in the overall market. The record levels of revenue in 2022 benefited from high demand and limited supply, which led to premium retail pricing, as was seen generally throughout the industry.
As disclosed last year, average revenue per vehicle was a relatively high number in 2022 given historical trends for the business, which we attributed to a combination of product mix and elevated pricing of both new and pre-owned vehicles like UTVs and side-by-sides. We anticipate that unit purchasing levels and sales will continue to grow as we increase penetration in existing markets, build out fulfillment centers and acquire new dealers.
Gross Profitgiven the demand/supply imbalance.
Powersports vehicle gross profit increaseddecreased by $110,366 for the year ended December 31, 2021$83.6 million in 2023 compared to 2020. This2022, and was impacted by a $12.6 million write-down of inventory to net realizable value in the fourth quarter of 2023, as certain pre-owned inventory that was acquired at elevated prices and selling prices had returned to more normal, pre-pandemic levels. Macroeconomic conditions were the primary driver of the decrease in gross profit per unit, as the demand/supply imbalance and impacts of the COVID-19 pandemic continued to soften throughout 2023, resulting in more competitive market pricing.
Vehicle Transportation Services
| | | | | | | | | | | | | | |
| 2023 | 2022 |
Change | % Change |
Revenue ($ in millions) | $ | 56.2 | | $ | 54.0 | | $ | 2.2 | | 4.1 | % |
Gross Profit ($ in millions) | 13.7 | | 11.9 | | 1.8 | | 15.1 | % |
| Vehicles transported | 91,774 | 84,187 | 7,587 | 9.0 | % |
| Revenue per vehicle transported | $ | 612 | | $ | 642 | | $ | (30) | | (4.7) | % |
| Gross Profit per vehicle transported | 149 | | 141 | | 8 | | 5.7 | % |
Total revenue for vehicle transportation services increased $2.2 million for 2023 compared to 2022 due to growth in number of vehicles transported. Gross profit for this segment in 2023 increased 15.1%, as compared to the prior year amounts, driven by the increase in vehicles transported and an increase in gross profit was primarily due to the Acquisition Effect; $33,278 was specific to new vehicles, $18,560 was due to used vehicles sales and F&I, and PAS collectively accounted for $58,528 of the increase. Gross Profit per vehicle increased $1,280 per unit, from $5,114 in 2020 to $6,394 in 2021. The Acquisition Effect was the primary driver of this, as all new vehicle sales fell into this category, however F&I and parts and service represent new revenue channels for the Company in 2021 after the RideNow Transaction.vehicle.
Year Ended December 31, 2021 Compared to December 31, 2020
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| RumbleOn Automotive Metrics | |
| Automotive | | | | Year Ended December 31, | |
| | 2021 | 2020 | YoY
Change |
| | Revenue | $ | 460,888 | | $ | 337,085 | | $ | 123,803 | |
| Gross Profit (1) | $ | 30,746 | | $ | 28,284 | | $ | 2,462 | |
| | Vehicles sold | 12,381 | 12,741 | (360) |
| Revenue per vehicle | $ | 37,225 | | $ | 26,457 | | $ | 10,768 | |
| | Gross Profit per vehicle | $ | 2,483 | | $ | 2,220 | | $ | 263 | |
(1) Total Gross profit per vehicle retailed is calculated by dividing the sum of new vehicle, used vehicle, and finance, and insurance gross profit by total retail vehicle unit sales.
Revenue
Total automotive vehicle revenue increased by $123,803 to $460,888 for the year ended December 31, 2021 compared to $337,085 for 2020 despite a 2.8% decrease in the total number of automotive units sold to 12,381. The revenue per vehicle in 2021 benefited from the Demand/Supply Imbalances, while the corresponding period was materially impacted by the Nashville Tornado and the effect of shelter-in-place orders and other responses to COVID-19.
Gross Profit
Automotive vehicle gross profit increased by $2,462 to $30,746 for the year ended December 31, 2021 compared to $28,284 in 2020. A 2.8% decrease in the number of automotive vehicles sold was more than offset by a 11.9% increase in the gross profit per automotive vehicle sold to $2,483.
Year Ended December 31, 2021 Compared to December 31, 2020
| | | | | | | | | | | | | | | | | | | | |
| RumbleOn Logistics Metrics | |
| Logistics | | | | Year Ended December 31, | |
| | 2021 | 2020 | YoY
Change |
| | Revenue | $ | 48,804 | | $ | 35,887 | | $ | 12,917 | |
| Gross Profit | $ | 9,600 | | $ | 7,616 | | $ | 1,984 | |
| | Vehicles transported | 84,540 | 61,314 | 23,226 |
| | Revenue per vehicle transported | $ | 577 | | $ | 585 | | $ | (8) | |
| | Gross Profit per vehicle transported | $ | 114 | | $ | 124 | | $ | (10) | |
Revenue
Total revenue increased by $12,917 or 36.0% to $48,804 for the year ended December 31, 2021 compared to $35,887 in 2020. The increase in total revenue resulted from the transport of 84,540 vehicles at revenue per vehicle transported of $577 compared to revenue from the transport of 61,314 vehicles at a revenue per vehicle transported of $585 in 2020.
In the normal course of operations, the Company utilizes transportation services of its vehicle logistics and transportation services segment. For the years ended December 31, 2021 and 2020, intercompany freight services provided by Wholesale Express was $4,925 and $4,071, respectively and was eliminated in the consolidated financial statements.
Gross Profit
Total gross profit for the year ended December 31, 2021 increased $1,984 or 26.1% to $9,600, or $114 per vehicle transported, as compared to $7,616 or $124 per vehicle transported in 2020. The increased gross profit was attributed to an increase in the number of vehicle transported offset by slightly lower revenue per vehicle transported and gross profit per vehicle transported.
Year Ended December 31, 2021 Compared to December 31, 2020
Selling, General and Administrative Expense(“SG&A”) Expenses
Selling, general and administrativeSG&A expenses include costs and expenses for compensation and benefits, advertising and marketing, developmentdeveloping and operating our product procurement and distribution system, managingleasing and operating our logistics system,facilities, and other corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business development. Selling, general
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | $ Change | | % Change |
| Compensation and related costs | $ | 199.5 | | | $ | 209.1 | | | $ | (9.6) | | | (4.6) | % |
| Facilities | 44.5 | | | 42.1 | | | 2.4 | | | 5.7 | % |
| General and administrative | 43.5 | | | 35.8 | | | 7.7 | | | 21.5 | % |
| Advertising and marketing | 29.4 | | | 30.8 | | | (1.4) | | | (4.5) | % |
| Professional fees | 13.2 | | | 24.0 | | | (10.8) | | | (45.0) | % |
| Stock based compensation | 12.0 | | | 9.4 | | | 2.6 | | | 27.7 | % |
| Technology development and software | 5.2 | | | 3.3 | | | 1.9 | | | 57.6 | % |
| Total SG&A Expenses | $ | 347.3 | | | $ | 354.5 | | | $ | (7.2) | | | (2.0) | % |
During 2023, the Company identified a total of $60 million annualized SG&A expense reductions that were partially implemented throughout 2023. We expect to see the full effects of the SG&A expense reductions in 2024, driven by headcount reductions that occurred in 2023, subleases of unused facilities, and administrativecost restructuring at our dealerships.
We realized some of the expense reductions in 2023 that were partially offset by costs for other activities, resulting in SG&A expenses will continuebeing lower overall by $7.2 million in 2023. Compensation and related costs in 2023 includes some of the benefits from our identified cost savings initiatives that were offset partially by $5.3 million of personnel restructuring costs and $5.1 million of costs related to increasea proxy contest and reorganization of our board of directors. Included in future periods as we execute2022 SG&A expenses were professional fees and aggressively expandother costs incurred to close our business through increased marketing spendingacquisition of the Freedom Entities and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controlsintegrate this business as well as our reporting systemsthe RideNow business, which was acquired in 2021. SG&A expenses in 2022 included $8.4 million related to the settlement of disputes and procedures, but we anticipate they will decline as a percentageclaims with former minority shareholders of sales revenue.
| | | | | | | | | | | | | | | | | |
| December 31, | | YOY |
| 2021 | | 2020 | | Change |
| Compensation and related costs | $ | 63,473 | | | $ | 22,756 | | | $ | 40,717 | |
| Stock based compensation | 29,219 | | | 2,978 | | | 26,241 | |
| Advertising and marketing | 14,425 | | | 5,287 | | | 9,138 | |
| Professional fees | 4,714 | | | 3,148 | | | 1,566 | |
| Technology development and software | 1,992 | | | 1,421 | | | 571 | |
| Facilities | 9,568 | | | 2,837 | | | 6,731 | |
| General and administrative | 40,686 | | | 15,232 | | | 25,454 | |
| Total SG&A Expenses | $ | 164,077 | | | $ | 53,659 | | | $ | 110,418 | |
Selling, general and administrative expenses increased by $110,418 for the year ended December 31, 2021 compared to 2020. In each case other than technology development and software, the increases were the result of the Acquisition Effect,RideNow.
with over 1,800 additional employees, marketing initiatives at the store level, general
Impairment of Goodwill and administrative costs associated with a larger team, and lease/facility expense relatedIntangible Assets
The noncash impairment charge resulting from our annual impairment testing was $60.1 million in 2023 compared to 40+ new locations from the RideNow Transaction. In the case of technology and development,$324.3 million in the third quarter of 2021 we began some strategic technology projects focused on inventory management, infrastructure, and integration efforts. Notwithstanding the preceding, both the Nashville Tornado2022. These charges and the nationwide economic slowdown of COVID-19 lateestimates involved are discussed further in the first quarter of 2020 lasting until the spring of 2021, resulted in artificially lower costs incurred in 2020.Critical Accounting Policies and Note 7-Goodwill and Intangible Assets.
Depreciation and Amortization
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | Change | | % Change |
| Depreciation and amortization | $ | 22.0 | | | $ | 23.0 | | | $ | (1.0) | | | (4.3) | % |
Depreciation and amortization increased by $3,960was $1.0 million lower in 2023. The amount for 2023 included the write off of certain software, totaling $4.0 million, due to $6,103 forchanges in strategy and cost savings measures. Partially offsetting the year ended December 31, 2021 compared to $2,143 for 2020. The increase in depreciation andwrite off was $2.7 million lower amortization is a resultof non-compete agreements, as some of the cumulative investments made in connection with the development of the business which included capitalized technology acquisition and development costs of $1,266 and $2,707 in additions to property and equipment for theagreements from prior year ended December 31, 2021 as compared to $1,887 of capitalized technology acquisition and development costs and $3,530 in additions to property and equipment for the year ended December 31, 2020. For the year ended December 31, 2021, amortization of capitalized technology development was $1,710 as compared to $1,887 for the same period of 2020. Depreciation and amortization on vehicle, furniture, equipment and leasehold improvements was $210 as compared to $256 for the same period of 2020.acquisitions became fully amortized.
Interest Expense
Interest expense increased $9,955 to $16,405 for the year ended December 31, 2021 compared to $6,450 in 2020. Interest expense consists of interest on the: (i) term loan credit agreement (the “Oaktree Credit Facility”); (ii) various floorplan facilities; (iii) private placement notes; and (iv) convertible senior notes. | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | Change | | % Change |
| Interest expense, net | $ | 77.2 | | | $ | 52.1 | | | $ | 25.1 | | | 48.2 | % |
The increase in interest expense for the year ended December 31, 20212023, as compared to the same period of 20202022, is primarily attributable to higher interest on our term loan credit agreement, including the impact of prepayment fees, and floorplan notes. In addition, the volume of borrowings was higher on the floorplan notes. See Note 9-Debt for additional information about our debt.
Other Income (Expense)
| | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | Change |
| Loss on sale of ROF loan portfolio | $ | (7.9) | | | $ | — | | | $ | (7.9) | |
| Gain on sale of dealership | — | | | 3.9 | | | (3.9) | |
| Other | (0.5) | | | (0.5) | | | — | |
| Other income (expense) | $ | (8.4) | | | $ | 4.2 | | | $ | (12.6) | |
In 2023 we sold the RumbleOn Finance (“ROF”) loan portfolio at a loss, and in 2022 we sold a dealership in Louisiana for a gain.
Forgiveness of Paycheck Protection Program (“PPP”) Loans
In 2020, the Company and certain of its wholly owned subsidiaries entered into loan agreements and related promissory notes to receive U.S. Small Business Administration (“SBA”) loans pursuant to the RideNow Transaction,PPP established under the Coronavirus Aid, Relief and Economic Security Act. The remaining balance of PPP loans attributable to continuing operations of $2.5 million was forgiven by the SBA during 2022 and is reflected as “Forgiveness of PPP loan” on the Consolidated Statement of Operations.
Income Tax Provision (Benefit) from Continuing Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | Change | | % Change |
| Income tax provision (benefit) | $ | 59.3 | | | $ | (72.0) | | | $ | 131.3 | | | (182.4) | % |
| Effective tax rate | (38.3) | % | | 23.6 | % | | | | |
Income tax expense increased in 2023 primarily due to a $92.9 million increase in the valuation allowance and the improvement in the pre-tax loss from continuing operations, which resulted in a negative effective tax rate, as we borrowed $280,000 in new debtrecorded income tax expense on the Closing Datea loss from the Oaktree Credit Facility and RideNow had various floorplan facilities with powersports manufacturers. The Company assumed floorplan facilities as part of the RideNow Transaction, which were used throughout the year ended December 31, 2021 to finance the purchase of inventory. Seecontinuing operations before income taxes. For further discussion, see Note 9—Notes Payable and Lines of Credit for additional discussion.13-Income Taxes.
Seasonality
Historically, both the powersports and automotive industries haveindustry has been seasonal with traffic and sales strongest in the spring and summer quarters. Sales and traffic are typically slowest in the winter quarter but increase typically in the spring season, coinciding with tax refunds and improved weather conditions. Given this seasonality, we expect our quarterly results of operations, including our revenue, gross profit, profit/loss, and cash flow, to vary accordingly. Over time, we expect to normalize to seasonal trends in both segments, using data and logistics to move inventory to the right place, at the right time, at the right price.
Loss Contingencies and Insurance Recoveries
On March 3, 2020, a severe tornado damaged the Company's Nashville facilities, and the Company incurred the following losses: (1) inventory, assessed by the insurance carrier at approximately $13,000; (2) building and personal property assessed by the insurance carrier at $2,783; and (3) loss of business income, for which the company has coverage in the amount of $6,000.
The Company's inventory claim is subject to a litigation with the carrier as to the policy limits applicable to the loss; however, the insurer has, to date, advanced $8,750, $3,135 of which was funded in 2021, against the final settlement. The insurer has agreed to pay the full $2,778 limit, net of deductible, on the building and personal property loss and to date has advanced $2,270 to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation, however, the insurer has advanced $250 against the final settlement during the year ended December 31, 2020. The Company will continue to pursue the claims but can make no assurance that additional amounts will be recovered.
During the year ended December 31, 2020, the Company recorded an impairment loss on inventory of $11,738 comprised of $4,454 for vehicles that were a total loss and $7,284 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the consolidated statements of operations. Advances made against the final settlement of the inventory claim have been recorded as a separate component of operating loss in the Consolidated Statement of Operations in the period in which received.
Derivative Liability
In connection with our various financings, we undertake an analysis of each financial instrument to determine the appropriate accounting treatment, including which, if any require bifurcation into liability and equity components; we have determined that the following financings have such components:
Convertible Senior Notes
In connection with the issuance of the Convertible Senior Notes, a derivative liability was recorded at issuance with an interest make whole provision of $21 based on a lattice model using a stock price of $14.60, and estimated volatility of 55.0% and risk-free rates over the entire 10-year yield curve.
The change in value of the derivative liability for the year ended December 31, 2021 and 2020 was approximately $49 and $11, respectively, and is included in change in derivative liability in the Consolidated Statement of Operations. The value of the derivative liability as of December 31, 2021 and 2020 was approximately $66 and $17, respectively.
Oaktree Warrant
In connection with providing the debt financing for the RideNow Transaction, and pursuant to the commitment letter executed on March 15, 2021, the Company issued warrants to purchase $40,000 of shares of Class B common stock to Oaktree Capital Management, L.P. and its lender affiliates (the “Warrant”). The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 inputs. Upon closing of the RideNow Transaction, the warrants were considered equity linked contracts indexed to the Company’s stock and therefore met the equity classification guidance. As a result, the $19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the debt discount related to the Oaktree Credit Agreement. The recognition of the warrant liability and deferred financing charge and the reclassification of the warrant liability to additional paid-in capital and the reclassification of the deferred financing charge to debt discount are non-cash items.
Stock-Based Compensation
In connection with the closing of the RideNow Transaction and the execution of the certain Executive Employment Agreements, the Company accelerated the vesting of and waived certain market-based share price hurdles for all then outstanding restricted stock units (“RSUs”) for all participants, which resulted in excess of $23,943 of incremental stock-based compensation for the year ended December 31, 2021.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income (loss) or net income (loss) as a measure of operating performance or cash flows or as a measure of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to U.S. GAAP.
Adjusted EBITDA is defined as net income (loss) adjusted to add back interest expense (including debt extinguishment), depreciation and amortization, interest income and miscellaneous income, changes in derivative liabilities and certain recoveries, income tax benefits, and other non-recurring costs, as these recoveries, charges and expenses are not considered a part of our core business operations and are not an indicator of ongoing, future company performance.
Adjusted EBITDA is one of the primary metrics used by management to evaluate the financial performance of our business. We present Adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. Further, we believe it is helpful in highlighting trends in our operating results, because it excludes, among other things, certain results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure and capital investments.
For the years ended December 31, 2021 and 2020, adjustments to calculating Adjusted EBITDA are primarily comprised of:
•Impairment loss on inventory and plant and equipment resulting from the Nashville Tornado and the related proceeds received from the Company’s insurance carriers,
•Non-cash stock-based compensation expense recorded in the Consolidated Statement of Operations,
•Acquisition costs associated with the RideNow Transaction, which primarily include professional fees and third-party costs,
•Other non-reoccurring costs, which include one-time expenses incurred. For the year ended December 31, 2021, approximately $1,342 was incurred for compensation to the estate of Steven R. Berrard, the Company’s former Chief Financial Officer,
•Paycheck Protection Program (“PPP”) loan forgiveness, which includes loan principal balances forgiven by the Small Business Administration (“SBA”), and
•Purchase accounting adjustments, primarily comprised of the valuation adjustments for inventory acquired as part of the RideNow Transaction which increased the cost of revenue included in the Consolidated Statement of Operations.
The following tables reconcile Adjusted EBITDA to net loss for the periods presented:
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| | December 31, | | |
| | 2021 | | 2020 | | | | |
| Net loss | | $ | (9,725) | | | $ | (24,999) | | | | | |
| Add back: | | | | | | | | |
| Interest expense (including debt extinguishment) | | 16,405 | | | 6,450 | | | | | |
| Depreciation and amortization | | 6,103 | | | 2,143 | | | | | |
| Change in derivative liabilities | | 8,799 | | | (11) | | | | | |
| Income tax benefit | | (21,665) | | | — | | | | | |
| EBITDA | | (83) | | | (16,417) | | | | | |
| Adjustments: | | | | | | | | |
| Impairment loss on automotive inventory | | — | | | 11,738 | | | | | |
| Impairment loss on plant & equipment | | — | | | 178 | | | | | |
| Insurance proceeds | | (3,135) | | | (5,615) | | | | | |
| Stock based compensation | | 29,219 | | | 2,978 | | | | | |
| Acquisition costs associated with the RideNow Transaction | | 4,281 | | | — | | | | | |
| Other non-reoccurring costs | | 2,025 | | | 1,347 | | | | | |
| PPP loan forgiveness | | (2,682) | | | — | | | | | |
| Purchase accounting related | | 1,388 | | | — | | | | | |
| Adjusted EBITDA | | $ | 31,013 | | | $ | (5,791) | | | | | |
Pro Forma Adjusted EBITDA
The following supplemental pro forma information presents pro forma financial results as if the RideNow Transaction was completed at January 1, 2020.
Add backs and adjustments to calculating Pro Forma Adjusted EBITDA are consistent with the adjustments used to calculate Adjusted EBITDA. For the years ended December 31, 2021 and 2020, pro forma EBITDA adjustments primarily represent the amortization of debt fees and gross profit on intercompany transactions on a pro-forma basis.
| | | | | | | | | | | | | | | | | | |
| | December 31, | | |
| | 2021 | | 2020 | | | | |
| Net income | | $ | 45,565 | | | $ | 18,914 | | | | | |
| Add back: | | | | | | | | |
| Interest expense (including debt extinguishment) | | 40,347 | | | 47,312 | | | | | |
| Depreciation and amortization | | 13,199 | | | 13,607 | | | | | |
| Interest income and miscellaneous income | | (1,389) | | | (1,967) | | | | | |
| Change in derivative liabilities | | 8,799 | | | (10) | | | | | |
| Income tax benefit | | (2,706) | | | 6,305 | | | | | |
| EBITDA | | 103,815 | | | 84,161 | | | | | |
| Adjustments: | | | | | | | | |
| Impairment loss on automotive inventory | | — | | | 11,738 | | | | | |
| Impairment loss on plant & equipment | | — | | | 178 | | | | | |
| Insurance proceeds | | (3,135) | | | (4,810) | | | | | |
| Stock based compensation | | 29,219 | | | 3,175 | | | | | |
| Acquisition costs associated with the RideNow transaction | | 4,281 | | | — | | | | | |
| Other non-reoccurring costs | | 2,025 | | | 1,347 | | | | | |
| PPP loan forgiveness | | (21,721) | | | — | | | | | |
| Purchase accounting related | | 1,388 | | | — | | | | | |
| Adjusted EBITDA | | 115,872 | | | 95,789 | | | | | |
| Pro Forma Adjustments | | 2,525 | | | 124 | | | | | |
| Pro Forma Adjusted EBITDA | | 118,397 | | | 95,913 | | | | | |
Liquidity and Capital Resources
Our primary sources of liquidity are available cash and amounts available under our floor plan lines of credit. We had the following liquidity resources available at the end of 2023 and 2022:
| | | | | | | | | | | |
| ($ in millions) | December 31, |
| 2023 | | 2022 |
| Cash | $ | 58.9 | | | $ | 46.8 | |
Restricted cash(1) | 18.1 | | | 10.0 | |
| Total cash and restricted cash | 77.0 | | | 56.8 | |
| Availability under powersports inventory financing credit facilities | 165.0 | | | 137.5 | |
| Total available liquidity | $ | 242.0 | | | $ | 194.3 | |
(1) Amounts included in restricted cash are primarily comprised of the deposits required under the Company’s various floorplan lines of credit and monetizationRumbleOn Finance line of our retail loan portfolio. During the year ended December 31, 2021, we completed two public offerings that provided net proceeds of $191,000 and obtained the Oaktree Credit Facility, which initially provided net proceeds of $261,000 that was used to finance a portion of the cash consideration for the RideNow Transaction. As of December 31, 2021, the Oaktree Credit Facility provides for up to $120,000 in additional financing that may be used for acquisitions and up to an additional $100,000 in incremental financing that may be used for acquisitions and working capital purposes. On February 18, 2022, in conjunction the acquisition of Freedom Powersports, the Company drew down $83,400 against the Oaktree Credit Facility.credit.
Our financial statements reflect estimates and assumptions made by management that affect the carrying values of the Company’s assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. The judgments, assumptions and estimates used by management are based on historical experience, management’s experience, and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ materially from these judgments and estimates, which could have a material impact on the carrying values of the Company’s assets and liabilities and the results of operations. We will continue to evaluate the nature and extent of the impact to our business and our results of
operations and financial condition as conditions evolve as a result of the COVID-19 pandemic and the resulting Demand/Supply Imbalances.
The Company's consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which assumes the continuity of operations, the realization of assets and the satisfaction of liabilities as they come due in the normal course of business. Management believes that current working capital, results of operations, and existing financing arrangements are sufficient to fund operations for at least one year from the financial statement date.
We had the following liquidity resources available as of December 31, 2021 and December 31, 2020:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Cash | $ | 48,974 | | | $ | 1,467 | |
Restricted cash (1) | 3,000 | | 2,049 | |
| Total cash and restricted cash | 51,974 | | | 3,516 | |
| Availability under short-term revolving facilities | 124,116 | | | 2,188 | |
| Committed liquidity resources available | $ | 176,090 | | | $ | 5,704 | |
(1) Amounts included in restricted cash represent the deposits required under the Company's short-term revolving facilities. The Company may need to obtain additional financing to support its long range plans.
As of December 31, 2021,2023 and 2020,2022, excluding operating lease liabilities, and the derivative liability,which are discussed in Note 10-Leases, the outstanding principal amount of indebtedness was $384,585 and $53,109, respectively,is summarized in the table below. See Note 9-Notes Payable and Lines of Credit, Note 10-Convertible Notes, and Note 11-Stockholders Equity9-Debt to our consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data of this 20212023 Form 10-K for further information on our debt.
| | December 31, |
| 2021 | | 2020 |
| Asset-Based Financing: | | | |
| Inventory | $ | 97,278 | | | $ | 17,812 | |
| December 31, | | | December 31, |
| ($ in millions) | | ($ in millions) | 2023 | | 2022 |
| Asset-based financing: | |
Floor lines for inventory(1) | |
Floor lines for inventory(1) | |
Floor lines for inventory(1) | |
| Total asset-based financing | Total asset-based financing | 97,278 | | | 17,812 | |
| Term loan facility | Term loan facility | 279,300 | | | — | |
| Secured notes payable | — | | | 2,391 | |
| Unsecured senior convertible notes | Unsecured senior convertible notes | 39,006 | | | 39,774 | |
| PPP and other loans | 4,472 | | | 5,177 | |
| Finance lease obligation | |
| Notes payable | |
RumbleOn Finance secured loan facility(2) | |
| Total debt | Total debt | 420,056 | | | 65,154 | |
| Less: unamortized discount and debt issuance costs | (35,471) | | | (12,045) | |
| Less: unamortized debt discount and issuance costs | |
| Total debt, net | Total debt, net | $ | 384,585 | | | $ | 53,109 | |
(1) The 2022 amount shown includes $5.3 million of floor line debt for the discontinued automotive segment that was repaid during 2023. This amount was reported in current liabilities of discontinued operations on the Consolidated Balance Sheet as of December 31, 2022.
(2) Amount was fully repaid on January 2, 2024.
The following table sets forth a summary of our cash flows.flows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Net cash (used in) provided by operating activities | $ | (32,177) | | | $ | 17,143 | |
| Net cash used in investing activities | (378,831) | | | (2,282) | |
| Net cash provided by (used in) financing activities | 459,466 | | | (18,071) | |
| Net increase (decrease) in cash | $ | 48,458 | | | $ | (3,210) | |
| | | | | | | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 | | Change |
| Net cash used in operating activities of continuing operations | $ | (38.9) | | | $ | (46.7) | | | $ | 7.8 | |
| Net cash used in investing activities of continuing operations | (19.1) | | | (82.2) | | | 63.1 | |
| Net cash provided by financing activities of continuing operations | 78.2 | | | 136.2 | | | (58.0) | |
| Net cash used in discontinued operations | (1.8) | | | (0.7) | | | (1.1) | |
| Net increase in cash and restricted cash | $ | 18.4 | | | $ | 6.6 | | | $ | 11.8 | |
Operating Activities
Our primary sources of operating cash flows from continuing operations result from the sales of new and pre-owned powersports vehicles and ancillary products. Our primary uses of cash from operating activities are purchases of inventory, parts and merchandise, cash used to acquire customers, technology development,interest payments on long-term debt and trade floor plans, rental costs for facilities, and personnel-related expenses. For the year ended December 31, 2021,2023, net cash used in operating activities of $32,177 was an increase of $49,320$38.9 million decreased by $7.8 million compared to net cash provided by operating activities of $17,143 in 2020. The increase in our net cash used in operating activities of $46.7 million in 2022. Operating cash flows in 2023 benefited from our receipt of principal payments of ROF loans being higher than our originations of loans receivables but was primarily due to: (i) an outflow of $45,732 in operating assetsnegatively impacted by lower revenue and liabilities, primarily in vehicle inventory, other assets, and accounts receivable and (ii) an adjustment in the valuation of the deferred taxes of $22,545; partially offset by a decrease in our net loss of $15,274 and the recognition of the stock based compensation expense of $29,219.higher interest payments.
Investing Activities
Our primary use of cash for investing activities is for technology developmentacquisitions and acquisitionsinvestments to expandsupport our operations. Cash used in investing activities for the year ended December 31, 20212023 was $378,831, an increase$19.1 million, a decrease of $376,549$63.1 million compared to 2020. The increase in cash used in investing activities results from (i)2022, primarily due to the 2021 acquisition of RideNow, (ii) additional purchase of property and equipment of $5,646 to expand our operations, and (iii) an outflow of $1,871Freedom Powersports in technology development during the year ended December 31, 2021 as compared to 2020.2022.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term debt activity and proceeds from equity issuances, which have been used to provide working capital and for general corporate purposes, including paying down our short-term revolving facilities. Cash provided bydebt.
Key financing activities was $459,466 for the year ended December 31, 2021 compared to net cash used in financing activities of $18,071 for 2020. The $477,537 increase in cash provided by financing activities for the year ended December 31, 2021 as compared to the same period of 2020 was a result of: (i) an increase in2023 included raising net proceeds of $261,451 received$98.4 million from our rights offering, generating $50.0 million from the senior secured debt; (ii) proceedssale-leaseback transaction of $191,241 received from sale of common stockeight properties acquired in April 2021the Freedom Powersports transaction, and August 2021; and (iii) ana $42.5 million increase in borrowings from non-trade floor plans. In addition, we used $111.7 million of $17,187 on the floor plan lines of credit; partially offset by the repayment of notes payable.
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likelyour cash to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Subsequent Events
Acquisition of Freedom Powersports
On February 18, 2022, the Company closed on the acquisition of Freedom Powersports, which included all business and real estate assets, subject to customary net working capital and indebtedness adjustments, for an aggregate consideration of approximately $129,971. The aggregate consideration consisted of approximately $83,291 for the Freedom Powersports business and approximately $46,680 for acquired real estate properties,repay debt, including the payoff of outstanding mortgage debt on the real estate assets in the aggregate amount of approximately $27,025. The aggregate consideration was paid using cash on hand, $84,500 drawn from the Company’s delayed draw facility under the Oaktree Credit Facility, and the issuance of 1,048,718 restricted shares of RumbleOn Class B common stock. The restricted shares are subject to a six-month lock-up and resale registration rights.
Funding of RumbleOn’s Consumer Finance Subsidiary
On February 4, 2022, ROF SPV I, LLC (“ROF SPV”), an indirect subsidiary of RumbleOn, entered into a secured loan facility primarily to provide up to $25,000. All loans under this agreement will be secured by certain collateral including the consumer finance loans purchased by ROF SPV.
ROF SPV and ROF provided customary representations and covenants under the agreements which include financial covenants and collateral performance covenants. Loans sold to or in the facility are subject to certain eligibility criteria, concentration limits and reserves.lease payments.
Related Party Software License
On January 19,
Key financing activities in 2022 the Audit Committee approved,included debt issuances of $109.5 million, an increase in non-trade floor plan borrowings totaling $77.9 million, and the Company entered into both a Perpetual Software License Purchase Agreement, and a Platform Service Agreement with Bidpath Incorporated, a Company owned by Adam Alexander, a memberrepayment of the Company’s Board$51.2 million of Directors. The license agreement provides the Company with a perpetual, non-exclusive license to the then-current source code as well as all future source code. This code provides additional functionality to the Company’s inventory management platform, and the Company is paying in aggregate $3,600, of which $1,080 has been paid to date, The services agreement provides for support and maintenance services on a monthly basis for $30 per month. The initial terms is thirty-six (36) months but can be terminated by either party upon sixty (60) days notice to the other party.
Appointment of Chief Financial Officer
On February 1, 2022, the Company appointed Narinder Sahai as the Company’s Chief Financial Officer.
Change in Executive Officers
On February 11, 2022, William Coulter, a director and the Executive Vice Chairman of the Company, and Mark Tkach, a director and the Chief Operating Officer of the Company, resigned from all positions with the Company. The Company appointed Peter Levy, the President of the Company, to also serve as Chief Operating Officer of the Company.
Repayment of Convertible Note
On January 31, 2022, the Company made its final scheduled payment on the convertible note entered into on February 3, 2019 in connection of the acquisition of AutoSport. The carrying amount on the Company’s balance sheet as of December 31, 2021 was $154.debt.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles ("GAAP"(“GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.
Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies and estimates whichthat we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below. Refer to Note 1 — Description of Business and Summary of Significant Accounting Policies of the consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this 20212023 Form 10-K, for more detailed information regarding our critical accounting policies.
Revenue Recognition
We adopted ASC 606, Revenue from Contracts with Customers on January 1, 2018recognize revenue using the modified retrospective method. ASC 606 prescribes a five-step model that includes: (1) identify the contract; (2) identify the performance obligations; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when (or as) performance obligations are satisfied. Based on the manner in which we historically recognized revenue, the adoption of ASC 606 did not have a material impact on the amount or timing of our revenue recognition, and we recognized no cumulative effect adjustment upon adoption.
For powersports vehicles sold at wholesale to dealers, we satisfy our performance obligation for vehicles sales when the wholesale purchaser obtains control of the underlying vehicle, which is upon delivery when the transfer of title, risks and rewards of ownership and control pass to the dealer. We recognize revenue at the amount we expect to receive for the pre-owned vehicle, which is the fixed price determined at the auction. The purchase price of the wholesale vehicle is typically due and collected within 30 days of delivery of the wholesale vehicle.
For powersports vehicles sold to consumers, the purchase price is set forth in the customer contracts at a stand-alone selling price which is agreed upon prior to delivery. We satisfy our performance obligation for pre-owned vehicle sales upon delivery when the transfer of title, risks and rewards of ownership and control pass to the customer. We recognize revenue at the agreed upon purchase price stated in the contract, including any delivery charges, less an estimate for returns. Our return policy allows customers to initiate a return during the first three days after delivery. Estimates for returns are based on an analysis of historical experience, trends and sales data. Changes in these estimates are reflected as an adjustment to revenue in the period identified.charges. The amount of consideration received for pre-owned vehicle sales to consumers includes noncash consideration representing the value of trade-in vehicles, if applicable, as stated in the contract. Prior to the delivery of the vehicle, the payment is received, or financing has been arranged. Payments from customers thatwho finance their purchases with third parties are typically due and collected within 30 days of delivery of the pre-owned vehicle. In future periods additional provisions may be necessary due to a variety of factors, including changing customer return patterns due to the maturation of the online vehicle buying market, macro- and micro-economic factors that could influence customer return behavior, and future pricing environments. If these factors result in adjustments to sales returns, they could significantly impact our future operating results. Revenue excludeexcludes any sales taxes, title and registration fees, and other government fees that are collected from customers.
Vehicle logisticstransportation services revenue is generated primarily by entering into freight brokerage agreements with dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. The transaction price is based on the consideration specified inas agreed upon with the customer's contract.customer. A performance obligation is created when the customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These performance obligations are satisfied as the shipments move from origin to destination. The freight brokerage agreements are fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these transporters are obligated to meet our performancefulfillment obligations and standards. PerformanceFulfillment obligations are short-term, with transit days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and rewards of transportation of thewhen vehicle is transferreddelivered to the owner during delivery. Wholesaleowner. Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded gross.
Inventory
Inventory is stated at the lower of Inventory
Pre-owned vehicle inventorycost or net realizable value. The cost of new and pre-owned powersports vehicles is accounted for pursuant to ASC 330, determined using the specific identification method. Inventory and consists of a pre-owned vehicles primarily acquired from consumers andvehicle includes the cost to acquire and recondition a pre-ownedthe vehicle. Reconditioning costs are billedis generally performed by third-party providersthe service departments in our dealerships and includes parts, labor, and other repair expenses directly attributable to a specific vehicle. Intercompany mark-up is eliminated in consolidation. Transportation costs are expensed as incurred. Pre-owned inventory is stated at the lower of cost or net realizable value. Vehicle inventory cost is determined by specific identification. Net realizable value is based on the estimated selling price less costs to complete, dispose and transport the vehicles. Selling prices are derived from historical data and trends, such as sales price and inventory turn data of similar vehicles, as well as independent market resources. Each reporting period, the Company recognizes any necessary adjustments to reflect pre-owned vehicle inventory at the lower of cost or net realizable value, which isvalue. Such adjustments are recognized in cost of revenue on our consolidated statement of operations.
During the periods following the COVID-19 pandemic, the Company proactively secured pre-owned vehicles to meet accelerated demand during a challenging supply chain environment experienced by the industry. The imbalances in supply and demand caused increases in the cost to acquire pre-owned vehicles. As the availability of new powersports vehicles returned to pre-COVID levels, certain of the Company’s pre-owned vehicles were valued higher than net realizable value. We determined that a $12.6 million write down was required to adjust vehicles to net realizable value during the fourth quarter of 2023, as pricing of powersports units had stabilized compared to the volatility experienced in past periods.
Business Combinations
Total consideration transferred for acquisitions is allocated to the tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and other fair value adjustments with respect to certain assets acquired and liabilities assumed. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. While we use our Consolidated Statementsbest estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon conclusion of Operations.the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded with an offset to our consolidated statements of operations.
We use the income approach to determine the fair value of certain identifiable intangible assets including franchise rights. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, etc. We base the discount rate used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased franchise rights and non-compete intangible asset amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.
Refer to Note 2-Acquisitions for further discussion of the Company’s business combinations.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of December 31st,October 1, or whenever events or changes in circumstances indicate that an impairment may exist.
We have threetwo reportable segments, operating segments, and reporting units, as defined in generally accepted accounting principlesGAAP for segment reporting:reporting and goodwill testing: (1) powersports and (2) automotive and (3) vehicle logistics,transportation services, each of which is separately evaluated for purposes of goodwill testing. We first review qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount; if we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then our goodwill is not considered to be impaired. However, if based on the qualitative assessment we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we elect to bypass the optional qualitative assessment as provided for under GAAP, we proceed with performing the quantitative impairment test.
Fair value estimates used in the quantitative impairment test are calculated using a combination of the income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches incorporate a number of market participant assumptions including future revenue growth rates, corresponding gross margins, the discount rate, income tax rates, implied control premium and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit's fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We recognize any impairment loss in operating income.
The fair value measurement associated with the quantitative goodwill and indefinite lived intangible assets test is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement. Significant changes in the underlying assumptions used to value goodwill and franchise rights could significantly increase or decrease the fair value estimates used for impairment assessments.
As disclosed in Note 7, the Company performed its annual goodwill impairment test as of December 31, 2021,October 1, 2023 and recognized a $23.1 million noncash goodwill impairment charge to its powersports reporting unit in the fourth quarter of 2023. The Company performedalso recognized a $37.0 million franchise rights impairment assessments by reviewing qualitative factors for eachcharge to the powersports reporting unit that resulted from the test as of its reporting units.October 1, 2023. The results of the assessments indicated that it was not more likely than notCompany determined that the fair value of the vehicle transportation services reporting units were greater than theunit exceeded its carrying valuesvalue and no goodwill impairment was determined to exist for the year ended December 31, 2021.required.
In connection with our goodwill impairment tests performed in the fourth quarter of 2022, we recognized noncash goodwill impairment losses of $26.0 million in the Company’s automotive reporting unit, which is reported in discontinued operations, and $218.6 million to our powersports reporting unit. The estimated fair value of the vehicle transportation services reporting unit exceeded its carrying value, and no impairment was indicated. The Company also recognized noncash franchise rights impairment losses of $105.6 million to its powersports reporting unit resulting from its impairment tests in 2022.
Newly Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial instruments — Credit Losses (Topic 326): MeasurementSee Note 1 -Description of Credit Losses on Financial Instruments (“ASU 2016-13”), which amends the guidance on the impairment of financial instruments by requiring measurementBusiness and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, and earlier adoption is permitted beginning in the first quarter of fiscal 2019. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases(Topic 842): Effective Dates (“ASU 2019-10”). The purpose of this amendment is to create a two-tier rollout of major updates, staggering the effective dates between larger public companies and all other entities. This granted certain classes of companies, including Smaller Reporting Companies (“SRCs”), additional time to implement major FASB standards, including ASU 2016-13. Larger public companies will still have an effective date for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are permitted to defer adoption of ASU 2016-13, and its related amendments, until the earlier of fiscal periods beginning after December 15, 2022. Under the current SEC definitions, the Company meets the definition of an SRC as of the ASU 2019-10 issuance date and is adopting the deferral period for ASU 2016-13.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying theSignificant Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 for its fiscal year beginning January 1, 2021 and it did not have a material effect on its consolidated financial statements.Policies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item in not applicable as we are currently considered a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Financial Statements and Financial Statement Schedules beginning on page F-1 of this 20212023 Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange"Exchange Act”)), that are designed to reasonably ensureprovide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executiveChief Executive Officer (“CEO”) and principal financial officer, or persons performing similar functions,Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, evaluated, with the participation of our Chief Executive Officer (“CEO”)CEO and Interim Chief Financial Officer (“CFO”),CFO, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021.2023. Based on that evaluation, our management concluded thatas of the end of the period covered by this report, our disclosure controls and procedures were not effective as of that date due to material weaknesses in our internal control over financial reporting as described below.
Management's Report on Internal Control Over Financial Reporting
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principlesGAAP in the United States.
Management evaluated the effectiveness of ourA company’s internal control over financial reporting asincludes those policies and procedures that: (1) pertain to the maintenance of December 31, 2021, usingrecords that, in reasonable detail, accurately and fairly reflect the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizationstransactions of the Treadway Commission (COSO)Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in 2013. Basedaccordance with U.S. GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized use or disposition of the Company’s assets that could have a material effect on this evaluation, our management determined that material weaknesses existed in ourthe financial statements.
Because of its inherent limitations, internal control over financial reporting related to:may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
•Information technology general controls particularly as such controls related to user access, program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of our financial statements.
•Controls over the period end close process, including the review and approval process of journal entries, balance sheet account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries.
•Documentation and design of controls over the recording and reconciliation of inventory.
•Review of key assumptions and estimates related to purchase accounting for significant acquisitions.
•The control environment, risk assessment, control activities, information and communication, and monitoring components of the Company’s internal control framework such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated in a timely manner.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of ourthe Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
We believe
Under the material weaknesses identified were caused bysupervision and with the participation of our management, including our CEO and CFO, as of December 31, 2023, management conducted an insufficient complementassessment of resources and personnel to facilitate an effective control environment, and a lackthe effectiveness of supporting tools necessary to implement and maintain policies and procedures or to identify and remediate deficiencies in the Company’s financial reporting and information technology processes.As a result, segregation of duties, transaction compilation, review and authorization, and general information technology components could not be relied upon to effectively achieve the Company’s internal control objectives.over financial reporting based on the framework established in “Internal Control—Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined the prior year material weakness described, we have concludedhas only been partially remediated, and that as of December 31, 2021, ourthe Company’s internal control over financial reporting was not effective.effective as of December 31, 2023 because of identified material weaknesses in our internal control over financial reporting described below.
Material Weaknesses Identified by Management
Management determined the following material weaknesses in internal control over financial reporting as of December 31, 2023.
•As previously disclosed, there was an insufficient number of accounting resources to facilitate an effective control environment following the integration of the RideNow business and incorporation of the acquired business into the Company’s control environment. Consequently, the Company did not effectively operate process-level control activities related to elimination of intercompany transactions; review and approval of account reconciliations, payroll, and journal entries; review and approval of accounting estimates; and execution and documentation of management review controls, including but not limited to evaluating debt covenants, and assumptions included in the Company’s annual indefinite-lived impairment assessment.
•In the areas of user access and segregation of duties related to certain information technology systems that support the Company’s financial reporting processes, resulting in ineffective journal entry and other manual controls.
As set forth below, management has taken and will continue to take steps to remediate the identified material weaknesses identified.identified as of December 31, 2023. Notwithstanding these material weaknesses, we have performed additional analyses and procedures to enable management to conclude that our consolidated financial statements included in this 20212023 Form 10-K fairly present in all material respects our financial condition and results of operations as of and for the year ended December 31, 2021.
You should also consider that we have excluded from our assessment of internal control over financial reporting the acquired RideNow entities in accordance with appropriate guidance from the SEC. These acquired entities comprise total assets of $879,035 (or 85.5% of total assets of the Company) and total revenue of $369,329 (or 39.2% of total revenue of the Company) included in our Consolidated Financial Statements as of and for the year ended December 31, 2021. For additional information about the RideNow Transaction, see Note 2—Acquisitions, in Item 8.Financial Statements and Supplementary Data of this 2021 Form 10-K.2023.
Our independent auditors, Dixon Hughes Goodman LLP (“DHG”)BDO USA, P.C., a registered public accounting firm, isare appointed by the Audit Committee of our Board of Directors. As a result of the material weaknesses described above, DHGBDO USA, P.C. has issued an adverse opinion on the effectiveness of our internal control over financial reporting as of December 31, 2021,2023, which appears in Item 8.Financial Statements and Supplementary Data of this 2021 Form 10-K.2023 Form10-K.
Management’s Remediation Plan
In response to the material weaknesses discussed above, we plan to continue and expand efforts already underway to remediate internal control over financial reporting, which include the following:
•In February 2022, we hired a new Chief Financial Officer.
•We have engaged third-partycontinue to be committed to hiring additional accounting resources to support our internal control testingwith the required technical expertise and remediation effortsclearly defined roles and act as subject matter experts, and we intend to bring in additional resources to oversee remediation efforts.responsibilities;
•We are incontinue to evaluate system enhancements to automate the processconsolidation and elimination of hiring a Head of Internal Audit, a senior level position reporting directly to the Audit Committee, to implement and oversee a newly established Internal Audit department.intercompany transactions;
•We are incontinue to enhance the overall review and approval process relating to elimination of hiring other keyintercompany transactions;
•We continue to enhance the review and approval controls related to reconciling certain accruals and accounting estimates and financial reporting positions, including a Director of Financial Reporting, to augment our accounting staff as needed. We believe these additional accounting personnel will enhance our compliance and oversight regarding internal control over financial reporting.assumptions;
•We are in the process of conducting a risk assessment over our internal control environment, and we are reviewing and prioritizing individual control deficiencies for remediation, including those which aggregated toadditional training on the above material weaknesses.Company’s document retention policies;
•We are inenhancing our processes around reviewing privileged access to key financial systems and ensuring appropriate segregation of duties; and
•We continue to enhance governance and reporting over the processexecution of documenting and executingthese remediation action items, including expansion of mitigating controls where appropriate.
•We are exploring tools to enhance and centralize general information technology components.
Management and our Audit Committee will monitor these specific remedial measures and the effectiveness of our overall control environment. TheA material weaknessesweakness will not be considered remediated,remediated; however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment.
Changes in Internal Control over Financial Reporting
Other than described above in Item 9A, Controls and Procedures, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021,2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
On April 4, 2022, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) (the “Rule”) because it had not timely filed this 2021 Form 10-K with the SEC. The Rule requires listed companies to timely file all required periodic financial reports with the SEC. The Company believes that it has regained compliance with the Rule as a result of filing this 2021 Form 10-K and will not need to submit a plan of compliance to Nasdaq.None.
ITEM 9C. DISCLOSURE9C. DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None.Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.2023.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.2023.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.2023.
Item 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES.
The information required by this item is incorporated by reference to RumbleOn’s Proxy Statement for its 20222024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the year ended December 31, 2021.2023.
PART IV
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES.
(a)We have filed the following documents as part of this 20212023 Form 10-K:
1.The financial statements listed in the "Index to Financial Statements" on page F-1 are filed as part of this report.
2.Financial statement schedules are omitted because they are not applicable, or the required information is shown in the financial statements or notes thereto.
3.Exhibits included or incorporated herein: See below.
| | | | | | | | |
| Exhibit Number | | Description |
| | Agreement and Plan of Merger, dated October 26, 2018, by and among RumbleOn, Inc., RMBL Tennessee, LLC, Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as representative, and for limited purposes, Marshall Chesrown and Steven R. Berrard. (Incorporated by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018). |
| | Amendment to the Agreement and Plan of Merger, dated October 29, 2018, by and among RumbleOn, Inc., RMBL Tennessee, LLC, Wholesale Holdings, Inc., Steven Brewster and Janet Brewster, Wholesale, LLC, and Steven Brewster as representative (Incorporated by reference to Exhibit 2.2 in the Company's Current Report on Form 8-K, filed on October 31, 2018). |
| | Membership Interest Purchase Agreement, dated October 26, 2018, by and among RumbleOn, Inc. Steven Brewster, Justin Becker, and Steven Brewster as representative. (Incorporated by reference to Exhibit 2.3 in the Company's Current Report on Form 8-K, filed on October 31, 2018). |
| | Plan of Merger and Equity Purchase Agreement, dated March 12, 2021 (Incorporated(incorporated by reference to Exhibit 2.1 in the Company's Current Report on Form 8-K, filed on March 15, 2021). |
| | Joinder and First Amendment to Plan of Merger and Equity Purchase Agreement, dated June 17, 2021 (Incorporated(incorporated by reference to Exhibit 2.2 in the Company’s Current Report on Form 8-K, filed on June 21, 2021). |
| | Second Amendment to Plan of Merger and Equity Purchase Agreement, dated July 20, 2021 (Incorporated(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on July 27, 2021). |
| | Membership Interest Purchase Agreement, dated November 8, 2021 (Incorporated(incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on November 9, 2021). |
| | Articles of Incorporation filed on October 24, 2013 (Incorporated(incorporated by reference to Exhibit 3(i)(a) in the Company's Registration Statement on Form S-1/A, filed on March 20, 2014). |
| | By-Laws, as Amended (Incorporated by reference to Exhibit 3.2 in the Company's Annual Report on Form 10-K, filed on February 14, 2017). |
| | Amendment to the Amended Bylaws of RumbleOn, Inc., dated August 31, 2021 (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on September 7, 2021). |
| | Amended and Restated Bylaws of RumbleOn, Inc., dated October 8, 2021 (Incorporated by reference to Exhibit 3.1 in the Company’s Current Report on Form 8-K, filed on October 8, 2021). |
| | Certificate of Amendment to Articles of Incorporation, filed on February 13, 2017 (Incorporated(incorporated by reference to Exhibit 3.3 in the Company's Annual Report on Form 10-K, filed on February 14, 2017). |
| | Certificate of Amendment to Articles of Incorporation, filed on June 25, 2018 (Incorporated(incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on June 28, 2018). |
| | Certificate of Designation for the Series B Preferred Stock (Incorporated(incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018). |
| | Certificate of Change (Incorporated(incorporated by reference to Exhibit 3.1 in the Company's Current Report on Form 8-K, filed on May 19, 2020). |
| | Certificate of Amendment. (IncorporatedAmendment (incorporated by reference to Exhibit 3.1 in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on August 4, 2021). |
| | Registration Rights Agreement,Amended and Restated Bylaws of RumbleOn, Inc., dated FebruaryOctober 8, 2017 (Incorporated2021 (incorporated by reference to Exhibit 10.23.1 in the Company's AnnualCompany’s Current Report on Form 10-K,8-K, filed on February 14, 2017)October 8, 2021). |
| | Amendment to Amended and Restated Bylaws of RumbleOn, Inc., dated May 9, 2023 (incorporated by reference to Exhibit 3.1 in the Company’s Current Report on Form 8-K, filed on May 10, 2023). |
| | Sample Stock Certificate – Class B Common Stock (Incorporated(incorporated by reference to Exhibit 4.4 in the Company's Registration Statement on Form S-1/A filed on September 27, 2017). |
| | FormDescription of Warrant to Purchase Class B Common Stock, dated October 18, 2017 (IncorporatedRegistrant's Securities (incorporated by reference to Exhibit 4.14.11 in the Company's CurrentAnnual Report on Form 8-K,10-K, filed October 24, 2017)on May 29, 2020). |
| | | | | | | | |
| | Form of 2023 Warrant, dated April 30, 2018 (IncorporatedAugust 14, 2023 (incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on May 1, 2018)August 17, 2023). |
| | Warrant to Purchase Class B Common Stock, dated October 30, 2018 (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on October 31, 2018). |
| | Indenture, dated January 14, 2020, between RumbleOn, Inc. and Wilmington Trust National Association (Incorporated by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on January 16, 2020). |
| | First Supplemental Indenture, dated August 31, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021). |
| | Form of 6.75% Convertible Senior Note due 2025 (included as Exhibit A to the Indenture filed as Exhibit 4.8) (Incorporated(incorporated by reference to Exhibit 4.2 in the Company's Current Report on Form 8-K, filed on May 15, 2019). |
| | Registration Rights Agreement, dated February 8, 2017 (incorporated by reference to Exhibit 10.2 in the Company's Annual Report on Form 10-K, filed on February 14, 2017). |
| | Form of Registration Rights Agreement, dated May 14, 2019 (Incorporated(incorporated by reference to Exhibit 4.3 in the Company's Current Report on Form 8-K, filed on May 15, 2019). |
| | | | | | | | |
| Exhibit Number | | Description |
| | Description of Registrant's Securities (IncorporatedRegistration Rights and Lock-Up Agreement, dated March 12, 2021 (incorporated by reference to Exhibit 4.11 in the Company's Annual Report on Form 10-K, filed on May 29, 2020). |
| | Warrant, dated March 12, 2021 (Incorporated by reference to Exhibit 4.110.3 in the Company's Current Report on Form 8-K, filed on March 15, 2021). |
| | Form of WarrantRegistration Rights and Lock-Up Agreement, dated November 8, 2021 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021). |
| | First Amendment to Warrant to Purchase Class B Common Stock, dated July 15, 2021 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 16,November 9, 2021). |
| # | 2017 RumbleOn, Inc. Stock Incentive Plan (Incorporated(incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on January 9, 2017). |
| # | Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. (Incorporated(incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on May 22, 2019). |
| | | | | | | | |
| | Form of Note Exchange & Subscription Agreement, dated January 10, 2020 (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on January 16, 2020)June 28, 2018). |
| | Form of Joinder & Amendment, dated January 10, 2020 (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on January 16, 2020). |
| | Form of Investor Note Exchange Agreement, dated January 10, 2020 (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K, filed on January 16, 2020). |
| | Form of New Investor Note, dated January 10, 2020 (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on January 16, 2020). |
| | Form of Security Agreement, dated January 14, 2020 (Incorporated by reference to Exhibit 10.5 in the Company's Current Report on Form 8-K, filed on January 16, 2020). |
| | COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and RumbleOn, Inc. (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on May 7, 2020). |
| | COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and Wholesale, Inc. (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on May 7, 2020). |
| | COVID-19 Stimulus Customer Agreement, dated May 1, 2020, by and between Wood & Huston Bank and Wholesale Express, LLC. (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K, filed on May 7, 2020). |
| | Paycheck Protection Program Note, dated May 1, 2020, executed by RumbleOn, Inc. (Incorporated by reference to Exhibit 10.4 in the Company's Current Report on Form 8-K, filed on May 7, 2020). |
| | Paycheck Protection Program Note, dated May 1, 2020, executed by Wholesale, Inc. (Incorporated by reference to Exhibit 10.5 in the Company's Current Report on Form 8-K, filed on May 7, 2020). |
| | Paycheck Protection Program Note, dated May 1, 2020, executed by Wholesale Express, LLC (Incorporated by reference to Exhibit 10.6 in the Company's Current Report on Form 8-K, filed on May 7, 2020). |
| # | Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on August 26, 2020). |
| | Secured Promissory Note, dated March 12, 2021 (Incorporated by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K, filed on March 15, 2021). |
| | Registration Rights and Lock-Up Agreement, dated March 12, 2021 (Incorporated by reference to Exhibit 10.3 in the Company's Current Report on Form 8-K, filed on March 15, 2021). |
| | Amended and Restated Secured Promissory Note, dated April 8, 2021 (IncorporatedPlan (incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K, filed on April 8, 2021)May 22, 2019). |
| | | | | | | | |
| # | Amendment to the RumbleOn, Inc. 2017 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 in the Company’s Current Report on Form 8-K, filed on August 26, 2020). |
| # | Fourth Amendment to RumbleOn, Inc. 2017 Stock Incentive Plan. (Incorporated(incorporated by reference to Exhibit 10.2 in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on August 4, 2021). |
| # | Credit Agreement, dated August 31, 2021 (incorporated by reference to Exhibit 10.1Fifth Amendment to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021).RumbleOn, Inc. 2017 Stock Incentive Plan.* |
| | First Supplemental Indenture, dated August 31, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 7 2021). |
| # | Executive Employment Agreement, dated August 31, 2021, between Marshall Chesrown and RumbleOn, Inc. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021). |
| # | Executive Employment Agreement, dated August 31, 2021, between William Coulter and RumbleOn, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021). |
| # | Executive Employment Agreement, dated August 31, 2021, between Mark Tkach and RumbleOn, Inc. (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021). |
| # | Executive Employment Agreement, dated August 31, 2021,January 19, 2023, between Peter LevyRumbleOn, Inc. and RumbleOn, Inc.Blake Lawson (incorporated by reference to Exhibit 10.610.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021)January 20, 2023). |
| # | Executive Employment Agreement, dated August 31, 2021,October 19, 2023, between Beverley RathMichael Kennedy and RumbleOn, Inc., (incorporated by reference to Exhibit 10.710.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 20, 2023). |
| | Cooperation Agreement, dated as of June 30, 2023, by and among RumbleOn, Inc., William Coulter, and Mark Tkach (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 6, 2023). |
| | Purchase Agreement, dated as of August 8, 2023, by and among the Company, Mark Tkach, William Coulter, and Stone House Capital Management, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 11, 2023). |
| # | Separation Agreement, dated July 14, 2023, by and between RumbleOn, Inc. and Michael Francis. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on July 20, 2023). |
| # | Special Advisor Agreement, dated July 14, 2023, by and between RumbleOn, Inc and Michael Francis (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on July 20, 2023). |
| | Amendment No. 1 to the Standby Purchase Agreement, dated as of November 20, 2023, by and among RumbleOn, Inc., Mark Tkach, William Coulter and Stone House Capital Management, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on November 22, 2023). |
| | Real Estate Purchase and Sale Contract, dated August 22, 2023, by and between NNN REIT, LP, as buyer and RumbleOn, Inc. as seller (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 28, 2023). |
| | Unitary Master Lease Agreement, dated September 8, 2023 (incorporated by reference to Exhibit 10.8 in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, filed on November 7, 2023). |
| | Credit Agreement, dated August 31, 2021 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2021). |
| | Registration RightsConsent and Lock-UpAmendment No. 3 to Term Loan Agreement, dated November 8, 2021February 18, 2022 (incorporated by reference to
Exhibit 10.1 toin the Company’s Current Report on Form 8-K filed with the SEC on February 22, 2022). |
| | Amendment No. 5 to the Term Loan Credit Agreement, dated August 9, 2023, by and among RumbleOn, Inc., the Subsidiary Guarantors party thereto, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed on August 9, 2023). |
| | | | | | | | |
| Exhibit Number | | Description |
| | Amendment No. 6 to the Term Loan Credit Agreement, dated October 31, 2023, by and among RumbleOn, Inc., the Subsidiary Guarantors party thereto, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent.* |
| # | Option Award Agreement between Michael Kennedy and RumbleOn, Inc., effective November 9, 2021)1, 2023.* |
| | Amendment No. 7 to the Term Loan Credit Agreement, dated February 5, 2024, by and among RumbleOn, Inc., the Subsidiary Guarantors party thereto, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent.* |
| | Letter re: change in certifying accountant (Grant Thornton LLP) (incorporated by reference to Exhibit 16.1 in the Company’s Current Report on Form 8-K filed with the SEC on May 25, 2023). |
| | Subsidiaries*Subsidiaries of the Company* |
| | Consent of Dixon Hughes Goodman LLP*BDO USA, P.C.* |
| | Consent of Grant Thornton LLP* |
| | Power of Attorney* |
| | Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| | | | | | | | |
| | Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
| | Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
| | Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** |
| | RumbleOn, Inc. Compensation Clawback Policy* |
| 101.INS | | Inline XBRL Instance Document.* |
| 101.SCG | | Inline XBRL Taxonomy Extension Schema.* |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase.* |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase.* |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase.* |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase.* |
| 104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)* |
| | | | | | | | |
| * | | Filed herewith. |
| ** | | Furnished herewith. |
| # | | Management Compensatory Plan |
ITEM 16. FORM 10-K SUMMARY.
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Company has elected not to include such summary information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| RumbleOn, Inc. |
| | |
Date: April 8, 2022March 28, 2024 | By: | /s/ Marshall ChesrownMichael W. Kennedy |
| | Marshall ChesrownMichael W. Kennedy
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
| | | | |
/s/ Marshall ChesrownMichael W. Kennedy | | Chairman of the Board of Directors and | | April 8, 2022 |
Marshall Chesrown | | Chief Executive Officer,
| | March 28, 2024 |
| Michael W. Kennedy | | (Principal Executive Officer) | | |
| | | | |
/s/ Beverley RathBlake Lawson | | Interim Chief Financial Officer and Corporate Controller | | April 8, 2022March 28, 2024 |
Beverley RathBlake Lawson | | (Principal Financial Officer and Principal Accounting Officer) | | |
| | | | |
/s/ Adam AlexanderSteven J. Pully* | | DirectorChairman of the Board | | April 8, 2022March 28, 2024 |
Adam AlexanderSteven J. Pully | | | | |
| | | | |
/s/ Denmar DixonMark Cohen* | | Director | | April 8, 2022March 28, 2024 |
Denmar DixonMark Cohen | | | | |
| | | | |
/s/ Peter LevyWilliam Coulter* | | Director | | April 8, 2022March 28, 2024 |
Peter LevyWilliam Coulter | | | | |
| | | | |
/s/ Michael MarchlikMelvin Flanigan* | | Director | | April 8, 2022March 28, 2024 |
Michael MarchlikMelvin Flanigan | | | | |
| | | | |
/s/ Kevin WestfallRebecca C. Polak* | | Director | | April 8, 2022March 28, 2024 |
Kevin WestfallRebecca C. Polak | | | | |
| | | | |
| /s/ Mark Tkach* | | Director | | March 28, 2024 |
| Mark Tkach | | | | |
* The undersigned, by signing his name hereto, does hereby sign this report on behalf of each of the above-indicated directors of the registrant pursuant to powers of attorney executed by such directors.
| | | | | |
| By: | /s/ Michael W. Kennedy |
| Michael W. Kennedy |
| Attorney-in-fact |
Index to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors and Shareholders
RumbleOn, Inc.
Irving, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheetssheet of RumbleOn, Inc. (the "Company"“Company”) as of December 31, 2021,2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements"“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as ofat December 31, 2021,2023, and the results of its operations and its cash flows for the year then ended, in conformity with U.S.accounting principles generally accepted accounting principles.in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"(“PCAOB”), the Company'sCompany’s internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated April 8, 2022, March 28, 2024 expressed an adverse opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provideaudit provides a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current period audit of the consolidated financial statements that werewas communicated or required to be communicated to the audit committee and that: (1) relaterelates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit mattersmatter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing separate opinions on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Acquisition
Impairment Assessment of RideNow - Fair ValueGoodwill and Franchise Rights of Intangible Assets AcquiredPowersports Reporting Unit
As described in NoteNotes 1 and Note 27 to the Company’s consolidated financial statements, goodwill and indefinite-lived intangible assets are tested for impairment annually as of October 1, or whenever events or changes in circumstances indicate that an impairment may exist. Fair value estimates used in the quantitative goodwill impairment test are calculated using a combination of the income and market approaches. The income approach is based on the present value of future cash flows of a reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches incorporate a number of market participant assumptions including future revenue growth rates, corresponding gross margins, the discount rate, income tax rates, implied control premium, and market activity in assessing fair value and are reporting unit specific. Further, the Company completed the acquisition of RideNow on August 31, 2021. The Company accounted for this acquisition by recognizing and measuring assets acquired and liabilities assumed at their estimated fair values (including certain provisional amounts for which the assessment has not yet been completed), and recognizing goodwill for theuses an excess ofearnings method to determine the fair value of consideration transferred overits franchise rights, which incorporates estimates and forward-looking projections such as future revenue growth rates, corresponding gross margins, return on debt-free net working capital, contributory asset returns, and the fair valuediscount rate. As a
result of performing the net assets acquired. As part of the acquisition,impairment tests, the Company acquiredrecorded $23.1 million of goodwill impairment expense and $37.0 million of impairment expense associated with the Company’s franchise rights during the year ended December 31, 2023.
We identified the evaluation of goodwill and other identifiable intangible assets with estimated fair values of $304.1 millionfranchise rights related to the powersports reporting unit for impairment as ofa critical audit matter. With respect to goodwill, the acquisition date. The determination of the fair value of the intangible assets requiredpowersports reporting unit requires management to make significant estimates and assumptions related toused in the income approach including future projected cash flows, revenue growth rates, corresponding gross margins, and the discount rates.
We identifiedrate. For the estimatesmarket approach, the significant assumptions are the implied control premium and multiples of selected public companies. With respect to franchise rights, the determination of the fair value requires management to make significant assumptions used in the excess earnings method including future revenue growth rates, corresponding gross margins, the discount rate and contributory asset returns. Auditing management’s significant assumptions used in the impairment assessment of goodwill and franchise rights involved especially challenging and other identifiable intangible assets as a critical audit matter. The principal considerations for our determination of the estimate of the fair value of the acquired franchise rights and other identifiable intangible assets as a critical audit matter are that there were significant estimates and assumptions made by management, including assumptions regarding future projected cash flows, revenue growth and discount rates; and as disclosed by management, a material weakness was identified in the Company’s controls over the accounting for the RideNow acquisition. Auditing these amounts required a high degree ofsubjective auditor judgment due to the nature and an increased extent of audit effort required to address this matter, including the
extent of specialized skill or knowledge needed, when performing audit procedures to evaluate the reasonableness of assumptions and estimates used in these valuations.needed.
The primary procedures we performed to address this critical audit matter included:
•WithAssessing the assistancereasonableness of personnelfuture revenue growth rates and corresponding gross margin assumptions used in the impairment assessments of goodwill and franchise rights by:
o Comparing the future revenue and corresponding gross margin assumptions with historical results and analyst reports
•Utilizing professionals with specialized skillskills and knowledge in valuation we evaluated the significant valuation assumptions used by management to develop the franchise rights and other identifiable intangible assets’ fair value byto:
o Assist in assessing the reasonableness of inputsthe terminal year revenue growth rate, the discount rate, implied control premium and assumptionsmultiples of selected public companies used in the valuation.impairment assessment of goodwill.
•Our evaluation also included reconciling information to source documents and testingo Assist in assessing the calculations for mathematical accuracy.
•Our evaluation also considered whetherreasonableness of the assumptions forterminal year revenue growth rates, the discount rate and development of discount ratescontributory asset returns used in the valuation were reasonable, including performing a sensitivity analysis on the assumptions, and analysis of discount rates based on company projections.
Income taxes – Valuation Allowance
As described in Note 1 and Note 16 to the consolidated financial statements, the Company records a valuation allowance if it determines that it is not more likely than not that a deferred tax asset will be realized. During the year ended December 31, 2021, the Company determined that it was more likely than not that its deferred tax assets will be realized due to the acquisition of RideNow and therefore reversed its previously recorded valuation allowance in the amount of $23.7 million. In determining that it was more likely than not that the deferred tax assets would be realized, the Company relied upon assumptions and estimates about future activities, including the amount of future taxable income that the Company will generate, and the future reversal of temporary differences.
We identified the Company’simpairment assessment of the realizability of deferred tax assets as a critical audit matter. The principal consideration for this determination included the significant estimates and assumptions relied upon by management, including the amount of future taxable income that the Company will generate, and the future reversal of temporary differences. Auditing these estimates and assumptions required a high degree of auditor judgment and increased audit effort, including the involvement of individuals with specialized knowledge of income tax accounting matters and federal and state tax laws.franchise rights.
The primary procedures we performed to address this critical audit matter included:
•We tested the design and operating effectiveness of management’s controls over determining the realizability of deferred tax assets.
•We obtained management’s projections of the reversal of deferred tax items and utilization of available loss amounts in future years and considered the reasonableness of those projections. We compared the projections to recent actual taxable income of both the legacy RumbleOn and RideNow entities.
•We involved individuals with specialized tax knowledge and skill to assist in evaluating the reasonableness of positive and negative evidence regarding the utilization of deferred tax assets.
Classification of Warrants Issued
As described in Note 1 and 11 to the consolidated financial statements the Company issued warrants to lenders in the debt facility used to finance the RideNow acquisition. The warrants were initially classified as liabilities, with the initial value treated as a deferred financing charge on the related debt. Subsequently, the warrants were remeasured at fair value with changes recorded in the consolidated statement of operations at each reporting date. Upon closing the RideNow acquisition, the warrants were considered to be equity classified and the recorded liability of $19.7 million was reclassified to additional paid-in capital. The determination of the classification of the warrants required management to make judgments as to whether the terms of the agreement required the warrants to be classified in equity or liabilities. The valuation of the warrant at both the issuance date and the date of the closing of the RideNow transaction involved valuation estimates performed by a Company specialist.
We identified the classification of warrants as a critical audit matter. The principal considerations for this determination were the judgments involved in management’s determination of whether or not the terms of the warrant resulted in a contract that was indexed to the Company’s own stock, and the significant estimates and assumptions used in valuing the warrant by the Company.
The primary procedures we performed to address this critical audit matter included:
•We read the terms of the warrants and related debt agreements and compared them to management’s technical accounting memo.
•We consulted with internal resources with specialized knowledge and skill of complex debt and equity instruments to assess whether management’s application of the relevant accounting literature to the terms of the warrants was reasonable and appropriate.
•With the assistance of personnel with specialized skill and knowledge in valuation, we evaluated the significant inputs and assumptions used by management to estimate the warrant fair values.
/s/ Dixon Hughes Goodman LLPBDO USA, P.C.
We have served as the Company’s auditor since 2021.2023.
Dallas, Texas
March 28, 2024
Charlotte, North Carolina
April 8, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
RumbleOn, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of RumbleOn, Inc. (a Nevada corporation) and subsidiaries (the “Company”) as of December 31, 2020,2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended.ended (collectively referred to as the “financial statements”). In our opinion, thefinancial statements present fairly, in all material respects, the financial position of the Companyas of December 31, 2020,2022, and the results of itsoperations and itscash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We served as the Company’s auditor from 20192022 to 2021.2023.
Dallas, Texas
March 31, 202116, 2023 except for the effects of changes in discontinued operations, as discussed in Note 19, as to which the date is September 26, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors and Shareholders
RumbleOn, Inc.
Irving, Texas
Opinion on Internal Control Overover Financial Reporting
We have audited theRumbleOn, Inc.’s (the “Company’s”) internal control overfinancial reporting of RumbleOn, Inc. (“the Company”) as of December 31, 2021,2023, based on criteria established in Internal Control—Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”(the “COSO criteria”). In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control—Integrated Framework (2013) issuedthe COSO criteria.
We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the COSO.Company after the date of management’s assessment.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheetssheet of RumbleOn, Inc.the Company as of December 31, 2021,2023, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as “the financial statements”) and our report dated April 8, 2022,March 28, 2024 expressed an unqualified opinion on those consolidated financial statements.thereon.
As described in Management’s Report on Internal Control Over Financial Reporting, the Company acquired the RideNow entities on August 31, 2021, and management excluded from its assessment the internal control over financial reporting of The RideNow entities, which comprise 85.5% of total assets and 39.2% of total revenue of the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Accordingly, our audit of internal control over financial reporting of the Company did not include the internal control over financial reporting of the RideNow entities.
Basis for Opinion
The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Annual Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, andrisk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Material Weaknesses in Internal Control Over Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following materialMaterial weaknesses regarding the sufficiency of accounting resources and the related impact on process-level control activities as well as user access and segregation of duties related to certain information technology systems have been identified and described in management’s assessment:
•Information technology general controls particularly as such controls related to user access, program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of the Company’s financial statements.
•Controls over the period end close process, including the review and approval process of journal entries, balance sheet account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries.
•Documentation and design of controls over the recording and reconciliation of inventory.
•Review of key assumptions and estimates related to purchase accounting for significant acquisitions.
•The control environment, risk assessment, control activities, information and communication, and monitoring components of the Company’s internal control framework such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated in a timely manner.
assessment. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated2023 financial statements, as of and for the year ended December 31, 2021 of the Company, and this report does not affect our report dated April 8, 2022March 28, 2024 on those such consolidated financial statements.
Definition and Limitations of Internal Control Overover Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Dixon Hughes Goodman LLPBDO USA, P.C.
Dallas, Texas
March 28, 2024
Charlotte, North Carolina
April 8, 2022
RumbleOn, Inc.
Consolidated Balance Sheets
(Dollars$ in thousands,millions, except per share amounts)
| | December 31, |
| 2021 | | 2020 |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
| ASSETS | ASSETS | | | |
| Current assets: | Current assets: | |
| Current assets: | |
| Current assets: | |
| Cash | |
| Cash | |
| Cash | Cash | $ | 48,974 | | | $ | 1,467 | |
| Restricted cash | Restricted cash | 3,000 | | | 2,049 | |
| Accounts receivable, net | Accounts receivable, net | 40,166 | | | 9,408 | |
| Inventory | 201,666 | | | 21,360 | |
| Inventory, net | |
| Prepaid expense and other current assets | Prepaid expense and other current assets | 6,335 | | | 3,446 | |
| Loans receivable held for sale | |
| Current assets of discontinued operations | |
| Total current assets | Total current assets | 300,141 | | | 37,730 | |
| | Property and equipment, net | Property and equipment, net | 21,417 | | | 6,521 | |
| Right-of-use assets | Right-of-use assets | 133,112 | | | 5,690 | |
| Goodwill | Goodwill | 260,922 | | | 26,887 | |
| Intangible assets, net | Intangible assets, net | 302,066 | | | 46 | |
| Deferred tax assets | |
| Other assets | Other assets | 10,091 | | | 105 | |
| Total assets | Total assets | 1,027,749 | | | 76,979 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
| Current liabilities: | Current liabilities: | |
| Accounts payable and accrued liabilities | 57,068 | | | 12,563 | |
| Vehicle floor plan note payable | 97,278 | | | 17,812 | |
| Current portion lease liabilities | 20,249 | | | 1,630 | |
| Current portion of long-term, convertible debts, and notes payable | 4,476 | | | 3,440 | |
| Current liabilities: | |
| Current liabilities: | |
| Accounts payable and other current liabilities | |
| Accounts payable and other current liabilities | |
| Accounts payable and other current liabilities | |
| Vehicle floor plan notes payable | |
| Current portion of long-term debt | |
| Current liabilities of discontinued operations | |
| Total current liabilities | Total current liabilities | 179,071 | | | 35,445 | |
| Long -term liabilities: | |
| Senior secured note | 253,438 | | | — | |
| Convertible debt, net | 29,242 | | | 27,166 | |
| Notes payable | 150 | | | 4,691 | |
| Derivative liabilities | 66 | | | 17 | |
| Long-term liabilities: | |
| Long-term debt, net of current maturities | |
| Long-term debt, net of current maturities | |
| Long-term debt, net of current maturities | |
| Operating lease liabilities | Operating lease liabilities | 114,687 | | | 4,370 | |
| Financing lease liabilities | 2,869 | | | — | |
| Deferred tax liabilities | 7,586 | | | — | |
| Deferred taxes | |
| Other long-term liabilities | Other long-term liabilities | 8,995 | | | 720 | |
| Total long-term liabilities | Total long-term liabilities | 417,033 | | | 36,964 | |
| Total liabilities | Total liabilities | 596,104 | | | 72,409 | |
| Commitments and contingencies (Note 20) | | Commitments and contingencies (Note 20) | | | |
| Stockholders' equity: | |
| | Commitments and contingencies (Notes 2, 8, 9, 10, 11, 12, 14, 19, 21) | 0 | | 0 |
| Class A common stock, $0.001 par value; 50,000 shares authorized; 50,000 shares issued and outstanding | |
| | Stockholders' equity: | |
| Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued or outstanding as of December 31, 2021 and 2020 | — | | — |
| Class A common stock, $0.001 par value, 50,000 shares authorized, 50,000 shares issued and outstanding as of December 31, 2021 and 2020, respectively | — | | — |
| Class B common stock, $0.001 par value, 100,000,000 shares authorized, 14,882,022 and 2,191,633 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 15 | | 2 |
| Class A common stock, $0.001 par value; 50,000 shares authorized; 50,000 shares issued and outstanding | |
| | Class A common stock, $0.001 par value; 50,000 shares authorized; 50,000 shares issued and outstanding | | — | | — |
| Class B common stock, $0.001 par value; 100,000,000 shares authorized; 35,071,955 and 16,184,264 shares issued and outstanding, respectively | | Class B common stock, $0.001 par value; 100,000,000 shares authorized; 35,071,955 and 16,184,264 shares issued and outstanding, respectively | — | | — |
| Additional paid in capital | Additional paid in capital | 550,055 | | 108,949 | Additional paid in capital | 701.0 | | | 585.9 | | 585.9 |
| Accumulated deficit | Accumulated deficit | (114,106) | | (104,381) | Accumulated deficit | (591.1) | | | (375.6) | | (375.6) |
| Class B stock in treasury, at cost 123,089 shares as of December 31, 2021 | (4,319) | | — |
| Class B common stock in treasury, at cost, 123,089 shares | | Class B common stock in treasury, at cost, 123,089 shares | (4.3) | | | (4.3) |
| Total stockholders' equity | Total stockholders' equity | 431,645 | | 4,570 | Total stockholders' equity | 105.6 | | | 206.0 | | 206.0 |
| Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,027,749 | | | $ | 76,979 | | Total liabilities and stockholders' equity | $ | 926.3 | | | $ | | $ | 1,027.2 |
See Accompanying Notesaccompanying notes to Financial Statements.consolidated financial statements.
RumbleOn, Inc.
Consolidated Statements of Operations
(Dollars$ in thousands,millions, except per share amounts)
| | | | | | | | | | | |
| For the Years Ended December 31, |
| 2021 | | 2020 |
| Revenue: | | | |
| Vehicles sales | | | |
| Powersports | $ | 323,303 | | | $ | 46,654 | |
| Automotive | 460,888 | | | 337,085 | |
| Parts, service and accessories | 66,969 | | | — | |
| Vehicle logistics | 43,878 | | | 31,816 | |
| Finance and insurance | 43,402 | | | 872 | |
| Total revenue | 938,440 | | | 416,427 | |
| | | |
| Cost of revenue: | | | |
| Powersports | 264,872 | | 40,061 |
| Automotive | 430,142 | | 308,801 |
| Parts, service and accessories | 36,702 | | — |
| Vehicle logistics | 34,278 | | 24,200 |
| Finance and insurance | 14,269 | | — |
| Cost of revenue before impairment loss | 780,263 | | 373,062 |
| Impairment loss on automotive inventory | — | | 11,738 |
| Total cost of revenue | 780,263 | | 384,800 |
| | | |
| Gross profit | 158,177 | | 31,627 |
| | | |
| Selling, general and administrative | 164,077 | | 53,659 |
| Insurance recovery | (3,135) | | (5,615) |
| Depreciation and amortization | 6,103 | | 2,143 |
| | | |
| Operating loss | (8,868) | | | (18,560) | |
| | | |
| Interest expense | (16,405) | | | (6,450) | |
| Change in derivative liability | (8,799) | | | 11 | |
| Forgiveness of PPP Loan | 2,682 | | | — | |
| | | |
| | | |
| Loss before provision for income taxes | (31,390) | | | (24,999) | |
| | | |
| Income tax benefits | (21,665) | | | — | |
| Net loss | $ | (9,725) | | | $ | (24,999) | |
| | | |
| Weighted average number of common shares outstanding - basic and fully diluted | 6,920,318 | | 2,184,441 |
| Net loss per share - basic and fully diluted | $ | (1.41) | | | $ | (11.44) | |
| | | |
| | | | | | | | | | | |
| 2023 | | 2022 |
| Revenue: | | | |
| Powersports vehicles | $ | 951.4 | | | $ | 1,033.9 | |
| Parts, service and accessories | 241.8 | | | 247.6 | |
| Finance and insurance, net | 117.0 | | | 123.4 | |
| Vehicle transportation services | 56.2 | | | 54.0 | |
| Total revenue | 1,366.4 | | | 1,458.9 | |
| Cost of revenue: | | | |
| Powersports vehicles | 832.5 | | 839.7 |
| Parts, service and accessories | 131.5 | | 135.3 |
| Vehicle transportation services | 42.5 | | 42.2 |
| Total cost of revenue | 1,006.5 | | 1,017.2 |
| Gross profit | 359.9 | | 441.7 |
| Selling, general and administrative | 347.3 | | 354.5 |
| Impairment of goodwill and franchise rights | 60.1 | | 324.3 |
| Depreciation and amortization | 22.0 | | 23.0 |
| Operating loss | (69.5) | | | (260.1) | |
| Non-operating income (expense): | | | |
| Interest expense | (77.2) | | | (52.1) | |
| Other income (expense) | (8.4) | | | 4.2 | |
| Forgiveness of PPP Loan | — | | | 2.5 | |
| Loss from continuing operations before income taxes | (155.1) | | | (305.5) | |
| Income tax provision (benefit) from continuing operations | 59.3 | | | (72.0) | |
| Loss from continuing operations | $ | (214.4) | | | $ | (233.5) | |
| Loss from discontinued operations | (1.1) | | | (28.0) | |
| Net loss | $ | (215.5) | | | $ | (261.5) | |
| Weighted average number of common shares outstanding – basic and diluted | 17,740,525 | | 15,871,005 |
| Loss from continuing operations per share – basic and diluted | $ | (12.08) | | | $ | (14.71) | |
| Loss from discontinued operations per share – basic and diluted | $ | (0.06) | | | $ | (1.76) | |
| Net loss per share — basic and diluted | $ | (12.15) | | | $ | (16.48) | |
| | | |
| | | |
| | | |
See Accompanying Notesaccompanying notes to Financial Statements.consolidated financial statements.
RumbleOn, Inc.
Consolidated Statement of Stockholders' Equity
For the Two Years Ended December 31, 2021 and 2020($ in millions)
(Dollars in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in
Capital | | Accumulated
Deficit | | Common B Shares | Total
Stockholders'
Equity
(Deficit) |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount |
| Balance, December 31, 2019 | 50,000 | | | $ | — | | | 1,111,681 | | | $ | 1 | | | $ | 92,268 | | | $ | (79,382) | | | — | | | $ | — | | $ | 12,887 | |
| Issuance of common stock, net of issuance cost | — | | | — | | | 1,035,000 | | | 1 | | | 10,779 | | | — | | | — | | | — | | 10,780 | |
| Issuance of common stock for restricted stock units | — | | | — | | | 37,821 | | | — | | | — | | | — | | | — | | | — | | — | |
| Adjustment for fractional shares in reverse stock split | — | | | — | | | 7,131 | | | — | | | — | | | — | | | — | | | — | | — | |
| Convertible note exchange | — | | | — | | | — | | | — | | | 2,924 | | | — | | | — | | | — | | 2,924 | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 2,978 | | | — | | | — | | | — | | 2,978 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (24,999) | | | — | | | — | | (24,999) | |
| Balance, December 31, 2020 | 50,000 | | | — | | | 2,191,633 | | | 2 | | | 108,949 | | | (104,381) | | | — | | | — | | 4,570 | |
| Issuance of common stock, net of issuance cost | — | | | — | | | 6,102,027 | | | 6 | | | 191,235 | | | — | | | — | | | — | | 191,241 | |
| Issuance of common stock for restricted stock units | — | | | — | | | 878,118 | | | 1 | | | (1) | | | — | | | — | | | — | | — | |
| Issuance of common stock in acquisition | — | | | — | | | 5,833,333 | | | 6 | | | 200,953 | | | — | | | — | | | — | | 200,959 | |
| Treasury stock purchases | — | | | — | | | (123,089) | | | — | | | — | | | — | | | 123,089 | | | (4,319) | | (4,319) | |
| Issuance of warrant | — | | | — | | | — | | | — | | | 19,700 | | | — | | | — | | | — | | 19,700 | |
| Stock-based compensation | — | | | — | | | — | | | — | | | 29,219 | | | — | | | — | | | — | | 29,219 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (9,725) | | | — | | | — | | (9,725) | |
| Balance, December 31, 2021 | 50,000 | | | $ | — | | | 14,882,022 | | | $ | 15 | | | $ | 550,055 | | | $ | (114,106) | | | 123,089 | | | $ | (4,319) | | $ | 431,645 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Shares | | Class B Common Shares | | Additional Paid in
Capital | | Accumulated
Deficit | | Class B Common Treasury Shares | | Total
Stockholders'
Equity
(Deficit) |
| Shares | | Amount | | Shares | | Amount | | | | Shares | | Amount | |
| December 31, 2021 | 50,000 | | | $ | — | | | 14,882,022 | | | $ | — | | | $ | 550.0 | | | $ | (114.1) | | | 123,089 | | | $ | (4.3) | | | $ | 431.6 | |
| Consideration for acquisition | — | | | — | | | 1,048,718 | | | — | | | 26.5 | | | — | | | — | | | — | | | 26.5 | |
| Shares cancelled in connection with Freedom acquisition | — | | | — | | | (2,446) | | | — | | | | | — | | | — | | | — | | | — | |
| Stock-based compensation | — | | | — | | | 255,970 | | | — | | | 9.4 | | | — | | | — | | | — | | | 9.4 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (261.5) | | | — | | | — | | | (261.5) | |
| December 31, 2022 | 50,000 | | | — | | | 16,184,264 | | | — | | | 585.9 | | | (375.6) | | | 123,089 | | | (4.3) | | | 206.0 | |
| Rights offering, net of costs | — | | | — | | | 18,181,818 | | | — | | | 98.4 | | | — | | | — | | | — | | | 98.4 | |
| Stock-based compensation | — | | | — | | | 705,873 | | | — | | | 12.0 | | | — | | | — | | | — | | | 12.0 | |
| Tax withholding for vesting of restricted stock units and other | — | | | — | | | — | | | — | | | (1.4) | | | — | | | — | | | — | | | (1.4) | |
| Issuance of warrant | — | | | — | | | — | | | — | | | 6.1 | | | — | | | — | | | — | | | 6.1 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (215.5) | | | — | | | — | | | (215.5) | |
| December 31, 2023 | 50,000 | | | $ | — | | | 35,071,955 | | | $ | — | | | $ | 701.0 | | | $ | (591.1) | | | 123,089 | | | $ | (4.3) | | | $ | 105.6 | |
See Accompanying Notesaccompanying notes to Financial Statements.consolidated financial statements.
RumbleOn, Inc.
Consolidated Statements of Cash Flows
For the Two Years Ended December 31, 2021 and 2020
(Dollars$ in thousands, except per share amounts)
| | | | | | | | | | | |
| 2021 | | 2020 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net loss | $ | (9,725) | | | $ | (24,999) | |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | |
| Depreciation and amortization | 6,103 | | | 2,143 | |
| Amortization of debt discount | 4,386 | | | 2,027 | |
| Forgiveness of PPP Loan | (2,682) | | | — | |
| Bad debt expense | — | | | 311 | |
| Stock based compensation expense | 29,219 | | | 2,978 | |
| Impairment loss on inventory | — | | | 11,738 | |
| Impairment loss on property and equipment | — | | | 178 | |
| Loss (gain) from change in value of derivatives | 8,799 | | | (11) | |
| Gain from extinguishment of debt | — | | | (188) | |
| Deferred taxes | (22,545) | | | — | |
| Changes in operating assets and liabilities: | | | |
| Increase (decrease) in accounts receivable | (9,756) | | | (1,236) | |
| (Increase) decrease in inventory | (53,226) | | | 24,282 | |
| Increase in prepaid expenses and other current assets | (1,102) | | | (2,236) | |
| (Increase) decrease in other assets | (4,528) | | | 87 | |
| Increase in other liabilities | 4,748 | | | 720 | |
| Increase (decrease) in accounts payable and accrued liabilities | 3,013 | | | 1,349 | |
| | | |
| Increase in floor plan trade note borrowings | 15,119 | | | — | |
| Net cash (used in) provided by operating activities | (32,177) | | | 17,143 | |
| | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Cash used for acquisitions; net of cash received | (371,314) | | | — | |
| Proceeds from sales of property and equipment | — | | | 38 | |
| Technology development | (1,871) | | | (2,145) | |
| Purchase of property and equipment | (5,646) | | | (175) | |
| Net cash used in investing activities | (378,831) | | | (2,282) | |
| | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Proceeds from convertible note | — | | | 8,272 | |
| Proceeds from senior secured debt | 261,451 | | | — | |
| Repayments of notes payable | (10,413) | | | (1,768) | |
| Increase (decrease) in borrowings from non-trade floor plans | 17,187 | | | (40,533) | |
| Proceeds from PPP Loan | — | | | 5,178 | |
| Proceeds from sale of common stock | 191,241 | | | 10,780 | |
| Net cash provided by (used in) financing activities | 459,466 | | | (18,071) | |
| | | |
| NET CHANGE IN CASH | 48,458 | | | (3,210) | |
| CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD | 3,516 | | | 6,726 | |
| CASH AND RESTRICTED CASH AT END OF PERIOD | $ | 51,974 | | | $ | 3,516 | |
millions) | | | | | | | | | | | |
| 2023 | | 2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | |
| Net loss | $ | (215.5) | | | $ | (261.5) | |
| Income (loss) from discontinued operations | (1.1) | | | (28.0) | |
| Loss from continuing operations | $ | (214.4) | | | $ | (233.5) | |
| Adjustments to reconcile loss from continuing operations to net cash used in operating activities: | | | |
| Depreciation and amortization | 22.0 | | | 23.0 | |
| Amortization of debt discount and issuance costs | 10.4 | | | 6.4 | |
| Inventory write-down to net realizable value | 12.6 | | | — | |
| Forgiveness of PPP Loan | — | | | (2.5) | |
| Stock based compensation expense | 12.0 | | | 9.4 | |
| Impairment loss on goodwill and franchise rights | 60.1 | | | 324.3 | |
| Deferred taxes | 58.5 | | | (76.7) | |
| Originations of loan receivables, net of principal payments received | 6.3 | | | (27.9) | |
| Valuation allowance and loss on sale of loans receivable portfolio | 7.6 | | | — | |
| Changes in operating assets and liabilities, net of acquisitions: | | | |
| Accounts receivable | (2.4) | | | (4.6) | |
| Inventory | (31.7) | | | (120.4) | |
| Prepaid expenses and other current assets | 1.4 | | | (0.4) | |
| Other assets | 0.3 | | | 0.3 | |
| Other liabilities | (3.7) | | | 1.6 | |
| Accounts payable and accrued liabilities | (4.4) | | | (6.0) | |
| Floor plan trade note borrowings | 26.5 | | | 60.3 | |
| Net cash used in operating activities of continuing operations | (38.9) | | | (46.7) | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | |
| Cash used for acquisitions, net of cash received | (3.3) | | | (69.6) | |
| Technology development | (2.1) | | | (7.0) | |
| Purchase of property and equipment | (13.7) | | | (5.6) | |
| Net cash used in investing activities of continuing operations | (19.1) | | | (82.2) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | |
| Increase in borrowings from non-trade floor plans | 42.5 | | | 77.9 | |
| Proceeds from sale leaseback transaction | 50.0 | | | — | |
| Proceeds from issuance of debt | 2.2 | | | 84.5 | |
| Proceeds from ROF credit facility for the purchase of consumer finance loans | — | | | 25.0 | |
| Repayments of debt, including finance leases | (111.7) | | | (51.2) | |
| Debt issuance costs | (1.8) | | | — | |
| Shares redeemed for employee tax obligations | (1.4) | | | — | |
| Net proceeds from sale of common stock in rights offering | 98.4 | | | — | |
| Net cash provided by financing activities of continuing operations | 78.2 | | | 136.2 | |
| CASH FLOWS FROM DISCONTINUED OPERATIONS | | | |
| Net cash provided by operating activities | 3.4 | | | 27.8 | |
| Net cash used in financing activities | (5.2) | | | (28.5) | |
| Net cash used in discontinued operations | (1.8) | | | (0.7) | |
| NET CHANGE IN CASH AND RESTRICTED CASH | 18.4 | | | 6.6 | |
| CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD | 58.6 | | | 52.0 | |
| CASH AND RESTRICTED CASH AT END OF PERIOD | $ | 77.0 | | | $ | 58.6 | |
See Accompanying Notesaccompanying notes to Financial Statements.consolidated financial statements.
Notes to the Consolidated Financial Statements
(Dollars in thousands, except per share data)
NOTE 1 –DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
RumbleOn, Inc. was incorporated in October 2013 under the laws of the State of Nevada. We are the nation’s first Omnichannel marketplace platform in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisition of supply through distribution of retail and wholesale. RumbleOn, Inc. provides an unparalleled technology suite, national footprint of physical locations, and full line manufacturer representation to transform the entire customer journey and experience worldwide through technology. Headquarteredis headquartered in the Dallas Metroplex and completed its initial public offering in 2017. RumbleOn, Inc. is revolutionizingoperates primarily through two operating segments: our powersports dealership group and Wholesale Express, LLC (“Express”), a transportation services provider. We were incorporated in 2013. We have grown primarily through acquisition, the customer experience for outdoor enthusiasts acrosslargest to date being our 2021 acquisition of the countryRideNow business followed by our 2022 acquisition of Freedom Powersports, LLC (“Freedom Powersports”) and making powersport vehicles accessible to more people, in more places than ever before. On August 31, 2021 (the “Closing Date”), RumbleOn, Inc. completed its business combinationFreedom Powersports Real Estate, LLC (together with RideNowFreedom Powersports, the nation's largest“Freedom Entities”). These acquisitions added 54 powersports retailer groupdealerships to our Company.
We offer a wide selection of new and pre-owned motorcycles, all-terrain vehicles (“RideNow”ATV”) (refer, utility terrain or side-by-side vehicles (“SXS”), personal watercraft (“PWC”), snowmobiles, and other powersports products, including parts, apparel, accessories, finance & insurance products and services, and aftermarket products from a wide range of manufacturers. Additionally, we offer a full suite of repair and maintenance services. As of December 31, 2023, we operated 54 retail locations consisting of over 500 powersports franchises (representing 52 different brands of motorcycles, ATVs, SXSs, PWCs, snowmobiles, and other powersports products) in Alabama, Arizona, California, Florida, Georgia, Kansas, Nevada, North Carolina, Ohio, Oklahoma, South Dakota, Texas, and Washington.
We source high quality pre-owned inventory via our proprietary Cash Offer technology, which allows us to Note 2 - Acquisition).purchase pre-owned units directly from consumers.
Express provides asset-light freight brokerage services facilitating automobile transportation primarily between and among dealers.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.subsidiaries, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and are reported on a calendar-year basis. All significant intercompany balances and transactions have been eliminated in consolidation. The results of operations of acquisitions are included in the consolidated financial statements from the respective date of acquisition.
Discontinued operations represents the results of our automotive segment operations that we wound down beginning in the third quarter of 2022 and completed by June 30, 2023. In this segment, we participated in the automotive industry through our wholly owned wholesale distributor of pre-owned automotive inventory, Wholesale, Inc., and exotics retailer, AutoSport USA, Inc., which did business under the name Got Speed. Amounts related to this segment are reported as discontinued operations for all periods reported in these consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. In particular,liabilities, at the novel coronavirus (“COVID-19”) pandemic anddate of the resulting adverse impacts to global economic conditions,consolidated financial statements, as well as the Company’s operations,reported amounts of revenues and expenses during the reporting period. Estimates are used for items such as long-lived assets, franchise rights and goodwill; fair values of acquired assets and liabilities under the acquisition method of accounting; inventory valuation; property depreciable lives; tax provisions; realization of deferred tax assets; expected credit losses; loss contingencies; lease classification; present value of right-of-use assets and lease liabilities; and the valuation of stock-based compensation and warrants. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may impactundertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. As additional information becomes available, or actual amounts are determinable, the recorded estimates including, butare revised. Consequently, operating results can be affected by revisions to prior accounting estimates.
Business Combinations
We evaluate whether transactions should be accounted for as acquisitions of assets or as business combinations using a screen to determine when a set of assets is not limiteda business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similarly identifiable assets, the set is not a business.
We account for business combinations under the acquisition method of accounting. Total consideration transferred for acquisitions is allocated to the allowance for doubtful accounts, inventory valuations,tangible and identifiable intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and other fair value measurements, asset impairment charges,adjustments with respect to certain assets acquired and liabilities assumed. The fair value of intangible assets is based on detailed valuations that use information and assumptions determined by management (Level 3 fair value measurements). Any excess of purchase price over the effectivenessfair value of the company’s hedging instruments, deferred tax valuation allowances,net tangible and discount rate assumptions. Certain prioridentified intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year amounts have been reclassified to conformfrom the acquisition date, we record adjustments to the current year’s presentation. Amountsassets acquired and percentages mayliabilities assumed with the corresponding offset to goodwill. Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
We use the income approach to determine the fair value of certain identifiable intangible assets including franchise rights. This approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased franchise rights and non-compete intangible asset amounts so determined represent the fair value at the date of acquisition and do not total dueexceed the amount a third party would pay for the assets.
On February 18, 2022, the Company completed its acquisition of the Freedom Entities (the “Freedom Transaction”). The Company finalized its accounting for consideration transferred, assets acquired, and liabilities assumed in the first quarter of 2023; all adjustments were recorded within the measurement period.
We adopted Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, on January 1, 2023. ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to rounding.be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) Topic 606 instead of being recorded at fair value. The adoption of this standard did not have a material impact on the Company’s financial statements.
Cash and Cash Equivalents
The Company considers all cash accounts and all highly liquid short-term investments purchased with an original maturity of three months or less to be cash or cash equivalents.cash. As of December 31, 2021,2023, and 2020,2022, the Company did not have any investments with maturities greaterless than three months. At times, the Company has cash balances in domestic bank accounts that exceed Federal Deposit Insurance Corporation limits. The Company has not experienced any losses related to these cash concentrations. The Company only uses highly rated financial institutions to hold its cash deposits.accounts.
Restricted Cash
Amounts included in restricted cash primarily represent the deposits required under the Company's short-term revolving facilities (i.e., floorplan lines and any undistributed amounts collected on the finance receivables pledged under the Company's finance receivable facilities as explainedRumbleOn Finance line of credit before it was repaid in Note 9- Notes Payable and Lines of Credit.January 2024).
Accounts Receivable, Net
Effective January 1, 2023, we adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). While the prior accounting rules used a model of incurred losses to estimate credit losses on certain types of financial instruments, including trade accounts receivable, Topic 326 requires entities to use a forward-looking approach based on expected losses, which may result in the earlier recognition of allowances for losses. We applied the new credit loss mode on a prospective basis. The adoption of Topic 326 did not have a material impact on the Company’s financial statements.
Accounts receivable, net of an allowance for doubtful accounts, includes certain amounts due from third-party finance providers and customers, andas well as other miscellaneous receivables.The Accounts receivable initially are recorded at the transaction amount. Each reporting period, we evaluate the collectability of the receivables and record an allowance for doubtful accounts for our estimated losses on balances that may not be collected in full, which reduces the accounts receivable balance. Additions to the allowance result from a provision for bad debt expense that is recorded to selling, general and administrative expenses. Accounts receivable are written off and reflected as a reduction to the allowance if and when we determine the receivable will not be collected.
We determine the amount of bad debt expense each reporting period and the resulting adequacy of the allowance at the end of each reporting period by using a combination of historical loss experience and forward-looking information. Beginning with the adoption of Topic 326, our allowance for doubtful accounts is estimated based on historical experienceour estimated expected losses, and trends. Accounts receivable, netthe underlying evaluations include analysis of an allowance for doubtful accounts, includes certain amounts due from customers. The Company estimates the allowance for doubtful accounts for accounts receivable by considering a number of factors, including overall credit quality, age of outstanding balances, historical write-offpast collection experience, andcurrent information, specific account analysis, that projectsand forward-looking information, including economic conditions, to project the ultimate collectability of the outstanding balances. Ultimately, actual results could differ from these assumptions.
The adoption of the new accounting standard did not have a material impact on the Company’s 2023 Consolidated Financial Statements.
Inventory
Vehicle inventory is accounted for pursuant to ASC 330, Inventoryand consists of vehicles held for sale or currently undergoing reconditioning and is stated at the lower of cost or net realizable value (“NRV”). Vehiclevalue. The cost of inventory consists of the amount paid to acquire the inventory, net of any vendor consideration and purchase discounts, the cost is determined by specific identification. Parts, laborof equipment added, reconditioning costs, and overheadtransportation costs associated with reconditioning vehicles, as well as other incremental expenses associated withrelating to acquiring and reconditioningthe inventory for sale. Powersports vehicles are included in inventory. Each reporting period,
accounted for on a specific identification basis, whereas parts and accessories are accounted for on an average cost basis. We utilize our historical experience, the Company recognizes any necessary adjustments to reflect vehicle inventory ataging of the inventories, and our consideration of current market trends as the basis for determining the lower of cost or NRV throughnet realizable value.
Loans Receivable Held for Sale
On December 29, 2023, the Company executed a Purchase Agreement and completed the sale of our consumer loans portfolio underwritten by RumbleOn Finance (“ROF”). Net cash proceeds to the Company received on January 2, 2024 from the sale were approximately $3.0 million after the satisfaction of secured indebtedness, expenses, commissions, and fees.
Prior to its sale, the ROF loan portfolio was reported as held for sale at December 31, 2022 and recorded at the lower of amortized cost or fair value, as determined by management’s estimates. During 2022, management wrote off $1.4 million of revenue in the accompanying Consolidated Statements of Operations.finance receivables considered to be uncollectible.
Property and Equipment, Net
PropertyWe present property and equipment is stated at cost less accumulated depreciation and amortization. We capitalize leasehold improvements on properties held under operating leases and amortize those costs over the lesser of their estimated useful lives or the applicable lease term. We record amortization of assets recorded under finance leases as depreciation expense. We expense maintenance and repair costs when incurred and capitalize and depreciate expenditures for major renewals and betterments that extend the useful lives of our existing assets. Depreciation and amortization areexpense is calculated using the straight-line method over the shorter of the asset’s estimated useful life or the lease term, if applicable.
| | | | | | | | |
| Category | | | | | | | | |
Estimated Useful Lives | | Life (in Years) |
| Buildings | | 25 years |
| Leasehold Improvements | | 15 years |
| Furniture, fixtures and equipment | | 3 to 15 |
| Technology development | | 3-15 years3 to 5 |
| Vehicles | | 5 |
Property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Impairments are recognized when the sum of undiscounted estimated cash flows expected to result from the use of the asset is less than the carrying value of the asset. Costs of significant additions, renewals, and betterments, are capitalized and depreciated. Maintenance and repairs are charged to expense when incurred. See Note 6 — Property and Equipment, Net for additional information on property and equipment.
Technology Development Costs
Technology development costs are accounted for pursuant to ASC 350, Intangibles - Goodwill and Other.Technology development costs include internally developed software and website applications that are used by the Company for its own internal use and to provide services to its customers, which include consumers, dealer partners and
ancillary service providers. Technology and content costs for design, maintenance and post-implementation stages of internal-use software and general website development are expensed as incurred. For costs incurred to develop new website functionality as well as new software products and significant upgrades to existing internally used platforms or modules, capitalization begins during the application development stage and ends when the software is available for general use. Capitalized technology development is amortized on a straight-line basis over periods ranging from three to five years. The Company will performperforms a periodic assessment of the useful lives assigned to capitalized software applications.
AccountingImpairment of Long-Lived Assets
We evaluate our long-lived assets for Business Combinations
Business acquisitions are accounted for underimpairment at the acquisition methodasset group level and the reasonableness of accounting, whereby the Company measures and recognizesestimated useful lives whenever events or changes in circumstances indicate that the fair valuecarrying amount of an asset may not be recoverable or that a change in useful life may be appropriate. Recoverability of assets acquired and liabilities assumed atis measured by comparing the datecarrying amount of acquisition. This purchase price allocation process requires managementan asset group to make significant estimates and assumptions with respect to intangible assets. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of thefuture undiscounted net tangible and intangible assets acquired is allocated to goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill.Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of comprehensive income. During the year ended December 31, 2021, the Company continued its assessment of the preliminary purchase price allocation recorded at the acquisition date for RideNow and made a measurement period adjustment to the preliminary purchase price allocation which resulted in an increase to inventory of $1,768.
We use the income approach to determine the fair value of certain identifiable intangible assets including franchise rights. This approach determines fair value by estimating after-tax cash flows attributableexpected to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value. We base our assumptions onbe generated by the asset. Such evaluations for impairment are significantly impacted by estimates of future cash flows, expected growth rates, expected retention rates, etc. We baseprices for our products, capital needs, economic trends and other factors. If we consider such assets to be impaired, the discount rates used to arrive at a present value asimpairment we recognize is measured by the amount by which the carrying amount of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased franchise rights, non-competition agreements and other intangible asset amounts so determined represent theassets exceeds their fair value at the date of acquisition and do not exceed the amount a third-party would pay for the assets.
Goodwill and Intangible Assets
Goodwill represents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Goodwill is tested for impairment annually as of December 31, or whenever events or changes in circumstances indicate that an impairment may exist. We have 3 reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics. Management analyzes goodwill associated with these segments for potential impairment. The Company first assesses qualitative factorsassigned to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. No impairment charges related to goodwill were recognized during the years ended December 31, 2021 or 2020.
that it will benefit. Intangible assets are recognized and recorded at their acquisition date fair values. Indefinite-lived intangible assets consist primarily of franchise rights, and definite-lived intangible assets consist primarily of non-compete agreements, which are amortized on a straight-line basis over the relevant contractual terms. No impairment charges related toGoodwill and intangible assets were recognized duringare tested for impairment annually as of October 1, or whenever events or changes in circumstances indicate that an impairment may exist. We have two reportable segments and reporting units for segment reporting and goodwill testing: (1) powersports and (2) vehicle transportation services.
The sequencing of the years ended December 31, 2021impairment analysis requires management to first assess franchise rights, representing indefinite-lived intangible assets, for impairment prior to evaluating goodwill for impairment. For its franchise rights, the Company first assesses qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If it is more likely than not that the asset is impaired, or 2020.if we elect to bypass the qualitative assessment, the Company computes the fair value of the franchise rights and records an impairment charge if the carrying amount exceeds fair value. The Company uses an excess earnings method to determine the fair value of its franchise rights, which incorporates estimates and forward-looking projections such as future revenue growth rates, corresponding gross margin, return on debt-free net working capital, contributory asset returns, and the discount rate. Franchise rights are recorded in the powersports reporting unit.
Following the franchise rights impairment assessment, management next assesses goodwill for potential impairment at the reporting unit level. The Company first assesses qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. These qualitative factors include, but are not limited to, current macroeconomic conditions such as inflation, economic growth and interest rate movements, industry and market considerations, stock price performance (including performance relative to peers) and financial performance of the Company’s reporting units However, if based on the qualitative assessment we conclude that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if we elect to bypass the optional qualitative assessment as provided for under GAAP, we proceed with performing the quantitative impairment test.
Fair value estimates used in the quantitative goodwill impairment test are calculated using a combination of the income and market approaches. The income approach is based on the present value of future cash flows of each reporting unit, while the market approach is based on certain multiples of selected guideline public companies or selected guideline transactions. The approaches incorporate a number of market participant assumptions including future revenue growth rates, corresponding gross margins, the discount rate, income tax rates, implied control premium, and market activity in assessing fair value and are reporting unit specific. If the carrying amount exceeds the reporting unit's fair value, we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. We recognize any impairment loss in operating income.
The fair value measurement associated with the quantitative goodwill and indefinite lived intangible assets test is based on significant inputs that are not observable in the market and are thus considered Level 3 inputs. Significant changes in the underlying assumptions used to value goodwill and franchise rights could significantly increase or decrease the fair value estimates used for impairment assessments.
Leases
The Company determinesWe determine if an arrangement is a lease at inception by evaluatingand whether such lease is an operating or finance lease. We are the lessee in a lease contract when we obtain the right to control an asset. We lease certain land, retail locations, fulfillment centers, office space, and equipment. In determining whether we control an asset, we evaluate if the asset is explicitly or implicitly identified or distinct, if the Company will receive substantially all of the economic benefit or if the lessor has an economic benefit and the ability to substitute the asset. Right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The Company assesses whether the lease is an operating or finance lease at its inception.
Operating lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. We do not separate lease and non-lease components; rather, non-lease components are accounted for as part of the related lease component for classification, recognition and measurement purposes. For each lease agreement, we determine the lease term as the non-cancellable period of the lease and include options to extend or terminate the lease when we are reasonably certain that we will exercise that option. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. To calculate the present value, the Company useswe use the implicit rate in the lease when readily determinable. The incremental borrowing rate is based on collateralized borrowings of similar assets with terms that approximate the lease term when available, and when collateralized rates are not available, it useswe use uncollateralized rates with similar terms adjusted for the fact that it is an unsecured rate.
The operating lease ROU asset is the initial lease liability adjusted for any prepayments, initial indirect costs incurred by the Company, and lease incentives. The Company's operating leases are includedreported in right-of-useROU assets, the current portion lease liabilities, and operating lease liabilities on the accompanyingin our consolidated balance sheets. The Company's financeFinance leases are included in property and equipment and financing lease liabilities on the accompanyingour consolidated balance sheets.
Operating lease expense is recognized on a straight-line basis over the lease term.
The Company is also party to a master unitary lease in connection with the sale of eight properties in September 2023 that did not meet the criteria for sale accounting. This transaction is accounted for as a financing obligation in accordance with ASC 842, Leases. See Notes 9 and 10.
Other Assets
Other assets consist of various items, including among other itemslong-term finance receivables, debt issuance costs associated with anlines of credit, lease deposits, and other long-term assets.
Debt Issuance Costs
Debt issuance costs are capitalized and amortized as interest expense over the term of the related debt instruments.or credit line. Debt issuance costs for credit lines are recorded as Other assets, while those associated with other types of borrowings are presented as a deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts.
AccruedOther Current Liabilities
AccruedOther current liabilities consist of various items payable within one year, including, among other items, accruals for capital expenditures, operating leases, sales tax, compensation and benefits, vehicle licenses and fees, interest expense, reserves for returns and cancellations,on debt, and advertising expenses.
Change in Reference Rate Used in Debt
Our senior secured debt and most of our floorplan arrangements transitioned from LIBOR to the use of the Secured Overnight Financing Rate (“SOFR”) as an alternative benchmark rate effective July 1, 2023 under the Oaktree Credit Agreement, as amended. In conjunction with this change, the Company adopted ASU 2020-04, Reference Rate Reform (Topic 848), and ASU 2022-06 that were intended to temporarily ease the potential burden in accounting for reference rate reform. The standards provided optional expedients and exceptions for applying GAAP to existing contracts, hedging relationships, and other transactions affected by reference rate reform. The adoption of this standard did not have a material impact on the Company's Condensed Consolidated Financial Statements.
Embedded Conversion Features
The Company evaluates embedded conversion features, including cash conversion features, within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment, the instrument is evaluated under ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”). Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost. The Company includes the equity component of its convertible debt within additional paid-in capital on the consolidated balance sheets, and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, the Company records non-cash interest expense as a result of the amortization of the discounted carrying value of the convertible debt to its face amount over the term of the convertible debt.
Revenue Recognition
The Company’sWe derive substantially all of our revenue consists primarilyfrom the sale of pre-ownedpowersports vehicles, finance and wholesale vehicle sales as well as vehicle logisticsinsurance products for vehicles sold, parts, service, accessories and apparel, and transportation brokerage services. See Note 3 – Revenue from the sale of these products and services is recognized when control passes to the customer, which generally occurs at the point in time when the products are delivered. Revenue is measured as the amount of consideration we expect to receive in exchange for additional informationtransferring the related goods. Sales taxes we collect concurrently with revenue-producing activities are excluded from revenue. Our revenue is reported by major line of product sold on our significant accounting policies related toconsolidated statements of operations. We believe this categorization best depicts how the nature, amount, timing and uncertainty of our revenue recognition.and cash flows are affected by economic factors. See Note 3 for a disaggregation of powersports vehicles sold.Cost of Revenue
Cost of powersports vehicle sales includes the cost to acquire vehicles and the reconditioning and transportation costs associated with preparing the vehicles for resale. Reconditioning costs include parts, labor, overhead costs, and other vehicle repair expenses directly attributable to specific vehicles. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition. Cost of revenue also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses include costs and expenses for compensation and benefits, advertising to consumers and dealers, developmentdeveloping and operating our product procurement and distribution system, managingleasing and operating our logistics system,facilities, transportation costcosts associated with selling vehicles, establishing our dealer partner arrangements, and other corporate
overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business development.
Legal costs are expensed as incurred. See Note 12 for a summary of our SG&A expenses incurred in the past two years.Advertising and Marketing Expenses
Advertising and marketing costs are expensed as incurred and are included in Selling, general and administrativeSG&A expenses in the accompanying Consolidated Statements of Operations. AdvertisingSee Note 12 for the amount of advertising and marketing expenses were $14,425 and $5,287 forcosts incurred in the years ended December 31, 2021 and 2020, respectively.past two years. Stock-Based Compensation
Stock-based compensation represents the cost related to stock-based awards granted to employees and non-employee directors. The Company measures stock-based compensation cost at the grant date, based on the estimated fair value of the award, and recognizes the cost on a straight-line basis, net of estimated forfeitures, over the grantee’s requisite service period, which is generally the vesting period of the award. The Company estimatesForfeitures are recognized as they occur. To estimate the fair value of stock options usingawarded, we use the Black-Scholes option valuation model while market-condition based awards are estimated usingfor those that vest over time and a Monte Carlo simulation model as these awards are tied to afor those that vest based on market condition.conditions. Key assumptions used in estimating the fair value of options are dividend yield, expected volatility, risk-free interest rate and expected term.
We record deferred tax assets for awards that result in deductions on our income tax returns, based on the amount of compensation expense recognized and the statutory tax rate in the jurisdiction in which we will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on
PPP Loans
In 2020, the Company and certain of its wholly owned subsidiaries entered into loan agreements and related promissory notes to receive U.S. Small Business Administration (“SBA”) Loans pursuant to the Paycheck Protection Program (the “PPP”) established under the Coronavirus Aid, Relief and Economic Security Act. The remaining balance of PPP loans was forgiven by the SBA during 2022 and is reflected as “forgiveness of PPP loan” on the Consolidated Statement of Operations.
Defined Contribution Plan
The Company sponsors the RumbleOn, Inc. 401(k) Plan and RumbleOn 401(k) Plan (the "Retirement“Retirement Savings Plans"Plans”), for eligible employees. Employees electing to participate in the Retirement Savings Plans may contribute up to 75% of their annual eligible compensation. The Company provides matching contributions of 25% match for employee contributions up toon a maximum matching contribution ofdiscretionary basis. No such contributions were made in 2023. In 2022, $2 thousand per employee annually. Employeremployer contributions to the plan, net of forfeitures, were approximately $722 for the year ended December 31, 2021. There was no employer matching in the year-ended December 31, 2020. Employer contributions are$0.2 million and were included in selling, general, and administrative expenses in the accompanying consolidated statements of operations.SG&A expenses.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certainis defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market assumptions and pertinent information available to managementparticipants as of December 31, 2021 and 2020. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
ASC Topic 820-10-30-2, Fair Value Measurementthe measurement date. Accounting guidance also establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are from sources independent of the Company, whereas unobservable inputs reflect the Company's assumptions about the inputsthat market participants would use in pricingvaluing the asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the bestfactors market participants would use in valuing the asset or liability. Fair value estimates are based upon certain market assumptions and pertinent information available into management as the circumstances. estimates are made.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: OtherInputs other than quoted pricesLevel 1 that are observable, in the market for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or model-derived valuations or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: InputsUnobservable inputs that are unobservablesupported by little or no market activity and are significant to the fair value of the assets or liabilities. and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
We believe the respective carrying value of certain of our financial instruments, such as cash, prepaid expenses and accounts payable and accounts receivable, approximates their fair value because they are short term in nature or they are payable on demand. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 3 inputs, with the exception of cash and restricted cash, which are Level 1 inputs.
See Notes 9, 11, and 16 for various fair value disclosures.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815, Derivatives and Hedging (“ASC 815”) to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”). Under the ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer's economic interest cost. The effect of ASC 470-20 on the accounting for our convertible debt instruments is that the equity component is required to be included in the additional paid-in capital section of stockholders' equity on the consolidated balance sheets and the value of the equity component is treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we are required to record non-cash interest expense as a result of the amortization of the discounted carrying value of the convertible debt to their face amount over the term of the convertible debt.
From time to time, the Company has issued convertible notes that have conversion prices that create an embedded beneficial conversion feature pursuant to the guidelines established by the ASC Topic 470-20. The Beneficial Conversion Feature (“BCF”) of a convertible security is normally characterized as the convertible portion or feature of certain securities that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible security when issued and also records the estimated fair value of any conversion feature issued with those securities. Beneficial conversion features that are contingent upon the occurrence of a future event are recorded when the contingency is resolved. The debt discount is amortized to interest expense over the life of the note using the effective interest method. The Company calculates the fair value of the conversion feature embedded in any convertible security using an open-form binomial option pricing model (“lattice model”) that simulates, in a non-linear, risk-neutral framework, the stock price of the Company’s common stock.
Common Stock Warrants
The Company accounts for common stock warrants in accordance with applicable accounting guidance provided in Accounting Standards Codification (ASC) 815, Derivatives and Hedging – Contracts in Entity's Own Equity (“ASC 815”), as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. Any warrants that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) provided that such warrants are indexed to the Company's own stock isare classified as equity. The Company classifies as assets or liabilities any warrants that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company's control), (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement) or (iii) that contain reset provisions that do not qualify for the equity classification scope exception. The Company assesses classification of its common stock warrants at each reporting date to determine whether a change in classification between assets and liabilities is required. The Company's freestanding derivativeswarrants issued for financing costs satisfy the criteria for classification as equity instruments as these warrants do not contain cash settlement features or variable settlement provision that cause them to not be indexed to the Company's own stock. There are 16,530 warrants to purchase common stock outstanding at December 31, 2021 consisting of: (i) 10,913 warrants issued to underwriters in connection with the October 23, 2017 public offering of Class B common stock; (ii) 5,617 warrants issued to Hercules in connection with the 2018 financings. During the year ended December 31, 2021, the Company issued warrants (the “Oaktree Warrants”) to purchase $40,000 of shares of Class B common stock to Oaktree Capital Management, L.P. and its lender affiliates connection with providing the debt financing for the RideNow transaction. In August 2021, the exercise price of the warrants was set at $33.00 per share and the aggregate number of shares of Class B common stock underlying the Oaktree Warrants was 1,212,121.
Debt Issuance Costs
Debt issuance costs are accounted for pursuant to FASB ASU 2015-3, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-3”). ASU 2015-3 requires that debt issuance costs be presented as a direct deduction from the carrying amount of the related debt liability, consistent with the presentation of debt discounts.
Income Taxes
The Company follows ASC Topic 740, Income Taxes (“ASC 740”), for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If based on the weighting of all available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized,
a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC 740 only allows the recognition of those tax benefits that have a greater than 50% likelihood of being sustained upon examination by the taxing authorities. As of December 31, 2021,2023, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.
authorities. The Company does not anticipate any significant changes to its total unrecognized tax positions within the next 12 months.
LossEarnings (Loss) Per Share
The Company follows the FASB Accounting Standards Codification (“ASC”) Topic 260, Earnings per share. Basic earnings (loss) per common share (“EPS”) calculations are determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the year.period. Diluted earnings (loss) per common share calculations are determined by dividing net income (loss) by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods whenAnti-dilutive common stock equivalents, if any, are anti-dilutive they are not considered in the computation. Common share and dilutive common share equivalents include: (i) Class A common:common; (ii) Class B common; (iii) Class B participating preferred shares; (iv) restrictiverestricted stock units; (v)(iv) stock options; (vi)(v) warrants to acquire Class B common stock; and (vii)(vi) shares issuedissuable in connection with convertible debt. When considering the impact of the participating securities, diluted net loss per share is computed using the more dilutive of (a) the two-class method or (b) the treasury stock method. Dilution is determined at the income (loss) from continuing operations level. In periods of a loss from continuing operations, diluted loss from continuing operations per share is generally the same as basic loss from continuing operations per share, because dilutive shares are not assumed to have been issued if their effect is anti-dilutive. Components of EPS are calculated on a stand-alone basis.
Comprehensive Income
Comprehensive income represents all changes in equity of an entity during the reporting period, except those resulting from investments by, and distributions to, shareholders. For all years presented, no differences existed between our consolidated net loss and our consolidated comprehensive loss.
Concentrations of Risk
While we sell powersports vehicles from many different manufacturers, our top three manufacturers comprise the majority of our sales of new powersports vehicles. For 2023, original equipment manufacturers (“OEM”s) representing 10% or more of RumbleOn’s revenue from new powersports vehicle sales were as follows:
| | | | | | | | |
| Manufacturer (Powersports Vehicle Brands): | | % of Total
New Vehicle Revenue |
| Polaris | | 29.3% |
| BRP | | 25.6% |
| Harley-Davidson | | 11.3% |
Recent Accounting Pronouncements
Adoption of New Accounting Standards.Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)
In December 2019,August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt - Debt with Conversion and Other Options and Derivatives and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the if-converted method in the diluted earnings per share calculation for convertible instruments. This ASU will be effective for us in the first quarter of 2024, and permits the use of either the modified retrospective or fully retrospective method of transition. We will use the modified retrospective method for the adoption of this standard, which is expected to result in a reversal of the $3.7 million unamortized debt discount associated with our convertible debt and a corresponding net charge to equity that will be reflected as an adjustment to the January 1, 2024 opening balance sheet.
Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2019-12,2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires a public entity to disclose the title and position of the Chief Operating Decision Maker (CODM). The ASU does not change how a public entity identifies its operating segments, aggregates them, or applies the quantitative thresholds to determine its reportable segments. The new standard is effective for us for fiscal year 2024 and interim periods beginning in 2025, with early adoption permitted. We expect this ASU to only impact our disclosures, which will be made on a retrospective basis, with no impacts to our results of operations, cash flows and financial condition.
Income Taxes (Topic 740): SimplifyingImprovements to Income Tax Disclosures
In December 2023, the Accounting forFASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures(“, which focuses on the rate reconciliation and income taxes paid. This ASU 2019-12”). ASU 2019-12 removesrequires disclosure, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain exceptionsreconciling items further broken out by nature and jurisdiction to the general principlesextent those items exceed a specified threshold. In addition, the ASU requires disclosure of income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The new standard is effective for the Company for 2025, with early adoption permitted. An entity may apply the amendments in Topic 740this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and also clarifiescontinuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all periods presented. We expect this ASU to only impact our disclosures with no impacts to our results of operations, cash flows, and amends existing guidance to improve consistent application. The Company adopted ASU 2019-12 for its fiscal year beginning January 1, 2021 and it did not have a material effect on its consolidated financial statements.condition.
NOTE 2 – ACQUISITIONSACQUISITION
RideNow Transaction
On February 18, 2022, we acquired 100% of the Closing Date, RumbleOn completed its business combination with RideNow (“RideNowequity interests of the Freedom Entities, as defined in Note 1, which operated powersports dealerships, including associated real estate (the “Freedom Transaction”). Pursuant toWe accounted for the Plan of Merger and Equity Purchase AgreementFreedom Transaction as amended (the “RideNow Agreement”), on the Closing Date, there were both mergers and transfers of ownership interest comprising in aggregate the RideNow Transaction. For the mergers, 5 newly-created RumbleOn subsidiaries were merged with and into 5 RideNow entities (“Merged RideNow Entities”) with the Merged RideNow Entities continuing as the surviving corporations and with the Company obtaining ownership of these entities through these mergers and the transfers noted below.Merged RideNow Entities owned powersports retail locations approximately 30% of RideNow retail location. For the transfers of ownership interest, the Company acquired all thea business combination. All outstanding equity interests of 21 entities comprising the remaining 70%Freedom Entities were acquired for total consideration of $97.2 million, consisting of $70.6 million paid in cash, including certain transaction expenses paid on behalf of the RideNow’s retail locations (“Acquired RideNow Entities”, and together with the Merged RideNow Entities, the “RideNow Entities”) that directly or indirectly operate the remaining RideNow powersports retail locations.
Pursuant to the RideNow Agreement, on the Closing Date, the RideNowFreedom Entities' equity holders, received cash considerationand issuance of $400,400 and 5,833,333 shares of RumbleOn’s Class B Common Stock, valued at $200,958 based on the close price of the Company’s Class B Common Stock on the Closing Date. The cash consideration of $400,400 includes funds against which the Company may make claims for indemnification; this amount is included in consideration transferred. The cash consideration for the RideNow Transaction was funded from (i) the Company’s underwritten public offering of 5,053,0291,048,718 shares of Class B common stock which resulted in net proceedswith a value of approximately $154,443 (the “August 2021 Offering”), and (ii) net proceeds of approximately $261,000 pursuant to the Oaktree Credit Facility entered into on the Closing Date (as further described in Note 9 - Notes Payable and Lines of Credit, the (“Oaktree Credit Agreement”). The remaining funds received from these financing transactions were used for working capital purposes.
on the closing date. On June 22, 2022, as part of the final purchase price adjustment, 2,446 shares of Class B common stock held in escrow were cancelled.
The following table ($ in millions) summarizes the provisional consideration transferred by the Company for the acquisitions:Freedom Transaction:
| | | | | | | | |
| Cash | | $ | 400,40070.6 | |
Class B Common Stockcommon stock | | 200,95826.5 | |
| Acquiree transaction expenses paid by the Company at closing | | 0.1 | |
Total provisional purchase price consideration | | $ | 601,35897.2 | |
The final purchase price allocation will be completed upon payment of final consideration for working capital and other adjustments. RideNow is includedtable below ($ in millions) represents the Powersports reporting segment, including goodwill, as the RideNow business is entirely within the Company’s Powersports segment. As of December 31, 2021, we have performed an initial valuation of the amounts below; however, our assessment of these amounts remains open for completion. The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates. The final purchase price allocation may include changes to: (1) property and equipment; (2) right-of-use assets and lease liabilities; (3) deferred tax liabilities, net; (4) allocations to intangible assets as well as goodwill; (5) final consideration paid related to working capital and other adjustments; and (6) other assets and liabilities. We are required to finalize our purchase price allocations within one year after the Closing Date.
The following amounts represent the preliminary determination of the fair value of the identifiable assets acquired and liabilities assumed from RideNow. Any potential adjustments made could be materialthe Freedom Entities. All acquired assets and liabilities, including goodwill, recognized as a result of the Freedom Transaction have been included in relation to the preliminary values presented below.
Company’s powersports reporting segment. | | | | | |
Estimated fair value of assets acquired:assets: | |
| Cash | $ | 34,4546.4 | |
| Contracts in transit | 10,8781.2 | |
| Accounts receivable | 10,1241.1 | |
| Inventory | 127,08024.8 | |
| Prepaid expenses | 1,7850.2 | |
Right-of-use assets | 126,886 | |
| Property & equipment | 15,50950.2 | |
| Right-of-use assets | 2.9 | |
| Other intangible assets | 2.1 | |
| Franchise rights | 282,00039.7 | |
Other intangible assets, net | 22,129 | |
Other assets | 119 | |
| Total assets acquired | 630,964 $ | |
| 128.6 | |
| Estimated fair value of liabilities assumed: | |
| Accounts payable, accrued expenses and other current liabilities | 43,409 $ | 5.4 | |
| Notes payable - floor plan | 47,16118.3 | |
| Lease liabilities | 130,1812.0 | |
| Deferred revenues | 3.5 | |
| Mortgage notes | 26.8 | |
| Notes payable | 6,5494.7 | |
Deferred tax liabilities | 30,548 | |
Other long-term liabilities | 6,210 | |
| Total liabilities assumed | 264,05860.7 | |
| |
| Total net assets acquired | 366,90667.9 | |
| |
| Goodwill | 234,45229.3 | |
| |
| Total purchase price consideration | $ | 601,35897.2 | |
The Company assumed two promissorynotes payable and mortgage notes liabilities with aggregate principalof $31.5 million on the Freedom Transaction closing date. The outstanding balance of these liabilities were repaid in the first quarter of 2022 and accrued interestare reflected as cash outflows from financing activities in the Consolidated Statements of $2,200 asCash Flows. The Company funded the cash portion of the Closing Date dueFreedom Transaction, transaction expenses, notes payable, and mortgage note repayments through available cash resources of $11.3 million and an $84.5 million draw on the Oaktree Credit Agreement (as defined in Note 9).
The Company expects it will be able to entities controlled by William Coulter and/or Mark Tkach. See Footnote 18amortize, for further detailstax purposes, $30.0 million of these 2 related party promissory notes.goodwill.
The results of operations of RideNowthe Freedom Entities from the Closing DateFreedom Transaction closing date forward are included in the accompanying Consolidated Financial Statements.Statements and include revenues of $204.0 million and pre-tax earnings of $23.0 million for 2022. Acquisition related costs of $4,281$1.3 million were incurred for the year ended December 31, 2021in 2022 and arewere included in Selling, Generalselling, general and Administrativeadministrative expenses in the Consolidated Statement of Operations. In addition, the Company elected to accelerate the vesting of restricted stock units (“RSUs”) and grant other stock awards in connection with the RideNow Transaction. The total value of these awards of $23,943 is reported within selling, general and administrative expense in the Consolidated Statement of Operations.
Supplemental pro forma information (Unaudited)
The following unaudited supplemental pro forma financial information presents the financial resultsCompany consolidated information for 2022 as if the RideNowFreedom Transaction waswere completed atas of January 1, 2020. Pro forma net income for the year ended December 31, 2021 includes income tax benefit of $2,706 reported in the Consolidated Statements of Operations.2021:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Pro forma revenue | $ | 1,650,625 | | | $ | 1,348,211 | |
| Pro forma net income | $ | 45,565 | | | $ | 18,854 | |
| Net income per share-basic | $ | 6.58 | | | $ | 8.63 | |
| Weighted average number of shares-basic | 6,920,318 | | | 2,184,441 | |
| Net income per share-fully diluted | $ | 6.42 | | | $ | 5.75 | |
| Weighted average number of shares-fully diluted | 7,099,041 | | | 3,279,699 | |
Pro forma adjustments for the year ended December 31, 2021 and 2020, primarily include:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Stock compensation and other administrative costs | $ | 29,219 | | | $ | 3,175 | |
| Depreciation and amortization | $ | 13,199 | | | $ | 13,607 | |
| Interest expense | $ | 40,347 | | | $ | 47,312 | |
| Income tax provision (benefit) | $ | (2,706) | | | $ | 6,305 | |
| | | | | |
| 2022 |
Pro forma revenue ($ in millions) | $ | 1,482.6 | |
Pro forma net loss from continuing operations ($ in millions) | $ | (233.3) | |
| Pro forma loss per share from continuing operations-basic | $ | (14.59) | |
| Pro forma loss per share from continuing operations-diluted | $ | (14.59) | |
NOTE 3 –REVENUE
Our revenue consists of new vehicles sales, retail and wholesale used vehicle sales, sales of new and pre-owned powersports vehicles; sales of related finance and insurance products andproducts; sales of parts, service, accessories, and apparel.apparel; and transportation brokerage services.
New and UsedPre-owned Powersports Vehicles
The Company sells new and usedpre-owned powersports vehicles. The transaction price for a powersports vehicle sale is determined with the customer at the time of sale. Customers often trade in their own powersports vehicle to apply toward the purchase of a retail new or usedpre-owned powersports vehicle. The “trade-in” powersports vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific powersports vehicle, and applied as payment of the contract price for the purchased powersports vehicle.
When the Company sells a new or usedpre-owned powersports vehicle, transfer of control typically occurs at a point in time upon delivery of the vehicle to the customer, which is generally at the time of sale, as the customer is able to direct the use of and obtain substantially all benefits from the powersports vehicle at such time. Except foron a very limited circumstances,basis, the Company did not directly finance its customer’s purchases, and the Company does not directly finance its customer’s purchases or provide leasing.leases for the customer. In many cases, the Company arranges third- partythird-party financing for the retail sale or lease of powersports vehicles to customers in exchange for a fee paid to the Company by a third-party financial institution. The Company receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-intransit)contracts-in-transit) within a short period of time following the sale. The Company establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.
Parts and Service
The Company sells powersports parts and vehicle services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. The Company also sells powersports parts through wholesale and retail counter channels.
Each repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the powersports vehicle service. Payment for each vehicle service work is typically due upon completion of the service, which is generally completed within a short period from contract inception. The transaction price for repair and maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. The performance obligation for repair and maintenance service are satisfied over time and create an asset with no alternative use and with an enforceable right to payment for performance completed to date. Revenue is recognized over time based on a direct
measurementupon completion of labor hours, parts and accessories that are allocated to openthe vehicle service and repair orders atwork as the end of each reporting period. As a practical expedient, the time value of moneycustomer is not considered since repair and maintenanceable to consume the benefits of repairs until the service contracts have a duration of one year or less.is fully complete. The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at time of sale, or within a short period following the sale. The Company establishes provisions, which are not significant, for estimated parts returns based on historical information and current trends. Delivery method of wholesale and retail counter parts vary.
The Company generally considers control of wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or within a few days of sale. The Company also offers customer loyalty points for parts and services for select franchises. The Company satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.
Finance and Insurance
The Company sells and receives commissions on the following types of finance and insurance products: extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, among others. The Company offers products that are sold and administered by independent third parties, including the powersports vehicle manufacturers’ captive finance subsidiaries.
Pursuant to the arrangements with these third-party providers, the Company sells the products on a commission basis. For the majority of finance and insurance product sales, the Company’s performance obligation is to arrange for the provision of goods and services by another party. The Company’s performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the end customer, generally at the time of the vehicle sale. As agent, the Company recognizes revenue in the amount of any fee or commission to which it expects to be entitled, which is the net amount of consideration that it retains after paying the third-party provider the consideration received in exchange for the goods or services to be fulfilled by that party.
The Company’s customers are concentrated in the Sunbelt region. There are no significant judgementsjudgments or estimates required in determining the satisfaction of the performance obligations or the transaction price allocated to the performance obligations. As revenue areis recognized at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.
Vehicle LogisticsTransportation Services
Vehicle logisticstransportation services revenue is generated primarily by entering into freight brokerage agreements withtransporting vehicles for dealers, distributors, or private party individuals to transport vehicles from a point of origin to a designated destination. Thedestination through the Company’s subsidiary, WholesaleExpress. Express provides thesecontracts with third party carriers to perform the transportation services. The transaction price is based on the consideration specified inagreed upon with the customer's contract.customer. A performance obligation is created when the customer under a transportation contract submits a bill of lading forrequests, and Express agrees, to transport the transport of goods from origin to destination. These performance obligations are satisfied aswhen the shipments move from origin to destination. The freighttransportation brokerage agreements are fulfilled by independent third-party transporters. While the Company is primarily responsible for fulfilling to customers, these transporters are obligated to meet our performancefulfillment obligations and standards. PerformanceFulfillment obligations are short-term,short term, with transit days less than one week. Generally, customers are billed either upon shipment of the vehicle or on a monthly basis, and remit payment according to approved payment terms, generally not to exceed 30 days. Revenue is recognized as risks and rewards of transportation of the vehicle are transferred to the owner during delivery. Wholesale Express is considered the principal in the delivery transactions since it is primarily responsible for fulfilling the service. As a result, revenue is recorded gross.on a gross basis.
Disaggregation of Revenue
The significant majority of the Company’s revenue is from contracts with customers. In the following tables,table, revenue is disaggregated by major lines of goods and services, and timing of transfer of goods and services. We have determined that these categories depictwhich depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.
Revenue from contracts with customers consists of the following:
| | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| Revenue | | | | |
| New vehicles | | $ | 169,632 | | | $ | — | |
| Used vehicles | | | | |
| Powersports | | 153,671 | | | 46,654 | |
| Automotive | | 460,888 | | | 337,085 | |
| Total used vehicles | | 614,559 | | | 383,739 | |
| Total new and used vehicles | | 784,191 | | | 383,739 | |
| | | | |
| Parts, service and accessories | | 66,969 | | | — | |
| Vehicle logistics | | 43,878 | | | 31,816 | |
| Finance and insurance | | 43,402 | | | 872 | |
| Total revenue | | 938,440 | | | 416,427 | |
| | | | |
| Timing of revenue recognition | | | | |
| Goods and services transferred at a point in time | | 897,019 | | | 416,427 | |
| Good and services transferred over time | | 41,421 | | | — | |
| Total revenue | | $ | 938,440 | | | $ | 416,427 | |
| | | | | | | | | | | |
| ($ in millions) | December 31, |
| 2023 | | 2022 |
| Revenue | | | |
| New vehicles | $ | 658.5 | | | $ | 641.0 | |
| Pre-owned vehicles | 292.9 | | | 392.9 | |
| Total powersports vehicles | 951.4 | | | 1,033.9 | |
| | | |
| Parts, service and accessories | 241.8 | | | 247.6 | |
| Vehicle transportation services | 56.2 | | | 54.0 | |
| Finance and insurance, net | 117.0 | | | 123.4 | |
| Total revenue | $ | 1,366.4 | | | $ | 1,458.9 | |
| | | | | | | | | | | | | | |
| Timing of revenue recognition | | | | |
| Goods and services transferred at a point in time | | $ | 1,218.6 | | | $ | 1,298.8 | |
| Good and services transferred over time | | 147.8 | | | 160.1 | |
| Total revenue | | $ | 1,366.4 | | | $ | 1,458.9 | |
NOTE 4 –ACCOUNTS RECEIVABLE, NET
Accounts receivable consistsconsisted of the following as of December 31,31:
| | 2021 | | 2020 |
| ($ in millions) | | ($ in millions) | 2023 | | 2022 |
| Receivable from the sale of the ROF loan portfolio | |
| Contracts in transit | Contracts in transit | $ | 9,141 | | | $ | — | |
| Trade receivables | Trade receivables | 20,061 | | | 8,859 | |
Factory receivables (1) | Factory receivables (1) | 4,003 | | | — | |
Finance receivables (2) | 7,622 | | | 2,118 | |
| 40,827 | | | 10,977 | |
| 50.8 | |
| Less: allowance for doubtful accounts | Less: allowance for doubtful accounts | 661 | | | 1,569 | |
| $ | 40,166 | | | $ | 9,408 | |
| Accounts receivable, net | |
(1) Factory receivables represents Primarily amounts due primarily from manufacturer for holdbacks, rebates, co-op advertising, warranty and supplies returns.
(2) Finance receivables originated in connection with the Company’s vehicle sales.
The allowance for doubtful accounts was approximately $661 and $1,569 as of December 31, 2021 and 2020, respectively.
Finance receivables are stated net of allowance for doubtful accounts. The Company uses the allowance method to account for uncollectible finance receivables. The allowance for doubtful accounts is increased by charges to bad debt expense and decreased by actual write-offs (net of recoveries). A receivables is written off when the Company determines it is uncollectible. Management’s periodic evaluation of the adequacy of the allowance is based on the Company’s past collection experience, knowledge of the customer, and aging of the receivables. During the years ended December 31, 2021 and 2020, management wrote of $76 and $296, respectively, of finance receivables considered to be uncollectible.
NOTE 5 – INVENTORY
Inventory, net of reserves, consistsconsisted of the following as of December 31,31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| New powersport vehicles | $ | 68,244 | | | $ | — | |
| Pre-owned vehicles: | | | |
| Powersport vehicles | 77,418 | | | 1,870 | |
| Automobiles | 32,512 | | | 19,490 | |
| Parts, accessories and other | 23,492 | | | — | |
| $ | 201,666 | | $ | 21,360 |
Floor plan notes payable as of December 31,
| | | | | | | | | | | |
| 2021 | | 2020 |
| Floor plans notes payable - trade | $ | 15,119 | | | $ | — | |
| Floor plans notes payable - non-trade | 82,159 | | 17,812 |
| Floor plan notes payable | $ | 97,278 | | | $ | 17,812 | |
Floor plan notes payable - trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventory with corresponding manufacturers' captive finance subsidiaries (“trade lenders”). Floor plan notes payable-non-trade represents amounts borrowed to finance the purchase of specific new and used vehicle inventories with non-trade lenders. Changes in vehicle floor plan notes payable- trade are reported as operating cash flows and changes in floor plan notes payable-non-trade are reported as financing cash flows in the accompanying Consolidated Statements of Cash Flows. | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| New powersports vehicles | $ | 265.3 | | | $ | 175.0 | |
| Pre-owned powersports vehicles | 50.8 | | | 115.4 | |
| Parts, accessories and other | 31.4 | | | 33.1 | |
| Inventory | $ | 347.5 | | | $ | 323.5 | |
New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the gross cost of the vehicle.
The Company relies on its floorplan vehicle floor plan payables, as shown in the above table, will generally also be higher than the inventory cost due to the timing of the sale of a vehicle and payment of the related liability. Vehicle floor plan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floor plan facilities are primarily collateralized by vehicle inventories and related receivables.
New vehicle floor plan facilities generally utilize LIBOR or ADB (Average Daily Balance)-based interest rates, which generally ranged between 5% and 7% as of December 31, 2021. Used vehicle floor plan facilities generally utilize prime, LIBOR or ADB-based interest rates, which ranged between 4.75% and 8% as of December 31, 2021. The aggregate capacityfinancing credit lines (“Floorplan Lines”) to finance our inventory under the new and usedpre-owned powersports vehicle floor plan facilities was $274,468 as of December 31, 2021. The Company cannot predict the effect of the discontinuance of LIBOR or the establishment and use of alternative rates or benchmarks on interest expense as of December 31, 2021. The Company is evaluating alternative benchmarks, which may include the Secured Overnight Financing Rate (“SOFR”).
inventory at its retail locations. Inventory serves as collateral under floor plan notes payable borrowings. The inventory balance in its entirety also serves as collateral under the Oaktree Credit
Facility.Facility and the Indenture. Refer to
Note 9 - Notes Payable and Lines of Credit for further detail.
NOTE 6 – PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net, of accumulated depreciation and amortization as of December 31,
| | | 2021 | | 2020 |
| ($ in millions) | | ($ in millions) | 2023 | | 2022 |
| Land | |
| Buildings and improvements | Buildings and improvements | $ | 3,240 | | | $ | — | |
| Leasehold improvements | Leasehold improvements | 7,097 | | | 321 |
| Equipment | Equipment | 4,367 | | | — |
| Furniture and fixtures | Furniture and fixtures | 312 | | | 191 |
| Technology development | Technology development | 12,879 | | | 11,008 |
| Vehicles | Vehicles | 1,525 | | | 241 |
| Total property and equipment | Total property and equipment | 29,420 | | | 11,761 |
| Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | 8,003 | | | 5,240 |
| Total | Total | $ | 21,417 | | | $ | 6,521 |
Depreciation expense was $6,103 in 2021 and $2,143 in 2020.
Total technology development costs incurred was $2,707 and $3,530 for the year ended December 31, 2021 and 2020, respectively. Of the total development costs incurred, approximately $1,266 and $2,145, was capitalized in the year ended December 31, 2021 and 2020, respectively. Approximately $1,441 and $1,385, was recorded as amortization expense related to capitalized technology development costs in the years ended December 31, 2021 and 2020, respectively.
NOTE 7 – GOODWILL AND INTANGIBLE ASSETS AND GOODWILL
The following is a summary of the changes in the carrying amount ofBalances for our goodwill franchise rights and other and other intangible assets as of December 31 were as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Goodwill | $ | 260,922 | | | $ | 26,887 | |
| | | |
| Other intangible assets | | | |
| Franchise rights - indefinite life | $ | 282,350 | | | $ | — | |
| Other intangibles | 22,175 | | | 46 | |
| 304,525 | | | 46 | |
| Less: accumulated amortization | 2,459 | | | — | |
| Intangible assets, net | $ | 302,066 | | | $ | 46 | |
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Goodwill, gross | $ | 242.5 | | | $ | 239.7 | |
| Accumulated impairment | (241.7) | | | (218.6) | |
| Goodwill, net | $ | 0.8 | | | $ | 21.1 | |
| | | |
| Intangible assets | | | |
Franchise rights (indefinite life)(1) | $ | 199.7 | | | $ | 236.7 | |
| Other intangible assets (definite-lived) | 23.8 | | | 23.8 | |
| 223.5 | | | 260.5 | |
| Less: accumulated amortization - other intangible assets | 21.0 | | | 13.1 | |
| Intangible assets, net | $ | 202.5 | | | $ | 247.4 | |
Other intangibles(1) Attributed to the Company’s powersports reporting unit. Amount is net of $22,175 is primarily comprisedaccumulated impairment of assets related to non-compete agreements as of December 31, 2021. The Company evaluates intangible assets for impairment at least annually,or when triggering events occur. No triggering events or impairment was noted as of December 31, 2021.
$142.7 million in 2023 and $105.7 million in 2022. The following is a summary of the changes in the carrying amount of goodwill by reportable segment duringreporting unit over the years ended December 31, 2021 and 2020.past two years:
| | | | | | | | | | | | | | | | | | | | | | | |
| Powersports | | Automotive | | Vehicle Logistics | | Total |
| Balance at December 31, 2019 | $ | — | | | $ | 26,039 | | | $ | 848 | | | $ | 26,887 | |
| Acquisitions | — | | — | | — | | — |
| Impairment | — | | — | | — | | — |
| Measurement period adjustment | — | | — | | — | | — |
| Balance at December 31, 2020 | — | | 26,039 | | 848 | | 26,887 |
| RideNow acquisition | 234,035 | | — | | — | | 234,035 |
| Impairment | — | | — | | — | | — |
| Measurement period adjustment | — | | | — | | | — | | | — |
| Balance at December 31, 2021 | $ | 234,035 | | | $ | 26,039 | | | $ | 848 | | | $ | 260,922 | |
| | | | | | | | | | | | | | | | | |
| ($ in millions) | Powersports | | Vehicle Transportation Services | | Total |
| December 31, 2021 | $ | 234.0 | | $ | 0.8 | | $ | 234.8 |
| Purchase accounting adjustments for prior year acquisitions | (26.8) | | — | | (26.8) |
| Acquisition of Freedom Powersports | 29.1 | | — | | 29.1 |
| Other immaterial acquisitions | 2.6 | | — | | 2.6 |
| Impairment | (218.6) | | — | | (218.6) |
| December 31, 2022 | 20.3 | | | 0.8 | | | 21.1 | |
| Other immaterial acquisition | 2.6 | | | — | | | 2.6 | |
| Purchase accounting adjustments for prior year acquisitions | 0.2 | | | — | | | 0.2 | |
| Impairment | (23.1) | | | — | | | (23.1) | |
| December 31, 2023 | $ | — | | | $ | 0.8 | | | $ | 0.8 | |
Goodwill associated withAnnual Impairment Test
The Company elected to bypass the RideNow acquisitionoptional qualitative test and performed a quantitative impairment review as of $234,035 representsOctober 1, 2023. The Company determined the preliminary determinationcarrying amount of the powersports reporting unit exceeded its fair value and recognized a $37.0 million non-cash franchise rights impairment charge and a $23.1 million non-cash goodwill impairment charge in the fourth quarter of 2023. The fair value of the vehicle transportation services reporting unit exceeded its carrying value and no impairment was recognized.
In 2022, we performed our impairment review as of October 1, 2022 that we further updated as of December 31, 2021. We expect to finalize2022, because we determined that certain factors in the purchase price allocation process for the RideNow acquisitionfourth quarter had triggered an indicator of impairment. The aggregate results of our assessments in 2022 resulted in (i) noncash goodwill impairment charges of $26.0 million in the automotive reporting unit presented in discontinued operations and $218.6 million in the powersports reporting unit and (ii) a noncash franchise rights impairment charge of $105.7 million in the powersports reporting unit.
Our definite-lived intangible assets primarily related to non-compete agreements as we complete our review of fair values. We are required to finalize our purchase price allocations within one year after the Closing Date.December 31, 2023. No triggering events or impairment of non-compete agreements were noted as of December 31, 2023.
A total of $148,500 of Goodwill at December 31, 2021 is non-deductible for tax purposes, which is comprised of goodwill associated with the RideNow acquisition of $125,400 and Wholesale Express of $23,100.
Estimated remaining annual amortization expense related to other intangibles:intangible assets ($ in millions):
| | 2022 | $ | 9,422 | |
| 2023 | 7,376 | |
| 2024 | 2024 | 2,918 | |
| 2025 | 2025 | — | |
| 2026 | 2026 | — | |
| 2027 | |
| Thereafter | Thereafter | — | |
| $ | 19,716 | |
| $ | |
NOTE 8 – ACCOUNTS PAYABLE AND OTHER ACCRUEDCURRENT LIABILITIES
The following table summarizes accounts payable and other accruedcurrent liabilities as of December 31, 2021 and 2020:31:
| | 2021 | | 2020 |
| ($ in millions) | | ($ in millions) | 2023 | | 2022 |
| Current portion of operating lease liabilities | |
| Accounts payable | Accounts payable | $ | 10,028 | | | $ | 8,168 | |
| Compensation and benefits | |
| State and local taxes | |
| Customer deposits | |
| Professional fees | |
| Accrued interest | Accrued interest | 3,649 | | | 1,486 | |
| Accrued payroll | 9,449 | | | 1,080 | |
| Customer deposits | 5,732 | | | — | |
| State and local taxes | 8,287 | | | 856 | |
| Professional fees | 5,637 | | | 112 | |
| Other accrued expenses | 14,286 | | | 861 | |
| Other | |
| Total | Total | $ | 57,068 | | | $ | 12,563 | |
NOTE 9 – NOTES PAYABLE AND LINES OF CREDIT–DEBT
Notes payableDebt consisted of the following as of December 31,31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Term loan credit agreement with Oaktree dated August 31, 2021. Amortization payments are required quarterly commencing in the quarter ending December 31, 2021. The Initial Loan Term Facility matures on August 31, 2026. The interest rate as of December 31, 2021 was 9.25%. | $ | 253,438 | | | $ | — | |
| Notes Payable-PPP Loans dated May 1, 2020 with maturity of April 1, 2025. Payments of principal and interest were deferred as of December 31, 2021 while the outstanding principal balance is under Small Business Administration (“SBA”) review. | 2,534 | | | 5,177 | |
| Unsecured note payable to P&D Motorcycles in the original amount of $1,724 with interest rate of 4% through maturity which is July 1, 2022. | 1,031 | | | — | |
| Secured notes payable-NextGen dated February 8, 2017. Matured on January 31, 2021. | — | | | 833 | |
| Notes payable-private placement dated March 31, 2017. Matured on June 30, 2021. | — | | | 669 | |
| Line of Credit-RumbleOn Finance. Line of credit secured by the loans and other assets of RumbleOn Finance, LLC. Interest rate at December 31, 2021 was 7.25%. | — | | | 889 | |
Unsecured notes payable to RideNow Management, LLLP, a related party through equal ownership by two directors; monthly principal payments ranging from $7 to $13; interest accruing at rates ranging from LIBOR+0.6% to LIBOR+1.3%. | 907 | | | — | |
| Total notes payable and lines of credit | 257,910 | | | 7,568 | |
| Less: Current portion of notes payable | 4,322 | | | 2,877 | |
| Long-term debt, net of current portion | $ | 253,588 | | | $ | 4,691 | |
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
Term Loan Credit Agreement due August 2026(1) | $ | 248.7 | | | $ | 346.1 | |
Vehicle floor plan notes payable (trade)(2) | 101.9 | | | 75.4 | |
Vehicle floor plan notes payable (non-trade)(2) | 189.4 | | | 144.7 | |
Finance lease obligation(2) | 49.8 | | | — | |
Convertible senior 6.75% promissory notes due January 2025(3) | 38.8 | | | 38.8 | |
RumbleOn Finance line of credit due February 2025(4) | 12.2 | | | 25.0 | |
Notes payable for fleet vehicles and other(2) | 2.1 | | | — | |
| Total principal amount | 642.9 | | | 630.0 | |
| Less: Unamortized discount and debt issuance costs | (29.3) | | | (31.8) | |
| Total debt | 613.6 | | | 598.2 | |
| Less: Floor plan notes payable and current portion of long-term debt | (326.9) | | | (223.8) | |
| Long-term debt | $ | 286.7 | | | $ | 374.4 | |
As of(1) Interest rate at December 31, 2021, future principal debt2023 of 13.90%. Interest payments are due as follows:required quarterly. Fair value of $266.1 million estimated using Level 3 inputs.
| | | | | |
| 2022 | $ | 4,322 | |
| 2023 | 150 | |
| 2024 | — | |
| 2025 | — | |
| 2026 | 253,438 | |
| Total debt payments | $ | 257,910 | |
Floor plan notes payable as of December 31,
| | | | | | | | | | | |
| 2021 | | 2020 |
| Floor plans notes payable - trade | $ | 15,119 | | | $ | — | |
| Floor plans notes payable - non-trade | 82,159 | | 17,812 |
| Floor plan notes payable | $ | 97,278 | | | $ | 17,812 | |
Floor plan notes payable-trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventory with corresponding manufacturers' captive finance subsidiaries (“trade lenders”). Floor plan notes payable-non-trade represents amounts borrowed to finance the purchase of specific new andused vehicle inventories with non-trade lenders. Changes in vehicle floor plan notes payable- trade are reported as operating cash flows and changes in floor plan notes payable-non-trade are reported as financing cash flows in the accompanying Consolidated Statements of Cash Flows.
New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the gross cost of the vehicle. The vehicle floor plan payables, as shown in the above table, will generally also be higher than the inventory cost(2) Carrying value approximates fair value due to the timingnature of the salethis debt. The fair value of a vehicle and paymentdebt where carrying value approximates fair value was determined using Level 3 inputs.
(3) Fair value of the related liability. Vehicle floor plan facilities are due$38.5 million estimated using Level 3 inputs.
(4) Interest rate at December 31, 2023 was 12.8%. This debt was fully repaid on demand, but in the case of new vehicle inventories, are generally paid within several business days after the related vehicles are sold. Vehicle floor plan facilities are primarily collateralized by vehicle inventories and related receivables.January 2, 2024.
New vehicle floor plan facilities generally utilize LIBOR or ADB (Average Daily Balance)-based interest rates, which generally ranged between 5% and 7% as
As of December 31, 2021. Used vehicle floor plan facilities generally utilize prime, LIBOR or ADB-based interest rates,2023, principal payments on our term loan, finance lease, convertible senior 6.75% promissory notes, RumbleOn Finance line of credit and notes payable for leasehold improvements and other are due as follows ($ in millions):
| | | | | | | | |
| Year | | Amount |
| 2024 | | $ | 35.6 | |
| 2025 | | 39.2 | |
| 2026 | | 226.2 | |
| 2027 | | 0.5 | |
| 2028 | | 0.3 | |
Thereafter(1) | | 49.8 | |
| Total debt payments | | $ | 351.6 | |
(1) Represents principal payments for the finance lease, the minimum lease payments of which ranged between 4.75% and 8% as of December 31, 2021. The aggregate capacity to finance our inventory under the new and used vehicle floor plan facilities was $274,468 as of December 31, 2021.are disclosed in Note 10.
Term Loan Credit Agreement - Oaktree
On August 31, 2021,The Company has a term loan credit agreement (as amended, the “Oaktree Credit Agreement”) among the Company, entered intoas borrower, the lenders party thereto, and Oaktree Fund Administration, LLC, as administrative agent and collateral agent. The Oaktree Credit Agreement which providesprovided for secured credit facilities in the form of a $280,000$280.0 million principal amount of initial term loans (the “Initial Term Loan Facility”) and a $120,000$120.0 million in aggregate principal amount of delayed draw term loans (the “Delayed Draw Term Loans Facility”). The proceeds from the Initial Term Loan Facility was used to consummate the RideNow Transaction and to provide for working capital. The proceeds from the Delayed Draw Term Loans Facility, if drawn, will be used to finance acquisitions permitted by the Oaktree Credit Agreement and similar investments or “earn-outs” entered into in connection with acquisitions and to pay fees and expenses relating thereto. Loans under the Delayed Draw Term Loans Facility are subject to customary conditions precedent for facilities of this type including the need to meet certain financial tests and become, which were available six (6) months after the Closing Date and are unavailable to be drawn after the eighteen (18) month anniversaryup to March 1, 2023. Warrants to purchase $40.0 million of shares of Class B Common Stock that we granted to Oaktree Capital Management, L.P. and its lender affiliates in consideration of the Closing Date. The Oaktree Credit Facility also provides for incremental draws for up to an additional $100,000initial loan expired in accordance with the terms set forth in the Oaktree Credit Agreement, which may be used for acquisitions or working capital. The loan is reported on the balance sheet as senior secured debt net of debt discount and debt issuance costs of $25,862, including the fair value of stock warrant of $10,950. April 2023.
Borrowings under the Oaktree Credit FacilityAgreement bear interest at a rate per annum equal, at the Company’s option, to either (a) LIBOR (withSOFR with a floor of 1.00%), plus an applicable margin of 8.25%, or (b) a fluctuating adjusted base rate in effect from time to time, plus an applicable margin of 7.25%., provided that an additional 0.5% interest will accrue from the Amendment No. 5 Effective Date (as defined below) through June 30, 2024. At the Company’s option, one percent (1.00%)1.0% of suchthe regular interest and all of the additional 0.5% interest may be payablepaid in kind. The interest rate on December 31, 2021, was 9.25%. Interest expense for the year December 31, 2021 was $10,580,$53.6 million in 2023 and $42.2 million in 2022, which included amortization of $1,870 related to thedebt discount and debtdeferred issuance costs. While the Oaktree Credit Agreement notes that SOFR may be selected as the alternative benchmark rate, this has not been determined ascosts of December 31, 2021. As such, the Company cannot predict the effect of the discontinuance of LIBOR or the establishment$7.3 million and use of alternative rates or benchmarks on interest expense as of December 31, 2021.$6.4 million, respectively.
Obligations under the Oaktree Credit Agreement are secured by a first-priority lien on substantially all of the assets of the Company and its domestic wholly owned subsidiaries (the “Subsidiary Guarantors”), although certain assets of the Company and Subsidiary Guarantors are subject to a first-priority lien in favor of floor plan lenders, and such liens and priority are subject to certain other exceptions. The Subsidiary Guarantors also guarantee the obligations of the Company under the Oaktree Credit Agreement.
At June 30, 2023, the Company was not in compliance with certain leverage ratio financial covenants under the Oaktree Credit Agreement. On August 9, 2023 (the "Amendment No. 5 Effective Date"), the Company, the Subsidiary Guarantors, Oaktree, and the lenders party thereto executed Amendment No. 5 to the Oaktree Credit Agreement (the “Amendment No. 5”), pursuant to which, among other things: (i) all leverage ratio financial covenants under the Oaktree Credit Agreement were (a) eliminated and not tested for the quarters ending June 30, 2023 and September 30, 2023 and (b) made less restrictive for the quarters ending December 31, 2023, March 31, 2024, and June 30, 2024; (ii) additional performance covenants were added requiring the Company and its subsidiaries to use commercially reasonable best efforts to dispose of certain non-core real estate and monetize its consumer loan portfolios (with corresponding requirements to use the net proceeds of such sales to pay down the term loans under the Oaktree Credit Agreement); (iii) an additional performance covenant was added requiring the Company raise net cash proceeds of not less than $100 million from the issuance of common equity interests in the Company by December 1, 2023, which was subsequently revised to December 8, 2023, (with a corresponding requirement to use $50 million of such equity proceeds to pay down the term loans under the Oaktree Credit Agreement), and (iv) an additional performance covenant was added requiring the Company to issue warrants, exercisable for an anticipated aggregate of 1,212,121 shares at a price of $12.00 per share, in a form to be agreed upon, to the lenders.In connection with Amendment No. 5, the Company paid a $0.7 million fee in kind, which is included in interest expense. The warrants were issued on August 14, 2023. See Note 11 for additional information. The elimination of the June 30, 2023 leverage ratio financial covenants was made effective as of June 30, 2023, and the lenders agreed in Amendment No. 5 that no event of default existed from such leverage ratio financial covenants as of such date. Based on the amended terms of the Oaktree Credit Agreement, the Company issued warrants to purchase $40,000believes that it will be in compliance with all covenants under the Oaktree Credit Agreement for the 12-month period from the issuance of shares of Class B common stock tothese financial statements. The
Company was in compliance with all financial and non-financial covenants with the Oaktree Capital Management, L.P.Credit Agreement at December 31, 2023 and its lender affiliates (the “ Warrant”). The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability is subject to remeasurement at each balance sheet date and any change in fair value is recognizedhas classified obligations under the Oaktree Credit Agreement as a componentnon-current liability.
Vehicle Floor Plan Notes Payable
Vehicle floor plan notes payable are classified as current liabilities. Floor plan notes payable (trade) reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, pre-owned powersports vehicle inventory with corresponding manufacturers' captive finance subsidiaries (“trade lenders”). Floor plan notes payable (non-trade) represents amounts borrowed to finance the changepurchase of specific new andpre-owned powersports vehicle inventories with non-trade lenders. Changes in derivative liabilityvehicle floor plan notes payable (trade) are reported as operating cash flows, and changes in floor plan notes payable (non-trade) are reported as financing cash flows in the accompanying Consolidated Statements of Operations. The fair valueCash Flows. Inventory serves as collateral under vehicle floor plan notes payable borrowings.
New inventory costs are generally reduced by manufacturer holdbacks, incentives, floor plan assistance, and non-reimbursement-based manufacturer advertising rebates, while the related vehicle floor plan payables are reflective of the Warrant was estimated usinggross cost of the powersports vehicle. The vehicle floor plan payables will generally also be higher than the inventory cost due to the timing of the sale of a Monte Carlo simulationvehicle and payment of the related liability. Vehicle floor plan facilities are due on demand, but in the case of new vehicle inventories, are generally paid within a few business days after the related vehicles are sold. Vehicle floor plan facilities are primarily collateralized by vehicle inventories and related receivables.
New vehicle floor plan facilities generally utilize SOFR or ADB (Average Daily Balance)-based interest rates and generally ranged between 8% and 18% as of December 31, 2023. Pre-owned vehicle floor plan facilities are based on a combinationprime or SOFR and ranged between 7.3% and 8.5% as of level 1December 31, 2023. The aggregate capacity to finance our inventory under the new and level 2 inputs. Upon closingpre-owned vehicle floor plan facilities as of the RideNow Transaction, the warrants were considered equity linked contracts indexed to the Company’s stock and therefore met the equity classification guidance. As a result, the $19,700December 31, 2023 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge$449.5 million, of which $291.3 million was reclassified as part of the debt discount related to the Oaktree Credit Agreement. The recognition of the warrant liability and deferred financing charge and the reclassification of the warrant liability to additional paid-in capital and the reclassification of the deferred financing charge to debt discount are non-cash items.
Line of Credit-Floor Plan-NextGearused.
On October 30, 2018, Wholesale, as borrower,26, 2022, the Company entered into a floorplan vehicle financing credit lineFloorplan Line with J.P. Morgan (the “NextGear“J.P. Morgan Credit Line”) with NextGear. We ended borrowings under the NextGear Credit Line on August 31, 2021, at which point Wholesale entered into a floorplan vehicle financing credit line with AFC (the “AFC Credit Line”).that terminates October 25, 2024. Advances under the AFCJ.P. Morgan Credit Line are limited to $29,000$47.5 million as of December 31, 2021.2023. Interest expense on the NextGearJ.P. Morgan Credit Line was $1.7 million in 2023 and AFC Credit Line$0.1 million in 2022.
Finance Lease Obligation
On September 8, 2023, certain subsidiaries of the Company (collectively, the “Tenant”) and a third party, as the landlord entered into a sale and leaseback transaction related to eight of the Company's owned real estate locations, which generated net cash proceeds of $48.2 million. The transaction, however, did not transfer control of the properties to the landlord. As a result, the Company accounted for this transaction as a failed sale-leaseback transaction, in which the assets remain on the financial statements and a financing liability was recorded for the proceeds from the sale. The Company incurred $1.8 million in transaction costs related to the sale-leaseback, which are therefore considered debt issuance costs and will be amortized as interest expense over the expected life of the lease.
The resulting Lease Agreement is considered a triple net lease, which requires the Tenant to pay substantially all costs associated with the properties, and has a contractual term of 15 years, endedwith five separate renewal options at the Company's option. The renewal terms are effective to all, but not less than all, of the property subject to the Lease Agreement. The Company has assumed an expected lease life of 40 years to include all renewals. The initial annual rent under the Lease Agreement is $3.7 million, and the lease provides for rent increasing annually by the lesser of two times the Consumer Price Index or 2% during the initial term and all option periods.
The Company imputed the interest rate on the lease based upon the contractual minimum payments and the proceeds from the sale. Based on this, the Company has determined the effective interest rate on the debt to be 9.0%. See Note 10 for additional disclosures related to this deemed finance lease. Convertible Senior 6.75% Promissory Notes
The outstanding convertible promissory notes, net of unamortized debt discount and issue costs as of December 31 2021 and 2020, was $1,849 and $1,635, respectively.
PPP Loans
On May 1, 2020, the Company, and its wholly owned subsidiaries Wholesale and Wholesale Express (together, the “Subsidiaries”, and with the Company, the “Borrowers”), each entered into loan agreements and related promissory notes (the “SBA Loan Documents”) to receive U.S. Small Business Administration Loans (the “SBA Loans”) pursuant to the Paycheck Protection Program (the “PPP”) established under the CARES Act, in the aggregate amount of $5,177 (the “Loan Proceeds”). Pursuant to the terms of the SBA Loan Documents, the Borrowers can apply for and receive forgiveness for all, or a portion ofare summarized as follows:
the loans granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loans. In July, 2021, the Company applied to obtain forgiveness of the PPP Loans and approximately $2,643 of the loan forgiveness was approved as of December 31, 2021. The balance of the PPP loans of $2,534 is still under review by the SBA and the Company can provide no assurance that it will obtain forgiveness of this remaining balance in whole or in part. Payments on this remaining loan balance commenced on September 1, 2021, and the loans mature on April 1, 2025.
NOTE 10 – CONVERTIBLE NOTES
As of December 31, 2021, the outstanding convertible promissory notes net of debt discount and issue costs are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Face
Amount | | Debt
Discount | | Carrying
Amount | | Face
Amount | | Debt
Discount | | Carrying
Amount |
| Convertible senior notes | $ | 38,750 | | | $ | 9,508 | | | $ | 29,242 | | | $ | 38,750 | | | $ | 11,737 | | | $ | 27,013 | |
| Convertible notes-Autosport: | | | | | | | | | | | |
| $1,536 unsecured note | 154 | | — | | 154 | | 1,024 | | 308 | | 716 |
| 38,904 | | 9,508 | | 29,396 | | 39,774 | | 12,045 | | 27,729 |
| Less: Current portion | 154 | | — | | 154 | | 768 | | 205 | | 563 |
| Long-term portion | $ | 38,750 | | | $ | 9,508 | | | $ | 29,242 | | | $ | 39,006 | | | $ | 11,840 | | | $ | 27,166 | |
Convertible Senior Notes
On May 9, 2019, the Company entered into a purchase agreement (the "Purchase Agreement") with JMP Securities LLC ("JMP Securities") to issue and sell $30,000 in aggregate principal amount of its 6.75% Convertible Senior Notes due 2024 (the "Old Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act") (the "2019 Note Offering"). The Company paid JMP Securities a fee of 7.0% of the gross proceeds in the 2019 Note Offering. The proceeds for the 2019 Note Offering after deducting the initial purchaser's discounts, advisory fees, and related offering expenses, were approximately $27,386. | | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Convertible 6.75% senior promissory notes, principal amount | $ | 38.8 | | | $ | 38.8 | |
| Unamortized debt discount and issuance costs | 3.7 | | | 6.9 | |
| Convertible 6.75% senior promissory notes, carrying amount | $ | 35.1 | | | $ | 31.9 | |
The Old Notes were issued on May 14, 2019convertible senior notes (the “Notes”) are outstanding pursuant to an Indenture (the "Old Indenture"“Indenture”), by and between the Company and Wilmington Trust, National Association as trustee (the "Trustee"the Trustee and collateral agent for the Trustee and the holders of the Notes (in such capacity, the “Indenture Collateral Agent”). The PurchaseIndenture appoints the Indenture Collateral Agent as collateral agent for the Trustee and the holders of the Notes and authorizes the Indenture Collateral Agent to enter into, and the Indenture Collateral Agent become party to: (a) a Guaranty from the Subsidiary Guarantors in favor of the Indenture Collateral Agent in a form similar to that in favor of the Administrative Agent, guaranteeing to the Indenture Collateral Agent the obligations of the Company under the Indenture and Notes (the “Indenture Guaranty”), (b) a Security Agreement included customary representations, warrantiesfrom the Company and covenantsthe Subsidiary Guarantors in favor of the Indenture Collateral Agent in a form similar to that in favor of the Administrative Agent, securing the obligations of the Company under the Indenture and of the Subsidiary Guarantors under the Indenture Guaranty, and (c) a First Lien Intercreditor Agreement establishing the lien priority between the Administrative Agent and the Indenture Collateral Agent as to the collateral provided by the Company and customary closing conditions. Under the termsSubsidiary Guarantors and appointing the Administrative Agent as controlling collateral agent under certain circumstances with regard to the collateral and other creditors. The security interests in favor of the Purchase Agreement,Indenture Collateral Agent cover the Company agreed to indemnify JMP Securities against certain liabilities. The Old Notes bore interest at 6.75% per annum, payable semiannually on May 1same collateral and November 1 of each year, beginning on November 1, 2019. The Old Notes could bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the Old Indenture or if the Old Notes were not freely tradeable as required by the Old Indenture. The Old Notes would have matured on May 1, 2024, unless earlier converted, redeemed or repurchased pursuant to their terms.
The initial conversion rateare of the Old Notes was 8.6956 shares of Class B Common Stock, per $1 principal amountsame priority as the security interests in favor of the Old Notes, subject to adjustment (which is equivalent to an initial conversion price of approximately $115.00 per share, subject to adjustment).Administrative Agent. The conversion rate was subject to adjustment in some events but would not have been adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a make-whole fundamental change (as defined in the Old Indenture), the Company would, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elected to convert its Old Notes in connection with such make-whole fundamental change.
The Old Notes were not redeemable by the Company prior to the May 6, 2022. The Company could have redeemed for cash all or any portion of the Old Notes, at its option, on or after May 6, 2022 if the last reported sale price of the Company's Class B Common Stock had been at least 150.0% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100.0% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund was provided for the Old Notes. If redeemed, the Company would have made an interest make-whole payment to the converting holder equal to the sum of the present values of the scheduled payments of interest that would have been made on the Old Notes to be
converted had such Old Notes remained outstanding from the conversion date through the earlier of the date that is two years after the conversion date and June 15, 2022.
In connection with the 2019 Note Offering, the Company entered into a registration rights agreement with JMP Securities, pursuant to which the Company agreed to file with the SEC a resale shelf registration statement providing for the resale of the Old Notes and the shares of Class B Common Stock issuable upon conversion of the Old Notes. This resale registration statement was filed on August 22, 2019 and declared effective on August 30, 2019.
On January 10, 2020, the Company entered into a Note Exchange and Subscription Agreement, as amended by a Joinder Agreement (together, the "New Note Agreement"), with the investors in the 2019 Note Offering, pursuant to which the Company agreed to complete (i) a note exchange pursuant to which $30,000 of the Old Notes would be cancelled in exchange for a new series of 6.75% Convertible Senior Notes due 2025 (the "New Notes," and together with the Old Notes, the "Notes") and (ii) the issuance of additional New Notes in a private placement in reliance on the exemption from registration provided by Rule 506 of Regulation D of the Securities Act as a sale not involving any public offering (the "2020 Note Offering"). On January 14, 2020, the Company closed the 2020 Note Offering. The proceeds for the 2020 Note Offering after deducting for payment of accrued interest on the Old Notes and offering-related expenses were approximately $8,272.
The New Notes were issued on January 14, 2020 pursuant to an Indenture (the "New Indenture"), by and between the Company and the Trustee. The New Note Agreement includes customary representations, warranties and covenants by the Company and customary closing conditions. The New Notes bear interest at 6.75% per annum, payable semiannually on January 1 and July 1 of each year, beginning on July 1, 2020.year. The New Notes may bear additional interest under specified circumstances relating to the Company's failure to comply with its reporting obligations under the New Indenture or if the New Notes are not freely tradeable as required by the New Indenture. The New Notes mature on January 1, 2025, unless earlier converted, redeemed or repurchased pursuant to their terms. Contractual interest expense for these notes was $2.6 million in both 2023 and 2022, and amortization of debt discount and issuance costs totaled $3.1 million in 2023 and $2.6 million in 2022.
The initial conversion rate of the New Notes iswas 25 shares of Class B Common Stock per $1,000 principal amount of New Notes (after giving effect to the Company’s reverse stock split that occurred on May 18, 2020), which is equal to an initial conversion price of $40.00 per share. As of December 31, 2023, the conversion rate of the Notes was 33.5568 shares per $1,000 principal amount of Notes, which is equal to a conversion price of $29.80 per share. The conversion rate is subject to adjustment in certain events as set forth in the New Indenture but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of a "make-whole“make-whole fundamental change"change” (as defined in the New Indenture), the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its New Notes in connection with such make-whole fundamental change. Before July 1, 2024, the New Notes will beare convertible only under circumstances as described in the New Indenture. No adjustment to the conversion rate as a result of conversion or a make-whole fundamental change adjustment will result in a conversion rate greater than 62.062 shares per $1,000 in principal amount.
The New Indenture contains a "blocker provision"“blocker provision” which provides that no holder (other than the depository with respect to the notes)Notes) or beneficial owner of a New Note shall have the right to receive shares of the Class B Common Stock upon conversion to the extent that, following receipt of such shares, such holder or beneficial owner would be the beneficial owner of more than 4.99% of the outstanding shares of the Class B Common Stock.
The New Notes are subject to events of default typical for this type of instrument. If an event of default, other than an event of default in connection with certain events of bankruptcy, insolvency or reorganization of the Company or any significant subsidiary (in which case no notice of acceleration is required), occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding New Notes by notice to the Company and the Trustee, may declare 100.0%100% of the principal of and accrued and unpaid interest, if any, on all the New Notes then outstanding to be due and payable. The New Notes also contain conversion features related to certain events, which include liquidation or dissolution, as well as fundamental changes to the structure or ownership of the Company.
In connection with the 2020 Note Offering, on January 14, 2020, the Company entered into a registration rights agreement with the Note Investors, pursuant to which the Company has agreed to file with the SEC a shelf registration statement registering the sale, on a continuous or delayed basis, of all of the New Notes and to use its commercially reasonable efforts to cause the shelf registration statement to become or be declared effective under the Securities Act no later than May 29, 2020 (which date was adjusted for certain intervening events, including the COVID-19 pandemic). The registration statement was filed on June 19, 2020 and declared effective on June 30, 2020. In connection with the filing of the registration statement, the Company deregistered the Old Notes previously registered for resale.
The Company accounted for the exchange of the Old Notes and the issuance of the New Notes in accordance with the conversion guidance in ASC 470-20 "Debt – Debt with Conversion and Other Option" (ASC 470-20) and determined that the exchange of the Old Notes for the New Notes required derecognition of the Old Notes given that the difference in the fair value of the embedded the conversion feature of the New Notes relative to the Old Notes was in excess of 10 percent of the Old Notes conversion feature fair value. In derecognizing the Old Notes, the Company recognized a gain of $188 equal to difference
between the fair value of the Old Notes liability immediately prior to extinguishment and the carry amount of the liability component of the Old Notes, including any all-unamortized debt issuance costs during the year ended December 31, 2020. The remaining consideration of $2,593 was allocated to the reacquisition of the equity component and recognized as a reduction of stockholder's equity during the year ended December 31, 2020.
The New Notes are not redeemable by the Company before January 14, 2023. The Company may redeem for cash all or any portion of the Convertible Senior Notes, at its option, on or after January 14, 2023 if the last reported sale price of the Class B common stockCommon Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notesNotes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Senior Notes.
The Convertible Senior Notes rank senior in right of payment to any of the Company’s indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of current or future subsidiaries of the Company (including trade payables). The Convertible Senior Notes were accounted for in accordance with FASB ASC 470, Debt and ASC 815, Derivatives and Hedging, which required bifurcation ofWe bifurcate the liability and equity components.components of the Notes. The Company determined theinitial carrying amount of the liability component was $25,280$25.3 million and representsrepresented the present value of the Convertible Senior Notes cash flows of the Notes using an implied discount rate of 18.7%, which iswas a yield applicable to similar debt instruments that dodid not have the conversion feature. After allocation of the initial proceeds to the liability components, the remaining amount was allocated to the equity component and recorded as additional paid in capital. The Company recorded $13,529$13.5 million in total debt discount and issuance costs related to the Convertible Senior Notes which included $60 of debt issuance costs.Notes. The Company allocatesallocated costs related to the issuance of the Convertible Senior Notes to the liability and equity components using the same proportions as the initial carrying value of the Convertible Senior Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classificationclassification. The Company further valued a derivative liability in connection with the interest make-whole provision at $21 on the issuance date based on a lattice model. This amount was recorded as a debt discount and is amortized to interest expense over the term of the Convertible Senior Notes using the effective interest rate. The derivative liability is remeasured at each reporting date, and theany change in fair value of $45 is included in changeother income (expense) in derivative liability in the accompanying Consolidated Statements of Operations for the year ended December 31, 2021.Operations. The value of the derivative liability as of both December 31, 2021 was $66.
The interest expense recognized with respect to the Convertible Senior Notes for the years ended2023 and December 31, 20212022 was less than $0.1 million.
RumbleOn Finance Line of Credit
In February 2022, RumbleOn Finance and 2020an indirect subsidiary of RumbleOn entered into a consumer finance facility (“ROF Facility”) primarily to provide up to $25.0 million for ROF’s use in underwriting consumer loans. All loans under this agreement were as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Contractual interest expense | $ | 2,616 | | | $ | 2,566 | |
| Amortization of debt discounts | 2,229 | | | 1,867 | |
| Total | $ | 4,845 | | | $ | 4,433 | |
Convertible Notes-Autosport USA
On February 3, 2019,secured by certain collateral, including the consumer finance loans purchased by the ROF Facility. We provided customary representations and covenants under the agreements which included financial covenants and collateral performance covenants. Loans in connection with the Autosport Acquisition, the Company issued a (i) $500 Promissory NoteROF Facility were subject to certain eligibility criteria, concentration limits and (ii) a $1,536 Convertible Note in favor of the seller. The $500 Promissory Note was repaid in full in 2020. The $1,536 Convertible Note matures onreserves. Beginning January 31, 20222023, our finance company did not meet the interest rate spread requirement set forth in the ROF Facility as a result of increased interest rates and accrues interest at a ratelimited growth of 6.5% per annum. Any interest and principal due under the Convertible Note is convertible into shares of the Company’s Class B common stock at a conversion price of $115.00 per share, (i) at the Seller’s option, or (ii) at the Buyer’s option, on any day that (a) any portionour consumer finance business. The lender never requested repayment of the principal balance due under this facility; however, we made the decision to sell the loan portfolio held at ROF and pay off the outstanding balance.
On December 29, 2023, we sold the loan portfolio held at RumbleOn Finance for $17.0 million, and the outstanding balance of the Convertible Note remains unpaid and (b)loan was repaid on January 2, 2024 from the weighted average trading pricecash proceeds received. The ROF loan amount is included in the current portion of long-term debt in the accompanying Condensed Consolidated Balance Sheet at December 31, 2023. The net cash proceeds the Company received on January 2, 2024 when the sale of the Company’s Class B common stock on Nasdaq forloan portfolio settled was $3.0 million after the twenty (20) consecutive trading days preceding such day has exceeded $140.00 per share. The maximum numbersatisfaction of shares issuable pursuantsecured indebtedness, expenses, commissions, and fees. These proceeds, together with working capital in RumbleOn Finance, were used to repay $11.2 million of outstanding indebtedness under the Convertible Note is 2,449 shares of the Company’s Class B common stock. Interest expense on the Convertible Note for years ended December 31, 2021 was $51 which included $37 of debt discount amortization as compared to interest expense of $188 which included $84 of debt discount amortization for the same periods of 2020.Oaktree Credit Agreement.
NOTE 10 – LEASES
Supplemental information related to leases and balance sheet classification as of December 31 was as follows ($ in millions):
| | | | | | | | | | | | | | |
| Leases | Balance Sheet Classification | 2023 | | 2022 |
| Assets: | | | | |
| Operating lease assets | Right of use assets | $ | 163.9 | | | $ | 161.8 | |
| Finance lease assets | Property and equipment, net | 45.6 | | | — | |
| Total | | $ | 209.5 | | | $ | 161.8 | |
| Liabilities: | | | | |
| Current | | | | |
| Operating | Accounts payable and other current liabilities | $ | 23.9 | | | $ | 24.1 | |
| Finance | Current maturities of long-term debt | — | | | — | |
| Non-Current | | | | |
| Operating | Long-term portion of operating lease liabilities | 134.1 | | | 126.7 | |
| Finance | Long-term debt, net of current maturities | 49.8 | | | — | |
| Total lease liabilities | | $ | 207.8 | | | $ | 150.8 | |
The weighted-average remaining lease term and discount rate for our operating and financing leases as of December 31 for the corresponding year were as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Weighted average remaining lease term (years): | | | |
| Operating leases | 13.9 | | 14.6 |
| Finance leases | 39.7 | | — | |
| Weighted average discount rate: | | | |
| Operating leases | 14.1 | % | | 14.0 | % |
| Finance leases | 9.0 | % | | — | % |
The following table provides information related to the lease costs of finance and operating leases ($ in millions):
| | | | | | | | | | | | | | | | | | | | |
| Lease Expense | | Income Statement Classification | | 2023 | | 2022 |
| Operating | | SG&A expenses | | $ | 32.6 | | | $ | 31.4 | |
| | | | | | |
| Finance: | | | | | | |
| Amortization of finance lease assets | | Depreciation and amortization expense | | 0.9 | | | — | |
| Interest on lease liabilities | | Interest expense | | 1.4 | | | — | |
| Total lease costs | | | | $ | 34.9 | | | $ | 31.4 | |
The Company has related party operating leases for 24 properties. The following table provides information related to the portion of operating lease assets and liabilities which are attributable to related party leases at December 31 ($ in millions):
| | | | | | | | | | | | | | |
| Leases | | 2023 | | 2022 |
| Assets: | | | | |
| Right of use assets – related party | | $ | 108.5 | | | $ | 105.3 | |
| All other right of use assets | | 55.4 | | | 56.5 | |
| Total | | $ | 163.9 | | | $ | 161.8 | |
| | | | |
| Liabilities: | | | | |
| Current: | | | | |
| Current portion of lease liabilities – related party | | $ | 14.2 | | | $ | 14.5 | |
| Current portion of lease liabilities – all other leases | | 9.7 | | | 9.6 | |
| Total current liabilities | | 23.9 | | | 24.1 | |
| Non-Current: | | | | |
| Long-term portion of lease liabilities – related party | | 96.2 | | | 93.7 | |
| Long-term portion of lease liabilities – all other leases | | 37.9 | | | 33.0 | |
| Total non-current liabilities | | 134.1 | | | 126.7 | |
| Total lease liabilities | | $ | 158.0 | | | $ | 150.8 | |
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Cash payments for operating leases | $ | 29.3 | | | $ | 25.9 | |
| New assets obtained in exchange for operating lease liabilities | 14.9 | | | 18.1 | |
| Cash payments for finance leases | 1.2 | | | — | |
The following table summarizes the future minimum payments for leases as of December 31, 2023:
| | | | | | | | | | | | | | |
| ($ in millions) | | Operating Leases | | Finance Lease |
| 2024 | | $ | 29.7 | | | $ | 3.8 | |
| 2025 | | 28.7 | | | 3.8 | |
| 2026 | | 27.7 | | | 3.9 | |
| 2027 | | 26.9 | | | 4.0 | |
| 2028 | | 21.9 | | | 4.1 | |
| Thereafter | | 260.8 | | | 205.8 | |
| Total lease payments | | 395.7 | | | 225.4 | |
| Less imputed interest | | (237.7) | | | (175.6) | |
Present value of lease liabilities(1) | | $ | 158.0 | | | $ | 49.8 | |
(1) Finance lease liability is recorded in long-term debt. See Note 9.
NOTE 11 – STOCKHOLDERS' EQUITY
Stock-Based Compensation
On June 30, 2017, the Company’s shareholders approvedThe Company has a Stock Incentive Plan (shareholder-approved stock incentive plan (as amended, the “Plan”) allowing for the issuance of RSUs,restricted stock units (“RSUs”), stock options (“Options”), Performance Units,performance units, and other equity awards (collectively “Awards”). As of December 31, 2021,2023, the number of shares authorized for issuance under the Plan was 2,700,0003,291,461 shares of Class B common stock. To date, moststock and there were 1,030,940 shares available for future issuance under the Plan. RSU and Option awards are service/timegenerally vest based vestedon continued service by the recipient of the Award to the Company over a period of up to three years. The Company has also granted performance-based awards and market condition-based awards with vesting schedules that are typically dependent on achieving a particular objective within thirty-six months. In connection with the closing of the RideNow Transaction, the Company accelerated all the outstanding RSU awards for all participants and waived certain market-based share price hurdles for all market-based awards on the Closing Date. This waiver was accounted for as a modification of the awards. The fair value of the awards was remeasured as of effective date of the waiver, and the change in fair value was fully expensed during the year ended December 31, 2021 given the concurrent delivery of such shares.
The Company estimates the fair value of all awards granted under the Plan on the date of grant. In the case of time or service based RSU awards, the fair value based on the share price of the Class B Common Stock on the date of the award. Performance Awards use the share prices of the Class B Common Stock but the Company, both at grant and each subsequent quarter, considers whether to a apply discount to the fair in situations where the Company believes there is risk that the relevant performance metrics may not be met. Options are calculated using the Black-Scholes option valuation model while market-condition based awards are estimated using a Monte Carlo simulation model as these awards are tied to a market condition. Both the Black-Sholes and Monte-Carlo simulations utilize multiple input variables to determine the probability of the Company’s Class B stock price being at certain prices over certain time periods, resulting in an implied value to the holder. In connection with the closing of the RideNow Transaction, the Company accelerated all the outstanding RSU awards for all participants and waived certain market-based share price hurdles for all market-based awards. On September 30, 2021, the Audit Committee approved the issuance of 154,731 shares of the Company’s Class B common stock as a gift of a death benefit to the estate of Mr. Steven R. Berrard, the Company’s former Chief Financial Officer and a director. Mr. Berrard was one of the Company’s founders.
We generally expense the grant-date fair value of all awards on a straight-line basis over the vesting period. However, the acceleration of awards as described above resulted in the awards being expensed in the three-months ended September 30, 2021.
The following table reflects the stock-based compensation:compensation expense: | | For the Years Ended December 31, |
| 2021 | | 2020 |
| | ($ in millions) | | ($ in millions) | 2023 | | 2022 |
| Restricted stock units | Restricted stock units | $ | 29,188 | | | $ | 2,957 | |
| | Options | Options | 31 | | 21 | Options | — | | | — | | — |
| | Total stock-based compensation | Total stock-based compensation | $ | 29,219 | | | $ | 2,978 | |
As of December 31, 2021, there are 2,551 Options and 912,128 RSUs outstanding. The total unrecognized2023, unamortized stock-based compensation expense related to outstanding equity awards was approximately $16,431 which the Company expects to recognize over a weighted-average period of approximately 17 months.
As of December 31, 2021, unrecognized stock-based amortization related to outstanding RSU and stock awards and the related weighted-average period over which it is expected to be recognized subsequent to December 31, 2021 is presented in the table below. Total unrecognized equity will be adjusted for actual forfeitures.
| | | | | | | | | | | |
| Unrecognized
Stock Based
Compensations
Related to
Outstanding
Awards | | Remaining
Weighted-Average
Amortization
Period (in years) |
| | | |
| Restricted stock units | $ | 16,418 | | | 1.45 |
| | | |
| Options | 13 | | 0.32 |
| | | |
| Total unrecognized stock-based amortization | $ | 16,431 | | | 1.45 |
| | | | | | | | | | | |
| ($ in millions) | Unamortized
Expense for
Outstanding
Awards | |
Weighted-Average
Amortization
Period (in years) |
| Restricted stock units | $ | 4.5 | | | 1.3 |
| Performance Options | 3.6 | | | 4.8 |
| Total unrecognized stock-based compensation expense | $ | 8.1 | | | 2.9 |
Restricted Stock Units
RSU activity and the corresponding weighted-average grant-date fair value per share during the years ending December 31, 20212023 and 2020 was2022 were as follows:
| | Number of
RSUs | | Weighted
-Average Grant
Date Fair Value |
| Outstanding at December 31, 2019 | 129,938 | | $ | 99.00 | |
| Number of
RSUs | | | Number of
RSUs | | Weighted
-Average Grant
Date Fair Value |
| Outstanding at December 31, 2021 | |
| Granted | Granted | 416,435 | | 6.60 | |
| Vested | Vested | (35,274) | | 87.91 | |
| Forfeited | Forfeited | (67,256) | | 98.53 | |
| Outstanding at December 31, 2020 | 443,843 | | 13.26 | |
| Cancellation of units under the Plan | |
| Outstanding at December 31, 2022 | |
| Granted | Granted | 1,320,782 | | 37.03 | |
| Vested | Vested | (723,334) | | 32.52 | |
| Forfeited | Forfeited | (129,163) | | 15.86 | |
| Outstanding at December 31, 2021 | 912,128 | | $ | 37.48 | |
| Outstanding at December 31, 2023 | |
| | Expected to vest | Expected to vest | 912,128 | | $ | 37.48 | |
| Expected to vest | |
| Expected to vest | |
Non-qualified
Stock Options
Non-qualified stockStock options allow recipients to purchase shares of Class B common stock at a fixed exercise price. The fixed exercise price is equal to the price of a share of Class B common stock at the time of grant. The options generally expire ten10 years after the grant date and typicallydate.
In connection with his appointment as Chief Executive Officer, the Company granted Michael W. Kennedy an award of performance-based stock options on December 13, 2023 to purchase 825,000 shares (“Performance Options”) of the Company’s Class B common stock, which will vest 20% between nine-months and one-year afterin installments over a maximum period of five years starting on the grant date, subject to meeting certain stock performance thresholds ranging from $12.00 to $40.00 for a period of 30 days and thereafterMr. Kennedy’s continued service with the Company through each such vesting date. The award was granted as an inducement to Mr. Kennedy’s entry into employment and was approved by the Compensation Committee of the Company’s Board of Directors, in quarterly installmentsaccordance with Nasdaq Listing Rule 5635(c)(4). The award was granted outside of 7.5% and 12.5% during the 2nd and 3rd vesting years, respectively.
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of
Options | | Weighted
Average
Exercise Price | | Weighted-Average
Remaining
Contractual
Life (in years) | | Aggregate
Intrinsic Value |
| Outstanding at December 31, 2019 | 5,087 | | $ | 78.10 | | | 9.6 | | — |
| Options granted | 250 | | 61.40 | | | — | | — |
| Options exercised | — | | — | | | — | | — |
| Options forfeited or expires | (2,586) | | 74.72 | | | — | | — |
| Outstanding at December 31, 2020 | 2,751 | | 79.76 | | | 9.6 | | — |
| | | | | | | |
| Options granted | — | | — | | | — | | — |
| Options exercised | — | | — | | | — | | — |
| Options forfeited or expires | (200) | | 81.60 | | | — | | — |
| Outstanding at December 31, 2021 | 2,551 | | $ | 79.62 | | | 8.7 | | — |
| | | | | | | |
| Vested / exercisable at December 31, 2021 | 1,875 | | $ | 79.92 | | | 7.7 | | — |
| Expected to vest as of December 31, 2021 | 676 | | $ | 78.79 | | | 7.7 | | — |
The fair value of all option awardsthe Performance Options was determined using a Monte Carlo model and the following assumptions: | | | | | |
| 2023 |
| Exercise price | $ | 5.85 | |
| Fair value price per share of common stock | $ | 4.35 | |
| Volatility | 95.0% |
| Expected term (years) | 9.9 |
| Risk-free interest rate | 4.1% |
| Dividend yield | — |
Fair value of award at initial valuation date ($ in millions) | $ | 3.6 | |
The following is based on the share pricea summary of the Class B Common Stock on the date of the award and is calculated using the Black-Scholes option valuation model using the assumptions in the following table:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Risk-free rate | — | | 0.3% |
| Expected volatility | — | | 194.8% |
| Expected life (in years) | — | | 5.48 |
| Expected dividend yield | — | | — |
| Weighted average grant date fair value per option | — | | $ | 29.66 | |
Security Offerings
In January 2020,stock options activity for the Company realized approximately $10,780 in net proceeds from public offering of 1,170,000 shares of Class B Common Stock at a public price of $11.40 per share (the “2020 Public Offering”).
On May 18, 2020, the Company effected a one-for-twenty reverse stock split of its issued and outstanding Class A Common Stock and Class B Common Stock (the “Reverse Stock Split”).The Company has retrospectively adjusted the per share and share amounts included in this 2021 Form 10-K for the Reverse Stock Split.past two years:
On April 8, 2021, | | | | | | | | | | | | | | | | | | | | | | | |
| Number of
Options | | Weighted
Average
Exercise Price | | Weighted-Average
Remaining
Contractual
Life (in years) | | Aggregate Intrinsic Value ($ in millions) |
| Outstanding at December 31, 2021 | 2,551 | | $ | 79.62 | | | 8.7 | | — | |
| Options granted | — | | — | | | | | — | |
| Options exercised | — | | — | | | | | — | |
| Options forfeited or expired | (171) | | 81.60 | | | | | — | |
| Outstanding at December 31, 2022 | 2,380 | | 79.48 | | | 6.7 | | — | |
| Options granted | 825,000 | | 5.85 | | | 10.0 | | — | |
| Options exercised | — | | — | | | — | | | — | |
| Options forfeited or expired | (1,579) | | 78.40 | | | — | | | — | |
| Outstanding at December 31, 2023 | 825,801 | | $ | 5.92 | | | 9.8 | | $ | 1.9 | |
| | | | | | | |
| Vested / exercisable at December 31, 2023 | 801 | | $ | 81.60 | | | 3.8 | | $ | — | |
| Expected to vest as of December 31, 2023 | 825,000 | | $ | 5.85 | | | 9.8 | | $ | 1.9 | |
Rights Offering
The Company commenced a $100.0 million rights offering on November 13, 2023 that expired on December 5, 2023, as extended by the Company realized approximately $36,797 in net proceeds from publicCompany. To effect this rights offering, the Company’s existing shareholders were granted a dividend of 1,048,998subscription rights to purchase a designated number of shares of Class B common stock at a price of $5.50. Pursuant to the publicterms of $38.00 per share (the “April 2021 Offering”a standby purchase agreement with related parties Mark Tkach, William Coulter, and Stone House Capital Management, LLC, a Delaware limited liability company (“Stone House”). and collectively, the “Standby Purchasers”, the Standby Purchasers acquired $18.9 million of Class B common stock that had not been purchased by other existing shareholders. Net proceeds after expenses incurred to effect the rights offering were $98.4 million, of which the Company used $50.0 million to pay down a portion of the outstanding term loan indebtedness under the Oaktree Credit Agreement. The transaction resulted in the issuance of 18.2 million new shares of Class B common stock.
Common Stock Warrants
In conjunctionconnection with the RideNow Transaction,entering into Amendment No. 5 (as defined in Note 9), on August 31, 2021,14, 2023 the Company raised approximately $154,443 in net proceeds fromissued warrants to Oaktree and the sale of 5,053,029lenders to purchase up to 1,212,121 shares of Class B common stock at an exercise price of $12.00. Such warrants are exercisable for up to five years following the date of issuance.
The following table summarizes warrant activity in 2023 and 2022:
| | | | | | | | | | | |
| 2023 | | 2022 |
Warrants outstanding at the beginning of the year(1) | 1,228,651 | | 1,228,651 |
New warrant issuances(2) | 1,212,121 | | — |
Warrants expiring during the year(1) | (1,228,651) | | — |
Warrants outstanding at the end of the year(2) | 1,212,121 | | 1,228,651 |
(1) The warrants outstanding in 2022 had a weighted-average exercise price of $34.22 and expired at various times during 2023.
(2) Warrants were granted in 2023 with an exercise price of $12.00, which was adjusted in accordance with the terms of the grant subsequent to the public of $33.00 per share.
Warrant
In connection with providing the debt financing for the RideNow Transaction, and pursuantRights Offering. The exercise price attributable to the commitment letter executed on March 15, 2021, the Company issuedWarrants outstanding at December 31, 2023 was $11.25.
The warrants to purchase $40,000 of shares of Class B common stock to Oaktree Capital Management, L.P.are classified as equity, and its lender affiliates (the “Warrant”). The initial warrant liability and deferred financing charge recognized was $10,950. The warrant liability was subject to remeasurement at each balance sheet date and any change in fair value was recognized as a component of change in derivative liability in the Consolidated Statements of Operations. The fair value of the Warrant was estimated using a Monte Carlo simulation based on a combination of level 1 and level 2 inputs. There was no gain or loss recorded related to the Warrant liability during the three-months ended March 31, 2021 as there was no significant changes in the fair value between March 12, 2021 and March 31, 2021. For the three months ended June 30, 2021, the fair value of the warrant liabilitywarrants was increased $2,224 to $13,174. On August 31, 2021, the fair value of the warrant liability was increased $6,526 to $19,700. Upon closing of the RideNow transaction, the Oaktree warrants were considered equity linked contracts indexed to RumbleOn’s stock and therefore met the equity classification guidance under ASC 815-40,. As a result, the $19,700 was reclassified to additional paid-in-capital. The $10,950 deferred financing charge was reclassified as part of the debt discount related to the Oaktree Credit Agreement. The recognition of the warrant liability and deferred financing charge and the reclassification of the warrant liability to additional paid-in capital and the reclassification of the deferred financing charge to debt discount are non-cash items.
NOTE 12 – COMMON STOCK WARRANTS
In connection with the October 23, 2017 public offering of 145,500 shares of Class B common stock the Company issued to underwriters warrants to purchase 10,913 shares of Class B common stock, which was equal to 7.5% of the aggregate number of shares of Class B common stock sold in the Offering. The Warrants are exercisabledetermined at a per share price of $126.50, which was equal to 115.0% of the Offering price per share of the shares sold in the Offering and mature on April 20, 2023. In April, 2018, pursuant to the Loan Agreement by and among Hercules Capital, the Company, and its wholly owned subsidiaries, the Company issued Hercules a warrant to purchase 4,091 (increasing to 5,455 if a fourth tranche in the principal amount of up to $5,000 is advanced at the parties agreement) shares of the Company's Class B Common Stock (the “Hercules April Warrant”) at an exercise price of $110.00 per share (the “Hercules April Warrant Price”). The Hercules April Warrant is immediately exercisable and expires on April 30, 2023. In October, 2018, under an amendment to the Loan Agreement, the company issued Hercules a warrant to purchase 1,048 shares of the Company's Class B Common Stock (the “Hercules October Warrant”) at an exercise price of $143.13 per share (the “Hercules October Warrant Price”). The Hercules October Warrant is immediately exercisable and expires on October 30, 2023. The Hercules warrants contain anti-dilutive provisions that increase the number of shares covered by the warrants in the event the Company makes a New Issuance (as defined in the Loan Agreement) for no consideration or consideration that is less than the Warrant Prices. The following table summarizes the warrants outstanding as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Warrants outstanding at the beginning of the year | 16,530 | | 16,530 |
| New warrant issuances to Hercules | — | | — |
| Adjustment to the Hercules warrants due to the anti-dilutive provisions | — | | — |
| Warrants outstanding at the end of the year | 16,530 | | 16,530 |
The Company has classified the warrants as equity in accordance with ASC 815. The fair value of the warrants were valued at issuance date using the Black-Scholes option pricing model with the following assumptions:
| | | | | | | | | | | | | | | | | |
| Underwriter
Warrants | | Hercules April
Warrants | | Hercules October
Warrants |
| Warrants exercise price | $ | 126.50 | | | $ | 110.00 | | | $ | 143.20 | |
| Fair value price per share of common stock | $ | 110.00 | | | $ | 101.40 | | | $ | 114.60 | |
| Volatility | 62.0% | | 70.0% | | 70.0% |
| Expected term remaining (years) | 4.0 | | 4.0 | | 4.0 |
| Risk-free interest rate | 1.31% | | 2.79% | | 2.94% |
| Discount for lack of marketability | 20.0% | | 20.0% | | 20.0% |
| Dividend yield | — | | — | | — |
| Fair value at initial valuation date | $ | 505,273 | | | $ | 208,369 | | | $ | 59,292 | |
| | | | | |
| 2023 |
| Exercise price | $ | 12.00 | |
| Fair value per share | $ | 5.01 | |
| Volatility | 100.0% |
| Expected term remaining (years) | 5 |
| Risk-free interest rate | 4.27% |
| Dividend yield | — |
Fair value at issuance date ($ in millions) | $ | 6.1 | |
Preferred Stock
The Company has authorized 10 million shares of $0.001 par value preferred stock, with none issued or outstanding as of December 31, 2023 or 2022.
NOTE 1312 – SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The following table summarizes the detail of selling, general and administrative expenses for the years ended December 31,
| | 2021 | | 2020 |
| ($ in millions) | | ($ in millions) | 2023 | | 2022 |
| Compensation and related costs | Compensation and related costs | $ | 63,473 | | | $ | 22,756 | |
| Stock based compensation | 29,219 | | | 2,978 | |
| Advertising and marketing | 14,425 | | | 5,287 | |
| Professional fees | 4,714 | | | 3,148 | |
| Technology development and software | 1,992 | | | 1,421 | |
| Facilities | Facilities | 9,568 | | | 2,837 | |
| General and administrative | General and administrative | 40,686 | | | 15,232 | |
| $ | 164,077 | | | $ | 53,659 | |
| Advertising, marketing and selling | |
| Professional fees | |
| Stock-based compensation | |
| Technology development and software | |
| Total selling, general and administrative expenses | |
NOTE 13 – INCOME TAXES
The components of the income tax provision (benefit) from continuing operations were as follows:
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Current | | | |
| Federal | $ | 0.4 | | | $ | 4.1 | |
| State | 0.4 | | | 0.3 | |
| Total current income tax expense | 0.8 | | | 4.4 | |
| Deferred | | | |
| Federal | 49.5 | | | (62.5) | |
| State | 9.0 | | | (13.9) | |
| Total deferred income tax provision (benefit) | 58.5 | | | (76.4) | |
| Income tax provision (benefit) | $ | 59.3 | | | $ | (72.0) | |
Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Deferred tax assets: | | | |
| Net operating loss carryforward | $ | 26.5 | | | $ | 16.8 | |
| Business interest carryforward | 21.5 | | | 8.8 | |
| Stock-based compensation | 0.3 | | | 0.5 | |
| Accounts receivable allowance | 0.1 | | | 0.5 | |
| Lease liabilities | 49.4 | | | 36.0 | |
| Inventory reserve | 2.6 | | | 1.5 | |
| Goodwill and intangible assets | 43.8 | | | 34.9 | |
| Transaction costs | 1.2 | | | 1.3 | |
| Accrued liabilities | 0.4 | | | 1.8 | |
| Total gross deferred tax assets | 145.8 | | | 102.1 | |
| Valuation allowance | (93.6) | | | (0.7) | |
| Deferred tax assets, net | 52.2 | | | 101.4 | |
| Deferred tax liabilities: | | | |
| Right-of-use assets | 39.0 | | | 38.7 | |
| Property and equipment | 12.5 | | | 3.8 | |
| Debt issuance costs amortization | 0.7 | | | 0.8 | |
| Other | 0.4 | | | — | |
| Deferred tax liabilities | 52.6 | | | 43.3 | |
| Net deferred tax asset (liability) | $ | (0.4) | | | $ | 58.1 | |
A reconciliation of the statutory U.S. Federal income tax rate of 21% to our effective income tax rate follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| U.S. Federal statutory rate | 21.0% | | 21.0% |
| State and local, net of federal benefit | (4.7)% | | 3.8% |
| Executive compensation | (0.3)% | | —% |
| Other | (0.7)% | | 0.3% |
| Stock-based compensation | (0.9)% | | (0.4)% |
| Goodwill impairment | —% | | (5.6)% |
| IRC Section 338(h)(10) election | —% | | 4.7% |
| Change in valuation allowance | (52.7)% | | (0.2)% |
| Effective tax rate | (38.3)% | | 23.6% |
In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. In estimating future taxable income, the Company relies upon assumptions and estimates about future activities, including the amount of future federal and state pretax operating income that the Company will generate; the reversal of temporary differences; and the implementation of feasible and prudent tax planning strategies.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets. As of December 31, 2023, management has evaluated the realizability of the Company’s deferred tax assets and recorded a valuation allowance against the Company’s federal and state deferred tax assets, as it is more likely than not that the deferred tax assets will not be realized based on the evidence evaluated.
The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. In estimating future taxable income, the Company relies upon assumptions and estimates about future activities, including the amount of future federal and state pretax operating income that the Company will generate; the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. Accordingly, a valuation allowance of $93.6 million has been established against the Company’s deferred tax assets. Management reevaluates the positive and negative evidence each period.
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Valuation allowance as of beginning of the year | $ | 0.7 | | | $ | — | |
| Increases recorded to income tax provision | 92.9 | | | 0.7 | |
| Decreases recorded as a benefit to income tax provision | — | | | — | |
| Valuation allowance as of end of year | $ | 93.6 | | | $ | 0.7 | |
As of December 31, 2023 and 2022, the Company has federal net operating loss carryforwards of $112.4 million and $73.2 million, all of which were generated in years ending after December 31, 2017 and can be carried forward indefinitely. As of December 31, 2023, the Company had state net operating loss carryforwards of $64.8 million, a portion of which begin to expire in 2029. As a result of various ownership changes, the Company’s federal and state net operating losses are subject to limitations under Internal Revenue Code (“IRC”) Section 382. Pursuant to the Company’s Section 382 analysis, the net operating losses generated prior to 2017 were determined to be not realizable as they arose from a different trade or business and were written off as part of the Company’s income tax expense for 2022.
The Company does not have unrecognized tax benefits related to uncertain tax positions. The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense. The Company has not recorded any interest and penalties on any unrecognized tax benefits since its inception. Based on the statutes of limitations in the applicable jurisdictions in which the Company operates, tax years 2018 through 2022 remain open to examination by the U.S. federal and state taxing jurisdictions, as carryforward attributes generated in prior years may still be adjusted upon examination by the Internal Revenue Service (“IRS”) or state tax authorities if they have or will be used in a future period. The Company files income tax returns in the U.S. federal and various state jurisdictions. There are currently no federal or state audits in progress for any tax years.
NOTE 14 – LOSS CONTINGENCIES AND INSURANCE RECOVERIESPER SHARE
On March 3, 2020, a severe tornado struck the greater Nashville area causing significant damage to the Company's facilities including contents and inventory held for sale. The Company maintains insurance coverage for damage to its facilities and inventory, as well as business interruption insurance. The loss was comprised of three components: (1) inventory loss, assessed by the insurance carrier at approximately $13,000; (2) building and personal property loss, primarily impacting our leased facilities, assessed by the insurance carrier at $2,783; and (3) loss of business income, for which the company has coverage in the amount of $6,000.
All three componentsFor purposes of the Company's loss claimper share calculation for 2023, 394,161 unvested RSUs, 825,000 Performance Options, 801 stock options, Oaktree Warrants to purchase 1,212,121 shares of Class B common stock, and 1,302,004 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents, but have been submittedexcluded from the calculation of diluted net loss per share attributable to its insurers. The Company's inventory claim is subject to a dispute withcommon stockholders as the carrier as toeffect was antidilutive. In addition, the policy limits applicable to the loss; however, the insurer has advanced $5,615 against the final settlement. The insurer has agreed to pay $2,778 on the building and personal property loss, reflecting limits of $2,783 net of a $5,000 deductible. The insurer has made an interim payment on the building and personal property loss of $2,270 to the landlord. The loss of business income claim is ongoing and remainscommon stock warrants discussed in the process of negotiation, however, the insurer has advanced $250 against the final settlementNote 11 that expired during the year ended December 31, 2020. The insurer made an additional interim payment onwere antidilutive and excluded from the inventory loss per share calculation for the entire year.
For purposes of $3,135the loss per share calculation for 2022, 588,948 unvested RSUs, 2,380 stock options, warrants to purchase 1,212,121 shares of Class B Common Stock, other warrants to purchase 16,531 shares of Class B Common Stockand 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but were excluded from the Company duringcalculation of diluted net loss per share attributable to common stockholders as the year ended December 31, 2021. The Company believes there will be a recovery of all three loss components, however no assurance can be given regarding the amounts, if any, that will be ultimately recovered or when any such recoveries will be made.effect was antidilutive.
As a result of the damage caused by the tornado the Company concluded that the utility of the inventory damaged by the storm was impaired as a result of physical damage sustained. Whether the impairment is caused by physical destruction or an adverse change in the utility of the inventory, entities should assess whether an inventory impairment or write-off is required in accordance with ASC 330-10-35-1 through 35-11, which address adjustments of inventory balances to the lower of cost or market and requires that when there is evidence that the utility of goods will be less than cost, the difference is recognized as a loss of the current period. During the year ended December 31, 2020, the Company recorded an impairment loss on inventory of $11,738 comprised of $4,454 for vehicles that were a total loss and $7,284 in loss in value for vehicles partially damaged and subject to repair. The impairment loss is reported in cost of revenue in the consolidated statements of operations. On July 23, 2020, the insurer made an advance against the final settlement of the damage claim on inventory of $5,615. This recovery has been recorded as a separate component of operating loss for the year ended December 31, 2020.
NOTE 15 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity for the years ended December 31, 2021 and 2020:activity:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Cash paid for interest | $ | 12,075 | | | $ | 3,835 | |
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Supplemental Disclosure of Cash Flow Information: | | | |
| Cash paid for interest | $ | 66.0 | | | $ | 49.4 | |
| Cash paid for taxes, net | 1.0 | | | 6.6 | |
| Non-cash Investing and Financing Activities: | | | |
| Capital expenditures included in debt | 2.1 | | | — | |
| Common stock issued for acquisition | — | | | 26.5 | |
| Fair value of warrants issued as financing costs | 6.1 | | — | |
For supplemental cash flow information related to leases, see Note 10. The following table provides a reconciliation of cash and restricted cash as of December 31 reported within the accompanying consolidated balance sheets that sum to the total of the same amounts shown in the accompanying consolidated statements of cash flows as of December 31, 2021 and 2020:flows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Cash and cash equivalents | $ | 48,974 | | | $ | 1,467 | |
Restricted cash (1) | 3,000 | | | 2,049 | |
| Total cash, cash equivalents, and restricted cash | $ | 51,974 | | | $ | 3,516 | |
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Cash and cash equivalents | $ | 58.9 | | | $ | 46.8 | |
Restricted cash(1) | 18.1 | | | 10.0 | |
Cash reported in assets of discontinued operations(2) | — | | | 1.8 | |
| Total cash and restricted cash | $ | 77.0 | | | $ | 58.6 | |
(1)Amounts included in restricted cash representare primarily comprised of the deposits required under the Company's short-term revolving facilities.Company’s various floorplan lines of credit and the RumbleOn Finance line of credit before it was repaid in January 2024.
(2)At the beginning of 2022, cash of discontinued operations was $2.5 million.
NOTE 16 – INCOME TAXESFAIR VALUE MEASUREMENTS
The componentsFair Value of Measurements Using Level 3 Inputs on a Non-recurring Basis
In connection with the Company’s 2023 annual goodwill and indefinite-lived intangible assets impairment assessment, the Company recognized non-cash impairment charges of $23.1 million and $37.0 million to reduce the carrying values of goodwill and franchise rights, respectively, to their fair values, in the Powersports reporting unit.
In 2022, the Company recognized non-cash impairment charges of $218.6 million and $105.7 million to reduce the carrying value of the income tax provision (benefit) from continuing operations forgoodwill and franchise rights, respectively, to their fair values, in the year ended December 31, 2021Powersports reporting unit and 2020 are$26.0 million to write off the goodwill in the now discontinued automotive business.
In addition, assets acquired and liabilities assumed in business combinations were recorded at their fair values as follows:of the acquisition date.
| | | | | | | | | | | |
| 2021 | | 2020 |
| Current | | | |
| Federal | $ | — | | | $ | — | |
| State | 880 | | | — | |
| Total current income tax expense | 880 | | | — | |
| | | |
| Deferred | | | |
| Federal | (21,028) | | | — | |
| State | (1,517) | | | — | |
| Total deferred income tax benefit | (22,545) | | | — | |
| | | |
| Income tax benefit | $ | (21,665) | | | $ | — | |
Deferred income taxes reflect the net tax effect of temporary difference between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Deferred tax assets: | | | |
| Net operating loss carryforward | $ | 20,316 | | | $ | 21,495 | |
| Business interest carryforward | 2,992 | | | 1,651 | |
| Stock-based compensation | 796 | | | 518 | |
| Accounts receivable allowance | 209 | | | 362 | |
| Lease liabilities | 33,008 | | | 1,569 | |
| Inventory reserve | 290 | | | 26 | |
| Basis difference in goodwill | — | | | 352 | |
| Transaction costs | 1,027 | | | — | |
| Accrued liabilities | 57 | | | 123 | |
| Property and equipment | — | | | 373 | |
| Total deferred income tax assets | 58,695 | | | 26,469 | |
| | | |
| Deferred tax liabilities: | | | |
| Intangibles and goodwill | 30,614 | | | — | |
| Right-of-use assets | 32,740 | | | 1,478 | |
| Debt issuance costs amortization | 1,173 | | | 1,249 | |
| Property and equipment | 1,754 | | | — | |
| Total deferred tax liabilities | 66,281 | | | 2,727 | |
| | | |
| Net deferred tax (liabilities) assets before valuation allowance | (7,586) | | | 23,742 | |
| | | |
| Valuation allowance | — | | | (23,742) | |
| Net deferred taxes | $ | (7,586) | | | $ | — | |
A reconciliation of the statutory U.S. Federal income tax rate of 21% to the Company's effective income tax rate for the years ended December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| U.S. Federal statutory rate | 21.0% | | 21.0% |
| State and local, net of federal benefit | (13.0)% | | 5.0% |
| Derivative expense | (5.9)% | | —% |
| Executive compensation | (8.5)% | | —% |
| Other permanent difference | (0.7)% | | (1.4)% |
| Stock-based compensation | 0.5% | | —% |
| Valuation allowance | 75.6% | | (24.6)% |
| Effective tax rate | 69.0% | | —% |
Income tax expense/(benefit) for the years ended December 31, 2021 and 2020 was $(21,665) and $0, respectively, representing effective tax rates of 69.0% and 0%, respectively.
In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. In estimating future taxable income, the Company relies upon assumptions and estimates about future activities, including the amount of future federal and state pretax operating income that the Company will generate; the reversal of temporary differences; and the implementation of feasible and prudent tax planning strategies. Based on this analysis, and as a result of the future taxable income generated by the RideNow acquisition, the Company has determined that it is more likely than not that its deferred tax assets will be realized, and accordingly has released its full valuation allowance of $23,742 during 2021.
As of December 31, 2021 and 2020, the Company has federal net operating loss carryforwards of $91,246 and $82,733, respectively, a portion of which begins to expire in 2033. The Company’s state net operating loss carryforwards as of December 31, 2021 and 2020 are $17,878 and $16,291, respectively, a portion of which begin to expire in 2029. As a result of various ownership changes, the Company’s federal and state net operating losses are subject to limitations under Internal Revenue Code (“IRC”) Section 382. However, due to the Company’s projected income in future years and the indefinite-lived nature of the majority of its net operating losses available, none of these attributes are expected to expire unutilized as a result of the IRC Section 382 limitation analysis.
Based on the statutes of limitations in the applicable jurisdiction in which the Company operates, the Company is generally no longer subject to examinations by U.S. tax authorities in years prior to 2017.
U.S. Tax Reform
In March 2020, then President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. Economy. The Company does not expect the provisions of the legislation to have a significant impact on the effective tax rate or income tax payable and deferred income tax positions of the Company.
NOTE 17 – LOSS PER SHARE
The Company computes basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. Under the two-class method, basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighed-average number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is computed giving effect to all potential dilutive common stock equivalents outstanding for the period.
For purposes of this calculation for the year ended December 31, 2021, 912,128 of RSUs, 2,551 of stock options, 1,212,121 of Oaktree Warrants to purchase shares of Class B common stock, 16,531 of other warrants to purchase shares of Class B Common Stock, and 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
For purposes of this calculation for the year ended December 31, 2020, 443,843 of RSUs, 2,751 of stock options, 16,530 of warrants to purchase shares of Class B Common Stock and 982,107 shares of Class B Common Stock issuable in connection with convertible debt are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share attributable to common stockholders as the effect is antidilutive.
NOTE 1817 – RELATED PARTY TRANSACTIONS
Promissory NotesBackstop Purchase
As ofOn December 31, 2020,8, 2023, under the Company had promissory notes of $371 and accrued interest of $9 due to Blue Flame Capital, LLC (“Blue Flame”), an entity controlled by a Denmar Dixon, a directorterms of the Company. The Blue Flame Notes plus accrued interest were paid in full on January 31, 2021, and interest expense on the promissory notes for the year ended December 31, 2021 and 2020 was $3 and $78. The interest was charged to interest expense in the Consolidated Statements of Operations. The Blue Flame Notes plus accrued interest were paid in full on January 31, 2021.
In connection with the acquisition of RideNow, the Company assumed 2 promissory notes totaling principal and accrued interest of $2,200Standby Purchase Agreement dated as of August 31, 2021 due to entities controlled by8, 2023, as amended (the “Purchase Agreement”), among the Company, Mark Tkach (“Tkach”), William Coulter and/or Mark(“Coulter”) and Stone House Capital Management, LLC, a Delaware limited liability company d/b/a Stone House Partners (“Stone House” and, collectively with Tkach each a
former director and executive officer ofCoulter, the Company. Amounts due under these 2 promissory notes totaled $907 as of December 31, 2021.
Nashville Leases
In connection with the acquisition of Wholesale, (vehicle logistics and transportation)“Standby Purchasers”), the Company entered into leases for 2 facilities inissued and sold to the greater Nashville area owned by Mr. Brewster, a former 5% or greater holder of our Class B Common Stock. One of the leases was terminated in 2019. The other location has a lease term expiring on October 30, 2021, for which the Company has two (2) renewal options, each of which provides for five (5) additional years with a ten percent (10.0%) increase in the base rent. The rent for the current location is approximately $25 per month.
August 2021 Offering
In connection with the RideNow Transaction, on March 12, 2021, the Company and its subsidiary, NextGen Pro, LLC (“NextGen Pro”), executed a secured promissory note with BRF Finance Co., LLC (“BRF Finance”), an affiliate of B. Riley Securities, Inc., one of the underwriters in this offering, pursuant to which BRF Finance loaned the Company $2,500 (the “Bridge Loan”). The Bridge Loan matures on the earlier of September 30, 2021 or, after May 1, 2021, upon the issuance of debt or equity above $2,650. The Bridge Loan was secured by certain intellectual property assets held by NextGen Pro and interest on the loan was at a rate of 12% annually. The Bridge Loan, and all accrued interest was paid upon the closing of the RideNow Transaction.
Denmar Dixon, purchased 13,636Standby Purchasers 3,443,289 shares of Class B common stock in the August 2021 Offering at the publican exercise price of $33.00$5.50 per share.share (the “Backstop Securities”) for an aggregate purchase price of approximately $18.9 million (the “Backstop Purchase”). The Backstop Securities represent the shares of the Company’s Class B common stock that remained unsubscribed for by the shareholders of the Company as of the expiration of the subscription period of the Company’s rights offering. Coulter and Tkach are directors and former executive officers of the Company. Subject to the terms and conditions of the Purchase Agreement, the Company agreed to provide Stone House with the right to designate one nominee to the Board of Directors of the Company not later than 60 days after the date of the Purchase Agreement. Mark Cohen, managing member of Stone House, was appointed as a director pursuant to the board nomination right granted to Stone House under the Purchase Agreement.
RideNow Leases
InPursuant to the Purchase Agreement, the Company agreed to reimburse the Standby Purchasers for the reasonable out-of-pocket costs and expenses incurred by them in connection with the RideNow Transaction,negotiation, execution and delivery of the Purchase Agreement and the transactions contemplated thereby, including reasonable and documented fees and disbursements of counsel to each Standby Purchaser. The Company did not pay or give, directly or indirectly, any commission or other remuneration, including underwriting discounts and commissions, in connection with the issuance of the Backstop Securities.
Proxy Settlement Agreement and Related Transactions
In 2023, certain disputes arose between Tkach and Coulter, on the one hand, who are holders of greater than 5% of our outstanding common stock, and the Company and the then serving members of the Company’s management, on the other hand, which led Tkach and Coulter to submit a notice of intent to make nominations and submit proposals for consideration at our 2023 annual stockholder meeting (the “2023 Annual Meeting”). On June 15, 2023, the Company reached a binding settlement agreement with Coulter and Tkach relating to the matters in dispute, which was reflected in a binding term sheet (the “Term Sheet”). Pursuant to the Term Sheet, the Company agreed to take certain corporate governance actions, including selecting Tkach as a director and naming Coulter as a Board observer until the 2023 Annual Meeting, and nominating Coulter for election as a director at the 2023 Annual Meeting, and, for a period of 90 days following execution of the Term Sheet (the “Standstill Agreement Period”), Coulter and Tkach agreed to vote as recommended by the Board at any annual meeting or special meeting of the Company’s stockholders, and to refrain from calling any special meetings of the Company’s stockholders, granting or soliciting proxies (other than to named proxies included in the Company’s proxy card for any stockholder meeting), or making any nominations or proposals at any annual or special meetings of stockholders. The Company also agreed to reimburse the reasonable, documented, out of pocket advisor fees and expenses incurred by Coulter and Tkach in connection with their proxy contest, which were estimated to be $2.5 million.
On June 30, 2023, the Company entered into related partya Cooperation Agreement with Coulter and Tkach, formalizing the parties’ agreements under the Term Sheet. Following Tkach’s initial term on the Board, the Cooperation Agreement provided for an appointment as a Board observer until such time as he was appointed as a director. Pursuant to the Cooperation
Agreement, Coulter and Tkach have unrestricted access to attend and participate in any meetings of the Board or any committee thereof held while an observer to the Board. Substantially all of the terms of the Term Sheet and the Cooperation Agreement have been implemented, and the Company is not aware of any actions remain to be taken that are likely to lead to a material dispute among the parties as to the performance of their respective obligations thereunder.
Leases
The Company leases for 24 properties consisting of dealerships and offices.offices from related parties. Each related party lease is with a wholly owned subsidiary of the Company as the tenant and an entity controlled by either William Coulter and/or Mark Tkach, each former director and executive officer of the Company, as the landlord. The initial aggregate base rent payment for all 24 leases iswas approximately $1,229$1.2 million per month, and eachmonth. Each lease commenced a new 20-year term on September 1, 2021 with each lease containingand contains an annual 2% increasesincrease on base rent. The Company is still inSee Note 10 for the process of finalizing its purchase price allocation and related fair values ofright-of-use assets and liabilities associated with the related party leases.
In 2024, an additional related-party operating lease with a 20-year term was entered into for a property in Tallahassee, Florida, with initial annual base rate payments totaling approximately $0.4 million that increase 2% per year. This lease contains a purchase option.
Employment of Immediate Family Members
Coulter had one immediate family member who was employed by the Company until August 30, 2022 who received gross pay of $0.3 million, including the RideNow leases.income from vested RSUs under the Plan during 2022. No payments were made in 2023.
RideNow Reinsurance ProductsTkach has three immediate family members that were, or continue to be, employed by the Company. One of these family members was employed by the Company until February 21, 2022 and received aggregate gross pay of $0.1 million in 2022 and nothing in 2023. The second family member received aggregate gross pay of $0.5 million in 2023 and $0.4 million in 2022, including the income from vested RSUs under the Plan. The third family member received aggregate gross pay of $0.2 million in 2023 and $0.2 million in 2022.
EachPayments to Coulter Management Group LLLP
The Company remitted $0.1 million in 2023 and $0.3 million in 2022 to Coulter Management Group LLLP, an entity owned by Coulter. These payments were made to cover certain proportionate costs of the operatingCompany, including health plan and IT contract expenses that were shared among Coulter Management and the RideNow entities for a period of time after the acquisition.
Bidpath Software License
On January 19, 2022, the Audit Committee approved, and the Company entered into two agreements with Bidpath Incorporated, a company owned by Adam Alexander, a former director of the Company, that provided the Company with (i) a perpetual, non-exclusive license to the then-current source code, as well as all future source code, of foundational technology for our inventory management platform, and (ii) support and maintenance services, all of which remained in development prior to Company’s termination of the contract effective August 31, 2023, pursuant to the contract’s terms.
The Company made no payments for the licenses in 2023 and paid $3.6 million in 2022. The Company paid Bidpath for support and maintenance services totaling $0.2 million in 2023 and $0.4 million in 2022. Upon termination of the contract, we recorded a $2.6 million impairment for the remaining amount of capitalized costs.
Ready Team Grow, LLC
The Company paid $0.1 million in 2023 and $0.2 million in 2022 to Ready Team Grow, LLC for employee recruiting services. This entity is owned by the domestic partner of the Company’s former CEO, Marshall Chesrown. The Company’s use of the entity ended in 2023.
Promissory Notes
In connection with the acquisition of RideNow in 2021, the Company that own retail powersport stores which sell motorcycles and various off-road vehicles also sell extended service contracts, prepaid maintenance, “GAP insurance,” theft protection and tire and wheel products on their vehicles. These products soldassumed two promissory notes of $2.2 million as of the acquisition date due to customers of these stores are offered by RPM One (“RPM”), which is an after-market third-party provider of these products commonly used in the industry. Affiliate reinsurance companiesentities controlled by and owned primarily by William Coulter and/or Mark Tkach participateTkach. Amounts due under these two promissory notes had been paid in the underwriting profitsfull as of these RPM products. The sales representatives employed by these operating companies are incentivized to offer the products sold by RPM. The total amount paid by the Company to these affiliated companies totaled approximately $139 during the year ended December 31, 2021. The Audit Committee of the Board of Directors (the “Board”) of the Company (the “Audit Committee”) is in the process of reviewing the terms and rates of these entities.2022.
Payments to RideNow Management, LLLP
On June 27, 2022, the Company made $479 in paymentsrepaid a loan of $0.7 million to RideNow Management LLLP, an entity owned equally by twoCoulter and Tkach.
RideNow Reinsurance Products
The Company sells extended service contracts, prepaid maintenance, GAP insurance, theft protection and tire and wheel products on vehicles sold to customers. Affiliate reinsurance companies previously controlled by and owned primarily by directors during the year ended December 31, 2021.
Beach Agreement
On December 31, 2021,who were formerly executive officers of the Company acquired allparticipated in the business assetsprofits of RNBeach, LLC (“Beach”), a company that sells and services new and used powersports products.these products sold through the RideNow locations. The sellers of Beach were William Coulter and Mark Tkach, each a former director and executive officer of the Company. The total purchase priceCompany paid approximately $0.1 million to acquire all the business assets of Beach was approximately $5,528, and cash paid was approximately $5,368.
NOTE 19 – LEASES
Lease Commitments
We determine whether an arrangement is a lease at inception and whether such leases are operating or financing leases. For each lease agreement, the Company determines its lease term as the non-cancellable period of the lease and includes options to extend or terminate the lease when it is reasonably certain that it will exercise that option. We use these options in determining our right-of-use assets and lease liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determine the present value of the lease payments.
affiliated companies during 2022. The following table reflects the balance sheet presentation of our lease assets and liabilities:
| | | | | | | | | | | | | | |
| Leases | Classification | 2021 | | 2020 |
| Assets: | | | | |
| Operating | Right of use assets | $ | 133,112 | | | $ | 5,690 | |
| Finance | Property and equipment, net | 3,240 | | | — | |
| Total right-of-use assets | | $ | 136,352 | | | $ | 5,690 | |
| | | | |
| Liabilities: | | | | |
| Current | | | | |
| Operating | Current portion of lease liabilities | $ | 19,155 | | | $ | 1,630 | |
| Finance | Current portion of lease liabilities | 1,094 | | | — | |
| | | | |
| Non-Current | | | | |
| Operating | Long-term portion of operating lease liabilities | 114,687 | | | 4,370 | |
| Finance | Long-term portion of financing lease liabilities | 2,869 | | | — | |
| | | | |
| Total lease liabilities | | $ | 137,805 | | | $ | 6,000 | |
Operating lease expense is recognized on a straight-line basis over the lease term. Total operating lease expenses for the yearrelated party relationship ended December 31, 2021 and 2020 was $7,431 and $2,200, respectively.
The weighted-average remaining lease term and discount rate for our operating leases are as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Weighted average lease term - operating leases | 14.9 | | 3.7 |
| Weighted average lease term - finance leases | 19.7 | | 0.0 |
| Weighted average discount rate - operating leases | 14.0 | % | | 6.2 | % |
| Weighted average discount rate - finance leases | 15.0 | % | | — | % |
The following table provides information related to the lease costs of finance and operating leases for the year ended December 31, 2021 and 2020:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Total operating lease expenses | $ | 7,431 | | | $ | 2,200 | |
| | | |
| Finance lease costs: | | | |
| Amortization of ROU assets | 55 | | | — | |
| Interest on lease liabilities | 165 | | | — | |
| $ | 7,651 | | | $ | 2,200 | |
Supplemental cash flow information related to operating leases for the year ended December 31, 2021 and 2020 was as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| Cash payments for operating leases | $ | 6,644 | | | $ | 1,692 | |
| | | |
| New operating lease assets obtained in exchange for operating lease liabilities | $ | 94,544 | | | $ | 2,901 | |
The following table summarizes the future minimum payments for operating leases at December 31, 2021:
| | | | | | | | |
| Year ending December 31, | | Amount |
| 2022 | | $ | 18,040 | |
| 2023 | | 17,466 | |
| 2024 | | 16,673 | |
| 2025 | | 14,892 | |
| 2026 | | 13,680 | |
| Thereafter | | 176,205 | |
| Total lease payments | | 256,956 | |
| Less imputed interest | | (173,187) | |
| Present value of operating lease liabilities | | $ | 83,769 | |
NOTE 2018 - SEGMENT REPORTING
Business segments are defined as components of an enterprise about which discrete financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Our operations are organized by management into operating segments by line of business. WeSubsequent to the disposal of the automotive reportable segment, we have determined that we have 3two reportable segments as defined in generally accepted accounting principlesGAAP for segment reporting: (1) powersports, (2) automotive, and (3) vehicle logistics. Our powersports and automotive segments consist of the distribution of pre-owned vehicles. Thevehicle transportation services. Our powersports segment consists of the sale and distribution of new and pre-owned vehicles, principally consisting of motorcycles and other powersports vehicles, while the automotive segment distributes cars and trucks.vehicles. Our vehicle logisticstransportation services segment provides nationwide automotive transportation brokerage services between dealerships and auctions. Our vehicle logisticstransportation services reportable segment has been determined to represent 1one operating segment and reporting unit. The accounting policies of the segments are the same and are described in Note 1.
The following table summarizes revenue, operating income (loss), from continuing operations, depreciation and amortization, and interest expense which are the measuremeasures by which management allocates resources to its continuing segments to each of our reportable segments.
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Powersports | | Vehicle Transportation Services | | Eliminations | | Total |
| 2023 | | | | | | | |
| Revenue from external customers | $ | 1,310.2 | | | $ | 56.2 | | | $ | — | | | $ | 1,366.4 | |
Revenue from other operating segments(1) | — | | | 0.4 | | | (0.4) | | | — | |
| Goodwill and franchise rights impairment charge | (60.1) | | | — | | | — | | | (60.1) | |
| Operating income (loss) | (75.2) | | | 5.7 | | | — | | | (69.5) | |
| Depreciation and amortization | 22.0 | | | — | | | — | | | 22.0 | |
| Interest expense | 77.2 | | | — | | | — | | | 77.2 | |
| | | | | | | |
| 2022 | | | | | | | |
| Revenue from external customers | $ | 1,404.9 | | | $ | 54.0 | | | $ | — | | | $ | 1,458.9 | |
Revenue from other operating segments(1) | — | | | 3.3 | | | (3.3) | | | — | |
| Goodwill and franchise rights impairment charge | (324.3) | | | — | | | — | | | (324.3) | |
| Operating income (loss) | (265.0) | | | 4.9 | | | — | | | (260.1) | |
| Depreciation and amortization expense | 23.0 | | | — | | | — | | | 23.0 | |
| Interest expense | 52.1 | | | — | | | — | | | 52.1 | |
(1) Primarily revenue from the automotive segment, which is reported as discontinued operations.Total assets by operating segment as of December 31 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions) | Powersports | | Vehicle Transportation Services | | Eliminations(1) | | Discontinued Operations | | Total |
| Total assets at December 31, 2023 | $ | 1,766.3 | | | $ | 4.0 | | | $ | (844.0) | | | $ | — | | | $ | 926.3 | |
| Total assets at December 31, 2022 | $ | 1,872.2 | | | $ | 3.9 | | | $ | (860.3) | | | $ | 11.4 | | | $ | 1,027.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Powersports | | Automotive | | Vehicle Logistics | | Eliminations(1) | | Total |
| Year Ended December 31, 2021 | | | | | | | | | |
| Total assets | $ | 1,200,253 | | | $ | 453,752 | | | $ | 14,913 | | | $ | (641,169) | | | 1,027,749 |
| Revenue | $ | 433,712 | | | $ | 460,888 | | | $ | 48,804 | | | $ | (4,964) | | | 938,440 |
| Operating income (loss) | $ | (22,519) | | | $ | 9,905 | | | $ | 3,746 | | | $ | — | | | (8,868) |
| Depreciation and amortization | $ | 5,981 | | | $ | 95 | | | $ | 27 | | | $ | — | | | 6,103 |
| Interest expense | $ | (14,288) | | | $ | (2,111) | | | $ | (6) | | | $ | — | | | (16,405) |
| Increase in derivative liability | $ | (8,799) | | | $ | — | | | $ | — | | | $ | — | | | (8,799) |
| | | | | | | | | |
| Year Ended December 31, 2020 | | | | | | | | | |
| Total assets | $ | 45,694 | | | $ | 47,841 | | | $ | 10,535 | | | $ | (27,091) | | | 76,979 |
| Revenue | $ | 47,526 | | | $ | 337,085 | | | $ | 35,887 | | | $ | (4,071) | | | 416,427 |
| Operating income (loss) | $ | (19,866) | | | $ | (1,365) | | | $ | 2,671 | | | $ | — | | | (18,560) |
| Depreciation and amortization | $ | 1,997 | | | $ | 140 | | | $ | 6 | | | $ | — | | | 2,143 |
| Interest expense | $ | (4,605) | | | $ | (1,840) | | | $ | (5) | | | $ | — | | | (6,450) |
(1)Intercompany investment balances relatedRelated to the acquisitions of Wholesale, Inc. and Wholesale Express, RideNow, and Freedom Powersports, and receivables and other balances for intercompany activities.
NOTE 19 - DISCONTINUED OPERATIONS
In the fourth quarter of 2022, the Company announced plans to wind down its automotive business. As of June 30, 2023, the Company had completed all substantial activities pertaining to the wind down of its automotive business, which represented a strategic shift having a major effect on our operations and financial results.
We have reclassified all direct revenues, costs, and expenses related intercompany freight servicesto commercial operations of Wholesale Express are eliminated in the Consolidated Balance Sheets. Revenue and costs for these intercompany freight services have been eliminatedwholesale automotive business, within loss from discontinued operations in the Consolidated Statements of Operations.Operations for all periods presented. We have not allocated any amounts for shared general and administrative operating support expenses to discontinued operations. While ASC 205-20 does not explicitly require assets and liabilities of a discontinued operation to be separately presented in prior periods when the disposal is other than by sale, we have presented related assets and liabilities as assets and liabilities of discontinued operations in our Consolidated Balance Sheets.
Discontinued operations consisted of the following:
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Revenue | $ | 24.7 | | | $ | 334.4 | |
| Cost of sales | 23.7 | | | 323.4 | |
| Gross profit | 1.0 | | | 11.0 | |
| SG&A expenses | 2.0 | | | 11.9 | |
| Impairment of goodwill | — | | | 26.0 | |
| Depreciation and amortization | — | | | 0.1 | |
| Loss from operations of discontinued automotive segment | (1.0) | | | (27.0) | |
| Interest expense | 0.2 | | | 1.7 | |
| Other income | 0.1 | | | 0.1 | |
| Loss from discontinued operations before income taxes | (1.1) | | | (28.6) | |
| Income tax provision (benefit) | — | | | (0.6) | |
| Loss from discontinued operations | $ | (1.1) | | | $ | (28.0) | |
The following table presents the carrying amounts of the assets and liabilities of discontinued operations, all of which were current, as of December 31:
| | | | | | | | | | | |
| ($ in millions) | 2023 | | 2022 |
| Cash | $ | — | | | $ | 1.8 | |
| Accounts receivable, net | — | | | 1.3 | |
| Inventory | — | | | 8.3 | |
| Total assets of discontinued operations | $ | — | | | $ | 11.4 | |
| | | |
| Accounts payable and accrued expenses | $ | 0.3 | | | $ | 3.1 | |
| Vehicle floor plan payable | — | | | 5.3 | |
| Total liabilities of discontinued operations | $ | 0.3 | | | $ | 8.4 | |
NOTE 2120 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company is involved in various claims and legal actions that arise in the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, as of December 31, 2021 and 2020,2023 the Company does not believe that the ultimate resolution of any legal actions, either individually or in the aggregate, will have a material adverse effect on its financial position, results of operations, liquidity, and capital resources.
Future litigation may be necessary to defend the Company by determining the scope, enforceability and validity of third-party proprietary rights or to establish its own proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.
NOTE 22 – SUBSEQUENT EVENTS
Related Party Software License
On January 19, 2022 the Audit Committee approved, and the Company entered both a Perpetual Software License Purchase Agreement, and a Platform Service Agreement with Bidpath Incorporated, a Company owned by Adam Alexander, a member of the Company’s Board of Directors. The license agreement provides the Company with a perpetual, non-exclusive license to the then-current source code as well as all future source code.This code provides additional functionality to the Company’s inventory management platform, andAs previously disclosed, the Company is paying in aggregate $3,600,conducting an investigation of which $1,080 has been paid to date.certain allegations surrounding Marshall Chesrown’s use of Company resources. The services agreement provides for supportinvestigation remains ongoing and maintenance services on monthly basis for $30 thousand per month.The initial terms is thirty-six (36) months but can be terminated by either party at any time by providing sixty (60) days notice toas of the other party.
Acquisitiondate of Freedom Powersports
On Friday, February 18, 2022this filing, the Company closed onhas made no final determination as to what action to take. On July 7, 2023, Mr. Chesrown provided the acquisitionBoard a letter of Freedom Powersports, which included all businessresignation (the “Resignation Letter”) describing Mr. Chesrown’s disagreement with several recent corporate governance, disclosure and real estate assets, subjectother actions taken by the Company, the Board and certain of its members, and indicated his intent to customary net working capitalpursue legal claims. The Company disagrees with the characterization of the allegations and indebtedness adjustments, for an aggregate consideration of approximately $129,971.assertions described in the Resignation Letter. The aggregate consideration consisted of approximately $83,291Company and Mr. Chesrown conducted a pre-suit mediation in October 2023, as required in his employment agreement, but did not resolve the matter. On March 13, 2024, Mr. Chesrown filed suit against the Company in Delaware Superior Court for the Freedom business and approximately $46,680 for acquired real estate properties, including the payoff of outstanding mortgage debt on the real estate assetsclaims asserted in his Resignation Letter. Mr. Chesrown is seeking a declaratory judgment that he resigned with good reason, termination compensation damages in the aggregate amount of approximately $27,025. The aggregate consideration was paid using cash on
hand, $84,500 drawn from the Company’s delayed draw term loan facility,$7.5 million, general and the issuance of 1,048,718 restricted shares of RumbleOn Class B common stock. The restricted shares are subject to a six-month lock-up and resale registration rights. The Company has not completed its initial accounting assessment with respect to the Freedom Agreement at this time.
Funding of RumbleOn’s consumer finance subsidiary
On February 4, 2022, ROF SPV I, LLC (“ROF SPV”), an indirect subsidiary of RumbleOn, entered into a secured loan facility primarily to provide up to $25,000. All loans under this agreement will be secured by certain collateral including the consumer finance loans purchased by ROF SPV.
ROF SPV and ROF provided customary representations and covenants under the agreements which include financial covenants and collateral performance covenants. Loans sold to orreputational damages in the facility are subjectamount of $50 million, punitive damages, attorney's fees and litigation costs. We intend to certain eligibility criteria, concentration limits and reserves.defend these claims vigorously; however, we can provide no assurance regarding the outcome of this matter.
Appointment of Chief Financial Officer
On February 1, 2022,During the Company appointed Narinder Sahai as the Company’s Chief Financial Officer.
Change in Executive Officers
On February 11, 2022, William Coulter, a director and the Executive Vice Chairman of the Company, and Mark Tkach, a director and the Chief Operating Officer of the Company, resigned from all positions with the Company. The Company appointed Peter Levy, the President of the Company, to also serve as Chief Operating Officer of the Company.
Repayment of Convertible Note
On Januaryyear ended December 31, 2022, the Company made its final scheduled payment onincurred $8.4 million in charges for a settlement reached with former minority shareholders of RideNow. The charges were expensed as incurred and are included in selling, general and administrative expenses in the convertible note entered into on February 3, 2019 in connectionaccompanying Consolidated Statements of the AcquisitionOperations.
Letters of AutoSport. The carrying amount onCredit
We issue letters of credit to secure the Company’s balance sheet asvarious financial obligations, including floorplan financing arrangements and insurance policy deductibles and other claims. The total amount of December 31, 2021outstanding letters of credit was $154.$10.6 million. We do not believe that it is probable that any outstanding letters of credit will be drawn upon.
