RUMBLEON, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-K)
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 2021 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 dollars are reported in thousands, except per share and per unit amounts. Organization
RumbleOnwas incorporated in October 2013under the laws of the State of Nevadaas SmartServer, Inc.In 2016, following the acquisition of SmartServer by RumbleOnfounders Marshall Chesrownand 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, RumbleOnis revolutionizing the customer experience for outdoor enthusiasts across the country and making powersport vehicles accessible to more people, in more places than ever before. Overview RumbleOnis the nation's first technology-based Omnichannel marketplace in powersports, leveraging proprietary technology to transform the powersports supply chain from acquisition of supply through distribution of retail and wholesale. RumbleOnprovides an unparalleled technology suite 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. We buy and sell new and used vehicles through multiple company-owned websites and affiliate channels, as well as via our proprietary cash offer tool and network of more than 41 company-owned retail locations at December 31, 2021primarily located in the Sunbelt. Deepening our presence in existing markets and expanding into new markets through strategic acquisitions helps perpetuate our flywheel. Our cash offer technology brings in high quality inventory, which attracts more riders and drives volume in used unit sales. This flywheel enables us to quickly and effectively gain market share. As a result of our growth to date, RumbleOnenjoys a leading, first-mover position in the highly fragmented $100billion+ powersports market. RumbleOn'spowersports business offers motorcycles, all-terrain vehicles, utility terrain vehicles, personal watercraft, and all other powersports products, parts, apparel, and accessories. Facilitating our platform, RumbleOn'sretail distribution locations represent all major OEMs and their representative brands, including those listed below. RumbleOn's Representative BrandsAlumacraft Honda Sea-Doo Argo Indian Slingshot Benelli Kawasaki SSR BMW Kayo Sports Suzuki Can-Am KTM TideWater CF Moto Manitou Triumph Ducati Polaris Vanderhall Harley-Davidson Ryker Yamaha Hisun Scarab Spyder RumbleOnleverages technology 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. RumbleOncustomers 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. RumbleOnoffers financing solutions for consumers; trusted physical 27 -------------------------------------------------------------------------------- retail 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 operate in complementary businesses including the brokerage of vehicle transportation and the wholesale distribution automotive business. 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 RumbleOndid 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")
Motorsports and automotive segments
Revenue of is comprised of 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 vehicles through retail and wholesale channels. F&I and PSA revenue is almost exclusively earned through retail channels. Automotive sales are almost exclusively via wholesale channels, and therefore, contribute to a very small portion of F&I revenue. These sales channels provide us the opportunity to maximize profitability through increased sales volume and lower average days to sale by selling through the channel where the opportunity is the greatest at any given time based on customer demand, market conditions or inventory availability. The number of vehicles sold to any given channel may vary from period to period 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 the number of retail pre-owned vehicles sold and the average selling price of these vehicles.
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"). 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 sold through wholesale channels, including directly to other dealers or through auction channels, including via our dealer-to-deal auction market, generally have lower margins and do not include other ancillary gross profit attributable to financing and accessory. Factors affecting gross profit from period to period include the mix of new versus used 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 Imbalances in our sales channels, which could temporarily lead to gross profits increasing or decreasing in any given channel.
We define vehicles sold as the number of vehicles sold through both wholesale and retail channels in each period, net of returns. Vehicles sold is the primary driver of our revenue and, indirectly, gross profit. Vehicles sold also enables complementary revenue streams, such as financing. Vehicles sold increases our base of customers and improves brand 28 --------------------------------------------------------------------------------
awareness and repeat sales. The vehicles sold also provide 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 Company in a given period, divided by retail units sold in that period including gross profit generated from the sale of the new and used vehicles, 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 logistics segment
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 provides transportation services to
Wholesale Inc.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 logistics segment.
Total gross profit per share
Total gross margin per vehicle transported represents the difference between the price received from non-affiliated customers and our cost to contract an independent third-party carrier divided by the number of third-party vehicles transported.
RumbleOn Total Company Metrics
Year Ended December 31, YoY 2021 2020 Change Revenue Powersports
$ 323,303 $ 46,654 $ 276,649Automotive 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 Financial Automotive 30,746 28,284 2,462 Overview ($ Vehicle logistics 9,600 7,616 1,984 in 000s) Parts and service and other 30,267 - 30,267 Finance and insurance 29,133 872 28,261 Total Gross Profit $ 158,177 $ 43,366 $ 114,811Effect of the Nashville Tornado $ - $ (1,215) $ 1,215Gross Profit reported in the consolidated statements of operations (1) $ 158,177 $ 31,627 $ 126,550 Total CompanyTotal SG&A Expenses $ 164,077 $ 53,659 $ 110,418Operating Loss $ (8,868) $ (18,560) $ 9,692Net Loss $ (9,725) $ (24,999) $ 15,274Adjusted EBITDA (2) $ 31,013 $ (5,791) $ 36,804Vehicles 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 $ 4,975Unit Metrics Wholesale $ 28,395 $ 21,542 $ 6,853Other $ 3,330 $ 1,991 $ 1,339Total Revenue $ 26,993 $ 23,330 $ 3,663Gross Profit per Unit Retail $ 4,520 $ 5,114 $ (594)Wholesale $ 2,433 $ 1,902 $ 531Other $ 1,147 $ 1,904 $ (757)Total Gross Profit $ 4,550 $ 2,425 $ 2,125
(1) Automotive gross profit for the year ended
December 31, 2020included an inventory reserve adjustment on $7,879related 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. 30 --------------------------------------------------------------------------------
Total vehicle revenue increased by
$522,013to $938,440for the year ended December 31, 2021compared to $416,427in 2020. The Acquisition Effect specific to new vehicles, F&I and PAS revenue accounted for approximately $279,131of the increase, with $169,632of new vehicle 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.
Gross profit increased in total by
$114,811during the year ended December 31, 2021compared to 2020, driven collectively by the Acquisition Effect of significantly more vehicles sales, an increase in the average selling price per vehicle and an increase in the gross margin dollars per unit sold. 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 the primary driver of the powersport vehicle gross profit, while Demand/Supply Imbalances drove automotive gross profit as well as vehicle logistics and transportation gross profit. 31 --------------------------------------------------------------------------------
RumbleOn Powersports Metrics
Year Ended December 31, YoY 2021 2020 Change New retail vehicles
$ 169,632$ - $ 169,632Used vehicles Used vehicles retail 86,072 5,330 80,742 Revenue $ in 000s) 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 $ 386,148New retail vehicles $ 33,278$ - $ 33,278Used vehicles Retail 10,609 1,470 9,139 Gross Profit ($ in 000s) 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 $ 110,366New retail vehicles 10,555 0 10,555 Powersports Used vehicles Vehicle Sales 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 New retail vehicles $ 16,071$ - $ 16,071Used vehicles Retail 15,373 11,638 3,735 Revenue per vehicle 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 $ 9,121New vehicle $ 3,153$ - $ 3,153Used vehicle 2,126 3,210 (1,084) Gross Profit per vehicle 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
(1) Values per vehicle calculated as gross revenue or profit, as applicable, divided by its respective units sold, except for other and total categories which are divided by the total number of used units sold.
Total vehicle revenue increased by
$386,148to $433,674for the year ended December 31, 2021compared to $47,526in 2020. The Acquisition Effect specific to new vehicles, F&I and PAS revenue accounted for approximately $169,632, $42,530, and $66,969, respectively, of the increase; 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, who on average pay over $2,700more per vehicle than wholesale customers. Overall, the average revenue per vehicle increased by $9,121from $13,541to $22,662, much of which is attributable to higher price point 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.
Powersports vehicle gross profit increased by
$110,366for the year ended December 31, 2021compared to 2020. This increase in gross profit was primarily due to the Acquisition Effect; $33,278was specific to new vehicles, $18,560was due to used vehicles sales and F&I, and PAS collectively accounted for $58,528of the increase. Gross Profit per vehicle increased $1,280per unit, from $5,114in 2020 to $6,394in 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.
RumbleOn Automotive Metrics Year Ended December 31, YoY 2021 2020 Change Automotive Revenue
$ 460,888 $ 337,085 $ 123,803Gross Profit (1) $ 30,746$
Vehicles sold 12,381
Revenue per vehicle
Gross Profit per vehicle
(1) Total gross margin per vehicle sold at retail is calculated by dividing the sum of new vehicle, used vehicle, financing and insurance gross margin by total retail vehicle unit sales.
Total automotive vehicle revenue increased by
$123,803to $460,888for the year ended December 31, 2021compared to $337,085for 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.
Motor vehicle gross margin increased by
RumbleOn Logistics Metrics
Year Ended December 31, YoY 2021 2020 Change Revenue
$ 48,804 $ 35,887 $ 12,917Logistics Gross Profit $ 9,600 $ 7,616 $ 1,984Vehicles 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 $12,917or 36.0% to $48,804for the year ended December 31, 2021compared to $35,887in 2020. The increase in total revenue resulted from the transport of 84,540 vehicles at revenue per vehicle transported of $577compared to revenue from the transport of 61,314 vehicles at a revenue per vehicle transported of $585in 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, 2021and 2020, intercompany freight services provided by Wholesale Express was $4,925and $4,071, respectively and was eliminated in the consolidated financial statements.
Total gross profit for the year ended
December 31, 2021increased $1,984or 26.1% to $9,600, or $114per vehicle transported, as compared to $7,616or $124per 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.
Selling, general and administrative expenses
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising and marketing, development and operating our product procurement and distribution system, managing our logistics system, and other corporate overhead expenses, including expenses associated with technology development, legal, accounting, finance, and business development. Selling, general and administrative expenses will continue to increase in future periods as we execute and aggressively expand our business through increased marketing spending and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controls as well as our reporting systems and procedures, but we anticipate they will decline as a percentage of sales revenue.
Remuneration and related costs
Stock based compensation 29,219 2,978
Advertising and marketing 14,425 5,287
Professional fees 4,714 3,148
Technological development and software 1,992 1,421
Facilities 9,568 2,837
General and administrative 40,686 15,232 25,454 Total SG&A Expenses
$ 164,077 $ 53,659 $ 110,418Selling, general and administrative expenses increased by $110,418for the year ended December 31, 2021compared to 2020. In each case other than technology development and software, the increases were the result of the Acquisition Effect, 34 -------------------------------------------------------------------------------- with over 1,800 additional employees, marketing initiatives at the store level, general and administrative costs associated with a larger team, and lease/facility expense related to 40+ new locations from the RideNow Transaction. In the case of technology and development, 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 Tornado and the nationwide economic slowdown of COVID-19 late in the first quarter of 2020 lasting until the spring of 2021, resulted in artificially lower costs incurred in 2020.
Depreciation and amortization
Depreciation and amortization increased by
$3,960to $6,103for the year ended December 31, 2021compared to $2,143for 2020. The increase in depreciation and amortization is a result of the cumulative investments made in connection with the development of the business which included capitalized technology acquisition and development costs of $1,266and $2,707in additions to property and equipment for the year ended December 31, 2021as compared to $1,887of capitalized technology acquisition and development costs and $3,530in 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 $1,710as compared to $1,887for the same period of 2020. Depreciation and amortization on vehicle, furniture, equipment and leasehold improvements was $210as compared to $256for the same period of 2020.
Interest expense increased
$9,955to $16,405for the year ended December 31, 2021compared to $6,450in 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. The increase in interest expense for the year ended December 31, 2021as compared to the same period of 2020 is primarily related to the RideNow Transaction, as we borrowed $280,000in new debt on the Closing Date 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, 2021to finance the purchase of inventory. See Note 9-Notes Payable and Lines of Credit for additional discussion.
Historically, both the powersports and automotive industries have 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
March 3, 2020, a severe tornado damaged the Company's Nashvillefacilities, 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, $3,135of which was funded in 2021, against the final settlement. The insurer has agreed to pay the full $2,778limit, net of deductible, on the building and personal property loss and to date has advanced $2,270to the landlord. The loss of business income claim is ongoing and remains in the process of negotiation, however, the insurer has advanced $250against 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 $11,738comprised of $4,454for vehicles that were a total loss and $7,284in 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. 35 --------------------------------------------------------------------------------
As part of our various financings, we carry out an analysis of each financial instrument in order to determine the appropriate accounting treatment, including those which, where applicable, require a bifurcation into liability and equity components; we have determined that the following financings include such components:
Senior Convertible Bonds
In connection with the issuance of the Convertible Senior Notes, a derivative liability was recorded at issuance with an interest make whole provision of
$21based 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, 2021and 2020 was approximately $49and $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, 2021and 2020 was approximately $66and $17, respectively.
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 $40,000of 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 $19,700was reclassified to additional paid-in-capital. The $10,950deferred 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.
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
$23,943of 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
• Impairment of inventory and plant and equipment resulting from the Nashville tornado and related proceeds received from the Company’s insurance companies,
• Non-cash stock-based compensation expense recognized in the consolidated statement of income,
• 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 $1,342was 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 canceled by the
• Purchase accounting adjustments, primarily comprised of inventory valuation adjustments acquired as part of the RideNow transaction, which increased the cost of products included in the Consolidated Statement of Income.
The following tables reconcile Adjusted EBITDA to net loss for the periods presented: December 31, 2021 2020 Net loss
$ (9,725) $ (24,999)Add back: Interest expense (including debt extinguishment) 16,405
Depreciation and amortization 6,103
Change in derivative liabilities 8,799 (11) Income tax benefit (21,665) - EBITDA (83) (16,417) Adjustments: Impairment loss on automotive inventory -
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)37
Pro forma adjusted EBITDA
The following additional pro forma information presents the pro forma financial results as if the RideNow transaction had occurred at
Additions and adjustments to the pro forma Adjusted EBITDA calculation are consistent with the adjustments used to calculate Adjusted EBITDA. For the years ended
December 31, 2021 2020 Net income
$ 45,565 $ 18,914Add back: Interest expense (including debt extinguishment) 40,347
Depreciation and amortization 13,199
Interest income and miscellaneous income (1,389)
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 -
Impairment loss on plant & equipment - 178 Insurance proceeds (3,135) (4,810) Stock based compensation 29,219 3,175
Acquisition costs related to 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
Cash and capital resources
Our primary sources of liquidity are available cash, amounts available under our floor plan lines of credit, and monetization of our retail loan portfolio. During the year ended
December 31, 2021, we completed two public offerings that provided net proceeds of $191,000and obtained the Oaktree Credit Facility, which initially provided net proceeds of $261,000that 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 $120,000in additional financing that may be used for acquisitions and up to an additional $100,000in 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 $83,400against the Oaktree Credit Facility. 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 38 --------------------------------------------------------------------------------
operations and financial condition as conditions evolve due to the COVID-19 pandemic and resulting supply and demand 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, 2021and December 31, 2020: December 31, 2021 2020 Cash $ 48,974 $ 1,467Restricted 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 deposits required under the Corporation’s short-term revolving facilities.
December 31, 2021, and 2020, excluding operating lease liabilities and the derivative liability, the outstanding principal amount of indebtedness was $384,585and $53,109, respectively, summarized in the table below. See Note 9-Notes Payable and Lines of Credit, Note 10-Convertible Notes, and Note 11-Stockholders Equity to our consolidated financial statements included in Part II, Item 8, Financial Statements and Supplementary Data of this 2021 Form 10-K for further information on our debt. December 31, 2021 2020 Asset-Based Financing: Inventory $ 97,278 $ 17,812Total asset-based financing 97,278 17,812 Term loan facility 279,300 - Secured notes payable - 2,391 Unsecured senior convertible notes 39,006 39,774 PPP and other loans 4,472 5,177 Total debt 420,056 65,154
Less: unamortized discount and debt issue costs (35,471) (12,045) Total debt, net
$ 384,585 $ 53,109
The following table provides a summary of our cash flows.
December 31, 2021
Net cash (used in) provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities 459,466 (18,071) Net increase (decrease) in cash
Our primary sources of operating cash flows result from the sales of new and pre-owned 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, and personnel-related expenses. For the year ended
December 31, 2021, net cash used in operating activities of $32,177was an increase of $49,320compared to net cash provided by operating activities of $17,143in 2020. The increase in our net cash used in operating activities was primarily due to: (i) an outflow of $45,732in operating assets 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 $15,274and the recognition of the stock based compensation expense of $29,219.
Our primary use of cash for investing activities is for technology development and acquisitions to expand our operations. Cash used in investing activities for the year ended
December 31, 2021was $378,831, an increase of $376,549compared to 2020. The increase in cash used in investing activities results from (i) primarily the 2021 acquisition of RideNow, (ii) additional purchase of property and equipment of $5,646to expand our operations, and (iii) an outflow of $1,871in technology development during the year ended December 31, 2021as compared to 2020. 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 by financing activities was $459,466for the year ended December 31, 2021compared to net cash used in financing activities of $18,071for 2020. The $477,537increase in cash provided by financing activities for the year ended December 31, 2021as compared to the same period of 2020 was a result of: (i) an increase in net proceeds of $261,451received from the senior secured debt; (ii) proceeds of $191,241received from sale of common stock in April 2021and August 2021; and (iii) an increase in borrowings of $17,187on the floor plan lines of credit; partially offset by the repayment of notes payable.
Off-balance sheet arrangements
December 31, 2021, we did not have any off-balance sheet arrangements that have or are reasonably likely 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
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 $83,291for the Freedom Powersports business and approximately $46,680for acquired real estate properties, 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, $84,500drawn 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.
ROF SPV and ROF have provided customary representations and covenants under the agreements, which include financial covenants and collateral performance covenants. Loans sold to or into the facility are subject to certain eligibility criteria, concentration limits and reservations.
Related Party Software License
January 19, 2022, the Audit Committee approved, 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 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, and the Company is paying in aggregate $3,600, of which $1,080has been paid to date, The services agreement provides for support and maintenance services on a monthly basis for $30per 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 the financial director
Change of leaders
Redemption of convertible note
Significant 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 Statesgenerally accepted accounting principles ("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 which 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 2021 Form 10-K, for more detailed information regarding our critical accounting policies.
We adopted ASC 606, Revenue from Contracts with Customers on
January 1, 2018using 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 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. 41 -------------------------------------------------------------------------------- For 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. 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 that 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 exclude any sales taxes, title and registration fees, and other government fees that are collected from customers. Vehicle logistics 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 in the customer's contract. 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 performance obligations and standards. Performance 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 the vehicle is 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.
Pre-owned vehicle inventory is accounted for pursuant to ASC 330, Inventory and consists of pre-owned vehicles primarily acquired from consumers and includes the cost to acquire and recondition a pre-owned vehicle. Reconditioning costs are billed by third-party providers and includes parts, labor, and other repair expenses directly attributable to a specific vehicle. 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 is recognized in cost of revenue in our Consolidated Statements of Operations.
Goodwillrepresents the excess of the consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. Goodwillis tested for impairment annually as of December 31st, or whenever events or changes in circumstances indicate that an impairment may exist. We have three reportable segments as defined in generally accepted accounting principles for segment reporting: (1) powersports, (2) automotive and (3) vehicle logistics, 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. In connection with its annual goodwill impairment test as of December 31, 2021, the Company performed impairment assessments by reviewing qualitative factors for each of its reporting units. The results of the assessments indicated that it was not more likely than not that the fair value of the reporting units were greater than the carrying values and no goodwill impairment was determined to exist for the year ended December 31, 2021. 42 --------------------------------------------------------------------------------
Newly issued accounting pronouncements
June 2016, the FASB issued ASU 2016-13, Financial instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which amends the guidance on the impairment of financial instruments by requiring measurement 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 SECdefinitions, 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 the 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, 2021and it did not have a material effect on its consolidated financial statements.
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