RideNow Group, Inc. (RDNW) Earnings Call Transcript & Summary

Good afternoon and good evening, everyone. Thanks for joining us today. My name is Rajat Gupta. I'm a member of the automotive equity research team at JPMorgan. Very pleased to have with us today, Marshall Chesrown, CEO of RumbleON. We will kick off the session with a quick presentation from Marshall, after which we can dive into Q&A. [Operator Instructions] With that, I would like to hand it over to Marshall.

Thank you very much. Appreciate everybody logging in today to hear the RumbleON story. To be respectful of your time, I've put together just a few slides that you have access to there. And I'll walk you through kind of what we do, how we do it and how we plan to do it long term. RumbleON is still a new company. So again, I will make the assumption that some of you know the story and some don't. So some of it might be repetitive for a few of you. The front page is a snapshot of what we are referring to as v3. You'll see more of it as we go through the presentation. This is the next generation of RumbleOn.com that will be launched in the next few days. So if you were to log into our -- or download our app today or look at our website, obviously, that photograph looks a little bit different. So that's just a quick view of what's coming. Obviously, Slide 2 is forward-looking statements. I won't bore you with those today. I'm sure you see plenty of those. You can read them in your spare time. RumbleOn.com -- I'm on Slide 3. RumbleOn.com is an e-commerce platform using innovative technology to aggregate and distribute preowned vehicles to and from consumers and dealers, 100% online. RumbleON is disrupting the preowned vehicle supply chain by providing dealers with technology solutions such as virtual inventory and a 24/7 distribution platform. And consumers with an efficient, timely and transparent transaction experience without leaving their home. Whether buying, selling, trading or financing a vehicle, RumbleON enables dealers and consumers to transact without geographic boundaries in a transparent, fast and friction-free experience. Slide 4 just give you a real quick history. My background as CEO, I have been in the automobile space for about 40 years and started off as a car salesman like many people do in the industry. Built that in my very early days into 11 franchises. And along came, Steve Berrard, who is my partner and CFO of RumbleON. And he was partners with Wayne Huizenga for many, many years, which was -- and they were co-founders of what is now today, AutoNation. I merged my franchises with AutoNation back in the '90s. Steve and I became friends and business associates. And if we fast forward to 2013, I started a company called Vroom, which some of you might be aware of, went public here recently. And we started that in 2013 in Grand Prairie, Texas. And I asked Steve if he would join the Board there. And thus, we rechanneled the long-term relationship. And after that, we started -- I decided to start RumbleON. I asked Steve if he would mind stepping out of retirement and join in as CFO and join in the team, which he did. So that's just a quick how we got to where we are today. Again, Steve's background was about 30 years with Wayne Huizenga, was the CEO of things like Blockbuster video as they built that into a company that was opening a new store every 17 hours. And ended up selling that company for about $8.5 billion to Viacom back in the day. Obviously, it was good timing during that period. So this company really started in the spring of 2017. In the fall of 2017, we listed on the NASDAQ, and that was actually -- and we launched our website, and it was actually the beginning of buying and selling powersports. And we started in powersports, and we'll discuss that a little bit more later. That first year, we did about $7.3 million in total revenue. And then in the fall of 2018, RumbleON acquired Wholesale, Inc., which is our automotive distribution platform and Wholesale Express, which we will also talk about, which is our logistics transportation company. That year, in 2018, we did about $156 million total revenue. And then in the spring of 2019, we launched RumbleON Finance. And again, we're going to -- I'm going to explain to you how all these interact in just a minute. But we formed that company. We felt it was very, very important to have a paperless online ability to underwrite our own retail transactions for consumers. And so we did that, like I said, in 2019. At the end of 2019, we accomplished $840 million worth of revenue, our second full year of operation. And then, of course, the summer of 2020, which is now, in the next few days, we will be launching what we refer to as v3. Slide 5. What I'm trying to depict here is really just the 4 buckets of actual businesses of what they do, and then we'll talk a little bit about how they work together. Number one is RumbleOn.com, which is obviously our website. It provides consumers and dealers a single marketplace platform to buy, sell, trade and finance vehicles. RumbleON Finance, obviously, provides the paperless and friction-free retail financing to our customers. Wholesale, Inc. is one of the largest automotive dealer distribution platforms in the country. And Wholesale Express provides logistic services for vehicles of all types and moves them from Coast to coast. Slide #6. Real quick, some things that we accomplished in 2019. We became the largest online redistributor of powersports in the country. We provided over 0.5 million cash offers to consumers, 100% online, which we will get -- talk a little bit more about shortly. We exceeded eBay as the third largest power -- consumer powersports listing site in the country, and we provided logistics for well over 100,000 vehicles in 2019, and we also began providing online paperless consumer finance transactions. Slide 7. This is obviously known to most, I'm sure, but we thought it was important to show the total size of the opportunity. It's a $1 trillion marketplace. And this is -- we're talking about the retail consumer on an annual basis. And you can see here what motorcycles and powersports, RVs and boats, play in that entire realm. $765 billion of that being the cars and trucks that everybody is very familiar with. The reason we show you all of this is our technology is revolved around anything with a VIN. So as we continue to expand the company, it will be anything that has a VIN. In other words, you'll be able to transact, whether it's a dealer transacting wholesale or a consumer transacting retail, you will be able to trade a motorcycle on a car, or a car on an RV, or a boat on an RV, whatever it might be. So it's a single platform, where today, you have to actually -- if you have a motorcycle, you want to trade-in on a car, more than likely you have to go on the likes of Craigslist or Cycle Trader or whatever, liquidate that asset and then move on to purchase an automobile. What we've done is we've created the technology platform. So dealers today, as an example, AutoNation and Sonic, we're preferred vendors for them. If their dealerships have the opportunity to trade for a motorcycle, they put it into RumbleON.com. They get a cash offer from us, and they're able to transact and -- which are really additional sales that they did -- we didn't have the opportunity to participate in the past. So again, a single platform for all makes and models of vehicles regardless whether of cars trucks, motorcycles, RVs or boats. Monetization, number -- Slide #8. There are several ways that we monetize the platform as we move forward. The first and most obvious is with this v3. We will begin to list third-party's vehicles. In other words, other powersports dealers' inventory will be on our site. And again, that's in the next few days. So we have listing fees and of course, the pay-per-click opportunities that are associated to those listings. Our cash offer tool. Our cash offer tool is unique and that it gives consumers an exact amount for their vehicle, whether they want to trade or they just want to create liquidity and cash it out. This really comes from a vision, a long time vision that someone was going to figure out how to do what CarMax does effectively online. And CarMax's history has been around their ability to buy direct from consumers whether they want to buy from them or not. This just allows consumers to be able to do that same function, get a true cash offer, not an opinion of value, but a true cash offer online. And dealers can use it for inventory that they might or might not want to keep long-term and again, adds the liquidity for consumers where liquidity really doesn't exist. Again, with motorcycles today, if you wanted to liquidate your motorcycle that's sitting in the garage that the wife's hanging laundry on, you haven't ridden it in 2 years. Your really -- your only options are primarily Craigslist and secondarily, Cycle Trader today. And a lot of people really don't want to go through either one of those processes, and would much rather have the opportunity for instant liquidity, which is what RumbleON provides. Dealer Direct is an opportunity for dealers, when they list their vehicles, not only can they list them for retail, but if they have a certain amount of them or possibly all of them that they'd like to offer up to dealers in a wholesale fashion in like an auction format, this allows them to be able to do that without having them leave their showroom floor. Today, what a motorcycle, and I'll be specific with motorcycle dealers. What they have to do today is they have to ship it to 1 of 6 or 7 locations around the country, run the risk of whether it sells or doesn't sell, pay exorbitant fees, so on and so forth. So what Dealer Direct does, is it allows dealers to connect and transact between each other in an auction-type format, and we provide all of that technology and, of course, collect the fees associated to both a purchase and a sale transaction. Fourth is consumer finance. Obviously, that's a fairly obvious one. We underwrite off our own credit for motorcycles. Powersports, there's been a very small amount of real competition in the consumer lending space. And we've stepped into that space with a fully paperless automated transaction today for just RumbleON inventory, but with v3, we'll be extending that opportunity for all dealers, consumers, regardless of where the consumer is and regardless of what dealer has the asset that the consumer is interested in. They'll be able to get preapproved, they'll be able to finalize the finance transaction through RumbleON Finance. Advertising, again, fairly obvious. Advertising on the site, from the likes of Google and OEMs for companies like Yamaha or Polaris or Harley-Davidson, to be able to also advertise on our website to their customers. Logistics. That's really our wholesale express company, but we provide that online ability. So that if you want to purchase a motorcycle that is outside of your geographic area, and you want to have it inspected and you want to have it shipped to your home, RumbleON provides that service, again, in an online fashion. And then, of course, the back end supporting that goes along with that. We provide dealers with equity mining tools with CRM and various other tools. Slide #8. Our 2020 goals. Obviously, we have a lot of internal goals, but the 2 I'll share with you today is, obviously, the launch of RumbleOn.com v3. Again, that will be happening in the next few days. And you'll hear more about that also on our earnings call on Friday, which I'd urge you all to listen into. And we also plan to demonstrate progress on our march to profitability. And again, another reason to probably listen in on our call and what we're doing in that regard. With regards to our long-term goals, we plan to provide overtime services for 5,000-plus powersports dealers in the U.S.A. There's about 10,000 dealer licenses out there for powersports, about 7,500 of them are considered active retailers, and we feel that 5,000 is a reasonable target. Become the largest listing site for powersports. Presently, we're third in the country for listings, total listings, consumer listings. The leader in a large-scale is Craigslist. And I think we all understand that opportunity. And secondly would be Cycle Trader. So we intend to be the largest in that space fairly soon. We also plan to achieve sustainability and profitable growth and drive long-term shareholder value. And obviously, continue to create, improve and enhance our technology platform and provide unparalleled experiences for consumers and dealers. So with that, another snapshot of what v3 homepage looks like. We'll have a significant amount of inventory, a complete different presentation. We think the functionality, the quality of the searchability, the customer experience from top to bottom will be something that the market has not seen to date. And we're excited to present it to the world here in the next few days. So with that, I think I left plenty of time for Q&A. We can jump into the questions.

Great. Thanks, Marshall, for providing a really good overview of what RumbleON does and sharing the story. I do have a few questions coming in from the audience, but I'll just start with one. The biggest question that we got, like, I know we saw the CarGurus' announcement a few days ago. And just the 100 dealerships in 29 states, those announcements. But what -- it looks like -- looking at the presentation, you're into many aspects of the overall market. You're touching all different points of the transaction. How would you say what differentiates you versus your competitors in the used car market? How do you compare it to Carvana or Vroom, Shift or even some of the brick-and-mortar dealers? Like what's different and what's unique in your offering versus theirs?

I think -- thank you. I think -- a great question. I think that probably the biggest differentiator is we set out to disrupt the entire supply chain, along with -- and utilizing technology to do that. The names that you mentioned are primarily retail consumer plays, meaning that they buy from auctions and fleets and so forth. And hold that inventory for retail, where we have been agnostic since the very beginning of who our buyer is. We -- everything that we acquire or represent is available for both retail and wholesale to those dealers. I would point out, too, that Carvana, the names you mentioned, Carvana, CarMax, AutoNation Sonic, et cetera, Vroom, those are our largest customers. Because we are a redistributor, and we distribute a lot of automotive inventory to those suppliers, to those retail suppliers. In the powersports space, since inception, we've used the proprietary technology to provide liquidity for consumers primarily, which never existed before, I think I mentioned that before. Along with our industry-leading supply chain initiatives, RumbleON now aggregates powersports dealers' inventory, both new and used, and allow for them to completely participate in that same type of online consumer experience that Carvana and Vroom and others are listing in the auto space. No one has done it in the powersports space, and we think that due to the 0 -- although it's a much smaller space, as I showed on that previous pie chart, we think the opportunity is immense.

Understood. I just wanted to go back to 1 or 2 questions that I have. Just -- we've been asking this question to a lot of the other companies in this space is, what are you seeing on the ground just in terms of the consumer environment? There is -- a lot of the recent recovery in demand has been supported by incentives, stimulus checks. Now given there is some uncertainty around how stimulus payments might progress here into the third quarter and might completely go away in the fourth quarter. But then there's also the need for more personal transportation, less public transport, move to de-urbanization. So how do you see just the health of the industry in general, once we normalize through the pandemic? Like how do you see vehicle demand in general going forward? Do you still expect it to remain a healthy environment? Can it get back to 2019 levels as soon as 2021? In your opinion, just a more broader question there.

Sure. I think it's probably going to sound like a broken record from what you've heard from the others in the vehicle space. But our experience leading up to COVID and post-COVID has really been consistent with the reports of the industry. I mean we saw the bottom of COVID effectively in about mid- to late April. And a sharper rebound than anticipated in demand and values real shortly thereafter. The short-term lack of new vehicles imported and manufactured added to the preowned escalation. But thankfully, we started a relentless pursuit of profitability several months before COVID. And we really -- it really allowed us to accelerate the plan in many ways, whether it is internal operations or external market drivers, we've learned a lot. And it's very clear that online transactions are not only here to stay, but are the choice of the majority of consumers and really dealers now. As I mentioned, the lack of new inventory -- new vehicle inventory has played a role in those valuation fluctuations, and they did rebound significantly faster and harder than what was anticipated. But that certainly has been a tailwind for most of us. Certainly, we'll be spending more time about that on Friday in our earnings call, but it's been a big plus. But we've certainly learned, in our many years of experience, this isn't -- this is the first time we've seen a COVID-type event. But we certainly, over the last 40 years, have seen significant events even as late as 2008, 2009. And new inventory availability does play a role. But preowned always seems to get the first and biggest bounce back from these types of situations, primarily because of the affordability. And as people go back to work, they obviously need transportation. So I think a lot of us are experiencing a pretty significant tailwind at this point. We do see it normalizing and equalizing fairly soon.

Got it. That's helpful. Can you talk a little bit about RumbleON 3.0? Just that the recent launch that you had, which has been well received, more than 100 dealers in 29 states have signed up. Can you talk about some of the new additions that you have made or some of the key features of this launch?

Yes. I think the biggest -- easiest way to explain v3 is as we sit back and look at the rush to online transactions, what we see is the average dealer, especially in the powersports space, really does not have the wherewithal, the culture or the technology to be able to really do what the Carvanas and the Vrooms of the world are able to do. So what we are doing is we're aggregating their inventory on a single -- in a single location, giving consumers access to all of that inventory and then providing the associated customer experience through technology to be able to finance it, make a trade-in, get a cash offer for their vehicle, trade a car on a boat or a boat on a motorcycle or whatever it might be, that's what we're launching with v3. We're not only bringing these dealers high-quality leads, much different than just a click of the website. This -- which would be like a similar listing site, but without the functionality. We're bringing them the tools, the technology and the services that will give them access to these online transactions, really for the first time. And we're going to start with powersports-only listings. However, do remember, our technology was designed to be effective with anything with a VIN number. And that includes autos, boats and RVs. And once we're ready to launch in those verticals, obviously, the same approach will apply. Every dealer we have presented the opportunity to, as you said, is very excited by the opportunity, seize the value in our approach and is looking forward to the quality leads and the assistance in transactions RumbleON's going to bring to them.

Got it. That's super helpful. Can you also talk a little bit about just your recent partnership with CarGurus? What kind of expertise and technology that they bring to you and then you're bringing to them? In some ways, you're also competitors, but you're also partnering. Just how does it affect the operational independence of the 2 websites? And just how will it benefit your future offerings and your future -- your path forward for the company?

Sure, love to. We were very excited to announce the CarGurus relationship. CarGurus is leveraging RumbleON's technology, our logistics and distribution services to facilitate a test of an inventory acquisition model for dealers to source inventory directly from consumers and doing it all 100% online. The CarGurus pilot that we're hopeful will grow into more opportunities in the future. We have worked with the CarGurus team for several months, and we have a lot of similar beliefs on where the future of today's listing sites might look like. The independence of the 2 sites, as you mentioned, is fairly clear. We are launching in powersports only at the present time. And obviously, they're in automotive only. They don't do power -- they don't do autos at this point -- excuse me, don't do powersports at this point. However, they do want to provide a cash offer for consumers on cars and trucks and to facilitate those. That really isn't what they do as a business. And so we're stepping in to be basically the backstop of those transactions and help them through that process. We've been working with the team there for several months, and we're very, very excited about the future, not just of this pilot, but we have a lot of similar beliefs on where the industry is going. And we believe that -- I think everybody today believes that COVID really accelerated where we all thought it was headed anyway. But what COVID has done is because people were not able to leave home, online transactions were their only option. And so we think that where we might have gotten 2 or 3 years from now, we probably got 2 and 2 or 3 months. No, we can't hear you.

I was just saying that that's pretty consistent with what we have been hearing from some of the other companies and also like how COVID has accelerated this. In the interest of time, I just had 1 more question on RumbleON Finance. How does it differ from some of the other pure captive FinCos. What segment of customers, for example, prime, sub-prime, non-prime, does that cater to or you primarily deal with? And what are the capture rates for powersports versus automotive within that? And then just what's the outlook for that going forward? And how it contributes to your ultimate bottom line and your path towards profitability?

Yes. We think that, obviously, long term, in the march to profitability, it has a significant amount of opportunity. But more and more elements of the vehicle transactions are happening online. And as I said before, we feel it's very important to be able to underwrite those loans live, real-time and be able to provide for a wide breadth of credit -- a wide breadth of credit quality instantly in a paperless process as well as prequalifications for shopping for new vehicles. It's interesting that the real estate market has very few people go out and shop for real estate today without finding out if they're qualified and what they're qualified to buy. And what we are doing with RumbleON Finance is they might be interested in a car, they might be interested in a motorcycle. But the biggest question is what can I afford, and what can I really buy. And so prequalifications are hugely important. And you can do that. We continue to use third-party providers in states that we aren't licensed as of yet and for different types of quality of paper. But the powersports lending has been very interesting because there isn't a lot of competition, either in the sales of powersports or in the financing of powersports. And the performance of the paper in the early days has been extremely good at high rates, and we think that it will really, really benefit the overall monetization of RumbleON to the shareholders long term.

That makes sense. I mean, clearly, a very compelling business model. You're participating in so many aspects of the supply chain. Like longer term, if I am -- if it was -- how RumbleON would look like, say, 5 years or 6 years down the line? What do you see as your primary strengths? Like do you want to be viewed as a retailer, a platform provider, a combination of the 2? Where do we see you -- which asset of the business model do we see being monetized the most going forward? And where you could differentiate the most versus like the whole -- versus the whole spectrum?

I think we plan to touch a lot of transactions, retail transactions, whether we own the asset or not is the differentiator. RumbleON, we're a place to aggregate dealers' entire inventory. That's the first step you have to have is the amount of inventory, which drives the amount of search, which drives the eyeballs to the website and starts the entire process. So with that, we want to make that available to all consumers regardless of the location, facilitate the entire transaction online, as they clearly desire to do. And we've decided there is a clear opportunity to leverage and grow dramatically and dominate with a listing site that does much more than just buy wherever we can buy and sell directly to consumers. We think all dealers will need help getting to that point and be able to facilitate a transaction with our help. So if I simplified it down to just layman's terms, I would say, from my perspective, the bottom line is, we plan to make a little on millions of transactions instead of a lot on just a few.

I think we are almost hitting our 30-minute time line here. So I really appreciate you joining us today and sharing the story, very compelling. Clearly looking forward to what's in store for the company and the industry going forward. And we will look forward to having you at the conference again next year.

Thank you so much for having us. And again, I'd urge everybody to dial into our earnings call, second quarter earnings call on Friday before the open. And also keep an eye open for RumbleOn.com and take a look at v3. We'd love to have anybody's feedback.

Great. Thanks, everyone, for joining. Thanks, Marshall, again.