RideNow Group, Inc 8-K, filed Jun 21, 2021
RideNow Group, Inc. (RDNW)
About this 8-K
RideNow Group, Inc filed this 8-K on June 21, 2021, reporting on events of June 17, 2021.
Items reported
- Item 1.01: Entered into a material agreement
- Item 5.02: Director or officer change, or executive pay
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 17, 2021
RumbleOn, Inc.
(Exact name of registrant as specified in its charter)
Nevada
(State or Other Jurisdiction of Incorporation)
| 001-38248 | 46-3951329 | |
| (Commission File Number) | (I.R.S. Employer Identification No.) |
| 901 W. Walnut Hill Lane, Irving, Texas | 75038 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(214) 771-9952
(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| ☒ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b)) | |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.001 par value | RMBL | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
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. ☐
| Item 1.01. | Material Contracts. |
On June 17, 2021, RumbleOn, Inc. (the “Company” or “RumbleOn”) entered into a Joinder and First Amendment to Plan of Merger and Equity Purchase Agreement (the “Amendment”) to that certain Plan of Merger and Equity Purchase Agreement, dated as of March 12, 2021, by and among the Company, RO Merger Sub I, Inc., an Arizona corporation and wholly owned subsidiary of the Company, RO Merger Sub II, Inc., an Arizona corporation and wholly owned subsidiary of the Company, RO Merger Sub III, Inc., an Arizona corporation and wholly owned subsidiary of the Company, RO Merger Sub IV, Inc., an Arizona corporation and wholly owned subsidiary of the Company, C&W Motors, Inc., an Arizona corporation, Metro Motorcycle, Inc., an Arizona corporation, Tucson Motorcycles, Inc., an Arizona corporation, and Tucson Motorsports, Inc., an Arizona corporation, William Coulter, an individual, Mark Tkach, an individual, and each other Person who own equity interests in the Acquired Companies and executes a Seller Joinder, and Mark Tkach, as the representative of the Sellers (the “Transaction Agreement”). Capitalized terms used but not otherwise defined herein have the respective meanings set forth in the Transaction Agreement.
Following receipt of notice that the Board of Directors of CMG Powersports, Inc., a Delaware corporation (“CMG Powersports”), had approved and recommended the merger of CMG Powersports with RO Merger Sub V, Inc., a Delaware corporation and wholly owned subsidiary of the Company, and a majority of the stockholders of CMG Powersports had approved the merger, the parties to the Transaction Agreement determined it would be beneficial to amend the Transaction Agreement to reflect Merger V as a means of transferring the equity interests of CMG Powersports to the Company.
The Amendment joins CMG Powersports and Merger Sub V as parties to the Transaction Agreement as if they were original signatories thereto. The Amendment further provides the mechanics whereby Merger Sub V will be merged with and into CMG Powersports, under the laws of the State of Delaware, with CMG Powersports surviving the merger as a wholly owned direct subsidiary of the Company, and establishes the manner in which shareholders of CMG Powersports will receive consideration as a result of Merger V. The Amendment also adds customary organizational and authority representations regarding Merger Sub V to the Transaction Agreement.
The Amendment clarifies that the Company’s obligations with respect to certain Purchaser Proposals is limited to obtaining approval from the holders of Purchaser Common Stock to issue $175,000,000 of Purchaser Class B Common Stock rather than approval of the Transaction Agreement and the Transactions.
The Amendment modified the obligation of the Company to adopt a new equity incentive plan and, instead, replaced it with an obligation to prepare an amendment to the existing Company 2017 Equity Incentive Plan to increase the number of shares of Class B Common Stock issuable thereunder and to extend the term of such plan for ten years.
The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by the Amendment, a copy of which is attached to this Current Report on Form 8-K as Exhibit 2.2, and incorporated herein by reference.
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| Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
Appointment of Director
On June 16, 2021, the Company’s Board of Directors appointed Peter Levy, the Company’s Chief Operating Officer, a director of the Company.
Biographical and executive compensation with respect to Mr. Levy is set forth in Part III, Items 10 and 11 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021, and Item 5.02 of the Company’s Current Report on Form 8-K, filed with the SEC on April 13, 2021, and incorporated herein by reference.
There are no related party transactions between the Company and Mr. Levy which would require disclosure under Item 404 of Regulation S-K.
A copy of the press release announcing the appointment of Mr. Levy is attached to this Current Report on Form 8-K as Exhibit 99.1 and incorporated herein by reference.
Appointment of Interim Chief Financial Officer and Controller
On June 16, 2021, the Company’s Board of Directors appointed Beverly Rath as Interim Chief Financial Officer and Controller (principal financial officer and principal accounting officer).
Ms. Rath, 66, has served as the Company’s Controller since April 2017, guiding strategic financial decisions and has been integral to the financial health of the Company. She has over 35 years of finance and accounting experience and over 45 years in the automobile industry. Prior to joining RumbleOn, Ms. Rath served as Controller for VROOM, a used car retailer and e-commerce company that enables consumers to buy, sell and finance cars online, from June 2013 - October 2016, and Controller for Terry Taylor Group, a group of automotive dealerships from July 2008 - June 2013. Ms. Rath holds a Bachelor of Science in Accounting from the Metropolitan State College of Denver.
Ms. Rath’s annual salary is $210,000. Also, Ms. Rath is eligible to participate in the Company’s cash bonus plan and equity incentive plan in accordance with other employees at her salary level.
There are no related party transactions between the Company and Ms. Rath which would require disclosure under Item 404 of Regulation S-K.
A copy of the press release announcing the appointment of Ms. Rath is attached to this Current Report on Form 8-K as Exhibit 99.2 and incorporated herein by reference.
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| Item 8.01. | Other Events. |
The Company is filing this Current Report on Form 8-K to disclose (i) the unaudited condensed financial statements of RideNow Group and Affiliates for the three months ended March 31, 2021 and March 31, 20120, (ii) Management’s Discussion and Analysis for the RideNow Group and Affiliates for the year ended December 31, 2020 compared to December 31, 2019, for the year ended December 31, 2019 compared to December 31, 2018, and for the three months ended March 31, 2021 compared to March 31, 2020 and (iii) the unaudited pro forma condensed combined financial statements (and related notes) of RumbleOn, Inc. (“RumbleOn” or the “Company”) as of March 31, 2021 and for the three months ended March 31, 2021 and the twelve months ended December 31, 2020. The unaudited pro forma condensed combined financial statements are based on the Company’s unaudited condensed consolidated financial statements and RideNow Group and Affiliates’s unaudited condensed combined financial statements as adjusted to give effect to the Company’s acquisition of RideNow and the related financing transactions. The unaudited pro forma condensed combined balance sheet as of March 31, 2021 gives effect to these transactions as if they occurred on March 31, 2021. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2021 and the twelve months ended December 31, 2020 give effect to these transactions as if they occurred on January 1, 2020. Items (i) - (iii) referenced above are filed as Exhibits 99.3, 99.4, 99.5 and 99.6 to this Current Report on Form 8-K, and incorporated herein by reference.
| Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules upon request by the U.S. Securities and Exchange Commission.
Additional Information about the Transaction and Where to Find It
In connection with the Transaction, RumbleOn intends to file relevant materials with the SEC, including a preliminary proxy statement, and when available, a definitive proxy statement. Promptly after filing its definitive proxy statement with the SEC, RumbleOn will mail the definitive proxy statement and a proxy card to each RumbleOn stockholder entitled to vote at the meeting of stockholders relating to the Transaction. INVESTORS AND STOCKHOLDERS OF RUMBLEON ARE URGED TO READ THESE MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE TRANSACTION THAT RUMBLEON WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT RUMBLEON, RIDENOW, AND THE TRANSACTION. The definitive proxy statement, the preliminary proxy statement, and other relevant materials in connection with the Transaction (when they become available), and any other documents filed by RumbleOn with the SEC, may be obtained free of charge at the SEC’s website (www.sec.gov) or by visiting RumbleOn’s investor relations section at www.rumbleon.com. The information contained on, or that may be accessed through, the websites referenced in this report is not incorporated by reference into, and is not a part of, this report.
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Participants in the Solicitation
RumbleOn and its directors and executive officers may be deemed participants in the solicitation of proxies from RumbleOn’s stockholders with respect to the Transaction. A list of the names of those directors and executive officers and a description of their interests in RumbleOn will be included in the proxy statement for the proposed business combination and will be available at www.sec.gov. Additional information regarding the interests of such participants will be contained in the proxy statement relating to the Transaction when available. Information about RumbleOn’s directors and executive officers and their ownership of RumbleOn’s common stock is set forth in RumbleOn’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 31, 2021. Other information regarding the interests of the participants in the proxy solicitation will be included in the proxy statement relating to the Transaction when it becomes available. These documents can be obtained free of charge from the sources indicated above.
RideNow and its directors and executive officers may also be deemed to be participants in the solicitation of proxies from the stockholders of RumbleOn in connection with the Transaction. A list of the names of such directors and executive officers and information regarding their interests in the proposed business combination will be included in the proxy statement relating to the Transaction.
No Offer or Solicitation
This report does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, by RumbleOn, nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful before the registration or qualification under the securities laws of such state. Any offering of the securities will only be by means of a statutory prospectus meeting the requirements of the rules and regulations of the SEC and applicable law or in accordance with an applicable exemption from the registration requirements thereof.
Forward Looking Statements
Certain statements made in this report are “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “target,” “believe,” “expect,” “will,” “shall,” “may,” “anticipate,” “estimate,” “would,” “positioned,” “future,” “forecast,” “intend,” “plan,” “project,” “outlook”, and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Examples of forward-looking statements include, among others, statements made in this report regarding the Transaction, including the benefits of the Transaction, revenue opportunities, anticipated future financial and operating performance, and results, including estimates for growth, and the expected timing of the Transaction. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on management’s current beliefs, expectations, and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of RumbleOn’s control. Actual results and outcomes may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause actual results and outcomes to differ materially from those indicated in the forward-looking statements include, among others, the following: (1) the occurrence of any event, change, or other circumstances that could give rise to the termination of the Transaction; (2) the failure to obtain debt and equity financing required to complete the Transaction; (3) failure to obtain the OEM approvals; (4) the inability to complete the Transaction, including due to failure to obtain approval of the stockholders of RumbleOn, certain regulatory approvals, or satisfy other conditions to closing in the Agreement; (5) the impact of COVID-19 pandemic on RumbleOn’s business and/or the ability of the parties to complete the Transaction; (6) the risk that the Transaction disrupts current plans and operations as a result of the announcement and consummation of the Transaction; (7) the ability to recognize the anticipated benefits of the proposed business combination, which may be affected by, among other things, competition, the ability of management to integrate the combined company’s business and operation, and the ability of the parties to retain its key employees; (8) costs related to the Transaction; (9) changes in applicable laws or regulations; (10) risks relating to the uncertainty of the pro forma financial information with respect to the combined company; and (11) other risks and uncertainties indicated from time to time in the preliminary and definitive proxy statements to be filed with the SEC relating to the Transaction, including those under “Risk Factors” therein, and in RumbleOn’s other filings with the SEC. RumbleOn cautions that the foregoing list of factors is not exclusive. RumbleOn cautions readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made. RumbleOn does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in their expectations or any change in events, conditions, or circumstances on which any such statement is based, whether as a result of new information, future events, or otherwise, except as may be required by applicable law. Neither RumbleOn nor RideNow gives any assurance that after the Transaction the combined company will achieve its expectations.
Without limiting the foregoing, the inclusion of the financial projections in this report should not be regarded as an indication that RumbleOn considered, or now considers, them to be a reliable prediction of the future results. The financial projections were not prepared with a view towards public disclosure or with a view to complying with the published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, or with U.S. generally accepted accounting principles. Neither RumbleOn’s independent auditors, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the financial projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability. Although the financial projections were prepared based on assumptions and estimates that RumbleOn’s management believes are reasonable, RumbleOn provides no assurance that the assumptions made in preparing the financial projections will prove accurate or that actual results will be consistent with these financial projections. Projections of this type involve significant risks and uncertainties, should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| RUMBLEON, INC. | ||
| Date: June 21, 2021 | By: | /s/ Marshall Chesrown |
| Marshall Chesrown | ||
| Chief Executive Officer | ||
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Exhibit 2.2
JOINDER AND FIRST AMENDMENT TO PLAN OF MERGER AND EQUITY PURCHASE AGREEMENT
This Joinder and First Amendment to Plan of Merger and Equity Purchase Agreement (this “Amendment”), dated June 17, 2021, is entered into by and among by and among RumbleOn, Inc., a Nevada corporation (the “Purchaser”), RO Merger Sub I, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub I”), RO Merger Sub II, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub II”), RO Merger Sub III, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub III”), RO Merger Sub IV, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub IV”), RO Merger Sub V, Inc., a Delaware corporation and wholly owned subsidiary of Purchaser (“Merger Sub V” and together with Merger Sub I, Merger Sub II, and Merger Sub III, and Merger Sub IV, the “Merger Subs”), C&W Motors, Inc., an Arizona corporation, CMG Powersports, Inc., a Delaware corporation (“CMG Powersports”), Metro Motorcycle, Inc., an Arizona corporation, Tucson Motorcycles, Inc., an Arizona corporation, and Tucson Motorsports, Inc., an Arizona corporation, William Coulter, an individual (“Coulter”), Mark Tkach, an individual (“Tkach” and together with Coulter, the “Principal Owners”), and each other Person who owns an Equity Interest (as defined below) in any Transferred Entity (as defined below) and executes a Seller Joinder (as defined below) (together with the Principal Owners, the “Sellers” and each, a “Seller”), and Mark Tkach, as the representative of the Sellers (the “Sellers’ Representative”). Capitalized terms used but not otherwise defined herein shall have the respective meanings assigned thereto in the Purchase Agreement (as defined below).
RECITALS
WHEREAS, Purchaser, the Merger Sub I, Merger Sub II, Merger Sub III, Merger Sub IV, the Principal Owners, Sellers’ Representative, and the other parties signatory thereto entered into that certain Plan of Merger and Equity Purchase Agreement, dated as of March 12, 2021 (the “Purchase Agreement”);
WHEREAS, the Parties hereto wish to amend the Purchase Agreement;
WHEREAS, the Board of Directors of CMG Powersports has approved and recommends the merger of CMG Powersports with Merger Sub V, a newly formed subsidiary of Purchaser, and a majority of the stockholders of CMG Powersports have approved such transaction;
WHEREAS, the stockholders of CMG Powersports have approved Merger V (as defined below) as a means of transferring their equity interests in CMG Powersports in lieu of selling their shares to the Purchaser as Transferred Equity Interests;
WHEREAS, the Board of Directors of Purchaser has determined it is in the best interests of Purchaser and its stockholders to acquire CMG Powersports pursuant to a merger between CMG and Merger Sub V in lieu of a purchase of the Equity Interests of CMG Powersports; and
WHEREAS, the Parties desire to amend the Purchase Agreement to join CMG and Merger Sub V as Parties with the same force and effect as if such Persons had been a signatory to the Purchase Agreement on the execution date thereof, to implement the acquisition of CMG by merger with and into Merger Sub V in lieu of a purchase of the Equity Interests of CMG by Purchaser, and to modify all provisions necessary or desirable to reflect the foregoing.
NOW, THEREFORE, in consideration of the premises, the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Parent, Purchaser, and Sellers’ Representative hereby agree as follows:
1. Amendment of Preamble. The Preamble to the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“This PLAN OF MERGER AND EQUITY PURCHASE AGREEMENT (the “Agreement”), dated as of March 12, 2021, by and among RumbleOn, Inc., a Nevada corporation (the “Purchaser”), RO Merger Sub I, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub I”), RO Merger Sub II, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub II”), RO Merger Sub III, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub III”), RO Merger Sub IV, Inc., an Arizona corporation and wholly owned subsidiary of Purchaser (“Merger Sub IV”), RO Merger Sub V, Inc., a Delaware corporation and wholly owned subsidiary of Purchaser (“Merger Sub V” and together with Merger Sub I, Merger Sub II, Merger Sub III, and Merger Sub IV, the “Merger Subs”), C&W Motors, Inc., an Arizona corporation, CMG Powersports, Inc., a Delaware corporation, Metro Motorcycle, Inc., an Arizona corporation, Tucson Motorcycles, Inc., an Arizona corporation, and Tucson Motorsports, Inc., an Arizona corporation, William Coulter, an individual (“Coulter”), Mark Tkach, an individual (“Tkach” and together with Coulter, the “Principal Owners”), and each other Person who owns an Equity Interest (as defined below) in any Transferred Entity (as defined below) and executes a Seller Joinder (as defined below) (together with the Principal Owners, the “Sellers” and each, a “Seller”), and Mark Tkach, as the representative of the Sellers (the “Sellers’ Representative”).”
2. Amendment of Recitals. Recital F of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“At the Closing, upon the terms and subject to the conditions of this Agreement (i) Merger Sub I will merge with and into C&W Motors, Inc., with C&W Motors, Inc. continuing as a surviving corporation, (ii) Merger Sub II will merge with and into Metro Motorcycle, with Metro Motorcycle, Inc. continuing as a surviving corporation, (iii) Merger Sub III will merge with and into Tucson Motorcycles, with Tucson Motorcycles continuing as a surviving corporation, (iv) Merger Sub IV will merge with and into Tucson Motorsports, with Tucson Motorsports, Inc. continuing as a surviving corporation, and (v) Merger Sub V will merge with and into CMG Powersports, with CMG Powersports continuing as a surviving corporation, in each case under the laws of the State of Arizona or the laws of the State of Delaware, as applicable, and each as a wholly-owned subsidiary of Purchaser.”
3. Amendment of Article I Definitions. Each of the following definitions are hereby added to Article I as new section thereof:
(a) “Closing Per Share Merger Consideration” means for each applicable Merged Entity (a) the Estimated Cash Consideration and the number of Closing Payment Shares attributable to such entity (determined in accordance with Schedule 5.5(f) and set forth on the Payment Notice), divided by (b) the aggregate number of shares of common stock of such Merged Entity outstanding as of immediately prior to the Effective Time. For the avoidance of doubt, the portion of the Closing Payment Shares that are retained as Escrow Shares shall be retained solely from consideration payable to the Principal Owners.”
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(b) “CMG Powersports” means CMG Powersports, Inc., a Delaware corporation.
(c) “DGCL” means the Delaware General Corporation Law, as amended from time to time.
(d) “Merger V” has the meaning set forth in Section 2.2(a)(v).
(e) “Merger Sub V” has the meaning set forth in the preamble to this Agreement.
(f) “Merger Sub V Common Stock” has the meaning set forth in Section 2.2(f)(v).
4. Amendment of Section 2.2. Section 2.2 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“2.2 The Mergers.
(a) Mergers. On the terms and subject to the conditions set forth in this Agreement and in accordance with the ARS and DGCL, as applicable, at the Effective Time:
(i) Merger Sub I shall be merged (“Merger I”) with and into C&W Motors in accordance with the Arizona Entity Restructuring Act (“AERA”) at which time the separate existence of Merger Sub I shall cease, and C&W Motors shall be the surviving corporation and shall be a wholly owned, direct subsidiary of Purchaser;
(ii) Merger Sub II shall be merged (“Merger II”) with and into Metro Motorcycle in accordance with AERA at which time the separate existence of Merger Sub II shall cease, and Metro Motorcycle shall be the surviving corporation and shall be a wholly owned, direct subsidiary of Purchaser;
(iii) Merger Sub III shall be merged (“Merger III”) with and into Tucson Motorcycles in accordance with AERA at which time the separate existence of Merger Sub III shall cease, and Tucson Motorcycles shall be the surviving corporation and shall be a wholly owned, direct subsidiary of Purchaser;
(iv) Merger Sub IV shall be merged (“Merger IV”) with and into Tucson Motorsports in accordance with AERA at which time the separate existence of Merger Sub IV shall cease, and Tucson Motorsports shall be the surviving corporation and shall be a wholly owned, direct subsidiary of Purchaser;
(v) Merger Sub V shall be merged (“Merger V” and together with Merger I, Merger II, Merger III, and Merger VI, the “Mergers”) with and into CMG Powersports in accordance with the DGCL at which time the separate existence of Merger Sub V shall cease, and CMG Powersports shall be the surviving corporation and shall be a wholly owned, direct subsidiary of Purchaser; and
(vi) each of C&W Motors, Metro Motorcycle, Tucson Motorcycles, Tucson Motorsports, and CMG Powersports shall be a “Surviving Corporation.”
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(b) Merger Effective Time. At the Closing, Purchaser shall duly execute and file (i) a statement of merger with respect to Merger I, Merger II, Merger III, and Merger IV (each a “Statement of Merger” and collectively, the “Statements of Merger”) with the Arizona Corporation Commission in accordance with Sections 29-2202 and 29-2205 and the other applicable provisions of AERA and all other filings or recording required thereby to effect such mergers and (ii) a certificate of merger (the “Certificate of Merger”) with the Delaware Secretary of State in the form as is required to be executed and competed in accordance with the relevant provisions of the DGCL and make all other filings or recordings required thereby to effect Merger V. The Mergers shall become effective at such time (the “Effective Time”) as the Statements of Merger are filed with the Arizona Corporation Commission and the Certificate of Merger is filed with the Delaware Secretary of State (or at such later time as Sellers’ Representative and Purchaser mutually agree and specify in the Statements of Merger and Certificate of Merger pursuant to and in accordance with the ARS and DGCL, as applicable).
(c) Effects of the Mergers. From and after the Effective Time, Merger I, Merger II, Merger III, and Merger IV shall have the effects set forth herein, which the parties acknowledge and agree constitutes the “plan of merger” required by Section 29-2202 of AERA, and in the other applicable provisions of AERA, including Section 29-2206 thereof and Merger V shall have the effects set forth herein and in the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, (i) all of the properties, rights, privileges, powers and franchises of C&W Motors and Merger Sub I shall vest in C&W Motors (as the Surviving Corporation), and all debts, liabilities, obligations, and duties of C&W Motors and Merger Sub I shall become debts, liabilities, obligations and duties of C&W Motors (as the Surviving Corporation); (ii) all of the properties, rights, privileges, powers and franchises of Metro Motorcycle and Merger Sub II shall vest in Metro Motorcycle (as the Surviving Corporation), and all debts, liabilities, obligations, and duties of Metro Motorcycle and Merger Sub II shall become debts, liabilities, obligations and duties of Metro Motorcycle (as the Surviving Corporation); (iii) all of the properties, rights, privileges, powers and franchises of Tucson Motorcycles and Merger Sub III shall vest in Tucson Motorcycles (as the Surviving Corporation), and all debts, liabilities, obligations, and duties of Tucson Motorcycles and Merger Sub III shall become debts, liabilities, obligations and duties of Tucson Motorcycles (as the Surviving Corporation); (iv) all of the properties, rights, privileges, powers and franchises of Tucson Motorsports and Merger Sub IV shall vest in Tucson Motorsports (as the Surviving Corporation), and all debts, liabilities, obligations, and duties of Tucson Motorsports and Merger Sub IV shall become debts, liabilities, obligations and duties of Tucson Motorsports (as the Surviving Corporation); and (v) all of the properties, rights, privileges, powers, and franchises of CMG Powersports and Merger Sub V shall vest in CMG Powersports (as the Surviving Corporation), and all debts, liabilities, obligations, and duties of CMG Powersports and Merger Sub V shall become debts, liabilities, obligations, and duties of CMG Powersports (as the Surviving Corporation).
(d) Articles of Incorporation; Certificate of Incorporation; Bylaws. At the Effective Time and without any further action on the part of any party hereto, the:
(i) articles of incorporation and bylaws of Merger Sub I, as in effect immediately prior to the Effective Time, shall become the articles of incorporation and bylaws of C&W Motors (as the Surviving Corporation) as of the Effective Time, until duly amended in accordance with applicable Law;
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(ii) articles of incorporation and bylaws of Merger Sub II, as in effect immediately prior to the Effective Time, shall become the articles of incorporation and bylaws of Metro Motorcycle (as the Surviving Corporation) as of the Effective Time, until duly amended in accordance with applicable Law;
(iii) articles of incorporation and bylaws of Merger Sub III, as in effect immediately prior to the Effective Time, shall become the articles of incorporation and bylaws of Tucson Motorcycles (as the Surviving Corporation) as of the Effective Time, until duly amended in accordance with applicable Law;
(iv) articles of incorporation and bylaws of Merger Sub IV, as in effect immediately prior to the Effective Time, shall become the articles of incorporation and bylaws of Tucson Motorsports (as the Surviving Corporation) as of the Effective Time, until duly amended in accordance with applicable Law; and
(v) certificate of incorporation and bylaws of Merger Sub V, as in effect immediately prior to the Effective Time, shall become the certificate of incorporation and bylaws of CMG Powersports (as the Surviving Corporation) as of the Effective Time, until duly amended in accordance with applicable Law.
(e) Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable Laws, the directors and the officers of each of the Merged Entities at the Effective Time, and as set forth on Schedule 4.27(a)(ii), shall be the directors and officers, respectively, of each such Merged Entity (in its capacity as a Surviving Corporation).
(f) Conversion of Shares. At the Effective Time, by virtue of the Mergers and without any action on the part of any party:
(i) Each share of common stock, no par value, of C&W Motors issued and outstanding as of the Effective Time (other than Dissenting Shares) and all rights in respect thereof shall, by virtue of Merger I, forthwith cease to exist and be converted into and represent the right to receive the Closing Per Share Merger Consideration, together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or release of Escrow Shares, if any. Each share of common stock, par value $0.001 per share, of Merger Sub I (“Merger Sub I Common Stock”), issued and outstanding immediately before the Effective Time, shall be converted into one newly issued, fully paid, and nonassessable share of common stock of C&W Motors (as the Surviving Corporation). From and after the Effective Time, each certificate evidencing shares of Merger Sub I Common Stock shall evidence ownership of such shares of common stock of C&W Motors (as the Surviving Corporation).
(ii) Each share of common stock, no par value, of Metro Motorcycle issued and outstanding as of the Effective Time (other than Dissenting Shares) and all rights in respect thereof shall, by virtue of Merger II, forthwith cease to exist and be converted into and represent the right to receive the Closing Per Share Merger Consideration, together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or, with respect to the Principal Owners, release of Escrow Shares, if any. Each share of common stock, par value $0.001 per share, of Merger Sub II (“Merger Sub II Common Stock”), issued and outstanding immediately before the Effective Time, shall be converted into one newly issued, fully paid, and nonassessable share of common stock of Metro Motorcycle (as the Surviving Corporation). From and after the Effective Time, each certificate evidencing shares of Merger Sub II Common Stock shall evidence ownership of such shares of common stock of Metro Motorcycle (as the Surviving Corporation).
5
(iii) Each share of common stock, no par value, of Tucson Motorcycles issued and outstanding as of the Effective Time (other than Dissenting Shares) and all rights in respect thereof shall, by virtue of Merger III, forthwith cease to exist and be converted into and represent the right to receive the Closing Per Share Merger Consideration, together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or release of Escrow Shares, if any. Each share of common stock, par value $0.001 per share, of Merger Sub III (“Merger Sub III Common Stock”), issued and outstanding immediately before the Effective Time, shall be converted into one newly issued, fully paid, and nonassessable share of common stock of Tucson Motorcycles (as the Surviving Corporation). From and after the Effective Time, each certificate evidencing shares of Merger Sub III Common Stock shall evidence ownership of such shares of common stock of Tucson Motorcycles (as the Surviving Corporation).
(iv) Each share of common stock, no par value, of Tucson Motorsports issued and outstanding as of the Effective Time (other than Dissenting Shares) and all rights in respect thereof shall, by virtue of Merger IV, forthwith cease to exist and be converted into and represent the right to receive the Closing Per Share Merger Consideration, together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or, with respect to the Principal Owners, release of Escrow Shares, if any. Each share of common stock, par value $0.001 per share, of Merger Sub IV (“Merger Sub IV Common Stock”), issued and outstanding immediately before the Effective Time, shall be converted into one newly issued, fully paid, and nonassessable share of common stock of Tucson Motorsports (as the Surviving Corporation). From and after the Effective Time, each certificate evidencing shares of Merger Sub IV Common Stock shall evidence ownership of such shares of common stock of Tucson Motorsports (as the Surviving Corporation).
(v) Each share of common stock, no par value, of CMG Powersports issued and outstanding as of the Effective Time (other than Dissenting Shares) and all rights in respect thereof shall, by virtue of Merger V, forthwith cease to exist and be converted into and represent the right to receive the Closing Per Share Merger Consideration, together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or, with respect to the Principal Owners, release of Escrow Shares, if any. Each share of common stock, par value $0.001 per share, of Merger Sub V (“Merger Sub V Common Stock”), issued and outstanding immediately before the Effective Time, shall be converted into one newly issued, fully paid, and nonassessable share of common stock of CMG Powersports (as the Surviving Corporation). From and after the Effective Time, each certificate evidencing shares of Merger Sub V Common Stock shall evidence ownership of such shares of common stock of CMG Powersports (as the Surviving Corporation).
(g) No Further Rights of Transfer. At and after the Effective Time, each holder of Equity Interests of any Merged Entity shall cease to have any rights as a stockholder of such Merged Entity, except as otherwise required by applicable Law and except for the right of each such holder to surrender his or her stock certificate or affidavit of lost stock certificate in exchange for payment of the applicable Closing Per Share Merger Consideration together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or the release of Escrow Shares, if any, and no transfer of shares of common stock of any Merged Entity shall be made on the stock transfer books of the applicable Surviving Corporation. At the close of business on the day of the Effective Time, the stock ledger of each Merged Entity shall be closed.
6
(h) Surrender and Payment. At or following the Closing, each Seller holding Equity Interests in any Merged Entity may deliver to Purchaser an executed and completed copy of the letter of transmittal in a commercially reasonable form to be agreed upon by Purchaser and Sellers’ Representative (the “Letter of Transmittal”) and, as soon as reasonably practicable thereafter (but in any event, within three (3) Business Days) Purchaser shall pay the consideration to be paid to such Seller pursuant to the Payment Notice, without interest thereon. To the extent that a Seller holding Equity Interests in any Merged Entity has not delivered an executed and completed copy of the Letter of Transmittal, then, promptly after the Effective Time, the Purchaser shall mail to the applicable Seller: (a) the Letter of Transmittal and (b) instructions for effecting the surrender of each Equity Interest in exchange for the amount to be paid to such Seller pursuant to the Payment Notice, without interest thereon. Upon surrender of a duly completed and validly executed Letter of Transmittal after the Effective Time, such Seller shall be entitled to receive in exchange therefore, and as soon as reasonably practicable after the surrender thereof (but in any event, within three (3) Business Days), the Purchaser shall pay, the consideration payable to such holder pursuant to the Payment Notice, without interest thereon.
(i) Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, shares of common stock of any Merged Entity issued and outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of adoption of this Agreement or consented thereto in writing and who has properly exercised dissenters’ rights or appraisal rights of such shares of common stock of any Merged Entity in accordance with Section 10-1321 of the ARS or Section 262 of the DGCL, as applicable (such shares being referred to collectively as the “Dissenting Shares” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under the ARS or DGCL, as applicable, with respect to such Shares) shall not be converted into a right to receive a portion of the Closing Per Share Merger Consideration together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or the release of Escrow Shares, if any, but instead shall be entitled to only such rights as are granted by Article 2 of Chapter 13 of Title 10 of the ARS or Section 262 of the DGCL, as applicable; provided, however, that if, after the Effective Time, such holder fails to perfect, withdraws or loses such holder’s right to appraisal pursuant to Article 2 of Chapter 13 of Title 10 of the ARS or Section 262 of the DGCL, or if a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by Article 2 of Chapter 13 of Title 10 of the ARS or Section 262 of the DGCL, such shares shall be treated as if they had been converted as of the Effective Time into the right to receive the portion of the Closing Per Share Merger Consideration together with any amounts that may become payable as a result of the adjustments in Section 3.3 hereof or the release of Escrow Shares, if any, to which such holder is entitled pursuant to Section 2.2(f), without interest thereon. Sellers shall provide Purchaser prompt written notice of any demands received by any Acquired Company for appraisal of shares of the Merged Entity, any withdrawal of any such demand and any other demand, notice or instrument delivered to any Acquired Company prior to the Effective Time pursuant to the ARS or the DGCL that relates to such demand, and Purchaser shall have the opportunity and right to direct all negotiations and proceedings with respect to such demands. Except with the prior written consent of Purchaser, neither the Sellers nor any Acquired Company shall make any payment with respect to, or settle or offer to settle, any such demands.”
7
5. Amendment of Section 2.6(b)(ii). Section 2.6(b)(ii) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“(ii) articles of merger or a certificate of merger, as applicable, in such form as is required by the relevant provisions of ARS and DGCL, to effect the Mergers;”
6. Amendment of Section 6.1. Section 6.1 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“6.1 Corporate Existence and Power. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the state of Nevada. Each Merger Sub (other than Merger Sub V) is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona. Merger Sub V is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Each of Purchaser and each Merger Sub has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as presently conducted.”
7. Amendment of Section 8.2(b)(A). Clause (A) of subsection 8.2(b) is hereby deleted in its entirety and replaced with the following:
“(A) for purposes of complying with applicable listing rules of the Nasdaq, approval of the issuance of shares of Purchaser Class B Common Stock contemplated to be issued under this Agreement as provided for herein in connection with the consummation of the Transactions,”
8. Amendment of Section 8.10. Section 8.10 of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
“8.10 Adoption of Equity Incentive Plan Amendment. The Purchaser and the Acquired Companies shall prepare a mutually agreeable amendment to the RumbleOn, Inc. 2017 Equity Incentive Plan to increase the number of shares of Class B Common Stock issuable thereunder and the extend the term therefor for an additional ten (10) years (such plan, as amended, the “Equity Incentive Plan”) to be effective at or prior to the Closing and allocate options or restricted stock units to a list of employees provided by Sellers’ Representative as set forth on Schedule 8.10. The grant of any award under the Equity Incentive Plan shall be subject to receipt from the grantee of a restrictive covenant agreement in the form determined by Purchaser. The adoption of the amendment to the RumbleOn, Inc. 2017 Equity Incentive Plan shall be included as a Purchaser Proposal in the Proxy Statement for approval by the Purchaser’s Stockholders at the Purchaser Stockholders’ Meeting. The Purchaser agrees to file, as soon as practicable after Closing, a registration Statement on Form S-8 covering the issuance of shares underlying awards under the Equity Incentive Plan.”
9. Amendment of Schedule 1.1(a) and Schedule 1.1(b). Schedule 1.1(a) of the Purchase Agreement is hereby amended to remove item 11 thereof listing CMG Powersports. Schedule 1.1(b) of the Purchase Agreement is hereby amended to add the following:
| Person | Equity Interest Percentage | |
| 5. CMG Powersports, Inc. |
● William Coulter, 51% of the Equity Interests;
● Mark Tkach, 29% of the Equity Interests; and
● Robert Dodson, 20% of the Equity Interests |
8
10. Joinder of CMG Powersports and Merger Sub V. By execution of this Amendment, each of CMG Powersports and Merger Sub V hereby acknowledges, agrees, and confirms that it shall be deemed to be a Party and signatory to the Purchase Agreement as of March 12, 2021, and shall have all rights and obligations thereunder as if each had executed the Purchase Agreement as of March 12, 2021.
11. Purchase Agreement Otherwise Unchanged. Except as expressly provided herein, the Purchase Agreement shall remain unchanged and in full force and effect. Each reference to “this Agreement” or “the Purchase Agreement” and words of similar import in the Purchase Agreement and in the agreements and other documents contemplated by the Purchase Agreement shall be a reference to the Purchase Agreement, as amended hereby, and as the same may be further amended, restated, supplemented and otherwise modified and in effect from time to time.
12. Governing Law; Jury Trial. This Amendment shall be governed by and interpreted in accordance with the same laws and in the same manner as the Purchase Agreement and Sections 10.7 and 11.1 of the Purchase Agreement are incorporated herein by reference, mutatis mutandis.
13. Miscellaneous. This Amendment shall be binding upon and inure to the benefit of each party to the Purchase Agreement and its successors and permitted assigns. The headings in this Amendment are for reference only and shall not affect the meaning or interpretation of this Amendment. This Amendment may be executed in counterparts, each of which is deemed an original, but all of which constitute one and the same instrument. Delivery of an executed counterpart of this Amendment electronically, via email or .pdf, or by facsimile shall be effective as delivery of an original executed counterpart of this Amendment
* * * * *
9
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the date and year first set forth above.
| PURCHASER: | ||
| RUMBLEON, INC. | ||
| By: | /s/ Marshall Chesrown | |
| Name: | Marshall Chesrown | |
| Title: | Chairman of the Board and Chief Executive Officer | |
| SELLERS: | ||
| By: | /s/ Mark Tkach | |
| Name: | Mark Tkach | |
| SELLERS’ REPRESENTATIVE, on behalf of the Sellers |
||
| By: | /s/ Mark Tkach | |
| Name: | Mark Tkach | |
10
| MERGED ENTITIES: | ||
| C&W MOTORS, INC., | ||
| an Arizona corporation | ||
| By: | /s/ William Coulter | |
| Name: | William Coulter | |
| Title: | Authorized Officer | |
| METRO MOTORCYCLE, INC., | ||
| an Arizona corporation | ||
| By: | /s/ William Coulter | |
| Name: | William Coulter | |
| Title: | Authorized Officer | |
| TUCSON MOTORCYCLES, INC., | ||
| an Arizona corporation | ||
| By: | /s/ William Coulter | |
| Name: | William Coulter | |
| Title: | Authorized Officer | |
| TUCSON MOTORSPORTS, INC., | ||
| an Arizona corporation | ||
| By: | /s/ William Coulter | |
| Name: | William Coulter | |
| Title: | Authorized Officer | |
| CMG POWERSPORTS, INC., | ||
| a Delaware corporation | ||
| By: | /s/ William Coulter | |
| Name: | William Coulter | |
| Title: | Authorized Officer | |
11
| MERGER SUBS: | ||
| RO MERGER SUB I, INC., | ||
| an Arizona corporation | ||
| By: | /s/ Marshall Chesrown | |
| Name: | Marshall Chesrown | |
| Title: | President | |
| RO MERGER SUB II, INC., | ||
| an Arizona corporation | ||
| By: | /s/ Marshall Chesrown | |
| Name: | Marshall Chesrown | |
| Title: | President | |
| RO MERGER SUB III, INC., | ||
| an Arizona corporation | ||
| By: | /s/ Marshall Chesrown | |
| Name: | Marshall Chesrown | |
| Title: | President | |
| RO MERGER SUB IV, INC., | ||
| an Arizona corporation | ||
| By: | /s/ Marshall Chesrown | |
| Name: | Marshall Chesrown | |
| Title: | President | |
| RO MERGER SUB V, INC., | ||
| a Delaware corporation | ||
| By: | /s/ Marshall Chesrown | |
| Name: | Marshall Chesrown | |
| Title: | President | |
12
Exhibit 99.1
RumbleOn Appoints Peter Levy, the Company’s Chief Operating Officer, to its Board of Directors
DALLAS - RumbleOn, Inc. (NASDAQ: RMBL), the e-commerce company using innovative technology to simplify how dealers and consumers buy, sell, trade or finance pre-owned vehicles, today announced Peter Levy, the Company’s Chief Operating Officer has been appointed to its Board of Directors, effective June 17, 2021.
Levy has a 25 year distinguished career in both building and consulting technology companies. He is a seasoned sales and marketing leader and has demonstrated his ability to successfully foster relationships with senior executives for I.T. Operations, Finance, Sales and company building opportunities across a broad scope of industries.
“Peter has been instrumental to the evolution of RumbleOn and we are thrilled to welcome Peter to our Board of Directors,” said Marshall Chesrown, RumbleOn’s Chairman and Chief Executive Officer. “Not only is he passionate about the powersports industry, but he has a deep understanding of our business and is highly respected by colleagues across both our organization and RideNow’s. He has worked alongside Steve, me and our entire executive team since 2017 and is a natural fit to join our Board as we enter the next stage of growth.”
Peter Levy, RumbleOn’s Chief Operating Officer commented, “I am honored to be appointed to RumbleOn’s Board of Directors. I look forward to working closely with Marshall and the entire Board, as we continue to execute on RumbleOn’s vision to become the only omnichannel powersports platform in North America and transform the powersports industry.”
Levy joined RumbleOn as Chief Operating Officer in August of 2017 and has been responsible for building strong relationships with OEMs, dealers, auctions and finance partners, while leading multiple internal teams. He spearheaded the architecture of RumbleOn’s Dealer Direct platform as well as RumbleOn’s pilot program with Cargurus. As Vice President of Sales and Director of Business Development for Integrated Auction Solutions (previously AWG Remarketing Inc.), Levy played an integral role in the Company’s business development and M&A initiatives. He was also responsible for building the Company’s digital presence throughout the Independent Auction community’s 200 locations. In 1999, Levy founded Automotive Remarketing Services and co-developed the virtual auction processes that exist today. Previously, he served as regional manager of sales and acquisition for Autonation Retail Superstores. Levy earned a Bachelor of Science in Marketing and Finance from Indiana University in 1993.
About RumbleOn
Founded in 2017, RumbleOn (NASDAQ: RMBL) is an ecommerce company using innovative technology to aggregate and distribute pre-owned automotive and powersport vehicles to and from both consumers and dealers, 100% online. RumbleOn is disrupting the pre-owned 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. 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. For more information, please visit http://www.rumbleon.com.
Forward-Looking Statements
This press release may contain "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (PSLRA), which statements may be identified by words such as "expects," "projects," "will," "may," "anticipates," "believes," "should," "intends," "estimates," and other words of similar meaning. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on our expectations as of the date of this press release and speak only as of the date of this press release and are advised to consider the factors listed under the heading "Forward-Looking Statements" and "Risk Factors" in the Company's SEC filings, as may be updated and amended from time to time. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Investor Relations:
The Blueshirt Group
Hilary Sumnicht
investors@rumbleon.com
Source: RumbleOn, Inc.
Exhibit 99.2
RumbleOn Appoints Beverly Rath as Interim Chief Financial Officer and Controller
Beverly Rath Will Succeed Steven Berrard as Chief Financial Officer, Effective Immediately
Company Promotes Carlos Ramirez to Assistant Controller
DALLAS - RumbleOn, Inc. (NASDAQ: RMBL), the e-commerce company using innovative technology to simplify how dealers and consumers buy, sell, trade or finance pre-owned vehicles, today announced that Beverly Rath will act as Interim Chief Financial Officer (CFO), effective immediately, following the unexpected death of Steven Berrard, RumbleOn’s co-founder and CFO on June 7, 2021. Rath will report to Marshall Chesrown, RumbleOn’s Chairman and Chief Executive Officer. The Company also announced the promotion of Carlos Ramirez to Assistant Controller.
“It gives me great confidence to know such a seasoned financial executive is stepping into the role as our Interim CFO. Beverly has worked alongside Steve for five years, and has been a key part of our finance organization since the beginning,” commented Marshall Chesrown, RumbleOn’s Chief Executive Officer. “I’m also pleased to announce that Carlos Ramirez was promoted to Assistant Controller. Carlos has been an integral part of the finance team and will support Beverly as we grow our finance operation. I look forward to working closely with the team as we continue to execute on our existing vision, plan and strategy.”
“I am honored to be appointed Interim CFO and look forward to contributing to RumbleOn’s future success,” said Rath. “Steve had a powerful presence and is greatly missed by everyone he worked with, but he built a strong team around him, and I will continue to lead RumbleOn’s finance team through our pending combination with RideNow, and as we embark on our next stage of growth.”
Chesrown concluded, “We are incredibly grateful for all of Steve’s contributions to RumbleOn through this period of transformative growth. Together, we accomplished a great deal over the last several years building RumbleOn, and so much more over the last 25-plus years since he co-founded AutoNation. His legacy will live on, and we will honor him by executing our plan to become the first and only omnichannel powersports platform in North America. Steve played a critical role in the formation of RumbleOn and will be gravely missed, but I remain as confident as ever in our management team as we shepherd the pending acquisition of RideNow through the closing process.”
Rath has served as RumbleOn’s Controller since inception, guiding strategic financial decisions and has been integral to the financial health of the Company. She has over 35 years of finance and accounting experience and over 45 years in the automobile industry. Prior to joining RumbleOn, Rath served as Controller for VROOM, a used car retailer and e-commerce company that enables consumers to buy, sell and finance cars online, and Controller for Terry Taylor Group, a group of automotive dealerships. Rath holds a Bachelor of Science in Accounting from the Metropolitan State College of Denver.
About RumbleOn
Founded in 2017, RumbleOn (NASDAQ: RMBL) is an ecommerce company using innovative technology to aggregate and distribute pre-owned automotive and powersport vehicles to and from both consumers and dealers, 100% online. RumbleOn is disrupting the pre-owned 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. 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. For more information, please visit http://www.rumbleon.com.
Forward-Looking Statements
This press release may contain "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 (PSLRA), which statements may be identified by words such as "expects," "projects," "will," "may," "anticipates," "believes," "should," "intends," "estimates," and other words of similar meaning. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on our expectations as of the date of this press release and speak only as of the date of this press release and are advised to consider the factors listed under the heading "Forward-Looking Statements" and "Risk Factors" in the Company's SEC filings, as may be updated and amended from time to time. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Investor Relations:
The Blueshirt Group
Hilary Sumnicht
investors@rumbleon.com
Source: RumbleOn, Inc.
Exhibit 99.3
RIDENOW GROUP AND AFFILIATES
CONDENSED COMBINED FINANCIAL STATEMENTS
MARCH 31, 2021
RideNow Group and Affiliates
Table of Contents
1
Condensed Combined Balance Sheets
(Unaudited)
| As of March 31, 2021 | As of December 31, 2020 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 4,337,169 | $ | 3,905,686 | ||||
| Contracts in transit | 17,321,129 | 10,736,791 | ||||||
| Accounts receivable, net | 12,512,404 | 10,023,174 | ||||||
| Accounts receivable – related parties | 96,134,436 | 84,535,861 | ||||||
| Inventories, net | 104,079,912 | 109,749,521 | ||||||
| Prepaid expenses | 1,847,740 | 1,625,109 | ||||||
| Total current assets | 236,232,790 | 220,576,142 | ||||||
| Right-of-use assets | 77,016,962 | 71,280,471 | ||||||
| Property and equipment, net of accumulated depreciation | 23,249,651 | 23,705,230 | ||||||
| Goodwill | 55,294,222 | 55,294,222 | ||||||
| Note receivable – related party | 1,018,863 | 1,264,425 | ||||||
| Other non-current assets | 269,625 | 288,758 | ||||||
| Total Assets | $ | 393,082,113 | $ | 372,409,248 | ||||
| LIABILITIES AND OWNERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 37,060,586 | $ | 36,806,476 | ||||
| Accounts payable – related parties | 30,126,468 | 27,615,211 | ||||||
| Floor plan notes payable | 62,514,325 | 68,533,679 | ||||||
| Revolving line of credit | - | - | ||||||
| Current portion of operating lease liabilities | 17,952,416 | 15,755,805 | ||||||
| Current portion of financing lease liabilities | 3,976,599 | 4,059,496 | ||||||
| Current portion of notes payable – related parties | 504,000 | 504,000 | ||||||
| Current portion of note payable – other | 7,467,783 | 8,093,444 | ||||||
| Total current liabilities | 159,602,177 | 161,368,111 | ||||||
| Long-term liabilities | ||||||||
| Notes payable – related parties | 6,781,322 | 6,907,322 | ||||||
| Long-term portion of operating lease liabilities | 61,003,179 | 57,473,929 | ||||||
| Long-term portion of financing lease liabilities | 14,427,675 | 14,550,947 | ||||||
| Note payable- PPP loans | 16,923,759 | 16,923,759 | ||||||
| Note payable – other | 944,463 | 985,052 | ||||||
| Other long-term liabilities | 6,857,364 | 4,779,112 | ||||||
| Total liabilities | 266,539,938 | 262,988,232 | ||||||
| Owners’ equity | 126,542,174 | 109,421,016 | ||||||
| Total liabilities and owners’ equity | $ | 393,082,113 | $ | 372,409,248 | ||||
See accompanying Notes to Condensed Combined Financial Statements
2
Condensed Combined Statements of Operations
(Unaudited)
| Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| New vehicles | $ | 143,257,024 | $ | 91,746,529 | ||||
| Used vehicles | 38,988,272 | 38,936,734 | ||||||
| Service, parts and others | 43,529,102 | 36,724,157 | ||||||
| Finance and insurance, net | 19,407,653 | 14,378,808 | ||||||
| Total revenue | 245,182,051 | 181,786,228 | ||||||
| Cost of Sales | ||||||||
| New vehicles | 115,378,848 | 80,406,382 | ||||||
| Used vehicles | 31,746,228 | 34,146,250 | ||||||
| Service, parts and others | 23,476,601 | 19,197,651 | ||||||
| Total cost of sales | 170,601,677 | 133,750,283 | ||||||
| Gross profit | 74,580,374 | 48,035,945 | ||||||
| Selling, general and administrative expenses | 43,111,337 | 35,469,797 | ||||||
| Depreciation and amortization expenses | 813,507 | 871,389 | ||||||
| Operating income | 30,655,530 | 11,694,759 | ||||||
| Other Income (Expense) | ||||||||
| Floor plan interest expense | (491,915 | ) | (1,247,326 | ) | ||||
| Interest expense – other | (215,698 | ) | (352,464 | ) | ||||
| Interest income | 163,807 | 269,946 | ||||||
| Other income (expense) | 568,870 | 378,350 | ||||||
| Total other income (expense) | 25,064 | (951,494 | ) | |||||
| Net income | $ | 30,680,594 | $ | 10,743,265 | ||||
See accompanying Notes to Condensed Combined Financial Statements
3
Condensed Combined Statements of Owners’ Equity
(Unaudited)
Owners’ | ||||
| Balance at December 31, 2020 | $ | 109,421,016 | ||
| Contributions | - | |||
| Distributions | (13,559,436 | ) | ||
| Net income | 30,680,594 | |||
| Balance at March 31, 2021 | $ | 126,542,174 | ||
| Balance at December 31, 2019 | $ | 77,762,608 | ||
| Contributions | - | |||
| Distributions | (3,560,017 | ) | ||
| Net income | 10,743,265 | |||
| Balance at March 31, 2020 | $ | 84,945,856 | ||
See accompanying Notes to Condensed Combined Financial Statements
4
Condensed Combined Statements of Cash Flows
(Unaudited)
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Income | $ | 30,680,594 | $ | 4,674,217 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | - | - | ||||||
| Loss on disposal of property and equipment | - | 71 | ||||||
| Depreciation and amortization | 813,507 | 881,389 | ||||||
| Provision for allowance for doubtful accounts | 58,691 | (79,732 | ) | |||||
| Contracts in transit | (6,584,338 | ) | (822,596 | ) | ||||
| Accounts receivable | (2,547,921 | ) | (2,573,490 | ) | ||||
| Accounts receivable – related parties | (39,555,172 | ) | (7,328,101 | ) | ||||
| Inventories | 5,669,609 | (6,863,277 | ) | |||||
| Prepaid expenses | (222,631 | ) | (231,618 | ) | ||||
| Other assets | 9,135 | 4,132,107 | ||||||
| Floor plan payable, net | (6,019,354 | ) | 9,995,404 | |||||
| Accounts payable | 243,479 | (8,187,365 | ) | |||||
| Payables to related parties | 2,511,257 | 9,907,560 | ||||||
| Accrued liabilities | 2,016,491 | (362,493 | ) | |||||
| Net cash (used in) provided by operating activities | (12,926,653 | ) | 3,142,147 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchases of property and equipment | (347,927 | ) | (218,286 | ) | ||||
| Proceeds from sale of property and equipment | 61,758 | - | ||||||
| Net cash used in investing activities | (286,169 | ) | (218,286 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Payments received on notes receivables | 245,562 | - | ||||||
| Proceeds from borrowings from related party | (126,000 | ) | (1,299,739 | ) | ||||
| Payments of revolving line of credit | - | (16,000,000 | ) | |||||
| Payments of borrowings from bank | (585,000 | ) | (585,000 | ) | ||||
| Payments on other notes payable | (81,250 | ) | 693,518 | |||||
| Net change in finance lease liabilities | (206,169 | ) | (166,414 | ) | ||||
| Distributions to owners | (13,559,436 | ) | 2,508,960 | |||||
| Net cash (used in) financing activities | (14,312,293 | ) | (14,848,675 | ) | ||||
| DECREASE IN CASH AND CASH EQUIVALENTS | (27,525,115 | ) | (11,924,814 | ) | ||||
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 31,862,284 | 4,980,718 | ||||||
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 4,337,169 | $ | (6,944,096 | ) | |||
See accompanying Notes to Condensed Combined Financial Statements
5
Notes to Condensed Combined Financial Statements
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group” or the “Company”) is a collection of franchised dealerships operating in the powersports industry. The Group is engaged in the sale of new and used motorcycles, all-terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of December 31, 2020, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
Basis of Presentation
The Condensed Combined Financial Statements include the accounts of the following affiliated companies: CMG Powersports Inc., America’s Powersports, Inc., Woods Fun Center, LLC, San Diego House of Motorcycles, LLC, APS of Oklahoma, LLC, APS of Georgetown, LLC, APS of Ohio, LLC, APS of Texas, LLC, C&W Motors, Inc., BJ Motorsports, LLC, Coyote Motorsports - Allen, LTD, Coyote Motorsports - Garland, LTD, East Valley Motorcycles, LLC, Glendale Motorcycles, LLC, JJB Properties, LLC, Metro Motorcycle, Inc., RideNow Carolina, LLC, RideNow, LLC, Ride USA, LLC, Top Cat Enterprises, LLC, Tucson Motorcycle, Inc., Tucson Motorsports, Inc., YSA Motorsports, LLC, RN Tri-Cities, LLC, ECHD Motorcycles, LLC, IOT Motorcycles, LLC, RideNow 6 Garland, LLC, RideNow Gainesville, LLC, RNKC, LLC, RNMC Daytona, LLC, TC Motorcycles, LLC, Ride Now 5 Allen, LLC, RHND Ocala, LLC and Bayou Motorcycles, LLC.
These condensed combined financial statements were prepared on a combined basis using the accrual method of accounting. All transactions and accounts between and among the combined entities have been eliminated.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements. RideNow bases its estimates and judgments on historical experience and other assumptions that management believes are reasonable. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ materially from these estimates. RideNow periodically evaluates estimates and assumptions used in the preparation of the financial statements and make changes on a prospective basis when adjustments are necessary. The critical accounting estimates made in the accompanying Condensed Combined Financial Statements include certain assumptions related to goodwill and other intangible assets. Other significant accounting estimates include certain assumptions related to long-lived assets, assets held for sale, accruals for chargebacks against revenue recognized from the sale of finance and insurance products, certain legal proceedings, and estimated tax liabilities. Actual results could differ from those estimates.
6
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
Revenue from Contracts with Customers
RideNow adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU, collectively referred to as Accounting Standards Codification (ASC) Topic 606, which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope. RideNow’s goods and services that fall within the scope of Topic 606 are recognized as revenue when promised goods or services are transferred to customers in amounts that reflect the consideration to which RideNow expects to be entitled in exchange for those goods or services.
Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting.
The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to the leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. RideNow adopted this accounting standard effective January 1, 2018, using the optional transition method with no restatement of comparative periods.
RideNow elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification of RideNow’s existing leases. RideNow did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to RideNow. The new standard also provides practical expedients for an entity’s ongoing accounting. RideNow elected the short- term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, RideNow will not recognize ROU assets or lease liabilities, and RideNow did not recognize ROU asset or lease liabilities for existing short-term leases of those assets in transition. RideNow also elected the practical expedient to not separate lease and non-lease components of leases for the majority of RideNow classes of underlying assets.
NOTE 2 – REVENUE FROM CONTRACTS WITH CUSTOMERS
New and Used Recreational Vehicles
RideNow sells new and used recreational vehicles. The transaction price for a recreational vehicle sale is determined with the customer at the time of sale. Customers often trade in their own recreational vehicle to apply toward the purchase of a retail new or used recreational vehicle. The “trade-in” recreational vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific recreational vehicle, and applied as payment of the contract price for the purchased recreational vehicle.
7
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
When RideNow sells a new or used recreational 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 recreational vehicle at such time. RideNow does not directly finance its customer’s purchases or provide leasing. In many cases, RideNow arranges third- party financing for the retail sale or lease of recreational vehicles to customers in exchange for a fee paid to RideNow by a third-party financial institution. RideNow receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale. RideNow establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.
Parts and Service
RideNow sells 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. RideNow also sells 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 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 measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance service contracts have a duration of one year or less. 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. RideNow 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.
RideNow 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. RideNow also offers customer loyalty points for parts and services for select franchises. RideNow 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
RideNow 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. RideNow offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.
Pursuant to the arrangements with these third-party providers, RideNow sells the products on a commission basis. For the majority of finance and insurance product sales, RideNow’s performance obligation is to arrange for the provision of goods and services by another party. RideNow’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, RideNow 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.
RideNow’s customers are concentrated in the Sunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction price allocated to the performance obligations. As revenue are recognized at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.
8
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
Disaggregation of Revenue
The significant majority of RideNow’s revenue is from contracts with customers. In the following tables, revenue is disaggregated by major lines of goods and services and timing of transfer of goods and services. We have determined that these categories depict 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:
| Three Months Ended March 31, |
||||||||
| 2021 | 2020 | |||||||
| Revenue: | ||||||||
| New vehicle | $ | 143,257,024 | $ | 91,746,529 | ||||
| Used vehicle | 38,988,272 | 38,936,734 | ||||||
| New and used vehicle | 182,245,296 | 130,683,263 | ||||||
| Service, parts and others | 43,529,102 | 36,724,157 | ||||||
| Finance and insurance, net | 19,407,653 | 14,378,808 | ||||||
| Total revenue | $ | 245,182,051 | $ | 181,786,228 | ||||
| Timing of revenue recognition: | ||||||||
| Goods and services transferred at a point in time | $ | 218,207,583 | $ | 160,667,398 | ||||
| Goods and services transferred over time (1) | 26,974,468 | 21,697,694 | ||||||
| Total revenue | $ | 245,182,051 | $ | 182,365,092 | ||||
| (1) | Represents revenue recognized during the period for vehicle repair and maintenance services. |
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of March 31, 2021 and December 31, 2020.
| 3/31/21 | 12/31/20 | |||||||
| Trade receivables | $ | 3,615,139 | $ | 3,145,226 | ||||
| Factory receivables | 5,310,814 | 6,624,129 | ||||||
| Other receivables | 3,897,486 | 720,861 | ||||||
| Total accounts receivables | 12,823,439 | 10,490,216 | ||||||
| Less: Allowance for doubtful accounts | (311,035 | ) | (467,042 | ) | ||||
| Accounts receivables, net | $ | 12,512,404 | $ | 10,023,174 | ||||
NOTE 4 – INVENTORIES AND VEHICLE FLOOR PLAN PAYABLES
Inventories consisted of the following as of March 31, 2021 and December 31, 2020.
| 3/31/21 | 12/31/20 | |||||||
| New vehicles | $ | 61,334,528 | $ | 67,416,505 | ||||
| Used vehicles | 21,423,667 | 22,225,209 | ||||||
| Parts, accessories and other | 21,321,717 | 20,107,807 | ||||||
| Total cost | $ | 104,079,912 | $ | 109,749,521 | ||||
9
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
The components of vehicle Floor Plan payables at March 31, 2021 and December 31, 2020.
| 3/31/21 | 12/31/20 | |||||||
| Vehicle Floor Plan payable - trade | $ | 24,607,851 | $ | 18,516,327 | ||||
| Vehicle Floor Plan payable – non-trade | 37,906,474 | 50,017,352 | ||||||
| Vehicle Floor Plan payable | $ | 62,514,325 | $ | 68,533,679 | ||||
Vehicle Floor Plan payable - trade reflects amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with the corresponding manufacturers’ captive finance subsidiaries (“trade lenders”). Vehicle Floor Plan payable-non-trade represents amounts borrowed to finance the purchase of specific new and, to a lesser extent, used vehicle inventories with non-trade lenders, as well as amounts borrowed under RideNow’s secured used vehicle Floor Plan facilities. Changes in vehicle Floor Plan payable- trade are reported as operating cash flows and changes in vehicle Floor Plan payable-non-trade are reported as financing cash flows in the accompanying Condensed Combined Statements of Cash Flows.
RideNow’s 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 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.
NOTE 5 – PROPERTY AND EQUIPMENT, NET
The following table summarizes property and equipment, net of accumulated depreciation and amortization as of March 31, 2021 and December 31, 2020.
| 3/31/21 | 12/31/20 | |||||||
| Equipment | $ | 5,499,126 | $ | 4,231,451 | ||||
| Furniture and fixtures | 20,665,287 | 19,307,497 | ||||||
| Buildings | 12,043,419 | 13,522,538 | ||||||
| Vehicles | 4,599,044 | 4,191,156 | ||||||
| Leasehold improvements | 12,174,968 | 10,296,570 | ||||||
| Construction in progress | 115,653 | 26,183 | ||||||
| Total property and equipment | 55,097,497 | 51,575,395 | ||||||
| Less: Accumulated depreciation | (31,847,846 | ) | (27,870,165 | ) | ||||
| sProperty and equipment, net | $ | 23,249,651 | $ | 23,705,230 | ||||
Depreciation and amortization expense for the Three Months ended March 31, 2021 and 2020 was $803,507 and $881,389, respectively.
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS, NET
RideNow’s acquisitions have resulted in the recording of goodwill and other intangible assets. Goodwill is an asset representing operational synergies, franchise rights and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Other intangible assets represent non-compete agreements entered into with sellers from the acquired businesses and are not significant to the condensed combined financial statements.
10
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
The changes in goodwill for the three months ended March 31, 2021 and the year ended December 31, 2020 are as follows:
| Goodwill | ||||
| Balance at December 31, 2019 | $ | 54,988,384 | ||
| Acquisitions | 305,838 | |||
| Impairments | - | |||
| Balance at December 31, 2020 | 55,294,222 | |||
| Acquisitions | - | |||
| Impairments | - | |||
| Balance at March 31, 2021 | $ | 55,294,222 | ||
NOTE 7 - LINE OF CREDIT
RideNow has a $19,000,000 revolving line of credit established at a bank. RideNow participates in the line of credit with certain affiliates. Interest is payable monthly at the lesser of the prime rate (3.25% and 4.75% at March 31, 2021 and 2020, respectively) or LIBOR plus 2.75% (2.98% and 4.98% at March 31, 2021 and 2020, respectively). The line of credit is secured by substantially all of the assets of the participating affiliates. The line of credit has been amended and renewed multiple times under similar terms since its inception and has a maturity date of January 15, 2022. The outstanding balance on the line of credit was $0- and $0 at March 31, 2021 and December 31, 2020, respectively.
NOTE 8 – NOTES PAYABLE
The following consist of a note payable to a bank and other third-parties as of March 31, 2021 and December 31, 2020:
3/31/21 | 12/31/20 | |||||||
| Northern Trust Bank term loan agreement that requires monthly principal payments of approximately $190,500 and accrues interest at the one-month LIBOR plus 2.0%. This loan is guaranteed by the owners of CMG Powersports, Inc. and matures July 1, 2021. | $ | 5,142,857 | $ | 5,714,286 | ||||
| Unsecured note payable to P&D Motorcycles in the original amount of $1,724,000 with an interest rate of 4% and note payable matures on July 1, 2022 | 1,153,919 | 1,248,740 | ||||||
| PPP Loans dated April 6, 2020. Payments of principal and interest were deferred until August 6, 2021, at which time the Companies will make equal payments of principal and interest through maturity, which is April 6, 2026. | 19,039,229 | 19,039,229 | ||||||
| Total | 25,336,005 | 26,002,255 | ||||||
| Less: Current maturities | (7,467,783 | ) | (8,093,444 | ) | ||||
| Long-term maturities of note payables - bank | $ | 17,868,222 | $ | 17,908,811 | ||||
The future maturities of long-term note payables to other as of March 31, 2021:
| 2021 | $ | 7,467,783 | ||
| 2022 | 5,286,584 | |||
| 2023 | 5,812,135 | |||
| 2024 | 5,077,128 | |||
| 2025 | 1,692,376 | |||
| Total of long-term notes payable - other | $ | 25,336,006 |
11
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
Note Payable to Northern Trust Bank
RideNow is a collective borrower to a $16,000,000 term loan agreement with Northern Trust Bank held by CMG Powersports, Inc. The term loan agreement requires monthly principal payments of approximately $190,500 and accrues interest at the one-month LIBOR plus 2.0%. This loan is guaranteed by the owners of CMG Powersports, Inc. The term loan includes required covenants to be met. Management believes RideNow is in compliance with these covenants as the three months ended March 31, 2021 and 2020. For the three months ended March 31, 2021 and 2020 interest expense was $45,329 and $64,827, respectively.
Note Payable to P&D Motorcycles
On June 28, 2017 TC Motorcycles, LLC “DBA–RideNow Powersports Jacksonville” (the buyer) entered into a promissory note with P&D Motorcycles (the seller) as part of an acquisition. The original principal sum was $1,724,000 accruing interest at 4% including 59 monthly payments of $17,454 with final balloon payment due July 1, 2022. For the three months ended March 31, 2021 and 2020 interest expense was $13,355 and $18,253, respectively.
PPP Loan
On April 6, 2020, RideNow 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 $19,039,229 (the “Loan Proceeds”). The Companies received the Loan Proceeds on April 6, 2020, and under the SBA Loan Documents, the SBA Loans had an initial maturity date of April 5, 2022 and an annual interest rate of 0.98%. Payment of principal and interest, to be paid monthly, on the PPP Loans can be prepaid by the Companies at any time and was originally deferred through October 5, 2020. On October 7, 2020, the Small Business Administration published guidance of its interpretation of the CARES ACT and of the Paycheck Protection Program Interim Final Rules that indicates, pursuant to the PPP Flexibility Act of 2020, the deferral period for borrower payments of principal, interest and fees on all PPP was extended 10 months after the borrower’s loan forgiveness period. Additionally, the SBA lender agreed to extend the maturity pursuant to the Interim Final Rules. As a result, monthly equal payments of principal and interest will begin August 6, 2021, with the last payment due April 6, 2025.
NOTE 9 – RELATED PARTY TRANSACTIONS
Due from (to) related parties consist of the following balances as of March 31, 2021 and December 31, 2020.
3/31/21 | 12/31/20 | |||||||
| Accounts receivable-related parties | $ | 96,134,436 | $ | 84,535,861 | ||||
| Notes receivable – related parties | 1,018,863 | 1,264,425 | ||||||
| Total balances due from related parties | 97,153,299 | 85,800,286 | ||||||
| Accounts payable – related parties | 30,126,468 | 27,615,211 | ||||||
| Notes payable – related parties | 7,285,322 | 7,411,322 | ||||||
| Total balances due to related parties | $ | 37,411,790 | $ | 35,026,533 | ||||
Accounts Receivable and Payables
Receivables Due from Related Parties
3/31/21 | 12/31/20 | |||||||
| Cash sweep receivables | $ | 93,202,687 | $ | 84,478,128 | ||||
| Other receivables due from related parties | 2,931,749 | 57,733 | ||||||
| Total receivables due from related parties | $ | 96,134,436 | $ | 84,535,861 | ||||
Cash Sweep Account Receivables/Payables
RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the years ended March 31, 2021 and 2020, the Cash Sweep Account was earning interest at 1.10% and 3.11%, respectively, and for overdraft balances, the interest charged was 3.25% and 3.50%, respectively.
12
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
| 3/31/21 | 12/31/20 | |||||||
| Cash Sweep Accounts: | ||||||||
| Related party receivable | $ | 93,202,687 | $ | 84,478,128 | ||||
| Related party payable | (26,785,998 | ) | (27,956,598 | ) | ||||
| Net Cash Sweep Account Balance | $ | 66,416,689 | $ | 56,521,530 | ||||
Payables Due to Related Parties
3/31/21 | 12/31/20 | |||||||
| Cash sweep payables | $ | 26,785,998 | $ | 27,956,598 | ||||
| Other payables due to related parties | 3,340,470 | (341,387 | ) | |||||
| Total payables due to related parties | $ | 30,126,468 | $ | 27,615,211 | ||||
Notes payable – Related Parties
The following table summarizes the notes payable to related parties as of March 31, 2021 and December 31, 2020:
3/31/21 | 12/31/20 | |||||||
| Various unsecured notes payable to Steele IV, LLLP, a related party through common ownership; monthly principal payments range from $10,000 to $20,000; interest accruing at rates ranging from LIBOR + 1.3% to LIBOR + 2.0% | $ | 3,000,000 | $ | 3,000,000 | ||||
| Various unsecured notes payable to RideNow Management, LLLP, a related party through common ownership; monthly principal payments ranging from $7,000 to $13,500; interest accruing at rates ranging from LIBOR + 0.6% to LIBOR + 1.3%. | 1,285,322 | 1,411,322 | ||||||
| Various unsecured notes payable to Denex, LLLP, a related party through common ownership; monthly principal payments ranging from $10,000 to $20,000 interest accruing at rates ranging from LIBOR + 0.5% to LIBOR + 2.0%. | 3,000,000 | 3,000,000 | ||||||
| Total | 7,285,322 | 7,411,322 | ||||||
| Less: Current maturities | (504,000 | ) | (504,000 | ) | ||||
| Long-term maturities due to related party | $ | 6,781,322 | $ | 6,907,322 | ||||
The future maturities of long-term note payables to related parties as of March 31, 2021:
| 2021 | $ | 504,000 | ||
| 2022 | 504,000 | |||
| 2023 | 6,277,322 | |||
| Total maturities of long-term notes payable – related parties | $ | 7,285,322 |
Related Party Leases
Included in the leases are leases for twenty-five (25) locations which are owned by the owners of RideNow or their affiliates. Lease expense charged to operations in connection with these related party leases was $10,126,669 and $8,715,266 for the three months ended March 31, 2021 and 2020, respectively.
Shared Services
RideNow receives administrative support from RideNow Management, LLLP and Coulter Management Group, LLLP, which are related parties due to common ownership. Total administrative services received from these entities and charged to operations were $252,457 and $212,687 for the years ending March 31, 2021 and 2020, respectively.
NOTE 10 – SUPPLEMENTAL CASH FLOW INFORMATION
The following table includes supplemental cash flow information, including noncash investing and financing activity for the three months ended March 31,
3/31/21 | 3/31/20 | |||||||
| Cash paid for interest | $ | 707,613 | $ | 1,599,790 | ||||
| Non-cash activities: | - | - | ||||||
13
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
NOTE 11 - RETIREMENT PLAN
RideNow maintains a 401(k) plan (the Plan) covering substantially all employees who are over the age of 21 and meet specified service requirements. Participants may voluntarily contribute to the Plan, not to exceed the maximum limits imposed by the Internal Revenue Service regulations. Contributions to the Plan are made by the participants to their individual accounts through payroll withholding. Additionally, RideNow provides a matching contribution of 25% up to the first 6% of participants’ annual earnings with a maximum of $2,000 annually. RideNow’s contribution to the Plan was $91,317 and $103,447 for the three months ended March 31, 2021 and 2020, respectively.
NOTE 12 – CONTINGENCIES
From time-to-time, RideNow is contingently liable in respect to lawsuits and claims incidental to the ordinary course of its operations. Management has determined that the outcome of any such matters will not have a material effect on the Combined Financial Statements. No provision has been made in the accompanying Condensed Combined Financial Statements for losses, if any, that might result from the ultimate outcome of such matters.
Coronavirus Pandemic (COVID-19)
Subsequent to year-end, the World Health Organization declared the spread of Coronavirus Disease (COVID- 19) a worldwide pandemic. The COVID-19 pandemic is having significant effects on global markets, supply chains, businesses, and communities. Specific to RideNow, COVID-19 may impact various parts of its 2020 operations and financial results. Management believes RideNow is taking appropriate actions to mitigate the negative impact. However, the full impact of COVID-19 is unknown and cannot be reasonably estimated at March 31, 2021.
NOTE 13 – BUSINESS AND CREDIT CONCENTRATIONS
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash on deposit with financial institutions. At times, amounts invested with financial institutions exceed Federal Deposit Insurance Corporation insurance limits. Concentrations of credit risk with respect to receivables are limited primarily to receivables from powersports manufacturers or distributors which RideNow holds franchises, totaling approximately $5,310,000 and $6,624,000 at March 31, 2021 and December 31, 2020, respectively.
RideNow is subject to a concentration of risk in the event of financial distress or other adverse events related to any of the manufacturers whose franchised dealerships are included in RideNow’s brand portfolio. RideNow purchases new vehicle inventory from various powersports manufacturers at the prevailing prices available to all franchised dealerships. In addition, RideNow finances a substantial portion of its new vehicle inventory with manufacturer-affiliated finance companies. RideNow’s results of operations could be adversely affected by the manufacturers’ inability to supply RideNow dealerships with an adequate supply of new vehicle inventory and related floor plan financing. RideNow also has concentrations of risk related to the geographic markets in which RideNow dealerships operate. Changes in overall economic, retail powersports or regulatory environments in one or more of these markets could adversely impact the results of RideNow’s operations.
Concentrations of credit risk with respect to non-manufacturer trade receivables are limited due to the wide variety of customers and markets in which RideNow’s products are sold as well as their dispersion across many different geographic areas in the United States. Consequently, at March 31, 2021, RideNow does not consider itself to have any significant non-manufacturer concentrations of credit risk.
NOTE 14 – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of judgment, and therefore cannot be determined with precision.
Accounting standards define fair value as the price that would be received from selling an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and also establishes the following three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
14
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
Level 2 Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted market 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 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following methods and assumptions were used by us in estimating fair value disclosures for financial instruments:
| ● | Cash and cash equivalents, receivables, other current assets, vehicle Floor Plan payable, accounts payable, other current liabilities, and variable rate debt: The amounts reported in the accompanying Condensed Combined Balance Sheets approximate fair value due to their short-term nature or the existence of variable interest rates that approximate prevailing market rates. |
| ● | Fixed rate long-term debt: RideNow’s fixed rate long-term debt consists primarily of amounts outstanding under its senior unsecured notes. The amounts reported in the accompanying Combined Balance Sheets approximate fair value due to its senior unsecured notes using quoted prices for the identical liability (Level 1). |
Nonfinancial assets such as goodwill, other intangible assets, and long-lived assets held and used are measured at fair value when there is an indicator of impairment and recorded at fair value only when impairment is recognized or for a business combination. The fair values less costs to sell of long-lived assets or disposal groups held for sale are assessed each reporting period they remain classified as held for sale. Subsequent changes in the held for sale long-lived asset’s or disposal group’s fair value less cost to sell (increase or decrease) are reported as an adjustment to its carrying amount, except that the adjusted carrying amount cannot exceed the carrying amount of the long-lived asset or disposal group at the time it was initially classified as held for sale.
NOTE 15 – SEGMENT INFORMATION
As of March 31, 2021, and 2020, RideNow had two operating segments: (1) Harley-Davidson motor sports dealerships and (2) Metric motor sports dealerships (representing all Non-Harley-Davidson motor sports dealerships). RideNow’s Harley-Davidson dealership segment is comprised of retail franchises that sell new and used motorcycles and related accessories, riding gear and apparel, replacement parts, equipment repair and maintenance services, and also arrange for the delivery of finance and insurance products through third party providers. RideNow’s Metric dealerships segment is comprised of retail franchises that sell new and used motorcycles (non-Harley-Davidson) and other motor sports equipment, including all-terrain vehicles, utility terrain vehicles, boats, personal watercraft, snowmobiles and scooters from manufacturers such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph. Additionally, dealerships in RideNow’s Metric segment sell related products and services, including repair and maintenance services and also arrange for the delivery of finance and insurance products through third party providers.
RideNow has determined that the operating segments also represent the reportable segments. The reportable segments identified above are the business activities of RideNow for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision maker to assess operating performance and allocate resources. RideNow’s chief operating decision maker is comprised of its two owners, who are also RideNow’s (1) Chairman of the Board and (2) Chief Executive Officer.
The following tables provide reportable segment revenue, gross profit, Floor Plan interest expense, segment income and inventories:
| For the Three Months Ended March 31, 2021 |
||||||||||||
| Harley Davidson Dealerships | Metric Dealerships | Total Segments | ||||||||||
| Revenue | $ | 56,220,157 | $ | 188,961,894 | $ | 245,182,051 | ||||||
| Gross Profit | $ | 17,324,722 | $ | 57,255,652 | $ | 74,580,374 | ||||||
| Gross profit % | 30.8 | % | 30.3 | % | 30.4 | % | ||||||
| Floor Plan interest expense | $ | 164,113 | $ | 327,802 | $ | 491,915 | ||||||
| Segment income% | 0.3 | % | 0.2 | % | 0.2 | % | ||||||
| Segment income (1) | $ | 4,463,386 | $ | 25,700,229 | $ | 30,163,615 | ||||||
| Segment income % | 7.9 | % | 13.6 | % | 12.3 | % | ||||||
| Inventories | $ | 28,059,006 | $ | 76,020,906 | $ | 104,079,912 | ||||||
15
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
| For the Three Months Ended March 31, 2020 |
||||||||||||
| Harley Davidson Dealerships | Metric Dealerships | Total Segments | ||||||||||
| Revenue | $ | 55,648,591 | $ | 126,716,501 | $ | 182,365,092 | ||||||
| Gross Profit | $ | 14,773,122 | $ | 33,262,823 | $ | 48,035,945 | ||||||
| Gross profit % | 27.60 | % | 23.40 | % | 24.70 | % | ||||||
| Floor Plan interest expense | $ | 280,802 | $ | 966,524 | $ | 1,247,326 | ||||||
| Segment income% | 0.5 | % | 0.8 | % | 0.7 | % | ||||||
| Segment income (1) | $ | 2,671,684 | $ | 7,775,749 | $ | 10,447,433 | ||||||
| Segment income % | 5.30 | % | 4.50 | % | 4.70 | % | ||||||
| Inventories | $ | 50,774,021 | $ | 173,079,878 | $ | 223,853,899 | ||||||
| (1) | Segment income represents income for each reportable segment and is defined as income from operations less Floor Plan interest expense, which is the measure by which management allocates resources to its segments. |
The following is a reconciliation of the total of the reportable segments’ segment income to the combined net income:
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Reportable segment income | $ | 30,163,615 | $ | 10,447,433 | ||||
| Corporate operating income/expense | - | |||||||
| Other interest expense | (215,698 | ) | (352,464 | ) | ||||
| Interest income | 163,807 | 269,946 | ||||||
| Miscellaneous income | 568,870 | 378,350 | ||||||
| Combined net income | $ | 30,680,594 | $ | 10,743,265 | ||||
The following tables provide revenue by products and services:
| For the Three Months Ended March 31, 2021 | ||||||||||||
| Harley Davidson Dealerships | Metric Dealerships | Total Segments | ||||||||||
| New vehicles | $ | 21,415,487 | $ | 121,841,537 | $ | 143,257,024 | ||||||
| Used vehicles | 17,472,549 | 21,515,723 | 38,988,272 | |||||||||
| Service, parts and other | 13,521,361 | 30,007,741 | 43,529,102 | |||||||||
| Finance and insurance income | 3,810,760 | 15,596,893 | 19,407,653 | |||||||||
| $ | 56,220,157 | $ | 188,961,894 | $ | 245,182,051 | |||||||
| For the Three Months Ended March 31, 2020 | ||||||||||||
| Harley Davidson Dealerships | Metric Dealerships | Total Segments | ||||||||||
| New vehicles | $ | 16,774,403 | $ | 74,972,126 | $ | 91,746,529 | ||||||
| Used vehicles | 21,799,962 | 17,175,170 | 38,975,132 | |||||||||
| Service, parts and other | 13,418,447 | 23,846,176 | 37,264,623 | |||||||||
| Finance and insurance income | 3,657,890 | 10,720,918 | 14,378,808 | |||||||||
| $ | 55,650,702 | $ | 126,714,390 | $ | 182,365,092 | |||||||
16
RideNow Group and Affiliates
Notes to Condensed Combined Financial Statements
(Unaudited)
NOTE 16 – BUSINESS COMBINATION
RideNow Transaction
On March 12, 2021, RumbleOn, Inc. announced a definitive agreement to combine with RideNow Group to create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform (the “RideNow Transaction”). Under the terms of the definitive agreement, RumbleOn will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4 million of cash and approximately 5.8 million shares of RumbleOn Class B Common Stock. RumbleOn will finance the cash consideration through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. RumbleOn has entered into a commitment letter with Oaktree Capital Management, L.P. ( “Oaktree”) to provide for the debt financing, subject to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the third quarter of 2021.
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Exhibit 99.4
Management Discussion and Analysis of Financial Condition and Results
of Operations
for the Quarterly Periods ended March 31, 2021 and 2020
The following 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, the unaudited Combined Financial Statements and Notes thereto for the three months ended March 31, 2021 and 2020, which are included in this report.
Overview
RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group” or the “Company”) is a collection of franchised dealerships operating in the powersports industry. The Group is engaged in the sale of new and used motorcycles, all-terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of March 31, 2021, RideNow owned and operated more than 43 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
On March 31, 2021, and December 31, 2020 RideNow had two operating segments: (1) Harley-Davidson motor sports dealerships and (2) Metric motor sports dealerships (representing all Non-Harley-Davidson motor sports dealerships). RideNow’s Harley-Davidson dealership segment is comprised of retail franchises that sell new and used motorcycles and related accessories, riding gear and apparel, replacement parts, equipment repair and maintenance services, and also arrange for the delivery of finance and insurance products through third party providers. RideNow’s Metric dealerships segment is comprised of retail franchises that sell new and used motorcycles (non-Harley-Davidson) and other motor sports equipment, including all-terrain vehicles, utility terrain vehicles, boats, personal watercraft, snowmobiles and scooters from manufacturers such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph. Additionally, dealerships in RideNow’s Metric segment sell related products and services, including repair and maintenance services and also arrange for the delivery of finance and insurance products through third party providers. RideNow has determined that the operating segments also represent the reportable segments. The reportable segments identified above are the business activities of RideNow for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision maker to assess operating performance and allocate resources. RideNow’s chief operating decision maker is comprised of its two owners, who are also RideNow’s (1) Chairman of the Board and (2) Chief Executive Officer.
For the three months ended March 31, 2021, new vehicle sales accounted for 58.4% of the Company’s revenue and 37.4% of total gross profit compared to 50.5% and 23.6% of the Company’s revenue and gross profit, respectively in 2020. Used vehicle sales accounted for 15.9% of the Company’s revenue and 9.7% of total gross profit for the three months ended March 31, 2021, compared to 21.4% and 10.0%, of the Company’s revenue and gross profit, respectively, in 2020. Service, parts and others accounted for 17.8% of the Company’s revenue and 26.9% of total gross profit for the three months ended March 31, 2021, compared to 20.2% and 36.5%, respectively in 2020. Finance and insurance, accounted for 7.9% of the Company’s revenue and 26.0% of total gross profit compared to 7.9%% and 29.9%, respectively in 2020.
Acquisition by RumbleOn
On March 12, 2021, RumbleOn, Inc. announced a definitive agreement to combine with the RideNow Group to create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform (the “RideNow Transactions”). Under the terms of the definitive agreement, RumbleOn will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4 million of cash and approximately 5.8 million shares of RumbleOn Class B Common Stock. RumbleOn will finance the cash consideration through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. RumbleOn has entered into a commitment letter with Oaktree Capital Management, L.P. (“Oaktree”) to provide for the debt financing, subject to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the third quarter of 2021.
COVID-19 Update
In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The rapid spread of COVID-19 resulted in governmental authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, shutdowns and vaccines. We initially took aggressive action in response to the Pandemic, furloughing nearly 45% of our workforce. However, we quickly rebounded as we found the Pandemic was actually creating great demand as people, weary of staying at home found riding an off-road vehicle in the wide-open, socially distant spaces of tracks and trails to be appealing. While the manufacturers curtailed or shut down operations for a time, and our supply of new vehicles declined, our off-road vehicle demand increased significantly. For the quarter ended June 30, 2020, our vehicles sold, revenue and gross profit were up 57.1%, 49.8% and 58.1%, respectively compared to the quarter ending March 31, 2020. This trend continued throughout the remainder of 2020, and we believe demonstrates that we have been successful in navigating the impact of COVID-19 on our business to date and that our business model makes us well-positioned to meet expected customer demand during the current COVID-19 pandemic. We will continue to evaluate the nature and extent of the impact to our business and our results of operations and financial condition as circumstances evolve surrounding the COVID-19 pandemic.
Results of Operations
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our combined financial statements, which have been prepared in accordance with United States generally 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 — Summary of Significant Accounting Policies of the unaudited Combined Financial Statements included in this report, for more detailed information regarding our critical accounting policies.
Revenue Recognition
Revenue consists of the sales of new and used recreational vehicles, commissions from related finance and insurance products, sales of parts and services, and sale of other products. RideNow adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU, collectively referred to as Accounting Standards Codification (ASC) Topic 606, which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope. RideNow’s goods and services that fall within the scope of Topic 606 are recognized as revenue when promised goods or services are transferred to customers in amounts that reflect the consideration to which RideNow expects to be entitled in exchange for those goods or services.
RideNow adopted the accounting standard effective January 1, 2018, using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods recorded an increase to retained earnings of approximately $737,000.
Valuation of Inventory
Inventories, consisting of new vehicles, are stated at the lower of cost or net realizable value on a specific identification basis. Parts and accessories inventories are stated at the weighted average cost. Used vehicles and other inventories are stated at the lower of cost or wholesale net realizable values on a specific identification basis, as determined by management.
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Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting. The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to the leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the
adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. RideNow adopted this accounting standard effective January 1, 2018, using the optional transition method with no restatement of comparative periods.
RideNow elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification of RideNow’s existing leases. RideNow did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to RideNow. The new standard also provides practical expedients for an entity’s ongoing accounting. RideNow elected the short- term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, RideNow will not recognize ROU assets or lease liabilities, and RideNow did not recognize ROU asset or lease liabilities for existing short-term leases of those assets in transition. RideNow also elected the practical expedient to not separate lease and non-lease components of leases for the majority of RideNow classes of underlying assets.
Goodwill
RideNow acquisitions have resulted in the recording of goodwill and other intangible assets. Goodwill is an asset representing operational synergies, franchise rights and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Other intangible assets represent non-compete agreements entered into with sellers from acquired businesses.
RideNow does not amortize goodwill. Goodwill is tested for impairment annually or more frequently when events or changes in circumstances indicate that impairment may have occurred. RideNow elected to perform a quantitative goodwill impairment test for its reporting units as of December 31, 2020 and 2019, and no goodwill impairment charges resulted from the testing.
Other intangible assets identified include non-compete agreements which are intangible assets with definite lives and are carried at the acquired fair values less accumulated amortization. The non-compete agreements are amortized over the estimate useful lives.
Key Operating Metrics
We regularly review a number of metrics, to evaluate our business, measure our progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our business, including increasing brand awareness, maximizing the opportunity to source the purchase of low-cost pre-owned vehicles from consumers and dealers while enhancing the selection of vehicles we make available to our customers. Our key operating metrics also demonstrate our ability to translate these drivers into sales and to monetize these retail sales through a variety of product offerings.
3
Metric Segment (Non-Harley Dealerships)
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| New Vehicles | ||||||||
| Vehicles sold | 8,148 | 5,555 | ||||||
| Day’s sales of inventory | 51 | 178 | ||||||
| Total new vehicle revenue | $ | 121,841,537 | $ | 74,972,126 | ||||
| Gross profit per unit | $ | 2,889 | $ | 1,539 | ||||
| Used Vehicles | ||||||||
| Vehicles sold | 1,772 | 1,775 | ||||||
| Day’s sales of inventory | 75 | 94 | ||||||
| Total used vehicle revenue | $ | 21,515,723 | $ | 17,148,972 | ||||
| Gross profit per vehicle | $ | 2,378 | $ | 1,463 | ||||
Harley-Davidson Segment
| For the Three Months Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| New Vehicles | ||||||||
| Vehicles sold | 880 | 691 | ||||||
| Day’s sales of inventory | 64 | 139 | ||||||
| Total new vehicle revenue | $ | 21,415,489 | $ | 16,774,403 | ||||
| Gross profit per unit | $ | 4,932 | $ | 4,037 | ||||
| Used Vehicles | ||||||||
| Vehicles sold | 1,094 | 1,190 | ||||||
| Day’s sales of inventory | 57 | 88 | ||||||
| Total used vehicle revenue | $ | 17,472,548 | $ | 21,787,762 | ||||
| Gross profit per vehicle | $ | 2,769 | $ | 1,843 | ||||
Vehicles Sold
We define vehicles sold as the number of new and used retail vehicles sold to consumers in each period. We view vehicles sold as a key measure for several reasons. First, vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams, including financing, vehicle service contracts, additional parts and accessories and trade-ins. Second, vehicles sold increases the base of available customers for referrals and repeat sales. Third, vehicles sold is an indicator of our ability to retain and capture market share from our competitors.
Days Sales of Inventory
We define Day’s Sales of Inventory (DSI) as the average time in days that it takes to turn our vehicle inventory. In other words, this metric represents how many days our current stock of inventory will last. We view days sales of inventory as a useful metric due to its impact on vehicle average gross profit per unit and flooring costs. It also helps with forecasting, open-to-buy procurement strategies and simply understanding if we have enough inventory to meet the demand.
Total Vehicle Revenue
Total vehicle revenue is comprised of new and used vehicle sales. We sell vehicles primarily direct to consumer onsite at our dealerships (bricks and mortar) as well as online. Factors primarily affecting total vehicle sales are availability of inventory from OEMs as well as availability of consumer finance. The effects of COVID-19 accelerated vehicle sales in 2020 and we expect that to continue through 2021 dependent upon available inventory and consumer finance.
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Gross Profit Per Unit
Gross profit is generated on new and used vehicle sales from the difference between the vehicle selling price and our cost associated with acquiring the vehicle and preparation for sale.
Components of Results of Operations
Revenue from Contracts with Customers
New and Used Recreational Vehicles
RideNow sells new and used recreational vehicles. The transaction price for a recreational vehicle sale is determined with the customer at the time of sale. Customers often trade in their own recreational vehicle to apply toward the purchase of a retail new or used recreational vehicle. The “trade-in” recreational vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific recreational vehicle, and applied as payment of the contract price for the purchased recreational vehicle.
When RideNow sells a new or used recreational 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 recreational vehicle at such time. RideNow does not directly finance its customer’s purchases or provide leasing. In many cases, RideNow arranges third- party financing for the retail sale or lease of recreational vehicles to customers in exchange for a fee paid to RideNow by a third-party financial institution. RideNow receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale. RideNow establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.
Parts and Service
RideNow sells 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. RideNow also sells 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 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 measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance service contracts have a duration of one year or less. 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. RideNow 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.
RideNow 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. RideNow also offers customer loyalty points for parts and services for select franchises. RideNow 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
RideNow 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. RideNow offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.
5
Pursuant to the arrangements with these third-party providers, RideNow sells the products on a commission basis. For the majority of finance and insurance product sales, RideNow’s performance obligation is to arrange for the provision of goods and services by another party. RideNow’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, RideNow 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.
RideNow’s customers are concentrated in the Sunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction priced at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.
Cost of Sales
Cost of sales includes the cost to acquire, recondition, and transport recreational vehicles associated with preparing them for resale. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the wholesale vehicle market. Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Gross Profit
Vehicle gross profit is the vehicle sales price minus our cost of sales associated with the vehicles sold.
Used Vehicle Gross Profit.
Gross Profit from Sales of Service, Parts and Other Revenue represents the sales price for those products and services minus the labor and material costs associated with those sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising and marketing, rent and other facility expenses and other corporate overhead expenses, including expenses associated with information technology, insurance, legal, accounting, finance, and business development. Selling, general and administrative expenses also include the transportation cost associated with selling vehicles but exclude the cost of reconditioning, inspecting, and similar costs which are included in cost of revenue. Subject to the impact of the COVID-19 pandemic and our efforts to preserve liquidity as described elsewhere in this MD&A, we expect 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 selling, general and administrative expenses will decline as a percentage of revenue.
Interest Expense
Interest expense includes interest incurred on floor plan financing and notes payable.
Other (Income) Expense
Other (income) expense includes miscellaneous income for interest earned, cash discounts earned, vending income, cash-back incentives, cash over and short, gains and losses on capital asset disposals and other non-operating additions and deductions from income.
Seasonality
The volume of vehicles sold will generally fluctuate from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of vehicles available for sale from the OEM’s or selling consumers, the quality of vehicles, temperature, and weather in the state where the dealership is located. Warmer weather locations typically experience less seasonality than colder weather locations when it comes to motorcycle sales. As a result, revenue and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower sales as well as additional costs associated with the holidays and winter weather.
6
Results of Operations
The following table provides the results of operations for the quarters ended March 31, 2021 and 2020, including key financial information relating to our business and operations. The financial information should be read in conjunction with our Condensed Combined Financial Statements for the three months ended March 31, 2021, which are included in this report.
| For the Three-Months Ended March 31, | ||||||||||||
2021 | 2020 | Change | ||||||||||
| Revenue: | ||||||||||||
| New vehicles | $ | 143,257,024 | $ | 91,746,529 | $ | 51,510,495 | ||||||
| Used vehicles | 38,988,272 | 38,936,734 | 51,538 | |||||||||
| Service, parts and others | 43,529,102 | 36,724,157 | 6,804,945 | |||||||||
| Finance and insurance | 19,407,653 | 14,378,808 | 5,028,845 | |||||||||
| Total revenue | 245,182,051 | 181,786,228 | 63,395,823 | |||||||||
| Cost of Sales | ||||||||||||
| New vehicles | 115,378,848 | 80,406,382 | 34,972,466 | |||||||||
| Used vehicles | 31,746,228 | 34,146,250 | (2,400,022 | ) | ||||||||
| Service, parts and others | 23,476,601 | 19,197,651 | 4,278,950 | |||||||||
| Total cost of sales | 170,601,677 | 133,750,283 | 36,851,394 | |||||||||
| Gross profit | 74,580,374 | 48,035,945 | 26,544,429 | |||||||||
| Selling, general and administrative expenses | 43,111,337 | 35,469,797 | 7,641,540 | |||||||||
| Depreciation and amortization expenses | 813,507 | 871,389 | (57,882 | ) | ||||||||
| Operating income | 30,655,530 | 11,694,759 | 18,960,771 | |||||||||
| Other Income (Expense) | ||||||||||||
| Floor plan interest | (491,915 | ) | (1,247,326 | ) | 755,411 | |||||||
| Interest expense-other | (215,698 | ) | (352,464 | ) | 136,766 | |||||||
| Interest income | 163,807 | 269,946 | (106,139 | ) | ||||||||
| Total other income (expense) | 568,870 | 378,350 | 190,520 | |||||||||
| Total other (expense) | 25,064 | (951,494 | ) | 976,558 | ||||||||
| Net Income | $ | 30,680,594 | $ | 10,743,265 | $ | 19,937,329 | ||||||
7
Revenue and Gross Profit
Metric Segment
| For the Three-Months Ended March 31, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Vehicles sold: | ||||||||||||
| New vehicles | 8,148 | 5,555 | 2,593 | |||||||||
| Used vehicles | 1,772 | 1,775 | (3 | ) | ||||||||
| Total vehicles sold | 9,920 | 7,330 | 2,590 | |||||||||
| Revenue | ||||||||||||
| New vehicles | $ | 121,841,537 | $ | 74,972,126 | $ | 46,869,411 | ||||||
| Used Vehicles | 21,515,723 | 17,148,972 | 4,366,751 | |||||||||
| Service, parts and others | 30,007,741 | 23,455,298 | 6,552,443 | |||||||||
| Finance and insurance | 15,596,893 | 11,140,105 | 5,733,359 | |||||||||
| Total revenue | $ | 188,961,894 | $ | 126,716,501 | $ | 62,664,580 | ||||||
| Gross profit | ||||||||||||
| New vehicles | $ | 23,537,568 | $ | 8,550,688 | $ | 14,986,880 | ||||||
| Used Vehicles | 4,213,219 | 2,597,110 | 1,616,109 | |||||||||
| Service, parts and others | 13,907,304 | 11,051,226 | 2,856,078 | |||||||||
| Finance and insurance | 15,597,561 | 11063.799 | 4,533,762 | |||||||||
| Total gross profit | $ | 57,255,652 | $ | 33.262.823 | $ | 23,992,829 | ||||||
| Revenue per Vehicle | ||||||||||||
| New vehicles | $ | 14,954 | $ | 13,496 | $ | 1,458 | ||||||
| Used Vehicles | $ | 12,142 | $ | 9,661 | $ | 2,481 | ||||||
| Service, parts and others | $ | 3,025 | $ | 3,200 | $ | (175 | ) | |||||
| Finance and insurance | $ | 1,572 | $ | 1,520 | $ | 52 | ||||||
| Total revenue per vehicle | $ | 19,049 | $ | 17,287 | $ | 1,762 | ||||||
| Gross profit per Vehicle | ||||||||||||
| New vehicles | $ | 2,889 | $ | 1,539 | $ | 1,350 | ||||||
| Used Vehicles | $ | 2,378 | $ | 1,463 | $ | 915 | ||||||
| Service, parts and others | $ | 1,402 | $ | 1,508 | $ | (106 | ) | |||||
| Finance and insurance | $ | 1,572 | $ | 1,509 | $ | 63 | ||||||
| Total gross profit | $ | 5,772 | $ | 4,538 | $ | 1,234 | ||||||
8
Harley-Davidson Segment
| For the Three-Months Ended March 31, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Vehicles sold: | ||||||||||||
| New vehicles | 880 | 691 | 189 | |||||||||
| Used vehicles | 1,094 | 1,190 | (96 | ) | ||||||||
| Total vehicles sold | 1,974 | 1,881 | 93 | |||||||||
| Revenue | ||||||||||||
| New vehicles | $ | 21,415,489 | $ | 16,774,403 | $ | 4,641,086 | ||||||
| Used Vehicles | 17,472,548 | 21,787,762 | (4,315,214 | ) | ||||||||
| Service, parts and others | 13,521,361 | 13,268,859 | 252,502 | |||||||||
| Finance and insurance | 3,810,759 | 3,817,567 | (6,808 | ) | ||||||||
| Total revenue | $ | 56,220,157 | $ | 55,648,591 | $ | 571,566 | ||||||
| Gross profit | ||||||||||||
| New vehicles | $ | 4,339,941 | $ | 2,789,459 | $ | 1,550,482 | ||||||
| Used Vehicles | 3,028,821 | 2,193,374 | 835,447 | |||||||||
| Service, parts and others | 6,145,200 | 5,896,416 | 511,474 | |||||||||
| Finance and insurance | 3,810,760 | 3,893,873 | (83,113 | ) | ||||||||
| Total gross profit | $ | 17,324,722 | $ | 14,773,122 | $ | 2,551,600 | ||||||
| Revenue per Vehicle | ||||||||||||
| New vehicles | $ | 24,336 | $ | 24,276 | $ | 60 | ||||||
| Used Vehicles | $ | 15,971 | $ | 18,309 | $ | (2,338 | ) | |||||
| Service, parts and others | $ | 6,850 | $ | 7,054 | $ | (204 | ) | |||||
| Finance and insurance | $ | 1,930 | $ | 1,945 | $ | (15 | ) | |||||
| Total revenue per vehicle | $ | 28,480 | $ | 29,585 | $ | (1,105 | ) | |||||
| Gross profit per Vehicle | ||||||||||||
| New vehicles | $ | 4,932 | $ | 4,037 | $ | 895 | ||||||
| Used Vehicles | $ | 2,769 | $ | 1,843 | $ | 926 | ||||||
| Service, parts and others | $ | 3,113 | $ | 3,135 | $ | (22 | ) | |||||
| Finance and insurance | $ | 1,930 | $ | 2,070 | $ | (140 | ) | |||||
| Total gross profit | $ | 8,776 | $ | 7,854 | $ | 922 | ||||||
Revenue
First Quarter 2021 compared to First Quarter 2020
Total revenue increased $63,395,823 to $245,182,051 compared to $181,786,228 in 2020. The increase was primarily due to an increase of 51,510,495 in new vehicle sales plus and increase of $6,804,945 in sales of service, parts and other income and an increase of $5,028,845 in finance and insurance income. The increase was primarily attributable to an increase of 2,593 in the number of new vehicles that were sold to 8,148 compared to 5,555 in 2020 offset by a slight decrease of $84 total revenue per vehicle sold to $24,716 compared to $24,800 in 2020.
Total new vehicle sales increased $51,510,497 to $143,257,026 compared to $91,746,529 in 2020. $40,864,798 of this increase resulted from an increase of 2,782 in new vehicles sold to 9,028 compared to 6,246 for 2020. The balance of the increase of $10,645,699 was primarily attributable to an increase in the average selling price per vehicle of $878 to $20,614 compared to 19,736 for 2020. Substantially all new vehicle categories were up in the first quarter of 2021 compared to 2020. The largest increase was driven by the Utility Vehicle Market (or side-by-side) which increased 58.8% or $23,409,406 over the first quarter 2020. There continues to be strong demand for this product, particularly the sport models in Arizona, Nevada and Florida where families can have fun socially distancing on the vast amounts of public land available.
Total used vehicle sales increased $51,537 to $38,988,271 compared to $38,936,734 in 2020. The increase was due to an increase in average selling price per vehicle of $472 offset by a decrease in the number of vehicles sold to 2,866 compared to 2,965 in 2020. The increase in price is attributable to the increase in demand along with the lack of available product which has driven prices higher in 2021.
Total service, parts and other income increased $6,804,945 to $43,529,102 compared to $36,724,157 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021. Service revenue increased $1,755,433 while parts accessories and apparel income increased $5,049,512. The average service, parts and other income per vehicle decreased $327 to $3,660 compared to $3,987 in 2020 due to the significant increase in vehicles sold in 2021 which serves as the denominator in this metric.
Total finance and insurance income increased $5,208,844 to $19,407,653 compared to $14,378,808 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021. This increase resulted from an increase of sales of extended maintenance and service contracts of $1,520,542 documentation fees of $1,415,602, prepaid maintenance of $1,153,747 and finance income and other products of $938,954.
9
Metric Segment (Non-Harley-Davidson) total revenue increased 62,245,393 to $188,961,894 compared to $126,716,501 in 2020. The increase was primarily attributable to the sale of 9,920 vehicles, which was 2,590 more vehicles sold than the 7,330 vehicles that were sold in 2020. In addition, the overall average revenue per vehicle sold increased $1,762 to $19,049 compared to $17,287 in 2020. This increase in revenue included $46,869,411 from the sale of new vehicles at an average sales price per vehicle of $14,954 compared to $13,496 in 2020. Revenue from used vehicle sales increased $4,366,751 at an average sales price per vehicle of $12,142 compared to $9,661 in 2020. Sales of service, parts and other income increased $6,552,443 and sale of finance and insurance products increased $4,875,975.
Harley-Davidson total revenue increased $571,566 to $56,220,157 compared to $55,648,591 in 2020. The increase was primarily attributable to an increase in new vehicle sales of $4,641,086 at an average sales price per vehicle of $24,336 compared to $24,276 in 2020, offset by a decrease of $4,315,214 in used vehicle sales at an average sales price of $15,971 compared to $18,309 in 2020. Sales of service, parts and other income increased $252,502 and sales of finance and insurance products decreased $6,808.
Gross Profit
Total gross profit increased $27,123,293 to $74,580,374 compared to $47,457,081 in 2020. The increase was primarily due to an increase in gross profit of $16,538,029 and $2,451,560 from new and used vehicle sales, respectively, plus an increase of $2,525,995 in sales of service, parts and other income and an increase of $5,028,844 in finance and insurance income. The increase was primarily attributable to an increase of 2,683 in the number of new and used vehicles that were sold to 11,894 compared to 9,211 in 2020 and an increase in the total gross margin to 30.0% compared to 26.0% in 2020.
The gross profit on new vehicle sales increased $16,538,029 to $27,878,176 compared to $11,340,147 in 2020. $8,590,816 of this increase resulted from an increase of 2,782 in vehicles sold to 9,028 compared to 6,246 for 2020. The balance of the increase of $7,947,213 was primarily attributable to the increase in the gross margin to 19.5% compared to 12.4% in 2020. This increase resulted from an increase in the average selling price per vehicle of $1,179 to $15,868 compared to 14,689 in 2020 and a change in the vehicle mix sold. Off-road vehicle sales accounted for 62.3% of new vehicle sales in 2021 compared to 57.7% in 2020 and the gross margin on these sales were 19.8% in 2021 compared to 10.5% in 2020.
The gross profit on used vehicle sales increased $2,451,560 to $7,242,044 compared to $4,790,484 in 2020. $2,701,729 of this increase was attributable to an increase in the gross margin on vehicles sold to 18.6% compared to 12.3% for 2020 offset by a decrease of $250,169 due a reduction in the number of used vehicles sold of 99 to 2,866 compared to 2,965 in 2020. The increase the gross margin was due to an increase in the average selling price per vehicle of $472 to $13,604 compared to $13,132 in 2020 and the change in mix of vehicles sold. Off-road vehicle sales accounted for 21.1% of used vehicle sales in 2021 compared to 29.3% in 2020 and the gross margin on these sales were 20.0% in 2021 compared to 9.2% in 2020.
Total gross profit on service, parts and other income increased $2,525,995 to $20,052,501 compared to $17,526,506 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021 offset by a reduction of $154 in the average gross profit per vehicle sold to $1,686 compared to $1,840 in 2020. The average gross margin on service income was 76.8% compared to 75.6% in 2020 and the average gross margin on parts and accessories was 31.4% compared to 31.3% in 2020.
10
Total finance and insurance gross profit increased $5,208,844 to $19,407,653 compared to $14,378,808 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021. This increase resulted from an increase of sales of extended maintenance and service contracts of $1,520,542 documentation fees of $1,415,602, prepaid maintenance of $1,153,747 and finance income and other products of $938,954.
Metric Segment (Non-Harley-Davidson) total gross profit increased $23,992,829 to $57,255,652 compared to $33,262,823 in 2020. $7,491,177 of this increase was attributable to the increase of 2,590 in vehicles sold to 9,920 compared to 7,330 in 2020. $9,118,946 of the increase is due to an increase in the gross margin on new and used vehicle sales to 19.4% compared to 12.1% in 2020, an increase in the gross profit on sales of service, parts and other income of $2,856,078, and an increase in sales of finance and insurance products of $4,533,762. The overall gross margin from sales by the Metric Segment increased to 30.3% compared to 26.2% in 2020.
Harley-Davidson Segment total gross profit increased $2,551,600 to $17,324,722 compared to $14,773,122 in 2020. The increase was primarily attributable to an increase in the gross profit on new and used vehicle sales of $1,550,482 and $855,447, respectively, plus an increase in the gross profit from sales of service, parts and other income of $248,784 offset a decrease in the gross profit from sales of finance and insurance products of $(83,113) The overall gross margin increased to 30.8% compared to 26.5% in 2019.
Selling, General and Administrative Expenses
| For the Three-Months Ended March 31, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Compensation and related costs | $ | 28,920,646 | $ | 22,594,089 | $ | 6,326,557 | ||||||
| Advertising and marketing | 1,846,627 | 1,603,514 | 243,113 | |||||||||
| Other selling expenses | 1,574,919 | 1,302,830 | 272,089 | |||||||||
| Professional fees | 447,728 | 362,532 | 85,196 | |||||||||
| Facility expenses | 7,328,847 | 6,946,120 | 382,727 | |||||||||
| General and administrative expenses | 2,992,570 | 2,660,712 | 331,858 | |||||||||
| $ | 43,111,337 | $ | 35,469,797 | $ | 7,641,540 | |||||||
Selling, general and administrative expenses increased by $7,641,540 to $43,111,337 (17.6% of total revenue) compared to $35,469,797 (19.5% of total revenue) in 2020. The increase primarily resulted from an increase of $6,326,557 in compensation and related costs. The increase in compensation and related costs includes an increase in sales commissions of $3,949,026 as a result of the increased sales in 2021 compared to 2020. A small portion of the increase was also due to a reduction in workforce that occurred towards the end of March 2020 due to the COVID-19 pandemic. In the third week of March 2020, we furloughed 284 of our staff. We quickly brought everyone back that would come back which equaled 250 employees in May as we learned the COVID-19 pandemic was increasing the demand for our vehicles. The increase in advertising, marketing and other selling expenses was directly attributable to the increase in sales. During the three months ended March 31, 2021 we purchased additional online and digital marketing with increases in SEO/SEM and paid search. The increase in facilities expenses was primarily related to an increase in warehouse space in order to handle the growing UTV (side by side) market as these vehicles are the size of automobiles. The increase in general and administrative expenses is primarily due to an increase in costs related to our technology platform of $233,023.
Depreciation and Amortization
Depreciation and Amortization decreased by $67,882 to $803,507 (0.33% of total revenue) compared to $871,389 (0.48% of total revenue) in 2020
Interest Expense
Floor plan interest expense decreased $755,411 to $491,915 in 2021 compared to $1,247,326 in 2020 due to significantly lower new inventory as demand outpaced supply in the first quarter 2021 compared to 2020. New inventory value and days supply are the leading indicators for floorplan interest expense. New inventory was down $103,656,764 from $168,025,252 to $64,368,488 and Days supply (DSI) was down to 53 days versus 170 in the prior year.
11
Liquidity and Capital Resources
| 3/31/2021 | 12/31/2020 | |||||||
| Cash and Cash Equivalents | $ | 4,337,169 | $ | 3,905,686 | ) | |||
| Cash sweep account balance (1) | 66,416,689 | 56,521,530 | ||||||
| Availability under short-term revolving line of credit | 19,000,000 | 19,000,000 | ||||||
| Availability under floor plan notes | 192,344,675 | 186,325,321 | ||||||
| $ | 282,098,533 | $ | 265,752,537 | |||||
| (1) | RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the three months ended March 31, 2021 and 2020, the Cash Sweep Account was earning interest at 1.10% and 3.11%, respectively, and for overdraft balances, the interest charged was 3.25% and 3.50%, respectively. |
Our capital allocation strategy focuses on growing long-term value for our owners and shareholders. We invest capital in our business to maintain and upgrade existing facilities as well as other strategic and technology initiatives. We also deploy capital opportunistically to complete acquisitions and improve facilities of newly acquired dealerships. For the three months ended March 31, 2021 and 2020 the following table summarizes our capital expenditures:
| 3/31/2021 | 3/31/2020 | |||||||
| Purchases of property and equipment | $ | 347,927 | $ | 2,774,476 | ||||
| Purchases of net assts through business combinations | - | - | ||||||
| Proceeds from sale of property and equipment | (61,758 | ) | - | |||||
| $ | 286,169 | $ | 218,286 | |||||
As of March 31, 2021, and December 31, 2020, excluding lease liabilities, the outstanding principal amount of indebtedness as $95,135,652 and $101,947,256, respectively, are summarized in the table below. See Notes to our Condensed Combined Financial Statements as of March 31, 2021 included in this report and Notes to our audited Combined Financial Statements as of December 31, 2020, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2021.
| 3/31/2021 | 12/31/2020 | |||||||
| Asset-Based Financing: | ||||||||
| Floor plan notes payable | $ | 62,514,325 | $ | 68,533,679 | ||||
| Total asset-based lending | 62,514,325 | 68,533,679 | ||||||
| Notes payable-related parties | 7,285,322 | 7,411,322 | ||||||
| Notes payable-PPP loans | 19,039,229 | 19,039,229 | ||||||
| Notes payable-other | 6,296,776 | 6,963,026 | ||||||
| $ | 95,135,652 | $ | 101,947,256 | |||||
The following table sets for a summary of our cash flows for the three months ended March 31, 2021, and 2020:
| For the Three Months Ended March 31, | ||||||||||||
| 2021 | 2020 | Change | ||||||||||
| Net cash (used in) provide by operating activities | $ | (12,864,897 | ) | $ | 9,211,195 | $ | (22,076,092 | ) | ||||
| Net cash (used in) investing activities | (286,169 | ) | (218,286 | ) | (67,883 | ) | ||||||
| Net cash (used in) financing activities | (14,374,049 | ) | (20,917,814 | ) | 6,543,674 | |||||||
| Net increase (decrease) in cash | $ | (27,525,115 | ) | $ | (11,924,814 | ) | $ | (15,600,301 | ) | |||
12
Operating Activities
Our primary sources of operating cash flows result from the sales of new and used vehicles and ancillary products and services and our floor plans. Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, selling expenses, facility costs and other administrative expenses. For the three months ended March 31, 2021, and 2020, the net cash (used in) or provided by operating activities was $(12,864,897), and $9,211,195, respectively. In 2021 the principal reasons for the decrease in cash from operating activities was the increase in accounts receivable-related parties of $32,227,071 and reduction in the floor plan liabilities of $16,914,758. The increase in accounts receivable-related parties is a result of an increase in the sweep account balance to $66,416,689 compared to $14,903,590 on March 31, 2020.
Investing Activities
Net cash used in investing activities consists primarily of cash used in capital additions. For the three months ended March 31, 2021, cash used in investing activities increased $67,883 to $286,169 compared to $218,286 for the three months ended March 31, 2020.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term borrowing activity and contributions/distributions to or from the owners. In addition, for the three months ended March 31, 2020, there were borrowings under the Company’s revolving line of credit of $16,000,000. That line of credit was completely paid down during the year ended December 31, 2020, and there were not borrowings during the three months ended March 31, 2021.
13
Exhibit 99.5
Management Discussion and Analysis of Financial Condition and Results
of Operations
for the Three Years Ended December 31, 2020.
The following 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 Combined Financial Statements and notes thereto for the years ended December 31, 2020, 2019 and 2018, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2021.
Overview
RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group” or the “Company”) is a collection of franchised dealerships operating in the powersports industry. The Group is engaged in the sale of new and used motorcycles, all-terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of December 31, 2020, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
On December 31, 2020, and December 31, 2019 RideNow had two operating segments: (1) Harley-Davidson motor sports dealerships and (2) Metric motor sports dealerships (representing all Non-Harley-Davidson motor sports dealerships). RideNow’s Harley-Davidson dealership segment is comprised of retail franchises that sell new and used motorcycles and related accessories, riding gear and apparel, replacement parts, equipment repair and maintenance services, and also arrange for the delivery of finance and insurance products through third party providers. RideNow’s Metric dealerships segment is comprised of retail franchises that sell new and used motorcycles (non-Harley-Davidson) and other motor sports equipment, including all-terrain vehicles, utility terrain vehicles, boats, personal watercraft, snowmobiles and scooters from manufacturers such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph. Additionally, dealerships in RideNow’s Metric segment sell related products and services, including repair and maintenance services and also arrange for the delivery of finance and insurance products through third party providers. RideNow has determined that the operating segments also represent the reportable segments. The reportable segments identified above are the business activities of RideNow for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision maker to assess operating performance and allocate resources. RideNow’s chief operating decision maker is comprised of its two owners, who are also RideNow’s (1) Chairman of the Board and (2) Chief Executive Officer.
For the years ended December 31, 2020, new vehicle sales accounted for 57.4% of the Company’s revenue and 33.3% of total gross profit compared to 54.0% and 23.4% of the Company’s revenue and gross profit, respectively in 2019 and 55.7% and 26.0%, respectively in 2018. Used vehicle sales accounted for 16.3% of the Company’s revenue and 9.4% of total gross profit for the year ended December 31, 2020, compared to 18.0% and 9.2%, of the Company’s revenue and gross profit, respectively, in 2019 and 16.2% and 7.4%, respectively in 2018. Service, parts and others accounted for 18.3% of the Company’s revenue and 28.8% of total gross profit for the year ended December 31, 2020, compared to 20.6% and 37.7%, respectively in 2019 and 20.9% and 37.6%, respectively in 2018. Finance and insurance, accounted for 8.0% of the Company’s revenue and 28.0% of total gross profit compared to 7.4%% and 29.7%, respectively in 2019 and 7.2% and 29.1%, respectively in 2018.
Acquisition by RumbleOn
On March 12, 2021, RumbleOn, Inc. announced a definitive agreement to combine with the RideNow Group to create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform (the “RideNow Transactions”). Under the terms of the definitive agreement, RumbleOn will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4 million of cash and approximately 5.8 million shares of RumbleOn Class B Common Stock. RumbleOn will finance the cash consideration through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. RumbleOn has entered into a commitment letter with Oaktree Capital Management, L.P. (“Oaktree”) to provide for the debt financing, subject to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the third quarter of 2021.
1
COVID-19 Update
In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The rapid spread of COVID-19 resulted in governmental authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, shutdowns and vaccines. We initially took aggressive action in response to the Pandemic, furloughing nearly 45% of our workforce. However, we quickly rebounded as we found the Pandemic was actually creating great demand as people, weary of staying at home found riding an off-road vehicle in the wide-open, socially distant spaces of tracks and trails to be appealing. While the manufacturers curtailed or shut down operations for a time, and our supply of new vehicles declined, our off-road vehicle demand increased significantly. For the quarter ended June 30, 2020, our vehicles sold, revenue and gross profit were up 57.1%, 49.8% and 58.1%, respectively compared to the quarter ending March 31, 2020. This trend continued throughout the remainder of 2020, and we believe demonstrates that we have been successful in navigating the impact of COVID-19 on our business to date and that our business model makes us well-positioned to meet expected customer demand during the current COVID-19 pandemic. We will continue to evaluate the nature and extent of the impact to our business and our results of operations and financial condition as circumstances evolve surrounding the COVID-19 pandemic.
Results of Operations
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our combined financial statements, which have been prepared in accordance with United States generally 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 — Summary of Significant Accounting Policies of the audited Combined Financial Statements and notes thereto for the years ended December 31, 2020, 2019 and 2018, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2021, for more detailed information regarding our critical accounting policies.
Revenue Recognition
Revenue consists of the sales of new and used recreational vehicles, commissions from related finance and insurance products, sales of parts and services, and sale of other products. RideNow adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU, collectively referred to as Accounting Standards Codification (ASC) Topic 606, which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope. RideNow’s goods and services that fall within the scope of Topic 606 are recognized as revenue when promised goods or services are transferred to customers in amounts that reflect the consideration to which RideNow expects to be entitled in exchange for those goods or services.
RideNow adopted the accounting standard effective January 1, 2018, using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods recorded an increase to retained earnings of approximately $737,000.
Valuation of Inventory
Inventories, consisting of new vehicles, are stated at the lower of cost or net realizable value on a specific identification basis. Parts and accessories inventories are stated at the weighted average cost. Used vehicles and other inventories are stated at the lower of cost or wholesale net realizable values on a specific identification basis, as determined by management.
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Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting. The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to the leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the
adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. RideNow adopted this accounting standard effective January 1, 2018, using the optional transition method with no restatement of comparative periods.
RideNow elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification of RideNow’s existing leases. RideNow did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to RideNow. The new standard also provides practical expedients for an entity’s ongoing accounting. RideNow elected the short- term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, RideNow will not recognize ROU assets or lease liabilities, and RideNow did not recognize ROU asset or lease liabilities for existing short-term leases of those assets in transition. RideNow also elected the practical expedient to not separate lease and non-lease components of leases for the majority of RideNow classes of underlying assets.
Goodwill
RideNow acquisitions have resulted in the recording of goodwill and other intangible assets. Goodwill is an asset representing operational synergies, franchise rights and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Other intangible assets represent non-compete agreements entered into with sellers from acquired businesses.
RideNow does not amortize goodwill. Goodwill is tested for impairment annually or more frequently when events or changes in circumstances indicate that impairment may have occurred. RideNow elected to perform a quantitative goodwill impairment test for its reporting units as of December 31, 2020 and 2019, and no goodwill impairment charges resulted from the testing.
Other intangible assets identified include non-compete agreements which are intangible assets with definite lives and are carried at the acquired fair values less accumulated amortization. The non-compete agreements are amortized over the estimate useful lives.
Key Operating Metrics
We regularly review several metrics, to evaluate our business, measure our progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our business, including increasing brand awareness, maximizing the opportunity to source the purchase of vehicles from original equipment manufacturers (OEM’s) and consumers and while enhancing the selection of vehicles we make available to our customers. Our key operating metrics also demonstrate our ability to translate these drivers into sales and to monetize these retail sales through a variety of product offerings.
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Metric Segment (Non-Harley Dealerships)
| For the Years Ended December 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| New Vehicles | ||||||||||||
| Vehicles sold | 31,491 | 25,124 | 24,946 | |||||||||
| Day’s sales of inventory | 97 | 169 | 150 | |||||||||
| Total new vehicle revenue | $ | 443,956,052 | $ | 317,978,998 | $ | 297,856,702 | ||||||
| Gross profit per vehicle sold | $ | 2,311 | $ | 1,198 | $ | 1,157 | ||||||
| Used Vehicles | ||||||||||||
| Vehicles sold | 6,353 | 6,838 | 5,976 | |||||||||
| Day’s sales of inventory | 88 | 95 | 110 | |||||||||
| Total used vehicle revenue | $ | 64,293,419 | $ | 63,933,304 | $ | 53,252,779 | ||||||
| Gross profit per vehicle | $ | 1,882 | $ | 1,292 | $ | 1,253 | ||||||
Harley-Davidson Segment
| For the Years Ended December 31, | ||||||||||||
| 2020 | 2019 | 2018 | ||||||||||
| New Vehicles | ||||||||||||
| Vehicles sold | 2,879 | 3,520 | 3,525 | |||||||||
| Day’s sales of inventory | 102 | 121 | 109 | |||||||||
| Total new vehicle revenue | $ | 71,867,922 | $ | 79,738,881 | $ | 91,490,058 | ||||||
| Gross profit per unit | $ | 4,761 | $ | 3,524 | $ | 4,964 | ||||||
| Used Vehicles | ||||||||||||
| Vehicles sold | 4,804 | 4,735 | 4,431 | |||||||||
| Day’s sales of inventory | 73 | 83 | 77 | |||||||||
| Total used vehicle revenue | $ | 82,031,841 | $ | 68,871,728 | $ | 60,363,476 | ||||||
| Gross profit per vehicle sold | $ | 2,511 | $ | 1,661 | $ | 1,092 | ||||||
Vehicles Sold
We define vehicles sold as the number of new and used retail vehicles sold to consumers in each period. We view vehicles sold as a key measure for several reasons. First, vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams, including financing, vehicle service contracts, additional parts and accessories and trade-ins. Second, vehicles sold increases the base of available customers for referrals and repeat sales. Third, vehicles sold is an indicator of our ability to retain and capture market share from our competitors.
Days Sales of Inventory
We define Day’s Sales of Inventory (DSI) as the average time in days that it takes to turn our vehicle inventory. In other words, this metric represents how many days our current stock of inventory will last. We view days sales of inventory as a useful metric due to its impact on vehicle average gross profit per unit and flooring costs. It also helps with forecasting, open-to-buy procurement strategies and simply understanding if we have enough inventory to meet the demand.
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Total Vehicle Revenue
Total vehicle revenue is comprised of new and used vehicle sales. We sell vehicles primarily direct to consumer onsite at our dealerships (bricks and mortar) as well as online. Factors primarily affecting total vehicle sales are availability of inventory from OEMs as well as availability of consumer finance. The effects of COVID-19 accelerated vehicle sales in 2020 and we expect that to continue through 2021 dependent upon available inventory and consumer finance.
Gross Profit Per Unit
Gross profit is generated on new and used vehicle sales from the difference between the vehicle selling price and our cost associated with acquiring the vehicle and preparation for sale.
Components of Results of Operations
Revenue from Contracts with Customers
New and Used Recreational Vehicles
RideNow sells new and used recreational vehicles. The transaction price for a recreational vehicle sale is determined with the customer at the time of sale. Customers often trade in their own recreational vehicle to apply toward the purchase of a retail new or used recreational vehicle. The “trade-in” recreational vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific recreational vehicle, and applied as payment toward the contracted price of the purchased recreational vehicle.
When RideNow sells a new or used recreational 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 recreational vehicle at such time. RideNow does not directly finance its customer’s purchases or provide leasing. In many cases, RideNow arranges third- party financing for the retail sale or lease of recreational vehicles to customers in exchange for a fee paid to RideNow by a third-party financial institution. RideNow receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale. RideNow establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.
Parts and Service
RideNow sells 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. RideNow also sells 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 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 measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance services typically have a duration of one year or less. 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. RideNow 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.
RideNow 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. RideNow also offers customer loyalty points for parts and services for select franchises. RideNow satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.
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Finance and Insurance
RideNow 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. RideNow offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.
Pursuant to the arrangements with these third-party providers, RideNow sells the products on a commission basis. For the majority of finance and insurance product sales, RideNow’s performance obligation is to arrange for the provision of goods and services by another party. RideNow’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, RideNow 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.
RideNow’s customers are concentrated in the Sunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction price at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.
Cost of Sales
Cost of sales includes the cost to acquire, recondition, and transport recreational vehicles associated with preparing them for resale. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the wholesale vehicle market. Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.
Gross Profit
Vehicle gross profit is the vehicle sales price minus our cost of sales associated with the vehicles sold.
Gross Profit from Sales of Service, Parts and Other Revenue represents the sales price for those products and services minus the labor and material costs associated with those sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising, marketing and other selling expenses, rent and other facility expenses and other corporate overhead expenses, including expenses associated with information technology, outside services, legal, accounting, finance, and business development. Selling, general and administrative expenses also include the transportation cost associated with selling vehicles but exclude the cost of reconditioning, inspecting, and similar costs which are included in cost of revenue. We expect 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 selling, general and administrative expenses will decline as a percentage of revenue.
Interest Expense
Interest expense includes interest incurred on floor plan financing and notes payable.
Other (Income) Expense
Other (income) expense includes miscellaneous income for interest earned, cash discounts earned, vending income, cash-back incentives, cash over and short, gains and losses on capital asset disposals and other non-operating additions and deductions from income.
Seasonality
The volume of vehicles sold will generally fluctuate from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of vehicles available for sale from the OEM’s or selling consumers, the quality of vehicles, temperature, and weather in the state where the dealership is located. Warmer weather locations typically experience less seasonality than colder weather locations when it comes to motorcycle sales. As a result, revenue and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower sales as well as additional costs associated with the holidays and winter weather.
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Results of Operations
The following table provides the results of operations for the years ended December 31, 2020, 2019 and 2018, including key financial information relating to our business and operations. The financial information should be read in conjunction with our audited Combined Financial Statements for the years ended December 31, 2020, 2019 and 2018, which were included in RumbleOn’s Form 8-K filed on April 8, 2021.
| 12/31/2020 | 12/31/2019 | Change | 12/31/2018 | Change | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| New vehicles | $ | 515,823,974 | $ | 397,717,879 | $ | 118,106,095 | $ | 389,346,760 | $ | 8,371,119 | ||||||||||
| Used vehicles | 146,325,260 | 132,805,032 | 13,520,228 | 113,616,255 | 19,188,777 | |||||||||||||||
| Service, parts and others | 164,895,944 | 151,849,099 | 13,046,845 | 146,211,431 | 5,637,668 | |||||||||||||||
| Finance and insurance | 71,845,220 | 53,868,710 | 17,976,510 | 50,180,259 | 3,688,451 | |||||||||||||||
| Total revenue | 898,890,398 | 736,240,720 | 162,649,678 | 699,354,705 | 36,886,015 | |||||||||||||||
| Cost of Sales | ||||||||||||||||||||
| New vehicles | 429,345,954 | 355,214,641 | 74,131,313 | 344,534,573 | 10,680,068 | |||||||||||||||
| Used vehicles | 122,306,144 | 116,104,217 | 6,201,927 | 100,863,191 | 15,241,026 | |||||||||||||||
| Service, parts and others | 91,017,529 | 83,372,418 | 7,645,111 | 81,383,081 | 1,989,337 | |||||||||||||||
| Total cost of sales | 642,669,627 | 554,691,276 | 87,978,351 | 526,780,845 | 27,910,431 | |||||||||||||||
| Gross profit | 256,220,771 | 181,549,444 | 74,671,327 | 172,573,860 | 8,975,584 | |||||||||||||||
| Selling, general and administrative expenses | 154,520,040 | 137,201,905 | 17,318,135 | 128,929,516 | 8,272,389 | |||||||||||||||
| Depreciation and amortization expenses | 4,087,914 | 3,752,922 | 334,992 | 3,868,513 | (115,591 | ) | ||||||||||||||
| Operating income | 97,612,817 | 40,594,617 | 57,018,200 | 39,775,831 | 818,786 | |||||||||||||||
| Other Income (Expense) | ||||||||||||||||||||
| Floor plan interest | (3,051,930 | ) | (5,528,416 | ) | 2,476,486 | (4,147,134 | ) | (1,381,282 | ) | |||||||||||
| Interest expense-other | (3,904,879 | ) | (4,551,687 | ) | 646,808 | (4,416,800 | ) | (134,887 | ) | |||||||||||
| Interest income | 840,454 | 986,756 | (146,302 | ) | 721,953 | 264,803 | ||||||||||||||
| Management fee expense | 0 | (672,256 | ) | 672,256 | ||||||||||||||||
Total other income (expense) | 1,126,614 | 1,215,627 | -89,013 | 440,687 | 774,940 | |||||||||||||||
| Total other (expense) | (4,989,741 | ) | (7,877,720 | ) | 2,887,979 | (8,073,550 | ) | 195,830 | ||||||||||||
| Net Income | $ | 92,623,076 | $ | 32,716,897 | $ | 59,906,179 | $ | 31,702,281 | $ | 1,014,616 | ||||||||||
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Revenue and Gross Profit
Metric Segment (Non-Harley-Davidson Dealerships)
| 12/31/2020 | 12/31/2019 | Change | 12/31/2018 | Change | ||||||||||||||||
| Vehicles sold: | ||||||||||||||||||||
| New vehicles | 31,491 | 25,124 | 6,367 | 24,946 | 178 | |||||||||||||||
| Used vehicles | 6,353 | 6,838 | (485 | ) | 5,976 | 862 | ||||||||||||||
| Total vehicles sold | 37,844 | 31,962 | 5,882 | 30,922 | 1,040 | |||||||||||||||
| Revenue | ||||||||||||||||||||
| New vehicles | $ | 443,956,052 | $ | 317,978,998 | $ | 125,977,054 | $ | 297,856,702 | $ | 20,122,296 | ||||||||||
| Used Vehicles | 64,293,419 | 63,933,304 | 360,115 | 53,252,779 | 10,680,525 | |||||||||||||||
| Service, parts and others | 107,944,239 | 94,333,391 | 13,610,848 | 88,976,588 | 5,356,803 | |||||||||||||||
| Finance and insurance | 56,043,846 | 39,373,914 | 16,669,932 | 35,618,902 | 3,755,012 | |||||||||||||||
| Total revenue | $ | 672,237,556 | $ | 515,619,607 | $ | 156,617,949 | $ | 475,704,971 | $ | 39,914,636 | ||||||||||
| Gross profit | ||||||||||||||||||||
| New vehicles | $ | 72,769,806 | $ | 30,100,315 | $ | 42,669,491 | $ | 27,315,618 | $ | 2,784,697 | ||||||||||
| Used Vehicles | 11,954,490 | 8,836,417 | 3,118,073 | 7,913,522 | 922,895 | |||||||||||||||
| Service, parts and others | 48,243,382 | 42,436,242 | 5,807,140 | 39,162,684 | 3,273,558 | |||||||||||||||
| Finance and insurance | 55,820,441 | 39,387,608 | 16,432,833 | 36,586,510 | 2,801,098 | |||||||||||||||
| Total gross profit | $ | 188,788,119 | $ | 120,760,582 | $ | 68,027,537 | $ | 110,978,334 | $ | 9,782,248 | ||||||||||
| Revenue per Vehicle | ||||||||||||||||||||
| New vehicles | $ | 14,098 | $ | 12,656 | $ | 1,442 | $ | 11,940 | $ | 716 | ||||||||||
| Used Vehicles | $ | 10,120 | $ | 9,350 | $ | 770 | $ | 8,911 | $ | 439 | ||||||||||
| Service, parts and others | $ | 2,852 | $ | 2,951 | $ | (99 | ) | $ | 2,877 | $ | 74 | |||||||||
| Finance and insurance | $ | 1,481 | $ | 1,232 | $ | 249 | $ | 1,152 | $ | 80 | ||||||||||
| Total revenue per vehicle | $ | 17,763 | $ | 16,132 | $ | 1,631 | $ | 15,384 | $ | 748 | ||||||||||
| Gross profit per Vehicle | ||||||||||||||||||||
| New vehicles | $ | 2,311 | $ | 1,198 | $ | 1,113 | $ | 1,095 | $ | 103 | ||||||||||
| Used Vehicles | $ | 1,882 | $ | 1,292 | $ | 590 | $ | 1,324 | $ | (32 | ) | |||||||||
| Service, parts and others | $ | 1,275 | $ | 1,328 | $ | (53 | ) | $ | 1,266 | $ | 62 | |||||||||
| Finance and insurance | $ | 1,475 | $ | 1,232 | $ | 243 | $ | 1,183 | $ | 49 | ||||||||||
| Total gross profit | $ | 4,989 | $ | 3,778 | $ | 1,211 | $ | 3,589 | $ | 189 | ||||||||||
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Harley-Davidson Segment
| 12/31/2020 | 12/31/2019 | Change | 12/31/2018 | Change | ||||||||||||||||
| Vehicles sold: | ||||||||||||||||||||
| New vehicles | 2,879 | 3,520 | (641 | ) | 3,525 | (5 | ) | |||||||||||||
| Used vehicles | 4,804 | 4,735 | 69 | 4,431 | 304 | |||||||||||||||
| Total vehicles sold | 7,683 | 8,255 | (572 | ) | 7,956 | 299 | ||||||||||||||
| Revenue | ||||||||||||||||||||
| New vehicles | $ | 71,867,922 | $ | 79,738,881 | $ | (7,870,959 | ) | $ | 91,490,058 | $ | (11,751,177 | ) | ||||||||
| Used Vehicles | 82,031,841 | 68,871,728 | 13,160,113 | 60,363,476 | 8,508,252 | |||||||||||||||
| Service, parts and others | 56,951,705 | 57,515,708 | (564,003 | ) | 57,234,843 | 280,865 | ||||||||||||||
| Finance and insurance | 15,801,375 | 14,494,796 | 1,306,579 | 14,561,357 | (66,561 | ) | ||||||||||||||
| Total revenue | $ | 226,652,843 | $ | 220,621,113 | $ | 6,031,730 | $ | 223,649,734 | $ | (3,028,621 | ) | |||||||||
| Gross profit | ||||||||||||||||||||
| New vehicles | $ | 13,708,214 | $ | 12,402,923 | $ | 1,305,291 | $ | 17,496,569 | $ | (5,093,646 | ) | |||||||||
| Used Vehicles | 12,064,626 | 7,864,398 | 4,200,228 | 4,839,542 | 3,024,856 | |||||||||||||||
| Service, parts and others | 25,635,033 | 26,040,439 | (405,406 | ) | 25,665,666 | 374,773 | ||||||||||||||
| Finance and insurance | 16,024,780 | 14,481,102 | 1,543,678 | 13,593,749 | (887,353 | ) | ||||||||||||||
| Total gross profit | $ | 67,432,653 | $ | 60,788,862 | $ | 6,643,791 | $ | 61,595,526 | $ | (806,664 | ) | |||||||||
| Revenue per Vehicle | ||||||||||||||||||||
| New vehicles | $ | 24,963 | $ | 22,653 | $ | 2,310 | $ | 25,955 | $ | (3,302 | ) | |||||||||
| Used Vehicles | $ | 17,076 | $ | 14,545 | $ | 2,531 | $ | 13,623 | $ | 922 | ||||||||||
| Service, parts and others | $ | 7,413 | $ | 6,967 | $ | 446 | $ | 7,194 | $ | (227 | ) | |||||||||
| Finance and insurance | $ | 2,057 | $ | 1,756 | $ | 301 | $ | 1,830 | $ | (74 | ) | |||||||||
| Total revenue per vehicle | $ | 29,501 | $ | 26,726 | $ | 2,775 | $ | 28,111 | $ | (1,385 | ) | |||||||||
| Gross profit per Vehicle | ||||||||||||||||||||
| New vehicles | $ | 4,761 | $ | 3,524 | $ | 1,237 | $ | 4,964 | $ | (1,440 | ) | |||||||||
| Used Vehicles | $ | 2,511 | $ | 1,661 | $ | 850 | $ | 1,092 | $ | 569 | ||||||||||
| Service, parts and others | $ | 3,337 | $ | 3,155 | $ | 182 | $ | 3,226 | $ | (71 | ) | |||||||||
| Finance and insurance | $ | 2,086 | $ | 1,754 | $ | 332 | $ | 1,709 | $ | 45 | ||||||||||
| Total gross profit | $ | 8,777 | $ | 7,364 | $ | 1,413 | $ | 7,742 | $ | (378 | ) | |||||||||
Revenue
Year Ended December 31, 2020 Compared to December 31, 2019
Total revenue increased $162,649,679 to $898,890,399 compared to $736,240,720 in 2019. The increase was primarily due to an increase of $118,106,095 and $13,520,228 in new and used vehicle sales respectively plus an increase of $13,046,845 in sales of service, parts and other income and an increase of $17,976,511 in finance and insurance income, net. The increase was primarily attributable to an increase of 5,310 in the number of new and used vehicles that were sold to 45,527 compared to 40,217 in 2019 and an increase of $1,437 in the average total revenue per unit to $19,744 compared to $18,307 in 2019.
Total new vehicle sales increased $118,106,095 to $515,823,974 compared to $397,717,879 in 2019. $85,935,808 of this increase resulted from an increase of 5,726 in vehicles sold to 34,370 compared to 28,644 for 2019. The balance of the increase of $32,170,287 was primarily attributable to an increase in the average selling price per vehicle of $1,123 to $15,008 compared to 13,885 for 2019. Substantially all new vehicle categories were up in 2020 compared to 2019. The largest increase was driven by the Utility Vehicle Market (or side-by-side) which increased 58.8%. There was strong demand for this product, particularly the sport models in Arizona, Nevada and Florida where families can have fun socially distancing on the vast amounts of public land available.
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Total used vehicle sales increased $13,520,228 to $146,325,260 compared to $132,805,032 in 2019. The increase was entirely due to an increase in average selling price per vehicle as the total unit volume actually decreased by 416 down from 11,573 in 2019 to 11,157 in 2020. Overall used unit decrease was due to a switch to new units which The increase in price is attributable to more expensive Harley-Davidson motorcycles which increased 69 units from 4,734 to 4,804.
Total service, parts and other income increased $13,046,845 to $164,895,944 compared to $151,849,099 in 2019. This was primarily due to the increase of 5,310 vehicles sold in 2020. Service revenue increased $3,607,876 while parts accessories and apparel income increased $9,438,969. The average service, parts and other income per vehicle decreased $154 to $3,622 compared to $3,776 om 2019.
Total finance and insurance income increased $17,976,511 to $71,845,221 compared to $53,868,710 in 2019. This was primarily due to the increase of 5,310 vehicles sold in 2020. This increase resulted in an increase of sales of insurance products of $711,226, maintenance and service contracts of $9,401,447, documentation fees of $4,922,333 and finance and other income of $2,941,454.
Metric Segment (Non-Harley-Davidson) total revenue increased $156,617,949 to $672,237,556 compared to $515,619,607 in 2019. The increase was primarily attributable to the sale of 37,844 vehicles, which was 5,882 more vehicles sold than the 31,962 vehicles that were sold in 2019. In addition, the overall average revenue per vehicle sold increased $1,631 to $17,763 compared to $16,132 in 2019. This increase in revenue included $125,977,054 from the sale of new vehicles at an average sales price per vehicle of $14,098 compared to $12,656 in 2019. Revenue from used vehicle sales increased a nominal amount of $360,115 at an average sales price per vehicle of $10,120 compared to $9,350 in 2019. Sales of service, parts and other income increased $13,610,848 and sale of finance and insurance products increased $16,669,932.
Harley-Davidson total revenue increased $6,031,730 to $226,652,843 compared to $220,621,113 in 2019. The increase was primarily attributable to an increase in used vehicle sales of $13,160,113 at an average sales price per vehicle of $17,076 compared to $14,545 in 2019, offset by a decrease of $7,870,959 in new vehicle sales at an average sales price of $24,963 compared to $22,653 in 2019. Sales of service, parts and other income decreased $564,003 while sales of finance and insurance products increased $1,306,579.
Year Ended December 31, 2019 Compared to December 31, 2018
Total revenue increased $36,886,015 to $736,240,720 compared to $699,354,705 in 2018. The increase was primarily due to an increase of $8,371,119 and $19,188,777 in new and used vehicle sales respectively plus an increase of $5,637,668 in sales of service, parts and other income and an increase of $3,688,451 in finance and insurance income, net. The increase was primarily attributable to an increase of 1,339 in the number of new and used vehicles that were sold to 40,217 compared to 38,878 in 2018 and an increase of $319 in the average total revenue per unit to $18,307 compared to $17,988 in 2018.
Total new vehicle sales increased $8,371,119 to $397,717,879 compared to $389,346,760 in 2018. $2,402,105 of this increase resulted from an increase of 173 vehicles sold to 28,644 compared to 28,471 for 2018. The balance of the increase of $5,969,014 was primarily attributable to an increase in the average selling price per vehicle of $210 to $13,885 compared to 13,675 for 2018. The slight increase was attributable to the Metric segment as Harley-Davidson was flat in 2018.
Total used vehicle sales increased $19,188,777 to $132,805,032 compared to $113,616,255 in 2018. The increase was in part due to an increase of 1,166 in vehicles sold to 11,573 compared to 10,407 in 2018. In addition, the average selling price per vehicle sold increased $558 to $11,475 compared to $10,917 in 2018. The increase in price is attributable to more expensive Harley-Davidson motorcycles which increased 69 units from 2018 to 2019.
Total service, parts and other income increased $5,637,668 to $151,849,099 compared to $146,211,431 in 2018. This was primarily due to the 1,339, increase in vehicles sold in 2019. Service revenue increased $3,088,108 while parts accessories and apparel income increased $2,549,560. The average service, parts and other income per vehicle increased $15 to $3,776 compared to $3,761 in 2018.
Total finance and insurance income, net increased $3,688,451 to $53,868,710 compared to $50,180,259 in 2018. This was primarily due to the 1,339, increase in vehicles sold in 2019. This increase resulted in an increase of sales of insurance products of $501,748, maintenance and service contracts of $1,785,322, documentation fees of $1,250,534, and the $652,595 in other finance products.
10
Metric Segment (Non-Harley-Davidson) total revenue increased $39,914,636 to $515,619,607 compared to $475,704,971 in 2018. The increase was primarily attributable to the sale of 31,962 vehicles, which was 1,040 more vehicles sold than the 30,922 vehicles that were sold in 2018. In addition, the overall average revenue per vehicle sold increased $748 to $16,132 compared to $15,384 in 2018. This increase in revenue included $20,122,296 from the sale of new vehicles at an average sales price per vehicle of $12,656 compared to $11,940 in 2018. Revenue from used vehicle sales increased $7,110,697 at an average sales price per vehicle of $9,350 compared to $8,911 in 2018. Sales of service, parts and other income increased $5,356,803 and sale of finance and insurance products increased $3,755,012.
Harley-Davidson total revenue decreased $3,028,621 to $220,621,113 compared to $223,649,734 in 2018. The decrease was primarily attributable to a decrease in new vehicle sales of $11,751,177 at an average sales price of $22,653 per vehicle sold compared to $25,955 in 2018. This decrease was offset by an increase in used vehicle sales of $8,508,252 to $68,871,728 compared to $60,363,476 in 2018 at an average sales price per vehicle of $14,545 compared to $13,623 in 2018. Sales of service, parts and other income increased $280,865 while sales of finance and insurance products decreased $66,561.
Gross Profit
Year Ended December 31, 2020 Compared to December 31, 2019
Total gross profit increased $74,671,328 to $256,220,772 compared to $181,549,444 in 2019. The increase was primarily due to an increase in gross profit of $43,974,782 and $7,318,301 from new and used vehicle sales, respectively, plus an increase of $5,401,734 in sales of service, parts and other income and an increase of $17,976,511 in finance and insurance income, net. The increase was primarily attributable to an increase of 5,310 in the number of new and used vehicles that were sold to 45,527 compared to 40,217 in 2019 and an increase in the gross margin to 28.5% compared to 24.7% in 2019.
The gross profit on new vehicle sales increased $43,974,782 to $86,478,020 compared to $42,503,238 in 2019. $14,406,616 of this increase resulted from an increase of 5,726 in vehicles sold to 34,370 compared to 28,644 for 2019. The balance of the increase of $29,568,166 was primarily attributable to the increase in the gross margin to 16.8% compared to 10.7% in 2019. This increase resulted from an increase in the average selling price per vehicle of $1,123 to $15,008 compared to 13,885 in 2019 and the change mix of vehicles sold. Off-road vehicle sales accounted for 64.2% of new vehicle sales in 2020 compared to 54.6% in 2019 and the gross margin on these sales were 16.1% in 2020 compared to 10.7% in 2019.
The gross profit on used vehicle sales increased $7,318,301 to $24,019,116 compared to $16,700,815 in 2019. $8,213,949 of this increase was attributable to an increase in the gross margin on vehicles sold to 16.4% compared to 12.6% for 2019 offset by a decrease of $895,648 due to a reduction in the number of used vehicles sold of 416 to 11,157 compared to 11,573 in 2019. The increase in the gross margin was due to an increase in the average selling price per vehicle of $1,640 to $13,115 compared to $11,475 in 2019 and the change in mix of vehicles sold. Off-road vehicle sales accounted for 20.2% of used vehicle sales in 2020 compared to 12.9% in 2019 and the gross margin on these sales were 19.9% in 2020 compared to 18.1% in 2019.
Total gross profit on service, parts and other income increased $5,401,734 to $73,878,415 compared to $68,476,681 in 2019. This was primarily due to the 5,310, increase in vehicles sold in 2020 offset by a reduction of $80 in the average gross profit per vehicle sold to $1,623 compared to $1,703 in 2019. The average gross margin on service income was 77.0% compared to 75.7% in 2019 and the average gross margin on parts and other income was 31.5% compared to 31.9% in 2019.
Total gross profit on finance and insurance income increased $17,976,511 to $71,845,221 compared to $53,868,710 in 2019. This was primarily due to the 5,310, increase in vehicles sold in 2020. This increase resulted in an increase of sales of insurance products of $711,226, maintenance and service contracts of $9,401,447, documentation fees of $4,922,333 and finance and other income of $2,941,454.
Metric Segment (Non-Harley-Davidson) total gross profit increased $68,027,537 to $188,788,119 compared to $120,760,582 in 2019. $14,714,137 of this increase was attributable to the increase of 5,882 in vehicles sold to 37,844 compared to 31,962 in 2019. The remaining $27,955,354 increase in gross profit on sales of vehicles was due to the increase in the gross profit margin to 28.1% compared to 23.4% in 2019. The increase of $5,807,140 for sales of service, parts and other income of $5,807,140 and $16,432,833 for sales of finance and insurance products was due to the increase in sales of 2020 compared to 2019.
11
Harley-Davidson Segment total gross profit increased $6,643,791 to $67,432,653 compared to $60,788,862 in 2019. The increase was primarily attributable to an increase in the gross profit on vehicle sales of $5,505,519 plus an increase in finance and insurance offset by a reduction in the margin on service, parts and other income of $405,406. The overall gross margin increased to 29.8% compared to 27.5% in 2019.
Year Ended December 31, 2019 Compared to December 31, 2018
Total gross profit increased $8,975,584 to $181,549,444 compared to $172,573,860 in 2019. The increase was primarily due to an increase in gross profit of $3,648,331 for service, parts and other income and $3,688,451 from sales of finance and insurance products. The gross profit on sales of new vehicles declined $2,308,949 due primarily to the decrease in the gross margin to 10.7% compared to 11.5% in 2018. The gross profit on sales of used vehicles increased $3,947,751 due in part to the increase in the gross margin to 12.6% compared to 11.2% in 2019, and in part due to the increase of 1,339 in the number of vehicles sold to 40,217 compared to 38,878 in 2018.
The gross profit on new vehicle sales decreased $2,308,949 to $42,503,238 compared to $44,812,187 in 2018. $2,565,681 of this decrease was due to a decrease in the gross margin to 10.7% compared to 11.5% in 2019, which was offset by a slight increase in gross profit due to an increase of 173 of vehicles sold in 2019 and an increase of $210 in the average sales price per vehicle sold. Off-road vehicle sales accounted for 54.6% of new vehicle sales in 2019 compared to 54.0% in 2018 and the gross margin on these sales were 10.7% in 2019 compared to 10.3% in 2018.
The gross profit on used vehicle sales increased $3,947,751 to $16,700,815 compared to $12,753,064 in 2019. $2,265,213 of this increase was attributable to an increase in the gross margin on vehicles sold to 12.6% compared to 11.2% for 2019. In addition, the gross profit on used vehicle sales increased $1,682,538 due to the increase of 1,166 in used vehicles sales to 11,573 compared to 10,407 in 2018. Off-road vehicle sales accounted for 12.9% of used vehicle sales in 2019 compared to 11.2% in 2018 and the gross margin on these sales were 18.1% in 2019 compared to 21.7% in 2018.
Total gross profit on service, parts and other income increased $3,688,451 to $53,868,710 compared to $50,180,259 in 2018. This was primarily due to the 1,339, increase in vehicles sold in 2019 plus an increase of $36 in the average gross profit per vehicle sold to $1,703 compared to $1,667 in 2018. The average gross margin on service income was 75.7% compared to 76.6% in 2018 and the average gross margin on parts and other income was 31.9% compared to 31.2% in 2018.
Total gross profit on finance and insurance income increased $3,688,451 to $53,868,710 compared to $50,180,259 in 2018. This was primarily due to the 1,339, increase in vehicles sold in 2019. This increase resulted in an increase of sales of insurance products of $501,748, maintenance and service contracts of $1,785,322, documentation fees of $1,250,534, and the $652,595 in other finance products.
Metric Segment (Non-Harley-Davidson) total gross profit increased $9.782.248 to $120,760.582 compared to $110,978.334 in 2018. $2,571,453 of this increase was attributable to the increase in the gross margin to 23.4% compared to 23.3% in 2018, The remaining $213,244 increase in gross profit from sales of vehicles was due to the increase of 1,040 in vehicles sold to 31,962 compared to 30,922 in 2018. The increase of $3,273,558 for sales of service, parts and other income and $2,801,098 for sales of finance and insurance products was due to the increase in sales of 2020 compared to 2019.
Harley-Davidson Segment total gross profit decreased $806,664 to $60,788,862 compared to $61,595,526 in 2018. The decrease was primarily attributable to a decrease in the gross profit on new vehicle sales of $5,093,646 offset by an increase in gross profit on used vehicle sales of $3,024,856. The gross margin on new vehicle sales decreased to 15.6% compared to 19.1% in 2018, while the gross margin on used vehicle sales increased to 11.4% compared to 8.0% in 2018.
Selling, General and Administrative Expenses
| 12/31/2020 | 12/31/2019 | Change | 12/31/2018 | Change | ||||||||||||||||
| Compensation and related costs | $ | 104,155,686 | 89,208,574 | 14,947,112 | 83,050,940 | 6,157,634 | ||||||||||||||
| Advertising and marketing | 6,235,122 | 6,614,120 | (378,998 | ) | 4,814,451 | 1,799,669 | ||||||||||||||
| Other selling expenses | 6,295,203 | 4,018,394 | 2,276,809 | 3,412,819 | 605,575 | |||||||||||||||
| Professional fees | 1,950,638 | 951,367 | 999,271 | 1,466,475 | (515,108 | ) | ||||||||||||||
| Facility expenses | 25,330,533 | 25,067,345 | 263,188 | 23,910,624 | 1,156,721 | |||||||||||||||
| General and administrative expenses | 10,552,861 | 11,342,105 | (789,244 | ) | 12,274,207 | (932,102 | ) | |||||||||||||
| $ | 154,520,043 | $ | 137,201,905 | $ | 17,318,138 | $ | 128,929,516 | $ | 8,272,389 | |||||||||||
12
Year Ended December 31, 2020 Compared to December 31, 2019
Selling, general and administrative expenses increased by $17,318,138 to $154,520,043 (17.2% of total revenue) compared to $137,201,905 (18.5% of total revenue) in 2019. Compensation and related costs expense increased $14,947,112 to $104,155,686 compared to $89,208,574 in 2019. This large increase in compensation was due to selling commissions which are variable pay plans that increase or decrease as sales go up and down. Overall advertising, marketing and other selling expenses for 2020 were comparable to 2019. However, the Company committed less funds to direct advertising expenditure due to COVID-19. The increase in facilities expense was primarily due to annual CPI increases built into the leases and additional warehouse rent due to the increase in UTV (side by side) vehicles which are the size of an automobile. The overall reduction in general and administrative expenses were due curtailment of costs due primarily to the COVID-19 pandemic.
Year Ended December 31, 2019 Compared to December 31, 2018
Selling, general and administrative expenses increased by $8,272,389 to $137,201,905 (18.5% of total revenue) compared to $128,929,516 (18.5% of total revenue) in 2018. Compensation and related costs expense increased $6,157,634 to $89,208,574 compared to $83,050,940 in 2018. This large increase in compensation was due to selling commissions which are variable pay plans that increase or decrease as sales go up and down. Overall advertising, marketing and other selling expenses for 2019 increased $1,799,669 and $605,575, respectively. These increases are in line with the 2019 at 0.7% of revenue. The company ramped up its digital marketing spend and moved away from the more traditional forms of advertising which seems to be working. The increase in facilities expense was primarily due to additional new locations from acquisitions in Florida, Texas and Arizona as well as general CPI annual rent increases. The overall reduction in general and administrative expenses were due in 2019 were related to shop supply credits which reduced our supplies and tools expense account. We did a better job of charging shop supply fees to our customers on repair orders in 2019 versus 2018 which led to a large reduction in general and administrative expenses.
Depreciation and Amortization
Year Ended December 31, 2020 Compared to December 31, 2019
Depreciation and Amortization increased by $334,992 to $4,087,914 (0.5% of total revenue) compared to $3,752,922 (0.5% of total revenue) in 2019.
Year Ended December 31, 2019 Compared to December 31, 2018
Depreciation and Amortization decreased by $115,591 to $3,752,922 (0.5% of total revenue) compared to $3,868,513 (0.6% of total revenue) in 2018.
Interest Expense
Year Ended December 31, 2020 Compared to December 31, 2019
Floor plan interest expense decreased $2,476,486 to $3,051,930 in 2020 compared to $5,528,416 in 2019. The large decrease is attributable to significantly lower new inventory due to increased demand and supply shortage from the OEM’s. As of December 31, 2020, the outstanding balances on our floor plan notes payable was $68,533,679 compared to $162,975,930 as of December 31, 2019. Other interest expense decreased $646,808 to $3,904,879 compared to $4,551,687 in 2019. The decrease was due to lowering principal balances on long-term notes payable.
Year Ended December 31, 2019 Compared to December 31, 2018
Floor plan interest expense increased $1,381,282 to $5,528,416 in 2019 compared to $4,147,134 in 2018. As of December 31, 2019, the outstanding balances on our floor plan notes payable was $162,975,930 compared to $149,859,103 as of December 31, 2018. Other interest expense increased $134,887 to $4,551,687 compared to $4,416,800 in 2018.
Other Income (Expense), Net
Year Ended December 31, 2020 Compared to December 31, 2019
Other income (expense) includes miscellaneous income for interest earned, cash discounts earned, vending income, cash-back incentives, cash over and short, gains and losses on capital asset disposals and other non-operating additions and deductions from income. Other income (expense) declined by $89,012 to $1,126,614 compared to $1,215,627 for 2019.
Year Ended December 31, 2019 Compared to December 31, 2018
Other income (expense) increased by $774,940 to $1,215,627 compared to $440,687 for 2018.
13
Liquidity and Capital Resources
We had the following sources of liquidity available for the years ended December 31, 2020, 2019 and 2018:
| 12/31/2020 | 12/31/2019 | 12/31/2018 | ||||||||||
| Cash and Cash Equivalents | $ | 3,905,686 | $ | 4,980,718 | $ | 6,706,049 | ||||||
| Cash sweep account balance (1) | 56,521,530 | 14,468,120 | 2,569,630 | |||||||||
| Availability under short-term revolving line of credit | 19,000,000 | 0 | 19,000,000 | |||||||||
| Availability under floor plan notes | 186,325,321 | 74,906,198 | 88,023,025 | |||||||||
| $ | 265,752,537 | $ | 94,355,036 | $ | 116,298,704 | |||||||
| (1) | RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the years ended December 31, 2020,2019 and 2018, the Cash Sweep Account was earning interest at 1.10%,3.11% and 2.89%, respectively, and for overdraft balances, the interest charged was 3.25%,3.50% and 3.75%, respectively. |
Our capital allocation strategy focuses on growing long-term value for our owners and shareholders. We invest capital in our business to maintain and upgrade existing facilities as well as other strategic and technology initiatives. We also deploy capital opportunistically to complete acquisitions and improve facilities of newly acquired dealerships. For the years ended December 31, 2020, 2019 and 2018 the following table summarizes our capital expenditures:
| 12/31/2020 | 12/31/2019 | 12/31/2018 | ||||||||||
| Purchases of property and equipment | $ | 2,101,473 | $ | 2,774,476 | $ | 1,972,391 | ||||||
| Purchases of net assts through business combinations | 1,748,842 | 4,638,218 | 5,366,161 | |||||||||
| Proceeds from sale of property and equipment | (106,289 | ) | (239,189 | ) | (72.175 | ) | ||||||
| $ | 3,744,026 | $ | 7,173,505 | $ | 7,266,377 | |||||||
As of December 31, 2020, 2019 and 2018, excluding lease liabilities, the outstanding principal amount of indebtedness was $101,947,256, $204,397,360 and $179,392,480, respectively, summarized in the table below. See Notes to our audited Combined Financial Statements for the years ended December 31, 2020, 2029 and 2018, which were included in RumbleOn’s Form 8_K that was filed on April 8, 2021.
| 12/31/2020 | 12/31/2019 | 12/31/2018 | ||||||||||
| Asset-Based Financing: | ||||||||||||
| Floor plan notes payable | $ | 68,533,679 | $ | 162,975,930 | $ | 149,859,103 | ||||||
| Revolving line of credit | - | 18,000,000 | - | |||||||||
| Total asset-based lending | 68,533,679 | 180,975,930 | 149,859,103 | |||||||||
| Notes payable-related parties | 7,411,322 | 14,069,533 | 17,744,476 | |||||||||
| Notes payable-PPP loans | 19,039,229 | - | - | |||||||||
| Notes payable-other | 6,963,026 | 9,351,897 | 11,788,901 | |||||||||
| $ | 101,947,256 | $ | 204,397,360 | $ | 179,392,480 | |||||||
The following table sets forth a summary of our cash flows for the years ending December 31, 2020, 2019 and 2018:
| 12/31/2020 | 12/31/2019 | 12/31/2018 | ||||||||||
| Net cash provided by operating activities | $ | 69,739,318 | $ | 1,697,260 | $ | (20,171,041 | ) | |||||
| Net cash used in investing activities | (3,744,026 | ) | (7,173,505 | ) | (7,266,377 | ) | ||||||
| Net cash provided by (used in) financing activities | (67,070,324 | ) | 3,750,914 | 26,761,533 | ||||||||
| Net increase (decrease) in cash | $ | (1,075,032 | ) | $ | (1,725,331 | ) | $ | (675,885 | ) | |||
14
Operating Activities
Our primary sources of operating cash flows result from the sales of new and used vehicles and ancillary products and services and our floor plans. Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, selling expenses, facility costs and other administrative expenses. For the year ended December 31, 2020 and 2019, the net cash provided by operating activities was $69,739,318, and $1,697,260, respectively. In 2020 the principal reasons for the increase in cash from operating activities was due to the large increase in profitability of the business which contributed $92,623,076 in net income.
Investing Activities
Net cash used in investing activities consists primarily of cash used in capital additions and activity from business acquisitions. For the years ended December 31, 2020, 2019 and 2018 cash used in investing activities was $3,744,026, $7,173,505, and $7,266,377, respectively.
Financing Activities
Cash flows from financing activities primarily relate to our short and long-term borrowing activity and contributions/distributions to or from the owners. For the years ended December 31, 2020, 2019 and 2018 cash (used in) provided by financing activities was ($67,070,324), $3,750,914, and $26,761,533, respectively.
15
Exhibit 99.6
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On March 12, 2021, the RumbleOn, Inc. (the “Company) entered into a Plan of Merger and Equity Purchase Agreement, as amended on June 17, 2021 (the “RideNow Agreement”) to acquire RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group”). RideNow is a collection of franchised dealerships operating in the powersports industry. Collectively, the Group is referred to as the Acquired Companies in the Agreement. The Group is engaged in the sale of new and used motorcycles, all- terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of March 31, 2021, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
The RideNow Agreement provides that the Company will acquire the Acquired Companies in exchange for (i) $400,400,000 in cash plus or minus any adjustments for net working capital and closing indebtedness, and (ii) shares of the Company's Class B Common Stock having a value of $175,000,000 (the “Closing Payment Shares”), valued equally, on a per share basis, based upon the lowest value of (A) $30.00; (B) the VWAP of the Company's Class B Common Stock for the twenty (20) trading days immediately preceding the Closing, and (C) the value on a per share basis paid for the Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock by any person which purchases Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock from the Company from the date of the RideNow Agreement until the Closing not including purchases of Class B Common Stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities. Ten percent (10%) of the Closing Payment Shares will be escrowed at Closing and will be released pursuant to the terms of the RideNow Agreement. The Company will finance the cash consideration through a combination of approximately $280,000,000 of debt provided by the Initial Lender (as defined below) and through the issuance of new equity for the remainder thereof.
The following unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and RideNow’s historical combined financial statements as adjusted to give effect to the Company’s acquisition of RideNow and the related financing transactions. The unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2021, gives effect to these transactions as if they occurred on March 31, 2021. The unaudited Pro Forma Condensed Combined Statements of Operations for the three months ended March 31, 2021, and the twelve months ended December 31, 2020, give effect to these transactions as if they occurred on January 1, 2020.
The unaudited pro forma condensed combined financial statements should be read together with the Company’s audited historical financial statements, which are included in the Company’s most recent Annual Report on Form 10-K, and quarterly report on Form 10-Q, and RideNow’s audited historical financial statements, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2012 and its quarterly financial statements, both of which are included in this report.
The unaudited pro forma combined financial information is provided for informational purpose only and is not intended to represent or be indicative of the consolidated results of operations or financial position that the Company would have reported had the RideNow transaction closed on the dates indicated and should not be taken as representative of our future consolidated results of operations or financial position.
The pro forma adjustments related to the RideNow Agreement are described in the notes to the unaudited pro forma combined financial information and principally include the following:
| ● | Pro forma adjustment to eliminate the RideNow assets, liabilities and owners’ equity not acquired. |
| ● | Pro forma adjustment to record the equity and debt financing obtained in connection with the RideNow merger. |
| ● | Proforma adjustment to record the merger of the Company and RideNow. |
| ● | Proforma adjustments to record the estimated interest expense and other expenses resulting from the merger. |
| ● | Proforma adjustment to record the estimated tax provision on the consolidated income before tax, as adjusted for the above pro forma adjustments. |
The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed consolidated financial statements may be materially different from those reflected in the combined company’s consolidated financial statements subsequent to the merger. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or results of operations of the combined companies. Reclassifications and adjustments may be required if changes to RideNow’s financial presentation are needed to conform RideNow’s accounting policies to the accounting policies of RumbleOn.
These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the RideNow Agreement. These financial statements also do not include any integration costs the companies may incur related to the Transactions as part of combining the operations of the companies.
1
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Balance Sheet
as of March 31, 2021
(Unaudited)
| RumbleOn | RideNow | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 80,049 | $ | 4,337,169 | $ | 66,786,382 | A,G | $ | 71,203,600 | |||||||||||
| Restricted cash | 2,049,056 | - | - | 2,049,056 | ||||||||||||||||
| Accounts receivable, net | 21,342,681 | 125,967,969 | (93,202,687 | ) | B | 54,107,963 | ||||||||||||||
| Inventory | 24,034,754 | 104,079,912 | - | 128,114,666 | ||||||||||||||||
| Other current assets | 4,050,991 | 1,847,740 | - | 5,898,731 | ||||||||||||||||
| Total current assets | 51,557,531 | 236,232,790 | (26,416,305 | ) | 261,374,016 | |||||||||||||||
| Property and equipment - net | 6,317,167 | 23,249,651 | - | 29,566,818 | ||||||||||||||||
| Right of use assets | 5,418,220 | 77,016,962 | - | 82,435,182 | ||||||||||||||||
| Other indefinite lived intangible assets | - | - | 194,483,527 | C | 194,483,527 | |||||||||||||||
| Goodwill | 26,886,563 | 55,294,222 | 305,235,769 | C | 387,416,554 | |||||||||||||||
| Deferred finance charge | 10,950,000 | - | (10,950,000 | ) | G | - | ||||||||||||||
| Other assets | 159,409 | 1,288,488 | (1,018,863 | ) | D | 429,034 | ||||||||||||||
| Total assets | $ | 101,288,890 | $ | 393,082,113 | $ | 461,334,128 | $ | 955,705,131 | ||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 16,655,724 | $ | 37,060,586 | $ | (13,470,691 | ) | E | $ | 40,245,619 | ||||||||||
| Lease liabilities-current portion | 1,696,078 | 21,929,015 | - | 23,625,093 | ||||||||||||||||
| Notes payable-floor plan | 27,043,101 | 62,514,325 | - | 89,557,426 | ||||||||||||||||
| Current portion of long-term debt | 6,305,466 | 38,098,251 | (2,115,470 | ) | F | 42,288,247 | ||||||||||||||
| Total current liabilities | 51,700,369 | 159,602,177 | (15,586,161 | ) | 195,716,385 | |||||||||||||||
| Long term liabilities: | ||||||||||||||||||||
| Long-term debt | 4,691,181 | 24,649,544 | 234,319,143 | F | 263,659,868 | |||||||||||||||
| Warrant liability | 10,950,000 | - | (10,950,000 | ) | G | - | ||||||||||||||
| Convertible debt, net | 27,572,970 | - | - | 27,572,970 | ||||||||||||||||
| Derivative liabilities | 37,346 | - | - | 37,346 | ||||||||||||||||
| Lease liabilities- long-term portion | 3,978,158 | 75,430,854 | - | 79,409,012 | ||||||||||||||||
| Other long-term liabilities | 505,771 | 6,857,364 | - | 7,363,135 | ||||||||||||||||
| Total long-term liabilities | 47,735,426 | 106,937,762 | 223,369,143 | 378,042,331 | ||||||||||||||||
| Total liabilities | 99,435,795 | 266,539,939 | 207,782,982 | 573,758,716 | ||||||||||||||||
| Stockholders' equity: | ||||||||||||||||||||
| Class B Preferred stock | - | - | - | - | ||||||||||||||||
| Class A stock | 50 | - | - | 50 | ||||||||||||||||
| Class B Stock | 2,286 | - | 11,509 | G | 13,795 | |||||||||||||||
| Owners’ equity | - | 126,542,174 | (126,542,174 | ) | H | - | ||||||||||||||
| Additional paid in capital | 110,683,126 | - | 402,338,984 | G | 513,022,110 | |||||||||||||||
| Accumulated deficit | (108,832,367 | ) | - | (22,257,173 | ) | G | (131,089,540 | ) | ||||||||||||
| Total stockholders' equity | 1,853,095 | 126,542,174 | 253,551,146 | 381,946,415 | ||||||||||||||||
| Total liabilities and stockholders' equity | $ | 101,288,890 | $ | 393,082,113 | $ | 461,334,128 | $ | 955,705,131 | ||||||||||||
See Accompanying Notes to Pro Forma Financial Statements.
2
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Three Month Ended March 31, 2021
(Unaudited)
| RumbleOn | RideNow | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Vehicle sales | ||||||||||||||||||||
| Powersports | $ | 10,854,884 | $ | 182,245,296 | - | $ | 193,100,180 | |||||||||||||
| Automotive | 84,070,855 | - | - | 84,070,855 | ||||||||||||||||
| Transportation and vehicle logistics | 9,338,272 | - | - | 9,338,272 | ||||||||||||||||
| Parts and other revenue | - | 62,936,755 | - | 62,936,755 | ||||||||||||||||
| Total Revenue | 104,264,011 | 245,182,051 | - | 349,446,062 | ||||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Powersports | 7,876,391 | 147,125,076 | - | 155,001,467 | ||||||||||||||||
| Automotive | 77,859,808 | - | - | 77,859,808 | ||||||||||||||||
| Transportation and vehicle logistics | 7,349,342 | - | - | 7,349,342 | ||||||||||||||||
| Other cost of sales and revenue | - | 23,476,601 | - | 23,476,601 | ||||||||||||||||
| Total cost of revenue | 93,085,541 | 170,601,677 | - | 263,687,218 | ||||||||||||||||
| Gross profit | 11,178,470 | 74,580,374 | - | 85,758,844 | ||||||||||||||||
| Selling, general and administrative | 13,401,344 | 43,111,337 | 772,377 | I | 57,285,058 | |||||||||||||||
| Depreciation and amortization | 599,240 | 813,507 | - | 1,412,747 | ||||||||||||||||
| Operating income (loss) | (2,822,114 | ) | 30,655,530 | (772,377 | ) | 27,061,039 | ||||||||||||||
| Interest expense | (1,608,820 | ) | (707,613 | ) | (7,477,334 | ) | J | (9,793,767 | ) | |||||||||||
| Increase in derivative liability | (20,652 | ) | - | - | (20,652 | ) | ||||||||||||||
| Other income | - | 732,677 | - | 732,677 | ||||||||||||||||
| Net income (loss) before provision for income taxes | (4,451,586 | ) | 30,680,594 | (8,249,711 | ) | 17,979,297 | ||||||||||||||
| Income tax expense | - | - | (4,494,824 | ) | K | (4,494,824 | ) | |||||||||||||
| Net income (loss) | $ | (4,451,586 | ) | $ | 30,680,594 | $ | (12,744,535 | ) | $ | 13,484,473 | ||||||||||
| Weighted average number of common shares outstanding – basic | 2,303,525 | 11,570,113 | ||||||||||||||||||
| Net income (loss) per share – basic | $ | (1.93 | ) | $ | 1.17 | |||||||||||||||
| Weighted average number of common shares outstanding – basic and fully diluted | 2,303,525 | 12,020,664 | ||||||||||||||||||
| Net income (loss) per share – fully diluted | $ | (1.93 | ) | $ | 1.12 | |||||||||||||||
See Accompanying Notes to Pro Forma Financial Statements.
3
RumbleOn Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
(Unaudited)
| RumbleOn | RideNow | Pro Forma Adjustments | Notes | Pro Forma Combined | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Vehicle sales | ||||||||||||||||||||
| Powersports | $ | 46,653,668 | $ | 662,149,234 | - | $ | 708,802,902 | |||||||||||||
| Automotive | 337,084,959 | - | - | 337,084,959 | ||||||||||||||||
| Transportation and vehicle logistics | 31,816,157 | - | - | 31,816,157 | ||||||||||||||||
| Parts and other revenue | 872,459 | 236,741,164 | - | 237,613,623 | ||||||||||||||||
| Total Revenue | 416,427,243 | 898,890,398 | - | 1,315,317,641 | ||||||||||||||||
| Cost of revenue | ||||||||||||||||||||
| Powersports | 40,060,571 | 551,652,098 | - | 591,712,669 | ||||||||||||||||
| Automotive | 308,800,631 | - | - | 308,800,631 | ||||||||||||||||
| Transportation and vehicle logistics | 24,200,229 | - | - | 24,200,229 | ||||||||||||||||
| Other cost of sales and revenue | - | 91,017,529 | - | 91,017,529 | ||||||||||||||||
| Cost of revenue before impairment loss | 373,061,431 | 642,669,627 | - | 1,015,731,058 | ||||||||||||||||
| Impairment loss on automotive inventory | 11,738,413 | - | - | 11,738,413 | ||||||||||||||||
| Total cost of revenue | 384,799,844 | 642,669,627 | - | 1,027,469,471 | ||||||||||||||||
| Gross profit | 31,627,399 | 256,220,771 | - | 287,848,170 | ||||||||||||||||
| Selling, general and administrative | 53,659,348 | 154,520,040 | $ | 2,059,672 | I | 210,239,060 | ||||||||||||||
| Insurance recovery proceeds | (5,615,268 | ) | - | - | (5,615,268 | ) | ||||||||||||||
| Depreciation and amortization | 2,142,939 | 4,087,914 | - | 6,230,853 | ||||||||||||||||
| Operating income (loss) | (18,559,620 | ) | 97,612,817 | $ | (2,059,672 | ) | 76,993,525 | |||||||||||||
| Interest expense | (6,638,325 | ) | (6,956,809 | ) | (30,530,589 | ) | J | (44,125,723 | ) | |||||||||||
| Other income | 198,970 | 1,967,068 | - | 2,166,038 | ||||||||||||||||
| Net income (loss) before provision for income taxes | $ | (24,998,975 | ) | $ | 92,623,076 | (32,590,261 | ) | 35,033,840 | ||||||||||||
| Income tax expense | - | - | (8,758,460 | ) | K | (8,758,460 | ) | |||||||||||||
| Net income (loss) | $ | (24,998,975 | ) | $ | 92,623,076 | $ | (41,348,721 | ) | $ | 26,275,380 | ||||||||||
| Weighted average number of common shares outstanding – basic | 2,184,441 | 11,492,677 | ||||||||||||||||||
| Net income (loss) per share – basic | $ | (11.44 | ) | $ | 2.29 | |||||||||||||||
| Weighted average number of common shares outstanding – basic and fully diluted | 2,184,441 | 11,632,671 | ||||||||||||||||||
| Net income (loss) per share – fully diluted | $ | (11.44 | ) | $ | 2.26 | |||||||||||||||
See Accompanying Notes to Pro Forma Financial Statements.
4
RumbleOn Inc. and Subsidiaries
Notes to Unaudited Pro Forma
Condensed Combined Financial Statements
Note 1 – Basis of Presentation
The audited historical consolidated financial statements have been adjusted in the pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of RideNow’s assets acquired and liabilities assumed and conformed the accounting policies of RideNow to its own accounting policies.
The unaudited pro forma condensed combined financial statements are based on our audited historical consolidated financial statements and RideNow’s audited historical combined financial statements as adjusted to give effect to the Company’s acquisition of RideNow and the related financing transactions. The Unaudited Pro Forma Condensed Combined Balance Sheet as of March 31, 2021, gives effect to these transactions as if they occurred on March 31, 2021. The Unaudited Pro Forma Condensed Combined Statements of Operations for the Year Ended December 31, 2020 and the Three Months Ended March 31, 2021, give effect to these transactions as if they occurred on January 1, 2020.
The allocation of the purchase price used in the unaudited pro forma financial statements is based upon a preliminary valuation by management. The final estimate of the fair values of the assets and liabilities will be determined with the assistance of a third-party valuation firm. The Company’s preliminary estimates and assumptions are subject to materially change upon the finalization of internal studies and third-party valuations of assets, including investments, property and equipment, intangible assets including goodwill, and certain liabilities.
The Unaudited Pro Forma Condensed Combined Financial Statements are provided for informational purpose only and are not necessarily indicative of what the combined company’s financial position and results of operations would have actually been had the Transactions been completed on the dates used to prepare these pro forma financial statements. The adjustments to fair value and the other estimates reflected in the accompanying unaudited pro forma condensed combined financial statements may be materially different from those reflected in the combined company’s consolidated financial statements subsequent to the Transactions. In addition, the unaudited pro forma condensed combined financial statements do not purport to project the future financial position or results of operations of the combined companies. Reclassifications and adjustments may be required if changes to RumbleOn’s financial presentation are needed to conform RumbleOn’s accounting policies to the accounting policies of the RideNow.
These unaudited pro forma condensed combined financial statements do not give effect to any anticipated synergies, operating efficiencies or cost savings that may be associated with the Transactions. These financial statements also do not include any integration costs the companies may incur related to the Transactions as part of combining the operations of the companies.
Note 2 – Summary of Significant Accounting Policies
The unaudited pro forma condensed combined financial statements have been prepared in a manner consistent with the accounting policies adopted by the Company. The accounting policies followed for financial reporting on a pro forma basis are the same as those disclosed in the 2020 Annual Report on Form 10-K and for RideNow, the accounting policies followed for financial reporting on a pro forma basis are the same as those disclosed in the audited financial statements included in RumbleOn’s Form 8-K filed on April 8, 2021. The unaudited pro forma condensed combined financial statements do not assume any differences in accounting policies among the Company and RideNow. The Company is reviewing the accounting policies of RideNow to ensure conformity of such accounting policies to those of the Company and, as a result of that review, the Company may identify differences among the accounting policies of the two companies, that when confirmed, could have a material impact on the consolidated financial statements. However, at this time, the Company is not aware of any difference that would have a material impact on the unaudited pro forma condensed combined financial statements.
5
RumbleOn and RideNow have recorded leases in accordance with ASC 842. In the pro forma combined balance sheet theses leases are reported as a single amount for short-term and long-term lease liabilities. The following table provides the segregation of these leases between operating leases and financing leases for the historical financial statements for RumbleOn and RideNow.
As March 31, 2021 | ||||||||
RumbleOn | RideNow | |||||||
| Lease liabilities – current portion | ||||||||
| Operating leases | $ | 1,696,078 | $ | 17,952,416 | ||||
| Financing leases | - | 3,976,599 | ||||||
| Total lease liabilities – current portion | $ | 1,696,078 | $ | 21,929,015 | ||||
| Lease liabilities – long-term portion | ||||||||
| Operating leases | $ | 3,978,158 | $ | 61,003,179 | ||||
| Financing leases | - | 14,427,675 | ||||||
| Total lease liabilities – long-term portion | $ | 3,978,158 | $ | 75,430,854 | ||||
RideNow has notes receivable due from a related party, which is included in other assets in the pro forma combined balance sheet. In addition, RideNow has certain payables due from related parties and are included in the current and long-term portions of long-term debt in the pro forma combined balance sheet. The following table is provided to segregate of these amounts: before being combined in the accompanying Pro Forma Condensed Combined Balance Sheet as of March 31, 2021.
| As March 31, 2021 | ||||||||
| RumbleOn | RideNow | |||||||
| Other assets | ||||||||
| Notes receivable – related party | $ | - | $ | 1,018,863 | ||||
| Other non-current assets | 159,409 | 279,696 | ||||||
| Total other assets | $ | 159,409 | $ | 1,298,559 | ||||
| Current portion of long-term debt | ||||||||
| Payables to related parties | $ | - | $ | 30,126,468 | ||||
| Notes payable-related parties | - | 504,000 | ||||||
| Notes payable – other | 6,305,466 | 7,467,783 | ||||||
| Total current portion of long-term debt | $ | 6,305,466 | $ | 38,098,251 | ||||
| Long-term debt | ||||||||
| Notes payable – related parties | $ | - | $ | 6,781,322 | ||||
| Notes payable – PPP Loans | - | 16,923,759 | ||||||
| Notes payable – other | 4,691,181 | 944,463 | ||||||
| 4,691,181 | $ | 24,649,544 | ||||||
6
RideNow Sweep Account
RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the year ended December 31, 2020 and the three months ended March 31, 2021, the Cash Sweep Account was earning interest at 1.10% and 3.11%, respectively, and for overdraft balances, the interest charged was 3.25% and 3.50%, respectively. In the audited financial statements as of March 31, 2021, members of the Group with positive sweep balances reported those balances as related party receivables, whereas members of the Group with negative sweep balances reported those balances as related party payables. The following table provides a summary of these balances as of March 31, 2021:
| Cash Sweep Accounts: | 2021 | |||
| Related party receivable | $ | 93,202,687 | ||
| Related party payable | (26,785,998 | ) | ||
| Net Cash Sweep Account Balance | $ | 66,416,689 | ||
For purposes of the Unaudited Condensed Combined Balance Sheet as of March 31,2021, the proforma adjustment below to record the preliminary allocation of the purchase price includes a reclassification of these related party balances to cash as a management contemplates those balances in the sweep account on the date of closing will be transferred to a Company account.
Note 3 – Financing Transactions
Senior Secured Term Loan
The Company is financing $280,000,000 of the cash consideration pursuant to the RideNow Agreement by the issuance of a new Senior Secured Term Loan. At the option of the Company, the interest rate on the new loan will be (a) Adjusted LIBOR (as defined in the Commitment Letter) plus 8.25%, of which (i) Adjusted LIBOR plus 7.25% shall be paid in cash and (ii) 1.00% shall be payable in kind or (b) ABR (as defined in the Commitment Letter) plus 7.25%, of which (i) ABR plus 6.25% shall be paid in cash and (ii) 1.00% shall be payable in kind. The Credit Facility shall mature on the fifth anniversary of the Closing date of the RideNow Transaction (subject to extension with the consent of only the extending lender). For purposes of these pro forma condensed combined financial statements, we have used an interest rate of 8.45%.
RMBL Equity Raise
To finance the balance of the cash consideration, the Company intends to raise $170,000,000 in new equity, not inclusive of any overallotment option that may be granted. To estimate the fair value of this equity, a per share price of $37.00 was used which results in the issuance of 4,594,595 shares. This price represents the per has price of the Company’s stock as of the close of business on June 14, 2021.
Transaction Costs
For purposes of these pro forma financial statements, the Company has estimated that the total transaction costs for these financing transactions will be $19,225,000 for the debt financing and $11,900,000 for the equity raise. In addition, as discussed below, the Company has issued a warrant to Oaktree for which we have estimated a preliminary value of $28,417,172. Legal and other professional fees and expenses are estimated to be approximately $4,790,000, are non-recurring, and have not been recorded as a pro forma adjustment to the Pro Forma Condensed Combined Statement of Operations.
7
Warrant
In connection with the Commitment Letter, in lieu of a commitment fee, the Company has agreed to issue to Oaktree a warrant to purchase a number of shares of Class B Common Stock at an exercise price per share to be determined either at Closing or at termination of the Commitment Letter (“Warrant”). If issued at Closing, the Warrant will be for that number of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the RideNow Transaction, which price shall also be the exercise price. If issued in connection with a termination of the Commitment Letter, the Warrant will be issued to purchase that number of shares equal to five percent (5%) of the Company’s fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly announced divided by the weighted average price of the Company's Class B Common Stock for the five days immediately preceding such date, which price shall also be the exercise price. The Warrant is immediately exercisable upon the Closing and expires eighteen (18) months after the Closing or termination of the Commitment Letter.
Using the stock price of $37.00 as of June 14, 2021, the number of warrants issued is 1,081,081. The preliminary fair value of the warrant has been estimated to be $28,417,172. As of March 31, 2021, the Company had estimated the fair value of the warrant to be $10,950,000 and recorded a deferred finance charge for this amount. This deferred charge has been reclassified and it is reflected in the accompanying pro forma combined financial statements as debt discount. The preliminary estimated fair value was determined using a Monte Carlo simulation based on level 1 and level 3 inputs. For purposes of these pro forma financial statements, the difference between the estimated fair value of $28,417,172 and the $10,950,000 of $17,467,172 has been recorded as an adjustment to accumulated deficit in the Condensed Combined Balance sheet as of March 31, 2021. No adjustment has been reflected in the Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2021, because the transaction is not a recurring cost that would have a continuing impact on the combined results following the business combination.
Note 4 - Purchase Price Allocation
On March 12, 2021, the Company entered into a Plan of Merger and Equity Purchase Agreement, as amended on June 17, 2021 (the “RideNow Agreement”) to acquire RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group”). RideNow is a collection of franchised dealerships operating in the powersports industry. Collectively, the Group are referred to as the Acquired Companies in the Agreement. The Group is engaged in the sale of new and used motorcycles, all- terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of March 31, 2021, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.
The RideNow Agreement provides that the Company will acquire the Acquired Companies in exchange for (i) $400,400,000 in cash plus or minus any adjustments for net working capital and closing indebtedness, and (ii) shares of the Company's Class B Common Stock having a value of $175,000,000 (the “Closing Payment Shares”), valued equally, on a per share basis, based upon the lowest value of (A) $30.00; (B) the VWAP of the Company's Class B Common Stock for the twenty (20) trading days immediately preceding the Closing, and (C) the value on a per share basis paid for the Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock by any person which purchases Class B Common Stock or any shares underlying securities convertible into or exercisable for Class B Common Stock from the Company from the date of the RideNow Agreement until the Closing not including purchases of Class B Common Stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities. Ten percent (10%) of the Closing Payment Shares will be escrowed at Closing and will be released pursuant to the terms of the RideNow Agreement. The Company will finance the cash consideration through a combination of approximately $280,000,000 of debt provided by the Initial Lender (as defined below) and through the issuance of new equity for the remainder thereof.
8
The following table summarizes the preliminary allocation of the purchase price based on the estimated fair value of the acquired assets and assumed liabilities as of March 31, 2021:
| Purchase price consideration | ||||
| Cash | $ | 400,400,000 | ||
| Class B stock (5,833,333 x $37.00 per share) | 215,833,321 | |||
| Total purchase price consideration | $ | 616,233,321 | ||
| Estimated fair value of assets: | ||||
| Cash | $ | 57,438,551 | ||
| Contracts in transit | 17,321,129 | |||
| Accounts receivable | 15,444,153 | |||
| Inventory | 104,079,912 | |||
| Prepaid expenses | 1,847,740 | |||
| Right-of-use assets | 77,016,962 | |||
| Property & equipment | 23,249,651 | |||
| Other Assets | 279,696 | |||
| 296,677,794 | ||||
| Estimated fair value of liabilities assumed: | ||||
| Accounts payable, accrued expenses and other current liabilities | 53,716,362 | |||
| Notes payable - floor plan | 62,514,325 | |||
| Lease liabilities | 97,359,869 | |||
| Long-term debt | 15,000,000 | |||
| Other long-term liabilities | 6,857,364 | |||
| 235,447,920 | ||||
| Net tangible assets | 61,229,874 | |||
| Intangible assets | 194,483,527 | |||
| Goodwill | 360,519,920 | |||
| Total consideration | $ | 616,233,321 | ||
This preliminary purchase price allocation has been used to prepare pro forma adjustments in the pro forma balance sheet and statement of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations. For purposes of the pro forma condensed combined financial statements, for inventory, property and equipment, leases and other assets and liabilities the Company used the carrying value as reported its historical financial statement as reported in its Form 10-Q as of March 31, 2021, and as reported in the historical Combined Financial Statements for RideNow as of March 31, 2021, that have been included in this report. The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments. The final allocation may include (1) changes in fair values of property, plant and equipment, (2) changes in allocations to intangible assets such as trade names, technology, franchise rights and customer relationships as well as goodwill and (3) other changes to assets and liabilities.
In accordance with the RideNow Agreement, as discussed above, the purchase price includes a $400,400,000 in cash plus $175,000,000 in stock. For purposes of these pro forma combined financial statements, the number of shares to be issued was determined based on a price of $30 per share as required under the RideNow Agreement which results in the issuance of 5,833,333 shares of the Company’s Class B stock. The fair value of the shares issued was determined based on a per share price of $37.00, which is the price of the RumbleOn stock as of the close of business on June 14, 2021. The following table reflects the impact of a 10% increase or decrease in the per share price on the estimated fair value of the purchase price and goodwill:
| Purchase Price | Estimate Goodwill | |||||||
| As presented in the pro forma combined results | $ | 616,233,321 | $ | 360,519,920 | ||||
| 10% increase in common stock price | $ | 637,816,653 | $ | 382,103,252 | ||||
| 10% decrease in common stock price | $ | 594,649,989 | $ | 338,936,588 | ||||
9
Note 5 - Pro Forma Adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
| A. | This adjustment records the net increase in cash resulting from the merger as follows: |
| Net proceeds from issuance of debt | $ | 260,775,000 | ||
| Net proceeds from issuance of Class B stock | 158,100,000 | |||
| Total net proceeds from financing transactions | 418,875,000 | |||
| Less cash consideration paid to Sellers | (400,400,000 | ) | ||
| Net cash received from sweep account on the Closing Date | 66,416,689 | |||
| Legal and other professional fees and expenses | (4,790,000 | ) | ||
| Less 50% of Net Working Capital Adjustment due Seller on Date of Closing | (13,315,307 | ) | ||
| Net increase in cash | $ | 66,786,382 |
| B. | This adjustment records the reclassification of the positive cash balances from the sweep account. |
| C. | As part of the preliminary valuation analysis, the Company identified Franchise Rights as a separately identifiable intangible asset. The fair value of this intangible asset $194,483,527 was determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. Since all the information required to perform a detail valuation analysis of RideNow’s intangible assets could not be obtained as of the date of this filing, for purposes of these unaudited pro forma condensed combined financial statements, the Company used certain assumptions based on publicly available transactions data for the industry. Based on our research and discussions with RideNow management we have concluded that the Franchise Rights intangible asset has an indefinite life and therefore we have not made any adjustment in the pro forma condensed combined statement of operations for amortization. |
In addition, this adjustment reflects the recognition of goodwill of $360,519,920, less the removal of $55,284,151 of goodwill reflected on the historical balance sheet of RideNow as of March 31, 2021.
| D. | This adjustment reflects the elimination of notes receivable related party that are expected to be paid off prior to closing. |
| E. | This adjustment includes the payable for 50% of the Net Working Capital adjustment of $13,315,307, less the reclassification of the negative cash balances of $26,785,998 from the sweep account. |
| F. | As described in Note 3 above, this adjustment records the elimination of the current portion of long-term debt of $2,115,470 and records the new debt, less debt discount and less elimination long-term debt as follows: |
| Balance of new Senior Term Loan | $ | 280,000,000 | ||
| Less debt discount and deferred financing fees | (30,175,000 | ) | ||
| Less removal of debt not assumed due to the $15 million cap | (15,505,857 | ) | ||
| Net adjustment to long-term debt | $ | 234,319,143 |
| G. | This adjustment records the net proceeds received from the equity raised to finance payment of the cash consideration of $158,100,000 plus this issuance of warrants with a fair value of $28,417,172 plus the issuance of 5,833,333 shares of Class B stock to the sellers as the equity portion of the purchase consideration, valued at $215,833,321 based on a per share price of $37.00 which was the per share price of the Company’s stock as of the close of business on June 14, 2021. This entry also records the reclassification of the deferred finance charge on the balance sheet of RumbleOn to Debt Discount and reclassifies the warrant liability to equity. As discussed in Note 3 above, the Company has estimated transaction costs for legal and other professional fees and expenses of $4,790,000. These costs have not been recorded as a pro forma adjustment to the in the Pro Forma Condensed Combined Statements of Operations. However they have been reflected as an adjustment to the accumulated deficit in the Pro Forma Condensed Combined Balance Sheet. In addition, an adjustment has been to the accumulated deficit for the change in the fair value of the warrant as described in Note 3 above for 17,467,172. |
| H. | This adjustment eliminates RideNow’s Owners’ Equity as reported in the audited historical financial statements. |
| I. | Pursuant to the RideNow Agreement, the Company is adopting an Equity Incentive Plan and as disclosed in a Schedule to the RideNow Agreement is rewarding 278,334 of restrictive stock units (RSUs) to employees of RideNow. Based on the stock price of $37 per share, these units have a fair value of $10,298,358. The pro forma adjustment recognizes 20% ($2,059,672) of these awards being recognized as share-based compensation in the Unaudited Condensed Combined Statement of Operations for the year ended December 31, 2020 and one quarter of the 30% vesting ($772,377) during the three months ended March 31, 2021. This estimate used the same vesting schedule used by the Company as disclosed in its financial statements for the three months ended March 31, 2021 as reported on Form 10-Q. |
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| J. | This pro forma adjustment records the estimated interest expense as follows: |
| 3-Months Ended March 31, 2021 | 12-Months Ended December 31, 2020 | |||||||
| Contract interest on the new Senior Term Loan | $ | 6,148,787 | $ | 24,592,544 | ||||
| Amortization of debt discount (Note 1) | 1,219,334 | 5,363,008 | ||||||
| Amortization of deferred financing costs (Note 1) | 180,000 | 720,000 | ||||||
| Less interest expense reported by RideNow for debt that won’t be assumed | (70,788 | ) | (144,963 | ) | ||||
| Total interest expense adjustment | $ | 7,477,333 | $ | 30,530,589 | ||||
Note (1) Amortization of debt discounts is assumed using an effective interest method using an interest rate of 11.25%. Deferred finance costs are amortized on a straight-line basis over the term of the loan (five years).
| K. | This pro forma adjustment reflects the estimated tax provision that may be required based on an estimated blended federal and state statutory tax rate of 25%. |
| Income before tax | $ | 17,979,297 | $ | 35,033,841 | ||||
| Effective tax rate | 25 | % | 25 | % | ||||
| Provision for taxes | $ | 4,494,824 | $ | 8,758,460 |
Note 6 – Combined Adjusted EBITDA Before Pro Forma Adjustments
Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income 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.
Combined Adjusted EBITDA Before Pro Forma Adjustments is defined as net income adjusted to add back interest expense including debt extinguishment and depreciation and amortization, and certain charges and expenses, such as goodwill impairment, impairment loss on automotive inventory, impairment loss on plant & equipment, insurance recovery proceeds, non-cash stock-based compensation, change in derivative liability, litigation expenses, severance, new business development and other non-recurring costs, as these 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.
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The following tables reconcile Combined Adjusted EBITDA Before Pro Forma Adjustments to net income based on the Company’s historical financial statements for the three months ended March 31, 2021 and the year ended December 31, 2020 and RideNow’s historical financial statements for the three months ended March 31, 2021 and the year ended December 31, 2020.
For the Three Months Ended March 31, 2021 | For the Twelve Months Ended December 31, 2020 | |||||||||||||||||||||||
| RumbleOn | RideNow | Combined (Before Pro Forma Adjustments) | RumbleOn | RideNow | Combined (Before Pro Forma Adjustments) | |||||||||||||||||||
| Net income (loss) | $ | (4,451,586 | ) | $ | 30,680,594 | $ | 26,229,008 | $ | (24,998,975 | ) | $ | 92,623,076 | $ | 67,624,101 | ||||||||||
| Add back: | ||||||||||||||||||||||||
| Interest expense (including debt extinguishment) | 1,608,820 | 707,613 | 2,316,433 | 6,450,161 | 6,956,809 | 13,406,970 | ||||||||||||||||||
| Depreciation and amortization | 599,240 | 813,507 | 1,412,747 | 2,142,939 | 4,087,914 | 6,230,853 | ||||||||||||||||||
| Interest income and miscellaneous income | - | (732,677 | ) | (732,677 | ) | - | (1,967,068 | ) | (1,967,068 | ) | ||||||||||||||
| Increase (decrease) in derivative liability | 20,652 | - | 20,652 | (10,806 | ) | - | (10,806 | ) | ||||||||||||||||
| EBITDA | (2,222,874 | ) | 31,469,037 | 29,246,163 | (16,416,681 | ) | 101,700,731 | 85,284,050 | ||||||||||||||||
| Adjustments | ||||||||||||||||||||||||
| Impairment loss on automotive inventory | - | - | - | 11,738,413 | - | 11,738,413 | ||||||||||||||||||
| Impairment loss on plant & equipment | - | - | - | 177,626 | - | 177,626 | ||||||||||||||||||
| Insurance recovery proceeds | - | - | - | (5,615,268 | ) | - | (5,615,268 | ) | ||||||||||||||||
| Non-cash stock-based compensation | 1,026,216 | - | 1,026,216 | 2,978,236 | - | 2,978,236 | ||||||||||||||||||
| Acquisition costs associated with the RideNow Agreement | 1,096,653 | - | 1,096,653 | - | - | - | ||||||||||||||||||
| Litigation expenses | 88,259 | - | 88,259 | 1,295,717 | - | 1,295,717 | ||||||||||||||||||
| Other Non-recurring costs | 32,985 | - | 32,985 | 51,387 | - | 51,387 | ||||||||||||||||||
| Adjusted EBITDA | $ | 21,239 | $ | 31,469,037 | $ | 31,490,276 | $ | (5,790,570 | ) | $ | 101,700,731 | $ | 95,910,161 | |||||||||||
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