Q2 2020 HyreCar Inc Earnings Call

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Open for questions do you have a question. Please press the star followed by the one on your Touchtone phone if he would like to withdraw your question. Please press the pound key if you're using a speaker equipment. Please lift the handset before making your selection. This conference is being recorded today August 13th 2020, an earnings press release accompanying this conference.

Call will be issued at the close of the market today on our call today is hard car CEO, Joe Ferrari and CFO, Scott Roce I'll now turn the call over to Joe Ferrari.

Thank you operator, and thank you everyone and welcome to our second quarter 2020 conference call before.

Before we get started I'd like to take this opportunity to remind you that during this call will be making forward looking statements within the meaning of federal securities laws regarding higher cars.

Forward looking statements include but are not limited to statements that expressed the company's intentions beliefs expectations strategies predictions or any other statements relating to its future earnings activities events or conditions.

These statements are based on current expectations estimates and projections about the company's business based in part on assumptions made by management.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call.

In particular those described in our risk factors included in our document that the company files with the U.S. Securities and Exchange Commission.

In addition, such statements could be affected by risks and uncertainties related to factors beyond the company's control you should not rely on are forward looking statements as predictions of future events. All forward looking statements that we make on this call are based on assumptions and beliefs as of today and we undertake no obligation to update them except as required.

Hello.

Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

A reconciliation of GAAP to non-GAAP results will be found in our earnings release, and supplemental materials, which will be furnished with our form 10-Q that would be filed with the FCC and will also be found on the investor relations portion of our website.

[laughter]. So the second quarter was unique because it was a tale of two stories one of the <unk> on one side the quarter saw the lowest rental day week since Q3 of 2019, because the government imposed lockdowns due to covert Nike.

And on the other side, a return to sustain growth and the best weeks and months that the company has had in its history.

April started off with the lowest weekly rental Dan number post the cobot slowdown at approximately 14000 rental days for the first week of April.

And ended with over 20000 rental days for the last week of June I snapped back growth rate of 42%.

Absolutely july's seen the growth continue with our highest weekly rental week of approximately 22000, an increase of almost 60% since that first week in April.

The company fully expects to see growth through the rest of 2020, even with the different city and state approaches to reopening and we remain cautiously optimistic the higher car will continue to persevere and the new covered world.

This rebound in our business model is not a fluke it was due to a conscious effort by our leadership team to expand the platform to delivery services in the face of cobot.

We started just see drops in our rental day count in mid to late March and we responded to this decline by identifying opportunities and delivery service platforms and by rapidly expanding our emphasis on delivery in late March the emphasis on delivery included rebranding our out the web portals, and creating new sales and talk scripts retooling.

Surging retraining support staff, affirming insurance coverages and focusing marketing spend on delivery.

Because of this effort acted rentals are grown consistently since the second week of April and as you can see from our earnings release have now established a clear uptrend.

This should give investors confidence that we're nimble and that we can continue to grow in any business environment going forward and rideshare and now with delivery, becoming an additional engine for shareholder growth.

As we move into the fifth month of cold and there's a new normal emerging.

The combination of states reopening for Roger and delivery service platform economics remaining strong.

It is making our business even bigger than we had anticipated.

What has become clear is that regardless of what happens to be economy at a macro level higher cars expansion into food a package delivery has allowed higher to fair better than the 75% plus rideshare declines are GNC partners are seeing in their businesses for Q2, we ended the quarter down just 3% sequentially and up over four.

87% year on year.

We expect revenue in the third quarter, two returned to mid to high teens sequential growth that we saw before coated with revenues expected to be between 6.2 million 6.5 million and to grow again in the fourth quarter.

So we continue to see strong demand from drivers seeking vehicles for delivery because delivery services are heavily supplementing rideshare driver income during this slowdown we had over 1700, new unique drivers pick up a car in the month of June which when paired with increasing customer retention rates helped revenue recover in the second quarter.

As we move forward and state start to reopen we believe rideshare driver demand will also start to pick up.

For example from Hubers Conference call they were seeing in Hong Kong, and Malaysia ridership has floated above pre cobot levels in order to avoid crowds customers are opting out of public transportation and favor rideshare and other forms of personal transportation, which points to continued recover.

I mean ridership in the U.S. and bodes well for hires core rental business.

On the car front new cars on the platform are sourcing predominantly from existing customers as most new franchise, an independent dealers had been have seen slow downs from registering and planning cars because of DMV closures. However, we had begun to see a pick up in partnership discussions with rental car agencies.

And we Onboarded a couple rental fleet to our site this past quarter.

One is a large southwest regional rental car agency, who recently listed 50 cars with plans to expand tenfold as demand ramps up over the coming months.

In addition, we have begun to onboard free companies that want to partner and grow cars in regions, where they are sorely needed. These types of companies have much larger fleets than traditional dealers and complement our important dealer partners. We expect to be announcing these partnerships in the coming weeks is more fleet and rental agencies are stepping up to make sure they have relationships.

And our markets.

[noise] operationally, we've moved to dramatically increase our cash runway by reducing fixed and variable cost during the quarter, including a whole to new hiring in the renegotiation of a number of vendor contracts I believe Q3, we'll see an even larger reduction in opex as a full extended the cuts will be realized ultimately this continue.

Good growth and reduced expense levels will allow us to get to profitability in 2021.

Well continue to monitor or keep our Kb I've just been accordingly, with an eye toward profitability.

A big component cost of sales has become our insurance reserve and physical damage payments in Q2 insurance premium paid was 1.3 million and claims payments were 1.27 million a decrease of 14% and 22% from the prior quarter respectively.

The lower insurance costs, resulting from our new liability insurance program with Apollo and a reduction in claims due to reduced incidence enhance risk underwriting and streamline claims management.

On the claims management front, we have taken multiple steps to enhance our driver risk underwriting model, including everything from optimizing our background check criteria tapping into multiple telematics solutions outdoor outsourcing the billing and payment of physical damage claims and new fraud investigation tools. The plan is to optimize our claims expense.

Relative to active rental growth overtime. These measures should result in a profitable and sustainable business model.

With that I'd now like to turn the call over to Scott Brown, our Chief Financial Officer to walk through some key financial details from the quarter Scott.

Yes, Thanks, Joe.

Im pleased with our movement towards profitability this quarter higher car improved EBITDA by $1.6 million sequentially from negative 3.3 million in the first quarter two negative 1.7 million in the second quarter by reducing expenses across the board.

And thanks to a PPP loan and a new insurance program. Both completed in the second quarter, we have significantly reduced our cash burn and extended our runway.

Net revenue increased 47% to 5.6 million for the three months ending June 32020 from 3.8 million for the three months ending June Thirtyth 2019.

It was down just 3% sequentially from 5.8 million for the three months ending March 31st 2020, as we rebounded within the quarter.

The revenue increase was primarily driven by increases in net rental days, which grew 65% annually to over 230000 in the second quarter from 140000 rental days in the second quarter 2019, and 2% sequentially from 229000 on the first call.

For 2020.

Cost of sales increase for the quarter ending June Thirtyth 20, 23 million from 2.1 million the prior year ending June Thirtyth 2019.

But decreased from 3.6 million in the prior quarter ending March 31st 2020.

This sequential improvement was primarily driven by lower insurance costs, resulting from our new liability insurance program with Apollo 1969.

Which enhanced our program as well as improving pricing and terms.

As a result gross profit for the second quarter was 2.5 million up from 1.7 million in the year ago period, ending June 32019, and 2.2 million for the prior quarter ending March 31st 2020.

Gross profit margin was 45% for the second quarter.

Flat with 45% in a year ago quarter ending June 32019.

But up from 38% in the first quarter ending March 31st 2020.

On a going forward basis, as we enhance our insurance merchant processing and technology solutions, we expect our gross profit margin to continue to increase to between 45 and 50%.

Operating expenses increased to 6.4 million for the three months ended June Thirtyth 2020 from 3.8 million in the same period. The prior year, primarily due to increased marketing and sales expenses to support higher business levels.

General and administrative expenses also increased although approximately 2.1 million of this was noncash in nature due to stock based compensation.

Much of this was onetime in nature to settle prior legal and technology expenses in lieu of cash.

And to increase our option pool availability to better align employee incentives.

Sequentially, we achieved significant payroll and marketing savings due to a hiring freeze and a new CRM solution rolled out in the first quarter of 2020.

Accordingly, cash operating expenses totaled approximately 4.3 million for the quarter as we significantly reduced our expense base.

Adjusted net loss increased the negative 3.9 million or 22 cents per share for the three months ended June Thirtyth 2025.

From negative 2 million or 17 cents per share in the same period the prior year, but improved sequentially from a net loss of 4.1 million or 25 cents per share for the first quarter ending March 30, Onest 2020.

Although adjusted EBITDA of negative 1.7 million or 10 cents per share was below negative 1.4 million or 12 cents per share. The prior year. It was a significant sequential improvement from negative 3.3 million in the prior quarter.

Ending March 30, Onest 2020.

Cash totaled 7.2 million on June Thirtyth 2020, a decrease of less than $700000 from the 7.8 million, we had last quarter on March 31st 2020.

A big part of this improvement in cash burn was the 2 million dollar PPP loan we receive from our banking partner JP Morgan Chase in April 2020.

This allowed us to maintain payroll as intended and we spent more than 90% of the loan proceeds on payroll expenses alone.

We anticipate this loan will ultimately be forgiven and going forward the new insurance program with Apollo 969 will allow us to build cash through 2020.

We will have a balloon payment in early 2021, so we are maintaining our discipline on accruals in reserves as we grow.

Now I'd like to turn the call back to Joe to wrap up.

Great. Thanks, Scott.

The last thing I'd like to touch on before we turn it over to Q1 and it's important to note that as cobot was coded was emerging the rideshare rental market was already experiencing large disruptions.

Has the Kobin pandemic accelerated it also accelerated the demise of the competition because these companies economic models, where ill equipped to adapt to the new environment.

Meanwhile, higher cars asset light platform agnostic business model continued to deliver results in the rideshare rental space and now delivery space.

As a country moves into recovery mode with a number of states reopening rideshare demand will increase while delivery economics remain strong, creating a perfect tailwind for higher cars model.

Our long term strategy is to expand the core rental business for both Roger and delivery and integrate our service platform with our partners.

Covidiens reshaping many industries, both in rideshare delivery and mobility as a service from established restaurants, becoming cloud kitchens with delivery only options to purpose built all electric delivery vehicles solving for the last mile logistics and highly populated areas.

There is a structural change and consumers approach to acquisition of goods, which is permanent and we are benefiting from it.

When I see all these emerging tailwinds that are driving our business now and in the future I get excited about the shareholder value the higher card team is building for stakeholders.

With that let's move to QNX operator.

Ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone phone.

Yourself from the Q. Please press the pound <unk>. Our first question comes from Mike Grondahl with Northland Securities. Your line is open.

Hey, Thanks, guys congratulations on the quarter.

Nice trends in revenue and cost.

The first question is just.

I think you mentioned after a health with regional rental car company.

You kind of alluded to I think it was three other companies targeting three regions with cars.

Any more color you can give on that maybe the amount of cars. They start with the maybe can grow two or what can you share there.

Yeah, well, so we haven't officially well first off takes for thanks for calling in Mike. It's good to hear you you hear your voice here.

So.

We haven't officially announce that yet.

But yes, we're running pilots with a small rental car agencies, one very large agency here in the southwest.

We think this can scale significantly in the next few quarters. So I'm excited about that Hey. These partnerships are also validation of what we said in the past about flexibility of the business models specifically.

Have a turnkey platform insurance solution for both rideshare and delivery, what we call gig and that offering is part of our core use case here. So I'm excited to share more in the coming weeks as those pilots become official.

Got it got it is is there anything you can sit here and the unit economics or the per car economics of the insurance contracts as simple way to kind of understand the savings that will roll through because I think it just started June 15th.

Yeah, Hey, Mike, It's Scott and as Joe said, it's great to her voice.

Yeah, I think what we've talked about is with with the new insurance program, you've got kind of the basic liability coverage and then you have an access layer Apollo as a subsidiary of Lloyds of London has a lot of strength in the access lines historically.

Until they came in very aggressively on that and in particular those excess lines are really what power our protection plans for the entity fleets that are that are kind of increasingly providing north of 80% of our car supply now so it really gives us a nice cost advantages as we can.

When you put drive more car supply from the institutional side, but you know if you blend those things together you're looking at.

Lease the kind of a 10% pure price advantage and then we do have now more granularity on a geographic basis in terms of states as well as age of drivers. So it really now gives us some interesting levers to look at.

How we drive business going forward.

Got it got it and then just lastly.

Any sense like you had a ride sheer Tam and we know that you know we're covering state by state you know gradually.

Does the do the addition of delivery.

Does that take your Tam.

30%.

The percent just any thoughts on you know if you think of rides here pretty cold bid and that opportunity and then you layer on delivery how much bigger is the opportunity.

Yeah, I think that.

Is.

Pretty big at this 0.8, we were seeing yeah, Uber and Lyft have scaled back and we were listening in on their calls in some cases down 75% or more.

In this specific goes but what has what stuck out specifically with Uber was that there who were each business really offset a large chunk of the decline in rideshare and you see that in our results as well it was 77 east play.

What percent of our drivers were driving for delivery and.

And rideshare and delivery has really kind of supplemented.

Rideshare in this time and we don't see that really changing just as we talked about in the prepared remarks. There is a very clear structural change in the United States, specifically around how consumers are ordering their groceries, receiving their medicine, a non medical.

Non emergency medical transport and attending those.

Scheduled hospital visits.

And very specifically, we are benefiting from that because of the delivery platforms are benefiting from that so it's providing more opportunities for our drivers and more demand for our vehicles on our platform. So.

It is it has expanded significantly in the past four or five months.

Great. Thanks, guys and look forward to the back half for the year.

Thanks, Mike Thanks, Mike.

Thank you next question comes from Mark Argento with Lake Street Capital markets. Your line is open.

Hey, Joe He's got a.

Strong quarter, good great to see given the environment I'm just wanted to drill down a little bit looks like your guide for Q.

Q3, pretty pretty solid Guy I, just wanted to drill down a little bit on the.

Taking about some of the costs here and.

Central leverage on the Opex line, so I know.

Good.

Gross margins, 45% to 50% what do you think some of those costs you know that cost.

From a cost initiatives you guys have taken what could that be in terms of opex and maybe help us better understand kind of the trajectory to towards the profitability.

Yes, Hey markets Scott that it's a great question.

I think we're really excited about what we were able to do in in Q2, I think we talked about getting opex under kind of 5 million a quarter, we were actually able to get under four or five which is kind of a stretch goal for us.

And.

Certainly as we continue to improve the platform.

We're looking to add for example on the technology side right now to to add the resources that we have to continually improve it add drive more operating leverage.

Out of the business model without.

Having to keep adding staff right. So we think we've got some some good opportunities there.

You know admittedly Q2 was light on things like travel expenses right. So, we'll probably see a little bit of growth there, but honestly with with what we're looking at on the revenue side. We don't think we have to add a lot on the opex side of things to continue to grow aggressively on the topline. So we'll probably see a little.

A bit of growth in the Opex side as as things hopefully start to return to some sense of normality, but.

We don't see those costs increases as being that significant so.

Certainly kind of under that 5 million a quarter and we're going to do our best to stay as close to four and a half as we can I think certainly the insurance program that we've talked about is going to help on cost of goods sold we just actually in the third quarter renegotiated our merchant processing contract with our merchant processing partner strike.

Right so.

So we're going to be seeing those savings moving forward July one on and you know we continue to kind of look at everything across the board to continue to refine the platform. So so yes look for us to stay in that range and then you know that can help us get the profitability faster.

And then do you still think that 30000 average weekly rentals is still kind of the bogey to to breakeven.

Yeah, Yeah, I do and just to kind of put some put some numbers on this.

You know if you look at 30000 weekly rental days from our current level of about 22000.

Mean, almost 400000 quarterly rental days.

So even at just our current $24 per day net revenue that would be over 9 million in quarterly net revenue.

As you mentioned.

That kind of 50% near term gross profit margin target.

Would deliver four and a half million in quarterly GP and that's exactly the operating expense level. We were just talking about and we actually reached at this quarter. So yeah. We still believe 30000 weekly rental days is our target and that will get us to profitability.

Great and last one for me I know you touched on lift a little bit I know, there's been a the chatter on potentially you know.

And our gruber pulling out of the California market you know what do you think the probability of something like that happens.

Is there any way to.

For a contingency plan and then how much exposure.

Well a couple couple of thoughts there number one I think thats Hoover and left playing hardball for the state of California, I don't think that they would they would shutdown operation I don't think that there is going to be at.

Stay put in place and I don't think that they're going to find some type of appeal and move that forward and in the meantime continues business as usual.

They do have the contingency for Uber and Lyft, specifically is prop 20 to 22, which out out here in California, They put propositions on the ballot and it's a direct voter.

Prop that goes right into the legislation if it passes so yes on prop 22 is gonna be something big that we that we go into and we start to see a state level in November they put a 110 plus million dollarss behind that that proposition and getting that pass. So what that prop does is carve out Uber and lyft drivers.

Burst out of the baby five deal and establishes.

No what they call a third way which is.

A health care fund and workers comp for four drivers, which is which is the right way to do it.

It's just it's not as zirconia and as.

Making all of our drivers W. Two employees so from our perspective.

Part of the reason we've expanded the platform into delivery was because ride share we're seeing a a decline if you look at California, I think it's about 15% or so.

Of all of our current ridership and revenue and so.

We would expand that into delivery like I said earlier about 70% of our drivers are already driving for delivery anyway, So 16% revenue time or 15% revenue times, a 30% that are pure play rideshare kind of gets you to that that impact, but I think a lot of those drivers would transition into delivery. So.

In my mind, it's a it's a low probability, but it's still on our radar and we're thinking about that.

Great. Thanks, food color and good luck for US here thanks, guys.

Thanks, Mark Thanks, Mark.

Thank you.

One comes from Jackson and ours with Maxim Group. Your line is open.

Hey, guys a great results this quarter.

Thanks for taking my questions.

So you provided some formal in some analysts touched upon this but you provide formal revenue guidance for Threeq you.

This is kind of a new surprised compared to recent historical quarters.

Which my guess is this suggests you maybe have you've grown increasingly comfortable are confident in some of your ability to forecast business.

Do you, maybe just talk about what what kind of key factors specifically have allowed you to maybe feel.

Added level of comfort and just managing your forecasts.

Hey, Jack how are you great great question.

In terms of managing the forecast I think if you look at weekly rental days through time.

Starting from the bottom there's been a pretty consistent growth rate there.

We have built out a lot of that data data analytics, a portion of the business. That's a key focus for technology for the second half as well so I'm excited about that in.

I just as we've expanded the platform and the user base to delivery. It seems to have created a little more stability in terms of the user base and that the demand side of that that equation. So I am very comfortable making that make it not forecasting.

Awesome Awesome and then Scott I can you maybe provide some some additional color when you as your as you are crunching numbers over there.

As it relates to the increasing weekly rental days.

You're noticing any any geographic like geographies or regions in the U.S. that you're seeing.

Positive trend, maybe a surprise positive trends in terms of how that's picking up or increasing faster and maybe a thought there'd be any regions you could highlight.

Yeah, I mean, I think I think it's actually sort of more of the same that we talked about on the last earnings call which is.

You know real strength in a in the south so states like Atlanta.

Texas, Florida. In addition to California are certainly strong and then.

You know recently, we've actually seen New York.

Start to come back with some some big fleet providers.

I think getting more comfortable with the situation. There. So it's kind of across the board for those key markets for us but.

Those are those are kind of the latest trends that we're seeing now but.

Kind of good news good news across the board there.

Got it that's helpful. In and then maybe just lastly for Joe.

Can you talk a bit more about maybe what you're hearing from your existing and new dealership partners, maybe anything changing in the tone of your discussion and maybe their specific plans of listing additional vehicles on the platform.

Yes, just to provide a little regional color and then and they've got it dovetails nicely into that second question, Jack which is.

New York is that really interesting market I think that as a lot of larger fleet operators. There that has just been crushed in the traditional taxi and rideshare rental market.

And that that's the equivalent of thousands of cars per load in sitting.

And so we've started to see the smaller players there actually removing the TLC plagues.

Or what they called the diamonds.

From those cars that they were renting to ride share drivers officially and renting them on our platform to two delivery drivers outside of the TLC program and so as a result, having new York is probably one of our fastest growing geos there and so we expect that trend to continue.

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So then to address the second question, what we're seeing is that you know the dealers right now.

Our having show there's some interesting dynamics in the dealer world right now.

Used car prices are above coated prices.

Pre covet pricing and because of all of the.

Factories for new cars being shut down so they're not getting the trade ins, which means there are scrambling to find used cars to be able to sell those cars to customers.

And on top of that they're having trouble register including cars because the Deanne. These are our operating at like 20% capacity right now because it coded and so the dealer groups. Although there are core core business right now core core focus.

They are not adding as many cars as we'd like them to right now and so that's why the narrative rental fleet and you can see that on our site now we partnered with some of the smaller regional rental car players there.

As well as the larger fleet operators.

New York City being a good example.

Where they have a tremendous amount of fleet, it's under utilized let's throw out of the higher car platform and get rented so I would say that the theme of rental car in larger fleets seeing us as a turnkey solution for access and utilization of their current fleet is.

The trend that is going to continue through the through the second half a year.

Okay Fantastic I appreciate the added color and a great quarter again, guys and that's it for me. Thank you.

Thanks, Jack take care.

And I'm not showing any further questions at this time I'd like to turn the conference back to your speakers.

That's great well. Thank you everyone. We will appreciate you being on the line and we will wrap it up now, but looking forward to speaking and in the next quarter. Thank you everyone. Thank you.

Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a great.

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