Q3 2020 HyreCar Inc Earnings Call

Ladies and gentlemen.

Today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

[music].

Good afternoon, ladies and gentlemen.

For standing by.

Welcome to the higher car Inc. third quarter 2020 earnings conference call.

Today's presentation, all parties will be in a listen only mode.

Following the presentation the conference will be opened for your questions.

If you have a question. Please press the star followed by the one on your Touchtone phone if.

If youd like to withdraw your question. Please.

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If you are using speaker equipment, please lift the handset before making your selection.

This conference is being recorded today November 11, 2020, and the earnings press release accompanying this conference call was issued at the close of market today.

On our call today is higher cars, CEO, Joe Ferrari and CFO Scott.

Rudy.

I would now like to turn the call over to Joe Ferrari.

Thank you everyone and welcome to our third quarter 2020 conference call before we get started I'd like to take this opportunity to remind you that during this call we will be making forward looking statements within the meaning.

Perfect real securities laws regarding higher card.

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

<unk> estimates and projections about the Companys business is based in part on assumptions made by management. These.

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 and in particular those described in our risk factors included in our docking.

And that the company files with the U.S. Securities and Exchange Commission.

In addition, such statements can be affected by risks and uncertainties related to factors beyond the Companys control you should not rely on our 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.

As of today, and we take undertake no obligation to update them, except as required by applicable law.

Our discussions 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 I reckon.

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 will be filed with the FCC and will also be found on the investor relations portion of our website.

Now to turn to our quarterly results.

The third quarter validated.

Our business model in a post Kobin world.

And the results serve as a bold statement by the higher car team in the face of adversity the.

The performance of our business model is a continuation of our efforts in the face of an unprecedented business environment.

Our conscious effort to expand the platform to delivery services by identifying.

Opportunities and delivery service platforms and by rapidly expanding our emphasis on delivery in late March proved to be the right move by our team and the results speak for themselves.

Revenue grew 22% sequentially and over 84% year over year.

We saw over 273000 rental.

Bill days in the quarter, an increase of over 20% sequentially and over 90% growth in rental days year over year.

The company fully expects to see growth through the rest of 2020, even with the differing city and state approaches to reopening and we remain steadfast that higher Carl will continue to persevere and the new covert world.

One of our main sources of strength has been continued robust driver demand the.

The strong driver demand comes primarily from customers seeking vehicles for delivery as delivery services are heavily supplementing rideshare driver income during the slowdown.

In the third quarter 5100, new.

World you need drivers picked up a car on our platform and a 11% increase sequentially and 37% year over year growth.

Increasing customer retention was key to revenue and rental day growth rates, helping both recover in the third quarter.

We foresee continued growth in driver demand has consumed.

Sewers are changing their behavior and the COVID-19 environment.

Obama pop have adopted delivery services into their daily routine and as a result, tams on delivery platforms have exploded.

For example, Hoover eat is now at 35 billion dollar run rate business and grew this past quarter, 120% year on.

Yeah.

Grubhubs revenue was up 53% year on year in the third quarter and that growth continued to accelerate.

Strong delivery platform demand means driver economics will remain strong, creating an environment sustainable to larger and larger driver pools.

Additionally, we're in the early innings.

Sales of this growth Hoover eats has only penetrated 30% of restaurants in the U.S.

So as we move into the ninth month of coated the combination of delivery service platform economics remaining strong and the promise of rideshare bouncing back to normal as states reopened is making our business even bigger than we had in.

Anticipated.

Car supply is the main gating factor to our growth today.

Q3 results validate hire cars expansion into food and packaging delivery that allowed higher to continue to fare better than the 55% rides decline our TNC partners are seeing in their businesses.

And this covance.

World, What hurts ride sharing helps delivery have for us it is a matter of new cars on the platform.

So while the outlook for Covance is unclear as I will discuss later, we have used this time to grow our partners. So that we can significantly increase the availability of cars for the strong demand on.

Our platform.

New cars listed on the platform are being sourced from existing customers some of whom are expanding their fleet operations significantly.

However, a franchise and independent dealers have seen a rebound in used car prices, which has supported their core used car sales business with used car prices high there are fewer.

You were vehicles listed for gig rentals expectations are that vehicle manufacturing is ramping up and will start to hit dealer lot shortly.

Once new car start coming online used car prices should start to normalize into the first half of 2021.

This will have the effect of creating more supply and driving fleet for it.

Minute of use cases for dealerships.

While dealer stock is constrained we have seen growth from specialty fleet, a rental companies who want to utilize existing vehicles.

In late August we announced a partnership with Midway car rental the rental car agency held by the Hanky group family of holding.

Thanks, with combined assets of over $9.5 billion.

Pilot has moved cautiously with the need to integrate policy and procedures within the operations at our respective companies.

We recently participated in the international car rental show and higher car was featured in a discussion panel with Brett lapel.

Melted ways President.

Brett highlighted benefits to the partnership including their ability to run cars and longer and more profitable cycles.

This partnership is a great case study, an example of how larger rental car agencies can benefit from our robust driver demand.

We're seeing more interest from rental agencies.

Mid the uncertain business environment that they are operating in today.

Our team has been Onboarding, new partnerships that we believe can expand the number of cars on our platform from the current rate of 3100 active daily rentals to an additional 6000 active daily rentals count between now and the fourth.

Third quarter of 2021, new.

New partnerships will include relationships with some of the largest automotive groups in America and go a long way toward replacing the inventory that came out of the ride sharing delivery with the exit of Hertz and fair during Covance.

That approximated almost 65000 vehicles.

Getting to 4000.

I have 100 active daily rentals makes us profitable in the near term. So we believe we can directionally drive to both profitability and growth with these new partnerships as we grow in the fourth quarter of 2020 and into the first couple of quarters of 2021.

A couple notable initiatives, we're working on today.

First hire cars restarting its kobin paas partnership with the Cox automotive mobility team and their clutch technology subsidiary, which will lead to more vehicle supply partnerships with retailers Cox.

Cox automotive believes higher car can be an integral part of their plans to onboard their dealers to mobility platforms.

Second we will shortly be announcing a national partnership to monetize customer leads that wish to buy a vehicle.

30% of higher car platform visitors indicated they plan to buy a vehicle. This partnership will put us in position to earn complementary revenue streams leveraging higher cars current platform.

Third.

We are excited about our new electric vehicle initiatives, we have made it our goal to share Hoover's objective to be carbon neutral by 2030, we are finalizing partnerships now that will put TV fleets and key markets.

And last topic certainly of major significance to our industry.

Another larger Mac.

Real political event since Assembly Bill five that was expected go into effect on Jan one 2020 required companies that hire independent contractors to reclassify them as employees with a few exceptions.

In response, our partners Goober lift jordache and others help from prop 22 to Brazil.

Macrophage, the independents and flexibility of these drivers.

We are pleased that prop 22 passed in California, with a healthy margin.

To Echo what Huber said this important question has now been settled in the most populous state in the country, California voters listen to what the vast majority of drivers want.

There are new benefits and productions with the same flexibility.

Going forward drivers and delivery people in California are expected to be guaranteed minimum earnings standard healthcare contributions accident insurance increased safety protections anymore.

We feel strongly that this is the right approach Woburn lift.

Fed that they expect to be adding benefits the gig work to make it better not getting rid of it altogether in favour of an employment only system we.

We believe prop 22 struck the right balance between preserving the flexibility that drivers value so much while adding protections that all gig workers deserve.

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.

Thanks, Joe.

I'd like to start by saying, Thank you to all members of our military and to all veterans on Veterans day for all you have done to protect our freedom.

Higher car continue to move closer to profitability this quarter, adjusted EBITDA improved to negative $1.6 million or negative nine cents per share in the third quarter as we grew revenue and controlled expenses.

And we once again reduced our quarterly cash burn this time to less than 400000.

With the dollars in the third quarter.

Net revenue increased 83% to $6.8 million for the three months ending September Thirtyth 2020.

From $3.7 million for the three months ending September Thirtyth, 2019, and was up 22% sequentially from five point.

$6 million for the three months ending June Thirtyth 2020.

The revenue increase was primarily driven by increases in core rental base as well as slightly higher unit pricing.

Rental days grew 87% annually to over 273000 rental days in the third quarter.

From approximately 146000 rental days in the third quarter of 2019.

And 18% sequentially from approximately 231000.

The quarter of 2020.

Cost of sales increase for the quarter ending September 32023.

3.9.

Early in dollars from $2.2 million the prior year ending September Thirtyth 2019.

And by $900000 from $3 million the prior quarter ending June Thirtyth 2020, primarily due to some seasonal shifts in insurance costs to support higher levels of car supply.

As a result gross profit for the third quarter was $2.9 million.

Doubling from $1.4 million in the year ago period, ending September Thirtyth, 2019, and increasing significantly from $2.5 million for the prior quarter ending June Thirtyth 2020.

Gross profit.

Margin was 43% for the third quarter up from 40% in the year ago quarter, ending September Thirtyth 2019, and.

And down slightly from 45% in the second quarter ending June Thirtyth 2020.

We expect our gross profit margin to increase toward 50% as we can see.

Due to improve insurance processes and products moving forward.

Operating expenses decreased to $4.7 million for the three months ending September Thirtyth 2020 from $5.2 million in the same period. The prior year as expenses continued to be well controlled.

Cash operating expenses totaled $4.5 million for the third quarter after adding back approximately $144000 in noncash stock based compensation.

Toward the lower end of our quarterly target Opex range of $4.5 million to $5 million as we start to real.

Feeds efficiencies of scale.

Our net loss decreased to $1.8 million or 10 cents per share for the three months ending September thirtyth 2020 from $3.6 million or 24 cents per share in the same period. The prior year ending September Thirtyth 2019.

And also decreased sequentially from a net loss of $3.9 million or 22 cents per share for the prior quarter ending June Thirtyth 2020.

Adjusted EBITDA of negative $1.6 million or negative nine cents per share was a dramatic improvement from negative 3.1.

$9 or negative 20 cents per share the prior year ending September Thirtyth 2019, as well as from negative $1.7 million or negative 10 cents per share in the prior quarter ending June Thirtyth 2020.

Cash totaled $6.8 million on September.

Member Thirtyth 2020, a decrease of less than $400000 from the $7.2 million, we had last quarter on June Thirtyth 2020.

Over the past two quarters cash is only decreased by approximately $1 million and unlike the prior quarter. This was done.

Simply based on improving operating cash flow without the support of the PPP program, we enjoyed in the second quarter.

Much of this was a result of our new automotive insurance program with Apollo 1969 as.

As a reminder, we will have a balloon payment in early 2021, so we are maintaining our discipline on.

Non accruals as we grow.

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

Thanks, Scott so to summarize the message covert has created an expanded opportunity for our platform and higher cars Q3 performance was the validation that our business model can capitalize on that opportunity.

The only gating factor to our growth is car supply and we're moving at warp speed to secure fleet partners at scale Tan.

Tams on delivery platforms are now just as big as the Tams in Rideshare and this represents an expansion of our platform. We've shown that higher cars nimble enough for any business environment now.

Finally with delivery drivers, but as the recent news on vaccine shows hopefully this is a dawn of a new day, where we can collectively put COVID-19 in our rearview mirror.

We remain optimistic that has driver confidence starts to return so too will read share.

The combination of delivery and rideshare demand.

As created emerging Tailwinds that are driving our business now and in the future.

With that let's move to QNX.

Operator.

Ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.

Again that is star then one to ask a question at this time.

Our first question comes from Mike Grondahl with Northland Securities. Your line is now open.

Hey, Joe in Scott Good afternoon.

Hi, My first question is just if you could clarify a little bit Joel I think you.

Talked about adding.

6000 cars, which.

Is two times, what you have on the platform.

Could you kind of talk about where those are coming from and how you expect those to ramp up.

Hey, Mike Yes.

Hi.

What if in a pre cove in World I think we would have been there. This year right I think Ed we whereas we're seeing a tremendous.

Ramp in our dealer initiatives at the beginning of the year and then we got coveted and all of those dealerships went into hibernation or on life support for a little while.

While there.

And so as we're as we're kind of moving along and we are in this nine month, you have freed and large fleet operators, who have been affected by covert who have a lot of idle inventory sitting.

They're looking to add scale are looking to add fleet.

At scale and are looking for that distribution channel that has disappeared.

Some of these players, leaving the market Hertz in particular, and so we're we're stepping in to hopefully fill that that that footprint and so you're talking about one or two operators that could bring that that.

That amount of cars those amount of cars to the platform. So I'm excited about what 2021 looks like.

In.

I guess a follow up how do you think those 6000 cars ramp is is that over the next year over the next six months and then if you could kind of I think normal.

Just revenues and annual on 9000 cars give or take a little bit it's about 80 to 85 million.

Right and I, just want to be clear, we're not giving guidance there right. But we are we are in talks with these partners. So it is a very real possibility that we have that many.

Cars and they start to feather in month over month.

So so it ramps incrementally I mean, we're planning internally.

To really start to increase.

The supplier expecting that supply coming on in late late late Q4 of this year Q.

Slide one of next year, so we're kind of anticipating a lot of that coming on but.

I see realistically, it probably feathers and throughout though that the next five quarters.

Got you, Okay, Andy is anybody else ceiling that 65000 cars.

Void kind of left from Hertz or fair.

You know Avis has come into the market I'm not really sure where they are right now.

In terms of of cars I think that.

They are super focused on ride sharing and what we're seeing in the market right now.

As registering with starting to pick up.

But now I think it's kind of flattening out with some of the city in states now rethinking reopening.

And so you gave us is there, but that's yeah and get around but I think that that's pretty much it and then it higher car.

So we have green fields now with lease when you look at the competition and what our opportunity is to move forward work, where they are right now and we're ready to ready to start adding fleet as scale. So we're looking for partners to be able to help us do that.

Got it and then maybe just lastly.

As you add those.

6000 cars do you need to layer in much for expenses.

Maybe I could.

At a high level and then maybe bring in Scott on that one.

You know from my from my perspective, we're kind of.

Shifting to.

Put a regional presence and a lot of our core geographies.

That's a shift from what we've done in the past what we've traditionally had.

All of our account managers guys sitting in Los Angeles and managing vehicles.

Managing our own or supply vehicles.

What we're looking at doing now is kind of shifting to a regional presence.

And that regional presence I think.

Should be neutral, we're going to give those opportunities to our internal staff right now first and then.

If they don't want to move to New York, Orlando Atlanta Dallas.

Dallas, then then we will look to hire in those regions, but it should be minimal.

Yes, Mike This is Scott good to catch up again.

And it's really good question I think you know as we've talked about.

We are really managing to stay within.

Quarterly Opex bands.

Kind.

Four and a half to $5 million and we were at the lower end of that range. This quarter. So talking about cash operating expense of a little over 4.5, and so I think we will.

Look to add.

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She will limited extent.

Then in some of those geography, so that we can really get the growth that we're looking from so the key markets, but we don't see it as a huge increase topics.

Thanks for the question.

Sure well I guess that speaks to just operating leverage is pretty strong and just to verify I think you said 4500 cars is break.

Even.

So when you get above that it gets pretty interesting quick.

Yeah, I mean, we've always kind of talked about 30000 weekly rentals, We can't act from initial bids vision.

I think that still holds and if you.

Do the math.

Thousand weekly rentals, its going to get you to a 400000 rentals a quarter and we still see that as the breakeven level because that would give you about $9 million in quarterly revenue at a 50% GP margin.

And there's the four and a half million.

Third in operating expenses cash operating expenses that we had this quarter.

Got it thank you guys.

Sure. Thanks, Mike.

Our next question comes from John Godyn with Lake Street Capital Markets. Your line is now open.

Hey, guys. Thanks for taking my questions and congrats.

This quarter.

First.

When you're talking with the fleet operators as you guys been having discussions with them. We help those tempur fall over the past quarter from their perspective, what are kind of some of the key milestones they need to see if we could get to overcome as far as adding.

Higher volumes of parts of the platform.

Well in in the larger fleets. They know it's profitable right. They were running cars pretty cove it.

It directly into the tncs, so they're just looking for assurances that we can drive.

Volume and scale, so thats thats, one where the current fleet operators and they're looking for they're looking for profitability milestones and that we can provide a white glove type of service.

And as we've kind of started to roll out new products higher car for business, specifically, we're showing.

None that we can service larger.

Larger fleet at scale by giving them the tools to do that and then by also providing the.

Account managers dedicated to their to their inventory.

Got it and then as far as pricing goes have you guys noticed any changes there.

Ellington relatively steady I know you mentioned potentially integrating some more granular level driver David Bryson gating your platform, sorry update on that and what could that look like going forward.

Well as I look at kind of our daily rates.

Dave Dave.

Increased slightly normalized here, we saw we saw a dip in April and May.

As utilization on the site dipped soda prices, but but now we're up and bumping up against.

85% to 87% utilization on the site.

So.

Prices are prices of normalizing ticked up slightly ticked up slightly in Q3, but pretty close to covert levels pre covered levels.

And then John This is Scott maybe the only thing I'd add to that is.

Now that we have more discrete insurance.

Pricing on a state by state by state basis, and also age weighted.

We're actually pouring through that data to see if there is some risk adjustment that we should be doing.

Our fee schedule too.

To account for a riskier popular.

We shouldn't drivers. So I think you may see some some tweaks to our model heading into 2021 as we continue to refine it and make sure that we're getting the right kind of drivers that are commercial car supply really wants to see.

Okay.

Got it thank you guys.

Thanks, Thanks, John.

Our next question comes from Jack Vander I'd with Maxim Group. Your line is now open.

Great Hey, Joe Hey, Scott.

Solid quarter.

Just a couple of questions from me I'll start with the question for Joe.

Hoping hoping to get some additional color on the on the partnership with Midway you guys did provide some helpful commentary, but.

Just a few more follow ups to that so as it relates maybe your target to increase the active rentals on the platform by did you said 5000 or 6000 in the upcoming four or five quarters.

Which I'm sure is a moving target, but can you share any comments maybe on what percentage.

Midways eight locations might be embedded within that target any any comments there.

Yeah. It's still early days like we said were that it's moving cautiously because we really need to integrate.

All of their.

Features policies procedures.

The platform originally was built our higher car platform was originally built for peer to peer.

Nickel supply we've been shifting it to a dealer focus higher card for business.

There is an additional step that needs to be taken there too.

Pardon.

Accommodate rental car companies, who are used to specific renting specific vin numbers and so there is some technology in there that needs to be implemented so give us some time, there, but I mean, when you talk to Brett over at Midway I mean, he's he's all in on this deal.

And I'm really excited.

And because their their purpose buying for us so I'm excited on what that looks like but I can't give you the specific percentages right now.

Sure Thats helpful Thats fair.

Just one more question on that and maybe you can provide any color here, but I figured I would try.

Did this partnership with Midway It was announced in August did this partnership actively contribute to your third quarter revenue. If you can provide that and maybe what what if so if the number of the cars were actively listed from midway.

During the third quarter, what how small is that overall percent.

Hi, what that opportunity represents as you're looking into Q4, and then into 2021.

Just wondering if like directional trend and if they contributed to revenue in the third quarter.

Slight slight contribution.

You know I wouldn't say I wouldn't say outsized in terms of some of our other.

Pursuing in comparison to some of our other larger fleets.

I can't I don't have that broken out by percentage, but I can I can get it for you.

Okay. That's helpful. I appreciate that and then a quick question for Scott financials related question.

Sure looks like third quarter gross margin.

While the gross profit is obviously you can't you can't take a margin to the you can't take a margin to the bank you can take dollars to the bank, though so it's good to see gross profit dollars really ramping up but on the margin level did get to that 42, and a half below the 45% to 50% kind of target you.

You mentioned, some I think some seasonal.

Changes with the with the insurance costs, maybe but just wondering what caused that fluctuation specifically will it always be lumpy as there always is some element of mystery there that would cause it to fall below 45% again or just anything you can provide there.

Yes, I mean, I think we saw a couple of things right. It was interesting I read.

A few insurance or Fintech reports recently that talked about.

I think everybody kind of thought that when you know travel was way down that like accidents would completely stop and actually.

What ended up happening is as there was less traffic speed actually increased and accidents.

Became more serious so I.

I think.

We are working to get that more normalized going forward.

We have some exciting announcements that will be coming up here in the news in the near term future as we look to make both the auto physical damage.

On the liability process more efficient, it's a real focus for our technology group. So I think we'll continue to work on we did have some seasonality in it this quarter and then I am excited to really.

Improve that.

On a going forward basis, and then we haven't really talked about it but there are.

Some good opportunities on the subscription side of things with our new hire car for business platform too.

Start expanding in that area. So.

We expect to get back on that track, 50% that we've been talking about.

Got it okay thats helpful on that so that's encouraging comments there and then maybe just.

A follow up maybe how does.

With the insurance program at the Paulo in the upcoming balloon payment in early 2021, and then just given given your comments just now on.

Accidents in risk kind of related driving kind of counterintuitive, maybe maybe to increase has been does that impact that that level of the amount of the balloon pain.

Payment you'll have to pay.

In early 2021 and.

Also what is your comments on the cash reserves you have on hand.

To satisfy that payment whatever it might be if it increases or not.

Yes, the payments actually just a direct result of the rental days in the period so that.

That really isn't impacted by say the type of claims that you're having and in that component. So you know as we saw it as we said we've been accrued.

Accruing on for that on a quarterly basis, and we have sufficient capital to take care of that and keep moving forward.

So we feel pretty good about where things are right now.

I think the testament to that is that.

Cash was almost neutral quarter to quarter and only come down a bit in the last six months actually so.

We feel good about where that is.

Okay, great well, it's nice to see the business continued its rapid growth momentum and you're on track it seems.

To reach that sufficient positive cash flow generation in the upcoming quarters. So congrats guys. That's it from me.

Thanks, so much Jack.

Thanks Jack.

Our next question comes from Jon Hickman with Ladenburg. Your line is now open.

Hey, most of my questions have been asked and answered.

I just had two left.

Is there any seasonality in the number of rental days during the during Q3.

Seems like it's been flat since two right.

So I was just wondering if now.

As a factor.

Yes good.

Good good question, John Hey, you know, what we what we see and you've actually seen this in the third quarter last couple of years that you do have some some softness in August and September and so that's that's probably what you're that's what you're seeing in those in those numbers.

And expectation is that Q4 is always been one of the strongest quarters for demand.

And so.

Yes, Thats way hopefully you'll see in the fourth quarter.

Okay, and then going forward could.

Could you give us some indication.

Jason the stock based competition I mean here.

Well look pretty much like Q3 instead of.

Past quarters.

Yeah, I think we're getting back to kind of more of a normalized level at this point in time so.

Yes, I think this is kind of back to more of a steady state right now and as is largely what we'll see on a going forward basis to what we expect to see.

Okay, and so just one more back to the first diverse guys question.

6000 cars you.

Do you really feel.

Feel this is a question of.

When not if.

I mean your feel good enough about these discussions that the.

That it's not a kind of up in the air thing.

Yes, yes.

We have commitments they've talked to talk.

You to insurance carriers, there, they're gearing up to a to do this so I'm I'm excited everybody should be excited about this opportunity.

Okay. Thank you.

Thanks, John.

That concludes today's question and answer session I'd like to turn the call back to Joe for now refer close.

Closing remarks.

Okay.

Thank you everyone. That's all I had looking forward to showing results in the near future here. Thank you.

Okay.

Hi, everybody gentlemen.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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