Q2 2021 HyreCar Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Harcar, Inc..2021 second quarter Conference call.
During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be opened for questions. If you have a question. Please press the star followed by the 1 on your Touchtone phone. If you would like to withdraw your question. Please press the pound key if you're using.
Speaker equipment. Please lift the handset before making your selection. This conference is being recorded today August 10, 2021, and the earnings press release accompanying this conference call was issued at the close of the market today on.
On our call is Harcar CEO, Joe Furnari, CFO search debark and her cars head of Investor Relations.
John Evans I would now like to turn the call over to Jon Evans.
Thank you operator, and welcome everyone to our 2021 second quarter earnings 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 of federal securities laws regarding higher car Inc. For looking statements include but are not limited to statements that express the company's intention.
<unk> beliefs expectations strategies predictions or any other statements relating to 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 documents that the company files with the U S Securities and exchange.
In addition, such statements could 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 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. A reconciliation of GAAP to non-GAAP results can be found in our earnings release, and supplemental materials, which will be furnished with our form 10-Q that will be.
Filled with the SEC and will also be found on the Investor Relations portion of our website now I'd like to turn it over to Joe Furnari, the company's CEO.
Thank you John and it's hard to believe this is higher cars 3 year anniversary as a public company.
As I look back to that first call on August 2018, It's amazing what we've accomplished since then these accomplishments are a result of the entire higher car team those that had been with us since before 2018, those that have come recently and those that have moved on your contributions.
<unk> made this company what it is today I would especially like to welcome our new executive on the line with US today surged back surged joined the company about 4 weeks ago and is already starting to make a positive impact. After this call. My hope is that all of our shareholders will be as excited as.
I am for surges present and future contributions.
With that I am pleased to say that we had another consecutive record quarter. The combined <unk> of loosening COVID-19 restrictions, increasing vaccination rates higher rideshare demand and stable delivery demand pushed our business to the highest quarterly revenue in company history.
Our net revenue increased 62% to $9.1 million for the quarter up from $5.6 million in Q2.2020.
And rental days increased 44% to over 330000 for the quarter up from approximately 230000 in Q2.2020.
For the quarter, we saw a record of over 6800, new unique drivers pick up a car on our platform a 49% year over year growth rate.
2 thirds of our hire car drivers are still predominantly delivery oriented and the opportunity is accelerating and the local delivery as a service environment not just for food, but all P&C platforms are starting to move into adjacent lanes like alcohol pharma and package delivery.
On their Q2 call Uber said that Uber eats has grown at a compounded annual growth rate of 100% over the past for years with plenty of room to continue to run.
And <unk> acquisitions of post mates Drizzly and corner shop are simply validation of the delivery as a service future.
Continued growth of these channels will require sourcing a that is supply of drivers and a reliable stream of cars to match driver demand. This is what higher card does best.
Delivery platform demand suggest higher car driver economics will remain attractive.
Creating a sustainable environment supporting larger and larger driver pools for years to come.
In addition to gains from delivering both Uber and Lyft said in our Q2 call that the rideshare business is increasing month over month and that July was the best month since March of 2020.
Lyft alone is on a run rate to spend over $1 billion on driver incentives this year.
We're also admitted to having major supply dislocations in key markets. The first half of this year. So they spent heavily to subsidize driver earnings and our top 20 markets drivers are averaging over $40 an hour.
<unk> is seeing this driver demand as well having registered over 37000 leads in the month of July and we anticipate a surge in leads at federal stimulus incentives roll off in our key markets.
As reports of school reopening as in business is normalized recovering rideshare volumes will further strengthen the demand side of our platform and we've shown that we're nimble enough to manage any business environment thrown our way.
Last quarter, we stated that increasing driver demand and fewer driver alternatives, we're creating incremental margin pickup in our daily rates on.
Happy to announce that our dynamic pricing model brought take rates up to $27 per day in Q2 up 12, 5% from Q1.
Because we've invested in building a robust data environment and flexible technology stack, we were able to implement these changes relatively quickly and we anticipate take rates growing through the rest of the year as the dynamic pricing model learns and iterate for risk and reward.
On the car supply front, we are enjoying increased vehicle supply onto the platform from our previously announced partnerships and specialty fleet suppliers on January 28, we announced an expanded partnership with <unk> holdings.
That announcement, including new relationships with Cogent bank for innovative financial services and in automotive aftermarket retail and service chain with over 900 locations nationwide on there.
Drive is leveraging these locations for higher car marrow drive branded parking spaces in vehicle logistics.
<unk> is currently operating out of 7 stores. In addition to a 200 car overflow lot to help within fleet recon.
With our marriage is help we've gone from a little over 3000 average daily rentals on <unk> in Q4 to sequentially trending toward an ADR average of 3700 in the second quarter with a run rate of 4500 to 5 ADR is expected in Q4.
We've trended slightly lower than expected with the marrow drive supply, partly because higher car has never had a fleet operator scale at the speed that <unk> has but primarily because of marriage I've experienced some car financing constraints, they're short term in nature.
We're in the process of ironing out the scaling and financial constraints and in the near term, we've been able to offset the slower ramp in cars with a steeper ramp in take rates.
The overall success of our <unk> partnership has opened additional opportunities to significantly grow vehicle supply over the next 12 months to 18 months. So I want to reiterate what we said last quarter as a company we want to supply up to 16000, new cars, both gas and EV vehicles.
Into the market by the end of 2022 and 50000 by 2025, our conversations with our partners make it clear that the market will continue to grow and hire car intends to be the leading vehicle supplier for the gig economy.
In the near term our partners are working through a tighter vehicle purchase market due to the shortage of new and used cars at scale.
That only impacts the short term pace of adding vehicles and will not impact the growth of our supply going forward as these market anomalies abate.
What started as a gig sharing platform has evolved into a vehicle ecosystem that helps vehicle owners not only find the drivers for their vehicles, but also helps them finance managed select and retain drivers our relationship with a married driving cogent was only the beginning of this program.
We are working on another large facility that will enable us to deliver on our growth targets as part of this expansion. We are using a <unk> process and planning to create a best in class operating model that we can share and monitor for other fleet owners that want to expand into the gig economy.
This operating model includes using our partners to manage the acquisition and maintenance of vehicles and sharing the vehicles on drivers handoff and retrieval of vehicles and the ultimate disposition of the vehicles at the end of the vehicles life, creating.
Creating this partnership ecosystem hubs and share best practices for the fleet owner to help them be a success and ensures that higher car can add 1000, 2000 vehicles per quarter that will get us to the number that our ridesharing delivery company companies desperately need.
With that I'd now like to turn the call over to surge the Buck our chief financial Officer to walk us through some key financial elements from the second quarter search.
Thanks, Joe I'm really excited to enjoying a higher car for its next phase of growth and to be part of this adventure.
On to our Q2 performance overall, the second quarter of 2021, so solid topline revenue growth year over year at 62% in quarter over quarter at 22%, but we also saw some transition and investment in our platform in order to scale our operations.
First on the topline rental days increased to over 330000 for the second quarter of 2021 on.
On pace to surpass $1.3 million rental days this year up from 1 million rental days for the full year 2020.
This represents a quarter over quarter growth of 44% from 229000 rental days in the prior year second quarter and sequentially increased 11% on the first quarter of this year.
With a number of rideshare and delivery drivers steadily increasing and Uber announcing that 90% of inactive drivers in tend to be back on devote by September we're continuing to aggressively pursue adding new cars to the platform and this will be 1 of the key success factors for us in the long term.
While our rental days increased by 44% net revenue in Q2 grew 62% to $9.1 million.
From $5.9 million last year, and 22% on the previous quarter.
This year over year favorable revenue growth debt up 18% over the 44% on increasing rental days stems from pricing enhancement.
With favorable market trends in <unk> and the implementation at scale of dynamic pricing.
Specifically, we have driven an increase in daily average net revenue, which represents net revenue divided by rental needs from.
From $24 historically and in Q1 to $27 in Q2, as Joe mentioned earlier.
This coincides with our net revenue to gross billings ratio, increasing from 45% in Q2, 2020% to 46% in Q1 'twenty 1.
47% in Q2, 'twenty, 1 a steady increase in or decrease.
July continued to see an increase in rental days daily average net revenue.
And price.
On the topic of price dynamic pricing currently includes risk segmentation based on geographical location and drive at risk profiles, we're still at the onset of leveraging analytics to drive optimal pricing and we have constant potential to unlock as we scrutinize and discern trends into data we're collecting.
Now on to the cost side.
Cost of revenue increased in Q2 to $8.3 million from $3.1 million year over year with insurance was premium and claims accounting for the vast majority of the cost was.
While the insurance premium increased relatively proportionately to the increase in rental days.
Claims expenses have exceeded debt, mostly because we centralize our clean portfolio with a new single processing partner with the goal to improve customer experience.
We set a low claims migrated platforms and performed a deep dive into insurance reserves to date, we add $1.4 million in 1 time expenses.
Related to transition and 2 claims development incurred from prior periods.
At the same time, we observed a sharp decrease in customer complaints related to the claims process. We are assessing the ROI of various portion of the process and aim to find the right balance between customer retention and direct costs.
Accordingly gross profit for the current quarter was <unk> 8 million, representing a gross margin of 8.9%.
Adjusted for 1 off expenses related to the claims portfolio transition our gross margin was 24, 3%.
We're optimizing our new processes and pricing and therefore already identified several tangible opportunities to improve claims profitability either by price improvements.
Graphic on risk price adjustment for adequate pricing for our premium <unk> offerings.
1 of these opportunities relates to reassessing, our deductibles on physical damage claims and providing incentives for drivers with low claims experience.
We want to strike the right balance between customer experience and cost. We believe we can aim for low thirties gross profit margin in Q3 in line with fiscal year 2020, and an improved profit margin of 30% in Q4 through pursuing and affecting these initiatives without impacting our growth driver and owner of it.
Tension.
We are also collaborating with our insurance partners to leverage data and improve our driver and screening processes to both reduce claims outcomes and claims premium through risk control.
And to continue on a path towards 40% plus gross margin in the later half of 2022 and beyond.
Specifically during our discussions with our insurance partners, we estimated that we could reduce insurance premiums over time by up to 20% by identifying and filtering more effectively high risk drivers.
Operating expenses totaled $10.1 million in Q2 of 2021.
An increase of $3.7 million or 58% or $6 for millions of recognized in Q2 of last year.
Compared to Q1, 2021, however, we scaled our operating expenses by 22%.
We have invested in scaling our platform optimizing our technical infrastructure driving top of the funnel through marketing efforts and staffing sales and operations for continued and sustained growth.
We have been clearing some of the technical and operational depth, we have carried over to build a solid base for accelerated growth.
Going to Q3, our focus will be on continuing supporting higher current future topline growth effectively while containing non growth related expenses, creating operational leverage and economies of scale.
Our adjusted EBITDA for the quarter ended at a loss of $7.1 million up from $1.7 million loss in Q2 last year.
As we discussed this increase resulted primarily from a claims performance and transition as well as cash operating expenditure to support growth at scale.
Our cash position continues to remain healthy with sufficient liquidity to fund our operations in 2021 and pursue growth opportunities.
As Joe mentioned, we're also in the process of securing favorable financing to create financial leverage and optimize our cost of capital. It will also help our partners such as <unk> grow their fleets and accelerated economies of scale through expanded volume.
Back to Joe for final remarks.
Thanks, Serge and to summarize.
<unk> is carrying our growth trajectory into the third quarter and enjoying the tailwind of the pending full reopening of the economy.
For higher Carter's business, it's not a matter of if we're going to be successful. It's a matter of when we want to supply 16000, new cars, both gas and EV and to the market by the end of 'twenty, 2 and 50000 by 2025, we have exciting partnerships in the pipeline that will provide catalyst financing to.
For the fleet exponentially.
And I expect a TNC partnership coming to fruition this year, which has been in the making for over 5 and a half years.
The bottom line is that the future is bright as we continue to execute our growth strategy throughout the remainder of the year with that operator, let's move to Q&A.
Thank you as a reminder to ask a question you will need to press Star then 1 on your telephone to withdraw your question. Please press the pound key.
Our first question comes from the line of Mike Grondahl with Northland Securities. Your line is now open.
Hey, Joe and Serge.
Hey, Joe could you talk again.
About the cars.
Rental cars on the platform.
End of June or at the end of <unk> and kind of I think you said a number by year end kind of help us understand maybe from year end 2020 to first quarter second quarter on where you think youre going to be at year end start with that if you could.
Sure, Yes, I mean, Mike where we are right now I think we have about 6000 available cars on the platform that includes both rented and available.
2 thirds are rented right now.
Inc. By the end of the year will be around 4500, 5000 actively rented what we call <unk>.
Slightly lower than what we had talked about last quarter.
Again, I kind of touched on some other issues, we've had with scaling some of the issues. We've had with financing those vehicle fleets, but I think those are all short term in nature.
We're 1 quarter into a 6 quarter strategic plan that is going to get us to 6000 additional cars there.
And 16000 by the end of 'twenty 2 I think those are realistic goals given the partnerships that we're putting in place.
Got it.
Yeah.
The partnerships you are putting in place is.
Is that a couple of partners.
With.
Big chunks of cars or the or is it a process. So dealers can put 100, there 200 in this city I guess.
Help us bridge, a little bit from the 4500.16000.
Yes, so you have 3 aspects to that.
First is the financing.
We're talking to players that can bring over a $1 billion in financing to this market in the next 5 years.
So we're talking about.
And we're talking about a model that is proven that's been done before.
Hey.
In a highly highly scalable structure, so financing partners that can really bring capital to scale is 1 aspect of it.
On the other side for.
A driver perspective, we're talking to tncs debt, we've been talking to for the last 5.5 years.
That I think are now.
At the point, where and we're at the point, where we can really help them scale I think we have meaningful supply coming on to really help them ramp.
And then on the on the.
Echo system side of it from an owner perspective.
We are in process of building out the playbook really learning best practices from our marrow drive enrolling those best practices out in a playbook that enables many fleet what we call kind of many fleets is 5% to 50 car fleet owners to really scale and really and really kind of run.
Profitable business within our ecosystem. So between those 3 kind of aspects of the business and partnerships I'm really excited about what the second half looks like and kind of what we have going into 'twenty 2.
Hi, Mike its search.
On financing.
I had a quick thing on financing I think it's important we have opportunities to secure.
Quite a sizable chunk of financing, but we want to make sure we strike the right balance between collateral interest rate and that's something that's going to carryover for us in the long term. So we take our time to do the right thing and being able to pick the right partner for us to grow and being able to get the right cars and about financing.
Got it and then just secondly.
It sounds like there was some insurance transition and claims of $1 million for.
And if you subtracted debt you got to gross margin of like 24%.
But that's still seeing down from where you were running.
I guess help reconcile that a little bit more absolutely. So the $1.4 million represents a truly 1 off items that impacted us from prior periods or just purely transition items like for instance, we had about 200 K that came from an API that broke between our in our transition between claims insurance.
<unk> partners. So those are purely 1 of items. So the bridging to last year gross margin debt was at 33% for the whole year comes from us changing our processes, we want to improve customer satisfaction customer retention, so we needed a little bit easier for folks to kind of go through.
On the claims process now we tried to find the right balance between direct costs and being able to have customers being happy and have good retention impact and as we get through this is just a few first few months, we are new insurance processing partners, who already hammering out we're doing a deep dive hammering out the details on the claims process.
We have already identified a few areas that we can we can fix or just improve for doing a good trade on there and we believe we can get back the margin above 30% directly in Q3 through those efforts, but its going to take a little time for us to kind of get back as we transition between partners and we understand the claims better and then another angle is read data we.
A lot of data in our claims process and we were trying to understand better what makes a good driver as we mature and we're able to do that we'll be able to take.
Big drivers for more effectively and then in turn that's going to turn into less claims and lower insurance premiums. So we're trying to get a favorable wheel going in terms of getting data adjust and then reduce our expenses.
But as we get through the transition and the new process took a little bit of toll on.
On the direct profitability.
Got it okay. Thank.
Thank you no problem.
Thank you.
Our next question comes from the line of Tom White with D. A Davidson your line is now open.
Great. Thanks for taking my question guys I've got a couple if I may Joe I guess first.
On the Amira drive partnership and kind of the pace of rollout there can.
Can you give us a little bit more color on.
What's happening there I think you mentioned.
Some kind of short term as short term ish financing constraints.
I guess I want to understand the extent.
What's happening there and then also is there any just kind of impact from the tight supply.
Of used cars.
Might be kind of less short term in nature.
And then on.
On EBITDA.
On.
Between the.
The gross margin outlook for the balance of the year.
And also what seem to be kind of elevated G&A in the quarter. I was curious if you can kind of comment on your.
How youre thinking about EBITDA profitability.
Relative to kind of that.
That level of kind of rental days.
You thought or at least you previously mentioned you needed to get to in order to reach EBITDA breakeven.
Yes, Thanks, Tom.
Yes, so from a supply perspective, what we're seeing in the market in terms of supply conditions in the used car market.
Those prices have come down I mean, they were up over 40% annually.
And they've started to come down in the last 6 weeks or so theyre down about 5% to 7% depending on the debt.
For the type of vehicle expectation is that those prices continue to come down another 5%, 10%, but eventually they normalize.
And probably we don't get to full normalization until Q3 of next year, just because of what's going on in the supply chain and chip shortages.
All of that being said I think the.
Meera drive issues are more from a financial perspective, we have been.
In heavy conversations with multiple multiple financing entities.
I think we have that figured out so that now they can start to really scale again.
So we're leaning in with.
Our resources to be able to get them to where they they can really start to scale and they have the resources to.
Support that scale, which is kind of where we want on peak.
And then maybe.
Maybe I'll, let <unk> talk to the EBITDA piece of it yes, absolutely Thats a good question on we've seen some of the increase in Opex this quarter being more short term in nature and also as we go through 1 of the key pillars.
Pillars of what Im doing coming in on week, 5 and 6 is really doing a deep dive on operating expenditure and understand their Hawaii and on each of dose and I think we will re identified some areas, where we can improve and reduce debt cost base going forward.
Questions around with level of course, I think based on current trends and what we can do in the short term we can get to.
At the other run rate of $60 million to $70 million annual revenue will be at EBITDA neutrality in debt represents between 6000.6500 cars.
The debt, that's making sure that we have enough sound base in our opex to be able to grow and continue on that trend going forward.
We are trying to strike the right tradeoff between investments in Opex and our ability to grow and right. Now we are scaling the platform fixing all of the things for us to be able to be on a pretty big growth trajectory. If we gave on secured $100 million of financing in the next few months, we'll be able to add large amount of cards is a platform that will get us there.
So I think Thats thats, our take right now on the profitability.
Okay. Thanks, maybe just 1 more follow up if I could on dynamic pricing.
What gives you guys confidence that.
That can be sustainable I mean, clearly probably for the next couple of quarters. The driver incentives from the Big Tncs, you mentioned will be a tailwind.
But I guess kind of eventually that level of spend will probably normalize and then I also just I wonder as your business kind of shifts.
<unk> going to shift a little bit more towards delivery.
It feels like delivery food.
Food delivery drivers.
Earn a little bit less than rideshare drivers I guess, what gives you confidence for that kind of given those 2 things.
You guys can sustain these higher kind of daily revenue takes.
Yes, good question.
I'd point to a couple of data points in the market, yes, we touched on lift on a run rate to spend about $1 billion in driver incentives are.
Not far behind.
If you look at Uber vehicle solutions right now the cars used to be offered at $215 per day now for per week now they're offered at 260 <unk>.
You see that Uber drivers are making about $40 per hour I don't see that coming down in the near term.
Anything it probably starts it goes up a little bit.
It was kind of a delta variance starts to hit.
Maybe push some some of the more drivers that would be worried about that out of the market and you start to see more new drivers coming in from the roll off of the federal stimulus. So there's some interesting dynamics there that I think are going to enable us to maintain dynamic pricing continue to grow that through the end of the year.
And.
And then and then from a port.
To address your question about the delivery piece of it.
Yes, you see delivery drivers make slightly lower.
That's always been the case and so the money has always been and ride sharing but.
In this uncertain environment, where drivers don't necessarily have to deal with people to make an equivalent earnings.
Compared to ride share.
We see that only increasing.
Just an anecdotal I was in the car the other day with a driver who is right.
Im giving you the last ride I'll turn it off I'm going to Amazon Flex.
I can I have reserved a couple of deliveries this evening.
And so I think.
What all of this does it trend creates flexibility for drivers.
Because it's not binary right. All these drivers the drivers are driving for rideshare. The driver for delivery. They are driving for packaged food all of that stuff and so they bounce around and they go where the economics on.
All of it means increased demand means that higher basket sizes means higher earnings for those drivers.
I'm not too worried about being able to sustain higher prices at least on in the short term for the next 6 to 12 months.
Maybe it normalizes back but I think this is this is structurally has changed how consumers are getting their goods now.
Through the gig economy, and thats not going on with that demand isn't going anywhere, which again supports the pricing and.
Earnings for drivers.
Okay. Thanks for the color Joe appreciate it yes.
Thank you. Our next question comes from the line of Mark Argento with like low.
Your line is now open.
Hey, Joe.
Yes.
My question's on but I just wanted to drill down on kind of the competitive environment right now it seems like.
Demand is all.
Okay.
Sure.
Total.
I think a little more in terms of pricing.
Both on the on the <unk>.
Service side, but also on the insurance on the opportunity to ratchet that up a little bit more debt.
Alluded to just now.
It seems like basket sizes are getting bigger.
VITAS I've taken a newborn seems like the costs are going up.
How are you guys to price up a little bit.
Not only.
I guess when it comes on thinking about the insurance side, and especially given it seems like you're really the only 1 out there on the market doing what youre doing.
Yes al.
Touch on kind of the competitive side of it and ill, let Serge jump in on the insurance side of it in terms of kind of competitiveness from from from my perspective.
Our last man standing now at this point with with a lot of other competitors that have fallen off there are some there is still 1 or 2 that are relevant but from our perspective.
That 60000, plus cars that need to be supplied to the market today right September I think its ninth you have the roll off of federal stimulus with a lot of these states.
And I think there is a tremendous amount of demand thats going to start coming back into the market. So our goal right now is to move at warp speed to get as many cars on the platform as possible. So that's what I'm focused on for.
From a competitive standpoint, I see prices going up from those competitors that are playing in the market.
Just as an example that the $2.60, a week up from $2.15, a week.
Which.
You look at that all in cost with some of the bells and whistles, it's closer to 400 Bucks a week, whereas higher cars coming in and $3.50 to 400. So in most states and most out for most of our offerings were coming in as the low cost provider of fleet.
Just need to add it quickly and fast and faster so.
Let me I'll, let Serge talk to the insurance piece of that from a competitive standpoint.
Yes, we are looking at the offerings in the market between the different competitors that we have and understanding what the driver is able to paint on areas willing to offer.
And I think for US we re trying to match the 2 and being able to price right is going to be important and then price right within the constraints of insurance like you alluded to is very important as we understand better our offering what what impacted us on our cost of claims will be able to price it appropriately and I think we are in the middle of the review on a.
Eluded debt and the beginning of the cog reviewing the different pricing options, including deductibles to offer something that's for.
Right I think we have more opportunity to generate revenue based on increased pricing overall, but principally also on being able to.
Select the right drivers and being able to leverage all the data we have specific the right drivers and again being able to selecting the right drivers gives a cost of claims down and help us on the profitability side, while not impairing our growth and I think that's that's what we're going to be focused on to be able to get the cost down and also being able to set price appropriately based on risk.
Profile.
Great. Thanks for the color guys I appreciate it.
Okay.
Thank you. Our next question comes from the line of Jack Vander <unk> with Maxim Group. Your line is now open.
Yes.
Great.
Hey, Joe and congrats and welcome aboard to search.
I'll start with a low.
1 other question for Joe.
Joe just a housekeeping on them.
You correctly that new driver leads in the month of July with 37000.
Yes, that's correct.
Okay.
Yes, thank you for that and then on that.
That's up pretty significantly as we've spent into other marketing channels right. If you look at where we are from from where we started I mean, we've now we've doubled if not tripled our feed at this point.
So really spend into the opportunity to prime the pump in anticipation of more car supply coming on so yes.
Yes.
Pretty good number right now.
Okay Cool that's helpful and then just.
Another follow up for you Joe in terms of identifying and just allocating future car supply.
Just because I believe the first phase for example, you had with the marrow drivers kind of targeting the southeast market share I remember correctly have you identified.
Do you have a roadmap here now in terms of where Youre next.
I guess, most immediate needs are to allocate future car supply.
Kind of painting that picture, yet or is it still.
Kind of fill in the blanks as you go depending on when you get that supply locked up.
We're kind of in stealth mode, a little bit on cash.
Where we're going to be ramping up where we have a lot of conversations going right now with TNC partners that are looking for supply both.
Ice and EV cars.
So that's <unk>.
We do have a roadmap we do have a strategy.
And I think I'll be able to probably talk about it a little bit more on the next call.
Okay.
Got you and then maybe from just your revenue model just nuts and bolts question here you guys often cite that.
Average weekly car rental rate is kind of the thesis of your of your revenue equation.
I know that fluctuates in the ownership for pricing, but have you noticed any changes that average rental rate that youre seeing in your in your.
The user base.
Yes, absolutely so that debt.
Average rental number has gone up as you can see actually in our performance.
We're getting a little bit to upwards of 37% $38, which is which is a positive trend for us and then the drivers fees that also increased percentage of debt. So.
Implemented dynamic pricing will be if we are able to.
The red drivers and charges wide range. So we've seen debt and we also have an increase in daily insurance suite as well. So all in only got US you got us for.
Pretty favorably went from 53 gross 257 growth and then on a net basis from 2004 to 2007 and continue to see positive trends theres more upside there for us to to be able to take as we get through and in our take rate is also an important indicators steadily going from 45 to <unk> 47.
On that equation and I think that's also a continuously improving EBITDA.
Leading dynamic pricing, but also things in the marketplace.
Fantastic Alright, that's it for me guys I appreciate the time thanks.
Thank you.
Thank you. Our next question comes from the line of Jon Hickman with Ladenburg. Your line is now open.
Hi.
I guess is the question for Serge.
In past quarters.
You guys were talking about targeting operating expenses at around cash operating expenses at around 5 to $5.5 million.
The past couple of quarters, it looks like that's gone up to 775 million.
Can you tell us what you expect for the rest of the year.
Yes, I think I think this quarter was extremely high compared to previous quarters, 2 investments, but we're trying to normalize that around surprise 657 in the immediate term.
657 cash cash.
Okay, and then can I just clarify what you said about gross margin.
Thought.
On the kind of low <unk> for the rest of the year and then by the second.
Second half of next year, you could get into the 40% range.
So when you said, yes.
Yes, that's correct I think right now we'll be able to get back in Q3 closer in line with what we saw last year as annual annual gross margin rate and then in Q4, I think we expect that to improve and I think part of it is us being able to have more on the take rate and then part of us as being able to get the claims in a better.
Spot was other data we have in implementing and initiatives that we've identified.
So can you talk about why the claims expenses have risen so dramatically in the last couple of quarters.
Yes, absolutely I think that this quarter, we had $1.4 million in 1 off expenses from the transition, but also on changing our process and implementing faster.
Lehman process doesn't work more customer friendly led to faster payouts and sometimes to be absolutely higher than what we've seen in the past we identified a few things we need to do to be able to collect data that we're going to focus on deductible is 1 portion to be able to.
Have a good handle on the amount and volume of claims coming in and then we also have a few things including for instance, a subrogation practices, we got a little loser on subrogation practices in Q2.
We were paying our customers in trying to chase back the money I think here, we put new more guardrails and in those cases, we only serve broke even certain instances for instance, and debt will help us drive some of the claims back. We also looked at different trends for different states. We identify a couple of states, where we saw more alarming trends and also a different profile for <unk>.
Rivers, and we need to.
Cash into.
Christy that in Q3, and Thats going to show up partially in Q3, and then in Q4 and I think thats with more data and I think that's going to be a trend youre going to see.
We have more data on more task force, we were able to discern and analyze the data more quickly and react very quickly to trends and I think that's going to help us be more efficient effective and generate more profit in the future.
So long term do you still think you can get close to 50%.
That's a question that's difficult to to address right now for.
<unk> in the long term I think we can get above 40% per share with very very high volumes and keep that margin up so thats still a pretty solid margin business.
We're going to aim for for 50% I think Joey is always very.
Very willing to push to push the envelope and being able to drive shoot for the Sky and Thats worked for <unk> in the past I think it is agreed mentality for the company.
I think right now, it's probably a little too early to tell but I would say that it's safe to say that we will be shooting for margin upwards of 40%.
Half of next year.
Okay and just 1 last question, Joe what's the TMT TMT partnership.
So John <unk> for.
Yes, John good to talk to you here.
TNC stands for transportation network company, that's Uber or Lyft.
Okay, Yes.
The transportation networks that are.
Delivering people for the most part and then you have delivery on the other side.
With those partnerships.
2 major players and we are.
We've officially assigned with with 1 of those tncs I want to I just want to tease that right now we're going to put out a real press release and throw some fireworks around it because we've been working towards as a partnership for the last 5 and a half years. So I'm really excited we're going to get that done and hope.
Everyone.
Everyone is as excited as we are at that point when we announce it.
Okay, I'm, sorry, I have 1 more what do you tell dry lease when you get drivers.
Get a lead and you don't have a car for them.
What are you.
What happens then.
For the most part they come back in the queue and they are on a drip campaign from a marketing perspective, we continually re target.
When cars do come in into that into that geography.
Theyre getting links directly sent to them so.
Pretty sophisticated marketing algo to follow up with leads that.
Don't get into those cars.
Thank you.
Do have a follow up question from the line of Mike Grondahl with Northland Securities. Your line is now open.
Hey, Joe.
Just 1 last question here you guys had like 3700 cars at the end of June.
And you're talking about 50000.
In 2025.
Which is which is really big.
What are the couple biggest impediments.
Getting to 50000.
Sure.
The financing is it partnerships with fleet managers.
Is it a TNC partnership I guess help me understand.
The biggest impediments to getting there and how you think you're kind of knocking them down.
Yes. It is.
Multi faceted, we talked about 3 of them, which was the financing to really scale, it up or having the capital to scale it up.
The ecosystem of vehicle owners.
Utilizing a consistent playbook to get those cars out and then our partnership with the TNC to really ramp on the driver supply.
I think there are a couple of Inc.
Instances in history and recent history on the last 3 years for years, where companies have been able to scale that fast and Ics now having been able to replicate in a sustainable business model versus some that have come and gone.
So we've talked about there in the past that was able to put 20000.18000 cars on the road.
And a little under 24 months same with exchange leasing was able to put over 20000 cars on the road and a little under 24 months. So.
With those with the TNT partnership leveraging their marketing dollars to really ramp up and get qualified drivers into the cars and pairing that with capital sources and vehicle owners, who are able to supply those cars.
Just creates this virtuous cycle that continues to build upon itself.
And Ics being at that inflection point right now.
And again, that's why we're leaning in with some of the Opex numbers that youre seeing because we're now seeing all these pieces starting to fall into place.
Taken us 5 and a half years to get there.
Or were there so I'm excited about that.
Great. Thank you Joe.
Thank you.
There are no further questions.
I'll now turn the call over to Joe Furnari for closing remarks.
Thank you operator so.
Thanks for everyone for being on the call on taking the time here, we expect to update you soon on some exciting partnerships.
<unk> multiple times here, but these partnerships will allow us to continue to scale cars for the ride sharing and delivery markets.
Exponentially, so where we're really the only historical player in the market left to provide safe and reliable cars at this point. So I'm excited for for the prospects. So we'll look to update our shareholders regularly on the progress, we're making and most importantly, the details on rollout of.
Everything that we have go on in the pipeline. So thanks again, everyone and look forward to speaking next quarter.
Okay.
Thank you on ladies and gentlemen, gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
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