Q2 2022 HyreCar Inc Earnings Call
Good afternoon, ladies and gentlemen, thank you for standing by welcome to the hire car Inc. 2022 second quarter conference call. During today's presentation, all parties will be in listen only mode.
Following the presentation the conference will be open for questions.
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The earnings press release accompanying the conference call was issued at the close of market Today August 15 2022.
On our call today is higher car CEO , Joe Furnari M.
And CFO Thursday Buck.
I'll now turn the call over to Scott Arnold of core IR, the company's Investor Relations firm. Please go ahead.
Okay.
Okay.
Thank you operator, and welcome everyone to hire cars second quarter 2022 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 incorporate them 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 its future earnings activities.
<unk> 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.
<unk> in our documents 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 Companys control you should not rely on our forward looking statements as predictions of future events are 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 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 GAAP results. A week of reconciliation of GAAP to non-GAAP results be found in the earnings release.
In supplemental materials that were filed with the FCC and can also be found on the Investor relations portion of the company's website now I would like to turn it over to Joe Furnari CEO .
Great. Thank you Scott and welcome everybody.
During today's call, we'll share the company's exceptionally strong second quarter results along with several corporate updates.
Im pleased to report that higher car had a record quarter building off the momentum from the first quarter of 2022.
We generated the highest revenue and higher Crusher Street with the highest gross margin in the trailing 12 months. Despite a challenging macroeconomic environment, we continue to invest in strategic initiatives to sustain growing demand, while increasing car supply and reducing operating expenses. We also welcome Greg Jade them as higher cars.
<unk> Technology officer, who brings years of experience building customer first products and features at companies, including wind Dot com at Whiting Sonoma.
Revenue for the second quarter of 2022 was $10 5 million the highest in higher crush history in building off the momentum from strong demand in March.
This represents a 10% sequential increase in net revenue from the first quarter of 2022.
Demand continued to increase with 10% growth in drivers sign ups versus the first quarter, driven by optimization and improved targeting indicating sustained demand for cars and gig work.
Ongoing automation to verification process is now Onboarding helped drive a 39% increase in verified drivers over the first quarter, while the bottom of our driver acquisition funnel grew as well with a 28% increase in burst driver rentals versus the first quarter.
We continue to observe an ongoing shift in rental use and Ted as the economy continues to rebound from the pandemic with an 18% decrease in delivery and a 7% increase in rideshare sign ups. This mirrors second quarter 2022 results from Uber with the gig platforms growth in mobility revenue.
<unk> and take rate outpacing those for delivery, we expect rideshare and chat rentals to continue increasing through the busy summer months.
Organic vehicle supply grew moderately versus the first quarter with cars listed increasing by 2% and first time cars rented increasing by 2% as well.
The numbers of owners transacting and car successfully utilized or rented increased across all three owner segments peer to peer midsize and fleet with total transacting cars, increasing 5% versus the first quarter.
Our owners also earned more versus the first quarter across all three segments with owner earnings increasing 4% for a midsized suite and 16% for our larger fleet operators.
At the same time to meet increasing demand for electric vehicles on our platform. We have continued to provide access to evs through our partnership with Springfield, EV, which has been seen significant growth.
Orders placed through the program grew nearly 300% versus the first quarter. We continued to explore partnerships with EDI providers and infrastructure developers to build the most robust flexible ecosystem for EV rentals.
As we increase car capacity it will be critical for higher card to continue leveraging technology to ensure that we continue to mitigate risk and improve the quality of our driver pool and strive to increase both driver and vehicle retention with.
With the addition of Greg to Ada meeting product management and engineering, our technology teams will be focused on scalable infrastructure and continued to roll out and iterate on features that strengthen marketplace integrity and increase liquidity.
Under Greg's leadership there'll be a renewed focus on building products that maximize owner and driver earnings while ensuring that the hire car marketplace has the highest quality drivers and vehicles to support our trust and safety initiatives.
Now I'll turn it over to Serge to Bock CFO .
Thank you Joe overall as Joe mentioned, we had a very strong quarter, both from a revenue and profitability perspective.
Our topline grew 10% quarter over quarter compared to Q1 of this fiscal year and 16% year over year to reach an all time high in Harcar history at $10.5 million this quarter.
Meanwhile, our gross margin continued its ascending trend and we achieve our cash operating expense target of $7 million this quarter.
First let's address volume.
Rental days for the second quarter of 2022 increased 4% to 325000 rental days on 314000 rental days in Q1 of 2022, despite that vehicle inventory supply conditions.
Our utilization rates for fleet 20 cars, a more continued to fluctuate between 80% at 90% Indeed.
Indicating strong driver demand across the vast majority of markets with attractive economics with the driver despite higher gas prices.
The recent average drop in gas prices by about 20% in July compared to the June peak is also expected to fuel extra demand for our vehicles.
Turning to financials.
Net revenue grew year over year, 16% to reach $10.5 million in Q2 from $9.1 million in the same quarter last year.
This also represents a 10% or close to a million dollar increase for $9 6 million in the prior quarter in 2022.
Okay.
Daily average net revenue, which represents net revenue divide by rental days increased from $27 in Q2 of 2021 to $32. In Q2 2022, we expect daily average revenue to grow further in 2022 based on current market trends and a focus on optimizing our fee structure.
We aim to provide additional depth of coverage for our drivers and owners.
On the cost side, we have now an improved gross margin to hit the 12 months high up 35% in Q2 of 2022.
A gradual sequential improvement of 11 points over a normalized Q2 of 2021 gross margin of 24%.
We achieved this performance despite inflationary transfer vehicle repair think claims by focusing on cost control better processes and appropriate risk pricing.
Meanwhile, we have maintained our gains and customer satisfaction balancing risk control and retention of profitable drivers.
Looking ahead, we're still on target to best 40% gross margins by the end of the year based on ongoing initiatives targeting insurance products improve driver screening an additional incentive to retain our drivers with low risk profiles.
We also signed a long term partnership with our payment processing partners. In early August . This renegotiated agreement is expected to reduce credit and debit card processing costs by over 20%.
With immediate gains to a reduction in base rates and enhanced dispute resolution and monitoring. We also performed a deep dive assessing beaman methods at Abbott recently removed certain payment cards as primary theme and methods to reduce exposure to contested and paid rental base.
While this might have a slight short term negative impact on rental volume is expected to provide the net net favorable bottom line impact for higher car.
Operating expenses totaled $8 1 million in Q2 of 2022 a decrease of viewpoint 2 million over Q1 of this year.
On a cash basis, we achieve our medium term target of $7 million a quarter down from over 8 million three quarters ago.
As part of those efforts, we have gradually achieved head count reduction was minimal impacts to the business, reducing our workforce by 20% over the past year without compromising on value added functions. We are currently set to be able to scale further rapidly without having to increase our operating expenditure base.
Our adjusted EBITDA ended the quarter at $3 $4 million loss down from the $4 1 million loss in Q1 of 2022 and $7 1 million loss in Q2 of 2021.
This resulted from our continuous improvement and managing cost of revenue specifically insurance, while at the same time, maintaining sufficient infrastructure to support growth at scale.
We expect continuing positive adjusted EBITDA trends in Q3 of 2022 and beyond with economies of scale to topline growth increased gross margins and maintaining operating expenditure efficiency gains.
Our cash position was $6 7 million at the end of Q2 2022, and we're in process of strengthening that position in conjunction with our investment in growth as we continue to pursue and support larger credit financing opportunities for our fleet operators such as the in progress we ASLAN facility.
Looking ahead, we are enter Q3 of 2022 with renewed organic growth and improved margins, we're aiming to maintain our cash operating expenditure around $7 million with our current estimated cash flow breakeven point still at in between 6000 and 507000 car rented on the platform.
Our win rate revenue between 65 and $70 million based on our projected cost structure.
Our primary financial objective in 2022 remains to stimulate car supply on the platform and drive top line growth to reach cash flow breakeven as rapidly as possible and now moving to final remarks.
As part of this section we wanted to provide an additional update on recent financing activities.
First we have secured $5 million in gross proceeds as a private investment and a public company from both current and new shareholders pending the close of our revolving warehouse lines of credit for the benefit of our fleet owners.
Second we have entered into an equity line of credit agreement, providing the option to draw up to $15 million over it for 24 months Sir.
Finally key executives of the company entered into a $500000 promissory note agreement over a 12 months term redeemable in cash or shares at the sole discretion of the board.
These three transactions had been entered into in conjunction with the in progress revolving warehouse line of credit for a mean fleet operators and aimed to strengthen our balance sheet ahead of accelerated growth and now over to Joe.
Thank you Serge so to summarize this past quarter I'm proud of our team's record results in light of the challenging macro environment for car supply.
We were supported by macro tailwind pushing driver supply higher on the platform and we look forward to closing the <unk> progress warehousing line that enables our largest fleet operators to scale quickly. So stay tuned for specific details and an announcement in the coming weeks on that.
So with that I'd now like to open the call to Q&A operator.
We will now begin the question and answer session to ask a question you May Press star followed by one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Our first question comes from Jack Vander Rd with Maxim Group. Please go ahead.
Great Nice results guys. Thanks for taking my questions.
I'll start with a kind of a bigger picture.
Joe Joe maybe just in terms of your end markets.
Just would like to get your thoughts on if theres been any shifts in terms of rental and driver demand in certain markets throughout the U S.
And trying to get a sense of where you might look to prioritize new car supply when you locked it up thanks.
Hey, Jack good to hear from you.
The way we are thinking about that right. Now is that there are about 16 core geographies or msas that we focus on and have focused on and are going to continue to grow I mean, basically we're seeing across all geos and the top 30 that we operate in that there are a lot of drivers coming through.
And whether that's being driven by adverse macro events and the broader economy or whether that drivers looking to supplement their income to offset inflation.
We're working through that we don't know exactly why but what we are seeing is that we have become very efficient in sourcing those drivers.
And we're seeing robust demand across all geographies, absolutely and I think I'll add that actually as we get through we have areas in pockets, where we identify latent demand and that will be the initial areas, where we target our additional app car supply and we have that plan with a lot of our fleet operators.
Okay. That's helpful color and then.
I apologize if I missed this but just in terms of if you look at the back half of this year.
Starting with third quarter.
I know you're working on the warehouse.
The lock that up.
Before that happens.
Should we expect car supply number of rental days to increase.
On a sequential basis going forward, just any color there and kind of what kind of order of magnitude we should expect.
Yes, we haven't provided guidance on rental days, but we've seen a we've seen some trends going forward. One thing I would highlight is the narrow section we looked at the profitability by segment and one aspect. We we trying to address is to make sure that we keep the most profitable drivers and the most profitable segment, so as part of that.
I think in the prepared remarks, we did mentioned that we were discontinuing the use of certain beaman manage that.
That would probably dip a little bit the rental days, but increase the bottom line.
So we don't have a specific estimate that we can share at this time before the full effect that our projections indicate that it would be a beneficial effect for hire cars bottomline and get us closer to EBITDA breakeven yet and at.
At a high level from a macro perspective here, we've talked about green shoots in the past, which were you know kind of sedans under $20000.
The pricing of those of that inventory.
Marginally ticking down.
Essentially come in.
Coming down from highs in Q3 Q4 of last year, and so as we start to see signs of supply loosening.
That's a good sign for our organic growth, what we call organic growth, which is now a fleet operators many fleet individuals with with smaller amounts of cars.
Got it Okay, and then maybe if I could just ask one more bigger picture kind of question.
I know, we talk about 2022 in terms of target for rentals, but just on the longer term kind of milestone for car supply.
In the past, we previously talked about Onboarding, maybe 16000 vehicles by.
2024 ish timeframe and even longer term working our way up to 50000 vehicles.
To provide an update on what you think are achievable long term milestone for <unk>.
Yeah, I still think 50 done by 'twenty five is an achievable number we need to we need to get these warehousing line, we need to get the warehousing line in and so as we start growing and bringing up all fleet operators. So that's the goal internally right now that we're working towards and that's why there's warehousing line, there where we're <unk>.
<unk> is going to close down or hope lingers close zone.
Fantastic I appreciate the color and good quarter, guys I'll hop back in the queue.
Thanks, Jack Thank you Jack.
Right.
Again, if you have a question. Please press Star then one.
Our next question comes from Jon Hickman Ladenburg. Please go ahead.
Hi.
On the this payment processor change.
I take it you're telling us that that might hurt revenues for a little bit, but where does the savings show up because that in cost of goods.
That's correct. So we will have some savings in cost of goods and also in operating expenditure that'll be to a minor extent and we have to process additional claims and things like that with some of our customer service agents, but I think overall, it's going to reduce disputes and being able to to drive drive that better outcomes overall.
Okay, and then could you I'm.
I'm, sorry, I couldn't write fast enough the three equity or the things you're doing to raise some cash can you go over those again real quick.
Absolutely. So first we have a $5 million in gross proceeds coming from the pipe investment.
So that's that's the first portion the second one would be an equity line of credit agreement, which allows us an option to draw up to $15 million over 24 months to a $50 million.
And then the third one is actually an executive loan to the company for $500000 over 12 months third and that loan would be either redeemable in cash or shares of disorder discretion of the board.
Okay. The equity line. So you can look call on this investor.
Over the next two years.
To raise up to $15 million.
That's correct as you think you can think.
What's the price there.
Is there a set price or is it changeable.
It would be a price based on the market conditions at that time.
<unk> got the number right.
Great.
Mark.
Okay got it.
Then one more thing.
Let's see what was wrong and we're marching.
Yeah.
Yeah.
Oh.
So.
Can you explain just a little bit about why it's taken so long to get this warehouse line done.
Yes.
Yeah, Hey, this is it's very very complicated this isn't your standard.
ABS warehousing line vehicle lending line I mean, this is we're bringing in multiple different parties into these agreements.
I think another piece is our lending partners that we're working with has been very conscious and methodical about entry points here I think that's it.
They were looking at any Q3 Q4 of last year, even early in Q1.
I don't know if it was prudent to go out and buy $100 million to $150 million in vehicle assets at the height of used car and respiratory pricing and so I think we've been very methodical about thinking about when and where a good entry point would be for our fleet operating partners.
M L.
And but I think that you can see signs of us laying the groundwork.
As a patient for this for this line closing very soon given what what surgeries down with the financing.
Okay.
Well.
So what the the financing do you put in place are going to make your warehouse partners or comfortable.
So youre going to be around.
Perfect.
That's correct, yes, it would provide a foundation for us to have sufficient liquidity to be able to operate for <unk>.
Several quarters.
Sequentially.
And provide that comfort to move ahead in that transaction.
Okay, and then just to get this.
Put a fine point on this so for.
For Q3.
There might be fewer rental days.
Then in Q2 because of this finance of the payment processing issue.
So where your tenants.
Yes, another payment processing issue I think specifically, we just reduced them.
<unk> payments debt that we are going to be able to accept that would have a small negative impact on rental this but <unk> favorable to the bottom line thats our expectation.
But we do see some organic growth coming from some of the owners as well. So I think the net effect, it's still TBD and we'll be able to figure out what the net effect will be.
But we have seen organic growth and we are also aggressively going in the market trying to recruit more vehicle owners and despite that that vehicle as supply conditions.
Okay. Thank you appreciate you taking my questions.
Thank you.
Yeah.
Once again, if you have a question. Please press Star then one.
At this time there are no further questions. This concludes the question and answer session I would now like to turn the conference back over to hire car management for closing remarks.
Thank you everyone for tuning in standby, we hope to be back to you. Shortly thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.