Q3 2022 HyreCar Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by and.
And welcome to the hire car, Inc, 2022 third quarter conference call.
During todays presentation, all parties will be in a listen only mode.
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The earnings press release accompanying this conference call was issued at the close of the market today November 14th 2020 to.
On our call today is higher car CEO , Joe Furnari, and interim CFO Eduardo and you guys.
I will now turn the call over to Scott Scott Arnold of core IR, the company's Investor Relations firm. Please go ahead.
Thank you operator, and welcome everyone to higher Carter's third quarter 2022.
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 card definitely 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 <unk>.
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.
As described in our risk factors included 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. All forward looking statements that we make on this holiday 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 our GAAP results. A reconciliation of GAAP to non-GAAP results can be found in the earnings release and supplemental materials filed with the SEC and can also be found on the Investor Relations sports.
One of the company's website now I would like to turn it over to Jim Loree CEO .
Great. Thank you Scott welcome everybody and thank you all for joining today's call I.
I am pleased to report that higher car experienced another strong quarter across our operations or financial performance remains robust with revenue up 600000 from $9 7 million to $10 3 million year on year and down just slightly from a record second quarter revenue of $10 5 million.
Driven by an increase in price to a rental bed and increases in first time rentals we.
We are very pleased with these and numerous other growth trends, which continued to gain momentum.
Gross profit margin came in at 37, 5% seven points higher than the same period last year and beating the higher end of the guidance range, we gave last quarter.
Gross profit continues to expand because of the proprietary risk underwriting measures we've adopted in prior quarters.
These measures combined with diligent claims oversight are those trending toward 40% gross profit margins by end of the year.
Driver demand continues to benefit from macroeconomic headwinds cities reopening resurgent travel and more broadly continued shifts in consumer spending to services.
We've seen these macro trends continue to positively impact higher cars business in the fourth quarter with October coming in as our best month ever for total company gross bookings and revenue.
It is important to note that we realize this momentum in October without the accretive effects of the increased car supply from our marriage right.
For our recently deployed warehousing line with credit Suisse.
We expect incremental supply from the warehousing line to accelerate steady state average daily paid rental days in Q4.
Which are trending between 30 730 980 ours.
Clear line of sight on our growth trends have been made possible from higher cars much anticipated closing about $100 million warehouse in line with the marriage of.
Credit Suisse in medalist partners as part of.
The warehousing line agreement C. S medalist assumed a combined 12% warrants they can hire car, which is the beginning of a long term partnership that we expect to deepen as we scale supply and expand financial offering for our owner community.
I'm happy to report that our fleet operator partner a marrow drive has already deployed over $20 million in capital from the warehouse facility, resulting in the purchase of over 200, new cars dedicated to the hire car platform.
In parallel with the purchase of marrow drive is aggressively expanding its geographic footprint from two metropolitan areas, two five metros and 11 locations up from six just in Q3.
We expect a portion of these cars to be accretive in Q4 as they are included with the bulk of inventory being layered in through the first half of Q1 2023 conservatively, we expect the marrow drive to add 2000 additional vehicles over the next six to nine months.
And doubling total cards purchase over the next 18 months.
A portion of purchase cars will be used to replenish supply that is no longer suitable for higher car or gig platforms. So we expect 7000 net new cars to be available across approximately 14, metros and 40 locations by the end of 'twenty three.
Optimizing fleet operations with a focus on rapid in bleeding is a priority for both higher car Annemarie drive and we continued to leverage our marrow drive C O L. Daniel Florence his background as a former CEO of six North America and higher cars in house expertise to continue streamlining and scaling.
Our growing operations.
Now moving onto demand.
Driver demand for higher cars vehicles continues to be strong with attractive economics for drivers a driver can rent a car on our platform for $59 per day on average in the U S and made $36 per hour driving 20, plus hours on the Uber platform as highlighted in inverse recent third quarter earnings call.
Depending on location and strategies for leveraging <unk> platform promotions drivers have stated that they can earn up to $50 per hour.
Across public good companies in Q3, Uber Airbnb indoor dash saw strong consumer demand for services with corresponding increases in the need for drivers from big mobility companies.
Rising inflation has also made participation in the gig economy increasingly attractive as driver seat to supplement their income with part time or more flexible working arrangements and higher cars offerings become an ever more attractive cost effective solution and this price sensitive economy.
This continues to validate the drivers opportunity for success, we hire car.
Higher car has never seen stronger demand with sign ups up 14%, even with lower cost of customer acquisition.
Advertising spend was down 21% and cost per booking down 24% year on year, reflecting the impact of our ongoing operational refinements and improved brand awareness across the conversion funnel.
To counteract the impact of higher operational expenses for drivers the most painful being gas prices higher car has also pivoted to reducing the cost of rentals at the point of sale through promotions driving increases across background checks rental applications and burst rentals year on year.
We are also in the process of finalizing a strategic partnership with the largest rideshare provider in the world as our warehouse line unlocks the next chapter of higher gross growth.
The proposed expansion includes over 30 additional geographies and the rollout mirrors. Our marriage is go to market plan over the next 18 to 24 months.
This deal will allow us to directly access and provide vehicles to our target segments drivers, who are looking to rent vehicles across all gig platforms, including Uber Uber eats dash and CCAR treasury ease and Amazon Flex just to name a few.
On the supply side of our marketplace higher cars operations improved significantly year over year, reflecting improvements in targeting and sales practices as well as internal operations processes.
Compared to the same period last year. The average number of median days for an owner to have their first vehicle approved fell from six days to one day, while the average time it took for a vehicle to receive its first paid rental decreased by over 60%.
The percentage of all owners are proving rentals and the number of rental applications increased 8% and 3% year on year, respectively.
And mid sized fleets performed particularly well with rentals apply an unapproved for these owners ours, increasing 26% and 20%.
While vehicles rented from this owner segment also increased 15% year on year.
For our largest fleet operators utilization remained high averaging over 80% for the quarter.
These improvements have also been realized despite introducing vehicle make and model restrictions based on our internal risk analysis.
Increased vehicle selectivity to better match supply with demand complement a company wide initiative.
So on driver underwriting that we anticipate will improve the quality of the marketplace and drive retention of vehicles and drivers.
We see our recent strong performance is indicative of the impact of supply of vehicles on our platform for a number of reasons. One we have maintained organic momentum into Q4 with strong utilization rates and record rental days in October .
To used car prices are stabilizing and reportedly declining making it easier for our owners to source vehicles, while improving the economics of renting these assets and three we've set the hydrocarbon platform up for success through a laser sharp focus on execution in the third quarter and into the fourth quarter across technology.
<unk> internal processes and policies and an optimized org structure.
With a steady and growing supply of cars from all of our fleet partners, we will be able to fully take advantage of system wide demand increases from drivers.
Because of these tailwind we anticipate strong revenue and margin performance in Q4, as we continue our organic growth trends. In addition to our marriage drives incremental supply.
Finally, we have continued to focus on increasing the supply of electric and hybrid vehicles to address growing demand from our driver base and ridesharing delivery platforms.
Record high gas prices paired with higher driver pay outs and rider demand for these more efficient vehicles as maybe availability of electric and hybrid options on our platform another priority.
62% of all electric vehicles for Evs on the platform has been added in 2022 with the average daily rate, increasing 20% between 'twenty, one and 'twenty two.
It is available on the platform increased over 15% in Q3, 'twenty two versus Q3 21.
And Evs rented on our platform increased 126% in the third quarter of 'twenty two versus the third quarter of 'twenty one.
Average listing price of an E V on the platform is 24% higher than an ice vehicle.
While the average rental rate on an EV is 21% higher than a nice vehicle.
This reflects not only higher quality ease on the marketplace.
But also a greater willingness to pay for these cars due to the increase in gas prices and the availability of easily incentives where drivers can make more for each ride versus an ice vehicle EV rentals have continued to gain momentum into the fourth quarter with a total number of EV rentals in October equaling the toll.
Number of EV rentals for all past quarters, combined and with significantly higher daily rates over the same period.
We are particularly pleased with the progress we have made with our spring three EV partnership.
Which has allowed our owners to more easily acquire evs for the hire car platform.
Number of orders through this program was 1400% higher than Q3, 'twenty two versus Q3 dollars 21.
We anticipate several EDI related benefits to our platform with the passage of the inflation reduction Act from August 22, and then nearly 400 billion and planned energy and climate spending.
Effective January one 2003, the new law eliminates the 200000 unit sales Catholic currently disqualifies Oems and consumers receiving a per vehicle tax credit of $7500.
Beginning January one 'twenty four used electric vehicles will become eligible for up to a 4000 dollar tax credits.
Any industry trends suggest EV models will double by 2024, and GM has predicted they will only sell zero emission vehicles by 2035.
In anticipation of the significant growth in EV supply on higher car. We have launched several key initiatives to build an ecosystem specific to car sharing from financing and acquisition of Evs, the maximizing utilization accessing or building charging infrastructure.
We are excited to push the boundaries of how higher car can continue to generate benefits for gig drivers and platforms, while reducing our carbon footprint.
With that let me turn the call over to Eduardo who will discuss our financial results for the third quarter.
Thank you Joe as Joe mentioned, we had another strong quarter based on revenue and profitability, our topline grew 6% year over year to $10 $3 million down slightly from $10 $5 million in the second quarter, which was the highest in the company's history.
Most margin continued its upward trend, reaching an all time high of 37, 5%.
First let's start with volume rental days for the third quarter were 313000 down from 326000 in the second quarter and 5% year over year.
The dip in rental days can be partially attributed to implementing more stringent cartilage delivery requirements based on the risk analysis and previously mentioned limited availability of used cars impacting rental days in the short term.
Our utilization rates were fleets of 'twenty cars or more.
Average above 80%, indicating strong driver demand across the vast majority of markets with the practice economics for the driver despite high gas prices.
Turning to financials net revenue grew 6% to reach $10 $3 million in Q3 from $9 $7 million in the prior year.
These resorts are in line with expectations and our second quarter earnings call.
Daily average net revenue, which represents net revenue divided by rental days increased from $29 in Q3 of 2021.
$33 in Q3, 2022, we expect daily average revenue.
Any increasing based on current market trends and expanded higher quality vehicles selection, including growing EV supply.
On the cost side, we have improved gross margin to have a 12 month high of 37, 5% in Q3 of 2022.
Sequential improvement of nearly seven points over the normalized Q3 2021 gross margin of 31%.
We continue to offset the impact of inflation on a vehicle repairs and claims with the disciplined company wide focused cost control on loss recovery.
We anticipate additional positive margin impact from driver underwriting efforts that are currently underway as more rigorous screening processes improved the risk profile of our driver pool, while unlocking multifactor dynamic pricing and reduced cost of goods sold.
The company continues to remain on target to approach, 40% and gross margin by the end of the fourth quarter as the gains are fully realized from the many initiatives we have in progress.
Operating expenses totaled $9 2 million in the third quarter, an increase of <unk> 1 million compared to Q3 of last year inclusive of onetime expenses associated with the closing of the warehouse line.
On a cash basis, even achieved $7 9 million or $7 2 million, excluding the onetime expenses from this quarter and down from $8 million a year ago.
The strategic restructuring aggressive negotiations with vendors and technology driven efficiencies, we continue to carefully control costs.
Our adjusted EBITDA ended the quarter at a $4 $1 million loss down from $5 1 million dollar loss during the same period last year and slightly higher when compared to the second quarter of this year due to nonrecurring onetime charges.
We expect Q4, adjusted EBITDA remained flat to the second quarter.
Entering 2023, we anticipate adjusted EBITDA to trend upwards as we continued to optimize cost revenues through economies of scale and ultimately reaching breakeven by the end of 2023.
Our cash position was $12 $1 million at the end of Q3 2022, and we are in process of strengthening that position as the joint venture continues to draw on the line.
Finally, as Joe mentioned, the joint venture has already drawn over $20 million against the warehousing line for the purchase of approximately 200 vehicles.
The first tranche of vehicles include the purchase of approximately 400 cars. The second tranche was over 800 vehicles, which will drive the majority of our marriage rep driven growth across new markets through the end of the year and into the first quarter Easter.
These purchases will bring <unk> net fleet size over 500 vehicles.
Looking ahead, we have entered Q4 of 2022 with renewed organic growth line of sight to significantly expanded supply to reset purchases drawn on the warehouse in line and robust and increase in gross margin. We are aiming to maintain our cash operating expenditures around seven four.
With our current estimate cash flow breakeven point still at approximately 6500 to 7000 active rentals on the platform.
Run rate revenue of $70 million and $75 million based on our projected cost structure.
Our primary objective of 2022 remains stimulating car supply on the platform and driving efficient and sustainable topline growth to reach cash flow breakeven as rapidly as possible.
And now back to Joe for final remarks.
Thanks Eduardo.
To summarize this past quarter, we focused on and shifted resources to execution. Following the closing of the warehousing line with $20 million already deployed and 200 cars purchased.
We anticipate that the line of credit will continue to unlock unprecedented scale in the car sharing for gig economy.
Q4 is on track to be the strongest quarter in the company's history as we ramp supplied through the line and maintain our focus on organic growth.
Marketplace quality will drive marketplace liquidity and utilization and our initiatives around driver underwriting and risk, scoring internal operational improvements and cost controls are expected to accelerate revenue and margin growth as we enter 2023.
We will provide updates around the line, including corresponding capital deployment and asset purchases along with ongoing organic effort in upcoming calls and announcements. Thank.
Thank you for joining us today and with that I'd now like to open the call to Q&A operator.
We will now begin the question and answer session.
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And our first question here will come from Jack Vander <unk> with Maxim Group. Please go ahead.
Okay, great. Thanks.
Thanks, I appreciate the update guys and good to hear the continued momentum.
I'll start with a question on <unk> it looks like it looks like rental they dipped in the quarter.
But it's good to hear October has been the best month ever.
Believe on gross bookings and revenue for you.
If I just jump to what you expect for fourth quarter. It sounds like you expect it to be a record quarter. So.
It sounds pretty safe to say you are expecting sequential and annual growth in the fourth quarter.
Yes, Thanks, Jack for the question that's correct, we're expecting a.
Our record Q4.
Okay, Great and then and that's going to include some of this uptick.
Growth from our marrow drive it sounds like you sounded waters common set.
400 of those 1200 cars will maybe maybe a portion of the 400 or at least all 400 will be in results. So that's good to hear just for clarity there.
I was going to be a 1500 cars in total.
Does that include can you just explain the 2000, new cars, we expect to add and how that.
And then purchased an additional 2000 on top of that.
Okay got you.
And then one more question on your targets from your prepared remarks for that.
Net new cars I believe you said you expect to have 7000 net new cars to be available by the end of 2023.
Is this 7000 net new cards is that related to <unk> is that related to.
The total of number of cars on higher gross platform or is that like net new add in addition to what exists today just trying to understand.
Yes, great question, so that as a mere drive specifically.
We expect them to add a lot of cars and the reason we say net is because they're also selling cars and churning cars over.
And on a on a daily weekly basis, So net of seven new cars added to the fleet.
By the end of 'twenty, three is conservative and it's exciting because that translates directly into revenue.
Got you.
Total number of active cards that would be on the platform by the end of 2023 will be much greater than the 7000 node. This is just from your expectation from marrow drive.
Is that correct.
Correct Yep, Okay, great I appreciate the color there.
And then just one more question for me and I'll hop back in the queue.
You mentioned youre working towards finalizing.
I believe in an expanded partnership with the largest ridesharing company in the World, which I believe is Uber.
It's been expanded to over 30 geography additional geographies.
I believe you already in 50 U S office use state. So does this suggest higher cars potentially expanding internationally.
Just two other geographies within the U S. Maybe you have less of a presence there.
So the way the partnerships work.
For for this GNC and particular areas that they light up the various geographies as we are connecting to them.
Through the Apis and so.
There wouldn't be any difference in in terms of the 50 states that we're operating in.
What this does is allows us to leverage ubers marketing machine.
To start to drive leads in that it creates direct access to their marketplaces.
The country and so when we referenced that 30 different geographies.
That's within a metropolitan statistical area of the state that we're operating operating in.
Okay got it got it very helpful. I appreciate the update again, thanks, Joe I'll hop back in the queue.
No problem. Thanks Jack.
Again, if you have a question you May press Star then one to join the queue.
And this will conclude our question and answer session today.
I would like to turn the conference back over to Joe Furnari for any closing remarks.
Actually Joe It does look like we had.
One or two more in the queue here can we cut back.
Absolutely. Our next question here comes from Tom White with D. A Davidson. Please go ahead.
Hey, this is why.
Swanson on for Tom Thanks for taking our questions. My first question is kind of just around the macro.
I'm curious whether you guys are seeing evidence of headwinds in your business related to inflation rising gas prices or overall macro pressures.
I know you mentioned it might be a tailwind in terms of more folks turning to gig work.
But I'm curious, whether you're seeing any headwinds maybe related to the fleet operators on your platform or insurance cost or pushback from drivers as it relates to pricing anything like that.
Yeah. Good question I mean, we're not seeing a lot of headwinds right now.
Inflationary pressures if anything it's helping.
And I would point to a couple of statistics that were thrown out by by Uber and some of the other.
Online game platforms Hooper said that of all the new drivers that are coming to their platform to drive for them, 70% are citing inflationary pressures as a reason to drive.
So that's a big one and I think also what we're seeing is leads are up 14% year on year as.
As we mentioned on the prepared remarks, so that's a big that's a big one as well.
It's also why from a supply perspective, we're focused on evs.
Because obviously evs are.
Gas independent or independent correct. So.
We're seeing a lot of tailwind not a lot of headwinds in this current environment.
Okay, great. Thank you and then just one follow up for me I'm curious whether you guys can comment on how your current financing setup in partnership with Humira drive kind of serve as a blueprint for future deals with.
Other fleet operators any specifics or timeline that you could share on that opportunity would be great.
Yes, that's a great question too.
We view the partnership with Amira drive is.
Essentially they are a sandbox for us to learn best practices and deploy best practices.
The majority of our fleet operators right Mary drivers one operator amongst top 40 that we have in our hire car for business accounts.
And that doesn't include the one hundreds of them, maybe even thousands of operators better operating vehicles on our site. So.
The way, we think about our marrow drive is we learn from them redeploy best practices and then eventually we put together a franchise playbook for our top vehicle owners to follow via marrow drive method and that includes.
Packaging insurance telematics marketing level to.
Support.
From our call centers and now with this warehousing line Dcs eventually white labeling that financing so that we create a nice package of franchisee package for our vehicle operators to leverage and grow so that's the that's the <unk>.
True power of our platform is remaining asset light and as we continue to rollout. These different features do you see more and more.
What we call organic owners coming onto our platform and renting cars on our platform to earn money.
Great. Thank you.
It with no remaining questions.
Conclude the question and answer session.
I would like to turn the conference back over to Joe Furnari for closing remarks.
Great. That's all I have for today look forward to updating everybody in the future. Thanks for joining.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.