HyreCar Inc.
Q1 2019 Earnings Call Transcript

Published: 11 May 2019

[Operator:]

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the HyreCar Inc., First Quarter 2019 Earnings Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for your questions. [Operator Instructions] This conference is being recorded, today, May 9, 2019 and the earnings press release accompanying this conference call was issued at the close of market today. On our call today is HyreCar CEO, Joe Furnari, CFO, Scott Brogi and Greg Falensnik, Managing Director of MZ North America, HyreCar’s Investor Relations firm. I will now turn the call over to Greg to read a disclaimer about forward-looking statements.

[Greg Falesnik:]

Thank you, operator. Before we get started, I’ll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the Federal Securities laws regarding HyreCar, Inc. 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, estimates and predictions about the company’s business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in forward-looking statements – discussed from time to time in the report and in other documents which the company files with the U.S. Securities and Exchange Commission. In addition, such statements could be affected by risks and certainties related to factors beyond the Company’s control. Matters that make cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key Management personnel, availability of capital and any major litigation regarding the Company. In addition, this conference call contains time-sensitive information that reflects Management’s best analysis only as of the date of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. Further information concerning issues that can materially affect financial performance related to forward-looking statements contained in this presentation can be found in the Company’s periodic filings with the SEC. At this time, I’d like to turn the call over to Joe Furnari, the Company’s Chief Executive Officer. Joe, the floor is yours.

[Joe Furnari:]

Great, thank you Greg and thank you everyone for joining us today. I’d like to welcome everyone to our first quarter 2019 financial results conference call. We’re extremely excited to be here to provide a corporate update of our record financial results and illustrate our vision for the future of mobility. Ultimately showing how we plan to monetize that vision today and in the future. So since the beginning of 2016, we’ve shown 13 consecutive quarters with double-digit top-line revenue growth and this quarter was no different. We reported another record quarter in Q1 with revenues increasing to $3.5 million, growth of 105% when compared to the same period last year. We had 2900 new unique drivers were added in the first quarter of 2019 as compared to 1700 new unique drivers added in the first quarter of 2018. In the same time period, new driver leads to the platform have averaged over $75,000 per quarter. So this imbalance creates a tremendous opportunity for us and we’re literally sprinting at full speed to match the demand from drivers who want to participate in the ride sharing economy but don’t have a qualifying vehicle. In our third quarter call, we noted we had about 25 dealerships representing approximately 250 cars listed on the platform which averages out to about ten cars per dealership. In the end we’ll call we noted that dealership leads and the sales pipeline had grown to over 500 dealerships with one hundred cards – with one hundred dealerships listing cars and representing about 1200 cars on the platform or an average of about 12 cars per dealership. Today in the six weeks since the last call, the dealership numbers have grown to a total of 772 dealerships in the pipeline with 114 dealerships listing a car and over 1700 cars listed on the platform from an average of about 15 cars per dealership. I give you these numbers because they represent a significant increase in cars listed per dealership and it gives some insight into dealer satisfaction because it implies legacy dealers are adding to their fleet inventory and sticking to the platform. So while these cars represent future revenue growth for us, obviously there’s still a major disconnect between the driver leads we’re generating and the cars listed on our site. So we continue to be laser focused on the dealership initiative to scale inventory. Our partnerships group is focused on accelerating the OEM pilots currently in progress, we’ve added almost 350 franchise dealer partners into the pipeline from one of these pilots and the feedback has been positive with little churn from the dealer side. So, the success of our dealer initiatives to date are proving that the HyreCar platform is perhaps the dealers and OEM’s best solution to uniquely leverage this once in a generation shift of the transportation industry. We’ve fortified this dealership initiative with key additions to our board of directors. The most recent addition, Jay brings over two decades of technology platform, product development and leadership experience to HyreCar. He is currently the founder and CEO of Tekion Corp. It’s a Silicon Valley startup that is disrupting and transforming the business applications and automotive retail experience. Prior to founding Tekion, Jay was the Chief Information Officer of Tesla for over four years from 2012 to 2016 where he and his team ground up built and scaled Tesla’s digital and information platform and systems fueling the company’s hyper-growth fit. Surrounding HyreCar with experienced individuals has been one of my key objectives and leveraging different perspectives on the industry is what has made us a leader in the space and will continue our trailblazing into the future. I’d now like to turn the call over to Scott Brogi, our Chief Financial Officer. He’s going to walk through some of the key financial details from the first quarter of 2019. Scott?

[Scott Brogi:]

Thanks Joe. For the first quarter ending March 31, 2019, net revenues increased 105% to $3.5 million as compared to $1.7 million for the same period the prior year and 13% sequentially from $3.1 million in the prior quarter. Revenue growth was primarily driven by increased vehicle supply on our proprietary platform as we begin to scale fleet inventory from dealers. We were able to increase rental days on our platform by 81% to approximately 138,000 during the first quarter of 2019 compared to approximately 78,000 during the first quarter of 2018 which represents an annualized run rate of over 550,000 rental days. Going forward, net revenue will be supplemented by additional revenue share options we have just begun to offer. We increased gross profit, 360%, or $1.6 million to $2 million for the three-months ended March 31, 2019 as compared to $0.4 million for the same period the prior year and increased sequentially 17% from $1.7 million in the prior quarter. Operating efficiencies, due to increasing scale, continued to favorably impact our cost of goods sold. Gross profit margin as a result increased to 55.6% for the three-months ended March 31, 2019 as compared to 24.7% for the same period the prior year. Over the long-term, further margin improvement is expected as we realize economies of scale and insurance which we just renewed with our annual automobile insurance policy in April of this year. Operating expenses increased to $3.7 million of the three months ended March 31, 2019 as compared to $2 million of the same period the prior year due to increased staffing expenses to support higher revenue levels. However, this was a 16%, or $700,000 sequential reduction in operating expenses from the $4.3 million the prior quarter and it does include a $300,000 in non-cash stock-based compensation this quarter. Our net loss decreased $0.1 million, or 4%, to a loss of $1.7 million or $0.14 per share for the three months ended March 31, 2019 compared to a loss of $1.8 million or $0.34 per share for the same period the prior year and by 38%, or $1 million sequentially from the prior quarter. This narrowing of our net loss will continue as we benefit from higher margins while increasing our operating expenses in a controlled fashion to scale continued top-line growth. On the balance sheet, cash at March 31, 2019 totaled $6.3 million as compared to $6.8 million at December 31, 2018 and we are comfortable with our cash position and confident it is sufficient to carry us through the foreseeable future. Now I’d like to turn the call back to Joe to wrap it up.

[Joe Furnari:]

Thank you, Scott. And with that I’d like to proceed with some closing remarks. In summary, we are continuing to grow sequentially at double-digit rates. This growth is fueled by macro tailwinds pushing individuals toward a new future and it’s called mobility as a service. We see HyreCar perfectly positioned to enable drivers, OEM’s, auto dealers and fleet operators access to the mass opportunity. Feedback from our OEM and dealership initiatives has been positive so we’re doubling down on efforts to build scale and capacity into the platform to accommodate our vehicle suppliers. The driver demand continues to be robust and providing a consistent value-add experience where driver customers has been a key focus. To conclude, I believe HyreCar is reaching an incredible inflection point and I look forward to continued operational execution and shareholder value creation over the long-term. With that, I’ll turn it over to the operator. Operator?

[Operator:]

Thank you very much sir and we will now begin the Q&A Session. [Operator Instructions] And our first question from Northland Securities, we have Mike Grondahl.

[Mike Grondahl:]

Hey, thanks guys and congratulations on the quarter. Did I hear that right, 772 dealers in the pipeline?

[Joe Furnari:]

Yes, you did. And so a big growth in that pipeline was one of the OEM partnerships basically coming back to us and saying, the original deal was we’re going to endorse you as an OEM to eight of our top franchise – our healthiest franchise dealers. He came back three weeks later and said, you know, I’m sorry, I look like I’m playing favorites, here’s the whole list. So, we pumped a whole list of OEM franchise dealers into our CRM and now we’re in the process of reaching out to those guys.

[Mike Grondahl:]

And is that the 350 franchise dealers you mentioned tied to the OEM? I’m trying to connect the dots there?

[Joe Furnari:]

Correct, yes.

[Mike Grondahl:]

Got it. And have you mentioned that OEM publically or can you?

[Joe Furnari:]

We’re under NDA right now. So we’re running pilots, we’re going to show them – we show them scale and value-add in multiple use cases for the dealerships and then working towards that official announcement here.

[Mike Grondahl:]

Got it. And how many dealers were in the pipeline the last time you gave that number?

[Joe Furnari:]

So it was around 400-ish. We’re in the pipeline at that point with a hundred that had already signed up.

[Mike Grondahl:]

Got it. And how do you prioritize when you have 772 in the pipeline? Is it size, is it inbound calls, like how do you sort that out?

[Joe Furnari:]

Yes, so ideally what we’re trying to do now is match the demand out of the various geolocations with those individual dealerships in that geolocation. So you’re prioritizing the leads that we’re seeing and the individuals that are coming to us and saying that they want to drive they just need a car and then those people that are getting – passing their background checks. So, there’s a ratio that we follow through time and it really dictates who we’re calling first on that, in that prioritization list.

[Scott Brogi:]

Yes, and I got – this is Scott, like – I would just add that it’s great to be working from a position of knowledge because we actually know where those pockets of driver demand are, right, and as Joe was saying, we can really make that match between the dealers in that geography to match up their car inventory with where the most driver demand is, just for the ride sharing.

[Mike Grondahl:]

Got it. So just so I understand, so if you have 75,000 driver leads a quarter, and in the first quarter 2900 made it as unique drivers, you know, the city and the densities where those are coming from and you go to dealers to map those as a priority?

[Joe Furnari:]

Exactly.

[Mike Grondahl:]

Got it, got it. Any success stories with dealers that call out like one that’s ramped quickly or is that kind of happening with a lot of –

[Joe Furnari:]

Yes, last call I think we went through a few use cases and we detailed out a couple of those dealerships where they started with five cars and it ramped to, in one case, 134 cars listed. Another had ramped to 43, 34 cars listed. So, you’re starting to see a lot of those kind of top-line franchise dealers starting to come on now, whereas in the past it had been a lot of independence and so we’ll start – I think we’re going to start to see more franchise guys coming on and listing those cars. And these are the guys that have multiple rooftops and the capacity to really scale into the demand that we show them.

[Mike Grondahl:]

Got it, got it. Have you lost any dealers?

[Joe Furnari:]

We have very little churn right now. We’ve lost a couple of dealers here and there but very little churn, to this point. And the feedback has predominantly been positive at this point. It kind of ties into the broader thesis of plateauing car sales. And also, you see car sales plateauing which means the dealers start looking around for alternative revenue sources. Primarily right now they’re turning to us to sell more cars and that’s really what’s happening. We’re sending those leads there, they’re driving for three or four months, which is great for us because it’s increasing our lifetime value of customer, and then they turn around and buying that vehicle through a number of programs that the dealers are running independently of each other. And so I’m seeing a lot of uptake there. I’m seeing good traction there and a lot of positives. Now there’s – that being said, there’s a lot that we need to fix, right, overhaul, in some of their processes and backend support and that type of stuff to really make sure that we’re providing a white glove service for the larger franchise dealers but it’s – we say this all the time, we’re building the rocket ship as it’s in flight. So, we’re constantly backfilling with the operations in the underpinnings of the insurance product and the processes and claims and all of that type of stuff. So that’s happening now.

[Mike Grondahl:]

Got it. And maybe last question for me. I think April 1 you rolled out those three insurance options for vehicle owners. And I know a vehicle owner could kind of pick higher coverage but then give you 25% of the daily rental or a little bit more standard coverage and only give up 15%. What did you see in the last five weeks? What are the vehicle owners opting for?

[Scott Brogi:]

Hey Mike, it’s Scott, maybe I’ll go ahead and take this one, but, yes, we’ve been very pleasantly surprised, as you talked about, we added two more revenue share and service levels to what we offer in addition to the original 85%-15% split. So in addition to that basic plan, we have a standard plan now that’s an 80%-20% split and then a premium plan which has some enhanced insurance features and also some supplemental benefits from the car owners and that’s a 75%-25% revenue split. Originally we kind of thought it would be, you know, maybe a third, a third, a third but I would say during the month of April when we really converted all of our owners over to that new plan offerings, we’ve seen significant uptake in the premium plan and I think it’s just people wanting to have more stability in that current income they’re getting back on the vehicles. So that’s been great, you know, that allows us to step up and invest more into customer experience and support and really drive a better experience for the car owner. So we’re really excited about what that really allows us to do going forward and then, you know, as we’ve talked about a bit in our recent investor deck, that should really increase our net revenue margins from kind of 42% to 43% historically to more like the 46% to 47% range and you’ll actually see that begin to show up here in Q2 since all of those conversions actually happened April 1. So we’re really excited about that and it’s going to be a dramatic improvement for the business along with, you know, the continued reduction in our daily automobile insurance costs which will directly reduce cost of goods sold starting in Q2. So two really nice impacts that should really help us to continue to drive gross profit above the level we already got to this quarter.

[Mike Grondahl:]

Great, I’ll jump back in the queue. Thanks guys.

[Scott Brogi:]

Thanks Mike.

[Operator:]

[Operator Instructions] Next we have Howard Halpern, with Taglich Brothers.

[Howard Halpern:]

Congratulations, great quarter guys. Just building off the last question that – so gross margin you anticipate that approaching that 60% level at some point during the year?

[Joe Furnari:]

Yes, hey Howard. I think actually with these two changes that we just talked about, the net revenue margin improving from 42% to 43%, up to kind of 46%, 47%, you’ll actually – you know, we started to see that swing in April and, you know, here in May and then we’ve also seen a reduction in that direct insurance cost. So we actually think you’re going to see that in Q2 so that will actually phase very quickly going forward.

[Howard Halpern:]

Okay. A little color if you could add to the – I guess the sales and marketing because that was really a big swing from the fourth quarter to first quarter. Was that a seasonal impact or are you able to maybe leverage better now that you have that pipeline of dealers and, OEM’s to go after? Could you give a little clarity on where you see the sales and marketing?

[Scott Brogi:]

Yes, maybe I’ll start that one. It’s Scott, Howard. And I think really what you see is the addition of a couple of key strategic partners in what we’re doing who have deep connections into the franchise dealers space in particular have really helped us gain traction into that largest segment of the dealer community. Again, there’s about 30,000 independent dealers who tend to be kind of midsized and then you’ve got another 17,000 to 18,000 large franchise dealerships and now with the manufacturers pilots that we’ve started to run, we’re starting to see cars come on in much bigger tranches then we’ve seen historically. So, those are pretty new efforts; those partners really came on in Q1 and now we’re kind of building that team out and starting to leverage it heading into Q2. So I think it’s just early days with what we’re seeing there but really exciting results so far.

[Howard Halpern:]

And you think that should keep relative cap on sales and marketing expense and is – from what you have in the first quarter of this year?

[Scott Brogi:]

Got it. Yes, I think we’re going to have to expand that outside sales team a bit but in terms of the yield that we see, in terms of the increase in the car inventory and the very rapid monetization of that fleet, you know, it really should be – we expect it to be self-supporting. So, we may have to add to OpEx a little bit on the sales and support team to really make sure these dealerships have a white glove experience and, we have very successful pilots. We don’t see it as dramatic increase to that OpEx line.

[Howard Halpern:]

Okay. And I don’t know if you’re willing to provide it, but when do you anticipate hopefully being cash flow breakeven, positive, is it going to be in this current fiscal year or next fiscal year?

[Joe Furnari:]

Well, I think that right now we have – within this OpEx band that you’re seeing when – in Q2, I think we’re pretty close to it. The question becomes for us is, we have this tremendous opportunity in the dealer space to really scale into that opportunity and so, you know, it’s balancing cash flow positive with capturing large amount of market share over the next 24 months. So that’s what we’re balancing at this point and we’ll continue to balance going forward. But with a strong cash position that we reported, I don’t see any problems with continuing to operate the way we’re operating.

[Howard Halpern:]

Right, so you’re going to be reinvesting whatever positive cash flow is coming your way?

[Joe Furnari:]

Yes, exactly.

[Scott Brogi:]

Exactly.

[Howard Halpern:]

Okay. Okay, well, keep up the great work guys.

[Scott Brogi:]

Thanks, Howard.

[Operator:]

And we’ll move back to Mike Grondahl with Northland Securities.

[Mike Grondahl:]

Hey guys, just a follow-up. How many actual OEM pilots do you have going on right now? Is it one or two? Just trying to get an accurate count there.

[Joe Furnari:]

Two OEM pilots going right now.

[Mike Grondahl:]

Got it, and are they both – it sounds like one is going really well where you got 350 dealers in the pipeline. Roughly, how is the second one going?

[Joe Furnari:]

The second one we’re lagging into that relationship and then they’re very specifically going to their healthy dealers in very specific geographies. So, probably six to eight, I think, dealerships that we’ve identified there that are – they do like the core group and then I think the plan is after we demonstrate some scale there, then you go to another, like another 50 of those dealers and it starts to grow. So, that’s going to be a longer process.

[Scott Brogi:]

Yes, I would just add, Mike, that one of those OEMs is kind of a midsized international manufacturer and one of those is a very large domestic manufacturer and just in the course of that process with big companies, it just takes longer to show the pilot and make everybody comfortable that it’s something they can really scale but that’s our focus is, making sure we have a great pilot experience with both of those companies and moving from there. And the great thing is we can monetize all of that inventory as we’re proofing out these pilots, right, so it’s a nice situation.

[Mike Grondahl:]

Sure, and the second OEM, those six to eight dealers are identified, are they listing cars yet or is that more summer timeframe?

[Joe Furnari:]

Probably more of a summer timeframe. You have a longer sales process there, setting up LLCs, they’re setting up lapped insurance coverages, they’re securing their floor plan financings for this specific program. So it’s definitely a process. So yes, that’s probably a late summer even there. But you’re going to get one or two that accelerate that. And I’ll be able to, in the next call, probably give you a little bit more color on that. How that’s progressing.

[Mike Grondahl:]

Perfect. Well, it’s just – one, it sounds like it’s well on its ways. The other one sounds like it’s just kind of earlier. So, cool. That’s all I had guys, thanks again.

[Joe Furnari:]

Thanks, Mike.

[Operator:]

And with no further questions, I’d like to turn the floor back to management for any additional or closing remarks.

[Joe Furnari:]

Yes, so thank you again for joining us today. We look forward to continuing to update you on our progress. That’s it.

[Operator:]

Ladies and gentlemen, once again, thanks for joining us today. That does conclude today’s conference. You may now disconnect.