HyreCar Inc.
Q4 2018 Earnings Call Transcript

Published: 29 Mar 2019

[Operator:]

Good day everyone. Welcome to the HyreCar Fourth Quarter and Full year 2018 Results Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Greg Falesnik, Managing Director, MZ Group. Please go ahead, sir.

[Greg Falesnik:]

Thank you, operator. Before we get started, I will 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 our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our 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 the forward-looking statements due to numerous factors discussed from time to time in this report and other documents filed with the SEC. 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 on 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 fiscal year 2018 financial results conference call. We are extremely excited to be here to provide a corporate update, our record financial results, and illustrate our vision for the future of mobility and ultimately show how we plan to monetize that vision today and in the future. We reported another record quarter in Q4, with revenues increasing 145% to $3.1 million over the same period last year. Since the beginning of 2016, we've shown 11 consecutive quarters with double-digit top-line revenue growth. For 2018, we grew net revenue more than 200% to $10 million from $3.2 million in the prior year with net rental days increasing more than a 120% to 393,000 rental days. Gross profit was up almost 20 times to $1.7 million in Q4 versus the same period a year ago, resulting in a gross profit margin of 54.6% in the fourth quarter which lifted our gross profit margin to 47.5% for the full fiscal year based on $4.6 million for the fiscal year. Most importantly, today we still have over $6 million of cash in the bank, compared to $6.8 million at the end of Q4 and quarter-over-quarter our burn has steadily been reduced from $3.2 million in Q3 of 2018 to $1.9 million in Q4 of 2018 and about $500,000 in Q1 2019. This is significant on several levels. First it means that HyreCar is proving out a profitable business model in the mobility as a service industry. Second, it means we are on track to hit our profitability goal in Q2 and thirdly, the former going concern qualification in the company’s financials is now been removed by our auditors and the adequacy of our existing capital to support operations. We had about 7600 new unique drivers were added this year as compared to 4400 new unique drivers added in 2017. In the fourth quarter, we added 2800 new unique drivers on the platform, an increase of 65% as compared to 1700 new unique drivers added on the platform in the fourth quarter of 2017. This represents a sequential increase of 19% when compared to 2400 drivers in the third quarter of 2018. New driver leads on the platform are averaging around 25,000 per month. In our third quarter call, we noted that we had 25 dealerships representing an estimated 250 cars on our platform. A number we expected to double in the fourth quarter of 2018. Today I am proud to report, we listed our 100th auto dealership today, of which, 1200 cars have been listed to the platform. Obviously, this still represents a major disconnect between the driver leads we are generating and the cars listed on our site. So we continue to be laser-focused on the dealership initiatives to scale inventory. Feedback from our OEM and dealership initiatives has been positive so far. OEMs are telling us that they believe the HyreCar platform will introduce their franchise dealers to new revenue opportunities provided by servicing the mobility as a service industry and dealerships are saying that HyreCar platform helps them make more deals and more money because sales, parts, service departments all benefit. So given the positive feedback we are hearing from the industry, expectation is that dealer fleet continues to capture a larger share of active rentals. Growth on this front is being driven by our establishing of a commercial division with a large-scale focus dedicated to dealer and OEM business development initiatives. This division concentrates on growing our vehicle supply from institutional vehicle sources was established in late 2018 with the announcement of a strategic hire of long-term – long time dealership veteran Brian Allan, a respected thought leader in this space. Brian maintains a focused mission, establish OEM dealer relationships and implement innovative technology to operate the HyreCar platform at scale. The major macro forces behind our growth have not changed and I think that thesis through our profitable business model is worth reviewing again. In the United States alone, consumer expenditures on transportation were approximately 1.2 trillion in 2017 and transportation was the second largest household expenditure after housing, twice as larger healthcare and three times as large as entertainment. Urbanization and changing habits around the way individuals consume transportation across the globe are scaling into main street adoption Lyft and Uber have recreated a new on-demand consumption model for transportation that is just beginning. But threatening the traditional retail model and the industry is built around it. As an example, the most recent ten year forecast of retail sales points to a dramatic shift downward in private ownership – private car ownership with a significant upswing in fleet and commercial ownership due to mobility as a service. Our dealer initiatives are proving that HyreCar’s platform is the solution to leverage this shift as a benefit for automotive dealers and OEMs. Now I’d like to turn the call over to Scott Brogi, our Chief Financial Officer to walk through some key financial details from the fourth quarter and full year 2018. Scott?

[Scott Brogi:]

Thank you, Joe. For the fiscal year ending December 31, 2018, we increased revenue by 203% to $9.8 million compared to $3.2 million in the fiscal year ending December 31, 2017 and in the fourth quarter of 2018; we increased revenue by 246.5% to $3.1 million from $1.3 million in the fourth quarter of 2017. This represents a sequential quarterly increase of 50.5% when compared to revenue of $2.7 million in the third quarter of 2018. Revenue growth was driven primarily by increased vehicle supply on our proprietary platform. We saw a dramatic increase in rental days on our platform of 121% to approximately 393,000 days during 2018 from approximately 178,000 days during 2017 and as recently announced we are currently on an annual runrate of 550,000 rental days. We increased gross profit 15 times to $4.645 million in 2018 from $300,000 in 2017 as a dual impact of higher revenue an operating leverage started to scale. And in the fourth quarter of 2018, we increased gross profit almost 20 times to $1.7 million from $900,000 in the fourth quarter of 2017. This represents a sequential quarterly increase of 16.8% when compared to gross profit of $1.45 million in the third quarter of 2018. Gross profit for the fiscal year 2018 – or gross profit margin for the fiscal year 2018 increased significantly to 47.5% compared to 9.7% in 2017 and almost five-fold increase. Gross profit margin in the fourth quarter of 2018 was 54.6%, an increase of over eight times when compared to gross margin of 6.8% in the fourth quarter of 2017. Margin expansion was driven by a significant reduction in insurance premiums, as well as increases in referral and affiliate income. Over the long-term, further margin improvement is expected as we realized economies of scale in insurance and transaction costs, as well as new revenue sources from additional revenue share offerings that we’ll be releasing soon. So with gross profit of five times, total operating expenses were $13.7 million in 2018, compared to $4.2 million in 2017, an increase of 3.3 times. Total operating expenses of $4.2 million in the fourth quarter of 2018 compared to $1.2 million in the same quarter a year ago. The increase in operating expenses was primarily due to larger general and administrative and sales and marketing expenses to support significantly higher levels of business. The net loss in 2018 totaled $11.2 million or $1.31 per share, compared to a net loss of $4.3 million or $0.81 per share in 2017. I would note that over $2 million or approximately $0.23 per share of the net loss was a result of interest expense associated with convertible debt, which no longer exists. The increase in net loss is primarily due to higher expense levels again to support dramatically higher revenues. Cash at December 31, 2018 totaled $6.765 million as compared to $214,000 at December 31, 2017. The substantial increase in cash was due to the gross proceeds of $12.6 million from the company’s June 2018 IPO. As of today, we have over $6 million in cash and marketable securities, up from a little over $5 million at 12/31. So we are comfortable with our cash position and confident that it is sufficient to continue us through the foreseeable future. And for guidance, we wanted to let people know that for the first quarter ending March 31, 2019, HyreCar expects revenues to range between $3.4 million and $3.7 million and gross profit to range between $2 million and $2.2 million. Now I would like to turn the call back to Joe to conclude the conference call.

[Joe Furnari:]

Great. Thank you, Scott and with that, I’d like to proceed with some closing remarks. So, in summary, we are continuing to grow sequentially 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, OEMs, auto dealers and fleet operators access to the mass opportunity. Feedback from our OEM and dealerships initiatives has been positive. So we are doubling down on efforts to build scale and capacity into the platform to accommodate our vehicle suppliers. Driver demand continues to be robust and providing a consistent value-add experience to our 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:]

[Operator Instructions] We’ll hear first today from Mike Grondahl with Northland Securities.

[Mike Grondahl:]

Yes, thanks guys. Congratulations on the quarter. Te first question is, on the dealer strategy, could you talk maybe about a couple of case studies and just how and you don’t have to name the dealer, but how a dealer progressed over the last four or five months?

[Joe Furnari:]

Sure. So we’ve said that, we listed – most recently we listed the 100th dealer which means that that dealer came on to the platform, listed a car and then rented that car. So, significantly up since mid-November when we had last reported. So, in terms of like a case study, what I am seeing right now is that, dealers are kind of falling into three buckets in terms of our use cases. You have, like an alternative revenue model which is what we consider rental car fleet and dealers are building these rental car fleets. We are seeing that both on the independent and franchise dealers. One good example, a company named AutoDeals out of Atlanta; we had met them in September in Vegas in person. James listed two cars on November 2 and then really scaled that to about 35 cars as of today. He is building his fleet by buying at auction, buying cheap at auction and his idea is this is going to create a new revenue stream there. So that’s the first kind of use case. Second use case franchise dealers are using the platform to sell more cars. A good example, 866 Auto Mall in New Jersey. Mike started with five cars beginning in October who has listed over 124 cars at this point in a - what you call the rent-2-own program. He has already sold ten cars out of that rent-2-own program. The beauty of that program is that, that’s rental income for HyreCar of three to five months before they stack up enough money for the down payment. So, we are seeing lifetime value of customer extension there, as well. So, it’s a mutual benefit in these cases. Third example, manufacturers and franchise dealers are selling more cars. So, some of the franchise dealers are taking advantage of manufacture incentives that required dealers to put mileage on new vehicles before reselling. So those are really the three use cases. We are providing the platform and the dealers are figuring out how to make money which I think is a good feeling.

[Mike Grondahl:]

Good , good. Secondly, what’s an update on the OEM strategy? Are you working with any OEMs today? Are you still in discussion mode? How is that going to progress?

[Joe Furnari:]

So we are running a couple of unofficial pilots with few OEMs right now and that’s it. That’s all I can say at this point. I’ll let the street know when they are formulized. I don’t have a timetable. But we are running a couple right now.

[Mike Grondahl:]

I guess, as a follow-up to that, is that cars coming off lease or can you just say that the use case that the OEM is sort of using HyreCar for?

[Joe Furnari:]

Well, I’ll tell you what, ideally, I would like to have happen, how about that? Ideally I would like an OEM to endorse us to all of their franchise dealers. That opens the door for us to take our pitch to those individuals, owners and say, here is HyreCar with a turnkey franchise solution for you to start renting more cars. Now alternative revenue source starts renting – starts selling more cars and a rent to owner earn to own program or start selling more use cars in – by receiving manufacturers rebates. And I would love for an OEM to step up and start offering rebates specifically for cars that I wish in the right sharing. So, that’s ideally what I’d like to have happen, but that’s – like I said, I don’t have a timetable for that.

[Mike Grondahl:]

Got it. And then maybe two more questions, but one, I think your insurance renewal was coming up in April. How is that renewal going to look?

[Joe Furnari:]

So, the – obviously, insurance is a big piece of the COGS right now. We are looking at rolling out a new type of tier insurance next week essentially giving our vehicle owners and dealers an ability to choose the types of coverages that they are looking for and given the type of coverage, I would broke it out as the three level of the basic, standard and premium plans that given this type of coverage, HyreCar takes different haircuts from that vehicle owner at the time of the rental. So, and this is all being driven by conversations we are having with the insurance companies. And so, the expectation is that, the profit margins start to push up into the mid-60s. And a couple of other – there is a couple of other things that we can’t move 100%, because they are not 100% timing-wise, but next week I think that we will be able to talk about that a little bit more.

[Mike Grondahl:]

Okay. And then, maybe just lastly, you mentioned some new revenue sharing offering that would be coming and kind of help drive margins. What are some of those offerings we can maybe see later this year?

[Scott Brogi:]

Yes, maybe I’ll jump in here for a second, Mike, it’s Scott. Yes, so, it’s really connected with kind of the new insurance programs that we are looking at to start next month. And basically, one of the requests we’ve heard from car owners is that they like some different options in terms of liability limits or deductibles and those kinds of things. So with these new programs that we’ve been basically shopping for the last couple months with the insurance carriers in the mobility space, we are going to have more flexibility for owners and then, if you want a different kind of structure and we’ll say, you are car dealer who wants really high liability coverage from an entity perspective, you’d probably be willing to give up a bit more of the revenue share to have those additional types of coverage. That’s really what we are talking about. So that would be additional margin that we would be keeping that would be kind of increasing our take if you will, of the net revenue.

[Mike Grondahl:]

Got it. Okay. Thank you.

[Scott Brogi:]

Yes.

[Operator:]

We’ll hear next from Howard Halpern with Taglich Brothers.

[Howard Halpern:]

Congratulations on the numbers. First question is regard to your sales force. How large is it now and how is it being deployed now that you are – you can operate within all 50 states?

[Joe Furnari:]

Sales force is now up to a little under 30 at this point. And the bulk of that sales force is geared towards drivers and bringing drivers in and walking them through the process. What we have done is carved out a couple more heads for the driver side of – or the owner side of things and specifically geared them towards the commercial pitch essentially. So, now if you call in and you are a dealership, you are going to two people, now you are going to six people and that was a really a repurposing of some of our peer-to-peer vehicle owner sales, more now towards – geared more now towards the commercial side of things.

[Scott Brogi:]

Yes, this is Scott. And one thing I’d add is, with Brian now on board with the great sort of larger franchise dealers and OEM relationships, we are seeing a real uptick and I think it kind of influenced the pipeline numbers that Joe had talked about earlier. But, so we are seeing a probably good opportunity to increase resources into that area and really scale car inventories from that fleet side of the equation.

[Howard Halpern:]

Okay. In terms of G&A expenses for the fourth quarter, I know it rose nicely sequentially to support the growth. Is that $2.3 million in the fourth quarter a good starting point for the upcoming quarters in 2019?

[Scott Brogi:]

I’d say, I think we had some year-end catch-up that we had done in that number. So, we’d expect that to be a bit lower going forward. But probably not at that point to start.

[Howard Halpern:]

Okay. And in terms of – you also, I guess, in 2018 developing the whole structure of the company you brought in Mr. Park to work on customer service initiatives and streamlining. How has that gone along with, I guess, the integration of some of the software partnerships, so that you are in a pilot testing out there. How has all that gone and how do you expect that to impact 2019?

[Joe Furnari:]

Yes, I see, Henry coming in and really structurally changing the way we’ve been managing the business, specifically on the claims management. This ties a little bit into the insurance piece is, we are now at the – right at the finish-line with this insurance captive and the ability then to insure our physical damage claims. Really the key there is, making sure that we are paying faster and we’ve created the capacity to pay in a much cleaner process with the way that captive has been designed. So, faster repay, faster resettle everyone is happy there. So that’s number one. And I think that’s where you see a lot of the adverse reviews. So, that is in process now. So that’s a team doing that. We’ve – he, Henry has established a brand reputation management group and they are tasked with reaching out to customers who have had those adverse experiences and then, turning them from the centers into advocates. So that’s happening now. And then, another structural piece is then the pod alignments, what we are calling pod alignments, so, in the past, we had operations and a call centers at level-1, level-2 operations and then you had sales. And they physically sat on the opposite sides of the room. Now what we’ve done is brought in a pod type structure where sales agents, operational agents level-1, level -2 are sitting right next to each other and they are able to resolve issues a lot faster than what we’ve had in the past. And so, what you are seeing is a more streamlined and efficient communication with our customers. So, yes, Henry, with that just those three structural changes I think are going to really start to ramp the business here from both the retention side of things, but also customer acquisition side as well. And I think, in this business having someone to talk to and expedite issues from a customer perspective in real-time is a huge competitive advantage for us. I think most of our competitors had missed this point as one of our mission is improving the retention in customer experience on the sites.

[Howard Halpern:]

Okay. And just one housekeeping. Do you have what Q4 billings were?

[Joe Furnari:]

Q4 gross billings, I don’t have Q4.

[Scott Brogi:]

We’ve got it in the K.

[Howard Halpern:]

Okay. Okay I’ll look for it, okay.

[Joe Furnari:]

Yes, that’s actually – yes there is a good graph in there that will give you quarterly GMV as well as quarterly rental days which is really kind of a metric that we’ve moved to show the volume increases in the business.

[Howard Halpern:]

Okay, well. Thanks. Keep up the great work

[Joe Furnari:]

Thanks, Howard.

[Scott Brogi:]

Thanks, Howard.

[Operator:]

And at this time, I would like to turn things back to management for closing remarks.

[Joe Furnari:]

Great. Thank you again for joining us today and we look forward to continuing to update you on our progress. Thanks, operator.

[Operator:]

And that will conclude today's conference. Thank you all for joining us.