EVmo, Inc.
Q3 2022 Earnings Call Transcript

Published: 15 Nov 2022

[Operator:]

Good afternoon, and welcome to EVmo's Third Quarter 2022 Conference Call. As a reminder, this call is being recorded. [Operator Instructions]

[On the call today are EVmo's CEO, Stephen Sanchez; and CFO, Ryan Saathoff. The company would like to remind everyone that various remarks about future expectations, plans and prospects, constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. EVmo cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated, including risks described in the company's filings with the SEC.:]

[Any forward-looking statements made on this conference call speak only as of today's date, Tuesday, November 15, 2022, and EVmo does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. A replay of the conference call will be available on EVmo's website at www.evmo.com.:]

[With that, I'd like to turn the call over to EVmo's CEO, Stephen Sanchez. Mr. Sanchez, please go ahead.:]

[Stephen Sanchez:]

Thank you, Decorum. I appreciate it, and thank you all for participating on our call today. The third quarter of 2022 was a very successful quarter for EVmo. We're proud of the progress we've made in the last year, and we're very excited about what's ahead for us. I'd like to highlight 3 main points. First, we achieved positive EBITDA of $117,000, which is a massive improvement from a negative EBITDA of $3.9 million just a year ago. Excluding a $300,000 nonrecurring litigation charge related to prior management, adjusted EBITDA was $424,000 or an EBITDA margin of 12%, a step towards our target of 25% EBITDA margins. Reaching positive EBITDA also shows the suitability of our model, and it's important as we move to profitability in the coming quarters. Second, we delivered record gross margins of 50%, which excludes depreciation, and we continue to control our operating costs.

[As we have talked about in the past, we own and manage our fleet, which gives us more predictability of fleet availability and higher utilization rates, while at the same time, allowing us to consistently provide customers with well-maintained vehicles that meet rideshare company requirements. The team we have assembled here at EVmo is made up of fleet management veterans who have run major fleets at companies such as UPS, DHL, on Track, FedEx Ground and Amazon, just to name a few, and operational efficiency is a core competency of ours that will become more important as we continue to grow.:]

[Third, in the quarter, we signed a partnership with Trek World USA, where we will initially provide vehicles in the state of Illinois with plans to expand with them nationwide over the next 3 years. Corporate Services, LightTrakWorld, is an exciting growth area for EVmo. We're able to provide our partners with EVmo's fleet management expertise, while for us, it will help our already high fleet utilization metrics and also gives us a great way to enter new markets and expand our geographic footprint. Turning to our 2022 revenue outlook, we now expect it to be in the range of $13 million to $15 million. This would represent year-over-year growth of 30% to 50% over 2021, but it is still below our expectations due to delays in vehicle acquisition. The impact of the global supply chain interruptions is still being felt. And this, along with higher interest rates, more expensive vehicles and market uncertainty has led to some firms tightening the terms of the lease programs, which are requiring more money down, among other things.:]

[As a result, our pace of adding vehicles has slowed in the past few months as we are not going to chase growth for the sake of growth, successful fleet management is being smart about what we buy and when. And while overpaying today may get us cars slightly quicker in the short term, longer term, those vehicles will weigh in on our profitability for years to come. We're seeing some improvements in the markets as of late, and we have also been actively working to finalize new lease programs with some significant industry players and having longer-term corporate contracts certainly helps with these discussions. Before I turn it over to Ryan, I want to be clear, we do see a slower pace of adding cars in the second half as a timing issue. Our renter demand remains very high. Our utilization is strong, high 90s, and our growth plans remain unchanged.:]

[I'll now hand the call over to Ryan for a more detailed review of our financial results. Ryan?:]

[Ryan Saathoff:]

Thank you, Steve, and good afternoon, everyone. As Steve highlighted, the third quarter was a strong quarter for us. Looking at some of our key performance indicators, we saw continued high levels of driver retention similar to Q2, and we remain focused on setting the standard in the industry for customer loyalty. Through the third quarter, 60% of our customers are renting for 80 consecutive days or more. These are people who are using rideshare driving as a way to earn a living, support a family, and we're proud to enable them to run their own businesses. Turning to our financials. Total revenue of $3.5 million in the third quarter was up 30% year-over-year and 24% up from Q2 2022, driven by the addition of new vehicles to our fleet during the quarter and highly -- and higher daily rental rate, particularly for some of the higher demand models such as the Teslas.

[Gross margin, excluding vehicle depreciation of $817,000 was 50.4% in the third quarter, up from 36% in third quarter 2021 and an improvement from 44% last quarter. The strong margin performance was a result of our fleet management program and operating efficiencies, along with better rental rates and driver retention. We expect our gross margins will sustain and possibly improve as we increase our fleet and deploy a greater percentage of EV models to the fleet with favorable legislation, improving the overall cost of total ownership.:]

[Our operating expenses, which consists of selling and marketing, product development and general and administrative expense was $1.76 million, up just 3.6% from Q2 2022, which we're pleased with considering revenues up 23% in the same period. Compared to Q3 2021, operating expenses were down as Q3 2021 included a number of costs related to debt financings. Our disciplined approach to controlling operating expenses now allows us to scale from our current expense rate. And with each new car added to the platform, gross profit will drop to the bottom line. Net loss in Q3 totaled $1.5 million, an improvement of $3.2 million from the net loss of $4.7 million in the third quarter of 2021, driven primarily by a $2.1 million improvement in operations and lower interest expense and financing costs. In sum, the team has done a great job managing the strong growth while at the same time controlling our operating costs.:]

[With over 1,200 vehicles in the fleet, we added $9 million in leased vehicles in Q3 and now have $28 million in vehicles in the balance sheet, of which approximately 300 are now owned outright. Our book value net of depreciation is $22 million, but our appraised fleet value is substantially higher. Our cash and cash equivalents totaled $4.3 million as of September 30, 2022. Looking ahead, we expect to build on the strong results and positive EBITDA moving us profitably into the coming months.:]

[With that, I'd like to turn it back to Steve for final remarks. Steve?:]

[Stephen Sanchez:]

Thanks, Ryan. Appreciate it. As we progress through the rest of 2022 and into 2023, we anticipate continued strong revenue growth and improving financial results, building to profitability and then being able to fund growth from operating cash flow. To reiterate our model at scale, which is around 2,000 vehicles, we should sustain gross margins, excluding depreciation of 50% and EBITDA margins of 25%. As we look into the rest of 2022 and into 2023 and beyond, we're focused on 3 main initiatives. One, continue to grow our fleet of vehicles, but make sure we're doing it in a measured and smart way. Our fleet growth plans are unchanged, reaching 2,000 vehicles and 4,000 and beyond. While the market turmoil has pushed out our near-term target slightly, that same turmoil could open up some opportunities for us as vehicle availability improves and OEMs and other industry players are now looking at market demand quite differently than they were 9 to 12 months ago, and our business model is designed to perform well in any economic environment.

[Second, we want to grow our corporate partnerships. We're excited by the Trek World agreement, and we're actively working on securing more partnerships, working with municipalities, universities, government agencies and private corporations. We hope to be able to update you on these in the coming quarters. Third, we want to reach more drivers. Ryan highlighted our customer loyalty in his comments, and we want to build on this. We have an excellent offering and there are a lot of new drivers out there as well as an opportunity to take drivers who are using other services, be it competing solutions or using their own vehicles. Certainly, the higher interest rates and down payment amounts have made buying a new or used car less affordable than it had been in the past years. We enable people to run their own businesses in the rideshare and gig industries. In closing, I'd like to thank everyone for their interest in and support of EVmo. We're very excited for the future as the initiatives we have been putting in place for the last year continue to accelerate.:]

[Operator, please open the call for questions.:]

[Operator:]

[Operator Instructions] We have a first question from the line of Graham Mattison with Water Tower Research.

[Graham Mattison:]

A quick question. I wonder if you could give us a little bit more color on the Trek World agreement. Where could you see that growing? And how soon could you see the growth beyond the initial cars? I mean could that be as soon as 2023?

[Stephen Sanchez:]

So to be clear, with Trek World, we're starting in the State of Illinois, and we have a couple of dozen cars out there now, and we expect that relationship can grow over 2,000 vehicles, both in the Illinois and the greater Houston markets. The demand is coming from nonemergency transportation and the riders, the drivers themselves are being pulled from the community to include veterans groups. So we see a lot of really strong demand for our cars in this particular market, particularly with Trek World. And their expansion plans are tremendous, and we are in the pole position to capitalize on their growth as well as fueling our own.

[Graham Mattison:]

And then just another question, I think, maybe for Ryan. So the new guidance for '22 would sort of imply that you guys would be -- your 4Q would be around $4 million to $5 million for revenues, so basically imply that you guys are at right now without adding any more cars where you are today, you would be at about a $20 million run rate. Is that the right way to think about it?

[Ryan Saathoff:]

That's accurate. And I see a few questions in the web chat as well around timing of the additional vehicles added in Q3. And if revenue -- if we've doubled vehicles wise revenue up 30%, I think this kind of goes hand-in-hand with that question. The timing is really when the vehicles become available. So we've seen a lot of challenges around getting registrations completed, getting the documentation from the dealers over, getting the vehicles deployed through titling, just there's so many barriers that have delayed. So while we get the vehicles in, we're not getting them through the entire volume of the quarter. So we're adding them and maybe getting revenue on a huge chunk of them towards the back end of the third quarter. And so that's why you're seeing revenue where it's at. We expect that that improvement of adding 300, we had 384 cars in Q3. So that improvement really will be seen for a full quarter in Q4.

[And with the volume of vehicles in the fleet today, we're really at an $18 million to $20 million run rate just with those vehicles are adding another vehicle. So that's the right way to look at it. And really, our guidance originally is moved only really to the right. So it's just a little bit of a delay, but not an indication of anything in the model, it's different. And as Steve's point, when we look at what's happening in Q4, we're really monitoring price, interest rate and availability around making sure we're making smart buying decisions. And so we're really working on that piece simultaneously. So hopefully, that answers your question, Graham.:]

[Operator:]

We have our next question from the line of Shawn Mesaros with Greenberg Financial Group.

[Shawn Mesaros;Greenberg Financial Group;Analyst:]

Understandably, we got to -- we could only expand where the market allows you to do so profitably. I noticed that with 10 or so million hit in the balance sheet at the beginning of the year and having to take care of some, let's say, a couple of million dollars in nonrecurring costs and financing costs. And then moving forward to NX employee that cost another $0.5 million. You've been able to chew through, but say, $5 million, $6 million this year. Given that maybe $3 million of those costs aren't going to happen again, what are your projections for the company consuming cash over the next 2 quarters?

[Ryan Saathoff:]

We're really looking at that carefully. This really comes down to the financing terms and the availability on the purchase price of cars. And so managing the down payment is the key burn on cash from a growth standpoint. Some of that all historical stuff you were talking about, a lot of that is pretty much gone now. And so it's really focused on leveraging the operational spend. And so we're working through that plan for 2022 right now and trying to analyze, okay, what is the right kind of car. We have multiple choices that go down. The EVs are really starting to push through the OEMs now. And so we have some choices, some of that supply chain crunch that we saw in late 2021 and into early 2022 is starting to be relieved, not quite out yet and completely available, but we're starting to see some loosening of that. So choosing the right car, choosing the right partner is going to help quite a bit. And that will help with that. So we're working through that.

[Shawn Mesaros;Greenberg Financial Group;Analyst:]

Just to come back to that. So I was, again, congratulating you on having -- getting rid of a couple of things that didn't consume cash. So 10%, minus 3.7%. So in the last, say, 9 months, the company went through, let's say, $3 million in cash, with roughly $4 million left over. So if were to consider that most of that stuff is nonrecurring, do you think you've got cash to work through, say, June of next year? Or should we consider the need for financing at all moving forward?

[Ryan Saathoff:]

Yes, we're evaluating that. So right now, we think we have enough cash. That's our plan. We're evaluating what that looks like, but the next round of financing availability in terms are from a down payment standpoint, how quickly and how many vehicles we add. So I don't know that I'm ready to answer that specifically other than we're in process of planning that piece out to determine what the right step is from vehicle financing because that's really the trigger that drives how much cash we use. If we grow responsibly, we can grow with the cash we have and use the vehicles to self-finance from the model.

[Shawn Mesaros;Greenberg Financial Group;Analyst:]

Yes. No, I believe in the model. I love the model, and we're happy to provide more support to finance that model. So I thank you very much. I appreciate all that you're doing. And please, I do not go to NASDAQ, it will cost you another $0.5 million a year. But do change the ticker symbol, if you can, please.

[Operator:]

We have next question from the line of Mandy Piekarski, an investor.

[Mandy Piekarski:]

I have a question that sort of goes back to the beginning of the year, the rate that happened in January. I think the final prospectus said that the raise about $2.3 million of the proceeds we're going to go to redeem the Series Beholderover. But it seems -- I was going through the filings, it looks like that the company actually gave the Series Beholderover 6 million shares, which resulted in the 10% dilution of the stock at the time. Could you give some more color on why this happened? And is there anything else from that perspective that maybe we shouldn't -- we shouldn't rely on to the same extent that the occurrence with Series B?.

[Ryan Saathoff:]

Yes. So there were 2 choices around that. And the way the agreement was written, it was really their choice. And so we had to treat it like as a debt-like item because we were required to redeem it, but they had a choice or an option, and that was really in all the filings about whether they want to redeem them and convert to common stock, which is what they end up choosing to do. So it really was what it was. It preserves some cash allowed us to buy additional cars with it. So yes, I don't really want else to say about it other than it was really an option that they had in their agreement, and they chose to convert them to common stock instead of be paid out.

[Stephen Sanchez:]

Yes. That's exactly right. I was going to say it was really their choice to do that. So there's not much more to that, Mindy.

[Operator:]

We have next question from the line of Patrick Williams, an investor.

[Patrick Williams:]

I live up in Northern California, by Lake Tahoe. I'm really curious, I grew up in Chicago and Waneta, Illinois, the 20 vehicles for Trek World, where are they in Illinois? And then I heard you talk about Houston, Texas that I was very excited about hearing. And Houston is huge, so is Chicago. Where is the Trek World vehicles going to be utilized for non-medical?

[Ryan Saathoff:]

Yes. So those vehicles right now, the couple of dozen that I referenced are in the greater Chicago land area. They'll be up and down the state. A little bit more information for you all is that our contacted Trek World was meeting with Governor Pritzker late last week and with the senators and with South representatives. And really, they're very excited about the program because there's a lot of different tentacles to it. So first part of the answer is that the vehicles are in the greater Chicago area, but they'll then spread quickly across the state. And then when we go into Houston, it's really going to be if you think about what we're doing with this nonemergency transportation or that they're using the cars for them will be very close to major medical centers.

[Patrick Williams:]

Got you. And nonmedical, it's huge because of the growth in the senior population as there's so many people who get visually impaired and or dialysis patients, and they need to be transported 3 times a week or every day if they're going to work. It is a huge market. I think it may be even bigger than anything regarding like transportation. To me, that's the biggest thing. When I saw that, I was very encouraged. And so it sounds like that where is this company based?

[Ryan Saathoff:]

It's in Illinois.

[Patrick Williams:]

It's in Illinois, okay. And then I knew Pritzker. So that's kind of an interesting thing. I know Dan Pritzker. So I grew up in Waneka.

[Operator:]

Thank you. I'll now hand the conference over to Ryan for online questions. Over to you, Ryan.

[Ryan Saathoff:]

Thank you. So there's a few webcast questions that have come in. And I'm just going to read a few of them and summarize them. There's quite a few that are very similar, so I'll sort of batch them together. Some of them, I think we've answered in part. There's been a few questions about the stock price. And while generally, we're -- we really can't comment on the stock price. It is what it is. We are aware of what's going on and what's moving around. I mean you have one large shareholder that sold out of their position. We don't know why their conversations were that they weren't going to, but then they did for whatever reason. That's really where most of the movement came from. But outside of that, we believe there is strong value in what we're doing. So that's the question on questions from the stock.

[A question about vehicle financing and capital. At this stage, we want to reiterate, our plan is not to need or raise additional capital. It's to look at the capital we have, leverage our fleet and find the right partners at the right price for the vehicles as we move into 2023. And there are some questions around 2023 and planning, and we're in the middle of that planning phase for releasing our 2023 outline for vehicles. Let's see. Steve, there's just one other comment on just some operations. Would you just comment briefly on the states that we're in right now?:]

[Stephen Sanchez:]

Sure. So we're in California. And in California, we're in the Greater L.A. area, San Francisco, Oakland Bay area and down in San Diego. And then we move on to Las Vegas, and we're looking to open up a second location out that way, more to come. We're in Chicagoland and finally, in New Jersey. Our expansion plans, maybe that's kind of the rest of the question. Our expansion plans continue to revolve around making sure we saturate the markets that we're within. And as I've mentioned on past calls, saturating the L.A. market is a huge undertaking. And I think that we still have plenty of opportunity within the existing markets without stretching ourselves too thin into other markets where we don't have as much experience. But as we grow, we will go into those other unexperienced markets to include probably in the Southeast, the Southwest and maybe in the Central Plains.

[Ryan Saathoff:]

And then last question or question topic is around uplifting and the stim symbol change. And the only thing I can really say to that is we have all of our application and content in with FINRA, and we're working through that and waiting for them to approve those actions and getting them content as they ask questions. So that's moving. Whether there's an uplisting or not, that's really a different issue. We have to get our corporate actions approved first. And so we're tackling one piece at a time, and right now, it's that name change and ticker change is on the radar and everything is in, and we're just waiting for Finn to go through their process and approve. So I think that answers those questions. And then I'll turn this over to Steve for final closing remarks.

[Stephen Sanchez:]

Very good. Well, Ryan, thank you for that, and thank you, everybody, for joining. We really do appreciate your time and attendance and your very thoughtful questions. If you ever have any other questions, Ryan and I are very accessible, we're going to tell it to you straight. And I just want to wish you and your families a very safe holiday period. And again, I want to thank you very much for being interested in our story. Thank you so much. Have a great day.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.