HyreCar Inc. (NASDAQ:HYRE) Q2 2022 Earnings Conference Call August 15, 2022 4:30 PM ET
Company Participants
Scott Arnold – Investor Relations-CORE IR
Joe Furnari – Chief Executive Officer
Serge De Bock – Chief Financial Officer
Conference Call Participants
Jack Vander Aarde – Maxim Group
Jon Hickman – Ladenburg
Operator
Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the HyreCar Inc. 2022 Second Quarter Conference Call. [Operator Instructions]
The earnings press release accompanying this conference call was issued at the close of the market today, August 15, 2022.
On our call today is HyreCar’s CEO, Joe Furnari; and CFO, Serge De Bock.
I will now turn the call over to Scott Arnold of CORE IR, the company’s Investor Relations firm. Please go ahead.
Scott Arnold
Thank you, operator, and welcome, everyone, to HyreCar’s second quarter 2022 conference call.
Before we get started, I’d like to take this opportunity to remind you that during this call, we will be making forward-looking statements within the meaning of federal securities laws regarding HyreCar Incorporated. Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the company’s business based in part on assumptions made by management. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call, in particular, those described in our risk factors 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 company’s control. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of today, and we undertake no obligation to update them, except as required by applicable law.
Our discussions today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results we found in the earnings release and supplemental materials that were filed with the SEC and can be also be found on the Investor Relations portion of the company’s website.
Now I would like to turn it over to Joe Furnari, CEO.
Joe Furnari
Great. Thank you, Scott. And welcome everybody. During today’s call we will share the company’s exceptionally strong second quarter results along with several corporate updates. I am pleased to report that HyreCar had a record quarter building off the momentum from the first quarter of 2022. We generated the highest revenue in HyreCar’s history with the highest gross margin in the trailing 12 months, despite a challenging macroeconomic environment. We continue to invest in strategic initiatives to sustain growing demand while increasing car supply and reducing operating expenses.
We also welcome Greg Tatem as HyreCar’s Chief Technology Officer, who brings years of experience building customer first products and features at companies including Wine.com and Williams-Sonoma.
Revenue for the second quarter of 2022 was $10.5 million, the highest in HyreCar’s history and building off the momentum from strong demand in March, this represents a 10% sequential increase in net revenue from the first quarter of 2022. Demand, continued to increase with 10% growth in driver signups versus the first quarter, driven by optimization and improved targeting indicating sustained demand for cars in gig work. Ongoing automations to verification processes and onboarding help drive a 39% increase in verified drivers over the first quarter while the bottom of our driver acquisition funnel grew as well with a 28% increase in first driver rentals versus the first quarter.
We continue to observe an ongoing shift in rental use intent as the economy continues to rebound from the pandemic with an 18% decrease in delivery and a 7% increase in ride share signups. This mirrors second quarter 2022 results from Uber with the gig platform’s growth and mobility revenue and take rate outpacing those for delivery. We expect rideshare intent rentals to continue increasing through the busy summer months.
Organic vehicle supply grew moderately versus the first quarter with cars listed increasing by 2% and first time cars rented increasing by 2% as well. The numbers of owners, transacting and cars successfully utilized or rented increased across all three owner segments, peer-to-peer, mid-size and fleet with total transacting cars increasing 5% versus the first quarter. Our owners also earned more versus the first quarter across all three segments with owner earnings, increasing 4% for our mid-sized fleets and 16% for our larger fleet operators.
At the same time to meet increasing demand for electric vehicles on our platform, we have continued to provide access to EVs through our partnership with Spring Free EV, which has seen significant growth. EV orders placed through the program grew nearly 300% versus the first quarter. We continue to explore partnerships with EV providers and infrastructure developers to build the most robust, flexible ecosystem for EV rentals.
As we increase car capacity, it will be critical for HyreCar to continue leveraging technology, to ensure that we continue to mitigate risk, improve the quality of our driver pool and strive to increase both driver and vehicle retention. With the addition of Greg Tatem, leading Product Management and Engineering, our technology teams will be focused on scalable infrastructure and continue to roll out and iterate on features that strengthen marketplace integrity and increase liquidity. Under Greg’s leadership there will be a renewed focus on building products that maximize owner and driver earnings, while ensuring that the HyreCar marketplace has the highest quality drivers and vehicles to support our trust and safety initiatives.
I will now turn it over to Serge De Bock, CFO.
Serge De Bock
Thank you, Joe. Overall, as Joe mentioned, we had a very strong quarter both from a revenue and profitability perspective. Our top line grew 10% quarter-over-quarter compared to Q1 of this fiscal year and 16% year-over-year to reach an all-time high in HyreCar history at $10.5 million this quarter.
Meanwhile, our gross margin continued its ascending trend and we achieved our cash operating expenditure target of $7 million this quarter.
First let’s address volume. Rental days for the second quarter of 2022 increased 4% to 325,000 rental days from 314,000 rental days in the Q1 of 2022, despite tight vehicle inventory supply conditions. Our utilization rate for a fleet of 20 cars or more continue to fluctuate between 80% and 90% indicating strong driver demand across a vast majority of markets with attractive economics for the driver despite higher gas prices. The recent average drop in gas prices by about 20% in July compared to the June peak is also expected to fuel extra demand for our vehicles.
Turning to financials, net revenue grew year-over-year 16% to reach $10.5 million in Q2 from $9.1 million in the same quarter last year. This also represents a 10% or close to $1 million increase to a $9.6 million in the prior quarter in 2022. Daily average net revenue, which represents net revenue divided by rental days increased from $27 in Q2 of 2021 to $32 in Q2 of 2022. We expect daily average revenue to grow further in 2022 based on current market trends and a focus on optimization our fee structure as we aim to provide additional types of coverage for our drivers and owners.
On the cost side, we have now improved gross margin to hit the 12 months high of 35% in Q2 of 2022, a gradual sequential improvement of 11 points over a normalized Q2 of 2021 gross margin of 24%. We have achieved this performance despite inflationary transfer vehicle repairs and claims by focusing on cost control, better processes and appropriate risk pricing. Meanwhile, we’ll maintain our gains in customer satisfaction balancing risk control and retention of profitable drivers.
Looking ahead, we are still on target to pass 40% gross margins by the end of the year based on ongoing initiatives, targeting insurance products, improved driver screening and incentive to retail our drivers with lowest profiles. We also signed a long-term partnership with our payment processing partners in early August. This renegotiated agreement is expected to reduce credit and debit card processing costs by over 20% with immediate gains to a reduction in base rates and enhanced dispute resolution and monitoring. We also performed a deep dive assessing payment methods that have recently removed certain payment cards as primary payment methods to reduce exposure to contested and paid rental days. While this might have a slight short-term negative impact on rental volume, it is expected to provide the net-net favorite bottom line impact for to HyreCar.
Operating expenses total $8.1 million in Q2 of 2022, a decrease of $0.2 million over Q1 of this year. On a cash basis we achieve our medium-term target of $7 million a quarter, down from over $8 million three quarters ago. As part of those efforts we have gradually achieved headcount reduction with minimal impacts to the business reducing our workforce by 20% over the past year, without compromising on value added functions. We are currently set to be able to scale further rapidly without having to increase our operating expenditure base.
Our adjusted EBITDA in the quarter at $3.4 million loss done from the $4.1 million loss in Q1 of 2022 and a $7.1 million loss in Q2 of 2021. This resulted from our continuous improvement in managing cost of revenue, specifically insurance, while at the same time maintaining sufficient infrastructure to support growth at scale. We expect continuing plus they’ve adjusted EBITDA trends in Q3 of 2022 and beyond with economies of scale through top-line growth, increased gross margins and maintaining operating expenditure especially efficiency gains.
Our cash position was $6.7 million at the end of Q2 2022 and we are in process of strengthen that position in conjunction with our investment in growth as we continue to pursue and support larger credit financing opportunity for our fleet operators such as in progress we have at land facility.
Looking ahead, we have entered Q3 of 2022 with renewed organic growth and approved margins. We’re aiming to maintain our cash operating expenditure around $7 million with our current estimated cash flow breakeven point still in between 6,500 and 7,000 cars rented on the platform. Our runrate revenue between $65 million and $70 million based on our projected cost structure. Our primary financial objective in 2022 remains to stimulate car supply in the platform and drive top line growth to reach cash flow breakeven as rapidly as possible.
And now moving to final remarks. As part of this section, we wanted to provide an additional update on recent financing activities. First, we have secured $5 million in gross proceeds as a private investment in a public company from both current and new shareholders, pending the close of a revolving warehouse line of credit for the benefits of our fleet owners. Second, we have entered into an equity line of credit agreement providing the option to draw up to $15 million over 24-month term.
Finally, key executives of the company entered into a $500,000 promissory note agreement over a 12 months term redeemable in cash or shares at the sole discretion of the board. These three transactions have been entered into in conjunction with the in progress revolving warehouse line of credit for our main fleet operators and aim to strengthen our balance sheet ahead of accelerated growth.
And now over to Joe.
Joe Furnari
Thank you, Serge.
And to summarize this past quarter, I’m proud of our team’s record results in light of the challenging macro environment for car supply. Now we were supported by macro tailwinds pushing driver supply higher on the platform and we look forward to closing the in progress warehousing line that enables our largest fleet operators to scale quickly. So stay tuned for specific details and an announcement in the coming weeks on that.
So with that I’d now like to open the call to Q&A. Operator?
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Jack Vander Aarde with Maxim Group. Please go ahead.
Jack Vander Aarde
Great. Nice results guys. Thanks for taking my questions. I’ll start with the kind of a bigger picture question Joe. So maybe just in terms of your end markets just would like to get your thoughts on if there’s been any shifts in terms of rental and driver demand in certain markets throughout the us. And try to get a sense of where you might look to prioritize new car supply when you lock it up? Thanks
Joe Furnari
Hey Jack. Good to hear from you. The other way we’re thinking about that right now is that there are about 16 core geographies or MSAs that we focus on and have focused on and are going to continue to grow. I mean, basically we’re seeing across all geos, the top 30 that we operate in that there are a lot of drivers coming through. And whether that’s being driven by adverse macro events in the broader economy or whether that’s drivers looking to supplement their income to offset inflation, we’re working through that. We don’t know exactly why, but what we are seeing is that we have become very efficient in sourcing those drivers and we’re seeing robust demand across all geographies.
Serge De Bock
Absolutely. And I think I’ll add that actually as we get through. We have areas and pockets where we identify latent demand and that would be the initial areas where we target our additional car supply, and we have that plan with a lot of our fleet operators.
Jack Vander Aarde
Okay. That’s helpful color. And then I apologize if I missed this, but just in terms as you look at the back half of this year, starting with third quarter. I know you’re working on the warehouse to lock that up, but before that happens, should we expect car supply, number of rental days to increase on a sequential basis going forward? Just any color there and kind of what kind of order of magnitude we should expect? Thanks.
Joe Furnari
Yes. We haven’t provided guidance on rental days, but we’ve seen – we’ve seen some trends going forward. One thing I would highlight is in our section, we looked at the profitability by segment and one aspect we’re try to address is to make sure that we keep the most profitable drivers and the most profitable segment. So as part of that, I think in the prepared remarks we did mention that we’re discontinuing the use of certain payment methods that would probably dip a little bit the rental days, but increase the bottom line. So we don’t have a specific estimate that we can share at this time for the full effect, but our projection indicate that it would be a beneficial effect for HyreCar’s bottom line and get us closer to the EBITDA breakeven.
Serge De Bock
Yes. And at a high level from a macro perspective we’ve talked about green shoots in the past, which were kind of sedans under $20,000 kind of the pricing of those – of that inventory kind of marginally ticking down essentially coming down from highs in Q3, Q4 of last year. And so as we start to see signs of supply loosening that’s a good sign for our organic growth. What we call organic growth, which is fleet operators, mini fleet, individuals with smaller amounts of cars.
Jack Vander Aarde
Got it. Okay. And then maybe if I could just ask one more bigger picture kind of question. Joe, I know we talk about 2022 in terms of target for rentals, but just on the longer term kind of milestone for car supply. I think in the past we’ve previously talked about on-boarding maybe 16,000 vehicles by 2024s timeframe and even longer term working our way up to 50,000 vehicles. You just provide an update on what you think are achievable long-term milestone for car supply?
Joe Furnari
Yes. I still think 50,000 by 2025 is an achievable number. We need to – we need to get these warehousing line – we need to get the warehousing line in and so we start growing and bringing up all fleet operators. So that’s the goal internally right now that we’re working towards. That’s why this warehousing line that we’re imminent with is going to close soon or hopefully just close soon.
Jack Vander Aarde
Fantastic. While appreciate the color and good quarter guys, I’ll hop back in the queue.
Joe Furnari
Thanks Jack.
Serge De Bock
Thank you, Jack.
Operator
[Operator Instructions] Our next question comes from Jon Hickman with Ladenburg. Please go ahead.
Jon Hickman
Hi. On this payment processor change, I take it you’re telling us that that might hurt revenues a little bit, but where does the saving show up? Is that in cost of goods?
Joe Furnari
That’s correct. So we’ll have some savings in cost of goods and also in operating expenditure that would be to a minor extent that we have to process additional claims and things like that with some of our customer service agents. But I think overall, it’s going to reduce disputes and being able to drive better outcomes overall.
Jon Hickman
Okay. And then could you – I’m sorry, I couldn’t write fast enough. The three equity or three things you are doing to raise some cash. Can you go over those again real quick?
Serge De Bock
Absolutely. So first we have a $5 million in gross proceeds coming from the PIPE investment. So, that’s the first portion. The second one would be an equity line of credit agreement, which allows us an option to draw up to $15 million over 24 months to a $15 million. And then the third one is actually an executive loan to the company for $500,000 over 12 months period. And that loan would be either redeemable in cash or shares at the sole discretion of the Board.
Jon Hickman
Okay, the equity line, so you can look call on this investor over the next two years to raise up to $15 million.
Serge De Bock
That’s correct. You can – go ahead.
Jon Hickman
What’s the price there? Is there a set price or is it changeable?
Serge De Bock
It would be a price based on the market conditions at that time.
Jon Hickman
Okay.
Serge De Bock
And the number – yes, right
Jon Hickman
On market. Okay, got it. Then one more thing. Let’s see, what was my one more thing? So can you explain just a little bit about why it’s taking so long to get this warehouse line done?
Joe Furnari
Yes, it’s very, very complicated. This isn’t your standard ABS warehousing line, so vehicle lending line. I mean, this is – we’re bringing in multiple different parties into these agreements. I think another piece is our lending partners that we’re working with have been very kind of conscious and methodical about entry points here. I think that if they were looking at Q3, Q4 of last year, even early in Q1, I don’t know if it was prudent to go out and buy a $250 million in vehicle assets at the height of used car inventory pricing.
And so I think we’ve been very methodical about thinking about when and where a good entry point would be for our fleet operating partners. But I think that you can see signs of us laying the groundwork in anticipation for this line closing very soon, given what surge is done with the financing.
Jon Hickman
Okay. So the financings you’ve put in place are going to make your warehouse partners more comfortable that you’re going to be around. Is that what you were telling you?
Serge De Bock
That that’s correct? Yes, it provided a foundation for us to have sufficient liquidity, to be able to operate for several quarters sequentially and provide that comfort to move ahead in the transaction.
Jon Hickman
Okay. And then just to get this, put a fine point on this. So for Q3, there might be fewer rental days than in Q2 because of the payment processing issue. Is that what you’re telling us?
Serge De Bock
Yes. Not the payment processing issue, I think, specifically we just reduced the methods of payments that we are going to be able to accept.
Jon Hickman
Yes.
Serge De Bock
That would have a small, negative impact on rental days but be favorable to the bottom line. That’s our expectation. But we do see some organic growth coming from some of the owners as well. So I think the net effect is still TBD and we’ll be able to figure out what the net effect will be. But we’ve seen organic growth and we are also aggressively going in the market trying to recruit more vehicle owners despite the tight vehicle supply conditions.
Jon Hickman
Okay. Thank you. Appreciate you taking my questions.
Serge De Bock
Thank you.
Operator
[Operator Instructions] At this time there are no further questions. This concludes the question-and-answer session. I would now like to turn the conference back over to HyreCar management for closing remarks.
Joe Furnari
Thank you everyone for tuning in. Standby, we hope to be back to you shortly. Thank you.
Operator
The conference is now concluded. Thank you for attending today’s presentation, you may now disconnect.
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