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spk00: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the HireCAR, Inc. Third Quarter 2020 Earnings Conference 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. If you have a question, please press the star followed by the 1 on your touchtone phone. If you'd like to withdraw your question, please press the pound key. If you're using speaker equipment, please lift the handset before making your selections. This conference is being recorded today, November 11, 2020, and the earnings press release accompanying this conference call was issued at the close of the market today. On our call today is HireCar's CEO, Joe Frenari, and CFO, Scott Brogy. I would now like to turn the call over to Joe Frenari.
spk05: Thank you, everyone, and welcome to our third quarter 2020 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 HireCar, 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 its future earnings, activities, events, or conditions. These statements are based on current expectations, estimates, and projections about the company's businesses 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 will be found in our earnings release and supplemental materials, which will be furnished with our Form 10-Q that will be filed with the SEC and will also be found on the investor relations portion of our website. Now to turn to our quarterly results. The third quarter validated our business model in a post-COVID world, and the results serve as a bold statement by the HireCar team in the face of adversity. The performance of our business model is a continuation of our efforts in the face of an unprecedented business environment. Our conscious effort to expand the platform to delivery services by identifying opportunities in delivery service platforms and by rapidly expanding our emphasis on delivery in late March proved to be the right move by our team, and the results speak for themselves. Revenue grew 22% sequentially and over 84% year over year. We saw over 273,000 rental days in the quarter, an increase of over 20% sequentially, and over 90% growth in rental days year over year. The company fully expects to see growth through the rest of 2020, even with the differing city and state approaches to reopening. and we remain steadfast that hire car will continue to persevere in the new COVID world. One of our main sources of strength has been continued robust driver demand. The strong driver demand comes primarily from customers seeking vehicles for delivery as delivery services are heavily supplementing rideshare driver income during the slowdown. In the third quarter, 5,100 new unique drivers picked up a car on our platform, an 11% increase sequentially, and 37% year-over-year growth. Increasing customer retention was key to revenue and rental day growth rates, helping both recover in the third quarter. We foresee continued growth in driver demand as consumers are changing their behavior in the COVID-19 environment. Mom and pop have adopted delivery services into their daily routine, and as a result, TAMs on delivery platforms have exploded. For example, Uber Eats is now a $35 billion run rate business and grew this past quarter 120% year on year. Grubhub's revenue was up 53% year on year in the third quarter and their growth continued to accelerate. Strong delivery platform demand means driver economics will remain strong, creating an environment sustainable to larger and larger driver pools. Additionally, we're in the early innings of this growth. Uber Eats has only penetrated 30% of restaurants in the U.S. So as we move into the ninth month of COVID, the combination of delivery service platform economics remaining strong and the promise of rideshare bouncing back to normal as states reopen is making our business even bigger than we had anticipated. Car supply is the main gating factor to our growth today. Q3 results validate higher cars expansion into food and package delivery, that allowed hire to continue to fare better than the 55% rides decline our TNC partners are seeing in their businesses. In this COVID world, what hurts ride sharing helps delivery. And for us, it is a matter of new cars on the platform. So while the outlook for COVID is unclear, as I will discuss later, we have used this time to grow our partners so that we can significantly increase the availability of cars for the strong demand on our platform. New cars listed on the platform are being sourced from existing customers, some of whom are expanding their fleet operations significantly. However, franchise and independent dealers have seen a rebound in used car prices, which has supported their core used car sales business. With used car prices high, there are fewer vehicles listed for gig rentals. Expectations are that vehicle manufacturing is ramping up and will start to hit dealer lots shortly. Once new cars start coming online, used car prices should start to normalize into the first half of 2021. This will have the effect of creating more supply and driving fleets toward alternative use cases for dealerships. While dealer stock is constrained, we have seen growth from specialty fleet and rental companies who want to utilize existing vehicles. In late August, we announced a partnership with Midway Car Rentals. the rental car agency held by the Hanke Group family of holdings with combined assets of over $9.5 billion. The pilot has moved cautiously with the need to integrate policy and procedures within the operations at our respective companies. We recently participated in the International Car Rental Show, and HireCar was featured in a discussion panel with Brett LaPelle, Midway's president. Brett highlighted benefits to the partnership, including their ability to run cars in longer and more profitable cycles. This partnership is a great case study, an example of how larger rental car agencies can benefit from our robust driver demand. And we're seeing more interest from rental agencies amid the uncertain business environment that they are operating in today. Our team has been onboarding new partnerships that we believe can expand the number of cars on our platform from the current rate of 3,100 active daily rentals to an additional 6,000 active daily rentals count between now and the fourth quarter of 2021. New partnerships will include relationships with some of the largest automotive groups in America and go a long way toward replacing the inventory that came out of the rideshare and delivery with the exit of Hertz and FAIR during COVID. That approximated almost 65,000 vehicles. Getting to 4,500 active daily rentals makes us profitable in the near term, so we believe we can directionally drive to both profitability and growth with these new partnerships as we grow in the fourth quarter of 2020 and into the first couple quarters of 2021. A couple notable initiatives we're working on today. First, hire car is restarting its COVID pause partnership with the Cox automotive mobility team and their clutch technology subsidiary, which will lead to more vehicle supply partnerships with retailers. Cox automotive believes hire car can be an integral part of their plans to onboard their dealers to mobility platforms. Second, we'll shortly be announcing a national partnership to monetize customer leads that wish to buy a vehicle. 30% of HireCar platform visitors indicate they plan to buy a vehicle. This partnership will put us in position to earn complementary revenue streams leveraging HireCar's current platform. Third, we are excited about our new electric vehicle initiatives. We have made it our goal to share Uber's objective to be carbon neutral by 2030. We are finalizing partnerships now that will put EV fleets in key markets. And last topic, certainly of major significance to our industry, another larger macro political event since Assembly Bill 5 that was expected to go into effect on Jan 1, 2020, required companies that hire independent contractors to reclassify them as employees with a few exceptions. In response, our partners, Uber, Lyft, DoorDash, and others helped fund Prop 22 to preserve the independence and flexibility of these drivers. We are pleased that Prop 22 passed in California with a healthy margin. To echo what Uber said, this important question has now been settled in the most populous state in the country. California voters listen to what the vast majority of drivers want, new benefits and productions with the same flexibility. Going forward, drivers and delivery people in California are expected to be guaranteed a minimum earning standard, healthcare contributions, accident insurance, increased safety protections, and more. We feel strongly that this is the right approach. Uber and Lyft said that they expect to be adding benefits to gig work to make it better, not getting rid of it altogether in favor of an employment-only system. We believe Prop 22 struck the right balance between preserving the flexibility that drivers value so much while adding protections that all gig workers deserve. With that, I'd now like to turn the call over to Scott Brogy, our Chief Financial Officer, to walk through some key financial details from the quarter. Scott?
spk04: Thanks, Joe. I'd like to start by saying thank you to all members of our military and to all veterans on Veterans Day for all you have done to protect our freedom. HireCar continued to move closer to profitability this quarter. Adjusted EBITDA improved to negative $1.6 million. or negative nine cents per share in the third quarter as we grew revenue and controlled expenses. And we once again reduced our quarterly cash burn, this time to less than $400,000 in the third quarter. Net revenue increased 83% to $6.8 million for the three months ending September 30th, 2020, from $3.7 million for the three months ending September 30th, 2019 and was up 22% sequentially from $5.6 million for the three months ending June 30th, 2020. The revenue increase was primarily driven by increases in core rental days as well as slightly higher unit pricing. Rental days grew 87% annually to over 273,000 rental days in the third quarter from approximately 146,000 rental days in the third quarter of 2019 and 18% sequentially from approximately $231,000 in the second quarter of 2020. Cost of sales increased for the quarter ending September 30, 2020, to $3.9 million from $2.2 million the prior year ending September 30, 2019, and by $900,000 from $3 million the prior quarter ending June 30, 2020, primarily due to some seasonal shifts in insurance costs to support higher levels of car supply. As a result, gross profit for the third quarter was $2.9 million, doubling from $1.4 million in the year-ago period ending September 30, 2019, and increasing significantly from $2.5 million for the prior quarter ending June 30, 2020. Gross profit margin was 43% for the third quarter, up from 40% in the year-ago quarter ending September 30, 2019, and down slightly from 45% in the second quarter ending June 30, 2020. We expect our gross profit margin to increase toward 50% as we continue to improve insurance processes and products moving forward. Operating expenses decreased to $4.7 million for the three months ending September 30, 2020, from $5.2 million in the same period the prior year as expenses continued to be well controlled. Cash operating expenses totaled $4.5 million for the third quarter after adding back approximately $144,000 in non-cash stock-based compensation toward the lower end of our quarterly target OpEx range of $4.5 to $5 million as we start to realize efficiencies of scale. Our net loss decreased to $1.8 million, or 10 cents per share, for the three months ending September 30th, 2020, from $3.6 million, or 24 cents per share, in the same period the prior year, ending September 30th, 2019, and also decreased sequentially from a net loss of $3.9 million, or 22 cents per share, for the prior quarter ending June 30th, 2020. Adjusted EBITDA of negative $1.6 million, or negative 9 cents per share, was a dramatic improvement from negative $3.1 million, or negative 20 cents per share, the prior year ending September 30th, 2019, as well as from negative $1.7 million, or negative 10 cents per share, in the prior quarter ending June 30th, 2020. Cash totaled $6.8 million on September 30th, 2020, a decrease of less than $400,000 from the $7.2 million we had last quarter on June 30, 2020. Over the past two quarters, cash has only decreased by approximately $1 million, and unlike the prior quarter, this was done simply based on improving operating cash flow without the support of the PPP program we enjoyed in the second quarter. Much of this is a result of our new automotive insurance program with Apollo 1969. As a reminder, we will have a balloon payment in early 2021, so we are maintaining our discipline on accruals as we grow. Now I'd like to turn the call back to Joe to wrap things up. Thanks, Scott.
spk05: So to summarize the message, COVID has created an expanded opportunity for our platform, and HireCar's Q3 performance was the validation that our business model can capitalize on that opportunity. The only gaining factor to our growth is car supply, and we're moving at warp speed to secure fleet partners at scale. TAMs on delivery platforms are now just as big as the TAMs in ride share, and this represents an expansion of our platform. We've shown that hire car is nimble enough for any business environment, now predominantly with delivery drivers, but as the recent news on vaccine shows, hopefully this is a dawn of a new day where we can collectively put COVID-19 in our rearview mirror. We remain optimistic that as driver confidence starts to return, so too will rideshare. The combination of delivery and rideshare demand has created merging tailwinds that are driving our business now and in the future. With that, let's move to Q&A. Operator?
spk00: Ladies and gentlemen, if you'd like to ask a question at this time, please press the star, then the number one key on your touchtone telephone. To withdraw your question, press the pound key. Again, that is star, then one to ask a question at this time. Our first question comes from Mike Grondahl with Northland Securities. Your line is now open.
spk02: Hey, Jill and Scott. Good afternoon. Hey, my first question is just if you could clarify a little bit, Jill, I think you talked about adding 6,000 cars, which, you know, is two times what you have on the platform. Could you kind of talk about where those are coming from and how you expect those to ramp up?
spk05: Hey, Mike. Yes. You know what? In a pre-COVID world, I think we would have been there this year, right? I think that we were seeing a tremendous increase ramp in our dealer initiatives at the beginning of the year. And then we got COVIDed and all of those dealerships went into hibernation and we were on life support for a little while there. And so as we're kind of moving along and we're in this ninth month, you have fleet and large fleet operators who have been affected by COVID, who have a lot of idle inventory sitting and they're looking to add scale or looking to add fleet at scale. And they're looking for that distribution channel that has disappeared from some of these players leaving the markets, Hertz in particular. And so we're stepping in to hopefully fill that footprint. And so you're talking about one or two operators that could bring that amount of cars, those amount of cars to the platform. So- I'm excited about what 2021 looks like.
spk02: And I guess a follow-up, how do you think those 6,000 cars ramp? Is that over the next year, over the next six months? And then if you could kind of, I think normalized revenue then annual on 9,000 cars, give or take a little bit, it's about 80 to 85 million.
spk05: Right, and I just want to be clear. You know, we're not giving guidance there, right? But we are in talks with these partners. So it is a very real possibility that we have that many cars. And they start to feather in month over month. So it ramps incrementally. I mean, we are planning internally to really start to increase – the supplier expecting that supply coming on in late Q4 of this year, Q1 of next year. So we're kind of anticipating a lot of that coming on, but I see realistically it probably feathers in throughout the next five quarters.
spk02: Gotcha. Okay. And is anybody else filling that 65,000 car void space? kind of left from Hertz or fair?
spk05: You know, Avis has come into the market. I'm not really sure where they are right now in terms of cars. I think that they are super focused on ride sharing. And what we're seeing in the market right now is ride sharing was starting to pick up. But now I think it's kind of flattening out with some of the city and states now rethinking reopening. And so Gavis is there, but that's, you know, and get around. But I think that's pretty much it, and then it's hire car. So, you know, we have green fields now when you look at the competition and what our opportunity is to move forward. We're there right now, and we're ready to act. ready to start adding fleet at scale. So we're looking for partners to be able to help us do that.
spk02: Got it. And then maybe just lastly, as you add those 6,000 cars, do you need to layer in much for expenses?
spk05: Uh, maybe I could, I'll give you the high level and then maybe bring in Scott on that one. Um, From my perspective, we're kind of shifting to put a regional presence in a lot of our core geographies. That's a shift from what we've done in the past where we've traditionally had all of our account managers kind of sitting in Los Angeles and managing vehicles, managing our owner supply of vehicles. What we're looking at doing now is kind of shifting to a regional presence. And that regional presence, I think, should be neutral. We're going to give those opportunities to our internal staff right now first. And then, you know, if they don't want to move to New York, Orlando, Atlanta, Dallas, then, you know, then we'll look to hire in those regions. But it should be minimal.
spk04: Yeah, Mike, and this is Scott. Good to catch up again. And it's a really good question. I think, you know, as we've talked about, we are really managing to stay within quarterly OPEX bands of kind of $4.5 to $5 million. And we were at the lower end of that range this quarter. So, you know, talking about cash operating expense of a little over 4.5. And so, you know, I think we will look to add to a limited extent in some of those geographies so that we can really get the growth that we're looking from for the key markets, but we don't see it as a huge increase to OPEX. Thanks for the question.
spk02: Sure. Well, I guess that speaks to just operating leverage is pretty strong. And just to verify, I think you said 4,500 cars is break-even. So when you get above that, it gets pretty interesting quick.
spk04: Yeah, I mean, you know, we'd always kind of talked about 30,000 weekly rentals when we came back from the initial COVID situation. So I think that still holds. And if you do the math, 30,000 weekly rentals is going to get you to about 400,000 rentals a quarter. And, you know, we still see that as the break-even level because that would give you about, $9 million in quarterly revenue at a 50% GP margin. And, you know, there's the $4.5 million in operating expenses, cash operating expenses that we had this quarter.
spk02: Got it. Hey, thank you, guys.
spk04: Sure. Thanks, Mike.
spk00: Our next question comes from John Dutton with Lake Street Capital Markets. Your line is now open.
spk03: Hey, guys. Thanks for taking my questions and congrats on the nice quarter. First, when you're talking about the fleet operators, as you guys have been having discussions with them, I mean, how have those kind of evolved over the past quarter? And from their perspective, what are kind of some of the key milestones they need to see in order to get over the hump as far as adding on, you know, higher volumes of new parts of the platform?
spk05: Well, so in the larger fleets, They know it's profitable, right? They were running cars pre-COVID directly into the TNCs. So they're just looking for assurances that we can drive volume and scale. So that's one. With the current fleet operators, they're looking for profitability milestones and that we can provide a white glove type of service. And as we've kind of started to roll out new products, hire car for business specifically, we're showing them that we can service a larger fleet at scale by giving them the tools to do that. And then by also providing the, you know, account managers dedicated to their, uh, to their, um, inventory.
spk03: Got it. And then as far as pricing goes, have you guys noticed any changes there? Has it been relatively steady? I know you've mentioned, you know, potentially integrating some more granular level driver data and pricing data in your platform. Is there any update on that and what could that look like going forward?
spk05: Well, as I look at kind of our daily rates, they've increased slightly, normalized. We saw a dip in April and May as utilization on the site dipped, so did prices, but but now we're up and bumping up against 85% to 87% utilization on the site. So prices have normalized and ticked up slightly in Q3, but pretty close to COVID levels, pre-COVID levels.
spk04: Yeah, and then, John, this is Scott. Maybe the only thing I'd add to that is, You know, now that we have more discrete insurance pricing on a state-by-state basis and also age-weighted, you know, we're actually pouring through that data to see if there's some risk adjustment that we should be doing in our fee schedule to account for a riskier population of drivers. So I think you may see some tweaks to our model heading into 2021 as we continue to refine it and make sure that we're getting the right kind of drivers that our commercial car supply really wants to see.
spk03: Got it. Thank you, guys.
spk05: Thanks. Thanks, John.
spk00: Our next question comes from Jack Vanderaard with Maxim Group. Your line is now open.
spk06: great hey joe hey scott uh solid quarter um just a couple questions for me um i'll start with a question for joe uh hoping hoping to get some additional color on on the partnership with midway you guys did provide some helpful commentary but um just a few more follow-ups to that so as it relates to maybe your target to to increase the active rentals on the platform by you said uh 5 000 or 6 000 in the upcoming you know four or five quarters uh which i'm sure is a moving target but Can you share any comments maybe on what percentage Midway's eight locations might be embedded within that target? Any comments there?
spk05: You know, it's still early days, like you said, where it's moving cautiously because we really need to integrate all of their procedures, policies, procedures. You know, the platform originally was built, our hire car platform was originally built for peer-to-peer vehicle supply. We've been shifting it to a dealer focus with hire car for business. There's an additional step that needs to be taken there to accommodate rental car companies who aren't used to renting specific VIN numbers. And so there's some technology in there that needs to be implemented. So give us some time there. But I mean, when you talk to Brett over at Midway, I mean, he's all in on this deal. And I'm really excited because they're purpose buying for us. So I'm excited on what that looks like. But I can't give you the specific percentages right now.
spk06: Sure. That's helpful. That's fair. just one more question on that then and maybe you can't provide any color here but i i figured i'll try um did this partnership with midway it was announced in august did this partnership actively contribute to your your third quarter revenue if you can provide that and and maybe you know what what if if so and if the number of the cars were actively listed from midway um during the third quarter you know what how small is that overall percentage of what that opportunity represents You know, as you're looking into Q4 and then into 2021, just wondering if, like, directional trends and if they contributed to revenue in the third quarter.
spk05: Yeah, slight contribution. You know, I wouldn't say, you know, outsized in terms of some of our other, you know, in comparison to some of our other larger fleets. I can't, I don't have that broken out by percentage, but I could get it for you.
spk06: Okay. That's helpful. Um, I appreciate that. And then, uh, question, question for Scott, uh, financials related question, um, looks like, you know, third quarter gross margin, you know, while the gross profit is obviously, you know, you can't, you can't take a margin to the, you can't take a margin to the bank. You can take dollars to the bank though. So it's good to see gross profit dollars, uh, really ramping up. But, um, the, the margin level did get to that 42 and a half below the 45 to 50% kind of target. Um, you mentioned some, you know, I think some seasonal, changes with the, with the insurance costs maybe, but just, you know, wondering what caused that fluctuation specifically and will it always be lumpy? Is there always a, some element of mystery there that would cause it to fall below 45% again or just anything you can provide there?
spk04: Yeah. I mean, I think we saw a couple of things, right. It was interesting. I've read a few insurance or FinTech reports recently that talked about, um, I think everybody kind of thought that when, you know, travel was way down, that accidents would completely stop. And actually, what ended up happening is as there was less traffic, speed actually increased and accidents became more serious. So I think we are working to get that more normalized going forward. I think we have some exciting announcements that will be coming up here in the near-term future as we look to make both the auto physical damage and the liability process more efficient. It's a real focus for our technology group. So I think we'll continue to work on. We did have some seasonality in it this quarter, and then I'm excited to really improve that on a going forward basis. And then we haven't really talked about it, but there are some good opportunities on the subscription side of things with our new hire car for business platform. to start expanding in that area. So, you know, we expect to get back on that track to 50% that we've been talking about.
spk06: Got it. Okay, that's helpful. That's encouraging comments there. And then maybe just as a follow-up, maybe how does, with the insurance program with Apollo and the upcoming balloon payment in early 2021, and then, you know, just given your comments just now on accidents and risk kind of related driving issues, kind of was counterintuitive, maybe, maybe it increased a bit. Does that impact that, that level of the amount of the balloon payment you'll have to pay, uh, you know, in early 2021? And also what is your comments on, you know, the cash reserves you have on hand, uh, to satisfy that payment, whatever it might be, if it increases or not.
spk04: Yeah, the payment's actually just a direct result of the rental days in the period. So that really isn't impacted by, say, the type of claims that you're having in that component. So, you know, as we said, we've been accruing for that on a quarterly basis, and we have sufficient capital to take care of that and keep moving forward. So we feel pretty good about where things are right now, and I think the testament to that is that, you know, cash was almost neutral there. quarter to quarter and only come down a bit in the last six months, actually. So we feel good about where that is.
spk06: Okay, great. Well, it's nice to see the business continue its rapid growth momentum, and you're on track, it seems, to reach that sufficient positive cash flow generation in the upcoming quarter. So congrats, guys. That's it for me. Thanks so much, Jack. Thanks, Jack.
spk00: Our next question comes from John Hickman with Leidenberg. Your line is now open.
spk01: Hey, most of my questions have been asked and answered. I just had two left. Is there any seasonality in the number of rental days during Q3? Seems like it's been flat since July. So I was just wondering if that was a factor.
spk05: Yeah, good question, John. What we see, and you've actually seen this in the third quarter of the last couple of years, that you do have some softness in August and September. And so that's probably what you're seeing in those numbers. And expectation is that Q4 has always been one of the strongest quarters for demand. And so that's what hopefully you'll see in the fourth quarter.
spk01: Okay. And then going forward, could you give us some indication, the stock-based compensation, I mean, will look pretty much like Q3 instead of past quarters?
spk04: Yeah, I think we're getting back to kind of more of a normalized level at this point in time. So yeah, I think this is kind of back to more of a steady state right now and is largely what we'll see on a going forward basis. It's what we expect to see.
spk01: Okay. And so just one more, back to the first guy's question about 6,000 cars. You really feel this is a question of when, not if? I mean, you feel good enough about these discussions that the that it's not a kind of up-in-the-air thing?
spk05: Yes. Yes. We have commitments. We've talked to insurance carriers. They're gearing up to do this. So I'm excited. Everybody should be excited about this opportunity.
spk01: Okay. Thank you. Thanks, John.
spk00: That concludes today's question and answer session. I'd like to turn the call back to Joe Frenari for closing remarks.
spk05: Thank you, everyone. That's all I had. Looking forward to showing results in the near future here. Thank you.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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