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spk01: Thank you for standing by. Welcome to the HireCAR, Inc. 2021 Second Quarter Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. If you have a question, please press the star followed by the 1 on your touch-tone phone. If you would 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, August the 10th, 2021, and the earnings press release accompanying this conference call was issued at the close of the market today. On our call is HiCars CEO Joe Farnari, CFO Serge DeBak, and HiCars Head of Investor Relations John Evans. I would now like to turn the call over to John Evans.
spk00: Thank you, Operator. Welcome, everyone, to our 2021 Second Quarter Earnings 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 meeting 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 statement relating to 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 US 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 10Q, that will be filed with the SEC and will also be found on the investor relations portion of our website. Now I'd like to turn it over to Joe Farnari, the company's CEO.
spk06: Thank you, John. And it's hard to believe this is HireCar's three-year anniversary as a public company. As I look back to that first call in August of 2018, it's amazing what we've accomplished since then. These accomplishments are a result of the entire hire car team, those that have been with us since before 2018, those that have come recently, and those that have moved on. Your contributions have made this company what it is today. I would especially like to welcome a new executive on the line with us today, Serge DeBak. Serge joined the company about four weeks ago and has already started to make a positive impact. After this call, My hope is that all of our shareholders will be as excited as I am for Surge's present and future contributions. With that, I am pleased to say that we had another consecutive record quarter. The combined tailwinds of loosening COVID restrictions, increasing vaccination rates, higher rideshare demand, and stable delivery demand pushed our business to the highest quarterly revenue in company history. Our net revenue increased 62% to $9.1 million for the quarter. up from 5.6 million in Q2 2020. And rental days increased 44% to over 330,000 for the quarter, up from approximately 230,000 in Q2 2020. For the quarter, we saw a record of over 6,800 new unique drivers pick up a car on our platform, a 49% year-over-year growth rate. Two-thirds of our hire car drivers are still predominantly delivery-oriented, and the opportunity is accelerating in the local delivery-as-a-service environment. Not just for food, but all TNC platforms are starting to move into adjacent lanes like alcohol, pharma, and package delivery. On their Q2 call, Uber said that Uber Eats has grown at a compounding annual growth rate of 100% over the past four years, with plenty of room to continue to run. And Uber's acquisitions of Postmates, Drizzly, and Corner Shop are simply validation of the delivery as a service future. Continued growth of these channels will require sourcing a vetted supply of drivers and a reliable stream of cars to match driver demand. This is what HireCar does best. Delivery platform demands suggest HireCar driver economics will remain attractive creating a sustainable environment supporting larger and larger driver pools for years to come. In addition to gains from delivery, both Uber and Lyft said in their Q2 calls that their rideshare business is increasing month over month, and that July was their best month since March of 2020. Lyft alone is on a run rate to spend over $1 billion in driver incentives this year. Uber also admitted to having major supply dislocations in key markets the first half of this year, so they spent heavily to subsidize driver earnings. In their top 20 markets, drivers are averaging over $40 an hour. HireCar is seeing this driver demand as well, having registered over 37,000 leads in the month of July, and we anticipate a surge in leads as federal stimulus incentives roll off in our key markets. As reports of school reopenings and businesses normalize, recovering rideshare volumes will further strengthen the demand side of our platform, and we've shown that we're nimble enough to manage any business environment thrown our way. Last quarter, we stated that increasing driver demand and fewer driver alternatives were creating incremental margin pickup in our daily rates. I'm happy to announce that our dynamic pricing model brought take rates up to $27 per day in Q2, up 12.5% from Q1. Because we've invested in building a robust data environment and flexible technology stack, we were able to implement these changes relatively quickly, and we anticipate take rates growing through the rest of the year as the dynamic pricing model learns and iterates for risk and reward. On the car supply front, we are enjoying increased vehicle supply onto the platform from our previously announced partnerships and specialty fleet suppliers. On January 28th, we announced an expanded partnership with AmeriDrive Holdings. That announcement included new relationships with Cogent Bank for innovative financial services and an automotive aftermarket retail and service chain with over 900 locations nationwide. AmeriDrive is leveraging those locations for higher car AmeriDrive branded parking spaces and vehicle logistics. AmeriDrive is currently operating out of seven stores in addition to a 200-car overflow lot to help with in-fleet recon. With AmeriDrive's help, we've gone from a little over 3,000 average daily rentals, or ADRs, in Q4 to sequentially trending toward an ADR average of 3,700 in the second quarter. with a run rate of 4,500 to 5,000 ADRs expected in Q4. We've trended slightly lower than expected with AmeriDrive supply, partly because HireCar has never had a fleet operator scale at the speed that AmeriDrive has, but primarily because AmeriDrive experienced some car financing constraints that are short-term in nature. We're in the process of ironing out these scaling and financial constraints And in the near term, we've been able to offset the slow ramp in cars with a steeper ramp in take rates. The overall success of our AmeriDrive partnership has opened additional opportunities to significantly grow vehicle supply over the next 12 to 18 months. So I want to reiterate what we said last quarter. As a company, we want to supply up to 16,000 new cars, both gas and EV vehicles, into the market by the end of 2022. and 50,000 by 2025. Our conversations with our partners make it clear that the market will continue to grow and HireCar intends to be the leading vehicle supplier for the gig economy. In the near term, our partners are working through a tighter vehicle purchase market due to the shortage of new and used cars at scale. That only impacts the short-term pace of adding vehicles and will not impact the growth of our supply going forward as these market anomalies abate. What started as a gig sharing platform has evolved into a vehicle ecosystem that helps vehicle owners not only find the drivers for their vehicles, but also helps them finance, manage, select, and retain drivers. Our relationship with AmeriDrive and Cogent was only the beginning of this program. We are working on another large facility that will enable us to deliver on our growth targets. As part of this expansion, we're using AmeriDrive's process and planning to create a best-in-class operating model that we can share and monitor for other fleet owners that want to expand into the gig economy. This operating model includes using our partners to manage the acquisition and maintenance of vehicles, ensuring the vehicles and drivers, handoff and retrieval of vehicles, and the ultimate disposition of the vehicles at the end of the vehicle's life. Creating this partnership ecosystem helps ensure best practices for the fleet owner to help them be a success and ensures that HireCar can add 1,000 to 2,000 vehicles per quarter that will get us to the number that our rideshare and delivery companies desperately need. With that, I'd now like to turn the call over to Serge Zabok, our Chief Financial Officer, to walk us through some key financial elements from the second quarter. Serge?
spk04: Thanks, Job. I'm really excited to join Highercar for its next phase of growth and to be part of this adventure. On to our Q2 performance. Overall, the second quarter of 2021 saw solid top-line revenue growth year-over-year at 62% and quarter-over-quarter at 22%. But we also saw some transition and investment in our platform in order to scale our operations. First, on the top line, rental days increased to over 330,000 for the second quarter of 2021. on pace to surpass 1.3 million rental days this year, up from 1 million rental days for the full year 2020. This represents a quarter-over-quarter growth of 44% from 229,000 rental days in the prior year's second quarter, and sequentially increased 11% from the first quarter of this year. With the number of rideshare and delivery drivers steadily increasing, and Uber announcing that 90% of inactive drivers intend to be back on the road, By September, we are continuing to aggressively pursue adding new cars to the platform, and this will be one of the key success factors for us in the long term. While our rental days increased by 44%, net revenue in Q2 grew 62% to $9.1 million from $5.9 million last year and 22% from the previous quarter. This year-over-year favorable revenue growth dealt out 18% over the 44% increase in rental days stems from pricing enhancement, a favorable market trend in daily rental fees, and the implementation at scale of dynamic pricing. Specifically, we have driven an increase in daily average net revenue, which represents net revenue divided by rental days, from $24 historically in Q1 to $27 in Q2, as Joe mentioned earlier. This coincides with our net revenue to gross billings ratio increasing from 45% in Q2 2020 to 46% in Q1-21 and 47% in Q2-21, a steady increase in our take rate. July continued to see an increase in both rental days, daily average net revenue, volume, and price. On the topic of price, dynamic pricing currently includes risk segmentation based on geographical location and driver risk profiles. We are still at the onset of leveraging analytics to drive optimal pricing, and we have tons more potential to unlock as we scrutinize and discern trends in the data we're collecting. Now onto the cost side. Cost of revenue increased in Q2 to $8.3 million from $3.1 million year-over-year, with insurance, both premium and claims, accounting for the vast majority of the cost. While the insurance premium increased relatively proportionally to the increase in rental days, Claims expenses have exceeded that, mostly because we centralized our claims portfolio with a new single processing partner with the goal to improve customer experience. We settled all claims, migrated platforms, and performed a deep dive into insurance reserves to date. We add $1.4 million in one-time expenses related to transition and to claims development incurred from prior periods. At the same time, we observed a sharp decrease in customer complaints related to the claims process. We are assessing the ROI of various portions of the process and aim to find the right balance between customer retention and direct costs. Accordingly, gross profit for the current quarter was $0.8 million, representing a gross margin of 8.9%. Adjusted for one-off expenses related to the claims portfolio transition, our gross margin was 24.3%. We're optimizing our new processes and pricing and have already identified several tangible opportunities to improve claims profitability, either by process improvement, geographical and risk price adjustment, or adequate pricing for our premium coverage offerings. One of these opportunities relates to reassessing our deductibles on physical damage claim and providing incentives for drivers with low claims experience. We want to strike the right balance between customer experience and cost. We believe we can aim for low 30s gross profit margin in Q3 in line with fiscal year 2020 and an improved profit margin of mid 30s in Q4 through pursuing and effecting these initiatives without impacting our growth or driver and owner retention. We are also collaborating with our insurance partners to leverage data and improve our driver and car screening processes to both reduce claims outcomes and claims premium through risk control, and to continue our path towards 40% plus gross margin in the later half of 2022 and beyond. Specifically, during our discussions with our insurance partners, we estimated that we could reduce insurance premium over time by up to 20% by identifying and filtering more effectively high-risk drivers. Operating expenses totaled $10.1 million in Q2 of 2021, an increase of 3.7 million, or 58%, over the 6.4 million recognized in Q2 of last year. Compared to Q1 2021, however, we scaled our operating expenses up by only 2%. We have invested in scaling our platform, optimizing our technical infrastructure, driving top of the funnel through marketing efforts, and staffing sales and operations for continued and sustained growth. we have been clearing some of the technical and operational debt we have carried over to build a sound base for accelerated growth. Going to Q3, our focus will be on continuing supporting higher cars' future top-line growth effectively while containing non-growth-related expenses, creating operational leverage and economies of scale. Our adjusted EBITDA for the quarter ended at a loss of $7.1 million, up from $1.7 million loss in Q2 last year. As we discussed, this increase resulted primarily from our claims performance and transition, as well as cash operating expenditure to support growth at scale. Our cash position continues to remain healthy with sufficient liquidity to fund our operations in 2021 and pursue growth opportunities. As Joe mentioned, we're also in the process of securing favorable financing to create financial leverage and optimize our cost of capital. It will also help our partners, such as Ameridrive, grow their fleets and accelerate economies of scale through expanded volume. Back to Joe for final remarks.
spk06: Thanks, Serge. And to summarize, HireCar is carrying our growth trajectory into the third quarter and enjoying the tailwinds of the pending full reopening of the economy. For HireCar's business, it's not a matter of if we're going to be successful, it's a matter of when. We want to supply 16,000 new cars, both gas and EV, into the market by the end of 2022 and 50,000 by 2025. We have exciting partnerships in the pipeline that will provide catalyst financing to scale the fleet exponentially. And I expect a TNC partnership coming to fruition this year, which has been in the making for over five and a half years. The bottom line is that the future is bright as we continue to execute our growth strategy throughout the remainder of the year. With that, operator, let us move to Q&A.
spk02: Thank you. As a reminder to ask a question, you will need to press star, then one on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Mike Grondahl. with Northland Securities. Your line is now open.
spk08: Hey, Joe and Serge. Hey, Joe, could you talk again about the cars, rental cars on the platform at the end of June or at the end of 2Q? And kind of, I think you said a number by year end. Kind of help us understand maybe from year end 2020, to first quarter, second quarter, and where you think you're going to be at year end. Start with that if you could.
spk06: Sure. Yeah, I mean, Mike, where we are right now, I think we have about 6,000 available cars on the platform. That includes both rented and available. About two-thirds are rented right now. I think by the end of the year, we'll be around 4,500 to 5,000 actively rented, what we call ADRs. slightly lower than what we had talked about last quarter. And, again, I kind of touched on some of the issues we've had with scaling, some of the issues we've had with financing those vehicle fleets. But I think those are all short terms in nature. I mean, we're one quarter into a six-quarter strategic plan that is going to get us to, you know, 6,000 additional cars there. and 16,000 by the end of 22. I think those are realistic goals given the partnerships that we're putting in place.
spk08: Got it. And the partnerships you're putting in place, is that a couple partners with big chunks of cars or is it a process so dealers can put 100 there, 200 in this city? I guess just help us bridge a little bit from the 4,500 to the 16,000. Yeah.
spk06: So you have three aspects to that. Um, first is, is the financing. Uh, we're talking to players that can bring over a billion dollars in financing to this market in the next five years. Uh, so, so we're talking about a, and we're talking about a model that is proven that's been done before, right? In a, um, in a highly, highly scalable structure. So financing partners that can really bring capital to scale is one aspect of it. On the other side, from a driver perspective, we're talking to TNCs that we've been talking to for the last five and a half years that I think are now at the point where, and we're at the point now where we can really help them scale. I think we have meaningful supply coming on to really help them ramp. And then on the ecosystem side of it, from an owner perspective, we are in process of building out the playbook, right? Really learning best practices from AmeriDrive and rolling those best practices out in a playbook that enables mini fleets, what we call kind of mini fleets is five to 50 car fleet owners to really scale and really kind of run a profitable business within our ecosystem. So between those three kind of aspects of the business and partnerships, I'm really excited about what the second half looks like and kind of what we have going into 22. Yeah.
spk04: And actually, hi, Mike. It's Serge. I had a quick thing on finance. Hey. I'll have a quick thing on financing. I think it's important we have opportunities to secure quite a sizable chunk of financing, but we want to make sure we strike the right balance between collateral, interest rate, and that's something that's going to carry over for us in the long term. So we take our time to do the right thing and being able to pick the right partner for us to grow and being able to get the right cars and the right financing.
spk08: Got it. And then just secondly, It sounds like there was some insurance transition and claims of $1.4 million. And if you subtracted that, you got a gross margin of like 24%. But that still seemed down from where you were running. I guess help reconcile that a little bit more.
spk04: Absolutely. Absolutely. So the 1.4 million represents the truly one-off items that impacted us from prior periods or just purely transition items. Like, for instance, we had about 200K that came from an API that broke in our transition between claims, insurance, and processing partners. So those are purely one-off items. So the bridging to last year's gross margin that was at 33% for the whole year comes from us changing our processes. We want to improve customer satisfaction, customer retention, so we made it a little bit easier for folks to kind of go through the claims process. Now we try to find the right balance between direct costs and being able to have customers being happy and have a good retention impact. And as we get through, this is just the first few months with our new insurance processing partners. We're already hammering out. We're doing a deep dive, hammering out the details on the claims process. We already identified a few areas that we can fix or just improve or doing a good trade-off there, and we believe we can get back the margin above 30% directly in Q3 through those efforts. But it's going to take a little time for us to kind of get back as we transition between partners and we understand the claims better. And then another angle is really data. We collect a lot of data in our claims process, and we're trying to understand better what makes a good driver. As we mature and we're able to do that, we'll be able to pick drivers more effectively, and then in turn, that's going to turn into less claims and lower insurance premiums. So we're trying to get a favorable wheel going in terms of getting data, adjust, and then reduce our expenses. But as we get through the transition, The new processes took a little bit of a toll on our direct profitability.
spk08: Got it. Okay. Thank you.
spk04: No problem.
spk02: Thank you. Our next question comes from the line of Tom White with DA Davidson. Your line is now open.
spk07: Great. Thanks for taking my question, guys. I've got a couple, if I may. Joe, I guess first, on the Ameridrive partnership and kind of the pace of rollout there, can you give us a little bit more color on what's happening there? I think you mentioned some kind of short-termish financing constraints. I guess I want to understand the extent, you know, what's happening there, and then also is there any just kind of impact from the tight supply of used cars that might be kind of less short-term in nature? And then on EBITDA, you know, between the gross margin outlook for the balance of the year and also what seemed to be kind of elevated G&A in the quarter, I was curious if you can kind of comment on your how you're thinking about EBITDA profitability relative to kind of that level of kind of rental days that you thought, or at least you've previously mentioned you needed to get to in order to reach kind of EBITDA break-even. Thanks.
spk06: Yeah, thanks, Tom. Yeah, so from a supply perspective, what we're seeing in the market in terms of supply conditions in the used car markets is You know, those prices have come down. I mean, they were up, what, over 40% annually. And they've started to come down in the last six weeks or so. They're down about 5% to 7%, depending on the type of vehicle. Expectation is that those prices continue to come down another 5%, 10%. But eventually they normalize. And probably we don't get to full normalization until Q3 2021. of next year just because what's going on with supply chain and chip shortages. All that being said, I think the AmeriDrive issues are more from a financial perspective. We've been in heavy conversations with multiple, multiple financing entities. I think we have that figured out so that now they can start to really scale again. And so we're leaning in with, you know, our resources to be able to get them to where they can really start to scale and they have the resources to support that scale, which is kind of where we want to be. And then maybe I'll let Serge talk to the EBITDA piece of it.
spk04: Yeah, absolutely. That's a good question. We've seen some of the increase in OPEX this quarter being more short-term in nature. And also, as we go through, one of the key pillars of what I'm doing coming in on week five and six is really doing a deep dive on operating expenditure and understand the ROI on each of those. And I think we've really identified some areas where we can improve and reduce that cost base going forward. To your questions around what level of cars, I think based on the current trends and what we can do in the short term, we can get to At about a run rate of 60 to 70 million annual revenue will be at EBITDA neutrality, and that represents between 6,000 and 6,500 cars. But that's making sure that we have enough sound base in our OPEX to be able to grow and continue on that trend going forward. We're trying to strike the right tradeoff between investments in OPEX and our ability to grow. And right now, we're scaling the platform, fixing all the things for us to be able to be on a pretty big growth trajectory. If we can even secure $100 million of financing in the next few months, we'll be able to add a large amount of cards to the platform that will get us there. So I think that's our take right now on the profitability.
spk07: Okay, thanks. Maybe just one more follow-up, if I could, on dynamic pricing. You know, what gives you guys confidence that that can be sustainable? I mean, clearly, you know, probably for the next couple of quarters, the driver incentives from the big TNCs you mentioned will be a tailwind. But I guess kind of, you know, eventually that level of spend will probably normalize. And then I also just, I wonder, as your business kind of shifts, the mix kind of shifts a little bit more towards delivery and You know, it feels like delivery, you know, food delivery drivers earn a little bit less than ride share drivers. I guess what gives you confidence that kind of given those two things that, you know, you guys can sustain these higher kind of daily revenue takes?
spk06: Yeah, good question. I would point to a couple of data points in the market. Yeah, we touched on Lyft on a run rate to spend about a billion dollars in driver incentives. Uber not far behind. If you look at Uber vehicle solutions right now, the cars used to be offered at $215 per week. Now they're offered at $260. You see that Uber drivers are making about $40 per hour. I don't see that coming down in the near term. If anything, it probably goes up a little bit as Delta variant starts to maybe push some of the more drivers that would be worried about that out of the market, and you start to see new drivers coming in from the roll-off of the federal stimulus. So there's some interesting dynamics there that I think are going to enable us to maintain dynamic pricing, continue to grow that through the end of the year. And then to address your question about the delivery piece of it, You know, yes, you see delivery drivers make slightly lower. That's always been the case. And so the money has always been in ride-sharing. But, you know, in this uncertain environment where drivers don't necessarily have to deal with people to make an equivalent earnings compared to ride-share, we see that only increasing. Just an anecdotal, I was in the car the other day with a driver who was like, oh, yeah, I'm giving you the last ride. I'm turning it off. I'm going to Amazon Flex because I can, you know, I've reserved a couple of deliveries this evening. And so I think what all of this does, the trend creates flexibility for drivers. Because it's not binary, right? All these drivers, their drivers are driving for rideshare, they're driving for delivery, they're driving for packaged food, all of that stuff. And so they bounce around and they go where the economics are. All of it means increased demand, means that higher basket sizes, means higher earnings for those drivers. So I'm not too worried about being able to sustain higher prices, at least over in the short term, for the next six to 12 months. Maybe it normalizes back, but I think this structurally has changed how consumers are getting their goods now through the gig economy, and that demand isn't going anywhere, which, again, supports the pricing and earnings for drivers.
spk07: Okay. Thanks for the call, Joe. Appreciate it.
spk06: Yep.
spk02: Thank you. Our next question comes from the line of Mark Argento, Wolf Lake. Lake Street. Your line is not open.
spk03: Hey, Joe. I just wanted to drill down on kind of the competitive environment right now. It seems like, you know, demand is all and think a little more in terms of pricing and both on the service side but also on the insurance side, the opportunity to ratchet that up a little bit more. As you alluded to just now, it seems like basket sizes are getting bigger. The last few times I've taken an Uber, it seems like the costs are going up. Does that allow you guys to price up a little bit? Again, not only, you know, I guess when it comes to thinking about the insurance side, and especially given it seems like you're really the only one out there in the market doing what you're doing.
spk06: Yeah, well, I'll touch on kind of the competitive side of it and maybe let Serge jump in on the insurance side of it in terms of kind of like competitiveness. From my perspective, you know, we are kind of last man standing now at this point with With a lot of the competitors that have fallen off, there's still one or two that are relevant. But from our perspective, there's about 60,000-plus cars that need to be supplied to the market today, right? September, I think it's 9th, you have the roll-off of federal stimulus with a lot of these states. And I think there's a tremendous amount of demand that's going to start coming back into the market. So our goal right now is to move at warp speed to get as many cars on the platform as possible. So that's what I'm focused on. From a competitive standpoint, I see prices going up from those competitors that are playing in the market. Just as an example, the $260 a week up from $215 a week, which if you look at that all-in cost with some of the bells and whistles, it's closer to $400 a week. whereas hire car is coming in 350 to 400. So in most states, for most of our offerings, we're coming in as the low-cost provider of fleet. We just need to add it quickly and faster. But I'll let Serge talk to the insurance piece of that from a competitive standpoint.
spk04: Yes. we are looking at the offering in the market between the different competitors that we have and understanding what the driver is able to pay and what the owner is willing to offer. And I think for us, we're really trying to match the two and being able to price right is going to be important. And then price right within the constraints of insurance, like you alluded to, is very important. As we understand better our offering and what impact it has on our cost of claims, will be able to price it appropriately. And here I think we are in the middle of a review, and I alluded to that in the beginning of the call, of reviewing the different pricing options, including deductibles, to offer something that's priced right. I think we have more opportunity to generate revenue based on increased pricing overall, but principally also on being able to select the right drivers and being able to leverage all the data we have to select the right drivers, and again, being able to selecting the right drivers get the cost of claims down, and help us on the profitability side while not impairing our growth. And I think that's what we're going to be focused on, to be able to get the cost down and also being able to set price appropriately based on risk profile.
spk03: Great. Thanks for the call, guys. Appreciate it. No problem.
spk02: Thank you. Our next question comes from the line of Jack Vanderaard with Maxim Group. Your line is now open.
spk05: Great. Hey, Joe, and congrats and welcome aboard to Surge. I'll start with a question for Joe. Joe, just a housekeeping item. Did I hear you correctly that new driver leads in the month of July was 37,000?
spk06: Yes, that's correct.
spk05: Wow, okay.
spk06: Thank you for that. That's up pretty significantly as we've spent into – marketing channels, right? If you look at where we are from where we started, I mean, we've doubled, if not tripled, our feeds at this point to really spend into the opportunity to prime the pumps in anticipation of more car supply coming on. So, yeah, it's a pretty good number right now.
spk05: Okay, cool. That's helpful. And then just Another follow-up for you, Joe. In terms of identifying and, you know, just allocating future car supply, you know, just because I believe the first phase, for example, you had with Ameridrive was kind of targeting the southeast market, if I remember correctly. Have you identified or, you know, do you have a roadmap here now in terms of where your next, I guess, most immediate needs are to allocate future car supply? Have you kind of painted that picture yet, or is it still – Kind of fill in the blanks as you go, depending on when you get that supply locked up.
spk06: Yeah, we're kind of in stealth mode a little bit on where we're going to be ramping up. We have a lot of conversations going right now with TNC partners that are looking for supply, both ICE and EV cars. But we do have a roadmap. We do have a strategy. And I think I'll be able to probably talk about it a little bit more on the next call.
spk05: Okay. Gotcha. And then maybe from just, you know, your revenue model, just a nuts and bolts question here. You guys often, you know, cite that average weekly car rental rate as kind of the basis of your revenue equation. I know that fluctuates and the owner set the pricing, but have you noticed any changes to that average rental rate that you're seeing in your user base?
spk04: Yes, absolutely. So that average rental number has gone up, as you can see actually in our performance. We're getting a little bit upwards of $37, $38, which is a positive trend for us. And then the driver's fees have also increased in percentage of that. So as we implement the dynamic pricing, we are able to select the right drivers and charge the right rates. So we've seen that, and we also have an increase in daily insurance rates. as well. So all in all, it got us pretty favorably. It went from 53 growth to 57 growth, and then on the net basis from 24 to 27, and we continue to see positive trends. There's more upside there for us to be able to take as we get through. And then our take rate is also an important indicator, steadily going from 45 to 47 on that equation. And I think that's also continuously improving, increasing dynamic pricing, but also things in the marketplace that we've seen.
spk05: Fantastic. All right, that's it for me, guys. I appreciate the time. Thanks.
spk02: Thank you. Thank you. Our next question comes from the line of John Hickman with Leidenberg. Your line is now open.
spk09: Hi. I guess this is a question for Serge. In past quarters, you guys were talking about targeting operating expenses at around, cash operating expenses at around $5 to $5.5 million. The past couple quarters, it looks like that's gone up to seven, seven and a half million. Can you tell us what you expect for the rest of the year?
spk04: Yeah, I think this quarter was extremely high compared to previous quarters through investments, but we're trying to normalize that around probably six and a half, seven in the immediate term.
spk09: Six and a half to seven cash?
spk04: Cash. Okay.
spk09: Okay. And then can I just clarify what you said about gross margins? You thought they were kind of low 30s the rest of the year, and then by the second half of next year, you could get into the 40% range? That's correct. Is that what you said?
spk04: Yes, that's correct. I think right now we'll be able to get back into three closer in line with what we saw last year as an annual gross profit rate. And then in Q4, I think we expect that to improve. And I think part of it is us being able to have more on the take rate, and then part of us is being able to get the claims in a better spot with all the data we have and implementing the initiatives that we've identified.
spk09: So can you talk about why the claims expenses have risen so dramatically in the last couple quarters?
spk04: Yes, absolutely. I think this quarter we had $1.4 million in one-off expenses from the transition. But also changing our process and implementing faster payment process that were more customer friendly led to faster payouts and sometimes payouts a little higher than what we've seen in the past. We identified a few things we need to do to be able to curtail that. We're going to focus on deductible as one portion to be able to have a good handle on the amount and volume of claims coming in. And then we also have a few things, including, for instance, our subrogation practices. We got a little loser on subrogation practices in Q2. We were paying our customers and then trying to chase back the money. I think here we put new more guardrails in those cases. We only subrogated certain instances, for instance, and that will help us drive some of the claims back. We also looked at different trends for different states. we identified a couple of states where we saw more alarming trends and also a different profile of drivers, and we need to take action to curate that in Q3. And that's going to show up partially in Q3 and then in Q4. And I think that with more data, and I think that's going to be a trend you're going to see, we have more data, more dashboards. We're able to discern and analyze the data more quickly and react very quickly to trends. And I think that's going to help us be more efficient, effective, and generate more profit in the future.
spk09: So long term, do you still think you can get close to 50%?
spk04: That's a question that's difficult to address right now. There's a lot of factors in the long term. I think we can get above 40% for sure with very, very high volumes and keep that margin high up. So that's still a pretty solid margin business. We're going to aim for 50%. I think Joe is always very focused. very willing to push the envelope and being able to drive, shoot for the sky, and that's worked really well in the past. I think it's a great mentality for the company. I think right now it's probably a little too early to tell, but I'd say that it's safe to say that we'll be shooting for a margin upwards of 40% in the latter half of next year.
spk09: Okay, and just one last question. Joe, what's a TNC partnership? What does TNC stand for?
spk06: Yeah, John, good to talk to you here. TNC stands for Transportation Network Company. That's Uber, Lyft, the transportation networks that are delivering people for the most part. And then you have delivery on the other side. With those partnerships, there's two major players. And we are... We've officially signed with one of those TNCs. I just want to tease that right now. We're going to put out a real press release and throw some fireworks around it because we've been working towards this partnership for the last five and a half years. So I'm really excited. We're going to get that done, and hopefully everyone is as excited as we are at that point when we announce it.
spk09: Okay. I'm sorry. I have one more. What do you tell drivers when you get a lead and you don't have a car for them? What happens then?
spk06: For the most part, they come back into queue and they're on a drip campaign. From a marketing perspective, we continually retarget. And when cars do come in into that geography, they're getting links directly sent to them. Yeah. Pretty sophisticated marketing algo to follow up with leads that don't get into those cars.
spk02: Thank you. We do have a follow-up question from the line of Mike Rondle with Northland Securities. Your line is now open.
spk08: Hey, Joe. Just one last question here. You guys had like 3,700 cars at the end of June. And you're talking about $50,000 in 2025, you know, which is really big. What are the couple biggest impediments to getting to $50,000? Is it financing? Is it partnerships with fleet managers? Is it a T&C partnership? I guess help me understand why. You know, the biggest impediments to getting there and how you think you're kind of knocking them down.
spk06: Yeah, well, it's multifaceted. You know, we talked about three of them, which was, you know, the financing to really scale it up or having the capital to scale it up. The ecosystem of vehicle owners utilizing a consistent playbook to get those cars out. And then a partnership with a TNC to really ramp on the driver's supply. I think there are a couple of instances in history, in recent history, in the last three years, four years, where companies have been able to scale that fast. And I see us now having been able to replicate in a sustainable business model that versus some that have come and gone. So we've talked about FAIR in the past that was able to put 18,000 cars on the road in a little under 24 months. Same with exchange leasing was able to put over 20,000 cars on the road in a little under 24 months. So with a T&T partnership leveraging their marketing dollars to really ramp up and get qualified drivers into the cars and pairing that with capital sources, and vehicle owners who are able to supply those cars, it just creates this virtuous cycle that continues to build upon itself. And I see us being at that inflection point right now. And again, that's why we're leaning in with some of the OPEX numbers that you're seeing because we're now seeing all these pieces starting to fall into place. It's taken us five and a half years to get there, but we're there. So I'm excited about that.
spk08: Great. Thank you, Joe.
spk02: Thank you. There are no further questions. I will now turn the call over to Joe Finari for closing remarks.
spk06: Thank you, Operator. Thanks to everyone for being on the call and taking the time here. We expect to update you soon on some exciting partnerships that I've teased multiple times here. But these partnerships will allow us to continue to scale cars for the ride sharing and delivery markets exponentially. So we're really the only historical player in the market left to provide safe and reliable cars at this point. So I'm excited for the prospects. So we'll look to update our shareholders regularly on the progress we're making, and most importantly, the details and rollout of everything that we have going in the pipeline. So thanks again, everyone, and look forward to speaking next quarter. Thank you.
spk02: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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