Edited Transcript of HYRE.OQ earnings conference call or presentation 25-Mar-20 9:00pm GMT

So first, our top priority has been the health and safety of our staff and everyone who uses our platform. We have implemented work from home to keep our staff safe, and thankfully, we haven’t had any confirmed cases of COVID-19 in our workforce or that we are aware of in our driver population. At the same time, we are taking action to solidify our business to make sure we’re set to come out of this crisis stronger than before.

And the most important thing to know is that we are well positioned to weather this crisis. We have ample liquidity, we have a highly variable cost structure. We have an agnostic platform that allows our drivers the ability to pivot in this crisis to focus more on transporting food and package delivery services versus people and multiple levers to pull to reduce burn. There are also strong case studies of how our business is likely to rebound after a shock like this. All of this gives us confidence.

In any crisis, liquidity is key. We are very fortunate to have a relatively strong cash position, with approximately $8 million of unrestricted cash currently and 0 debt. We are taking actions to approach cash neutral in the near term with very little burn. Actions include reducing marketing spend, reducing some of our fixed ops expenses, renegotiating our variable insurance costs, reduce travel and reduce G&A. At this point, we’re not looking at reducing headcount, and would prefer to spread cost controlling measures across the whole company.

So in the first 2 weeks of March, we had our strongest revenue weeks ever. But from that peak, our active rentals had leveled off and are down about 25% peak to trough. This is relatively strong compared to Uber and Lyft, where they are seeing ride declines of approximately 70% year-over-year in certain cities. One reason for our relative strength is that we have shifted our messaging to food and package delivery. Our ads have moved away from a rideshare keyword search and focused on a food and package delivery keyword search. And because of this shift, we have not experienced a drop in driver leads over the past 3 weeks.

We have started communicating a list of services that the drivers can use as a guide to find alternative streams of income as well as encouraging car owners to keep their vehicles clean and lower their prices, if possible, making it easier for drivers to get on the road. Automated messaging has been built for the sales and marketing team to provide thoughtful and helpful communication during these times.

To ensure everyone can see the changes we’ve made, we also added a banner to the landing page to encourage drivers to sign up for these delivery services. Driver sales agents have started an outbound call strategy so that we’re becoming a trusted adviser to our driver partners. And we’re making sure we’re picking up the phones because our customers will remember we were the ones that picked up when other companies did not. We have switched to delivery services during this crisis, and we have seen the unprecedented growth in delivery for companies in the food and package space.

Uber announced their self-service restaurant portal was seeing 10x the amount of volume in the past couple of weeks. And even in Seattle where COVID-19 has hit the hardest, their team was seeing 2.5x activity over the normal volume. Amazon has released that it is hiring 100,000 workers to deal with the demand and Instacart said on Monday that it will be hiring 300,000 more personal shoppers as grocery delivery demand grows over 150%. This is in addition to DoorDash, Postmates and other restaurant delivery companies seeing a greater rate of new clients signing on to their service and needing drivers to help with demand.

So moving forward, I expect our strategy of transitioning drivers to food and package delivery will start to show in our active rental day count, but it’s still too early to tell how this will impact revenue. Our new unique drivers renting a new car have continued to grow sequentially month-over-month, although at a normalized rate this past week or so. New cars on the platform are sourcing predominantly from existing dealer groups as most new franchise dealers have slown down from registering and plating cars because of DMV closures.

So going back to the fourth quarter numbers, we reported another outstanding quarter with revenues increasing 30% sequentially to $4.8 million from $3.7 million when compared to the third quarter, increasing 50% from the same period last year. Rental days grew to approximately 197,000 in Q4 from 146,000 in the third quarter, and unique drivers added to the platform rose 69% to 4,873 in the fourth quarter of 2019 as compared to 2,876 new unique drivers added in the fourth quarter of 2018. Full year revenue was $15.9 million, increasing 62% from $9.8 million in 2018. For the full year, rental days grew over 61% to approximately 621,000 days from approximately 385,000 days in 2018.

We said on the call that we expected to see a substantial uptick of cars, rentals and subsequent revenue from that activity in Q4 and continued sequential and year-over-year revenue growth throughout 2020. As I just said in the first quarter, we saw rental activity grow from month-to-month. Growth leveled off in the past week as various states have put stay-at-home rules in place and our work to switch people to delivery has about a 10-day lag from sign-up to acceptance. We are working hard to keep our drivers employed by helping them switch to delivery and using this period to strengthen our commercial dealer and OEM activities to ensure that we will have plenty of cars for drivers now as more drivers move to delivery and for when the country returns to normal.

Most importantly, we have enough cash to weather the storm, and our people are safe and productive working from home. While these cars represent future revenue growth, obviously, there is still a major asymmetry between the driver leads we’re generating and the cars listed on our site. So we continue to increase our investment in people and systems and in our commercial and dealership initiatives in order to close this gap between supply and demand as we scale our inventory to meet demand for vehicles on our platform.

Our partnerships group is focused on accelerating the OEM pilots currently in progress. We will use this time to continue to build relationships and integrate our technology with our partners. Our recently announced partnership with Clutch is a case in point. We have begun to onboard new dealerships and are working on a technology integration that will allow Clutch and us to provide services to the dealer marketplace. This is part of a long-term plan for our company and part of our strategy that will expand our company to integrate our services and platform into the dealer software platforms for both used and new cars. This will position us for the long-term as a Mobility-as-a-Service company and will allow many participants in the market to integrate into the car sharing and mobility market as it grows and changes.

Continuing to build car capacity and scaling dealership initiatives were the main themes of our dealer initiatives in Q4. To give you some sense of the increase in commercial bookings, the number of cars that were rented on our platform for commercial partners increased 52% from Q3 ’19 to Q4 ’19. We expect to increase the commercial cars on the platform by working with our current and prospective commercial accounts now so that we have cars to scale the delivery drivers that we were expanding into as part of the recent changing landscape and who will be expanding cars for drivers when the ever-expanding safe-at-home or shelter-in-place policies are replaced and people start using TNC platforms for their personal and business transportation needs again.

We are also seeing utilization improve as dealers become a larger part of the vehicle inventory. Utilization will become a more important KPI to track in the future because we found that dedicated commercial supply in the platform is being rented greater than 90% of the time, whereas individual or peer-to-peer supply is under 75%. A few reasons for this utilization include owner response time to booking requests, availability for key exchanges and competitive pricing and car quality.

As the shift in mix of inventory continues to weigh more heavily towards dealers and fleets, we expect overall utilization rates to increase. Post March 15, our overall utilization has leveled off to a more historic 70% from a high of mid-80%, post — pre-March 15. We expect to get back to the mid-80s to low 90s as our driver mix moves toward package delivery over the remainder of this unique period and for the remainder of the year, as rideshare returns to historic levels.

Our integration of the new dealership portal and related technology tools, combined with the onboarding of veteran automotive sales executives to our HyreCar team, has created an environment where dealers and OEMs have trust that we understand their needs and can efficiently onboard vehicles en masse to the HyreCar platform. The success of our dealer initiatives to date is proving that the HyreCar platform helps dealers and OEMs to collaboratively partner with a transportation-as-a-service provider to leverage this monumental shift in the transportation industry that is affecting their core businesses and a win-win business model for both.

In addition, we compete against vertically integrated asset-heavy models that have a high cost structure relative to our asset-light model of scalable growth based on more of a SaaS ecosystem. Fair.com, as you know, from their recent scale back, is no longer providing cars to drivers on Uber and Lyft, and we are seeing opportunities to benefit from this exit, especially in states like California and Georgia. This gives us increased confidence in our asset-light business model as a partner with commercial dealerships where we help them build their business and become larger and more profitable even as we build our business to scale in a fiscally prudent manner.

I’d now like to turn the call over to Scott Brogi, our Chief Financial Officer, to walk through some key financial details from the quarter and the full year. Scott?

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Robert Scott Brogi, HyreCar Inc. – CFO [3]

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Thanks, Joe. Before I review the financials, I want to give an update on important aspects of the 2019 audit. First, in regards to the audit itself, our 2019 audit remains ongoing due to some logistical issues related to COVID-19. The primary remaining item for the completion of the 2019 audit is finalizing the insurance reserve. We have had trouble getting necessary data from our service providers. And accordingly, that is lengthening the time required for our auditors to complete this analysis. We expect our insurance reserve to increase in proportion to the increase in rental days we have experienced as a result in growth in our core business.

In the numbers that follow, we have taken a very conservative approach to report unaudited numbers and included a significant cushion, which will ultimately be finalized in our audited figures. These results remain subject to adjustment, and we will advise and update these numbers when the audit is complete and the 10-K is filed, which we expect to occur in approximately 2 weeks.

Second, we have been working with the SEC, following their routine review of our ’34 Act filings, focusing on the 2018 10-K. They asked us to consider classifying insurance claims payments into the cost of goods sold line above the gross profit line versus the 2018 classification of insurance claims payments into general and administrative operating expense in our income statement as this has recently become an industry standard with our transportation peer group for companies like Lyft, Uber and car rental companies.

This change is EBITDA-neutral and has no impact on our earnings numbers previously reported as we are moving the expense from below the gross profit line to above it, and accordingly, reduce both our gross profit and operating expense equally. Upon further review, we have decided to adopt this classification for insurance claim payments associated with revenue-generating activities as cost of sales on a going-forward basis, and so the following results reflect this classification and include the insurance reserve cushion. Going forward, we will report our results in this manner, and these results will be reported when the audit is complete and the 10-K is filed.

Finally, as we have said, we’ll be taking a few extra weeks to make sure our audit partners and team have ample time to refinalize any required adjustments. The audit process was slowed significantly this month, as all our partners and staff move to full-time remote work, including complying with shelter-in-place orders by the California Governor last week. Even prior to the shelter-in-place order, we were experiencing delays in obtaining data from partners as it related to audit items outstanding because of COVID-19. I’m confident we’ll finish the audit within the time allotted through filing an SEC Form 12b-25. We will advise and update these numbers when the audit is complete and the 10-K is filed.

For the 12 months ended December 31, 2019, net revenue increased 63% to $15.9 million, and when — and was up 32% sequentially from $3.7 million in the third quarter to $4.8 million in the fourth quarter. Revenue growth in the fourth quarter was primarily driven by increases in net rental days, which grew 35.3% to 197,243 rental days in the fourth quarter, up from 145,738 days in the third quarter. I would like to add that these trends have continued into the first quarter of 2020, and we were setting all-time highs in booking volumes and net revenue into early March. We were actually at over 150,000 net rental days through the first 2 months of the quarter for an annualized rate of over 900,000 rental days, up from just over 600,000 days in 2019.

Cost of sales increased for the year ended December 31, 2019 to $10.1 million from $5.1 million in the prior year. This includes approximately $2.8 million in claims formerly classified in operating expenses as well as the additional insurance reserve previously mentioned. Again, we expect our auditors to complete their analysis and hope that this adjustment will ultimately be reduced in our final numbers.

Operating expense increased to $18.2 million for the 12 months ended December 31, 2019 from $13.8 million in the same period the prior year. This was primarily due to increased sales and marketing expenses to drive the higher business levels.

Our net loss increased to $4.2 million or $0.30 per share for the 3 months ended December 31, 2019 from $2.6 million or $0.31 per share in the same period the prior year and from $3.6 million or $0.28 per share sequentially from the prior quarter. For the full year, our net loss was $12.4 million or $0.89 per share versus a loss of $11.2 million in the prior year or $1.31 per share. After backing out approximately $1.9 million in stock-based compensation for the year, our adjusted net loss, which is effectively adjusted EBITDA, was $10.6 million for the year ending December 31, 2019, compared to an adjusted net loss of $7.1 million for the year ending December 31, 2018.

Cash totaled $10.8 million — excuse me, cash totaled $10.6 million at December 31, 2019, an increase of $3.8 million from $6.8 million at December 31, 2018. This increase was primarily the result of the completion of our secondary offering in July 2019. And as of the end of February, we had approximately $8.8 million in cash and marketable securities.

Our current focus is on trying to operate as close to cash neutral as possible with all the uncertainty in the marketplace. As Joe mentioned earlier, our business has declined from all-time highs just a few weeks ago during the first week of March. But to this point, it is a manageable decrease, which we track on a daily basis. Fortunately, our business systems are now almost entirely cloud-based, with great partners like Amazon Web Services, Salesforce, Stripe and Zoom, allowing our teams to operate very efficiently while at distance. Also, much of our cost structure is variable in nature, as Joe said, so activity levels decreased in the near term, also resulting in many of our larger costs, including background checks, merchant processing and direct insurance charges to decrease as well. We have also instituted a temporary hiring freeze and halted any travel, and instead, renewed our efforts to connect with both car owners and car drivers by remotely leveraging our tools to stay in touch with them during these difficult times.

Food — as discussed before, food and package delivery are increasing and may very well become the new normal. We are well positioned to participate in this expansion. And once things start to come back, we look forward to, again, investing in top line growth and continuing to make progress towards cash flow profitability.

Now I would like to turn the call back over to Joe to wrap it up.

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Joseph Furnari, HyreCar Inc. – CEO & Director [4]

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Thanks, Scott. So in summary, despite an unprecedented environment, we are positioning ourselves to continue to grow rapidly, and this growth is fueled by macro tailwinds pushing individuals toward a new future, and it’s not just mobility but also last mile delivery for goods and services. We see HyreCar perfectly positioned to enable drivers, OEMs, auto dealers and fleet operators access to the transportation-as-a-service opportunity and for all to earn revenues from participating rather than disintermediating the traditional players.

Feedback from our OEM and dealership initiatives has been positive. So we’re doubling down on efforts to build scale and capacity into the platform to accommodate our vehicle suppliers. Driver demand continues to be robust, and providing a consistent value-add experience for our driver customers has been a key focus.

To conclude, I believe HyreCar is reaching a positive inflection point, which will be a bit slower now due to the crisis, but we continue to move in a positive direction, and I look forward to continued operational execution and shareholder value creation over the long term.

With that, I will turn it over to the operator. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mike Grondahl with Northland Securities.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [2]

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So it sounds like up until early March, you were running at roughly 75,000 to 80,000 rentals a month and you are down, I think you said, roughly 25% from there. One, has that bottomed yet? Or — and am I doing the math right, you’re about 55,000 to 60,000 rentals a month now?

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Robert Scott Brogi, HyreCar Inc. – CFO [3]

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Yes. I mean this is Scott, Mike. I would just say that definitely for January and February, those were both in right around the 75,000 rental day range. There were 2 fewer business days in February than in March. And for sure, the way we started the first week in March, we were well on our way to an 80,000 day-plus quarter. So it has eased off a bit, it’s kind of in that 25% range the last couple of weeks. And so we’ll just see where that ends up for the quarter when we close it on — next Tuesday and then when we step into the second quarter.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [4]

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Got you. The Clutch relationship, it sounds like you’re working on an integration there to kind of make that a little bit more fluid. When do you anticipate that being complete? And then on the insurance, I think you have an insurance renewal April 1, 2020. What do you kind of expect from that renewal?

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Joseph Furnari, HyreCar Inc. – CEO & Director [5]

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Well, I’ll handle Clutch, and then I’ll let Scott take over the insurance piece. But with Clutch, we couldn’t have timed that more perfectly with heading into NIADA. We generated a tremendous amount of buzz. It probably had about 25 sales agents at NIADA. We had about 8 sales agents, and there was a lot of cross-pollination happening while we were at the event. A lot of dealers coming up to me and saying, “Hey, I was just at the Clutch booth. They love what you guys are doing. Tell us more about HyreCar and how we can get in the gig.”

So that relationship is going to morph in the first phase into a very light technical integration. I don’t have a timetable in terms of when that integration is finalized just because of what’s happening in the broader environment right now with COVID. So — but that is, that asset-light integration is an ability for dealerships to list vehicles on our platform with a push of a button both from — onto the Clutch platform as well as onto the HyreCar platform.

So again, I don’t have a timetable, but I’m really excited because there is a lot of low-hanging fruit right now that we can go after with Clutch and HyreCar combined as a holistic offering to dealerships that are looking to get into transportation services. And then I’ll let Scott kind of talk about the insurance reprice right now.

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Robert Scott Brogi, HyreCar Inc. – CFO [6]

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Sure. Yes. So you have good memory, Mike. We’re definitely coming up on our annual renewal. We’ve kind of been working on it since January. And we have several brokers and about a half dozen insurance carriers that are participating in that process. So we started to receive quotes for the forward period. I think one of the important things that we want to make sure is factored in there is as we see the opportunity for our agnostic platform to grow through food service, package delivery, that we have the ability to support all those needs. So we expect to wrap that up in the next 3 weeks, basically, and we’ll be excited about talking about that on our Q1 earnings call.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [7]

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Got it. And then just lastly for me. It looks like in January and February, you burned roughly $1 million a month. Where do you expect that burn to go going forward?

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Robert Scott Brogi, HyreCar Inc. – CFO [8]

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Yes. I mean it’s a great question. And as we said, we’ve got — a fair amount of our cost structure is variable. So part of that is already coming down with the reduction in business. We have a couple of different scenarios that we’ve modeled for Q2 and then the rest of 2020. So we’re trying to bring that down as much as possible and get as close to cash neutral. I think one of the real opportunities we have coming up with that insurance renewal is to improve the way the cash flow works on the insurance program. So I’m actually pretty hopeful that with that renewal, we’ll get very close to that and be able to significantly shrink it heading into Q2.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [9]

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So you think the insurance renewal will help with that — help decrease the cash burn a lot? Is that where you’re seeing, a lot of the $1 million?

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Robert Scott Brogi, HyreCar Inc. – CFO [10]

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Yes. The payment terms that we have on our current program. We are looking to improve those, and we have actually had a lot of positive conversations with some of those carriers. So that’s a piece. Obviously, your direct insurance number comes down when you have fewer days on the platform. We also have upfront costs like the background checks we do. As you’re pushing more — less volume through, that’s going to decrease that as well. So a lot of our cost structure is actually variable in nature. So as volume decreases, the costs are going to decrease as well.

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Operator [11]

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Our next question comes from John Godin with Lake Street.

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John David Godin, Lake Street Capital Markets, LLC, Research Division – Equity Research Analyst [12]

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Can you hear me okay?

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Joseph Furnari, HyreCar Inc. – CEO & Director [13]

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Yes.

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John David Godin, Lake Street Capital Markets, LLC, Research Division – Equity Research Analyst [14]

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Awesome. First, as we switch to kind of a more food and package delivery, is there any difference with the revenue model or anything else kind of on a unit level basis that would be different from kind of the rideshare revenue model?

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Joseph Furnari, HyreCar Inc. – CEO & Director [15]

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Well, from what we’re seeing right now, just the anecdotals that we’re seeing from our drivers, yes, they are making good money right now. We have one example where he had been driving for 3 days, and he made over $700, which is a pretty good return for our driver base. So from that perspective, I’m seeing the opportunities now moving away from ridesharing and more towards package and food delivery. From a unit economics, maybe Scott could speak to that a little bit on. But from my perspective, there isn’t much changed.

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John David Godin, Lake Street Capital Markets, LLC, Research Division – Equity Research Analyst [16]

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Got it. That is helpful. And second, just kind of thinking about the regulatory environment in California and now Massachusetts as well. Is there anything else out there that’s changing as far as how gig economy workers are treated? Or anything else you guys are hearing that you think is important to address?

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Joseph Furnari, HyreCar Inc. – CEO & Director [17]

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Well, yes, in places where you have shelter in place, the essential personnel lists include delivery drivers. And so that’s a key point that we are communicating to our driver base, that our sales team is communicating, in this effort to be a trusted adviser to them, to those drivers. And so I think that that’s a big piece for somebody who wants to continue to drive, needs to continue to earn, let’s move you over to an Instacart or a DoorDash or a Postmate’s platform, and it’s very simple given the agnostic nature of our platform. We are generating an insurance card in the name of the driver, which means that he can use that to drive for any of the platforms. So that’s a key aspect to this crisis that we’re seeing in that they can drive now as essential personnel.

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John David Godin, Lake Street Capital Markets, LLC, Research Division – Equity Research Analyst [18]

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Got it. And then last, just on the gross margin. Obviously, over the past few quarters, it’s been trending up nicely in part due to kind of the shift to a more premium insurance tier and lower insurance rates. I guess thinking about that going forward and the shift now into OpEx, I guess, what would kind of be a good maybe run rate to think about? And then maybe how that flows through down to EBITDA as well? Is it going to be a direct flow-through? Or will there be any kind of incremental costs on the OpEx side as well?

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Robert Scott Brogi, HyreCar Inc. – CFO [19]

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Well, I think there’s — you continue to see scale as we increase revenue dramatically without really having to change headcount much, for example. So I think kind of what I’m modeling going forward is it’s about a 10% to 15% shift in gross profit. So if we were previously in kind of pushing up over 60%, you are probably in the 45% range, just to kind of give you a place to start. And then we’ll be updating that when we do our Q1 release as well and we can see — show exactly what that gross profit margin is.

But I think, basically, what you’re going to still see, even though it slowed a little bit here, is with the next uptick in revenue, a lot more of that has started to drop to the bottom line. So that impacts the gross margin and the EBITDA margin. So I think we’re starting to see some of those scales of efficiency happen and as you can continue to grow the top line with the existing team, leveraging some of the new tools that we brought on.

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Operator [20]

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Our next question comes from Jon Hickman with Ladenburg.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [21]

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First of all, let me just make sure I understand. For 2019, you’re reporting your insurance expense as part of above the gross margin line. And then expense will no longer be in the operating expense areas. Is that right?

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Robert Scott Brogi, HyreCar Inc. – CFO [22]

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Correct. Yes, that was about $2.8 million that was formerly in OpEx for the full year. And so that moved directly from the claims line within OpEx up into cost of sales, along with the direct insurance that we currently pay on a weekly basis, right? And about 75% of that expense is the direct expense that we pay regularly. And so this is getting added to that to, again, be consistent with sort of the increasing industry standard in terms of how the TNCs and the other rental car companies are dealing with that. But that component is EBITDA neutral.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [23]

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So in spite of the $2.8 million that’s now part of gross margins, you still had $2 million increase in operating expenses in 2018? So basically, OpEx was up more than $4 million year-over-year?

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Robert Scott Brogi, HyreCar Inc. – CFO [24]

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Yes, that’s correct.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [25]

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Okay. So could you walk through again how you’re going to get to cash breakeven in the next couple of months?

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Joseph Furnari, HyreCar Inc. – CEO & Director [26]

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In terms of — there’s a lot of levers that we can pull right now anywhere between — there’s a lot of marketing expense we can pull out. This insurance reprice is probably going to pull some cash — or pull it down to the bottom line. And there’s a lot that was in G&A for travel, et cetera, legal expense, et cetera, that I think we can pull out as well.

So we’re going to work actively to get that down. I think that it’s a balance because we want to be positioned right now to take advantage of the country coming out of this relatively quickly. We see it as when people go back to work, we’re going to start to see an uptick as well. That’s one of the main use cases for ridesharing right now is commuting to work. And so as soon as kind of the country gets back to work, we are going to get back to work. So there’s a delicate balance there, but that’s the idea right now.

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Jon Robert Hickman, Ladenburg Thalmann & Co. Inc., Research Division – MD of Equity Research & Special Situations Analyst [27]

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Okay. So it doesn’t really take a genius to figure out that not too many cars are being sold right now. So is that going to kind of force — not force, but incentivize dealerships, et cetera, to put their cars on your platform?

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Joseph Furnari, HyreCar Inc. – CEO & Director [28]

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Well, yes, absolutely. I mean that’s why we’re mentioning in the call that we think there’s going to be a big push towards mobility services like ours in the dealer world and the manufacturing world as well. We think this is going to accelerate that. Just because you don’t have a lot of people buying cars — I mean, Cox is saying that it’s gone from a 17 million estimate in 2020 down to 15 million. And that extra 2 million that dealers have sitting on their lots need to be utilized somehow. What better way than to throw it on a franchise solution like a HyreCar-Clutch partnership and start to rent it out for leisure subscription and/or gig. So yes, we think there’s great use case there, and this crisis is only going to accelerate that, which is why I don’t want to cut to the bone, and I want to be ready for when this does spring back.

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Operator [29]

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Our next question comes from Jack Vander Aarde with Maxim Group.

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Jack Vander Aarde, Maxim Group LLC, Research Division – Equity Research Analyst [30]

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Great quarter, especially given the current environment, although I know it’s looking back in time before the pandemic, but still a good quarter. The last bullet within the press release under additional fourth quarter metrics. I think it got cut off. Commercial inventory starts to have begun to accelerate with these 2 large regional rental fleet partners, it says, with over vehicles in Q4. Do you have the number of vehicles that was meant to be included in there from those 2 partners?

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Joseph Furnari, HyreCar Inc. – CEO & Director [31]

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I think, Jack, that was probably a holdover from Q3. We were talking about those large southern regional dealers that have come on. And now we’re supplying the bulk of our cars in Florida, Georgia, Texas. So probably a holdover from last quarter.

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Jack Vander Aarde, Maxim Group LLC, Research Division – Equity Research Analyst [32]

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Okay. No problem. And then maybe I missed it, but did you or can you provide the total dealership partners and dealer listed vehicles that were on the platform at the end of 4Q or as of today? I think you guys typically provide that metric on a current basis. So whatever those numbers were, that would be great.

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Joseph Furnari, HyreCar Inc. – CEO & Director [33]

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Yes. I mean we have those numbers. We’ve kind of moved away from it as it’s a direct correlation to revenue. But gross cars in Q4 was about 5,200 out of the commercial accounts. That’s up from 4,300. One of the metrics that we hadn’t given in the past was net cars. Net cars is about 2,100 out of that 5,200. And that is — those are listed and rented. So you can get kind of a utilization rate there. Well, you can get a utilization rate generally for dealerships.

And then in terms of utilization rate up until March 15, I think we talked about this, it has kind of been in the mid-80s. It’s come off a little bit and more normalized in the sense that we were around 70% right now. It’s kind of been historically where we’ve been over the past 2 or 3 years. So it’s come off slightly, but it hasn’t fallen off the cliff, which is, I think, a pretty good sign right now.

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Robert Scott Brogi, HyreCar Inc. – CFO [34]

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And Jack, the only thing I’d add to that, this is Scott, is that the commercial — the fleet component of the car supply is now kind of north of 80%. So that has clearly shifted over the last year or so from being 80-20 the other way. So you’ve really seen car supply move into the fleet providers over the last year, 1.5 years.

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Jack Vander Aarde, Maxim Group LLC, Research Division – Equity Research Analyst [35]

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Got it. And that’s helpful. And then my — just one more. I know some other analysts were asking about the unit economics, any changes there. What I want to know or ask about specifically is, has there been any change to that average weekly or daily base rental fee? In the past has been around $30 to $35. Has that dropped at all or even increased? Can you talk about that in any further detail?

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Joseph Furnari, HyreCar Inc. – CEO & Director [36]

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Yes, I think it’s flat right now. I mean we’re literally like 10 to 14 days into the crisis. So I haven’t seen it drop materially yet, but I’ll keep everyone informed on that.

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Operator [37]

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And our next question comes from Mike Grondahl with Northland Securities.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [38]

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Just a couple more for Scott on the fourth quarter. Scott, I think you said that the cost of goods sold for the year was $10.1 million. Does that include the whole $2.8 million you talked about related to insurance? Or does that just include part of it?

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Robert Scott Brogi, HyreCar Inc. – CFO [39]

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No, it pulls the entire $2.8 million up from OpEx into cost of sales. And then the other component that’s in there, as we mentioned, we have put in room for this insurance reserve that’s still being finalized. So that’s a significant — those 2 items are a significant piece of that $10.1 million in total cost of sales for the full year.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [40]

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Are those basically all in the fourth quarter then, the $2.8 million? Or is that incremental cost in the insurance reserve all in the fourth quarter?

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Robert Scott Brogi, HyreCar Inc. – CFO [41]

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No, it’s quarterly through the year. It is increasing into the second half of the year. And then the insurance reserve piece is in the fourth quarter only.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [42]

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Got it. And then just moving down to operating expenses. I think you said total operating expenses were $18.2 million. So can I just back out the first 3 quarters to get the fourth quarter? And I’m trying to figure out how to do that for cost of goods sold, too, just to kind of come up with where you guys are sitting in 4Q.

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Robert Scott Brogi, HyreCar Inc. – CFO [43]

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Yes. And that’s why I said that I think Q4 takes a heavier hit because that insurance reserve adjustment is only in that quarter. And that’s why I think GP will be higher on a going-forward basis. So on the — so that’s — certainly, I would agree with that on the GP side.

And then I think as far as OpEx goes, it’s really looking at that quarterly number and then kind of annualizing that. So if you just took the $18 million, you’d be at $4 million, $5 million a quarter in OpEx, right? So I think — I don’t think there’s a lot of extra expense in the fourth quarter. There’s a little bit of nonrecurring in there. There’s some legal fees and some other pieces that we had to clean up. And of course, you have that $400,000 in stock-based comp in the fourth quarter. So if you think about it from an EBITDA perspective, you can sort of further reduce that number. Is that helpful, Mike?

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [44]

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Got it. Yes. I think I get the operating expense. But I guess I’m going back to cost of goods sold. In the first 3 quarters, you ran about $1.5 million, okay, at least reported. And then you’re saying it’s about $10.1 million for the full year. So basically, $10.1 million minus $4.5 million, call it…

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Robert Scott Brogi, HyreCar Inc. – CFO [45]

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$5.5 million.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [46]

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Yes, $5.5 million. Is that roughly the right 4Q cost of goods sold number?

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Robert Scott Brogi, HyreCar Inc. – CFO [47]

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Well, no, because — well, you’ve got — again, you’ve got an insurance reserve estimate that’s in there for the time being until we finish the audit, which is making that number higher. We could pull up — I could pull up the — I think we’d have to do a quarter-over-quarter analysis. So maybe we can do that as a follow-up and get back to you.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [48]

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I think what you’re also saying is the $2.8 million is an all in 4Q on an operating basis, only some of that is in 4Q. That’s where I think the confusion is.

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Robert Scott Brogi, HyreCar Inc. – CFO [49]

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Correct. Yes. I mean, again, it increases quarterly through the full 2019. And so it was bigger in Q4, but it was in all 4 quarters.

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Michael John Grondahl, Northland Capital Markets, Research Division – Head of Equity Research & Senior Research Analyst [50]

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Got it. I mean that’s where I think people are going to struggle. They don’t know how to model this and what it’s going to look like going forward.

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Robert Scott Brogi, HyreCar Inc. – CFO [51]

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Okay.

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Operator [52]

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Thank you. I am not showing any further questions at this time. I would now like to turn the call back over to Joe Furnari for any further remarks.

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Joseph Furnari, HyreCar Inc. – CEO & Director [53]

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Great. Thank you, operator, and thank you again for joining us today. We look forward to continuing to update you on our progress throughout the year. Thank you very much.

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Operator [54]

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Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.