Posted on August 19, 2021 by Brad Steveson
It would be an understatement to say that HyreCar disappointed investors with their August 10th Q2 Earnings Release and conference call. In fact, shares closed at $19.12 that day and have traded at or below $10.00 since then. As a long time follower and shareholder of HYRE, I was surprised and at the same time not so surprised with Q2 and the ensuing fallout. I have seen this movie before.
So what happened and why are investors now sour on HYRE? Pretty easy. They botched their communication during the Q1 call. They got it wrong. They over promised and under delivered. Probably the biggest sins from the Q1 call I will quote below:
“We’ve gone from a little over 3,000 average daily rentals in Q4 to sequentially trending toward an ADR average of 3,500 in the month of March with a run rate of over 4,500 ADRs expected in May”. CEO Joe Furnari
“Due to the second quarter pricing changes, we expect our progress toward the gross profit margin near-term goal of 45% to 50% we have discussed previously to accelerate.” ex CFO Scott Brogi
“We’re seeing pricing opportunities with the current competitive car availability environment, which should add incremental margin gains and help us move towards EBITDA neutral in the second half of this year”. CEO Joe Furnari
To summarize, from the Q1 call the HYRE team is expecting ADR run rate of 4500 in May, GPM’s to hit 45% this year and EBITDA neutral by end of this year.
Now let’s look at what happened in Q2 on these topics. I also think I should mention here that HYRE replaced their CFO between the Q1 and Q2 calls.
“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.” CEO Joe Furnari
“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 affecting 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”. CFO Serge De Bock
“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 million to $70 million annual revenue will be at EBITDA neutrality, and that represents between 6,000 and 6,500 cars.” CFO Serge De Bock
To summarize from Q2 call, the HYRE team is expecting ADR run rate of 4500 in Q4 (previously May), GPM’s to hit 40% next year (previously 45% later this year) and EBITDA neutral next year (previously later this year). Did I mention the CFO was replaced between these two calls? I am not saying I have any insight on this other than it’s a fact that happened between these different outlooks.
What do we make of all this? Having watched HYRE for a long time, I can tell you a couple of things. First, I have seen them over promise and under deliver before. It happens occasionally with this management team in a quarter now and then. I have also seen them over perform to my expectations at times. The most recent time was after the Covid lock down. HYRE was dead, or so everyone thought. Go back and look at their performance during that time. It was simply amazing how quickly they pivoted to a rental marketplace for delivery service, ramped it up and kept the revenues growing in such a short time with no financings. They just cut costs where they had to and made it work.
Does this change the HYRE story or the reason to be invested? I would say no. HYRE has completed 1Q of a 6Q plan to supply up to 16,000 new cars, both gas and EV vehicles into the market. Add to that a very lofty goal of 50,000 by 2025, but I am not making that investment case today. I am making the case to invest to the end of 2022 as long as you keep seeing progress toward the 16,000 car goal and we did see significant progress on that in Q2 despite the stumbles. We also have to hold HYRE accountable for getting a grip on costs as they said that they would. Remember HYRE is building something that does not exist. There will be starts and stumbles along the way, but progress is being made. Nothing fatal to the business plan has happened.
What could 16,000 cars mean to the company? Well it could put them on a run rate that looks something like the table below. So what would a company be worth going into 2023 at this run rate while planning to go to 50,000 cars by 2025?
|Income Statement||2022 Run Rate|
|WA shares basic and diluted||22,000,000|
|WA gain per share basic and diluted||0.92|
|Revenue Growth %||223%|
|EBITDA per Share||1.30|
|Addl Rev Seq||107,423,734|
|$ Rev per rental day actual||27.00|
|Active Daily Rentals||16,000|
Let me highlight some of the progress toward this end that was made during the quarter:
What are the risks? I think there are some risks for any potential investor to consider.
So, I will be monitoring progress carefully with HYRE and I am particularly interested to see how closely the Q3 numbers align with what the new CFO Serge De Bock discussed during the call. I think he can gain some credibility right out of the gate if he proves to be reliable. Also to answer my own question in the title to this article, I do not believe HyreCar has crashed and burned.
Disclosure: I am long and may buy or sell shares at any time.
If you want to catch up on the HYRE story, Breakout Investors has been covering this company for some time now. You can read my previous articles on HYRE here:
You can catch up with a podcast where we discuss HYRE here:
Finally, you can join me in my breakout room and discuss HYRE in real time. It is free to join and the link is here: