HYRECAR INC. You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review "Risk Factors" for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Our Company
We operate in the car sharing marketplace primarily for ride sharing and
delivery services through our proprietary platform. The Company has established
a leading presence in Transportation as a Service "TaaS" through vehicle owners
and institutions, such as franchise car dealerships, independent car dealerships
and rental car companies, who have been disrupted by automotive asset sharing.
We are based in
Business and Trends
We generate revenue by taking a fee out of each rental processed on our
platform. Each rental transaction represents a Driver renting a car from an
Owner. Drivers pay a daily rental rate set by the Car Owner, plus a 10% - 20%
HyreCar Driver Fee and direct daily insurance costs. Owners receive their daily
rental rate minus a 15% - 30% HyreCar Owner Fee. The net revenue is currently
approximately
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Gross billings are an important measure by which we evaluate and manage our
business. We define gross billings as the amount billed to Drivers, without any
adjustments for amounts paid to Owners, refunds or rebates. Gross billings
include transactions from both our revenues recorded on a net and a gross basis.
It is important to note that gross billings is a non-
Our operating results are subject to variability due to seasonality, macroeconomic conditions such as the on-going COVID-19 pandemic and other factors. Car rental volumes tend to be associated with travel and driving holidays, where there is an influx of Uber and Lyft demand. In 2021, we continued to operate in an uncertain and uneven economic environment marked by heightened economic and geopolitical risks due to the COVID-19 situation and capital markets uncertainty.
Our objective is to focus on strategically accelerating our growth, strengthening our position as a leading provider of vehicle rental services to ridesharing (Lyft and Uber) and delivery (such as Door Dash, Instacart or Amazon Flex) drivers, continuing to enhance our customers' rental experience, and controlling costs and driving efficiency throughout the organization. We operate in a high growth industry and we expect to continue to face challenges and risks. We seek to mitigate our exposure to risks in numerous ways, including delivering upon our core strategic initiatives, continued growth of fleet levels to match changes in demand for vehicle rentals, and appropriate investments in technology.
Significant changes in our results of operations for the full fiscal year 2021 include:
? Net rental days totaled approximately 1,286,000 rental days for the year
ended December 31, 2021 , an increase of approximately 272,000 rental days or
26.8% over the 1,014,000 rental days recognized during the year ended
December 31, 2020 , as the Company continued to expand its presence in key
markets including Georgia , California , New York , Pennsylvania , Texas and
Maryland , despite the constrained car supply market.
? Net revenue totaled $35,716,031 for the year ended December 31, 2021 , an
increase of $10,484,290 or 41.5% over the $25,231,741 recognized during the
year ended December 31, 2020 , primarily resulting from a combination of higher
net rental days year over year and pricing favorability including price/risk
optimization and a favorable market trend in daily rental fees reflecting a
tight market for car supply. The average daily net rental revenue peaked at
$30 in the fourth quarter of 2021 from $24 in the fourth quarter of 2020.
? Cost of Sales totaled $25,942,684 for the year ended December 31, 2021 , an
increase of $8,981,234 or 52.9% over $16,961,450 recognized during the year
ended December 31, 2020 . The increase was attributable to a combination of
three factors. First the expanded rental day volume drove increase in
related premiums and claims. Second, our transition to a new claims
processing partner in March of 2021 led to an increase in claims payouts
that we rightsized since then and some transition costs. Third, we recorded
about $1.0 million in new one-off developments related to settling claims
incurred prior to January 1, 2021 under our previous insurance claims
processing partner in the second quarter of 2021 as we liquidated their
claims portfolio.
? Gross profit totaled $9,773,347 for the year ended December 31, 2021 , an
increase of $1,503,056 or 18.2% over the $8,270,291 recognized during the
year ended December 31, 2020 . The increase in gross profit was primarily
attributed to higher rental days, and favorable pricing, partially offset by
higher insurance and claims-related costs described above.
? Operating expenses, consisting of general and administrative, sales and
marketing, and research and development expenses totaled $37,750,586 for the
year ended December 31, 2021 , an increase of $14,227,606 or 60.5% over
$23,522,980 recognized during the year ended December 31, 2020 . These
additional operating expenses, including additional stock-based compensation,
were incurred to enable and support growth and scale across all functional
areas. These expenses included costs incurred for the enhancement of the
technology platform, on-going efforts at stimulating demand and visibility
through marketing, as well as growing our customer support/sales
organization.
? Net loss totaled $25,953,717 for the year ended December 31, 2021 , an
increase of $10,732,816 or 70.5% over $15,220,901 recognized during the year
ended December 31, 2020 . The increase in net loss was driven by higher
operating costs and non-cash stock-based compensation expense recognized
during the year ended December 31, 2021 , as the Company prepared the platform
for accelerated growth.
? Adjusted EBITDA totaled ($19,278,849 ) or the year ended December 31, 2021 , a
decrease of $8,263,655 or 75% from ($11,015,194 ) recognized for the prior
year ended December 31, 2020 .
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Table of Contents Management's Plan
We have incurred operating losses since inception and historically relied on
debt and equity financing for working capital. Going forward the Company intends
to fund its operations through increased revenue from operations and funds
raised through public securities offerings. On
With approximately 323,000 quarterly rental days in the fourth quarter of 2021,
our annualized rental day run rate has reached over 1,300,000 per year. Our
business model and platform allow us to potentially leverage new opportunities
and create a larger market with ridesharing, food and package delivery services.
Two thirds of the Drivers on our platform are now predominantly delivery
oriented and the opportunity is accelerating in the local delivery as a service
environment. We continue to expect revenue growth in 2022 and beyond as we
continue to focus on increasing our car supply to meet the driver demand and
other promotional efforts related to our car sharing marketplace platform.
Specifically, the Company's strategic partnership with
On
Based on generally increasing revenue through the normal course of business and
a high relative amount of variable costs, cash on hand and available capital
funding opportunities including through an At-The-Market program we put in place
in
Below is our nationwide footprint with volumes of quarterly rental days and net
revenue from the quarters ended
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Components of Our Results of Operations
The following describes the various components that make up our results of operations, discussed below:
Revenue is earned from fees associated with matching Drivers to Owners of cars that meet the strict requirements imposed by ride-sharing services such as Uber and Lyft with Drivers. A Driver will typically rent a car through one transaction via our on-line marketplace. We recognize GAAP reportable revenue primarily from a transaction fee and an insurance fee when a car is rented on our platform when the Company 1) identifies the contract with the customer 2) identifies the performance obligations in the contract 3) determines the transaction price, 4) determines if an allocation of that transaction price is required to the performance obligations in the contract, and 5) recognizes revenue when or as the companies satisfies a performance obligation.
Cost of revenue primarily include direct fees paid for driver insurance, insurance claim payments based on the policy in effect at the time of loss, merchant processing fees, and technology and hosting costs.
General and administrative costs include all corporate and administrative functions that support our business. These costs also include payroll for officers and operational staff, stock-based compensation expense, consulting costs, professional fees, and other costs that are not included in cost of revenues. Research and development costs are related to activities such as user experience and user interface development, database development and maintenance, and technology related expenses to research, improve, implement, or maintain technology and systems utilized throughout our enterprise. Research and development costs are mostly expensed as incurred with a minor portion capitalized as internally-developed software. Sales and marketing expenses primarily consist of personnel-related compensation costs, commissions expenses, advertising expenses, and marketing partnerships with third parties. Sales and marketing costs are expensed as incurred.
Other income/expense includes non-operating income and expenses including interest income and expense.
Results of Operations
Revenue and Gross Profit. Revenue totaled
Operating Expenses. Operating expenses, consisting of general and
administrative, sales and marketing, and research and development expenses
totaled
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Loss from Operations. Loss from operations for the year ended
Other (Income) Expense. Other (income) expense for the year ended
Net Loss. Net loss for the year ended
Non-GAAP Financial Measures Gross Billings
We believe gross billings is an important measure by which we evaluate and manage our business. We define gross billings as the amount billed to Drivers, without any adjustments for amounts paid to Owners or refunds. Gross billings include transactions from both our revenues recorded on a net and a gross basis. It is important to note that gross billings is a non-GAAP measure and as such, is not recorded in our consolidated financial statements as revenue. However, we use gross billings to assess our business growth, scale of operations and our ability to generate gross billings is strongly correlated to our ability to generate revenues. Gross billings may also be used to calculate net revenue margin, defined as the company's GAAP reportable revenue over gross billings.
The table below sets forth a reconciliation of our GAAP reported revenues to
gross billings for the years ended
2021 2020
Revenue (GAAP reported revenue) $ 35,716,031 $ 25,231,741
Add: Refunds and rebates 2,613,980 1,967,668
Add: Owner payments (not recorded in consolidated
financial statements) 35,014,797 28,562,508
Gross billings (non-GAAP measure not recorded in
consolidated financial statements) $ 73,344,808 $ 55,761,917
Adjusted EBITDA
Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance and the operating leverage in our business. Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. We expect Adjusted EBITDA will increase over the long term as we continue to scale our business and achieve greater efficiencies in our operating expenses.
We calculate Adjusted EBITDA as net loss, adjusted to exclude:
? other income (expense), net;
? provision for income taxes;
? depreciation and amortization;
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? stock-based compensation expense;
? payroll tax expense related to stock-based compensation expense; and
? changes to the liabilities for insurance required by regulatory agencies
attributable to historical periods.
For more information regarding the limitations of Adjusted EBITDA and a reconciliation of net loss to Adjusted EBITDA, see the section titled "Reconciliation of Non-GAAP Financial Measures."
Reconciliation of Non-GAAP Financial Measures
We use Adjusted EBITDA in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Furthermore, these measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our consolidated statements of operations that are necessary to run our business. Thus, our Adjusted EBITDA should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of Adjusted EBITDA to the related GAAP financial measures, revenue and net loss, respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Adjusted EBITDA in conjunction with their respective related GAAP financial measures.
The following table provides a reconciliation of net loss to Adjusted EBITDA for
the years ended
Year Ended Year Ended
December 31, December 31,
2021 2020
Net loss $ (25,953,717 ) $ (15,220,901 )
Adjusted to exclude the following:
Other expense (income), net (2,024,048 ) (32,588 )
Provision for income taxes 526 800
Depreciation and amortization 77,035 76,834
Stock-based compensation expense 8,176,941 3,303,211
Payroll tax expense related to stock-based compensation expense
227,263 77,303
Changes to the liabilities for insurance reserves 217,151 780,147
Adjusted EBITDA $ (19,278,849 ) $ (11,015,194 )
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Liquidity and Capital Resources
As of
In
On
We have primarily financed our operations through our IPO and subsequent public offerings, and proceeds of the loan received in 2020 under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, in addition to revenue received through our platform. We believe our existing cash and cash equivalent assets, together with proceeds from revenue generating activities and access to liquidity through our ATM program will be sufficient to meet our working capital and capital expenditures needs over at least the next 12 months more fully described in "Management's Plan" above.
Our future capital requirements will depend on many factors, including, but not limited to our growth, our ability to attract and retain drivers and car owners on our platform, the continuing market acceptance of our offerings, the timing and extent of spending to support our efforts to improve our customer experience, actual insurance payments for which we have made reserves, the timing and extent of investment we are making in policy, government relations, and the expansion of sales and marketing activities. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services and technologies. We may decide to, or be required to, seek additional equity or debt financing for any of these reasons, or others that may arise. If we are unable to raise additional capital in the future, we may need to curtail expenditures by scaling back certain sales, marketing and development expenses.
Cash Flows
Net cash used in operating activities was
Net cash used in operating activities for the year ended
Net cash used in investing activities was
Net cash used in investing activities was
Net cash provided by financing activities was
Net cash provided by financing activities was
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Table of Contents Capital Management
We aim to manage capital so that we will maintain optimal returns to shareholders and benefits for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company. We regularly review the Company's capital structure and seek to take advantage of available opportunities to improve outcomes for the Company and its shareholders.
For the years ended
There is no significant external borrowing at the reporting date. The Company is not subject to externally imposed capital requirement.
Critical Accounting Policies, Judgments and Estimates
Use of Estimates
The preparation of consolidated financial statements in conformity with
The Company's most significant estimates and judgments involve recognition of revenue and estimates for future contingent customer incentive obligations, calculating insurance reserves, and the measurement of the Company's stock-based compensation.
Stock Based Compensation
The Company accounts for stock awards issued under ASC 718, Compensation - Stock Compensation. Under ASC 718, share-based compensation cost is measured at the grant date, based on the estimated fair value of the award. Stock-based compensation is recognized as expense over the employee's requisite vesting period and over the nonemployee's period of providing goods or services. The fair value of each stock option or warrant award is estimated on the date of grant using the Black-Scholes option valuation model. Restricted shares are measured based on the fair market value of the underlying stock on the grant date.
Revenue Recognition
The Company generates the majority of its revenue from its car-sharing
marketplace that connects vehicle owners and drivers and the related insurance
issued for each rental. Vehicle owners and drivers enter into terms of service
with the Company in order to use the
The Company also recognizes revenue from other sources such as referrals, motor vehicle record fees (application fees), late rental fees, and other fees charged to drivers in specific situations.
In applying the guidance of ASC 606, the Company 1) identifies the contract with the customer 2) identifies the performance obligations in the contract 3) determines the transaction price 4) determines if an allocation of that transaction price is required to the performance obligations in the contract and 5) recognizes revenue when or as the companies satisfies a performance obligation.
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Refunds may occur when the driver returns the owner vehicle early based on the terms of the original contract or cancels the rental prior to completing the exchange. In limited circumstances, the Company provides contingent consideration in the form of a rebate that is redeemable only if the customer completes a specific level of transaction over a specific time period. In such cases, the rebate or refund obligation is recognized as a reduction of revenues. The Company defers revenue in all instances when the earnings process is not yet complete.
The following is a breakout of revenue components by subcategory for the years
ended
Year Ended Year Ended
December 31, December 31,
2021 2020
Insurance and administration fees $ 18,603,759 $ 12,819,157
Transaction fees 15,808,972 11,391,090
Other fees 1,662,170 1,441,012
Incentives and rebates (358,870 ) (419,518 )
Net revenue $ 35,716,031 $ 25,231,741 Principal Agent Considerations
The Company evaluates our service offerings to determine if we are acting as the principal or as an agent, which we consider in determining if revenue should be reported gross or net. One of our primary revenue sources is a transaction fee made from a confirmed booking of a vehicle on our platform. Key indicators that we evaluate to reach this determination include:
? the terms and conditions of our contracts;
? whether we are paid a fixed percentage of the arrangement's consideration or
a fixed fee for each transaction;
? the party which sets the pricing with the end-user, has the credit risk and
provides customer support; and
? the party responsible for delivery/fulfillment of the product or service to
the end consumer.
We have determined that we act as the agent in the transaction for vehicle bookings, as we are not the primarily obligor of the arrangement and receive a fixed percentage of the transaction. Therefore, revenue is recognized on a net basis.
For other fees such as insurance, referrals, motor vehicle records (application fees), and dealer subscription we have determined revenue should be recorded on a gross basis. In such arrangements, the Company sets pricing, has risk of economic loss, has certain credit risk, provides support services related to these transactions, and has decision making ability about service providers used .
Income Taxes
The Company applies ASC 740 "Income Taxes" ("ASC 740"). Deferred income taxes
are recognized for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their consolidated financial
statements reported amounts at each period end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be realized.
The provision for income taxes represents the tax expense for the period, if
any, and the change during the period in deferred tax assets and liabilities. At
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is "more likely than not" that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
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Table of ContentsInternal Use Software
We incur software development costs to develop software programs to be used
solely to meet our internal needs and cloud-based applications used to deliver
our services. In accordance with ASC 350-40,
Insurance Reserve
The Company records a loss reserve for physical damage and other liability coverage caused to owner vehicles up to the Company's insurance deductibles. This reserve represents an estimate for both reported accidents claims not yet paid, and claims incurred but not yet reported and are recorded on a non-discounted basis. The lag time in reported physical damage claims is minimal and as such represents a low risk of unreported claims being excluded from the loss reserve assessment. The adequacy of the reserve is monitored quarterly and is subject to adjustment in the future based upon changes in claims experience, including the number of incidents for which the Company is ultimately responsible and changes in the cost per claim, or changes to the Company's policy as to what amounts of the deductible or claim will be paid by the Company.
While certain liability insurance claims may take several years to completely settle, the Company's liability exposure limit is generally met in the near term. Due to our limited operational history, the Company makes certain assumptions based on both currently available information to estimate the insurance reserves as well as third party claims adjuster data provided on existing claims. A number of factors can affect the actual cost of a claim, including the length of time the claim remains open, economic and healthcare cost trends and the results of related litigation. Furthermore, claims may emerge in future periods for events that occurred in a prior period that differs from expectations. Accordingly, actual losses may vary significantly from the estimated amounts reported in the consolidated financial statements. Reserves are reviewed quarterly and adjusted as necessary as experience develops or new information becomes known. However, ultimate results may differ from the Company's estimates, which could result in losses over the Company's reserved amounts. Such adjustments are recorded in costs of revenue.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements (as defined in the rules and
regulations of the
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