Shareholder rights law firm Robbins LLP announces it is investigating HyreCar Inc. (NASDAQ: HYRE) to determine whether certain HyreCar officers and directors violated the Securities Exchange Act of 1934. HyreCar operates a web-based marketplace that allows car and fleet owners to rent their cars to Uber, Lyft, and other gig economy service drivers.
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HyreCar Inc. (HYRE) Accused of Materially Misstating its Insurance Reserves
A class action complaint was filed on behalf of purchasers of HyreCar between May 14, 2021 and August 10, 2021. According to the complaint, HyreCar announced "Record First Quarter 2021 Financial Result," stating that insurance deposits had more than doubled during the quarter to $1.7 million, while the amount of the Company's reserve (which indicates the amount of claims incurred but not yet paid) had declined by more than 17% since year end to $1.7 million. During a conference call the same day, defendants noted that price enhancements to driver and insurance fees "should drive significant net revenue and gross margin improvements through 2021." Specifically, defendants expected "our progress toward the gross margin near-term goal of 45% to 50% we have discussed previously to accelerate."
However, these statements were materially false and misleading and failed to disclose that HyreCar had materially understated its insurance reserves, systematically failed to pay valid insurance claims prior to the Class Period, and failed to appropriately price risk its insurance products, and was experiencing elevated claims incidence as a result, among other things.
On August 10, 2021, HyreCar announced disappointing results for the quarterly period ended June 30, 2021 (Q2 2021), including net losses of $9.3 million compared to losses of $3.8 million in the same period the prior year. Further, the Company’s adjusted EBITDA loss for Q2 2021 was $7.1 million (four times higher than the $1.7 million adjusted EBITDA loss experienced in the second quarter of 2020) and its gross profit for Q2 2021 was just $0.8 million (less than one third the Company’s gross profit in the second quarter of 2020), with a gross profit margin of just 24%. Contemporaneously with the release, HyreCar filed with the SEC a Form 10-Q that disclosed the Company had incurred skyrocketing costs of revenue during the quarter primarily as a result of significantly higher insurance claims incidence – including claims before March 31, 2021 “in excess of the reserves.” On this news, HyreCar's stock plummeted nearly 50%, to close at $9.85 per share on August 11, 2021. The stock has declined even further and now trades below $8.00.
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