Two weeks ago, niche car-sharing service provider HyreCar (NASDAQ: HYRE) released uninspiring results for the fourth quarter and full year 2021, as the company continues to struggle with an insufficient supply of cars on its platform. As a result, rental days declined for a second consecutive quarter.
In particular, the much-vaunted strategic partnership with AmeriDrive Holdings (“AmeriDrive”) and Cogent Bank has not gone as planned so far.
In recent quarters, the company has been required to restrict a total of $3 million in cash as collateral for increases to AmeriDrive’s revolving credit facility with Cogent Bank, thereby reducing unrestricted cash and cash equivalents from HyreCar at just $11.5 million.
That said, the company has made further progress towards its gross margin target of 40% for the end of this year and has further reduced its operating expenses from the highs of the second quarter.
During the conference call, management highlighted the requirement to double the number of cars available on its platform to 7,000 to break even in cash flow with annual revenues of between $65 million and $70 million. dollars.
With the tightness of the US auto market not expected to ease anytime soon, scaling the company’s platform remains an uphill battle.
At the current rate of cash usage, the company will need to raise additional capital by the end of the third quarter at the latest.
Worse still, management pointed out “some seasonal increases” of claims in the current quarter, which should put some pressure on gross margins and cash flow in the first quarter.
Given these issues, I strongly expect the company to start using its recently established $50 million”Share offering sale contractwith DA Davidson and Northland Securities in the not too distant future.
On the call, management also said they expect to secure a warehouse credit facility in the very near future:
And so the way we’ve solved that with our larger fleet operators is to try to make it easier to find options with them, which is our warehousing line that we’re working on right now. I think this storage line is very close. As soon as possible, in the very, very near future, we will give you an update on this. (…)
To be clear on this, HyreCar is a third party winner on this funding. And so this main line is written by – written for our large fleet operators. And they’re going to go out and buy cars.
If successful, the facility could help the company fill current automotive market conditions and increase the near-term supply of cars on its platform.
Given current automotive market conditions, it’s hard to get excited about HyreCar, especially considering the company’s short-term capital needs.
While a warehouse could help increase the number of cars on the company’s platform, it would likely take a few months for supply to increase significantly.
Investors would do well to stay on the sidelines until near-term capital needs have been met and growth is back on track.