StableX Technologies, Inc. - Common Stock (SBLX) Q2 2018 Earnings Report, Transcript and Summary

Greetings and welcome to DropCar Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Paul Commons, Chief Financial Officer for DropCar. Thank you, Mr. Commons, you may begin.

Thank you. Welcome and thank you for joining us. On today's call, we will review our second quarter June 30, 2018 financial results and provide a corporate update. Our update will include details of our business developments and prospects. The prepared remarks will be provided by Spencer Richardson, our CEO. Before turning the call over to Spencer, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words, anticipate, believe, estimate, expect, tend, will, guide, confidence, targets, projects, and other similar expressions typically are used to identify forward-looking statements. These forward-looking statements do not guarantee the future performance that may involve or are subject to risks, uncertainties and other factors that may affect DropCar's business, financial position, and other operating results, which include, but are not limited to, the risk factors and other qualifications contained in DropCar's filings with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expected or implied by these forward-looking statements. DropCar expressly disclaims any intent or obligation to update these forward-looking statements. At this time, it's now my pleasure to turn the call over to Spencer Richardson, the Chief Executive Officer of DropCar. Spencer, please go ahead.

Thanks, Paul. Good afternoon and welcome to the call. To start with, I'm delighted to host DropCar investor call for the second quarter that ended on June 30th. This is DropCar first full operating quarter under the DCAR ticker. Today, we will not only look back at the past quarter, but perhaps, more importantly, we will share with you our strategic plans for the future, now that we have over a quarter million vehicle movement worth of earnings under our belt. First, let’s look back. DropCar’s enterprise B2B segment grew its revenue by 135% from $206,000 to $485,000 year-over-year for the first six months, driven by organic growth of existing enterprise customers and the on-boarding of new top-tier automotive partners, particularly in the car sharing segment. Also driving our growth in B2B has been the recent launch of our operations in San Francisco and Washington, D.C., which has deepened our relationship with the Tier One partner that we initially brought -- that initially brought us to these markets and has extended the surface area across which we can sell our technology and services. Moreover, in July, we announced the launch of our Mobility Cloud, a fully self-served SaaS version of the same logistics technology we have developed for our own B2B and B2C operations. In a nutshell, our Mobility Cloud platform gives any automotive-related business regardless of their geography the tools to track and optimize the movement of vehicles in real time as well as CRM tools for interacting with clients and launching consumer facing services. DropCar’s consumer B2C segment grew its revenue 133% from $1.32 million to $3.08 million year-over-year for the first six months, driven by increasing demand for by-the-hour personal driver services and consumer subscriptions. However, gross margins in the consumer subscriptions in their current form have not realized the same benefits of scale seen in the B2B segment. Looking ahead, if you read our press release earlier today, you will have noticed, we have taken significant and bold steps to do three strategic things. First, strengthen the balance sheet. Second, improve operating margin. And last, deepen our investments in our core technology platform. I’ll detail into these three strategic initiatives now. First, strengthening our balance sheet. After evaluating all options we have reached a binding term sheet to sell our low voltage contracting unit WPCS to its management team. Although this unit was profitable, after slowing in potential for opportunities, we believe in the long-term, this contracting unit is neither a strategic fit for us, nor will be a significant growth and cash flow contributor for DropCar. This transaction is scheduled to close in Q4 of this year. If and when it does, $3.5 million of non-dilutive cash proceeds will substantially improve DropCar’s balance sheet and fund its working capital. Second, improving our operating margin. During Q2, DropCar crossed a major milestone as we completed our 250,000 vehicle movement. Every data point along the way has helped make our core mobility logistics platform smarter, including now having directly provided us with the insight as the core drivers of profitability for our business. Although our initial approach to consumer subscriptions has been critical to establishing a brand that could break into Tier One automotive enterprises, we have come to learn that we even make sure that when our drivers are driving a car anytime or anywhere that we are earning net new revenue for that trip. Now for our B2B segment that’s already happening. So we need find a way to make it happen for our consumer markets. That’s why beginning September 1 of this year we are changing our consumer offer from a single monthly subscription that’s bundled in parking with pickup and drop-off services into a Self-Park model with all our park per trip fees for the convenience of front door pickup and drop off when clients so desire. We realized that DropCar's value proposition for subscribers is to offer substantially discounted monthly parking coupled with an on-demand valet service for those who needed and are willing to pay for it. Thus, DropCar is much better off aggregating excess parking supply at wholesale rates and then reselling it profitably along within array of profitable by-the-hour valet services, such as front door pickup and delivery of vehicle, care for shuttling using the clients’ own vehicle and DropCar is already popular leading car or valet service with a drive away at the curbside of the clients’ car while the client is on variance, headed to a meeting and handles whatever they need to without worrying about hunting for a garage. While we do expect return from our current customers, we have already begun migrating many of our clients who have self opted into the program given the new benefits of the plan, including the lower cost parking space, and they are likely getting anywhere else, the freedom to get their car when they want it without getting a valet and the convenience of the valet when they want it. We have also already begun to streamline our teams and operations to support this new less labor-intensive consumer model. We expect this model will result in an overall higher operating margin and will enable us to scale both our B2B and B2C lines of business in a way that aligns our path to profitability with the usage of our technology and drivers. Let's talk about investing in the technology of the future. I’m sure many of you on the call have either seen or used one or more of the many new forms of transportation available in cities around the world today. From Uber and Lyft to Spin, Lime and Bird to Cherriots and Via to Zipcar, Maven, ReachNow and many others, there are many ways to get into and around cities without needing to drive your own car. People are taking a portfolio approach to mobility and that’s increasing the main subscribing to services on a monthly basis. This dynamic has caused major vehicle manufactures and other mobility companies to recast vehicle ownership as a subscription service. Companies like Cadillac, Volvo, BMW, Fiat and others are now offering consumer the option to save flat monthly fee to access any one of a number of cars with insurance and maintenance often bundled in. OEMs are not the only ones a state of other companies like Fair, Carma, BORROW and Flexdrive are offering subscription to use or off lease vehicles with similar or inclusive fees. Moreover companies Toiro, HyreCar and even HCM recently announced are extending the array of peer-to-peer shared mobility services. Every single one of this rapidly growing number of next gen mobility services will need a logistics platform to run and last mile logistic partner in the field to tap into to support their operations. And our mission is to make DropCar the partner of choice for technology and service delivery. Other companies like DriveNow and [Tas] have successfully built solutions in this space. But now is the time for DropCar to take things to the next level by bringing industry’s best technology and the industry’s most efficient and reliable last mile logistics field services into the spot light. That’s why we are doubling down both in technology and sales and support for our B2B line of business. We’re developing set of application program and interfaces or APIs that allow third-parties to embed our logistics and drive our system into their own applications or even the vehicle itself. Imagine, a 20 something year old urbanite has just ordered up a third month car subscription from a major manufacturer. The manufacturer asks if he or she wants us on the train to pick up the vehicle or if she wants it delivered to her door. Of course she takes delivery, that’s DropCar. Imagine a different subscriber is tired of one model of vehicle and wants to move up to a higher end model, and largely manufacturer is asked to make the swap and they have asked him when he would like to have a new car delivered and the old one picked up, he says tomorrow, that’s DropCar. Now imagine you are the regional GM of a car sharing company and you need to increase 100 vehicles by Friday in order to meet demand for a busy three day weekend, you need a system that tells you how to optimally distribute these vehicles across 15 different locations across the city and then get it done, that’s DropCar. Imagine you’re headed to dinner and the theater in New York for the night but you don’t want to hassle with parking, you tap your car with a native mobile app and reserve a valet to meet you at the restaurant and then tap the app after the show is over to meet you near the theater, that’s DropCar. I shared with you these examples because they highlight what we can and are doing today. This is not a sci-fi feature, it’s illustrations of the kinds of the discussions we’re having with major automotive manufacturers and the types of scenarios that their product managers are asking us if we can support. I want to close by acknowledging the changes we are announcing -- we announced today. Our firm is supported by the Board in raising both fundamental business aimed at improving our balance sheet and our drive to profitability. Most importantly though they are also focused on scaling to where the cost is going within the industry we operate. This includes selling our technology and support from incumbent businesses, such as the 20,000 plus dealerships across the United States who are racing to adapt as new car sales give away to maintenance and repairs becoming their profit centers for sustainability. Even fleet companies who are racing to identify partners who can help them gain critical competitive edge as national and global grades become increasingly strained under the weight of proliferating consumer and commercial services. Again, I reiterate, DropCar’s mission is to power the next generation of mobility. I’m extremely excited about the opportunities we have in front of us and look forward to sharing more about these initiatives on our future call. Thank you.

[Operator Instructions]. Our first question comes from the line of Patrick Murphy with Maxim Group. Please proceed with your question.

Can you give us some color on the sales cycle for the Mobility Cloud? And how that’s actually trending so far?

Yes, surely. So given we recently announced our self-served SaaS logistics platform only few weeks ago, it is the a bit premature to give guidance on the number of sales in the pipeline. I’d say right now we are focused on getting it in the hands of the right type of clients, so we can continue to accelerate the learning curve of the technology and align ourselves with the budding influencers within next gen mobility. We are going to be excited to start announcing some of these partners soon. So one can kind of see the exciting things we are doing with the technology. Now, beyond that I would also mention that this cycle itself is in fact relatively quick given the fact that this is a plug and play technology. So just to give a little background, we have taken everything that we’ve learned and built into our own logistic software and made a fully DIY. So when we are going into sales scenarios, giving demos and so forth, we are actually pre-building scenarios where they can start managing our logistics day one. On traditional sales cycle, they can take anywhere from three months to nine months depending on the type of client. But even in an enterprise this is out-of-the-box useful for these guys. So we do see that having an impact on the speed and velocity that we can close deals at. We have already been seeing that. I’d also mention, these are obviously a much higher margin since we’re selling it through the technology. And again, all of our existing clients that we viewed historically in terms of our B2B managed services, so all the dealers, OEMs and so forth, all are using that technology. So we are feeling very good about it and I think we have got a lot of exciting things coming up.

Okay, great. And then as a follow-up sticking with the Mobility Cloud. Is this something we’re only going to be targeting the primary Tier One urban areas? Or is this something that you can see fitting into many different markets?

It’s a great question, many markets. I mean the beauty of that is, we can sell this into any geography and quite frankly while dealers and OEMs in the first vertical, to some sense it transcends given end user market. That’s some that we’ve talked with three companies about managing their trucks -- the trucking industry is interesting for instance. There is a broad application here because what we’re really doing is giving technology to operations -- fixed operations, lease and so forth to gain visibility into their operations, hold their drivers accountable, digitize all the movements that they're doing, we’re plugging in partners like Zendrive and others to help just build out the profile of their drivers and performance in addition to CRM tools. So all of these things we can be selling into the 20,000 plus dealers that we have already outlined as well as the fleet companies. I mean the comm leader in the world AT&T is a company where their fleet is an important part of their service delivery, there is no reason that we can’t sell our technology into them as well. And I would also mention that what we’re seeing in terms of our core market New York, San Francisco, Washington D.C. is there is a huge demand right now as well to fill in our managed services in addition to the SaaS. So while the Saas can be sold anywhere into a broad variety of clients, we are already seeing demand there, in the markets that we do have boots on the ground, we’re seeing strong demand for having that last mile logistic field support as I referenced earlier in the call. So for our core markets that we’re already in with boots on the ground, we do anticipate selling SaaS plus the managed services and then for markets outside we’re reaching out to people and we’re taking calls as well, given that is a out-of-the-box DIY logistics platform that really any of these organizations can be using day one.

[Operator Instructions]. Our next question comes from the line of Sam Prior, who is a Private Investor. Please proceed with your question.

Hello, everybody. My name is Sam Prior. Between my son and I, we have over a 160,000 shares, and one of the reasons I’ve got into this is because we had gone to Manhattan and we’ve used you’re app and it was fantastic and I said this got to be the next big -- it’s got to be Uber. And in the interim, since all this -- one of the bad thing is I speak to people and there are many, many people who have never heard of it. So my question is should you do any advertising? Number one. And number two, the company itself like today for example, you came out with fantastic move, I mean anybody reads it and heard what you said is great and yet the stock ended up down which makes no sense. So do you think you should get some analysts on your company also, like sort of a two tiered question?

Yes, I think first of all thank you, we definitely appreciate you using the service as well in addition to being an investor. We feel the same way quite frankly. We’ve been excited to deliver the service. We do anticipate growing it out. I think now that we’ve figured out using our data, using our experience the best way to serve clients on a go forward basis, September 1 forward, I think now we’re feeling very confident that investing in the market, whether it’s through advertising, channel partnerships and so forth, those are all great ways to expand on the current client base. I think I’m actually -- historically I’ve always said that I’m very excited by the fact that not everybody knows us yet. I think if we’d already penetrated the market and everybody was talking about us then we would have saturated the opportunity to some extent and the market we’re going after might be smaller than we initially thought. And what we see is every single day clients telling us exactly the same thing which is why is everybody not using DropCar yet. And so I think that’s a consistent question we get. It’s typically coming from people who used the service and loved it. So now that we’ve formulated consumer subscriptions in a way that we can feel confident that it’s generating positive gross margin for us on a go forward basis along with other services we have for consumers like Will which is wildly popular. We do anticipate extending the market, again not just in New York but other markets for consumer as well where the needs are fundamentals is the same city-to-city. I think in terms of advertising marketing on the SaaS side and our managed service side through B2B, that’s also something that there is a huge opportunity. We are in a kind of in the infancy if you will of an important part of where this market is going for -- all this constituents in the space whether it’s the dealers, the manufacturers, the car share programs, the fleet owners, always there’s the technology providers looking to kind of bring their services to life with a mobility partner like DropCar. I think for there, we really want to develop some very smart and used cases so we can start to show people templates for what success mobility looks like and using our technology using our ground -- boots on the ground to go build those businesses successfully. We have certainly been doing that with clients to-date but I think we want to bring more of those to surface. There is a lot of news that I think we are excited to kind of bring out there and to show the world what we are doing and I think that’s going to be a big part of building the brand as well is just getting the news by what we are already out there in addition to advertising and developing these new markets. So that was the first part. I didn’t quite understand what was the second part of your question?

The second part basically pertains sort of to the stock price which like let's say if I was an analyst and I read your reporting stuff like that and I’d tell people to invest because here is a new company that people can make money and like nobody talks about it, meaning there aren't any analysts really looking into your company. I mean basically can you comment also on the stock price, like it basically it’s an all time low and the company based on this, this would be another company, it should be at $3, $4 or even higher. So that part makes no sense either.

I mean I can completely agree with you here as well. I have some thoughts but let me pass it over to our VP of Investor Relations, Dan Gelbtuch.

To answer your question I think that we have been pouring over the model for the last six seven months and there has been a very big learning curve that we have been happy to have for as Spencer articulated. And I think right now that we have the model right, it’s a model that’s extremely flexible, it’s tailored for growth -- profitable growth with this tremendous operating leverage capabilities. I think now is the time when the story is right enough that we can actually go to the street and start really expanding the shareholder base by growing -- looking for institutions to invest in us and looking to get institutional coverage et cetera. So again the story is right now it’s -- I think it’s beautifully positioned right now for the street.

Yes, I’d just add to that as well. A lot of the decisions we made early on in the business was getting our foot in the door, with the OEMs, with the Tier One partners, building reputation for ourselves, showing that we can build technology for this space that can be relied on. I think the way I think about it now is, we’re not just with the foot in the door, we are around the corner and sitting in the conference room, whiteboarding with these guys now, getting deep into their operations, understanding what we can do in terms of partnerships. We’re also now -- there is a term that we used to have ‘loss leader’, right? We sell -- we want to bring on this to B2B contract because it’s a good logo, it’s good -- it keeps our foot in the door and so forth. That’s the time that we have now dropped from our dictionary, loss leader doesn’t exist for DropCar anymore. We’re not going to be in a guessing game and I think that's where we use our technology the most, dropping from our own model and say, well this is how we drop that term, this is how we make sure every single in B2B contract we take on, contributing to the gross margin. It’s how we make sure consumer services are delivered in a way that every single time we touch a car we’re regenerating revenue. We’re not playing the guessing game about bundled round trip. If people use their car more, that somehow gives us risk or if it’s a rainy day, what happens. I think de-risking as much as we can, the model, well it’s an important part of also having the confidence to go out and talk to the market about what we’re offering. And then of course the SaaS, what we’re doing in terms of the SaaS technology that is extremely exciting for the company. I can’t emphasize enough, not just the potential for to help us on our path to profitability. But that's something where we start to own valuable real estate if you will in this new kind of car economy. That will come in big part through our SaaS positioning, because this is the technology that all of these players that I mentioned before and other are going to start relying on to deliver their products and services. So as we become the mutual platform to support the next generation of ability, that is going to be in large part, thanks to the developments we make with -- and what we’re doing on API side, I don’t want to get too technical but that’s a critical factor too. We’re taking now is just an official SaaS platform with the Mobility Cloud, but through the APIs, our partners can now customize these experiences and integrate them natively into their own applications, into their own vehicles. And that’s really important because a lot of the partners we work with have their own brand identity and they want to be able to message to their clients in the market and advertise themselves as well and have a partner who can sit next to them without necessarily taking the spotlight from them. So with the API we’re giving them the flexibility to customize the core technology platform to their own interfaces. Now this is really important when you start moving up market towards manufacturers on a larger scale, dealers and fleets, so these are people who are building their own brand and they are trying to figure out what can they do to innovate their business and keep up with the world around them. So I think these are all very exciting things for us.

Our next question comes from the line of Alan Chen with Columbia University. Please proceed with your question.

I’m both a customer and an investor and what I'm hearing from this call is really exciting from an investor perspective as we kind of -- as you kind of shift from the B2C and kind of push more towards the B2B market. As a customer though, over the past two weeks, I've been noticing a very significant kind of delays and as we are pushing -- as you are pushing towards away from the Steve service, my question is kind of over the next short-term, few weeks as a customer, where do you -- kind of how do you strategize those customers who currently have cars and who are kind of used to using the Steve service that’s ultimately going to reduce in-service and there has been a lot of wait times in drops -- drop deliveries and so how do you kind of in the short-term resolve those issues for the current customers who are used to this Steve service and who have really relied on the Steve service for the past several years?

It’s a great question. I definitely apologize if you have been inconvenient. As we did the transition over the next -- over the last couple of weeks, we did streamline the team as we prepared for just the higher margin opportunity and what we feel is a better fit service ultimately based on the surveys we have done with clients, client interviews. I just want to reiterate in terms of the September 1 forward plan, this was not us seeing a way of forward thinking exclusively from the perspective of hey how do we go, turn fees, our multi-subscription into a high margin business. This was also working directly with customers to see what do they want to see out of the service. So we see feel like where things are headed is very much kind of the marriage of what we feel is best for the company and the model and the market is likely to be excited about and we are excited about but also very much what the customers are telling us they want. So in terms of between now and the next couple of weeks, September 1, we are certainly doing everything we can. We’re streamlining and preparing to try to eliminate to the extent we can, delays and service disruptions, this is involving our scheduling system, making sure that we got drivers for certain peak moments, certain bottleneck. I think that it is a difficult balancing act. We try to communicate to clients, setting some expectation that we are in a moment of transition, by and large people have understood it and been interested in this new plan going forward. So what I’d say right now is try to bear with us. It is a transition, so there are going to be bumps in the road as we are doing it. We certainly care very much about every single one of our customers and we are working every single day and I mean the entire team every single day to try to identify ways that we can start to smooth things out during the peak -- really these moments where there is delays. One other thing I’d add is we have started letting people who are signing up for this Self-Park plan, get access to space as early and even though whoever opted into it, we’ve started offering them the ability to pickup and drop-off their vehicle, ecologic. So in critical moment where there is a delay, there is always the option to pick up the vehicle. I understand that depending on location that might not be the most desirable. But this is one of the other ways that we are trying to work with clients in the transition period, ensure that they variable to do what they need to do without us kind of damaging their weekends.

[Operator Instructions]. This is all the time we have for questions. I would like to hand the call back to management for closing comments.