StableX Technologies, Inc. - Common Stock (SBLX) Q3 2018 Earnings Report, Transcript and Summary

Hello everyone and thank you for standing by, and welcome to DropCar’s Third Quarter Ended September 30, 2018 Earnings Conference Call [Operator Instructions]. After the speakers’ remarks there’ll be a question-and-answer session [Operator Instructions]. At this time for opening remarks and introductions, I will turn the call over to Mr. Paul Commons, our Chief Financial Officer. Paul, please go ahead and start the conference.

Thank you. Welcome and thank you all for joining us. On today's call, we will review our third quarter September 30, 2018 financial results and provide a corporate update. Our update will include details of our business developments and prospects. And 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 over the call to Spencer Richardson, our Chief Executive Officer of DropCar. Spencer, please go ahead.

Thanks, Paul. Good afternoon and welcome to the call. Q3 marked a transformational quarter for DropCar. Today, we’ll discuss both the results for the quarter, as well as the impact on our business moving forward. First, let’s take a look back. In our Q2 call, we discussed our plans to strengthen our balance sheet by selling our low voltage contracted units of business WPCS for $3.5 million in non-dilutive capital with a target close here in Q4. We also discussed improving our DropCar operating company margins by fundamentally changing the unit economics of our consumer subscription, parking slots, on demand park on here as a model, and expanding the reach of our last mile logistics technology and service delivery in the rapidly growing mobility as a service space. So we can continue to establish ourselves as mobility partner choice for OEMs, vehicle manufacturers, car share and vehicle subscription programs, dealers and even fleet owners transitioning their businesses to a world where cars are increasingly shared and delivered to consumers as a front door service. I'm very happy to report the progress we’ve made in Q3 in each of these areas, and how it positions the company going forward. First, we remain confident that we will be closing the sale of WPCS subsidiaries here in Q4 bringing in non-dilutive capital to the company. We’re also very pleased to announced we signed off yesterday on approximately $1 million on the prefunded-warrant for common financing with our largest shareholder at an approximately 50% premium to market based on yesterday’s close. Between these two events and the significant improvement to both or consumer and B2B margins here in Q3, we are in an excellent position to be able to focus on our growth strategy, which we will also cover a little later. Digging deeper into DropCar operating company’s margin, we’ve dramatically reduced our cash burn, as a result of improvement to both our consumer subscription and B2B service model. Let me elaborate. Prior to December 1st of this year, our consumers subscription was a bundled service whereby the $379 per month, subscribers would receive an indoor parking spot and could schedule or request on demand one of our drivers to bring their car to them as well as have the driver bring it back to them from their garage up to 12 times per month. The more the customer use their vehicle, the extent to which drivers were delayed by traffic, et cetera were all cost that we absorbed 100% up, resulting in a very labor-intensive and expensive business model to sustain much less scale. As of September 1st onwards, we’ve focused on creating immediate positive margins in our consumer parking model and entirely changed our pricing structure for our consumer services. We are now offering self park spaces through many garage partners at low discounted monthly rate, whereby customer picks up and drops off their own car to the garage of their choice. If a customer decides he wants the convenience a front door service using one of our drivers, they can continue to do so through the DropCar mobile app at an ala carte charge of $19 per hour rounded out to the nearest full hour. This also reduces our overall liability associated with vehicle damages and personal injury. So we set a very aggressive transition timeline in August where we’re able to retain the majority of our clients under the new self park spaces plan. We also streamlined our driver workforce given the lower labor-intensity, which effectively shed the anchor on the business with the old consumer subscription model was developing and significantly reduced our cash burn as a result. To put it into financial perspective, in September, we reduced annual operating and corporate overhead expenses by over $650,000 per month, primarily through reductions in value driver and operations staffing attributable to our former consumer model, as well as streamlining parts of our corporate payroll and use of outside services. As a result, our consumer business has gone from an anchor to a buoy, going from in the red to contributing approximately $1 million a year in positive gross margins on a go forward basis. We expect the consumer sector to continue to grow as we begin to formally market the self parks program. As mentioned, we changed our consumer model in the last month of Q3 September 2018, which left us with top line revenue of $1.1 million in consumer subscription revenues for the quarter, and resulted in an immediate improvement in a negative gross profit margin to a positive gross profit margin for self park model of approximately 35%. Interestingly, our on demand valet car concierge service has picked up given many of the self park customers still find it convenient of door-to-door service compelling. Most importantly, we believe we now have a very scalable consumer model and we can continue to expand into our other markets. In addition to getting our consumer business tracking in the right direction, we’ve also updated our pricing structure and labor efficiency model for our B2B managed services to increase positive margin there as well. Our goal is approximately 20% to 30% gross margin on every existing and new managed service deal and even higher-margins for our pure SaaS technology deals. On a top line basis, B2B revenues increased to 128% year-over-year from 99,000 in Q3 of last year to $225,000 in Q3 of this year. While we're excited about the go forward impact of these fortifications to our underlying business, we're even more excited about the prospect we have looking ahead in terms of new business we're brining on to the platform. On November 1st, DropCar formally announced the extension of its partnership with General Motors car sharing Maven mobility brand, where DropCar now supports General Motors Maven in five cities; New York, San Francisco, Los Angeles, Washington DC and now Baltimore with both our software technology and app based maintenance and fleet logistics services. Maven fleet managers utilize DropCar's mobility cloud services to efficiently schedule and track pick-up and delivery of General Motors' vehicles that are part of the Maven car sharing program for everything from fleet logistics, balancing, cleaning, refueling, maintenance and efficient transport of new General Motors vehicle. General Motors Maven operates in two-parts, Maven City and the Maven Gate. Launched in 2016, GM Maven City is a shared vehicle marketplace that provides seamless access to car sharing for both personal and commercial use. Maven seeks to provide their over 200,000 members in 20 cities worldwide with access to a fleet of GM vehicles by the hour or by the day. Maven Gate uses a fleet of GM vehicles to provide many Uber and Lyft drivers with a vehicle for short and long-term use to generate car fares. DropCar has provided other OEM like GM Maven with a tech platform to track and manage vehicles and vehicle movements for their in fleeting, pre-fleeting, maintenance, repair and/or rotation. Moreover, in certain market, we have operations to wash and spec and/or manage to our software their last step requirement to ensure that their fleets can be efficiently deployed. I'd like to note that virtually every major OEM, either has or is introducing car sharing, car subscription and peer-to-peer mobility programs to their businesses. Thought it is still early days for these fleet-based programs, we believe that they will continue to grow rapidly, both in terms of geographical reach and a number of vehicles, as well as the number of non-OEM companies building and interacting with fleets to populate the next generation of mobility services. This is a major opportunity for DropCar both in terms of near-term revenue as the number of vehicles we interact will expand but even more importantly, in terms of the cumulative data we are collecting across our B2B and consumer businesses. Given our role in helping these parties understand and manage not just the backend and last mile logistics required to support this next evolution in transportation industry, but also increasingly in building consumer facing experiences we believe that we are uniquely positioned to leverage our growing data and infrastructure to ultimately manage and support the autonomous cars and integrative services and experiences around it. To help us get there, our plan is to be aggressive and continue to leveraging the nascence of this phase to align our last mile logistics SaaS technology and manage services platforms with well known major players. To this end, our immediate roadmap already includes recently expanding our logistic and fleet mobility services with another major OEM, advance discussions with several name brand automotive partners in the vehicle subscription peer-to-peer and car share space to provide SaaS technology and DropCar managed services, as well as the potential for launching new pilot programs through one of the largest fleet organizations in the country as a channel partner. We expect to be able to formally announce some of these new deals very soon. In short our managed services and mobility cloud technology has not only placed us in the enviable position as a last mile solution for top tier automotive partners, but has also led to deeper discussions on how our mobility technology platform can further support the next generation of last mile logistics concept they are presently investing in. According to Statista, there’re over 222 million drivers and 263 million vehicles on the road in the U.S. alone. As I said on the last call and we will reiterate here, DropCar’s mission is to power the next generation of mobility, whether it’s through our direct to consumer subscription or through our integrations with fleets, dealers and other auto related companies. We remain committed to managing these vehicles and delivering the best possible experiences to those who drive or ride with them, along with our commitment to positive margin growth. Thank you. And we’ll turn it over to questions.

Thank you. The floor is now open for questions [Operator Instructions]. Our first question is coming from David Baker of Mach 100. Please go ahead.

Spencer, can you please tell us what is the approximate burn now on a quarterly basis?

So like I mentioned, we did cut the burn enormously about $650,000 per month. If you back out the numbers that we’ve put out there, I think you can get good approximation. And we are trending to numbers that were pre-premerger in our case. So we’re not giving guidance on the specific burn numbers. But if you were to back them out, I think you'd see that we’re operating significantly lower than we were obviously before September.

And a follow-up question, if I can. Can you please explain how are you making money with the consumer model of $19 an hour, you still have labor costs and other overhead costs. How’s that leading model which you say is generating positive gross margin, how is that really making money for the company -- it’s still like a pretty expensive service for the consumer?

I think it’s something that a lot of times people don’t understand the face value. But when you did in, it becomes pretty clear. So $19 per hour is the base rate and we’ve the hourly roundup. So what starts to happen is a job is at hour and 20 minutes and hour 30 minutes, that’ll generate $28 worth of revenue -- $38 worth of revenue, whereas normally we don’t go to four hour increments. Now, we actually still make a margin on the hourly increment given just what we're paying in the overhead as a churn. But that margin continues to go up as we benefit from the roundup. So I think that’s something that a lot of people just don’t understand looking at the model is the impact of that roundup has where you could be generating $38 on a 1 hour and 20 minutes job, and that starts to add up, especially when we start to see that the average job in our system does tend to move into that hour and 20 minutes, hour and a half range. The other benefit that it has that I think is not immediately obvious is it also burns with excess capacity in our system. So when we have drivers available, because we normally run that consumer component as a on-demand service, so it's really when we have drivers available when they are not working on B2B job, it essentially turns excess capacity. So while we're earning a margin against that and we want to scale and grow that, at a minimum given that our drivers are employed they've been self paid by the hour and operate on schedule, it actually helps increase our overall utilization rate. So that's something that we've seen in the transition now our utilization rates continue to grow as a result of the consumer shift. So it's not only we're making more money per subscriber that uses the system with the margin, so seeing the overall for grow efficiency of our labor and just pool of drivers increase.

Last question, can you tell me as the company estimated how many metropolitan cities in the United States are still target cities for the company services?

I think there is few parts. So they're specific cities in the U.S. that are quickly becoming mega cities, I think when you look at the demographic trend as generations go younger, they're moving increasingly into cities, so we siege the urban mobility opportunity continuing to expand. We're also starting to see the number of cities that are addressable and extending -- continuing to increase. You see markets where this case even Amazon as a reference, you look at Nashville and you look at markets where these growing technology companies, these growing other industry are moving increasingly to cities to attract additional manpower for their own initiatives. So cities that we wouldn't traditionally have seen three or four, or five years ago as becoming major cities that would need mobility solutions tend to what we offer, are now becoming addressable and very much something that's our road map. That said, I think is a core set of cities that still control about 80% of the total opportunity. The majority of those we're in and we want to continue to expand in. So before we're rushing into other cities in terms of our managed services and boots on the ground, there is enormous amount of growth that we can go after in the cities we're already and even here in New York where we've been in the market for a few years. But as we've seen with the impact of the change in the consumer model, the mobility challenges that are starting to hit the cities are only amplifying and growing. So that's really in terms of the mobility services from a managed service angle from our consumer subscription. But I'd also highlight our SaaS technology. So with that, we don’t have boots on the group. This is technology delivered through the cloud, through our mobility cloud. So operating in any cities but we're seeing that start to operate and find demand even in more ruler areas. So it is not just mobility challenges in city, I think it's also important to understand that as revolving more towards accepting cars versus owning cars and more towards fleets, essentially filling the mobility solutions around cities and even in the rural areas, I think the SaaS technology becomes really limitless in terms of its applicable industries, in terms of its market it can go into. So as a business, given our moves into SasS and the continued investment in growth we're developing there, I don’t think we’re limited to cities alone in terms of what we’re bringing our technology and mobility solutions to. But again it’s just steps that we’re basically taking to get to the world where ultimately see fleets starting to address just the array of mobility use cases that we’re starting to see demand for even today.

We’re showing no additional questions at this time. Does management have any closing comments?

No, I think we appreciate everyone who joined the call and we do have -- we’d encourage anyone who is interested in continuing to learn more about the company, work with the company, to sign up to our email list through our investors@dropcar portal. And if anyone is interested in setting up call with myself or Paul or other members of the team and learn more about the business and understand more about what we’re doing that’s encouraged as well.