Executives: Daniel Gelbtuch - VP of Corporate Finance and Communications Spencer Richardson - CEO

Analysts: David Smith - Private investor

Operator: Greetings and welcome to DropCar's First 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. I would now like to turn the conference over to your host, Daniel Gelbtuch.

Daniel Gelbtuch: Thank you. Welcome and thank you for joining us on today's call. We will review our first quarter, which ended March 31 2018, on the results of this quarter 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, Chief Executive Officer of DropCar. Spencer, please go ahead.

Spencer Richardson: Thanks, Dan. Good afternoon and welcome to the call. What I wanted to do before we kind of dig in is just address the 10-Q filing, just to give a quick update there. So I want to make it clear that our quarterly financials have been finalized. The numbers there are locked. And really what we're doing is taking our chance, our time this first time out of the gate and for our first quarter to adjusting the language. We want to make sure that everything in there has no issues and is just iron-tight. And so, I want to make that very clear upfront. Again, there is no changes to the Q and I want to be able to dig in now to the business side, but I wanted to kind of clarify that upfront. So, as you all well know, this has been an exhilarating and a dynamic quarter in our march towards becoming the de facto platform for next-generation urban mobility. For consumers, we are solving massive pain point associated with car ownership. We free customers from all the hassles of owning and driving a car in the city by delivering and parking their car, their own car, on demand using our mobile app, cloud-based system, and professional drivers. For OEMs, car rental companies, and shared mobility providers, we are enabling technology that unlocks the potential of their evolving models for car ownership, rental and subscription. For them, we fill the costly and complex logistics of ensuring the right vehicle is in the right location at the right time, helping them deliver on their core promise to their own customers. During the first quarter, DropCar evolved structurally. We went public via a reverse merger with WPCS on January 30, just days after hiring our CFO, Paul Commons. We shored up our balance sheet in early March by raising $6 million in a private placement. We prepared DropCar for a substantial B2B ramp and new city launches by optimizing our structure and making some key new hires, including our new Chief Human Resources Officer, Victoria Pasquale, who comes to us with substantial Fortune 500 experience. Most significantly, we continue to validate our compelling value proposition and extremely unique market position by signing several major enterprise accounts over the last four months. I cannot overstate the significance of this particular accomplishment. As you know, DropCar is a young and fast-growing company who has been able to sign contracts with four major automotive corporations. Car ownership and usage models are evolving right now and we want to get ahead of that trend. Looking ahead, we are increasingly focused on leveraging DropCar's logistics software platform which utilizes machine learning algorithm to optimize performance and efficiency, while also generating new SaaS, or software-as-a-service, and business intelligence revenue opportunities. Digging in a little more into Q1, the first phase of Q1 was largely focused on closing the merger, financially securing the Company, and generally getting our arms around finances, our internal efficiency metrics, and our operating structure. Our hiring of CFO, Paul Commons, a few days before the merger has been a major success and has materially moved the ball forward in this department. In addition to getting our financial health in order, Paul is now working with our Chief Information Officer to identify how we can streamline costs and operate with maximum efficiency. The second phase of Q1 was to optimize our management team and corporate structure by making strategic hires. To this end, we recently hired Victoria Pasquale to become our Chief Human Resources Officer. Victoria possesses significant HR and operations executive experience from major companies, including Target and Aramark. In addition to getting our arms around general HR processes and procedures, we will also be working with her to surgically target improvement and workforce efficiency, by far our largest COGS contributor, and corresponding operations efficiency. With Victoria in place, we will have much-needed added firepower for securing other key executive roles, such as a data-driven Chief Operating Officer. In terms of our underlying technology, in March we also launched our migration from a monolithic or single-app architecture to a significantly more flexible and scalable microservices API architecture. This shift will play a very significant role in enabling us to interact with other system partners and more rapidly launch and make available for licensing additional products and services. It is also worth noting that in Q1 we started seeing results from our early machine learning and AI tests, focused initially on helping us to forecast the number of drivers we'll need at a given time in the future, based on historic consumer data, traffic data, and available weather forecast data. We have gone from 50% accuracy in initial tests to already over 80% accuracy, which we will continue to improve and integrate directly into our scheduling system for added field efficiency. On the B2B side, DropCar's enterprise segment grew revenues 139% year-over-year in Q1, driven by organic growth of existing enterprise customers and onboarding of new top-tier automotive partners, particularly in the car sharing segment. Mercedes Benz, the first one of our four Tier-One corporate customers, increased its volume by 46% year-over-year during the first quarter of 2018. Meanwhile, during the second half of Q1, we began generating revenues from our third and fourth Tier-One corporate B2B customers. We also added a number of New York area dealerships during the first quarter, including the largest global dealer of a Top-5 car brand. Along these lines, the ramp in multiple automotive clients over the last quarters drove approximately 240% of year-over-year growth in B2B job volumes. Looking ahead, B2B is expected to be a prominent source of growth, both in terms of scale and scope. Our Tier-One enterprise partners are anchoring our expansion into new big cities in the near term, where consumer services will also be layered on, so that performance equilibrium, i.e., the optimal balance between consumer and B2B, can be achieved. In addition, management anticipates the B2B segment will drive growth beyond car movements and client engagement services. As an example, DropCar believes that it has an opportunity to monetize its big data analytics, the gold that has been mined from the more than 220,000 transactions across consumer and B2B jobs we have executed since our inception. On the consumer side, Q1 was strategically successful for our consumer segments for WILL and STEVE, WILL being our short-term $19 per hour waiting car chauffeur service and STEVE being our $379 per month subscription service where we pick-up and drop-off the car when customers need it and pick it back up when they don't need it. In early January 2018, DropCar increased its base STEVE subscription rate from $349 to $379 per month. While this monthly subscription experienced an initial churn increase due to price sensitivity at the margins, subscriber retention normalized by the end of Q1 and new subscriber growth has since resumed. Along these lines, our monthly subscription Q1 revenues grew 140%-plus year-over-year, Q1 of last year versus Q1 of this year, and over 10% sequentially versus last quarter. Looking forward, management expects this monthly service subscription that we call STEVE will experience seasonal growth from Memorial Day through Labor Day. Moreover, as our software and data analytics teams increasingly identify and enable the rollout of efficiency initiatives, with enhancements such as dynamic pre-assignment and weather-enhanced demand forecasting, management believes it will ultimately augment volume-per-driver metric. In addition, DropCar expects the rollout of expanded car-care features, such as car washing, fueling, dent repair, oil changes, et cetera, which are less time-sensitive and can be fulfilled during periods of lower demand intensity, to further improve our driver utilization levels. Something interesting to note in the real estate sector with respect to an opportunity that's emerging, that we want to go after, is the success of shared co-workspaces, such WeWork and others, and expanding commercial business district or CBD density trends in terms of employees per square foot, which are straining parking supplies in these major CBD markets beyond New York. While driving is not the primary nor pragmatic commuting option in New York, it is far more important in major CBDs such as Chicago, Los Angeles, Boston, Philadelphia, Washington DC, San Francisco, Dallas, and so on. As a result, employee parking is increasingly becoming a key differentiator when it comes to signing commercial tenants. Accordingly, DropCar is experiencing growing inbound interest for our virtual garage and car care services, from commercial real estate landlords who are scrambling to deal with these parking challenges in major CBDs beyond New York. Turning the table a little bit, I'd like to give an update on WPCS, of unit, the business and the strategic plan ahead. So, DropCar's low voltage contract business, which was acquired during the WPCS merger, had a strong Q1, generating revenues of $3.182 million, gross margins of $856,000 and operating income of $309,000. While this contracting business is profitable and does not substantially impair the Company's core automotive business, it does not provide DropCar with meaningful revenue, operational, and/or strategic synergies. Thus, DropCar's Board and management have decided to explore and consider strategic alternatives for this standalone contracting segment. This concludes our remarks and we'll open the call for questions. Thank you very much.

Operator: [Operator Instructions] Our first question comes from the line of David Smith, a private investor. Please proceed with your question.

David Smith: Just curious, looking at the financials and the gross profit, how does the Company build for its B2B services and how does it pay out, is it transactional, is it subscription?

Daniel Gelbtuch: This is Daniel. The B2B service is contractual for the most part and it is build out in an invoice manner for the most part, and it's on a movement by movement basis. So, we have a number of B2B clients and each B2B client has a different rate schedule, and on a movement by movement basis they are invoiced and we receive payments in the normal course of business.

Spencer Richardson: This is Spencer. I just wanted to – let me just clarify real quick, so some of the – each contract account has its own flavor of billing as well, I would just clarify. So, sometimes on a per movement basis, other times on hourly basis, it really depends on the application that we are integrating for the business client.

David Smith: So as a follow on, are there positives unit economics at this time, and I guess what's the average gross profit percentage that's aiming for?

Spencer Richardson: So, it's a great question. I think at this time though it's not a question that, while we are very confident in where we're going to be, we feel comfortable answering just at this time.

Operator: Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to management for closing remarks.

Spencer Richardson: This concludes our prepared remarks and thank you for listening to our call and thank you for staying in touch, and we will keep you updated on our progress going forward. Have a good day.

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.