Sign in

You're signed outSign in or to get full access.

DH

Driveitaway Holdings, Inc. (DWAY)·Q3 2017 Earnings Summary

Executive Summary

  • Q3 revenue declined 35.3% year over year to $0.55M as domestic franchise sales stalled and royalty fees fell with franchise attrition; net loss widened to $(0.83)M or $(0.07) per share, driven by $0.31M of stock‑based compensation and a $0.43M tax expense from an increased valuation allowance .
  • Operating expenses were trimmed year over year by ~$0.04M to ~$0.95M, but the benefit was more than offset by the Board option grants recorded as stock‑based compensation during the quarter .
  • Segment drivers: Initial franchise fees fell by ~$0.24M YoY (no domestic franchise sales; long lead time for international), royalties decreased by ~$0.07M YoY due to loss of some franchisees .
  • Regulatory overhang clearing: On Aug 21, 2017 the SEC filed a civil complaint; the Company consented to a final judgment resolving allegations, with the court entering final judgment Sep 20, 2017 (no financial penalty referenced for the Company in the consent) .

What Went Well and What Went Wrong

What Went Well

  • Operating expenses decreased by ~$41K YoY to ~$953K on lower franchise consulting/commissions (−$220K) and professional fees/legal settlements (−$133K) despite higher stock‑based comp; “Operating expenses decreased… due to significant decreases in franchise consulting and commissions… and professional fees and legal settlements…” .
  • Nine‑month OpEx fell by ~$2.04M YoY to ~$2.55M, improving nine‑month operating loss by ~$0.34M, reflecting normalization of professional and legal costs after prior management issues .
  • Subsequent-quarter regulatory clarity: Final judgment entered on Sep 20, 2017 resolved all allegations pertaining to the Company, removing a key uncertainty .

What Went Wrong

  • Revenue contraction: Initial franchise fees −$236K YoY as BFK sold no domestic franchises; royalties −$65K YoY from franchisee losses, compressing total revenue to $0.55M .
  • Expense mix headwind: Stock‑based compensation of ~$312K (primarily Board options) added to OpEx; “There was no stock‑based compensation expense in the prior comparable period” .
  • Tax expense and non‑cash charges: Increased valuation allowance drove $433,065 income tax expense; ~$77K intangible impairment recorded in the quarter, further pressuring earnings .

Financial Results

MetricQ3 2016Q1 2017Q2 2017Q3 2017
Revenue ($USD)$853,357 $738,886 $581,785 $551,657
Total Operating Expenses ($USD)$994,671 $778,095 $814,141 $953,340
Loss from Operations ($USD)$(141,314) $(39,209) $(232,356) $(401,683)
Income Tax (Provision)/Benefit ($USD)$40,453 $5,236 $71,722 $(433,065)
Net Income (Loss) – Continuing Ops ($USD)$(100,611) $(20,538) $(158,796) $(831,524)
Diluted EPS ($)$(0.01) $(0.00) $(0.01) $(0.07)
Diluted Shares (000s)12,001 12,001 12,001 12,006

Segment revenue mix

Revenue Component ($USD)Q3 2016Q2 2017Q3 2017
Initial Franchise Fees$241,800 $10,313 $5,522
Royalties$611,173 $571,472 $546,135
Merchandise Sales$384 $0 $0

KPIs and balance sheet snapshots

KPIQ1 2017Q2 2017Q3 2017
BFK Territories (units)637 615 632
SF Territories (units)13 12 13
Accrued Marketing Fund Liability ($USD)$153,020 $198,195 $182,921
Cash ($USD)$76,421 $410,511 $156,664

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
———No formal numerical guidance provided in Q3 2017 press release or 10‑Q—

Earnings Call Themes & Trends

Note: The company scheduled a conference call for Sep 5, 2017; a transcript was not available in our sources. The following themes are based on the press release and 10‑Q disclosures .

TopicPrevious Mentions (Q1 2017)Previous Mentions (Q2 2017)Current Period (Q3 2017)Trend
Franchise sales momentumInitial franchise fees −$252.7K YoY; U.S. franchise sales had only recently resumed; longer lead times Initial franchise fees −$87K YoY; U.S. sales resumed in Sep 2016 but require lead time Initial franchise fees −$236K YoY; no domestic sales; international lead times Deteriorating
Royalty trajectoryRoyalties +~$47K YoY (mix/international) Royalties +~$74K YoY Royalties −~$65K YoY due to franchisee losses Negative inflection
Operating expenses/legalOpEx −$981K YoY; normalization from prior management issues OpEx −$946K YoY; proxy costs ~$310K OpEx −$41K YoY, but $312K stock‑based comp to Board lifted expense mix Improving vs 2016 baseline but Q3 mix headwind
Stock‑based compensationNot material Not material $312K Board options; details in stock comp footnote New expense layer
Tax valuation allowanceN/ATax benefit $71,722 Increased valuation allowance drove $433,065 tax expense Deteriorated
Legal/regulatorySEC preliminary settlement proposal accepted; no monetary penalty contemplated in proposal Continued work toward finalizing SEC settlement SEC filed complaint; Company consented to final judgment; final judgment entered Sep 20, 2017 resolving allegations Overhang resolving

Management Commentary

  • “Initial franchise fees decreased approximately $236,000… The decrease was due to BFK not selling any domestic franchises and the long lead time for international sales. Royalty fees also decreased approximately $65,000… related to the loss of some franchisees that the Company has not been able to replace with the sales of new franchises.” .
  • “Operating expenses decreased by approximately $41,000… due to significant decreases in franchise consulting and commissions of $220,000 and professional fees and legal settlements of $133,000 offset by an increase of $312,000 in stock‑based compensation expense for options recently granted.” .
  • “Management increased the valuation allowance on the deferred tax assets which contributed to the income tax expense of $433,065 for the three months ended June 30, 2017.” .
  • Liquidity outlook: “The Company will seek a line of credit in the upcoming period, but there can be no assurance that the Company will be successful in obtaining a line of credit.” .

Q&A Highlights

  • The company announced a conference call for 2:00 p.m. ET on September 5, 2017; a transcript was not available in our sources. Analysis is therefore based on the 8‑K press release and 10‑Q filings .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q3 2017 EPS and revenue were unavailable; as a result, we cannot provide a vs‑consensus comparison for this quarter. Where estimates are necessary for modeling, we recommend treating the quarter as “no coverage” for consensus purposes pending retrieval availability.

Key Takeaways for Investors

  • Revenue headwinds are structural near‑term: no domestic franchise sales and franchise attrition pressured both initial fees and royalties; without a restart in franchise sales, top‑line is likely to remain constrained .
  • Expense normalization is real, but mix matters: while legal/professional costs have fallen versus 2016, the new $312K quarterly stock‑based compensation meaningfully impacted Q3 profitability; monitor Board/management equity award cadence .
  • Non‑cash tax and impairment amplified the loss: a $433K tax expense from valuation allowance changes and a ~$77K intangible impairment were key drivers beyond the operating run‑rate .
  • Franchise network stability is critical: BFK territories dipped in Q2 then partially recovered in Q3; sustained territory growth is needed to stabilize royalties .
  • Liquidity remains tight: cash ended Q3 at ~$0.16M; management indicated it will seek a line of credit—execution risk remains .
  • Regulatory risk abating post‑quarter: the SEC matter moved to final judgment on Sep 20, 2017, removing a significant legal overhang on the story .
  • Near‑term focus: watch domestic franchise sales restart, royalty trajectory, and any incremental legal/proxy costs; these are likely to drive results and sentiment into the next quarter .