Collaborate Corporation Limited (ASX:CL8) is pleased to present its consolidated cash flow report and business update for the quarter ended 30 June 2020.

Key highlights include:

• 43% increase in live Subscriptions at 30 June 2020 vs. 30 March 2020 and 179% increase vs. 30 June 2019
• 13% increase in Subscription Transaction Value vs. March 2020 Quarter and 320% increase vs. June 2019 Quarter
• 19% increase in Subscriptions Booked vs. March 2020 Quarter and 81% increase vs. June 2019 Quarter
• Carly Subscription increased to 45% of Rental & Subscription Receipts in the June 2020 Quarter.

As the COVID-19 situation evolved throughout the June 2020 Quarter, traditional car rental companies saw large declines in revenue due to the curtailment of business and consumer travel. DriveMyCar experienced more moderate, but still material declines as it is not heavily focused on the travel market. As restrictions increased, rideshare rental revenue also declined as the need for on-demand transport plummeted.

In contrast, the number of live Carly car subscriptions increased by 43% during the June 2020 Quarter. This can be compared to retail sales of new passenger vehicles and SUVs, which declined by 18% in the June 2020 Quarter vs. the March 2020 Quarter (VFACTS June 2020). Carly is an alternative to car purchase and provides a lower risk option for consumers and businesses that require cars but do not want to take on long-term financial obligations. Given the recent economic turmoil, Carly provides a highly attractive option for consumers and businesses, and Collaborate expects this interest to continue to increase.

Despite impacts to revenue in the June 2020 Quarter, all revenue streams have rebounded strongly from the lows experienced during the Quarter. April 2020 was the first full trading month to experience lockdown restrictions. Compared to April 2020, total Rental & Subscription Value in June 2020 increased overall by 19%, led by Carly with 43% growth, DriveMyCar with 28% growth and a decline in rideshare rentals. The rideshare rental revenue
stream has continued to be impacted in the short term by the restrictions in Melbourne.

The ongoing challenges of COVID-19 are acknowledged, and substantial cost saving measures were implemented in April 2020 to ensure that Collaborate had sufficient resources to cope with a reduction in economic activity. A 20% salary reduction for all employees and a 40% fee reduction for non-executive directors was implemented from 15 April 2020. Rent reductions were negotiated for premises and State and Federal Government assistance totalling $102,500, including the JobKeeper subsidy, was secured during the June 2020 Quarter. An R&D Tax Incentive payment of $74,055 for the 2019 financial year was also received in the Quarter. Despite the continuing challenges, Collaborate believes it is well positioned to take advantage of new opportunities that are arising as consumers and businesses reassess the merits of taking on long-term finance for vehicles in a period of economic uncertainty.

Consolidated Cash Flows 

Cash receipts declined in the June 2020 Quarter vs. the March 2020 Quarter in part due to the receipt of a lump sum payment from Turners Automotive for the development of the subscription proposition in New Zealand in March 2020 and a payment from Hyundai Australia. Excluding those items, and on a like-for-like basis, Total Rental & Subscription Receipts declined by 30%, driven by declines in both DriveMyCar and rideshare rentals, while Carly Subscription Value increased by 13%.

Product Manufacturing and Operating costs, which are largely made up of payments to owners for their proportion of subscription and rental revenue, did not decline in line with receipts as they are paid in arrears and reflect the strong sales momentum during the March 2020 Quarter. Direct salary costs were reduced by 20% from 15 April 2020. The increase in staff costs during the June 2020 Quarter was in part due to salaries and recruitment costs for several roles, including Chief Operating Officer, Head of Marketing and Operations Manager as Collaborate strengthened the management team to position for growth in FY21.

Payments to related parties and their associates in the June 2020 quarter of $77,000 related to remuneration of executive and non-executive directors for the period.

Corporate

On 30 June 2020, Collaborate announced the negotiation of a further extension of the repayment date of the Financing Facility from 1 July 2020 to 1 October 2020. The financing facility of $850,000 (Financing Facility) was provided to the Company from Willoughby Capital Pty Ltd as trustee for the Willoughby Capital Trust, a company related to Stephen Abolakian, a director of the Company. The terms of the Financing Facility and variation of those terms were previously announced on 14 March 2019, 16 July 2019 and 31 March 2020.

The Company advises that the 2020 Annual General Meeting will be held on 20 November 2020. The deadline to receive director nominations is 25 September 2020.

Cash Balance at Quarter End and Funding

At the end of the June 2020 Quarter, the Company maintained a cash balance of $1.433 million.

The Directors closely monitor cash flows and funding requirements and are assessing all funding alternatives, which may include a placement to strategic and/or high-net-worth investors to ensure that the Company can continue to pursue the growth opportunities of the businesses. In response to the potential impact of COVID-19, Collaborate has taken a prudent approach to cash management and proactively implemented a range of cost saving measures. 

Strategic Direction

While many businesses will be severely impacted by COVID-19, Collaborate’s efforts to reposition itself over the past 12 months have prepared it well to deal with the current challenges, benefit from economic uncertainty and leverage opportunities brought about by longer term structural change in the automotive market. Carly car subscription is an alternative to a lease, loan or outright purchase of a vehicle and provides consumers and businesses with the ability to access vehicles they require without long-term financial risk. It is likely that the COVID-19-related concern about strength of the economy will accelerate the shift to more flexible vehicle access options. Collaborate believes that Carly is likely to benefit from this shift, even in an environment of slow economic growth. 

As previously announced, Turners Automotive Group, Collaborate’s third largest shareholder, delayed the launch of Carly in New Zealand beyond the previously scheduled date of 31 March 2020 in response to the New Zealand Government mandated COVID-19 Level 4 lockdown restrictions. With the easing of New Zealand lockdown restrictions and bounce back of the economy, Turners have confirmed a launch of the subscription proposition in the September 2020 Quarter. The subscription proposition will now be branded ‘Turners Subscription’ to leverage the strong brand recognition in New Zealand and reflect the increasing importance of flexible mobility solutions to Turners Automotive’s revenue streams. Apart from additional fees earned by Collaborate for implementing the branding change, the commercial model of the arrangement remains unchanged.

In light of the significant opportunities in the mobility sector and issues related with closed borders and restricted travel, Collaborate has reviewed the potential of the MyCaravan platform and decided to cease operations as of today. This closure will allow resources to be focused on the Carly car subscription proposition. There will be no material impact on revenue or the carrying value of assets on the group balance sheet.This announcement was authorised to be given to ASX by the Board of Directors of Collaborate Corporation Limited.