Lyft, Inc.

Good afternoon and welcome to the LEAF first quarter 2021 earnings call. At this time, all participants are in listen-only mode to prevent any background noise. Later, we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sonia Banerjee, head of investor relations. You may begin.

Thank you. Good afternoon and welcome to the Lyft earnings call for the quarter ended March 31st, 2021. Joining me today to discuss Lyft's results and key business initiatives are our co-founder and CEO, Logan Green, co-founder and president, John Zimmer, and chief financial officer, Brian Roberts. A recording of this conference call will be available on our investor relations website at investor.lyft.com shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we'll be making forward-looking statements. This includes statements relating to the expected impact of the continuing COVID-19 pandemic the performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects, as well as our definitive agreement to sell our Level 5 self-driving unit and our agreement to reinsure our captive insurance subsidiary for certain liabilities. We will also make statements regarding regulatory matters. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-K for the full year 2020, filed on March 1st, 2021, and in our Form 10-Q for the first quarter of 2021 that will be filed by May 10th, 2021, as well as the current uncertainty and unpredictability in our business, the markets, and economy. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and LIFT disclaims any obligation to update any forward-looking statements except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in our earnings release, which was furnished with our Form 8K filed today with the SEC, and may also be found on our investor relations website. I would now like to turn the conference call over to LIFT's co-founder and chief executive officer, Logan Green. Logan?

Thanks, Sonia. Good afternoon, everyone, and thank you for joining our call today. The ride share recovery continued in Q1. We exceeded our outlook across revenue, contribution margin, and adjusted EBITDA. The improvements we've made over the last year are paying off. We've built a much stronger business. And as the recovery continues, we're confident we'll be able to deliver strong organic growth and adjusted EBITDA improvements. We expect to build a significantly larger company by attacking the trillion dollar plus market opportunity in front of us. Turning to our financial results, Average daily ride volume grew each month, with March showing the steepest recovery. Revenue for the first quarter grew 7% sequentially and outperformed the high end of the outlook range. Recall that in early February, we said that Q1 revenue may decline by 3% to 4% quarter over quarter. Active riders increased by over 940,000 from Q4, representing 8% sequential growth as we welcome back riders and increased rider activations in Q1. The rollout of vaccines and reduced pandemic-related restrictions helped support greater demand for our network as the quarter progressed. However, stronger rider demand began to outpace driver supply at the end of February. This has been an industry-wide dynamic. Brian and John will speak to the issue in detail, but we are focused on increasing driver supply and achieving a better balance in our marketplace for Q2 and beyond. Let me turn to April. Rideshare rides declined month over month due to typical seasonality and the impact of the holidays. However, on a year-over-year basis, rides grew by more than 100% as we lapped the pandemic trough. It's worth noting that in early April, the CDC significantly reduced testing and quarantining requirements for fully vaccinated domestic travelers, which may have provided a boost in terms of airport rides. Average daily airport rides were up more than 65% in April relative to January. Although people have started moving again, we expect there is still much more to come. We continue to believe that there is significant pent-up demand for mobility that will take time to play out. Over the last year, rider demand has been limited by how safe people felt going out and where they were able to go. As the vaccine rollout continues, warmer weather takes hold, and pandemic-related restrictions are eased, we anticipate more people wanting to go out and get together more often. And we're working hard to get riders where they need to go. We believe we are well positioned for the rebound with our focused transportation network. Let me spend a few minutes talking about what this means and why it matters. To start, the transportation market opportunity is substantial, and we see a long runway in front of us. In the U.S. alone, personal transportation is the second largest category of consumer spending behind housing. It exceeds $1 trillion annually. Transportation captures more of the consumer wallet than food, healthcare, education, or entertainment. And car ownership in particular is expensive, inefficient, and inconvenient in many ways. We firmly believe that the future of transportation is as a service, one that offers the appeal of more flexibility at a lower cost than traditional car ownership. John and I have been building towards this transition for over a decade. We deeply understand the market opportunity, and I'm confident that the differentiation in Lyft's approach will be more and more apparent over the next few years. Today, we are the only transportation network in North America focused on a full set of integrated services across rideshare, car rentals, bikes, scooters, transit, and vehicle service centers. We seek to deliver the best holistic experience to users by integrating the currently fragmented transportation ecosystem through a mix of great technology and operations. When a rider opens the Lyft app, they know what to expect, seamless access to the wide range of transportation options available through our network. This is by design. We work hard to give people an incredibly simple experience with access to a ride at the top of a button, but there's a lot going on beneath the surface. For Rideshare in particular, our transportation network takes into account a multitude of factors in real time across demand, supply, our marketplace, and our platform. Going a level deeper, when rides are requested, our systems dynamically price, dispatch, and route riders to their destination at scale and nearly instantaneously. And we're able to do this in a way that maximizes returns by taking into account complex inputs like conversion rate and unit economics. Much of this is proprietary IP that is not easily replicated. Our systems are underpinned by the accumulated learnings from the billions of rides we've facilitated with tens of millions of riders over nearly a decade. I want to spend a moment talking about our AV strategy. We've signed a definitive agreement with Woven Planet, a subsidiary of Toyota, to acquire our Level 5 self-driving division. This is strategically the right move at the right time. When we opened our Level 5 engineering center in 2017, the main goal was to make sure we'd have access to affordable and reliable autonomous technology. At that time, it wasn't certain that there would be multiple well-funded autonomous vehicle programs. In just four years, we built a world-class team and made remarkable progress developing a leading autonomous driving system. Level 5's differentiated approach to advancing autonomy, leaning in on simulations, state-of-the-art machine learning techniques, and data collected from vehicles at large scale helped speed up the development process and drove step changes in terms of capability. The team's rapid progress and industry-leading positioning are reflected in the California DMV's most recent disengagement reports. The market for AV technology has grown meaningfully since we first launched Level 5. This means we now don't need to develop the technology ourselves to ensure we have access to a competitive market of providers and that we achieve our vision of integrating autonomous vehicles into our network. The Level 5 transaction will further strengthen our financial position and enable us to continue to focus on the unique value of Lyft's network. Going forward, we're doubling down on our industry-leading Lyft Autonomous Platform, previously called Open Platform, to deploy and scale AVs with partners on our network. This team will continue to focus on the autonomous user experience, marketplace, and fleet management services that ensure Lyft riders have access to the safest, most advanced autonomous technology on the market, and that our AV partners have access to the full power of Lyft's transportation network. John will talk more about our AV strategy and provide a few business updates. But before he does, I'll turn the call over to Brian to review our financial performance and provide details on our path to profitability.

Thanks, Logan, and good afternoon, everyone. In the first quarter, while average daily ride volume grew each month, March showed the steepest growth inflection. Demand outstripped supply, which led to elevated prices for ride sharing. Based on third-party data, this dynamic appeared to be industry-wide, and it led to record earnings for drivers in most U.S. cities. We have been increasing investments to grow driver supply. This includes onboarding new drivers and welcoming back drivers who may have stopped driving during the pandemic. Now, while driver incentives significantly increased, we had an extremely strong quarter, so let me explain how. First, the industry appears to have been generally rational in the design and structure of driver supply investments. Second, riders have been relatively less sensitive to the price increases triggered by the higher demand, especially since they were industry-wide. While conversion decreased, ride volume grew, and the pricing surplus from the elevated demand helped offset driver supply investments. ride share revenue per ride increased even net of driver incentives in Q1. Given certain costs are fixed or relatively fixed per ride, this drove increased contribution and contribution margin, especially in March, again, while drivers enjoyed record earnings. Finally, given the strong organic demand, we reduced marketing spend. Non-GAAP sales and marketing declined 15% quarter over quarter and reached an all-time low as a percentage of revenue. The net impact of these market conditions and business decisions led to an exceptionally strong quarter and enabled us to greatly exceed our outlook across revenue, contribution margin, and adjusted EBITDA. While many factors in Q1 were unique and are not expected to recur to the same magnitude, we are optimistic about our ability to further reduce our adjusted EBITDA loss in the second quarter. I'll share more thoughts shortly on Q2. Let's start with a detailed review of the first quarter and begin with top-line metrics. In Q1, the number of active riders increased by 942,000 quarter-over-quarter to 13.5 million. As the economy began to reopen in select geographies, we benefited from a return of riders from prior quarters as well as new rider activations, especially in March. Revenue per active rider declined by 27 cents quarter-over-quarter to $45.13. March was the strongest month in the first quarter for new rider activations. Remember, additions to our rider count near the end of any quarter are normally dilutive to revenue per active rider, since there's only limited time for these new riders to help generate revenue. The combination of these trends, especially the nearly million incremental active riders, led to a $39 million quarterly sequential increase in first quarter revenue to $609 million. Q1 revenue was nearly $60 million above the midpoint of our revenue outlook of $545 to $555 million. Now, before I move on, I want to note that unless otherwise indicated, all income statement measures that follow are non-GAAP and exclude stock-based compensation and other select items. A reconciliation of historical GAAP to non-GAAP results is available on our investor relations website and may be found in our earnings release, which was furnished with our Form 8-K, filed today with the SEC. Let me remind everyone that elevated rideshare revenue per ride in the first quarter had a beneficial impact on profitability metrics, including contribution, contribution margin, and adjusted EBITDA. Contribution margin in the first quarter was 55.4%, which far exceeded our original outlook of 51 to 51.5%. The outperformance on revenue and contribution margin relative to our original outlook helped drive strong Q1 contribution of $337 million. We exceeded the midpoint of our original contribution outlook by 55 million, or 20%. As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods. In the first quarter, there was 128 million of adverse development, which we attribute to the continued impact of COVID on legacy insurance liabilities, More specifically, the severity of claims from our legacy book as injury costs continue to climb. On April 22nd, we executed an agreement to reinsure our captive insurance entity for $183 million of coverage above the insurance liabilities recorded as of March 31st, 2021, for policies underwritten during the period of October 1st, 2018 to October 1st, 2020. We expect the transaction to close in mid-May. the net cost of this transaction will be approximately $20 million. Unlike when we did the Novation Agreement last year, the legacy insurance liabilities will remain on our balance sheet after the transaction closes, but we will recognize an offsetting reinsurance recoverable. From an economic perspective, when the claims we are reinsuring are ultimately resolved, to the extent the ultimate value exceeds the liabilities as of March 31st, 2021, Lyft will receive dollar-for-dollar coverage for up to $183 million. To the extent the ultimate insurance liability is below the March 31, 2021 balance sheet, the benefit will accrue to the reinsurer. No unrestricted cash will be used for the transaction. We will exclude the net cost of the reinsurance transaction from Q2, adjust EBITDA. As part of our go-forward auto insurance strategy, we will continue to seek opportunities to transfer additional risk to partners to help reduce future volatility. Let's move to operating expenses. Operations and support expense for Q1 was $83 million, down 35% year-over-year. Operations and support expense as a percentage of revenue declined to 13.7% in Q1, down from 16.4% in Q4. Q1 R&D expense was $132 million, a slight increase from Q4 as we funded growth initiatives. As a percentage of revenue, R&D expense declined to 21.7% in Q1, down from 22.8% in Q4. As I mentioned, given the strong organic demand, we reduced sales and marketing in Q1. Sales and marketing was only $69.5 million in Q1. down by over $120 million or 64% from $191 million in Q1 of 2020. Q1 sales and marketing declined by 15% or $12 million quarter over quarter. As a percentage of revenue, sales and marketing reached an all-time low of 11.4%. Within sales and marketing, incentives declined by 87% in Q1 on a year-over-year basis from $100 million to $13 million. or just 2.2 percent of revenue. G&A expense in Q1 was 156 million, down 17 percent from the year-ago period. Relative to Q4, G&A expense declined by 36 million, or 19 percent, driven by a decline in policy spend. Remember, policy spend was elevated in Q3 and Q4 of last year, related to Prop 22. In Q2, we expect G&A expense to increase in absolute dollars but decrease as a percentage of revenue. In summary, total operating expenses below cost of revenue declined by 56 million between Q4 and Q1, representing an 11% quarter-on-quarter reduction. On a year-over-year basis, operating expenses below cost of revenue decreased by 220 million in the first quarter. In terms of the bottom line, Our Q1 adjusted EBITDA loss of $73 million was 46%, or $62 million better than our latest loss outlook of $135 million. On a sequential basis, our adjusted EBITDA loss improved by $77 million, meaning for each dollar of incremental revenue growth between Q4 and Q1, our adjusted EBITDA loss improved by $197 cents. In fact, the adjusted EBITDA loss in Q1 was the smallest since going public and bolsters our confidence that we can achieve adjusted EBITDA profitability in Q3. We ended the quarter with unrestricted cash, cash equivalents, and short-term investments of $2.2 billion, down just $14 million from the end of Q4. We again were disciplined on CapEx, which came in at $11 million. Now, looking forward, while we are optimistic about the potential economic recovery in our operating footprint, given the current fluidity associated with COVID-related government orders and healthcare recommendations, as well as the variability in vaccination rates and reopenings among cities, it is impossible for us to predict our results for the second quarter with any certainty. However, let me share what I can. In April, Ride Share Ride showed strong growth on a year-over-year basis as we lapped the COVID trough. but April ride volume declined month over month given seasonality and the impact of higher prices. However, from a revenue standpoint, the elevated pricing in April contributed to increased revenue per ride relative to Q1 and helped offset the negative sequential ride growth. And similar to Q1, we are using the surplus from the elevated pricing to fund additional driver supply investments to better balance the marketplace. We are hopeful that as the vaccine rollout continues, we will attract more new drivers and welcome back drivers who may have stopped driving during COVID. And as driver supply increases, we expect to see improving rideshare ride growth in May and June versus April. In terms of our informal outlook, which is subject to change given the uncertainty with COVID, we expect Q2 revenue of between $680 and $700 million. This would represent growth of between 100% to 106% year over year as we lap the bottom of COVID. This implies revenue growth of 12 to 15% quarter on quarter, which is an acceleration from the 7% realized in Q1. Again, this outlook assumes we see improved sequential monthly rideshare ride growth in May and June. It also assumes revenue from bikes and scooters doubles quarter over quarter given seasonality. we expect Q2 contribution margin will be between approximately 56.5% and 57.5% as ride volume grows and we benefit from increased utilization across bikes, scooters, and car rentals. The high end of this outlook represents an all-time high contribution margin. For each dollar of incremental revenue growth in Q2, we expect contribution to increase by approximately 70 cents. Finally, we expect that we can limit our Q2 adjust EBITDA loss to between $35 and $45 million. This outlook assumes the operating environment improves in May and June relative to April, given the continued rollout of vaccines. The loss outlook for Q2 still includes approximately $25 million of net expenses related to our Level 5 self-driving program. These expenses will be eliminated when the transaction with Toyota's woven planet closes, which is expected in Q3. Let me provide an update on our path to profitability, and I want to start with some historical context. Last August, after implementing a major business restructuring, we announced that we could be adjusted EBITDA profitable with ride share ride volume only 5% to 10% above the level achieved in Q4 of 2019. And just to remind everyone, in Q4 of 2019, we lost $131 million of adjusted EBITDA. Given the additional cost reductions in Q4, Just three months ago, we shared that we could be an adjusted EBITDA profitable with rideshare ride volume 15% to 20% below the level in Q4 of 2019. Last week, we announced that with the sale of Level 5 and the associated cost savings, we are confident that we can achieve adjusted EBITDA profitability with rideshare ride volume 33% below the level achieved in Q4 of 2019. And today, we shared our Q2 Adjust EBITDA outlook, which implies continued progress towards breakeven. While we do not expect the current elevated pricing environment or the increased revenue per ride to persist in Q3, given the higher volume of rides expected in the second half of 2021, we have strong conviction in our ability to achieve Adjust EBITDA profitability in Q3, especially with the $25 million of quarterly net expense savings from the pending sale of Level 5. Finally, once we become Adjust EBITDA profitable, we expect to remain so, even as we reinvest in future growth opportunities and TAM expansion. So in closing, I want to emphasize three key points. First, we've built a much better business over the last year, and we expect to deliver strong financial results as we progress through the recovery. In Q1, we narrowed our Adjust EBITDA loss to the lowest level since going public, even with revenue down 36% year over year. We anticipate further progress in Q2, and then in Q3, we expect to achieve a just a bit of profitability. Ultimately, we expect Lyft will emerge on the other side of the pandemic, structurally more profitable per ride than we were going in. Second, we are well positioned to generate strong organic revenue growth as a transportation-focused pure play. We have a TAM in excess of $1 trillion, which provides a long growth runway. As Logan shared, we expect to build a significantly larger company as we attack the market opportunity in front of us. We expect recovery tailwinds to drive compelling growth over the coming quarters, fueled by the long-term specular and structural trends that have underpinned our growth from day one. Further, as John will share in more detail, we are in a unique strategic position to capture significant benefits from the commercialization of AVs. This is a key way we will serve even more of our trillion-dollar-plus TAM. Finally, we are continuing to invest in growth initiatives that build on our core competencies and monetize assets that are part of or underpin the Lyft ecosystem. These strategic investments are expected to increase our already substantial TAM and contribute to our long-term free cash flow growth. They are also guided by our financial North Star to maximize long-term free cash flow growth per share. We believe this is the metric most aligned with how to generate long-term shareholder value. So with that, let me turn it over to John to provide a few key updates on the business and our strategy.

Thanks, Brian. We've built a much stronger business. 2020 was a reset, and we are now leaner, more efficient, and even more focused on the big market opportunity in front of us. I'm going to build on Logan's earlier comments about autonomous vehicles. Most importantly, it is clear to us that the best way to commercialize AVs will be through an existing transportation network. We are already leading the industry in terms of paid AV rides and partnerships. And with our focus on Lyft Autonomous, we are uniquely positioned to win the AV transition. This is based on three distinct elements. One, our hybrid network. Two, our marketplace engine. And three, our capabilities in fleet management. I'd like to touch on each point. Our hybrid network brings together the combination of human drivers and autonomous vehicles to unlock the highest utilization and always available rides. Our marketplace engine drives the highest revenue per mile with real-time demand prediction, vehicle positioning, routing, and pricing. And last, our tech for managing fleets and our operations deliver the lowest cost per mile. Collectively, these foundational pillars will allow us to create the most value for our riders by driving the highest revenue and lowest cost per mile for each autonomous vehicle. Additionally, unlike competitors and highlighted by our level five transaction, Lyft is aligned with our AV partners. We will not have significant ownership in a competing AV program, and we are focused on being a trusted partner that can be relied on to improve their success. Switching gears, Let me talk about what we're doing to position ourselves to deliver strong growth throughout the recovery. Demand is improving rapidly, so I'm going to focus my remarks on what we are doing to bring balance to the marketplace with supply. We expect to see organic tailwinds to driver supply in the coming months for several reasons. To start, in many markets, average hourly driver earnings have been up meaningfully relative to pre-COVID levels. In some markets, they've been at all-time highs. During the month of April, drivers in our top 25 markets were earning more than $30 per hour on average, which is up more than 85% relative to pre-COVID. In some of our busiest markets, drivers have been earning around $35 per hour on average. We believe more drivers may return to the platform or sign up to drive for the first time based on these dynamics. Second, We believe that individuals who have been doing other forms of app-based work over the last years will transition to Rideshare. Take food delivery for example. While exact comparisons are difficult, historically, studies have shown that Rideshare represents a higher earnings opportunity than food delivery. Rideshare also offers a fundamentally different experience with social interactions that are largely absent from food delivery. This is important. After a year of social distancing, drivers are telling us they crave these in-person conversations. They miss the camaraderie and meaningful interactions they have while using Lyft. And we believe this brand preference bolsters our competitive positioning. Third, as pandemic conditions continue to improve and health safety concerns abate, we see more drivers feeling more comfortable getting back behind the wheel. As the vaccine rollout continues, driver availability should naturally improve. While we expect to invest in incentives to improve supply, we are also leaning into the driver experience. We are focused on making sure driving with Lyft is as easy and rewarding as possible, whether a driver is returning to the platform or opening the app for the first time. This includes proactively flagging potential roadblocks, like the need for a vehicle inspection to qualify for the platform. We are also continuing to enhance the app to help drivers more easily identify opportunities to maximize earnings. bottom line is we've seen versions of the supply demand imbalance play out multiple times in our history and we are confident in how we'll steer our marketplace back to balance i also want to take a moment to address the regulatory backdrop over the last several months we've had productive conversations with policy makers at every level we continue to believe the win on prop 22 in california passed by nearly 10 million voters across the political spectrum has shifted the policy conversation towards protecting independence while also providing important benefits drivers want. We remain ready to work with policymakers, labor leaders, and all interested parties who want to move forward and build a stronger safety net for app-based workers. I look forward to sharing more progress on these efforts in the months to come. Before we move to Q&A, I want to provide a quick update on the work we are doing to help communities get back on their feet. In Q1, we officially launched our Vaccine Access Program, a partnership campaign that is focused on ensuring that every American who needs to get to a vaccination appointment has a way to get there. Since the program's inception, we've established more than 100 partnerships, and we are actively facilitating access to rides nationwide. With that, Operator, we'll now open it up to questions.

thank you at this time i would like to inform everyone in order to ask a question please press star one on your telephone keypad again that is a star one to ask a question and if you would like to remove yourself from the queue please press the pound key we have your first question from doug and with jake morgan your lines open

Great. Thank you. I just want to follow up on some of the driver supply comments. In particular, just trying to understand with April, with the month-over-month decline, just how to think about the driver's supply dynamics relative to seasonality and anything else that was going on in the month there. And then how do you envision any kind of thought just on timing for when supply will kind of normalize and you'll get back to equilibrium? Thanks.

Yeah, this is Logan. I'll weigh in on a couple of things and then turn it over to Brian. In terms of how we see this developing, we think that, you know, in Q3 and beyond, we'll start to see a few trends that should give us real tailwinds on the driver's side. One is just as more and more drivers are getting their second dose and feeling more safer driving. And as overall case rates come down, I think that's really going to change a lot of the kind of, you know, feelings of health and safety around driving. Two is the federal unemployment benefits are sunsetting in Q3. And, you know, that's clearly been having an impact, I think, on the whole ride sharing industry, but, you know, on the broader economy, you know, beyond ride sharing. So I think there'll be a change we expect to see there. And the third, you know, nobody knows exactly what the delivery market will look like, but if delivery does slow down as the economy reopens, then we would expect to see a number of delivery drivers move back to ride sharing. And, you know, it's hard to get kind of perfect data on this, but there have been some studies that have shown that historically ride sharing pays substantially more than delivery. So we think that that could provide a tailwind. So we don't know exactly what the timing looks like, but we expect Q3 to be a kind of notable timeframe where this changes. Brian, did you want to? cover some of the driver incentive piece?

Sure, absolutely. And maybe, Doug, just to pick it at the top, I think in terms of April, I mean, demand was there, which is prices were elevated. And I just want to sort of walk through, and I want to actually provide more details around the amount of driver incentives and just how this all impacts the P&L. I mean, relative to our initial outlook, we invested significantly more. But again, our outlook was made assuming there wouldn't be this near-term rapid demand acceleration. And as you can tell, you know, despite the increase, our Q1 financial results significantly exceeded, you know, our outlook for revenue, for contribution margin, and adjusted at the top. so the elevated pricing that logan was referencing uh relates to prime time and again it's you know there's plenty of third-party data to show that this is industry-wide and when prime time increases let's just say we collected an extra four dollars on a ride you know say we invest three of that then into a driver incentive all of the driver incentives will show up in our in our disclosure um uh line item But net-net, if we collected an extra four and we paid out three, net-net, we actually generated an incremental dollar of revenue. So in terms of specifics for Q1, incentives classified as contractual revenue increased by roughly $100 million quarter-on-quarter and led to record driver earnings. But again, for the reasons I just described, rideshare revenue per ride actually increased 7% quarter over quarter. And again, that's net of driver incentives. And then in terms of our P&L, certain parts of cost of revenue are fixed, such as depreciation or relatively fixed per ride. Insurance is typically based on the miles traveled and not the price of the ride. So this elevated revenue from higher prices drove increased margins relative to our outlook and helped fund the incentives. And then looking forward towards Q2, we're constantly making dynamic adjustments to balance the marketplace. We don't have an ability to forecast driver incentives in Q2 with any certainty, but our revenue outlook incorporates our best view, that best view of Q2, and that would be obviously net of driver incentives. So we're assuming that elevated pricing will persist in Q2, and we plan to use that to help fund the investments or bring back drivers. But again, if you go to our outlook, you know, we are, our Q2 outlook now is at $35 to $45 billion in terms of adjusted dollar loss, so big

That's great. Thank you both.

We have your next question from Steven Ju with Credit Suisse. Your line is open.

Okay. Thank you so much. So, John, I think going off your prepared remarks earlier, the $30 to $35 per hour, I mean, that's sponsored by higher prices to the consumer, so that's probably untenable. But so is anything close to minimum wage on an hourly basis. So what do you think will be the optimal sort of hourly wage that the drivers may get when you have supply and demand balance? And I guess there's a bigger question here. Do you think the consumer desire for cheaper rides is ultimately at odds with the driver desire for more hourly earnings? And what can Lyft do to serve both stakeholders? And I guess also a longer-term question, this might be putting the cart before the horse a little bit, but one of your focus items prior to the pandemic was to generate incremental demand for Lyft from universities, healthcare organizations, et cetera. I mean, I guess more enterprise usage. So, you know, what do you think that looks like on the other side of the recovery? Are you having more conversations, less conversations? Is there like a greater desire, you know, to use Lyft at an enterprise level? Thanks.

Thanks, Stephen. Yeah, this is John. So just to start off on the first piece, yeah, we are seeing driver earnings at all time high, as you mentioned, that can get to the $30 to $40 range. I think what we saw historically was within the $20 to $30 range, which is in many places far above minimum wage. And we got to remember, we are coming out of a pandemic. So in terms of market balance or imbalance, both the beginning of the pandemic where demand went down and now the end of the pandemic where demand is rising rapidly, that's a good problem to have and one that will fix itself over time. And the $20 to $30 range, which is more normal, that also depends on the hour. And so at peak times, drivers, even in a more balanced environment, can be earning over that $30 an hour. Obviously, that depends on the specific city. But I think as we've demonstrated over the last several years, and the fact that Logan and I have been working on this specific business for close to a decade. We know how to balance the market, and we know there's a lot of not only demand for rides, but there's a lot of demand for this type of work, which allows you to drive at hours that are most convenient for you and make above minimum wage, and in many cases, far above that if you drive during the right hours. So balance is the name of the game. It's our business. It's not at odds with uh with anything it's just that again we're coming out of a pandemic uh where supply and demand are uh spiking in different ways than they do on a more normal basis to the second uh part of your question about the enterprise business we're having a lot of great conversations uh we invested a lot throughout the pandemic obviously in uh the the healthcare industry um you know we launched LiftPass and more recently LiftPass for healthcare. We announced the Chase partnership, I think just prior to the pandemic. And so this is going to be a really exciting opportunity for Chase card members coming out of the pandemic when people will be more likely to travel to really take advantage of that relationship. In 2020, we extended that program with some 5X points promotion for Chase's co-branded cards. So a lot of exciting things. You mentioned universities as well. I was just talking with our team earlier this week about a specific university deal that they're likely to get. So I think, you know, with the pandemic, a lot of people questioned their normal behavior and are looking for ways to – you know, like many people have said, build back better, which is allowing us to have some really fruitful conversations. Thank you.

Thank you.

We have your next question from Alex Potter with Piper Sandberg. Your line's open.

Great, thanks. So I guess one question that I've wondered about, and maybe you now have some of the ammo to start answering it. I know that during the pandemic, people wondered, you know, the extent to which consumer travel patterns might change, you know, pre pandemic versus post pandemic. Now that we're starting to come out, I guess, of the pandemic, do you have any trends that you maybe like to highlight to the extent that travel patterns actually are changing? Is there more activity in suburbs is, you know, are you seeing commute come back airport rides, anything that you can provide there would be helpful.

Sure, I can provide a little bit of color there. You know, I think we're starting to see some real recovery in cities. I think cities are clearly starting to come back to life. And we think I think we talked about this broadly before. But, you know, we don't imagine, you know, there have been a steady march of the population to move into cities and, you know, denser suburbs. And we don't imagine that trend changing, you know, post COVID. On the commute business, I think it's too early to tell. We are seeing that tick back up a little bit. The commute business has historically been supply limited. So during rush hour, demand is off the charts. It's one of the times during the day where both morning and evening when the spike is much higher than we're able to serve. And so if the commute sort of demand softens and it's spread out a little more evenly throughout the day, I don't think that's a bad thing, and I don't know that that impacts our broader volume. We are seeing travel and airport volume pick up. I think there's clearly some pent-up demand, and as the roaring 20s kick off, I think we'll play a real role in that. So broadly speaking, I think there will be a handful of adjustments here and there, but I don't think it's going to change the broader shift from car ownership to transportation as a service. And I think ride sharing has been the first real incarnation of that shift. But over the next decade, as AVs come to market, and we are incredibly well positioned to be the primary platform for deploying AVs, I think we're going to see one of the largest markets, you know, in the world shift from an ownership-based market to transportation as a service. And that's a trillion-dollar-plus shift that's coming down the line. And we don't see that substantially altered.

Brian, I don't know if there's any particular numbers that you want to... Yeah, I mean, just to provide a couple data points, I think in your prepared remarks you shared that, you know, if you go back a year ago, um you know uh erica rises a percent of total rides in april 2020 uh dropped to 1.6 percent of total rides uh it just gives you a sense in january of this year so just a few months ago we were at 4.5 percent of total rise and in april that we just closed april seven percent of rides were uh air this is a rise should rise. And the peak, at least I can see in sort of the last year and a half, was Q4 of 2019 at 9.4% of rise. So again, we're definitely moving in the right direction there. And I agree with Logan's remarks. I think there is there are a lot of people who couldn't take a family vacation last year or couples or there's so many different events that got postponed. And I think as more and more people get that second vaccination, it's lighting up a lot of leisure travel that I think we expect to see. We're starting to see a little of it, but I think you're really going to see it ramp up in late Q2 and into Q3 and Q4.

Okay, great. And then maybe one last question on, I guess, lobbying campaign spending. I can appreciate now that Prop 22 is over and done with. Spending on that particular initiative has sort of dropped off the radar. Any visibility on some of the other states that have active campaigns? Are you planning on banding together with some of the other platforms and replicate the success in Prop 22 that you had in California? And if so, can you quantify? Thanks.

Yeah, I can give a high-level kind of regulatory overview. And then, Brian, I don't know if you want to comment anything on the dollars there. At a high level, yes, we're talking to policymakers across the country, having very good conversations about what drivers want, which was made clear in Prop 22. They want independence as well as benefits. And so I would expect more models like that to come forward over the coming quarters. we were successful with Prop 22 was working together and creating a coalition of the industry. And that's how we'll do it going forward. So overall, I'm optimistic we'll have a few more success stories on bringing this model to more states this calendar year. But don't expect the type of dollar impact that we saw last year. Brian, anything you want to add? No, I think that was spot on. Great.

Thanks, guys.

Thank you. We have your next question from Mark Mahaney from ISI. Your line's open.

Okay. Let me try this. The new active riders that you had, you sounded like there was a mix of rejoins and maybe new riders. Do you have any more detail on that? What was the mix? And then I want to make sure I understand about driver incentives in the back half of the year. And it sounds like there's some organic factors that will drive drivers back to lift, you know, those hourly wages that you talked about and, you know, coming out of the pandemic, et cetera. But how much do you think that you need to fuel that recovery? How much do you think you need to spend or how much effort do you think you're going to have to make financially to incentivize

uh drivers to come back that's what i want to get at thanks a lot thanks brian any color we can share on that sure so let's start with active rider so again we were very pleased to see the nearly million um increase in active riders so we grew 942 000. uh we definitely saw some uh increases in activations and these would be new new riders to lift um and so if you look in the month of march month over month. And then again, that put a little pressure on revenue proactive rider, because if you activate that last month, But even if you look on the full quarterly basis, activations of new riders jumped 21% quarter of a quarter. And again, I think it just goes back to, we're still in the early days. I mean, there's just long-term secular and structural trends that underpin our growth. I believe that the stat is there's 4 million people each year who turn 18 in terms of these digital natives who really don't wanna own things, who really lean into the service experience. for the reasons that Logan outlined. On driver incentives, I think Logan outlined three potential tailwinds that we expect. As more drivers get that second vaccine, I think you're going to see some supply shift. Because again, historically, drivers have made a lot more doing rideshare versus delivery. Second, I think, again, the federal unemployment benefits are expected to expire within Q3. So I think that also provides a little tailwind. And then I think one thing that is worth calling out, In Q2, we expect to increase sales and marketing, you know, roughly probably $12 billion or so, with a lot of that spend focused on marketing for new drivers. And so I think that is, you know, as we bring in more drivers, because again, as John pointed out, like the earnings right now are at all-time highs. You know, it's a really great time to bring new drivers into the system. And then, again, I think we'll get some organic supply help just in terms of drivers who come back who maybe just didn't feel super safe, you know, in the earlier parts of the pandemic before they got their vaccines to be getting rides on the platform.

Okay. Thanks, Brian.

We have your next question from Brent Thiel with Jeffery. Is your line open?

Thanks. Just on the supply of drivers, I'm just curious if you can update us on how that's coming back. I think we've all noticed a little longer wait times, and clearly you're constrained on some of the driver availability. How are you seeing that progress right now? Are you getting the type of flow that you need, or is there more work that has to be done there?

We can't share much more than we have already, but I would say we're pleased in terms of when we look at our funnel, we're seeing growth in the number of leads coming into the funnel. And that is generally, obviously, you fill in the funnel and then you drive activations of new drivers. So we do expect more new drivers coming into the platform, as well as bringing back drivers who may have stopped driving during the pandemic.

Okay, that's great. And your profitability goal, I guess the question is that you've obviously, as you said, Brian, last quarter, I believe, brought the expense structure to the studs. There is some concern on the opposite side of level of innovation and the things that you're doing now that you have the expense structure set to grow beyond the recovery of this. Can you talk to you know, how you're setting aside the right investments to think creatively about the next chapter of this, understanding, you know, your comment last quarter and bringing it back to the studs.

Sure. Let me maybe kick this off, and then I'll hand it off to Logan. You know, just to be super clear, our restructurings are behind us. As you know, we took out significant costs from the business. There's 360 million run rate annualized in Q4 relative to original outlook. And then even in Q1, we took down OpEx below cost of revenue by 56 million. So profitability is now all about growth and the leveraging of OpEx. And we're really excited about a number of different revenue streams and new initiatives. I think just to steal sort of Logan's words, you know, we expect to build a significantly larger company as we attack the market opportunity in front of us. So maybe I'll hand off to Logan to talk about some of the investments we are making.

Sure. So even as we made significant cuts across the business, we continued to place new bets and to invest substantially in innovation. So in the last year, we've rolled out some of the most significant fundamental innovations to our marketplace engine. So when it comes to one of the kind of effects that we haven't talked about in terms of the supply side, is that drivers make more money when they operate at higher utilization. And we've had some real breakthroughs in terms of how we operate our marketplace to be able to help drivers do more rides per hour and operate more efficiently. And every inch of waste that gets knocked out of the system unlocks huge amounts of value. And that goes to drivers, to riders, and to the bottom line. uh and and we've we've had similar breakthroughs on the rider side so we we have not been sitting idle uh a lot of this is is under the hood uh some of it we can't get into detail you know for competitive reasons um but but we have uh continued to innovate um you know through the last year and you know we we are looking forward to placing you know significant new bets as we go forward Another couple areas where we've continued to invest has been in our fleet management capabilities. We've done some quite exciting things on that side of the house. And then we've talked about it a little bit, but our B2B delivery initiatives. So we are very much leaning into growth and continuing to invest in innovation. We are not looking to cut down to the studs in terms of reducing the cadence and the velocity that we can move at when it comes to innovation. I do think we are at the very beginning of this gigantic shift, and we are determined to be in the best possible position to capture it and to help drive that forward. Thank you.

We have your next question from Ed Rimmer with KeyBank Capital Markets. Your line is open.

Hey, good afternoon. Thanks for taking the question. You know, just on that line of innovation, it seems like you guys continue to roll out new initiatives like priority pickup and wait and save. Just trying to understand kind of what uptake has been there and kind of opportunities there. And then second, you know, it's clear maybe with some application on public transportation, you may have an opportunity with bikes. So just trying to help us understand kind of where the bike business is today and how you would characterize the growth opportunity. Thank you.

Yeah, so I don't know that we can share any specific numbers, but we've seen some great customer feedback around priority pickup, around wait and save. The whole idea of a rider being able to trade off time and money I think is really kind of at the foundation of what we do. So as we provide better options for paying a little bit more money to get a faster pickup, saving a few dollars to wait a few minutes, there's a lot of value to be unlocked there, and we're really able to serve our customers better. Similarly, like you mentioned, in the bikes and scooters business, absolutely as more people have wanted to stay outside when they traveled, bikes and scooters have been a phenomenal option. So we've seen a lot of uptake there. And we're quite excited about the level of future growth. We're seeing cities at the same time also lean into growing their programs. And as you know, we run the largest network of city-exclusive programs. So I think there's an exciting horizon there.

Yeah, and I could add a little more detail on that. the bikes and scooters. As Logan mentioned, we operate the largest shared micromobility network in the US. And as of 2021, the largest docked bike share system in the world outside of China. And this adds depth to our network, allowing us to offer a full set of transportation services On city bike alone in 2019, riders took almost 21 million rides. That's comparable to the pre-COVID annual ridership of San Francisco's Bay Area Caltrain. And in 2020, we had more than 1.8 million new riders tried our micro-mobility systems. And, you know, going back to the strategy we set by having these single operator frameworks with a deep partnership with the cities, a lot of others were going after the dockless craze. And I think by sticking to our strategy, thoughtful approach, those investments are really paying off. So as Brian also said, with warmer weather, we expect even more growth from bikes and scooters in the months ahead.

Yeah, we just got City Bike here in Hoboken, so I'm excited to use it. Thanks so much.

Enjoy. We have your next question from Itai Mikaeli with City. Your line's open.

Great. Thanks, everybody. Just had one question on AV and another actually on EV. On AV, I'm just curious that you have a number of partnerships, whether you think you might need to have additional AV partnerships? And if so, what the receptivity is from AV players, given that some of them seem to be angling to potentially become future competitors? Just wondering kind of and what your thoughts are there and hoping to get an update on, on what the plan is to bring electric vehicles on the platform, uh, you know, in terms of, in, in, in, in terms of kind of staying asset light within that. And how do you view kind of the economics of EVs on the lift platform in terms of, uh, your driver, uh, as well as your own kind of, you know, potential earnings.

Sure. Thank you. Uh, I'll try to kind of hit both of those. So on a V, uh, uh as we discussed last week we feel like we are in the best position to win the autonomous transition for three distinct and main reasons one is the hybrid network so this goes to the point you asked about you know if others want to go and and do it themselves without without human drivers and autonomous vehicles it's near impossible, I'll say, to manage the demand curve. Demand is not a static line. And so if you were to ask, you know, an AV-only operator, you know, would you buy 100,000 vehicles that meet a noon peak demand or a million vehicles that meet a Saturday night peak demand, maybe they'd pick something in the middle and then that would really, their utilization would suffer and or their prices would suffer. And so having that hybrid network is critical to operating in an AV environment. The second piece is the marketplace engine. Some of the pieces Logan discussed on the call. All of the data science and tech built over the last nearly decade to get really good at ETA, dispatch, routing, specific to this use case, we believe gives us, depending on the market, 10, 20, 30% advantage in efficiency. And third, something that we do that no one else does, is fleet operations and technology that is essential to maximize revenue per mile and minimize cost per mile. And so those three pieces together are specific and unique to our approach. We are excited to work with multiple partners in the space who deliver the best, safest, and readily available AVs over the coming years. We're having great conversations, and I think more and more people are understanding the power of the network and the importance now that we're focused on what we do best, partnering on what they do best. On EVs, just quickly as we're coming up on time, We're excited about EVs. You know, when you think about utilization, again, the cost of the battery is oftentimes a big part of why EVs are more expensive. And when you have drivers utilizing a vehicle much more than a kind of personally owned vehicle, you can make that payback equation work more quickly. I think we're still hopeful to get more mass market EVs, which are starting to come out over the next decade. a couple years, and then using our fleet business, which we've talked about, to help drivers get access to them. So I think we're in a great spot as EVs become more accessible.

That's all very helpful. Thanks so much.

All right. Thank you so much, everybody. Great catching up with everybody, and we will talk with you next quarter. Have a good one. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.