Lyft, Inc.

Good afternoon and welcome to the Lyft second quarter 2021 earnings call. At this time all participants are in a 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 touch tone 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. Welcome to the Lyft earnings call for the quarter ended June 30th, 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 will 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. 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 10q for the first quarter of 2021 filed on may 6 2021 and our form 10q for the second quarter of 2021 that will be filed by august 9 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. Unlist 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 8-K 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 Lyft co-founder and chief executive officer, Logan Green. Logan.

Thanks, Sonia. Good afternoon, everyone, and thank you for joining our call today. I'm excited to discuss our Q2 results. We had a great quarter. We beat our outlook across every metric, and we have grown momentum. This quarter, we crossed a milestone that we've had our sights on for quite some time. Since our inception, we've worked hard to defy the odds with a deep belief in our mission. We've consistently innovated and made big bets. From launching and scaling peer-to-peer transportation, to pioneering shared rides, to becoming the largest North American bike share operator, to navigating regulatory hurdles and more, we've built a strong track record. Today, we add achieving adjusted EBITDA profitability to this list. I want to extend a special thanks to each and every member of the Lyft community. Your hard work and dedication made this possible. It's a significant milestone for our business and for our industry. Ride sharing is now so mainstream that it's easy to lose sight of how much has changed. Less than 10 years ago, peer-to-peer ride sharing didn't exist. Lyft launched in 2012, and it took a year to reach a million rides. Now we facilitate hundreds of millions of rides every year. When I think about how far we've come and how much the team has accomplished, I'm incredibly proud. In the fall of 2019, we announced our plan to reach adjusted EBITDA profitability in Q4 of 2021. This was an ambitious target, and we had our work cut out. For context, in the quarter we announced this commitment, we had an adjusted EBITDA loss of around $130 million. And for the prior fiscal year, the loss was close to $1 billion. Then, a once-in-a-century global pandemic hit that literally halted travel. And at the same time, Proposition 22 was playing out in California, one of our largest markets. It's hard to imagine a more challenging backdrop. But the team rallied together. We assessed every aspect of our business and rebuilt stronger. Innovating and pushing back against the odds is core to our DNA. John and I have been fighting for our mission, business, and this industry for more than a decade. And now we've built a much stronger company. The fact that we achieved adjusted EBITDA profitability two full quarters earlier than we initially expected is clear evidence of this fact. We achieved this milestone relatively early in the recovery, all while continuing to invest in growth. Going forward, we expect to maintain adjusted EBITDA profitability. As we said in our original founder's letter from our IPO, We're going to continue to strategically balance our investments in growth with profitability and deliberately lean into growth, especially since it's still early days. I'm incredibly excited about our roadmap. We're going to build a significantly larger company by attacking the trillion-dollar market opportunity in front of us. This quarter marks an important milestone, but it's just the beginning. Our mission is to improve people's lives with the world's best transportation, and we'll continue working to deliver on this goal. I'd now like to turn to a few specific highlights from Q2. Demand continued to strengthen across the markets we operate in, particularly as communities reopened in June. Revenue for the second quarter grew 26% quarter over quarter and 125% year over year, outperforming the midpoint of our outlook by more than 10%. Active riders increased by more than 3.6 million from Q1 and nearly doubled year over year. Active rider growth in Q2 reflects the fact that people want to get moving again. Airport rides in June were more than double what they were in January and were nearly quadruple what they were a year ago. Given strengthening demand, we made significant investments in driver supply throughout the quarter. The number of drivers increased in Q2 at a faster rate than in Q1 and ended the quarter up more than 60% year over year. While elevated demand drove higher prices, across the U.S., drivers earned more than ever before. Drivers' average hourly earnings reached an all-time high in Q2. Turning to July, the number of drivers using the Lyft platform grew versus June, and we continued to see nights out and weekend use cases rebounding. We also reintroduced shared rides in select cities with extra precautions to promote rider and driver health safety. We'll continue bringing back shared rides as our most affordable option in additional markets as conditions allow since these rides can help expand our capacity and contribute to an improved balance in our marketplace. John will provide key business updates, but before he does, I'll turn the call over to Brian to review our financial performance. Thanks, Logan, and good afternoon, everyone. Q2 was an exceptional quarter, truly, truly exceptional. We generated 125% year-over-year revenue growth, and for the first time, a Just Viva Da profitability. The second quarter provides powerful validation of our business transformation as we achieve the Just Viva Da profitability with rideshare rides still well below the level reached in Q4 of 2019. Now, before I walk through the details, I want to extend my gratitude to our team members for helping make this milestone possible. Lyft has always attracted talented individuals who are passionate about our mission and embrace our values. With the onset of COVID, our team faced a long list of challenges. They responded with inspiring resilience and a tenacious focus on our long-term vision. Together, we built a financially stronger and healthier business that will support our continued growth and expansion. Our business is a reflection of their commitment and hard work. In addition, from day one, we have been driver-centric. We've always known that it is critically important to invest in our driver community and create compelling opportunities for them to use Lyft. It is important to know that in Q2, we achieved our business results while we intentionally reduced our effective take rate. As Logan mentioned, drivers generated record hourly earnings on our platform. In the second quarter, we significantly increased our investments in incentives and sign-up bonuses to help us attract, retain, and grow hours from drivers to meet strengthening demand. In fact, incentives classified as contra revenue increased 92% quarter-over-quarter to over $375 million, well above the 26% sequential increase in revenue. Still, we lift achieving adjusted EBITDA profitability. Since our inception, skeptics have debated the ride-sharing business model, and the events over the past year encouraged some to question why going deeper as a transportation network makes sense. We have now demonstrated the tremendous value of our transportation focus. Going forward, we expect to remain a just even dot profitable as we increase investments to fuel long-term growth. 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 is furnished with our Form 8-K filed today with the SEC. Let's move to the details. As we previously reported, average daily rideshare ride volume decreased slightly in April relative to March. Despite elevated prices, beginning in May, rideshare ride volume rebounded and then further accelerated in June as more states reopened, including California. In Q2, the number of active riders increased by over 3.6 million quarter-over-quarter to 17.1 million. This represents 27% quarter-over-quarter growth and nearly 100% year-over-year growth. As states began to reopen, we benefited from a return of riders from prior quarters, as well as new rider activations, which increased 26% quarter-over-quarter. Revenue per active rider decreased slightly quarter-over-quarter and increased by more than $5.50 year-over-year to $44.63. rider activations increased seven percent month over month in may and increased a further nine percent in june rider activations near the end of a quarter are typically diluted to revenue proactive rider since there's less time to generate revenue helping to offset this headwind was the recognition of licensing revenue from argo related to data to help accelerate the development of autonomous vehicles The combination of these trends, especially the addition of over 3.6 million active riders, led to an over $150 million sequential increase in second quarter revenue to $765 million. Q2 revenue was $75 million above the midpoint of our revenue outlook of $680 to $700 million. Similar to the first quarter, elevated rideshare pricing in Q2 drove record rideshare revenue per ride, which had a beneficial impact on profitability metrics, since certain costs are relatively fixed, like depreciation, or less correlated to the price of rides, for example, computing costs. This led to all-time record contribution margin and adjusted BDAV margin. Contribution margin in the second quarter was 59.1%, which well exceeded our outlook of 56.5% to 57.5%, and was up substantially from the 35% in Q2 of 2020. The outperformance on revenue and contribution margin relative to our outlook helped drive strong Q2 contribution of $452 million, which is nearly four times the level generated in Q2 of 2020. We exceeded the midpoint of our contribution outlook by nearly $60 million, or 15%. For each dollar of incremental revenue growth, contribution increased by over 70 cents. As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods. As we previously discussed, to help reduce volatility in our financial results, on April 22nd, we signed an agreement to reinsure our captive insurance entity for select historical periods. In the second quarter, there was no adverse development net of reinsurance recoverables from this policy. Let's move to operating expenses. Operations and support expense for Q2 was $86 million, a decrease of 2% year-over-year. Operations and support expense as a percentage of revenue declined to 11.3% in Q2, down from 13.7% in Q1. R&D expense in Q2 was $130 million, roughly flat with the level in Q1. As a percentage of revenue, R&D expense declined to 17% in Q2, down from 21.7% in Q1. Q2 sales and marketing was $89 million. As a percentage of revenue, sales and marketing was 11.6%, roughly flat with Q1's 11.4%. Within sales and marketing, incentives were only $10 million, or 1.4% of revenue. This represents a decline of over 20% quarter over quarter. G&A expense in Q2 was $153 million, down 9% from the year-ago period. G&A expenses and percentage of revenue is 20% in Q2, down 550 basis points quarter over quarter. In terms of the bottom line, our Q2 adjusted EBITDA profit of $24 million was over $60 million better than the midpoint of our loss outlook of between 35 and 45 million. It's worth noting that Q2 adjusted EBITDA included $16 million of benefits related to two items. First, we were able to ultimately settle on long-outstanding receivables as Hertz exited bankruptcy. Separately, we've captured gains from the remarketing of FlexDrive and Lyft rental vehicles, giving a strong market for used cars. Without these gains totaling $16 million, our Q2 adjusted to our profit was $8 million. Unrestricted cash, cash equivalents, and short-term investments slightly increased quarter over quarter to $2.2 billion. We expect unrestricted cash, cash equivalents, and short-term investments to increase again in Q3 with the sale of Level 5, which closed in July. Before I move to our Q3 outlook, I want to remind investors that while declining COVID case counts in Q2 fueled a rebound in our business, the pandemic is not yet over, especially with emerging variants and a return of restrictions in certain markets. We are cautiously keeping an eye on new developments and expect continued volatility and variability among cities. Future conditions can change rapidly and may impact our outlook. Now, in terms of average daily ride share ride trends, despite the recent growth in COVID case counts, July was our best month since March of 2020. Now, to avoid impacting long-term rider loyalty, we are focused on providing our users with the best possible experience. To date, riders have been relatively patient with the less than ideal price Although we expect supply tailwinds from the expiration of federal unemployment benefits, we plan to maintain elevated levels of new driver sign-on bonuses and incentives, even as prices in our marketplace are expected to decline. If growth is stronger than expected, we plan to incrementally increase investments to add more drivers, given current service levels and expected demand recovery trends. This strategy will limit potential upside in Q3 revenue and adjusted EBITDA. We want to improve rider satisfaction and be ready ahead of additional demand recovery. We believe this is the right decision, even though it will temporarily dampen Q3 revenue growth and adjust EBITDA leverage. It's also important to understand that certain factors in the second quarter were unique and are not expected to recur to the same degree, especially the elevated prices of rides. The pricing environment in the second quarter caused by the demand inflection contributed to a 7% quarter-over-quarter increase in rideshare revenue per ride, which positively impacted our top line operating leverage and profitability. As I mentioned, we are maintaining elevated supply investments to help lower prices in Q3 for our rider community. And as a result, we expect rideshare revenue per ride will decline on a sequential basis. Now, our Q3 financial results will benefit from the sales level five, which closed on July 13th. With a mid-July close, we expect to remove roughly $20 million of related costs in Q3 relative to Q2. We also expect to generate licensing related to the commercial agreements. However, in Q3, the impact of lower prices along with the elevated driver supply investments will exceed the quarterly cost savings of the level five sale. In terms of our outlook, barring a material decline in the operating landscape due to COVID, we expect revenue of between $850 and $860 million. This implies growth of between 70% to 72% year over year and between 11% to 12% quarter over quarter. This outlook embeds an estimated $30 to $40 million impact from lower prices combined with elevated new driver sign-on bonuses and incentives. And to repeat, if demand growth is stronger, we expect to increase our supply investment. In terms of profitability, which is net of the $30 million to $40 million headwind I just described, we expect Q3 contribution margin to be between 58.5% to 59% as we generate expense leverage from volume growth that offsets the lower pricing environment and supply investments. When evaluating quarter-over-quarter trends, Q2 contribution margin was 58.1%, adjusted for the 100 basis point uplift from the remarketing gains. In terms of the bottom line, we expect that Q3 adjusted EBITDA will be between $25 and $35 million, inclusive of the impact from the supply investments and lower prices. This is relative to the $8 million of adjusted EBITDA in Q2, excluding the $16 million of benefits from Hertz and remarketing. Just to repeat my earlier comment, to the extent we realize incremental leverage beyond our target range, we plan to reinvest in additional supply given industry-wide service levels and expected demand recovery trends. The Q3 outlook implies a just EBITDA margin of between 3% and 4%. This compares with 1% in Q2, excluding the $16 million of benefits. Separately, based on our momentum and the anticipated second half recovery, we now expect that Lyft will achieve adjusted profitability on a full year basis in 2021, which is another important milestone. So in closing, I want to emphasize two key points. First, we've built a much stronger business. Our exceptional second quarter provides clear visibility into the extent of the improvements we've made. And these changes are designed to be lasting. we continue to expect to emerge on the other side of the pandemic, structurally more profitable and more efficient per ride than we were going in. Second, we are a growth company. Achieving profitability is an important milestone to demonstrate the strength of our model, and we plan to maintain a just-even profitability going forward. At the same time, we believe it is in the best interest of shareholders for Lyft to avoid over-rotating on profitability too early. Beyond the recovery, we have a large untapped market opportunity in front of us. We have a TAM in excess of $1 trillion, which provides a long growth runway. We plan to reinvest a portion of our adjusted adopt profitability in new growth initiatives, which we look forward to discussing in the coming quarters. These strategic investments expand on our core competencies and monetize assets that are part of or underpin the Lyft ecosystem. As Logan shared, we expect to build a significantly larger company as we attack the massive market opportunity in front of us as a transportation-focused pure play. Going forward, we will thoughtfully balance investments in growth and profitability considerations while deliberately leaning more towards growth, especially in these early days. Our financial North Star is 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 key updates on the business and our strategy. Thanks, Brian. I'm energized by our Q2 performance and excited for the quarters ahead of us. Again, I want to thank the Lyft community for making this possible. We look forward to maintaining profitability as we self-fund initiatives that will drive long-term shareholder value. Let me start with near-term dynamics. I'm going to talk about overall marketplace conditions and the progress we've made. Demand in Q2 came back faster and stronger than initially anticipated. That's fundamentally a good thing. Industry-wide, we've seen demand outpace supply and service levels and prices have been less than ideal for riders. We know people depend on us for excellent service and we are working hard to improve the experience. Great hospitality is core to our brand. Our efforts to improve wait times for riders are critical to delivering on this and to grow usage by drivers and riders. To that end, we ramped our investments in driver supply in Q2 and welcomed 50% more new drivers versus Q1. In fact, we achieved a post-COVID quarterly record for new driver activations. Drivers also earned more. In some of our busiest markets, drivers have been earning more than $35 an hour on average over all online time. This includes time drivers may have been earning on other app-based platforms. We saw continued driver growth in July, and earnings have remained elevated versus pre-COVID. It's clear that ride sharing remains a highly compelling earnings opportunity, one with exceptional flexibility, which we believe will serve as an ongoing tailwind to meet more demand. In addition, to keep the most active drivers engaged, we are working to build out our rewards program to include benefits that can help them reduce their maintenance costs and receive priority access to ride requests. We'll also continue to experiment with new incentive structures to make it even more rewarding for drivers to use the Lyft platform. Ultimately, while exact comparisons are difficult, the higher earnings opportunities that may be available with rideshare versus other forms of app-based work can help Lyft supply as the recovery progresses. We expect the roll-off of enhanced federal unemployment benefits will also serve as a tailwind, especially since the majority of drivers use Lyft to generate supplemental income. In Q2, we saw an uplift in driver applicant growth in states that opted out of the federal program early, ahead of their participation ending. Likewise, as vaccines continue to roll out, we are hopeful that life can resume a more normal cadence. Kids going back to school can give households more flexibility, and people may have more reasons to seek out incremental earnings opportunities to save for vacations, weddings, and other personal activities. We've also been investing in our technology to make the driver experience better and better. In July, we launched a major app redesign that was the product of nearly a year of engineering work. Just as one example, we've now made it much more intuitive for drivers to easily identify earning opportunities while offline or idle. The rollout of our new interface had an immediate impact on our marketplace, resulting in an increase in both driver hours and rides. The bottom line is we've managed similar marketplace dynamics for a decade and are very confident in the strategic actions we're taking for both the short and long term. Let me switch gears and talk about the Lyft network more broadly. Rideshare is critical, but the power of the network is more than that. The Lyft network is the culmination of all the transportation demand, the options we make available across rideshare, bikes, scooters, rentals, and transit, as well as our marketplace and platform technology that has been built and optimized over the last decade. This robust technology platform is what powers every ride match and every dispatch, among many other things. We will continue to invest in building the best technology, as these investments can generate significant returns today and far into the future. For example, over the last few years, we've been investing in building our own in-house mapping technology, specifically for our transportation network. By building maps for Lyft by Lyft, we are working to be able to recommend better routes to drivers, ones that can promote safety, reduce our insurance risk, improve the reliability of the pickup and drop-off experience, and better optimize our overall marketplace. Enhancements like these can bring multiple cents of additional margin to each ride, adding up to millions of dollars each year. We are testing our own navigation experience in select markets today and have over a million and a half miles under our belt already. As we progress through this year, we'll continue iterating and working to launch the best dedicated navigation experience possible. Our goal is to pass the savings we achieve from initiatives like these onto riders. The more value riders receive from Lyft, the more likely they are to use Lyft more often, and the more likely we are to attract new riders. Ultimately, to unlock more of our TAM, riders should be able to spend less on transportation overall, but more on the Lyft network. And by establishing ourselves as their trusted transportation network, we believe riders will increasingly turn to Lyft to help them transition to transportation as a service. We also deliver significant value to users with our exclusive content, meaning with the bikes, scooters, car rentals, and vehicle services that are only available through Lyft. Our vehicle service center's high customer satisfaction scores reflect the work we've done to reimagine the auto care experience. In addition, we've found that when less frequent rideshare riders start using our bikes and scooters, they quickly start using both more often. Differentiated content can help us increase our touch points with riders and grow our share of the consumer transportation wallet. longer term each of the strategic investments we are making in the lift network put us in the best position to win the autonomous transition both the mapping investments and fleet management work are perfect examples of our focused transportation strategy that has high value in both the short and long term in the near term riders and drivers benefit with better and more affordable service And in the long term, Lyft can be the go-to transportation network for autonomous vehicles because of our holistic transportation services that drive preferred economics. In fact, our recently announced partnership with Argo and Ford reinforces this unique role the Lyft network can play to help advance the performance and safety of autonomous vehicles and their ultimate commercialization. We look forward to building on these partnerships and to welcoming new partners to our network. Finally, before we move to Q&A, I'd like to take a moment on the Massachusetts Ballot Initiative. This week, the coalition of workers and companies that we're a part of is moving forward with petitions for a ballot initiative for the November 2022 election. While our priority is to find a legislative solution in Massachusetts, this is part of our continued efforts to advocate what the vast majority of drivers want, the flexible earning opportunities our platform provides, plus new benefits. While we are pursuing the ballot option, we are also closely engaged with the Massachusetts State Legislature and are continuing to work with them on a potential legislative solution. We're now ready to take questions.