Lyft, Inc.

Good afternoon and welcome to the LISP third 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 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 September 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 10-Q for the second quarter of 2021, filed on August 5th, 2021, and our Form 10-Q for the third quarter of 2021 that will be filed by November 9th, 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 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. We had a great Q3. We beat our outlook on every metric and reported our second consecutive quarter of adjusted EBITDA profitability. Demand remains strong, and we've seen a material improvement in driver supply. We're well positioned for continued recovery and excited about the solid foundation we've built to continue to scale our business. Let me address a few highlights from the quarter. Revenue increased by 73% year over year and was better than our outlook. Active riders grew by nearly 2 million versus Q2 as more riders returned and resumed prior use cases and new riders started using Lyft. Although recovery trends still vary regionally, it's clear that Lyft riders are on the move. During each month of the quarter, we set a new pandemic record for rideshare rides. Nights out and weekend use cases picked up and airport rides nearly tripled year-over-year in Q3. In addition, we saw strong demand for bikes and scooters, with bike rides heading an all-time high in the quarter. City Bike in New York is just one example of the exclusive content only available through Lyft. And in Q3, city bike rides made up 40% of our total ride volume in the region. It's strategically valuable as we look to deliver increasing value to this installed base. Switching gears, driver supply has materially improved and retention has been strong. In Q3, active drivers increased by roughly 45% versus last year. New driver growth was robust, up 60% year over year. Keep in mind in September, the enhanced federal unemployment benefits sunset, and we had the highest level of new driver activation since COVID began. Just to be clear, the number of drivers matters, but so does the number of rides they give in an hour. And we found that drivers have been giving more rides versus 2019 for some time. In fact, in Q3, drivers gave 20% more rides on hours than they did in Q3 2019 on account of innovations in our marketplace engine and higher earnings. When drivers are busy, they can optimize their hourly earnings and support more rider demand. This is a win for drivers, riders, and their business. We built lifts against the backdrop of a consistently tightening labor market. The unemployment rate reached a multi-decade low just before the pandemic hit. Driver earning requirements vary a lot from city to city. Ultimately, the playing field is level. Our competitors have to navigate the same factors. As a marketplace, when conditions change, our pricing adjusts automatically and dynamically as an offset. You've seen this dynamic play out this year. We've demonstrated improving leverage even while driver earnings have remained elevated. And I'm confident in our ability to build on the momentum in our business. Turning to Q4, early trends have been positive. October tends to be the strongest month in the fourth quarter for rideshare rides due to seasonality. Brian will talk more about this, but people are typically more mobile in the summer and less in winter or around the holidays. This is especially the case with bikes and scooters. Looking further ahead, although the pandemic continues to create operating uncertainty, we're optimistic that the recovery will continue and drive additional ride-sharing use cases as well as fuel list growth. 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. Before I walk through the numbers, let me start with an update on supply. As Logan shared, we are extremely pleased with a significant impact and results of our Q3 supply investments. We entered the quarter determined to improve service levels given growing demand trends. In Q3, new driver activations increased 34% quarter-over-quarter and jumped over 100% versus the number of activations in the first quarter of this year. The growth of new drivers contributed to strengthen active drivers, which increased nearly 20% quarter-over-quarter. And this improving supply position helped fuel volume growth that enabled us to outperform our financial outlook. We delivered 73% year-over-year revenue growth, and on a quarter-over-quarter basis, nearly tripled adjusting the dot to $67 million. We also achieved record contribution margin and revenue per active rider. And keep in mind that we generated these results despite the impact of COVID variants, which delayed the return to office for many companies. Before I move on, I want to note that unless otherwise indicated, all income statement measures are non-GAAP and exclude stock-based compensation and other select items as detailed in our price release. 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 in our Form 8K filed today with the SEC. Let's move to the details. Q3 had strong unit growth. Despite increasing COVID case counts, the sequential growth of Q3 rideshare ride volume accelerated and jumped by over 80% relative to the Q2 growth rate. This is fueled by broad sequential strength across cities. In terms of specifics, 99 of our top 100 cities generated positive sequential rideshare ride growth in Q3. New Orleans was the sole outlier given Hurricane Ida. Additionally, average daily rideshare ride volume increased each month in Q3. Beyond rides, we saw healthy growth in unique riders. In Q3, the number of active riders increased by 51% year-over-year and 11% quarter-over-quarter to 18.9 million. New rider activations increased by 47% year-over-year. Revenue for active rider increased by 14% year-over-year to an all-time record of $45.63. Revenue per active rider benefited from a 6% sequential increase in ride frequency, which we partially attribute to improving service levels. The combination of these trends led to a $99 million sequential increase in third quarter revenue to $864 million, which was above our revenue outlook of $850 to $860 million. It's worth noting that bikes and scooters provided roughly $10 million of the $99 million increase given their seasonal strength. For the second quarter in a row, we achieved a new record contribution margin level. Contribution margin in the third quarter was 59.4%, which exceeded our outlook of 58.5% to 59%. It represents a nearly 10% increase from Q3 of 2020. The outperformance on revenue and contribution margin relative to our outlook helped our strong Q3 contribution of $514 million. For each dollar of incremental revenue growth versus Q2, contribution increased by over 60 cents. As a reminder, contribution excludes changes to liabilities for insurance required by regulatory agencies attributable to historical periods. In the third quarter, there was no adverse or positive development net of reinsurance recoverables. Let's move to operating expenses. Operations and support expense for Q3 was $103 million, a decrease of 12% year-over-year. Operations and support expense as a percentage of revenue was 12% in Q3, up slightly from 11.3% in Q2, which is primarily from bike and scooter rental activity, as well as growth in background checks related to driver onboarding. R&D expense in Q3 was $109 million, down approximately $20 million quarter-over-quarter, resulting from the sale of our Level 5 self-driving division, which closed in July. As a percentage of revenue, R&D expense declined to 12.7% in Q3, down from 26.2% in the year-ago period. Q3 sales and marketing was $99 million. As a percentage of revenue, Sales and marketing was 11.5%, roughly flat with Q2's 11.6%. Within sales and marketing, incentives were less than 2% of revenue. G&A expense in Q3 was $167 million, a decrease of 18% year-over-year. G&A expenses of percentage of revenue was 19.3%, a decrease of 70 basis points quarter-over-quarter. In terms of the bottom line, our Q3 adjusted without profit of $67 million was above our outlook of between $25 and $35 million and nearly triple the $24 million achieved in Q2. It's worth noting that Q3 adjusted to die included $18 million of benefits related to two items. First, we captured additional gains of $8 million related to flex drive selling vehicles. Second, We were able to settle a legal matter and release an accrual that provided a combined $10 million benefit to G&A expense. Without these gains totaling $18 million, our Q3, adjusting the nonprofit, was $49 million. Unrestricted cash, cash equivalents, and short-term investments increased quarter-over-quarter to $2.4 billion. Before I move to our Q4 outlook, I want to remind investors that the pandemic is not yet over. Future conditions can change rapidly and may impact our outlook. With that, let me share what I can. In terms of supply, given our success in Q3, onboarding new drivers and expected tailwinds, we plan to taper supply investments in the fourth quarter. Of course, when it's extra busy, we will use dynamic pricing to fund extra incentives to help retain and attract additional drivers onto the platform. In terms of rides, in October, we achieved our sixth straight month of growth in average daily rideshare ride volume. As a reminder, though, in North America, rideshare faces seasonal headwinds in November and December, given the impact of holidays on demand. In both 2019 and 2020, so pre-COVID as well as during COVID, October was the peak month of the fourth quarter in terms of rideshare rides. We expect the same trend this year. Additionally, there's a population of riders who have not yet resumed their full range of pre-COVID activities. Even though ride volume increased over the summer, in Q3, we were still down over 35% from our peak. The reasons and circumstances vary. Some people are concerned about the most recent surge in case counts that are waiting for boosters. There are parents who are foregoing certain activities until their kids are vaccinated. And then there are those waiting for mask mandates to end. And for some, it's a combination of these factors. Separately, with the summer rise in COVID case counts, many companies postponed to return to office until Q1. This is especially true in a city like San Francisco. As a data point, Q3 rideshare rides in San Francisco were down by more than 60% versus Q3 of 2019, meaning San Francisco quarterly rideshare rides were less than 40% recovered from two years ago. Given the delayed return to office and other contributing factors, the recovery boost tied to additional ridesharing use cases is more likely a first half 2022 event, especially in key West Coast cities like San Francisco. We anticipate this tailwind will help drive volume next year. It's a matter of when, not if. For these reasons, year-over-year revenue growth for full year 2022 is expected to exceed the rate for 2021. So in terms of our outlook, we expect revenue in Q4 of between $930 and $940 million. This implies growth of between 63% to 65% year-over-year versus the 73% achieved in Q3. This outlook includes the typical Q4 rideshare seasonality and the delayed reopening acceleration. In addition, remember that Q3 is also the seasonal peak for micromobility in North America. In the fourth quarter, bike and scooter revenue is expected to decline by up to $20 million quarter-over-quarter, which is included in our outlook. In terms of profitability, we expect Q4 contribution margins to be around 59%, given the impact of seasonality, among other factors. The midpoint of our outlook for revenue and contribution margin implies what would be an all-time record for contribution, eclipsing the level in Q4 of 19. We continue to expect that contribution on a per-ride basis will be greater post-COVID than it was pre-COVID. In terms of the bottom line, we expect that Q4 adjusted to Dow will be between 70 and 75 million versus the 49 million in Q3 adjusted to exclude the 18 million of benefits. Similar to revenue, we've faced seasonal pressures in Q4, and for that matter in Q1 as well, that can pressure EBITDA trends. In 2019, so pre-COVID, our adjusted EBITDA loss increased between Q3 and Q4. Last year, we undertook layoffs in Q4 that obscured the typical trend. So the fact that we expect an increased adjusted EBITDA profitability sequentially in Q4, despite the headwinds, speaks to the improvements we've made to our cost structure. The Q4 outlook implies adjusted EBITDA margins of approximately 8%. This compares to 7.8% in Q3, or 5.7% without the $18 million of benefits. Separately, based on our momentum, we continue to expect that Lyft will achieve adjusted EBITDA profitability on a full-year basis in 2021, which is an important milestone. In fact, year-to-date through Q3, Lyft has already generated cumulative positive adjusted EBITDA of nearly $20 million. The midpoint of our outlook implies annual 2021 adjusted to about approximately $90 million, which represents an improvement of roughly $850 million year over year. So let me close. Since the inception, we've overcome a number of formidable challenges by remaining resilient and focused on our execution and strategy. That pandemic is no exception. Over the past 18 months, we have transformed our operating model, achieved adjusted without profitability ahead of expectations, and are now demonstrating improving leverage. Looking forward, as we emerge from the pandemic, we expect to be a stronger company with greater leverage. We plan on building a significantly larger business as we attack the massive market opportunity ahead of us. We see exciting opportunities to lean into growth to deliver solutions that serve and expand our addressable markets. At the same time, given our growing scale and expected tailwinds from the recovery, we are positioned to unlock natural business leverage. So we expect that we can fund these growth opportunities even as we generate improvements to overall profitability. So with that, let me turn it over to John to provide key updates on the business and our strategy. Thanks, Brian. I'm excited by the momentum in our business and by the significant market opportunity ahead. Near term, we're focused on navigating and strengthening through the recovery. This includes relentlessly advancing our technology to optimize our real-time market balance, which makes our network even better for drivers and riders. On the driver side, we are continuing to dive deep on innovation that delivers the best possible user experience. As one example, we've been testing a new app interface that gives drivers more granular visibility into our market conditions before they start driving. The early results have been fantastic. we saw a roughly 25% increase in the number of times drivers engaged with our app and an almost 5% increase in the number of hours they drove. Likewise, incremental refinements to our primetime dynamic pricing technology can support a higher ride volume, improve pickup times, and increase driver pay, all at the same time. We will continue our diligent focus on this work since these types of enhancements can result in higher driver engagement and retention. better marketplace dynamics, and ultimately tens of millions of dollars in leverage every year. On the rider side, we've scaled new modes that give our riders more options while also providing valuable benefits to our real-time marketplace. A ride share mode like wait and save that allows riders to wait a little longer for a pickup and pay a little less versus a classic ride is one example. It delivers the most value to riders by giving them the ability to prioritize what's most important to them at the moment, price or time. The mode also helps distribute demand in a way that allows us to optimize driver utilization and more usage of our network. And less expensive options like bikes and scooters, along with different use cases such as with Lyft rentals, further help us maximize the overall usage of Lyft's transportation network. These advancements and services add value today and help us prepare the infrastructure for the future as we deliver more and more transportation value to consumers. They also build on our core competency and deepen our competitive differentiation. The Lyft network is the product of nearly a decade of engineering investment, and we are perpetually achieving new levels of efficiency and functionality with a focus on transportation. The tremendous value of our specific approach will become increasingly more apparent over the next few years. As we look forward, we continue to see a very long runway to both add riders and capture more of their individual spend on transportation. Our work in addressing the trillion-dollar transportation market opportunity is just getting started, and the critical profitability and product milestones we've hit this year set us up well for the quarters and years ahead. every year in the u.s around 4 million people turn 18 and become eligible to use lift on their own these cohorts have digital first preferences value green transportation options like bikes scooters and the evs we can offer through express drive and have significant lifetime value our focused execution will allow us to establish lift as their go-to transportation partner To that end, we currently work directly with more than 150 university and college partners to develop transportation solutions for more than half a million students. Through these partnerships, students can get access to fully funded or discounted rideshare rides, as well as to our bikes and scooters, potentially for the first time. For these riders, this can be a low-risk trial period to get to know Lyft. For us, it's an opportunity to cement our relationships with these riders become ingrained in their daily routines, and grow with them over time. Before we move to Q&A, let me give an update on the regulatory front in Massachusetts. The Coalition for Independent Work reached an important milestone in Q3 with the certification of its ballot initiative. It's worth noting that Massachusetts drivers overwhelmingly support the ballot measure by a 7-to-1 margin because it allows them to keep their independence while also securing historically benefits. We're now full steam ahead on both the ballot and legislative solution and are highly optimistic we will be successful in establishing an independence plus benefits model for drivers. We're now ready to take questions.

Ladies and gentlemen, as a reminder, to ask a question, you will need to press star 1 on your telephone. To redraw your question, press the pound key. Please stand by while we compile Q&A roster. For our first question, we have Doug Anmuth from JP Morgan. Doug, your line is open.

Great. Thanks for taking the questions. Maybe first just on driver supply. You talked about strong new driver trends and supply of 45% versus last year. So I know you're tapering the investments into 4Q, but can you kind of help frame what that means more and perhaps explain a little bit kind of around what percentage recovered you might be versus current rider demand? If there's any more color you can add there. And then secondly, just on City Bike, if I heard you correctly, I think you said 40% of rides in the New York region are related to CityBike. City Bike, can you just talk about how that's kind of driving acquisition of customers, you know, between Bike and Core Rideshare? And anything else you can add on just acquisition trend characteristics of those users and what you see versus kind of regular Lyft users? Thanks.

Sure. Hey, Doug, this is Brian. Let me start, and I'm going to hand off to John. Look, we definitely played offense in Q3 to invest in supply and improve service levels. And we're tapering because we see more drivers returning to the platform. And as Logan pointed out, they're giving more rides. And there's three contributing factors. The sunsetting of enhanced federal unemployment benefits. It's this increase in productivity. And there's also a pool of potential drivers who are being cautious. So let me just touch on each of these. um we believe the sunsetting of enhanced federal unemployment benefits is acting as a tailwind it's too early to tell the the long-term impact but in september driver activation so these would be new drivers jumped 17 month over month and grew further in october and if you look at the full third quarter driver activations again these would be new drivers increased 60 year-over-year And it's important to understand, and I feel at times the market doesn't understand this, You know, last year, 85% of drivers drove less than 10 hours per week on our platform. The significant majority of drivers are using the Lyft platform for supplemental income. And so if you're getting $300 per week from the federal government, plus whatever a state added, it really eliminated the need for some folks to drive for supplemental income purposes. And again, the jump in new drivers after the enhanced benefits expired is really providing some organic tailwinds. Second, as Logan pointed out, productivity has increased on the platform. And so when analyzing supply, you don't have to look at just the number of new drivers, but it's also just understanding how many rides per driver. And we've seen the number of rides per driver increase versus pre-COVID. So as Logan mentioned, in Q3, the number of riders, sorry, the number of rides per driver was more than 20% greater than Q3 of 2019. And then finally, you know, there's some conscious people who have not yet resumed driving or applied to drive. And there's different reasons. You know, some have concerns about the most recent surge and have a preference to wait for boosters. There are parents who are waiting until their kids are vaccinated, and others just don't want to drive all day wearing a mask. And so, you know, I think conditions are expected to improve over the coming months. And as this happens, we expect to see people shift from delivery to rideshare, where earnings tend to be higher based on historical studies. This is John. Before I touch on the city bike question, just want to also zoom out on the question around drivers. One of the data points we looked to was from the Bureau of Labor Statistics. And we looked at what you could call comparable kind of labor markets. And so we looked at the retail industry combined with the hospitality and leisure industry. And what we saw from January through September is that our active drivers grew at a pace five times faster than the recovery in the combined retail and hospitality sectors. And one of the main reasons I would say that is, is because of the flexibility provided by the platform in that you can turn on and off the app and earnings whenever you want. As people come out of COVID, we feel strongly that the type of model we offer is one that workers want. Moving on to City Bike, you're right. The stat is that City Bike rides made up 40% of our total ride volume in New York. And as we've been saying for many quarters, the bike share acquisition we did a while back and the type of contractual long-term category exclusivity we get with a program like City Bike is strategically valuable. And kind of to drill into the question you asked around potential crossover, We see incredible crossover between rideshare and bikes. People, consumers think of how much they spend on transportation. They think about their transportation options and compare them against each other. And we're the only place you can do that with City Bike. Year-to-date, the number of rideshare riders that tried our bikes for the first time is up nearly 100% versus last year. And in New York, it's even higher, up nearly 150%. Thank you, Bob. Sure. I'm going to actually answer a question you didn't ask, but I'm going to preempt one that I expect, just in terms of contra revenue, related to some of the driver investments we made in Q3. So, incentives classified as contra revenue increased on a quarter-over-quarter basis by $47 million. As we previously shared, to the extent the quarter was stronger than expected, we plan to reinvest more into supply to improve service levels, and we're pleased that we're able to do this and still exceed our outlook on revenue, a contribution margin, and adjusted EBITDA. It's also worth saying that we believe gap revenue, which is net of incentives, is the cleanest metric for investors. Contra revenue and isolation could be a red herring, especially if higher prices are funding the driver incentives. When it's extra busy and we need more drivers, we're focused on funding the required driver incentives from the elevated prices. So actual gap revenue, which of course is net of the incentives, is the clearest metric to measure the true impact of this relationship. We're going to continue to report the amount of contra revenue, but just realize we're not focused on it. We're focused on GAAP revenue and overall EBITDA. And just keep in mind, too, that the second quarter, not the third, was the peak quarter for contra revenue on a per-ride basis given volume growth in Q3. In general, again, we're feeling much better on supply and looking forward, given the expected tailwinds and improving service levels, we plan to taper supply investments in Q4.

Thank you, Brian. For our next question, we have Eric Sheridan from Goldman Sachs. Eric, your line is open.

Thank you so much for taking the questions and I hope all is well with the team. Brian, my first question, I wanted to follow up on what you just said there. As you think out to 2022 and you think about elements of pricing possibly normalizing and driver incentives also normalizing, But there being some inflationary elements around energy prices, how do you think about striking the right balance between incenting supply and drivers to be on the platform versus levels of driver earnings that drivers might have gotten used to during periods of supply, demand, and balance as we come out of the pandemic? I'm curious for just philosophically how you guys think about striking that right balance of supply and demand there. as we turn the calendar into 22. And also on the consumer demand side, when you look at the gap between active riders and getting back to pre-pandemic levels, and you take the comments you guys had early on in the call about where there are pockets of active riders that have not come back, how much do you think that's just time versus elements where the company needs to lean in and maybe incent some of the demand or lean in on the incentive side to drive active rider growth as well? Thanks so much.

Sure. So, look, we're confident that we have the right levers, regardless of the pricing environment, to drive strong business results. And longer term, as we fully emerge from the pandemic, we expect for prices to be lower and volumes, obviously, to be greater. I think it's worth repeating, you know, rideshare rides in Q3 were still down more than 35% from the Q4 2019 peak. so as we recover volume will definitely help us leverage fixed costs within cost of revenue things like depreciation and to a certain extent hosting Also, as we emerge from COVID, we expect ride frequency to increase, and this will help us unlock savings related to aggregated billing, as an example. And then finally, we expect marketplace efficiencies will help us increase monetization, which should help contribution, too. So, in general, we continue to expect to exit the pandemic structurally more profitable per ride than we were going in. In terms of just the comments around active riders, I mean, we've been very disciplined on sales and marketing. Sales and marketing's percentage of revenue was below 15% for the sixth straight quarter, and incentives classified as sales and marketing were just 1.9% of revenue, and we feel good about our competitive position. So, you know, I think just maybe at the risk of repeating, Our long-term strategy hasn't changed. We want to win on product innovation, on customer experience and brand preference, not coupons. And we believe that R&D investments can create competitive advantages and just have stronger ROI than coupons. So we expect that absolute sales and marketing will increase in future periods as revenue rebounds. We expect that sales and marketing expenses and percentage of revenue will likely be lower post-COVID than it was pre-COVID. So for us, I think it's just a matter of time. And then just going back to something you heard, every single year there's 4 million new people who become of age to use ride sharing in the U.S. And that's just a constant inflow every single year. So, again, there's structural growth trends here in terms of driving up that active riders.

Thanks for the call, O'Brien. Sure.

For the next question, we have Stephen Chu from Credit Suisse. Stephen, your line is open.

Okay, thank you so much. So, Locator John, knock on wood, you know, mobility continues to improve and driver supplies continue to come back. And you have brought back, I believe, shared rides in certain cities. So can you talk about the rider uptake there and whether it's time to more widely roll that out across the country? And Brian, I think since the onset of the pandemic, I think Lyft's done a lot to right-size your cost base relative to the demand levels you were seeing at the time.

know particularly in ops and support so you know do you think you have the resources in place to spool things back up as demand and unit growth begin to normalize thank you thanks this is logan uh so we have as the pandemic sort of came into place we sunset shared rides and we launched wait and save which is uh in a lot of ways you know fulfilled a similar market need. It's a slightly lower service level where riders wait a few extra minutes to save a little bit on every ride. We did experiment with launching shared in one market in Philly. We have paused any further scaling up, sort of waiting on CDC guidance. So there's nothing further eminently planned on the shared front. We will We will relaunch shared eventually, but we don't have a date on that yet. And then I'll turn it over to Brian. Yeah, so on operations and support, this line can be volatile, especially in Q3 because it can be impacted by bike and scooter growth. Given Q4 seasonality for bikes and scooters, operations and support expensive percentage of revenue should decline by about 100 basis points. So we feel good in terms of our ability to scale up there. Thank you.

For the next question, we have Mark Mahaney from Evercore ISI. Mark, your line's open.

I want to ask a high-level question about rider and driver incentives pre- and post-COVID. And I'm wondering if the impact on the financial model, it's a simplistic question, but I think what we found is that the service really has compelling value proposition for a lot of riders, and therefore there's a lot of pricing power, so there's maybe less need for rider incentives. But there may have been some structural changes, especially the rise of alternative incentives, driving opportunities. I'm talking about delivery for drivers, such that you may see a structural increase in the need for driver subsidies. So could you just comment on that, whether that could be all neutral to the business model that may be lifted in the future, is less driver and more, less rider and more driver incentives, just because of the change brought about by COVID, the pricing power that you've shown with riders, and then just now you're having some more competitive environment with drivers. Thanks a lot.

Sure. So let me take the rider's side first, and I'll transition to the driver's side. And so just as a reminder, in the year before our IPO, sales and marketing was 37% of revenue. And at the time of the IPO, we said that long-term, we expected it between 10% and 15%, probably closer to 15%. And we just reported a quarter with 11.5%. It was our sixth straight quarter, again, below 15%. So, I think it's a pretty good validation. We would rather drive growth through innovation and taking care of riders better than the competition. So, again, I think longer-term, we expect that sales and marketing as a percentage of revenue will be lower than it was pre-COVID. And I agree with you, I think there is generally more pricing power than anyone ever realized existed in the industry. in terms of earnings for drivers again you know there's large buckets of you know if you look at a number of historical studies ride share tends to be king uh in terms of the you know in many if you're looking at ride share versus delivery earnings tend to be higher because there's just there's more qualifications you have to pass a background check to drive you need a car that qualifies And so, earnings tend to be higher. And so, I think there are some reasons why there are some people being cautious right now. Earnings are elevated, and yet there are people still on the sidelines because they may have concerns about the recent surge. Again, they want their booster. Some have kids and they just don't want to be driving until their kids are vaccinated. And there are a lot of folks, you know, right now, if for ride sharing, you have to wear a mask. I mean, that is a requirement. We're following CDC guidelines. And for a lot of folks, I think they're waiting for that requirement to drop. And then I think we will expect more drivers coming in. But I think going back to what I just said earlier, you know, I think we've done a pretty good job, you know, navigating, you know, high price, low price, you know, different volumes, et cetera. We can really, we have a lot of levers to manage this and manage growth in the P&L. So we feel very good about our position right now.

Okay. Thank you, Brian.

For our next question, we have Alex Potter from Piper Sandler. Alex, your line is open.

Great. Thanks guys. Maybe another high level question. As you're probably aware right now, it's pretty hard to buy a new car. It's pretty hard to buy a used car. Generally speaking, it's tough to buy any kind of car. So all else equal, that should benefit this sort of mobility model. I'm just wondering the extent to which you're trying to capitalize on this environment, whether you regard it as an opportunity to try to get consumers comfortable potentially with ditching that second car and embracing ride hailing as a primary mode of transportation and any opportunities you have to do that? Thanks.

Yeah, I mean, I think it's

it's a good a good pressure uh kind of counter to what everyone was asking like you know during the pandemic of hey is everyone going to go out and get a car now um and so it provides kind of a backstop to that um we've spent multiple years on on building a fleet business and and primarily uh we've been focused on doing that for for drivers uh and and now we see opportunities to do that for riders. So we've launched lift rentals with first party vehicles as well as third party vehicles. So I think it just further supports having our broad and focused approach to transportation where we can offer you a ride share vehicle, we can offer you a rental and do that first party and provide the best experience. a bike and scooter, et cetera. And so, yeah, it's an opportunity when there are shifts in the market, when there are limitations in the market on vehicles. But again, we want to cover every aspect of transportation to increase the size of what someone spends on transportation with Lyft, but to reduce their overall spend on transportation. And that's something we've been consistent about, we stayed focused on in the pandemic, and we'll continue to pay off.

Okay, great. And then maybe one last quick one just on electrification. Obviously, this Hertz and Tesla news has been topical recently. Any additional comments on this strategy with regard to electrification would be helpful. Thanks.

Sure. Well, I can say that, again, kind of similar to what I was saying, we spent a couple years building out this part of our business, the fleet business. We have a unique asset through our ownership of FlexDrive, which is our independently managed subsidiary. And this gives us a massive strategic advantage as we convert all vehicles on the platform to EVs. You brought up EVs. We're very excited about that transition. We were the first company, rideshare company, to commit to having 100% electric vehicles by 2030. Seeing others follow suit is a good thing for EVs. for the planet um but by having that that ability to offer it from our uh providers uh gives us the ultimate control we've actually had evs available through express drive for for multiple years um and and we feel great about leading that transition uh with with flex drive and partners if needed great next quarter thanks guys thanks

For the next question, we have Ed Yiruma from KeyBank. Ed, your line's open.

Thanks for taking the question. Really interesting to hear the strategic importance of the micromobility segment, particularly you guys calling out city bikes. I guess as you kind of look over the medium term, are there other municipalities that have open tenders that precipitate the growth? Can you get greater density in the municipalities that you're in? And I guess just any update on kind of improvements you've made for the longevity of the devices, given that I know people can be pretty tough on them. Thanks.

yeah thanks for the question um in terms of uh the markets uh we we have uh already a relationship in chicago with divi similar to what we do in new york city on city bike uh we we have uh similarly in in boston uh and and we have in the bay area as well as a few others so all the major cities we feel quite good about uh we are uh we have majority share and those relationships typically are exclusive So we're really happy with that strategy and happy to see it paying off. In terms of the actual devices, the fact that our largest market is New York and being built kind of like a tank, those bikes for New York. Think of all the weather changes in New York and the way and the streets and the way those bikes can be handled. So they've been battle tested. The great news is that we continue to take all the learnings from the bikes and scooters. And we look at a total cost of ownership model for our devices. So we look at not just, you know, what it takes to serve or what it costs to buy the bike, but we might actually invest a little bit more in the bike so that it delivers for longer. And our first kind of ground-up piece of hardware we launched, the Lyft e-bike, is showing massive advantages just in really early years. testing in terms of cost to deliver that ride per ride. We have a bigger battery. We look at all the repairs needed, and we can fix the parts or harden the parts so that they don't need repairs. So the team has done a phenomenal job, and we feel great about our strategic position as an exclusive provider in those key markets. I also want to call out something we're doing with Lyft Pink, our membership program. In every market, we sell a local bike share membership program. It's typically done on an annual basis. For the first time, we rolled that together into, in addition to that, offering a national Lyft Pink membership that gets you unlimited access to our bike and scooter network. We're seeing some great uptake from that program. It's just another example of how we can leverage the businesses together. And you can think about, as Logan's talking about, you can think about like the bikes in New York as our exclusive content, similar to, you know, a key show, Squid Games on Netflix. And so if you are in New York and you want to get transportation access through Pink or through any rider provider, but you use City Bike even occasionally, it's going to make sense for you to join with the Lyft membership because of your access to that exclusive content.

Got it. And thanks for that explanation and for giving the collar a pink.

For our next question, we have Deepak Mathivana from Wolf Research. Your line's open.

Great. Thanks for taking the questions. Brian, can you provide an update on where the right volumes on a unit basis are with the 2019 levels currently? You know that some of the use cases are still lagging. Any update you can call out a few and how much they're lagging so we can think about the timeline for recovery on some of those would be great. And then second question, can you talk about what you see in terms of market share trends currently? Do you think there's been any shifts or any change in your strategic approach to market share right now? Thank you.

Sure. So let me talk about use cases. I'll talk about Q4 rides, and then I'll talk about sort of competitive trends. So, in terms of use cases, COVID is obviously still here, so it's difficult at this time to provide a precise view. I think, in general, looking at use cases, we expect all of them to return. We expect commute rides to strengthen as more companies return to the office. I'd say we're beginning to see an uptick in business travel, but it's early, and we expect that this will become more pronounced as more companies return to the office. One interesting data point is that airport rides reached 8.5% of total rideshare rides in Q3. And if you go back two years ago, airport rides were 9.1% of total rides in Q3 of 2019. So while leisure has been strong, we believe some of these airport rides is actually the beginning of corporate travel. um you know looking at q4 you know what i can say is you know we've learned uh covet can change quickly so it's always important for me to start with that caveat in terms of data points uh as logan mentioned october was our best month and last week was our best week since april of 2020 for rideshare rides um you know we talked through the seasonality you know october is the peak month in in q4 um you know in terms of some of these uh you know as i shared The summarizing COVID case counts, many companies, as a result, postponed to return to the office until Q1. And this is pronounced in a city like San Francisco. We explained San Francisco is only 40% recovered. And so, when you think about our P&L and our financials right now, we're only 40% recovered. regain its former glory here. And so, as we mentioned, we do anticipate that this will be a tailwind to help drive volume next year. It's really a matter of when, not if. And so, if you missed it on our earlier comments, we do expect that for revenue growth for full year 2022 is actually expected to exceed the rate for 2021. In terms of our outlook for Q4, Given the uncertainty with COVID, we see multiple ride growth scenarios. Our revenue outlook is not tied to a single scenario that we obviously expect rideshare rides to grow quarter over quarter. At the midpoint, our outlook implies revenue growth of 63% to 65% year over year. In terms of competitive trends, in general, we really have, if you look at sort of pre-COVID versus where we are today, we haven't seen really any major share changes. We believe overall there's strong demand, which is industry-wide. And I think in terms of lift-specific trends, we were really pleased to see the volume growth accelerate in Q3 versus Q2. As I mentioned, the sequential growth rate in terms of ride units increased 80%. The growth rate increased 80% relative to the Q2 sequential growth rate.

Okay. Thanks, Brian. Sure.

For our next question, we have John Blackledge from Cohen. John, your line is open.

Great. Thank you. Two questions. First, on the driver supply, were there any geos where driver supply was at or above pre-COVID levels? And if so, were ride volumes and or service levels better in those markets? And second question, the new rider activations number was really strong. Just any particular cohorts or geos that drove the new rider activation? Thank you. Yeah, I would say in general, we wanted to play offense in Q3. We sort of beat the industry to profitability in Q2, which is a big milestone, and we decided we were going to actually play offense. So we're very pleased that we were able to invest, and I think you can see it in terms of the results, in terms of the supply position now going into Q4. I think in general, if you look at third-party data, you can see that there were some states would sunset federal unemployment earlier. In general, supply came back sooner. Prices came down relatively more in those markets. I think that's probably early indications. But generally, I mean, the market's pretty efficient. It will balance pretty quickly. So, I think that's probably the most I can share in terms of, you know, it's all the use cases are coming back. You know, everything what we refer to as party hours, which is sort of the late-night rides, commute, off-peak, airport rides, like we're seeing volume of all of those categories of rides increase. And on the rider activations? Oh, thank you. Yeah. Yeah, no, look, we were very happy in terms of on the rider activation. So, again, in terms of for new riders, it jumped 8% quarter over quarter and up 47% year over year. I think as John points out, you know, we do lean into university programs. And typically these programs are either fully paid by the university or heavily discounted by the university. So that's just a great way to habituate someone on the Lyft platform. So we love those new digital natives who are going all in on Lyft. But again, it goes to this notion that there's 4 million people who become of age to use ride sharing each year. And then the fact that we have bikes and scooters, to John's point, it's just another entry point into the Lyft ecosystem. And the other cohort I'd just repeat that brian brought up a couple minutes ago is just that that return of the business user uh and given uh he provided those numbers around airport travel uh you know we're continuing to see that move in a nice direction which is an important cohort as well and we have a whole lit the business team uh executing uh to bring in that segment As John talks about business travel and airport rides, there's one thing that I think it's worth clarifying for folks. We've seen a lot of reports and a lot of studies allegedly trying to figure out where prices are versus where they were. I just want to say it's impossible to precisely calculate the magnitude of price changes since ride details can change. And what I mean by that is the average time and distance of rides can change, and the mix of cities and modes can also impact average prices. So, for example, in Q3, they mentioned airport rides, the percentage of total rideshare rides continue to increase. Airport rides tend to be more expensive because they're longer. So, you know, first you have a shift in terms of these longer rides that are, you know, if you're looking at credit card data, will look like higher price rides. Separately, as more people resume their normal lives, traffic is returning. So even if you take a ride that was the same exact length and you compare it to, say, January, that ride's going to be more expensive because it's a longer ride in terms of minutes, and minutes factor into prices. You know, you have to remember COVID artificially reduced traffic. And then for the folks who are trying to do comparisons versus two years ago, it's really important, and John touched on this, our lowest price option, shared rides, is back in only a single market Philadelphia. Shared rides were only offered in bigger cities, which tend to be the same cities with these attempted pricing studies. And just as a useful data point, in Q3 of 2019, shared rides represented approximately 40% of rides in Miami, and right now it's zero. And so if you can imagine doing a weighted average calculation on average price, because of mid-shift, that will look different. Thanks so much. Super helpful.

For the next question, we have Itai Michele from Citi. Your line is open.

Great. Thanks, everybody. Just two quick ones for me. First, maybe, Brian, can you comment on where your service levels are right now relative to internal targets? And secondly, going back to electric vehicles and the target for 100% by 2030, how are you thinking about managing Lyft's asset intensity over the next several years in terms of how many EVs are you willing to have in an owned fleet relative to partnering with third parties and remaining more asset-like?

In terms of service levels, as I mentioned, we do expect, as we get more and more drivers back, again, there are definitely some. There's this group of cautious people who, again, do not want to be giving rides right now. Today are doing some more, probably more on the delivery side. But again, you know, looking at all the historical studies, rideshare, you tend to make more money versus delivery. So we do expect that we will see this influx of new drivers again, and I think that will continue to improve service levels. You know, for us, there was a big focus in Q3, and we feel really good in terms of the impact on both lowering average price as well as improving pickup times. And so that's an area we continue to focus, and we always want to get better there. On EVs, again, I feel strongly that the way we're running the fleet business gives us a really important edge. There's kind of two types of third party. You could have third party operators and you could have like third party financing partners. The operations to us is super important to do well to get right and to not pay kind of a middle person extra fees and so that's what i mean when i talk about first party there's lots of smart ways to finance it with third parties um which i think we're gonna get better and better at and we're exploring you know lots of different options to do that so that it doesn't burden uh us But operationally, to win the transition to EVs, doing that in a first-party way in key markets and then getting national coverage through third parties, we believe is the right way to do it. The only other thing I would add, as we look at total CapEx for 2021, we now expect it will be lower than 2020.

Got it, Laura. Thanks a lot. That's very helpful.

For our next question, we have Brent Still from Jefferies. Brent, your line's open.

Thanks. Just a question around pricing. I know you've been investing, trying to get ride times shorter and pricing down. Can you just give us just a general sense of where you stand on that and how you expect that to play out in the next couple quarters?

You know, I just shared why there's many reasons why it's really difficult to look at sort of average price. I do think, again, when you look at where we were in Q3, what's interesting is if you look at our revenue, we're actually only 15% off our all-time high quarterly revenue, with rides down, you know, more than 35% from our peak. And in Q4, if you look at our outlook, I think it's around 8% off our peak. So, we're doing a really good job in terms of monetization. But again, in general, volume really matters in rideshare. And so, maybe at the risk of repeating myself, this extra volume that we expect with the recovery helps us leverage fixed costs within cost of revenue. Unlike our competitor, we include depreciation within cost of revenue. They put it in a different category. And so it does provide significant leverage for us. Hosting is also one where there's a significant ability to leverage hosting costs with volume. It's not a one-for-one relationship with the right volume. And then one of the areas that we've decided and we're sort of leading the industry on is around transaction processing. And one of the programs, and if you use Lyft, you'll see this, We're doing aggregated billing where we're actually, you know, we send your receipt each time, but we're billing your credit card once every 24 hours. And so as ride volume comes back, there's just that ride frequency ticks up. And most people, when they're using ride sharing, you know, they'll use Lyft and they're going to a party and then they're coming home. They're going to the office, they're coming home, and these round trips add up. And so this provides a lot in terms of our contribution. There's some definite leverage there. And then finally, you know, I don't think we talk about it enough. You know, we have one of the preeminent teams, if not the most preeminent team on Marketplace when you look across the industry. And so what they're driving in terms of improvements on monetization, both in terms of revenue and driving down variable costs should also help contribution. So, as I said, we expect to exit the pandemic structurally more profitable per ride than we were going in.

Great. Thanks, Brian.

For our next question, we have Stephen Fox for Fox Advisors. Stephen, your line's open.

Thanks. Good afternoon. Just to follow up on that last point, I just had a clarification and then a question. One, just to be clear, you said that You dropped down about $0.60 of EBITDA for every dollar revenue growth. And then you said increasing leverage into next year. Does that mean you're saying that that drop-down ratio can improve? And then for a question, I was just curious, like you laid out a lot of obvious leverage options you can pull on. Where does NICS factor into your leverage thinking next year and maybe longer term? Thanks. Sure. So let me talk about leverage, and then I may hand off to talk about mix. But when we look at Q4, we expect to increase our take rate and generate contribution leverage. So despite seasonality, we expect contribution margin leverage will be nearly $0.55 on each incremental dollar of revenue. And if you normalize for the Q3 remarketing gains, the leverage is $0.65 in the dollar in Q4, which is an increase from Q3, Q3 to $0.62. And this is inclusive of the $20 million sequential decline in quarterly bike and scooter revenue, which obviously creates a headwind to contribution. And it's probably worth calling out, despite this headwind, the midpoint of our outlook implies contribution will reach an all-time record, all-time, in absolute dollars in Q4. In terms of just as we, again, we're not providing an outlook on 2022 at this point. But we do expect, you know, all of our modes to be back next year. And I think, again, to John's point, we want to make sure we have the right product at the right time for the right user. And it changes throughout a day, throughout a week, throughout a month, and as folks travel. And so, again, we're really excited because, again, some of these other modes help us attract and really increase the addressable market for us. Great. That's really helpful. Thank you. Thank you. All right. Thanks so much, everybody. That is time, and we look forward to talking with everybody next quarter. Have a great evening.

Ladies and gentlemen, this concludes today's conference call.