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.