Lyft, Inc. quarterly report, Q2 FY2022

Lyft, Inc. Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2022; filed August 5, 2022. Lyft operates multimodal transportation networks in the United States and Canada, primarily ridesharing, with additional rental, bikes and scooters, vehicle services, data licensing and bikeshare products.

Financial Results and Key Metrics

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Revenue	$990.7 million	$765.0 million	$1.866 billion	$1.374 billion
Revenue growth	30%	—	36%	—
Loss from operations	$(373.2) million	$(240.1) million	$(572.5) million	$(656.6) million
Net loss	$(377.2) million	$(251.9) million	$(574.2) million	$(679.3) million
Net loss per share	$(1.08)	$(0.76)	$(1.65)	$(2.06)
Adjusted EBITDA	$79.1 million	$23.8 million	$133.9 million	$(49.2) million
Adjusted EBITDA margin	8.0%	3.1%	7.2%	(3.6)%
Active Riders	19.86 million	17.14 million	Not separately provided	Not separately provided
Revenue per Active Rider	$49.89	$44.63	Not separately provided	Not separately provided

GAAP net loss margin was 38.1% in Q2 2022 versus 32.9% in Q2 2021, while the operating loss margin was 37.7% versus 31.4%. Total costs and expenses were $1.364 billion, or 137.7% of revenue, compared with 131.4% in the prior-year quarter.

Revenue composition: Q2 revenue included $914.5 million from contracts with customers and $76.2 million of rental revenue. Driver, rider and other incentives reduced revenue by $397.2 million in Q2 and $747.1 million for the first six months.
Cost of revenue: $650.4 million, or 65.6% of revenue, versus 45.3% in Q2 2021. The increase primarily reflected higher insurance costs, including $275.4 million of adverse changes in estimates for historical insurance liabilities. A $36.8 million gain from the reinsurance commutation partially offset the increase.
Operating expenses: Operations and support increased 12%; sales and marketing increased 41%; general and administrative increased 25%. Research and development decreased 20%, partly because of lower personnel and stock-based compensation costs following the Level 5 transaction.
Stock-based compensation: $176.6 million in Q2 and $330.4 million for the first six months. Unrecognized RSU compensation was $749.7 million at June 30, 2022, expected to be recognized over approximately 1.6 years.
Cash flow: Cash used in operating activities was $25.2 million in Q2 and $177.5 million for the first six months, compared with $117.0 million for the first six months of 2021. Six-month investing cash flow was positive $23.1 million after $146.3 million paid for the PBSC acquisition and $53.3 million of capital expenditures.
Liquidity: Cash and cash equivalents were $239.3 million and short-term investments were $1.568 billion at June 30, 2022. Restricted cash, cash equivalents and investments totaled approximately $1.2 billion, primarily supporting insurance and other obligations. Management stated that unrestricted liquidity should meet working capital and capital expenditure needs for at least the next 12 months and beyond.
Debt: Total debt, including current maturities, was $861.0 million, consisting primarily of $747.5 million principal amount of 1.50% convertible notes due May 2025 and Flexdrive vehicle-related borrowings. The company reported compliance with applicable debt covenants.

Material Changes Versus the Prior Comparable Period

Demand recovery increased Active Riders 15.9% year over year in Q2, while revenue per Active Rider increased 11.8%.
Revenue grew substantially, but insurance and other cost pressures caused the GAAP operating loss margin to deteriorate.
Adjusted EBITDA improved to $79.1 million from $23.8 million, although this measure excludes significant items including historical insurance reserve changes and the reinsurance gain.
Lyft acquired PBSC Urban Solutions on May 17, 2022 for total consideration of $163.5 million, including $14.1 million of estimated contingent consideration. The transaction added bikeshare sales, technology and customer relationships.
On June 21, 2022, Lyft commuted and settled its prior DARAG reinsurance agreement. The transaction produced a $36.8 million Q2 gain in cost of revenue, reduced reinsurance recoverables by $247.4 million and left $4.0 million of reinsurance recoverable and $2.4 million of deferred gain at quarter-end.
Lyft adopted ASU 2020-06 for convertible debt, increasing the carrying value of the convertible notes by $133.5 million, reducing additional paid-in capital by $140.0 million and increasing beginning accumulated deficit by $6.5 million, with no income-statement impact.
The company remediated a previously reported material weakness related to accounting for the reinsurance agreement and concluded that disclosure controls were effective as of June 30, 2022.

Guidance, Outlook, Commentary and Risks

The filing does not provide a clear quantitative revenue, profitability or cash-flow forecast. Management expects continued demand recovery as travel restrictions ease and communities reopen, but noted that COVID-19 variants, consumer behavior and market-specific recovery trends remain difficult to forecast. Management expects Adjusted EBITDA and Adjusted EBITDA margin to increase over the long term as the business scales and operating efficiencies improve.

Insurance exposure: Insurance reserves were $1.235 billion at June 30, 2022, up from $1.069 billion at December 31, 2021. Reserve estimates depend on limited historical experience, claims development, litigation, inflation and commercial auto loss trends.
Driver classification: Lyft faces lawsuits, arbitrations, government investigations and administrative audits challenging the classification of drivers as independent contractors. Adverse outcomes could create damages, penalties, employee-benefit obligations, higher operating costs or restrictions on operations.
Litigation: The company faces matters involving personal injury, safety incidents, consumer claims, intellectual property, securities litigation, indirect taxes and other regulatory issues. For some matters, a material loss or range of loss cannot be reasonably estimated.
Macroeconomic risks: Inflation, higher fuel and vehicle costs, higher interest rates, recessionary conditions and the war in Ukraine could reduce demand or increase operating expenses, particularly insurance costs.
Liquidity and commitments: Lyft committed to spend at least $300 million on AWS services between February 2022 and January 2026, with minimum annual commitments. It also has ongoing bikeshare, lease, debt and vehicle-financing obligations.
Strategic and operating risks: Competition, driver supply, cybersecurity, reliance on AWS and payment processors, supply-chain constraints, asset-intensive rental and micromobility offerings, and the integration of PBSC could affect results.
Long-term investment: Lyft continues to target 100% electric vehicles on its platform by the end of 2030 and must also address California Clean Miles requirements, which may require significant capital and recurring spending.

Important Facts for Investors to Verify

Whether higher insurance claims and reserve development continue to pressure cost of revenue and GAAP margins.
Whether Active Rider growth and revenue per Active Rider remain strong as post-pandemic demand normalizes.
Whether Adjusted EBITDA improvements persist after excluding the $275.4 million historical insurance reserve adjustment and $36.8 million reinsurance gain in Q2.
The adequacy of $1.235 billion of insurance reserves and the remaining effect of the reinsurance commutation.
Progress integrating PBSC and the returns generated by its $163.5 million acquisition cost.
Cash burn, unrestricted liquidity, and the ability to fund debt maturities, AWS commitments, vehicle programs, acquisitions and EV investments without additional financing.
Developments in driver-classification litigation, Proposition 22 appeals and related regulatory audits.
Execution of the remediated internal control procedures and whether additional restatement or reporting risks emerge.