Lyft, Inc. 2021 Q1 Form 10-Q Summary
Business context and reporting period
Lyft operates multimodal transportation networks in the United States and Canada, primarily connecting rideshare drivers and riders, with additional offerings including bikes and scooters, vehicle rentals, Flexdrive, Lyft Rentals, Lyft Business and delivery services. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Results remained materially affected by COVID-19, including reduced travel and commuting, social-distancing measures, paused shared rides and changes in driver availability. Active Riders were 13.5 million, down 36.4% year over year, while revenue per Active Rider was approximately $45.13, broadly stable year over year.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $609.0 million | $955.7 million | Down 36% |
| Cost of revenue | $412.0 million | $542.4 million | Down 24% |
| Total costs and expenses | $1.025 billion | $1.370 billion | Down 25% |
| Loss from operations | $(416.4) million | $(414.1) million | Loss increased slightly |
| Net loss | $(427.3) million | $(398.1) million | Loss increased 7% |
| Net loss per share | $(1.31) | $(1.31) | Unchanged |
| Cash used in operating activities | $(79.5) million | $(206.9) million | Improved by $127.5 million |
| Adjusted EBITDA | $(73.0) million | $(85.2) million | Improved by 14% |
| Adjusted EBITDA margin | (12.0)% | (8.9)% | Worsened |
Revenue from contracts with customers was $568.8 million and rental revenue was $40.2 million. Driver, rider and rental incentives reduced revenue by $196.2 million, compared with $112.2 million in Q1 2020; $13.1 million of incentives were recorded in sales and marketing expense, compared with $100.1 million in the prior-year period.
Gross margin, calculated from reported revenue less cost of revenue, was approximately 32.3% versus 43.2% in Q1 2020. The decline reflected adverse development in historical insurance reserves and the lower revenue base. Operating margin was approximately (68.4)% versus (43.3)%, and net margin was approximately (70.2)% versus (41.7)%.
Insurance reserves increased to $1.058 billion at March 31, 2021 from $987.1 million at December 31, 2020. Q1 2021 included $128.0 million of unfavorable changes to prior-period insurance estimates, compared with $58.4 million in Q1 2020. The company had approximately $2.2 billion of unrestricted cash, cash equivalents and short-term investments, excluding approximately $1.1 billion of restricted cash, cash equivalents and investments.
Total assets were $4.546 billion and total stockholders’ equity was $1.409 billion at March 31, 2021. Debt outstanding, including current maturities, was $689.2 million, consisting primarily of $747.5 million principal amount of 1.50% convertible senior notes due 2025, reported at a $577.2 million carrying value, plus Flexdrive-related loans. The company stated that it was in compliance with applicable debt covenants.
Cash provided by investing activities was $161.1 million, primarily from maturities and sales of marketable securities. Cash used in financing activities was $24.3 million. Cash, cash equivalents and restricted cash increased by $57.4 million during the quarter to $495.9 million.
Material changes versus the prior comparable period
- Revenue fell 36%, primarily because Active Riders declined 36% as COVID-19 continued to suppress mobility.
- Cost of revenue declined 24%, helped by lower ride volume and the absence of the $62.5 million Q1 2020 cost related to transferring certain legacy auto insurance liabilities. This benefit was partly offset by $128.0 million of unfavorable prior-period insurance reserve development.
- Sales and marketing expense declined 60% to $78.6 million, primarily because of lower rider incentives and reduced personnel and acquisition costs.
- Research and development expense declined 8%, operations and support declined 34%, and general and administrative expense declined 13%; general and administrative expense included higher loss contingencies, including legal accruals and settlements.
- Interest expense increased to $12.6 million from $1.5 million, primarily because of the 2025 convertible notes and related debt discount amortization.
- Other income declined to $3.6 million from $19.2 million as interest rates and investment yields decreased.
- Stock-based compensation expense increased to $164.2 million from $160.0 million. Approximately $1.1 billion of unrecognized RSU compensation expense remained at quarter-end, expected to be recognized over a weighted-average period of approximately 2.1 years.
Guidance, outlook, commentary, risks and unusual items
Management said demand was improving from pandemic lows but remained significantly below pre-pandemic levels, with the timing and pace of recovery uncertain. Lyft stated that it was not in a position to forecast the full-year impact of COVID-19. Management expected to reach Adjusted EBITDA profitability in the third quarter of 2021, conditional on continued COVID-19 economic recovery and timely closing of the Level 5 transaction.
On April 26, 2021, Lyft agreed to sell certain Level 5 self-driving assets to Woven Planet, a Toyota subsidiary, for approximately $550 million in total cash: $200 million upfront, subject to closing adjustments, and $350 million over five years. Closing was expected in Q3 2021, subject to regulatory approvals and other conditions. The transaction is intended to reduce Level 5 costs and monetize Lyft platform and fleet data.
On April 22, 2021, Lyft’s insurance subsidiary entered into a quota-share reinsurance agreement with DARAG covering certain legacy auto liabilities. Lyft paid a $271.5 million premium for approximately $183.2 million of coverage above recorded liabilities and expects to recognize an approximately $20.2 million loss in Q2 2021. The agreement does not discharge Lyft’s obligations to policyholders.
Key risks include continued pandemic-related demand weakness, driver shortages and higher incentives, competition, the adequacy of insurance reserves, adverse legal or regulatory outcomes regarding driver classification, Proposition 22 litigation, data security and privacy, reliance on third-party providers, asset-intensive rental and micromobility operations, and the company’s continuing history of net losses.
Lyft remains subject to lawsuits, arbitration proceedings and regulatory actions alleging driver misclassification, including matters in California and Massachusetts, as well as personal injury, safety, consumer, accessibility, intellectual property, securities and indirect-tax matters. The company stated that potential losses in several matters cannot reasonably be estimated and that adverse outcomes could materially affect its business and financial condition.
Most important facts for investors to verify
- Whether Active Riders and ride volumes continue recovering and whether driver supply remains adequate without materially higher incentives.
- Whether Lyft achieves the stated conditional target of Adjusted EBITDA profitability in Q3 2021, while considering the limitations of non-GAAP measures and substantial stock-based compensation.
- The development of insurance claims and reserves, including the $128.0 million unfavorable prior-period adjustment in Q1 and the DARAG reinsurance transaction.
- Whether the Woven Planet transaction closes on schedule and produces the expected cash proceeds and cost reductions.
- The financial and operational impact of driver-classification litigation, Proposition 22 challenges and similar regulatory actions in other jurisdictions.
- Liquidity requirements relative to ongoing operating losses, approximately $689.2 million of debt, contractual commitments and restricted insurance-related funds.
- The effect of approximately $1.1 billion of remaining unrecognized stock-based compensation expense and potential future share dilution.