Business Context and Reporting Period
Lyft, Inc. operates multimodal transportation networks in the United States and Canada, primarily connecting rideshare drivers and riders through its platform. Other offerings include Lyft Business, Flexdrive vehicle rentals, bikes and scooters, licensing and data access, and bike-share hardware and software. This unaudited Form 10-Q covers the three and nine months ended September 30, 2023, compared with the respective 2022 periods.
Lyft changed its key operating metrics beginning in the third quarter to emphasize Gross Bookings, Active Riders, Rides, and Adjusted EBITDA margin as a percentage of Gross Bookings. Beginning in the fourth quarter of 2023, management stated it will no longer formally present Revenue per Active Rider, Contribution, Contribution Margin, or Adjusted EBITDA margin as a percentage of revenue.
Financial and Operating Metrics
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Revenue | $1.158 billion | $1.054 billion | 10% |
| Gross profit | $513.0 million | $483.1 million | 6% |
| Gross profit margin | 44.3% | 45.8% | Down 1.5 percentage points |
| Loss from operations | $40.2 million | $290.4 million | Loss reduced |
| Net loss | $12.1 million | $422.2 million | Loss reduced 97% |
| Net loss per share | $0.03 | $1.18 | Loss reduced |
| Adjusted EBITDA | $92.0 million | $(26.7) million | Improved by $118.7 million |
| Adjusted EBITDA margin on Gross Bookings | 2.6% | (0.9)% | Improved 3.5 percentage points |
| Gross Bookings | $3.554 billion | $3.079 billion | 15% |
| Rides | 187.4 million | 155.8 million | 20% |
| Active Riders | 22.4 million | 20.3 million | 10% |
For the nine months ended September 30, 2023, revenue was $3.179 billion, up 9%; gross profit was $1.379 billion, up 10%; and gross profit margin was 43.4%, compared with 43.1% in the prior-year period. Net loss was $314.0 million, compared with $996.4 million, while Adjusted EBITDA was $155.7 million, compared with negative $168.2 million. Gross Bookings increased 13% to $10.051 billion.
Cost of revenue increased 13% in the quarter and 8% year to date. Q3 cost of revenue was pressured primarily by a $69.9 million increase in insurance costs, reflecting inflation, increased litigation, higher commercial auto losses, and higher ride demand. Cost of revenue represented 55.7% of revenue in Q3, compared with 54.2% in Q3 2022.
Operating expense reductions were significant. Q3 research and development expense declined 52%, general and administrative expense declined 33%, and sales and marketing expense declined 3%. For the nine-month period, research and development declined 26%, general and administrative declined 16%, and sales and marketing declined 11%. Stock-based compensation remained substantial at $98.5 million in Q3 and $392.9 million year to date.
Cash Flow, Liquidity, Debt, and Balance Sheet
| Item | September 30, 2023 | December 31, 2022 |
|---|---|---|
| Cash and cash equivalents | $590.5 million | $281.1 million |
| Short-term investments | $1.076 billion | $1.516 billion |
| Restricted cash and cash equivalents | $258.8 million | $109.4 million |
| Restricted investments | $767.0 million | $1.028 billion |
| Total assets | $4.478 billion | $4.556 billion |
| Total debt, including current maturities | $860.3 million | $839.5 million |
| Stockholders’ equity | $468.3 million | $388.7 million |
Unrestricted cash, cash equivalents, and short-term investments totaled approximately $1.7 billion. Lyft also had access to a $420 million secured revolving credit facility, with no borrowings outstanding. The company stated that it believes available liquidity is sufficient for working capital and capital expenditure needs for at least the next 12 months and beyond.
Net cash used in operating activities was $141.8 million for the first nine months of 2023, compared with $203.7 million in the prior-year period. Investing activities provided $706.8 million, primarily from maturities and sales of marketable securities. Financing activities used $106.1 million, including $60.5 million of loan repayments and $35.9 million of finance lease principal payments. Cash, cash equivalents, and restricted cash increased by $458.9 million during the period.
Debt primarily consisted of $747.5 million principal amount of 1.50% convertible senior notes due May 2025, vehicle-related loans, and other financing. The company was in material compliance with applicable debt covenants. The revolving facility includes liquidity, leverage, fixed-charge coverage, borrowing, and other restrictive covenants.
Material Changes Versus the Prior Comparable Period
- Demand and marketplace activity improved, with Q3 rides up 20%, Gross Bookings up 15%, and Active Riders up 10%, following competitive pricing adjustments and improved driver supply.
- Revenue growth lagged Gross Bookings growth because of lower revenue per ride and lower pricing. Management stated that lower prices may continue to pressure revenue and profitability in the near term.
- Profitability improved substantially due to cost reductions, lower headcount-related expenses, reduced stock-based compensation, and the absence of the $135.7 million investment impairment recorded in Q3 2022.
- Lyft incurred $63.3 million of restructuring charges in Q2 2023 related to the termination of approximately 1,072 employees, representing 26% of employees at the time, facility exits, and related costs. The plan was completed and no future costs were expected under that plan.
- Insurance costs increased materially and remain a significant margin risk. Insurance reserves were $1.323 billion at September 30, 2023, down from $1.417 billion at year-end 2022, although actual claims may exceed recorded reserves.
- Management leadership changed: David Risher became CEO in April 2023 and President and CEO in July; Kristin Sverchek became President in July; and Erin Brewer became CFO in July.
- Lyft launched Women+ Connect in September 2023, allowing women and nonbinary drivers to prioritize matches with women and nonbinary riders in selected markets.
Guidance, Outlook, Commentary, Risks, and Unusual Items
The filing does not provide clear numerical revenue, earnings, or Gross Bookings guidance. Management expects expenses to decrease compared with 2022 as a result of cost reductions and lower headcount, but expects insurance costs to remain elevated and cost of revenue to increase near term on a year-over-year basis.
Management described strong Q3 demand, particularly for commuting and early-morning use cases, and stated that Active Riders were just below the company’s all-time high. Lyft intends to continue competitive pricing to improve marketplace balance and driver supply, while acknowledging possible adverse effects on revenue and profitability.
- Insurance reserves and claims costs are subject to significant actuarial judgment and may be affected by inflation, medical and vehicle repair costs, litigation, and commercial auto loss trends.
- Driver classification remains a material legal and regulatory risk. California and Massachusetts proceedings could require damages, penalties, increased labor costs, operational changes, or suspension of operations in affected jurisdictions. The Massachusetts case was scheduled for trial in May 2024.
- Lyft settled an SEC investigation in September 2023, paid a $10 million civil penalty in Q3, and agreed to a cease-and-desist order without admitting or denying the findings.
- Competition, pricing pressure, driver supply, rider demand, macroeconomic conditions, cybersecurity, privacy, platform outages, third-party service providers, and changing transportation and employment regulations remain significant risks.
- Lyft is exploring strategic alternatives for its bikes and scooters business, and the filing notes the February 2023 sale of certain vehicle service center assets.
- The company has $296.5 million of unrecognized stock-based compensation expected to be recognized over a weighted-average period of approximately 1.3 years, which may continue to affect GAAP expenses and dilution.
- The $747.5 million convertible notes mature in May 2025. The notes were not convertible as of September 30, 2023, based on the stated conversion conditions.
Facts Investors Should Verify
- Whether improved rides and Active Riders can be sustained without continued pricing reductions or elevated driver incentives.
- Whether insurance costs and loss development stabilize, and whether reserves remain adequate as claims mature.
- The company’s ability to generate positive operating cash flow and achieve recurring GAAP profitability, rather than relying on cost reductions, investment income, or non-GAAP adjustments.
- Liquidity available after considering restricted insurance-related cash and investments, 2025 convertible note repayment or conversion, lease obligations, and other commitments.
- The potential financial and operating impact of driver-classification litigation, including California and Massachusetts proceedings and related regulatory assessments.
- The effect of restructuring on service quality, employee retention, innovation, and future stock-based compensation.
- The terms and timing of the 2025 convertible notes, revolving credit facility covenants, vehicle financing, and outstanding letters of credit.
- The strategic direction and financial consequences of any sale, discontinuation, or restructuring of the bikes and scooters business.