Business Context and Reporting Period
Lyft, Inc. operates multimodal transportation networks in the United States and Canada, including ridesharing, shared bikes and scooters, Concierge, and Express Drive vehicle rentals. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, compared with the corresponding 2018 periods.
Lyft completed its initial public offering in April 2019, issuing 35.5 million Class A shares at $72.00 per share and receiving approximately $2.5 billion of net proceeds. All outstanding redeemable convertible preferred stock converted into common stock.
Financial Performance and Liquidity
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $955.6 million | $585.0 million | $2.599 billion | $1.487 billion |
| Revenue growth | 63% | — | 75% | — |
| Loss from operations | $(490.9) million | $(268.7) million | $(2.321) billion | $(707.7) million |
| Net loss | $(463.5) million | $(249.2) million | $(2.246) billion | $(662.4) million |
| Net loss margin | (48.5)% | (42.6)% | (86.4)% | (44.5)% |
| Adjusted EBITDA | $(128.1) million | $(263.2) million | $(548.2) million | $(692.4) million |
| Adjusted EBITDA margin | (13.4)% | (45.0)% | (21.1)% | (46.6)% |
| Contribution | $479.2 million | $263.2 million | $1.263 billion | $616.1 million |
| Contribution margin | 50.1% | 45.0% | 48.6% | 41.4% |
Q3 operating cash flow was $5.7 million, while cash used in operating activities for the first nine months was $59.5 million, compared with $147.6 million used in the prior-year period. Nine-month investing cash use was $1.518 billion, primarily reflecting purchases of marketable securities and $128.4 million of property, equipment and scooter fleet purchases. Financing cash flow was $1.556 billion, mainly from the IPO, partially offset by $942.8 million of taxes paid related to net share settlement of equity awards.
At September 30, 2019, Lyft had $543.9 million of cash and cash equivalents, $2.573 billion of short-term investments, and $1.377 billion of restricted cash and investments. Total cash, cash equivalents and restricted cash was $685.7 million. The filing states that existing cash and cash equivalents are expected to meet working capital and capital expenditure needs for at least the next 12 months. No conventional debt balance is reported; operating lease liabilities totaled $448.0 million.
Insurance reserves were $1.375 billion at September 30, 2019, up from $810.3 million at December 31, 2018. Total assets were $5.735 billion and stockholders’ equity was $2.990 billion, compared with a $2.871 billion stockholders’ deficit at year-end 2018, primarily reflecting the IPO and preferred-stock conversion.
Material Changes Versus the Prior Comparable Period
- Revenue increased 63% in Q3 and 75% for the first nine months, driven by growth in Active Riders and revenue per Active Rider. Q3 Active Riders increased 28.3% to 22.3 million, while revenue per Active Rider increased 27.3% to $42.82.
- Cost of revenue increased 80% in Q3 and 91% for the first nine months, outpacing revenue growth. The increase primarily reflected higher insurance costs, bike and scooter expansion, hosting, payment processing, Express Drive costs and stock-based compensation.
- Q3 net loss increased to $463.5 million from $249.2 million, and the nine-month net loss increased to $2.246 billion from $662.4 million. The reported deterioration was substantially affected by IPO-triggered stock-based compensation.
- Research and development expense rose 274% in Q3 and 500% for the first nine months, largely due to stock-based compensation and increased personnel costs.
- Sales and marketing expense declined 32% in Q3 as driver and passenger acquisition costs and certain incentives decreased, but increased 6% for the first nine months.
- Contribution margin improved to 50.1% in Q3 from 45.0%, and Adjusted EBITDA loss improved to $128.1 million from $263.2 million. These non-GAAP measures exclude, among other items, stock-based compensation and historical-period insurance reserve changes.
Guidance, Outlook, Commentary, Risks and Unusual Items
The filing does not provide a clear numerical revenue, profitability or Adjusted EBITDA forecast. Management expects continued investment in platform development, research and development, new offerings, sales and marketing, bikes and scooters, autonomous vehicles and public-company infrastructure. Management expects expense categories to increase in absolute dollars and vary as a percentage of revenue.
- Stock-based compensation: Lyft recognized $1.395 billion of stock-based compensation during the first nine months, including $857.2 million associated with RSUs whose IPO performance condition was satisfied. Approximately $1.1 billion remained unrecognized at September 30, 2019, expected to be recognized over approximately two years.
- Insurance exposure: Q3 cost of revenue included $320.5 million of insurance costs, including $86.6 million from changes to historical-period insurance reserves. Management states that the adverse development was largely related to historical auto losses predating its relationship with a new third-party claims administrator. Actual claims may exceed reserves.
- Worker classification: Driver classification as independent contractors remains subject to lawsuits, arbitrations, administrative proceedings and regulatory scrutiny. California Assembly Bill 5 was scheduled to take effect in January 2020 and could create additional challenges and potentially require changes to Lyft’s operating model.
- Legal matters: Lyft faces personal injury, securities, labor, indirect-tax, intellectual-property and other claims. Several putative securities class actions were filed following the IPO. The filing states that material losses may be possible in some matters but cannot be estimated clearly.
- Commitments: Lyft committed to spend at least $300 million on web-hosting services between January 2019 and December 2021, with minimum annual spending of $80 million. It also committed to approximately $7.5 million annually through January 2028 for the Chicago Divvy bike-share program and at least $50 million of related capital equipment spending.
- Operating risks: Key risks include intense competition, demand and driver retention, regulatory restrictions, insurance adequacy, platform outages and cybersecurity, privacy compliance, asset utilization, autonomous-vehicle development, bike and scooter execution, and the ability to achieve sustained profitability and positive cash flow.
- Accounting changes: Lyft adopted the new lease standard on January 1, 2019, recognizing $285.6 million of right-of-use assets and $314.1 million of lease liabilities at adoption. The filing states that disclosure controls and procedures were effective at a reasonable assurance level.
Important Facts for Investors to Verify
- Whether revenue growth and Active Rider growth remain strong as management expects growth rates to moderate.
- The sustainability of improved Contribution and Adjusted EBITDA margins after excluding stock-based compensation and historical insurance reserve changes.
- Future insurance reserve development, claim severity and the adequacy of the $1.375 billion reserve balance.
- The timing and cash impact of the remaining $1.1 billion of unrecognized RSU compensation and future equity-award tax withholding obligations.
- Developments under California Assembly Bill 5 and other driver-classification proceedings, including potential changes to costs, pricing and operations.
- Cash burn, investment spending, restricted insurance funds and the sufficiency of unrestricted liquidity as Lyft continues to report substantial GAAP losses.
- Outcomes of IPO-related securities litigation and other legal, regulatory, personal-injury and indirect-tax matters.
- Utilization, profitability and capital requirements for bikes, scooters, Express Drive, Lyft Rentals and autonomous-vehicle initiatives.