Lyft, Inc. 2020 Q2 Form 10-Q Summary
Business context and reporting period
Lyft operates multimodal transportation networks in the United States and Canada, primarily connecting riders and drivers through its ridesharing platform. Other offerings include bikes and scooters, Flexdrive and Lyft Rentals, Lyft Business, delivery pilots and autonomous-vehicle initiatives. The filing covers the three and six months ended June 30, 2020, with comparisons to the same periods in 2019.
Second-quarter results were heavily affected by the COVID-19 pandemic, including shelter-in-place orders, reduced travel, paused Shared Rides, lower business demand and changes in driver availability.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Change |
|---|---|---|---|
| Revenue | $339.3 million | $867.3 million | Down 61% |
| Loss from operations | $487.5 million | $672.9 million | Improved by $185.4 million |
| Net loss | $437.1 million | $644.2 million | Improved by $207.1 million |
| Net loss per share | $1.41 | $2.23 | Improved |
| Adjusted EBITDA | $(280.3) million | $(204.1) million | Declined $76.2 million |
| Contribution | $117.3 million | $398.9 million | Down 71% |
| Contribution margin | 34.6% | 46.0% | Down 11.4 points |
| Adjusted EBITDA margin | (82.6)% | (23.5)% | Down 59.1 points |
Revenue per Active Rider was $39.06, down 1.8% year over year, while Active Riders fell to 8.7 million from 21.8 million, a 60.1% decrease. Revenue from contracts with customers was $312.3 million and rental revenue was $27.0 million.
| Six-month metric | 2020 | 2019 | Change |
|---|---|---|---|
| Revenue | $1.295 billion | $1.643 billion | Down 21% |
| Net loss | $835.2 million | $1.783 billion | Improved by $947.5 million |
| Loss from operations | $901.6 million | $1.830 billion | Improved by $928.2 million |
| Cash used in operating activities | $958.6 million | $69.5 million | Use increased materially |
| Adjusted EBITDA | $(365.5) million | $(420.1) million | Improved by $54.6 million |
Cash flow, liquidity and capital structure
- Cash and cash equivalents were $841.1 million and unrestricted short-term investments were $1.935 billion at June 30, 2020, or approximately $2.8 billion of unrestricted liquidity.
- Restricted cash, cash equivalents and investments totaled approximately $1.2 billion, primarily supporting insurance obligations and letters of credit.
- Six-month operating cash outflow was $958.6 million. Investing activities provided $880.6 million, principally from maturities and sales of marketable securities. Financing activities provided $568.0 million.
- Cash, cash equivalents and restricted cash increased to $1.054 billion at June 30, 2020 from $564.5 million at December 31, 2019.
- Lyft issued $747.5 million of 1.50% convertible senior notes due 2025, receiving approximately $733.2 million of net proceeds. The notes had a net carrying amount of $551.8 million and an estimated fair value of approximately $829.8 million at quarter-end.
- Lyft paid approximately $132.7 million for capped calls intended to reduce potential dilution from the convertible notes. The initial conversion price was approximately $38.39 per share and the initial cap price was $73.83 per share.
- Total debt, including current maturities, was $663.0 million, comprising the convertible notes and debt assumed through the Flexdrive acquisition. Debt outstanding was zero at December 31, 2019.
- Management stated that unrestricted liquidity was sufficient for working capital and capital expenditures for at least the next 12 months, but also noted that additional financing could be required in the future.
Material changes versus prior comparable periods
- COVID-19 caused the principal operating deterioration: Active Riders declined 60% and revenue declined 61% in Q2 2020 versus Q2 2019.
- Cost reductions partially offset the revenue decline. Q2 cost of revenue decreased 60%, operations and support decreased 35%, research and development decreased 34%, sales and marketing decreased 71% and general and administrative decreased 17%.
- Sales and marketing incentives declined 95% year over year in Q2, while contribution margin fell substantially because the revenue decline exceeded the reduction in operating costs.
- Q2 net loss improved partly because of significantly lower stock-based compensation than in Q2 2019 and a $14.5 million net restructuring benefit. The restructuring included a $72.7 million reversal of previously recognized stock-based compensation, a $22.9 million accelerated-vesting charge, $32.1 million of severance and employee costs, and $3.1 million of lease termination and other costs.
- Lyft acquired Flexdrive for approximately $13.0 million of purchase consideration, expanding control over its vehicle-rental operations and adding vehicle-related debt and finance leases.
- Lyft transferred certain legacy auto-liability obligations to Clarendon for $465.0 million of cash consideration. The transaction derecognized $407.9 million of insurance reserves and generated a $64.7 million net cost, including $62.5 million in cost of revenue and $2.2 million in general and administrative expense.
- Insurance reserves declined to $943.6 million from $1.378 billion at December 31, 2019, primarily because of the legacy-liability transfer. The company recorded $58.3 million of unfavorable changes in estimates for prior periods during the first six months.
Guidance, outlook, management commentary and risks
Lyft did not provide quantitative financial guidance for the remainder of 2020. Management stated that the evolving and unpredictable effects of COVID-19 prevented it from forecasting expected financial and operating results. Management remained confident in long-term growth and eventual profitability but acknowledged that cost-cutting actions would mitigate only a limited portion of the pandemic impact.
- Demand, rides and revenue were expected to remain suppressed while travel restrictions, social distancing and altered consumer behavior continued. Driver shortages in some recovering markets could limit service levels and require higher driver incentives.
- Lyft terminated approximately 17% of employees, furloughed approximately 300 employees, reduced exempt employee salaries for 12 weeks and reduced board cash compensation for Q2.
- Shared Rides were paused, Lyft Rentals temporarily ceased operations, and Flexdrive operations were modified. Lyft also reduced planned 2020 capital expenditures and piloted delivery services.
- California, Massachusetts and other jurisdictions challenged Lyft’s classification of drivers as independent contractors. On August 10, 2020, after quarter-end, a California court granted a preliminary injunction requiring reclassification of drivers as employees; the injunction was temporarily stayed and Lyft filed an appeal on August 12. An adverse outcome could require business-model changes, higher costs, damages, penalties or suspension of California operations.
- Insurance reserves are based on actuarial estimates and limited historical experience; actual claims could exceed recorded reserves. The July 2020 retrocession agreement restored potential exposure for legacy auto-liability losses above an aggregate limit of $816 million, although it did not materially affect the June 30 financial statements.
- Other significant risks include continued operating losses and cash burn, competition, regulatory changes, litigation, driver and rider retention, safety incidents, data security, reliance on AWS and payment processors, vehicle residual values, debt service and the availability of additional capital.
Most important facts for investors to verify
- Whether rider demand, Active Riders, driver availability and revenue recovered after June 30, 2020, and whether recovery was sustained.
- Lyft’s actual cash burn, unrestricted liquidity and financing needs relative to its stated expectation of at least 12 months of liquidity.
- The outcome and operational consequences of California and other driver-classification litigation, including the effect of Proposition 22 and any required employee-related costs.
- Development of insurance claims and reserves, including exposure under the July 2020 retrocession agreement and future adverse reserve adjustments.
- The effect of the $663.0 million debt balance, convertible-note dilution, capped calls and Flexdrive vehicle financing on future cash requirements.
- Whether contribution margin and Adjusted EBITDA improve without relying primarily on incentive reductions, stock-based compensation adjustments or exclusions of unusual insurance and restructuring items.
- The future recognition of approximately $1.3 billion of unrecognized RSU compensation expense over a weighted-average period of approximately 2.7 years.