Lyft, Inc. Form 10-Q Summary
Business context and reporting period
Lyft operates multimodal transportation networks in the United States and Canada, including ridesharing, bikes, scooters, vehicle rentals through Express Drive, and related platform services. This unaudited quarterly report covers the three and six months ended June 30, 2019, compared primarily with the same periods in 2018. Lyft completed its initial public offering in April 2019, raising approximately $2.5 billion net.
Financial results and key metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $867.3 million | $504.9 million | $1.643 billion | $902.1 million |
| Revenue growth | 72% | — | 82% | — |
| Loss from operations | $(672.9) million | $(193.6) million | $(1.830) billion | $(439.0) million |
| Net loss | $(644.2) million | $(178.9) million | $(1.783) billion | $(413.2) million |
| Net loss per share | $(2.23) | $(8.48) | $(11.38) | $(20.09) |
| Adjusted EBITDA | $(204.1) million | $(190.5) million | $(420.1) million | $(429.2) million |
| Adjusted EBITDA margin | (23.5)% | (37.7)% | (25.6)% | (47.6)% |
| Contribution margin | 46.0% | 42.1% | 47.7% | 39.1% |
- Q2 total costs and expenses were $1.540 billion, or 177.7% of revenue. Cost of revenue was $630.1 million, or 72.7% of revenue.
- Q2 stock-based compensation was $293.2 million; six-month stock-based compensation was $1.153 billion, largely reflecting RSU expense triggered by the IPO.
- Q2 insurance costs were $384.8 million, including $141.1 million of adverse development related to historical periods. The six-month insurance reserve balance increased to $1.207 billion from $810.3 million at year-end 2018.
- Active Riders increased to 21.8 million from 15.5 million, while revenue per Active Rider increased to $39.77 from $32.67.
- Six-month net cash used in operating activities was $69.5 million, compared with $111.6 million in the prior-year period. Management reported Q2 cash provided by operating activities of $15.3 million.
- At June 30, 2019, cash and cash equivalents were $417.4 million, unrestricted short-term investments were $2.893 billion, and restricted cash, cash equivalents and investments were approximately $1.3 billion.
- The filing does not disclose conventional borrowings or debt. Operating lease liabilities totaled $387.6 million, including $92.5 million current and $295.2 million noncurrent.
Material changes versus the prior comparable period
- Revenue grew substantially, driven by higher Active Riders, increased revenue per Active Rider, improved Shared Ride efficiency, and expansion of Express Drive and multimodal offerings.
- Operating losses widened materially because expenses grew faster than revenue. Research and development increased 381% in Q2 and 637% for the six months, primarily due to stock-based compensation and personnel costs.
- Operations and support increased 126% in Q2, while general and administrative expense increased 171%. Sales and marketing increased only 3% in Q2, partly because lower acquisition costs offset higher targeted incentives and stock-based compensation.
- Contribution margin improved to 46.0% from 42.1%, and Adjusted EBITDA margin improved to negative 23.5% from negative 37.7%; however, both remain negative and are non-GAAP measures.
- The IPO produced approximately $2.5 billion of net proceeds, converted all outstanding redeemable convertible preferred stock into common stock, and increased additional paid-in capital to $8.0 billion.
- Lyft adopted the new lease accounting standard on January 1, 2019, recognizing operating lease right-of-use assets and liabilities. Prior comparative periods were not recast.
Guidance, outlook, commentary, risks and unusual items
- Management stated that existing cash, cash equivalents and investments are expected to fund working capital and capital expenditure needs for at least the next 12 months. Future capital needs will depend on growth, insurance payments, platform investments, marketing, and potential acquisitions or investments.
- Management expects continued investment in platform development, research and development, autonomous vehicle technology, bikes and scooters, operations, and sales and marketing. It expects Adjusted EBITDA margin to improve over the long term, but the filing provides no specific revenue or profitability guidance.
- The company expects operating expenses and cost of revenue to increase in absolute dollars and fluctuate as a percentage of revenue. It expects long-term sales and marketing leverage but continued near-term variability.
- Insurance reserves are based on limited historical experience and actuarial estimates; actual claims may exceed reserves or available coverage. Historical adverse reserve development was a significant Q2 expense.
- Material risks include continued net losses, intense competition, driver and rider retention, regulatory changes, independent-contractor classification, insurance exposure, personal injury claims, data security and privacy, platform outages, payment and cloud-service dependencies, and the uncertain economics of bikes, scooters and autonomous vehicles.
- Legal matters include driver-classification proceedings, personal injury and other ordinary-course claims, a disputed approximately $9.5 million unemployment insurance assessment, indirect-tax audits, and securities class actions filed after the IPO. The filing states that potential losses for certain matters cannot be reasonably estimated.
- Lyft entered into a minimum AWS spending commitment of $300 million for 2019 through 2021 and a Chicago Divvy arrangement requiring approximately $7.5 million annually through January 2028 plus at least $50 million of capital equipment spending during the term.
- Approximately $1.2 billion of unrecognized RSU compensation remained at June 30, 2019, expected to be recognized over an average period of approximately two years.
Important facts for investors to verify
- Reconcile the reported Q2 operating cash flow of $15.3 million in MD&A with the six-month cash flow statement showing $69.5 million of operating cash use.
- Assess whether improving contribution and Adjusted EBITDA margins can persist after excluding historical insurance reserve development, stock-based compensation, and other adjustments.
- Monitor insurance reserve adequacy, claims severity, coverage limits, and future adverse development.
- Evaluate the cash burn and liquidity impact of continuing operating losses, RSU-related tax payments, capital expenditures, restricted insurance collateral, lease commitments, and contractual spending obligations.
- Track developments in driver classification, securities litigation, indirect-tax audits, privacy regulation, and other regulatory proceedings.
- Consider dilution and future expense from outstanding equity awards, the dual-class voting structure, and the expected expiration of IPO lock-ups.