Lyft, Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Lyft operates multimodal transportation networks in the United States and Canada, primarily ridesharing, supplemented by bikes and scooters, vehicle rentals, Flexdrive, Lyft Rentals and business transportation services. This unaudited filing covers the three months ended March 31, 2020, with comparative results for the three months ended March 31, 2019.
COVID-19 began materially affecting rides and demand in the second half of March 2020. Management stated that the impact would be significantly greater in the second quarter and that it could not reliably forecast the remainder of 2020.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $955.7 million | $776.0 million | +23% |
| Cost of revenue | $542.4 million | $462.9 million | +17% |
| Total costs and expenses | $1.370 billion | $1.933 billion | -29% |
| Loss from operations | $414.1 million | $1.157 billion | Improved |
| Net loss | $398.1 million | $1.138 billion | Improved |
| Net loss per share | $1.31 | $48.53 | Improved |
| Cash used in operating activities | $206.9 million | $84.8 million | Higher use |
| Adjusted EBITDA | $(85.2) million | $(216.0) million | Improved |
| Adjusted EBITDA margin | (8.9%) | (27.8%) | Improved |
Revenue consisted of $918.3 million from contracts with customers and $37.4 million of rental revenue. Active Riders increased 3.5% year over year to 21.2 million, while revenue per Active Rider increased 19.0% to $45.06. Active Riders declined 7% from 22.9 million in Q4 2019 as COVID-19 reduced usage late in the quarter.
GAAP net margin improved to approximately (41.7%), compared with (146.7%) in the prior-year quarter. Cost of revenue declined to 56.8% of revenue from 59.6%; total costs and expenses declined to 143.3% from 249.0%. Contribution increased 42.2% to $547.4 million, and Contribution Margin rose to 57.3% from 49.6%. These are non-GAAP measures and should be evaluated alongside GAAP results.
Cash, liquidity and debt
- Cash and cash equivalents were $597.9 million and unrestricted short-term investments were $2.072 billion at March 31, 2020, totaling approximately $2.7 billion of unrestricted liquidity.
- Restricted cash and cash equivalents and restricted investments totaled approximately $1.470 billion, primarily supporting insurance obligations and letters of credit.
- Total cash, cash equivalents and restricted cash increased $564.0 million during the quarter to $1.128 billion.
- Operating cash outflow was $206.9 million. Investing cash inflow of $787.7 million primarily reflected marketable-security maturities and sales, partly offset by purchases of investments.
- Following the Flexdrive acquisition, Lyft reported $128.1 million of debt, including $46.0 million maturing within one year. The debt bears interest rates ranging from 4.20% to 6.75%; no debt was reported at December 31, 2019.
- Management stated that available unrestricted liquidity was sufficient for working capital and capital expenditure needs for at least the next 12 months, subject to COVID-19 developments and other assumptions.
Material changes and unusual items
- Research and development expense declined 59%, sales and marketing declined 29%, operations and support declined 29%, and general and administrative expense declined 37%. Much of the reduction reflected the prior-year recognition of substantial IPO-related stock-based compensation.
- Stock-based compensation was $160.0 million in Q1 2020 versus $859.5 million in Q1 2019. Approximately $874.1 million of unrecognized RSU compensation remained at March 31, 2020, expected to be recognized over approximately 2.5 years.
- Lyft acquired Flexdrive on February 7, 2020 for approximately $13.0 million of accounting consideration, including assumed liabilities, vehicles and developed technology. The acquisition added approximately $128.1 million of debt and $54.7 million of finance lease liabilities.
- On March 31, 2020, Lyft transferred certain legacy auto liability obligations to Clarendon for $465.0 million. The transaction derecognized $407.9 million of insurance reserves and produced a $64.7 million net cost, including $62.5 million in cost of revenue and $2.2 million in general and administrative expense. Lyft paid the consideration on April 3, 2020.
- Insurance reserves declined to $975.1 million from $1.378 billion at year-end, primarily because of the legacy-liability transfer. Q1 2020 also included $58.4 million of adverse changes to estimates for historical insurance periods.
Guidance, outlook, commentary and risks
Lyft withdrew the ability to forecast the expected COVID-19 impact on 2020 financial and operating results. Management expects substantially fewer Active Riders, lower revenue per rider, weaker operating cash flow and a materially larger Q2 impact. Lyft paused Shared Rides, intends to turn off rider coupons, reduce 2020 capital expenditures and adjust spending to demand. It also began piloting delivery services in April 2020.
On April 29, 2020, Lyft announced a workforce reduction of approximately 982 employees, or 17% of employees, furloughs of approximately 288 to 300 employees, temporary salary reductions of 10% to 30% for exempt employees, and a 30% voluntary reduction in second-quarter board compensation. It estimated $28 million to $36 million of restructuring and related charges, excluding certain stock-based compensation charges, primarily in Q2 2020.
Principal risks include the uncertain duration and behavioral effects of COVID-19; continued operating losses and cash burn; driver and rider demand; competition; insurance reserve adequacy; independent-contractor classification and related California litigation; evolving transportation, tax, privacy and safety regulations; legal proceedings; asset-utilization and residual-value risk from vehicles, bikes and scooters; debt and lease obligations; and the potential need for additional capital.
Investor verification checklist
- Verify the pace of recovery in rides, Active Riders, revenue per Active Rider and Lyft Business demand after the March 2020 decline.
- Reconcile unrestricted liquidity with restricted insurance funds, expected cash payments and ongoing operating cash burn.
- Monitor the $465.0 million legacy-insurance novation, the proposed retrocession agreement and any future insurance-reserve development.
- Assess the effect of Flexdrive’s acquired debt, vehicle fleet utilization, rental demand and residual values.
- Track restructuring charges, workforce reductions, facility closures and whether cost savings offset revenue deterioration.
- Review independent-contractor litigation, including the California Attorney General and city attorneys’ action filed May 5, 2020, and related potential business-model changes.
- Distinguish GAAP losses and cash flow from non-GAAP Contribution and Adjusted EBITDA, particularly the exclusions for stock compensation and historical insurance items.