LYFT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. As discussed in the section titled "Note About Forward-Looking Statements," the following discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other parts of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10K. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Our fiscal year endsDecember 31 . Our Business Our mission is to improve people's lives with the world's best transportation.Lyft started a movement to revolutionize transportation. In 2012, we launched our peer-to-peer marketplace for on-demand ridesharing and have continued to pioneer innovations aligned with our mission. Today,Lyft is one of the largest multimodal transportation networks inthe United States andCanada . We are laser-focused on revolutionizing transportation and continue to lead the market in innovation. We have established a scaled network of users brought together by our robust technology platform that powers rides and connections every day. We leverage our technology platform, the scale and density of our user network and insights from our increasing number of rides to continuously improve our ridesharing marketplace efficiency and develop new offerings. For example, we pioneered Shared Rides, providing lower-cost rides to riders traveling similar routes while improving the efficiency of our network. In 2018, we were the first to launch a publicly-available commercial autonomous offering inthe United States . Today, our offerings include an expanded set of transportation modes in select cities, such as access to a network of shared bikes and scooters for shorter rides and first-mile and last-mile legs of multimodal trips, information about nearby public transit routes, and Lyft Rentals, an offering to users who have long-distance trips, like a weekend away, to offer riders an extensive view of transportation options when planning any trip. We believe our transportation network offers a viable alternative to car ownership. We anticipate the demand for our offerings will continue to grow as more and more people discover the convenience, experience and affordability of usingLyft . We generate substantially all our revenue from our ridesharing marketplace that connects drivers and riders. We collect service fees and commissions from drivers for their use of our ridesharing marketplace. As drivers accept more rider leads and complete more rides, we earn more revenue. We also generate revenue from riders renting Light Vehicles, drivers renting vehicles through Flexdrive and Lyft Rentals renters, and by making our ridesharing marketplace available to organizations through our Lyft Business offerings, such as ourConcierge and Corporate Business Travel programs. We have made focused and substantial investments in support of our mission. For example, to continually launch new innovations on our platform, we have invested heavily in research and development and have completed multiple strategic acquisitions. We have also invested in sales and marketing to grow our community, cultivate a differentiated brand that resonates with drivers and riders and promote further brand awareness. Together, these investments have enabled us to create a powerful multimodal platform and scaled user network that has resulted in the rapid growth of our business. We are continuing to invest in the future, both organically and through acquisitions of complementary businesses. In the first quarter of 2020, the Company acquired Flexdrive, one of our longstandingExpress Drive partners. Prior to the acquisition, Flexdrive was a part of theExpress Drive program, which allows drivers to enter into short-term rental agreements from third-party operators for vehicles that may be used to provide ridesharing services on the Lyft Platform. We expect the acquisition to contribute to the growth of our business, help us expand the range of our use cases and the breadth of our multimodal offerings. We also continue to invest in the expansion of our network of shared bikes and scooters and autonomous vehicle technology. Our strategy is always to be at the forefront of transportation innovation, and we believe these investments will continue to position us as a leader in Transportation-as-a-Service. During the first quarter of 2020, we also entered into a Novation Agreement with Clarendon, and certain underwriting companies ofZurich . Pursuant to the terms of the Novation, on the effective dateMarch 31, 2020 , the obligations of PVIC as reinsurer toZurich for certain legacy auto liability insurance business underwritten betweenOctober 1, 2015 andSeptember 30, 2018 , were assigned to, assumed by, and novated to Clarendon, for consideration of$465 million . This transaction will eliminate the majority of our primary auto insurance liabilities related to periods precedingOctober 2018 and will allow our insurance risk solutions team to spend less time on legacy claims and instead focus their efforts on managing our go-forward insurance costs, which is an important contributor to our path to profitability. 29 -------------------------------------------------------------------------------- Table of Contents Impact of COVID-19 to our Business The outbreak of the novel coronavirus, named COVID-19, has been declared a pandemic by theWorld Health Organization and continues to spread inthe United States ,Canada , and in many other countries globally. The spread of COVID-19 has caused public health officials to recommend and governments to enact precautions to mitigate the spread of the virus, including travel restrictions and bans, extensive social distancing guidelines and issuing a "shelter-in-place" order in many regions ofthe United States andCanada . The pandemic and these related responses have caused, and are expected to continue to cause, decreased demand for our platform leading to decreased revenues as well as decreased earning opportunities for drivers on our platform, the global slowdown of economic activity (including the decrease in demand for a broad variety of goods and services), disruptions in global supply chains and significant volatility and disruption of financial markets. We are actively monitoring the impact of the COVID-19 pandemic. Beginning in the middle ofMarch 2020 , the pandemic and responses thereto contributed to a severe decrease in the number of rides on our platform and revenue. This impact has continued into the second quarter of 2020. We have adopted several measures in response to the COVID-19 pandemic, including instructing employees to work from home, distributing thousands of bottles of hand sanitizer and masks to drivers on our platform, making adjustments to our expenses and cash flow to correlate with declines in revenues, restricting non-critical business travel by our employees, and pausing our Shared Rides offerings. In addition, onApril 29, 2020 , in an effort to reduce operating expenses and adjust cash flows in light of the ongoing economic challenges resulting from the pandemic, we announced the following actions: •Termination of approximately 17% of our employees; •Furlough of approximately 300 employees; •Implementation of a reduction in base salary for exempt employees for the following 12 weeks, ranging from 10% for most non-hourly employees and up to 30% for our senior leadership team; and •Members of our board have voluntarily agreed to forego 30% of their cash compensation for the second quarter of 2020. In connection with these actions, we believe we will incur approximately$28 million to$36 million of restructuring and related charges, primarily related to employee severance and benefit costs, exclusive of stock-based compensation related charges, the majority of which we expect to incur in the second quarter of 2020. We also expect to incur a restructuring charge related to the shutdown of certain facilities. We cannot be certain that these actions will mitigate some or all of the negative effects of the pandemic on our business. Due to the severity of COVID-19 inthe United States andCanada and the most significant responses thereto beginning in the middle ofMarch 2020 , we believe the impact on our business in the second quarter and beyond will be significantly greater than it was in the first quarter of 2020. The extent to which our operations will be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the pandemic and actions by government authorities and private businesses to contain the pandemic or recover from its impact, among other things. Even as shelter-in-place orders and travel restrictions are modified or lifted, we anticipate that continued social distancing, altered consumer behavior, and expected corporate cost cutting will be significant challenges for us. The strength and duration of these challenges cannot be presently estimated. We have implemented an aggressive plan to strengthen our financial position. In addition to the actions outlined above, we also intend to turn off all rider coupons in response to the current levels of demand for our offerings and decrease our 2020 capital expenditure spending. In light of the evolving and unpredictable effects of COVID-19, we are not currently in a position to forecast the expected impact of COVID-19 on our financial and operating results for the remainder of 2020. We remain confident in our ability to navigate this unprecedented time in our history and in our long-term growth opportunities and our business model, including our ability to be profitable in the future. With$2.7 billion in unrestricted cash and cash equivalents and short-term investments as ofMarch 31, 2020 , we believe we have sufficient liquidity to continue business operations and to take action we determine to be in the best interests of our employees and stakeholders and of drivers and riders on the Lyft Platform. For more information on risks associated with the COVID-19 pandemic, see the section titled "Risk Factors" in Item 1A of Part II. Financial Results for the Three Months EndedMarch 31, 2020 •Total revenue was$955.7 million , an increase of 23% year-over-year. •Total costs and expenses were$1.4 billion , including stock-based compensation expense of$160.0 million , costs related to the transfer of certain legacy auto liability insurance of$64.7 million and insurance costs related to changes to insurance reserves attributed to historical periods of$58.4 million . 30 -------------------------------------------------------------------------------- Table of Contents •Loss from operations was$414.1 million . •Net loss was$398.1 million . •Cash used in operating activities was$206.9 million . •Unrestricted cash and cash equivalents and short-term investments totaled$2.7 billion as ofMarch 31, 2020 . Active Riders and Revenue per Active Rider Three Months Ended March 31, 2020 2019 Growth Rate (in millions, except for dollar amounts and percentages) Active Riders 21.2 20.5 3.5 % Revenue per Active Rider$ 45.06 $ 37.86 19.0 % We define Active Riders as all riders who take at least one ride during a quarter where the Lyft Platform processes the transaction. An Active Rider is identified by a unique phone number. If a rider has two mobile phone numbers or changed their phone number and such rider took rides using both phone numbers during the quarter, that person would count as two Active Riders. If a rider has a personal and business profile tied to the same mobile phone number, that person would be considered a single Active Rider. If a ride has been requested by an organization using our Concierge offering for the benefit of a rider, we exclude this rider in the calculation of Active Riders. In the fourth quarter of 2019, we updated the definition of Active Riders to include riders who have migrated from the legacy Motivate platform to theLyft platform, which resulted in a 0.01% increase, or an additional 1,167 Active Riders, in the fourth quarter of 2019. Prior to the fourth quarter of 2019, for Motivate, only riders that had taken a ride or rented a bike or scooter through the Lyft App during the quarter were counted as an Active Rider. This change had no impact on the Active Riders disclosed in any of the prior periods presented While the number of Active Riders and Revenue per Active Rider increased in the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 , the number of Active Riders decreased 7% from 22.9 million Active Riders in the three months endedDecember 31, 2019 to 21.2 million Active Riders in the three months endedMarch 31, 2020 . The decline in Active Riders was primarily the result of fewer new rider activations and the absence of usage from some of our lower frequency riders from prior quarters due to measures instituted by various government and healthcare officials relating to the COVID-19 pandemic inMarch 2020 . However, Revenue per Active Rider increased from$44.40 in the three months endedDecember 31, 2019 to$45.06 in the three months endedMarch 31, 2020 . Additions to our Active Rider base at the end of any quarter are generally dilutive to Revenue per Active Rider for the quarter, which resulted in increased Revenue per Active Rider this quarter. For so long as responsive measures to COVID-19 remain in place, we expect to see significantly fewer Active Riders and depressed Revenue per Active Rider. Initial Public Offering Our IPO Registration Statement was declared effective onMarch 28, 2019 and our Class A common stock began trading on the Nasdaq Global Select Market onMarch 29, 2019 . However, our IPO was completed onApril 2, 2019 after quarter end and the partial exercise of the underwriters' option to purchase additional shares was completed onApril 9, 2019 . As a result, our condensed consolidated financial statements as ofMarch 31, 2019 and for the period then-ended do not reflect the sale by us of an aggregate of 35,496,845 shares in the completion of our IPO and pursuant to the partial exercise of the underwriters' option to purchase additional shares, each at the public offering price of$72.00 per share, for aggregate net proceeds to us of approximately$2.5 billion , after underwriting discounts and commissions and offering expenses, or the conversion of all outstanding shares of our redeemable convertible preferred stock into an aggregate of 219,175,709 shares of Class A common stock. Our condensed consolidated financial statements as ofMarch 31, 2019 reflect stock-based compensation expense of$857.2 million , which we recognized due to the achievement of the liquidity-event condition of our RSUs that had both service-based and performance-based vesting. Critical Accounting Policies and Estimates Our condensed consolidated financial statements and the related notes thereto are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on 31 -------------------------------------------------------------------------------- Table of Contents historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. There have been no material changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K, except as described below. Recent Accounting Pronouncements See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently issued accounting pronouncements not yet adopted as of the date of this report. Components of Results of Operations As noted above, we expect to see decreased levels of demand for our platform, decreased numbers of new rider activations, and negative impacts on revenue for so long as responsive measures to COVID-19 remain in place. We have adopted several measures in response to the COVID-19 pandemic, including pausing our Shared Ride offerings, instructing employees to work from home, making adjustments to our expenses and cash flow to correlate with declines in revenues, and restricting non-critical business travel by our employees. OnApril 29, 2020 we committed to a restructuring plan which involved the termination of approximately 17% of our employees, furlough of approximately 300 employees, and temporary salary reductions for all exempt employees and board members. We cannot be certain that these actions will mitigate some or all of the negative effects of the pandemic on our business. In light of the evolving and unpredictable effects of COVID-19, we are not currently in a position to forecast the expected impact of COVID-19 on our financial and operating results for the remainder of 2020. Revenues and Rental Revenue Recognition Revenues from Contracts with Customers (ASC 606) We recognize revenue from fees paid by drivers for use of ourLyft platform offerings in accordance with ASC 606 as described in Note 2 of the notes to our condensed consolidated financial statements. Drivers enter into terms of service ("ToS") with us in order to use our Lyft Driver App. We provide a service to drivers to complete a successful transportation service for riders. This service includes on-demand lead generation that assists drivers to find, receive and fulfill on-demand requests from riders seeking transportation services and related collection activities using ourLyft platform. As a result, our single performance obligation in the transaction is to connect drivers with riders to facilitate the completion of a successful transportation service for riders. We evaluate the presentation of revenue on a gross versus net basis based on whether we act as a principal by controlling the transportation service provided to the rider or whether we act as an agent by arranging for third parties to provide the service to the rider. We facilitate the provision of a transportation service by a driver to a rider (the driver's customer) in order for the driver to fulfill their contractual promise to the rider. The driver fulfills their promise to provide a transportation service to their customer through use of theLyft platform. While we facilitate setting the price for transportation services, the drivers and riders have the discretion in accepting the transaction price through the platform. We do not control the transportation services being provided to the rider nor do we have inventory risk related to the transportation services. As a result, we act as an agent in facilitating the ability for a driver to provide a transportation service to a rider. We report revenue on a net basis, reflecting the service fees and commissions owed to us from the drivers as revenue, and not the gross amount collected from the rider. We made this determination of not being primarily responsible for the services since we do not promise the transportation services, do not contract with drivers to provide transportation services on our behalf, do not control whether the driver accepts or declines the transportation request via theLyft platform, and do not control the provision of transportation services by drivers to riders at any point in time either before, during, or after, the trip. We consider the ToS and our customary business practices in identifying the contracts under ASC 606. As our customary business practice, a contract exists between the driver and us when the driver's ability to cancel the trip lapses, which typically is upon pickup of the rider. We collect the fare and related charges from riders on behalf of drivers using the rider's pre-authorized credit card or other payment mechanism and retain any fees owed to us before making the remaining disbursement to drivers; thus the driver's ability and intent to pay is not subject to significant judgment. We earn service fees and commissions from the drivers either as the difference between an amount paid by a rider based on an upfront quoted fare and the amount earned by a driver based on actual time and distance for the trip or as a fixed percentage of the fare charged to the rider. In an upfront quoted fare arrangement, as we do not control the driver's actions at any point in the transaction to limit the time and distance for the trip, we take on risks related to the driver's actions which may not be fully mitigated. We earn a variable amount from the drivers and may record a loss from a transaction, which is recorded 32 -------------------------------------------------------------------------------- Table of Contents as a reduction to revenue, in instances where an up-front quoted fare offered to a rider is less than the amount we are committed to pay the driver. We recognize revenue upon completion of a ride as the single performance obligation is satisfied and we have the right to receive payment for the services rendered upon the completion of the ride. We offer various incentive programs to drivers that are recorded as reduction to revenue if we do not receive a distinct good or service in consideration or if we cannot reasonably estimate the fair value of goods or services received. In some cases, we also earn Concierge platform fees from organizations that use our Concierge offering, which is a product that allows organizations to request rides for their customers and employees through our ridesharing marketplace. Concierge platform fees are earned as a fixed dollar amount per ride or a percentage of the ride price depending on the contract and such Concierge platform fee revenue is recognized on a gross basis. We recognize revenue from subscription fees paid by riders to access transportation options through the Lyft Platform and mobile-based applications over the applicable subscription period. Rental Revenue (ASC 842) We generate rental revenues primarily from Flexdrive, our network of Light Vehicles, and Lyft Rentals. Under the Flexdrive and Lyft Rentals programs, we operate a fleet of rental vehicles comprised of both vehicles owned by us and vehicles leased from third-party leasing companies ("head leases"). We either lease or sublease vehicles to drivers and Lyft Rentals renters, as a result, we are considered the accounting lessor or sublessor, as applicable, in these arrangements in accordance with ASC 842. For vehicles that are subleased, sublease income and head lease expense for these transactions are recognized on a gross basis in the condensed consolidated financial statements. Drivers who rent vehicles are charged rental fees, which we collect from the driver by deducting such amounts from the driver's earnings on the Lyft Platform, or through charging the driver's credit card. Revenue generated from single-use ride fees paid by riders of Light Vehicles are recognized upon completion of each related ride. Revenue generated from Flexdrive and Lyft Rentals is recognized evenly over the rental period, which is typically seven days. Due to the short-term nature of the Flexdrive,Lyft Rentals, and Light Vehicle transactions, we classify these rentals as operating leases. Cost of Revenue Cost of revenue consists of costs related to operating our multimodal transportation networks including primarily insurance costs that are generally required under TNC and city regulations for ridesharing and bike and scooter rentals, respectively, payment processing charges, including merchant fees, chargebacks and failed charges, hosting and platform-related technology costs, certain direct costs related to ridesharing, bikes and scooters, car rental programs for Lyft Rentals and Flexdrive, personnel-related compensation costs and amortization of our multimodal technology-related intangible assets. Cost of revenue is presented as a single line item on the income statement, as these expenses support all of our revenue generating multimodal offerings and provide an appropriate level of detail as to the type of expenses incurred. Operations and Support Operations and support expenses primarily consist of personnel-related compensation costs of local operations teams and teams who provide phone, email and chat support to users, bike and scooter fleet operations support costs, driver background checks and onboarding costs, fees paid to third parties providing operations support, facility costs and certain car rental fleet support costs. Research and Development Research and development expenses primarily consist of personnel-related compensation costs and facilities costs. Such expenses include costs related to our autonomous vehicle technology initiatives. Research and development costs are expensed as incurred. Sales and Marketing Sales and marketing expenses primarily consist of rider incentives, driver incentives for referring new drivers or riders, personnel-related compensation costs, advertising expenses, rider refunds and marketing partnerships with third parties. Sales and marketing costs are expensed as incurred. General and Administrative General and administrative expenses primarily consist of personnel-related compensation costs, certain insurance costs that are generally not required under TNC regulations, professional services fees, certain loss contingency expenses including 33 -------------------------------------------------------------------------------- Table of Contents legal accruals and settlements, insurance claims administrative fees, facility costs, and other corporate costs. General and administrative expenses are expensed as incurred. Interest Income Interest income consists primarily of interest earned on our cash and cash equivalents, and restricted and unrestricted short-term investments less interest expense incurred. Provision for Income Taxes Our provision for income taxes consists primarily of income taxes in foreign jurisdictions andU.S. state income taxes. As we expand the scale of our international business activities, any changes in theU.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future. We have a valuation allowance for ourU.S. deferred tax assets, including federal and state net operating loss carryforwards, or NOLs. We expect to maintain this valuation allowance until it becomes more likely than not that the benefit of our federal and state deferred tax assets will be realized by way of expected future taxable income inthe United States . Results of Operations The following table summarizes our historical condensed consolidated statements of operations data (in thousands): Three Months Ended March 31, 2020 2019 Revenue$ 955,712 $ 776,027 Costs and expenses Cost of revenue 542,419 462,857 Operations and support 133,782 187,235 Research and development 258,739 630,960 Sales and marketing 196,437 275,129 General and administrative 238,440 376,736 Total costs and expenses 1,369,817 1,932,917 Loss from operations (414,105) (1,156,890) Interest income 21,327 19,654 Other income (expense), net (3,665) 146 Loss before income taxes (396,443) (1,137,090) Provision for income taxes 1,630 1,383 Net loss$ (398,073) $ (1,138,473) 34
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Table of Contents The following table sets forth the components of our condensed consolidated statements of operations data as a percentage of revenue:
Three Months Ended March 31,
2020 2019
Revenue 100.0 % 100.0 %
Costs and expenses
Cost of revenue 56.8 59.6
Operations and support 14.0 24.1
Research and development 27.1 81.3
Sales and marketing 20.6 35.5
General and administrative 24.9 48.5
Total costs and expenses 143.3 249.0
Loss from operations (43.3) (149.0)
Interest income 2.2 2.5
Other income (expense), net (0.4) -
Loss before income taxes (41.5) (146.5)
Provision for income taxes 0.2 0.2
Net loss (41.7) % (146.7) %
Comparison of the three months ended March 31, 2020 to the three months ended
March 31, 2019 .
Revenue
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except for percentages)
Revenue $ 955,712 $ 776,027 23 %
Revenue increased $179.7 million , or 23%, in the three months ended March 31,
2020 as compared to the three months ended March 31, 2019 , driven by an increase
in the number of Active Riders and the revenue generated on our platform per
Active Rider. Revenue increased from $776.0 million or $37.86 per Active Rider
for 20.5 million Active Riders in the three months ended March 31, 2019 to
$955.7 million or $45.06 per Active Rider for 21.2 million Active Riders in the
three months ended March 31, 2020 . The number of Active Riders increased 3.5% in
the three months ended March 31, 2020 as compared to the three months ended
March 31, 2019 primarily due to the wider market adoption of ridesharing in
addition to our initiatives to attract and retain riders. Revenue per Active
Rider increased 19.0% in the three months ended March 31, 2020 as compared to
the three months ended March 31, 2019 primarily from increased service fees and
commissions including efficiencies from Shared Rides, greater efficiency and
effectiveness of driver incentives, and increased rental revenue. Revenue per
Active Rider was also positively impacted by the timing of the increase of
Active Riders, which was heavily weighted to the first two months of the
quarter.
We expect to see decreased levels of demand for our platform and negative
impacts on revenue for so long as responsive measures to COVID-19 remain in
place.
Cost of Revenue
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except for percentages)
Cost of revenue $ 542,419 $ 462,857 17 %
Cost of revenue increased $79.6 million , or 17%, in the three months ended
March 31, 2020 as compared to the three months ended March 31, 2019 . This
increase was primarily due to an increase of $93.4 million in insurance costs,
largely driven by $62.5 million of costs related to the transfer of certain
legacy auto insurance liabilities and $34.5 million of increases to insurance
reserves related to historical periods as a result of updating actuarial
assumptions to reflect currently available information. There was also an
increase of $16.5 million in costs associated with the expansion of our network
of shared bikes and scooters, and an increase of $12.6 million in web hosting
fees to support our platform. This was partially offset by a decrease of
$31.8 million in stock-based compensation expense, as the three months ended
March 31, 2019 included expenses recognized due to the achievement of the
liquidity-event condition of our RSUs that had both service-based and
performance-
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Table of Contents
based vesting, which we started to recognize upon the effectiveness of our IPO
Registration Statement, and a decrease of $11.1 million in costs related to
Flexdrive.
Operations and Support
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except for percentages)
Operations and support $ 133,782 $ 187,235 (29) %
Operations and support expenses decreased $53.5 million , or 29%, in the three
months ended March 31, 2020 as compared to the three months ended March 31,
2019 . The decrease was primarily due to a decrease of $47.3 million in
stock-based compensation expense, as the three months ended March 31, 2019
included expenses recognized due to the achievement of the liquidity-event
condition of our RSUs that had both service-based and performance-based vesting,
which we started to recognize upon the effectiveness of our IPO Registration
Statement.
Research and Development
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except for percentages)
Research and development $ 258,739 $ 630,960 (59) %
Research and development expenses decreased $372.2 million , or 59%, in the three
months ended March 31, 2020 as compared to the three months ended March 31,
2019 . The decrease was primarily due to a decrease of $410.7 million in
stock-based compensation expense, as the three months ended March 31, 2019
included expenses recognized due to the achievement of the liquidity-event
condition of our RSUs that had both service-based and performance-based vesting,
which we started to recognize upon the effectiveness of our IPO Registration
Statement. This was partially offset by an increase of $18.3 million in other
personnel-related costs as a result of an increase in headcount to support our
expanded research and development activities and an increase of $10.3 million in
research and development costs associated with autonomous vehicles driven by the
conclusion of a co-development partnership in the fourth quarter of 2019.
Sales and Marketing
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except for percentages)
Sales and marketing $ 196,437 $ 275,129 (29) %
Sales and marketing expenses decreased $78.7 million , or 29%, in the three
months ended March 31, 2020 as compared to the three months ended March 31,
2019 . The decrease was primarily due to a decrease of $40.4 million in
stock-based compensation expense, as the three months ended March 31, 2019
included expenses recognized due to the achievement of the liquidity-event
condition of our RSUs that had both service-based and performance-based vesting
, which we started to recognize upon the effectiveness of our IPO Registration
Statement. The decrease was also due to a decrease of $20.8 million in costs
related to incentive programs to attract riders and drivers to use the Lyft
Platform and to increase rider loyalty and ride frequency, a decrease of
$16.2 million in costs associated with driver and passenger acquisition and a
decrease of $12.3 million in brand and other marketing.
General and Administrative
Three Months Ended March 31,
2020 2019 % Change
(in thousands, except for percentages)
General and administrative $ 238,440 $ 376,736 (37) %
General and administrative expenses decreased$138.3 million , or 37%, in the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . The decrease was primarily due to a decrease of$169.5 million in stock-based compensation expense, as the three months endedMarch 31, 2019 included expenses recognized due to the achievement of the liquidity-event condition of our RSUs that had both service-based and performance-based vesting , which we started to recognize upon the effectiveness of our IPO Registration Statement. The decrease was also due to a decrease of$8.8 million in legal accruals and settlements. This was partially offset by an increase of$11.5 million in consultant and advisory costs due to 36 -------------------------------------------------------------------------------- Table of Contents overall growth in our business and an increase of$10.1 million in corporate insurance costs largely driven by an increase in the accrual of self-retained general business liabilities. Interest Income Three Months Ended March 31, 2020 2019 % Change (in thousands, except for percentages) Interest income$ 21,327 $ 19,654 9 %
Interest income increased
Three Months Ended March 31,
2020 2019 Growth Rate
(in millions, except for percentages)
Contribution(1) $ 547.4 $ 384.9 42.2 %
Contribution Margin(1) 57.3 % 49.6 %
Adjusted EBITDA(1) $ (85.2) $ (216.0) 60.6 %
Adjusted EBITDA Margin(1) (8.9) % (27.8) %
_______________
(1)Contribution, Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin
are non-GAAP financial measures and metrics. For more information regarding our
use of these measures and a reconciliation of these measures to the most
comparable GAAP measures, see "Reconciliation of Non-GAAP Financial Measures."
Contribution and Contribution Margin
Contribution and Contribution Margin are measures used by our management to
understand and evaluate our operating performance and trends. We believe
Contribution and Contribution Margin are key measures of our ability to achieve
profitability and increase it over time. Contribution Margin has generally
increased over the periods presented as revenue has increased at a faster rate
than the costs included in the calculation of Contribution.
We define Contribution as revenue less cost of revenue, adjusted to exclude the
following items from cost of revenue:
•amortization of intangible assets;
•stock-based compensation expense;
•payroll tax expense related to stock-based compensation;
•changes to the liabilities for insurance required by regulatory agencies
attributable to historical periods; and
•transfer of certain legacy auto insurance liabilities.
For more information about cost of revenue, see the section titled "-Components
of Results of Operations-Cost of Revenue."
Contribution Margin is calculated by dividing Contribution for a period by
revenue for the same period.
We record historical changes to liabilities for insurance required by regulatory
agencies for financial reporting purposes in the quarter of positive or adverse
development even though such development may be related to claims that occurred
in prior periods. For example, if in the first quarter of a given year, the cost
of claims grew by $1 million for claims related to the prior fiscal year or
earlier, the expense would be recorded for GAAP purposes within the first
quarter instead of in the results of the prior period. We believe these prior
period changes to insurance liabilities do not illustrate the current period
performance of our ongoing operations since these prior period changes relate to
claims that could potentially date back years. We have limited ability to
influence the ultimate development of historical claims. Accordingly, including
the prior period changes would not illustrate the performance of our ongoing
operations or how the business is run or managed by us. For consistency, we do
not adjust the calculation of Contribution for any prior period based on any
positive or adverse development that occurs subsequent to the quarter end.
Annual Contribution is calculated by adding Contribution of the last four
quarters. We believe the adjustment to exclude the historical changes to
liabilities for insurance required by regulatory agencies from Contribution and
Adjusted EBITDA is useful to investors by enabling them to better assess our
operating performance in the context of current period results.
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During the first quarter of 2020, we entered into a Novation Agreement for the
transfer of certain legacy auto insurance liabilities between October 1, 2015
and September 30, 2018 . Refer to Note 4 "Supplemental Financial Statement
Information" to the condensed consolidated financial statements for information
regarding this transaction. We believe the costs associated with the transfer of
these legacy auto insurance liabilities do not illustrate the current period
performance of our ongoing operations despite this transaction occurring in the
current period because these costs are non-recurring and the transferred
insurance liabilities relate to claims that date back years. We believe the
adjustment to exclude the these costs related to the transfer of legacy
insurance liabilities from Contribution and Adjusted EBITDA is useful to
investors by enabling them to better assess our operating performance in the
context of current period results and provide for better comparability with our
historically disclosed Contribution and Adjusted EBITDA amounts.
For more information regarding the limitations of Contribution and Contribution
Margin and a reconciliation of revenue to Contribution, see the section titled
"-Reconciliation of Non-GAAP Financial Measures."
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures that our
management uses to assess our operating performance and the operating leverage
in our business. Because Adjusted EBITDA and Adjusted EBITDA Margin facilitate
internal comparisons of our historical operating performance on a more
consistent basis, we use these measures for business planning purposes. We
expect Adjusted EBITDA and Adjusted EBITDA Margin will increase over the long
term as we continue to scale our business and achieve greater efficiencies in
our operating expenses.
We calculate Adjusted EBITDA as net loss, adjusted to exclude:
•interest income;
•other income (expense), net;
•provision for income taxes;
•depreciation and amortization;
•stock-based compensation expense;
•payroll tax expense related to stock-based compensation;
•changes to the liabilities for insurance required by regulatory agencies
attributable to historical periods;
•costs related to acquisitions, if any; and
•transfer of the certain legacy auto insurance liability.
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by
revenue for the same period.
For more information regarding the limitations of Adjusted EBITDA and Adjusted
EBITDA Margin and a reconciliation of net loss to Adjusted EBITDA, see the
section titled "-Reconciliation of Non-GAAP Financial Measures."
Reconciliation of Non-GAAP Financial Measures
We use Contribution, Contribution Margin, Adjusted EBITDA and Adjusted EBITDA
Margin in conjunction with GAAP measures as part of our overall assessment of
our performance, including the preparation of our annual operating budget and
quarterly forecasts, to evaluate the effectiveness of our business strategies,
and to communicate with our board of directors concerning our financial
performance. Our definitions may differ from the definitions used by other
companies and therefore comparability may be limited. In addition, other
companies may not publish these or similar metrics. Furthermore, these measures
have certain limitations in that they do not include the impact of certain
expenses that are reflected in our condensed consolidated statements of
operations that are necessary to run our business. Thus, our Contribution,
Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin should be
considered in addition to, not as substitutes for, or in isolation from,
measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of
Contribution and Adjusted EBITDA to the related GAAP financial measures, revenue
and net loss, respectively. We encourage investors and others to review our
financial information in its entirety, not to rely on any single financial
measure and to view Contribution, Contribution Margin, Adjusted EBITDA and
Adjusted EBITDA Margin in conjunction with their respective related GAAP
financial measures.
The following table provides a reconciliation of revenue to Contribution (in
millions):
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Three Months Ended March 31,
2020 2019
Revenue $ 955.7 $ 776.0
Less cost of revenue 542.4 462.9Adjusted to exclude the following (as related to cost of revenue): Amortization of intangible assets
2.8 5.3
Stock-based compensation expense 9.7 41.5
Payroll tax expense related to stock-based compensation 0.7 1.2
Changes to the liabilities for insurance required by regulatory agencies attributable to historical periods(1)
58.4 23.8
Transfer of certain legacy auto insurance liabilities(2) 62.5 -
Contribution $ 547.4 $ 384.9
_______________
(1)$58.4 million of insurance expense recorded during the three months ended
March 31, 2020 reflects changes to reserves estimates of claims from 2019 and
earlier periods and $23.8 million of insurance expense recorded during the three
months ended March 31, 2019 reflects changes to reserves estimates of claims
from 2018 and earlier periods.
(2)The total impact of the transfer of certain legacy auto insurance liabilities
on our condensed consolidated statement of operations was $64.7 million , with
$62.5 million in cost of revenue and $2.2 million in general and administrative
expense.
The following table provides a reconciliation of net loss to Adjusted EBITDA (in
millions):
Three Months Ended
2020 2019
Net loss $ (398.1) $ (1,138.5)
Adjusted to exclude the following:
Interest income (21.3) 19.7
Other income, net 3.7 0.1
Provision for income taxes 1.6 1.4
Depreciation and amortization 35.5 23.1
Stock-based compensation expense 160.0 859.5
Payroll tax expense related to stock-based compensation 9.9 34.5
Changes to the liabilities for insurance required by regulatory agencies attributable to historical periods(1)
58.4 23.8
Costs related to acquisitions 0.4 -
Transfer of certain legacy auto insurance liabilities(2) 64.7 -
Adjusted EBITDA $ (85.2) $ (216.0)
_______________
(1)$58.4 million of insurance expense recorded during the three months ended
March 31, 2020 reflects changes to reserves estimates of claims from 2019 and
earlier periods and $23.8 million of insurance expense recorded during the three
months ended March 31, 2019 reflects changes to reserves estimates of claims
from 2018 and earlier periods.
(2)The total impact of the transfer of certain legacy auto insurance liabilities
on our condensed consolidated statement of operations was $64.7 million , with
$62.5 million in cost of revenue and $2.2 million in general and administrative
expense.
Liquidity and Capital Resources
As of March 31, 2020 , our principal sources of liquidity were cash and cash
equivalents of approximately $597.9 million and short-term investments of
approximately $2.1 billion , exclusive of restricted cash, cash equivalents and
investments of $1.5 billion . Cash and cash equivalents consisted of
institutional money market funds, certificates of deposits, commercial paper and
corporate bonds that have an original maturity of less than three months and are
readily convertible into known amounts of cash. Also included in cash and cash
equivalents are certain money market deposit accounts and cash in transit from
payment processors for credit and debit card transactions. Short-term
investments consisted of commercial paper, certificates of deposit, corporate
bonds and term deposits, which mature in 12 months or less. Restricted cash,
cash equivalents and investments consisted primarily of amounts held in separate
trust accounts and restricted bank accounts as collateral for insurance purposes
and amounts pledged to secure certain letters of credit.
39
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In April 2019 , we received net proceeds of $2.5 billion upon the completion of
our IPO.
We collect the fare and related charges from riders on behalf of drivers at the
time the ride is delivered using the rider's authorized payment method, and we
retain any fees owed to us before making the remaining disbursement to drivers.
Accordingly, we maintain no accounts receivable from drivers. Our contracts with
insurance providers require reinsurance premiums to be deposited into trust
accounts with a third-party financial institution from which the insurance
providers are reimbursed for claims payments. Our restricted reinsurance trust
investments as of March 31, 2020 and December 31, 2019 were $0.9 billion and
$1.4 billion , respectively.
We are actively monitoring the impact of the COVID-19 pandemic. We saw a large
decline in rides in the last two weeks of the first quarter, and such reduced
levels have continued into the second quarter, which we believe will have a more
significant effect on our revenues and cash flows from operations in the second
quarter. The extent to which our operations, financial results and financial
condition will be impacted in the next few quarters by the pandemic will depend
largely on future developments, which are highly uncertain and cannot be
accurately predicted, including new information which may emerge concerning the
severity of the pandemic and actions by government authorities and private
businesses to contain the pandemic or treat its impact, among other things. We
have adopted several measures in response to the COVID-19 pandemic, including
pausing our Shared Ride offerings, instructing employees to work from home,
distributing thousands of bottles of hand sanitizer and masks to drivers on our
platform, making adjustments to our expenses and cash flow to correlate with
declines in revenues, and restricting non-critical business travel by our
employees. On April 29, 2020 . we made the decision to terminate approximately
17% of our employees, furlough of approximately 300 employees, and implement
temporary salary reductions for all exempt employees ranging from 10% for most
employees to 30% for our senior leadership team. In addition, members of our
board have voluntarily agreed to forego 30% of their cash compensation for the
second quarter of 2020. In connection with these decisions, we believe we will
incur approximately $28 million to $36 million of restructuring and related
charges, primarily related to employee severance and benefit costs, exclusive of
stock-based compensation charges, the majority of which we expect to incur in
the second quarter of 2020. We also expect to incur a restructuring charge
related to the shutdown of certain facilities. In addition, we also intend to
turn off all rider coupons in response to the current levels of demand for our
offerings and decrease our 2020 capital expenditure spending. We cannot be
certain that these actions will mitigate some or all of the negative effects of
the pandemic on our business. With nearly $2.7 billion in unrestricted cash and
cash equivalents and short-term investments as of March 31, 2020 , we believe we
have sufficient liquidity to meet our working capital and capital expenditures
needs for at least the next 12 months.
Our future capital requirements will depend on many factors, including, but not
limited to our growth, our ability to attract and retain drivers and riders on
our platform, the continuing market acceptance of our offerings, the timing and
extent of spending to support our efforts to develop our platform, actual
insurance payments for which we have made reserves, measures taken by the
Company in response to the COVID-19 pandemic, our ability to maintain demand for
and confidence in the safety of our platform during and following the COVID-19
pandemic, and the expansion of sales and marketing activities. As noted above,
we expect to see decreased levels of demand for our platform, decreased numbers
of new rider activations, and negative impacts on revenue for so long as
responsive measures to COVID-19 remain in place. Further, we may in the future
enter into arrangements to acquire or invest in businesses, products, services
and technologies. From time to time, we may seek additional equity or debt
financing to fund capital expenditures, strategic initiatives or investments and
our ongoing operations. In the event that we decide, or are required, to seek
additional financing from outside sources, we may not be able to raise it on
terms acceptable to us or at all. If we are unable to raise additional capital
when desired, our business, financial condition and results of operations could
be adversely affected.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Three Months Ended
2020 2019
Net cash used in operating activities $ (206,926) $ (84,827)
Net cash provided by investing activities 787,667 670,324
Net cash used in financing activities (16,644) (788,167)
Effect of foreign exchange on cash, cash equivalents and restricted cash and cash equivalents
(120) 102
Net change in cash, cash equivalents and restricted cash and cash
equivalents $ 563,977 $ (202,568)
Operating Activities
Cash used in operating activities was $206.9 million for the three months ended
March 31, 2020 . This consisted primarily of a net loss of $398.1 million offset
by non-cash stock-based compensation expense of $160.0 million .
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Table of Contents Cash used in operating activities was$84.8 million for the three months endedMarch 31, 2019 . This consisted primarily of a net loss of$1.1 billion offset by non-cash stock-based compensation expense of$859.5 million largely driven by the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of our IPO Registration Statement onMarch 28, 2019 . Additionally, there was an increase in prepaid expenses and other assets of$46.3 million due to the growth in our business, partially offset by an increase in insurance reserves and accrued and other liabilities of$220.9 million . Investing Activities Cash provided by investing activities was$787.7 million for the three months endedMarch 31, 2020 , which primarily consisted of proceeds from sales and maturities of marketable securities of$2.1 billion , partially offset by purchases of marketable securities of$1.2 billion and a term deposit of$75.0 million . Cash provided by investing activities was$670.3 million for the three months endedMarch 31, 2019 , which primarily consisted of proceeds from sales and maturities of marketable securities of$1.3 billion , partially offset by purchases of short-term investments of$607.2 million . Financing Activities Cash used in financing activities was$16.6 million for the three months endedMarch 31, 2020 , which primarily consisted of taxes paid related to net share settlement of equity awards of$6.8 million and principal payments of finance lease obligations of$6.2 million . Cash used in financing activities was$788.2 million for the three months endedMarch 31, 2019 , which primarily consisted of taxes paid related to net share settlement of equity awards of$784.7 million . Contractual Obligations and Commitments In connection with our acquisition of Flexdrive, Flexdrive remained responsible for the Non-revolving Loan, the Master Vehicle Loan and the VPA (each as defined in Note 8 to our condensed consolidated financial statements). As ofMarch 31, 2020 , we met all covenants related to these loans and agreements. Refer to Note 8 "Debt" to our condensed consolidated financial statements for additional information. In conjunction with the Novation, Clarendon and PVIC executed a binding letter of intent to enter into the Retrocession Agreement. Pursuant to the summary of term of the Retrocession Agreement, PVIC will reinsure Clarendon's losses related to the Legacy Auto Liability in excess of an aggregate limit of$816 million . Refer to Note 4 "Supplemental Financial Information" to our condensed consolidated financial statements for information on this transaction. InMay 2020 , we modified our non-cancellable arrangement with a web-hosting services provider by extending the commitment period throughJune 2022 with no change to the aggregate commitment amounts of$300.0 million . As ofMarch 31, 2020 , there have been no other material changes from the contractual obligations and commitments previously disclosed in our Annual Report on Form 10-K. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
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