Lyft Inc (LYFT) 2019 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Lyft Fourth Quarter 2019 Earnings Call.

(Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Catherine Buan, VP of Investor Relations.

You may begin.

Thank you.

Good afternoon, and welcome to the Lyft earnings call for the quarter and full year ended December 31, 2019.

I'm Catherine Buan, VP of Investor Relations.

Joining me today to discuss Lyft's results are Co-Founder and CEO, Logan Green; and Co-Founder and President, John Zimmer; and Chief Financial Officer, Brian Roberts.

Logan and John will give an update on our business and key initiatives, and then Brian will review our Q4 and full year 2019 financial results as well as our outlook.

This conference call will be available via webcast on our Investor Relations website at investor.lyft.com, and a recording will be available at the same location shortly after this call has ended.

I'd like to take this opportunity to remind you that during the call, we'll be making forward-looking statements, including statements relating to the expected performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects.

These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call, in particular, those described in our risk factors included in our final prospectus for our initial public offering filed with the SEC on March 29, 2019, and the risk factors included in our Form 10-Q for the third quarter of 2019 filed on November 4, 2019, and our Form 10-K for the full year 2019 that will be filed by March 30, 2020.

You should not rely on our forward-looking statements as predictions of future events.

All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Lyft disclaims any obligation to update any forward-looking statements except as required by law.

Our discussion today will include non-GAAP financial measures.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC, and may also be found on our Investor Relations website at investor.lyft.com.

I would now like to turn the conference call over to Lyft's Co-Founder and Chief Executive Officer, Logan Green.

Logan?

Thanks, Catherine.

Good afternoon, everyone, and thank you for joining our call today.

First and most importantly, I want to congratulate and thank the entire Lyft team and all of our partners for your tremendous achievement this year.

Q4 was our first $1 billion quarter, with 52% revenue growth year-over-year.

Active riders grew 23% to a record 22.9 million while revenue per active rider also increased 23%.

Contribution margin hit a record high at 54%.

Our top line momentum and our success with strategic initiatives in our core operations enabled us to improve our Q4 adjusted EBITDA loss by nearly 50% year-over-year.

I'm extremely proud of the progress our team has made in our first year as a public company.

For the full year 2019, revenue grew 68%, an incremental $1.5 billion versus 2018.

Our 2019 adjusted EBITDA loss of $679 million was more than 40% better than guidance we provided on our first quarter call.

This was the first full year where we brought together rideshare, bikes, scooters and public transit in our platform.

And as Brian will discuss in more detail, we expect to deliver continued strong top line growth in 2020 while also making progress on our path to profitability.

As we've discussed on prior calls, there are 3 key themes that we're focused on.

First is product innovation; second is profitable growth; and third is operating leverage.

John, Brian and I will go through our initiatives in each of these 3 areas.

Product innovation is a key driver of our growth.

From our platform technology to the various modes we offer, innovation is what powers our ability to deliver the right product to the right customer at the right time.

Solving that formula in real-time at scale is a massive feat of engineering that drives higher user engagement and improves utilization within our marketplace.

And by doing this, we best serve our drivers and riders while maximizing revenue per active rider.

After over 7 years and more than 2 billion rides, it's astounding to reflect on the development of our rideshare marketplace since we pioneered peer-to-peer ridesharing in 2012, and we're not stopping here.

We continue to see tremendous opportunities to improve our core ridesharing marketplace.

In 2019, we made significant improvements to the technology stack that powers our marketplace.

For example, we launched the Lyft Matching Platform which is enabling new products like Shared Saver.

Modes like Shared Saver better address certain use cases, such as daily commutes, driving increased frequency.

In markets where we've launched Shared Saver, it now accounts for roughly 1/3 of all shared rides, demonstrating the strong demand for modes that allow riders to trade off time, money and convenience.

In the last few months, we further improved our infrastructure by launching a new Modes Platform.

While the matching platform gave us the ability to improve the efficiency and flexibility of our matching system, the Modes Platform allows our teams to create and test new modes with greater velocity.

As an illustration of how our teams can benefit from our improved platform, we are now testing a new variant of shared drives that took nearly 90% less time to build than Shared Saver.

I'm very excited about accelerating the pace of innovation in 2020 on the back of this new platform.

We will continue to invest in technology advancements in 2020 and are committed to applying a disciplined approach to this investment.

For example, as part of our recently announced partnership with Gett, we acquired a very talented engineering team in Eastern Europe that previously developed the Juno rideshare platform.

2019 was the first full year with bikes, scooters and public transportation on our network, transforming Lyft from a ridesharing platform to a complete transportation network.

Specifically, in Q4, we relaunched our e-bikes and made significant progress on our scooter strategy.

Starting with our Bay Wheels system in San Jose and San Francisco, e-bikes returned to the Lyft platform in Q4.

Over the next few months, we plan to launch our new e-bikes in a number of our markets, including the Citi Bike system in New York, the Divvy system in Chicago and the Capital Bikeshare system in the Greater Washington, D.C. area.

Early results for our e-bike relaunch have been very encouraging, with significantly more rides per day than our classic bikes.

We believe that our e-bike rollout and strategy will help improve unit economics and fleet availability over time.

In Q4, we also made meaningful progress with our scooter operations.

In November, we made the decision to exit 6 markets in order to focus on our largest, highest density scooter markets and sharpen our attention where resources are most productive.

In our remaining 9 markets, we completed the rollout of our latest scooter model, which has better durability and lower operating costs.

This new generation of hardware now accounts for nearly all of our scooter fleet.

Over the last few months, we made exciting progress on our two-pronged strategy to bring autonomous vehicles to market.

Our Open Platform is one of the largest publicly available commercial self-driving programs in the country, underscoring our leading position among rideshare networks for self-driving technology.

We've now provided over 100,000 self-driving rides to users in Las Vegas with our partner, Aptiv.

This program is helping us understand how consumers view this technology and feedback has been extremely positive.

2019 was a transformative year for our Level 5 Engineering Center, which continues to drive meaningful progress towards developing our own world-class autonomous vehicle system.

The team delivered substantial improvements to our autonomy performance over the course of the year, as will be shown in the report we recently submitted to the California DMV.

We also massively accelerated our autonomous miles, operating thousands of miles per month in Q4 on public roads.

In addition to these tests, the team recently opened our first dedicated test facility, which significantly expands the conditions and scenarios we can test within a controlled environment.

One of our unique advantages is the billions of miles traveled on the Lyft platform every year, which provide us with a proprietary dataset.

In late 2019, the Level 5 team started utilizing the power of this data for the first time, generating very encouraging gains in our self-driving system's performance.

In 2020, we'll double down on harnessing the power of the Lyft platform for our AV efforts.

We have very rapidly established a strong foundation since founding the program just 2.5 years ago, and I'm excited about our road ahead.

Now I'll turn it over to John to talk about our momentum with profitable growth opportunities, including our high-value enterprise partnerships and our work with organizations for their business travel.

These strategies each added incremental profitable growth opportunities for Lyft.

Importantly, he'll also talk about new ways we're serving our driver community.

Thanks, Logan.

We've had an incredible year with our various enterprise businesses, whether it's medical providers transporting patients, businesspeople getting to their clients every day or auto service centers getting their customers home, these strategies are important opportunities for high-growth, high-margin and high-frequency rides.

For almost any enterprise, transportation is a critical part of doing business.

Lyft is particularly well positioned not only because of our singular focus on consumer transportation, but also because of our well-known reputation for our values and culture.

More and more companies today care about a shared set of values, people they want to work with and product innovation that addresses their specific business and customers' needs.

In short, strong brands attract and partner with strong brands, and this is a significant advantage for Lyft.

This year, we partnered with leading companies, including Disney and Hilton, and we expanded our great work with Delta.

We're focused on partnerships that provide more value for our customers and increase our mix of high-value use cases.

We also recently announced a new partnership with Chase, giving millions of Chase card members more reasons than ever to ride with Lyft.

Chase Sapphire Preferred, Freedom and Ink card members now receive 5x total points or 5% cash back on Lyft rides.

Chase Sapphire Reserve card members earn 10x total points on Lyft rides and each Reserve account is receiving 1 free year of Lyft Pink.

Lyft Pink is our Lyft membership program that gives subscribers a 15% discount on all their personal rides, priority airport pickups and surprise upgrades among many other perks for $19.99 per month.

This partnership is fantastic for attracting riders who travel and go out a lot, millions of whom already use one of the several Chase cards.

And it offers us a unique opportunity to drive rider activations and increased loyalty.

We believe this is an outsized opportunity for Lyft given the card member base's historical spend.

In the first few weeks, we have seen an extremely positive response.

We are excited by the strong early adoption from users and we look forward to seeing the partnership continue to grow.

Throughout 2019, our partnerships with Hilton and Delta also grew.

Since we launched our Hilton partnership in Q2, we have seen a substantial increase in rides from users who have linked their Lyft and Hilton accounts.

Starting in Q4, these members can now redeem their Hilton points for Lyft ride credit, a first in the hospitality industry.

Along with this new redemption benefit, Lyft passengers can request a ride from within the Hilton Honors app, with their hotel location automatically populated as the pickup location.

Through these new integrations, we can more effectively address the needs of over 100 million Hilton Honors members to increase active riders and ride frequency.

Our partnership with Delta also had a fantastic year.

Together, the program has awarded more than 1.5 billion miles to Lyft riders since launching in May 2017.

We have seen a substantial increase in spending from participating users and look to deepen this partnership with future product development.

We are working to make it possible to pay for Lyft rides with miles later this year, and we are working closely with Delta to further integrate Lyft into the Fly Delta app.

We believe that these enhancements will continue to drive more engagement and rider loyalty.

In the health care sector, we have made tremendous progress in expanding our partnerships and coverage.

We believe nonemergency medical transportation is a multibillion-dollar opportunity that can drive millions of dollars of savings for our health care partners by ensuring their patients make their appointments and have better health outcomes.

Last quarter, we announced our expanded access to rides for Medicaid beneficiaries in 6 states.

To make that happen, our teams worked to educate regulators and policymakers about the benefits of including rideshare for Medicaid programs.

Changes in regulation and policy to include rideshare are important on many fronts.

The patient experience improves, we add valuable rides to the business and drivers have more opportunities to earn during these less busy hours.

This quarter, we expanded our commercial agreements with health care providers and hospital systems to service these rides.

Lyft currently partners with 9 out of the top 10 hospital systems in the United States.

This quarter, we are excited to add Sutter Health and CommonSpirit to our list of health systems that have chosen Lyft as their preferred partner.

In our pilot with Sutter Health, we reduced wait times and achieved cost savings for them by approximately 25%.

The new systemwide partnership has the potential to improve access for up to 3 million Californians and could help over 60,000 clinicians, employees and volunteers deliver care in both home and clinical settings.

Similarly, we are excited to announce our partnership with CommonSpirit, the second largest nonprofit health system in the U.S. Through our shared partner, LogistiCare Circulation, patients can conveniently access rides when they're discharged from CommonSpirit's medical facilities in several states, including California and Arizona.

These preferred partnerships give us new channels to provide meaningful rides for patients and the health care workforce.

Reflecting on the work we've done this year, we've made great strides in the overall enterprise space.

In corporate travel, now over 30% of the Fortune 1000 companies have contracts in place with Lyft.

We continue to execute on our university strategy, ending the year with ride programs at over 75 universities.

Profitable growth is our focus, and we have many strategies that we are successfully executing for high-frequency, high-growth and high-margin rides, both today and over the long term.

By continuing to grow these various sources of quality demand, we're also providing more income opportunities for drivers.

Our team is very passionate about providing a great driver experience, and we continue to make great progress on this front.

This quarter, we made significant progress on Lyft Direct, our fee-free bank account and debit card for drivers.

Launched last May, Lyft Direct has now been rolled out to all U.S. markets.

In addition to delivering more value to drivers, this program has led to improved driver engagement in our marketplace.

Another way we continue to increase value to the driver community is by providing affordable and convenient vehicle maintenance through our driver centers and related partnerships.

To expand vehicle maintenance coverage for drivers, in Q4, we launched a national partnership with Openbay to provide discounts across Openbay's network of auto shops.

By providing value to drivers through better experiences and exclusive partner offers, we're able to improve take-home pay and overall driver satisfaction.

In addition to vehicle maintenance, we continue to invest in our Express Drive rental program, which expands access to vehicles for drivers and also allows us to bring more efficient vehicles onto the Lyft platform.

We rolled out thousands of hybrids through our partnership with FlexDrive over the past 2 quarters.

Recently, we also launched 200 long-range electric vehicles into our Express Drive rental program with FlexDrive in Denver.

This is our largest single deployment of EVs to date, the largest single deployment in Colorado's history and one of the largest in the nation.

In addition to helping shift our rides towards 100% electric over time, EV renters in our Express Drive program are saving on fuel costs, which allows them to take home more of what they earn.

Sustainability has always been part of our mission, and we love finding ways where we can do the right thing while improving the business.

Having EVs on the road with Lyft decreases emissions, lowers operating costs for drivers and provides thousands of riders and drivers access to clean transportation.

As we reflect on the progress over this past year, I'm proud of the products and programs we have developed with our partners and the many initiatives we've launched for our drivers.

We believe we can win on product innovation, brand and customer experience, and we marked the end of 2019 with a strong scorecard on all these fronts.

I'll now hand it over to Brian.

Thanks, John, and good afternoon, everyone.

We finished 2019 with conviction and exceeded guidance on both the top and bottom line.

Our focused execution and product innovation led to record results as we surpassed $1 billion in quarterly revenue for the first time and beat our outlook on active riders and monetization.

I'm also pleased that our outperformance extended across the entire P&L.

We unlocked savings from key initiatives and drove strong cost discipline.

Combined, these efforts generated an impressive 4 percentage points of sequential expansion of contribution margin in Q4 and cut our adjusted EBITDA loss nearly in half versus Q4 of last year.

So let me dive into the details.

Total revenue for the quarter increased 52% year-over-year to $1.02 billion.

Growth in revenue was driven by increases in the number of active riders and revenue per active rider.

We ended Q4 with a record 22.9 million active riders, up 23% year-over-year, which was ahead of our guidance of between 22.7 million and 22.8 million.

Given strong monetization, revenue per active rider was $44.40, up 23% year-over-year and ahead of our outlook.

Now before I move on, I want to note that unless otherwise indicated, all income statement measures that follow are non-GAAP and excludes stock-based compensation and other select items.

A reconciliation of historical GAAP to non-GAAP results may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and is available on our Investor Relations website.

This includes contribution, which is defined as revenue less cost of revenue, adjusted to exclude amortization of intangible assets, stock-based compensation-related expenses and changes to liabilities for insurance required by regulatory agencies attributable to historical periods.

Contribution was $550 million in Q4, a record high and up 80% year-over-year.

Contribution margin for Q4 was 54%, 200 basis points above our outlook and up over 8 percentage points from the same period a year ago as a result of our continued focus on expense leverage and improved monetization.

Now as a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods.

We experienced $19 million of net adverse development in Q4.

The adverse development booked in Q4 relates to historical auto claims, virtually all of which are managed by our legacy third-party administrator for insurance claims handling.

As you will recall, we moved claims administration responsibility, depending on state, to Travelers, Progressive and State Farm during 2019.

The cost of insurance required for ridesharing as a percentage of revenue was lower in the fourth quarter than in the third.

We are pleased that our partnerships with world-class insurers are improving claims handling and lowering costs.

Further, our initiatives to increase safety and reduce accident frequency continue to show progress and impact.

In fact, the leveraging of insurance cost was a key factor in our 200 basis point outperformance in contribution margin.

We are focused on continuing these advances throughout 2020 and beyond.

Let's move to operating expenses.

Operations and support expense for Q4 was $140 million or 14% of revenue, an improvement of 400 basis points from the same period a year ago and in line with guidance.

We continue to be laser-focused on increasing efficiencies to drive margin improvements within operations and support.

R&D expense was $143 million or 14% of revenue, which was flat versus the same period a year ago and 1 percentage point better than guidance.

It's worth calling out that our investments in R&D are unlocking cost savings in addition to fueling revenue growth.

R&D also includes our autonomous development program.

As a percentage of revenue, sales and marketing was 18% in the fourth quarter versus 33% in the same period a year ago, representing a decline of over 40% or 14 percentage points.

This is approximately 60 basis points better than guidance.

G&A expense, which includes legal settlements and accruals, was $227 million or 22% of revenue, approximately 1 percentage point better than guidance.

Our revenue outperformance, combined with strong expense leverage, led to a significant beat in adjusted EBITDA relative to our outlook.

Our adjusted EBITDA loss for the fourth quarter was $131 million compared to a loss of $251 million in the year ago period and guidance for a loss of between $160 million and $170 million.

Adjusted EBITDA margin improved to a loss of 13%, our best result ever versus a loss of 38% in the prior year, representing a 25 percentage point improvement year-over-year.

We remain focused on driving profitable growth, and Q4 is another important validation point for investors.

For the year, Lyft generated over $3.6 billion in revenue.

Our adjusted EBITDA loss for 2019 was $679 million, which is a 28% improvement from 2018.

As of December 31, Lyft had over $2.8 billion of unrestricted cash, cash equivalents and short-term investments.

Our liquidity position remains extraordinarily strong.

Next, I want to spend a few minutes to discuss 2 strategic transactions: the acquisition of FlexDrive as well as the potential sale of certain legacy insurance liabilities.

FlexDrive has been one of our long-standing Express Drive partners.

The company was formed as a joint venture between Cox Automotive and Holman Enterprises.

To streamline our processes and reduce certain costs associated with the partnership, we closed the acquisition of FlexDrive on February 7th for approximately $20 million, plus assumed debt and lease obligations.

From an accounting perspective, under the original partnership with FlexDrive, we were the principal in rental since we became a lessee and a sublessor for each vehicle prior to its rental by drivers.

Therefore, FlexDrive rentals are already reflected in our 2019 financial results as operating leases.

And as such, the revenue and related lease expenses have been recognized in our income statement.

In our S-1 and 10-Qs, FlexDrive was referred to as Select Express Drive Partner.

In terms of the balance sheet impact, under ASC 842, approximately $124 million of assets and $120 million of liabilities related to FlexDrive were already on the Lyft balance sheet as of December 31.

Prior to the acquisition, the company recorded a right-of-use asset and lease liability at the present value of lease payments for FlexDrive leases greater than 12 months.

Pro forma for the transaction, the owned vehicles acquired will be recorded as fixed assets.

There will also be a corresponding liability for the actual outstanding loan balance payable to third parties in lieu of the previously imputed present value of the lease payments.

Vehicles which are leased by FlexDrive will continue to be recorded at the present value of lease payments over the remaining term.

Pro forma, Lyft's consolidated balance sheet is expected to grow modestly.

We estimate that Lyft's assets and liabilities related to FlexDrive will grow by approximately $75 million to $80 million at the end of Q1 relative to year-end.

Let's move to insurance.

During our third quarter call, we announced that we are exploring the sale of certain legacy insurance claims to reduce future potential volatility.

Our objective for any transaction is to eliminate the potential for future adverse development on periods sold.

This involves a complex set of transactions that includes both the sale of certain liabilities as well as the transfer of claims handling responsibilities.

We are in active talks with the insurance market and continue to explore such a sale but have nothing to report at this time.

Before I discuss our outlook for 2020, let me provide a few comments.

2019 was an exceptional year.

We are very proud of our demonstrated product innovation, execution and operational excellence.

But 2019 also benefited from rapid market rationalization, which drove exceptional and outsized overperformance quarter-after-quarter.

Additionally, as we noted in prior calls, we enjoyed a highly favorable tailwind in the first half of last year from publicity related to our IPO, which helped drive particularly strong active rider additions and revenue growth in Q1 and Q2.

Going forward into 2020, as the industry focuses on profitable growth, we believe we have better visibility into the current market dynamics.

In terms of our outlook, let me start with revenue.

For the first quarter, we anticipate revenue will be in the range of $1.055 billion to $1.06 billion, representing year-over-year growth of 36% to 37%.

For the full year 2020, we anticipate that revenue will be in the range of $4.575 billion to $4.65 billion, representing an annual growth rate of between 27% and 29%.

Moving to adjusted EBITDA.

It's important to note that our outlook includes approximately $130 million of unique 2020 expense headwinds relative to 2019.

Approximately 40% of this amount relates to the conclusion of the Magna co-development partnership for autonomous self-driving technology.

Payments from Magna are recorded as contra R&D expense.

As a result, even if expenses did not grow at all, R&D would be $55 million greater in 2020 due to the absence of go-forward funding that offset a portion of R&D expense in 2019.

In addition, we are prepared to invest approximately an incremental $75 million year-over-year to fund and support key 2020 policy initiatives across the United States, including the important work we are doing in California to help protect app-based drivers and services.

This is a substantial increase year-over-year, but we believe this is the right approach to help protect the flexibility that our drivers value today.

For the first quarter, we anticipate our adjusted EBITDA loss will be in the range of $140 million to $145 million versus $216 million in the year ago period, representing an improvement of between 33% and 35%.

We expect that the first quarter will represent our peak quarterly loss in 2020 as we drive towards profitability.

For the full year, we anticipate our adjusted EBITDA loss will be in the range of between $450 million and $490 million.

This range translates to a year-over-year improvement of between 28% and 34%.

Put differently, we're expecting to improve adjusted EBITDA by approximately $190 million to $230 million.

And again, this range is inclusive of the approximately $130 million of expense headwinds that partially obscures our underlying momentum.

We are focused on profitable growth and delivering on our path to profitability.

Within this framework, we are making responsible and thoughtful capital allocation decisions to fund investments that we expect will drive long-term growth and shareholder returns.

We are proud of the significant progress achieved in 2019, and our results to date demonstrate we are on the right track.

So with that, let me turn it back to Logan.

All right.

Thanks, Brian.

I'm extremely proud of the work our team accomplished in 2019, and I'm excited for 2020.

We are executing on our strategic pillars: product innovation, profitable growth and operating leverage.

And in 2019, it helped us drive our adjusted EBITDA improvement by over 50% while we grew revenues over 68% year-over-year.

As we begin a new decade, it's fascinating to think about how much transportation has changed since we started Lyft.

A few years ago, people thought our vision to move away from car ownership was crazy.

Today, 50% of Lyft passengers say they use their car less because of Lyft and 25% say that owning a car is less important to them.

Every day, we continue to help change how people think about transportation.

As we look ahead into this new decade, we see the vision coming to life.

The world is evolving beyond car ownership.

Today, millions of people pull their phone out of their pocket when they need to go somewhere instead of reaching for their keys.

Today's car ownership ecosystem is fractured and full of painful customer experiences with sky-high retail prices.

Car owners typically have to interact with over 10 different companies simply to keep up with the basic overhead of owning a car.

From the dealership, to the OEM, insurance, fuel, parking, towing, cleaning, registration and the rental car you'll need when your car is in the shop, none of these experiences are integrated and they require the customer to bear the brunt of connecting all of the dots.

Looking at this picture, we see endless opportunities to better serve our customers' transportation needs.

The promise of a complete transportation network is that you can utilize a single platform to handle all of your transportation needs instead of piecing together services from 10 different companies.

The transportation network can create frictionless customer experiences and use the scale of the network to deliver more value to customers.

No matter how you want to consume transportation, whether you want to get a ride, rent a bike, rent a car, take public transit, you can do it all through the Lyft platform.

One company instead of 10 and you get access to the world's best transportation.

While we're laser-focused on executing in 2020, John and I will always guide Lyft with this long-term view in mind.

It's why we're investing in bikes, scooters, access to public transit, fleet management and autonomous vehicles.

These investments will serve as the foundation for what we believe will be a leading company of our generation.

Finally, before we take questions, I want to briefly reflect on how our work ties back to our mission: improving people's lives with the world's best transportation.

Millions of people lack access to reliable, affordable transportation.

Our transportation access programs provide free and discounted rides to those who need them most.

This includes our work on disaster response as well as our efforts on jobs, grocery and voting access.

Just a few weeks ago, we combined all of these programs into a single comprehensive initiative that we're calling LyftUp.

We also announced our newest LyftUp program, a partnership with LeBron James and his athlete empowerment company, Uninterrupted, to expand bikeshare access across the country.

We're thrilled with our results in 2019 and the massive opportunity ahead to continue disrupting one of the largest addressable markets in North America.

Okay.

Operator, we are ready to take questions.

(Operator Instructions) Our first question comes from Brent Thill of Jefferies.

Brian, you had a stated goal for profitability in fourth quarter of '21.

I was curious if you could just update us on your trajectory to hit that target?

Brent, yes, when we set that target just a couple of months ago, we wanted to be very clear that our strategy is to drive profitable growth.

And as you can see from our last 4 quarters of EBITDA outperformance, we have a strong track record of delivering on leverage.

So we remain truly, truly confident that we can achieve our Q4 '21 target.

And just remember, with our focus, we're not exposed to the uncertainty or volatility of emerging markets or non-transportation segments.

We're focused on our profitable growth across our business.

And as we drive towards profitability, we want to ensure we make key strategic investments that can generate strong shareholder returns for years to come.

And we believe investors trust us to make responsible decisions as we drive towards this profitability.

And as we move through the year, we will continue to share updates on our progress so stay tuned.

Our next question comes from Mark Mahaney of RBC.

Okay.

Could you peel back that revenue per active driver growth?

It's been nicely in the 20% range for the last couple of quarters.

Is that engagement and/or pricing?

And can you talk about your thoughts on pricing going forward, where you think your pricing is now versus the value proposition you provide?

Sure.

I'll let Logan address pricing, but let me just spend a moment on sort of the strategy around just how we grow this business.

I mean, we're focused on building the strongest business over time.

And we want to give our growth leaders the clear directive to really optimize for profitable growth.

And if that means actively not targeting users with incentives who may be unprofitable, we're okay with that trade-off.

We're really focused on profitable growth, not growth at all costs.

And we believe the market underappreciates the importance of revenue per active rider.

Lyft isn't like a Spotify or a Verizon Wireless in the sense where a typical user has an unlimited plan.

Frequency matters.

Ride mix matters.

I think it's obvious, not all riders are created equal, and we plan to focus on the ones who can drive the most profitable growth.

And so in Q4, as you point out, we generated $44.40 of revenue per active rider.

We believe that this figure can significantly grow over time by increasing ride frequency and just capturing our share of higher-value users and more valuable rides.

And just so there's no confusion, Mark, we also believe there's a significant upside in revenue per active rider, even ignoring future potential price adjustments.

Yes.

And this is Logan.

I'll just weigh in and reiterate, this is our strategy and our focus on profitable growth coming to life.

We really want to win on product innovation, on customer experience and brand preference, not on things like coupons or incentives.

To go back and give a little bit of color on 2019, in Q3 and Q4, we reduced incentives below the industry, and we did notice it had a modest impact on the business.

And so later towards the back half of Q4, we returned back to industry levels.

And it's also worth calling out that we beat our outlook by nearly 1 percentage point on sales and marketing given our strong revenue growth and marketing efficiency.

And to put it in full perspective, we reduced our non-GAAP sales and marketing expense as a percent of revenue from 33% to 18% year-over-year in Q4.

This is an industry best and a reflection of our focus on transportation in North America.

And I think just to add, this is Brian.

We expect incentives as a percentage of revenue will likely decline in Q1 from Q4.

Our next question comes from Doug Anmuth of JPMorgan.

I wanted to ask you about insurance.

Looking back at 2019, you saw considerable leverage from sales and marketing as couponing and promotions receded.

I'm just hoping you could talk more about insurance as whether you're seeing that as a much bigger driver of leverage in 2020 and how the effort is going to share some risk with insurance carriers in certain states.

And then just separately, Brian, I know you're focused on moving toward consolidated breakeven in profitability.

Hoping you could comment on whether you expect core rideshare profitability in 2020.

Sure.

So let me start with the insurance question.

So we are on a September fiscal year related to our insurance policies.

So starting on October 1, we started new policies with Progressive and State Farm to cover riders and drivers in 6 states.

When we look at the outperformance, I mean, one of the biggest beats, again, we expected contribution margin to come in at 52% in Q4.

We came in at 54%.

Insurance was one of the big standouts there.

And beyond just the policies, I think the quality of the team and the quality of the execution, we're trying to make the platform safer and safer.

And so when you look at the full year 2020, we do expect to get more benefits from insurance on contribution margin for the full year.

In terms of -- sorry, Doug, remind me your second question.

The potential for core rideshare profitability.

Yes.

So we are a single segment company so we don't provide ridesharing stand-alone.

I think it is fair to say we've reported 4 great quarters as a public company in terms of leverage here.

We're really trying to, again, bring the entire company.

For us, we have no loss leaders.

Every business that we operate has to be profitable over time.

So we're trying to bring consolidated adjusted EBITDA profitable.

And I said before, we are funding investments to drive long-term growth.

And while the strength of ridesharing is allowing us to accelerate our path to profitability, we are committed to making responsible investments that will drive long-term growth and create shareholder value.

Our next question comes from Stephen Ju of Crédit Suisse.

Okay.

So I guess I'll pile on to the guidance question for the year.

So Brian, there are a bunch of moving pieces for your business between, I guess, the legal and the operating environment as well as actions and reactions between you and your competitor.

You are giving us the full year outlook once again like you did for last year.

But can you give us some additional perspective on the parameters for the full year?

What's baked in and what's not baked in?

And it seems like your incremental, I guess, EBITDA margins for the first quarter is between 24% to 26% and the year is between 18% to 24%.

So I know you kind of touched on this earlier in the call, but should we continue to think about, what, I guess, is sort of a linear improvement in EBITDA dollars throughout the year or will there be some amount of variability there?

Sure, Stephen.

Thanks for asking the question.

Let me provide a framework to think about the full year, but let me start with Q1.

Before jumping into the details of our outlook, I really want to reiterate, again, how pleased we are with the performance of the business.

And Q4 was just another great demonstration quarter in terms of the operating leverage in our platform.

And so let me share some additional thoughts and perspectives regarding our outlook.

I hope it's clear by this point that in 2020 we're focused on driving profitable growth more than ever.

And we believe that the quality of our growth this year really creates a foundation for more durable long-term growth in 2021 and beyond.

In terms of the first quarter, in terms of top line, as I mentioned, we expect Q1 revenue will be between $1.055 billion to $1.06 billion, which represents growth of 36% to 37% year-over-year off of a pretty difficult comp given the revenue boost we realized from the IPO publicity.

In terms of expenses, I'm thrilled with the leverage we delivered in Q4 and what we delivered in full year 2019.

One advantage that is not broadly understood is Lyft's low-cost culture.

We try to stretch every dollar more than our competitors.

I mean, since Day 1, Lyft has competed against a competitor with more capital.

And we use this situation just internally to create a strong competitive advantage.

I mean, being the low-cost operator is one of our key strategic pillars.

I think one very tangible example that I can share is our travel policy.

Everyone at Lyft flies coach.

And by everyone, I mean everyone.

There is no carve-out for executives or Board members.

And it's this low-cost mindset that's really a key part to how we're driving towards profitability.

It's one of the ways we make sure that every investment dollar generate the maximum return for shareholders.

Now before I get into specifics on Q1, let me just remind everyone that, unless otherwise indicated, all income statement measures that follow are non-GAAP and excludes stock-based compensation and other select items.

So in terms of specifics for Q1, we expect that contribution margin should hold at 54%.

Bike and scooter revenue will decline quarter-on-quarter given seasonality.

And so this puts pressure on contribution margin because we still absorb full depreciation, and this just creates negative leverage.

Remember, depreciation is in contribution margin.

Now our operations and support expense in Q4 was 14% of revenue, which was 100 basis points better than Q3.

Looking forward, we remain focused on cost efficiencies and expect to drive a further reduction in operations and support as a percentage of revenue.

We expect that we can hit 12% in Q1 but this will grow, especially in Q2 and Q3, as bike and scooter rides accelerate.

R&D as a percentage of revenue was better than expected in Q4.

In Q1, we are investing in headcount and we lose $14 million of co-development dollars from Magna, which creates some headwind that I spoke about.

So we expect R&D in the first quarter will be 16% of revenue.

We expect sales and marketing in Q1 will be approximately 20% of revenue, which is versus 29% in the year ago period.

So this implies a 900 basis point reduction year-over-year.

We anticipate that G&A expense as a percentage of revenue will be 22%, which is flat with Q4.

And just remember, again, that G&A includes the investments we're making in policy and government relations and the California ballot initiative.

So for the first quarter, we anticipate our adjusted EBITDA loss will be in the range of $140 million to $145 million versus the $216 million in the year ago period.

So this is an improvement of $71 million to $76 million or 33% to 35% year-over-year.

I think in terms of some of the other key stats for Q1, we expect CapEx will be roughly 5% of revenue and depreciation will be in that $25 million range.

And we expect SBC should tick down from Q4.

Now to answer some of your questions around 2020, we've provided an outlook for revenue and adjusted EBITDA.

In terms of shape, we expect sequential quarterly revenue growth will accelerate in Q2 and then taper in Q3 and especially Q4 given the bike and scooter impact.

We believe this is now sort of the permanent go-forward shape of seasonality that will repeat in 2021.

In terms of the full year leverage, we expect we will demonstrate improvements across the P&L.

When you look back at last year, contribution margin was 50%.

We expect to generate further leverage from insurance transaction processing and hosting this year.

We expect we can achieve a contribution margin for the full year between 55% and 55.5% for the full year, so an annual improvement of 500 to 550 basis points.

On an annual basis, we expect operations and support will show leverage.

Sales and marketing, we expect, will show leverage.

The only areas which will show modest headwinds are R&D and G&A, and this is related to the previously mentioned situation with Magna and the investments we're making in policy.

And we expect to generate leverage in both of these areas in 2021.

Given a number of cost initiatives, we expect our smallest adjusted EBITDA loss will be in Q4.

The peak will be in Q1.

And ultimately, our strategy is to just continue driving industry-leading growth as we leverage expenses.

In terms of just final stats here.

I think for the full year, we expect CapEx will be in the range between 8% and 9% of revenue, which we would expect to be back-end loaded.

And for the full year, total depreciation and amortization will probably be in the range of roughly 3.5% of revenue.

And then finally SBC, we expect to nearly cut in half from levels of last year.

So obviously, Stephen, a lot of moving pieces here.

Hopefully, this additional information is helpful.

Our next question comes from Brian Fitzgerald of Wells Fargo.

Maybe one on AB5 and then one on bikes and scooters.

Any changes you're seeing in market share that you're observing in relation to some of the things that Uber has done in California?

Is there anything you need to do to kind of emulate that approach?

And then on the bike and scooters, with respect to e-bikes versus regular bikes, there's differences in costs and maintenance and then depreciation.

How do those dynamics meter through your contribution margin as you roll out e-bikes in cities?

Thanks for the question.

This is John.

So quickly on the changes you mentioned from the competitor.

We obviously look at the impacts and are always evaluating, but we have no additional product features to report at this time.

We're confident in our position in the market and how the marketplace is performing overall for drivers and riders, we feel good about.

In terms of bikes and scooters, because of the additional cost with an e-bike that comes from the equipment as well as the charging or swapping of the batteries, we are working with our partners in the cities that we operate to ensure that, that is reflected in the pricing of the ride where possible.

Yes.

And just to add, this is Brian.

I mean, I think, as you know, we will be deploying our e-bikes across multiple cities this year.

And when you look at the trend in what we expect for contribution margin, especially the bikes will be used most in Q2 and Q3, and we expect contribution margin to be higher than Q1.

So we expect leverage.

Our next question comes from Eric Sheridan of UBS.

One on disclosure and then one on sort of the cash flows.

On the disclosure piece, are we going to get the bookings and the take rate for the full year either tonight on the call or maybe in the 10-K?

And then I'm curious, as a follow-up to that, about how to think through what that might mean in terms of building blocks for demand versus take rate dynamics looking out to '20 and how you see the industry evolving?

And then one on the insurance piece, which, I guess, is a follow-up to Doug's question from earlier.

We noticed the insurance reserves sort of flattened out in Q4, both on the balance sheet and then there was a big improvement on the operating cash flow.

Is that the new policies you referenced that went into place on October 1?

And how should we think about that dynamic going forward?

Thanks, Eric.

So this is Brian.

In terms of bookings, we did discuss this last year.

We are a single segment company and some of our revenue streams are equivalent to 100% of bookings so we believe investors should use revenue to measure top line growth.

As you think about sort of the right way, the metrics to build up to 2020, we have provided an annual revenue outlook.

We're focused on positioning the company for strong, long-term growth and profitability.

And so our teams are charged with optimizing and growing our business while achieving both goals.

And as a result, we're not sharing, for example, an active rider target because we want our teams to have the full flexibility and latitude to make the right long-term decisions for the business, both intra-quarter and intra-year.

And again, we're very excited.

We are putting up what we believe is industry-leading growth in the United States for 2020.

And then on the last question related to insurance, you're absolutely right.

The reason for the flatness is related to the fact that about -- historically, we covered about 100% of the TNC-related policies for ridesharing insurance.

And beginning on October 1, about 25% of that went to State Farm and Progressive.

And so that's why the quarter-over-quarter trend change there.

Our next question comes from Justin Patterson of Raymond James.

Great.

Could you discuss the importance of the new modes platform in more detail?

How should we think about that influencing KPIs like rider frequency?

And since your R&D tends to play both offense and defense, how should we think about the potential unlock on modes around expense efficiencies over time?

Yes.

Thanks.

This is Logan.

I think the best way to think about it is, it increases the velocity of our innovation so we can move a lot faster.

There's, I think, quite a few different opportunities to pursue for new modes and new use cases.

And ultimately, when you get a better sort of menu of options in front of users, you do see engagement go up over time.

You do see revenue per active rider increase over time.

So I think those will be major levers in the business for us driving profitable growth.

And as we make these core infrastructure investments, we're able to execute better and move a lot faster.

So there's a lot of opportunity out there.

Lyft was the innovator in peer-to-peer back in 2012.

We were the innovator behind shared rides a few years later.

And we've got a lot of other concepts that we're working on and really excited about.

And this helps us execute on that vision even faster.

And one way to bring that to life for you is think about kind of a user experience, if you think about in New York City as an example, we can start bringing our modes together in the form of new modes or just in the form of integrating the 2. So for example, you get on a Citi Bike, which is exclusive, obviously, to the Lyft platform, and it connects you to the closest subway stop.

And all that can get planned and executed within the Lyft app.

Another example of something that increases or has the potential to increase frequency, you then get on a plane and go to Los Angeles and you want a rental car and you pick up a Lyft ride to the rental location, get a Lyft rental and then get around in Los Angeles.

So lots of new use cases as we increase the modes, but also how the modes interact, we believe, provides the best consumer experience and therefore can increase how much people use the service.

Our next question comes from Ross Sandler of Barclays.

Just 2 questions from me.

On the Chase Sapphire deal, can you just talk to us about the unit economics of those trips versus regular trips?

Is that why the sales and marketing is deleveraging for the first quarter, for the second quarter in a row, I guess?

And what kind of market share increase are you expecting to see now that, that's live?

And then the second question, so if we kind of normalize Uber and Lyft and take out autonomous and scooters and bikes, they made about $100 million in EBITDA.

You guys lost about $100 million EBITDA in the fourth quarter.

So I guess, what do you think explains the difference here?

Is that mix of shared rides, higher mix of California for you guys?

What do you think is the structural margin difference for ride-hailing only between you and your competitor if this is not about market share but about each market individually?

Sure.

Ross, this is Brian.

So let me just talk first about sales and marketing in Q1, and I'll cover Chase, and then I'll get to your question in terms of just structural differences between the 2 companies.

We are continuing to make important investments in the brand in Q1.

Recently, we had both Will Smith and Alicia Keys talking about Lyft, and then we're going to continue to double down on these opportunities.

The biggest driver of the incremental sales and marketing investment is our new partnership with Chase.

As John outlined, we're very excited about the partnership and what it means for Lyft.

And we do believe this partnership will allow us to efficiently grow.

I have to repeat again.

We lowered sales and marketing as a percentage of revenue by 900 basis points year-over-year.

And we expect that Q1's 20% is the high-water mark for the year.

So we expect to show a reduction in sales and marketing as a percentage of revenue in 2020 versus 2019.

And as I mentioned, we also expect incentive as a percentage of revenue to decline in Q1 versus Q4.

So I think there's a positive sequential trend there.

I think in terms of your question around just EBITDA comparisons between the 2 companies.

It's important to keep in mind we are a single segment.

Our competitor has 5 segments.

They have 5 segments and then they have what they call G&A and centralized R&D.

That specific cost center is almost 5x larger than my total loss.

So I don't think you can really compare the 2 apples-to-apples, and I would just look at the -- I mean, again, at a company level, we have better adjusted EBITDA margins than our competitor, both in Q3 and Q4.

I think we were taking the ride-hailing segment minus the corporate R&D and G&A, that's the $100 million I was talking about.

But okay, we can take it offline.

Yes.

I mean, again, we're funding -- I mean, again, all of that is hidden for Uber investors.

Our next question comes from Ron Josey of JMP Securities.

I just wanted to ask about active riders.

And Brian, I know you did give guidance here and that was purposeful.

But sort of what Ross was just saying, with newer partnerships like the Chase partnership and then newer markets like Vancouver launching in January, can you just provide some info on active riders, particularly given the tougher comps in the first half of the year related to just the IPO and news flow?

Sure.

So as we've mentioned previously, we did get a big boost last year just around the publicity related to our IPO.

I think folks should think about Chase as really a big driver to increase revenue per active rider, where we're just getting more rides.

And quite frankly, we see a lot of opportunities to drive up revenue per active rider.

And it's a whole host of reasons.

It's attracting more valuable riders.

It's improving our ride mix.

It's better segmenting the value we deliver and increasing frequency.

And historically, we have under-indexed on business relative to our competitor.

This is growing for us faster than the rest of our business.

It's an area we're going to double down because with Lyft Business we're opening up new verticals and we're also just driving both premium rides and just more airport rides, which drivers really value because those tend to be high-income opportunities.

Our last question comes from the line of Benjamin Black of Evercore ISI.

I think you guys mentioned 25% of your footprint is not covered by third-party insurance.

How should we be thinking about the remaining 75% over the next couple of years or so?

And then just one more on the state of the market.

I mean, I'm sure you saw that your main competitor mentioned that you were on balance a little bit more aggressive last month.

Just curious to hear your thoughts on the durability of the current rationality?

Sure.

So this is Brian.

Let me talk to insurance and then I'll hand it over to Logan to talk about the pricing environment and just the state of incentives.

On insurance, again, if you look at for the fiscal year ending September 30 last year, for TNC-related ride insurance, Lyft was reinsuring 100% of the risk.

When we move forward on October 1, we've moved 25% of insurance off our books.

And we really just saw this as an opportunity to help lower costs and reduce volatility in our platform.

And then we have great partners who are just world-class in claims handling and we've seen benefits from that.

And obviously, the beat in contribution margin helps demonstrate the impact we've seen already just in Q4.

In terms of longer term, I think we're open-minded.

I think the insurance industry has matured and evolved to really understand ridesharing so I think we have more opportunities today than we did a few years ago.

And we will always be opportunistic.

And then on pricing in the industry.

As I mentioned before, in Q3 and Q4 of 2019, we have reduced our incentives below the industry.

And we did notice that it had an impact on the business.

And so towards the back half of Q4, we returned and increased incentives back to industry level, not above.

And it's worth calling out that while we did all that, we still beat our outlook by nearly 1 percentage point on sales and marketing.

So I think if there's one thing you'd take away is that, we are focused on profitable growth.

We do not want to win on pricing or incentives.

We're focused on product innovation, customer experience and brand preference.

So with that, we will call it a wrap, incredible year and very excited for 2020.

So thanks so much, everybody.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference call.

Thank you for participating.

You may now disconnect.