Lyft, Inc. (NASDAQ:LYFT) Q1 2024 Earnings Call Transcript

Lyft, Inc. (NASDAQ:LYFT) Q1 2024 Earnings Call Transcript May 7, 2024

Lyft, Inc. misses on earnings expectations. Reported EPS is $-0.07853 EPS, expectations were $0.09. Lyft, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the Lyft First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode to prevent any background noise. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sonya Banerjee, Head of Investor Relations. You may begin.

Sonya Banerjee: Thank you. Welcome to the Lyft earnings call for the first quarter of 2024. On the call today, we have our CEO, David Risher; and our CFO, Erin Brewer. Our President, Kristin Sverchek, is here for the Q&A session. We’ll make forward-looking statements on today’s call relating to our business strategy and performance, future financial results and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and our recent SEC filings. All of the forward-looking statements that we make on today’s call are based on our beliefs as of today, and we disclaim any obligation to update any forward-looking statements except as required by-law.

Our discussion today will also include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. Additionally, today we’re going to discuss customers. For Rideshare, there are two customers in every car. The driver is Lyft’s customer and the rider is the driver’s customer. We care about both. And with that, I’ll pass the call to David.

David Risher: Thank you, Sonya. And good afternoon, everyone. Thank you for joining us. We had a great start to 2024 with very strong first-quarter results. Rides in gross bookings both grew by more than 20% year-over-year and we delivered another quarter of positive free cash flow. We are on-track to deliver full-year goals with a higher-level of free cash flow than we initially shared. We’re executing well and we’re demonstrating that customer obsession drives profitable growth. Since taking on the CEO role just a year-ago — over a year-ago, I’ve really been amazed and proud of what we’ve accomplished. On these calls, we talk a lot about progress in terms of Lyft’s performance metrics. But today, I’d like to talk about that progress in terms of what customers experience and how that informs why they choose Lyft.

Let’s start with drivers. We are improving the ways we provide drivers with what they want; good earnings opportunities, along with more transparency and more control over their time. The result is drivers are earning more. In Q1, the median US driver earned $31.10, including tips and bonuses for every hour of engaged time. And after taking into account the driver’s estimated expenses like maintenance, gas and vehicle depreciation, that’s around $24.25 per engaged hour. On both a gross and net basis, median driver earnings are higher than they were in the second-half of 2023 as we discussed in our white paper on the topic issued a few months back. One reason is that Lyft drivers have more information than ever when choosing their rides. This has significantly reduced ride cancellations by nearly 50% versus a year ago, and that increases the time they spend earning.

Drivers can also plan ahead more easily with scheduled rides. They can balance other obligations using our proprietary stay within the area filter, they can tap into priority mode to stay busy during off-peak periods and drivers now have access to a more streamlined process to appeal being deactivated, which addresses a longstanding pain point by getting them appeal results faster. Our goal is to lead the industry on making it great to drive with rideshare and it’s resulting in greater driver preference. For example, thanks to the new earnings commitment that we released, Lyft drivers now know they will always earn at least 70% of the rider’s fare each week after external fees. Here’s the punchline. Since the launch in February, driver’s perception of pay fairness has improved significantly with 75% telling us they have a better understanding of their earnings.

The data shows our commitment is helping us attract and retain drivers and increased driver hours. Additionally, following our nationwide rollout of Women+ Connect in the first-quarter, women and non-binary driver activations increased by nearly 24% year-over-year. This has continued to be one of Lyft’s highest-graded features and most drivers who’d tell us — who use it, tell us they feel safer when driving, which is super important, one of our key objectives. As a result of all of these moves, Lyft had more drivers use our platform in Q1 than we’ve had in about four years and driver hours have returned to 2019 levels. And I can tell you, in addition, that over these past few weeks, driver hours have reached new all-time highs. That is the result of our customer obsession for drivers.

Now, let’s talk about riders. Over the past few quarters, we focused on giving them far more reliable — far more reliable rideshare experience with better — with more and better products to choose from. For example, pickup times in Q1 were the fastest they have been in four years. By the way, if you’re interested in more examples, please ask me about that during Q&A. Meanwhile, thanks to a ton of behind-the-scenes work, riders are now experiencing far less of something they really don’t care for, prime-time, which many people know as surge pricing. This means prices for riders have become more stable and more predictable, and that leads to greater repeat use. A good example of where you can see our rider and driver obsession really working well and coming together is in Canada.

Over the past year, we’ve brought our focus on customer obsession to this market and it’s already paying-off. For context, Lyft operates in five of Canada’s largest cities, as well as in about 13 smaller ones. As we have begun to apply our customer obsession to those markets, we’ve doubled rides and more than doubled new rider activation and driver hours in Q1 year-on-year. These results tell us a couple of important things. One, drivers and riders are hungry for choice in our customer-obsessed approach. And two, there is opportunity for us outside the US over the long-term. Finally, I’d like to update you on Lyft Media, which offers a unique value proposition to brands as they look for new ways to connect with customers. Lyft Media had a great quarter with revenue growing by about 250% year-over-year and we really like the mix we’re seeing with about half of our business coming from repeat customers like NBC Universal.

We’ve also added several new customers, including Zillow and Mastercard. Here’s why. Lyft is one of the largest transportation networks in the country. We support over 700 million rides a year and millions of people rely on our platform every day. We have a captive audience engaging heavily with our app when they ride and we can make use of our first-party data about where and when people are moving around. So, here are the results. According to our third-party brand measurement firm, Lyft Media ad campaigns have 7 times the impact relative to the norm, on-brand perception and purchase intent. Our video ads, which were new this quarter, also generate more than 10 times the ad industry’s typical click-through rate. And in Q1, we added new partners, including Nielsen and Oracle Advertising for their ad measurement and data enrichment solution for targeting, helping us deliver even more value for our customers.

When it comes to building a successful media operation, it’s all about scale, targeting and measurement. And when we look at the tools we’ve built and the results we’re delivering, it’s clear Lyft Media has a lot of headroom to grow with favorable economics in a way that leverages our customer obsession. Now, before I turn the call over to Erin, I want to share one closing observation. I get a lot of questions about how we’ve been able to accomplish so much in such a short period of time. It turns out that our culture of customer obsession and our focus on rideshare are huge assets. That’s what gives us the ability to be nimble even as we drive meaningful leverage. We wake-up every day ready to out execute and out innovate others in our sector.

And with more driver — and the more drivers and riders love us and what we do, the more they use us to earn and to get out and about, the better we all do. Again, customer obsession drives profitable growth. So, let me close with just a quick plug. We’ll be holding our first-ever Investor Day on June 6 in Manhattan, and I look-forward to seeing you there in-person or online. Not only will you get to hear about the next phase of our plan for customer assessed profitable growth, you’ll also get to meet our amazing team that’s making it all happen. I am really looking-forward to it. Over to you, Erin.

Erin Brewer: Thanks, David. Good afternoon, everyone, and thanks for joining us today. I’ll start with my usual reminder that unless otherwise indicated, all income statement measures are non-GAAP and excludes select items that are detailed in our earnings materials. Before I dive into our results for Q1, I want to take a moment to reflect on how far Lyft has come over the past four quarters. We’ve established a strong foundation for profitable growth. Our cost structure is in the right place. We’ve delivered four quarters of positive adjusted EBITDA totaling nearly $260 million. We’ve better aligned our financial disclosures with our strategic priorities and we’ve begun to generate positive free cash flow. All of this progress and momentum tracks with the directional guidance we’ve provided for the full-year 2024, including an improved outlook for free cash flow conversion for the full-year and it sets the stage for our Investor Day next month.

Q1 was another solid quarter, consistent with our expectations. We executed well and more drivers and riders chose Lyft. The result was more rides and better service levels. In particular, driver hours increased by more than 40% year-over-year and ride frequency, referring to the average number of rides per active rider, was the strongest it’s been in four years. We also saw continued sequential momentum from Q4 to Q1 in driver hours, ride intents and frequency, demonstrating that we continue to improve execution quarter by quarter. Now, let’s turn to our performance for the quarter. We supported 188 million rides and 21.9 million active riders. Total rides grew 23% year-over-year, reflecting strong demand across use cases. Growth in early-morning commute and weekend evening trips was particularly strong, which is a continuation of the trends we saw in the back-half of 2023.

Active riders grew 12% year-over-year reflecting an improvement in rider retention along with an increase in new riders. Gross bookings were approximately $3.7 billion, up 21% year-over-year. This reflects strong rise growth, partially offset by lower total prices year-over-year, reflecting lower levels of prime-time given the significant improvements in the health of our marketplace. Revenue grew to $1.3 billion, up 28% year-over-year, reflecting those same dynamics. As a percentage of gross bookings, revenue increased year-on-year and sequentially, reflecting lower incentives per ride. So, let me provide some additional color here. David talked about how Lyft is leading our industry in transparency and choice for drivers and how that is translating into greater driver preference for Lyft.

We see that in the number of drivers choosing our platform and the growing number of hours they’re spending engaging with our app. In Q1, the median U.S. driver hourly earnings, including tips and bonuses increased sequentially on both a gross and net basis. And we’ve talked a lot about our focus on operational excellence. Another great example of that is how we’re helping drivers anticipate rider demand, so they can be at the right place at the right time to be able to optimize their earnings. In our business, the combination of increasing driver preference and increasing drivers visibility into rider demand is incredibly valuable. It means we can be more targeted and efficient in how incentive dollars are spent even as drivers earn more. The result is healthy profit growth while operating competitively with laser-like focus on customer experience.

Now, let’s turn to our Q1 expense. Cost of revenue was $747 million, up nearly 40% year-over-year, driven by higher ride volumes along with higher per ride insurance costs, which reflect last year’s third-party insurance renewals. Operating expenses were $500 million, up roughly 8% year-over-year. As a percentage of gross bookings, operating expenses were approximately 14%, an improvement of nearly two percentage points versus Q1 2023, driven by our lower fixed-cost structure versus last year. Adjusted EBITDA was $59 million, which as a percentage of gross bookings was 1.6%. Relative to Q1 of last year, our adjusted EBITDA margin has more than doubled as we benefit from efficiencies in our marketplace and operating expense leverage. We ended Q1 of 2024 with a solid cash position with unrestricted cash, cash equivalents and short-term investments of approximately $1.7 billion.

In the first-quarter, we generated positive free cash flow of $127 million and we continue to take a prudent approach to managing our balance sheet. In Q1, we took advantage of favorable convertible debt market conditions to raise approximately $460 million of new convertible notes that will come due in 2029. We use the majority of those proceeds to retire a portion of our bonds coming due in 2025. Turning to Q2, we’re off to a good start. We continue to see strong demand for rideshare from drivers and from riders. And as the weather has gotten better, we’ve seen more bike and scooter usage, which is additive to both rides and active riders on a sequential basis in Q2. As the quarter progresses, we’ll continue to focus on great execution to connect customers with the experiences they love from music festivals to prize celebrations and more.

Additionally, with graduation season and summer travel just around the corner, we’re focusing — we’re focused on enabling a great airport experience to capture more of these rides. Now, let me review our outlook. For the second-quarter of 2024, we expect gross bookings of $4 billion to $4.1 billion, up 16% to 19% year-over-year. This assumes rides growth of approximately 15% year-over-year. We expect adjusted EBITDA of approximately $95 million to $100 million and an adjusted EBITDA margin as a percentage of gross bookings of approximately 2.4%. Turning to what we expect for full-year 2024, our first-quarter results and our second-quarter guidance inform our perspective on the year. We continue to expect total rides growth in the mid-teens year-over-year with gross bookings to grow slightly faster than rides also on a year-over-year basis.

We expect an adjusted EBITDA margin as a percentage of gross bookings to be approximately 2.1%. Turning to free cash flow. We remain on-track to generate positive free cash flow for the full-year. Given our improved visibility into the first-half of the year, we now expect at least 70% of adjusted EBITDA to convert to free cash flow for the full-year 2024. As a reminder, you should expect our quarterly free cash flow conversion levels will vary, driven primarily by the timing of certain payments. To give you some perspective on the cadence of our cash flows, based on what we see right now, we expect our free cash flow for the full-year will be weighted more toward the first-half of 2024, as in the second-half of the year, particularly in Q4, we expect to incur cash outflows related to our third-party insurance renewals.

With that, I’ll bring our prepared remarks to a close. Over the past year, we’ve made significant progress building a customer-obsessed and financially healthy business. The team continues to execute against high standards and we see a lot of runway to drive profitable growth. We look-forward to seeing you all at our Investor Day. And with that, operator, we’re ready to take questions.

See also Largest Insider Buys: Top 10 Stocks and 25 Best Kept Secret Places to Visit in Florida.

Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Nikhil Devnani with Bernstein. Please go ahead.

Nikhil Devnani: Hi, thanks for taking the question. I wanted to ask about growth in your investment cadence. You’re probably growing bookings 19% to 20% in the first-half of the year. So, my question is whether there’s any reason that should slow down in the second-half, particularly if you’re investing behind it? And that’s my follow-on as well. It looks like sales and marketing stepped-up a bit in Q1. Was this just a one-off because you had the take rate capacity or is this our new normal on the investment intensity of the business going-forward? Just trying to put your top-line into context with your marketplace investments. Thank you.

Erin Brewer: Yes. Nikhil, I’ll start with that. I’ll probably start by just kind of going back and reframing on our full-year guidance for top-line growth for 2024. So, starting with rides. We reaffirmed our guidance for mid-teens rides growth year-over-year versus 2023. And I’ll just reiterate here that mid-teens is a range. For the second-half of the year, we expect rides growth to be approximately 15%. And then again, on the gross bookings side, no change to our outlook for the full-year. We expect gross bookings to grow slightly faster than rides. So hopefully, that gives you a little bit of a sense for the first-half back-half cadence. And then, the second part of your question with respect to sales and marketing, I might just start by framing this we anchor on growing our gross bookings and then growing our adjusted EBITDA as a percentage of gross bookings.

And within that, as it relates to the way that we deploy total incentives, as you know the marketplace is dynamic, so we will make trade-offs between contra revenue and sales and marketing incentives in a given period of time. And in Q1, there’s a continuation of us just seeing good opportunities to invest behind some of the areas of growth in the business. And so, that does have an impact on our sales and marketing line in Q1 ’24.

Nikhil Devnani: Thanks, Erin.

Operator: Your next question comes from Eric Sheridan with Goldman Sachs. Please go ahead.

Eric Sheridan: Thanks so much for taking the question. I wanted to step-back and ask maybe a bigger-picture question off David. You’ve talked before about realigning brand and product innovation and competing away from price. Maybe could you frame-up some of the key initiatives you’re most focused on to move the needle inside the mobility business as you look out not only to the remainder of this year, but out towards a multiyear view about repositioning brand and product? Thank you.

David Risher: Sure. It was Eric, right?

Eric Sheridan: Yes.

David Risher: Great. Hey, great to hear from you, Eric. Yes, let me take a big-picture approach and then I’ll kind of zoom in on some of the particulars and reflect a little again on Q1 and the rest of this year as a start. So, it’s so interesting to see what the growth drivers are of our business. One thing we should say is — there is some — there’s still some secular growth going on, right? And we just — and we see it every day, right? We see more bosses trying to get their employees to come back to work. We see concerts being super exciting to people. It’s really interesting when you look at some of the drivers of growth in Q1, we saw commute obviously strength there, but we also saw what we call internally party time, which is basically after 5 on Friday and Saturday night.

That was up 26% year-on-year. And so, what that shows you is that people are getting out. And it’s not just a post-COVID thing, it’s a connecting — I’ve got a whole thing I can talk about the importance of bringing people together and how important that is for our sort of mental health and sort of societal well-being. So anyway, that’s great to see. And then when you look at what Lyft actually does, there are a couple of things I think that are super important before I even get to brand. I think first is around operational excellence. Now, we give — we provide and sort of support about 2 million rides every single day, right? So, that means that even small differences in how fast pickup happens or exactly what pricing is, or so on and so on, has an enormous, enormous impact.

And so, that also drives growth, primarily, by the way, in repeat, like we’re actually seeing great indications around loyalty, people who are regular Lyft users using us more often. It’s actually where we see quite a lot of growth. So, that shows — and people, that makes sense, right? Because if you’ve taken a Lyft ride and you’ve gotten picked-up — our ETAs now are basically as fast as they’ve ever been. They’re faster than they were even just about four years ago. And we’re down to sort of like the — anyway, very fast. I can tell you more about that if you’re interested. So, that operational excellence, big, big deal because it pays dividends every single day, particularly for repeat use. And then, on top of that, you can layer real innovation for new segments or new use cases.

So these will be familiar because I’ve talked about them before, but Women+ Connect is incredibly important to us, incredibly important to us. We have — one of the stories I heard recently was a woman saying, I can now finally take a nap in a Lyft. I can take a nap in a Lyft. Something that men have enjoyed for years and women haven’t so much. So, that — and we can see what that does both on the rider side, but also at the driver side, something like 24% of our new — I think we’ve got about 20,000 new Women+ Connected drivers just in the last couple of months. And it’s something like 24%, maybe even 26%, meaningful percentage of our new applicants to be drivers are women, higher than we’ve seen in the past. So, that’s awesome. And then, of course, our 70% earnings guarantee, also incredibly important to drivers.

So, those sort of innovation levers really do drive incremental growth. And then, we have these partnerships, right? Partnerships are incredibly important part of our strategy. They represent around 20% of our rides right now. And it’s everyone from Chase, who you can get Sapphire 10 times points on, if you’re a Chase Sapphire member or Delta. We’re one of only two partners that allow you to earn Delta SkyMiles on our platform. So that’s also very important. And then, we come to brand, which is where you started, which is we are very conscious that we’re in a very, very nice position with our brand. People — and I drive myself. And when I drive, I ask people why they choose Lyft. And a good percentage of them say every single time, I just like you guys better.

I like you guys better. Now, we have some work to do internally on how to crisp up the messaging around that, if I’m honest. So, there’s more work we can do there. But at the end-of-the day, we are — we’re in a very, very nice position there. And I’ll end by saying I was in Canada a couple of weeks ago visiting our Toronto team and I visited with a number of different people, including some drivers there and political figures and so on and so forth. And they were so enthusiastic about our arrival because they kind of like us. They like what we stand for. They like our values and they like the choice they’re going to get. So, it’s a very long answer, but it really is exactly the way we think about it. Our strategy, we really see, is working.

Our strategy is working; customer obsession drives profitable growth. And we see a lot of opportunities all across North America over the coming years. In some ways, I feel like we’re really just, just getting started there.

Eric Sheridan: Thank you.

David Risher: Sure.

Operator: Your next question comes from Mark Mahaney with Evercore. Please go ahead.

Mark Mahaney: Two questions. David, there’s been some controversy recently about the Tesla autonomous vehicles and the impact that could have on ridesharing companies like you and Uber. Just your latest thoughts on how investors should — investors should think about the autonomous risk to rideshare companies? And then, I think you teased in your earlier prepared comments about providing more rideshare improvements in addition to the faster pickup times. Any others you’d roll-out in terms of how the experience has gotten better for either drivers or riders? Thank you very much.

David Risher: Yes, sure. So, on the first I would actually characterize it a little differently. I wouldn’t say — okay, I understand why you asked the question the way you did around Tesla. But I would actually qualify it as more of an opportunity than a risk, and here’s what I mean by that. So, autonomous cars, let’s step-back, autonomous cars are definitely coming, right? And if you’re in San Francisco, you know it. You see it every day. Sometimes you see good things. Sometimes you see things that are a little bit strange, but at the end of the day, they’re clearly on the scene. But it’s one thing, and I say a very expensive one thing, to build an autonomous vehicle. Very, very expensive. Expensive to build it. Billions of dollars of R&D.

It’s expensive to operate it. These things are not — are not free to operate. Absolutely not. They break-down, they have repairs, they have shadow drivers in the back, all sorts of things. So anyway, so that’s an expense that somebody has got to bear. And then, it’s also very expensive to build a rideshare platform. And I think it’s maybe tempting or maybe it’s, I don’t know, it’d be easy, let’s say, to hear someone say, oh, well, you just built an app and you think, well, that’s a rideshare network. Well, no, that’s not a rideshare network. A rideshare network involves conversations with every airport in the United States to figure out how did you pick-up the drop-offs. It’s every municipality in the United States. It’s pricing 2 million times a day.

It’s picking things up 24/7 even in bad weather, even when it’s snowing. It’s figuring out how to do supply-demand management such that you get cars in the right place at the right time and so on and so on at quite a large-scale. And this is obviously expensive. We spend a lot of money on it every single year as you guys will know. So, when I look at it that way and I look at — and then, here’s where I’ll kind of finish on that. If you think of autonomous, here’s maybe the way I might break it down. Somebody has to build that technology, right? And there are companies that are just focused on that. Somebody then has to build the cars, either bring their own homegrown technology into the car or take somebody else’s technology. That’s the second thing.

Then, somebody has got to own these cars, right? In the Lyft business model, of course, we don’t typically own the car. That’s, you know, drivers own their own car, which is great. It means it’s very capital-efficient for us. We can put 2 million rides on the road every day and not effectively own a single car asset. So, that’s great. It means we don’t have to spend hundreds of million dollars in depreciating assets called cars. And then, someone has to build the network and operate the network, and that’s what we do. So, if I look at it in that context, I get excited about autonomous cars because I think, great, it’s going to be another way for people to get around. You can sort of think of it as another car that we could run into our network.

And personally, if I were sort of running the world, I would sort of think of companies as specializing maybe in one of those areas. I think companies that try to do more than one of those areas might find it very expensive and maybe not such a great use of capital or resource focus. So, that’s sort of the general thought there. And you definitely asked another question. Oh, yes, yes, yes. I mean, so this is far as the CEO. Man, I love to talk about stuff coming out and I’m just completely unable to. But what I can tell you is — right? so frustrating, just keeps me up, anyway, but what are you going to do. So — but here’s what I can tell you. So, if you look at, for example, our on-time pickup promise. This is another innovation that I just think we’re super-proud of.

So, when we launched it last year, you remember the promise. The promise is if we’re more than 10 minutes late to pick you up for an airport ride, we will pay you up to $100, no questions asked. Now, we’ve done two things since then that are both pretty amazing. The first is, it is now available in just about every major airport in the country. When we launched it, we were in a subset, now we’re in just about every major airport. Second of all, we look very closely at that remediation rate, right? What percentage of rides end-up not going well. When we last talked about it, that number was about 2%, now it is sub 1.5%. And that shows you how operational excellence can drive so much value. And by the way, when we do end-up paying, this 1.5% of the time, when we do end-up paying, those riders end-up taking another Lyft in the next couple of weeks more frequently than people that, that hasn’t happened to.