Good afternoon, ladies and gentlemen and welcome to the Lyft Fourth Quarter 2019 Earnings Call. At this time, all participants are in a 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 Catherine Buan, VP of Investor Relations. You may begin.

Thank you. Good afternoon and welcome to the Lyft's 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 our 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 time, the same location, shortly after this call has ended. I’d like to take this opportunity to remind you that during the call, we will 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 of 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 measures, 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 topline growth in 2020, while also making progress on our path to profitability. As we've discussed on prior calls, there are three 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 three 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…

Thanks, Logan. We've had an incredible year with our various enterprise businesses whether it's medical providers transporting patients, business-people 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 need. In short, strong brands attract [end] [ph] 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 Inc. Card members now receive 5x total points or 5% cashback on Lyft ride. Chase Sapphire Reserve Card members earn 10x total points on Lyft ride and each reserve account is receiving one 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 used one of the several chase cards. And it offers us a unique opportunity to…

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 unlock 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…

All right. Thanks, Brian. I am 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 card 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 docs. 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…

Okay, operator, we are ready to take questions.

[Operator Instructions] Our first question comes from Brent Thill of Jefferies. Your line is open.

Good afternoon. Brian you had a stated goal for profitability in fourth quarter of 2021. I was curious if you could just update us on your trajectory to hit that target?

Hi, 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 four 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 2021 target. Just remember with our focus, we're not exposed to the uncertainty for 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.

Thank you.

Thank you. Our next question comes from Mark Mahaney of RBC. Your question please.

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? Thank you very much.

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 under-appreciates the importance of revenue per active rider. Lyft isn't like a Spotify or 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.

Okay, thank you Brian. Thank you Logan.

Thank you. Our next question comes from Doug Anmuth of JPMorgan. Please go ahead.

Thanks for taking the questions. I wanted to ask you about insurance. Looking back at 2019 you saw a considerable leverage from sales and marketing as couponing and promotions are ceded. 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 six states. And when we look at the outperformance, I mean, one of the biggest [beats] [ph] again, we expect a 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 four 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.

Thank you.

Sure.

The next question comes from Stephen Ju of Credit Suisse. Your line is open.

Okay. Thank you. 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 environments, 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 2018 to 2024. 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? Thanks.

Sure. Stephen, thanks for asking the question. Let me provide a framework to think about the full year. So 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 topline 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 one, 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 is really a key part to how we're driving…

Very helpful. Thank you very much.

Thank you. Our next question comes from Brian Fitzgerald of Wells Fargo. Your line is open.

Thanks guys. 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 that 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.

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 there because of the additional costs 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.

Yeah. 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, we expect -- especially the price will be used most in Q2 and Q3 and we expect contribution margin to be higher than Q1. So we expect leverage.

Thanks, John and Brian.

Thank you.

Thank you. Our next question comes from Eric Sheridan of UBS. Your line is open.

Thanks very much for taking the question. 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 2020 and how you see the industry evolving? And then one on the insurance piece, which I guess the 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. 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 CNC-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.

Thank you. Our next question comes from Justin Patterson of Raymond James. Your line is open.

Great. Thanks so much. 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? Thanks so much.

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 – 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. We've been – Lyft was the innovator in peer-to-peer back in 2012. We were the innovator behind shared ride, a few years later and we've got a lot of other 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 to 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 two. So for example you get on a city 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 Up. Another example of something that increases the -- 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 kind of increase how much people use the service.

Got it. Thank you.

Thank you. Our next question comes from Ross Sandler of Barclays. Please go ahead.

Just two questions for 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 competitors? This is not about market share but about each market individually. Thank you.

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 two companies. We are continuing to make important investments in the brand in Q1. Recently we had both Will Smith & Alicia Keys talking about Lyft and 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 are lowering 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 watermark 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 two companies. It's important to keep in mind. We are a single-segment. Our competitor has 5 segments. And one of their -- they have five segments and then they have, what they call, G&A and centralized R&D. That specific cost center is almost five times larger than my total loss. So, I don't think you can really compare the two 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.

So, I think, we're taking the writing 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 autonomy -- I mean, again, all of that is hidden for Uber investors.

Thank you. Our next question comes from Ron Josey of JMP Securities. Your question, please.

Great. Thanks for taking the question. 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? Thank you.

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 where it's 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 this tend to be high-income opportunities.

Great. Thank you.

Thank you. Our last question comes from the line of Benjamin Black of Evercore ISI. Your line is open.

Yes. Thanks for the question here. 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, you mentioned that you are on balance a little bit more aggressive last month, just curious to hear your thoughts on the durability of the current rationality? Thanks.

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 T&C-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 on contribution margin helps demonstrate the impact we've seen already just in Q4. In terms of longer term, I think we're open-minded. We like -- I think the insurance industry has matured and evolved to really understand ride trends. 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 one percentage point on sales and marketing. So, I think there's one thing you 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.