Good afternoon, and welcome to the Lyft Second Quarter 2020 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 Shawn Woodhull, Head of Investor Relations. You may begin.

Thank you. Good afternoon, and welcome to the Lyft earnings call for the quarter ended June 30, 2020. This is Shawn Woodhull, Head of Investor Relations. Joining me today to discuss Lyft’s results are Co-Founder and CEO, Logan Green; 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 Q2 results and share some commentary regarding our outlook. This conference call will be available 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 will be making forward-looking statements including statements relating to the expected impact of the COVID-19 pandemic, the expected performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects, as well as statements regarding litigation matters and the Proposition 22 ballot initiative. 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 Form 10-Q for the first quarter of 2020 filed on May 8, 2020, and our Form 10-Q for the second quarter of 2020 that will be filed by August 14, 2020, as well as risks associated with the outcome of litigation, including a decision issued on Monday, August 10, granting a motion for preliminary injunction in an action by the people of the state of California, as well as the current uncertainty and unpredictability in our business, the markets and economy. 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 Shawn. Good afternoon, everyone, and thank you for joining our call today. Before we review our second quarter results, I want to acknowledge how difficult the past few months have been for riders, drivers and the communities we serve. The effects of COVID-19 have been severe for our society and economy, as well as for our own business. As a country, we also received a long overdue call to action to address the persistent injustices that Black Americans face. We will discuss our efforts on this in more detail, but we recognize there's more we can do to speak up and to be part of the solution. Turning to our second quarter, I'll focus my remarks on the recovery to-date as well as our efforts to accelerate our path to profitability. Let's start with the recovery we're seeing in our business. Our Q2 results reflect the challenging operating environment. While the recovery in our ridesharing business has not been a straight line, we are seeing encouraging progress. Revenue for our second fiscal quarter was down 61% year-over-year, reflecting a significant decline in rideshare rides. This was driven primarily by a decline in active riders as shelter-in-place orders and other restrictions across North America reduce travel overall. At the same time, ride frequency was relatively more resilient. This is reflected in our revenue per active rider, which was down just 2% year-over-year despite the extremely challenging environment. Even though rideshare rides were down significantly in the second quarter, rides have meaningfully recovered from the trough we observed in the second week of April. Trends within rideshare also reflect changes riders are making in their lives and in how they use Lyft. For example, in Q2, we saw an increase in the percentage of rides taken during what we would have…

Thanks, Logan. Now more than ever, delivering on our mission to improve people's lives with the world's best transportation begins with users' health and safety. As cities reopen and people adapt their routines to COVID, it is critical that we continue our focus on the work we started in March, to help protect riders and drivers on our platform. We know that health considerations and earnings stability are two of the most important factors that impacted driver's engagement with our platform. We're taking meaningful action on both. First, health safety, in May, we announced our health safety program, which established new requirements, for driving and riding with Lyft. As part of this program, both riders and drivers must self-certify that they will wear facemasks, throughout their ride, our free of COVID-19 symptoms and will follow CDC and local guidelines, related to COVID-19. In support of this program, we have now distributed over 150,000 sanitizing products and masks, to drivers across the country. We further bolstered our health safety program in July, with the launch of vehicle partitions. These partitions were designed in-house by Lyft engineers, in line with CDC recommendations. Our team designed the partitions to be easily shipped, assembled and installed, across a wide range of vehicle makes and models. So far, we have made thousands of partitions available to drivers for free, across nine markets, including Atlanta, Baltimore, Boston, Dallas, Denver, New York City, Phoenix, Seattle and Washington, D.C. Over the next coming months, we plan to expand this program to 30 regions and provide free partitions, to over 60,000 drivers. Our ability to roll out vehicle partitions at scale is enhanced, by our acquisition of Flexdrive, as we can install partitions at scale, within the Flexdrive fleet. Now let me talk about what we're doing to protect…

Thanks, John, and good afternoon, everyone. Let me share a few perspectives, before I get into specifics regarding our Q2 performance and outlook. Given the significant decline in revenue related to COVID, I'm extremely proud of our success, minimizing our adjusted EBITDA loss in Q2. We have also positioned the company to be stronger and more profitable in the long-term. I attribute this to our decisive actions to reduce costs as well as our strong execution. I'm also pleased with Lyft's sequential monthly ride recovery, which resulted in meaningful month-over-month revenue growth from the April lows. The combination of this improving top line trend, along with broad and significant cost reductions, helped us to close Q2 well below the loss level we publicly communicated. As you will recall, when we announced Q1, we said we could manage our Q2 adjusted EBITDA loss to under $360 million, if April ride volumes persisted in May and June. In early June, we updated our outlook and indicated that if June held it May ride volumes, we could manage the loss to under $325 million. I will share more specifics shortly, but our Q2 adjusted EBITDA loss came in at $280 million, an improvement of $45 million versus our early June update. To put this in perspective, for every dollar of revenue decline from Q1 to Q2, our adjusted EBITDA loss increased by less than $0.32, which helps demonstrate how resilient our business model is. Finally, similar to our perspective three months ago, we continue to treat this crisis as a catalyst to shine a bright light on every expense line to drive incremental savings and efficiencies. However, let me be very clear, we are continuing to invest in initiatives that we expect will drive long-term growth and attractive shareholder returns. Let me now…

Thanks, Brian. The second quarter was extremely challenging on many fronts. We're grateful for our driver and rider community, partners, team members and shareholders for their continued support and dedication. We're encouraged by the recovery in our business to date, and we're confident that we're taking on the critical work necessary for the business to emerge stronger on the other side. While the headwinds we're facing won't disappear overnight, we believe they will prove temporary and we'll look back on this as a defining moment that strengthen the company. So while we navigate this crisis, our leadership team remains focused on capturing enormous long-term opportunity ahead of us. We continue to believe that people will rely on transportation networks like Lyft more than ever post pandemic. We're the only pure-play transportation networks company in North America that has integrated rideshare, bikes, scooters, transit and car rentals, all onto a single platform. And we believe that we're better positioned than ever to be the platform of choice for drivers, riders and to deliver outstanding value to shareholders. Before we take questions, I want to acknowledge that for many of us, the past few months have been unlike anything we have ever seen before. Recent acts of injustice against Black Americans have created an inflection point in America. As we seek to become true allies and lead a company where our team feels empowered to do the same, our actions have been guided by our long-standing commitment to support the communities we serve. Our work starts within our starts within own walls. Where we've doubled down on our internal efforts around inclusion and diversity, especially in regards to hiring and promotion. From there, we're harnessing the power of our platform to partner with organizations across the country to help eliminate access to transportation as a barrier to upward mobility for Black communities. Alongside partners, including the NAACP, National Urban League and My Brothers Keeper Alliance, we'll be providing access to roughly 1.5 million free and discounted car, bike and scooter rides to enable black communities to access a powerful network of essential resources and services over the next five years. This work is an important part of fulfilling our mission by ensuring that the world's best transportation is accessible to all. And with that, we're now ready to take questions.

[Operator Instruction] Our first question comes from the line of Benjamin Black of Evercore ISI. Your question please.

Hey, thanks for the question. And thank you for the update on the timeline to profitability. I think you mentioned several -- you see several scenarios which would get you profitability in the fourth quarter of 2021. Could you maybe help us understand the levers that will get us there? And then one on costs, I know you gave us an update on when we should -- could you give us an update on when we should see the full benefit of the $300 million cost reduction. But I think you also million shining a light on all costs. So are we done with the rationalization now? Or do you still have more wood to chop? Thank you.

Sure. Thanks, Ben. This is Brian. So let me just again repeat why breakeven is just so important to us because it's really the catalyst for us to start self-funding that future growth. And I think it's important for us to demonstrate to investors just the strength of our model. So we are committed to this target. As we mentioned, it does require ride recovery. There are several factors that give us confidence in our ability to reach this milestone. First, as you point out, it's our success in terms of reducing costs and improving unit economics. And this is leading to a reduction in the number of rides we need to generate to achieve profitability. And so as we mentioned, based on the progress to date between the first and second quarter now, we can achieve profitability with 5%. Basically, the required rights now are 20% to 25% reduction, which is an improvement of 5% or 5 percentage points. To go back to your specific question, we are committed to try to achieve this milestone. We refer to scenarios and levers and this is across the P&L. So both levers that affect top line as well as bottom line to help execute on this goal as well. In terms of our success in the fixed cost, cutting fixed costs out of the business requires really, really difficult decisions. But once you make those hard decisions, you have very high probability of success. And so as we said on the call, we do expect to achieve the full $300 million of run rate savings by Q4, and this is against our original plan for the year. And I forget, what was your last question?

You mentioned that you're signing a life -- using a pandemic to sign a right on all costs in the business. So I was wondering if there are some more rationalizations that you have so any more on the cost savings front there. Thank you.

Yes. So as I mentioned, we've -- we feel very good in terms of the fixed costs that we've taken out. But we're spending incremental time and energy across the company driving higher unit economics. And so in terms of what that means, it's both initiatives and projects that help us increase revenue and so this is driving more rides as well as just more revenue per ride. And then we have a number of initiatives to reduce costs. So, this is everything from increasing our computing efficiencies, unlocking savings on transaction processing, and funding incremental initiatives on safety to reduce insurance costs. Again, one of the things that we mentioned in the long -- in the prepared remarks, that our success now on executing on the reductions in the fixed cost base and our success on driving forward on these projects to reduce or improve our unit economics, we believe we're creating lasting structural improvements to our business. And given these improvements, we now believe we can generate margins in excess of the long-term model that we discussed at the time of our IPO. So, we'll be planning to update investors in early next year on that.

Great. Thank you.

Sure.

Thank you. Our next question comes from Doug Anmuth of JPMorgan. Your question please.

Great. Thanks for taking the questions. I have two. First, John, you talked about potentially suspending operations in California, if you don't get the extended-stay on August 20th. Just hoping you could help us understand how that would work? Is that just temporary as you adjust the model to certain markets and adjust service levels? And curious how far along your planning is along this path. And maybe you can just remind us how big California is as a percentage of rides or revenue? And then, Brian, just on insurance, if you could talk about the opportunity to further shift insurance risk later this year. I know you went to about 25% risk transfer last October. Curious where that could go to and how does COVID impact the potential move there in October? Thanks.

Thanks Doug. This is John. So, on the first question, if a longer state is not granted, then the injunction would go into effect on August 21st in which case, we'd be forced to suspend rideshare operations in California. And as we explained to the trial court, a preliminary injunction forces Lyft to transform its business model in California. One thing to remind everyone is the majority of the drivers on the platform have full-time jobs outside of Lyft and the constraints that we would need to add to the platform such as schedules would not work for many of them and Lyft cannot comply with the injunction at the flip of a switch, reclassifying tens of thousands of self-employed drivers would be a significant challenge in normal times. And in the current pandemic environment, that would be nearly impossible. So, it's difficult to predict timing, as you mentioned. Our focus is on Crop 22 and we are confident in moving that forward. Anything outside of that would be -- need to be assessed at a later time. In terms of the business impact within California, California currently makes up around 16% of total rides. So that should address your question there.

And this is Brian. So, let me just give a little more color on California. I would say the West Coast is one of our weakest regions in terms of rebound. So, if you look at month-to-date in August, California as a percentage of total rides was down over five full percentage points year-over-year, as John mentioned, out the 16% of total rides. In terms of specific data points, notwithstanding the recovery in other parts of the country in July, rideshare rides were down 75% in San Francisco, 72% in San Diego, and 75% in San Jose. And in the most recent week, both San Francisco and San Jose were down 77% year-over-year. In terms of the second part of your question around risk transfer, so as you recall, we are on a September fiscal year as it relates to insurance policies. And so in our current policy year, which ends this September 30, we transferred a majority of risk related to six states with regards to primary auto. We're actually in a live RFP right now for our next policy here, which begins October 1 for the first day of Q4. For us, there's two key benefits from transferring risk. First, helps me sleep at night because it reduces volatility in our financials. And second, it aligns incentives between us and our insurance partners. The RFP is live right now. So, I don't have too many details that I can share, but I can say that we're pleased by the demand for our business amongst leading auto insurers to the upcoming policy year. And our progress to-date on safety initiatives has been well received by the market. And this is super important to us because it factors into pricing. So negotiations are continuing. Nothing has been awarded, but we expect that we will have the option to transfer additional risk for the upcoming policy that would begin on October 1.

Thank you, you bet.

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

Thank you very much. So Logan and John, you touched on this to some degree, but can you talk about the puts and takes to the Lyft use case over the next 12 months perhaps and the next five years? Clearly, the morning and afternoon commute use cases are way down right now as are the airport rides. And there may be a possibility that some of the decline will be permanent as people work from home. So can you put that in context with your efforts to expand into new use cases like doctor's visits, among other things, that is perhaps not as work related? Brian, you touched on this to some degree as well. Overall, it seems like rides improved pretty significantly from the April trough. But I'm just wondering if you could provide us with more granularity on some of the regional activity outside of California, especially as parts of the country seem to be going in different directions in terms of cases? Thanks.

Thanks Stephen. Yes, I'll touch on a couple of interesting trends. We are broadly seeing a shift to more sort of essential trips. And seeing the commute case has been fairly consistent actually between Q1 and Q2? It makes up roughly 30% of our total rides, but seeing more essential trips to grocery stores, doctor appointments, et cetera. A couple of interesting trends, public transit usage across the country has really fallen nationally. And a lot of cities have been in really tough budgetary sort of conditions and forced to cut back the amount of transit service that they offer. And we're seeing a lot of people turn to ridesharing as a reliable, safe and affordable alternative there. One of the exciting things that we've launched on that front as part of Lyft business, we launched a new product called Lyft Pass, we just launched that in July. And Lyft Pass is a new product that allows organizations to cover the cost of rides for an employee, for a customer, a guest, a patient, et cetera. And find a -- provide a safe and convenient flexible option. So, an organization, the way it works an organization can buy a onetime or recurring lift pass. And set up a great set of custom rules and restrictions around the time of day that it's used, the right type that it can cover, the location and more. So we're really excited about Lyft Pass, and we'll continue to look for more ways to build products that support folks and support cities as they reopen. One other thing, we talked about it a little bit before, but I just want to comment on personal vehicle ownership. We really believe that people are going to depend on Lyft and shift to Lyft more and more on the other side of the pandemic. Affordable and reliable transportation is going to be critical in navigating a challenging economic environment. And I think on the other side of the pandemic, most folks expect there to be, obviously, a very challenging economic environment to deal with. So, we think car owners and folks considering car ownership might opt out of the high fixed costs that go along with owning a car, either because they can't afford it or they don't want to sign up for that type of long-term burden. And obviously, it's still the early days, but we think we're still at the very beginning of a long-term secular shift away from car ownership and towards adopting a broader transportation as a service type product. So as far as specific cities, Brian, can you weigh in on some of those trends?

Sure. Thanks, Logan. So let me just maybe quickly touch on ride mix, then I'll talk about the cities. What's interesting for us, if you look at weekend rides as a percent of our total rideshare rides, in Q3 and Q4 of last year, weakened rides were 32% and then 33% of total rides. At the absolute COVID bottom, weakened rides drop to 20% of total. In the last week of July, weekend rights have now reached 29% of total. So we're seeing a rebound there. And then as we reported last time, airport rides in Q3 and Q4 of last year were 9.1% and 9.4% of total rideshare rides. In April, airport rights dropped to 1.6%. And as Logan mentioned, airport rights are beginning to rebound. In the month of July, they've more than doubled as a percent of ride mix, and they're now up to 4%. So it's still down from last Q3, Q4, but definitely trending in the right direction. In terms of cities and regions, look, I think it's really important for investors to realize that the U.S. is a collection of unique data points. What you're seeing in your hometown doesn't necessarily represent what is happening in aggregate across the U.S. And so as I mentioned, rise in the West Coast, in particular, are weaker. But other regions have already recovered to a much stronger recovered to a much degree. For example, 10% of our top 50 cities in July were down 25% or less year-over-year. And the other key point to understand is each month, cities recover at different rates. And so while July rideshare rides jumped 12% system-wide, month-over-month, as Logan mentioned, over 10 of our top 50 cities grew faster than 20% month-over-month, and we had one top 20 city grow 57% month-over-month. And then finally, even in areas with really high COVID case counts and lots of media attention, like Los Angeles and Miami, we did see positive month-over-month growth in July.

Thank you.

Thank you.

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

Thanks. Two questions, please. First, could you describe why you think the driver supply challenges are existing? You put in wait list early on because there was a surge in drivers, but then it seemed like it reversed. I think there are probably macro factors at play here, but your thoughts on why you're experiencing driver supply challenges? And then secondly, Brian, could you talk about why Rides volume will more closely match revenue or rides declines will more closely match revenue declines going forward than what we've seen in the last quarter or two? Thank you.

Thanks, Mark. I can take the first one around driver participation in the platform. So the two most important factors for drivers when considering whether they want to get behind the wheel right now, our health considerations and earnings stability. And so on the health consideration side to your point, a lot of that is more macro, but we're taking that very seriously and doing everything we can to improve safety and health protection within the platform. So for example, the in-house created partition, we've shipped tens of thousands of those units and we're going to continue providing PPE and those partitions to keep drivers safe and make sure we're communicating all the different options they have to protect themselves, if they choose to come back to the platform. On earnings because there was kind of that back and forth on the marketplace early on, it's now important that we communicate the fact, as we mentioned, that driver earnings are now at/or above pre-COVID levels. And so we've really increased our communication around that for those drivers that are comfortable driving at this time.

And Mark, let me touch on your -- the second part of your question. I'm going to just give a little more context on Q2, and then I'll transition to Q3. So in the second quarter, incentives that are classified as contra revenue as a percentage of revenue were roughly flat year-over-year, but increased as the quarter progressed. And so as John was mentioned at the start of Q2, the marketplace had really low driver utilization, so much so that we created these waitlists. But as the quarter progressed, demand began to outstrip supply. So we used incentives to help attract drivers back on the platform, very similar to the comments from our competitor last week that we use incentives to help the marketplace more quickly reach equilibrium in terms of supply and demand. In terms of Q3, we expect that year-over-year revenue growth will likely track the change in ridesharing rides as we invest to improve service levels by bringing drivers back on the platform. Now this is really a region-by-region balancing act. In general, a city reopens, demand tends to outstrip supply. And we think it's the right long-term move to increase liquidity and really strategically invest in supply in Q3. And as we invest to bring drivers back on the platform, this has from a GAAP perspective, a contra revenue impact. And this is why we expect that Q3 year-over-year revenue growth will track the change in rideshare rides versus Q2 where we actually earned a slight benefit. Now in terms of trends beyond Q3, we believe that high-end unemployment will lead to more people signing up to drive on the platform, especially as federal unemployment benefits expire or are further reduced. And of course, all this is factored into our Q3 adjusted EBITDA estimate. And over time, we believe that this will create a future benefit relative to Q3, as more markets reach really typical equilibrium levels and incentives can decline back or below historical levels.

Okay. Thank you very much.

Thank you. Our next question comes from Eric Sheridan of UBS. Please go ahead.

Thanks so much for taking the question. Maybe two following upon the answers to Steven and Mark's question. In those markets where there's been a greater degree of recovery than that. Have you seen any changes in competitive behavior between you and your main competitor in terms of the way either one of you might be approaching the market, in new markets where you're seeing more of a healthy recovery or snapback generally in the environment? And then secondly, following on to the last answer, how should we think about the demand side of the equation as opposed to the supply side of the equation? And as you see a market recover, how much you lean in on marketing initiatives and customer acquisition initiatives versus allowing some of that demand to come to you sort of organically holistically? Thanks so much.

Sure. I can -- I'll weigh in on some of the macro trends we're seeing, and maybe Brian can hit some specifics. So competition has been nationally fairly stable. So nothing -- no dramatic changes. And as a company, we're putting our competitive focus on differentiating our platform through product innovation to providing a better experience to our riders and drivers. If you look at some of the programs that we run in markets, on the rider side, we have really significantly cut coupons down to record lows. And that seems to be consistent with what we've seen from third-party data. And of course, we're in a place where, generally, we have more demand than we can handle. So we are really pulled back on that side. On the -- over the last few months, as we've seen demand ramp faster than supply, we removed the wait list we had on the driver side. We've started acquiring drivers again, and we are leaning into using incentives to balance the marketplace against the strong rider demand. So ultimately, our focus is on putting ourselves in the best possible position to deliver strong growth as the market recovers. Maybe, Brian, can weigh in on a couple of specifics.

Sure. Thanks again for the question, Eric. Look, I think I have to repeat it because it's just so powerful. If you look at the second quarter, we reduced incentives classified as sales and marketing 96% from Q1 levels. But at the same time, we saw a meaningful rebound as the quarter progressed without using coupons. Again, as Logan mentioned, we want to win on product innovation, on customer experience and brand preference, not coupons. And so much of the investment in product innovation and customer experience is captured in our R&D line. We believe these investments can create competitive -- real true competitive advantages and have stronger ROI than coupons, which can turn into a zero-sum game. So we expect that sales and marketing expense for us, as a percentage of revenue will be permanently lower post COVID. So you should take away that this is more than just a short-term cost cutting measure. And then just to add in terms of what we've seen in different states. It is, back to my comment, like each city is so unique; it is really hard to generalize across the United States. It's really a city-by-city balancing act.

Thank you. Our last question comes from Edward Yruma at KeyBanc. Your line is open.

Thanks for squeezing me. And just -- two quick ones. I know you leaned in introduced some new products during the quarter, specifically Wait & Save and delivery. I guess just any initial observations on how they performed. And kind of how these businesses may scale over time. Thank you.

Sure. So we're really excited about what we've seen from Wait & Save. So in the sort of first days of the pandemic, we paused shared rides across the country and it was the right thing to do. But it took away our most affordable option from our customers, which was particularly, I think, a difficult moment to do that as we had a lot of people switching from public transit into Lyft looking for affordable options. And Wait & Save is really great at providing a lower cost option for folks who are more flexible on their schedule. And if you can wait a few minutes wait 5 to 10 minutes, you can get a significantly better price and it drives marketplace efficiency because we can send - - we can increase driver utilization. And ultimately, driver is not going -- is going out of their way, a little bit less than for the kind of pure on demand experience. So we're not breaking anything out or disclosing any kind of specific metrics on Wait & Save. But we're pleased with how it's performing and excited to be able to kind of unlock that type of innovation right when the market needs it. Maybe, John, you can, yes, comment on delivery.

Yes, sure. So for clarity, we -- on delivery, we launched an essentials delivery program. We're not doing a consumer-facing delivery service. We're well aware of those -- despite the growth in delivery, the continued growing losses as well in that space. So we're really focused on our current programs. In essential deliveries, we've been really happy with the speed at which the team has built that product. It's early days, but we're looking for working with additional organizations so that Lyft drivers can help deliver essential items and we're just continuing to monitor and look for opportunities there.

All right. With that thanks everybody, for joining our call today. We hope everybody is staying healthy and safe during this time, and we'll talk to everybody again next quarter.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.