Good afternoon, and welcome to the Lyft Third 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 Sonya Banerjee, Investor Relations. You may begin.

Thank you. Good afternoon, and welcome to the Lyft earnings call for the quarter ended September 30th, 2020. Joining me today to discuss Lyft's results are our 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 Q3 results and share some commentary regarding our outlook. A recording of this conference call will be available on our Investor Relations website at investor.lyft.com 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 continuing 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 second quarter of 2020, filed August 13, 2020, and in our Form 10-Q for the third quarter of 2020 that will be filed by November 16, 2020, as well as risks associated with the outcome of litigation 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, unless 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, Sonya. Good afternoon, everyone. And thank you for joining our call today. Before I review our financial results, I want to acknowledge that 2020 has been challenging on many fronts. We are proud of our team's execution. And we remain focused on controlling what we can to support the recovery, and accelerate our path to profitability. I also want to highlight the outcome of Prop 22. Last week, we made history in California, as voters stood with drivers to pass Prop 22, a landmark achievement for our industry that will make ridesharing, even better for drivers and riders. We believe the outcome in California is a win-win-win. It's good for the drivers, who will maintain their flexibility and independence. It's good for the riders, who will continue to have access to rides, and it's good for California's economic recovery because hundreds of thousands of its residents will continue to have access to flexible earnings opportunities on platforms like ours. Beyond California, we're continuing to engage with policymakers across the country, and believe that the policy solution that California voters chose can provide a model for other states. Turning to our third quarter, let's start with the trends we saw in our business. As we expected, the recovery in ridesharing was ongoing. We saw strong performance improvements in other areas, such as bikes, scooters and fleet, which includes Express Drive, Lyft Rentals and our Driver Centers. Revenue for our third quarter was down 48% year-over-year, but up 47% quarter-over-quarter. The sequential improvement in revenue was driven primarily by growth in Active Riders, which increased 44% quarter-over-quarter. As communities reopened, more people turned to ridesharing to go about their daily activities. Revenue per Active Riders was up 2% quarter-over-quarter, reflecting an improvement in ride frequency. Even though rideshare rides are still…

Thanks Logan. As Logan mentioned, last week, California voters made their voices heard on Proposition 22. This is a major victory for drivers, our industry, and the broader Lyft community. It ensures our business can continue to operate as normal while also providing drivers with new earning opportunities. I believe the campaign was successful because it ultimately reflected the desires and priorities of drivers. From all of our experience talking to drivers in California and elsewhere, and from all the research we've done, one thing has always been consistent, drivers want to keep their independence. Very few jobs allow you to start or stop working whenever, wherever, as often as you want. And that experience is what has attracted so many drivers to our platform. Voters clearly agreed. I'm really proud that we found a way to protect that independence, while also providing drivers with important new benefits, a healthcare subsidy, occupational accident insurance, and a minimum earnings guarantee. This is a policy challenge we've wanted to solve for a long time. The voters of California have now pioneered a solution that is a win-win for the state. I believe strongly that other states as well as policymakers on the federal level will see this as a watershed moment and recognize that the model that voters backed in California makes sense. We look forward to continuing our conversations with policymakers at every level. Now more than ever, we are focused on finding ways to engage with and support drivers, riders, and the communities we serve. Let's start with drivers. Health considerations remain top of mind for new and returning drivers, and we've continued to roll out new products and services as part of our health safety program. In October, we introduced our Clean Ride Guide, a recommended vehicle cleaning process…

Thanks, John, and good afternoon, everyone. As local and state governments update rules, and cities slowly come back to life, we've seen an increase in activity on our platform. In terms of the shape of the recovery ride share rise on a year-over-year basis were down 75% in April, 70% in May and 61% in June. In the third quarter, July was down 54%, August was down 53%, and September was down 48%. While REITs remain down significantly year-over-year, we realized strong sequential growth across key metrics, in the third quarter. The number of active riders increased to 12.5 million, up 44% from 8.7 million in the second quarter. Despite this large increase in the number of active riders, we were pleased that revenue per active rider increased to $39.94 in the third quarter, up $0.88 from the $39.6 in the second quarter, as ride frequency per active writer, increased in Q3, relative to Q2. The combination of these trends led to a 47% increase in third quarter revenue to $500 million up from $339 million in the second quarter. Now, before I move on. I want to note, that unless otherwise indicated. All income statement measures that follow are non-GAAP and exclude stock-based compensation and other select items. A reconciliation of historical GAAP to non-GAAP results is available on our Investor Relations website and maybe found in our earnings release, which was furnished with our Form 8-K filed today with the SEC. 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. In Q3, contribution was $249 million, which represents 112% increase, from $117 million in the second quarter. Contribution margin increased…

Thank you, Brian. I'd like to reiterate that we're thrilled by the outcome of Prop 22 and the opportunity it creates to work with legislators across the country with similar solutions. One, protect driver independence and enable earnings opportunities. We'll have more to share on the regulatory outlook for the company on future calls, but we're confident that our position is now greatly improved. I'd like to take a moment to reflect on our business and speak to our why. Our mission is to improve people's lives with the world's best transportation. We're the only pure play transportation network company in North America that has integrated rideshare, bikes, scooters, transit, and rental cars, all onto a single platform and we believe that we are better positioned than ever to be the platform of choice for drivers and riders and to deliver outstanding value to shareholders. We're encouraged by the ongoing recovery in our business to-date and we are confident that we are setting ourselves up to exit this period stronger. We're great pull for a rider and driver community, partners, team members, and shareholders for their continued support and dedication. And with that, we're now ready to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Stephen Ju of Credit Suisse. Your line is open.

Okay. Thank you very much. So, Logan or John, I think there is a perception out there that as we come out of the pandemic, the addressable market for Lyft may have potentially shrunk or at least time to unlock that same level of dollar TAM might be a little bit stretched. So, wondering what your response to that might be as you think about the existing use cases versus the new use cases for rideshare you might be thinking about, especially as it sounds like we're going to be in an environment where pricing seems to be heading higher as opposed lower? And Brian, your contribution margin is now at 49%. Presumably, most of this is being driven by optimization of your insurance costs. So which, I guess, with your new agreement should ripple through to subsequent quarters. So, talk to us about this as well as, I guess, the other OpEx factors that get you to profitability with 30% less units versus your original guidance. Thanks.

All right. Brian, you want to start with profitability?

Sure. So maybe, Stephen, to answer that. Let me give you a little color in terms of how we're thinking about Q4. And I must start, obviously, with the disclaimer. The extent to which our operations will be impacted by COVID will largely depend on future developments, which are highly uncertain and cannot be accurately predicted. Obviously, this has not been a simple straight-line recovery to-date. We've seen, generally speaking, small positive stair steps. But there have been regions that have reversed temporally as case counts increase. In terms of the monthly year-over-year growth, as folks know, starting in April, we've gone from down 75% to 70% to 61% to 54% to 53% to 48% and, most recently, 47.4% in October. In the most recent week, so this would be the week ended November 8, rideshare rides were down 48.3% year-over-year. And if you normalize to the Election Day boost, we probably would have been down around 49%. Now, barring a significant change in COVID restrictions or I guess rider behaviour, we expect that active riders will increase in Q4, but the quarter-on-quarter growth will be more modest. And I have to say, it's really difficult for us to forecast active riders during COVID. But we would estimate in Q4 that we may see an increase in active riders of between 800,000 to 1 million. Now, given our focus on monetization and the stable ride frequency that I mentioned, we expect revenue per active rider will increase in Q4 relative to Q3, both in terms of the absolute change as well as the percentage growth rate relative to Q3. So overall, we expect that the sequential quarterly growth between active riders and revenue per active rider will be generally more balanced in Q4, and again we expect total revenue will…

Thanks, Brian. To take the other part of the question, we are going after and have been going after since day one the $1.2 trillion consumer transportation market. And we have been laser focused on that. I think all of the same structural elements that have been shifting this market from one that's been based on car ownership to transportation as a service are still as true today as they were pre-pandemic, and we think all of these forces will continue to be in play as we see the recovery play out. And just to talk about that for a second. Today's car ownership ecosystem is extremely fractured. A typical consumer has to interact with 10 different companies just to keep up with the basics of owning a car. And at each step, you're paying full retail prices. So you have a bad disjointed experience with very high prices. And our vision is to build a transportation network that can handle every single one of our customers' transportation needs. So imagine taking those 10 different companies down to one. And we can create a completely frictionless customer experience and leverage the scale of our network to deliver incredible value to our customers. So that's our vision. That's the TAM. I think it's unchanged. And I think all of the secular trends at force, moving people from ownership to transportation as a service are still at play. If you look at what happened to DVDs and CDs as the world moves to streaming, when you can deliver something as a service at a lower cost with a better experience, that ends up being a really, really powerful combination. And I think in our industry, you've always seen it first with younger generations. Each generation after the next is less interested in getting their license. They're less interested in owning a car. And we think all of those structural elements to our industry will continue playing out. And while our RP is zero, our top priority right now is navigating the recovery and ensuring we hit profitability. We will continue to double down on this vision of building an all-inclusive transportation network and seizing that $1.2 trillion TAM.

Thank you.

Our next question comes from the line of Doug Anmuth of JPMorgan. Your question please.

Thanks for taking the questions. Brian, just when you talk about getting to adjusted EBITDA profit on 70% of late 2019 volumes, can you just clarify there? There's a lot of moving parts, but just clarify where you're seeing the biggest part of the incremental savings in your view over the next year? And then second, maybe for Logan or John, I was just hoping you could clarify the comments on the food delivery business and your plans there. Is that more specifically something that is on the business and corporate side? Or are you considering anything there in terms of consumer. Thanks.

Sure. So, Doug, let me take the first part. You know when John and Logan spoke at the Wall Street digital conference, which was only a year ago, it feels longer than that. You know, we had built a ride forecast that achieve profitability by Q4 of next year and what Logan said, you know, we've now relative to what we need, it's 30% lower than what we thought a year ago at that conference. In terms of just where we were 90 days ago to today, 90 days ago we needed 5% to 10% more rides than Q4 of 2019, and through a lot of work which I'll cover in a second. We now need 5% to 10% fewer rides to achieve adjusted EBITDA profitability. I think folks are well aware of the fixed cost changes in terms of our cost structure we made, but we're not letting up. And so with a zero-based budgeting mindset, as you look at budgets for next year, just because you spent x this year, doesn't mean you get x plus y next year, it could mean you get z, which is a much lower number. And so by having each team and function, really try to justify first dollar spend, we can unlock more fixed cost savings. But I think what gets really exciting is just the expected contribution margin improvement because our unit economics. We're going emerge on the other side of COVID, just structurally more profitable per ride. And so this is monetization per ride as well as all the key variable expenses. You know I'm very excited in terms of the leverage we're building and we just need some oxygen to come back in terms of ride recovery, and it will translate and drop to the bottom line.

I'm happy to take. This is John. Doug, I'm happy to take the delivery question. So as we mentioned a while back, we started doing delivery pilot program at the start of the pandemic to connect drivers with more earning opportunities. And we did a lot of social impact work around delivering meals to those in need during the pandemic. And one we're proud that we did that and two, it really helped us see how certain elements of our existing technology were perfect for being this kind of logistics arm for existing retailers and restaurants, organic traffic. So if you take an example, I think Doug you're in New York area on the east coast, one of my favorite restaurants is Dinosaur Bar-B-Que. And if you care about that restaurant and you think about all the - what's happening to restaurants in the time like this, when they sell food on a platform, like Uber Eats, they get charged 20% to 30%, they lose 20% to 30% of their revenue to that platform. And so what we're hearing from these restaurants and retailers, especially during the pandemic is they want to partner not someone that's going to be, you know, taking 20% to 30% but they want to just have the delivery capabilities, which obviously the 1 million plus drivers we have on the platform, we can provide. So not interested in a consumer platform, interested in kind of more of a B2B organization level approach, which we think is differentiated, and where we can say hey, we're not going to step between you and your customer unlike other platforms.

Okay. Thank you, both.

Thank you. Our next question comes from Mark Mahaney of RBC. Your line is open.

Okay. Can I ask two questions about Prop 22. First, there are some extra expenses associated with Prop 22 terms of minimum plus wage benefits guarantees whatever to the drivers. Can you talked about how you'll absorb, what your plans are for absorbing those costs, what extent you think you can pass those along? And then talk about the implications of Prop 22 beyond California. Do you think that that - is there evidence that you've seen that that materially changes the possibility of similar legislation being impacted - been implemented either federally or in other states? Thank you very much.

Thanks. Thanks, Mark. This is John again. So one we're very happy with the result from Prop 22, seeing that voters nearly 60% support this measure, and doing so in a very progressive state across democrat, republican and independence, having that support was very meaningful. In terms of cost, that is something that as over the next few quarters we'll have a better picture on. There are certain things like occupational accident insurance that every driver will be covered and that will happen once the results of the election are certified, which the deadline is December 11, and then Prop 22 will go into effect no later than December 16. In terms of the other costs like health care subsidy, it'll depend on how many drivers ultimately become eligible. So as I mentioned, we'll have a better sense of that in a few quarters. In terms of what this means across the country, I think it's a quite distinct clear decisive win that is a turning point for the conversation. There is a working model now that has independent contractors and has benefits, along with that, that other states can look to. And so we have been engaged in conversation with policymakers across the country and will continue to do so to take this and do our best to replicate a model where relevant across the country.

Okay. Thank you, John.

Thank you. Our next question comes from Eric Sheridan of UBS. Your question please.

Thanks very much for taking the questions. Maybe two, how can you contrast what you're seeing from Lyft Pink subscribers and users compared to the rest of your rider cohorts, curious how that behaviour of someone who is more aligned with your platform on a subscription basis might have been behaving as you saw elements of recovery over the last couple of months? And then bigger picture question, can you give us an update on where your autonomous efforts sit and any the sense of sort of go to market strategy or levels of investment you're making behind the broader autonomous efforts? Thanks so much.

Yeah, sure. So we - in terms of Lyft Pink talk about something we launched recently that we're very excited about, but we don't actually breakout any kind of metrics in terms of performance. But we just launched a partnership with Grubhub. Grubhub has their own membership program called GrubHub+ and Seamless+ that offers unlimited delivery to thousands of their restaurants. And Lyft pink members now get access to GrubHub+ and Seamless+, which we think is an incredible benefit and a great way for both of us to both grow our businesses and focus on what we each do best. So that's been extremely popular. I linked my account, it's a couple tabs. And you can connect your account up. It's a really seamless experience, no pun intended. And a great, great benefit. So we are quite excited about our work with them and I think that, that gives Pink, a nice benefit that applies for folks who may be using ride sharing less right now during the pandemic. But in terms of kind of specific steps, that's not something that that we can break out at this moment. It can hit on your other question in terms of autonomous vehicles. So I think AV is absolutely going to be the biggest thing that happens to our industry eventually. It will take some time, but it is obviously fundamental to the future of transportation and particularly transportation as a service. So we obviously think no matter what the timeline is, it is incredibly important. And it's something that we spend a lot of time and energy thinking about. So we have - as we've talked about before, so we have a dual strategy. So we have an open platform, where we partner with folks in the industry who are best-in-class.…

All right.

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

Hey. Thanks for taking my questions. I have two. So, we've looked at TNC data here in New York. And it seems like some subway ridership has done over 70%. And rideshare trips are only down about 40. So, what are you seeing in terms of share shifts from public transit at the moment? And how durable, do you think these shifts are? And then secondly, it'd be great to have an update on the competitive environments? When cities have reopened, what trends are you seeing in terms of incentives for drivers or riders? And how do you see these playing out, over the next 12 months or so. Thank you.

Yeah, absolutely. So, I'll take the first part of that and maybe Brian can take the second. So in terms of public transportation, I think we're seeing the same data you are public transportation. In general, is down further than most other forms of transportation. As people look for alternatives. And look, to get some space from large groups of other people. So, we think we've been able to offer a great alternative for folks, who are looking for different type of transportation to move from public transit. We're working with employers to power their commute programs, with Lyft Pass and seeing some great pickup there. We're also seeing kind of above average uptake of our bikes and scooters services, as folks prefer to often travel in the open air even versus a vehicle. So, in terms of what sticks and what doesn't, it's really hard to say. I think little bits will probably stick here and there. And in general, once there's a vaccine out there, I think folks will migrate pretty quickly back to old habits. Brian, do you want to take a second part?

Sure. And maybe let me start with some just some ride trends. And then, I'll talk about the competitive environment. As I said last time, what you're seeing in your hometown doesn't necessarily represent what is happening in aggregate across the US and Canada. We report overall changes. And some studies are showing much stronger recoveries to-date, including New York. The West Coast I would say generally is the weakest region. For example, notwithstanding the recovery in other parts of the country in October rideshare rides were down 70% year-over-year in San Francisco. Now, other regions have been recovering much faster. For example, in July, about 1.8 of our top 50 cities at the time had recovered to be down less than 35% year-over-year, and this figure is now doubled in October, roughly a quarter of our top 50 cities were down less than 35%. And I want to call up New York City - New York has been down less than 40% now for three months in a row. Now, in terms of the competitive environment, I would just use our financials I think that sometimes the most helpful. For the second quarter in a row we've maintained sales and marketing as a percentage of revenue below 15%. And further we've reduced incentives classified sales and marketing by 86% year-over-year from $78 million to just $11 million or 2% of revenue, so I think these two telling data points. These are two telling data points in terms of just the current environment.

Great. Thank you.

Sure.

Thank you. Our next question comes from the line of Youssef Squali of Truist Securities. Your line is open.

Great. Thank you very much. Two quick questions for me. One, on the 2021 guidance or the breakeven expectation by Q4, just follow up on Mark's question earlier around Prop 22. Does that assume - does that make any assumptions about maybe the extension of Prop 22 to states other than California, or is it just basically California now, meaning if Prop 22 gets extended to the rest of the country then maybe that guidance gets pushed out. And second Brian, can you speak to or can you maybe just quantify the - any policy spent plan for Q4. And what was the actual number for Q3. Thank you.

Sure. So let me first talk about Prop 22. And so as John mentioned, once Prop 22 becomes law in California, we expect to pass through the additional costs. You know, because we're a marketplace obviously. So in terms of by how much we're still analyzing what increase is necessary to drive similar margins on our marketplace. It will definitely vary by city and time of day but we're not overly concerned and so I think if this - a few more states can adopt this third way, you know, again we're not overly conservative would not change our outlook. In terms of policy spend. I try to highlight, you know, because the expected step down between Q3 and Q4 will be less pronounced than we originally expected. If you look at our public policy spend, between Q2 and Q3, it increased by $27 million. And for between Q3 and Q4, it's only going to step down about $6.5 million, and we've already spent over $20 million in October alone. And so, we expect that there would be more leverage than in 2021 from that.

Got it. Thank you.

All right. Well, thank you everybody for joining our call today. And we hope everybody's staying safe and healthy during this time and look forward to talking with everybody next quarter.

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