Yahoo Finance Lyft, Inc. (NASDAQ:LYFT) Q1 2024 Earnings Call Transcript
Lyft, Inc. (NASDAQ:LYFT) Q1 2024 Earnings Call Transcript May 7, 2024
Lyft, Inc. misses on earnings expectations. Reported EPS is $-0.07853 EPS, expectations were $0.09. Lyft, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the Lyft First Quarter 2024 Earnings Call. At this time, all participants are in listen-only mode to prevent any background noise. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sonya Banerjee, Head of Investor Relations. You may begin.
Sonya Banerjee: Thank you. Welcome to the Lyft earnings call for the first quarter of 2024. On the call today, we have our CEO, David Risher; and our CFO, Erin Brewer. Our President, Kristin Sverchek, is here for the Q&A session. We'll make forward-looking statements on today's call relating to our business strategy and performance, future financial results and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and our recent SEC filings. All of the forward-looking statements that we make on today's call are based on our beliefs as of today, and we disclaim any obligation to update any forward-looking statements except as required by-law.
Our discussion today will also include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. Additionally, today we're going to discuss customers. For Rideshare, there are two customers in every car. The driver is Lyft's customer and the rider is the driver's customer. We care about both. And with that, I'll pass the call to David.
David Risher: Thank you, Sonya. And good afternoon, everyone. Thank you for joining us. We had a great start to 2024 with very strong first-quarter results. Rides in gross bookings both grew by more than 20% year-over-year and we delivered another quarter of positive free cash flow. We are on-track to deliver full-year goals with a higher-level of free cash flow than we initially shared. We're executing well and we're demonstrating that customer obsession drives profitable growth. Since taking on the CEO role just a year-ago -- over a year-ago, I've really been amazed and proud of what we've accomplished. On these calls, we talk a lot about progress in terms of Lyft's performance metrics. But today, I'd like to talk about that progress in terms of what customers experience and how that informs why they choose Lyft.
Let's start with drivers. We are improving the ways we provide drivers with what they want; good earnings opportunities, along with more transparency and more control over their time. The result is drivers are earning more. In Q1, the median US driver earned $31.10, including tips and bonuses for every hour of engaged time. And after taking into account the driver's estimated expenses like maintenance, gas and vehicle depreciation, that's around $24.25 per engaged hour. On both a gross and net basis, median driver earnings are higher than they were in the second-half of 2023 as we discussed in our white paper on the topic issued a few months back. One reason is that Lyft drivers have more information than ever when choosing their rides. This has significantly reduced ride cancellations by nearly 50% versus a year ago, and that increases the time they spend earning.
Drivers can also plan ahead more easily with scheduled rides. They can balance other obligations using our proprietary stay within the area filter, they can tap into priority mode to stay busy during off-peak periods and drivers now have access to a more streamlined process to appeal being deactivated, which addresses a longstanding pain point by getting them appeal results faster. Our goal is to lead the industry on making it great to drive with rideshare and it's resulting in greater driver preference. For example, thanks to the new earnings commitment that we released, Lyft drivers now know they will always earn at least 70% of the rider's fare each week after external fees. Here's the punchline. Since the launch in February, driver's perception of pay fairness has improved significantly with 75% telling us they have a better understanding of their earnings.
The data shows our commitment is helping us attract and retain drivers and increased driver hours. Additionally, following our nationwide rollout of Women+ Connect in the first-quarter, women and non-binary driver activations increased by nearly 24% year-over-year. This has continued to be one of Lyft's highest-graded features and most drivers who'd tell us -- who use it, tell us they feel safer when driving, which is super important, one of our key objectives. As a result of all of these moves, Lyft had more drivers use our platform in Q1 than we've had in about four years and driver hours have returned to 2019 levels. And I can tell you, in addition, that over these past few weeks, driver hours have reached new all-time highs. That is the result of our customer obsession for drivers.
Now, let's talk about riders. Over the past few quarters, we focused on giving them far more reliable -- far more reliable rideshare experience with better -- with more and better products to choose from. For example, pickup times in Q1 were the fastest they have been in four years. By the way, if you're interested in more examples, please ask me about that during Q&A. Meanwhile, thanks to a ton of behind-the-scenes work, riders are now experiencing far less of something they really don't care for, prime-time, which many people know as surge pricing. This means prices for riders have become more stable and more predictable, and that leads to greater repeat use. A good example of where you can see our rider and driver obsession really working well and coming together is in Canada.
Over the past year, we've brought our focus on customer obsession to this market and it's already paying-off. For context, Lyft operates in five of Canada's largest cities, as well as in about 13 smaller ones. As we have begun to apply our customer obsession to those markets, we've doubled rides and more than doubled new rider activation and driver hours in Q1 year-on-year. These results tell us a couple of important things. One, drivers and riders are hungry for choice in our customer-obsessed approach. And two, there is opportunity for us outside the US over the long-term. Finally, I'd like to update you on Lyft Media, which offers a unique value proposition to brands as they look for new ways to connect with customers. Lyft Media had a great quarter with revenue growing by about 250% year-over-year and we really like the mix we're seeing with about half of our business coming from repeat customers like NBC Universal.
We've also added several new customers, including Zillow and Mastercard. Here's why. Lyft is one of the largest transportation networks in the country. We support over 700 million rides a year and millions of people rely on our platform every day. We have a captive audience engaging heavily with our app when they ride and we can make use of our first-party data about where and when people are moving around. So, here are the results. According to our third-party brand measurement firm, Lyft Media ad campaigns have 7 times the impact relative to the norm, on-brand perception and purchase intent. Our video ads, which were new this quarter, also generate more than 10 times the ad industry's typical click-through rate. And in Q1, we added new partners, including Nielsen and Oracle Advertising for their ad measurement and data enrichment solution for targeting, helping us deliver even more value for our customers.
When it comes to building a successful media operation, it's all about scale, targeting and measurement. And when we look at the tools we've built and the results we're delivering, it's clear Lyft Media has a lot of headroom to grow with favorable economics in a way that leverages our customer obsession. Now, before I turn the call over to Erin, I want to share one closing observation. I get a lot of questions about how we've been able to accomplish so much in such a short period of time. It turns out that our culture of customer obsession and our focus on rideshare are huge assets. That's what gives us the ability to be nimble even as we drive meaningful leverage. We wake-up every day ready to out execute and out innovate others in our sector.
And with more driver -- and the more drivers and riders love us and what we do, the more they use us to earn and to get out and about, the better we all do. Again, customer obsession drives profitable growth. So, let me close with just a quick plug. We'll be holding our first-ever Investor Day on June 6 in Manhattan, and I look-forward to seeing you there in-person or online. Not only will you get to hear about the next phase of our plan for customer assessed profitable growth, you'll also get to meet our amazing team that's making it all happen. I am really looking-forward to it. Over to you, Erin.
Erin Brewer: Thanks, David. Good afternoon, everyone, and thanks for joining us today. I'll start with my usual reminder that unless otherwise indicated, all income statement measures are non-GAAP and excludes select items that are detailed in our earnings materials. Before I dive into our results for Q1, I want to take a moment to reflect on how far Lyft has come over the past four quarters. We've established a strong foundation for profitable growth. Our cost structure is in the right place. We've delivered four quarters of positive adjusted EBITDA totaling nearly $260 million. We've better aligned our financial disclosures with our strategic priorities and we've begun to generate positive free cash flow. All of this progress and momentum tracks with the directional guidance we've provided for the full-year 2024, including an improved outlook for free cash flow conversion for the full-year and it sets the stage for our Investor Day next month.
Q1 was another solid quarter, consistent with our expectations. We executed well and more drivers and riders chose Lyft. The result was more rides and better service levels. In particular, driver hours increased by more than 40% year-over-year and ride frequency, referring to the average number of rides per active rider, was the strongest it's been in four years. We also saw continued sequential momentum from Q4 to Q1 in driver hours, ride intents and frequency, demonstrating that we continue to improve execution quarter by quarter. Now, let's turn to our performance for the quarter. We supported 188 million rides and 21.9 million active riders. Total rides grew 23% year-over-year, reflecting strong demand across use cases. Growth in early-morning commute and weekend evening trips was particularly strong, which is a continuation of the trends we saw in the back-half of 2023.
Active riders grew 12% year-over-year reflecting an improvement in rider retention along with an increase in new riders. Gross bookings were approximately $3.7 billion, up 21% year-over-year. This reflects strong rise growth, partially offset by lower total prices year-over-year, reflecting lower levels of prime-time given the significant improvements in the health of our marketplace. Revenue grew to $1.3 billion, up 28% year-over-year, reflecting those same dynamics. As a percentage of gross bookings, revenue increased year-on-year and sequentially, reflecting lower incentives per ride. So, let me provide some additional color here. David talked about how Lyft is leading our industry in transparency and choice for drivers and how that is translating into greater driver preference for Lyft.
We see that in the number of drivers choosing our platform and the growing number of hours they're spending engaging with our app. In Q1, the median U.S. driver hourly earnings, including tips and bonuses increased sequentially on both a gross and net basis. And we've talked a lot about our focus on operational excellence. Another great example of that is how we're helping drivers anticipate rider demand, so they can be at the right place at the right time to be able to optimize their earnings. In our business, the combination of increasing driver preference and increasing drivers visibility into rider demand is incredibly valuable. It means we can be more targeted and efficient in how incentive dollars are spent even as drivers earn more. The result is healthy profit growth while operating competitively with laser-like focus on customer experience.
Now, let's turn to our Q1 expense. Cost of revenue was $747 million, up nearly 40% year-over-year, driven by higher ride volumes along with higher per ride insurance costs, which reflect last year's third-party insurance renewals. Operating expenses were $500 million, up roughly 8% year-over-year. As a percentage of gross bookings, operating expenses were approximately 14%, an improvement of nearly two percentage points versus Q1 2023, driven by our lower fixed-cost structure versus last year. Adjusted EBITDA was $59 million, which as a percentage of gross bookings was 1.6%. Relative to Q1 of last year, our adjusted EBITDA margin has more than doubled as we benefit from efficiencies in our marketplace and operating expense leverage. We ended Q1 of 2024 with a solid cash position with unrestricted cash, cash equivalents and short-term investments of approximately $1.7 billion.
In the first-quarter, we generated positive free cash flow of $127 million and we continue to take a prudent approach to managing our balance sheet. In Q1, we took advantage of favorable convertible debt market conditions to raise approximately $460 million of new convertible notes that will come due in 2029. We use the majority of those proceeds to retire a portion of our bonds coming due in 2025. Turning to Q2, we're off to a good start. We continue to see strong demand for rideshare from drivers and from riders. And as the weather has gotten better, we've seen more bike and scooter usage, which is additive to both rides and active riders on a sequential basis in Q2. As the quarter progresses, we'll continue to focus on great execution to connect customers with the experiences they love from music festivals to prize celebrations and more.
Additionally, with graduation season and summer travel just around the corner, we're focusing -- we're focused on enabling a great airport experience to capture more of these rides. Now, let me review our outlook. For the second-quarter of 2024, we expect gross bookings of $4 billion to $4.1 billion, up 16% to 19% year-over-year. This assumes rides growth of approximately 15% year-over-year. We expect adjusted EBITDA of approximately $95 million to $100 million and an adjusted EBITDA margin as a percentage of gross bookings of approximately 2.4%. Turning to what we expect for full-year 2024, our first-quarter results and our second-quarter guidance inform our perspective on the year. We continue to expect total rides growth in the mid-teens year-over-year with gross bookings to grow slightly faster than rides also on a year-over-year basis.
We expect an adjusted EBITDA margin as a percentage of gross bookings to be approximately 2.1%. Turning to free cash flow. We remain on-track to generate positive free cash flow for the full-year. Given our improved visibility into the first-half of the year, we now expect at least 70% of adjusted EBITDA to convert to free cash flow for the full-year 2024. As a reminder, you should expect our quarterly free cash flow conversion levels will vary, driven primarily by the timing of certain payments. To give you some perspective on the cadence of our cash flows, based on what we see right now, we expect our free cash flow for the full-year will be weighted more toward the first-half of 2024, as in the second-half of the year, particularly in Q4, we expect to incur cash outflows related to our third-party insurance renewals.
With that, I'll bring our prepared remarks to a close. Over the past year, we've made significant progress building a customer-obsessed and financially healthy business. The team continues to execute against high standards and we see a lot of runway to drive profitable growth. We look-forward to seeing you all at our Investor Day. And with that, operator, we're ready to take questions.
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