LYFT, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2022 (the "2022 Annual Report"). As discussed in the section titled "Note About Forward-Looking Statements," the following discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in the section titled "Risk Factors" and other parts of this Quarterly Report on Form 10-Q and in our 2022 Annual Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Our fiscal year endsDecember 31 .
Our Business
Our mission is to improve people's lives with the world's best transportation.
Lyft, Inc. (the "Company" or "Lyft") started a movement to revolutionize transportation. In 2012, we launched our peer-to-peer marketplace for on-demand ridesharing and have continued to pioneer innovations aligned with our mission. Today,Lyft is one of the largest multimodal transportation networks inthe United States andCanada . We believe that the world is at the beginning of a shift to Transportation-as-a-Service ("TaaS").Lyft is at the forefront of this massive societal change. Our ridesharing marketplace connects drivers with riders via theLyft mobile application (the "Lyft App") in cities acrossthe United States and in select cities inCanada . We believe that our ridesharing marketplace allows riders to use their cars less and offers a viable alternative to car ownership while providing drivers using our platform the freedom and independence to choose when, where, how long and on what platforms they work. As this evolution continues, we believe there is a massive opportunity for us to improve the lives of riders by connecting them to more affordable and convenient transportation options. We are laser-focused on revolutionizing transportation. We have established a scaled network of users brought together by our robust technology platform (the "Lyft Platform") that powers rides and connections every day. We leverage our technology platform, the scale and density of our user network and insights from a significant number of rides to improve our ridesharing marketplace efficiency and develop new offerings. We've also taken steps to ensure our network is well positioned to benefit from technological innovation in mobility. Our offerings include an expanded set of transportation modes in select cities, such as access to a network of shared bikes and scooters ("Light Vehicles") for shorter rides and first-mile and last-mile legs of multimodal trips and information about nearby public transit routes. We believe our transportation network offers a viable alternative to car ownership. Additionally, for thoseLyft riders who have a car, we also offer car maintenance, roadside assistance, and parking to meet them where they are in their transportation journey. Substantially all of our revenue is generated from our ridesharing marketplace that connects drivers and riders. We collect service fees and commissions from drivers for their use of our ridesharing marketplace. As drivers accept more rider leads and complete more rides, we earn more revenue. We also generate revenue from riders renting Light Vehicles, drivers renting vehicles throughExpress Drive , car owners that use services available in theLyft app, and by making our ridesharing marketplace available to organizations through ourLyft Business offerings, such as our Concierge andLyft Pass programs. In 2021, we began generating revenues from licensing and data access agreements. In the second quarter of 2022, we began generating revenues from the sale of bikes and bike station software and hardware sales substantially through our acquisition ofPBSC Urban Solutions Inc ("PBSC"). We remain committed to investing in the right opportunities to scale our platform and drive awareness ofLyft's value to solidify the two-player market that both riders and drivers want. We strive to be competitive in our improved pricing and service levels and drive awareness for riders thatLyft is back. In the near term, we are focused on further improving the basics of rideshare as we recover from the remaining impacts of COVID-19 and return to work, play, and travel. For example, airport rides remain a large opportunity for innovation and growth, given the high value for our customers. We are focused on building a large-scale, profitable business focusing on riders and drivers. That focus will be our strength. To advance our mission, we aim to build the defining brand of our generation and to advocate through our commitment to social and environmental responsibility. We believe that our brand represents freedom at your fingertips: freedom from the stresses of car ownership and freedom to do and see more. Through our LyftUp initiatives, we're working to make sure people have access to affordable, reliable transportation to get where they need to go - no matter their income or zip code. We are also proud to be leaders in the fight against climate change. We've made the commitment to reach 100% electric vehicles ("EVs") on theLyft network by the end of 2030. We believe many users are loyal toLyft because of our values, brand and commitment to social and environmental responsibility. 42
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Our values, brand and focus on customer experience are key differentiators for our business. We continue to believe that users are increasingly choosing services, including a transportation network, based on brand affinity and value alignment and we aim to make it easy for both drivers and riders to chooseLyft every time. As we progress through recovery from the impacts of COVID-19 and recent macroeconomic deterioration, we will continue to drive awareness for drivers and riders to solidify our position as a strong competitor.
Impact of Macroeconomic Conditions, COVID-19 and Recent Market Dynamics on our Business
Beginning in the middle ofMarch 2020 , the COVID-19 pandemic and related responses caused decreased demand for our platform leading to decreased revenues as well as decreased earning opportunities for drivers on our platform. We also experienced volatility in the overall marketplace health on our platform during this period, including fluctuations in driver supply and service levels. In 2022, while we saw decreased demand in the first quarter of 2022 driven by an increase in cases due to variants of the virus, we saw sequential quarterly improvements in demand and overall marketplace health, ultimately reaching the highest number of Active Riders in nearly three years in the fourth quarter of 2022. Although there has been an improvement in overall demand and our marketplace health, demand for our platform has not returned to pre-pandemic levels in all markets and the timing of demand and supply improvements has not always aligned. Near-term, we continue to expect lower prices, in light of strong supply tailwinds and competitive dynamics, which will adversely impact our revenue and profitability. However, lower prices can help stimulate demand over time, and with more demand and better supply - and a healthier marketplace overall - we can stimulate awareness for drivers and riders thatLyft remains a strong competitor in the marketplace. These impacts were seen in the three months endedMarch 31, 2023 , with Revenue per Active Rider decreasing sequentially compared to the three months endedDecember 31, 2022 , compared to a smaller decline in Active Riders as we saw strength in our rideshare strategy despite seasonal impacts on bikes and scooters. In addition, our recent efforts to reduce our costs, including ourApril 2023 restructuring plan, will help us continue to provide a competitive platform and over time improve our operating margins.
For more information on risks associated with the COVID-19 pandemic, macroeconomic conditions and competition, see the section titled "Risk Factors" in Item 1A of Part II of this Quarterly Report on Form 10-Q.
Recent Developments
Leadership Change
OnMarch 27, 2023 , the Company announced thatLogan Green , its co-founder and Chief Executive Officer ("CEO"), has decided to transition from his role as CEO, effective as ofApril 17, 2023 , andJohn Zimmer , its co-founder and President, has decided to transition from his role as President, effective as ofJune 30, 2023 . OnMarch 27, 2023 , the Company also announced that the Company's board of directors (the "Board") appointedDavid Risher , a member of the Board sinceJuly 2021 , to serve as CEO, effective as ofApril 17, 2023 , and President and CEO, effective as ofJuly 1, 2023 . Messrs. Green and Zimmer will each remain as advisors to the Company for 12 months following the end of their employment and will continue serving on the Board,Mr. Green as Chair of the Board andMr. Zimmer to continue serving as Vice Chair of the Board.
Restructuring Activities
OnNovember 3, 2022 , we committed to a plan of termination as part of our efforts to reduce operating expenses and adjust cash flows. The plan involved the termination of approximately 683 employees, representing 13% of our employees. As a result of the restructuring plan, in the fourth quarter of 2022, we recorded$29.5 million in employee severance and other employee costs and$9.5 million in net stock-based compensation expense related to equity compensation for employees impacted by the plan of termination. We have also incurred restructuring charges related to the exit and sublease or cease use of certain facilities, which included$55.3 million in impairment charges related to real estate operating lease right-of-use assets,$23.9 million in accelerated depreciation of certain fixed assets and$2.1 million in write-off of fixed assets not yet placed into service. As a result of these charges, we incurred net restructuring charges of$120.3 million in the fourth quarter of 2022. We also announced the intention to pursue a sale of certain assets related to our first-party vehicle service business. In the first quarter of 2023, we finalized the exit of certain leases as part of the plan of termination and we completed a transaction for the divestiture of certain assets related to our first party vehicle services business to align with our anticipated operating needs. As a result, the Company recorded lease termination penalties and additional impairment charges related to the cease use of certain facilities to real estate operating lease right-of-use assets. The remaining employee related charges, which include employee severance, benefits and stock-based compensation, were not material in the first quarter of 2023. Refer to Note 13 "Restructuring" to the condensed consolidated financial statements for information regarding these reductions in workforce. OnApril 26, 2023 , we announced a restructuring plan as part of its efforts to reduce operating costs. The plan involved the termination of approximately 1,072 employees, representing 26% of our employees. In connection with the plan, we estimate that we will incur a cost of approximately$41 million to$47 million related to severance and employee benefits in the 43
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second quarter of 2023, all of which will be future cash expenditures. In the
same quarter, we also expect to incur an additional cost related to stock-based
compensation and the corresponding payroll tax expense related to employees who
were impacted by this restructuring.
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Financial Results for the Three Months Ended
Three Months Ended March 31,
2022 to 2023 %
2023 2022 Change
GAAP Financial Measures
(in millions, except for percentages)
Revenue $ 1,000.5 $ 875.6 14 %
Gross profit $ 451.6 $ 435.3 4 %
Gross profit margin 45.1 % 49.7 % (9) %
Total costs and expenses (1) $ 1,217.3 $ 1,074.9 13 %
Loss from operations $ (216.8) $ (199.3) 9 %
Net loss $ (187.6) $ (196.9) (5) %
Net loss as a percentage of revenue (18.8) % (22.5) % (16) %
Cash used in operating activities
(51) %
Non-GAAP Financial Measures
(in millions, except for percentages)
Contribution (2) $ 465.1 $ 502.5 (7) %
Contribution Margin (2) 46.5 % 57.4 % (19) %
Adjusted EBITDA (2) $ 22.7 $ 54.8 (59) %
Adjusted EBITDA Margin (2) 2.3 % 6.3 % (63) %
Key Metrics
(in thousands, except for dollar amounts
and percentages)
Active Riders 19,552 17,804 10 %
Revenue per Active Rider $ 51.17 $ 49.18 4 %
___________
(1)Total cost and expenses included stock-based compensation expense of $180
million for the three months ended March 31, 2023 .
(2)Beginning in the fourth quarter of 2022, our non-GAAP financial measures and
reconciliations have been updated to no longer exclude "Changes to the
liabilities for insurance required by regulatory agencies attributable to
historical periods" and prior period information has been revised to conform to
the current period presentation.
Key Metrics
Active Riders and Revenue per Active Rider
The number of Active Riders is a key indicator of the scale of our community and
awareness of our brand. Revenue per Active Rider represents our ability to drive
usage and monetization of our platform.
Active Riders Revenue per Active Rider
2023 2022 Growth Rate 2023 2022 Growth Rate
(in thousands, except for dollar amounts and percentages)
Three Months Ended March 31 19,552 17,804 9.8% $51.17 $49.18 4.0%
Three Months Ended June 30 19,860 $49.89
Three Months Ended September
30 20,312 $51.88
Three Months Ended December
31 20,358 $57.72
We define Active Riders as all riders who take at least one ride during a
quarter where the Lyft Platform processes the transaction. An Active Rider is
identified by a unique phone number. If a rider has two mobile phone numbers or
changed their phone number and such rider took rides using both phone numbers
during the quarter, that person would count as two Active Riders. If a rider has
a personal and business profile tied to the same mobile phone number, that
person would be considered a single Active Rider. If a ride has been requested
by an organization using our Concierge offering for the benefit of a rider, we
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exclude this rider in the calculation of Active Riders unless the ride is accessible in the Lyft App. Revenue per Active Rider is calculated by dividing revenue for a period by Active Riders for the same period.
The increase in the number of Active Riders in the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 was due primarily to decreased demand inJanuary 2022 related to a resurgence in COVID-19 cases due to variants of the virus. The sequential decrease in the number of Active Riders in the three months endedMarch 31, 2023 as compared to the three months endedDecember 31, 2022 was due primarily to seasonality in the business. The increase in Revenue per Active Rider in the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 was primarily driven by an increase in ride frequency as well as a shift toward higher revenue rides such as airport rides, reflecting increased travel compared to the first quarter of 2022. Revenue per Active Rider in the three months endedMarch 31, 2023 also benefited from revenues from the sale of bikes and bike station hardware and software substantially through our acquisition of PBSC. The sequential decrease in Revenue per Active Rider in the three months endedMarch 31, 2023 as compared to the three months endedDecember 31, 2022 was driven by lower pricing partially offset by increased ride frequency.
Critical Accounting Estimates
Our condensed consolidated financial statements and the related notes thereto are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.
There have been no material changes to our critical accounting estimates as
described in our Annual Report on Form 10-K for the year ended
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for recently issued accounting pronouncements not yet adopted as of the date of this report.
Components of Results of Operations
Revenue Recognition
Revenue consists of revenue recognized from fees paid by drivers for use of our Lyft Platform offerings, Concierge platform fees from organizations that use our Concierge offering, subscription fees paid by riders to access transportation options through the Lyft Platform, revenue from our vehicle service centers, revenue from the bikes and bike station hardware and software sales and revenue from licensing and data access agreements. Revenue derived from these offerings are recognized in accordance with ASC 606 as described in the Critical Accounting Policies and Estimates above and in Note 2 of the notes to our condensed consolidated financial statements. Revenue also consists of rental revenues recognized through leases or subleases primarily from Flexdrive and our network of Light Vehicles, which includes revenue generated from single-use ride fees paid by riders of Light Vehicles. Revenue derived from these offerings are recognized in accordance with ASC 842 as described in the Critical Accounting Policies and Estimates above and in Note 2 of the notes to our condensed consolidated financial statements. We offer various incentive programs to drivers that are recorded as reduction to revenue if we do not receive a distinct good or service in consideration or if we cannot reasonably estimate the fair value of goods or services received.
Cost of Revenue
Cost of revenue primarily consists of costs directly related to revenue generating transactions through our multimodal platform which primarily includes insurance costs, payment processing charges, and other costs. Insurance costs consist of insurance generally required under TNC and city regulations for ridesharing and bike and scooter rentals and also includes occupational hazard insurance for drivers inCalifornia . Payment processing charges include merchant fees, chargebacks and failed charges. Other costs included in cost of revenue are hosting and platform-related technology costs, personnel-related compensation costs, depreciation, amortization of technology-related intangible assets, asset write-off charges and costs related to Flexdrive, which include vehicle lease expenses and remarketing gains and losses related to the sale of vehicles. Gross profit is defined as revenue less cost of revenue.
Operations and Support
Operations and support expenses primarily consist of personnel-related
compensation costs of local operations teams and teams who provide phone, email
and chat support to users, Light Vehicle fleet operations support costs, driver
background
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checks and onboarding costs, fees paid to third-parties providing operations support, facility costs and certain car rental fleet support costs. Light Vehicle fleet operations support costs include general repairs and maintenance, and other customer support activities related to repositioning bikes and scooters for rider convenience, cleaning and safety checks.
Research and Development
Research and development expenses primarily consist of personnel-related compensation costs and facilities costs. Such expenses include costs related to autonomous vehicle technology initiatives. Research and development costs are expensed as incurred. Sales and Marketing
Sales and marketing expenses primarily consist of rider incentives, personnel-related compensation costs, driver incentives for referring new drivers or riders, advertising expenses, rider refunds and marketing partnerships with third parties. Sales and marketing costs are expensed as incurred.
General and Administrative
General and administrative expenses primarily consist of personnel-related compensation costs, professional services fees, certain insurance costs that are generally not required under TNC regulations, certain loss contingency expenses including legal accruals and settlements, insurance claims administrative fees, policy spend, depreciation, facility costs and other corporate costs. General and administrative expenses are expensed as incurred.
Interest Expense
Interest expense consists primarily of interest incurred on our 2025 Notes, as well as the related amortization of deferred debt issuance costs and debt discount. Interest expense also includes interest incurred on our Non-Revolving Loan and our Master Vehicle Loan.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest earned on our cash and cash equivalents, sublease income and restricted and unrestricted short-term investments. Provision for Income Taxes Our provision for income taxes consists of federal and state taxes in theU.S. and foreign taxes in jurisdictions in which the Company conducts business. As we expand the scale of our international business activities, any changes in theU.S. and foreign taxation of such activities may increase our overall provision for income taxes in the future.
We have a valuation allowance for our
In light of our recent cost-cutting efforts, we anticipate expenses to decrease as compared to 2022. We also expected a reduction in our stock based compensation expense as a result of our headcount reduction and other initiatives.
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Results of Operations
The following table summarizes our historical condensed consolidated statements
of operations data:
Three Months Ended March 31,
2023 2022
(in thousands)
Revenue $ 1,000,548 $ 875,575
Costs and expenses
Cost of revenue 548,992 440,294
Operations and support 98,926 98,600
Research and development 196,904 192,754
Sales and marketing 115,941 126,329
General and administrative 256,540 216,941
Total costs and expenses 1,217,303 1,074,918
Loss from operations (216,755) (199,343)
Interest expense (5,433) (4,549)
Other income (expense), net 37,215 9,763
Loss before income taxes (184,973)
(194,129)
Provision for (benefit from) income taxes 2,676 2,803 Net loss$ (187,649) $ (196,932)
The following table sets forth the components of our condensed consolidated statements of operations data as a percentage of revenue:
Three Months Ended March 31,
2023 2022
Revenue 100.0 % 100.0 %
Costs and expenses
Cost of revenue 54.9 50.3
Operations and support 9.9 11.3
Research and development 19.7 22.0
Sales and marketing 11.6
14.4
General and administrative 25.6 24.8 Total costs and expenses 121.7 122.8 Loss from operations (21.7) (22.8) Interest expense (0.5) (0.5) Other income (expense), net 3.7
1.1
Loss before income taxes (18.5)
(22.2)
Provision for (benefit from) income taxes 0.3 0.3 Net loss (18.8) % (22.5) % Comparison of the three months endedMarch 31, 2023 to the three months endedMarch 31, 2022 Revenue Three Months Ended March 31, 2023 2022 % Change (in thousands, except for percentages) Revenue$ 1,000,548 $ 875,575 14 % 48
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Revenue increased$125.0 million , or 14%, in the three months endedMarch 31, 2023 , as compared to the three months endedMarch 31, 2022 , driven primarily by an increase in the number of Active Riders as compared to the three months endedMarch 31, 2022 , reflecting decreased demand in light of an increase in COVID-19 cases inJanuary 2022 due to variants of the virus. Active Riders increased 9.8% for the quarter endedMarch 31, 2023 compared to the same quarter in the prior year and Revenue per Active Rider increased 4.0% for the quarter endedMarch 31, 2023 as compared to the same quarter in the prior year. These increases to Active Riders and Revenue per Active Rider reflect the improvement in demand on our platform and improving marketplace health in 2023 as compared to the same period in 2022 during which the COVID-19 pandemic had a stronger impact. Investments in driver supply, which are recorded as a reduction to revenue, decreased by$46.2 million for the quarter endedMarch 31, 2023 as compared to the same quarter in the prior year. Near-term, we intend to continue offering lower prices as we strive to provide competitive service levels, which will have an adverse impact our revenue and profitability. However, we expect to continue to see improved marketplace balance as increasing driver supply better meets demand. Cost of Revenue Three Months Ended March 31, 2023 2022 % Change (in thousands, except for percentages) Cost of revenue$ 548,992 $ 440,294 25 % Cost of revenue increased$108.7 million , or 25%, in the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 . The increase was due primarily to a$73.5 million increase in insurance costs driven by recent economic factors including the high inflationary environment, increased litigation, and higher than expected paid losses across the commercial auto industry as well as an increase in rider demand. Cost of revenue also increased due to increases of$20.2 million in Light Vehicle related costs,$3.7 million in transaction fees and$3.0 million in web hosting fees. We expect to see cost of revenue increase in the near term on a year-over-year basis driven by higher insurance costs driven by uncertainties of recent economic factors. Operations and Support Three Months Ended March 31, 2023 2022 % Change (in thousands, except for percentages) Operations and support$ 98,926 $ 98,600 - % Operations and support expenses was relatively flat in the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 primarily due to a$6.3 million increase in facility costs which was partially offset by a$5.9 million decrease in personnel-related costs primarily driven by a reduction in headcount after the restructuring event in the fourth quarter of 2022. Research and Development Three Months Ended March 31, 2023 2022 % Change (in thousands, except for percentages) Research and development$ 196,904 $ 192,754 2 % Research and development expenses increased$4.2 million , or 2%, in the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 . The increase was primarily due to a$12.7 million increase in stock-based compensation. This increase was partially offset by a$8.2 million decrease in personnel-related costs driven by a reduction in headcount after the restructuring event in the fourth quarter of 2022. 49
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Sales and Marketing
Three Months Ended March 31,
2023 2022 % Change
(in thousands, except for percentages)
Sales and marketing $ 115,941 $ 126,329 (8) %
Sales and marketing expenses decreased $10.4 million , or 8%, in the three months
ended March 31, 2023 as compared to the three months ended March 31, 2022 . The
decrease was primarily due to a $5.9 million decrease in brand and other
marketing, as well as a $5.2 million decrease in costs associated with driver
and rider programs.
General and Administrative
Three Months Ended March 31,
2023 2022 % Change
(in thousands, except for percentages)
General and administrative $ 256,540 $ 216,941 18 %
General and administrative expenses increased$39.6 million , or 18%, in the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 . The increase was primarily due to a$33.4 million increase in certain loss contingencies including legal accruals and settlements, an$11.6 million increase in stock-based compensation and an$11.6 million increase in an accrual for self-retained general business liabilities. These increases were partially offset by a$7.1 million decrease in claims administrative fees. Interest Expense Three Months Ended March 31, 2023 2022 % Change (in thousands, except for percentages) Interest expense$ (5,433) $ (4,549) 19 %
Interest expense increased
Other Income (Expense), Net
Three Months Ended March 31,
2023 2022 % Change
(in thousands, except for percentages)
Other income (expense), net $ 37,215 $ 9,763 281 %
Other income (expense), net increased
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Non-GAAP Financial Measures
Three Months Ended March 31,
2023 2022 % Change
(in millions, except for percentages)
GAAP Financial Measures
Gross profit $ 451.6 $ 435.3 3.7 %
Gross profit margin 45.1% 49.7%
Net loss $ (187.6) $ (196.9) (4.7) %
Net loss as a % of revenue (18.8) % (22.5) %
Non-GAAP Financial Measures
Contribution(1) $ 465.1 $ 502.5 (7.4) %
Contribution Margin(1) 46.5 % 57.4 %
Adjusted EBITDA(1) $ 22.7 $ 54.8 (58.6) %
Adjusted EBITDA Margin(1) 2.3 % 6.3 %
_______________
(1)Contribution, Contribution Margin, Adjusted EBITDA, and Adjusted EBITDA Margin are non-GAAP financial measures and metrics. For more information regarding our use of these measures and a reconciliation of these measures to the most comparable GAAP measures, see "Reconciliation of Non-GAAP Financial Measures."
Contribution and Contribution Margin
Contribution and Contribution Margin are measures used by our management to understand and evaluate our operating performance and trends. Gross profit is the most directly comparable financial measure to Contribution and gross profit margin is similarly comparable to Contribution Margin. We believe Contribution and Contribution Margin are key measures of our ability to achieve profitability.
We define Contribution as gross profit, or revenue less cost of revenue, adjusted to exclude the following items from cost of revenue:
•amortization of intangible assets;
•stock-based compensation expense;
•payroll tax expense related to stock-based compensation;
•net amount from claims ceded under the Reinsurance Agreement;
•transaction costs related to certain legacy auto insurance liabilities, if any; and
•restructuring charges, if any.
For more information about cost of revenue, see the section titled "Components of Results of Operations-Cost of Revenue."
Contribution Margin is calculated by dividing Contribution for a period by revenue for the same period.
During the second quarter of 2021, we entered into a Quota Share Reinsurance Agreement for the reinsurance of legacy auto insurance liabilities betweenOctober 1, 2018 toOctober 1, 2020 , based on the reserves in place as ofMarch 31, 2021 . During the first quarter of 2020, we entered into a Novation Agreement for the transfer of certain legacy auto insurance liabilities betweenOctober 1, 2015 andSeptember 30, 2018 . Refer to Note 4 "Supplemental Financial Statement Information" to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information regarding these transactions. We believe the costs associated with these transactions related to certain legacy auto insurance liabilities do not illustrate the current period performance of our ongoing operations despite this transaction occurring in the current period because the impacted insurance liabilities relate to claims that date back years. 51
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Losses ceded under the Reinsurance Agreement that exceeded$271.5 million , but were below the aggregate limit of$434.5 million , resulted in the recognition of a deferred gain liability. The deferral of gains had a negative impact in the respective period to cost of revenue as the losses on direct liabilities were not offset by gains from excess benefits under the Reinsurance Agreement. The amortization of these deferred gains provided a benefit to the cost of revenue over multiple periods equal to the excess benefits received. We believe that the net amount recognized on the statement of operations associated with claims ceded under the Reinsurance Agreement, including any related reserve adjustments and any benefit recognized for the related deferred gains, should be excluded to show the ultimate economic benefit of the Reinsurance Agreement. This adjustment will help investors understand the economic benefit of our Reinsurance Agreement on future trends in our operations, as they improve over the settlement period of any deferred gains. Therefore, in the event that the net amount of any reserve adjustments and any benefits from deferred gains related to claims ceded under the Reinsurance Agreement is recognized on the statement of operations, those amounts will be excluded from the calculation of Contribution and Adjusted EBITDA through the exclusion of the "Net amount from claims ceded under the Reinsurance Agreement". As ofMarch 31, 2023 , we have no deferred gain related to losses ceded under the Reinsurance Agreement. During the second quarter of 2022, we completed the Commutation Transaction, which effectively commuted and settled the Reinsurance Agreement. The Commutation Transaction resulted in a$36.8 million gain recorded to cost of revenue on the condensed consolidated statement of operations. Refer to Note 4 "Supplemental Financial Statement Information" to the condensed consolidated financial statements for information regarding these transactions. We believe the adjustment to exclude this gain associated with the commutation of the Reinsurance Agreement from Contribution and Adjusted EBITDA is useful to investors by enabling them to better assess our operating performance in the context of current period results and provide for better comparability with our historically disclosed Contribution and Adjusted EBITDA amounts. The gain associated with this Commutation Agreement. which commutes and settles the Reinsurance Agreement will be excluded from the calculation of Contribution and Adjusted EBITDA through the exclusion of the "Net amount from claims ceded under the Reinsurance Agreement." We announced a restructuring plan in the fourth quarter of 2022 to reduce operating expenses and adjust cash flows. We believe the costs associated with the restructuring are distinguishable from ongoing operating costs and do not reflect current or expected performance of our ongoing operations. We believe the adjustment to exclude the costs related to restructuring from Contribution and Adjusted EBITDA is useful to investors by enabling them to better assess our ongoing operating performance and provide for better comparability with our historically disclosed Contribution and Adjusted EBITDA amounts. For more information regarding the limitations of Contribution and Contribution Margin and a reconciliation of gross profit to Contribution, see the section titled "Reconciliation of Non-GAAP Financial Measures".
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures that our management uses to assess our operating performance and the operating leverage in our business. Because Adjusted EBITDA and Adjusted EBITDA Margin facilitate internal comparisons of our historical operating performance on a more consistent basis, we use these measures for business planning purposes. We expect Adjusted EBITDA and Adjusted EBITDA Margin will increase over the long term as we continue to scale our business and achieve greater efficiencies in our operating expenses.
We calculate Adjusted EBITDA as net loss, adjusted for:
•interest expense;
•other income (expense), net;
•provision for (benefit from) income taxes;
•depreciation and amortization;
•stock-based compensation;
•payroll tax expense related to stock-based compensation;
•net amount from claims ceded under the Reinsurance Agreement;
•sublease income;
•costs related to acquisitions and divestitures, if any; and
•restructuring charges, if any.
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by revenue for the same period.
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During the third quarter of 2021, we entered into subleases for certain offices as part of the transaction with Woven Planet. Sublease income is included within other income on our condensed consolidated statement of operations, while the related lease expense is included within our operating expenses and loss from operations. Sublease income was immaterial prior to the third quarter of 2021. We believe the adjustment to include sublease income to Adjusted EBITDA is useful to investors by enabling them to better assess our operating performance, including the benefits of recent transactions, by presenting sublease income as a contra-expense to the related lease charges within our operating expenses.
For more information regarding the limitations of Adjusted EBITDA and Adjusted EBITDA Margin and a reconciliation of net loss to Adjusted EBITDA, see the section titled "Reconciliation of Non-GAAP Financial Measures".
Reconciliation of Non-GAAP Financial Measures
We use Contribution, Contribution Margin, Adjusted EBITDA, and Adjusted EBITDA Margin in conjunction with GAAP measures as part of our overall assessment of our performance, including the preparation of our annual operating budget and quarterly forecasts, to evaluate the effectiveness of our business strategies, and to communicate with our board of directors concerning our financial performance. Our definitions may differ from the definitions used by other companies and therefore comparability may be limited. In addition, other companies may not publish these or similar metrics. Furthermore, these measures have certain limitations in that they do not include the impact of certain expenses that are reflected in our condensed consolidated statements of operations that are necessary to run our business. Thus, our Contribution, Contribution Margin, Adjusted EBITDA, and Adjusted EBITDA Margin should be considered in addition to, not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of Contribution and Adjusted EBITDA to the related GAAP financial measures, revenue, net loss, and net cash provided by (used in) operating activities, respectively. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view Contribution, Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with their respective related GAAP financial measures.
The following table provides a reconciliation of gross profit, or revenue less cost of revenue, to Contribution (in millions):
Three Months Ended March 31,
2023 2022
Revenue $ 1,000.5 $ 875.6
Less cost of revenue (549.0) (440.3)
Gross profit 451.6 435.3
Gross profit margin 45.1% 49.7%Adjusted to exclude the following (as related to cost of revenue): Amortization of intangible assets
1.2 1.2
Stock-based compensation expense 10.8 9.9
Payroll tax expense related to stock-based compensation 0.4 0.8
Net amount from claims ceded under the Reinsurance Agreement(1) - 55.3
Restructuring charges(2) 1.1 -
Contribution(3)(4) $ 465.1 $ 502.5
Contribution Margin(3) 46.5% 57.4%
_______________
(1)Reflects the net amount recognized on the statement of operations associated
with claims ceded under the Reinsurance Agreement, including any losses related
to the deferral gains on the statement of operations and any benefit from the
amortization of the deferred gain in the same period, to help investors
understand the ultimate economic benefit of the Reinsurance Agreement.
(2)In the first quarter of 2023, we incurred $1.1 million of severance and other
employee costs due to ongoing transformational initiatives.
(3)Beginning in the fourth quarter of 2022, the Company's non-GAAP financial
measures were updated to no longer adjust for "Changes to the liabilities for
insurance required by regulatory agencies attributable to historical periods"
and prior period information has been revised to conform to the current period
presentation.
(4)Due to rounding, numbers presented may not calculate precisely to the totals
provided.
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Net loss is the most directly comparable financial measure to Adjusted EBITDA.
The following table provides a reconciliation of net loss to Adjusted EBITDA (in
millions):
Three Months Ended
2023 2022
Net loss $ (187.6) $ (196.9)
Adjusted to exclude the following:
Interest expense(1) 5.9 4.7
Other (income) expense, net (37.2) (9.8)
Provision for (benefit from) income taxes 2.7 2.8
Depreciation and amortization 27.2 31.8
Stock-based compensation 180.4 153.7
Payroll tax expense related to stock-based compensation 6.2 9.5
Net amount from claims ceded under the Reinsurance Agreement(2) - 55.3
Sublease income 1.3 3.7
Restructuring charges(3) 23.9 -
Adjusted EBITDA(4)(5) $ 22.7 $ 54.8
_______________
(1)Includes $0.4 million and $0.2 million related to the interest component of
vehicle-related finance leases in the three months ended March 31, 2023 and
2022, respectively. Refer to Note 6 "Leases" to the condensed consolidated
financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q for information regarding the interest component of vehicle-related finance
leases.
(2)Reflects the net amount recognized on the statement of operations associated
with claims ceded under the Reinsurance Agreement, including any losses related
to the deferral gains on the statement of operations and any benefit from the
amortization of the deferred gain in the same period, to help investors
understand the ultimate economic benefit of the Reinsurance Agreement.
(3)In the first quarter of 2023, we incurred restructuring charges of
$4.3 million of severance and other employee costs and $19.6 million related to
right-of-use-asset impairments and other costs due to ongoing transformational
initiatives. Restructuring related charges for stock-based compensation of
$0.2 million and accelerated depreciation of $0.3 million are included on their
respective line items.
(4)Beginning in the fourth quarter of 2022, the Company's non-GAAP financial
measures were updated to no longer adjust for "Changes to the liabilities for
insurance required by regulatory agencies attributable to historical periods"
and prior period information has been revised to conform to the current period
presentation.
(5)Due to rounding, numbers presented may not calculate precisely to the totals
provided.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Three Months Ended March 31,
2023 2022
Net cash used in operating activities $ (74,040) $ (152,343)
Net cash provided by (used in) investing activities 449,371 (74,242)
Net cash used in financing activities (27,743) (22,014)
Effect of foreign exchange on cash, cash equivalents and restricted cash and cash equivalents
17 89
Net change in cash, cash equivalents and restricted cash and cash
equivalents $ 347,605 $ (248,510)
Operating Activities
Cash used in operating activities was $74.0 million for the three months ended
March 31, 2023 . This consisted primarily of a net loss of $187.6 million . This
was offset by non-cash stock-based compensation expense of $180.4 million and
depreciation and amortization expense of $27.2 million .
Cash used in operating activities was $152.3 million for the three months ended
March 31, 2022 . This consisted primarily of a net loss of $196.9 million . This
was offset by non-cash stock-based compensation expense of $153.7 million and
depreciation and amortization expense of $31.8 million .
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Investing Activities
Cash provided by investing activities was$449.4 million for the three months endedMarch 31, 2023 , which primarily consisted of proceeds from sales and maturities of marketable securities of$1.1 billion . This was partially offset by purchases of marketable securities of$598.6 million . Cash used in investing activities was$74.2 million for the three months endedMarch 31, 2022 , which primarily consisted of purchases of marketable securities of$661.7 million . This was partially offset by proceeds from sales and maturities of marketable securities of$427.1 million and maturities of term deposits of$175.0 million . Financing Activities Cash used in financing activities was$27.7 million for the three months endedMarch 31, 2023 , which primarily consisted of repayment of loans of$21.1 million and principal payments on finance lease obligations of$5.7 million . Cash used in financing activities was$22.0 million for the three months endedMarch 31, 2022 , which primarily consisted of our repayment of loans of$12.3 million and principal payments of finance lease obligations of$8.0 million .
Liquidity and Capital Resources
As ofMarch 31, 2023 , our principal sources of liquidity were cash and cash equivalents of approximately$509.6 million and short-term investments of approximately$1.2 billion , exclusive of restricted cash, cash equivalents and investments of$1.1 billion , and a revolving credit agreement which provides for a$420 million revolving secured credit facility. Cash and cash equivalents consisted of institutional money market funds, certificates of deposits, commercial paper and corporate bonds that have an original maturity of less than three months and are readily convertible into known amounts of cash. Also included in cash and cash equivalents are certain money market deposit accounts and cash in transit from payment processors for credit and debit card transactions. Short-term investments consisted of commercial paper, certificates of deposit, corporate bonds and term deposits, which mature in 12 months or less. Restricted cash, cash equivalents and investments consisted primarily of amounts held in separate trust accounts and restricted bank accounts as collateral for insurance purposes and amounts pledged to secure certain letters of credit. That portion of our cash and cash equivalents that is not invested is held at several large financial institutions and our investments are focused on the preservation of capital, fulfillment or our liquidity needs, and maximization of investment performance within the parameters set forth in our investment policy and subject to market conditions. The investment policy sets forth credit rating minimums, permissible allocations, and limits our exposure to specific investment types. We believe these policies mitigate our exposure to any risk concentrations. InNovember 3, 2022 , we entered into a revolving credit agreement with certain lenders which provides for a$420 million revolving secured credit facility maturing on the earlier of (i)November 3, 2027 and (ii)February 13, 2025 , if, as of such date, the Company's Liquidity (as defined in the revolving credit agreement) minus the aggregate principal amount of the Company's 2025 Notes outstanding on such date is less than$1.25 billion . We are obligated to pay interest on loans under the credit facility and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee. The interest rate for the credit facility is determined based on calculations using certain market rates as set forth in the credit agreement. In addition, the credit facility contains restrictions on payments including cash payments of dividends. The Revolving Credit Facility provides for borrowings up to the amount of the facility, with a sublimit of$168 million for the issuance of letters of credit. At closing,$53.5 million in letters of credit were issued under the Revolving Credit Facility and as of the date of this Quarterly Report on Form 10-Q, no amounts had been drawn under the credit facility. We collect the fare and related charges from riders on behalf of drivers at the time the ride is delivered using the rider's authorized payment method, and we retain any fees owed to us before making the remaining disbursement to drivers. Accordingly, we maintain no accounts receivable from drivers. Our contracts with insurance providers require reinsurance premiums to be deposited into trust accounts with a third-party financial institution from which the insurance providers are reimbursed for claims payments. Our restricted reinsurance trust investments as ofMarch 31, 2023 andDecember 31, 2022 were$835.8 million and$1.0 billion , respectively. We continue to actively monitor the impact of the deteriorating macroeconomic environment, including tightening credit markets, inflation and increased interest rates, as well as the potential for a resurgence of the COVID-19 pandemic. We have made adjustments to our expenses and cash flow to correlate with declines in revenue which include recent headcount reductions announced inNovember 2022 . We have also incurred restructuring charges related to the exit and sublease or cease use of certain facilities to align with our anticipated operating needs in fourth quarter of 2022 and the first quarter of 2023. We cannot be certain that our actions will mitigate some or all of the continuing negative effects of the pandemic and its impact on work, travel and lifestyle trends on our business. With$1.8 billion in unrestricted cash and cash equivalents and short-term investments as ofMarch 31, 2023 , as well as our credit facility, we believe we have sufficient liquidity to meet our working capital and capital expenditures needs for at least the next 12 months and beyond. 55
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Our future capital requirements will depend on many factors, including, but not limited to our growth, our ability to attract and retain drivers and riders on our platform, the continuing market acceptance of our offerings, the timing and extent of spending to support our efforts to develop our platform, actual insurance payments for which we have made reserves, and the expansion of sales and marketing activities. Further, we may in the future enter into arrangements to acquire or invest in businesses, products, services and technologies. For example, we intend to invest further in EVs in order to achieve compliance with the California Clean Miles Standard and Incentive Program which sets the target that 90% of rideshare miles inCalifornia must be in EVs by the end of 2030, andNew York City's recently announced goals to get to 100% of rideshare miles in EV by 2030. These targets align with our goal to reach 100% EVs on theLyft Platform by the end of 2030. From time to time, we may seek additional equity or debt financing to fund capital expenditures, strategic initiatives or investments and our ongoing operations, or to refinance our existing or future indebtedness. In the event that we decide, or are required, to seek additional financing from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations could be adversely affected.
Contractual Obligations and Commitments
In
As of
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