Q1 2020 Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the first quarter 2020 earnings call.
At this time, all participants are any listen only mode to prevent any background noise.
Later, we'll conduct a question and answer session and instructions will be given at that time.
Anyone should require operator assistance. Please press Star then zero on your touched on telephone.
As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Sean will head of Investor Relations you may begin.
Thank you good afternoon, and welcome to lift earnings call for the quarter ended March 30, Onest 2020.
This is Sean Woodhall head of Investor Relations.
Joining me today to discuss list results are co founder and CEO Logan Green co founder and President, John Zimmer and Chief Financial Officer, Brian Roberts.
Hogan and John will give an update on our business and key initiatives and vinyl review, our Q1 results and share some commentary regarding our outlook.
This conference call will be available via webcast, our investor Relations website at Investor Dot lift dotcom and recording will be available at the same location. Shortly after this call is 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 cobot 19 pandemic <unk>.
We expected performance of our business future financial results and guidance strategy long term growth and overall future prospects.
These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call.
In particular those described in our risk factors included in our form 10-K for the full year 2019 that was filed with the FCC on February 28, 2020, and the risk factors included in our form 10-Q for the first quarter 2020 that will be filed by May 15th 2020, as well as risks associated with the current uncertainty.
Okay, and unpredictability in our business the markets and the economy.
You should not rely on our forward looking statements as predictions of future events.
All forward looking statements that we make on this call are based on assumptions and beliefs as of the date hereof and lets 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 to not as a substitute for or an isolation from our GAAP results.
Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, maybe found in our earnings release, which was furnished with our form 8-K filed today with the FCC and they also be found on our Investor Relations Web site at Investor Dot lift dotcom.
I would now like to turn the conference call over to less co founder and Chief Executive Officer and Green.
Okay.
Thanks, Sean Good afternoon, everyone and thank you for joining our call today.
Well, Brian will briefly discuss our first quarter financial results.
Most of my remarks today will address the state of the business and our future plans in the context of the current environment.
The Kobin 19 pandemic and its effects are virtually unprecedented in modern times.
The virus is testing our everyday way of life and is having a profound impact on our customers and our business.
Sure the facts in mid March we began to experience a sharp decline in rides as various authorities across North America issued guidelines in orders for residents to minimize time spend outside their homes in apartments.
For the month of April Roger rides were down 75% year over year.
Ride levels appear to have stabilized seeming to have reached a bottom in the second week of April.
We have since seen three consecutive weeks of weaken weak growth, but clearly this is from a low absolute ride base.
And rides last week were still down more than 70% year on year.
We cannot predict the trajectory or timing of the eventual recovery, but it is clear that macro trends will continue to negatively impact our business.
Even a shelter in place orders and travel restrictions or modified or lifted we anticipate that continued social distancing altered consumer behavior and expected corporate cost cutting will be significant headwinds for lift.
The strength in duration of these headwinds cannot presently be estimated these are the hard troops we're facing.
Now here's how we've responded to the crisis.
First we acted quickly to ensure the safety of our team establishing new policies and programs that support our employees. During this unique time.
Next we took care of our customers then we took care of our business and of course, we support our community.
Let me start with our customers, we purchased hundreds of thousands of bottles the hands and ties are in masks and had been distributing them to drivers.
It's important to note that we took great care to ensure that these mask purchases did not affect supply chains for healthcare workers and first responders.
We also created a driver fund to provide financial support for drivers who test positive for coated 19 or put under individual quarantine by public Health agency.
In addition to leveraging company resources, John and I are donating or salaries through June as personal contributions to United ways Ride United Fund.
Further in mid March we turned off shared rides across all of our markets as a precautionary safeguard for both drivers and writers on the list platform.
We also took care of our business, we've put an aggressive plan in place to strengthen our financial position starting with decisive actions to reduce fixed costs.
Last week, we took the difficult but necessary steps to reduce our workforce letting go of 17% of team members and Furloughing there nearly another 300.
We also initiated a three months pay reduction for all salaried employees ranging from 10% promotion on hourly team members up to 30% for a senior leadership team and board members.
In addition to these changes related to our employee base every other expense line is being scrutinized and no stone will be left unturned.
Across the opportunities we've identified we expect to pull approximately 300 million out of our annualized fixed cost by the end of the year relative to our original expectations for 2020.
Additionally, we are moving teamster projects that we believe can improve our unit economics.
Furthermore, we've turned off virtually all writer coupon since rides began to decline in mid March. We've also paused driver onboarding in nearly all markets introducing a waitlist for new drivers.
This reduces costs, we incurred associated with Onboarding, new drivers and helps protect utilization and earnings opportunities for existing drivers.
During this time of lower ride demand.
In terms of other cash outlays, we've reduced our 2020 Capex plan by 250 million in.
In addition to Oliver efforts to reduce cost. It is important to note that our business model is inherently resilient as roughly two thirds of our costs are variable in nature.
Since the beginning of lift we've been committed to being the lowest cost operator in our industry. It is embedded in our culture. This discipline has been a key factor of our past success, allowing us to grow faster with less funding than our competition.
The actions, we're taking now in response to covert 19 will give us an even leaner cost structure and better margins when we're past the crisis.
In addition to taking care of our customers and our business, we've taken steps to take care of our community.
We're offering free Viking scooter rides to critical workers, such as healthcare first responder and transit workers and 10 markets.
Including New York, Chicago, Boston, San Francisco in Los Angeles.
For example, just last week, we announced a partnership with Mastercard and city to provide a free 12 months Citibank memberships to eligible critical workers.
In mid April we launched essential deliveries, which connects drivers on our platform with government agencies, local nonprofits and businesses and healthcare organizations to enable on demand delivery of meals groceries and other essentially.
Finally, we partnered with companies like Mastercard as well as hundreds of nonprofit to donate tens of thousands of lift ride credits to people with essential transportation needs.
Looking forward, we faced a new reality.
Based on the dynamics I outlined earlier, we expect that rider demand on our platform will be down for the foreseeable future.
At the same time with record unemployment, we expect driver supplied outstrip rider demand, which will reduce our required spend on driver acquisition and engagement.
We are prepared to whether this crisis and our progress in 2019 provides us with solid footing.
Last year, we brought our product vision to lights in the lift app integrating rideshare bikes scooters and public transit.
We also introduced lift bank.
Our new membership program that offers preferred pricing and incentivizes loyalty.
Our balance sheet is strong we ended the first quarter with 2.7 billion of unrestricted cash cash equivalents and short term investments.
We're confident that we are sufficiently capitalized to navigate the economic turbulence ahead.
Our ability to execute is underpinned by the strength of our team.
Lets has the most tenured management team in the industry with battle tested leaders, who frequently overcome stocks odds.
John and I have been partners for over 12 years and since 2014, Brian has helped us transform lift from an underdog started up to a public company that serves millions of users across hundreds of cities. Finally, I'd like to emphasize that for me and John This company is not just to workplace, it's our life's work.
We're making tough choices today to ensure the long term success uplift.
The two of us will be accountable for the future performance of the business, we do not take this responsibility lightly.
Were determined to emerge stronger on the other side of the crisis.
I'll now turn the call over to John to highlight some of the work we're doing to make that happen.
Thanks, Logan for lift to emerge stronger from the current crisis. It it's critical that we adapt our business and our approach to best match the evolving world to this end I want to highlight some of the efforts we have underway to one helped drivers to lean into our enterprise business I'm three protect users auto platform.
For drivers we're focused on earnings, especially during this critical time.
Given the significant reduction in rides, we paused driver Onboarding and established a waitlist for new drivers in late March.
This helps maximize utilization and earnings for existing drivers on the platform.
With rideshare trips down we moved quickly in recent weeks to launch our central deliveries program that Logan mentioned earlier.
In addition to helping fulfill critical community needs such as delivering meals for children, who normally receive free or subsidize launches that school. This program is connecting drivers two important earning opportunities.
Drivers on our platform are able to opt into this program for contact list deliveries.
We are building this program with both national and local partnerships and we'll continue to explore avenues to expand beyond the initial 11 launch markets.
Covert 19 highlights how lift has become a central for modern transportation system.
Governors and mayors have recognized this and many have partnered with us as a critical link for non emergency medical transport food banks and other essential needs.
The economic impact of this pandemic will also highlight the unique value and importance of flexible work.
When the economy opens up again ride sharing will be the first place many people turn to earn.
We have long supported policies that allow for this flexibility along with portable benefits.
The challenge historically has been that outdated labor laws preventive.
However, the recent cares act demonstrates that this is indeed possible.
Additionally, the California ballot initiative, we support would allow companies to pay into specific benefits, while protecting independent flexible work.
We recently delivered the signatures needed to qualify the ballot initiatives and it is progressing well.
As we track public opinion around the proposal, we're finding significant and growing support.
This is an excellent opportunity for us to establish a new model at both addresses this need for flexibility along with important benefits.
Well rides are down overall, we continue to see an important need for lift among our enterprise partners.
In March our team launched essential commute programs that offer companies and organizations the ability to provide an alternative to public transit further essential workers.
And just a few weeks, we developed programs for organizations across the U.S., including Fortune 500 companies, such as Kroger and Estee Lauder.
Lift has also secured new partnerships with over a dozen health systems in the U.S., helping more than 10000 to central workers across more than 160 hospitals and clinics get to and from work.
Through these programs are platform is enabling important rides for workers quarter, depending on lift as their new transportation solution.
Within our health care initiative, our team remains focused on expanding access to non emergency medical transportation.
Our work with partners into healthcare sector provides access to rise for patients in need of care from routine dialysis appointments to regular prenatal care appointment.
Since our last call. We have further expanded access to rights for Medicaid beneficiaries in Florida, Indiana, and South Carolina.
This more than doubles the number of people, we can impact to approximately 22 million Medicaid members living across 11 States and Washington DC.
This program is another key example of the essential service our platform provides as we continue to help patients access medical care, while other transportation options may be less feasible for that.
Finally, as a service that people depend on we recognize the importance of doing what we tend to protect all users on our platform.
We have already taken steps to enhance the health and safety protocols on the left platform and we'll continue to innovate in this area on behalf of drivers and writers.
We are incorporating key safety in public health update alert such as curfews in shelter in place orders in our driver and rider apps.
And as Logan mentioned, we've purchased and started to distribute hundreds of thousands of bottles of hand, sanitizer and masks to help protect drivers and writers during this time.
As it already is across the United States in Canada lift restriction and encourage people to return to parts of daily life. It is critical that we continue prioritizing the safety of drivers and writers on the live platform.
I'll now hand, it over to Brian to review, our Q1 results and outlook.
Thanks, John and good afternoon, everyone before I get into specifics regarding our Q1 performance and outlook I want to start by stressing the well Kobin 19 poses a formidable challenge. We believe we are well positioned to navigate those crisis as Logan indicated we have a strong balance sheet ending the quarter with 2.7 billion.
Of unrestricted cash cash equivalents in short term investments.
Our business model is highly resilient given approximately two thirds of our costs are variable nature. For example, the cost associated with primary auto insurance risk. The single largest cost recorded in contribution margin is virtually 100% variable. In addition, we were taking decisive actions that will position live to be stronger.
And profitable in the long term.
We are treating this crisis as a catalyst the shining even brighter light on every expense and investment line to drive savings and efficiencies to better position the company for the future.
So let me begin with the first quarter, our Q1 revenue trend was exceeding our expectations until the middle of March when we began to experience a sharp deceleration rise as local and state governments initiated measures and restrictions to prevent the spread of Kobin 19.
Right down to write your platform fell nearly 80% during the week ending March 29 relative to the week ending March Onest, we ultimately closed the quarter with revenue of 956 million up 23% from the prior year.
We achieved a record high revenue proactive rider in Q1 of $45 in six cents, an increase of 19% year over year.
Revenue per active writer benefited from healthy engagement in advance of widespread shelter in place orders. There was also a kobin 19 related impact, which benefited this metric, which I will explain shortly.
Active writers increased 3.5% from a year ago period to 21.2 million the decline from Q4 as new rider Activations dropped in March and some of our lower frequency writers from prior quarters did not use the platform in Q1 is the crisis worsened.
This decline however contributed to the record high revenue proactive rider since additions to our active writer base at the end of any quarter are generally diluted to revenue proactive writer. Since there was only limited time for these new riders to generate revenue.
Now before I move on I want to note that unless otherwise indicated all income statement measures a follower non-GAAP and excludes stock based compensation and other select items.
A reconciliation of historical GAAP to non-GAAP results, maybe found in our earnings release, which was furnished with our form 8-K filed today with the FCC and is available on our Investor Relations website. This includes contribution which is defined as revenue less cost of revenue adjusted to exclude amortization of intangible assets stock.
Based compensation related expenses and changes to liabilities for insurance required by regulatory agencies attributable to historical periods.
Contribution and adjusted EBITDA are also adjusted to exclude the one time that cost related to the transfer of certain legacy insurance claims, which I will discuss later.
Notwithstanding the significant revenue deceleration beginning in mid March lift had an exceptional quarter from a profitability standpoint.
Our adjusted EBITDA loss for the quarter was 85 million compared to a loss of 216 million in the year ago period and guidance for a lots of between 140 and 145 million.
Adjusted EBITDA margin improved to a loss of 8.9% our best result ever versus a loss of 27.8% in the prior year, representing a 19 percentage points improvement year over year.
So let me dive into the details of this outperformance.
Contribution was 547 million in Q1 up 42% year over year.
Contribution margin for Q1 was 57% 300 basis points above our outlook and up over 700 basis points for the same period, a year ago as a result of improved monetization and strong expense leverage.
I will take time for us to return to the right volume achieved in Q1, but the first quarter exemplifies the margin potential that we expect will resume following the recovery.
No as a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods.
It also excludes the onetime net cost related to the transfer of certain legacy insurance claims.
In terms of specifics, we experienced $58 million adverse development in Q1 related to historical claims.
At the ended the first quarter, we took actions that we expect should help minimize future adverse development.
On March 30, Onest, we entered into an novation agreement with subsidiaries of answering Zurich. This transaction will effectively eliminate nearly all of lifts primary auto insurance liabilities related to periods preceding October 2018 for a onetime net cost of 65 million nearly all of which was classified to cost of revenue.
The transfer these insurance liabilities will allow our insurance team to spend less time on legacy claims and instead focus their efforts are managing our go forward insurance costs, which is an important contributor to our path to profitability.
Cost of insurance required by regulatory agencies as a percentage of revenue was lower in the first quarter than in the fourth quarter.
We're pleased that our partnerships with state farm travelers and progressive are proving claims handling and lowering costs. In addition, or initiatives to increase safety and reduce accident frequency continue to show progress and impact.
The leveraging of insurance cost was a key factor in delivering our outperformance versus expectations for contribution margin.
Let's move to operating expenses operations and support expense for Q1 was 129 million or 13.5% of revenue and improvement of nearly 400 basis points for the same period a year ago.
R&D expense was 154 million were 16% of revenue, which was in line with guidance.
Sales and marketing was 191 million in Q1 down from 227 million in the same period, a year ago, representing a decline of 16%.
As a percentage of revenue sales and marketing was 20% in the first quarter a decline of nine percentage points from 29% in the same period a year ago.
Gionee expense was 187 million or 20% of revenue two percentage points better than guidance legal settlements and accruals in Q1 were significantly below expectations as many mediations in hearings were postponed due to social distancing protocols and shelter place orders. This was a key contributor to our.
Gnh outperformance versus guidance, which we believe was more of a timing benefit that will prove temporary.
Let me turn to our outlook, despite our strong liquidity and business model resilience given the current uncertainty and decline in right volumes. We are taking further actions to strengthen our ability to manage through this crisis by reducing capex and expenses.
More specifically, we are reducing 2020, capex from 400 million to 150 million, representing a 63% reduction.
Additionally, as Logan mentioned, we implemented a workforce reduction last week to ensure that we are appropriately optimizing our resources in light of the new environment.
As we detailed in our 8-K last week, we expect to incur in charge of between 28 and 36 million related to this restructuring the majority of which will be incurred in Q2.
In addition to this amount we expect to record a stock based compensation charge and corresponding payroll tax expense related to affected employees as well as restructuring charge related to the shutdown of certain facilities, but cannot estimate these charges at this time as they depend in part on our future stock price we will excluded.
During charges in our calculation of non-GAAP metrics in our second quarter results.
In addition, the company has identified other opportunities to reduce additional fixed cost, including professional services and general overhead we estimate that in aggregate. These actions once fully implemented by Q4 will help lift reduced fixed cost by approximately 300 million on an annualized basis or $75 million.
Fourth quarter relative to what we expected at the beginning of the year.
Separately, we've identified and staff new stretch initiatives to improve our underlying unit economics, which be on top of the annualized 300 million and savings.
In light of the rapidly evolving and unpredictable effects of Kobin 19 on our business that is currently not net position to forecast our financial and operating results for the remainder of 2020 as a result on April 20, Onest. We withdrew our previously provided revenue and adjusted EBITDA guidance for full year 2020.
In terms of the second quarter, we are focused on reducing expenses to mitigate the significant decline in revenue that began in mid March and which is expected to continue.
Not only is there a wide spectrum of varying cobot 19 predictions and recommendations by government in health care officials, but is also too early to speculate on the full impact of a cobot 19 pandemic on the global economy, and how the various scenarios could impact rides on our platform.
Given this fluidity it is impossible for us to predict with any certainty our results for the second quarter.
As such we are providing investors with an estimate of adjusted EBITDA loss based on April ride volumes more specifically if rise into right. Your platform remain at April levels, which were down approximately 75% year over year for the remainder of the quarter. We expect we can manage to keep our Q2 adjusted EBITDA loss.
Under 360 million this figure excludes restructuring costs that I previously mentioned.
So let me share a few closing thoughts while we continue to make investments that will fuel or long term growth and margin expansion. It is impossible to accurately predict the duration in depth of the economic downturn, we face our business may be impacted for an extended period of time, so we must be prepared to adapt accordingly, notwithstanding the strength.
Of our balance sheet as of March 30, Onest again, with 2.7 billion of unrestricted cash cash equivalents in short term investments, we're streamlining our cost structure and reducing capex to help navigate this crisis further as logon to John discussed it is essential that we do our part to help drivers right.
Yes and partners during these uncertain times and we will continue to fund critical efforts to support our communities in this time of crisis.
No. Despite the significant challenges ahead, our long term opportunity remains extraordinary it is our responsibility to execute and we are ready to deliver our Q1 adjusted EBITDA gives us confidence in the profit potential that our business 10, and will generate overtime and where the actions that we've described on this call we believe that.
We can achieve consolidated adjusted EBITDA profitability at a lower right volume than our previous cost structure required.
We recognize that this downturn may be longer and more severe than predicted and we fully recognized at the right volumes. We saw in the first quarter may not be achieved again for sometime it is exactly for this reason that we are taking aggressive actions, reducing our annualized fixed cost by 300 million lowering our capex plan by 250 million and pursuing it did.
Additional opportunities to improve our unit economics. These steps will allow us to preserve maximum cash it emerged stronger and better position when the economy recovers so with that let me turn it back to Logan.
Thanks, Brian.
While the pandemic has up ended our daily routines and strain societies around the world. It is also highlighting the underlying strength in our community.
We are grateful for driver and rider community.
Nurse and team members, who are working to deliver solutions to rapidly evolving situation.
During these difficult times will rely on the strong foundation that we've built over the last decade, working together and we will continue to take disciplined actions that further strengthen our position.
We'll take care of our customers, our business and our community and we will emerge stronger from the University.
We're now ready to take questions.
As a reminder to ask a question you will need to press star one and your telephone to withdraw your question press the pound.
Please standby, while we compile the Q when a roster.
Our first question comes from the line of Stephen Ju of Credit Suisse. Your question. Please.
Okay. So thank you so looking at it seems like states are reopening and letting people go outside or step by step out but does that.
But that doesn't necessarily mean that people arent Chico outside and you talked about I guess, a directional recovery in the aggregate, but what are you seeing in terms of consumer behavior in those quarantine lifted cities.
As we start to come out of this do you think you will have to take on incremental costs, we're cleaning and test sanitizing et cetera to increase consumer confidence and using the platform.
And Brian I think.
By reducing the headcount by about 17%.
Is that enough where not enough.
Graco. Some of this is a judgment call based on what you think a potential recovery should look like and buy when.
But if the quarterly EBITDA loss rate is.
Down 75% scenario is about 360 million or should we spent the absolute cash burn rate on an annual basis is about a billion or they have for so thanks.
Thanks for the question, Brian can you give some color on the individual markets.
Sure. So let me start with just some trends.
Steven Let me, let me started that sort of system level, and then I'll go to city specific details.
So as we mentioned.
Overall right your rights were down 75% in April.
The week ending April 12 was the low for the month.
So right last week, so I'm, referring to weak ending Sunday may Threerd rights were up 21% from that low I think it's also important understand april's entry and exit right volumes.
So between the week ending April 5th.
And the week ending May Threerd right sure rights system wide increased 13%.
And I also wanted just provide some color in terms of the most recent weak.
So for the week ending May threerd.
Total rideshare rides grew 7% weaken week now keep in mind. All this growth is off a low base since for the month of April rights were down 75% year over year and as Logan mentioned, even in the most recent week, we're still down over 70%.
And then keep in mind that in terms of any sort of year over year growth comparisons we have virtually turned off coupons. There are no shared rides and they're almost no airport rights and just see as some additional data points.
In April Airport rights were under 2% of total right sure rides and this is down from about 9% in Q3 in Q4 of last year.
In April we had zero shared rights as we paused the offerings and this is down from about 17.
To 18% of rights in Q3 in Q4 of last year.
Excuse me.
Now let me provide some cities specific details to help answer your question as well we are seeing what may be beginning signs of recovery in certain cities, but I want to caveat again. This is from a low base.
In terms of Aprils entry and exit ride volume, so again im comparing the week ending April 5th and the most recent week to week ending May Threerd.
Right sure rights increased 25% in Atlanta.
35% in Chicago.
29% in Houston.
39% in New Orleans.
22% in New York City.
And finally, 25% in Seattle and this is relative to the 13% that I mentioned for the overall company in terms of the rideshare platform.
And then finally, just you have the most recent data points versus some of the cities.
This is looking at week over week growth for the week ending Sunday May Threerd.
We saw the following in Las Vegas rights grew 22% weaken week.
National grew at 16% weaken week.
Turning to Florida, Miami grew up 15%, we kind of weak Orlando at 14% weaken week, and then finally, Texas often at 16% week on week, and then Houston at 12% weaken weak and again. This is overall relative to the overall business, which grew right you are right.
7%, we kind of weak now again keep in mind. These are from a low base, but.
All of these cities I mentioned in terms a week over week growth. This is the third consecutive week positive week on we growth as well.
In terms of your question in terms of let me just maybe touch on cash burn as we think about full year.
Yes, the extent to which our operations will be impacted by covered 19.
We will largely depend on future developments, which are obviously highly uncertain and cannot be accurately predicted.
We cannot speculate today on what the rest of 2020 looks like.
As I mentioned earlier, if ride to remain at April levels for the remainder of the quarter. We expect we can limit our Q2 adjusted EBITDA loss under 360 million.
And keep in mind that we're willing to use cash if it helps reduce our fixed costs.
For example, we will incur a cash charge in Q2 related to the head count restructuring, but this will generate meaningful savings over time. So we're willing to use near term cashman offers strong ROI and reduces ongoing cash usage. So it's hard to provide a more precise cash usage figure for this year beyond what I've shared.
No.
I also want to just.
Again, I guess reiterate that we ended Q1 with 2.7 billion of unrestricted cash cash equivalents in short term investments and even within that $2.7 billion, we're keeping nearly $1 billion, an overnight liquidity right now to hedge against any sudden dislocations in the capital markets. So I would say given that.
Our significant reductions in Capex and fixed costs, we believe me or more than sufficiently capitalized to reach free cash flow breakeven.
Thank you.
Sure.
Thank you. Your next question comes from Mark Mahaney of RB actually I think there a couple more parts to that one that I can take on the part about that the health safety and then I can pass it back to Logan just to fully answer your question.
On I believe you also asked about the layout. So just first on health safety.
As we mentioned obviously the safety and health of our drivers in riders is critical and we'll we'll continue to Funnies African a thoughtful way.
And we'll be announcing our health safety program in the next week.
So that as as governments continue to ease the stay at home orders.
We'll be putting out new policies commitments and products that will address the needs of our community. During this time I will be falling CDC and local guidelines.
In addition to products and policies that were going to be putting forward.
And so.
Believe as you know Weve purchased and started to distribute hundreds of thousands of bottles of hand, sanitizer and Matt.
To protect drivers and riders.
And we've incorporated key safety and public health update alerts into our driver and rider apps on the website.
Thank you Okay, great Great and then just to cover or parts of the question so to cover.
The question about.
About the reduction in force.
And was that sized to be enough.
So this was a very significant reduction the size of our team.
Nearly 1300 team members were impacted between the workforce reduction on the furloughs.
And the layoffs were determined within the context of an overall plan for navigating through the crisis that we outlined which factors and pay reductions.
The variable nature of our cost base and additional cost cutting measures in crude including reductions in professional services and office expenses.
So like like Brian outlined before in total these steps are expected to generate annualized savings of approximately 300 million in our fixed cost by Q4 and that's in addition to the 250 million in 2020 Capex that we described as well.
So we do believe these are significant and sufficient actions to strengthen the business and ensure that we emerged stronger on the other side. So at this time, we do not expect further adjustments to the employee base.
So with that let's let's move to the next question.
Thank you next question comes from Mark Mahaney of RBC. Your question. Please.
Thanks, two things one is this is this crisis caused you to rethink additional revenue streams in particular.
Delivery of products.
From retailers are who or whoever you the use of the though the drive the driver fleet that you have to deliver products and then secondly can you talk about what you plan to do about shared rides in the future. I think you said it was roughly mid teens of all your rights share rights were shared rides.
Is that something that you plan to delay for quite a substantial time for for health reasons is it a category that you think you'll just your thoughts on how long it will take you to bring that offering back to market do you think the Dolby really depressed demand for that for a year.
Just given that the.
Distance concerns people. Thank you very much.
Yes, Thanks, John do you want to cover delivery and I'll take share grants again.
Sure Hey, Mike.
So we in terms of delivery, we're focused on the programs that that we've launched around essential delivery.
And we're going to be.
Evaluating any future opportunities based on how those perform.
And then for clarity anything that we do or what do we have no interest in launching a consumer food delivery service.
And so we will not be doing that.
Great and then then on share rides, we're closely following the CDC guidelines.
And regularly communicating those to writers and drivers.
And not operating shared rise at the moment was part of the CDC guidance.
And as you know municipalities and governments consider reopening plans.
Well keep monitoring the situation and begin to relaunch shared rides.
Based on official guidance from both federal and local authorities. There is one product that we recently launched that's worth mentioning.
So we launched a new product called the weight and save and you know this.
A new low low cost product that allows us to optimize the marketplace by being more efficient with matching drivers and writers.
So what we do as we lengthened the match window.
So it takes a little longer to be matched with the driver and that increases the chances that we can match a rider with a nearby driver and reduce the time it takes for them to ultimately get to the pickup.
So that that is a new low cost mode that we've rolled out and is.
Somewhat taking that place not one for one but somewhat taking the place that shared rat-a-tat had served.
Okay. Thank you look and thank you John.
Thank you. My next question comes from Doug Anmuth JP Morgan Your line is open.
Great. Thanks for taking the questions Ive to first just hoping you could talk more about your driver network.
I would tell us if you have an idea of what percentage of drivers have remained on the road during the crisis in some capacity and then what steps you're taking to ensure that they come back as things normalize and then second just wanted to ask about Avi spending and whether there's anything that's included in the $300 million.
You mentioned thanks.
Yeah.
Brian do you want to.
Take drivers and I'll come back and take JV.
Sure so when.
Rides dropped.
Beginning mid March in terms of the data, we provided roughly down 80% between that beginning of March and in the end of March.
Both supply and demand dropped.
Those have a natural way of rebalancing.
And so I think right now we are seeing utilization initially dropped as you can imagine, but now we're starting to see utilization tick up which that helps drive up higher earnings which that attracts more drivers onto the platform.
Let me pass it back to logon to talk about autonomous.
Great. So so in terms of autonomous or the Aratanas group the level five group.
Was was impacted by the cost reductions and reduction in force.
They were they were done across the company.
So our investments in Avi are critical to lifts future.
And we expect that they'll deliver.
Strong returns and the long run despite cobot, one one interesting thing that's becoming really clear about HIV programs is that the progress. The teams are making is not necessarily directly tied to dollars invested in the program.
And we've taken a really efficient approach from the beginning of our program and will continue to do so.
We think long term, we have a really unique opportunity when it comes to developing self driving technology.
An important point that we made before as we believe that Thomas vehicles will first draw on ride sharing networks. So the first generation of driverless vehicles will only be able to serve a small percentage of total trips due to technical limitations. So it will be critical that those vehicles are rolled out on the plot platform like ours.
I can serve 100% of customer requests and allow a these to provide the rights that they can be supplemented by traditional vehicles.
Another kind of.
Piece to point out is during.
The covert pricing covert crisis.
You know every every program, including ours has had to pull back on on road testing.
And and so what we've done as we've moved over to to put a focus on simulation and that that has always been a critical part of our program, but but now is what we're leaning on as the primary way to continue improving our our autonomous vehicle.
Great. Thank you both.
Okay.
Thank you. Our next question comes from Eric Sheridan of you BS Your line is open.
Thanks, so much for taking the question maybe to follow ups if I can.
Market asked about shared rights can we broaden that out a little bit to think about the way in which you think about your product portfolio. Both as we go through the current situation and a shelter in place on winds on the other solid covidien team. How you might think about aligning your product portfolio weekends consumer desires in the marketplace.
Maybe even specifically a comment on bikes scooters and then one of them thing with respect to insurance costs going forward. Just wondering if we could dive a little bit deeper into the fixed versus variable nature of that as you see the current side of drivers on the road versus drivers and supply coming back on the road again on the other.
There's talk of Copel 19, thank you so much.
Thanks, John you want to weigh in on banks and scooters and Brian then you want to take insurance.
Yeah, So I think our approach of having.
Multiple mode that serve multiple use cases pays off really well in this environment because of the flexibility it provides.
So specifically with likes and scooters, obviously, you don't need to be present with another person when you're using a bikers scooter.
And so we're seeing that that the really important mode for essential workers and those that are out in about at this time, we've we've obviously upped it cleaning programs on those bikes and scooters as well and overall our bikes strategy has been focused on a single operator.
Which is serving us well what that means is that in markets like New York City, we own and operate city bike and where the exclusive provider of bikes in that market. It's allowed us to partner with the local government provide the best service.
For new Yorkers.
At rides to essential.
Provide a central workers, who need it and so we're going to continue to lean into our largest markets.
We're going to continue to lean into.
The dentist markets. So you also saw.
Are you may have theme that we exited three scooter markets.
A few a few days ago and the reason was.
That that density in those markets was not as high and all the markets. We remain in how we see a clear path to profitability for for a bikes and scooters.
Extra Eric Let me address your insurance question in terms of fixed costs.
As we mentioned about two thirds of our cost our variable in nature, and what I would say the cost associated with primary auto insurance risk and transaction processing, which are the two our two largest Q1 expenses recorded in contribution margin, they're virtually 100% variable.
So to answer your question we as.
Reits drop obviously that our primary auto insurance drops.
Thanks, so much sure.
Thank you. Our next question comes from Benjamin Black of Evercore ISI. Your line is open.
Hey, Thanks to the question, perhaps the follow on here, though really would be curious to get your thoughts and your expectations for for recovery, obviously, not the timing, where perhaps disruptions that you expect that these share shifts from to ride sharing from other forms of transportation and perhaps relate to meet with strength.
Trips do you think will return for them thinking corporate versus airport birth leisure daily commute and event and then perhaps one for Brian.
You mentioned initiatives aimed at lowering the frequency and severity of incident that were key to some of your insurance cost leverage could expand one both and that's kind of how much runway you have left there. Thanks.
Sure. So this is Logan I'll say, a it's really difficult for us to speculate on how consumer behavior might change on the other side of the crisis.
Obviously, the recovery will be shaped by government recommendations and progress made on treatments in vaccines.
I think theres theres, a couple of of trends to to watch.
We believe that affordable transportation is gonna be critical for consumers a lot of people are going to be navigating a challenging economic environment and we believe set that means.
People be reconsidering high fixed costs and owning a vehicle is a very high fixed cost to maintain.
We do think that consumers may also choose to.
Avoid public transportation in favor of ride sharing and by can scooter sharing.
And.
In terms of personal car use I think it's worth noting that car ownership rates and some of our biggest markets like New York City, San Francisco, Chicago are already well well below the national average.
So for example, New York has 250 cars per thousand people, while a San Francisco in Chicago have about 450 cars per thousand people, which are both well below the national average of 700 cars per thousand people. According to the census data so.
You know as it sort of relates to exactly what type of trips people take.
We definitely Kent.
Can't speculate on that.
But we do think that that lift is going to play incredibly important role on the other side and and we don't six of the crisis will impact this long term secular shift.
Away from car ownership and towards transportation as a service.
Hi, Ben This is Brian let me, let me touch on some of the questions around insurance.
What I would say first of all.
We're very proud with with somebody achievements, we've made in terms of leveraging its cost.
As I mentioned earlier contribution margin increased over 700 basis points year over year. Two thirds of this improvement was from reducing the cost of insurance required by revenue regulatory agencies as a percentage of revenues. So I think we've put up a very strong track record I.
I think on a go forward basis.
We continue to invest in that team in terms of how do we increased safety on the platform and so when Logan and I were talking about.
You know initiatives to increase our unit economics insurance is definitely front of mind in terms of the investments, we're making to help lowering the insurance costs. Even further and then separately, but we're also leaning into our world class partners, including state farm travelers and progressive to help us reduce.
Costs.
Our current primary auto insurance policies expire at the end of September and we will continue to consider the best options to reduce future volatility as walls lower our overall cost. So we remain bullish that we have a long list of opportunities still to help leverage the cost of insurance.
Perfect. Thank you.
Thank you. Our next question comes from Edward Yruma of.
Keybanc Your line is open.
Hey, good afternoon, and thanks for taking the questions I guess first on the new weight.
Program do you think it will have the same economics to lift the shared ride and then two as a follow up you know I clearly you guys have able to successfully pullback on driver promotions that you. We ramped back up do you think that promotions will return to the consumer environment or do you think that you and your major competitor have finally achieved kind of some degree.
That will there be on when it comes to demand. Thanks, so much.
Yes, great just on on on weight and save is a very new program, where the first couple of weeks of of testing it.
So we will we will make sure that operates with.
You know I actually an economic profile that is very positive for the business.
But it's too early to comment on anything specific.
Brian would you want to weigh in on.
Driver I sure yeah. So.
We've said consistently.
At our strategy is to focus on profit growth not growth at all costs and so ultimately we want to went on product innovation customer experience and brand preference not coupons and when I would say.
Since rides began to decline significantly in mid March we virtually turned off all right or coupons and we're not alone companies in the right. Your industry are also adjusting spend there or third party data providers reporting a coupons are virtually disappeared across the industry. So given the current economic times.
The industry appears to be focused on reducing losses and preserving cash I know we are so we're going to continue lean more into innovation experience and brand versus coupons. We think this is good for the industry.
Got a great to hear thanks, so much.
Sure.
Thank you. Our next question comes from Brent to of Jefferies. Your line is open.
Hey, Brian I know Theres lot of curiosity about liquidity position with cash and if you need to raise capital, but if you could just maybe give us your perspective on.
I feel the balance sheet looks right now and any other color will be super helpful. Thank you sure.
So look.
As we mentioned, we do have $2.7 billion of basically cash.
So we feel we're in a very strong position we made.
Some pretty decisive decisions to reduce the cash burn for for this year in terms of $300 million a fixed cost were taking out.
As well as we're funding new initiatives to improve unit economics, which would be on top of the 300 and then finally, we did lower capex from 400 down to 150. So all of those initiatives will obviously help us preserve cash.
So we believe we are sufficiently capitalized to reach free cash flow breakeven.
We don't think we need to raise capital, but look we're always going to be opportunistic I will call out our long term debt stands at a whopping $82 million $82 million right now.
Thanks.
Thank you. Your next question comes from Brian Fitzgerald of Wells Fargo. Please go ahead.
Oh, Thanks, guys. So I want to ask a follow up to Mark's question on a central deliveries could you give us a sense for how that ramp.
When those 11 city.
And then there are two sites that for so many people that have stuff delivered in addition to haven't drivers and how many drivers I popped into that one of the gating factors finally in terms of expanding that but beyond those 11 markets. Thanks guys.
Thanks, John you want to give some more color on delivery.
Sure I'm not going to comment on the specific ramp I Didnt say that on the driver side. There was a large interest in large opt in to do that.
I think for obvious reasons be garlic, looking for earning opportunities and appreciate the contact list nature of that.
I think the big determinant will be the partnerships.
That that we establish with those that need deliveries.
Central deliveries at this time.
Yeah.
Thank you our next question comes from.
Each a.
Right.
Of Citi. Your line is open.
Great. Thank you good afternoon to just two questions first going back to Avi wondering how you're thinking about potential for your lift to pursue deeper strategic partnerships as a way too.
Create more cost savings with some of your peers kind of targeting deployments by 2022, and secondly for Brian I think you mentioned you have kind of a lower breakeven I just given the improvement in contribution margin in cost savings any thoughts around beyond 2020, what kind of quarterly revenue is required to reach out to EBITDA positive.
Great. Thanks for the question so partnerships have always been a fundamental part of our approach to easy.
We clearly enter the space as a second river and and we know there are a lot of great programs out there.
But by incredible teams, who invested significantly more than us and have been at this a lot longer.
So for example, we have a great partnership with Waymo.
That's operating.
In the Chandler, Arizona area.
And we have a wonderful partnership with active.
The that's been running for some time in the Las Vegas area, and we continue to talk to.
Many folks.
See industry. So that that is and will continue to be a major part of car or if you strategy.
Brian do you want to take that the next question.
Sure.
Yeah.
It's hard for us to speculate obviously.
Our operations are going to be impacted by coated 19.
And so when we're trying to think about ride volumes, it's highly uncertain and we just can't predict today.
We've talked about the prudent steps that we've we've taken in terms of reducing our costs in capex.
Yes, if we successfully execute on our stretch initiatives to improve.
Unit economics, given our new lower fixed cost structure. We believe we can achieve adjust EBITDA profitability at a ride volume roughly 15% to 20% lower than what was required in our previous forecast to achieve profitability.
Now in terms of estimating the date of our first profitable quarter. This is ultimately tied to future ride volumes, which we obviously cannot predict at this time again, we lowered the right threshold required by 15% to 20%. So if there wasn't coated with our new cost structure. We believe that we would have been profitable earlier than our original guide.
So to answer your question the actual timing will depend on the the speed of the recovery it could be earlier or later again, it's going be tied to ride volumes into bounce back.
Great. Thank you very much.
Sure.
Thank you that concludes the Q1, a portion of the call I'll turn the call back to management for closing comments.
Alright. Thank you all for joining us for this call today, we hope that everybody is staying safe and healthy during this time and we look forward to talking to everybody again next quarter.
Take care.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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