Q4 2020 Lyft Inc Earnings Call

February 9, 2021

[music].

Good afternoon, and welcome to the linked fourth quarter 2020 earnings Conference call.

At this time all participants are in a listen only mode to prevent any background noise. Later, we will conduct a question and answer session and instructions will be given at that time.

If anyone should require operator assistance. Please press Star then zero on your Touchtone telephone as.

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Shawn Woodhull head of Investor Relations you may begin.

Thank you.

Good afternoon, and welcome to the Lyft earnings call for the quarter ended December 31, 2020, joining me today to discuss Lyft results and key business initiatives are our co founder and CEO Logan Green co founder and President, John Zimmer and Chief Financial Officer, Brian Roberts.

A recording of this conference call will be available on our Investor Relations website at Investor Lyft Dot com. Shortly after this call has ended.

I'd like to take this opportunity to remind you that during the call we will be making forward looking statements, including statements relating to the expected impact of the continuing COVID-19 pandemic. The expected performance of our business future financial results and guidance strategy long term growth and overall future prospects as well as statements regarding regulatory matters.

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.

And in particular those described in our risk factors included in our form 10-Q for the third quarter of 2020 filed on November 12, 2000, and 'twenty and then our form 10-K for the full year 2020 that will be filed by March one 2021, as well as the current uncertainty 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 Lyft disclaims any obligation to update any forward looking statements, except as required by law.

Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered and addition to and not as a substitute for or in isolation from our GAAP results.

Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC and May also be found on our Investor Relations website at Investor day at Lyft Dot com.

I would now like to turn the conference call over to Lyft co founder and Chief Executive Officer, Logan Green Logan. Thanks.

Thanks, Sean and good afternoon, everyone and thank you for joining our call today despite the.

Difficult backdrop in 2020, we focused on improving our business for the long term the.

And the progress we've made has been significant and I believe we are now and a stronger position than at any time and in the past.

Given the improvements we've made to our unit economics, and our overall cost structure, where like a tightly coiled spring positioned to drive strong organic growth and margin expansion as the recovery takes hold.

Turning to our Q4 results rideshare.

Jerry and continued to rebound, but the monthly trends were uneven.

Rideshare rides were down 47% year over year in October and 50% in November.

And December Rideshare rides were down 52% year over year as Covid, 19 cases, surged and state and local governments implemented restrictions limiting people's mobility.

Given the effect on demand, we were able to reduce driver acquisition and incentive spend which had a positive impact on our financial results. So despite the pandemic headwinds revenue for our fourth quarter grew 14% sequentially and was towards the top end of our outlook range.

Recall that in early December we said that Q4 revenue may come in at the lower end of the range.

And now as we've discussed on prior calls recovery trends very locally across North America, reflecting differences and COVID-19 case counts and responses.

And the West Coast generally remains the weakest region, while we've seen further rebounding and Florida and Texas as examples.

Separately and Q4, there was a mix shift towards higher frequency riders, which led to record revenue per active rider.

And fax revenue per active riders grew 14% quarter over quarter and showed positive growth year on year. Despite the pandemic overhang.

Let me now shift to January.

And while rideshare rides were down 51% year over year the trend still reflects positive week on week growth throughout the month, excluding the MLK holiday week.

Operating environment does remain uncertain and we currently anticipate an improvement and average daily ride growth and the months of February and March.

Brian will share more details, but based on current COVID-19 recovery expectations, and Q1, and we plan to invest and driver supply to improve service levels and prepare for stronger demand beginning in Q2.

On the other side of the pandemic when people are able to resume a fuller range of activities and safely come together, we anticipate and a strong rebound in demand across our fully integrated transportation network.

As individuals returned activities like leisure travel and entertainment and the second half of the year.

We are taking steps today to ensure that we're ready to support this anticipated demand from the time comes.

While we can't predict the timing or efficacy and vaccine rollouts with certainty based on current trends, we believe the U S could reach critical immunity levels earlier than many international destinations as a result of the pop and leisure travel that I mentioned may primarily occur within the U S, which we are well positioned to capture.

I think people are eager to get back to normal there is pent up demand to see friends got to restaurants, and bars and intense sporting events and concerts and.

And by taking Lyft. These venues can all be accessed responsibly without drinking and driving.

I wanted to take a few minutes to discuss our long term vision.

We believe the future of transportation as a service and we are the only company in North America that has a seamless multi modal transportation platform that can replace car ownership.

We expect our autonomous vehicles to accelerate this transition.

And will transform the rideshare and industry and our business.

Here's how we're thinking about this.

We believe the first generation of <unk> will be deployed on rideshare networks.

Given the expected vehicle cost one key issue will be getting first wave vehicles to breakeven, which will depend on utilization.

This will be tricky because these vehicles will only be able to serve a subset of trucks due to likely domain and whether restrictions.

It will take time for AB and check me too advanced to the point, where avs are able to accommodate every rod.

And our ever condition, there can be regulatory speed bumps too.

A rideshare network will help maximize Ava utilization, because we can dynamically dispatch avs from the trip type and route and are suitable this is critical.

And the nature of our multimodal platform and because we aggregate demand, we're able to match riders with arrive whether or not it's fulfilled by a NAV.

This type of hybrid deployment model is well established and other industries as.

And as wireless carriers and introduced five G. They've rolled it out on top of existing networks for redundancy.

That way, if the new <unk> towers too far away subscribers can still be supported by forging or <unk> service.

And this model works because it allows the carriers to capture value as they scale.

Really avs that deploy and her rideshare network, we'll be able to benefit from a similar dynamic.

Keep in mind that daily travel patterns typically don't resemble a static horizontal line. They are closer to a heartbeat with large spikes around morning, and evening commute and the mix of peaks and valleys during other parts of the debt for.

Abiding consistent service levels requires having infrastructure that can scale and demand.

Extending the carrier analogy imagine what would happen for the carrier subscriber base and people were unable to access the network not just <unk>, but any network at critical points during the day it would be a major problem.

For Avs deployed on hybrid rideshare networks, the advantage is that as demand spikes and.

And network and supplement a fixed pool of avs with traditional vehicles to seamlessly serve rider demand.

Also for the same reason that nationwide roaming was critical to increase mobile penetration lets broad national footprint interest consistent service virtually everywhere we operate.

We will also be able to introduce avs to millions of potential riders expanding the reach of avs to a wide audience.

We've spent nine years building a business that is uniquely capable of supporting and scaling evs are level five data driven and autonomy program taps into our greatest asset our rideshare network to help tackle some of the hardest problems and self driving.

And our open platform partners will be able to leverage our ride share technology stack, including our dispatching and routing algorithms are shared rides platform and our pricing capabilities.

Since we aggregate demand. These partners will have access to a scaled network of riders and drivers are fleet management expertise will drive additional operating efficiencies and John will discuss.

We are already and leading the way and our industry, we facilitated more than 100000 paid a day rides on our platform since 2018 with emotional and.

And Q4, we announced our plans to deploy fully autonomous motion of vehicles on our network and multiple cities and 2023.

This is a landmark deal and the first agreement of its kind and our industry.

Through the investments we've made and our network. We've continued to build on our core competencies to be the partner of choice among autonomous programs.

We are excited about the transformative impact avs will ultimately have on our industry and on transportation and broadly.

Finally, we remain confident and our ability to address the significant market opportunity in front of us and our focus on revenue growth and cost discipline continues to strengthen our financial position.

Before John provides a few updates on the business I'll turn the call over to Brian to review, our financial performance and provide details on our path to profitability.

Thanks, Logan and good afternoon, everyone.

The COVID-19, pandemic and its far reaching effects remain unparalleled.

Case accounts surge for the fourth quarter cities and states reinstituted shelter and place orders curfews and other measures to help slow the spread.

Now, while our recovery advance the fourth quarter as rideshare rides improved two year over year decline of 49, 6% versus 51, 8% and the third quarter monthly trends worsened with December down 52% versus 50% in November.

Given the uncertainty and decline in demand Lyft cut expenses and significantly reduced driver acquisition and engagement programs and the month of December.

The reductions and incentives classified as Contra revenue helped drive upside to revenue and fact fourth quarter revenue of $570 million approach. The top end of our initial range of $555 million to $575 million. This.

This compares with our updated outlook provided in early December that revenue may be at the lower end of the range given the uncertain operating environment and Q4, we further reduced expenses for cost reductions combined with the revenue outperformance drove a significant improvement and our adjusted EBITDA loss.

So let's dive into the details of the fourth quarter I'll start with the top line metrics.

And the fourth quarter the number of active riders increased by roughly 30 basis points from the third quarter to $12 6 million as stronger restrictive measures to control the accelerating spread of COVID-19 were reintroduced rider growth was impacted by a decline and rider activations as well as the absence of lower frequency riders from prior quarters.

However, these dynamics led to record revenue per active rider remember additions to our rider count near the end of any quarter are normally dilutive to revenue per active rider. Since there is only limited time for these new riders to help generate revenue.

As Logan shared this led to a mix shift towards higher frequency riders. So in Q4 revenue per active rider reached $45 40, which is over $5 above the $39 90 for achieved and the third quarter, representing an increase of 14%.

In terms of the year over year comparison, despite the pandemic revenue per active riders increased by exactly one dollar and the fourth quarter versus the prior year.

The combination of these trends led to a 14% increase and fourth quarter revenue to $570 million up from $500 million and the third quarter.

Now before I move on I want to note that unless otherwise indicated all income statement measures that follow are non-GAAP and exclude stock based compensation and other select items.

A reconciliation of historical GAAP to non-GAAP results is available on our Investor Relations website and may be found in our earnings release, which was furnished with our form 8-K filed today with the SEC.

This includes contribution which is defined as revenue less cost of revenue adjusted to exclude amortization of intangible assets stock based compensation related expenses and changes to liabilities for insurance required by regulatory agencies attributable to historical periods.

Q4 contribution increased 27% sequentially to $316 million from $249 million and Q3 for.

Each dollar of incremental revenue growth between Q3, and Q4 contribution increased by 96 cents.

Contribution margin was 55, 5% up over 500 basis points from 49, 8% and Q3 and well above our outlook of $51 five to 52, 5%.

Contribution margin, even increase on a year over year basis, despite the significant difference and absolute revenue.

Contribution margin benefited from two unique windfalls and Q4 as demand decline and we reduced driver acquisition and engage and spend by $15 million and December versus the average level and October and November.

Second we took advantage of the strong used car market in Q4 to re market older Flex drive vehicles, which generated a $6 7 million net benefit to contribution together.

Together these items created a onetime benefit to our Q4 contribution margin without these benefits Q for contribution margin would have been 53% still above our outlook of between $51 five to 52, 5%.

I will provide more detail shortly but we plan to invest and driver supply and Q1, which will reverse this Q4 benefit and create a slight headwind to first quarter revenue and contribution margin.

As a reminder contribution excludes changes for the liabilities for insurance required by regulatory agencies attributable to historical periods and the fourth quarter. There was $128 million of adverse development, which we attribute to the impact of Covid on legacy liabilities average.

And the onset of COVID-19, plaintiff law for us and mind and reconsidered older matters for legal representation as new potential auto cases, shrink given the drop and rights.

The share of bodily injury claims for the attorney representation is approximately 20% higher for the impacted periods versus prior experience.

That said, while COVID-19 created the conditions that increase the cost trends of historical claims. We are pleased that we did not experience any adverse development associated with our primary auto book related to the second or third quarters of last year. After the onset of COVID-19.

84 per cent of the adverse development is associated with accident liabilities from the end of 2018 and 2019.

We remain confident and our insurance risk management strategy for the insurance policy year, ending September 2021, we've transferred more than 50% of the risk just strategic insurance partners with competitive advantages and deep experience heavily rideshare claims to help reduce future volatility and the fourth quarter primary insurance cost as a percentage.

Revenue was lower than Q3.

Finally as of December 31, even after the adverse development charge, we remain approximately 8% over collateralized and our restricted cash and investment accounts held against our primary insurance liabilities associated with the period Q4 of 2018 through Q3 of 2020.

Let's move to operating expenses opt.

Operations and support expense for Q4 was $93 million down 33% year over year.

Operations and support expense as a percentage of revenue declined to 16, 4% and Q4 down from 23, 5% and Q3.

Q4, R&D expense was $130 million roughly flat with Q3.

As a percentage of revenue R&D expense declined 22, 8% and Q4 down from 26, 2% and Q3.

Sales and marketing and Q4 as a percentage of revenue was 14, 3% in terms of absolutes sales and marketing was only $82 million and Q4 down over $100 million or 56% from $187 million and Q4 of 2019.

Incentives classified as sales and marketing declined 80% and Q4 on a year over year basis from 99 million to $20 million or three 5% of revenue.

G&A expense in Q4 was $192 million down 16% from the year ago period relative to Q3, G&A expense declined by $12 million.

In summary, total operating expenses below cost of revenue declined by over $25 million between Q3, and Q4, representing a 5% quarter on quarter reduction.

On a year over year basis operating expenses decreased by 200 million and the fourth quarter. This is not an annualized figure operating expenses decreased from roughly $700 million and Q4 of 2000 $19 million to $497 million and Q4 of 2020 as we reduced expenses.

In terms of the bottom line, our adjusted EBITDA loss of $150 million was 19% better than our $185 million loss outlook.

On a sequential basis, our adjusted EBITDA loss improved by nearly 90 million, meaning for each dollar of incremental revenue growth between Q3 and Q4, our adjusted EBITDA loss improved by 128.

We ended the quarter with $2 3 billion of unrestricted cash cash equivalents and short term investments.

We again, we're disciplined on Capex, which came in at $23 million.

Total 2020, Capex was approximately $94 million.

Now looking forward the near term outlook still remains uncertain we.

We are pleased that widespread vaccinations have begun and the United States and Canada and are confident that we will benefit from a significant rebound when communities fully reopen but we don't know when that will be.

And the near term, though given the current fluidity associated with government orders and health care recommendations as well as variability and reopening amongst cities. It is impossible for us to predict with any certainty our results for the first quarter.

Well, let me share what I can about the first quarter.

Weather in Q1 is highly unpredictable and severe storms can shutdown cities and impact rides.

We've recently seen and impact from storms and Chicago and across the East coast.

Also keep in mind that Q1 has two fewer days in Q4 90 versus <unk> 92 and for year over year comparisons remember, we're comping a year that included a leap day.

In terms of trends January rideshare rides were down 51% on a year over year basis, which is a slight improvement from December.

Rideshare rides and January grew 4% month over month, but were 7% below the level reached in October before case counts spiked.

On an intra month basis as Logan mentioned, we experienced consistent positive week on week right growth throughout January and except for MLK week well.

While we expect to see a generally improving trend line and Q1. It is extremely difficult for us to forecast the number of Q1 rights with any confidence.

If we apply january's average daily ride volume to the 90 days in Q1, rideshare rides and would be down 4% quarter on quarter, but assuming and improving trend line. We expect average daily Rideshare ride volume will grow further in February and March so based on a modest Q1 recovery given the significant remaining overhang of.

COVID-19, we estimate that Q1, rideshare rides could be flat or slightly down relative to Q4. This implies a year over year decline in Q1, rideshare rides, a 45% to 46% and improvement versus 49, 6% and Q4.

Keep in mind that the pandemic began to impact our results in March of last year.

If you isolate just the month of March we expect rates will decline at less than half of the quarterly figure and then fast forward to Q2, and we hit a major inflection point with rates expected to increase both on a quarter over quarter and year over year basis for the first time since the pandemic began.

Let me now address revenue as I've described we realize that Q4 benefit when we reduce driver acquisition and engagement spend in December and Q1 to prepare for the recovery, we will do the reverse and accelerate investments.

Is important for us to invest and driver supply to improve service levels and prepare for stronger demand in Q2 and beyond.

This will create a headwind to reported revenue of $10 million to $20 million and Q1. In addition, we face a sequential headwind of bikes and scooters for their first quarter is the weakest for bikes and scooters given weather.

So while we cannot provide formal guidance, we expect Q1 reported revenue to be down at least by $15 billion to $25 billion relative to Q4, despite growing ride momentum throughout the quarter.

This outlook translates to a year over year decline in Q1 revenue of 42% to 43% versus the 44% decline and Q4.

We believe investing and supplies the right strategic decision to position Lyft for a stronger rebound.

We anticipate that Q1 should be the last quarter with negative revenue growth and 2021.

We expect to generate exceptional year over year revenue growth and Q2 as we begin to comp the first full quarter impacted by COVID-19, we expect significant organic growth to continue in Q3 and Q4 as well.

Given the operating environment, we continue to focus on driving expense leverage while we invest for a strong recovery. We expect that we can manage our Q1 adjusted EBITDA loss of between $145 million to $150 million borrowing a significant change and the pandemic and this range is inclusive of three headwinds.

First this loss includes the $10 million to $20 million investment and driver supply.

Second we expect to realize a $5 million incremental loss related to bikes and scooters, given fixed cost and lower Q1 demand.

Finally this outlook also includes the sequential impact of the payroll tax headwind always face for the first quarter, which this year, we estimate at nearly $10 million.

So our adjusted EBITDA loss range of $145 million to $150 million includes between $25 million to $35 million of headwinds relative to Q4.

We expect Q1 contribution margin will be approximately 51 to 51, 5% Q1 contribution margin will be reduced by an investment of up to $20 million of driver supply. Additionally, Q1 will be impacted by a decline and remarketing profit as well as bike and scooter seasonality from this Q1 base, we expect we can drive.

Contribution margin improvements and achieve an all time record contribution margin later this year.

So let's move to expense leverage last year, we had a goal to remove $300 million and annualized fixed costs relative to our original Q4 outlook.

We are pleased to report that we beat this target by 20% and achieved a $360 million reduction and our Q4 results demonstrate this impact and as we look forward, we're not done and Q1, we expect to further reduce expenses below cost of revenue by approximately 35 million relative to Q4, even as we.

Increase R&D investments.

We plan to deliver the savings for a significant reduction and first quarter G&A expense relative to Q4, so despite headwinds from our driver supply investments. We are confident we can maintain or slightly improve our adjusted EBITDA loss on a sequential basis through this additional expense leverage.

Let me provide and update on our path to profitability for fourth quarter and our plans for Q1 services visible proof points of the extent to which we have reduced our expense base.

Given the impact of new efficiencies and our lower cost structure, we're even more confident that we'll be able to achieve adjusted EBITDA profitability by Q4, and fact based on the improvements. We've made there is a chance we can achieve profitability in Q3.

Obviously pulling and profitability would require a strong summer rebound. However, the fact that this is now even a possibility and the Q3 timeframe should increase and investor confidence.

Finally, while profitability is an important milestone and we also want to be super clear that despite being disciplined and our budgeting process. We are continuing to fund strategic investments and new initiatives like <unk> delivery to expand our Tam over time and drive long term growth.

As Logan and John shared and their original Investor letter, we will thoughtfully balanced investments and growth versus profitability, while deliberately leaning more towards growth, especially in these early days.

So while we are intent on achieving adjusted EBITDA profitability. This year, we are not losing sight of growth opportunities that create shareholder value.

So closing and I want to emphasize two key points for.

First we expect to generate significant operating leverage.

Our success driving efficiencies and cost reductions and the fourth quarter and our expectation that we can achieve further expense leverage in Q1 should increase investor confidence that we're on the right path to achieve adjusted EBITDA profitability in 2021.

We've been investing in and executing initiatives to increase our unit economics, and we expect to demonstrate strong operating leverages ride volume returns.

So we remain confident that lyft will emerge on the other side of the pandemic structurally more profitable per ride than it was going in and expect to lead the industry in terms of long term margins.

Second we have a tam and access of one trillion dollars, which provides a long growth runway and 2021 Lyft is well positioned to generate strong organic revenue growth as a pure play and the expected rebound given our transportation focus.

We also expect to drive solid growth and 2022 and beyond fueled by the continued recovery and the long term secular and structural trends that have underpinned our growth from day one.

So with that let me turn it over to John to provide a few key updates on the business.

Thanks, Brian and I am proud of the team's resilience and of the significant progress we've made over the past year.

Even as we continue to navigate endemic and I'm very confident that we are extremely well positioned to deliver strong organic growth as the recovery takes hold.

To start I'd like to build on Logan comments about why it will be the partner of choice among AAV programs, which will fuel long term growth.

There are three key elements.

First our hybrid avian network that includes human drivers.

Number two our efficiency engine powered by our marketplace technology and number three our highly efficient fleet management capabilities.

Each of these elements creates a competitive moat that reflects the fundamental value of all the work we do across our business.

I'd like to talk about our fleet management capabilities today, we already manage thousands of vehicles multiple service centers and field operations across North America.

These services are an integral part of our platform, enabling us to drive more efficient operations and improved long term economics and and reinforcing cycle.

And as self driving cars begin to scale they'll need to be efficiently managed and maintained.

This means serviced repaired stored and monitored.

By offering a comprehensive set of technology enabled fleet management services, we expect to be able to add even more critical value to our customers and partners.

Our strategy works incredibly well today and tomorrow.

Our fleet management offerings can deliver strong cash flows and advance of avs.

And with our competitive advantages will become EBIT work there.

For our partners, we expect our hybrid <unk> network will support the highest revenue per mile and while our fleet operations will drive the lowest cost per mile.

As Logan mentioned the future of transportation is as a service we are best positioned to deliver on this vision because of the strength of our platform today and because of the long term focused investments we are making.

All of this is powered by our engineering and data science expertise, which we've been using to drive increasing efficiencies.

We are also continuing to invest strategically and new initiatives like <unk> delivery that build on our core competencies.

The bottom line is we will continue to lean into our platform that delivers more value to drivers riders and partners, while lowering the cost of operating.

We believe this focus will serve as a key point of differentiation over the long run.

On the public policy front, let me provide a brief update on initiatives that are a result of the proposition 22 win in California.

As of December 16th drivers began receiving a minimum earnings guarantee while also retaining the flexibility to drive whenever wherever and as often as they want.

In addition, California drivers now have the ability to earn a health care contribution based on the average number of hours they drive passengers during the quarter.

Every driver also now has an additional insurance policy that covers their medical bills and lost earnings in the event of and exited.

To help offset the cost of these profit 22 initiatives and to provide transparency to drivers and riders. We recently introduced a lyft, California and drive our benefits fee that applies to each ride taken and the state.

We continue to view, the outcome and California, as a turning point and the conversation around the future of work and America a.

Our future with the benefits drivers want along with the independence day desire.

We continue to engage and productive conversations with state and federal policymakers on this topic.

I would now like to highlight some of the new work, we are doing to provide further support to drivers and riders.

We've doubled down on our health safety initiatives. This includes implementing mask recognition technology kitten share face coverings are being used by drivers and riders and.

And we've strengthened our enforcement policies.

And this September we began reaching out to governors and local policymakers to advocate for drivers to receive high priority status for vaccines as frontline essential transportation workers and we've now achieved priority carrying for drivers and multiple markets.

In addition, we've continued to introduce product innovation that delivers more and more value to drivers and riders.

We've been building our own mapping and dispatching technology.

This drives experience improvements for our customers and cost savings for Lyft.

For example, we are now better able to help riders and drivers meet on the same side of the street, which shortens trip times and career GTA accuracy and reduces the cost of certain rights.

Another innovation and the team is driving for it is around creating more leverage and payment processing by transitioning a majority of riders to daily billing over the course of 2021.

These are just a couple of examples that collectively have a meaningful impact on both the user experience and our bottom line.

Quick update on the enterprise space and Q4, we continued to see strong adoption of our business solutions to facilitate employee commute.

<unk> and government agencies are increasingly engaging with us about our bikes and scooters and addition to rideshare to help employees get to and from work. This interest continues to validate our multimodal approach.

The pandemic opened the door to new use cases, and we will use these inroads to win the corporate rebound.

I'd like to close by addressing the ways, we are helping communities through the recovery.

In December we announced the Universal vaccine access program with the goal to provide 60 million rides to and from vaccination sites with a strong focus on supporting low income uninsured and at risk communities.

We are working with JP Morgan Chase Anthem, Inc, and United way to lead this effort along with the coalition of other organizations.

COVID-19 has amplified transportation and security, especially for seniors and vulnerable communities.

We are committed to ensuring that transportation access is not a barrier to beating this virus.

With that we're now ready to take questions.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster.

And show our first question comes from the line of Doug Anmuth from Jpmorgan. Please go ahead.

Great. Thank you.

One for Logan or John and then one for Brian.

For instance, we often get the question of how will rideshare it'd be different when it comes back. So do you think about hopefully late 'twenty, one or into 'twenty. Two just curious on and your view and what the key differences and the business will be beyond the changes and the cost structure and then Brian just wanted to clarify on your long term.

Margin comments.

Are you quantifying and long term margin at all relative to the 70% gross margins and I think 20% EBITDA margins.

Over the last couple of years or really just pointing to.

Versus competitors and their numbers. Thanks.

And Doug I'll take the first part.

So first of all.

There's a lot of talk out there about how the world may or may not change.

And one thing I just talking about cities I think there is.

A lot of hype thats kind of hogwash about how cities are dead and everybody is going to leave cities.

I think when when some people decide to leave it makes room for other people and.

And Youll see an influx of.

Younger folks credit folks ambitious people moving to cities. If you look at the broader arc of history.

The world has been on.

Steady march towards urbanization.

Ben.

Economic disasters wars, Pandemics and the past and.

After each one.

Cities come back stronger than ever so I don't for.

For C that kind of change.

Having an impact on our business long term.

Net.

The second piece is on the work from home trend I definitely think elements of that are here to stay.

But I think one key thing to understand about our business.

As even pre Covid the commute business was never demand constrained alright, we talked about it and then kind of opening remarks about how.

Our demand patterns and more like a heartbeat and a flat line and when demand is high we are often supply constrained not demand constrained so things even out a little bit I think that could kind of net net be a positive for the business.

Those are those are a couple of kind of I think modest things when you when you really look at the opportunity we're going after.

It's the one two trillion.

Consumer transportation market.

The vast majority of that being spent on the car ownership ecosystem and that and fragmented ultimately broke and ecosystem is what we're setting out to fix and move the world towards a transportation as a service model.

And while the pandemic, obviously has large near term impacts on our business long term I think all of the sort of structural factors that are going to move people away from this fragmented car ownership model to transportation and service will remain intact and that's what we're going to continue to focus on going after.

So I'll, let Brian jump in on the margin sure. Thanks, Doug.

For the question look we continue to believe that we will lead the industry, a long term margins and <unk>.

Terms of our Northstar, we share the same financial objective as Amazon, which is to maximize long term free cash flow growth per share and free cash flow as operating cash flow less capex. We believe this is the metric most aligned with how to generate long term shareholder value near term, we expect margins to increase.

As I said in my prepared remarks, we expect we will achieve and all time record contribution margin later, this year, which would obviously translate to record adjusted EBITDA margins as well.

And I would say, it's because of Covid. We're just we're in an uncertain operating environment, but our results demonstrate the improving leverage of our model. So while we are confident that we will lead the industry in terms of long term margins, we're not speculating on the timeframe or what the ultimate margins could reach.

Okay. Thank you both.

Thank you.

Sure. Our next question comes from the line of Eric Sheridan from UBS. Please go ahead.

Thanks for taking the question I'm happy new year, and hope everyone on the team as well, maybe just taking a step back from all the commentary you had during the prepared remarks as you look out to 'twenty and 'twenty. One what are the investments you feel you need to make and the business that are sort of quasi fixed or necessary irrespective of how the and.

And environment evolves and.

And then stuck and part of the question would be how should we think about some of the investments you want and makes it a more tied to and demand improving and how variable are those costs and investments against the broader recovery and you would expect to see and 2021 and thanks so much.

Sure So Eric let me, let me start and then.

Logan feel free to add on and when I look at what we did between Q3 and Q4, we took operating expenses below cost of revenue down by $25 million and now.

As we just disclosed we expect to take the same opex below cost revenue down a further 35 million and Q1 and a lot of this obviously there was elevated policy spend in Q3 Q4 related to profit 'twenty, two and California, but it really goes to our philosophy around how we budgeted.

The company for 2021, and how we approach planning and it's this zero based budgeting mindset and we've mentioned.

And is unlocking lots of opportunities and it's where you have to justify every single dollar you find unlocks and this is across the board in terms of head count growth in terms of facility spend <unk> et cetera, and we did this across.

All cost center, so we still see opportunities in terms of just managing the business. The fact that we're taking out another $35 million and Q1 and I think speaks volumes to that in terms of the rebound and look we want to be opportunistic we want to remain flexible and as conditions warrant we will invest in growth and.

So in terms of Q1, we want to make sure we're investing in supply and advance of the rebound that we expect will really begin.

Again, we expect demand will strengthen over the course of Q1, but we expect to see more of an inflection point in Q2, and then a much stronger recovery in Q3, and Q4 and we just want to remain super flexible to be.

And a strong position strategically to win the rebound.

Yeah, I'll jump in with a little bit more color.

Just to what Brian was talking about our top priority is navigating the recovery and one of the one of the biggest challenges and ride sharing is creating marketplace balance making sure you have enough drivers for every rider.

And the two respond on very different timeline so.

Supply and bringing more drivers onto the system takes time, it's a little more like steering turning the Titanic.

Whereas demand can move much faster.

And Thats the real challenge is we don't know when that demand will come back and so we need to invest a little bit ahead of the curve.

We expect to see.

Some of that demand pick up in Q2, and we could be wrong, but.

And we'd rather be prepared for that and not.

<unk>.

Back to the.

And kind of.

And on investments and always on opportunities to.

Investing and spending a lot of our time and R&D work.

And just energy on driving down unit costs, and we think thats going to pay dividends for years to come.

We've already made really dramatic improvements on a lot of our variable costs, but there are still huge opportunities.

So when you look at defects and the product experience what are folks file support tickets for masks for our refunds around.

Those experiences.

Not only add hard cost for the business.

But they deteriorate the customer experience and by investing a lot and the perfection of the experience and and.

We're moving these defects, we can make dramatic improvements for the bottom line.

And for our riders and drivers.

And then kind of along with that we're investing and a really big way around the precision and accuracy of all of our systems. So from things like mapping the dispatch and pricing.

And there is a lot of leverage and the business in terms of the improvements we can make there.

Every second.

But we can get a driver to get to a router faster.

That is a huge amount of value to the system and so we will invest quite heavily to be able to deliver that.

And then there is there is a.

A few longer term investments that we're making as well like our <unk> delivery.

And in some sort of more and more future looking work.

But hopefully that gives you some good color as to what we're looking at.

And I'm going to provide sorry, maybe and even longer extended answer but the leverage that Logan is describing is what is allowing us to say there is a chance we can be profitable in Q3.

And obviously profitability is not tied to a single scenario, but achieving profitability does require more absolute contribution which is impacted by ride volume.

One illustrative data point that we would share is we believe we can be profitable in Q3 of rides grew at a high single digit month over month growth rate beginning at the start of the second quarter based on current expectations for Q1.

Obviously, the actual recovery won't be this straight line. We also expect the second half of the year to be stronger than the first half, but in terms of just trying to capture the leverage that Logan was describing in terms of some of the benchmarks. We have shared previously we now see and opportunity to achieve adjusted EBITDA profitability with a wide.

<unk> of 80% to 85% Q for 2019. This is a full 10 percentage point improvement for the last quarter. When we estimated that we needed at least 90 to 95 per cent of the Q for 2019 ride volume and just relative to the original ride level. When we discussed breakeven back in October of 2009.

We see a path to profitability with 35% to 40% fewer right. That's how much leverage we've created.

Thank you I show. Our next question comes from the line of Stephen Ju from Credit Suisse. Please go ahead.

Thank you so Logan and building on your answer to I guess Eric's question is there anything on the incremental cost reduction and as you are rolling through and the first quarter that cannot be easily undone I guess can you spend things up fairly quickly. If you are seeing more rapid unit recovery.

And Brian and I was wondering if you can weigh in on the future impacts your new insurance agreements will have towards contribution margin improvements as it seems like the sky go and buy the wording on the deck you have already transferred.

Primary insurance risk on the majority of the units, which seems to master wording around what you announced at the time you announce.

The new insurance deals thanks.

Yes, just.

Yeah.

Just to dig in on the on the first part of your question about cost reductions.

I think most of the cost reductions that we're working on are going to build a stronger business for the long haul so that type of cost savings we're looking at.

Per drive long term value drive a better experience and better driver experience.

And they are not the types of sort of cost cutting.

And that the tracks from the business or that we would we would look to unwind.

<unk>.

So I'm not sure if that helps answer the question and I think that kind of biggest <unk>.

Change overall that we've commented on a little bit where we may invest more than we did in Q4 is on the driver side.

And so we.

We pulled back on our driver engagement spend.

And Q4, which were likely.

Not to lean into especially as we see demand return and that is that is something that is much more kind of dynamic in nature and needs to respond to market conditions.

But as far as the rest of the work there's nothing kind of top of mind that I can think of and that we would.

Consider unwinding.

Sure, Steve and let me, let me just expand on that and then I'll address your question around insurance.

I think it's important to keep in mind that this company went through non linear growth for a period of years, we had 19 straight quarters of 100% plus year over year rate growth and when.

And you grow that fast sometimes throw people problems and last year when COVID-19 hit.

This reexamine the business, we took it down and this does and we created some new muscles, we found opportunities to merge teams create new efficiencies tap emerging leaders and make investments and increase our unit economics and these are lasting changes and so again in Q1, we're further reducing.

Expenses below cost revenue by 35 million relative to Q4, even as we increase R&D investments to tap.

And the areas that Logan described and this is primarily through G&A reductions, so that's where that where the cuts are and.

And keep them and this is not a one quarter move.

G&A will grow in absolute dollars as ride volume growth, but we expect to drive further expense leverage so G&A as a percentage of revenue should decline.

Terms of the insurance question, it's important to understand that again, we transferred starting on October one.

A slight majority of primary auto insurance risk partners and.

The rates are fixed on a per mile basis through Q3 of 2021.

Now in terms of the financial impact if we can continue to increase monetization per ride. We can increase margins now for Q1 Contra revenue impact from the driver supply and vessel create slight headwind, but again, we expect to report all time record contribution margin later this year.

And so I hope that gives a little more context there.

Okay. Thank you.

Thank you.

Our next question comes from the line of Brent Thill from Jefferies. Please go ahead.

Thanks for.

And our John you mentioned, the BBB delivery investments I'm curious if you could just drill in and expand a little more around what you're doing and the opportunities that you see over the next year. Thanks.

Sure. Thanks, Brad.

So we're quite excited about the inbound interest for getting and.

The.

Tiger team, we've put together and the delivery. We're excited about the performance we have a handful of pilot market clients and we're not planning to disclose specifics.

And we focus on the strategy. So for clarity as you mentioned it is a <unk> opportunity that we're focused on.

The good part about this is it leverages, our existing tech and community of drivers.

For what we see as the best use case same day and local deliberate what we're hearing from these businesses is that they want to focus on the organic traffic and customer loyalty and that they need a broadly scaled logistics capability that doesn't compete with them for the direct to consumer relationships.

In terms of timing for when we'll likely to talk more about it more around mid year.

I think what what Covid taught everyone is that.

The World is moving obviously, even faster to E commerce and local delivery and many of these retailers didn't have time to set up their own systems and for these type of partnerships like the ones that we're forming with them and instead had to jump on these third party marketplaces, but once they've had had the time to breathe a bit.

And made their investments on their tech platform.

And we're quite excited about what this could mean for us.

And then going forward.

And just a quick follow up for Brian and the.

Logan comment about tightly coiled spring it sounds like what Youre seeing on your expense structure is as demand comes back you can you can support this on this leaner and bustle structures you called it down at the start and that can support the snapback youre not gonna have with fuel.

Went back and to support that that return to growth.

Yes.

You captured it well.

Again, we expect to achieve and all time record contribution margin later this year.

Current the current record is 57%. So we're seeing an excess of 57% and then given the success. We've had in terms of expenses below cost of revenue.

And again, we went through 2021 planning very focused in terms of zero based budgeting mindset. So we feel very good in terms of the overall leverage for the business.

Thank you.

Our next question comes from the line of Benjamin Black from Evercore ISI. Please go ahead.

Great. Thank you for the questions.

Coming back on your decision to invest in them and drive and supply ahead of the second quarter and could you maybe talk about the competitive environment as it pertains to.

Both drivers and riders at the moment and and how you think that evolves throughout the year and and also going back to insurance.

How are you thinking about the remainder of your self insurance exposure should we expect them that over time, you try and for the remaining the remaining risk for insurance partners. Thank you.

Sure so.

Just on the first part of the question overall the competitive environment.

It has been quite stable.

On incentives, specifically keep in mind and incentives classified as sales and marketing declined 80% year over year.

And were three 5% of revenue in Q4.

So as far as how we compete goes we're going to continue to focus on differentiating our plot for platform through product innovations and providing a better experience.

Competing on incentives.

And Brian if you want to.

Take the second part.

Sure. So I think it's important when you look at our go forward. So again, we're locked through September.

Technically October one of this year.

And when we bid this out we have and annual RFP effectively and it starts over the summer each year, we were very pleased with demand for our business amongst leading auto insurers, who really see our progress to date on a number of different key safety initiatives and sort of the changes, we're making operational changes as well.

Just the how we're leveraging the platform platform.

Trying to make sure we have the safest drivers on the platform. So.

I think on a go forward basis, we're going to assess it every year I don't see a world, where it's 100%, but I do like again, having world class insurance partners.

And can provide significant value and it's just helpful. Having again, they bring and their own claims.

Administration organizations that tend to be more local C sort of get you can create sort of a network across the United States was sort of the best claims teams and it's great to have these partners share with skin in the game, helping us closeout claims.

As professionally and efficiently as possible.

Excellent thanks for those answers right.

Thank you. Our next question comes from the line of Micheli from Citi. Please go ahead.

Great. Thanks, everybody.

Just going back to the EV discussion and I. Thank you for all that color earlier, a couple of questions. There first and it's interesting to senior announcement that you expect to deploy and multiple cities and 2023.

Post maybe once a day at a time and hope I was hoping you could talk about that decision as well as maybe roughly what percentage of your routes do you think can be covered by AEP as you deploy and and secondly.

Maybe for Brian if you could talk a little bit about the financial.

Impact from them for the emotional arrangement and maybe how we think about layering and from the impact from <unk> on the financial model kind of medium term.

Yes, Thanks, I'll take the first part of that question.

We have had run pilots in multiple cities.

And we've analyzed the data from our ridesharing network and the billions of miles traveled by ridesharing drivers and certain cities.

Easier weather and easier streets and grids to navigate.

And we will be targeting kind of the most favorable conditions initially.

I'll start where it's easy and scale up from there.

So we're not saying that we expect multiple city to launch on the same day.

But we.

And we think we will well together with with emotional and have that capability.

And to launch multiple cities and 2023 so.

And we are quite excited about that again this is going to.

Im going to start very small.

And that's going to be about the learning that we're doing together.

And the technology off to prove itself.

And when the trust of consumers and regulators of course before we're able to scale it up.

So at this point, we're not able to.

Forecast or predict the kind of impact in terms of our financials and revenue.

But.

Long term of course, we are very bullish and this is going to be.

Critically large part of our business over time.

So ill leave it at that.

That's all very helpful. Thank you.

Thank you. Our next question comes from the line of Edward <unk> from Keybanc capital market.

Hey, guys. Good evening, thanks for taking the question really.

And the driver of promotions again as it relates to prop 'twenty two I know there were some concern that our drivers may kind of stick to one network as they try to aggregate and the hours to get a subsidy for early days, but are you seeing any learnings in terms of what the drivers are still and two networks are operating on one and then second I know when Covid hit there.

And there were some tough.

Tough trends on supply because of the extended unemployment insurance I guess how are you.

And about that as a headwind.

And in fact that happens again, thank you.

Sure. Thanks for the question this is John.

And just yet.

And as Logan mentioned, the balanced and supply and demand is always critical.

And one thing to note wasn't necessarily a part of for your question.

As it relates to crop 'twenty, two but somewhat related because people ask similar things about drivers during delivery and then coming back and <unk>.

Typically rideshare drivers are more than delivery drivers and so.

So we feel quite good about all the new drivers that have come on these various platforms.

And as kind of lead Gen for what we're about to see coming coming out of Covid and go into higher earning ride share opportunities as it relates to perhaps 22 were not concerned we're quite happy with the benefits that are coming in as part of profit 22, and that include a healthcare subsidy and and.

Other benefits that actually bring we believe more drivers into into the platform holistically and having loyalty from from certain drivers.

That you can focus your incentives and the highest value drivers that are driving the most value to the platform.

Alright.

With that we'll call other reps.

Thank you everybody for joining the call today.

Hope everyone is staying safe and healthy and we look forward to talking with everybody again soon.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect good day.

[music].

Good afternoon, and welcome to the Lyft fourth quarter, 2000, and 'twenty earnings Conference call.

At this time all participants are in a listen only mode to prevent any background noise later, well conduct a question and answer session and instructions will be given at that time, Inc.

If anyone should require operator assistance. Please press Star then zero and you touched on and telephone.

As a reminder, this conference call is being recorded I would now like.

To turn the conference over to Shawn Woodhull head of Investor Relations you may begin.

Thank you.

Good afternoon, and welcome to the Lyft earnings call for the quarter ended December 31, 2020, joining me today to discuss less results and key business initiatives are our co founder and CEO Logan Green co founder and President John Zimmer and Chief Financial Officer, Brian Roberts for.

A recording of this conference call will be available on our Investor Relations website at Investor Day out Lyft Dot com shortly after this call.

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.

And in particular those described in our risk factors included in our form 10-Q for the third quarter of 2020 filed on November 12, 2020, and in our form 10-K for the full year of 2020 that will be filed by March 1st 2021, as well as the current uncertainty and unpredictability and our business the markets and the economy.

Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered and addition to and not as a substitute for or in isolation from our GAAP results information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results may be found in our earnings release, which was furnished with our form 8-K filed today with.

The SEC and May also be found on our Investor Relations website at Investor Day Lyft Dotcom.

I would now like to turn the conference call over to Lyft co founder and Chief Executive Officer, Logan Green Logan.

Sean Good afternoon, everyone and thank you for joining our call today.

Despite the difficult backdrop in 'twenty and 'twenty, we focused on improving our business for the long term.

Progress we've made has been significant and I believe we are now and a stronger position than at anytime in the past.

Turning to our Q4 results rideshare and continue to rebound, but the monthly trends were uneven.

Rideshare rides were down 47% year over year in October and 50% in November.

And December Rideshare rides were down 52% and year over year as Covid, 19 cases, surged and state and local governments implemented restrictions limiting people's mobility.

Recall that in early December we said that Q4 revenue may come in at a lower and that the range.

Now as we've discussed on prior calls recovery trends very locally across North America, reflecting differences and COVID-19 case counts and responses.

And the West Coast generally remains the weakest region.

And we've seen further rebounding and Florida and Texas as examples.

Separately and Q4, there was a mix shift towards higher frequency riders, which led to record revenue per active rider and.

And fax revenue per active riders grew 14% quarter over quarter and showed positive growth year on year. Despite the pandemic overhang.

Let me now shift to January one.

And the rideshare rides were down 51% per year the trend still reflects positive week on week growth throughout the month, excluding non holiday week.

The operating environment does remain uncertain and we currently anticipate an improvement and average daily rides growth and the months of February and March.

And the other side of the pandemic when people are able to resume a fuller range of activities and safely come together, we anticipate a strong rebound in demand across our fully integrated transportation network.

As individuals returned activities like leisure travel and entertainment and the second half of the year. We are taking steps today to ensure that we're ready to support this anticipated demand from the time comes.

As a result, the pop and leisure travel that I mentioned may primarily occur within the U S, which we are well positioned to capture.

People are eager to get back to normal there is pent up demand to see friends got for restaurants, and bars, and <unk> sporting events and concerts and.

And by taking Lyft. These venues can all be accessed responsibly without drinking and driving.

I wanted to take a few minutes to discuss our long term vision.

We believe the future of transportation and as a service and we are the only company in North America that has a seamless multi modal transportation platform that can replace car ownership.

We expect autonomous vehicles to accelerate this transition.

And will transform the rideshare and industry and our business.

Here's how we're thinking about this.

We believe the first generation of Avs will be deployed on rideshare networks.

Given the expected vehicle cost one key issue will be getting first wave vehicles to breakeven, which will depend on utilization.

And there'll be tricky because these vehicles will only be able to serve a subset of trucks due to likely domain and whether restrictions.

And it'll take time for AAV technology to advance to the point, where avs are able to accommodate every rod and.

Every condition.

And there can be regulatory speed ups too.

A rideshare network will help maximize avi utilization, because we can dynamically dispatch avs from the trip type and route and are suitable this is critical because of the nature of our multimodal platform and because we aggregate demand we're able to match riders with arrive whether or not it's fulfilled by and E E.

This type of hybrid deployment model is well established and other industries as.

And as wireless carriers and introduced five G. They've rolled it out on top of existing networks for energy.

That way if the new five new towers too far away subscribers can still be supported by forging or <unk> and service.

And this model works because it allows the carriers to capture value as they scale.

And really easy to deploy and her rideshare network, we'll be able to benefit from a similar dynamic.

Keep in mind that daily travel patterns typically don't resemble a static horizontal line, they're closer to a heartbeat with large spikes around morning, and evening commutes and and mix of peaks and valleys during other parts of the debt for.

Abiding consistent service levels requires having infrastructure that can scale and demand.

Extending the carrier analogy imagine what would happen and to the carrier subscriber base and people were unable to access the network not just <unk>, but any network at critical points during the day it would be a major problem.

For Avs deployed on hybrid rideshare networks, the advantage is that as demand spikes and.

The network and supplement our fixed pool of Afg's with traditional vehicles to seamlessly serve rider demand.

Also for the same reason that nationwide roaming was critical to increase mobile penetration lets broad national footprint interest consistent service virtually everywhere we operate.

We will also be able to introduce <unk> to millions of potential riders expanding the reach of <unk> to a wide audience.

We've spent nine years building a business that is uniquely capable of supporting and scaling avs I level, five data driven and autonomy program taps into our greatest asset our rideshare network to help tackle some of the hardest problems and helped drive it.

And our open platform partners will be able to leverage our ride share technology stack, including our dispatching and routing algorithms are shared rides platform and our pricing capabilities.

Since we aggregate demand these partners as well as access to a scaled network of riders and drivers are fleet management expertise will drive additional operating efficiencies and John will discuss.

We are already and leading the way and our industry, we facilitated more than 100000 paid and new rides on our platform since 2018 with Marshall.

And Q4, we announced our plans to deploy fully autonomous emotional vehicles on our network and multiple cities and 2023.

This is a landmark deal and the first agreement of its kind and our industry.

Through the investments we've made and our network. We've continued to build on our core competencies to be the partner of choice among autonomous programs.

We are excited about the transformative impact avs will ultimately have on our industry and on transportation and broadly.

Before John and provides a few updates on the business I'll turn the call over to Brian to review, our financial performance and provide details on our path to profitability.

Thanks, Logan and good afternoon, everyone.

The COVID-19, pandemic and its far reaching effects remain unparalleled.

Tastes accounts searched for the fourth quarter cities and states reinstituted shelter and place orders curfews and other measures to help slow the spread.

While our recovery advanced the fourth quarter as rideshare rides improved two year over year decline of 49, 6% versus 51, 8% and the third quarter monthly trends worsened with December down 52% versus 50% in November.

Given the uncertainty and decline in demand Lyft cut expenses and significantly reduced driver acquisition and engagement programs and the month of December.

This compares with our updated outlook provided in early December net revenue maybe at the lower end of the range given the uncertain operating environment and Q4, we further reduced expenses for cost reductions combined with the revenue outperformance drove a significant improvement and our adjusted EBITDA loss.

So let's dive into the details of our fourth quarter I'll start with the top line metrics.

And the fourth quarter the number of active riders increased by roughly 30 basis points from the third quarter to $12 6 billion as stronger restrictive measures to control the accelerating spread of COVID-19 were reintroduced rider growth was impacted by a decline and rider activations as well as the absence of lower frequency riders from prior quarters.

In terms of the year over year comparison, despite the pandemic revenue per active rider increased by exactly one dollar and the fourth quarter versus the prior year.

The combination of these trends led to a 14% increase and fourth quarter revenue to $570 million up from $500 million and the third quarter.

Now before I move on I wanted to note that unless otherwise indicated all income statement measures that follow are non-GAAP and exclude stock based compensation and other select items.

Q4 contribution increased 27% sequentially to $316 million from $249 million and Q3.

For each dollar of incremental revenue growth between Q3, and Q4 contribution increased by 96 cents Conor.

Contribution margin was 55, 5% up over 500 basis points from 49, 8% and Q3 and well above our outlook of $51 five to 52, 5%.

Contribution margin, even increase and a year over year basis, despite the significant difference and absolute revenue.

Contribution margin benefited from two unique windfalls and Q4 as demand decline, we reduced driver acquisition and engaged and spend by $15 million and December versus the average level and October and November.

Second we took advantage of the strong used car market in Q4 to re market older Flex drive vehicles, which generated a $6 7 million net benefit to contribution together.

I will provide more detail shortly but we plan to invest and driver supply and Q1, which will reverse this Q4 benefit and create a slight headwind to first quarter revenue and contribution margin.

As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods and the fourth quarter. There was $128 million of adverse development, which we attribute to the impact of Covid on legacy liabilities.

The onset of COVID-19, plaintiff law for his mind and reconsidered older matters for legal representation as new potential auto cases shrank given the drop and rights.

The share of bodily injury claims for the attorney representation is approximately 20% higher for the impacted periods versus prior experience.

84 per cent of the adverse development is associated with accident liabilities from the end of 2018 and 2019.

Revenue was lower than Q3.

And finally as of December 31, even after the adverse development charge, we remain approximately 8% over collateralized and our restricted cash and investment accounts held against our primary insurance liabilities associated with the period Q4 of 2018 through Q3 of 2020.

Let's move to operating expenses.

Operations and support expense for Q4 was $93 million down 33% year over year operations and support expense as a percentage of revenue declined to 16, 4% and Q4 down from 23, 5% and Q3.

Q4, R&D expense was $130 million roughly flat with Q3.

As a percentage of revenue R&D expense declined 22, 8% and Q4 down from 26, 2% and Q3.

Sales and marketing and Q4 as a percentage of revenue was 14, 3% in terms of absolutes sales and marketing was only $82 million and Q4 down over $100 million or 56% from $187 million and Q4 of 2019.

Incentives classified as sales and marketing declined 80% and Q4 on a year over year basis from 99 million to $20 million or three 5% of revenue.

G&A expense in Q4 was $192 million down 16% from the year ago period relative to Q3, G&A expense declined by $12 million.

In summary, total operating expenses below cost of revenue declined by over $25 million between Q3, and Q4, representing a 5% quarter on quarter reduction.

On a year over year basis operating expenses decreased by $200 million and the fourth quarter. This is not an annualized figure operating expenses decreased from roughly $700 million and Q4 of 2000 $19 million to $497 million and Q4 of 2020 as we reduced expenses.

In terms of the bottom line, our adjusted EBITDA loss of $150 million was 19% better than our $185 million loss outlook.

On a sequential basis, our adjusted EBITDA loss improved by nearly $90 million, meaning for each dollar of incremental revenue growth between Q3 and Q4, our adjusted EBITDA loss improved by 128.

We ended the quarter with $2 3 billion of unrestricted cash cash equivalents and short term investments.

We again, we're disciplined on Capex, which came in at $23 million.

Total 2020, Capex was approximately $94 million.

Now looking forward the near term outlook still remains uncertain.

And the near term, though given the current fluidity associated with government orders and health care recommendations.

As well as variability and re openings amongst cities. It is impossible for us to predict with any certainty our results for the first quarter.

But let me share what I can about the first quarter.

Weather and Q1 is highly unpredictable and severe storms can shutdown cities and impact rides.

And we've recently seen and impact from storms and Chicago and across the East coast.

Also keep in mind that Q1 has two fewer days in Q4 90 versus <unk> 92 and for year over year comparisons remember, we're comping a year that included a leap day and.

In terms of trends January rideshare rides were down 51% on a year over year basis, which is a slight improvement from December.

Rideshare rides and January grew 4% month over month, but were 7% below the level reached in October before case counts spiked.

On an intra month basis as Logan mentioned, we experienced consistent positive week on week right growth throughout January except for MLK week while.

While we expect to see a generally improving trend line and Q1. It is extremely difficult for us to forecast the number of Q1 rights with any confidence.

Keep in mind that the pandemic began to impact our results in March of last year.

If you isolate just the month of March we expect rates will decline at less than half of the quarterly figure then fast forward to Q2, and we hit a major inflection point with rates expected to increase both on a quarter over quarter and year over year basis for the first time since the pandemic began.

Is important for us to invest and drivers supply to improve service levels and prepare for stronger demand in Q2 and beyond.

This will create a headwind to reported revenue of $10 million to $20 million and Q1. In addition, we faced a sequential headwind of bikes and scooters for their first quarter is the weakest for bikes and scooters given weather.