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Edited Transcript of LYFT.OQ earnings conference call or presentation 7-May-19 9:00pm GMT

Q1 2019 Lyft Inc Earnings Call

May 29, 2019 (Thomson StreetEvents) -- Edited Transcript of LYFT Inc earnings conference call or presentation Tuesday, May 7, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Keith Roberts

Lyft, Inc. - CFO

* Catherine Buan

Lyft, Inc. - VP of IR

* John Patrick Zimmer

Lyft, Inc. - Co-Founder, President & Vice Chairman

* Logan D. Green

Lyft, Inc. - Co-Founder, CEO & Director

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Conference Call Participants

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* Andrew Rex Hargreaves

KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst

* Brent John Thill

Jefferies LLC, Research Division - Equity Analyst

* Douglas Till Anmuth

JP Morgan Chase & Co, Research Division - MD

* Eric James Sheridan

UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst

* John Ryan Blackledge

Cowen and Company, LLC, Research Division - Head of Internet Research, MD and Senior Research Analyst

* Justin Tyler Patterson

Raymond James & Associates, Inc., Research Division - Internet Analyst

* Michael Joseph Olson

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Michael Patrick Graham

Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst

* Ronald Victor Josey

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Stephen D. Ju

Crédit Suisse AG, Research Division - Director

* Thomas Cauthorn White

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Lyft First Quarter 2019 Earnings Call. Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Catherine Buan, VP of Investor Relations. You may begin.

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Catherine Buan, Lyft, Inc. - VP of IR [2]

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Thank you. Good afternoon, and welcome to the Lyft earnings call for the quarter ended March 31, 2019. I'm Catherine Buan, VP of Investor Relations at Lyft. Joining me today to discuss Lyft's results are Co-founder and CEO, Logan Green; Co-founder and President, John Zimmer; and Chief Financial Officer, Brian Roberts. Logan and John will give an update on our business and key initiatives, and then Brian will review our Q1 financial results and outlook. This conference call will be available via webcast on our Investor Relations website at investor.lyft.com.

I'd like to take this opportunity to remind you that during this call, we will be making forward-looking statements, including statements relating to the expected performance of our business, future financial results, strategy, our partnerships and expected launches of products and services, 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 final prospectus for our initial public offering filed with the SEC on March 29, 2019, and the risk factors included in our Form 10-Q that will be filed before May 15, 2019.

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 today, and we undertake no obligation to update them except as required by applicable law.

Our discussions today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. A reconciliation of GAAP to non-GAAP results may be found in our earnings release and supplemental materials, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website at investor.lyft.com.

I would now like to turn the conference call over to Lyft's Co-founder and Chief Executive Officer, Logan Green. Logan?

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [3]

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Thanks, Catherine, and thank you to everyone for joining today's earnings call. Q1 was an incredible kickoff to a big year for Lyft. We achieved a record first quarter with $776 million in revenue, representing a 95% year-over-year growth rate. At the same time, adjusted EBITDA margins improved significantly to a loss of 28% versus 60% the year before, representing an absolute 32 percentage point improvement year-over-year.

On the back of strong execution and momentum, we're excited about our investments and initiatives this year that will drive future growth. Our momentum was driven primarily by 3 factors: first was product innovation; second was market growth; and the third was strong focused execution.

The first factor, product innovation, was highlighted by the rollout of the Lyft matching platform. In Q1, we rolled out a service that we've been working on for over a year called the Lyft matching platform. This handles every single driver and passenger pairing on Lyft. The results have been significant, better matches resulting in more rides with fewer cancellations leading to incremental revenue and margin improvement.

The real magic is unlocking entirely new product experiences such as Shared Saver. This is a new and improved version of Shared rides that allows riders to get an even better price by walking a few blocks or waiting a few minutes. For example, if 2 riders are 2 blocks away from each other and both are heading to the same place, Shared Saver would ask them to each walk 1 block and meet on the same corner. This would allow a driver to pick up both riders without any additional detour. Shared Saver is now live in 3 markets with more coming soon.

Additionally, we've grown high-value modes Lux, Lux Black and Lux Black XL twice as fast as the rest of our business year-over-year. This is particularly exciting, given the higher margin profile of these rides. Those are just a few of the big wins from Q1 and we expect to continue further gains in the year ahead.

The second factor was continued market growth. The overall market for transportation-as-a-service continues to grow as more and more users turn to Lyft. The world is at the beginning of a secular shift away from car ownership towards transportation-as-a-service and ridesharing is just the tip of the iceberg.

Transportation-as-a-service is replacing car ownership for a growing portion of the population. In fact, according to our most recent economic impact report, 35% of Lyft's users don't own a car at all. As part of this trend, we saw Active Riders grow to 20.5 million, up 46% in Q1 versus last year. That said, it's still just the beginning. No matter how you size the market, it's just a small fraction of all vehicle miles traveled.

And now I'll turn it over to John to review the third factor behind Lyft's growth, our strong focused execution.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [4]

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Thanks, Logan. I want to highlight 3 areas of execution that are helping us grow fast at scale: one, we are singularly focused on transportation; two, we are investing in our driver community; and three, we are successfully executing on our enterprise strategy we call Lyft Business.

It is our singular focus on consumer transportation that has allowed us to go deep and build competitive advantages along the full stack of offerings. For example, we have exclusive bikeshare operating contracts in major cities. These exclusive contracts to run bikeshare programs span across key cities, including New York until 2029, Chicago until 2028, San Francisco until 2027 and Boston through 2026. We are now starting to bring together our customers' full transportation experience.

Just last week, many New Yorkers received the ability to book Lyft-owned Citi Bikes directly in the Lyft app, and we'll be expanding access to more users in New York as well as other markets in the weeks ahead. This focused execution allows us to continue delivering the best unified transportation experience for our customers.

Next, I want to tell you about how we're investing in our driver community. When you take care of drivers, they deliver a better hospitality experience to riders. From day 1, we have pioneered key innovations and investments for our driver community, first with tips and later with same-day pay and more recently, Express Drive, our flexible vehicle rental program. In Q1, we introduced 2 new important programs: Lyft Direct and Lyft Driver Centers. Lyft Direct is a no-fee bank account and debit card tailor-made for our driver community. Drivers are able to instantly access their earnings after each ride plus they get cashback on everyday purchases, including gas and groceries regardless of their credit. Additionally, the card includes access to financial planning tools and goal-setting features.

Next, we have opened our first driver centers, offering significant discounts on maintenance, repairs and car washes. This is a great example of how we can use our scale to save drivers money and increase their loyalty to Lyft.

Last, I want to talk about Lyft Business, our enterprise channel. Our partnership spans several categories, including corporate partnerships for employee travel, health care partnerships for patients to get to and from medical appointments, national partnerships with airlines such as Delta, Southwest and JetBlue, university partnerships for student travel with major universities like USC and UT Austin, and financial partners such as MasterCard and many others.

In Q1, we saw continued growth in all of these categories. Specifically, corporate partnerships for employee travel are growing even faster than Lyft's overall business. We have seen some great results from the Certify SpendSmart quarterly report, which analyzes the most recent business expense transactions and vendor ratings data to provide valuable insights on the corporate T&E industry.

For the fifth quarter in a row, Lyft was the top-rated ride-hailing service with an average rating of 4.9 stars according to Certify's 5-star customer rating system and that has resulted in significant momentum. Since Q1 2017, Lyft has increased its share of employee ride-hailing expenses from 9% to almost 22%. Lyft is now tied with American Airlines and Delta as the fourth most expensed vendor by business travelers. This is up from #5 in Q4 2018, a further indication of Lyft's momentum in the enterprise space.

This momentum with corporate T&E spend is significant because it indicates that our awareness and brand preference is strengthening with many of the most important companies across the country. Their decision to choose Lyft is often driven by alignment with our corporate values for sustainability and social impact work, which is a key differentiator.

In November, Forbes cited a study of 1,000 Americans. In it, 87% of consumers will purchase a product because the company advocated for an issue they cared about. 88% will be more loyal to a company that supports social or environmental issues, and 92% will be more likely to trust a company that supports social or environmental issues. We see this play out in many areas of our business, in particular, our enterprise channel where corporate social responsibility is a strategic initiative for the companies we partner with.

There's one more thing we're excited to talk about. Today, Waymo announced that they're working to deploy Waymo vehicles on the Lyft platform. We expect this deployment to start this quarter, Q2, and reach 10 vehicles by Q3, signifying an important step in bringing world-class self-driving technology together with our leading transportation network.

With that, I'll hand it over to Brian for our financial results.

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Brian Keith Roberts, Lyft, Inc. - CFO [5]

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Thanks, John, and good afternoon, everyone.

Our first quarter results demonstrate our strong execution and focus on delivering growth while improving operating leverage. Total revenue for the quarter increased 95% year-over-year to $776 million, driven by an increase in the number of Active Riders and the revenue generated on our platform per Active Rider. The number of quarterly Active Riders increased by 46% year-over-year to a record 20.5 million, primarily due to the wider market adoption of ridesharing and our initiatives to attract and retain riders. We also believe that the publicity and attention surrounding the company's IPO contributed to the strong increase in the number of quarterly Active Riders.

As we continue to drive usage and monetization of our platform, revenue per quarterly Active Rider increased 34% year-over-year to $37.86. Before I move on, I want to note that the non-GAAP income statement measures that follow in my remarks exclude $894 million of stock-based compensation and related payroll tax. Our restricted stock unit awards or RSUs have both a time-based vesting condition and a liquidity event-related performance condition. Upon the effectiveness of our IPO, RSUs that had previously met the time-based vesting condition also met the second requirement, immediately triggering the stock-based compensation expense. A reconciliation of GAAP to non-GAAP results may be found in our earnings release.

Let me move to contribution. In the first quarter, contribution margin reached a record 50%, up from 35% in the same period a year ago. This increase in contribution margin could be attributed to strong revenue growth and our successful leveraging of expenses in the first quarter. These expenses include insurance required under TNC regulations, transaction processing and hosting. All 3 costs declined as a percentage of revenue relative to the year-ago period as well as the fourth quarter of 2018. The historical change to insurance reserves is excluded in the calculation of TNC insurance expense for all periods.

Let's move to operations and support. First quarter operations and support was $133 million or 17% of revenue compared to 15% in the same period a year ago. The increase as a percentage of revenue was driven by investments in bikes, scooters and Express Drive. Just as a data point, if our bikes and scooter initiative was excluded from our P&L, operations and support as a percentage of revenue would have been lower in the current period than in the same period a year ago.

R&D expense was $108 million or 14% of revenue compared to 16% from the same period a year ago. Our investments in R&D are fueling key improvements in our core platform and autonomous future. The current period includes a $14 million reimbursement from our autonomous co-development partner. Without the reimbursement, adjusted R&D would have been 16% of revenue compared to 16% from the same period a year ago.

As we gain scale and drive brand preference, we are leveraging our investments in sales and marketing. In the first quarter, sales and marketing was $227 million or 29% of revenue, down significantly from 42% in the same period a year ago. And keep in mind that this 13 percentage point improvement was realized while the company achieved 95% year-on-year revenue growth. Our adjusted EBITDA loss for the quarter was $216 million compared to a loss of $239 million in the year ago period. Adjusted EBITDA margin improved significantly to a loss of 28% versus 60% in the prior year, representing a 32 percentage point improvement year-over-year.

Moving on to cash balances. We remain in extremely strong cash position. As of March 31, Lyft had over $1 billion of unrestricted cash, cash equivalents and short-term investments. On a pro forma basis for the $2.5 billion of net proceeds from our IPO, which closed in the first part of April, we have $3.5 billion with no debt.

So moving to guidance, let me start with revenue. For the second quarter of 2019, we anticipate revenue will be in the range of $800 million to $810 million, representing a growth rate of 58% to 60% year-over-year. This strong growth is being achieved in light of a difficult comp as we lap the industry-wide price increases introduced in the second quarter of last year. For the full year 2019, we anticipate revenue will be in the range of $3.275 billion to $3.3 billion, representing an annual growth rate of 52% to 53%.

Now moving to operating leverage. We are pleased with our success leveraging costs in the first quarter. We now believe that the strength and efficiencies we're realizing in our ridesharing business will help offset an even larger portion of our strategic initiatives than we originally expected. As a result of this success, in the second quarter, we anticipate our adjusted EBITDA loss will be in the range of $270 million to $280 million. For the full year, we anticipate our adjusted EBITDA loss to be in the range of $1.15 billion to $1.175 billion, which includes the impact of investments we're undertaking in autonomous, bikes and scooters, and driver centers.

We're encouraged by our strength of our core business and see a clear path to profitability in ridesharing. We anticipate that 2019 will be our peak loss year as we then move steadily towards profitability on a consolidated basis.

I'll now turn it back to Logan for closing remarks.

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [6]

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All right. Thanks, Brian.

To conclude, we had a great first quarter and are excited for another big year. Our results continue to demonstrate the strength of our scale platform, successful execution on our strategies and discipline towards our financial plan. These are the early days for our company and industry, and we're all excited by the new innovations and impact that we'll deliver to the market. We're proud of the momentum and even more excited by what lies ahead.

Before I move to Q&A, I want to tell a quick story to explain why we're so inspired to bring our mission to life. One of our riders is 76 years old and lives on her own in New York City. She's been recently diagnosed with kidney failure and didn't have family to take her to the many appointments she has every week. Her story is not unique. Every year, 3.6 million Americans miss medical appointments due to a lack of transportation, which leads to bad health outcomes and a $150 billion loss for the health care ecosystem. Lyft has established partnerships with the largest health care systems in the United States to best serve patients across the country, and with their health care platform and the incredible driver community, patients like this rider are now able to get the care they need. This is just one among many impacts that motivates our work.

And now I'd like to open it up for questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Stephen Ju with Crédit Suisse.

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Stephen D. Ju, Crédit Suisse AG, Research Division - Director [2]

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Congratulations. So one of the questions that we got asked a lot during the IPO process was around the addressable market and how users may be using ridesharing in general versus the choice of owning a car. I think you talked about 45% of Lyft users not owning a car. So anything you can share about these cohorts of users you have observed over the years, for which it might have just started with that airport ride at first but then Lyft becomes an everyday use case to get them from -- to and from work? And secondarily, how long does it usually take before they go from every now and then to perhaps every day?

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [3]

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Yes. So this is John. Brian can comment on the trends we're seeing year-over-year in riders frequency. Nothing to specifically share on the cohorts other than to say that there's an increasing number of Lyft users. The most recent estimate was 300,000 that got rid of their car because of Lyft and so those are trends that we see continuing to increase.

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [4]

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Yes. To talk about it at a high level, we -- Lyft is much more than just a ridesharing company and we're going after -- in the U.S. alone, the consumer transportation market is $1.2 trillion. And of that $1.2 trillion, over $1 trillion is spent on car ownership. And we see this once in a generation opportunity to move this $1 trillion-plus car ownership market to the world of transportation-as-a-service. I think we've seen this happen in other industries like entertainment where you have companies like Spotify and Netflix or you have industries, businesses like the cloud. When you can deliver a product as a service instead of requiring folks to own it, you can often deliver a better customer experience at a lower price point. And so that bit is flipping for more and more of our riders and our customers. Predominantly, we see the largest pickup of that in really dense urban areas today where somebody lives and works within a city. Lyft is often the most convenient and the most economical choice, especially when you're looking at high insurance rates, high cost of parking in a major city. We're seeing people sort of switch wholesale and get rid of their cars. When you look further out to the suburbs, you're seeing trends of families going from 2-car households to 1-car households. And we think as the array of services that we offer continues to expand, so in the opening remarks, we were talking about Shared Saver lowering the price point further. We're also talking about introduction of bikes and scooters and there will be more to come. So as we keep introducing more products that suit more use cases, I think we're going to continue to see an acceleration of that trend towards service over ownership.

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Brian Keith Roberts, Lyft, Inc. - CFO [5]

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And just to add a data point, in Lyft's history, we've never had a down quarter in terms of the quarterly Active Riders. And so in the most recent quarter, we grew 46% year-on-year, 10% quarter-on-quarter to 20.5 million. So the growth is very strong.

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Operator [6]

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And our next question comes from the line of Brent Thill with Jefferies.

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Brent John Thill, Jefferies LLC, Research Division - Equity Analyst [7]

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For Logan and John, if you could maybe expand a little bit on the Google-Waymo partnership in terms of the focus and where you're going to be rolling out first, that will be great. And a quick follow-up for Brian. Just maybe talk a little bit about your pathway to profitability. There have been a lot of question around the investments you're making this year. I think you said you continue to believe that those losses will trend lower. And if you could just provide a little more color, that will be helpful.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [8]

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Great. So on the Waymo partnership, as we mentioned in Q2, Waymo and Lyft will be launching this new public partnership. And their -- Waymo's self-driving vehicles will be integrated into the Lyft platform in Phoenix. So it will be in the Phoenix metro area and we expect it to be at about 10 vehicles by the end of Q3, that will serve thousands of Lyft passengers over time. There will be a safety driver in these vehicles. And so this is the first time that Waymo is providing self-driving vehicles to a partner outside of their own service. The way it will work for a passenger is they'll be able to book that ride in the Lyft app, and if the Waymo vehicle is nearby and able to service their origin and destination, they would have the opportunity to be matched with that vehicle.

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Brian Keith Roberts, Lyft, Inc. - CFO [9]

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So just to follow up in terms of the question on the path to profitability. We are day 1 of a $1.2 trillion market opportunity. We just announced a quarter with 95% year-over-year revenue growth. Our core ridesharing today drives our P&L and is trending strongly. We're also making investments in autonomous, bikes and scooters and other strategic initiatives because we believe it will strengthen the core business and create long-term shareholder value. Now in terms of the path to profitability, our strong results today demonstrate not only world-class growth but also our success leveraging costs. And contribution margin jumped to 50% from 35% in the same period a year ago. Non-GAAP sales and marketing declined from 42% to 29%. Now the investments in autonomous, bikes and scooters and driver centers hide the underlying improvements in core ridesharing. But even with the investments, adjusted EBITDA margin improved to a loss of 28% from a loss of 60%, a 32 percentage point improvement year-over-year as absolute adjusted EBITDA improved in the first quarter. So we are definitely encouraged by the strength of our core business and see a clear path to profitability in core ridesharing. We have teams across the company dedicated to initiatives that will help us grow more profitably in the core ridesharing business by both bending cost curves and increasing the efficiency of growth levers. And finally, as I mentioned in my prepared remarks, we anticipate that 2019 will be our peak loss year as we then move steadily towards profitability on a consolidated basis.

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Operator [10]

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

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Douglas Till Anmuth, JP Morgan Chase & Co, Research Division - MD [11]

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Wanted to ask 2. Just first, you've seen leverage and incentives as a percentage of revenue over the past couple of years. There's been a lot of discussion just about the degree of promotions and incentives in 1Q. Can you just give us your view of the current incentive environment, how you think it compares to previous periods? And then secondly, Brian, you talked about bending cost curves. Can you give us some more detail particularly on insurance and how you can bend that cost curve and move toward the 70% contribution margin, how you're thinking about long-term?

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Brian Keith Roberts, Lyft, Inc. - CFO [12]

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Absolutely. So let me start with your first question. Again, we grew revenue in the first quarter 95% year-over-year while non-GAAP sales and marketing as a percentage of revenue declined from 42% to 29%. We are extraordinarily pleased with our momentum. I mean, just for historical context, non-GAAP sales and marketing as a percentage of revenue was 127% in 2016, 54% in 2017 and 37% in 2018. The 29% achieved in the first quarter is just another proof point of our success in driving brand preference and sales and marketing efficiencies. Now in terms of your question on the current competitive environment, I would say competitive pressure in terms of rider incentives has recently receded. We're encouraged by this and believe that the industry is headed in the right direction and becoming increasingly rational. Our strategy is to win on experience, not price.

And then to answer your insurance question, we have a variety of initiatives to reduce the cost of insurance. There's 2 factors that drive insurance costs, the frequency and the severity of accidents. And we're making investments in technology, data science as well as just changing business workflows to reduce both factors. You may need to cut me off because I get very excited when I talk about insurance. But we believe the insurance-related initiatives can have super high ROI and I'll just share 3 quick examples. We are investing in telematics to be able to monitor driver behavior and assess speeding or hard braking. We're investing in predictive analytics to mitigate fraudulent claims. And then finally, in the first quarter, we moved to a new third-party claims administrator to help us handle new insurance claims. The goal here is to reduce claims cycle times, thereby improving settlement results. This is both in terms of how quickly we contact someone and in closing out the claim itself.

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Operator [13]

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And our next question comes from the line of Mike Olson with Piper Jaffray.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [14]

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Just following on the Waymo question earlier, maybe a bit higher level than the specific details of the deal. Could you maybe share some thoughts on how you think about your internal autonomous technology development effort while at the same time partnering with external technology developers like Waymo? And should we potentially expect additional future partnerships like this?

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [15]

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Yes. So we have 2 pieces of our autonomous strategy. One is first party, which is our Level 5 group. We believe we're in great position, given our platform, our access to data and an amazing talented team, to build our own self-driving components. And something that's important to note that those investments that we're making today in our first-party system can benefit the existing business even before there's autonomous vehicles through mapping better ETAs and therefore, higher utilization and efficiency in the marketplace. But we are agnostic to where this technology comes from and so therefore, we have a third party part of our strategy. And Waymo is a phenomenal partner with leading AV technology and so it's part of that 2-prong strategy and it doesn't affect the other relationships that we have. And you can expect more developments on both sides of that strategy.

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Michael Joseph Olson, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [16]

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Okay. And then you mentioned you're singularly focused on transportation, but I don't think you said transportation only in North America. I realize with $1.2 trillion spend on transportation, there's a lot of wood to chop in the North American market. But do you think about international expansion as a long-term option for growth at least or is it focus really North America?

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [17]

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Yes. Our focus today is 100% on the United States and Canada. We do look at international as a potential future opportunity. But right now, we're absolutely focused on the U.S. and Canada and don't have any current plans.

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Operator [18]

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And our next question comes from the line of Eric Sheridan with UBS.

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Eric James Sheridan, UBS Investment Bank, Research Division - MD and Equity Research Internet Analyst [19]

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Sales and marketing, obviously, the biggest driver of the improvement year-on-year in the cost structure below gross margin. Just want to get a little bit of better sense of whether the sales and marketing channels you're leaning into, where you're seeing potentially higher returns against marketing dollars and how that should factor into the way we think about marketing efficiency not only in '19 but longer term?

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Brian Keith Roberts, Lyft, Inc. - CFO [20]

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Sure. Let me start and then I'll hand it off to John to add some additional color. I would say maybe where I started in my last answer, which is the current competitive market is improving. We are seeing a reduction in terms of rider incentives. And so we do believe the industry is headed in the right direction. For us, we are focused on building the defining brand of our generation.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [21]

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Yes. And so just from the perspective, Logan and I have now been in the market for -- Lyft is about 7 years old. And if you look at the economics, you can see, as a percentage of revenue, that this is the most rational the market has been. I think that's a really important takeaway. And as that happens, that happens because there are now 2 strong players, right? And both players can provide 3-minute ETAs, 3-minute pickup times in major markets. And so then the reason why people choose one company versus the other comes down to the brand. And this is where something that we've always believed is important, something that we have always valued and always, I believe, done better than the industry. And so within that brand, we don't mean ads. We mean every single touch point that you have with us and our company, and that gets to the actions we take locally. That takes place in the app itself. That takes place in the products we build for our drivers. And we think that will be the biggest opportunity for leverage against that sales and marketing line so that it can continue to come down.

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Operator [22]

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And our next question comes from the line of John Blackledge with Cowen.

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John Ryan Blackledge, Cowen and Company, LLC, Research Division - Head of Internet Research, MD and Senior Research Analyst [23]

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Just a couple of questions. On the driver center rollout, could you just provide an update on the number of driver centers that have been rolled out thus far this year and perhaps how the drivers are responding to these centers? And then the second question on bikes and scooters, just how is this initiative ramping thus far this year? How many markets are you in now with bikes and scooters? And any color on how incremental it was or a percent of revenue from bikes and scooters that you saw in the quarter?

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [24]

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Yes. On driver centers, this is part of our broader strategy to go above and beyond to take care of our drivers. So we have a history of leading the industry with driver-facing initiatives. We've had tipping from day 1. We were the first to launch Express Pay, which provided a same-day pay option for drivers. We were also the first to launch Express Drive, which is a weekly rental program for drivers, all of which have helped build and sustain driver preference over the years. We're very excited about the driver service centers. Vehicle operating expenses are our drivers' top cost and service is a big component of that. And so we've had hubs, we refer to them as hubs, in the market for a number of years. And that's where drivers can show up to get sort of -- to do some of their onboarding activities and get in-person help so it's sort of like a Genius Bar type experience. What we realized was we had an opportunity to provide really low-cost, essentially at-cost, vehicle service for drivers instead of just answering basic questions. So we've now opened up and are operating our first 2 driver service centers with a number more that will continue to scale this year. It's still early days but we're -- the anecdotal feedback from drivers has been very positive. And we've really focused on speed at these driver centers so we're able to turn cars around quite quickly, help get drivers back on the road and making money. As a driver on the platform, if your car's in the shop for a number of days, that can be very tough financially because you use and depend on that car to make money. So we focused on helping high-quality service with record speeds. So anyway, it's still very early but we're excited about the initiative.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [25]

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And then on bikes and scooters, we have approximately 9 markets with bikes, 15 with scooters. We're not going to be breaking that out separately on the economics side. But as I said in the prepared remarks, it's something that we will continue to invest in with those relationships we have with local cities and we're excited that now in New York, the first few customers will be able to actually book a Citi Bike within the Lyft app.

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Operator [26]

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And our next question comes from the line of Ron Josey with JMP Securities.

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Ronald Victor Josey, JMP Securities LLC, Research Division - MD and Senior Research Analyst [27]

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Wanted to focus a little bit more on rider growth, the 40%, the 20.5 million. Brian, you mentioned initiatives to attract and retain riders here. Just can you provide a little more details on those initiatives you mentioned? And while we're at it, any insights or lessons learned on the testing of subscription or loyalty programs and how that's helping the service?

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [28]

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Yes. This is Logan. I'll just go back into a couple of the big initiatives that we launched in Q1 that we attribute a decent portion of our growth to. One was the investment in the Lyft matching platform that we've been working on for over a year that reduces cancels, increases the reliability of the service. And the unlock of new rider experiences. So Shared Saver now live in 3 markets and that's able to provide a lower-cost shared ride by driving further efficiency in the system. Like John was just talking about, our first rollouts of the bike and scooter integration into the Lyft app. So as a whole, we are trying and striving to continually provide a better multimodal experience for all of our customers, a more reliable experience and we see those efforts stack over time.

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Operator [29]

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And our next question comes from the line of Andy Hargreaves with KeyBanc.

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Andrew Rex Hargreaves, KeyBanc Capital Markets Inc., Research Division - Senior Research Analyst [30]

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Just want to ask you a question on -- with the share gain and the brand. It seems like this shared gain has persisted, so I just wanted to get your thoughts on any of the underlying drivers there and what you're doing to reinforce that. And then just a follow-up on the insurance. If you could give us any help on, should we see those, the benefits there sort of scale smoothly over time or are there stair steps that we might hit at different milestones?

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [31]

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Great. Just on the brand front, one of the advantages we've always had in the market has been on driver preference. So when you ask drivers who drive for both Lyft and Uber, which service they prefer, historically and to this day, drivers -- the majority of drivers prefer driving on Lyft. And like we talked about, the Lyft driver centers are one of the latest initiatives as well as Lyft Direct. So we launched Express Pay, which is a same-day pay service a number of years ago and it's been extremely popular. And the new Lyft Direct debit card actually puts money after every ride directly on that driver's debit card. In addition, drivers -- a lot of our drivers get hit with a ton of banking fees. And so by launching a no-fee bank account, we think we can drive a lot of additional economic value. And at the end of the day, all this adds up to providing a better hospitality experience. Our goal is for when you get in a Lyft, for that -- for Lyft to take care of the driver and the driver in turn to take care of the rider in the car. So that's part of our broader hospitality experience. Additionally, we've made some significant investments to really showcase our values. So last year, we became one of the largest voluntary purchasers of carbon offsets, and we made every single ride on the Lyft platform carbon neutral through the purchase of those offsets. Additionally, we have a program we're really proud of called Round Up & Donate. And through Round Up & Donate, riders can optionally opt into this program and it will round up the fare at the end of the ride to the nearest dollar, with the difference being donated to one of a handful of nonprofit that we partnered with. So collectively, we've raised, since launching the program a little over a year ago, we've raised over $14 million for a number of different causes. And I think really living our values and finding ways to harness the power of the platform for change has been a big part of building this differentiated brand.

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Brian Keith Roberts, Lyft, Inc. - CFO [32]

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Thanks, Logan. Let me answer part 2 of your question around insurance. We have a range of initiatives, and I should say, what gets me so excited about insurance is just the opportunity because there's both -- there's a spectrum. There's short-term opportunities and then there's really exciting long-term opportunities. I can say when I looked back out the last 5 quarters, every single quarter, we've reduced the cost of TNC insurance as a percentage of revenue, excluding any adverse development. So this is an opportunity for us to continue to try to really leverage one of the largest costs on our income statement.

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Operator [33]

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And our next question comes from the line of Ron Josey with JMP Securities.

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Ronald Victor Josey, JMP Securities LLC, Research Division - MD and Senior Research Analyst [34]

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It's me again. Just real quick, I meant also asking, Brian, can you just give us a little more detail on 2Q expense guidance? I noticed that definitely coming down relative to where we were on an EBITDA basis. That will be helpful.

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Brian Keith Roberts, Lyft, Inc. - CFO [35]

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Sure. So I may provide some extended comments on guidance, just want to have everyone on the phone. So this may be a relatively long answer and I'll -- actually, let me start with revenue and then I'll go into your expense question. So as I mentioned in my prepared remarks, we're really pleased with the momentum underscored by the positive trends of both Active Riders and revenue per Active Rider. The strong increase in Q1 Active Riders was a positive surprise for us. The number of quarterly Active Riders jumped 10% quarter-on-quarter. That being said, we do believe in the first quarter, we benefited from some unprecedented publicity about Lyft, given we were the first major tech company to go public in 2019. In terms of Q2, we want to remind investors that there was an industry-wide price increase introduced in the second quarter of last year. This significant increase -- this increase significantly boosted revenue in the second quarter of 2018. Just as a data point, revenue per Active Rider jumped 16% quarter-on-quarter in the second quarter of last year, which led to 27% quarterly revenue growth and 111% annual revenue growth. This obviously creates a challenging comp this year. Our revenue guidance of $800 million to $810 million for Q2 implies annual revenue growth of 58% to 60% off of last year's exceptional Q2. So this is still a super strong quarter for us coming up.

Additionally, as we continue to grow our bike and scooter business, it's worth noting seasonality. This is really going to be our first summer and fall with both bikes and scooters. We anticipate that revenue per Active Rider may be more flat over this period, especially if there's a positive surprise in the number of Active Riders from new bike and scooter customers.

Also, as we look out later in the year, we anticipate that the seasonality from bikes and scooters may have a more pronounced impact on consolidated revenue trends. More specifically, we expect that bikes and scooter revenue will decline between Q3 and Q4, given snow and other seasonality. This may cause our consolidated quarter-on-quarter revenue growth in Q4 to exhibit more meaningful seasonality and impact revenue per Active Rider for the same reason.

Now let me switch gears to answer the question you asked on expenses. We are extremely pleased that we were able to leverage expenses in important areas of our P&L in the first quarter. We now believe that the strength and efficiencies we're realizing in our core ridesharing business will help offset an even larger portion of our strategic initiatives than we originally expected.

Notwithstanding this benefit, the investments in bikes and scooters, autonomous and driver centers will increase operating expenses. And so let me just spend a moment to provide some highlights. In terms of contribution margin, we reached a 50% record in the first quarter versus 35% in the same period a year ago as we leverage key expenses. For the remainder of 2019, contribution margin will be negatively impacted by 2 to 3 percentage points versus Q1 as we expand our shared network of bikes and scooters. I want everyone to remember that depreciation is in contribution.

We're also able to leverage the efficiency of operations and support excluding our new strategic investments. Now over the remainder of 2019, we expect to increase our investments in our shared network of bikes and scooters, Express Drive and driver centers. So notwithstanding the efficiencies we're unlocking in core ridesharing, we anticipate that non-GAAP operations and support as a percentage of revenue will increase from Q1 levels as a result of these investments. This is baked into the guidance that we've provided.

In the remaining quarters of 2019, we anticipate an increase of 3 to 5 percentage points relative to Q1 level with an expected peak in the third quarter. Moving to R&D. As we invest to fuel key improvements in our multimodal platform and our autonomous future, non-GAAP R&D as a percentage of revenue will increase over the remainder of 2019. We anticipate that Q2 non-GAAP R&D will increase 2 percentage points versus Q1, with Q3 and Q4 up 2 percentage points from the Q2 levels.

Now in terms of sales and marketing, again, we are extraordinarily excited about the leverage we've delivered. We expect that sales and marketing will decline to 28% as a percentage of revenue in the second quarter, down from 35% in the year ago period and really hold there for the remainder of 2019 as we launch and expand our network of shared bikes and scooters as well as driver centers across the country.

Finally, we anticipate that non-GAAP G&A expense as a percentage of revenue will increase approximately 4 percentage points in Q2 from Q1 and peak at 26% in Q3 and Q4 as part of the buildout required to support our new strategic initiatives as well as SOX readiness. We anticipate that we could unlock G&A leverage beginning in 2020.

And I just want to end with repeating what I said in my prepared remarks. We are really encouraged by the strength of our core business and we see a clear path to profitability in ridesharing. We anticipate that 2019 will be our peak loss year and then we'll move steadily towards profitability on a consolidated basis. And again, all of the remarks I just said were baked into the guidance we've provided on EBITDA.

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Operator [36]

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And our next question comes from the line of Michael Graham with Canaccord.

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Michael Patrick Graham, Canaccord Genuity Limited, Research Division - MD & Senior Equity Analyst [37]

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Just 2. First on shared rides, just maybe can you talk a little bit about the KPIs in shared rides? Is it as straightforward as a 3-minute arrival time or what else do you think about there? It's obviously a more complex proposition. And then just wonder if you could spend a minute on the government and regulatory landscape. What are some of the key things you're focused on as you look to cement relationships with local and state governments?

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [38]

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Yes, this is Logan. So on shared rides, we do have a lot of internal KPIs that we use to measure the quality of the service. We don't disclose any of those but I can sort of talk through at a high level what we look for. The first is around the efficiency generated by the system overall. So we look at based -- what's the match rate, what's the quality of those matches so it's the overlap of those rides. And what type of efficiency does that generate in the system because then we can pass that efficiency back to our riders.

And then we look at -- in addition to pickup times, there's also a matching window and there's an obvious trade-off. The longer the matching window, the more opportunities there are for higher-quality matches, and that lets us pass on lower prices. So we're not always trying to just optimize on price or pickup time, there's a trade-off between the 2 and we're really working to find the right balance for our users.

And then lastly, the quality of the match, so not just how fast the car comes to pick up the rider but how quickly do you get to your destination and what's the sort of detour on the route and obviously, we try to minimize the detours as much as possible. So those hopefully gives you a little bit of a sense of the kind of high-level areas that we look at internally. But again, we don't break out shared ride numbers or disclose those other KPIs.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [39]

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On the policy and local policy front, as some of you know, we hired Secretary Anthony Foxx, who used to run the Department of Transportation for President Obama, to lead policy at Lyft. He was also the mayor of Charlotte, North Carolina so he understands both local and federal politics and opportunities in transportation. And so with him and his team, we're continuing to build the local relationships that have served us well. We're investing locally and we're listening to make sure that the actions we're taking are aligned with the interests of the local officials.

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Operator [40]

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And our next question comes from the line of Justin Patterson with Raymond James.

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Justin Tyler Patterson, Raymond James & Associates, Inc., Research Division - Internet Analyst [41]

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On enterprise, it sounds like you had some continued success there during the quarter. Could you talk about the factors driving that growth? What do you need to do to get further traction within the health care vertical?

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [42]

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Yes. So part of it is just changing over how an industry has done things in the past. And I think the first critical thing that the team did is they built relationships with, I believe, 9 -- the top 9 transportation health care brokers. So historically, when someone like the rider Logan mentioned in his remarks was needing nonemergency medical transportation, they would call into a call center and then that call center would call out to a taxi dispatcher. And then they would do their best to have that taxi show up, which would happen sometimes and other times if that taxi was hailed from the street, it wouldn't show up for that patient. And so we've worked directly with those call centers, which are run by those brokers to build a service that's called Lyft Concierge. And it's a web platform that allows -- there's an API that allows us to basically have a deep integration with these large transportation brokers and order rides -- multiple rides when needed. And for both the customer, in some cases, and the broker, in other cases, to be able to track the success of that pickup and dropoff.

So first was establishing those relationships. Second was building the technology platform to scale that, and then third will be more work on the policy front because these are new ways of bringing nonemergency medical transportation patients to their appointments, and in some cases, laws didn't account for this new form of transportation and will need to be adjusted.

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Operator [43]

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And our last question comes from the line of Tom White with D. A. Davidson.

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Thomas Cauthorn White, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [44]

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So first off, congrats on the IPO. Brian, since you like talking about insurance so much, maybe just a follow-up there. You highlighted 3 specific drivers kind of leverage related to insurance. Could you maybe give us a sense of the magnitude of the efficiencies that you guys can think -- you think you can get there over the next 12 to 24 months, maybe put it in terms of kind of insurance costs per driver per day today versus maybe where you think that can go? And then just on the Waymo announcement, realize it's early. But if we were to look out 5 to 10 years and partnership was a big part of your autonomous strategy, how should we think about kind of how the economics gets split? And I'm also curious if it's cheaper for a Phoenix-based person to grab a Waymo ride versus a Lyft ride and maybe by how much roughly?

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Brian Keith Roberts, Lyft, Inc. - CFO [45]

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Sure. So this is Brian. Let me tackle the first question. The reason I get so excited about insurance is there's just so many different initiatives. For the company, we have different goals for the company. And so in the first half, reducing the cost of insurance is actually the #1 goal company-wide. And so I mentioned 3. We probably have a list of probably 10 to 20 different programs and initiatives that we could discuss.

What's really powerful is each initiative has a different time line in terms of unlocking benefits. And so this is one -- and again, we worked with third-party actuaries and so we may know internally something that's going to be stat sig in terms of having an impact but it will take time for the actuaries then to give credit in terms of loss reserves, et cetera. So this is one where we see we have years of opportunities in terms of unlocking costs on the platform.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [46]

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And for the Waymo relationship, we can't comment on the economics, but again, we are very excited about the opportunities to work with them and to get Waymos on the Lyft platform.

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Thomas Cauthorn White, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [47]

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Okay, great. Maybe just one last one, try to slip it in. Can you guys give us any sense about gross booking trends? I see it's not -- I don't think it was in the press release and also rides as well. I'm just curious why maybe you guys aren't going to be sharing that quarterly going forward.

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Brian Keith Roberts, Lyft, Inc. - CFO [48]

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Sure. Thank you. So our historical business was virtually entirely a Ridesharing Marketplace. And so we included bookings and take rate in the S-1 so investors could understand the monetization trends. We're now aggressively investing in new areas, including those where revenue equals bookings. So we really want to try to avoid investor confusion. Lyft's take rates could increase solely based on the relative proportion of initiatives where revenue equals bookings. We believe it's more appropriate for investors to use revenue as the best top line growth metric since revenue drives our P&L across all initiatives.

And just so that there is absolutely no confusion on this call, this is absolutely positive metric for us in the first quarter. Revenue as a percentage of bookings increased in the first quarter on both a year-over-year and quarter-over-quarter basis. We just believe it's more important for investors to analyze the performance using revenue going forward.

In terms of rides, we will report important ride milestones from time to time. But as we begin to expand our shared networks of bikes and scooters and really lean into related subscriptions, we don't think the ride metric is the best way to understand our business going forward. For example, we offer a bike subscription right now in New York where a rider has access to unlimited bikes for a fixed dollar amount. We believe it's better for investors to understand trends in our business based on Active Riders and revenue per Active Rider.

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Operator [49]

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Thank you. Now I would now like to turn the call back over to Co-founder and CEO, Mr. Logan Green, for any further remarks.

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Logan D. Green, Lyft, Inc. - Co-Founder, CEO & Director [50]

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All right. Thanks so much, everybody, for joining our very first earnings call, and thank you for all the great questions. We look forward to seeing you all soon. Take care.

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John Patrick Zimmer, Lyft, Inc. - Co-Founder, President & Vice Chairman [51]

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Bye.

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Brian Keith Roberts, Lyft, Inc. - CFO [52]

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Bye.

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Operator [53]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.