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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Lyft, Inc.    LYFT

LYFT, INC.

(LYFT)
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LYFT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/12/2020 | 06:12am EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed consolidated
financial statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and our audited consolidated financial statements
included in our 2019 Annual Report on Form 10-K. As discussed in the section
titled "Note About Forward-Looking Statements," the following discussion
contains forward-looking statements that involve risks and uncertainties.
Factors that could cause or contribute to such differences include those
identified below and those discussed in the section titled "Risk Factors" and
other parts of this Quarterly Report on Form 10-Q and in our 2019 Annual Report
on Form 10-K. Our historical results are not necessarily indicative of the
results that may be expected for any period in the future. Our fiscal year ends
December 31.
Our Business
Our mission is to improve people's lives with the world's best transportation.
Lyft started a movement to revolutionize transportation. In 2012, we launched
our peer-to-peer marketplace for on-demand ridesharing and have continued to
pioneer innovations aligned with our mission. Today, Lyft is one of the largest
multimodal transportation networks in the United States and Canada.
We are laser-focused on revolutionizing transportation and continue to lead the
market in innovation. We have established a scaled network of users brought
together by our robust technology platform that powers rides and connections
every day. We leverage our technology platform, the scale and density of our
user network and insights from our significant number of rides to continuously
improve our ridesharing marketplace efficiency and develop new offerings. For
example, in May 2020, we expanded the availability of our Wait & Save mode on
our ridesharing platform, which is an ideal offering for riders with more
flexible schedules that want to leverage the savings that we can offer by
shifting demand to better meet supply. In 2018, we were the first to launch a
publicly-available commercial autonomous offering in the United States.
Today, our offerings include an expanded set of transportation modes in select
cities, such as access to a network of shared bikes and scooters for shorter
rides and first-mile and last-mile legs of multimodal trips, information about
nearby public transit routes, and Lyft Rentals, an offering for users who want
to rent a car for a fixed period of time for personal use. We believe our
transportation network offers a viable alternative to car ownership. We
anticipate the demand for our offerings will continue to grow over time
following the recovery from the COVID-19 pandemic and as more and more people
discover the convenience, experience and affordability of using Lyft.
We generate substantially all our revenue from our ridesharing marketplace that
connects drivers and riders. We collect service fees and commissions from
drivers for their use of our ridesharing marketplace. As drivers accept more
rider leads and complete more rides, we earn more revenue. We also generate
revenue from riders renting Light Vehicles, drivers renting vehicles through
Flexdrive and Lyft Rentals renters, and by making our ridesharing marketplace
available to organizations through our Lyft Business offerings, such as our
Concierge and Corporate Business Travel programs.
We have made focused and substantial investments in support of our mission. For
example, to continually launch new innovations on our platform, we have invested
heavily in research and development and have completed multiple strategic
acquisitions. We have also invested in sales and marketing to grow our
community, cultivate a differentiated brand that resonates with drivers and
riders and promote further brand awareness. Together, these investments have
enabled us to create a powerful multimodal platform and scaled user network that
has resulted in the rapid growth of our business.
Notwithstanding the impact of COVID-19, we are continuing to invest in the
future, both organically and through acquisitions of complementary businesses.
In the first quarter of 2020, we acquired Flexdrive, one of our longstanding
Express Drive partners. Prior to the acquisition, Flexdrive was a part of the
Express Drive program, which allows drivers to enter into short-term rental
agreements from third-party operators for vehicles that may be used to provide
ridesharing services on the Lyft Platform. We expect the acquisition to
contribute to the growth of our business, help us expand the range of our use
cases and the breadth of our multimodal offerings. We also continue to invest in
the expansion of our network of shared bikes and scooters and autonomous vehicle
technology. Our strategy is always to be at the forefront of transportation
innovation, and we believe these investments will continue to position us as a
leader in Transportation-as-a-Service.
During the first quarter of 2020, we also entered into a Novation Agreement with
Clarendon, and certain underwriting companies of Zurich. Pursuant to the terms
of the Novation, on the effective date March 31, 2020, the obligations of PVIC
as reinsurer to Zurich for certain legacy auto liability insurance business
underwritten between October 1, 2015 and September 30, 2018, were assigned to,
assumed by, and novated to Clarendon, for consideration of $465.0 million. This
transaction eliminated the majority of our primary auto insurance liabilities
related to periods preceding October 2018 and will allow our insurance risk
solutions team to spend less time on legacy claims and instead focus their
efforts on managing our go-forward insurance costs, which is an important
contributor to our path to profitability.
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During the second quarter of 2020, we issued $747.5 million aggregate principal
amount of 1.50% convertible senior notes due 2025, or the 2025 Notes. The
proceeds from this offering were approximately $733.2 million, after deducting
the Initial Purchasers' discounts and commissions and debt issuance costs. In
addition, we entered into privately negotiated capped call transactions with the
option counterparties at a cost of approximately $132.7 million. We believe the
net $600.6 million in proceeds further improves our financial position for
general corporate purposes and our ability to execute on capital expenditures,
and potential acquisitions and strategic transactions as they arise.
Impact of COVID-19 to our Business
The COVID-19 pandemic continues to spread throughout the United States, Canada,
and in many other countries globally. The spread of COVID-19 has caused public
health officials to recommend and governments to enact precautions to mitigate
the spread of the virus, including travel restrictions and extensive social
distancing measures in many regions of the United States and Canada. Beginning
in the middle of March 2020, the pandemic and these related responses have
caused decreased demand for our platform leading to decreased revenues as well
as decreased earning opportunities for drivers on our platform, the global
slowdown of economic activity (including the decrease in demand for a broad
variety of goods and services), disruptions in global supply chains and
significant volatility and disruption of financial markets and these impacts may
continue.
We continue to closely monitor the impact of the COVID-19 pandemic. Beginning in
the middle of March 2020, the pandemic and responses thereto contributed to a
severe decrease in the number of rides on our platform and, accordingly, our
revenue. This impact has continued through the third quarter of 2020 and into
the fourth quarter of 2020. Although demand improved compared to the second
quarter of 2020, it remains significantly below the prior year. The exact timing
and pace of the recovery remain uncertain. As certain regions have reopened,
some have experienced a resurgence of COVID-19 cases and reimposed restrictions.
The extent to which our operations will continue to be impacted by the pandemic
will depend largely on future developments, which are highly uncertain and
cannot be accurately predicted, including new information which may emerge
concerning the severity of the pandemic and actions by government authorities
and private businesses to contain the pandemic or recover from its impact, among
other things. Even as travel restrictions have been and will continue to be
modified or lifted, we anticipate that continued social distancing, altered
consumer behavior, reduced travel and commuting and expected corporate cost
cutting will be significant challenges for us. The strength and duration of
these challenges cannot be presently estimated.
In response to the COVID-19 pandemic, beginning in March and continuing through
the third quarter of 2020, we have adopted multiple measures, including pausing
our Shared Rides offerings, distributing thousands of bottles of hand sanitizer,
masks and partitions to drivers on our platform, requiring face coverings in all
rideshare trips, providing most employees with the option to work from home
until June 30, 2021, restricting non-critical business travel by our employees,
and making adjustments to our expenses and cash flow to correlate with declines
in revenues. For example, in the second quarter of 2020, in an effort to reduce
operating expenses and adjust cash flows in light of the ongoing economic
challenges resulting from the pandemic, we announced the following actions:
•Termination of approximately 17% of our employees;
•Furlough of approximately 300 employees;
•Implementation of a reduction in base salary for exempt employees for 12 weeks,
ranging from 10% for most non-hourly employees and up to 30% for our senior
leadership team; and
•Members of our board voluntarily agreeing to forego 30% of their cash
compensation for the second quarter of 2020.
As a result of these actions, we recognized a stock-based compensation benefit
related to the reversal of previously recognized stock-based compensation
expenses for unvested stock awards of $72.7 million offset by a charge related
to the accelerated vesting of certain equity awards for employees who were
terminated of $22.9 million. Additionally, we recognized other restructuring
charges including severance and other employee costs of $32.1 million and lease
termination and other restructuring charges of $3.1 million, resulting in a net
benefit of $14.5 million for the quarter ended June 30, 2020. However, these
actions have and will only mitigate a limited portion of the negative effects of
the pandemic on our business.
In addition to the actions outlined above, we have also implemented an
aggressive plan to strengthen our financial position. For example, we have
significantly decreased our planned 2020 capital expenditure spending. We also
decreased rider incentives to an all-time low in the second quarter of 2020 and
maintained them near the historical low through the third quarter of 2020,
resulting in a significant decrease in sales and marketing expenses.
We remain confident in our ability to navigate this unprecedented time in our
history and in our long-term growth opportunities and our business model,
including our ability to be profitable in the future. With $2.5 billion in
unrestricted cash and cash equivalents and short-term investments as of
September 30, 2020, we believe we have sufficient liquidity to continue
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business operations and to take action we determine to be in the best interests
of our employees and stakeholders and of drivers and riders on the Lyft
Platform. For more information on risks associated with the COVID-19 pandemic
and our litigation matters, see the section titled "Risk Factors" in Item 1A of
Part II.
Recent Developments - Driver Classification
On August 10, 2020, the Superior Court of California granted a preliminary
injunction motion filed by the state of California, forcing us and Uber to
reclassify drivers in California as employees until the end of the lawsuit; the
injunction was stayed for ten days. On August 12, 2020, we filed a notice of
appeal of the court's order and requested a stay pending appeal. On August 20,
2020, the California Court of Appeal stayed the preliminary injunction pending
resolution of the appeal. The Court of Appeal affirmed the preliminary
injunction on October 22, 2020. On November 6, 2020, we filed a petition for
rehearing with the Court of Appeal in light of the passage of Proposition 22.
See the sections titled "Legal Proceedings" and "Risk Factors" in Items 1 and
1A, respectively, of Part II for additional information.
We are a member of a coalition that focuses on protecting the independence of
drivers, including through the November 2020 California ballot initiative,
Proposition 22. On November 3. 2020, California voters passed Proposition 22,
and we expect that California's Secretary of State will certify the results by
December 11, 2020. Proposition 22 protects driver independence and flexibility,
while providing them new earnings opportunities and protections, including
contributions towards health care coverage, occupational accident insurance, and
minimum guaranteed earnings. We expect to incur additional expenses associated
with these new earnings opportunities and protections. We do not expect these
changes will have a material impact on our business, results of operations,
financial position, or cash flows.

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Financial Results for the Three Months Ended September 30, 2020
•Total revenue was $499.7 million, a decrease of 48% year-over-year.
•Total costs and expenses were $953.1 million, including stock-based
compensation expense of $166.7 million.
•Loss from operations was $453.4 million.
•Net loss was $459.5 million.
•Cash used in operating activities was $155.7 million.
•Unrestricted cash and cash equivalents and short-term investments totaled $2.5
billion as of September 30, 2020.
Active Riders and Revenue per Active Rider
                                                      Three Months Ended September 30,
                                                         2020                     2019                   Growth Rate
                                                         (in millions, except for dollar amounts and percentages)
Active Riders                                                  12.5                  22.3                          (43.9) %
Revenue per Active Rider                        $             39.94          $      42.82                           (6.7) %



                                                        Three Months Ended June 30,
                                                        2020                     2019                   Growth Rate
                                                         (in millions, except for dollar amounts and percentages)
Active Riders                                                  8.7                  21.8                          (60.1) %
Revenue per Active Rider                        $            39.06          $      39.77                           (1.8) %



                                                       Three Months Ended March 30,
                                                        2020                     2019                   Growth Rate
                                                         (in millions, except for dollar amounts and percentages)
Active Riders                                                 21.2                  20.5                            3.5  %
Revenue per Active Rider                        $            45.06          $      37.86                           19.0  %


We define Active Riders as all riders who take at least one ride during a
quarter where the Lyft Platform processes the transaction. An Active Rider is
identified by a unique phone number. If a rider has two mobile phone numbers or
changed their phone number and such rider took rides using both phone numbers
during the quarter, that person would count as two Active Riders. If a rider has
a personal and business profile tied to the same mobile phone number, that
person would be considered a single Active Rider. If a ride has been requested
by an organization using our Concierge offering for the benefit of a rider, we
exclude this rider in the calculation of Active Riders.
In the fourth quarter of 2019, we updated the definition of Active Riders to
include riders who have migrated from the legacy Motivate platform to the Lyft
platform, which resulted in a 0.01% increase, or an additional 1,167 Active
Riders, in the fourth quarter of 2019. Prior to the fourth quarter of 2019, for
Motivate, only riders that had taken a ride or rented a bike or scooter through
the Lyft App during the quarter were counted as an Active Rider. This change had
no impact on the Active Riders disclosed in any of the prior periods presented.
The decrease in the number of Active Riders in the three months ended
September 30, 2020 as compared to the three months ended September 30, 2019 was
due primarily to the implementation of travel restrictions and extensive social
distancing measures across North America in response to the COVID-19 pandemic
since March 2020. The number of Active Riders in the three months ended
September 30, 2020 improved compared to the three months ended June 30, 2020
following the easing of such travel restrictions and social distancing measures
in certain regions. However, local recovery trends continue to vary
significantly.
The decrease in revenue per active rider in the three months ended September 30,
2020 as compared to the three months ended September 30, 2019 was due primarily
to a decline in ride frequency as a result of the COVID-19 pandemic. Revenue per
Active Rider increased 2% in the three months ended September 30, 2020 as
compared to the three months ended June 30, 2020 as a result of an increase in
ride frequency.
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Initial Public Offering
Our IPO Registration Statement was declared effective on March 28, 2019 and our
Class A common stock began trading on the Nasdaq Global Select Market on March
29, 2019. However, our IPO was completed on April 2, 2019 after quarter end and
the partial exercise of the underwriters' option to purchase additional shares
was completed on April 9, 2019. As a result, our condensed consolidated
financial statements as of March 31, 2019 and for the period then-ended do not
reflect the sale by us of an aggregate of 35,496,845 shares in the completion of
our IPO and pursuant to the partial exercise of the underwriters' option to
purchase additional shares, each at the public offering price of $72.00 per
share, for aggregate net proceeds to us of approximately $2.5 billion, after
underwriting discounts and commissions and offering expenses, or the conversion
of all outstanding shares of our redeemable convertible preferred stock into an
aggregate of 219,175,709 shares of Class A common stock.
Our condensed consolidated financial statements as of March 31, 2019 reflect
stock-based compensation expense of $857.2 million, which we recognized due to
the achievement of the liquidity-event condition of our RSUs that had both
service-based and performance-based vesting.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements and the related notes thereto
are prepared in accordance with GAAP. The preparation of condensed consolidated
financial statements also requires us to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, costs and expenses
and related disclosures. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from our estimates. To
the extent that there are differences between our estimates and actual results,
our future financial statement presentation, financial condition, results of
operations and cash flows will be affected.
There have been no material changes to our critical accounting policies and
estimates as described in our Annual Report on Form 10-K, except as described
below.
Recent Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements included elsewhere
in this Quarterly Report on Form 10-Q for recently issued accounting
pronouncements not yet adopted as of the date of this report.
Components of Results of Operations
As noted above, we expect to see decreased levels of demand for our platform,
decreased numbers of new rider activations, and negative impacts on revenue for
so long as responsive measures to COVID-19 remain in place, and we have adopted
multiple measures in response to the COVID-19 pandemic. We cannot be certain
that these actions will mitigate some or all of the negative effects of the
pandemic on our business. In light of the evolving and unpredictable effects of
COVID-19, we are not currently in a position to forecast the expected impact of
COVID-19 on our financial and operating results for the remainder of 2020.
Revenues and Rental Revenue Recognition
Revenues from Contracts with Customers (ASC 606)
We recognize revenue from fees paid by drivers for use of our Lyft platform
offerings in accordance with ASC 606 as described in Note 2 of the notes to our
condensed consolidated financial statements. Drivers enter into terms of service
("ToS") with us in order to use our Lyft Driver App.
We provide a service to drivers to complete a successful transportation service
for riders. This service includes on-demand lead generation that assists drivers
to find, receive and fulfill on-demand requests from riders seeking
transportation services and related collection activities using our Lyft
platform. As a result, our single performance obligation in the transaction is
to connect drivers with riders to facilitate the completion of a successful
transportation service for riders.
We evaluate the presentation of revenue on a gross versus net basis based on
whether we act as a principal by controlling the transportation service provided
to the rider or whether we act as an agent by arranging for third parties to
provide the service to the rider. We facilitate the provision of a
transportation service by a driver to a rider (the driver's customer) in order
for the driver to fulfill their contractual promise to the rider. The driver
fulfills their promise to provide a transportation service to their customer
through use of the Lyft platform. While we facilitate setting the price for
transportation services, the drivers and riders have the discretion in accepting
the transaction price through the platform. We do not control the transportation
services being provided to the rider nor do we have inventory risk related to
the transportation services. As a result, we act as an agent in facilitating the
ability for a driver to provide a transportation service to a rider.
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We report revenue on a net basis, reflecting the service fees and commissions
owed to us from the drivers as revenue, and not the gross amount collected from
the rider. We made this determination of not being primarily responsible for the
services since we do not promise the transportation services, do not contract
with drivers to provide transportation services on our behalf, do not control
whether the driver accepts or declines the transportation request via the Lyft
platform, and do not control the provision of transportation services by drivers
to riders at any point in time either before, during, or after, the trip.
We consider the ToS and our customary business practices in identifying the
contracts under ASC 606. As our customary business practice, a contract exists
between the driver and us when the driver's ability to cancel the trip lapses,
which typically is upon pickup of the rider. We collect the fare and related
charges from riders on behalf of drivers using the rider's pre-authorized credit
card or other payment mechanism and retain any fees owed to us before making the
remaining disbursement to drivers; thus the driver's ability and intent to pay
is not subject to significant judgment.
We earn service fees and commissions from the drivers either as the difference
between an amount paid by a rider based on an upfront quoted fare and the amount
earned by a driver based on actual time and distance for the trip or as a fixed
percentage of the fare charged to the rider. In an upfront quoted fare
arrangement, as we do not control the driver's actions at any point in the
transaction to limit the time and distance for the trip, we take on risks
related to the driver's actions which may not be fully mitigated. We earn a
variable amount from the drivers and may record a loss from a transaction, which
is recorded as a reduction to revenue, in instances where an up-front quoted
fare offered to a rider is less than the amount we are committed to pay the
driver.
We recognize revenue upon completion of a ride as the single performance
obligation is satisfied and we have the right to receive payment for the
services rendered upon the completion of the ride.
We offer various incentive programs to drivers that are recorded as reduction to
revenue if we do not receive a distinct good or service in consideration or if
we cannot reasonably estimate the fair value of goods or services received.
In some cases, we also earn Concierge platform fees from organizations that use
our Concierge offering, which is a product that allows organizations to request
rides for their customers and employees through our ridesharing marketplace.
Concierge platform fees are earned as a fixed dollar amount per ride or a
percentage of the ride price depending on the contract and such Concierge
platform fee revenue is recognized on a gross basis.
We recognize revenue from subscription fees paid by riders to access
transportation options through the Lyft Platform and mobile-based applications
over the applicable subscription period.
Rental Revenue (ASC 842)
We generate rental revenues primarily from Flexdrive, our network of Light
Vehicles, and Lyft Rentals. Under the Flexdrive and Lyft Rentals programs, we
operate a fleet of rental vehicles comprised of both vehicles owned by us and
vehicles leased from third-party leasing companies ("head leases"). We either
lease or sublease vehicles to drivers and Lyft Rentals renters, as a result, we
are considered the accounting lessor or sublessor, as applicable, in these
arrangements in accordance with ASC 842. For vehicles that are subleased,
sublease income and head lease expense for these transactions are recognized on
a gross basis in the condensed consolidated financial statements. Drivers who
rent vehicles are charged rental fees, which we collect from the driver by
deducting such amounts from the driver's earnings on the Lyft Platform, or
through charging the driver's credit card.
Revenue generated from single-use ride fees paid by riders of Light Vehicles are
recognized upon completion of each related ride. Revenue generated from
Flexdrive and Lyft Rentals is recognized evenly over the rental period, which is
typically seven days or less. Due to the short-term nature of the Flexdrive,
Lyft Rentals, and Light Vehicle transactions, we classify these rentals as
operating leases.
Cost of Revenue
Cost of revenue consists of costs directly related to revenue generating
transactions through our multimodal platform, including primarily insurance
costs that are generally required under Transportation Network Company and city
regulations for ridesharing and bike and scooter rentals, payment processing
charges, including merchant fees, chargebacks and failed charges, hosting and
platform-related technology costs, personnel-related compensation costs,
amortization of technology-related intangible assets, depreciation, asset
write-off charges, and vehicle lease expenses.
Operations and Support
Operations and support expenses primarily consist of personnel-related
compensation costs of local operations teams and teams who provide phone, email
and chat support to users, bike and scooter fleet operations support costs,
driver background checks and onboarding costs, fees paid to third-parties
providing operations support, facility costs and certain car
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rental fleet support costs. Bike and scooter fleet operations support costs
include general repairs and maintenance, and other customer support activities
related to repositioning bikes and scooters for rider convenience, cleaning and
safety checks.
Research and Development
Research and development expenses primarily consist of personnel-related
compensation costs and facilities costs. Such expenses include costs related to
our autonomous vehicle technology initiatives. Research and development costs
are expensed as incurred.
Sales and Marketing
Sales and marketing expenses primarily consist of rider incentives, driver
incentives for referring new drivers or riders, personnel-related compensation
costs, advertising expenses, rider refunds and marketing partnerships with third
parties. Sales and marketing costs are expensed as incurred.
General and Administrative
General and administrative expenses primarily consist of personnel-related
compensation costs, certain insurance costs that are generally not required
under TNC regulations, professional services fees, certain loss contingency
expenses including legal accruals and settlements, insurance claims
administrative fees, facility costs, and other corporate costs. General and
administrative expenses are expensed as incurred.
Interest Expense
Interest expense consists primarily of interest incurred on our 2025 Notes, as
well as the related amortization of deferred debt issuance costs and debt
discount. Interest expense also includes interest incurred on our Non-Revolving
Loan and our Master Vehicle Loan.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest earned on our cash
and cash equivalents, and restricted and unrestricted short-term investments.
Provision for Income Taxes
Our provision for income taxes consists primarily of income taxes in foreign
jurisdictions and U.S. state income taxes. As we expand the scale of our
international business activities, any changes in the U.S. and foreign taxation
of such activities may increase our overall provision for income taxes in the
future.
We have a valuation allowance for our U.S. deferred tax assets, including
federal and state net operating loss carryforwards, or NOLs. We expect to
maintain this valuation allowance until it becomes more likely than not that the
benefit of our federal and state deferred tax assets will be realized by way of
expected future taxable income in the United States.
Results of Operations
The following table summarizes our historical condensed consolidated statements
of operations data (in thousands):
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                                                     Three Months Ended September 30,             Nine Months Ended September 30,
                                                         2020                2019                    2020                    2019
Revenue                                             $   499,744$  955,598$       1,794,801$  2,598,890
Costs and expenses
Cost of revenue                                         261,614             580,714                  1,055,388             1,673,707
Operations and support                                  123,136             149,794                    355,528               489,004
Research and development                                232,106             288,272                    693,946             1,229,065
Sales and marketing                                      78,548             163,858                    326,807               619,938
General and administrative                              257,693             263,820                    718,087               907,842
Total costs and expenses                                953,097           1,446,458                  3,149,756             4,919,556
Loss from operations                                   (453,353)           (490,860)                (1,354,955)           (2,320,666)
Interest expense                                        (12,529)                  -                    (20,573)                    -
Other income (expense), net                               7,474              29,292                     38,766                78,760
Loss before income taxes                               (458,408)           (461,568)                (1,336,762)           (2,241,906)
Provision (benefit) for income taxes                      1,109               1,909                    (42,060)                4,283
Net loss                                            $  (459,517)$ (463,477)$      (1,294,702)$ (2,246,189)

The following table sets forth the components of our condensed consolidated statements of operations data as a percentage of revenue:

                                                        Three Months Ended September 30,               Nine Months Ended September 30,
                                                          2020                    2019                   2020                    2019
Revenue                                                      100.0  %               100.0  %                100.0  %               100.0  %
Costs and expenses
Cost of revenue                                               52.3                   60.8                    58.8                   64.4
Operations and support                                        24.6                   15.7                    19.8                   18.8
Research and development                                      46.4                   30.2                    38.7                   47.2
Sales and marketing                                           15.7                   17.1                    18.2                   23.9
General and administrative                                    51.6                   27.6                    40.0                   34.9
Total costs and expenses                                     190.7                  151.4                   175.5                  189.2
Loss from operations                                         (90.7)                 (51.4)                  (75.5)                 (89.2)
Interest expense                                              (2.5)                     -                    (1.1)                     -
Other income (expense), net                                    1.5                    3.1                     2.2                    3.0
Loss before income taxes                                     (91.7)                 (48.3)                  (74.5)                 (86.2)
Provision (benefit) for income taxes                           0.2                    0.2                    (2.3)                   0.2
Net loss                                                     (92.0) %               (48.5) %                (72.1) %               (86.4) %


Comparison of the three and nine months ended September 30, 2020 to the three
and nine months ended September 30, 2019.
Revenue
                         Three Months Ended September 30,                                  Nine Months Ended September 30,
                             2020                2019              % Change                   2020                    2019               % Change
                                                                    (in thousands, except for percentages)
Revenue                  $  499,744$ 955,598                   (48) %       $       1,794,801$ 2,598,890                   (31) %


Revenue decreased $455.9 million, or 48%, in the three months ended
September 30, 2020 as compared to the three months ended September 30, 2019,
which was driven primarily by a 44% decrease in the number of Active Riders in
the current quarter as compared to the third quarter of 2019 due to the
implementation of travel restrictions and extensive social distancing measures
across North America in response to the COVID-19 pandemic since March 2020.
Revenue per Active Rider also decreased 7% in the three months ended
September 30, 2020 as compared to the three months ended September 30, 2019 due
to a decline in ride frequency during the COVID-19 pandemic.
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Revenue decreased $804.1 million, or 31%, in the nine months ended September 30,
2020 as compared to the nine months ended September 30, 2019, driven primarily
by a decrease in the number of Active Riders in each of the three months ended
September 30, 2020 and June 30, 2020 due to the implementation of travel
restrictions and extensive social distancing measures across North America in
response to the COVID-19 pandemic since March 2020.
We expect to see continued suppression of demand for our platform and the
resulting negative impacts on revenue for so long as the travel restrictions,
extensive social distancing measures and other restrictive measures in response
to COVID-19 remain in place and we cannot predict consumer behavior at such
time.
Cost of Revenue
                             Three Months Ended September 30,                                  Nine Months Ended September 30,
                                 2020                2019              % Change                   2020                    2019               % Change
                                                                        (in thousands, except for percentages)
Cost of revenue              $  261,614$ 580,714                   (55) %       $       1,055,388$ 1,673,707                   (37) %


Cost of revenue decreased $319.1 million, or 55%, in the three months ended
September 30, 2020 as compared to the three months ended September 30, 2019. The
decrease was due primarily to a decrease of $191.0 million in insurance costs
driven by (i) the negative impact on ride volume due to the COVID-19 pandemic
and (ii) a decrease of $85.9 million in changes to the liabilities for insurance
required by regulatory agencies attributable to historical periods. The lower
ride volume due to the COVID-19 pandemic also resulted in decreases in
transaction fees and web hosting fees to support our platform, which decreased
$60.2 million and $21.2 million, respectively. Bike and scooter related costs
also decreased $33.0 million as a result of a reduction in asset disposals and a
reduction in depreciation expenses due to lower capital expenditures in response
to the negative impact of the COVID-19 pandemic.
Cost of revenue decreased $618.3 million, or 37%, in the nine months ended
September 30, 2020 as compared to the nine months ended September 30, 2019. The
decrease was due primarily to a decrease of $374.1 million in insurance costs
driven by (i) the negative impact on ride volume due to the COVID-19 pandemic
and (ii) a decrease of $137.1 million in changes to the liabilities for
insurance required by regulatory agencies attributable to historical periods.
The lower ride volume due to the COVID-19 pandemic also resulted in decreases in
transaction fees and web hosting fees to support our platform of $132.8 million
and $22.5 million, respectively. Bike and scooter related costs also decreased
$36.1 million as a result of a reduction in asset disposals and a reduction in
depreciation expenses due to lower capital expenditures in response to the
negative impact of the COVID-19 pandemic. In addition, stock-based compensation
expense decreased $43.3 million, primarily attributable to (i) the use of the
accelerated attribution method to recognize expenses for RSUs granted prior to
the effectiveness of our IPO Registration Statement which resulted in higher
stock-based compensation expense for the nine months ended September 30, 2019,
and (ii) the stock-based compensation benefit related to the restructuring in
the second quarter of 2020.
Operations and Support
                                   Three Months Ended September 30,                             Nine Months Ended September 30,
                                       2020                2019              % Change               2020                2019              % Change
                                                                         (in thousands, except for percentages)
Operations and support             $  123,136$ 149,794                   (18) %       $  355,528$ 489,004                   (27) %


Operations and support expenses decreased $26.7 million, or 18%, in the three
months ended September 30, 2020 as compared to the three months ended
September 30, 2019. The decrease was primarily due to a reduction of
$11.6 million in personnel-related costs and $5.6 million in facilities costs as
a result of the restructuring event in the second quarter of 2020. In addition,
rider and driver support costs and driver onboarding costs decreased by
$11.8 million in the aggregate as a result of the negative impact of the
COVID-19 pandemic.
Operations and support expenses decreased $133.5 million, or 27%, in the nine
months ended September 30, 2020 as compared to the nine months ended
September 30, 2019. The decrease was primarily due to a reduction of
$47.3 million in driver onboarding costs and rider and driver support costs as a
result of the negative impact of the COVID-19 pandemic. Personnel-related costs
also decreased $20.6 million as a result of the restructuring event in the
second quarter of 2020. In addition, stock-based compensation expense decreased
$54.5 million, primarily attributable to (i) the use of the accelerated
attribution method to recognize expenses for RSUs granted prior to the
effectiveness of our IPO Registration Statement which resulted in higher
stock-based compensation expense for the nine months ended September 30, 2019,
and (ii) the stock-based compensation benefit related to the restructuring in
the second quarter of 2020.
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Research and Development
                                   Three Months Ended September 30,                                 Nine Months Ended September 30,
                                       2020                2019              % Change                  2020                   2019               % Change
                                                                             (in thousands, except for percentages)
Research and development           $  232,106$ 288,272                   (19) %       $       693,946$ 1,229,065

(44) %



Research and development expenses decreased $56.2 million, or 19%, in the three
months ended September 30, 2020 as compared to the three months ended
September 30, 2019. The decrease was primarily due to a $57.6 million reduction
in stock-based compensation expense primarily attributable to the use of the
accelerated attribution method to recognize expenses for RSUs granted prior to
the effectiveness of our IPO Registration Statement which resulted in higher
stock-based compensation expense for the three months ended September 30, 2019.
In addition, personnel related costs decreased $11.1 million as a result of the
restructuring event in the second quarter of 2020. The decreases above were
partially offset by an increase of $13.8 million in autonomous vehicles research
and development costs due to the absence of reimbursements from a co-development
partnership which concluded in the fourth quarter of 2019.
Research and development expenses decreased $535.1 million, or 44%, in the nine
months ended September 30, 2020 as compared to the nine months ended
September 30, 2019. The decrease was primarily due to a $562.3 million reduction
in stock-based compensation expense primarily attributable to (i) the use of the
accelerated attribution method to recognize expenses for RSUs granted prior to
the effectiveness of our IPO Registration Statement which resulted in higher
stock-based compensation expense for the nine months ended September 30, 2019,
and (ii) the stock-based compensation benefit related to the restructuring in
the second quarter of 2020. The decrease was partially offset by an increase of
$41.3 million in autonomous vehicles research and development costs due to the
absence of reimbursements from a co-development partnership which concluded in
the fourth quarter of 2019.
Sales and Marketing
                                  Three Months Ended September
                                               30,                                           Nine Months Ended September 30,
                                     2020               2019              % Change               2020                2019              % Change
                                                                       (in thousands, except for percentages)
Sales and marketing              $  78,548$ 163,858                   (52) %       $  326,807$ 619,938                   (47) %


Sales and marketing expenses decreased $85.3 million, or 52%, in the three
months ended September 30, 2020 as compared to the three months ended
September 30, 2019. The decrease was due to a $67.3 million or 86% decrease in
costs related to incentive programs driven primarily by a reduction in rider
incentives. Personnel-related costs also decreased $5.0 million as a result of
the restructuring event in the second quarter of 2020.
Sales and marketing expenses decreased $293.1 million, or 47%, in the nine
months ended September 30, 2020 as compared to the nine months ended
September 30, 2019. The decrease was due to a $167.7 million decrease in costs
related to incentive programs driven primarily by a reduction in rider
incentives in the second quarter of 2020, a decrease of $31.0 million in costs
associated with driver and passenger acquisition and a decrease of $22.8 million
in brand and other marketing. The decrease was also due to a
$47.5 million reduction in stock-based compensation expense primarily
attributable to (i) the use of the accelerated attribution method to recognize
expenses for RSUs granted prior to the effectiveness of our IPO Registration
Statement which resulted in higher stock-based compensation expense for the nine
months ended September 30, 2019, and (ii) the stock-based compensation benefit
related to the restructuring in the second quarter of 2020.

General and Administrative

                                     Three Months Ended September 30,                             Nine Months Ended September 30,
                                         2020                2019              % Change               2020                2019              % Change
                                                                           (in thousands, except for percentages)
General and administrative           $  257,693$ 263,820                    (2) %       $  718,087$ 907,842                   (21) %


General and administrative expenses decreased $6.1 million, or 2%, in the three
months ended September 30, 2020 as compared to the three months ended
September 30, 2019. The decrease was primarily due to a $14.9 million reduction
in corporate insurance largely driven by a decrease in the accrual of
self-retained general business liabilities, an $8.5 million reduction in
stock-based compensation expense, which was driven by: (i) the use of the
accelerated attribution method to recognize expenses for RSUs granted prior to
the effectiveness of our IPO Registration Statement which resulted in higher
stock-based compensation expense for the nine months ended September 30, 2019,
and (ii) the stock-based compensation benefit related to the restructuring in
the second quarter of 2020, as well as $5.8 million reduction in office-related
expenses as
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the majority of our workforce continues to work remotely. This decrease was
partially offset by a $23.6 million increase in policy spend in support of the
passage of Proposition 22 in California.
General and administrative expenses decreased $189.8 million, or 21%, in the
nine months ended September 30, 2020 as compared to the nine months ended
September 30, 2019. The decrease was due primarily to a $205.8 million reduction
in stock-based compensation expense, which was driven by: (i) the use of the
accelerated attribution method to recognize expenses for RSUs granted prior to
the effectiveness of our IPO Registration Statement which resulted in higher
stock-based compensation expense for the nine months ended September 30, 2019,
and (ii) the stock-based compensation benefit related to the restructuring in
the second quarter of 2020. There was also a $35.8 million reduction in
corporate insurance costs largely driven by a decrease in the accrual of
self-retained general business liabilities. The decreases above were partially
offset by an increase of $30.7 million in consultant and advisory costs.
Interest Expense
                               Three Months Ended September 30,                               Nine Months Ended September 30,
                                    2020                2019              % Change                2020                2019              % Change
                                                                      (in thousands, except for percentages)
Interest expense               $   (12,529)         $       -                     -  %       $   (20,573)         $       -                     -  %


Interest expense increased $12.5 million and $20.6 million, in the three and
nine months ended September 30, 2020, respectively, as compared to the three
months ended September 30, 2019. The increases were driven by interest expenses
incurred in connection with the issuance of our 2025 Notes in May 2020 and the
vehicle related debt assumed from the acquisition of Flexdrive in February 2020.
Other Income (Expense), Net
                                      Three Months Ended September                                Nine Months Ended September
                                                   30,                                                        30,
                                         2020               2019              % Change               2020              2019              % Change
                                                                          (in thousands, except for percentages)
Other income (expense), net          $    7,474$ 29,292                   (74) %       $  38,766$ 78,760                   (51) %


Other income (expense), net decreased $21.8 million, or 74%, and $40.0 million,
or 51% in the three and nine months ended September 30, 2020 as compared to the
three and nine months ended September 30, 2019, respectively. The decrease was
primarily related to a decrease in interest income driven by a decline in
interest rates and the yield on debt securities and a decrease in our cash
equivalents and short-term investments balance.

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Non-GAAP Financial Measures
                                     Three Months Ended September
                                                  30,                                              Nine Months Ended September 30,
                                        2020               2019              % Change                  2020                  2019              % Change
                                                                             (in millions, except for percentages)
Contribution(1)                     $   248.8$  479.2                 (48.1) %       $        913.5$ 1,263.0                 (27.7) %
Contribution Margin(1)                   49.8  %            50.1  %                                       50.9   %            48.6  %
Adjusted EBITDA(1)                  $  (239.7)$ (128.1)                (87.1) %       $       (605.2)$  (548.2)                (10.4) %
Adjusted EBITDA Margin(1)               (48.0)  %          (13.4) %                                      (33.7)  %           (21.1) %


_______________
(1)Contribution, Contribution Margin, Adjusted EBITDA, and Adjusted EBITDA
Margin are non-GAAP financial measures and metrics. For more information
regarding our use of these measures and a reconciliation of these measures to
the most comparable GAAP measures, see "Reconciliation of Non-GAAP Financial
Measures."
Contribution and Contribution Margin
Contribution and Contribution Margin are measures used by our management to
understand and evaluate our operating performance and trends. We believe
Contribution and Contribution Margin are key measures of our ability to achieve
profitability and increase it over time. Contribution Margin has generally
increased over the periods presented as revenue has increased at a faster rate
than the costs included in the calculation of Contribution.
We define Contribution as revenue less cost of revenue, adjusted to exclude the
following items from cost of revenue:
•amortization of intangible assets;
•stock-based compensation expense;
•payroll tax expense related to stock-based compensation;
•changes to the liabilities for insurance required by regulatory agencies
attributable to historical periods;
•transfer of certain legacy auto insurance liabilities; and
•restructuring charges, if any.
For more information about cost of revenue, see the section titled "-Components
of Results of Operations-Cost of Revenue."
Contribution Margin is calculated by dividing Contribution for a period by
revenue for the same period.
We record historical changes to liabilities for insurance required by regulatory
agencies for financial reporting purposes in the quarter of positive or adverse
development even though such development may be related to claims that occurred
in prior periods. For example, if in the first quarter of a given year, the cost
of claims grew by $1 million for claims related to the prior fiscal year or
earlier, the expense would be recorded for GAAP purposes within the first
quarter instead of in the results of the prior period. We believe these prior
period changes to insurance liabilities do not illustrate the current period
performance of our ongoing operations since these prior period changes relate to
claims that could potentially date back years. We have limited ability to
influence the ultimate development of historical claims. Accordingly, including
the prior period changes would not illustrate the performance of our ongoing
operations or how the business is run or managed by us. For consistency, we do
not adjust the calculation of Contribution for any prior period based on any
positive or adverse development that occurs subsequent to the quarter end.
Annual Contribution is calculated by adding Contribution of the last four
quarters. We believe the adjustment to exclude the historical changes to
liabilities for insurance required by regulatory agencies from Contribution and
Adjusted EBITDA is useful to investors by enabling them to better assess our
operating performance in the context of current period results.
During the first quarter of 2020, we entered into a Novation Agreement for the
transfer of certain legacy auto insurance liabilities between October 1, 2015
and September 30, 2018. Refer to Note 4 "Supplemental Financial Statement
Information" to the condensed consolidated financial statements for information
regarding this transaction. We believe the costs associated with the transfer of
these legacy auto insurance liabilities do not illustrate the current period
performance of our ongoing operations despite this transaction occurring in the
current period because these costs are non-recurring and the transferred
insurance liabilities relate to claims that date back years. We believe the
adjustment to exclude these costs related to the transfer of legacy insurance
liabilities from Contribution and Adjusted EBITDA is useful to investors by
enabling them to better assess our operating performance in the context of
current period results and provide for better comparability with our
historically disclosed Contribution and Adjusted EBITDA amounts.
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In April 2020, we announced a restructuring effort to reduce operating expenses
and adjust cash flows in light of the ongoing economic challenges resulting from
the COVID-19 pandemic and its impact on our business. We believe the costs
associated with the restructuring do not reflect current period performance of
our ongoing operations. We believe the adjustment to exclude the costs related
to restructuring from Contribution and Adjusted EBITDA is useful to investors by
enabling them to better assess our operating performance in the context of
current period results and provide for better comparability with our
historically disclosed Contribution and Adjusted EBITDA amounts.
For more information regarding the limitations of Contribution and Contribution
Margin and a reconciliation of revenue to Contribution, see the section titled
"-Reconciliation of Non-GAAP Financial Measures."
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA and Adjusted EBITDA Margin are key performance measures that our
management uses to assess our operating performance and the operating leverage
in our business. Because Adjusted EBITDA and Adjusted EBITDA Margin facilitate
internal comparisons of our historical operating performance on a more
consistent basis, we use these measures for business planning purposes. We
expect Adjusted EBITDA and Adjusted EBITDA Margin will increase over the long
term as we continue to scale our business and achieve greater efficiencies in
our operating expenses.
We calculate Adjusted EBITDA as net loss, adjusted to exclude:
•interest expense;
•other income (expense), net;
•provision for income taxes;
•depreciation and amortization;
•stock-based compensation expense;
•payroll tax expense related to stock-based compensation;
•changes to the liabilities for insurance required by regulatory agencies
attributable to historical periods;
•costs related to acquisitions, if any;
•transfer of the certain legacy auto insurance liability; and
•restructuring charges, if any.
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA for a period by
revenue for the same period.
For more information regarding the limitations of Adjusted EBITDA and Adjusted
EBITDA Margin and a reconciliation of net loss to Adjusted EBITDA, see the
section titled "-Reconciliation of Non-GAAP Financial Measures."
Reconciliation of Non-GAAP Financial Measures
We use Contribution, Contribution Margin, Adjusted EBITDA and Adjusted EBITDA
Margin in conjunction with GAAP measures as part of our overall assessment of
our performance, including the preparation of our annual operating budget and
quarterly forecasts, to evaluate the effectiveness of our business strategies,
and to communicate with our board of directors concerning our financial
performance. Our definitions may differ from the definitions used by other
companies and therefore comparability may be limited. In addition, other
companies may not publish these or similar metrics. Furthermore, these measures
have certain limitations in that they do not include the impact of certain
expenses that are reflected in our condensed consolidated statements of
operations that are necessary to run our business. Thus, our Contribution,
Contribution Margin, Adjusted EBITDA and Adjusted EBITDA Margin should be
considered in addition to, not as substitutes for, or in isolation from,
measures prepared in accordance with GAAP.
We compensate for these limitations by providing a reconciliation of
Contribution and Adjusted EBITDA to the related GAAP financial measures, revenue
and net loss, respectively. We encourage investors and others to review our
financial information in its entirety, not to rely on any single financial
measure and to view Contribution, Contribution Margin, Adjusted EBITDA and
Adjusted EBITDA Margin in conjunction with their respective related GAAP
financial measures.
The following table provides a reconciliation of revenue to Contribution (in
millions):
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                                                  Three Months Ended 

September

                                                               30,                     Nine Months Ended September 30,
                                                     2020               2019               2020                2019
Revenue                                          $    499.7$  955.6$  1,794.8$ 2,598.9
Less cost of revenue                                 (261.6)           (580.7)           (1,055.4)          (1,673.7)
Adjusted to exclude the following (as related to
cost of revenue):
Amortization of intangible assets                       2.8               5.3                 9.3               15.9
Stock-based compensation expense                        7.0              12.1                21.2               68.7
Payroll tax expense related to stock-based
compensation                                            0.2               0.3                 1.2                1.7
Changes to the liabilities for insurance
required by regulatory agencies attributable to
historical periods(1)                                   0.7              86.6                76.4              251.5
Transfer of certain legacy auto insurance
liabilities(2)                                            -                 -                62.5                  -
Restructuring charges(3)                                  -                 -                 3.5                  -
Contribution                                     $    248.8$  479.2$    913.5$ 1,263.0


_______________
(1)$0.7 million and $76.4 million of insurance expense recorded during the three
and nine months ended September 30, 2020 reflects changes to reserves estimates
of claims from the second quarter of 2020 and earlier periods. $86.6 million and
$251.5 million of insurance expense recorded during the three and nine months
ended September 30, 2019 reflects changes to reserves estimates of claims from
the second quarter of 2019 and earlier periods.
(2)The total impact of the transfer of certain legacy auto insurance liabilities
on our condensed consolidated statement of operations was $64.7 million, with
$62.5 million in cost of revenue and $2.2 million in general and administrative
expense.
(3)Included in restructuring charges is $2.0 million of severance and other
employee costs and $1.5 million of other restructuring charges. Restructuring
related charges for the stock-based compensation benefit of $4.2 million and
payroll taxes related to stock-based compensation of $0.1 million are included
on their respective line items.
The following table provides a reconciliation of net loss to Adjusted EBITDA (in
millions):
                                                 Three Months Ended September
                                                             30,                         Nine Months Ended September 30,
                                                    2020              2019                  2020                   2019
Net loss                                        $  (459.5)         $ 

(463.5) $ (1,294.7)$ (2,246.2) Adjusted to exclude the following: Interest expense(1)

                                  13.1                 -                      21.8                   -
Other income, net(2)                                 (7.5)            (29.3)                    (38.8)              (78.8)
Provision for income taxes                            1.1               1.9                     (42.1)                4.3
Depreciation and amortization                        41.7              30.1                     121.7                84.3
Stock-based compensation expense                    166.7             242.2                     432.5             1,394.9
Payroll tax expense related to stock-based
compensation                                          4.0               3.9                      18.9                41.8
Changes to the liabilities for insurance
required by regulatory agencies attributable to
historical periods(3)                                 0.7              86.6                      76.4               251.5
Costs related to acquisitions                           -                 -                       0.4                   -
Transfer of certain legacy auto insurance
liabilities(4)                                          -                 -                      64.7                   -
Restructuring charges(3)                                -                 -                      34.0                   -
Adjusted EBITDA                                 $  (239.7)$ (128.1)         $         (605.2)         $   (548.2)

_______________

(1)Includes interest expense for Flexdrive vehicles and the 2025 Notes and $0.6
million related to the interest component of vehicle related finance leases.
Refer to Note 6 "Leases" to the condensed consolidated financial statements for
information regarding the interest component of vehicle related finance leases.
(2)Includes interest income which was reported as a separate line item on the
condensed consolidated statement of operations in periods prior to the second
quarter of 2020.
(3)$0.7 million and $76.4 million of insurance expense recorded during the three
and nine months ended September 30, 2020 reflects changes to reserves estimates
of claims from the first quarter of 2020 and earlier periods. $86.6 million and
$251.5 million of insurance expense recorded during the three and nine months
ended September 30, 2019 reflects changes to reserves estimates of claims from
the first quarter of 2019 and earlier periods.
(4)The total impact of the transfer of certain legacy auto insurance liabilities
on our condensed consolidated statement of operations was $64.7 million, with
$62.5 million in cost of revenue and $2.2 million in general and administrative
expense.
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(5)Included in restructuring charges is $31.4 million of severance and other
employee costs and $2.6 million related to lease termination and other
restructuring costs. Restructuring related charges for the stock-based
compensation benefit of $49.8 million, payroll taxes related to stock-based
compensation of $0.7 million and accelerated depreciation of $0.5 million are
included on their respective line items.
Liquidity and Capital Resources
As of September 30, 2020, our principal sources of liquidity were cash and cash
equivalents of approximately $424.8 million and short-term investments of
approximately $2.0 billion, exclusive of restricted cash, cash equivalents and
investments of $1.3 billion. Cash and cash equivalents consisted of
institutional money market funds, certificates of deposits, commercial paper and
corporate bonds that have an original maturity of less than three months and are
readily convertible into known amounts of cash. Also included in cash and cash
equivalents are certain money market deposit accounts and cash in transit from
payment processors for credit and debit card transactions. Short-term
investments consisted of commercial paper, certificates of deposit, corporate
bonds and term deposits, which mature in 12 months or less. Restricted cash,
cash equivalents and investments consisted primarily of amounts held in separate
trust accounts and restricted bank accounts as collateral for insurance purposes
and amounts pledged to secure certain letters of credit.
We collect the fare and related charges from riders on behalf of drivers at the
time the ride is delivered using the rider's authorized payment method, and we
retain any fees owed to us before making the remaining disbursement to drivers.
Accordingly, we maintain no accounts receivable from drivers. Our contracts with
insurance providers require reinsurance premiums to be deposited into trust
accounts with a third-party financial institution from which the insurance
providers are reimbursed for claims payments. Our restricted reinsurance trust
investments as of September 30, 2020 and December 31, 2019 were $1.2 billion and
$1.4 billion, respectively.
We continue to actively monitor the impact of the COVID-19 pandemic. Beginning
in March 2020, the pandemic and responses thereto contributed to a severe
decrease in the number of rides on our platform and revenue which had a
significant effect on our cash flows from operations. This impact continued
through the third quarter of 2020 and into the fourth quarter of 2020. The
extent to which our operations, financial results and financial condition will
be impacted in the next few quarters by the pandemic will depend largely on
future developments, which are highly uncertain and cannot be accurately
predicted, including new information which may emerge concerning the severity of
the pandemic and actions by government authorities and private businesses to
contain the pandemic or treat the pace and extent of recovery, among other
things. We have adopted several measures in response to the COVID-19 pandemic,
including pausing our Shared Ride offerings, distributing thousands of bottles
of hand sanitizer, masks and partitions to drivers on our platform, providing
most employees with the option to work from home until June 30, 2021,
restricting non-critical business travel by our employees, and making
adjustments to our expenses and cash flow to correlate with declines in
revenues. On April 29, 2020. we announced a restructuring plan which included
the termination of approximately 17% of our employees, furlough approximately
300 employees, and implement temporary salary reductions for all exempt
employees and board members. In connection with these decisions, we incurred a
net restructuring benefit of $14.5 million for the quarter ended June 30, 2020.
In addition, we have also implemented an aggressive plan to strengthen our
financial position. For example, we have significantly decreased our planned
2020 capital expenditure spending. We also decreased rider incentives to an
all-time low in the second quarter of 2020 and maintained them near the
historical low through the third quarter of 2020, resulting in a significant
decrease in sales and marketing expenses.
In May 2020, we issued $747.5 million aggregate principal amount of our 2025
Notes. The net proceeds from this offering were approximately $733.2 million,
after deducting the Initial Purchasers' discounts and commissions and debt
issuance costs. In connection with the issuance of our 2025 Notes, we entered
into the Capped Calls at a cost of approximately $132.7 million.
We cannot be certain that our actions will mitigate some or all of the negative
effects of the pandemic on our business. With nearly $2.5 billion in
unrestricted cash and cash equivalents and short-term investments as of
September 30, 2020, we believe we have sufficient liquidity to meet our working
capital and capital expenditures needs for at least the next 12 months.
Our future capital requirements will depend on many factors, including, but not
limited to our growth, our ability to attract and retain drivers and riders on
our platform, the continuing market acceptance of our offerings, the timing and
extent of spending to support our efforts to develop our platform, actual
insurance payments for which we have made reserves, measures we take in response
to the COVID-19 pandemic, our ability to maintain demand for and confidence in
the safety of our platform during and following the COVID-19 pandemic, and the
expansion of sales and marketing activities. As noted above, we expect to see
continued suppression of demand for our platform and the resultant negative
impacts on revenue for so long as the travel restrictions and other social
distancing measures in response to COVID-19 remain in place. Further, we may in
the future enter into arrangements to acquire or invest in businesses, products,
services and technologies. From time to time, we may seek additional equity or
debt financing to fund capital expenditures, strategic initiatives or
investments and our ongoing operations. In the event that we decide, or are
required, to seek additional financing from outside sources, we may not be able
to raise it on terms acceptable to us or at all. If we are unable to raise
additional capital when desired, our business, financial condition and results
of operations could be adversely affected.
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Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
                                                                     Nine Months Ended September 30,
                                                                        2020                  2019
Net cash used in operating activities                             $  (1,114,286)$    (59,511)
Net cash provided by (used in) investing activities                     555,008            (1,517,729)
Net cash provided by financing activities                               536,021             1,556,235

Effect of foreign exchange on cash, cash equivalents and restricted cash and cash equivalents

                                       (286)                  196
Net change in cash, cash equivalents and restricted cash and cash
equivalents                                                       $     (23,543)$    (20,809)


Operating Activities
Cash used in operating activities was $1,114.3 million for the nine months ended
September 30, 2020. This consisted primarily of a net loss of $1,294.7 million
and a decrease in the insurance reserve of $455.8 million primarily related to
the transfer of certain legacy auto insurance liabilities in the first quarter
of 2020. This was offset by non-cash stock-based compensation expense of $432.5
million.
Cash used in operating activities was $59.5 million for the nine months ended
September 30, 2019. This consisted primarily of a net loss of $2.2 billion
offset by non-cash stock-based compensation expense of $1.4 billion largely
driven by the recognition of costs related to RSUs which we started to recognize
upon the effectiveness of our IPO Registration Statement on March 28, 2019.
Additionally, there was an increase in insurance reserves and accrued and other
liabilities of $848.6 million.
Investing Activities
Cash provided by investing activities was $555.0 million for the nine months
ended September 30, 2020, which primarily consisted of proceeds from sales and
maturities of marketable securities of $4.5 billion, partially offset by
purchases of marketable securities of $3.4 billion and term deposits of $718.8
million.
Cash used in investing activities was $1.5 billion for the nine months ended
September 30, 2019, which primarily consisted of purchases of short-term
investments of $4.8 billion, partially offset by proceeds from sales and
maturities of marketable securities of $3.5 billion.
Financing Activities
Cash provided by financing activities was $536.0 million for the nine months
ended September 30, 2020, which primarily consisted of proceeds from issuance of
our 2025 Notes of $734.1 million offset by the purchase of the Capped Calls for
$132.7 million.
Cash provided by financing activities was $1.6 billion for the nine months ended
September 30, 2019, which primarily consisted of proceeds from the issuance of
our Class A common stock in our IPO of $2.5 billion, partially offset by taxes
paid related to net share settlement of equity awards of $942.8 million
Contractual Obligations and Commitments
In November 2018, we completed the acquisition of Motivate, a New York
headquartered bikeshare company. Over the approximately five years following the
transaction, we are committed to invest an aggregate of $100.0 million in the
bikeshare program for the New York metro area. Refer to Note 7 "Commitments and
Contingencies" for additional information.
In May 2019, we entered into a non-cancellable arrangement with the City of
Chicago, with respect to the Divvy bike share program, under which we have an
obligation to pay approximately $7.5 million per year to the City of Chicago
through January 2028 and to spend a minimum of $50.0 million on capital
equipment for the bike share program through January 2023. Refer to Note 7
"Commitments and Contingencies" for additional information.
On May 15, 2020, we issued $747.5 million aggregate principal amount of our 2025
Notes. As of September 30, 2020, the 2025 Notes were not convertible. Refer to
Note 8 "Debt" to our condensed consolidated financial statements for additional
information.
In connection with the issuance of our 2025 Notes, we entered into the Capped
Calls at a cost of approximately $132.7 million. The Capped Calls cover, subject
to anti-dilution adjustments, the number of shares of Class A Common Stock
underlying the 2025 Notes sold in the offering. By entering into the Capped
Calls, we expect to reduce the potential dilution to its common stock (or, in
the event a conversion of the 2025 Notes is settled in cash, to reduce its cash
payment obligation) in
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the event that at the time of conversion of the 2025 Notes its common stock
price exceeds the conversion price of the 2025 Notes. Refer to Note 8 "Debt" to
our condensed consolidated financial statements for additional information.
In connection with our acquisition of Flexdrive, Flexdrive remained responsible
for the Non-revolving Loan, the Master Vehicle Loan and the VPA (each as defined
in Note 8 to our condensed consolidated financial statements). Refer to Note 8
"Debt" to our condensed consolidated financial statements for additional
information.
In conjunction with the Novation, Clarendon and PVIC executed a Retrocession
Agreement in July 2020, effective as of March 31, 2020, pursuant to which PVIC
will reinsure Clarendon's losses related to the Legacy Auto Liability in excess
of an aggregate limit of $816 million. Refer to Note 4 "Supplemental Financial
Statement Information" to our condensed consolidated financial statements for
information on this transaction.
In May 2020, we modified our non-cancellable arrangement with a web-hosting
services provider by extending the commitment period through June 2022 with no
change to the aggregate commitment amounts of $300.0 million. As of
September 30, 2020, there have been no other material changes from the
contractual obligations and commitments previously disclosed in our Annual
Report on Form 10-K.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet financing arrangements or any relationships with
unconsolidated entities or financial partnerships, including entities sometimes
referred to as structured finance or special purpose entities, that were
established for the purpose of facilitating off-balance sheet arrangements or
other contractually narrow or limited purposes.

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