Uber Technologies, Inc. (UBER) Earnings Call Transcript & Summary

Good day, and welcome to the Uber Technologies, Inc. Update Conference Call and Webcast. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Emily Maher-Reuter of Investor Relations. Ma'am, the floor is yours.

Thank you, operator. Thank you all for joining us today. On the call today, we have Dara Khosrowshahi and Nelson Chai. And we also have Kent Schofield. And this is Emily Reuter from the Investor Relations team. Certain statements in this presentation and on this call are forward-looking statements. Such statements can be identified by terms such as believe, expect, intend and may. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not undertake any obligation to update any forward-looking statements we make today, except as may be required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the risks and uncertainties described in the risk factors and MD&A sections of our annual report on Form 10-K that was filed on March 2 of this year. Later on this call, we'll provide some insight into our cash position under several different scenarios. Those insights are not guidance. We will discuss as -- we are not commenting on or updating our guidance at this time due to the fluidity of the situation. Following a few prepared remarks today, we will open the call to questions. With that, let me hand it over to Dara.

Thanks, Emily, and thank you all for joining us today. This is most definitely an unprecedented time, so I wanted to update you on what we're doing and to answer any questions that you may have. First, our top priority has been the health and safety of our staff and everyone who uses our platform. At the same time, we moved fast to ensure that our business remains on solid footing. The most important thing to know is that we're well positioned to weather this crisis and emerge even stronger. We have ample liquidity. We have a highly variable cost structure, a global footprint, multiple business lines that give us some diversity and case studies for how quickly our business is likely to rebound after a shock like this. All of this give us confidence. Before I go into detail about our response, I want to talk about drivers, delivery people and others who earn on Uber. Their well-being continues to be at the top of mind for me and our team. I know our drivers -- our business is incredibly resilient and will bounce back, but I recognize that many people, drivers, couriers, restaurant workers, are suffering right now. This is why we led the industry in offering financial assistance for drivers diagnosed with or asked to individually quarantine due to COVID-19. We're also actively lobbying to ensure that independent and on-demand workers are included in relief packages. Supporting drivers, which also helps flatten the curve of transmission, is absolutely the right thing to do for our communities and for our business. Now turning to the business. In any crisis, liquidity is key, and we're very fortunate to have a strong cash position with about $10 billion of unrestricted cash as of the end of February. We have about $1.5 billion committed for M&A through the end of 2020, including our Careem obligations and our Cornershop investment. In addition, we have no significant financial covenants in our debt, with the earliest maturity not coming until 2023. Again, no significant financial covenants. In terms of business impact, the situation remains highly fluid. Of course, people sheltering in place means that they take fewer Uber trips. In more recently impacted markets like Seattle, we're in the middle of watching this play out and have seen booking declines in the last few days in the range of 60% to 70% year-on-year. Latin America has been largely insulated until the last day or 2, when we started to see some more moderate impact on demand. However, we feel confident based on our prior experience and our always-on business model that as soon as cities start moving, Uber will, too. In some parts of our business, we're already seeing what we believe is the worst of the impact behind us and the beginnings of a recovery. Hong Kong, for example, saw trips decline 45% from their peak but have ticked upwards consistently, now down to 30% from their peaks. All of this has happened over the course of 2 months. Our Eats business is an important resource right now, especially for restaurants that have been hurt by containment policies. Even in Seattle, a community that has been hit really hard, the Eats business is still growing. And in the U.S., our small -- our SMB sales team is now closing 2.5x the number of new restaurants we normally do per day. And our restaurant self-service website has seen a 10x increase in sign-ups since last Thursday. Eats is becoming all the more important for its partners, and we expect to be there for them. Now as you would expect of us, we're also performing extensive stress testing with multiple scenarios that we're running through. At an extreme edge case scenario, where our Rides business declines 80% for the rest of the year with no recovery, shows us ending the year with $4 billion of unrestricted cash, not including access to over $2 billion from our revolver. We absolutely don't expect this kind of edge case to happen, but we feel responsible to model it. Even in that edge case, our balance sheet remained strong. In a scenario where Q2 is the bottom, we've modeled Q2 being the bottom for various markets that we see in various states of business, with a recovery beginning in Q3, that scenario shows us ending the year with about $6 billion in cash and the $2 billion revolver in place. So in either case, whether it's an extreme edge case or a case that could be more likely, our balance sheet is incredibly strong. We have plenty of liquidity on the books, which we think positions us to come out of this crises, and we will come out of this crisis, strong, capable and important for our partners and our cities as well. Now these scenarios demonstrate a very important advantage. 2/3 of our cost of revenue and operating expenses, excluding stock-based comp, is variable. Put simply, if a trip doesn't happen, many of these costs go away. To drive the point even further, in Q4 2019, our Rides' gross bookings could have been down 80% and we still would have been breakeven on the Rides segment EBITDA. Again, even in the case, based on last Q4, if our Rides business was down 80%, we would have been EBITDA-breakeven on that segment. That shows you the variable nature of our cost structure and how we can turn dials appropriately. And to that, in all the areas of business, we're taking action. As a proved first step, we've already frozen headcount. And in a period of just 2 weeks, we will have pulled back $150 million in incentives and marketing, which shows how quickly we can react. These are well-exercised muscles for us, and we've always managed a business city-by-city, day-by-day, hour-by-hour. Finally, as I hope I've made clear, my job is to ensure the business is sound in any scenario. But of course, the last few weeks have been anything but predictable. As such, we're not updating guidance today, but will of course do so at the appropriate time. With that, I'll turn it back to Emily, and we'd like to open it up for any questions you've got.

Thanks, Dara. Operator, can we please take the first question?

[Operator Instructions] And the first question we have will come from Brian Nowak with Morgan Stanley.

I have 2. Just the first one, Dara, good to sort of hear about the Hong Kong recovery, now down only 30% from the peak. Maybe can you talk to us about the use cases that are coming back first? I know there's a lot of ways people use Ubers, between airports, commuting, bars, et cetera. What's come back first? And how do you think about sort of the timing of when different use cases come back across these regions? And then the second one, you talked -- talk to us about any impact at all on driver supply. Are you seeing a pullback in drivers' willingness to drive given the COVID-19 situation?

Yes. It's a good question on Hong Kong. Actually, the first use case that we see coming back is the commute case, so it's a work use case. So when this city turns on again, I think especially, like people want to get back to work, they want to get back to living. And the commute use case for us is our largest use case, so the biggest part of our business. The minute a company says, "Hey, come back to work." -- and by the way, I think there will be a rush of people coming back to work, I don't think there will be as many people in the world happy to go back to their work, Uber is going to turn on again. And we're also in a situation where supply is very fluid, which is when the demand is there, the supply is going to be there instantly because our driver partners, they need the work. So the commute use case comes in quickly. Some of the other use cases, travel, as you would expect in Hong Kong, is still down. Use cases, evening, going out for dinner, et cetera, that's coming down, but that's coming slower. And I think that pattern of people instantly going to work and then making their way back into everyday life but making their way kind of fits on in their way back into everyday life, I think that will probably be a pattern. But when work turns on, Uber turns on, and we think that's pretty powerful. As far as the driver demand goes, right now, our driver supply goes, we've got plenty of driver supply. And if anything, we are encouraging our drivers to not only take what rides are available there, and as you know, the Rides business is down, but also move over to Eats and delivering food and/or grocery for Eats. And it's a real advantage that we have in our business line, which is not only are we more useful and there for our drivers because we can give them alternate uses of work, but Eats, our Eats business, has an instant inflow of folks who are ready for work. They've been background-checked. They've got all their details. They've got a relationship, bank relationship, with us as well. So that's really what we're working on, on getting them over to Eats because the Eats business has definitely held up much, much better.

Brian, this is Nelson. Just one other touch point on that, is we've actually seen the driver funnel increase this week. And as you know, as this coronavirus has an impact on a lot of week-to-week earners and paycheck folks, we expect that we'll see the driver funnel continue to increase. And so it's just more of managing the funnel.

Next, Justin Post, Bank of America.

Great. A question on the drivers. You mentioned high variable cost, yet trying to help them. So just trying to understand how you reconcile that and how you help the drivers but also variable cost. And then secondly, are you finding other areas where you can occupy drivers with things like grocery or food? And do you think that could be a bigger business for you? And then maybe longer term, how you think this event affects the competitive intensity of the industry.

Yes. Sure. I mean the driver pay essentially comes through our system. And it's not a cost per se on our books, but it's a very significant part of the transportation cost structure. And we typically are spending significant amounts of money recruiting drivers, bringing them in, greenlight hubs, et cetera. And during a period like this, when there's actually more demand to drive than there is supply, we can take those costs out carefully, making sure that we are there for drivers and can help them when they need help. So again, we have a very, very local business. We've got what I think the best operational GMs in the world, and they're tuning the business so that we could be there for drivers. We can make sure that our service is second to none. But at the same time, we are -- can variabilize our cost structure and essentially scale up or down based on demand. We are definitely looking at alternative use cases. I'll remind you that we have an agreement to buy Cornershop, which is in the grocery segment. That business is absolutely exploding in a great way. It is growing very, very quickly. So we are looking at how and if we can, prior to close, in the right way, integrate some of the Cornershop's capabilities into our service. And organically, actually, a lot of small stores, kind of these corner shops, have been integrating with Eats as well. We want to be there to help them. There's demand there. So we're absolutely aggressively looking at alternative distribution, whether it's grocery or food. And we definitely expect it to be a bigger part of our business. Long term, as far as competitive intensity of the market, I think these kinds of crises typically lead to weaker players dropping now. They lead to consolidation. And they lead to the strongest player. And we absolutely believe we are the strongest player in the industry, both in terms of rides and foods. We've got by far the biggest balance sheet. We've got by far the biggest presence. We've got a diverse business which actually now is directly feeding into each other. I think on a relative basis, while I would never ever wish for this kind of a crisis, I think on a relative basis, when we come out, we're going to come out stronger compared to the competition, and we're going to be even more the leader in the industry.

Comes from Heath Terry, Goldman Sachs.

Great. I guess, you and Nelson have referenced Seattle a few times in your remarks. I'm curious how representative you would say Seattle is to other major markets, like New York, London, San Francisco, L.A., that are undergoing this. And then just to clarify on the comment about profitability in the Rides business. You said that down 80%, it would still be breakeven on a segment profitability basis relative to Q4. Using that same math, what would the overall profitability of the business look like under that scenario? And then just one last one on the Eats business. Can you give us a sense, with all that you're doing to support independent restaurants and offer free delivery during this time, is there an offset in terms of the cost that you see in that business, as you have to do less in the way of incentives and marketing and promotion, as more people just naturally look to Uber for help, support in this environment?

Yes. Sure. As far as Seattle goes, listen, these are really, really uncertain and strange times. So basically, what we do is we look at city curves. We'll plow out of city and take a look at the curve and take a look at the behavior. Hong Kong was one of our earliest cities that was affected, and it's the earliest one that is recovering. And if the world looks like Hong Kong, we would be in great shape, okay? But I don't think the world is going to look like Hong Kong because I think Hong Kong has particular characteristics in terms of travel and their response. They've been there before. So we wanted to take a look at other cities in western -- in the western world. And Seattle was ahead of the curve of other cities just because of the nature of the outbreak there and how quickly they shut down. And we are seeing similar patterns. If I plot curves, there's a difference in timing, but the curves in SF, LA, NYC are looking similar in shape. And my guess is some of them will be higher by 5%, some of them may be lower than a couple of percent. But there are going to be a lot of cities around the world that look like Seattle, at least that's what the curves are looking like. Once we know more -- again, we wanted to freely, update in a certain time our analysts, our investors. Once we know more, we'll certainly offer it to you. But Seattle does look like it could be kind of archetype for a western city. At least that's how we're modeling. When we talk about the $6 billion by year-end and another $2 billion in revolver, we're taking Seattle as a model. We're assuming 2 months of absolute lockdown/shutdown based on what we're seeing. And then we're assuming that things get better because, certainly, Hong Kong is showing us that things get better. That minute people get back to work, the service turns on. So that's kind of our best guess right now. And once our best guest turns into something more specific, we'll turn that best guess into guidance. We're just not in that place right now. As far as the P&L, in a case where the Rides business is down 80% and what it looks like. For perspective, the Rides EBITDA was $740 million in Q4 of '19. So you would subtract $740 million from the P&L. Now that said, there are actions that we would take. There are tough and appropriate actions that we would take, and those actions aren't included. So I wouldn't do that math literally because I think the math will be better for us because we would then, in that kind of case, we have to take very tough actions to protect your company, and we certainly would. As far as the Eats business goes, what was the question on the Eats business, again?

Just if the incremental costs that you're absorbing between all of the support that you're giving independent restaurants, free delivery for customers that are using it, if there's any offset that you're benefiting from in terms of lower marketing cost, lower incentives that are necessary in this environment because you're seeing the kind of increase in demand or increase in interest in the service from restaurants, given the need that Uber Eats is filling in this environment?

Yes. Listen, I think our first focus has been doing the right thing to support small businesses and drivers and couriers. So I will tell you, that is the first order of priority. We have used that as a first order of priority, knowing that we've got a lot of flex in the Eats business. If you remember, in Q4, we were leaning forward very aggressively, particularly with Eats, both in terms of incentives and in terms of marketing. So I do believe -- and it's more than believe, I know, and the team knows that we have plenty of dials, so that as we lean forward to help our community, we can pull back in certain areas like marketing and incentives. I would tell you that in our Eats business, while in Rides, we're aggressively pulling back because the business is down pretty significantly, and that's just the reality of where we are. We manage according to reality, not according to wish. With Eats, there's a lot more flex in the system, and we are being net leaning forward a bit, first leaning hard into our community but also not pulling back as much because frankly we don't have to, because we have very big P&L. We've already been leaning towards profitability, and a lot of kind of those muscles are already in place, and our balance sheet is [ rock-strong ].

It will come from Eric Sheridan, UBS.

Dara, just following up on that answer with respect to Eats and the leverage you can push in the business. Can you just refresh investors on the Venn diagram of how the platform works in terms of the people who use Rides versus Eats on the product set? And as you see some weakness on Rides and the ability of maybe pushing on Eats, what are some of the levers you could pull? And how do you think you could maybe bend the curve from that Venn diagram to have people using another product on the platform?

Yes. Eric, it's a great question. And the majority -- we haven't disclosed that information because of competitive nature, but the majority of our Rides users don't use Eats. Now they do use food delivery, and we are absolutely using this crisis -- and it's not using the crisis, but we're responding to the crisis by being more aggressive in terms of this cross-promotion. For example, we deployed -- I think it was either yesterday or the day before, we deployed a push notification to all of our Rides users to use Eats, and we saw huge spikes in terms of Eats usage for the past couple of days. So the kind of the loud horn that we have on Rides can absolutely cross-promote Eats, and we are going to be more aggressive in doing so. We think it's good for business, and we think it's a good thing to do for our users as well.

That will come from Mark Mahaney of RBC.

Two questions. Can you -- any data points on other cities outside of North America, particularly in Western Europe? Some of your larger markets there, maybe Paris or London? What kind of trends you're seeing there? If they're similar to what you're seeing in New York City, LA, San Francisco and Seattle. And then as a product idea, what about expanding beyond Eats in this environment to doing something like Uber Basics? I'm sure there are a lot of people, particularly immune-challenged senior citizens, perhaps, that could be really -- it could really benefit from Uber, some sort of Uber Basics offering where a series of consumer staples and medical supplies are actually delivered to them? Is that something that you're doing? Is that something you could do with local governments, et cetera?

Yes. Absolutely, Mark. In terms of Western Europe, the way I'd describe Paris and the U.K. or London is that they are behind the curve of Seattle, but the curve is looking pretty similar. Paris is -- my guess, is a couple of days or a week behind Seattle. London is less worse, so to speak. So London is earlier in terms of the curve developing. But again, it does look like there's a curve developing, and it is a -- it's only a question of when the curve turns. And we're hoping that we see more Hong Kongs out there. But the behavior doesn't seem to be that significantly different. Again, in a couple of weeks, there may be cities that bottom out at different rates, and we're just not sure of that. But we will make sure that we're -- we communicate that pretty -- as quickly as we can. In terms of these alternative business model, absolutely. I think -- and the first thing that we're doing is we're just trying to help in terms of alternative business models. So we're helping transport medical workers in Spain. We've got food delivery in London and Paris and looking to support cities and providers who are trying to get meals to seniors. So the teams are -- we're actually now looking to test delivery, tested delivery. And we have a Uber for health, so we already have contacts in the health sector. We've got all of the processes that you need to make sure that the materials and the passengers that they carry are clean, et cetera. So we are looking at all areas. Food and logistics is kind of our core, it's something that we're really, really good at. It starts with helping the community, and that's the angle right now. And I do think that it does have the potential of turning into a business. But at this point, the businesses are Rides and Eats and we're really focused on running them. And then we're also focused on helping communities, especially as it comes to health. There could definitely be a business there.

And Mark, the only thing I'd add is we also are, with our Uber Freight, are making sure that we're involved in terms of the supply chain for critical items in the U.S. And so we are also trying to get involved there in health.

Pierre Ferragu of New Street Research.

Dara, I was wondering, in Hong Kong, so you mentioned the trough, 45% below peak, and then we are at 30% below -- back up, 30% below peak now. How much time happens between these 2 points? And then looking forward, what's your best guess at the moment about how Hong Kong gets back to that peak? Either -- how many weeks is that going to take? And what are the driving -- the drivers of continued recovery in the business from here today? What are the changes in the life of the cities that are going to keep Rides going back up?

Yes. Pierre, it's anyone's guess. It's already characterized Hong Kong, and these are approximate characterizations, so please take them as such. It was about 4 to 5 weeks from lockdown to the bottom, and then the recovery started. And I'd say that the recovery has been in place for a couple of weeks, probably 3 to 4 weeks. But these are approximations from the memory of a CEO who's been through a lot over the past weeks. So they are approximations, but there -- they may be off by a week or 2. As far as how a city gets back into life. I think every city is different. For us, we've seen Hong Kong get back to life at work first, and I think that is going to be consistent in every city. Listen, I think people want to get back to business, certainly in the U.S., all around the world, I think business is doing its best to operate virtually. And I think that the minute these lockdowns are removed, people are going to go to work carefully, safely. I think there will be kind of social distancing. There will be cleaning supplies everywhere. People will be careful and will act differently, but they are going to get to work, and that means going to offices. And then slowly but surely, I think that life will return to normal as far as going out, socializing. That's another big part of our business. And then finally, travel. I think travel will open up. And I used to be in the travel business previously. It is amazing how quickly travel comes back, but it has to have the right circumstances for it to come back. And clearly, you don't have those circumstances. But I think, again, once the circumstances are okay for travel, I think those floodgates will open. We're not seeing that happening yet, but I fully expect to see it happen. I've seen it before. So that's -- every city is going to be different. My guess is, in Western Europe, probably, not only work is going to bounce back, but other elements of life will bounce back a bit faster. But at this point, it's complete speculation on my part.

Operator, can we take the question?

That question will come from Ross Sandler of Barclays.

Actually, I have like 3 short ones. So related to that last question. If we get back to out of the crisis mode in a couple of months or quarters, but shared rides are gone, airport routes are gone, how will that impact the -- you guys used to talk about 17% to 63% EBITDA range for Rides, getting to the midpoint of that. So how would that impact getting back to that midpoint, medium to long term? And then what levers can you guys pull in fixed costs or in Other Bets if need be? Can you just walk us through some of that? And then lastly, given this crisis, Dara, how are the conversations about 1099 workforce changing, given what's going to happen to that subsection of the economy? Does this get you to AB6 or the framework that you guys had come up with in that whole process? Any thoughts on the 1099 debate?

Yes. Sure. As far as the segment EBITDA margins because of the scale that we've got and because of the variable cost nature of the business, we don't anticipate segment EBITDA margins being materially different. A lot of the work on margins has been driving automation in various parts of the business, reducing contact rates, reducing core errors. That's going to be true whether we have airport trips or we don't. So I think the biggest effect of, let's say, their not being POOL or their not being airport is just the volume, the top line volume of the business will be slightly lower. And I think the margin characteristics of the business will be -- on a segment basis, will be quite similar. And we will have to adjust. And by the way, we're already adjusting our overhead. For example, we put on a headcount freeze. I think that we can adjust the G&A to make sure that we have a G&A and an operating overhead that's appropriate for the business. So it's -- I think it's something we'll adjust to. And it's not a fundamental issue as it relates to the segment EBITDA of the business. We've been working on it for 1.5 years. This is not new. These are muscles that we've developed. And more importantly, these are technology projects that we have developed and have been shipped, and there are many, many, many behind them. In terms of, in extreme cases, can we pull more levers? Absolutely. And we are preparing those levers. We will, I think, under extreme circumstances, we'll be looking at strategic alternatives. Should we drive consolidation? Should we drive more scale? How aggressive do we want to be? We do think we've got the balance sheet to stay the course. But just because we can stay the course doesn't mean we should stay the course. And we're going to talk with our Board. And certainly, we're going to get together as a management team and say, "Hey, what are the bets that we should continue to make in this kind of a world?" Because essentially the cost of any bet that you make will increase. And as a result, you better be convinced as to the returns on any kind of a bet. So we're certainly going through that. Right now though, job #1 is our couriers, our drivers, restaurants being there for them. And then we're laying out a strategic kind of choice matrix based on a new capital allocation model going forward. We're putting that together, and we'll be making decisions on those over the next couple of weeks. As far as the question on work, listen, this is -- this situation certainly demonstrates the downside of attaching basic protection to W-2 employment. And what we have said very, very consistently is that we need a third way, and we think the third way is good for society, which allow workers who want flexibility to work flexibly based on what their own needs are, but also have access to protections. And that is -- we've been very, very consistent about that, and I think this kind of a situation only highlights it. So we -- and by the way, having those workers having protection, that's actually an important part of getting the economy back on its feet and getting the economy to recover. So I do think that this is an important discussion. One example of New York state, given these circumstances, the -- is no longer pursuing kind of the AB5-type legislation that California is pursuing. It just seems completely off. And during this time, it is about kind of getting as much flexible work as you can and providing protection that we think is a better formula going forward. And once everyone comes up for air and we have a little room to breathe, we're hoping to have that dialogue with governments. And certainly, in terms of government help, we think that you -- anyone who is working full time or part-time equally deserves the help of our government because they're equally paying taxes to the government as well as they have to. So we very, very much hope that our drivers and couriers aren't forgotten, and we're absolutely going to stand behind them. I think that's it. Emily, is that it for the call?

Yes. Yes. We're done with questions. So thanks, everyone. We appreciate and thank everyone for joining. And I think we're all set.

Yes. Listen, thank you so much for joining. And we will update you as we know more, but we just thought it's really important to update you quickly in such a dynamic situation. And thank you to anyone at Uber who's listening to this call. We've got a bunch of heroes, and we've got a lot of work ahead of us. Thanks, everyone, for joining us.

And we thank you, management team, for your time also today. Again, the conference call has now concluded. Again, thank you all for attending. At this time, you may disconnect your lines. Thank you. Take care, and have a great day, everyone.