Lyft, Inc.

Good afternoon and welcome to the lift second quarter 2022 earnings call. At this time, all participants are in a listen only mode to prevent any background noise. Later we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance, please press star then zero on your touch tone phone. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sonia Banerjee, Head of Investor Relations.

You may begin.

Thank you.

Welcome to the LIFT earnings call for the quarter ended June 30th, 2022. Joining me today to discuss LIFT results and key business initiatives are co-founder and CEO Logan Green, co-founder and President John Zimmer, and Chief Financial Officer Elaine Paul. A recording of this conference call will be available on our investor relations website at investor.lyft.com shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements. This includes statements relating to the expected impact of the continuing COVID-19 pandemic, macroeconomic factors, the performance of our business, future financial results and guidance, strategy, long-term growth, and overall future prospects. We may also make statements regarding regulatory matters. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call. In particular, those described in our risk factors included in our Form 10-Q for the first quarter of 2022, filed on May 10, 2022, and in our Form 10-Q for the second quarter of 2022 that will be filed by August 9, 2022. as well as risks related to the current uncertainty in the markets and economy. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and LIFT disclaims any obligation to update any forward-looking statements except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in our earnings release, which was furnished with our Form 8K filed today with the SEC, as well as in our earnings slide deck. These materials may also be found on our Investor Relations website. I'd now like to turn the conference call over to Lyft's co-founder and chief executive officer, Logan Green. Logan?

Thanks, Sonia, and good afternoon. I'm pleased with our Q2 results. In light of the macroeconomic environment, we took swift and decisive actions, which helped generate 79.1 million in adjusted EBITDA, which is the highest in our company's history. Revenue of 991 million was near the top end of our outlook. Rides reached a new COVID high, and we added more than 2 million active riders versus Q1. We feel good about where things landed, and I'm grateful to team members for everything they do to support the company and our mission. We saw increased demand in Q2. Active riders and rides both hit post-COVID highs, with rideshare rides up 27% year-over-year. Travel came roaring back. The airport use case reached an all-time historic high at 10.2% of total rideshare rides in Q2, and managed lift business bookings more than doubled, up 105% year-over-year. In addition, bike and scooter rides more than doubled in Q2 versus Q1. We saw increased driver performance, too. The total active drivers were the highest they've been in two years, reflecting a mix of new and returning drivers. More than half of new driver acquisition in Q2 was organic, and we've seen strong driver attention year to date. In Q2, average driver earnings in the U.S. were north of $37 per utilized hour, which is up 18% year over year, including tips and bonuses. Critically, we attracted more drivers to our platform, even as we grew our adjusted EBITDA and realized greater leverage. Contra revenue incentives on a per rideshare ride basis were down 17% versus last year, which is an even sharper decline than we expected. I want to remind folks that these incentives are primarily funded by primetime, which is reflected in the price riders pay. Service levels are also improving. With more drivers using Lyft, service levels are getting better, even with more riders and higher ride volumes. Across the U.S., average rideshare ETAs in Q2 were roughly three minutes faster than they were in Q2 of last year. This means we are one to two minutes away from pre-COVID rideshare ETAs. Additionally, when normalizing for the $0.55 per ride gas surcharge that goes directly to the driver, which went into effect in mid-March, rideshare prices have come down year over year, and overall improved service levels have led to rideshare conversion rates that have returned to pre-COVID levels. Over the medium term, We expect rideshare ride volumes to reach and exceed pre-COVID levels. In Q2, shared rides were 1% of total rideshare rides versus roughly 20% pre-COVID. We're moving quickly to introduce our improved shared ride experience in more markets to go after this growth opportunity. John will go into more detail about our work on shared rides. While the West Coast has lagged behind other parts of the country, we see signs that it is recovering. In Q2, the top 10 West Coast markets grew more than twice as fast as the East Coast or the South relative to Q1. Nights out represent another growth opportunity since this use case has lagged as a percentage of total rideshare rides relative to what it was before COVID. We're also making prudent decisions and responsibly managing our cost structure. In mid-Q2, we revised our operating plan. We pulled back on discretionary spending and significantly slowed hiring. We reprioritized our R&D initiatives and reorganize teams to ensure laser focus on driving profitable growth. Our Q2 performance demonstrates our continued ability to navigate uncertain operating environments and deliver strong results. In addition, we recently announced our plans to discontinue our first-party consumer rental business. Since introducing Lyft Rentals three years ago, we experimented with both first- and third-party models and saw third parties as the best way to scale Lyft Rentals and provide better coverage. We also consolidated several of our vehicle driver support locations. Finally, even though we decided to exit the San Diego scooter market, Lyft riders will still have extensive nationwide scooter access through our spin integration. Taken together, these actions are expected to deliver incremental cost savings while maintaining a strong rider experience. The most important point I'd like to leave you with is that we are confident in our ability to continue navigating near-term headwinds and deliver strong long-term business results. Over the past several months, one of the most common requests in investor conversations has been for more visibility into our longer-term profitability. While the macroeconomic environment continues to create near-term uncertainty, we are confident in the fundamentals of our business. As we look out to 2024, we are targeting adjusted EBITDA of $1 billion, with over $700 million of free cash flow, which is defined as operating cash flow less capex. We see multiple paths to achieving these milestones driven by expected industry growth and operating leverage. These will be key financial targets that we'll be using to drive the business forward over the next two years. Now, let me turn the call over to Elaine to share the details on our financials.

Thanks, Logan, and good afternoon, everybody. In the second quarter, we delivered revenues of $991 million, representing an increase of 13% versus Q1, and 30% versus last year. Q2 revenue was just 3% below the all-time peak reached in Q4 of 2018. Revenue growth was driven primarily by rideshare, which was up 27% year-over-year in Q2. Relative to guidance, Q2 revenues came in towards the high end of our range. Active riders grew by more than 2 million versus Q1 and were the highest they've been since early 2020. Active riders were 19.9 million in Q2, up 12% quarter over quarter, and 16% versus last year. Sequential new rider growth outpaced the growth of returning riders, which is great to see since it speaks to the runway in front of us. Q2 revenue per active rider of $49.89 was the second highest it has ever been. Revenue per active rider grew by 71 cents versus Q1 and by $5.26 versus Q2 of last year. The increase was driven by higher revenue per ride associated with longer trips. Two major trends are driving this, accelerated growth we've seen in Lyft business as well as a strong pickup in travel. Before I move on, I want to note that unless otherwise indicated, All income statement measures are non-GAAP and exclude stock-based compensation and other select items as detailed in our earnings release. A reconciliation of historical GAAP to non-GAAP results is available on our investor relations website and may be found in our earnings release, which was furnished with our form 8K filed today with the SEC. Q2 contributions significantly outperformed versus guidance. Contribution was $590 million, up 18% versus Q1, and up 31% versus Q2 21. This is roughly $30 million better than the high end of our contribution outlet of $560 million. Relative to our guidance, around half of the beat, or $15.5 million, was driven by bike share related accounting adjustments that reduced cost of revenue. This is inclusive of $3.2 million depreciation benefits. The remaining upside was driven by deliberate management actions that drove incremental growth and cost savings. Contribution margin in the second quarter was 59.6% and was 360 basis points higher than our guidance of 56%. The bike share items I just discussed delivered roughly 160 basis points of this outperformance. Relative to Q1 2022, contribution margin increased by approximately 220 basis points, reflecting deliberate management actions that drove improved per-ride unit economics. As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods. In the second quarter, there was adverse development of $275 million. This was partly offset by a $37 million accounting gain and resulted in a net impact to gap cost of revenue of $239 million. This adverse development reflects insurance industry trends. The commercial auto industry has been experiencing higher costs and increasing insurance losses. Like many other services, auto repair and health care have become more expensive, reflecting the broad impact of inflation on both wages and materials given supply constraints as well as challenging litigation trends. Furthermore, our Q2 adverse development is primarily associated with a legacy third-party claims administrator who did not resolve legacy claims as effectively as we would have expected. These claims predate the risk transfer structure that we've been implementing since Q4 of 2019, which means we do not have the same exposure to additional volatility on legacy claims in future periods. At this point, around 90% of the claims that are handled by our legacy claims administrator, which date back to 2018, are resolved. Let's move to operating expenses below cost of revenue. In the aggregate, these expenses came in well below guidance, primarily driven by cost savings in R&D and sales and marketing. These savings are the direct result of actions we took in the quarter to address macroeconomic uncertainty. Let me start with operations and support. As a percentage of revenue, operations and support was 10%, down 60 basis points from Q1 and down 130 basis points from Q2 21. In absolute terms, this expense was $98.6 million in Q2 and includes a $5 million benefit from an accounting adjustment related to our bike share system. Relative to Q1 22 and to Q2 of last year, we achieved better leverage on our operations and support expense, even as ride volumes and driver supply grew. R&D was 10.7% of revenue in Q2, down 100 basis points from Q1, and 630 basis points down from Q2 21. In absolute terms, R&D expense was $105.7 million in Q2. Year-over-year comparisons reflect the impact of our divestiture of our Level 5 self-driving division that closed in July of last year. Relative to Q1, R&D increased by just $3 million, which was below guidance that implied an $18 to $25 million increase in R&D expense quarter over quarter. We were able to do this by streamlining the number of priorities we were working on and considerably limiting hiring. Sales and marketing as a percentage of revenue was 13% in Q2, roughly flat with Q1 and up 140 basis points versus Q2 of 21. In absolute terms, sales and marketing expense was $128.3 million. The $13.5 million increase in sales and marketing versus Q1 was below guidance of an increase of $19 to $26 million. Relative to Q1, this incremental spending reflects pre-committed brand marketing and driver referral bonuses. Within sales and marketing, incentives were 3% of revenue. G&A expense as a percentage of revenue was 20.6% in Q2, up 160 basis points from Q1, and up 60 basis points versus Q2 21. In absolute terms, G&A expense was $203.7 million and includes a $12 million accounting benefit driven primarily by tax reserve releases that were identified during the quarter. Relative to guidance, G&A was incrementally higher than anticipated, driven primarily by policy. In terms of the bottom line, our Q2 adjusted EBITDA profit of $79.1 million was the highest in our company's history. It also exceeded the top end of our $10 to $20 million outlook. by $59.1 million. This outperformance reflects actions we took to control costs and drive profits during the quarter, in addition to business outperformance and accounting kill-ins. In total, Q2 adjusted EBITDA included $29 million of accounting kill-ins. We ended Q2 of 22 with unrestricted cash, cash equivalents, and short-term investments of $1.8 billion. The sequential change in unrestricted cash was driven primarily by an insurance collateral requirement, which moved funds from unrestricted into restricted cash, as well as our acquisition of PBSC. Before I move to our outlook, it's important to note that geopolitical dynamics and macroeconomic factors are impossible to predict with any certainty. Future conditions can change rapidly and affect our results. We are taking a prudent approach to managing our business. First, like many companies, we are keeping a close eye on consumer behavior. Even in a recessionary environment, transportation is a historically durable category of consumer spending. And the depth of our network means that we can deliver a wide range of price points to riders, from bikes to wait and save and shared rides to priority pickup. In addition, More people may turn to rideshare for supplemental earnings opportunities, serving as a tailwind to organic driver supply growth. Second, as I mentioned earlier, insurance costs are being affected by inflationary pressures. In Q3, we expect this will impact our contribution margin. We've been actively working to mitigate the impact, and we aren't done. We believe that over time, we can offset higher insurance costs through both pricing and also product and engineering efforts that deliver better per-ride unit economics and that continue advancing the safety of our network. Internally, we continue to drive forward initiatives to reduce the frequency and severity of accidents, thereby also bringing down the cost of insurance. This includes further leveraging our risk models to assess behavioral and environmental risk factors. Our in-house mapping technology, LiftMaps, can help enable safer, cost-optimized routes that drive additional insurance savings. In terms of controlling our corporate overhead, we have materially pulled back on hiring, cut T&E budgets, and will continue scrutinizing every cost line item to ensure we are demonstrating strong discipline. Over a few quarters, we expect higher insurance costs will be mitigated by improving leverage, but they will provide some near-term headwinds. Now, let me share our outlook. We expect Q3 revenues of between $1.040 billion and $1.060 billion, which implies growth of between 5% and 7% versus Q2, and growth of 20% and 23% versus Q3 last year. Ride and share rides grew almost 4% month over month in July, and we expect an acceleration in September with back to school. We also expect an incremental tailwind from bikes and scooters in Q3. Given H1 actuals and our Q3 outlook, we now expect full year 2022 revenue growth will be slower than the 36% achieved in 2021. In terms of profitability, we expect Q3 contribution margin to be roughly 55%. This implies contribution of $572 to $583 million. We expect operating expenses below cost of revenue will decrease slightly in Q3 versus Q2 as a percentage of revenue. As a result of the above, we expect Q3 adjusted EBITDA of $55 to $65 million. This implies an adjusted EBITDA margin of roughly 5 to 6%. Excluding the accounting tailwinds in Q2 of $15.5 million in contribution and $29 million in adjusted EBITDA, for every $1 of incremental revenue in Q3, the high end of our outlook implies $0.12 will flow to contribution and $0.22 will flow to adjusted EBITDA. We recognize the importance of expanding the leverage in our business and growing our profits. and we are committed to driving both forward. With that, let me turn it over to John.

Thanks, Elaine. I'm going to focus my comments on the marketplace work we are doing to deliver incremental growth and profits. First, let me start with ride affordability, since this is critical to support ride frequency and loyalty, which are key drivers of our business. Our network gives riders access to a wide range of transportation options and price points. In terms of ride share, shared rides are top priority as the most affordable option. Shared rides were still a relatively small percentage of our total rideshare volumes in Q2, but it's clear that the new reimagined experience is delivering meaningful value. In Philadelphia, shared rides grew 20% quarter over quarter in Q2, far outpacing standard rideshare ride growth. And pre-booking a shared ride has become very popular, accounting for the vast majority of all shared rides in Q2. By booking a shared ride in advance, riders receive the best possible price. In exchange, we get more time to find the best possible match. As a result, we can make the experience better for the rider and driver, improve our marketplace efficiency, and unit economics. As a specific example, in Philadelphia, our match efficiency and match rates are nearing pre-COVID levels on just 20% of pre-COVID shared ride volumes. We're moving quickly to introduce shared rides in more markets to scale this opportunity. In July, we doubled the number of markets where shared rides are offered from 7 to 14, and we'll continue scaling shared rides as we move through the year. Additionally, our bikes and scooters offer affordable and sustainable options for shorter trips. Last year, more than 2.4 million people tried Lyft-operated bikes and scooters for the first time. And in the first half of this year, first-time bike and scooter riders were up 7% versus the same period last year. In addition, in New York City, city bike rides more than doubled versus Q1-22, and in Chicago and Denver, our scooter systems reached new daily highs during Q2. Next, let me talk about the rideshare driver experience. We are working to give drivers even greater transparency when it comes to choosing when to drive and which rides to accept. By doing so, we expect we can increase organic driver acquisition and loyalty and continue improving our marketplace balance. These high-impact projects have the potential to drive meaningful top-line and bottom-line growth now and in the future. Upfront pay is one example. With upfront pay, drivers have more visibility into the rider's pickup location, the route details, and their expected earnings when they're deciding whether to accept the ride request. We've seen that upfront pay can increase the number of drivers using Lyft and the amount of time they spend driving, while also increasing ride completion rates. We'll continue working to deploy upfront pay in more markets throughout the year. Last, I want to highlight the significant additional opportunity we see to make our marketplace more and more efficient. This work is an important lever within our control that we will use to achieve our 2024 adjusted EBITDA target. One example is our work to more fully roll out Lift Maps, our in-house mapping technology that is based on open source software. This work allows us to drive material cost savings per ride in terms of better routing and actual third party mapping costs. To that end, in Q2, we launched Lyft Maps within our rider app, and it's now providing the underlying map for more than 60% of rider sessions. With this rollout, we've grown the percentage of rides powered entirely by Lyft to 18%, up from around 3% of riders at the beginning of the year. Based on initial data, we expect Lyft Maps can begin to deliver meaningful cost savings starting this quarter. Another example is the work we are doing to further improve the efficiency of our driver engagement spend. We are doing this by advancing our machine learning technology and enhancing our prediction tools. This work has the potential to deliver millions of dollars in incremental adjusted EBITDA profit by the end of the year. The bottom line is that there are several exciting opportunities within our control to drive positive leverage in our business. As we navigate the next few quarters, it's clear consumer transportation and the technology we're building is a strong long-term business with a massive addressable market. We continue to believe that Lyft has the opportunity to deliver one of the most significant shifts to society since the advent of the car by enabling and unlocking transportation as a service. Autonomous vehicles will provide an additional step change in long-term growth, and Lyft will be at the forefront of that transformation. Operator, we're now ready to take questions.

At this time, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your first question is from the line of Doug Anmuth with JP Morgan. Your line is open. Thanks for taking the questions. You talked about how drivers are their highest levels in two years. Can you just talk about how your position now with drivers versus three months ago, what that's meant to service levels and what that suggests for contra revenues or incentives in the back half of the year? And then just given the two key revenues, which were pretty solid, can you just talk more about what drives the change in the 22 outlook overall? I'm just not expecting acceleration any longer. Thanks.

Hey, Doug. It's John. I'll take the driver question and then pass it to Elaine on revenue. So, yeah, coming in on the last earnings call, there were a lot of questions about the supply side of our marketplace. We're super happy. on what we saw on the driver side. It's in the best place it's been in a very long time, and we're seeing continued positive trajectory. We mentioned earlier on this call, total active drivers were the highest they've been in two years, and more than half of new driver acquisition in Q2 was organic. Driver earnings also obviously super important to watch. In the U.S., we're north of $37 per utilized hour, which is up 18% year over year, including tips and bonuses. And you asked about, you know, contra revenue incentives on a per ride share ride basis. We're actually down 17% versus last year, which is an even sharper decline than we had expected. In Q3, we expect contra revenue incentives per ride share ride will decline another 20% quarter over quarter. One reminder is that these incentives are primarily funded by prime time, which is reflected in the price riders pay. You asked about service levels. They continue to improve because of what I just mentioned. So, what we're excited about is that Q2 average rideshare ETAs were 1 to 2 minutes away from pre-COVID levels. And so, hopefully that addresses your questions on service levels and drivers.

Yes, in terms of your question on our full year outlook and our revenues, modest macro headwinds have tempered our view on the pace of the recovery since what we expected since the start of the year. The trends we saw in Q2 and from July are informing that view, and even while we've continued to grow rides, the pace at certain points has been more tempered than we thought at the start of the year. As a result, as we disclosed, we brought down revenue growth to 5 to 7 percent quarter-over-quarter in Q3, and this has informed our full-year outlook, and we've also revised our expectation for full-year 2022 revenue growth. Regardless, we expect to deliver $55 to $65 million in adjusted EBITDA in Q3 and $1 billion of adjusted EBITDA in 2024. Going back to your question on CONTRA and our outlet on CONTRA revenue incentives. CONTRA, as John mentioned, was down 17% year-over-year. The sharper decline than we're anticipating as of May, we expected a 15% decline year-over-year. And going forward, on a per rideshare basis, we expect Contra to decline 20% year-over-year and to come down in absolute terms versus Q2.

Thank you.

Thank you. Can I just clarify there that the down 20%, it's the 17 year-over-year going to down 20 year-over-year, or it's down another 20 sequentially? I just want to clarify that point.

Just clarifying, it's down 20% quarter on quarter on a per rideshare ride basis.

Okay, thank you. Quarter on quarter. Yeah. Quarter on quarter.

Your next question is from the line of Stephen Jew with Credit Suisse. Your line is open.

Okay, thank you. So, John, the steps you just talked about to, say, offer the driver the ability to favor certain jobs over others, I mean, without question, positive for them, right? But, you know, they may be neutral to maybe negative for the consumer experience. So, you know, how do the interests between the two sides of the marketplace get balanced And Elaine, I think you touched on this in your prepared remarks, but can you remind us, you know, where you stand in terms of all the potential liabilities from the older insurance claims? Because our recollection is that about, I don't know, I think this is about a year plus ago that, you know, Lyft had paid to transfer some of the risk to a third party with the understanding that we'll not see these provisions from adverse events show up going forward. But You know, and when you say that you have resolved like 90% of the things, I mean, is that from a dollar or Chase's standpoint? Thanks.

Cool. Hey, Stephen. This is John. So on your first part, upfront pay. So you're right. It's a careful balance. Obviously, we want to provide drivers with as much information as possible while also providing a really strong and good rider experience. And that's why it's rolled out where we started testing it. I think we were the first to test it in the rideshare industry, and we're continuing to roll out more elements of it as we go to ensure that we're protecting the rider experience. And what you realize as you do that is, and I think overall this is a really good thing, is that you properly align incentives across the marketplace so that if you were previously pricing a short ride in a way that got less drivers to accept it, and you were pricing a long ride in a way that got a lot of drivers to accept it, you might rebalance that between the short and long rides. Overall, zero net result, but I think better aligns incentives across the board. And so the time we take to roll it out in each market and for each segment of drivers is because we continue to dial that in. Long term, I think just because we've aligned incentives better with drivers, I think overall there's efficiency or operating leverage from doing this, because this is actually way better than kind of long or medium term incentives. It's right in the moment. And so we believe it'll perform better for our overall unit economics.

Thanks for the questions on adverse. And just to clarify, what I mentioned in my remarks was that at this point, 90% of the claims outstanding that are handled by our legacy claims administrator, which dates back to 2018. Ninety percent of the total claims are resolved. Ten percent are outstanding. So it was number of claims. With respect to adverse, we do think that this adverse development reflects insurance industry trends. The commercial auto industry has been experiencing higher costs and increasing insurance losses. And like many other services, auto repair and healthcare have become more expensive, reflecting the broad impact of inflation on both wages and materials. Virtually all of our adverse development is attributable to historical auto losses that date back to 2018. This predates our risk transfer partnerships with insurance carriers with rideshare specific experience adjusting claims. The legacy book of liabilities primarily causing these adverse predates this risk transfer and will continue to shrink in size as the claims are closed out.

Thank you.

Your next question is from the line of Mark Mahaney with Evercore. Your line is open.

Thanks. A near-term question and a long-term one. I forget what we call the fuel charge, charges, whatever. As gas prices are coming down, is there an opportunity here to no longer need to rely on those for drivers? And then secondly, this billion-dollar in EBITDA, gold, $700 million in free cash flow by 2024, I was going to ask just a few of the assumptions behind that. I know John talked about some nice efficiencies with lift maps, but Elaine, is there anything else you would call out, just high level, what kind of assumptions are required to get there? Thank you.

Hey, thanks on gas prices. I think, you know, we're not, we're not announcing anything for our drivers on this call, but we'll continue to look at obviously, we're seeing gas prices come down. And as we mentioned on the call, we saw driver earnings at a really nice level 30 over over 37 dollars. So, so overall can't announce, but definitely think driver earnings are continue to be in a good place.

And then on the $1 billion target for 2024, there's four key levers to get there. The first is overall ride share market growth. The second is pricing. And along with that, changes in ride mix modes and the sort of revenue management behind that. Third is impact on our work to drive efficiency in the marketplace. And finally is overall operating leverage. So one key assumption that is important to call out is it only assumes rideshare volumes grow at the same rate as the rest of the market. We're confident in the plan and the assumptions behind it, and again, we have multiple paths to achieve that billion-dollar target.

Thank you. Thank you very much. Your next question is from the line of Stephen Fox with Fox Advisors.

Your line is open.

Hi. Good afternoon. A couple questions for me. So I was just curious, on the airport rides trend, since it's reached record levels, how do we think about that going forward from here, given future travel trends and how you're managing the mix of business? And then I had a follow-up.

Obviously, hard to perfectly predict the macroeconomic conditions, but we've made strong investments with the team in the airport trip. We have a phenomenal partnership with Delta and other airlines because we see it as such a great example. And as Logan mentioned on the path to the billion dollars in adjusted EBITDA, he mentioned mode mix. And so when you look at an airport ride, it's obviously longer and can have a great margin and be great for the driver. So, again, not going to predict exact direction of that. I think it is both the fact that that has hit an all-time high is both attributable to the fact that people are out traveling again, as well as the work we've done internally to make that true.

Yeah, this is Logan. I just got clearly there's a lot of pent up demand for travel. So we're seeing a big surge now, but I think that's likely to continue. The other piece is just to call out that the airport experience has really improved in a lot of ways over the last number of years. Looking back several years, it wasn't clear that the airports even wanted ride sharing to operate there. And now we're a meaningful portion of their revenue. They're allocating better curb space in many cases, better queuing lots, and we've done a ton of product work to improve the experience. So, for example, priority pickup, which is a great product we launched last year that gives riders the fastest lift pickup experience. We've now scaled up to over 34 airports. That was, you know, we had to do a lot of work to bring the priority pickup experience to airports, but it's there. now in a lot of major airports and working really nicely. So a lot of the kind of infrastructure under the hood that we've done and we've done in conjunction with airports, I think, has helped the experience and put us in a good place to capture this kind of resurgence of travel.

That's helpful. And then just is there any further update on the PDOC acquisition and whether that's considered in the billion-dollar EBITDA target? Thank you very much.

That is considered in the target. Things are going well there. We're quite excited. It creates opportunities for revenue synergies between what we're doing at Bikeshare and what they've been doing. You know, as we were doing R&D on Bikeshare, like building an e-bike, they already have customers around the world to kind of make up for any cost we have in R&D by basically having a captured sales audience to sell it to instantly. It diversifies our overall customer mix in that business and our geographic concentration of the existing model that was just U.S.-focused. PDFC's bike share equipment has been sold in 45 markets in 15 countries. And so quite excited about what that can mean for that part of our business.

Thanks again. Thank you.

Your next question is from the line of Brent Thill with Jefferies. Your line is open.

Hi, thank you. This is John for Brent Thill. Question on some of the progress you made on cost savings on the APEX side this quarter. I mean, you know, some of it were discretionary and so on, but wondering how much of that will be sustainable in the near to medium term, especially on the sales and marketing side. And related to that, you know, if you could talk about your headcount plans, that would be great. Thank you very much.

Yeah, thanks for that question.

As indicated in our Q3 guidance, one additional, we expect to see additional leverage in overall OpEx. We are, as we said, in Q2, we made strides in cutting marketing, T&E, and significantly slowing headcount growth. And we're not giving specific guidance around our hiring plans. but we're exercising extremely disciplined cost management with a clear focus on the bottom line.

Thank you. Thanks. Your next question is from the line of John Blackledge with Cowan.

Your line is open.

Great. Thanks. Two questions. First, on the driver supply, do you think the tougher macro is helping with driver supply and the organic uh driver acquisition um that you saw and then second on shared rides uh do you expect the shared rides to return to the kind of pre-pandemic 20 of ride volume or will it settle in at a lower uh percentage of volume in the next couple of years and will pricing for the shared rides uh return to kind of pre-covered levels or will be elevated uh in the coming years thank you

Yeah, we do expect to see some recessionary tailwinds on the driver's side. I think as people are looking for earnings opportunities, driving for Lyft has always been a great opportunity. It is always on, always there. And like we were talking about earlier, now clocking in at $37 per hour. per utilized hour earnings opportunity. It is extremely competitive. It is typically above that of what driving delivery or other sort of gig opportunities pay. So I think it will maintain a sort of unique place in the market of a premium gig opportunity. And we launched the business back in 2012, which was really in a more recessionary environment coming out of the great recession the 08, 09 timeframe. And I think we are set up well to sort of thrive in any condition, but we will lean into the moment.

On shared rides, as you mentioned, prior to COVID, we had 20% of rides as shared rides. It was actually 30% in the markets that it existed in. Um, and so, uh, you know, we're, it's still quite early and as we mentioned on the prepared remarks, Philadelphia. Uh, 1 of the 1st markets, if not the 1st market, we brought it back to grew 20% quarter over quarter for shared rides, outpacing standard ride share growth. And we're continuing to dial it in carefully. We have a basically a new product for shared rides. Um, which can allow us to offer multiple price points within shared rights. So, if you want 1 instantaneously kind of within a minute or 2, which was the old product, you can get that and pay for it. And to your point, you know, maybe you pay a little bit more than you did historically for that instantaneous shared right? But if you're willing to wait. five minutes, 10 minutes or 20 minutes, we have much more time to find you a match and therefore to give you to pass on and or maintain that match efficiency. What is really heartening and really exciting for us to see, as we mentioned on the call earlier, is that our match rates are nearing in Philly, nearing pre-COVID levels on just 20% of shared ride volumes. And so the whole reason we rebuilt the infrastructure behind shared rides is so that it would have better unit economics and be a better experience for our riders and drivers. And I think there's quite a bit of upside there. As also mentioned in July, we doubled the number of markets from seven to 14, and we have much more to go.

Thank you. Thank you.

Your next question is from the line of Benjamin Black with Deutsche Bank. Your line is open. Great. Thanks for the question.

Talk about market share dynamics. I think in the past you mentioned maintaining share despite the slow recovery patterns we've seen in the West Coast. Is that still the case? Any comments on market share would be really helpful. And the second question is on contribution margin. So excluding the accounting benefit you mentioned, what exactly drove the strength here and why are you expecting contribution margins to actually contract sequentially in the 3Q? Thank you.

Yeah, 1st, on market share on a national basis market share is consistent with where it was pre coven and this is true even with the West Coast lagging and share rides not fully back, which are 2 areas where we historically over indexed. Now, in June, we ran a pricing pilot and a select number of markets that did have a negative impact on share. The pilot has since ended, and we expect that share in those markets will revert over time. But even with that, I want to underline that we are still at share levels consistent with pre-COVID. And on contribution margin.

Yes.

In Q2, with respect to our contribution margin and what drove our beat, it was proactive management decisions and business outperformance in addition to the one-time accounting items. 150 BIPs of the BEAT with stronger revenue per ride due to longer rides and pricing, and 160 BIPs of the BEAT were one-time accounting items, including a bike share adjustment of $16 million. And just to note, that includes $3 million depreciation benefit. Remember, and reminder, our cost of revenue includes depreciation expense, and so to bridge that to adjusted EBITDA, it's a depreciation expense add-back. In terms of looking forward and Q3 and the contribution margins, as we noted, one, we want to normalize the comparison to a normalized Q2, adjusting for those accounting items. And the key driver of our Q3 contribution margin guidance of 55% is insurance inflation. Insurance inflation is expected to result in about 260 basis points of pressure on Q3 contribution margins. We are working to mitigate the impact of insurance inflation on our business, and we have multiple levers to do so. One is pricing. Another is the marketplace efficiency work that can improve unit economics. And the third is product initiatives that continue to improve safety. Reducing the frequency and severity of incidents, which we can impact through our product initiatives, can bring down our insurance costs. So to repeat, we believe that insurance inflation is an industry issue that it's not unique to Lyft and these trends are evident across the commercial auto industry. We have a number of tools at our disposal to combat it and we're working actively to offset the impact.

Alright, thank you. Thank you.

Your next question comes from the line of Brian Nowak with Morgan Stanley. Your line is open.

Great. Thanks for taking my questions. I have two. The first one is to go back to some of the comments you made about some macro weakness impacting the revenue growth and outlook for the year. Can you just sort of give us a little more detail on what you're seeing from a macro perspective? Is it a certain type of routes or runs that are dropping off? Have you done work around the income of your customers? What have you sort of studied that you've seen sort of get a little bit weaker on the macro side is the first one. And the second one, just wanted to drill a little more into that billion dollar target again. I think you mentioned to Mark's answer, it assumes that you grow in line with the overall market between now and 24. Is that sort of based on public comments made by your competitors? Is it based on consensus of all of us? What are you expecting the market to grow over that period? Thanks.

Hi, thanks for those.

Yeah, to go back to the questions around what kind of macro headwinds we're seeing, it's really to repeat a bit what I said earlier on the call, that we've tempered our view on the pace of the recovery. So we're pleased we saw a 4% uptick in rise in July. We're seeing that stabilize through the summer, which is what we would expect, and we do anticipate an uptick in September. What's impacting our full year view is at certain points, particularly since May, the pace of recovery has been more tempered than what we thought at the start of the year. So that's what's bringing down our Q3 revenue growth, and that's what's bringing down our full year expectations of revenue growth. And then moving to

You asked about kind of the adjusted EBITDA 2024 guide to a billion dollars and the comment that we expect to grow at levels of the industry. Yeah. Yeah, so we expect kind of low to mid 20% growth in the industry and for ourselves.

Perfect.

Thank you both. Thanks. Thank you.

Your next question is from Eric Sheridan with Goldman Sachs. Your line is open.

Thanks. Maybe one big picture and one on the financials. On the big picture side, when you see where the demand curve is coming back relative to 2019, and I know we've talked a lot about shared rides on the call, what do you think of as different layers of product innovation or market segmentation that you still want to go after to possibly continue to expand the addressable market and think about ways in which you could bring more people onto the platform? That would be question one. And then we've got a lot of questions from investors about stock-based comp and how to think about internal compensation of employees, given what's happened in the stock market over the last six to nine months. How are you guys thinking about absolute levels of stock-based compensation and mixes of cash versus stock compensation for employees looking out over the next couple of years? Thanks so much.

Great. So when we think about the long-term growth drivers and where we're focused, we look at three key areas. And the first is demographics. So every year, 4 million people in the U.S. become old enough to start using ride-sharing on their own. And there's a lot of data externally, and we have a lot of internal data that shows that youngest people in the population tend to prefer digital-first experiences, and they love service models. There's greater flexibility and more convenience. You know, we see this in music, we see this in entertainment. So we think that preference has been there, you know, for a decade, and it's not going away anytime soon. So we're going to continue leaning into that. And when Lyft first launched, it really took off with folks in their, you know, 20s, 30s, 40s. And all of those folks are a decade older now. That shift continues. So we lean into the demographics. and building products and really marketing to that audience. Second is on marketplace efficiency. And this is really one of our top priorities now. It always is. You know, our core job is to match supply and demand. And, you know, I'm sure everybody's had that experience where maybe you're in a smaller town and you open up the app and you can't get a ride. Or maybe you're opening up the app at a certain time of day when it's extremely busy and the prices spike too high. In many cases, those are that sort of unmet demand can be met. Those are solvable problems. And we look at the market opportunity. There is a driver out there who would be happy to provide the ride, but maybe we didn't communicate the opportunity to the right driver, or maybe it's a forecasting or prediction issue, but it's something that we can address. And there's a ton of innovation and improvements that we have in the pipeline to address that. So there's a lot there, and it's a key focus where we're leaning in to fundamentally match supply and demand better. And the third trend where we invest a lot of energy and we see continued tailwinds is a little bit what I was talking about earlier with kind of the infrastructure improvements broadly. So I talked earlier about airports. and how the infrastructure and experience at airports has meaningfully improved over the last number of years. Another example that I think is really relevant is if you think of vehicle replacements. So a few years ago, if your car was in the shop, your insurance company may have offered you a rental vehicle loaner, sort of a voucher at one of the major rental companies. And now if your car is in the shop, there's a really great chance that you'll be offered your choice and you can choose to get a ride sharing voucher. And that kind of those small integrations with day-to-day life and the kind of infrastructure in our environment take time to build and happen slower, but then create great tailwinds for the industry.

Thank you. Turning to your question about stock-based comp, we are always evaluating whether we have the right compensation structure. Given macro uncertainty and the potential for slowdown, we are currently prioritizing preserving cash. We have a big equity component to our compensation structure for eligible team members to align incentives to company performance and also to be competitive with our peers. We need to be competitive in terms of attracting and retaining talent. In terms of stock-based comp and where it's going, we're not providing any specific guidance at this point. But shifting the conversation to dilution, we know obviously that it's a critical focus for investors. We keep a very careful eye on it. And we benchmark our burn rate versus peers annually. In 2021, our gross burn rate was within the 50th to 75th percentile versus peers. And clearly, the level of dilution is a result of many factors, one of which is the share price, of course. But it is a balance between being able to compensate great talent in line with the market and being very focused on balancing that and managing dilution.

All right. Thanks.

Your next question is from the line of Ite McKelly with Citigroup. Your line is open.

Great. Thanks. Good afternoon, everybody. Just two quick ones for me. First, go back to some of the initiatives that you mentioned on the insurance front. I was hoping to maybe talk through the timing to resolve it in terms of how long it would take for these initiatives to kind of offset some of the headwinds you anticipate. And then the second one, I'm just thinking about revenue growth kind of into The fourth quarter, it looks like Q2 and Q3 sequential revenue is starting to follow a similar pattern as what you saw in 2019. Is it fair to sort of look at 2019 as a decent barometer into the fourth quarter in terms of the sequential revenue pattern?

Just quickly on Q4, and then I can pass it to Elaine to talk more about insurance. Obviously, we're not guiding on Q4, so can't comment on that. But, yeah, we're starting to see some of the trends you mentioned on Q3. We're optimistic about back to school and are excited that the driver part of the equation has come back into balance, which gives us a lot better conversion on all the ride intents that come our way.

And turning to your question about insurance and our view on timing and ability to combat that and future quarter impacts. The Q4 impact of insurance will be a reflection of our ride volumes, our ride mix, our third-party insurance renewals, which take effect October the 1st. We plan to give, update our outlook when we report in early November. And as I said, we have multiple levers to combat the rising level of insurance costs, pricing, marketplace efficiency work, and our product initiatives. I also want to reiterate that we see insurance inflation as an industry issue, not specific to Lyft. And to recap, we're working hard to mitigate it, and we'll provide an update on our Q4 outlook in November.

That's all very helpful. Thank you. Thank you.

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.