Lyft, Inc. (LYFT) Q1 2024 Earnings Call Transcript

Thank you. Welcome to the Lyft earnings call for the first quarter of 2024. On the call today, we have our CEO, David Risher, and our CFO, Erin Brewer; our President, Kristin Sverchek, is here for the Q&A session. We'll make forward-looking statements on today's call relating to our business strategy and performance, future financial results and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and our recent SEC filings. All of the forward-looking statements that we make on today's call are based on our beliefs as of today, and we disclaim any obligation to update any forward-looking statements, except as required by law. Our discussion today will also include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. Additionally, today, we're going to discuss customers. For rideshare, there are two customers in every car. The driver is a Lyft customer and the rider is the driver's customer. We care about both. And with that, I'll pass the call to David.

Thank you, Sonya, and good afternoon, everyone. Thank you for joining us. We had a great start to 2024 with very strong first quarter results. Rides and gross bookings both grew by more than 20% year-over-year, and we delivered another quarter of positive free cash flow. We are on track to deliver full year goals with a higher level of free cash flow than we initially shared. We're executing well, and we're demonstrating that customer obsession drives profitable growth. Since taking on the CEO role just over a year ago, I've really been amazed and proud of what we've accomplished. On these calls, we talk a lot about progress in terms of Lyft's performance metrics. But today, I'd like to talk about that progress in terms of what customers experience and how that informs why they choose Lyft. Let's start with drivers. We are improving the ways we provide drivers with what they want: good earnings opportunities along with more transparency and more control over their time. As a result, these drivers are earning more. In Q1, the median U.S. driver earned $31.10, including tips and bonuses, for every hour of engaged time. After taking into account the driver's estimated expenses like maintenance, gas, and vehicle depreciation, that's around $24.25 per engaged hour. On both a gross and net basis, median driver earnings are higher than they were in the second half of 2023, as we discussed in our white paper on the topic issued a few months back. One reason is that Lyft drivers have more information than ever when choosing their rides. This has significantly reduced ride cancellations by nearly 50% versus a year ago, and that increases the time they spend earning. Drivers can also plan ahead more easily with scheduled rides, balancing other obligations using our proprietary state within the area filter; they can tap into priority mode to stay busy during off-peak periods, and drivers now have access to a more streamlined process to appeal being deactivated, which addresses a long-standing pain point by getting them appeal results faster. Our goal is to lead the industry on making it great to drive with rideshare, and it's resulting in greater driver preference. For example, thanks to the new earnings commitment that we released, Lyft drivers now know they will always earn at least 70% of the rider's fare each week after external fees. Here's the punch line. Since the launch in February, drivers' perception of pay fairness has improved significantly with 75% telling us they have a better understanding of their earnings. The data shows our commitment is helping us attract and retain drivers and increase driver hours. Additionally, following our nationwide rollout of Women+ Connect in the first quarter, women and non-binary driver activations increased by nearly 24% year-over-year. This has continued to be one of Lyft's highest-graded features and most drivers who use it tell us they feel safer when driving, which is super important, one of our key objectives. As a result of all of these moves, Lyft had more drivers use our platform in Q1 than we've had in about four years, and driver hours have returned to 2019 levels. And I can tell you, in addition, that over these past few weeks, driver hours have reached new all-time highs. That is the result of our customer obsession for drivers. Now let's talk about riders. Over the past few quarters, we focused on giving them a far more reliable rideshare experience with better and more products to choose from; for example, pickup times in Q1 were the fastest they have been in four years. Meanwhile, thanks to a ton of behind-the-scenes work, riders are now experiencing far less of something they really don’t care for: Primetime, which many people know as surge pricing. This means prices for riders have become more stable and more predictable, leading to greater repeat use. A good example of where you can see our rider and driver obsession really working well and coming together is in Canada. Over the past year, we've brought our focus on customer obsession to this market, and it's already paying off. For context, Lyft operates in five of Canada's largest cities as well as in about 13 smaller ones. As we have begun to apply our customer obsession to those markets, we've doubled rides and more than doubled new rider activation and driver hours year-on-year in Q1. These results tell us a couple of important things: One, drivers and riders are hungry for choice in our customer-obsessed approach, and two, there is an opportunity for us outside the U.S. over the long term. Finally, I'd like to update you on Lyft Media, which offers a unique value proposition to brands as they look for new ways to connect with customers. Lyft Media had a great quarter, with revenue growing by about 250% year-over-year, and we really like the mix we're seeing with about half of our business coming from repeat customers like NBCUniversal. We've also added several new customers, including Zillow and Mastercard. Here's why Lyft is one of the largest transportation networks in the country. We support over 700 million rides a year, and millions of people rely on our platform every day. We have a captive audience engaging heavily with our app when they ride, and we can make use of our first-party data about where and when people are moving around. So here are the results. According to our third-party brand measurement firm, Lyft Media ad campaigns have seven times the impact relative to the norm on brand perception and purchase intent. Video ads, which were new this quarter, also generate more than ten times the ad industry's typical click-through rate. And in Q1, we added new partners, including Nielsen and Oracle Advertising for their ad measurement and data enrichment solution for targeting, helping us deliver even more value for our customers. When it comes to building a successful media operation, it's all about scale, targeting, and measurement. And when we look at the tools we've built and the results we're delivering, it's clear Lyft Media has a lot of headroom to grow with favorable economics in a way that leverages our customer obsession. Now before I turn the call over to Erin, I want to share one closing observation. I get a lot of questions about how we've been able to accomplish so much in such a short period of time. It turns out that our culture of customer obsession and our focus on rideshare are huge assets. That's what gives us the ability to be nimble even as we drive meaningful leverage. We wake up every day ready to out-execute and out-innovate others in our sector. And the more drivers and riders love us in what we do, the more they use us to earn and to get out and about, the better we all do. Again, customer obsession drives profitable growth. So let me close with just a quick plug. We'll be holding our first ever Investor Day on June 6 in Manhattan, and I look forward to seeing you there in person or online. Not only will you get to hear about the next phase of our plan for customer-obsessed profitable growth, you'll also get to meet our amazing team that's making it all happen. I am really looking forward to it. Over to you, Erin.

Thanks, David. Good afternoon, everyone, and thanks for joining us today. I'll start with my usual reminder that unless otherwise indicated, all income statement measures are non-GAAP and exclude select items that are detailed in our earnings materials. Before I dive into our results for Q1, I want to take a moment to reflect on how far Lyft has come over the past four quarters. We've established a strong foundation for profitable growth. Our cost structure is in the right place. We've delivered four quarters of positive adjusted EBITDA totaling nearly $260 million. We've better aligned our financial disclosures with our strategic priorities, and we've begun to generate positive free cash flow. All of this progress and momentum tracks with the directional guidance we've provided for the full year 2024, including an improved outlook for free cash flow conversion for the full year, and it sets the stage for our Investor Day next month. Q1 was another solid quarter, consistent with our expectations. We executed well, and more drivers and riders chose Lyft. The result was more rides and better service levels. In particular, driver hours increased by more than 40% year-over-year, and ride frequency, referring to the average number of rides per active rider, was the strongest it's been in four years. We also saw continued sequential momentum from Q4 to Q1 in driver hours, ride intents, and frequency, demonstrating that we continue to improve execution quarter by quarter. Now let's turn to our performance for the quarter. We supported 188 million rides and 21.9 million active riders. Total rides grew 23% year-over-year, reflecting strong demand across use cases. Growth in early morning commute and weekend evening trips was particularly strong, which is a continuation of the trends we saw in the back half of 2023. Active riders grew 12% year-over-year, reflecting an improvement in rider retention along with an increase in new riders. Gross bookings were approximately $3.7 billion, up 21% year-over-year. This reflects strong rides growth, partially offset by lower total prices year-over-year, reflecting lower levels of Primetime given the significant improvements in the health of our marketplace. Revenue grew to $1.3 billion, up 28% year-over-year, reflecting those same dynamics. As a percentage of gross bookings, revenue increased year-on-year and sequentially, reflecting lower incentives per ride. So let me provide some additional color here. David talked about how Lyft is leading our industry in transparency and choice for drivers and how that is translating into greater driver preference for Lyft. We see that in the number of drivers choosing our platform and the growing number of hours they're spending engaging with our app. In Q1, the median U.S. driver hourly earnings, including tips and bonuses, increased sequentially on both a gross and net basis. And we talked a lot about our focus on operational excellence. Another great example of that is how we're helping drivers anticipate rider demand so they can be at the right place at the right time to optimize their earnings. In our business, the combination of increasing driver preference and increasing drivers' visibility into rider demand is incredibly valuable. It means we can be more targeted and efficient in how incentive dollars are spent, even as drivers earn more. The result is healthy profit growth while operating competitively with a laser-like focus on customer experience. Now let's turn to our Q1 expense. Cost of revenue was $747 million, up nearly 40% year-over-year, driven by higher ride volumes along with higher per ride insurance costs, which reflect last year's third-party insurance renewals. Operating expenses were $500 million, up roughly 8% year-over-year. As a percentage of gross bookings, operating expenses were approximately 14%, an improvement of nearly 2 percentage points versus Q1 2023, driven by our lower fixed cost structure versus last year. Adjusted EBITDA was $59 million, which as a percentage of gross bookings was 1.6%. Relative to Q1 of last year, our adjusted EBITDA margin has more than doubled as we benefit from efficiencies in our marketplace and operating expense leverage. We ended Q1 of 2024 with a solid cash position with unrestricted cash, cash equivalents, and short-term investments of approximately $1.7 billion. In the first quarter, we generated positive free cash flow of $127 million, and we continue to take a prudent approach to managing our balance sheet. In Q1, we took advantage of favorable convertible debt market conditions to raise approximately $460 million of new convertible notes that will come due in 2029. We used the majority of those proceeds to retire a portion of our bonds due in 2025. Turning to Q2. We're off to a good start. We continue to see strong demand for rideshare from drivers and riders. As the weather has gotten better, we've seen more bike and scooter usage, which is additive to both rides and active riders on a sequential basis in Q2. As the quarter progresses, we'll continue to focus on great execution to connect customers with the experiences they love, from music festivals to pride celebrations and more. Additionally, with graduation season and summer travel just around the corner, we're focused on enabling a great airport experience to capture more of these rides. Now let me review our outlook. For the second quarter of 2024, we expect gross bookings of $4 billion to $4.1 billion, up 16% to 19% year-over-year. This assumes rides growth of approximately 15% year-over-year. We expect adjusted EBITDA of approximately $95 million to $100 million and an adjusted EBITDA margin as a percentage of gross bookings of approximately 2.4%. Turning to what we expect for the full year 2024, our first quarter results and our second quarter guidance inform our perspective on the year. We continue to expect total rides growth in the mid-teens year-over-year with gross bookings to grow slightly faster than rides also on a year-over-year basis. We expect an adjusted EBITDA margin as a percentage of gross bookings to be approximately 2.1%. Turning to free cash flow, we remain on track to generate positive free cash flow for the full year. Given our improved visibility into the first half of the year, we now expect at least 70% of adjusted EBITDA to convert to free cash flow for the full year 2024. As a reminder, you should expect our quarterly free cash flow conversion levels to vary, driven primarily by the timing of certain payments. To give you some perspective on the cadence of our cash flows, based on what we see right now, we expect our free cash flow for the full year will be weighted more toward the first half of 2024, as in the second half of the year, particularly in Q4, we expect to incur cash outflows related to our third-party insurance renewals. With that, I'll bring our prepared remarks to a close. Over the past year, we have made significant progress building a customer-obsessed and financially healthy business. The team continues to execute against high standards, and we see a lot of runway to drive profitable growth. We look forward to seeing you all at our Investor Day.

Your first question comes from Nikhil Devnani with Bernstein.

I wanted to ask about growth in your investment cadence. You're probably growing bookings 19% to 20% in the first half of the year. So my question is whether there's any reason that should slow down in the second half, particularly if you're investing behind it? And that's my follow-on as well. It looks like sales and marketing stepped up a bit in Q1. Was this just a one-off because you had the take rate capacity? Or is this our new normal on the investment intensity of the business going forward? Just trying to put your top line into context with your marketplace investments.

Yes. Nikhil, I'll start with that. I'll probably start by just kind of going back and reframing our full year guidance for top line growth for 2024. So starting with rides. We reaffirmed our guidance for mid-teens rides growth year-over-year versus 2023. And I'll just reiterate here that mid-teens is a range. For the second half of the year, we expect rides growth to be approximately 15%. And then again, on the gross bookings side, no change to our outlook for the full year. We expect gross bookings to grow slightly faster than rides. So hopefully, that gives you a little bit of a sense for the first half back half cadence. And then the second part of your question with respect to sales and marketing, I might just start by framing this. We've anchored on growing our gross bookings and then growing our adjusted EBITDA as a percentage of gross bookings. And within that, as it relates to the way that we deploy total incentives, as you know, the marketplace is dynamic. So we will make trade-offs between contra revenue and sales and marketing incentives in a given period of time. In Q1, there's a continuation of us just seeing good opportunities to invest behind some of the areas of growth in the business. And so that does have an impact on our sales and marketing line in Q1 '24.

Your next question comes from Eric Sheridan with Goldman Sachs.

I wanted to take a step back and ask a broader question. David, you have previously mentioned the importance of realigning brands and focusing on product innovation beyond just pricing. Could you outline some of the key initiatives you are concentrating on to drive progress in the mobility business, considering both the remainder of this year and a long-term perspective on repositioning the brand and products?

Sure. Yes, it's great to hear from you, Eric. Let me start with a broad perspective and then focus on some specifics regarding the first quarter and the remainder of this year. It’s fascinating to observe the drivers of growth in our business. One aspect that stands out is the ongoing secular growth. We notice this daily, with more employers encouraging their employees to return to the office and the excitement around concerts. In Q1, we witnessed a strong increase in commuting, alongside what we refer to as “party time,” which is the surge of activity after 5 PM on Fridays and Saturday nights, showing a 26% year-over-year increase. This indicates that people are eager to go out and connect, which is crucial for mental health and societal well-being. Furthermore, on the operational side, Lyft provides around 2 million rides daily. Thus, even minor improvements in pickup times or pricing have a significant impact. This leads to growth, particularly in user loyalty, as we’re noting an increase in regular users opting for Lyft more frequently. Our estimated arrival times are now faster than ever, reflecting the operational excellence that benefits repeat use. We are also innovating new segments, such as Women+ Connect, which has gained traction. For instance, one story shared was about a woman who can now finally take a nap during her Lyft rides, a luxury more commonly enjoyed by men. In the past few months, we've seen a 24-26% rise in new Women+ Connect drivers, indicating a growing interest among women in our platform. Additionally, our 70% earnings guarantee is also crucial for attracting drivers. Partnerships play a vital role in our strategy, currently contributing to around 20% of our rides, including collaborations with Chase, where Sapphire members can earn 10x points, and Delta, where we're among only two partners enabling Delta SkyMiles accumulation. Regarding our brand, we've established a solid position. Many riders express a preference for Lyft due to our values and the better experience we provide. We need to refine our messaging internally, but our brand reputation remains strong. I recently met with our Toronto team and engaged with drivers and local officials who showed enthusiasm for our presence, appreciating our values and the choice we offer. In conclusion, our strategy is proving effective, with a focus on customer obsession driving profitable growth. We see numerous opportunities across North America in the coming years, and it feels like we’re just beginning to tap into this potential.

Your next question comes from Mark Mahaney with Evercore.

Two questions. David, there's been some controversy recently about the Tesla autonomous vehicles and the impact that could have on ridesharing companies like you and Uber. Just your latest thoughts on how investors should think about the autonomous risk rideshare companies? And then I think you teased in your earlier prepared comments about providing more rideshare improvements in addition to the faster pickup times, any others you'd roll out in terms of how the experience has gotten better for either drivers or riders?

Yes, absolutely. I would describe it a bit differently. While I understand your concerns regarding Tesla, I wouldn't label it primarily as an opportunity rather than a risk. Let me explain: Autonomous vehicles are definitely on the horizon, and if you're in San Francisco, you see them daily. Sometimes they perform well, other times they can be quite unusual. However, the primary challenge is that developing autonomous vehicles is incredibly costly. It requires billions of dollars for research and development and operating them also incurs significant expenses. They are not free to run; they need repairs, and safety drivers are often required. Additionally, creating a ridesharing platform involves much more than just building an app. It requires negotiating with airports across the country for passenger drop-off and pick-up, engaging with various municipalities, and managing pricing and demand around the clock, even in poor weather. This all adds up to substantial costs, as you are likely aware. When I consider it this way, I'm optimistic about autonomous vehicles because they can provide another mode of transportation that we can integrate into our network. In an ideal scenario, companies should specialize in different aspects of this process. Those trying to tackle multiple areas might find that it's both expensive and not the best use of resources. As for the other question you raised, although I wish I could share more as CEO, I can say that our on-time pickup promise is something we are particularly proud of. Launched last year, it guarantees that if we're more than ten minutes late for an airport ride, we offer up to $100, no questions asked. Since then, we've expanded this promise to nearly every major airport in the U.S. We also analyzed the rate of rides that don’t meet expectations; it used to be around 2% and is now under 1.5%. This improvement highlights how operational excellence can provide greater value. Interestingly, when we do have to compensate riders, they tend to use Lyft more frequently in the following weeks compared to those who haven't experienced delays. This is a prime example of how our innovations benefit both riders and drivers, leading to more business for drivers and greater reliability for riders. We will continue to roll out more such improvements, especially as we approach summer. I have to be careful not to divulge too much, but I hope this gives you a sense of what we're focusing on.

Your next question comes from John Blackledge with TD Cowen.

Two questions. First, you specifically mentioned Canada's strong growth. Just curious, any other geos you would call out that drove the better-than-expected results? And then the second question, just coming back on the free cash flow conversion. Just any further color on what drove that uptick to 70% from initially 5%?

Yes, let's tag team on this one. On the first, really nothing to report. We're still seeing the West Coast is still kind of growing nicely just because, in a sense, it was held back a little more than some of the rest of the country. But no, we're really actually seeing nice growth kind of across the board; nothing significant there.

I'll talk about free cash flow and sort of what drove the update to our outlook. So fundamentally, as we went through Q1 and here at the start of Q2, we began to get better visibility into the expected payments that we'll make related to our legacy book of insurance and that coming in a little bit better than we had initially anticipated in our original plan when we talked about full year free cash flow conversion. So that's what's really behind the change in our improved outlook for the year, a little bit better visibility into Q1 and Q2.

Your next question comes from Ken Gawrelski with Wells Fargo.

I want to discuss pricing and the industry pricing landscape. Could you please explain your overall pricing strategy and how you perceive it? David, could you elaborate on any changes in the pricing environment from the first quarter to the second quarter? There has been speculation that one of your competitors may have increased prices around the annual insurance renewal at the end of the first quarter. Additionally, could you discuss the elasticity you observe in your various modalities? Investors often debate elasticity in this industry, and we would appreciate any highlights or key anecdotes you could share.

Thanks, Ken. I'll begin by discussing pricing and our observations. You asked for clarification on our approach to pricing, which is primarily focused on maintaining a healthy and competitive environment. In the first quarter, we experienced some increased pricing in the latter half of the quarter. However, it’s crucial to note that this was partially balanced by lower Primetime pricing, which David mentioned in his remarks, driven by favorable conditions in the marketplace. Therefore, when we consider both aspects in Q1, the overall effect of pricing was rather limited. It's vital to recognize that the cost of rider experiences involves multiple factors, including mode, mix, and distance, and can also be influenced by Primetime based on supply conditions in different regions at specific times. The decrease in Primetime is positive as it suggests a more stable and predictable price for riders, which encourages more rides. For the full year, we previously indicated that gross bookings would grow slightly faster than rides, and this outlook remains unchanged. Our assumptions are informed by several variables, such as ride type, ride mix, the increasing share of non-rideshare businesses, and competitive pricing, which underpin our philosophy. David, would you like to add anything to this?

Just a little bit. That definitely accounts for 90% of it. I would say that whenever a rider opens the app, they can find a ride that suits their needs. It could be a standard ride, which is the majority of our business. Alternatively, it could be a wait-and-save ride, which I consider a great option because it allows people to save money by being flexible with their time. This option works well for many individuals; some are very busy while others have more flexibility and choose to trade a bit of time for extra savings. We also offer other higher value modes, like Extra Comfort, which is relatively new, and what we refer to as high-value modes, including our premium options. Interestingly, our high-value modes have actually experienced slightly faster growth than the rest this quarter, suggesting something about consumer spending habits. The key point is that our pricing strategy is similar to that of any retailer with multiple products: we aim to have something for everyone. We manage the entire mix. As Erin mentioned, part of our role is to lower prices. Whenever we reach Primetime pricing, it's a sign that we have not matched the right number of drivers to the demand at that moment. While some factors are unavoidable, like an unexpected storm, others are less difficult to forecast. Improving our internal forecasting, which is a significant effort that we don’t often discuss publicly, helps us reduce prices effectively, as we aim for the highest possible rider and driver matches, which typically aligns with our standard pricing across all modes.

Your next question comes from Michael Morton with MoffettNathanson.

Could you talk a little bit about the opportunities around take rate and then maybe a deeper dive into the drivers behind it? You've spoken in the past about the health and efficiency of the marketplace being one driver, but I would love what you could potentially quantify or maybe impact the contribution of the advertising business currently or going forward? And then if I could sneak in one just like an accounting one. For G&A, it was just a tad higher than expected, and would love to hear if there was any one-time in nature related, maybe legal contingencies or insurance accruals? Or is this a reasonable run rate for the year?

Michael, this is Erin. I'll discuss revenue margin and then address your question about G&A, and I'll invite David to comment on the media business. Regarding revenue margin, this reflects our competitive operations and focus on customer experience. We mentioned our efforts to increase drivers' preference for Lyft and to help them maximize earnings by predicting rider demand. This is why drivers are earning more, allowing us to be more efficient with rider incentives despite their increased earnings. Looking ahead to Q2, we expect revenue margin to remain similar to what I indicated in my prepared remarks. We are entering the quarter with positive marketplace trends. Additionally, in Q2 and into Q3, we anticipate an increase in bike and scooter usage, which will contribute to a higher revenue mix. This should reinforce the points made in my prepared remarks and provide further insight into our expectations for Q2. Regarding G&A, a significant portion of that line is fixed. Some corporate expenses and occasional accruals can lead to variability, which explains the changes between Q4 and Q1, particularly regarding the tax accrual. Now, I'll pass it to David to address the third part of your question about media.

Yes, it's Michael, right? Let's discuss two aspects that connect. One is media, and then we'll return to drivers, as that's a good area to focus on. The media sector is quite fascinating because there are only so many meta ads and Google AdWords that can be purchased before that channel becomes saturated. Brands are increasingly looking for ways to engage with their consumers differently, as the usual approaches tend to wear people out. What stands out to us is how effectively the brands working with us are performing in relatively short timeframes, already yielding returns even though this business is still quite new. To provide some context, there are various methods for delivering an ad during a Lyft experience. While it could appear on a tablet in the car, it's more commonly seen on the app. Typically, during a 15-minute ride, users check their app about nine times. The key is engaging users with relevant and interesting ads; when done right, it captures attention, often leading to action. Our click-through rates are approximately ten times the average. We've also just launched video ads, which are particularly appealing as well-executed short-form videos can be highly engaging. Overall, we see significant potential here, contributing positively to the customer experience and offering good value for partners. Now regarding drivers, we compensate them when ads are displayed, especially on tablets, which also provides us with greater margin to share with drivers. This is just one of many ways we support drivers. Our strategy is centered on understanding how to help drivers earn more. There's a limit to earnings, dictated primarily by the fare paid by riders, plus potential media income. However, we need to keep some revenue for operating the platform and covering expenses like insurance. So, how can drivers increase their earnings? They can accept more rides, which can be made more lucrative through media or other strategies. We can also position drivers closer to riders for shorter pickups, as this can favor their pay. Additionally, we negotiate better gas prices for them through a program that offers discounts per gallon under specific conditions. We're implementing various strategies to enhance both gross and net earnings for drivers, adopting a comprehensive company-wide approach to achieve this. We recognize that a larger, more satisfied driver base leads to better service and retention.

Your next question comes from Doug Anmuth with JPMorgan.

Just given the strong supply in the marketplace, can you just talk about how you think about the efforts to drive the 40 million annual users higher versus increasing frequency among the quarterly active rider base that's roughly half that number? And then separately, you've often highlighted partnerships, and I know that remains a key priority for '24. We've seen some industry activity on that front. Just curious how you're thinking about opportunities in adjacent categories?

Sure, I’ll address that question. First, it's important to distinguish between new riders and existing ones. Our total active riders have increased by about 12% year-on-year, which is the highest growth rate we've seen in the last six quarters. This is a positive sign, as it indicates our appeal to users consistently. Both new and existing riders are important; we can't focus on just one. Over the past year, our strategic focus has been on increasing the frequency of usage. This aligns with a principle I remember from Scott Cook: to do the right thing and execute it well. We've prioritized getting driver pay, pricing, and estimated arrival times right, as this ensures that new users remain engaged rather than leaving shortly after joining. We've made significant strides in operational excellence, leading to a much better user experience than a year ago, evidenced by our rising frequency of usage. This is a strong early indicator that our most active users are engaging more, validating our strategies. Over time, we’ll also look at how to attract new users, utilizing familiar initiatives like referral bonuses, along with some innovative ideas we are developing. Regarding partnerships, they are crucial for us to expand our reach in our customers' lives, especially riders. People’s lives can be complex, and they often engage in various activities, including travel. We will continue to focus on our partnership strategy, which we have been developing for years. While I don’t have specific announcements right now, aligning with partners who share our values and commitment to customer satisfaction can help us attract new riders.

Your next question comes from Benjamin Black with Deutsche Bank.

Great. There have been several developments related to the regulatory environment, including issues in Massachusetts and Minneapolis, as well as the upcoming Supreme Court decision on Prop 22 in California. How do you feel prepared for these challenges, and what is your strategy if reclassification is necessary? Additionally, you mentioned that mix and mode could improve your gross margin profile over time. Could you elaborate on the progress made in this area and provide examples of strategies that have shown significant results?

Sure. Hey there, this is Kristin. Happy to answer your question, and I'll take each of those in turn, Massachusetts, Minnesota, and then California because we really have a particular strategy designed specifically for each market. In Massachusetts, we will have a trial starting with the Massachusetts Attorney General in another week. But in parallel, we have two potential paths that we're driving: a legislative proposal and a ballot initiative as well. We really think that we have multiple options to continue operating in that market and both have the legislative path, and we have the ballot initiative. In that market, we really want to focus on drivers' voices being heard and supporting drivers' voices who tell us that they prefer independence and flexibility to traditional employment. In Minnesota, we're working closely with city officials and state officials to find a solution. We're optimistic that we'll be able to do this. If we can't do this, we will be forced to stop offering rideshare services on July 1, but that would only be because we wouldn't be able to deliver the customer experience that drivers and riders want and expect with respect to the current rates proposed. However, we will still keep looking to work toward a new rate structure. Then in California, just a reminder there, the California Supreme Court is hearing all argument in a couple of weeks on the very narrow issue of whether Proposition 22 is consistent with the California Constitution. So that initiative itself is not about reclassification; it's just about whether the ballot that was passed a few years ago, overwhelmingly, is constitutional. In that case, we don't have any immediate change to drivers' independent contractor status, and we will just continue again to listen to customer voices. We know that drivers value Prop 22 deeply. We also heard from the California people in 2020 that they value driver independence with respect to passing Prop 22 by a wide majority.

Thanks, Kristin. Regarding your second question, Benjamin, about mode mix, I understand you may be looking for specific examples. One example I want to highlight is our Extra Comfort service. What's interesting about Extra Comfort is that it offers a nicer, slightly newer and more spacious car that appeals to more experienced drivers. You might think of it as an upgrade similar to what airlines offer between business class and economy. Airlines have found this model successful because customers appreciate the benefits, such as extra legroom and priority boarding. We’re aiming to provide similar value for our riders. We have seen encouraging early adoption of Extra Comfort, though it is still a relatively small segment overall, but I believe it's one we can expand as an affordable everyday luxury. Notably, one of the most common use cases is airport trips, as travelers often seek a quieter, more spacious ride with additional room for luggage during stressful times. While I sometimes mention that innovation can feel a bit stagnant in this area, I don’t claim this is our most groundbreaking initiative. However, it indicates there are new customer use cases and modes we can explore, and Extra Comfort exemplifies that. I encourage everyone on this call to download Lyft and try Extra Comfort for your next ride.

Your next question comes from Stephen Ju with UBS.

Okay. So David, Erin, I wanted to tie your comments about use cases to your prior comments about frequency. So just doing a simple math of, I guess, rides divided by active users: it seems like folks took about 8.5 rides during the quarter. I think prior to the pandemic, I think it was probably 9.5 or so ballpark. So can we talk about the use cases like shared rides that are probably no longer in the picture and how much that impacted frequency? There might be some lingering regional considerations you may have to think about. But I guess, more importantly, looking forward, how some of the existing use cases can perhaps now grow faster? Or what new use cases you may be looking at? So I'm looking for reasons to why we should believe the frequency that we're seeing prior to the pandemic; should that be a ceiling? Or should we be thinking that it should be much higher than that?

Oh, yes. There's no limit. The crux of our strategy is that the more we understand what our riders and drivers want, the better we can meet their needs, often before they even realize it. For example, a person who uses rideshare ten times a month is already a frequent user. However, many people only use it once a month, perhaps just for trips to the airport. We can tap into many other aspects of their lives simply by reminding them of our service, which will likely increase usage. Looking at frequent users, those who already rely heavily on rideshare, we can explore ways to encourage them to choose Lyft over competitors. Additionally, as more companies recognize the benefits of having employees return to the office a few days a week, there's potential to engage with those working only once a week or less. We can collaborate with businesses like LinkedIn, Starbucks, and Delta Airlines to develop strategies to support their employees' commutes and enhance productivity. In summary, I believe there are many opportunities we have yet to explore, and I would be very disappointed if we don't find new ways to promote rideshare usage in the coming weeks, months, and years.

Your next question comes from John Colantuoni with Jefferies.

I wanted to start with a strategic one. As autonomous and robotaxi initiatives continue to move forward. Talk about how Lyft is considering approaching balancing autonomous partnerships while maintaining its focus on maximizing driver satisfaction and earnings?

Yes, I'll address the first part of your question and then Erin will handle the second part. Firstly, I want to emphasize that autonomous vehicles are definitely going to become a reality. There's no debating their future presence due to the many logistical factors supporting their development. The main question for us is how to integrate them into our network. The encouraging news is that our growth will continue as we've been outlining for a long time. It's completely reasonable to predict that our network will evolve over the years into a hybrid model where some vehicles will be driven by humans and others will be autonomous. This coexistence is likely to be stable for an extended period, far beyond what we can currently foresee, as there will be riders who prefer one option over the other. Certain areas or times, such as airports or after events like concerts, may pose challenges for autonomous vehicles. Additionally, the performance of autonomous vehicles can vary by season. I genuinely believe this will lead to a harmonious coexistence. Drivers will still find plenty of demand for their services. While we might speculate about future innovations, like autonomous vehicles with a bartender in the front seat serving drinks, I’m confident that people are adept at creating new jobs and keeping entertained. When I talk to drivers now, many don’t seem worried about robots taking their jobs; some even acknowledge that the technology might surpass their own driving skills by the time they retire. Overall, I think this transition will go smoothly. We will maintain our focus on enhancing the driving experience for our drivers to ensure it's the best it can be. We aim to maximize earnings and provide the most satisfying experience possible, which I believe is a strong strategy for the future.

John, this is Erin. It’s hard to follow the visual of a bartender, but let me attempt to do that and just go over our Q2 guidance for rides in bookings. So starting with rides in Q2, we expect rides growth of approximately 15% year-over-year. That implies about 9% quarter-over-quarter. And then for bookings, our guidance is for $4 billion to $4.1 billion year-over-year. That implies growth of 16% to 19% on a year-over-year basis. And on a quarter-over-quarter basis, that’s 8% to 11% growth. So hopefully, that sort of clarifies that dynamic both on a year-over-year basis and quarter-over-quarter for rides growth and gross bookings growth that we expect in the second quarter.

This will end our Q&A session. I will now turn the call back over to Lyft's CEO, David Risher for closing remarks.

Yes, thank you so much. I really appreciate your questions and your support over the years. Look, this is just about my first year; you know this. It’s been quite an extraordinary opportunity. I just want to mostly end by saying thank you for your patience with us as we clarify and articulate our strategy and a huge thanks to Lyft's team members. We have 3,000 people who wake up every single day obsessing over drivers and riders, and I just couldn't be prouder of what we've accomplished. So thanks to all. We hope to see everyone who can at Investor Day, either virtually or physically. Thank you all.

This concludes today's conference call. Thank you for your participation. You may now disconnect.