Lyft, Inc. (LYFT) Q2 2024 Earnings Call Transcript

Good morning, and welcome to the Lyft Second Quarter 2024 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Aurelien NOLF, VP, FP&A and Investor Relations. You may begin.

Thank you. Welcome to the Lyft earnings call for the second quarter of 2024. On the call today, we have our CEO, David Risher; and our CFO, Erin Brewer. 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. Additionally, today we are going to discuss customers. For rideshare, there are two customers in every call. The driver is a Lyft customer and the rider is the driver's customer. We care about both. Our discussion today will also include non-GAAP financial measures, which are not a substitute for 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. And with that, I'll pass the call to David.

Thank you, Aurelien. Good morning, everyone, and let's jump right into it. Lyft's strong results in the second quarter continue to validate our long-term strategy. Customer obsession drives profitable growth. To start, in Q2, Lyft reached GAAP profitability for the first time in our company's history. This is a testament to our team members and their hard work every day, obsessing over our riders and drivers and operating with discipline and excellence. It's an important milestone and another step along the path we laid out to you earlier this year. Erin will share our financial results in more detail shortly. Turning now to our customers. Driver and rider engagement hit all-time highs in Q2. Q2 saw the most new drivers in any quarter since 2019 on the platform, including 34% more women and nonbinary drivers compared to Q2 last year, thanks to Women+ Connect. Our 70% driver earnings commitment launched nationwide, and in those launch regions, we saw a meaningful increase in driver perception of pay fairness from the prior quarter, a leading indicator of driver preference. This quarter, driver hours hit an all-time high showing our forward progress with a number of drivers and the time they choose to spend on Lyft. In related news, two weeks ago, the California Supreme Court unanimously upheld Prop 22, protecting the independence that drivers value. Drivers also had huge wins in Minnesota and Massachusetts that secure their freedom to earn when, where and however they want. Drivers rely on Lyft for available and flexible earnings opportunities. Gig work like driving helps people live their lives on their terms, and that's why it's here to stay. Now when it comes to riders, in Q2, we had a record 23.7 million quarterly active riders, up over 10% year-on-year. At the same time, ride intensity conversion increased and ride frequency kept growing, thanks in part to the fastest pickup time we've had in four years. We also had record rides in Q2, including the most scheduled rides in the company's history, and we saw record bike and scooter rides, especially e-bike rides in our largest market, New York City. Rides on our best-in-class e-bikes now represent over half of all bike and scooter rides this year. So, to state it simply, our focus on customer obsession and operational excellence has led to more riders choosing Lyft than ever, and they're riding more often. Before moving on, I want to give you a closer look at part of the rider experience and how we're working to radically improve it. It's what's known as Primetime or surge pricing in the industry. Many of you have probably experienced it at one time or another, and I'm willing to bet you didn't care for it one bit. It's probably rideshare's most hated feature. Well, thanks to an enormous effort on the part of our team, building on the great momentum we've seen with drivers, the number of rides impacted by Primetime has decreased dramatically. In Q2, the average Primetime amount included on each ride declined by 25% versus the first quarter, and that contributes to better conversion rates. In fact, the markets where we saw the sharpest declines in Primetime in Q2, like Phoenix, Baltimore and Orlando, are the markets where conversion rates are improving the most. So, we are going to do something a little crazy. We are going to open up a can of wombats on Primetime. We are starting with innovations focused on everyday commuters. Reliable pricing is particularly important to them because they know what their ride should cost and hate it when prices change. For those riders, we are piloting a new feature called Price Lock, allowing a rider to purchase a monthly subscription that caps the price per specific route at a specific time. Primetime won't ever completely go away. It's an important way to match supply and demand when demand spikes quickly. But with innovations like Price Lock, we can chip away at how often it occurs and hopefully take what I'm willing to bet is rideshare's least liked feature and turn it into a reason to choose Lyft. Next, I want to switch gears and touch on Lyft Media, which continues to perform well, with revenue up more than 70% compared to a year ago. In Q2, we signed deals with 44 new brands, including T-Mobile and Activision, and re-signed several more, including Amazon, Fidelity, and NBCUniversal. Our in-app video ads continue to drive interest from brands to power this growth. To case in point, our in-app media revenue grew more than 10 times year-on-year. For all our partners, measuring return on ad spend is critical when they sign and resign, and consistent with our roadmap, we're continuing to roll out these capabilities for our in-app video ads. This quarter, we have begun working with three major partners, including Google Campaign Manager, and next quarter, we will integrate even more. We have a leading team and are building the right tools to scale this business. Finally, given recent chatter about autonomous vehicles, I want to spend a few minutes outlining how we think of them. In short, AVs represent an enormous opportunity for Lyft. We believe that the best way for autonomous vehicles to commercialize at real scale and the best way to monetize this technology is through networks where the vehicles can be put to use. Lyft has that network today. To understand why we're so bullish on AVs, you have to remember that a rideshare network is far more than the app you see. On the demand side, Lyft’s platform gives access to 40 million riders each year in the U.S. and Canada. And on the supply side, it includes a vast set of capabilities in onboarding individually owned vehicles to our platform, making sure every vehicle and ride are properly insured, and offering customer service when things go wrong at scale. And when it comes to fleet management, our Flexdrive subsidiary has given us deep expertise in the easy onboarding, offboarding and servicing of tens of thousands of fleet vehicles over the years. All of this is why in markets like Las Vegas, we've been able to facilitate over 130,000 AV rides so far, and we are just getting started. Bottom line, our aim is to be the easiest and best way for partners to commercialize AVs. Doing so will help us grow even faster as AVs come online in the years ahead. Okay. Back to 2024. We remain on track for the rest of the year as we continue working towards a long-term healthy business. Q3 is the heart of the summer travel season and the start of back-to-school and back-to-work, which means good things for the Price Lock commute customers I just mentioned. Erin will share more on what we expect in the back half of the year in just a second. At Investor Day, we said our next phase of growth is here, and the opportunity we see is great. We are thrilled to have achieved GAAP profitability this quarter, and so I want to close by reiterating our long-term foundational thesis. Customer obsession drives profitable growth. I'm pleased with the progress we've shown and confident in the road ahead. Over to you, Erin.

Thanks, David. Good morning, everyone, and thanks for joining us today. As David mentioned, we saw strong results in the second quarter, including our first GAAP profitable quarter, and we generated significant free cash flow. At our Investor Day, I highlighted how operational excellence drives growth through more driver hours, more riders on the platform, and riders choosing Lyft more frequently. In short, operational excellence underpins the health of our marketplace. And in Q2, we fired on all cylinders. In the second quarter, we had more active riders than ever on our platform, and driver hours hit a new all-time high. Service levels in the second quarter kept improving. Average ETAs were more than 10% faster than a year ago and the fastest in four years. And the average Primetime, as measured by the average surcharge added to a ride, declined by more than 25% quarter-over-quarter. Why is this important? It means we continue to perfect our ability to help drivers know when and where they can choose to drive. That's great for drivers and for riders and also for the long-term health of our platform. Now let's turn to our performance for the quarter, which is consistent with the outlook we provided on our Q1 earnings call on May 7. 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. We supported 205 million rides and 23.7 million active riders. Total rides grew 15% year-over-year, and active riders grew 10% year-over-year, driven by improved retention and higher frequency. Gross bookings exceeded $4 billion, up 17% year-over-year. This reflects strong rides growth, competitive prices, and lower levels of Primetime given the even faster-than-expected improvements in the health of our marketplace. Revenue exceeded $1.4 billion, up more than 40% year-over-year. Cost of revenue was $812 million, up 37% year-over-year driven by higher insurance costs as compared to the prior year and higher ride volume. Operating expenses were $556 million or 13.8% of gross bookings which was slightly higher than in the first quarter of 2024, mainly driven by sales and marketing, specifically incentives tied to rider engagement. Let me take a moment here to remind you about the way we think about investments in contra revenue and sales and marketing incentives. At our Investor Day on June 6, we shared how we are delivering seamless, dependable customer experiences, which means continually helping drivers know the best time and places to drive to enable them to meet their goals. That, in turn, continues to drive preference, engagement, and retention with our customers and unlocks more efficiencies in the marketplace. Part of running a dynamic marketplace means that we are constantly trading off between contra revenue and sales and marketing incentives to optimize the balance of the marketplace. Therefore, it's worth noting that on a combined basis, contra revenue and sales and marketing incentive expenses declined double digits on a per-ride basis compared to Q2 of last year. Turning now to adjusted EBITDA. In the second quarter, adjusted EBITDA was $103 million, which as a percentage of gross bookings was 2.6%, up from 1.2% a year ago, driven by efficiencies in our marketplace and further operating expense leverage. GAAP net income in the second quarter was $5 million. This marked our first profitable quarter on a GAAP basis, reflecting our focus on operational excellence and cost discipline. This is a very important milestone for the company and consistent with our focus on long-term profitability and sustainability. On that note, as I discussed at our Investor Day in June, we are confident in our ability to achieve sustainable GAAP profit in the early phase of our long-term planning horizon of 2025 to 2027. Progress won't necessarily be linear, but the overall trajectory is moving to sustainable GAAP profit. We ended the second quarter with a solid cash position with unrestricted cash, cash equivalents, and short-term investments of approximately $1.8 billion. We generated $256 million of free cash flow in the second quarter and a total of $368 million of free cash flow over the last four quarters. Turning now to Q3. We're off to a good start. The team is hard at work on supporting summer festivals and new back-to-school and commute activations, and focusing on delivering a seamless experience to drivers and riders. For the third quarter of 2024, we expect gross bookings of approximately $4 billion to $4.1 billion, up 13% to 15% year-over-year, growing slightly faster than rides. We expect adjusted EBITDA of approximately $90 million to $95 million and an adjusted EBITDA margin as a percentage of gross bookings of approximately 2.3%. We are reiterating our expectations for the full year 2024 and continue to expect total rides growth in the mid-teens year-over-year with gross bookings to grow slightly faster than rides on a year-over-year basis. We expect an adjusted EBITDA margin as a percentage of gross bookings to be approximately 2.1%. This outlook includes our current estimate of the impact of third-party insurance contract renewals, which will mostly take effect in the fourth quarter. The final stages of the negotiations are still underway. But at this point, we have good visibility into the outcome. Consistent with our expectations, we believe that the rate of premium increase year-over-year will be slower than the prior year, reflecting the ongoing work we've done to bend the insurance cost curve through product and safety initiatives, aimed at reducing accident frequency and improving settlement outcomes, which our partners are recognizing in our renewal discussions. Turning to free cash flow. We are on track to generate positive free cash flow for the full year, and given our strong progress in the first half of 2024 and our increased visibility, we now expect that more than 90% of adjusted EBITDA will convert to free cash flow for the full year 2024. This means we will reach our long-term conversion target of more than 90%, which we articulated at our Investor Day in June, well ahead of schedule. With that, I'll bring our prepared remarks to a close. We had a solid second quarter, and we have strong momentum going into the back half of the year and beyond. We remain focused on building a long-term healthy business. Our focus on operational excellence, product innovation, and partnerships and media will continue to grow preference, engagement, and retention with drivers, riders, and our partners.

Operator, we're ready to take questions. Our first question comes from Doug Anmuth with JPMorgan. Please go ahead.

Thanks so much for taking my questions. I have two. First, can you talk more about how the economics will work on Price Lock? What kind of use cases do you anticipate? And generally, what gives you the confidence in rolling this out? And does it play into the Q3 outlook, if at all? And then also, if you could talk a little bit about just balance on the marketplace, record high supply and driver hours. Can you talk more about the transition that you're making as you shift incentives from drivers to riders and the impact that you're seeing there? Thanks.

David here. Erin and I will address this together. Erin, you can handle the second part, and I’ll discuss Price Lock. You go ahead with the second part.

Yes. Yes, sure. Happy to take that. As we mentioned in our prepared remarks, we've been extremely pleased with the progress that we've made, and it's been a concerted effort over the last four quarters. If you think about the effort around the driver earnings commitment, for example, along with many other initiatives that have helped really increased driver engagement on the platform. And then also, you've seen us continue to invest on the rider side and against specific activations for product launches. And we've seen great progress there. We've seen new riders increase. We've seen retention increase. And so, we've been really pleased with the outcome of those investments, which gives us confidence as we think about investments for the future.

Then on Price Lock, I'll get to the economics in a second, but first, what's the basic value proposition? So as Erin just said, on drivers, we've got great supply, and they really like what they see, with transparency, with consistent earnings and so forth. So then the question becomes on the rider side, what can we do to make the product even better and the service even better? And people just don't love the variability, right? They don't love the idea. In fact, actually, I'll tell you a very specific story super briefly. So there was a woman I picked up as a driver myself a couple of months ago, and she said, like every morning, she'll wake up early and see whether the commute from Salt Slido into San Francisco is $25, $30, $35, or even more? And if it's $20 to $25, she'll definitely take a Lyft. If it's more, sometimes she will, sometimes she won't; if it's too much, she'll drive and so forth. So people really don't care for it. So, Price Lock, the idea is you pay a subscription fee. We're still trying to figure out the exact economics of it. It will definitely be under $5 segment for sure. And you lock in a price, and that price is meant to both save you money, but also maybe more importantly, give you predictability over time. And like anything else, it will be something that takes a couple of quarters to sort of work it through the system. It's definitely in our forecast, our outlook. Of course, because we're driving down PT, that has a little bit of an impact on bookings, right, because PT shows up in bookings, but that's okay because that's how you drive growth as you get your prices to a more consistent way. And then we like the economics of it medium to long term. And stay tuned. We're super excited about it. We've been in testing mode for about a month now, but it's available to everyone right now. If you open up your Lyft app, look at it, it's right in the menu, hamburger menu and lock in your price. I think you'll like the experience.

Thank you.

Our next question comes from the line of Ken Gawrelski with Wells Fargo. Please go ahead.

Thank you very much. I have a couple of questions. First, I appreciate the insight on insurance; however, I believe there was a 17% increase per ride mentioned for the last renewal. Could you provide a bit more detail? You mentioned that it will moderate from that point. I understand the negotiations are ongoing, but it seems there might be significant room between the 17% and around 1%. Could you give us an idea of the potential range of moderation? Secondly, could you comment on any cyclical factors you are observing in relation to restaurants or entertainment, particularly regarding ride activity or airport rides? I'm interested in any impacts you might be noticing in light of the numerous weaker consumer data points. Thank you.

Ken, thanks so much for the question. I'll start off with the first one around insurance. And let me just start off by saying we have a great team, and they are doing a great job with respect to our insurance portfolio. I've been really impressed to see the progress that we've made. And you heard a little bit about our roadmap on product and safety initiatives aimed at reducing accident frequency, both what we achieved to date and what we expect to achieve going forward as we highlighted at our Investor Day. And we also talked about the importance of our partners and how critical our partners have been to us over the years, how closely we work with them. I'm extremely pleased to see that recognition in that progress, and it's getting reflected in our renewal rates. So I'm not going to give you a specific number, Ken, because we are in the final stages here. But if you think about it in context of last year, so last year in the fourth quarter of 2023, we talked about insurance cost increases. We talked about it on a sequential basis. We said from Q3 to Q4 last year that it was about $100 million, which if you take it sort of straight over the ride, it was about 15%. And so, we fully expect that to be lower. It is embedded in the reiteration of our full-year guidance that we outlined today. So just bottom line, really pleased, and we're on a very good path. Kudos to the team here at Lyft.

On your question about consumer sentiment, we’re seeing strength across the board. While people may be focused on negative news, we notice that many are attending concerts and events, which indicates they feel positive about their prospects. Regarding revenue, for example, party rides, which are late-night rides on Fridays and Saturdays, experienced approximately 19% growth year-on-year, outpacing some other segments. Delving deeper, there are regional variations, particularly on the West Coast where commute activity is still growing, as the base was somewhat depressed after the pandemic. However, these differences are relatively minor. Overall, we are observing growth across all areas. Airports are interesting as they typically see higher activity in Q2 compared to Q1 due to increasing travel. This quarter, non-airport rides grew slightly faster than airport rides, but the difference isn't significant. We’re seeing strong performance overall, and people continue to rely on rideshare services.

And Ken, I might just jump in and out. I know your question is around use cases. But obviously, talking about our guidance for gross bookings, growth of 13% to 15% year-over-year for the third quarter. And as a reminder, we talked about gross bookings growing slightly faster than rides. I just want to highlight in our prepared remarks, we talked about Primetime coming down significantly in the second quarter, even faster than our expectations. And we see that continuing into the third quarter. Remember, that's a really good sign of the health of our marketplace and consistent with our focused efforts over the past year to drive preference with drivers. Primetime coming down will have an impact on gross bookings per ride. And so again, consistent with what we said before, we expect gross bookings will grow slightly faster than rides, probably emphasis on the slightly given that dynamic of gross bookings per ride. But really, really pleased with the dynamics and the health of the marketplace. You heard us talk about some of the all-time highs in the second quarter. So, we feel like we're in good shape there.

Our next question comes from the line of Michael McGovern with Bank of America. Please go ahead.

Thank you for answering my questions. I wanted to know if Price Lock could potentially create a challenge for the Wait & Save mix due to the price cap, and if those two products might be somewhat overlapping in the lower price point segment. Additionally, I'm interested in understanding what the Wait & Save mix looks like currently, as well as the unit economics of that lower price point offering and any effects it might be having.

Yes, it's a good question. They don't really compete with each other. Wait & Save has been stable, and it's actually a great product that we continue to love. It's beneficial for people looking for a deal. For commuting, the variability around waiting isn't what people desire; they need to get to the office at a specific time. I wouldn't say they compete in that sense. Price Lock is kind of an unlocking feature that alleviates frustration. Many people check multiple apps in the morning, and we aim to provide them with fewer reasons to look elsewhere and a reason to feel that their relatively small investment of a couple to $3 to $5 is worth it for consistency. Wait & Save is more about balancing time and money. In contrast, Price Lock focuses on paying a little in subscription fees for a very consistent experience day after day for 30 days.

And Michael, I'll just add on to that and emphasize that as you think about our overall mix, if you will, of our modes, that has remained stable. We are not seeing changes there. And then all of our modes contribute to the growth in our profitability.

Our next question comes from the line of Brian Nowak with Morgan Stanley. Please go ahead.

I have a couple of questions. First, regarding the Analyst Day and the multiyear bookings guidance in the mid-teens, could you provide an update on your visibility and the factors driving that mid-teens growth, especially with Primetime declining and Price Lock? Secondly, Erin, I have a question related to the CAGR. As we look at the projected bookings CAGR from 2024 to 2027 in the mid-teens, it often starts with a higher figure and declines. However, your plan suggests that there are numerous drivers to maintain the mid-teens each year instead of a slowdown leading to a lower multiyear CAGR. Can you clarify the trajectory you have in mind for that CAGR?

Yes. Sure, Brian. I'll start and then I'll turn it over to David to chat more about some of the long-term growth drivers we articulated at Investor Day. So, as it relates to the trajectory, I would say, overall, we thought about it as relatively steady. Now you have to understand that given that, there will be points along the way. For example, you heard us really talk and dig deep into partnerships. And our strong ability to partner and the runway that we felt like we had to grow partnerships, that's just one example. And so, you can imagine along that trajectory of that multiyear plan that in any given period of time, maybe as a partnership ramps up that you could see a different cadence there. So, I'm just giving you a little bit of color to emphasize that it's not always an incredibly straight line, but no, we did not envision it with a particular slope at the front or the back end. So, I would say, stepping back, you can think about it as relatively steady.

Yes. I'll build on Erin's comments and perhaps add a bit more. It's easy to focus on short-term issues, but we're really looking at this business from a long-term perspective. Remember, we mentioned at Investor Day that people in North America take 160 billion rides every year in private vehicles. Our focus is on the fundamental factors that will encourage more people to give up their personal vehicles due to challenges like parking and complexity. We want to provide an alternative that allows someone else to drive for a good price, picking them up on time and taking them where they want to go. That's our main focus. We're excited about our impressive service metrics, including the fastest pickup times we've seen in a while, excellent pricing, and high service levels. Given this context, as Erin mentioned, we aren't anticipating any slowdown over time. We see a massive market, and we believe we are extremely well-positioned for it. If we zoom in on the details we shared at Investor Day, we discussed our commitment to customer satisfaction and innovation, including new products like Price Lock, which enhance our value proposition. We're also pleased with our partnership strategy, which Erin touched on, particularly the momentum we’re seeing in the media sector. We recently re-signed our partnership with Disney, which is fantastic. We're the official share provider for all Disney World Resort, and they renewed for several more years, including a media buy. Disney prefers to partner with companies that share their focus on customer satisfaction and growth. Overall, the partnership aspect is crucial for our media business. I know I expanded a bit beyond what you said, but we're very optimistic about our positioning. We're looking ahead a few years, and as Erin stated, we are confident in our guidance not just for this year but extending through 2027.

Our next question comes from the line of Brad Erickson with RBC Capital Markets. Please go ahead.

I have two questions. First, could you elaborate on the point regarding Primetime decreasing? You also mentioned Price Lock. The implied guidance for Q4 seems to suggest an improvement compared to what you shared for Q3. Could you clarify why that might be the case or why it might not be? That's my first question. Secondly, regarding AVs, can you discuss the technology you have in place to collaborate with various partners over time? Is there anything platform-related that needs to be developed for this, or will it be easier to adapt as those players enter the market? Are there any partnerships we should be aware of? Thank you.

Let me begin by discussing autonomous vehicles for a moment since it’s a significant subject. To answer your question directly, we have a vast amount of technology already developed and in use, which we will continue to utilize in new ways. We operate a large platform that facilitates 2 million rides each day, requiring us to constantly onboard new drivers. Each of our over one million active drivers has a car that needs to meet certain qualifications, including various checks, support systems, and payment and insurance arrangements. They must also be able to meet demand around the clock. When it comes to AVs, we have conducted over 130,000 rides in Las Vegas alone. The integration with autonomous vehicle vendors at the API level presents technical challenges, although it may appear straightforward from the app interface. However, we have considerable experience with this integration, which we will continue to build upon. As for how AVs will be incorporated into our platform, some vehicles will be individually owned and available for rides when not in use, while entire fleets can be developed by companies that purchase AVs, similar to how rental car companies operate. These fleets will need to be highly utilized, potentially around 18 hours a day, to ensure they are profitable. Fleet management, which is a specialized area, involves keeping cars serviced and ensuring they are utilized as much as possible while also addressing maintenance and potential accidents, even with AVs. Our subsidiary, Flexdrive, has years of experience onboarding, offboarding, and servicing tens of thousands of vehicles, with around 15,000 currently in operation. When you combine these elements, it becomes clear that we are in a strong position and are actively engaging with partners interested in advancing this technology. We are collaborating with original equipment manufacturers and developers of advanced driver assistance systems to capitalize on these opportunities.

And Brad, I'll take your question on Q4 and the full year. I'll start with the full year. Just as a reminder, our full year directional commentary, we talked about rides in the mid-teens. And obviously, that's a range. And then we talked about gross bookings to grow slightly faster than rides. And I provided some commentary on what that means for Q3, given the dynamics that we're seeing in Primetime. But also, as a reminder, the third quarter is a big season for bike rides, and so that has an impact as well. As you think about the Q4, the dynamics, I think you asked specifically about rides, I think it's reasonable to expect a slight increase in rides in Q4 and because we also, again, have the dynamic of that being a lower seasonal period for bike rides given weather, and then that implies just a slight uptick on the rideshare side of things. So hopefully, that gives you some color to your question.

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please go ahead.

Thanks so much for taking my question. I guess we've talked a lot about the operations of the business. I want to ask a quick one on capital allocation. At Investor Day, we talked about trying to limit dilution from stock-based comp over time and then potentially maybe looking at your balance sheet as another tool for driving equity value. Would love to get any updated thoughts you have on either to make sure of finding the right balance between growth investments for the long term and potentially using assets on the balance sheet to be aimed more at equity creation. Thank you so much.

Yes. Thanks for the question, Eric. You asked about stock-based comp. And so, we remain on track with our target for 2024 of $340 million related to that. So, we feel good about that. No change there. And as it relates to overall capital deployment thoughts, we are investing in areas that drive profitable growth. And at the same time, we're very focused on taking a prudent approach to managing our balance sheet. Nothing specific to announce today, Eric. As we generate higher levels of free cash flow in future periods, it certainly gives us more optionality. So again, hopefully, that gives you some color on our thoughts, not a lot of updates from what we articulated at Investor Day.

Our next question comes from the line of Stephen Ju with UBS. Please go ahead.

Okay, great. Thank you so much, David. Frequency of usage and getting your customers to come back again and again is something that's been on your mind. So, it looks like on the latest results and I think so far this year, we're looking at monthly rides, that's probably about 15% to 16% below where Lyft was in 2019? I know there's a lot that goes into this between day-to-day execution as well as new product rollouts. So, can you tell us where the majority of Lyft's engineering resources are being placed to drive that greater utilization? I mean not that we need explicit disclosure on what products you may be making, but rather some perspective on, hey, we're planning these many releases in the first half of '25, second half of '25, so we get a better sense of the roadmap from here? Thank you.

Thank you, Stephen. To address your question, I'll start with a broad overview and then narrow it down. When assessing our resource allocation, we focus on ensuring a strong supply of drivers since having excellent driver availability is crucial. We continually evaluate this aspect to optimize pass pickup times. Earlier this year, we introduced a significant update with the 70% earnings guarantee, which has received positive feedback and differentiates us in the market. For instance, a Lyft driver recently expressed appreciation for this change. We're also in the process of rolling out features that will provide drivers greater insights into their earnings for each ride they accept. Additionally, we launched Lyft Direct, a new debit card offering high-yield savings and immediate payment options for drivers. This ongoing effort on the driver side includes a few major initiatives throughout the year. On the rider side, as we approach summer, we recognize features like on-time pickup for airports are essential. In the fall, we will be introducing Price Lock, particularly beneficial for commuters. Overall, we're focused on attracting new riders while also enhancing their frequency of use. We're experiencing record numbers for new riders and increasing usage frequency. While this may sound somewhat general, our commitment to customer satisfaction drives both significant initiatives and daily improvements to our service. We're optimistic about the roadmap ahead and the balanced approach we are taking.

I would like to add a bit more context, Stephen. Active rider growth has exceeded 10%. Each of the last four quarters has shown sequential growth in active riders, and we have also seen an increase in retention. While your question focused on engineering, we are identifying opportunities for smart investments that enhance rider preference, retention, and engagement. The trends I mentioned give us strong confidence in our approach to these investments going forward.

Our next question comes from the line of Tom Champion with Piper Sandler. Please go ahead.

This is Jim on for Tom. Thanks so much for taking my question. Just one on advertising. So, we saw the 10x increase for the in-app revenue. Can you just talk about what's driving that? And how we can think about the scale of that revenue? I'd assume that's off a lower base. Thank you.

Sorry, just to clarify, Jim, off a lower base, lower than what?

Yes. I mean just kind of explaining like what's driving the 10x increase? And how to think about the scale of that revenue?

Yes, absolutely. I won’t go into too many specifics, but I can share that we are very optimistic about this business. The growth we’re experiencing is partly why brands are always seeking new ways to connect with their customers. The marketing landscape constantly evolves; what worked 100 years ago, like billboards, transitioned to radio and TV advertising, then to early internet click-type ads, and now to much more advanced methods. This applies universally. The crucial factor for targeted advertising is the data and targeting accuracy. It's widely acknowledged that understanding which advertisements are effective can be challenging. With the wealth of data we collect, we can provide insights that marketers may find valuable. For example, we know where riders are heading—whether it's to a drug store, supermarket, or an airport—and this first-party data allows us to engage with brands, either as a promotional opportunity or to encourage specific transactions. So, if you have a large audience, which we do with 40 million riders, and you gather data effectively, alongside measuring results—which we are currently enhancing through new platforms—engagement will ultimately drive growth. Our engagement metrics are impressive; we compare favorably to industry standards, partly because riders frequently interact with our app during their average 15-minute trips. We've also recently introduced video ads on our platform, contributing to growth alongside both new and returning ad partners. This comprehensive approach positions us for considerable success. While I may present slightly varying estimates, we anticipate this to develop into a substantial business, and we are committed to investing in it, noting positive trends quarter by quarter.

Our next question comes from the line of John Colantuoni with Jefferies. Please go ahead.

Great. Thanks for taking my questions. So, Canada trips doubled. If we sort of just make a simple assumption that Canada was, let's say, 5% of trips last year. That math would imply that U.S. trips grew closer to 10% in the second quarter. So, it looks like growth is decoupling from Uber a bit more in the second quarter than in the prior three quarters. Any details you can provide on supply, pricing, or timing of the product roadmap that could help explain that moderation in market share? And maybe on the flip side, can you just talk to what drove the strong performance in Canada? And if there's any learnings that you can bring over to the U.S. market? Thank you.

John, I'll take the first part of that question and then turn it over to David to chat more about our efforts in Canada. As a reminder, we don't break out the different geographies. So, I wouldn't comment, but I think your estimates around Canada might be a little bit high. Maybe the broader point is we don't see any change in our share. So, we feel good about where we are there.

Yes, we are definitely seeing growth in Canada. Toronto has become our eighth-largest market, which is promising. It's just one city, and there's much more potential in Canada. However, reaching this strong position in a relatively short time gives us optimism. That said, there's no indication that our domestic growth is slowing down compared to what we've previously communicated.

Our next question comes from the line of Nikhil Devnani with Bernstein. Please go ahead.

Thanks for taking my question. I wanted to follow up on the Investor Day growth targets. Is there any incremental commentary you can provide on faster-growing modes or markets that might help you sustain the 15%? Whether it's smaller cities or suburbs however you want to put it. But I think the challenge investors are having is that the bigger you get; the assumption is that it's harder to sustain the growth unless you have a product cycle or expansion markets to point to. And so, you've kind of alluded to this, see, with Canada, Wait & Save in the past as well. But could you maybe contextualize how big some of these faster-growing verticals or submarkets can be and are for you? And then my second question is around insurance. Erin, it looks like accruals have started to increase a bit. So, has there been a change in strategy to self-insure some more? Thank you.

I can start with the insurance question, and then I'll turn it over to David to lead the first part of your question. So, Nikhil, in our most recent renewal cycle, I would say there was a slight mix shift as it relates to our mix of third-party versus self-insurance. It wasn't significant, but a slight shift. And we are always looking at that mix to optimize our overall portfolio and making choices accordingly. So, a slight shift.

Nikhil, I want to highlight a few points regarding overall growth. Remember, the 160 billion rides is a substantial figure, indicating significant room for growth even within that, aside from exploring beyond our current total addressable market. We can see this in terms of geographical expansion, like what we're observing in Canada, which excites us and could lead to future opportunities, although we can't make specific comments on that yet. Additionally, there are new segments within existing markets that we still need to investigate thoroughly. For instance, looking back at what we launched last year, Women+ Connect, which allows women riders and drivers to select each other, we've noticed that the supply of women drivers is increasing. Currently, about 29% of new applicants are women, while they make up approximately 23% of our platform. This indicates growth and opens up a potentially vast market of women who may feel hesitant about rideshare currently. Changing consumer behavior takes time, and we recognize that there won't be immediate massive increases, but since women represent half the population, this presents a significant opportunity. We are examining various segments and see many possibilities. We mentioned commuters earlier, where our penetration is still low compared to the value we provide. Many people may only use rideshare a couple of times a week, but we aim to capture a larger share of that, as we believe our offering is superior. Furthermore, our partnerships play a crucial role. We've developed deep expertise in this area over the years with notable companies like Disney, Delta Airlines, Chase, and Hilton. Despite some challenges for Delta currently, they remain the largest U.S. airline, and we have one of the few relationships with them through their SkyMiles partnership, which we expect will expand over time. The same goes for Chase, as their Sapphire credit card is a vital part of their offerings, and their ongoing investments will benefit us as they incentivize riders through points. While it may seem repetitive, we aim to double our efforts on strategies that work, delve deeper, and identify sources of growth. We don't see any specific limitations on the market size we can tap into, and we are confident in our projections.

Yes. I would say at Investor Day, David, one of the things that at least folks shared comments with me was a new appreciation for the depth of our partnerships, and we emphasized, obviously, our existing partnerships and just the opportunity to continue to penetrate those. And that's not even mentioning partnerships that may come in the future. I think the only other area, Nikhil, that I would point to is healthcare, and our business there is a market leader in the non-emergency medical transportation space. We continue to see incredible growth there and unlocking new states and new partnerships and continue to remain bullish on the opportunity there.

Our final question comes from Bernie McTernan with Needham & Company. Please go ahead.

Great. Thanks for taking my question. David, solving for pricing has certainly been a focus for the company. First, the price cuts, now lower Primetime. And so, if you look out over the next couple of years, do you think we're at the peak drag from pricing right now? Or is that still in the future? And then how to think about those positive offsets like things from higher conversion, how long does it take for higher volume to outweigh the pricing headwind? And maybe what you're seeing in your best markets right now like Baltimore, Phoenix and Orlando, is that seeing headwind being offset by volume already? Thank you.

Yes, that's a great question. People are definitely sensitive to pricing, and we notice this consistently. We invest significant effort into finding ways to lower prices when possible and reduce variability. Both of these elements are critical to our pricing strategy. Everyone appreciates lower prices, and people generally dislike variability. We have several strategies in place, such as our Wait & Save product, which gives us added flexibility to match riders with drivers effectively. This not only offers discounts to riders but also helps optimize our costs by selecting drivers based on who is less expensive to serve. It's essential that all our service modes contribute to profitability, and we're highly focused on that. Similar to our Price Lock strategy, where customers pay a small upfront fee for a lower rate, ensuring we compensate through volume has been working well in our initial markets, though there is still much potential ahead. Additionally, we are exploring partnerships that can help mitigate costs, allowing us to lower prices for riders. Various offers from our partners, such as extra points on credit cards or direct discounts funded by them, help drive traffic to their platforms. Our expertise in partnerships is an area we'll continue to develop. While we're content with our current pricing, which has driven impressive growth, our main focus now is on innovating with partners to reduce rider prices while maintaining sustainable economics and avoiding unworkable business practices.

And remember, Bernie, the price of rider experience is a combination of many factors: mode, mix, distance, we talked about Primetime and the impact here on Q2 and Q3. But remember, that's a great thing for the health of our marketplace over the long term. At the end of the day, market prices are dynamic, just as David described, and our goal and what we're doing is operating in a healthy and competitive way.

This will conclude our question-and-answer session. I will now turn the call back to Lyft's CEO, David Risher, for closing remarks.

Thank you, everyone. I want to express my gratitude to two groups. Thank you for being our long-term investors. We have achieved GAAP profitability, which I'm very excited about, but there is still a lot to accomplish, and we're equally enthusiastic about that. I want to acknowledge the team; they have worked incredibly hard to bring us to this point and to prepare us for future success. We are very pleased with the strength of our marketplace and how our riders and drivers are engaging with our commitment to customer satisfaction. I encourage each of you to check out Lyft; open your app, sign up for Price Lock, and let us know how it goes for you. We look forward to seeing you all next time. Thank you for your interest and for following our journey.

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