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Lyft (LYFT) Q2 2022 Earnings Call Transcript

By Motley Fool Transcribing – Aug 5, 2022 at 12:00AM

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LYFT earnings call for the period ending June 30, 2022.

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Lyft (LYFT -1.50%)
Q2 2022 Earnings Call
Aug 04, 2022, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good afternoon, and welcome to the Lyft second quarter 2022 earnings call. At this time, all participants are in a listen-only mode to prevent any background noise. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Sonya Banerjee, head of investor relations. You may begin.

Sonya Banerjee -- Head of Investor Relations

Thank you. Welcome to the Lyft earnings call for the quarter ended June 30, 2022. Joining me today to discuss Lyft's results and key business initiatives are co-founder and CEO, Logan Green; co-founder and president, John Zimmer; and chief financial officer, Elaine Paul. A recording of this conference call will be available on our Investor Relations website at investor.lyft.com shortly after this call has ended.

I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements. These include statements relating to the expected impact of the continuing COVID-19 pandemic, macroeconomic factors, the performance of our business, future financial results and guidance, strategy, long-term growth, and overall future prospects. We may also make statements regarding regulatory matters. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call, in particular, those described in our risk factors included in our Form 10-Q for the first quarter of 2022 filed on May 10, 2022, and in our Form 10-Q for the second quarter of 2022 that will be filed by August 9, 2022, as well as risks related to the current uncertainty in the markets and economy.

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You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Lyft disclaims any obligation to update any forward-looking statements except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results.

Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC, as well as in our earnings slide deck. These materials may also be found on our Investor Relations website. I'd now like to turn the conference call over to Lyft's co-founder and chief executive officer, Logan Green. Logan?

Logan Green -- Co-Founder and Chief Executive Officer

Thanks, Sonya, and good afternoon. I'm pleased with our Q2 results. In light of the macroeconomic environment, we took swift and decisive actions, which helped generate $79.1 million in adjusted EBITDA, which is the highest in our company's history. Revenue of $991 million was near the top end of our outlook.

Rides reached a new COVID high, and we added more than 2 million Active Riders versus Q1. We feel good about where things landed. And I'm grateful to team members for everything they do to support the company and our mission. We saw increased demand in Q2.

Active Riders and rides both hit post-COVID highs with rideshare rides up 27% year over year. Travel came roaring back. The airport use case reached an all-time historic high at 10.2% of total rideshare rides in Q2 and managed Lyft business bookings more than doubled, up 105% year over year. In addition, bike, and scooter rides more than doubled in Q2 versus Q1.

We saw increased driver performance, too. The total active drivers were the highest they've been in two years, reflecting a mix of new and returning drivers. More than half of new driver acquisition in Q2 was organic. And we've seen strong driver attention year to date.

In Q2, average driver earnings in the U.S. were north of $37 per utilized hour, which is up 18% year over year, including tips and bonuses. Critically, we attracted more drivers to our platform even as we grew our adjusted EBITDA and realized greater leverage. Contra revenue incentives on a per ride share ride basis were down 17% versus last year, which is an even sharper decline than we expected.

I want to remind folks that these incentives are primarily funded by Primetime, which is reflected in the price riders pay. Service levels are also improving. With more drivers using Lyft, service levels are getting better even with more riders and higher ride volumes. Across the U.S., average rideshare ETAs in Q2 were roughly three minutes faster than they were in Q2 of last year.

This means we are one to two minutes away from pre-COVID rideshare ETAs. Additionally, when normalizing for the $0.55 per ride gas surcharge that goes directly to the driver, which went into effect in mid-March, rideshare prices have come down year over year. And overall improved service levels have led to rideshare conversion rates that have returned to pre-COVID levels. Over the medium term, we expect rideshare ride volumes to reach and exceed pre-COVID levels.

In Q2, Shared rides were 1% of total rideshare rides versus roughly 20% pre-COVID. We're moving quickly to introduce our improved Shared ride experience in more markets to go after this growth opportunity. John will go into more detail about our work on Shared rides. While the West Coast has lagged behind other parts of the country, we see signs that it is recovering.

In Q2, the top 10 West Coast markets grew more than twice as fast as the East Coast or the South relative to Q1. Nights out represent another growth opportunity since this use case has lagged as a percentage of total rideshare rides relative to what it was before COVID. We are also making prudent decisions and responsibly managing our cost structure. In mid-Q2, we revised our operating plan.

We pulled back on discretionary spending and significantly slowed hiring. We reprioritized our R&D initiatives and reorganized teams to ensure laser focus on driving profitable growth. Our Q2 performance demonstrates our continued ability to navigate uncertain operating environments and deliver strong results. In addition, we recently announced our plans to discontinue our first-party consumer rental business.

Since introducing Lyft Rentals three years ago, we experimented with both first- and third-party models and saw third parties as the best way to scale Lyft Rentals and provide better coverage. We also consolidated several of our vehicle driver support locations. Finally, even though we decided to exit the San Diego scooter market, Lyft riders will still have extensive nationwide scooter access through our Spin integration. Taken together, these actions are expected to deliver incremental cost savings while maintaining a strong rider experience.

The most important point I'd like to leave you with is that we are confident in our ability to continue navigating near-term headwinds and deliver strong long-term business results. Over the past several months, one of the most common requests in investor conversations has been for more visibility into our longer-term profitability. While the macroeconomic environment continues to create near-term uncertainty, we are confident in the fundamentals of our business. As we look out to 2024, we are targeting adjusted EBITDA of $1 billion with over $700 million of free cash flow, which is defined as operating cash flow less capex.

We see multiple paths to achieving these milestones driven by expected industry growth and operating leverage. These will be key financial targets that we'll be using to drive the business forward over the next two years. Now, let me turn the call over to Elaine to share the details on our financials.

Elaine Paul -- Chief Financial Officer

Thanks, Logan, and good afternoon, everybody. In the second quarter, we delivered revenues of $991 million, representing an increase of 13% versus Q1 and 30% versus last year. Q2 revenue was just 3% below the all-time peak reached in Q4 of 2019. Revenue growth was driven primarily by rideshare, which was up 27% year over year in Q2.

Relative to guidance, Q2 revenues came in toward the high end of our range. Active Riders grew by more than 2 million versus Q1 and were the highest they've been since early 2020. Active Riders were 19.9 million in Q2, up 12% quarter over quarter and 16% versus last year. Sequential new rider growth outpaced the growth of returning riders, which is great to see since it speaks to the runway in front of us.

Q2 revenue per Active Rider of $49.89 was the second highest it has ever been. Revenue per Active Rider grew by $0.71 versus Q1 and by $5.26 versus Q2 of last year. The increase was driven by higher revenue per ride associated with longer trips. Two major trends are driving this: accelerated growth we've seen in Lyft business, as well as a strong pickup in travel.

Before I move on, I want to note that unless otherwise indicated, all income statement measures are non-GAAP and exclude stock-based compensation and other select items as detailed in our earnings release. A reconciliation of historical GAAP to non-GAAP results is available on our Investor Relations website and may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC. Q2 contribution significantly outperformed versus guidance. Contribution was $590 million, up 18% versus Q1 and up 31% versus Q2 '21.

This is roughly $30 million better than the high end of our contribution outlet of $560 million. Relative to our guidance, around half of the beat, or $15.5 million was driven by bikeshare-related accounting adjustments that reduced cost of revenue. This is inclusive of $3.2 million depreciation benefit. The remaining upside was driven by deliberate management actions that drove incremental growth and cost savings.

Contribution margin in the second quarter was 59.6% and was 360 basis points higher than our guidance of 56%. The bikeshare items I just discussed delivered roughly 160 basis points of this outperformance. Relative to Q1 2022, contribution margin increased by approximately 220 basis points, reflecting deliberate management actions that drove improved per ride unit economics. As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods.

In the second quarter, there was adverse development of $275 million. This was partly offset by a $37 million accounting gain and resulted in a net impact to GAAP cost of revenue of $239 million. This adverse development reflects insurance industry trends. The commercial auto industry have been experiencing higher costs and increasing insurance losses.

Like many other services, auto repair and healthcare have become more expensive, reflecting the broad impact of inflation on both wages and materials given supply constraints, as well as challenging litigation trends. Furthermore, our Q2 adverse development is primarily associated with a legacy third-party claims administrator, who did not resolve legacy claims as effectively as we would have expected. These claims predate the risk transfer structure that we've been implementing since Q4 of 2019, which means we do not have the same exposure to additional volatility on legacy claims in future periods. At this point, around 90% of the claims that are handled by our legacy claims administrator, which date back to 2018, are resolved.

Let's move to operating expenses below cost of revenue. In the aggregate, these expenses came in well below guidance, primarily driven by cost savings in R&D and sales and marketing. These savings are the direct result of actions we took in the quarter to address macroeconomic uncertainty. Let me start with operations and support.

As a percentage of revenue, operations and support was 10%, down 60 basis points from Q1 and down 130 basis points from Q2 '21. In absolute terms, this expense was $98.6 million in Q2 and includes a $5 million benefit from an accounting adjustment related to our bikeshare systems. Relative to Q1 '22 and to Q2 of last year, we achieved better leverage on our operations and support expense even as ride volumes and driver supply grew. R&D was 10.7% of revenue in Q2, down 100 basis points from Q1 and 630 basis points down from Q2 '21.

In absolute terms, R&D expense was $105.7 million in Q2. Year-over-year comparisons reflect the impact of our divestiture of our Level 5 self-driving division that closed in July of last year. Relative to Q1, R&D increased by just $3 million, which was below guidance that implied an $18 million to $25 million increase in R&D expense quarter over quarter. We were able to do this by streamlining the number of priorities we are working on and considerably limiting hiring.

Sales and marketing as a percentage of revenue was 13% in Q2, roughly flat with Q1 and up 140 basis points versus Q2 of '21. In absolute terms, sales and marketing expense was $128.3 million. The $13.5 million increase in sales and marketing versus Q1 was below guidance of an increase of $19 million to $26 million. Relative to Q1, this incremental spending reflects precommitted brand marketing and driver referral bonuses.

Within sales and marketing, incentives were 3% of revenue. G&A expense as a percentage of revenue was 20.6% in Q2, up 160 basis points from Q1 and up 60 basis points versus Q2 '21. In absolute terms, G&A expense was $203.7 million and includes a $12 million accounting benefit driven primarily by tax reserve releases that were identified during the quarter. Relative to guidance, G&A was incrementally higher than anticipated driven primarily by policy.

In terms of the bottom line, our Q2 adjusted EBITDA profit of $79.1 million was the highest in our company's history. It also exceeded the top end of our $10 million to $20 million outlook by $59.1 million. This outperformance reflects actions we took to control costs and drive profits during the quarter in addition to business outperformance and accounting tailwinds. In total, Q2 adjusted EBITDA included $29 million of accounting tailwinds.

We ended Q2 of '22 with unrestricted cash, cash equivalents, and short-term investments of $1.8 billion. The sequential change in unrestricted cash was driven primarily by an insurance collateral requirement, which moved funds from unrestricted into restricted cash, as well as our acquisition of PBSC. Before I move to our outlook, it's important to note that geopolitical dynamics and macroeconomic factors are impossible to predict with any certainty. Future conditions can change rapidly and affect our results.

We are taking a prudent approach to managing our business. First, like many companies, we are keeping a close eye on consumer behavior. Even in a recessionary environment, transportation is a historically durable category of consumer spending. And the depth of our network means that we can deliver a wide range of price points to riders, from bikes to Wait & Save, Shared rides to Priority Pickup.

In addition, more people may turn to rideshare for supplemental earnings opportunities, serving as a tailwind to organic driver supply growth. Second, as I mentioned earlier, insurance costs were being affected by inflationary pressures. In Q3, we expect this will impact our contribution margin. We've been actively working to mitigate the impact and we aren't done.

We believe that over time, we can offset higher insurance costs through both pricing and also product and engineering efforts that deliver better per-ride unit economics and that continue advancing the safety of our network. Internally, we continue to drive forward initiatives to reduce the frequency and severity of accidents, thereby also bringing down the cost of insurance. This includes further leveraging our risk models to assess behavioral and environmental risk factors. Our in-house mapping technology, Lyft Maps, can help enable safer, cost-optimized routes that drive additional insurance savings.

In terms of controlling our corporate overhead, we have materially pulled back on hiring, cut T&E budgets. And we'll continue scrutinizing every cost line item to ensure we are demonstrating strong discipline. Over a few quarters, we expect higher insurance costs will be mitigated by improving leverage. They will provide some near-term headwinds.

Now, let me share our outlook. We expect Q3 revenues of between $1.040 billion and $1.060 billion, which implies growth of between 5% and 7% versus Q2 and growth of 20% and 23% versus Q3 last year. Rideshare rides grew almost 4% month over month in July, and we expect an acceleration in September with back-to-school. We also expect an incremental tailwind from bikes and scooters in Q3.

Given H1 actuals and our Q3 outlook, we now expect full-year 2022 revenue growth will be slower than the 36% achieved in 2021. In terms of profitability, we expect Q3 contribution margin to be roughly 55%. This implies contribution of $572 million to $583 million. We expect operating expenses below cost of revenue will decrease slightly in Q3 versus Q2 as a percentage of revenue.

As a result of the above, we expect Q3 adjusted EBITDA of $55 million to $65 million. This implies an adjusted EBITDA margin of roughly 5% to 6%. Excluding the accounting tailwinds in Q2 of $15.5 million in contribution and $29 million in adjusted EBITDA, for every $1 of incremental revenue in Q3, the high end of our outlook implies $0.12 will flow to contribution and $0.22 will flow to adjusted EBITDA. We recognize the importance of expanding the leverage in our business and growing our profits, and we are committed to driving both forward.

With that, let me turn it over to John.

John Zimmer -- Co-Founder and President

Thanks, Elaine. I'm going to focus my comments on the marketplace work we are doing to deliver incremental growth and profits. First, let me start with ride affordability since this is critical to support ride frequency and loyalty, which are key drivers of our business. Our network gives riders access to a wide range of transportation options and price points.

In terms of rideshare, Shared rides are top priority as the most affordable option. Shared rides were still a relatively small percentage of our total rideshare volumes in Q2, but it's clear that the new, reimagined experience is delivering meaningful value. In Philadelphia, Shared rides grew 20% quarter over quarter in Q2, far outpacing standard rideshare growth. And prebooking a Shared ride has become very popular, accounting for the vast majority of all shared rides in Q2.

By booking a Shared ride in advance, riders receive the best possible price. In exchange, we get more time to find the best possible match. As a result, we can make the experience better for the rider and driver, improve our marketplace efficiency and unit economics. As a specific example, in Philadelphia, our match efficiency and match rates are nearing pre-COVID levels on just 20% of pre-COVID shared ride volumes.

We're moving quickly to introduce Shared rides in more markets to scale this opportunity. In July, we doubled the number of markets where Shared rides are offered from seven to 14. And we'll continue scaling Shared rides as we move through the year. Additionally, our bikes and scooters offer affordable and sustainable options for shorter trips.

Last year, more than 2.4 million people tried Lyft-operated bikes and scooters for the first time. And in the first half of this year, first-time bike and scooter riders were up 7% versus the same period last year. In addition, in New York City, city bike rides more than doubled versus Q1 '22. And in Chicago and Denver, our scooter systems reached new daily highs during Q2.

Next, let me talk about the rideshare driver experience. We are working to give drivers even greater transparency when it comes to choosing when to drive and which rides to accept. By doing so, we expect we can increase organic driver acquisition and loyalty and continue improving our marketplace balance. These high-impact projects have the potential to drive meaningful top-line and bottom-line growth now and in the future.

Upfront pay is one example. With upfront pay, drivers have more visibility into the rider's pickup location, the route details, and their expected earnings when they're deciding whether to accept the ride request. We've seen that upfront pay can increase the number of drivers using Lyft and the amount of time they spend driving while also increasing ride completion rates. We'll continue working to deploy upfront pay in more markets throughout the year.

Last, I want to highlight the significant additional opportunity we see to make our marketplace more and more efficient. This work is an important lever within our control that we will use to achieve our 2024 adjusted EBITDA target. One example is our work to more fully roll out Lyft Maps, our in-house mapping technology that is based on open-source software. This work allows us to drive material cost savings per ride in terms of better routing and actual third-party mapping costs.

To that end, in Q2, we launched Lyft Maps within our rider app, and it's now providing the underlying map for more than 60% of rider sessions. With this rollout, we've grown the percentage of rides powered entirely by Lyft to 18%, up from around 3% of rides at the beginning of the year. Based on initial data, we expect Lyft Maps can begin to deliver meaningful cost savings starting this quarter. Another example is the work we are doing to further improve the efficiency of our driver engagement spend.

We are doing this by advancing our machine learning technology and enhancing our prediction tools. This work has the potential to deliver millions of dollars in incremental adjusted EBITDA profit by the end of the year. The bottom line is that there are several exciting opportunities within our control to drive positive leverage in our business. As we navigate the next few quarters, it's clear consumer transportation and the technology we're building is a strong long-term business with a massive addressable market.

We continue to believe that Lyft has the opportunity to deliver one of the most significant shifts to society since the advent of the car by enabling and unlocking transportation as a service. Autonomous vehicles will provide an additional step change in long-term growth and Lyft will be at the forefront of that transformation. Operator, we're now ready to take questions.

Questions & Answers:


Operator

[Operator instructions] Your first question is from the line of Doug Anmuth with J.P. Morgan. Your line is open.

Doug Anmuth -- J.P. Morgan -- Analyst

Thanks for taking the questions. You talked about how drivers are at their highest levels in two years. Can you just talk about how you're positioned now with drivers versus three months ago, what that's meant to service levels and what that suggests for contra revenues or incentives in the back half of the year? And then just given the 2Q revenues, which were pretty solid, what -- can you just talk more about what drives the change in the '22 outlook overall? I'm just not expecting acceleration any longer. Thanks.

John Zimmer -- Co-Founder and President

Hey, Doug, it's John. I'll take the driver question and then pass it to Elaine on revenue. So, yes, coming out of the last earnings call, there were a lot of questions about the supply side of our marketplace. We're super happy on what we saw on the driver side.

It's in the best place it's been in a very long time. And we're seeing continued positive trajectory. We mentioned earlier on this call, total active drivers were the highest they've been in two years and more than half of new driver acquisition in Q2 was organic. Driver earnings also obviously super important to watch.

In the U.S., we're north of $37 per utilized hour, which is up 18% year over year, including tips on bonuses. And you asked about contra revenue incentives. On a per rideshare ride basis, we're actually down 17% versus last year, which is an even sharper decline than we had expected. In Q3, we expect contra revenue incentives per rideshare ride will decline another 20% quarter over quarter.

One reminder is that these incentives are primarily funded by Primetime, which is reflected in the price riders pay. You asked about service levels. They continue to improve because of what I just mentioned. So, what we're excited about is that Q2 average rideshare ETAs were one to two minutes away from pre-COVID levels.

And so, hopefully, that addresses your questions on service levels and drivers.

Elaine Paul -- Chief Financial Officer

Yes. In terms of your question on our full-year outlook and our revenues, modest macro headwinds have tempered our view on the pace of the recovery since what we expected since the start of the year. The trends we saw in Q2 and from July are informing that view. And even while we've continued to grow rides, the pace at certain points have been more tempered than we thought at the start of the year.

As a result, as we disclosed, we brought down revenue growth to 5% to 7% quarter over quarter in Q3, and this has informed our full-year outlook. And we've also revised our expectation for full-year '22 revenue growth. Regardless, we expect to deliver $55 million to $65 million in adjusted EBITDA in Q3 and $1 billion of adjusted EBITDA in 2024. Going back to your question on contra and our outlook on contra revenue incentives.

Contra, as John mentioned, was down 17% year over year, the sharper decline than we're anticipating as of May. We expected a 15% decline year over year. And going forward, on a per rideshare basis, we expect contra to decline 20% year over year and to come down in absolute terms versus Q2.

Doug Anmuth -- J.P. Morgan -- Analyst

Thank you, sir. Thank you.  Just -- can I just clarify there? The down 20% -- it's the 17% year-over-year going to down 20% year-over-year? Or it's down another 20% sequentially? I just want to clarify that point.

Sonya Banerjee -- Head of Investor Relations

Doug, it's Sonya. Just clarifying, it's down 20% quarter-on-quarter on a per rideshare ride basis. Does that clarify your question?

Doug Anmuth -- J.P. Morgan -- Analyst

OK. Thank you. 

John Zimmer -- Co-Founder and President

Quarter on quarter, yes.

Doug Anmuth -- J.P. Morgan -- Analyst

Quarter on quarter.

Operator

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

Stephen Ju -- Credit Suisse -- Analyst

OK. Thank you. So, John, the steps you just talked about to, say, offer the driver the ability to favor certain jobs over others, I mean, without question, positive for them, right? But they may be neutral to maybe negative for the consumer experience. So, how do the interests between the two sides of the marketplace get balanced? And Elaine, I think you touched on this in your prepared remarks.

But can you remind us where you stand in terms of all the potential liabilities from the older insurance claims? Because our recollection is that about -- I don't know, I think this was about a year plus ago that Lyft had paid to transfer some of the risk to a third party with the understanding that we'll not see these provisions from adverse events show up going forward. And when you say that you have resolved like 90% of the claims, I mean, is that from a Dollar or Chase's standpoint? Thanks.

John Zimmer -- Co-Founder and President

Stephen, this is John. So, on your first part, upfront pay, so you're right. It's a careful balance. Obviously, we want to provide drivers with as much information as possible while also providing a really strong and good rider experience.

And that's why it's rolled out. We started testing it. I think we were the first to test it in the rideshare industry. And we're continuing to roll out more elements of it as we go to ensure that we're protecting the rider experience.

And what you need -- what you realize as you do that is -- and I think overall, this is a really good thing, is that you properly align incentives across the marketplace so that if you were previously pricing a short ride in a way that got less drivers to accept it and you were pricing a long ride in a way that got a lot of drivers to accept it, you might rebalance that between the short and long rides. Overall, net -- zero net result but I think better aligns incentives across the board. And so, the time we take to roll it out in each market and for each segment of drivers is because we continue to dial that in. Long term, I think, just because we've aligned incentives better with drivers, I think overall, there is efficiency or operating leverage from doing this because this is actually way better than kind of long or medium-term incentives, it's right in the moment.

And so, we believe it will perform better for our overall unit economics.

Elaine Paul -- Chief Financial Officer

Thanks for the questions on adverse. And just to clarify, what I mentioned in my remarks was that at this point, 90% of the claims outstanding that are handled by our legacy claims administrator, which date back to 2018, 90% of the total claims are resolved, 10% are outstanding, so it was number of claims. With respect to adverse, we do think that this adverse development reflects insurance industry trends. The commercial auto industry has been experiencing higher costs and increasing insurance losses.

And like many other services, auto repair, and healthcare have become more expensive, reflecting the broad impact of inflation on both wages and materials. Virtually all of our adverse development is attributable to historical auto losses that date back to 2018. This predates our risk transfer partnerships with insurance carriers, with rideshare-specific experience, adjusting claims. The legacy book of liabilities primarily causing these adverse predates this risk transfer and will continue to shrink in size as the claims are closed out.

Stephen Ju -- Credit Suisse -- Analyst

Thank you.

Operator

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

Mark Mahaney -- Evercore ISI -- Analyst

Thanks. A near-term question and a long-term one. The fuel -- I forgot what it's called, fuel charges, whatever. As gas prices are coming down, is there an opportunity here to no longer need to rely on those for drivers? And then secondly, this $1 billion in EBITDA goal and $700 million free cash flow by 2024.

I was going to ask just some -- a few of the assumptions behind that. I know John talked about some nice efficiencies with Lyft Maps. But Elaine, is there anything else you would call out? Just high level, what kind of assumptions are required to get there? Thank you.

John Zimmer -- Co-Founder and President

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

Logan Green -- Co-Founder and Chief Executive Officer

And then on the $1 billion target for 2024, there's four key levers to get there. The first is overall rideshare market growth. Second is pricing. And along with that, changes in ride mix and modes and the sort of revenue management behind that.

Third is the impact on our work to drive efficiency in the marketplace. And finally is overall operating leverage. So, one key assumption that is important to call out is it only assumes rideshare volumes grow at the same rate as the rest of the market. We're confident in the plan and the assumptions behind it.

And again, we have multiple paths to achieve that $1 billion target.

Mark Mahaney -- Evercore ISI -- Analyst

Thank you.

Operator

Your next question is from the line of Steven Fox with Fox Advisors. Your line is open.

Steven Fox -- Fox Advisors -- Analyst

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

John Zimmer -- Co-Founder and President

You know, obviously, it's hard to perfectly predict the macroeconomic conditions, but we've made strong investments with the team in the airport trip. We have a phenomenal partnership with Delta and other airlines because we see it as such a great example. And as Logan mentioned, on the path to the $1 billion in adjusted EBITDA, he mentioned mode mix. And so, when you look at an airport ride, it's obviously longer and can have great margin and be great for the driver.

So, again, I'm not going to predict exact direction of that. I think it is both the fact that that has hit an all-time high as both attributable to the fact that people are out traveling again, as well as the work we've done internally to make that true.

Logan Green -- Co-Founder and Chief Executive Officer

Yeah. This is Logan. I'll just call it, clearly, there's a lot of pent-up demand for travel. So, we're seeing a big surge now, but I think that's likely to continue.

The other piece is just to call out that the airport experience has really improved in a lot of ways over the last number of years. Looking back several years, it wasn't clear that the airports even wanted ridesharing to operate there. And now we're a meaningful portion of their revenue. They're allocating better curb space, in many cases, better queuing lots.

And we've done a ton of product work to improve the experience. So, for example, priority pickup, which is a great product we launched last year that gives riders the fastest Lyft pickup experience, we've now scaled up to over 34 airports. That was -- we had to do a lot of work to bring the priority pickup experience to airports, but it's there now in a lot of major airports and working really nicely. So, a lot of the kind of infrastructure under the hood that we've done and we've done in conjunction with airports, I think, has helped the experience and put us in a good place to capture this kind of resurgence of travel.

Steven Fox -- Fox Advisors -- Analyst

That's helpful. And then just -- is there any further update on the PBSC acquisition and whether that's considered in the $1 billion EBITDA target? Thank you very much.

John Zimmer -- Co-Founder and President

That is considered in the target. Things are going well there. We're quite excited. It creates opportunities for revenue synergies between what we were doing at bikeshare and what they've been doing.

As we were doing R&D on bikeshare like building an e-bike, we now -- they already have customers around the world to kind of make up for any cost we have in R&D by basically having a captured sales audience to sell it to instantly. It diversifies our overall customer mix in that business and our geographic concentration of the existing model that was just U.S.-focused. PBSC bikeshare equipment has been sold in 45 markets in 15 countries. And so, quite excited about what that can mean for that part of our business.

Steven Fox -- Fox Advisors -- Analyst

Thanks again.

John Zimmer -- Co-Founder and President

Thank you.

Operator

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

Unknown speaker

Hi. Thank you. This is John on for Brent Thill. A question on some of the progress you made on cost savings on the opex side this quarter.

I mean, some of it were discretionary, and so on. But wondering how much of that will be sustainable in the near to medium term, especially on the sales and marketing side? And related to that, what -- if you could talk more about your headcount plans, that would be great. Thank you very much.

Elaine Paul -- Chief Financial Officer

Yeah. Thanks for that question. As indicated in our Q3 guidance, one additional -- we expect to see additional leverage and overall opex. We are -- as we said, in Q2, we made strides in cutting marketing, T&E, and significantly slowing headcount growth.

And we're not giving specific guidance around our hiring plans. But we're exercising extremely disciplined cost management with a clear focus on the bottom line.

Unknown speaker

Thank you.

Operator

Your next question is from the line of John Blackledge with Cowen. Your line is open.

John Blackledge -- Cowen and Company -- Analyst

Great. Thanks. Two questions. First on the driver supply.

Do you think the tougher macro is helping with driver supply and the organic driver acquisition that you saw? And then second on Shared rides. Do you expect the shared rides to return to the kind of pre-pandemic 20% of rides volume? Or will it settle in at a lower percentage of volume in the next couple of years? And will pricing for the shared rides return to kind of pre-COVID levels? Or will it be elevated in the coming years? Thank you.

Logan Green -- Co-Founder and Chief Executive Officer

Yes. We do expect to see some recessionary tailwinds on the driver side. I think as people are looking for earnings opportunities, driving for Lyft has always been a great opportunity. It is always on, always there.

And like we were talking about earlier, now clocking in at $37 per hour -- per utilized hour, earnings opportunity. It is extremely competitive. It is typically above that of what driving delivery or other sort of gig opportunities pay. So, I think it will maintain a sort of unique place in the market, of a premium gig opportunity.

And we launched the business back in 2012, which was really on the -- in a more recessionary environment, coming out of the great recession of the '08, '09 time frame. And I think we are set up well to sort of thrive in any condition. But there's -- we will lean into the moment.

John Zimmer -- Co-Founder and President

On Shared rides, as you mentioned, we -- prior to COVID, we had 20% of rides as Shared rides. It was actually 30% in the markets that it existed in. And so, we're -- it's still quite early. And as we mentioned on the prepared remarks, Philadelphia, one of the first markets, if not the first market we brought it back to, grew 20% quarter over quarter for Shared rides, outpacing standard rideshare growth.

And we're continuing to dial it in carefully. We have basically a new product for Shared rides, which can allow us to offer multiple price points within Shared rides. So, if you want one instantaneously kind of within one minute or two, which was the old product, you can get that and pay for it. And to your point, maybe you pay a little bit more than you did historically for that instantaneous shared ride.

But if you're willing to wait five minutes, 10 minutes, or 20 minutes, we have much more time to find you a match, and therefore, to give you -- to pass on and/or maintain that match efficiency. What is really heartening and really exciting for us to see, as we mentioned on the call earlier, is that our match rates are nearing -- in Philly, nearing pre-COVID levels on just 20% of shared ride volumes. And so, the whole reason we rebuilt the infrastructure behind shared rides is so that it would have better unit economics and be a better experience for our riders and drivers. And I think there's quite a bit of upside there.

As also mentioned in July, we doubled the number of markets from seven to 14, and we have much more to go.

John Blackledge -- Cowen and Company -- Analyst

Thank you.

John Zimmer -- Co-Founder and President

Thank you.

Operator

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

Benjamin Black -- Deutsche Bank -- Analyst

Great. Thanks for the question. Could you talk about market share dynamics? I think in the past, you mentioned maintaining share despite the slow recovery patterns we've seen in the West Coast. Is that still the case? Any comments on market share would be really helpful.

And the second question is on contribution margin. So, excluding the accounting benefit you mentioned, what exactly drove the strength here? And why are you expecting contribution margins to actually contract sequentially in the 3Q? Thank you.

Logan Green -- Co-Founder and Chief Executive Officer

Yeah. First, on market share. On a national basis, market share is consistent with where it was pre-COVID. And this is true even with the West Coast lagging and Shared rides not fully back, which are two areas where we historically over-indexed.

Now, in June, we ran a pricing pilot in a select number of markets that did have a negative impact on share. The pilot has since ended, and we expect that share in those markets will revert over time. But even with that, I want to underline that we are still at share levels consistent with pre-COVID. And on contribution margin?

Elaine Paul -- Chief Financial Officer

Yes. In Q2, with respect to our contribution margin and what drove our beat, it was proactive management decisions and business outperformance in addition to the one-time accounting items. 150 bps of the beat with stronger revenue per ride due to longer rides and pricing and 160 bps of the beat were one-time accounting items, including a bikeshare adjustment of $16 million. And just to note, that includes $3 million depreciation benefit.

Remember and a reminder, our cost of revenue includes depreciation expense. And so, to bridge that to adjusted EBITDA is a depreciation expense add back. In terms of looking forward and Q3 and the contribution margins, as we noted, when we want to normalize the comparison to a normalized Q2 adjusting for those accounting items. And the key driver of our Q3 contribution margin guidance of 55% is insurance inflation.

Insurance inflation is expected to result in about 260 basis points of pressure on Q3 contribution margin. We are working to mitigate the impact of insurance inflation on our business, and we have multiple levers to do so. One is pricing. Another is the marketplace efficiency work that can improve unit economics.

And the third is product initiatives that we -- that continue to improve safety. Reducing the frequency and severity of incidents, which we can impact through our product initiatives can bring down our insurance costs. So, to repeat, we believe that insurance inflation is an industry issue, that it's not unique to Lyft. And these trends are evident across the commercial auto industry.

We have a number of tools that are at disposal to combat it. And we're working actively to offset the impact.

Benjamin Black -- Deutsche Bank -- Analyst

All right. Thank you.

Operator

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

Brian Nowak -- Morgan Stanley -- Analyst

Great. Thanks for taking my questions. I have two. Just the first one is to go back to some of the comments you made about some macro weakness impacting the revenue growth and outlook for the year.

Can you just sort of give us a little more detail on what you're seeing from a macro perspective? Is it a certain type of routes or runs that are dropping off? Have you done work around your -- the income of your customers? What have you sort of studied that you've seen sort of get a little bit weaker on the macro side is the first one. And the second one, just wanted to drill a little more into that $1 billion target again. I think you mentioned, to Mark's answer, it assumes that the -- it assumes you grow in line with the overall market between now and '24. Is that sort of based on public comments made by your competitors? Is it based on consensus of all of us? What are you expecting the market to grow over that period?

Elaine Paul -- Chief Financial Officer

Hi. Thanks for this. Yeah. To go back to the questions around what kind of macro headwinds we're seeing, it's really to repeat a bit what I said earlier on the call that we've tempered our view on the pace of the recovery.

So, we're pleased we saw a 4% uptick in rides in July. We're seeing that stabilize through the summer, which is what we would expect. And we do anticipate an uptick in September. What's impacting our full-year view is at certain points, particularly since May, the pace of recovery has been more tempered than what we thought at the start of the year.

So, that's what's bringing down our Q3 revenue growth, and that's what's bringing down our full-year expectations of revenue growth. And then moving to --

John Zimmer -- Co-Founder and President

You asked about kind of the adjusted EBITDA 2024 guide to $1 billion and the comment that we expect to grow at levels of the industry?

Brian Nowak -- Morgan Stanley -- Analyst

Yeah.

John Zimmer -- Co-Founder and President

Yeah. So, we expect kind of low to mid-20% growth in the industry and for ourselves.

Brian Nowak -- Morgan Stanley -- Analyst

Perfect. Thank you both.

John Zimmer -- Co-Founder and President

Thank you.

Operator

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

Eric Sheridan -- Goldman Sachs -- Analyst

Thanks. Maybe one big picture and one on the financials. On the big picture side, would you see where the demand curve is coming back relative to 2019? And I know we've talked a lot about Shared rides on the call. What do you think of as different layers of product innovation or market segmentation that you still want to go after to possibly continue to expand the addressable market and think about ways in which you can bring more people on to the platform? That would be question one.

And then we've got a lot of questions from investors about stock-based comp and how to think about internal compensation of employees given what's happened in the stock market over the last six to nine months. How are you guys thinking about absolute levels of stock-based compensation and mixes of cash versus stock compensation for employees looking out over the next couple of years? Thanks so much.

Logan Green -- Co-Founder and Chief Executive Officer

Great. So, when we think about the long-term growth drivers and where we're focused, we look at three key areas. And the first is demographics. So, every year, 4 million people in the U.S.

become old enough to start using ridesharing on their own. And there's a lot of data externally, and we have a lot of internal data that shows the youngest people in the population tend to prefer digital-first experiences and they love service models. There's greater flexibility and more convenience. We see this in music.

We see this in entertainment. So, we think that preference has been there for a decade, and it's not going away anytime soon. So, we're going to continue leaning into that. And when Lyft first launched, it really took off with folks in their 20s, 30s, 40s.

All of those folks are a decade older now, that shift continues. So, we lean into the demographics and building products and really marketing to that audience. Second is on marketplace efficiency. And this is really one of our top priorities now.

It always is. Our core job is to match supply and demand. And I'm sure everybody has had that experience where maybe you're in a smaller town and you open up the app and you can't get a ride. Or maybe you're opening up the app at a certain time of day when it's extremely busy and the prices spike too high.

In many cases, those are -- that sort of unmet demand can be met. Those are solvable problems. And when we look at the market opportunity, there is a driver out there who would be happy to provide the ride. But maybe we didn't communicate the opportunity to the right driver or maybe it's a forecasting or prediction issue.

But it's something that we can address. And there's a ton of innovation and improvements that we have in the pipeline to address that. So, there's a lot there, and it's a key focus where we're leaning into fundamentally match supply and demand better. And the third trend where we invest a lot of energy, and we see continued tailwinds is a little bit what I was talking about earlier with kind of the infrastructure improvements broadly.

So, I talked earlier about airports and how the infrastructure and experience at airports has meaningfully improved over the last number of years. Another example that I think is really relevant is if you think of vehicle replacement. So, a few years ago, if your car was in the shop, your insurance company may have offered you a rental vehicle, a loaner sort of a voucher at one of the major rental companies. And now if your car is in the shop, there's a really great chance that you'll be offered your choice.

And you can choose to get a ridesharing voucher. And that kind of -- those small integrations with day-to-day life and the kind of infrastructure environment take time to build and happen slower but then create great tailwinds for the industry.

Elaine Paul -- Chief Financial Officer

Thank you. Turning to your question about stock-based comp, we are always evaluating whether we have the right compensation structure. Given macro uncertainty and the potential for slowdowns, we are currently prioritizing preserving cash. We have a big equity component to our compensation structure for eligible team members to align incentives to accompany performance and also to be competitive with our peers.

We need to be competitive in terms of attracting and retaining talent. In terms of stock-based comp and where it's going, we're not providing any specific guidance at this point. But shifting the conversation to dilution, we know, obviously, that it's a critical focus for investors. We keep a very careful eye on it.

And we benchmark our burn rate versus peers annually. In 2021, our gross burn rate was within the 50th to 75th percentile versus peers. And clearly, the level of dilution as a result of many factors, one of which is the share price, of course. But it is a balance between being able to compensate great talent in line with the market and being very focused on balancing that and managing dilution.

Eric Sheridan -- Goldman Sachs -- Analyst

All right. Thanks.

Operator

Your next question is from the line of Itay Michaeli with Citigroup. Your line is open.

Itay Michaeli -- Citi -- Analyst

Great. Thanks. Good afternoon, everybody. Just two quick ones for me.

First, going back to some of the initiatives that you mentioned on the insurance front, I was hoping to maybe talk through the timing to resolve in terms of how long it would take these initiatives to kind of offset some of the headwinds you anticipate. And then the second one on just thinking about revenue growth kind of into the fourth quarter. It looks like your Q2 and Q3 sequential revenue is starting to follow a similar pattern as what you saw in 2019. Is it fair to sort of look at 2019 as a decent barometer into the fourth quarter in terms of the sequential revenue pattern?

John Zimmer -- Co-Founder and President

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

Elaine Paul -- Chief Financial Officer

And turning to your question about insurance and our view on timing and ability to combat that and future quarter impacts. The Q4 impact of insurance will be a reflection of our ride volumes, our ride mix, our third-party insurance renewals, which take effect October 1. We plan to give -- update our outlook when we report in early November. And as I said, we have multiple levers to combat the rising level of insurance costs, pricing, marketplace efficiency work, and our product initiatives.

I also want to reiterate that we see insurance inflation as an industry issue, not specific to Lyft. And to recap, we're working hard to mitigate it and we'll provide an update on our Q4 outlook in November.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Sonya Banerjee -- Head of Investor Relations

Logan Green -- Co-Founder and Chief Executive Officer

Elaine Paul -- Chief Financial Officer

John Zimmer -- Co-Founder and President

Doug Anmuth -- J.P. Morgan -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

Mark Mahaney -- Evercore ISI -- Analyst

Steven Fox -- Fox Advisors -- Analyst

Unknown speaker

John Blackledge -- Cowen and Company -- Analyst

Benjamin Black -- Deutsche Bank -- Analyst

Brian Nowak -- Morgan Stanley -- Analyst

Eric Sheridan -- Goldman Sachs -- Analyst

Itay Michaeli -- Citi -- Analyst

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