Lyft (LYFT) Q2 2023 Earnings Call Transcript

Lyft (LYFT 1.87%)
Q2 2023 Earnings Call
Aug 08, 2023, 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 2023 earnings call. [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 second quarter of 2023. On the call today, we have our CEO, David Risher; and our CFO, Erin Brewer. In addition, Kristin Sverchek, our president, is here for the Q&A session.

We'll make forward-looking statements on today's call relating to our business strategy and performance, future financial results, and guidance. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or implied during this call. These factors and risks are described in our earnings materials and our recent SEC filings. All of the forward-looking statements that we make on today's call are based on our beliefs as of today, and we disclaim any obligation to update any forward-looking statements, except as required by law.

Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results may be found in our earnings materials, which are available on our IR website. And with that, I'll pass the call to David.

David Risher -- Chief Executive Officer

Thanks, Sonya. Good afternoon, everyone, and thanks for joining us. To start, I want to take a moment to introduce Erin Brewer, who joined us as CFO in July. Erin is a skilled finance professional and brings an incredible one-two-three punch of strong technical abilities, excellent business judgment, and great leadership.

She's also a valuable thought partner. She knows how to drive growth and operate efficiently at scale, and she's an amazing leader to our finance team. She and I are completely in sync on the opportunities ahead, and I'm thrilled to be working with Erin to build a rider and driver obsessed, durable, and profitable business. Erin, it's great to have you here.

Now we're going to talk about what we've been up to and what's next. First, our customer obsession and focus on strong execution is really paying off. The effects can be seen in our Q2 performance. Rideshare rides grew 18% year on year on year, accelerating for the second quarter in a row and standard rides reached the second-highest level in our history.

Active rider and drivers, each reach multiyear highs, resulting in an improved balance in our marketplace. So relative to Q1, the share of rides affected by prime time pricing dropped by 35%. And a larger percentage of ride intent converted into rides taken. With more people getting out to work and travel, the market is growing.

And with the strength of our actions, they're increasingly shooting Lyft. Second, we're doubling down on innovating for riders and drivers. We're already seeing the results of our April reorganization with flatter teams communicating more effectively and making decisions more quickly. At the same time, we've opened up more channels of communication, so we can hear directly from customers.

Through driver roundtable discussions, surveys, and our various public inboxes, including my own, we've been getting a lot of information about what we've been doing well and where we can still improve. And we're acting on what we're learning. I have been so energized by how quickly changes to our products can translate to better customer experiences. I actually want to go deep on this for a second.

In June, we addressed some of the drivers' top requests and pain points with the driver app with a relief that gives them more control over where and how they learn. So here are two examples. First, we made our proprietary stay within area filter, more precise, so drivers can pinpoint where they want to drive and flex the area for pickups and drop-offs to within a five-mile radius. This is absolutely huge.

It means that drivers can stay within their own neighborhood if they want and not end up super far away at the end of the day. This update resulted in a 26% increase in the number of drivers who use the feature in addition to an increase in driver hours and weekly retention rates. I actually used the feature myself when driving for Lyft to make sure I got home in time for dinner with my wife and it's a total game changer. The second thing we did is we upgraded our ride challenge bonus program to give riders even more choice.

So now instead of being offered a specific challenge, drivers can choose from a menu of options and choose the channel that works best for them. It might be long rides or short rides, they might be working on weekends or weekdays. Driver's feedback on the launch has been really positive with more than half of drivers saying these changes have made their overall experience using Lyft better. So these kinds of updates have an enormous impact on driver satisfaction and preference.

And that's really important to understand. Among the drivers who use both Lyft and Uber, we have seen a 25% increase in preference for Lyft since Q4 of last year. And in Q2, the number of drivers using Lyft grew by more than 20% compared to Q2 last year, and driver hours increased even faster, up by more than 35%. We'll closely monitor driver preference because we want to see it keep growing.

Over on the rider side, we continue to see growth, and in particular, with Wait and Save, which is our most affordable rideshare option. So Wait and Save offers riders a way to save money when they aren't in a big hurry. This lets riders price shop within our app instead of going to the other guy. In Q2, Wait and Save trips grew by more than 40% year on year on year and reached new all-time records, far exceeding where our share ride volumes ever got.

And just to give you a specific data point that gives you a sense of how large this is, in New York City alone, we averaged more than 150,000 Wait and Save rides per week in Q2. So you can expect us to continue innovating for our riders and our drivers, which creates an increasingly differentiated experience over time. Customers are reacting positively to what we're doing, and there's a lot more to come. Finally, we're building on our strong brand recognition, reminding the world that Lyft is a great rideshare choice.

So most people already know our company. And I feel this all the time when I introduce myself. Our awareness levels are super high. Surveys tell us that over 70% of U.S.

adults ages 18 to 65 are familiar with Lyft. So now as we approach the back-to-school season and the back-to-work season, which I'm sure we're all reading about, riders tend to change their habits. So this is exactly the moment for us to remind everyone to consider using Lyft particularly those who haven't used us or considered us in a while. And in the coming months, we'll be teaming up with other well-known brands as a way to raise awareness even further.

Stay tuned for that. So in summary, you all, we are executing well on our strategy of being customer obsessed, and the results suggest this strategy is working. Riders and drivers want and value choice. It's in everyone's best interest for there to be two strong players competing for their business.

By obsessing over our customers, we can continue to differentiate ourselves and grow this market and we have an incredible team that's focused on these objectives. Much more to come on all that in the coming months and quarters. Now I want to turn it over to Erin.

Erin Brewer -- Chief Financial Officer

Thanks, David, and thank you, everyone, for joining us today. I also want to thank the entire Lyft team for giving me such a warm welcome. I've been really impressed by the depth of talent and culture, and I'm excited to be a part of Lyft's next chapter. We have an amazing brand, a big market opportunity, and we serve an important purpose for drivers and riders.

One of the reasons I joined Lyft is because of the great fit. David and I share the same philosophies around building a durable, healthy, and profitable business. So today, I want to provide you some insight into how we're working together and what you can expect. First, we're building Lyft for the long term.

We will be customer obsessed, taking into account the needs of both drivers and riders and the corresponding health of our marketplace. Second, we're pressure testing goals and commitments to ensure they are aligned with what we want to accomplish long term. We'll be disciplined and consistent in how we execute both in the near term and in how we think about future growth opportunities in the business. Third, we're going to be clear with investors about our specific measures for success.

We're focused on making it easier for the investment community to follow our progress and get behind what we're doing. This is one of my top priorities in the coming months. Next, I'm going to discuss our Q2 results and share our Q3 outlook. I'm also going to address our upcoming third-party insurance contract renewals and provide some directional commentary about the fourth quarter.

Before I dive in, I want to remind everyone that unless otherwise indicated, all income statement measures are non-GAAP and excludes select items, which are detailed in our earnings materials. Now in terms of Q2, the rideshare market is growing, and our focused execution is paying off. Q2 represents a full quarter, pricing rideshare competitively and roughly in line with the market and the balance in our marketplace improved. We had strong driver growth and a strong mix of new and returning riders with the average number of rides taken by each active rider, which we refer to as frequency, reaching the highest level in more than two years.

With our renewed focus on delivering an experience that riders and drivers love, we've seen momentum across use cases, commute and early morning trips were standouts growing by just over 20% year over year, and we had the highest volume of airport rides since 2019. All of that translated into solid financial performance in Q2. Revenue was $1.021 billion, up 3% year over year. This reflects a combination of strong rideshare ride growth, up 18% year over year, along with lower revenue per ride given our focus on pricing competitively and roughly in line with the market.

In addition, our bike and scooter system sales showed strong growth year over year. This was partially offset by a nonrecurring legal cost in the quarter that was classified as contra revenue. Active writers were 21.5 million, up 8% year over year, driven by strong rideshare demand. Lower revenue per ride naturally affected revenue per active rider which was $47.51 in Q2, down 5% from Q2 of 2022.

Contribution margin was 42%, in line with guidance. Relative to Q2 of last year, contribution margin increased by 10 percentage points. As a reminder, in the second quarter of last year, our contribution margin was affected by approximately $275 million of adverse development on our legacy insurance reserves. Excluding this impact, contribution margin in Q2 '23 declined by roughly 18 percentage points year over year, reflecting higher insurance costs compared to Q2 '22 and lower revenue per ride.

In absolute dollars, contribution in Q2 '23 was $426 million, up 35% year over year. Operating expenses were $410 million, down 24% year over year, due primarily to our cost restructuring initiatives. As a percentage of revenue, Q2 operating expenses were 40%, compared with 54% in Q2 of the prior year. I will point out that operating expenses were roughly $20 million lower than guidance we provided for the second quarter.

Our outlook assumed operating expenses would include the impact of a nonrecurring legal cost but this expense was instead classified as contra revenue, which I referenced earlier in my comments on Q2 revenue. Q2 adjusted EBITDA was $41 million and exceeded the high end of our guidance range. This performance was driven by stronger rideshare demand than expected. Our adjusted EBITDA margin in Q2 was 4%.

We continue to have a solid cash position. We ended Q2 with unrestricted cash, cash equivalents, and short-term investments of approximately $1.7 billion. Before I share our outlook for Q3, let me provide some framing. We've entered the third quarter on solid footing.

In July, we saw continued healthy supply trends as 25% more drivers use Lyft versus last year, and driver hours grew by nearly 45% year over year. Rider demand also grew in July with ride intents, up 17% year over year. and our conversion rate continued to improve both year over year and quarter over quarter. The share of rides affected by prime time also continued to decline sequentially in the month of July, reflecting an even better balance of drivers and riders.

With our focus on strong execution and delivering for our customers, we anticipate rideshare volume growth in the third quarter of approximately 20% year over year. With that, let me review our Q3 guidance. We expect revenue of $1.130 billion to $1.150 billion, up 7% to 9% year over year. This reflects rideshare ride growth of approximately 20% year over year, as I just mentioned, in addition to lower revenue per ride versus the prior year period with our focus on operating competitively with the market.

We anticipate contribution margin will be approximately 45%. The sequential improvement of roughly 3 percentage points reflects healthier driver supply dynamics, in addition to lower contra revenue which will not include the legal costs that offset Q2 revenue from my earlier comments. We expect operating expenses as a percentage of revenue will be 40% to 41%, reflecting an increase in volume-driven costs and targeted marketing spend, partially offset by incremental savings relative to Q2 from our recent cost restructuring initiatives. Finally, we expect adjusted EBITDA of $75 million to $85 million and an adjusted EBITDA margin of approximately 7%.

I'd like to turn now and make some directional comments on the fourth quarter in anticipation of our third-party insurance contract renewals on October 1st. We'd like to give you our current best thinking on the range of expected outcomes. Our preliminary view of the fourth quarter suggests revenue will grow low to mid-single digits quarter over quarter. Additionally, fourth quarter adjusted EBITDA margin as a percentage of revenue will be in line to slightly lower than the level in Q2 2023.

This reflects expectations of continued strong rideshare ride growth year over year, in the fourth quarter, the impact of our insurance renewals, and continued improvement in our cost structure. Of course, we'll look to refine this view in our Q3 earnings call in the fall. Let me address how we're managing our third-party insurance renewals and what we are doing differently this year. With the Q4 renewal of our third-party insurance contracts, we expect to have substantial visibility into our insurance costs for the next 12 months.

Going forward, we've proactively changed the structure of these agreements to allow us to stagger our renewals in certain states. We believe this staggered structure gives us better optionality and is a better way to manage our insurance. Additionally, over the long term, we'll continue to build on the work we've done to bend the insurance cost curve through product and safety initiatives that help reduce accident frequency and improve settlement outcomes. Finally, I want to share a few closing remarks.

We had a solid second quarter, and we have strong momentum going into Q3 and the back half of the year. We've improved our cost structure, and we're operating more competitively and the team is unified and focused on delivering great experiences for drivers and riders. I am excited to be here. We've got lots more to do to build on our progress and I look forward to keeping you all updated.

Operator, we're now ready to take questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Stephen Ju of Credit Suisse. Your line is open.

Stephen Ju -- Credit Suisse -- Analyst

Great. Thank you. So, David, you've now been at the helm for about four months now. So is there anything you can share in terms of what projects you may have prioritized versus deprioritized in terms of resource allocation.

And maybe this is a little bit too early, but is there a way to parse apart like how much of the volume growth acceleration as you primarily to price versus product innovation. I mean price matching as a lever you can probably pull once, but the service improvements to product should be more durable. So I'm just wondering if you have -- if you could share any sort of perspective there.

David Risher -- Chief Executive Officer

Yes, sure. Awesome. Great to hear from Stephen, right? OK. It has been, yes, I feel like the old timer here, three months in or something like that, 100 in some days.

So a couple of things. First thing I'd say just baseline is our strategy of sort of customer obsession and good execution is working. And we can see it, the results sort of speak for themselves, 18% up year on year on year and so forth. So that's super, super exciting.

If you think at one level deeper to your second part of your question, it's, well, how much was priced and then how much were other factors? And there's sort of an all of the above thing going on, right? So we're very focused on improving service for riders, we're very focused on making sure our driver experience is great. We're making sure that when customers do check both apps -- riders, I mean, they get a fair price. And then that allows us to start competing on other things. And so as an example there, Wait and Save, which I mentioned before, is a product innovation that we're very proud of and really leaning into.

Same with some of the airport work we did in Q2 that allows people in some airports to basically call Lyft as soon as their plane touches down and the car is right there. So how to split out what's price versus what's product innovation, a little bit hard. What I can tell you is I would add a third thing to what's driving growth which is a secular move. Back-to-school is a thing, and that's -- we're very focused on that.

Back to work is a bigger thing every day. You probably saw the articles about even Zoom trying to get people back to work. That's the thing. And we're -- we definitely play a role there.

So there's some of all these things kind of going. But I think it's kind of more of a story of firing on all cylinders rather than any one of those. And last thing I'll say is we've got a lot more innovation on sort of the rider and driver side coming up which we think will be a step changing over time. That's longer term, but that will start to drive even more growth.

Erin Brewer -- Chief Financial Officer

David, I just might add to that. In addition to the great progress we saw here in the second quarter, our Q3 outlook and in the directional commentary we provided on the fourth quarter assumes continued strong rideshare ride growth in the back half of the year.

Stephen Ju -- Credit Suisse -- Analyst

Thank you.

Operator

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

Eric Sheridan -- Goldman Sachs -- Analyst

Thanks so much for taking the questions. Two, if I could, maybe following up on Stephen's question also, just what would you characterize as some of the key elements you feel you continue to invest whether it's on brand or product or differentiation to continue sort of some of the growth momentum, not just in Q3, but going into Q4. And I know it's early and I appreciate the framing of Q4. But in terms of some of the growth dynamics in Q4, I am curious about how much of it is cost headwinds that will hamper some investments in the business that could cause a slowdown in growth or just elements of a lapping impact you're seeing versus the year-ago period.

David Risher -- Chief Executive Officer

Yes. Erin and I will kind of tag team on this as well. I think, Josh on the first, maybe -- sorry, repeat the first part of the question again, just so I've got that kind of focus.

Eric Sheridan -- Goldman Sachs -- Analyst

Just want to know what some of the key elements you think that you have to sort of lean into to continue some of the momentum in growth. You talked about brands, you talked about product, service, elements of that.

David Risher -- Chief Executive Officer

Yes, for sure, for sure. So I'll sort of start -- I'll kind of build the stack here a little bit. So it really does start with doing the basics well and operating -- yes, excellently. I mean we talk a lot about operational excellence within Lyft now, and that's a real area of focus.

Remember, I mean, we're giving hundreds and millions of rides a year. So small changes can sort of amplified a huge, huge differences. And you can see that. We've talked a lot about price, but you can see that in ETA, the pickup time.

Our average pickup time now is 10% faster than it was a year ago. That's really significant because that's every single ride, people want to get picked up faster. So that's part of it. I'll start there.

Then you build on top of that some of the awareness building work that we do. Now this is interesting because we're a very well-known brand. And no one should take that for granted. It's -- big brands spend hundreds of millions of dollars and are unknown, whereas we're very well known.

And I mentioned this in my comments, just a personal comment now, people ask me, what do you do? And I tell them I'm the CEO of Lyft. And people say, that's incredible, what a great company and I sometimes joke that -- there's no disrespect to other companies, please, but sometime as I joke, if I said I was a CEO of DocuSign, people would be like, yes, cool. But this is a different thing. So people have a real emotional attachment to our brand.

That's a great, great starting point and high awareness. So you'll start to see us amplify that. Now we're not doing Times Square, Jumbotron Super Bowl ad stuff. We're doing much more sort of targeted focus social meda work and other work with the press to get the word out and really, the message there is looking back and you as a driver -- you as a rider, you want both apps on your phone.

You don't just want Uber because both are better than -- and that choice is a very powerful message. So that's sort of the second layer of the stack. And then you start to add on top of that some real customer innovation. And I'll give you maybe just one example of something we're working through now.

And that's working very directly with both companies and even cities to try to help back to work, return to office, go smoothly and go well. I was lucky enough to meet with the mayor of San Francisco a couple of weeks ago and reiterated our commitment to helping San Francisco recover by helping people get out of our house and back to work. It's so important for our downtown area. So you add -- and then, of course, we're doing that with companies, too.

I think we have arrangements now with Cisco and I'm going to forget, about Netflix, I think, and a couple of other trials we're doing to help people get back to work as they come back to the office. So it's sort of all the above. And I think as Erin just said, a lot of investment going on here to make sure that we continue to grow, and we're off to a really good start. I'll say a very quick thing on the cost side, and then Erin will point out.

We don't -- how can I say this sort of well? So we have this insurance renewal thing. We'll talk more about that. That comes around every year, and we're doing things to spread that out over time. It's just the basic cost of the sector that we have to deal with.

And so our strategy is, first, of course, to get the best rates we can and to do as good a job as we can negotiating with the companies, the providers, of course. Then the second is how do we figure out a way, frankly, to absorb as much of that cost as we possibly can, using all sorts of efficiency strategies and so on and so forth. Only after we've exhausted all of that, do we want to pass any of that charge loan to our customers. And we really don't want to do that if we can avoid it.

And so that's kind of the work we're playing. It's not so much about investing less in innovation or whatever. We've got funds to do that. It's really how can we figure out a way to cover those costs such that we don't -- because we're a customer of steps, right? We don't want to pass those along to riders and drivers.

Erin Brewer -- Chief Financial Officer

Yes. Thanks, Eric. I might just reiterate that we do expect a similar level of rideshare ride growth year over year, in Q3 and in Q4. So that's approximately 20%.

And so maybe you could clarify a little bit more about what you meant by not being hampered by investment, but just reiterating that as our assumption.

Eric Sheridan -- Goldman Sachs -- Analyst

Just want to know if there's elements of some of the insurance costs you've called out that will sort of have an impact on the ability to redeploy capital back into investing in the business in Q4?

Erin Brewer -- Chief Financial Officer

No. I don't expect that to be a factor.

Operator

Your next question comes from the line of Doug Anmuth of J.P. Morgan. Your line is open.

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

Great. Thanks for taking the questions. One for David and one for Erin. David, it sounds like you're making good progress with Wait and Save.

Any update to the 30% plus of rides that you've previously mentioned? And then just given the volume of right here, how should we think about profitability of that product? And then, Erin, just following up on the preliminary 4Q outlook. Just I guess just trying to drill down a little bit more on the revenue to understand why the insurance renewals are impacting revenues potentially as much in 4Q because I think it comes up to suggesting like low single-digit year over year, growth.

David Risher -- Chief Executive Officer

Yes. Great hearing from you, Doug, I'll take the first and Erin will take the second. So on the first, oh my god, I'm sorry, I just really lost my train of thought, say the question one more time my [Inaudible].

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

Wait and Save.

David Risher -- Chief Executive Officer

Wait and Save, of course, yes. So in Wait and Save, we're not giving -- we don't want to sort of get in this mode where we kind of always give exact data on it. It's just -- but here's what I can say. It's up about 40% year on year on year.

It is -- and which is an all-time record. I think that's like 25%. It's significantly higher than shared rides ever was. And to give you a perspective on it, in New York City alone in Q2, we averaged, I think it was about 150,000 Wait and Save rides per week to give you a sense of the scale of it.

So the second part was about profitability. And what I want to say there is, and this is something people hear me say around the company, you get maybe a little sick of it. First, do the right thing and then do things right. So the right thing is for us to offer an option in our app that allows our riders to choose to pay money when they want to and everybody likes the deal.

And then over time, we're optimizing the profitability of that. Now any portfolio is going to have some lower margin and some higher-margin products. And I expect this will be a lower-margin product forever. But there's a lot of work we're doing behind the scenes to improve the profitability of it and also help with power some of our other ride services.

Anyway, long conversation. But a short version is, right now, it makes us some money, tomorrow to make us more money, and we love the volume that we're seeing because that's a great place to build on.

Erin Brewer -- Chief Financial Officer

Yes. And thanks, Doug. Just to be clear, insurance does not impact the revenue line. We gave you a top-line framework and a bottom-line framework.

Again, just to give you a sense for our best thinking right now about the fourth quarter. So on the top line, I think we've given you information about the trends that we expect and remember, the quarter-over-quarter rate in Q3 reflects the take rate. We're also assuming pricing in the market stays at relatively consistent levels quarter over quarter. So hopefully, that's helpful.

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

Thank you.

Operator

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

Mark Mahaney -- Evercore ISI -- Analyst

Thanks. Two questions then. One on product side with drivers. It sounds like you've made some real nice improvements that have improved driver satisfaction.

Just going forward, is that leaning into those innovations? Are there other areas that you think are kind of greenfield opportunities in the market? And then anything new on the regulatory landscape? It seems like that's died down. I assume no news is good news, but anything that you think we should watch out for?

David Risher -- Chief Executive Officer

Mark, good to hear from you. So on the driver side, there's so much more to do. There's so much more to do. And the frame here is this.

Drivers -- millions of drivers are making billions of dollars on our platform, right? So that's a big, big deal. And what it means to us is we have to take their needs super seriously. And this is something again, we say inside, there are two customers in every car. There's a rider and a driver.

So on the driver side, a lot of the innovation you're going to see is around transparency, around making it easier for people to see, for drivers to see how much money they're making, right? And so you've probably heard us talk before about upfront pay, which allows drivers to get a sense of how much we're not spend. So good pre-acute prediction, how much they're going to make before they accept a ride. You heard me talk about this stay within a one type of thing. We also have last kind of last ride type stuff, so you end up close to home at the end of the day.

So anything that can increase driver is independence and control is something we're really going to lean into. And there's a lot more there for sure. On the regulatory side, I think Kristin is here as well, our president, and she can give you detailed answers if you want. But it's -- as you say, it's kind of died down.

I mean there are some things out there, and we can talk about the specifics. But generally, it's -- we feel pretty good with where we are.

Mark Mahaney -- Evercore ISI -- Analyst

OK. Thank you, David.

Operator

Your next question comes from the line of Nikhil Devnani of Bernstein. Your line is open.

Nikhil Devnani -- Bernstein Research -- Analyst

Hi there. Thanks for taking the question. On the rideshare volume growth, I mean, do you think that this healthy kind of double-digit pace is sustainable beyond 2023? I think it would just be helpful to hear kind of your perspective on the building blocks between customers, frequency and pricing as you look out over the medium term? And then my second question is just around free cash flow. I think we started to see some cost takeouts coming through, but cash burn is still a challenge.

And so how do you bridge that gap to sustainable free cash flow generation? And are you able to do that while reaccelerating the top line as well?

David Risher -- Chief Executive Officer

Erin, do you want to take that one? Or let me take --

Erin Brewer -- Chief Financial Officer

Yes, sure. I'll start with the second part. So first and foremost, what I'd say is generating consistent positive free cash flow is definitely a priority for the company. As I think about the near term, there's a couple of different things to think through, in particular, in our second quarter results.

The first one is insurance payments. The second piece is cash out related to our restructuring programs, and we expect that portion to be substantially complete in the second quarter. And then the third main factor is capital expenditures. We have invested over the first half of the year in an acceleration of the mix of e-bikes, for example, within our TBS business, we do expect that to moderate over the second half of the year.

But I'll just come back around to saying, again, moving toward consistent positive free cash flow is a top priority as we think about navigating for the long term.

David Risher -- Chief Executive Officer

And Nikhil, I'll sort of take a little of the first question. I mean, we're not going to give specific guidance on growth over time, but I can say this. Two things. First, I think an area where both Uber and Lyft would agree is still early days for ride share.

It really is. There are so many segments. I mentioned return to office. Anyway, there's so many segments that I think we're just beginning to penetrate and just beginning to help people see that rideshare really can make their lives easier.

And I think -- not to sort of over-index on COVID stuff. But I think as you see people get to the next phase of their life, whatever that looks like, I hope it involves getting out more. I really do. It's good for society.

It's good for our mental health. It's certainly what a lot of bosses want. And you rarely hear people say, gosh, I wish I'd stay in more. I'm a happier person as a result.

So I think there's a lot of -- by focusing sort of segment by segment, there's a lot more growth there to be unlocked. And then the other piece that I really focus on is frequency. A heavy rideshare user might use ride share four times a month, once a week, maybe twice a week, maybe. And now you're getting to quite a heavy user.

I think of the number of times you leave your house one way or another. And the number times you therefore have to park your car, drive or be cotton traffic or all these things. So I mean I know this is sort of -- it's almost the sort of early pieces of rideshare coming back. But I really think it's true.

I think we're very, very early in that. And when we see back to work, back to school and then sort of winter travel and so on and so forth, we see lots of opportunities just for people to kind of get reacquainted with and then hopefully, even more excited with Rideshare with two strong players.

Nikhil Devnani -- Bernstein Research -- Analyst

Great. Thank you, both.

Operator

Your next question comes from the line of Ken Gawrelski of Wells Fargo. Your line is open.

Ken Gawrelski -- Wells Fargo Securities -- Analyst

Thanks so much. I appreciate it. A couple of questions, if I may. First, I just want to go a little bit deeper on the 4Q revenue growth rate implied in the look forward.

Can you talk a little bit about the take rate on a year over year, change. I think 4Q '22 take rate was up pretty meaningfully from 4Q '21. Can you just talk about some of those elements that might be impacting the year over year, growth decel implied in 4Q versus 3Q, given the otherwise healthy dynamics you talked about? And the second is this applies to the fourth quarter and then also into '24, as both you and your competitor have step-ups in insurance costs, so cost per ride rises, how do you think about a more -- how do you think about pricing in that environment? And what do you think is the most constructive way to think about the next 12 months?

David Risher -- Chief Executive Officer

Maybe I'll start at that, I'll start at the end and kind of and then work backwards and then Erin will kind of finish up here. So I think we're sort of where we want to be. And again, I think this is an area where we sort of made a big decision earlier this year to price in line with the market. And now really a lot of our focus is more focused on competing on service and differentiation and so forth.

So I don't expect that to change dramatically. One sort of subtlety here, which I don't know that we've highlighted is prices are not just the way we set -- what we call the base price, but it's also this prime time idea. Prime time also called surge pricing by Uber is where you basically don't have enough driver supply, so you have to price it high so it can sense more drivers out there and to also sort of suppress demand. That's a bad form of price raising.

It's a particularly bad form because riders hate it with a fiery passion. And so we're trying to really get rid of it. And because we've got such good driver in supply, which we've worked really hard to get it's decreased significantly. So just to quote that stat, our -- the share of rides affected by prime time is down 35% from Q1.

So that has a revenue implication, right? We're actually taking less money. But it's good for our riders, and it's good for our overall market itself. So it's -- yes, revenue is kind of a funny thing because it kind of goes in both directions. But broadly speaking, we're kind of happy with where we are on the pricing side.

Erin?

Erin Brewer -- Chief Financial Officer

Yes. Thanks, Ken. Thanks for your question. So taking a step back, it's obviously not in our norm to guide two quarters out.

So we're providing some directional commentary. This was really important to us, so you could better kind of track our progress and have an understanding of the impact of our renewal. So you're seeing there in the top line, probably a wider range of outcomes given those dynamics, again, and that directional guide, but maybe a broader way to think about it is price will be lower year over year, kind of similar trends as we've seen in 2023 and volume will be higher. And consistent with what we've seen in the first part of this year, take rate is down year over year.

We expect that trend to continue in the back half of the year. So the combination of those factors is what gets you to that, again, a range of outcomes implied within that directional commentary for the fourth quarter.

Operator

Your next question comes from the line of Ross Sandler of Barclays. Your line is open.

Ross Sandler -- Barclays -- Analyst

Great. Two questions, please. So Uber likes to talk about half their growth in the long term coming from like the base single-ride service and then half from new products like they've got Reserve and I guess they've now got Shared right again. So is there a framework that you guys think about where the base service can produce a certain amount of growth? And then as we think forward multiple years, some new products that might be introduced could layer on top of that? And any thoughts on that? And then I know we're not getting gross bookings right now, but maybe with the fresh look here, could we request revisiting that idea? And even though we're not getting that today, if we had to look at the rate of take rate compression that you guys have experienced between lower pricing and some of the driver initiatives that you talked about, what would that look like on a year-on-year basis?

Erin Brewer -- Chief Financial Officer

Yes, Ross, thanks for the question. As I just mentioned, our take rate is moderating year over year. We expect that to continue in the back half. And I'm glad you picked up on the remarks in my prepared -- the comment in my prepared remarks about being very focused on giving guidance, on giving metrics to help you better track our progress in our business.

So nothing to announce today, but just again, that's something I'm very focused on in the near term.

David Risher -- Chief Executive Officer

Yes. Definitely. I'll second that. Erin is -- Ross, I think that's a reasonable framework.

I don't know the percentages are, a little hard to predict. But for sure, we have a kind of a base standard product, which is a high-volume product. It has certain margin characteristics at a certain kind of base characteristics. And then on top of that, yes, we too will build differentiated products and services.

that will have typically higher margins, not always, but you would expect that in general, and so on and so forth. One of the things I was got really lucky a couple of weeks ago to be able to be in a dinner with Jamie Dimon and he was very clear. He cautioned us -- me, in particular, about trying to make promises on things that the external world drives as opposed to Lyft drive. So what I can tell you is that's our strategy is to produce a great, great base product and then do things on top of it.

Whether that turns out to 50-50 or 60-40, 40-60, that one is really hard to know, particularly a time when so much is changing the external world about people's habits as they come back to work and so forth. But I think the framework is a good look.

Ross Sandler -- Barclays -- Analyst

Thank you.

Operator

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

Benjamin Black -- Deutsche Bank -- Analyst

Great. Thanks for taking my questions. I'd be curious to hear a little bit about headcount. So after the two restructuring initiatives over the last few quarters, do you feel adequately staffed to execute against some of the initiatives you have planned going forward? Or is there a need to sort of add headcount selectively in the next year or so? And then, Erin, just to double down on the sort of the early look into the 4Q.

I was wondering if you could give us any sort of guide points as to how contribution margin should progress as well.

David Risher -- Chief Executive Officer

Great. Yes. Let me start, Benjamin. So on headcount, it's -- again, probably not to the grade for me to give super, super strong point of view on that.

But broadly speaking, I would say we're in good shape there. We're -- you kind of always -- you mentioned something about kind of incremental short maybe around the edges. But basically, no, we feel good. We feel like we've got a team that's rightsized that's got real energy.

And I would say that maybe one of the biggest impacts of the headcount reduction, aside from obviously, the pain we all went through and kind of cost saving we get is a real sense of kind of agility and quick decision-making. I'm really struck by the fact that we have meetings now where we pull together exactly the right number of people. We make the decision there. We make it quickly and then we move on.

And so I think that's actually the great impact right now. And I'm not really tempted to then load on a bunch of new people. I don't think that's on strategy.

Erin Brewer -- Chief Financial Officer

Yes. And thanks. As it relates to your question on contribution margin, so our insurance costs are part of that contribution margin equation. So we would expect some quarter-over-quarter compression in our contribution margin in that directional guide in the fourth quarter, that's a reasonable assumption.

And again, what we've provided in terms of a directional guide on the fourth quarter is EBITDA margin in line to slightly below the level we saw in Q2 2023. And as a reminder, that's at 4%.

David Risher -- Chief Executive Officer

And I'll just -- I'm going to triple down on this as well because I know it's come up a lot. We are managing this business for the long term. And what that means is we're not going to be distracted by a single quarter's balance in the wrong direction on costs. We're going to try to deal with those costs.

We're going to manage them. But we're not going to pass them on to our customers to the extent that we are able to not do so. So that's the thing -- I mean this is a choice we're making, right? It's a strategic choice that says not growth at all costs, no. Not profitability all cost, no, instead, build a healthy business for the long term and not just in quarter to quarter on what happens.

Benjamin Black -- Deutsche Bank -- Analyst

Great. Thank you for all that color.

Operator

Your next question comes from the line of John Colantuoni of Jefferies. Your line is open.

John Colantuoni -- Jefferies -- Analyst

Great. Thanks for taking my question. When looking at all the different use cases for rideshare, where do you see Lyft having a particularly acute advantage or skill set that you can exploit more over time to begin carving the market into different niches so that you're competing less on price alone? And maybe if you could just talk about how that journey could impact the P&L in the near term and long term?

David Risher -- Chief Executive Officer

Yes. I'll take a stab. This is an area where I'll probably be a little bit elliptical because I don't want to signal our intentions entirely, but I can certainly give a couple of things that might be helpful. So first, let's talk about building on our strengths, and I'll point to two.

One is in a particular segment, healthcare. This is an area where we've actually invested over time. And I don't have the stats at hand, maybe some of you or someone else in the room can get them for me, but it's been a sort of fairly quiet part of our business but one that's really worked, yes. And here, I see awesomely just put a couple of numbers right in front of me.

So our healthcare, by the way, means not emergency healthcare, right? We're not trying to replace ambulances. But is what's called nonemergency healthcare, which we have authorization to offer in some 20 some states, I'm forgetting the exact number which allows people to get to the doctor and allows them to get to nonemergency medical treatments and so forth. And also there's a overlap with Medicaid and some other government programs. Anyway, those rides grew by about 40% year on year on year in Q2 of '23.

So that's an area where we've sort of built a quiet strength, it's very durable. Customers really like it. It's very important in their lives. And if you look at how our demographics are going, that's going to be a real area, I think, of strength for ours.

We also, just as a bit aside, have relationships with now a different subsector segment with something like 120 colleges or universities to do some of their transportation work. So some of this -- that one is more sort of B2B. The first one is kind of more B2C. But in both cases, there are sort of segments of the population where we think our history and feels kind of help us.

And then if I zoom out one click, brands are so hard to value, and it's really, really hard to say with any level of precision what our brand looks like versus anybody else's. But what I can say with a high degree of precision, is that riders -- well, that's actually same drivers. Let's use drivers because they have the best data. Drivers preference for Lyft is part is based on how we treat them.

But it's also based in part on our values and how we're perceived in the marketplace. And that's true with riders as well. One thing I sometimes say, and I don't at all want to cast ones on the other guys. But I don't find a lot of people in love with our competitor.

But I do find people in love with us. And that's something we can really build on. So we'll see where that takes us. But I think over time, if you look at successful brands in the consumer space, and I'm talking about very, very large brands, you'll see that they have -- their customers almost draw a sense of identity or affinity with them beyond the sort of basics of the product.

And I think we have the opportunity to do that. I think our roots -- kind of origin story and everything sensually gives us that opportunity.

John Colantuoni -- Jefferies -- Analyst

Great. Thanks.

Operator

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

John Blackledge -- Cowen and Company -- Analyst

Great. Thank you. Just any updated thoughts on market share in any particular geos, geographies that are stronger since Lyft implemented the competitive pricing?

David Risher -- Chief Executive Officer

Yes. Sure. So a couple of factors. So first, on open market share, not much more to say than what we said to that 5% even at 32%.

I have to say -- I know you didn't ask this question, but just so everyone kind of hear, can you think of that as kind of in the aggregate, kind of a trailing indicator, it's not a leading indicator. Basically, when it's polling up, we think that's good because it suggests we're doing something there that's not going up that, just the opposite, but that's my top today. So big picture. Now on the specific geography, the geography, there actually has been interesting because it's a good -- again, we found it almost a warning sign or a positive side that we're doing well.

And I'll give you a little bit of data there. You mentioned in Q1 that there are a couple of things, Phoenix, Portland, and Salt Lake, where we were at about 50-50, and that continues to be the case. That's a really important point because it says that with good execution, we can put on. It wasn't just a flu cliff sort of a numbers thing, it is a real thing.

So that's testing is a good inspiration, let's say, internally. We've also picked up a couple of points in a couple of other cities. I'll just point out one in Pacific in Miami. We've seen 4 percentage points increase just Q1 to Q2, that's great to see as well.

And that's not an accident. I mean you're doing some work there. Just maybe take something off of it, but it's not like we have to do clear crazy pricing things. We just have to operate well, maybe telling the market that we're back and stuff.

We look at that more as kind of almost whether the states of DevOps is bad. If you look at into markets, is kind of lags to do some experimentation and testing and then we see the things happen, and we can replicate that across the network. And that said, we'll associate how that complemented.[Technical Difficulty]

Operator

At the moment, you are not sounding clear. I don't know if the mic has shifted or something. But is there anything --

Sonya Banerjee -- Head of Investor Relations

OK. Let's see if that helps.

David Risher -- Chief Executive Officer

[Inaudible]

Operator

You are sounding better.

David Risher -- Chief Executive Officer

John, did you hear the answer to that question?

John Blackledge -- Cowen and Company -- Analyst

Yes. No, I think that was super helpful.

Operator

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

Steven Fox -- Fox Advisors -- Analyst

Hi. Good afternoon. I was just wondering if you could provide a little bit more color around the micro-mobility results during the quarter. And then to the extent that you're able to give us a sense for how you think those businesses, including the recent acquisition that was done before you came aboard best fit from an ownership structure at this point.

Erin Brewer -- Chief Financial Officer

Yes. I'll start off with the question. So in terms of our micro-mobility business, as you think about Lyft overall, the vast majority of our business is rideshare. So micro mobility is still a small portion of the overall total.

If we look at this year over year. we certainly did grow at a faster rate in the micro-mobility business. As a reminder, we closed the PBSC acquisition in the second quarter of last year. But also, frankly, our ride volume is up.

Some great stats like in New York City will support more than 100,000 bike rides every day, the city bike system. And increasingly, as e-bikes are becoming more prevalent across the fleet, that's an opportunity to have each ride be more valuable, if you will, overall in that revenue line. So good progress there. But again, this is still a relatively small portion of our overall business.

David Risher -- Chief Executive Officer

Yes. I don't -- I'll add to that, Steven. So as Erin said, financially, certainly on the income statement, it's not super, super significant. But what I think is really interesting about this space is e-bikes are growing, they really are, and Erin just mentioned 100,000, that can gets up to 140,000 some days just in New York City alone.

We just opened up a third station in Golden Gate Park in San Francisco, that was picking up again for that city. So you know, events in particular are good for cities because they're green and easy to get around and so forth and they're good for people, healthy and stuff. And they tend to be sort of viral. Once you take an e-bike, you tend to tell a bunch of friends.

And if you've seen -- if you've traveled overseas to places like London and Paris, you know, ten years ago, you wouldn't have thought of those as particularly bike-friendly cities and now bikes are everywhere. And that's probably representative of where or its where to go. So you don't see it as important. We've gotten nice incoming interest in partnerships in companies that really understand city-level infrastructure.

And so we're in partnership, nothing more of a report.

Sonya Banerjee -- Head of Investor Relations

Steven, was all the part of that answer clear? I'm just making sure it sounds OK.

Steven Fox -- Fox Advisors -- Analyst

Yeah. I could hear everything that was being answered in the call on that one.

Operator

Your next question comes from the line of Lloyd Walmsley of UBS. Your line is open.

Lloyd Walmsley -- UBS -- Analyst

Great. Two, if I can. First, Erin, thanks a lot for the early help on 4Q. Sorry to beat a dead horse on that one.

But maybe just asking in another way, looking at the typical sequential revenue, the outlook looks a little light versus typical. I think you mentioned earlier an assumption that pricing -- you assume pricing is flat. Is that atypical and maybe that explains lower slower than normal Q-over-Q growth? Or are there any other assumptions in there, maybe just conservatism since it's far out that might explain that? And then second one, on contra and forgive me if it's -- if I missed it earlier, you mentioned something about legal. I think legal charges in contra.

How should we think about contra in kind of Q3, Q4 of this year?

Erin Brewer -- Chief Financial Officer

Again, just framing up that directional guide for Q4, we probably were giving you a broader range of outcomes because it's not typical for us to give this kind of directional commentary two quarters out. The second thing I'd point to is my comments about a moderating take rate. So I think that hopefully would like to be helpful as you think about the trends you were referring to sequentially and year over year. As it relates to contra revenue and your question was about, I think, trends there, as the balance in our marketplace, so the balance between supply and demand has gotten healthier and healthier, our incentive costs provide is continuing to decline.

And so I think that really reflects the more efficient needs of those dollars over the volume. And we expect that trend to continue in the third quarter and into the back half of the year.

Lloyd Walmsley -- UBS -- Analyst

OK. Thank you.

Operator

Your next question comes from the line of Rohit Kulkarni of ROTH MKM. Your line is open.

Rohit Kulkarni -- ROTH MKM -- Analyst

Hey. Thank you. I guess, David, just a high-level kind of personal question. You've hired a whole bunch of new people in the team while restructuring many of the people.

Just maybe thoughts on where do you see the team is right now in terms of people who report directly to you as well as kind of one level below. Any holes to fill or any new roles that you think that you need to kind of create or develop? And then just on -- just drawing out since we are talking about 4Q, I can't help but wonder how insurance and how kind of contribution margins could shake out early next year. So to the extent you can, maybe give us a color on pensions renewal and how you feel that shakes out is going to put first half '24 pressure on first half '24 contribution margins as well.

David Risher -- Chief Executive Officer

I'll take the first part and Erin will take the second. So our team have an awesome team, an awesome team. And one of the things that I would say with all sincerity is if you guys could sit in on our meetings or track our email, we would be blown away by how focused people are, how they're working both individually and collectively and collectively it's still super important. And I think that's one of the -- maybe that scenario was something that has seen -- that really ties between as a group and really working hard and well together.

There's really only one open position on my team, that's the chief marketing officer. We've got some great candidates and expect more to that team. But that's really the only -- otherwise, I feel specifically good about that.

Erin Brewer -- Chief Financial Officer

So we remain on track to announce a new long-term target and our intention would be to do that around the time of our Q4 results. So again, a near-term priority for me. But maybe just taking a step back and thinking about unit economics in a broader context, we've talked a little bit about our strategy around price. David talked a lot about volume and growth.

And in particular, the balance that we're seeing and the healthy balance that we're seeing in our marketplace overall. Then, of course, there's mix, for example, making choices and shopping within our app, the opportunity to create new features and products and then higher-margin opportunities like media, which today is a relatively small business, but it's up four times the level of what it was in the prior year, and I think has broader opportunities for growth. As I think about cost, we've talked about our strategy around driver and driver pay and continuing to make this a great experience for our drivers. We've chatted a little bit about insurance, and then we've made progress on our overall cost structure.

So as I step back and think about those broader drivers, I see continued opportunity for healthy unit economics and contribution as I think about the business overall. But again, we're on -- we will -- we are planning to announce new long-term targets and more to come. Stay tuned.

Operator

There are no further questions at this time. I would now like to turn the call over to David to -- for closing remarks. Please go ahead.

David Risher -- Chief Executive Officer

I just want to thank you so much both for your time today, but for the ongoing interest in focus on that. We know it's been a bit of a ride and I hope you feel some sort of real dedication focus on customer investment, building a healthy business, but also helping you model our business. [Inaudible] our first call. Congratulations to Erin.

Welcome to the team. Thank you all, we look forward to keeping you up to date and we'll talk to you soon.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Sonya Banerjee -- Head of Investor Relations

David Risher -- Chief Executive Officer

Erin Brewer -- Chief Financial Officer

Stephen Ju -- Credit Suisse -- Analyst

Eric Sheridan -- Goldman Sachs -- Analyst

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

Mark Mahaney -- Evercore ISI -- Analyst

Nikhil Devnani -- Bernstein Research -- Analyst

Ken Gawrelski -- Wells Fargo Securities -- Analyst

Ross Sandler -- Barclays -- Analyst

Benjamin Black -- Deutsche Bank -- Analyst

John Colantuoni -- Jefferies -- Analyst

John Blackledge -- Cowen and Company -- Analyst

Steven Fox -- Fox Advisors -- Analyst

Lloyd Walmsley -- UBS -- Analyst

Rohit Kulkarni -- ROTH MKM -- Analyst

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