Q2 2022 Lyft Inc Earnings Call
Paths to achieving these milestones driven by expected industry growth and operating leverage these will be key financial targets that we'll be using to drive the business forward over the next two years.
Now, let me turn the call over to Elaine to share the details on our financials. Thanks.
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.
<unk> reached in Q4 of 2014.
Revenue growth was driven primarily by rideshare, which was up 27% year over year in Q2 relative to guidance Q2 revenues came in towards the high end of our range.
Active riders grew by more than $2 million versus Q1 and were the highest they've been since early 2020 active riders were $19 9 million in Q2 up 12% quarter over quarter, and 16% versus last year sequential new rider growth outpaced the growth of <unk>.
Returning riders, which is great to see since it speaks to the runway in front of us.
Q2 revenue per active rider of $49 89.
Was the second highest it has ever been revenue per active rider grew by 71, <unk> versus Q1 and by $5 and 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 of detail.
<unk> in our earnings release.
Conciliation 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 'twenty. One this is roughly $30 million better than the high end of our contribution outlet a 500.
Third $60 million.
Relative to our guidance around half of the beat or $15 $5 million was driven by bike share related accounting adjustments that reduced cost of revenue.
This is inclusive of $3 2 million dollar 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 bike share items I, just discussed deliver roughly 160 basis points of this outperformance.
Relative to Q1 2020 to 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 has been experiencing higher costs and increasing insurance losses.
Like many other services auto repair and health care have become more expensive, reflecting the broad impact of inflation on both wages and materials given supply constraints as well as challenging litigation trends.
Furthermore, our Q2 adverse development is primarily associated with our legacy third party claims administrator, who did not resolve legacy claims as effectively as we would've 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.
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 macro economic 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 'twenty one.
In absolute terms. This expense was $98 6 million in Q2 and includes a $5 million benefit from an accounting adjustment related to our bike share system.
Relative to Q1, 'twenty, two and to Q2 of last year, we achieved better leverage on our operations and support expense.
As ride volumes and driver supply grew.
R&D was 10, 7% of revenue in Q2 down 100 basis points from Q1, and 630 pesos points down from Q2 'twenty one.
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 five self driving division 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.
Marketing as a percentage of revenue was 13% in Q2.
Actually flat with Q1, and up 140 basis points versus Q2 of 'twenty, one in absolute terms sales and marketing expense was $128 $3 million.
$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 pre committed brand marketing and driver referral bonuses within sales and marketing incentives.
3% of revenue.
G&A expense as a percentage of revenue was 26% in Q2.
160 basis points from Q1, and up 60 basis points versus Q2, 'twenty. One 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.
And 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 Cowens in total Q2 adjusted EBITDA included 29.
Million.
Accounting tailwind.
We ended Q2 of 'twenty, two with unrestricted cash cash equivalents and short term investments of $1 8 billion the.
The sequential change in unrestricted cash was driven primarily by an insurance collateral requirement, which moved funds from unrestricted and restricted cash as well as our acquisition of P. D. F C.
Before I move to our outlook. It is 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 consumer spending.
The depth of our network means that we can deliver a wide range of price points to riders from bikes to wait and save and shared rides priority pickup in.
In addition, more people may turn to rideshare for supplemental earnings opportunities, serving as a tailwind to organic drivers supply growth.
Second as I mentioned earlier insurance costs 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 the arch done we believe that over time, we can offset higher insurance costs through both pricing and <unk>.
Also product and engineering efforts that deliver better provide unit economics and 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 lift map can help enable safer cost optimized routes that drive additional insurance savings in terms of controlling our corporate overhead we have materially pull back on hiring.
Cat <unk> budgets, and we will continue scrutinizing every cost line item to ensure we are demonstrating strong discipline.
Over a few quarters, we expect higher insurance costs will be mitigated by improving leverage 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.
Brighten share rides grew almost 4% month over month in July and we expect an acceleration in September with back to school. We also expect an incremental tailwind from bikes and scooters and Q3, given H, one 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.
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%.
<unk>, the accounting tailwind from Q2 of $15 $5 million in contribution and $29 million and adjusted EBITDA.
For every one dollar of incremental revenue in Q3, the high end of our outlook implies 12 cents will flow to contribution and 22 cents 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 .
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 right 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 our top priority is the most affordable option.
Shared rides, we're still a relatively small percentage of our total rideshare volumes in Q2, but it's clear that the new re imagined experience is delivering meaningful value and Philadelphia shared rides grew 20% quarter over quarter in Q2 far outpacing standard.
And pre booking a shared ride has become very popular accounted for the vast majority of all shared rides in Q2.
Booking a shared ride and advance writers receive the best possible price and 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% pre COVID-19 shared ride volumes.
Moving quickly to introduce shared rides in more markets to scale. This opportunity in July we doubled the number of markets where shared rides are offered from 7% to 14, and we will continue scaling shared rides as we move through the year.
<unk>, our bikes and scooters offer affordable and sustainable options for shorter trips last year more than $2 4 million people tried lift 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 Citibank right its more than double.
<unk> Q1, 'twenty, two and in Chicago, and Denver are Scooter systems reached New Daily highest 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 our debt to drive our acquisition and loyalty.
And continued improvement in our marketplace balance.
These high impact projects have the potential to drive meaningful topline and bottomline growth now and in the future upfront pay as one example, with upfront pay drivers have more visibility into the riders pickup location. The route details and their expected earnings when they are deciding whether to accept the rate request.
We've seen that upfront pay can increase the number of drivers using lift and the amount of time, that's been driving while also increasing ride completion rates. We will 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.
<unk> that we will use to achieve our 2024 adjusted EBITDA target.
One example is our work to more fully rollout lyft maps, our in house mapping technology that is based on open source software.
This work allowed us to drive material cost savings per rise in terms of better routing and actual third party marketing costs to that end in Q2, we launched lyft maps within our rider App and it's now providing the underlying that for more than 60% of Ryder sessions with this rollout we have grown the percentage of ryzen powered entirely by lift to 18%.
From around 3% a rise at the beginning of the year.
Based on initial data, we expect lift 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.
<unk> has the potential to deliver millions of dollars in incremental adjusted EBITDA profit by the end of the year.
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.
<unk> shifts to society since the advent of the car by enabling and unlocking transportation as a service.
MS vehicles will provide an additional step change in long term growth and lift will be at the forefront of that transformation operator, we're now ready to take questions.
At this time I'd like to ask a question press star followed by the number one on your telephone keypad.
First question is from the line of Doug Anmuth with Jpmorgan. Your line is open.
Thanks for taking my 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.
What that suggests for contra revenues or incentives in the back half of the year.
Then.
Just given the <unk> revenues.
Which were pretty solid can you just talk more about what drives the change in the in the 'twenty two.
Outlook overall, and just not expecting acceleration.
Any longer.
Hey, Doug Doug I'll take the driver question and then pass it to Atlanta on revenue.
So yes, it kind of coming out of last earnings call. There were a lot of questions about the supply side of our marketplace and are Super happy.
On what we saw on the driver side, it's been it's in the best place. It's been in a very long time, and we are seeing continued positive trajectory.
We mentioned earlier on this call total active drivers were the highest they've been in three years and more than half of new driver acquisition in Q2 was organic.
Driver earnings after obviously, it's super important to watch.
In the U S were north of $37 per utilized our which is up 18% year over year, including testing of bonuses and you asked about contra revenue incentive on a per rideshare rides basis, we're actually down 17% versus last year, which is an even sharper decline than we had expected.
Q3, we expect Contra revenue incentives provide survived will decline another 20% quarter over quarter.
One reminder, is that these incentives are primarily funded by prime time, which is reflected in the price writers pay you asked about service levels that continue to improve because of what I just mentioned.
So what we're excited about is that in Q2 average rideshare Etfs were one to two minutes away from pre COVID-19 levels.
And so hopefully that addresses your questions on service levels and drivers.
Yes in terms of your question on our full year outlook and our revenues.
Modest macro headwinds have tempered our view on the pace of the recovery since what we expected since the start of the year.
The trends, we saw in Q2 and from July or in forming 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.
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 2002 revenue growth.
Regardless, we expect to deliver $55 million to $65 million and adjusted EBITDA in Q3, and $1 billion of adjusted EBITDA in 2024.
Going back to your question on contract and our outlet on Contra revenue incentives.
Contract as John mentioned was down 17% year over year.
A sharper decline than we are anticipating as of May we expected a 15% decline year over year.
And going forward on a per rideshare basis, we expect contract to decline, 20% year over year and to come down in absolute terms versus Q2.
Thank you.
Thank you.
Just can I, just clarify there that the down 20%.
The 17 year over year going to down 20% year over year were down another 20.
Sequentially, just want to clarify that point.
I think that'll get Sarnia to clarifying its down 20% quarter on quarter on a per rideshare Ryan Basil.
Okay that clarifies quarter.
Quarter on quarter.
Okay.
Quarter on quarter.
Okay.
Your next question is from the line of Stephen Ju with Credit Suisse. Your line is open.
Okay. Thank you so <unk>.
John .
Steps you just talked about.
To say offer to driver.
The ability to favor certain jobs over others.
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 do you stand in terms of all of the potential liabilities from the older insurance claims because our recollection is that about I think that's about a year plus ago.
The pace of cost with some of the rest of our third party with the understanding that we will not see these provisions from the adverse events show up going forward, but yes, and when you say that you have resolved 90% of the things I think that from a dollar or cases standpoint. Thanks.
Cool.
Hey, Stephen This is John so on your first part upfront pay so youre right its 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 rollout 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.
If you were previously pricing a short ride in a way that got less drivers to accept it and you were pricing along right in a way that got a lot of drivers to accept it you might rebalance that between the short and long rates 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 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 that it will perform better for our overall unit economics.
Thanks for the questions on Advair.
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 20, 90% of the total claims are resolved 10% are outstanding.
Of our claims.
With respect to <unk>.
Adverse we do think that this adverse development reflects insurance industry trends.
Commercial auto industry has been experiencing higher costs and increasing insurance losses.
Unlike many other services auto repair and health care have become more expensive, reflecting the 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 pre dates with risk transfer and we will continue to shrink in size.
The claims are closed out.
Okay.
Thank you.
Your next question is from the line of Mark Mahaney with Evercore. Your line is open.
Thanks, a near term question and the long term one.
The fuel I forget what kind of fuel charge charges would ever.
Gas prices are coming down is there an opportunity here to no longer need to rely on those.
Drive for drivers and then secondly, there's $1 billion EBITDA goal of 700 million free cash flow by 2024, yes.
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 Atlanta is there anything else you would call out just high level, what kind of assumptions are required to get there. Thank you.
Okay.
So gas prices are.
We're not we're not announcing anything for our drivers on this call, but we'll continue to look at obviously, we've seen gas prices come down and as we mentioned on the call.
Driver earnings at a really nice level.
Over over $37. So so overall, Kent announced but definitely think driver earnings are continued to be in a good place.
And then on the $1 billion target for 2020 for others. There are four key levers to get there.
The first is overall rideshare market growth.
Is pricing.
And along with that changes in ride mix modes, and the sort of revenue management behind that.
Third is the impact on our work to drive efficiency in the marketplace and finally as overall overall operating leverage.
One key assumption there 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.
Thank you. Thank you very much.
Your next question is from the line of Steven Fox with Fox Advisors. Your line is open.
Hi, Good afternoon, a couple of questions from me. So I was just curious on.
The airport rides trends since it's reached a record levels, how do we think about that going forward from here given.
Travel trends and how you're managing the mix of business and then I had a follow up.
Yes, obviously hard to perfectly predict the macroeconomic conditions, but we've made strong investments with the team in the airport trip, we have a phenomenal partnership with Delta and other airlines because we see it is such a great example, and as Logan mentioned on the path to the $1 billion in adjusted EBITDA.
<unk> mode mix.
So when you look at an airport right, it's obviously longer.
And Ken have great margin and be great for the driver so.
Again, not going to predict exact direction of that I think it is both the fact that that has had a 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. Yes. This is Doug I'll just call. It clearly theres a lot of pent up demand for travel. So we're seeing a big surge now but.
I think thats likely to continue.
The other piece is just to call out that the airport experience has really improved and 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 that are queuing lots and we've done a ton of product work to improve the experience. So for example priority pickup.
Which is a great product, we launched last year that gives riders the fastest lift pick up experience, we've now scaled up to over 34 airports.
We had to do a lot of work to bring the priority pickup experience two airports, but its there now and 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.
To capture this kind of resurgence of travel.
That's helpful. And then just is there any further update on the <unk> acquisition and whether that's considered in the $1 billion EBITDA target. Thank you very much.
That is considered in the target.
Things are going well there we're quite excited it creates opportunities for revenue synergies between what we're doing at <unk> and what they've been doing as we were doing R&D on bikes. Your like building an E bike, we know they already have customers around the world.
To kind of.
Makeup for any costs, we have in R&D by basically having captured sales audience to sell it to instantly.
Diversifies, our overall customer mix in that business and our geographic concentration of the existing model that was just U S focused.
Pdc's Bankshare equipment has been sold in 45 markets in 15 countries.
And so quite quite excited about.
What that can mean for that part of our business.
Thanks, Dan.
Thank you.
Your next question is from the line of Brent Thill with Jefferies. Your line is open.
Alright. Thank you. This is John again for Brent Thill question on some of the progress you made on cost savings on the Opex side this quarter.
Some of them are discretionary and so on but I'm wondering how much of that will be sustainable in the near to medium term, especially in the sales and marketing.
And related to that.
If you could talk about your head count plans that would be great. Thank you very much.
Okay.
Yeah. Thanks for that question.
As indicated in our Q3 guidance one additional week, we expect to see additional leverage.
And overall opex.
We are as we said in Q2, we made strides in cutting marketing peony significantly slowing head count growth.
And we're not giving specific guidance around our hiring plans.
Our exercising extremely disciplined cost management with a clear focus on the bottom line.
Thank you.
Your next question is from the line of John Blackledge with Cowen Your line is open.
Great. Thanks, two questions first on the driver supply do you think the tougher macro is helping with driver supply and the organic dragger acquisition.
You saw and then second on shared rides.
You expect the shared rides to return to the kind of pre pandemic, 20% of rides volume or will settle in at a lower percentage of volume in the next couple of years and we're pricing for the shared rides return to kind of pre COVID-19 levels or will be elevated.
In the coming years. Thank you.
Yes, we do expect to see some recessionary tailwind on the driver side I think it is.
As people are looking for earnings opportunities.
Arriving for lifters.
<unk> always been a great opportunity and as always on always there.
And like we were talking about earlier.
Now clocking in at $37 per hour per utilized our earnings opportunity. It is extremely competitive it is typically above that of what driving delivery or other sort of opportunities pay so I think it will maintain a sort of.
Our unique place in the market of a premium gig opportunity and.
We launched the business back in 2012, which was really on the <unk>.
In a more recessionary environment coming out of the great recession.
Oh <unk>.
Timeframe and I think we are set up well too.
Sort of thrive in in any condition, but there is we will lean into the.
Lean into them of it.
On shared rides.
You mentioned when we prior to Covid.
Had.
20% of rides, it's shandra it was actually 30% in the market that it existed in.
And so.
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.
<unk> grew 20% quarter over quarter for shared rides outpacing centered ride share growth.
We're continuing to dial it in carefully we have a basically a new product for shared rides.
Which can allow us to offer multiple price points within shared right. So if you want one instantaneously kind of within a 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 are willing to wait five minutes 10 minutes or 20 minutes, we have much more time to find you match and therefore to give you could pass on.
<unk> maintained that match.
PNC, what is really heartening and really exciting to see as we mentioned on the call earlier was that.
Our match rates are nearing in Philly nearing pre COVID-19 levels, and just 20% of shared ride volumes and so the whole reason, we rebuilt the infrastructure behind shared rides and 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.
As also mentioned in July we doubled the number of markets from seven to 14, and we have much more to go.
Thank you.
Thank you.
Your next question is from the line of Benjamin Black with Deutsche Bank. Your line is open.
Great. Thanks for the question could.
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.
Thats still the case and any comment on market share it would be really helpful. And the second question is on contribution margin.
Excluding the accounting benefit you mentioned, what curious what exactly drove the strength there and why are you expecting contribution margins to actually contract sequentially into <unk>. Thank you.
Yes first on market share on a national basis market share is consistent with where it was pre COVID-19.
And this is true even with the west coast lagging and sure not totally back which are two areas, where we historically over indexed.
In June we ran our pricing pilot in a select number of markets that did have a negative impact on share.
Pilot has since ended and we expect that share in those markets will revert over time, but.
But even with that I want to underline that we are still share levels consistent with pre COVID-19.
And on contribution margin yes.
<unk> 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 provide due to longer ryzen pricing and 160 bps of the B, where one time accounting items, including a bike share adjustment of $16 million and just to note that includes $3 million depreciation benefit remember and reminder.
Our cost of revenue includes depreciation expense and sorry to bring to that to adjusted EBITDA.
Depreciation expense add back in.
In terms of looking forward in Q3, and the contribution margin as we noted.
One we wanted 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 one is pricing another is the marketplace efficiency work that can improve unit economics and the third.
His product initiatives that continue to improve safety.
When do you think the frequency and severity of incidents, which we can impact our product through our product initiatives can bring down our insurance costs.
So to repeat we believe that insurance.
<unk> is an industry issue, but its not unique to lift and these trends are evident across the commercial auto industry. We have a number of tools at our disposal to combat it and we're working actively to offset the impact.
Alright, thank you.
Thank you.
Your next question comes from the line of Brian Nowak with Morgan Stanley . Your line is open.
Great. Thanks for taking my questions I have two.
The first one is to go back to some of the comments you made about some macro weakness impacting the revenue growth and outlook for the year can you just sort of give us a little more detail on what youre seeing from a macro perspective is it a certain type of routes are runs that are dropping off and have you done work around your income of your customers or what have you sort of stuff.
You've seen sort of get a little bit weaker on the macro side is the first one and the second one I just wanted to drill a little more into that $1 billion target again, you mentioned to Mark's answer it assumes the.
Since <unk> grow in line with the overall market.
Now in 'twenty four is that sort of based on public comments made by your competitors based on consensus of all of US and what are you expecting the market to grow over that period. Thanks.
Hi, Thanks for those.
Yes, if you go back to the question around what kind of macro headwinds.
We're saying 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 were seeing that stabilize through the summer, which is what we would expect and we do anticipate an uptick in September .
Impacting our full year view is at certain point.
Particularly since May.
Okay.
The pace of recovery has been more tempered than what we thought at the start of the year, So thats whats, bringing down our Q3 revenue growth.
And that's what's bringing down our full year expectations of revenue growth.
And then moving to.
You asked about kind of that the adjusted EBITDA.
24 guide to $1 billion and the comment that we expect to grow it at levels of the industry.
Yes.
Yes, so we expect kind of low to mid 20% growth in the industry.
And for ourselves.
Perfect. Thank you bill thanks, Thank you.
Your next question is from Eric Sheridan with Goldman Sachs. Your line is open.
Thanks, maybe one big picture and one on the financials on the Big picture side.
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 <unk>. What do you think of as different layers of product innovation or market segmentation that you still want to go after to possibly continue to expand the addressable market and think about ways in which you could bring more people onto the platform.
For them that would be question, one and then we've got a lot of questions from investors about stock based comp and how to think about internal compensation of employees given what's happened in the stock market over the last six to nine months. How are you guys thinking about absolute levels of stock based compensation and mixes of cash versus stock compensation for employees looking out over the next.
Couple of years, thanks, so much.
Great. So when we think about the long term growth drivers and where we're focused.
We look at three key areas and the first is demographics. So every year 4 million people in the U S become old enough to start using ridesharing on their own and Theres a lot of data externally and we have a lot of internal data that shows.
The youngest people on the population tend to prefer digital first experiences.
And they love service models.
Greater flexibility and more convenience, we see this in music and 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 it first launched it really took off with folks in there.
<unk> 40 is and all of those folks.
Or a decade older now.
That shift continue so we leaned into the demographics.
And building building products and really marketing to that audience.
Second is on marketplace efficiency and this is really one of our top top priorities now it always is.
Our core job is to match supply and demand.
And I'm sure everybody's had that experience, where maybe youre in a smaller town.
When you open up the App and you can't get a rod or maybe you're opening up the app at a certain time of day when it's extremely busy in the prices spiked too high.
In many cases those are that sort of unmet demand.
Can be met those are solvable problems.
And we look at the market opportunity there is a driver out there who would be happy to provide the ride.
But maybe we didn't communicate the opportunity to do 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 theres a lot there and it's a key focus where we're leaning into.
Mentally match supply and demand better.
And.
The third trend, where we invest a lot of energy and we see continued tailwind is a little bit what I was talking about earlier with.
The infrastructure improvements.
Broadly so I talked earlier about airports.
And how the infrastructure and experience at airports.
As meaningfully improved over the last number of years.
Another. Another example that I think is really relevant to us.
If you think of vehicle replacement. So a few years ago. If your car was in the shop. Your insurance company. You May have offered you a rental vehicle owner sort of a voucher at one of the major rental companies.
And now for cars in the shop.
A really great chance that you'll be offered.
Your choice and you can choose to get a ridesharing gotcha.
That kind of the small integrations.
With day to day life, and the kind of infrastructure in our environment take time to build and happened slower, but then create great tailwind for the industry.
Thank you turning to your question about stock based comp.
We are always evaluating whether we have the right compensation structure.
Macro uncertainty and the potential or slow down.
We are.
Currently prioritizing preserving cash.
We havent big equity component to our compensation structure for eligible team members to align incentives to company performance and also to be competitive with our peers.
We need to be competitive in terms of attracting and retaining talent.
In terms of stock based comp and where it's going we're not providing any specific guidance at this point.
But shifting the conversation to dilution.
No obviously, but it's a critical focus for investors, we keep a very careful eye on it and we benchmark our burn rate versus peers annually and.
In 2021, our gross burn rate was within the 50 to 75 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.
Alright. Thanks.
Your next question is from the line of became the Kelly with Citigroup. Your line is open.
Great. Thanks. Good afternoon, everybody just two quick ones for me first go back to some of the initiatives that you mentioned on the insurance front I was hoping you could maybe talk to 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 coming into the fourth quarter. It looks like the Q2 and Q3 sequential revenue starting to follow a similar pattern as what you saw in 2019 is it fair to sort of look at 2019.
As a decent barometer into the fourth quarter in terms of the sequential revenue pattern.
Just quickly on Q4, and then I can pass it to <unk> to talk more about insurance, obviously, we're not we're not guiding on Q4.
Can't comment on that.
But yes, we're starting to see some of the trends you mentioned Q3, we're optimistic about back to school.
And our.
Excited that the driver part of the equation has come back into balance, which gives us a lot lot.
A lot better conversion on all the right intense that come our way.
Okay.
Turning to your question about <unk>.
Insurance and our view on.
Timing and ability to combat that and future quarter impacts the Q4 impact of insurance will be a reflection of our ride volumes, our ride mix, our third party insurance renewals, which take effect October the first we plan to give.
Update our outlook when we report in early November .
And as I said, where 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 is an industry issue not specific to lift.
And to recap, we're working hard to mitigate it and we'll provide an update on our Q4 outlook in November .
That's all very helpful. Thank you.
Thank you.
Okay.
Ladies and gentlemen, thank you for your participation.
Today's conference call you may now disconnect.
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