Lyft, Inc. (LYFT) Q2 2021 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Lyft Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode to prevent any background noise. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Sonya Banerjee, Head of Investor Relations. You may begin.

Thank you. Welcome to the Lyft earnings call for the quarter ended June 30, 2021. Joining me today to discuss Lyft's results and key business initiatives are our Co-Founder and CEO, Logan Green; Co-Founder and President, John Zimmer; and Chief Financial Officer, Brian Roberts. A recording of this conference call will be available on our Investor Relations website at investor.lyft.com shortly after this call has ended. I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements. This includes statements relating to the expected impact of the continuing COVID-19 pandemic, the performance of our business, future financial results and guidance, strategy, long-term growth and overall future prospects. We will also make statements regarding regulatory matters. These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected or implied during this call, in particular, those described in our risk factors included in our Form 10-Q for the first quarter of 2021 and filed on May 6, 2021, and our Form 10-Q for the second quarter of 2021 that will be filed by August 9, 2021, as well as the current uncertainty and unpredictability in our business, the markets and economy. You should not rely on our forward-looking statements as predictions of future events. All forward-looking statements that we make on this call are based on assumptions and beliefs as of the date hereof, and Lyft disclaims any obligation to update any forward-looking statements, except as required by law. Our discussion today will include non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Information regarding our non-GAAP financial results, including a reconciliation of our historical GAAP to non-GAAP results, may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC and may also be found on our Investor Relations website. I would now like to turn the conference call over to Lyft's Co-Founder and Chief Executive Officer, Logan Green. Logan?

Thanks, Sonya. Good afternoon, everyone, and thank you for joining our call today. I'm excited to discuss our Q2 results. We had a great quarter. We beat our outlook across every metric, and we have growing momentum. This quarter, we crossed the milestone that we've had our sights on for quite some time. Since our inception, we've worked hard to defy the odds with a deep belief in our mission. We've consistently innovated and made big bets from launching and scaling peer-to-peer transportation, to pioneering shared rides, to becoming the largest North American bikeshare operator, to navigating regulatory hurdles and more. We've built a strong track record. Today, we add achieving adjusted EBITDA profitability to this list. I want to extend a special thanks to each and every member of the Lyft community. Your hard work and dedication made this possible. It's a significant milestone for our business and for our industry. Ridesharing is now so mainstream that it's easy to lose sight of how much has changed. Less than 10 years ago, peer-to-peer ridesharing didn't exist. Lyft launched in 2012, and it took a year to reach 1 million rides. Now we facilitate hundreds of millions of rides every year. When I think about how far we've come and how much the team has accomplished, I'm incredibly proud. In the fall of 2019, we announced our plan to reach adjusted EBITDA profitability in Q4 of 2021. This was an ambitious target, and we had our work cut out. For context, in the quarter we announced this commitment, we had an adjusted EBITDA loss of around $130 million. And for the prior fiscal year, the loss was close to $1 billion. Then a once-in-a-century global pandemic hit that literally halted travel, and at the same time, Proposition 22 was playing out in California, one of our largest markets. It's hard to imagine a more challenging backdrop. But the team rallied together. We assessed every aspect of our business and rebuilt stronger. Innovating and pushing back against the odds is core to our DNA. John and I have been fighting for our mission, business in this industry for more than a decade. And now we've built a much stronger company. The fact that we achieved adjusted EBITDA profitability 2 full quarters earlier than we initially expected is clear evidence of this fact. We achieved this milestone relatively early in the recovery, all while continuing to invest in growth. Going forward, we expect to maintain adjusted EBITDA profitability. As we said in our original founder's letter from our IPO, we're going to continue to strategically balance our investments in growth with profitability and deliberately lean into growth, especially since it's still early days. I'm incredibly excited about our road map. We're going to build a significantly larger company by attacking the $1 trillion market opportunity in front of us. This quarter marks an important milestone, but it's just the beginning. Our mission is to improve people's lives with the world's best transportation, and we'll continue working to deliver on this goal. I'd now like to turn to a few specific highlights from Q2. Demand continued to strengthen across the markets we operate in, particularly as communities reopened in June. Revenue for the second quarter grew 26% quarter-over-quarter and 125% year-over-year, outperforming the midpoint of our outlook by more than 10%. Active Riders increased by more than 3.6 million from Q1 and nearly doubled year-over-year. Active Rider growth in Q2 reflects the fact that people want to get moving again. Airport rides in June were more than double what they were in January and were nearly quadruple what they were a year ago. Given strengthening demand, we made significant investments in driver supply throughout the quarter. The number of drivers increased in Q2 at a faster rate than in Q1 and ended the quarter up more than 60% year-over-year. While elevated demand drove higher prices, across the U.S., drivers earned more than ever before. Drivers' average hourly earnings reached an all-time high in Q2. Turning to July. The number of drivers using the Lyft platform grew versus June, and we continue to see nights out and weekend use cases rebounding. We also reintroduced shared drives in select cities with extra precautions to promote rider and driver health safety. We'll continue bringing back Shared rides as our most affordable option in additional markets as conditions allow since these rides can help expand our capacity and contribute to an improved balance in our marketplace. John will provide key business updates. But before he does, I'll turn the call over to Brian to review our financial performance.

Thanks, Logan, and good afternoon, everyone. Q2 was an exceptional quarter, truly, truly exceptional. We generated 125% year-over-year revenue growth, and for the first time, adjusted EBITDA profitability. The second quarter provides powerful validation of our business transformation as we achieved adjusted EBITDA profitability, with rideshare rides still well below the level reached in Q4 of 2019. Now before I walk through the details, I want to extend my gratitude to our team members for helping make this milestone possible. Lyft has always attracted talented individuals who are passionate about our mission and embrace our values. With the onset of COVID, our team faced a long list of challenges. They responded with inspiring resilience and a tenacious focus on our long-term vision. Together, we've built a financially stronger and healthier business that will support our continued growth and expansion. Our business is a reflection of their commitment and hard work. In addition, from day 1, we have been driver-centric. We've always known that it's critically important to invest in our driver community and create compelling opportunities for them to use Lyft. It is important to note that in Q2, we achieved our business results while we intentionally reduced our effective take rate. As Logan mentioned, drivers generated record hourly earnings on our platform. In the second quarter, we significantly increased our investments in incentives and sign-on bonuses to help us attract, retain and grow hours from drivers to meet strengthening demand. In fact, incentives classified as contra revenue increased 92% quarter-over-quarter to over $375 million, well above the 26% sequential increase in revenue, still with Lyft achieving adjusted EBITDA profitability. Since our inception, skeptics have debated the ridesharing business model, and the events over the past year encouraged some to question why going deeper as the transportation network makes sense. We have now demonstrated the tremendous value of our transportation focus. Going forward, we expect to remain adjusted EBITDA-profitable as we increase investments to fuel long-term growth. Before I move on, I want to note that unless otherwise indicated, all income statement measures that follow are non-GAAP and exclude stock-based compensation and other select items. A reconciliation of historical GAAP to non-GAAP results is available on our Investor Relations website and may be found in our earnings release, which is furnished with our Form 8-K filed today with the SEC. Let's move to the details. As we previously reported, average daily rideshare ride volume decreased slightly in April relative to March. Despite elevated prices, beginning in May, rideshare ride volume rebounded and then further accelerated in June as more states reopened, including California. In Q2, the number of Active Riders increased by over 3.6 million quarter-over-quarter to 17.1 million. This represents 27% quarter-over-quarter growth and nearly 100% year-over-year growth. As states began to reopen, we benefited from a return of riders from prior quarters as well as new rider activations, which increased 26% quarter-over-quarter. Revenue per Active Rider decreased slightly quarter-over-quarter and increased by more than $5.50 year-over-year to $44.63. Rider activations increased 7% month-over-month in May and increased a further 9% in June. Rider activations near the end of a quarter are typically dilutive to revenue per Active Rider since there's less time to generate revenue. Helping to offset this headwind was the recognition of licensing revenue from Argo related to data to help accelerate the development of autonomous vehicles. The combination of these trends, especially the addition of over 3.6 million Active Riders, led to an over $150 million sequential increase in second quarter revenue to $765 million. Q2 revenue was $75 million above the midpoint of our revenue outlook of $680 million to $700 million. Similar to the first quarter, elevated rideshare pricing in Q2 drove record rideshare revenue per ride, which had a beneficial impact on profitability metrics since certain costs are relatively fixed like depreciation or less correlated to the price of rides, for example, computing costs. This led to all-time record contribution margin and adjusted EBITDA margin. Contribution margin in the second quarter was 59.1%, which well exceeded our outlook of 56.5% to 57.5% and was up substantially from the 35% in Q2 of 2020. The outperformance on revenue and contribution margin relative to our outlook helped drive strong Q2 contribution of $452 million, which is nearly 4x the level generated in Q2 of 2020. We exceeded the midpoint of our contribution outlook by nearly $60 million or 15%. For each dollar of incremental revenue growth, contribution increased by over $0.70. As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods. As we've previously discussed, to help reduce volatility in our financial results, on April 22, we signed an agreement to reinsure our captive insurance entity for select historical periods. In the second quarter, there was no adverse development net of reinsurance recoverables from this policy. Let's move to operating expenses. Operations and support expense for Q2 was $86 million, a decrease of 2% year-over-year. Operations and support expense as a percentage of revenue declined to 11.3% in Q2, down from 13.7% in Q1. R&D expense in Q2 was $130 million, roughly flat with the level in Q1. As a percentage of revenue, R&D expense declined to 17% in Q2, down from 21.7% in Q1. Q2 sales and marketing was $89 million. As a percentage of revenue, sales and marketing was 11.6%, roughly flat with Q1's 11.4%. Within sales and marketing, incentives were only $10 million or 1.4% of revenue. This represents a decline of over 20% quarter-over-quarter. G&A expense in Q2 was $153 million, down 9% from the year ago period. G&A expense as a percentage of revenue was 20% in Q2, down 550 basis points quarter-over-quarter. In terms of the bottom line, our Q2 adjusted EBITDA profit of $24 million was over $60 million better than the midpoint of our loss outlook of between $35 million and $45 million. It's worth noting that Q2 adjusted EBITDA included $16 million of benefits related to 2 items. First, we were able to ultimately settle a long outstanding receivables as Hertz exited bankruptcy. Separately, we've captured gains from the remarketing of Flexdrive and Lyft Rental vehicles given the strong market for used cars. Without these gains totaling $16 million, our Q2 adjusted EBITDA profit was $8 million. Unrestricted cash, cash equivalents and short-term investments slightly increased quarter-over-quarter to $2.2 billion. We expect unrestricted cash, cash equivalents and short-term investments to increase again in Q3 with the sale of Level 5, which closed in July. Before I move to our Q3 outlook, I want to remind investors that while declining COVID case counts in Q2 fueled a rebound in our business, the pandemic is not yet over, especially with emerging variants and a return of restrictions in certain markets. We are cautiously keeping an eye on new developments and expect continued volatility and variability among cities. Future conditions can change rapidly and may impact our outlook. Now in terms of average daily rideshare ride trends, despite the recent growth in COVID case counts, July was our best month since March of 2020. Now to avoid impacting long-term rider loyalty, we are focused on providing our users with the best possible experience. To date, riders have been relatively patient with a less-than-ideal prices and service levels since they are faced industry-wide. Although we expect supply tailwinds from the expiration of federal unemployment benefits, we plan to maintain elevated levels of new drivers sign-on is stronger than expected, we plan to incrementally increase investments to add more drivers given current service levels and expected demand recovery trends. This strategy will limit potential upside in Q3 revenue and adjusted EBITDA. We want to improve rider satisfaction and be ready ahead of additional demand recovery. We believe this is the right decision, even though it will temporarily dampen Q3 revenue growth and adjusted EBITDA leverage. It's also important to understand that certain factors in the second quarter were unique and are not expected to recur to the same degree, especially the elevated prices of rides. The pricing environment in the second quarter caused by the demand inflection contribute to a 7% quarter-over-quarter increase in rideshare revenue per ride, which positively impacted our top line, operating leverage and profitability. As I mentioned, we are maintaining elevated supply investments to help lower prices in Q3 for our rider community. And as a result, we expect rideshare revenue per ride will decline on a sequential basis. Now our Q3 financial results will benefit from the sale of Level 5, which closed on July 13. With a mid-July close, we expect to remove roughly $20 million of related costs in Q3 relative to Q2. We also expect to generate licensing related to the commercial agreements. However, in Q3, the impact of lower prices, along with the elevated driver supply investments, will exceed the quarterly cost savings of the Level 5 sale. In terms of our outlook, barring a material decline in the operating landscape due to COVID, we expect revenue of between $850 million and $860 million. This implies growth of between 70% to 72% year-over-year and between 11% to 12% quarter-over-quarter. This outlook embeds an estimated $30 million to $40 million impact from lower prices, combined with elevated new driver sign-on bonuses and incentives. And to repeat, if demand growth is stronger, we expect to increase our supply investment. In terms of profitability, which is net of the $30 million to $40 million headwind I just described, we expect Q3 contribution margin to be between 58.5% to 59% as we generate expense leverage from volume growth that offsets the lower pricing environment and supply investments. When evaluating quarter-over-quarter trends, Q2 contribution margin was 58.1% adjusted for the 100 basis point uplift from the remarketing gains. In terms of the bottom line, we expect that Q3 adjusted EBITDA will be between $25 million and $35 million, inclusive of the impact from the supply investments and lower prices. This is relative to the $8 million of adjusted EBITDA in Q2, excluding the $16 million of benefits from Hertz and remarketing. Just to repeat my earlier comment, to the extent we realize incremental leverage beyond our target range, we plan to reinvest in additional supply given industry-wide service levels and expected demand recovery trends. The Q3 outlook implies adjusted EBITDA margin of between 3% and 4%. This compares with 1% in Q2, excluding the $16 million of benefits. Separately, based on our momentum and the anticipated second half recovery, we now expect that Lyft will achieve adjusted EBITDA profitability on a full year basis in 2021, which is another important milestone. So in closing, I want to emphasize 2 key points. First, we've built a much stronger business. Our exceptional second quarter provides clear visibility into the extent of the improvements we've made, and these changes are designed to be lasting. We continue to expect to emerge on the other side of the pandemic structurally more profitable and more efficient per ride than we were going in. Second, we are a growth company. Achieving profitability is an important milestone to demonstrate the strength of our model, and we plan to maintain adjusted EBITDA profitability going forward. At the same time, we believe it is in the best interest of shareholders for Lyft to avoid over-rotating on profitability too early. Beyond the recovery, we have a large untapped market opportunity in front of us. We have a TAM in excess of $1 trillion, which provides a long growth runway. We plan to reinvest a portion of our adjusted EBITDA profitability in new growth initiatives, which we look forward to discussing in the coming quarters. These strategic investments expand on our core competencies and monetize assets that are part of or underpin the Lyft ecosystem. As Logan shared, we expect to build a significantly larger company as we attack the massive market opportunity in front of us as a transportation-focused pure play. Going forward, we will thoughtfully balance investments in growth and profitability considerations while deliberately leaning more towards growth, especially in these early days. Our financial North Star is to maximize long-term free cash flow growth per share. We believe this is the metric most aligned with how to generate long-term shareholder value. So with that, let me turn it over to John to provide key updates on the business and our strategy.

Thanks, Brian. I'm energized by our Q2 performance and excited for the quarters ahead of us. Again, I want to thank the Lyft community for making this possible. We look forward to maintaining profitability as we self-fund initiatives that will drive long-term shareholder value. Let me start with near-term dynamics. I'm going to talk about overall marketplace conditions and the progress we've made. Demand in Q2 came back faster and stronger than initially anticipated. That's fundamentally a good thing. Industry-wide, we've seen demand outpace supply, and service levels and prices have been less than ideal for riders. We know people depend on us for excellent service, and we are working hard to improve the experience. Great hospitality is core to our brand. Our efforts to improve wait times for riders are critical to delivering on this and to grow usage by drivers and riders. To that end, we ramped our investments in driver supply in Q2 and welcomed 50% more new drivers versus Q1. In fact, we achieved a post-COVID quarterly record for new driver activations. Drivers also earned more. In some of our busiest markets, drivers have been earning more than $35 an hour on average over all online time. This includes time drivers may have been earning on other app-based platforms. We saw continued driver growth in July, and earnings have remained elevated versus pre-COVID. It's clear that ridesharing remains a highly compelling earnings opportunity, one with exceptional flexibility, which we believe will serve as an ongoing tailwind to meet more demand. In addition, to keep the most active drivers engaged, we are working to build out our rewards program to include benefits that can help them reduce their maintenance costs and receive priority access to ride request. We'll also continue to experiment with new incentive structures to make it even more rewarding for drivers to use the Lyft platform. Ultimately, while exact comparisons are difficult, the higher earnings opportunities that may be available with rideshare versus other forms of app-based work can help Lyft supply as the recovery progresses. We expect the roll-off of tailwind, especially since the majority of drivers use Lyft to generate supplemental income. In Q2, we saw an uplift in driver applicant growth in states that opted out of the federal program early, ahead of their participation ending. Likewise, as vaccines continue to roll out, we are hopeful that life can resume a more normal cadence. Kids going back to school can give households more flexibility. And people may have more reasons to seek out incremental earning opportunities to save for vacations, weddings and other personal activities. We've also been investing in our technology to make the driver experience better and better. In July, we launched a major app redesign that was the product of nearly a year of engineering work. Just as one example, we've now made it much more intuitive for drivers to easily identify earning opportunities while off-line or idle. The rollout of our new interface had an immediate impact on our marketplace, resulting in an increase in both driver hours and rides. The bottom line is we've managed similar marketplace dynamics for a decade and are very confident in the strategic actions we're taking for both the short and long term. Let me switch gears and talk about the Lyft network more broadly. Rideshare is critical, but the power of the network is more than that. The Lyft network is a culmination of all the transportation demand, the options we make available across rideshare, bikes, scooters, rentals and transit as well as our marketplace and platform technology that has been built and optimized over the last decade. This robust technology platform is what powers every ride match and every dispatch, among many other things. We will continue to invest in building the best technology as these investments can generate significant returns today and far into the future. For example, over the last few years, we've been investing in building our own in-house mapping technology specifically for our transportation network. By building maps for Lyft, by Lyft, we are working to be able to recommend better routes to drivers, ones that can promote safety, reduce our insurance risk, improve the reliability of the pickup and drop-off experience and better optimize our overall marketplace. Enhancements like these can bring multiple cents of additional margin to each ride, adding up to millions of dollars each year. We are testing our own navigation experience in select markets today and have over 1.5 million miles under our belt already. As we progress through this year, we'll continue iterating and working to launch the best dedicated navigation experience possible. Our goal is to pass the savings we achieve from initiatives like these onto riders. The more value riders receive from Lyft, the more likely they are to use Lyft more often and the more likely we are to attract new riders. Ultimately, to unlock more of our TAM, riders should be able to spend less on transportation overall but more on the Lyft network. And by establishing ourselves as their trusted transportation network, we believe riders will increasingly turn to Lyft to help them transition to Transportation-as-a-Service. We also delivered significant value to users with our exclusive content, meaning with the bikes, scooters, car rentals and vehicle services that are only available through Lyft. Our vehicle service centers' high customer satisfaction scores reflect the work we've done to reimagine the auto care experience. In addition, we found that when less frequent rideshare riders start using our bike and scooters, they quickly start using both more often. Differentiated content can help us increase our touch points with riders and grow our share of the consumer transportation wallet. Longer term, each of the strategic investments we are making in the Lyft network put us in the best position to win the autonomous transition. Both the mapping investment and fleet management work are perfect examples of our focused transportation strategy that has high value in both the short and long term. In the near term, riders and drivers benefit with better and more affordable service. And in the long term, Lyft can be the go-to transportation network for autonomous vehicles because of our holistic transportation services that drive preferred economics. In fact, our recently announced partnership with Argo and Ford reinforces this unique role the Lyft network can play to help advance the performance and safety of autonomous vehicles and their ultimate commercialization. We look forward to building on these partnerships and to welcoming new partners to our network. Finally, before we move to Q&A, I'd like to take a moment on the Massachusetts valid initiative. This week, the coalition of workers and companies that we're a part of is moving forward with petitions for a ballot initiative for the November 2022 election. While our priority is to find a legislative solution in Massachusetts, this is part of our continued efforts to advocate what the vast majority of drivers want: the flexible earning opportunities our platform provides, plus new benefits. While we are pursuing the ballot option, we are also closely engaged with the Massachusetts state legislature and are continuing to work with them on a potential legislative solution. We're now ready to take questions.

[Operator Instructions]. And our first question is from Doug Anmuth of JPMorgan.

Just a couple on driver supply and incentives. I was hoping you could just help us understand where you are with driver supply just relative to current demand, maybe if there's a percentage way of looking at it relative to like 100% for a fully balanced marketplace. And then second, can you just talk about how much you're roughly targeting in terms of incentives for 3Q coming off of the $375 million in 2Q?

Sure. Doug, this is Brian. Let me take that in reverse order. Let me talk about Q3, and then I'll just talk about overall driver supply. So in the third quarter, we plan to increase supply investments just given current conditions and to just help prepare our marketplace for additional demand recovery. So we do expect Q3 contra-revenue to exceed $376 million. Now given this strategy and the expected impact from the Q2 investments, as John pointed out, new driver growth in Q2 jumped 50% quarter-over-quarter. We expect prices to decline in Q3 as we improve the service -- or sorry, supply conditions. So the financial impact of maintaining elevated new driver bonuses and incentives while prices decline is estimated at $30 million to $40 million. So you really have to sort of look at those combined. And just to call out again that this is built into our outlook of $850 million to $860 million. And to the extent we realize incremental growth of leverage in the third quarter, we plan to further reinvest in supply and grow driver activation. It's just the right thing to do right now to prepare for additional demand. And again, this is after we achieved adjusted EBITDA profitability and expect to maintain it. In terms of just the recovery overall, the driver front, it's important to understand that you just can't measure in terms of the number of drivers. You have to measure in terms of -- looking at the number of hours or the number of rides per driver as well. And we have seen a number of rides per driver increase versus pre-COVID periods. And so as a data point in the second quarter of this year, the average number of rides per driver was more than 20% greater than Q2 of 2019. And the number of drivers is also increasing as we onboard new drivers. So again, we increased driver activations by more than 50% quarter-on-quarter in Q2. And looking forward, we're going to continue to invest in building supply to improve service levels, and these efforts are already paying off. Just as an additional data point, in July, we increased new driver activations 11% month-on-month.

Our next question is from Ygal Arounian of Wedbush Securities.

I want to ask on rider incentives. And you -- right now, you're cutting back rider incentives. Obviously, there is significant demand. What's your outlook over the coming kind of months and quarters for how that normalizes? And then second, any update on business travel specifically, maybe given the Delta variant and that spiking. Are you seeing any kind of backwards-moving momentum? Anything you're seeing early on our expectations there, too?

Sure.

Go ahead, Brian.

Well, let me comment on the sales and marketing and start there. So I mean just -- if you look at Q2, this is our fifth quarter in a row where we kept sales and marketing below 15%, right? And when you look at the incentives in sales and marketing as a percentage of revenue, in Q4, we were 3.5%. In Q1, we were at 2.2% and we just now had a quarter at 1.4%. And so again, we feel really good about where we are in terms of on the demand side. As pointed out, Active Riders jumped over 3.6 million in Q2. And if you look at rider activation, so these are new riders for the first time on Lyft, those jumped 112% year-over-year in Q2. So we feel great about that. But I think just to repeat what we're trying to stress in terms of our long-term strategy, we want to win on product innovation, the stuff that John was describing. It’s innovation, it’s the customer experience, it’s the brand preference, it’s not coupon. So we believe that the R&D investments have got right lever here to create the competitive advantages. And so we expect absolute sales and marketing will increase in future periods as obviously as revenue rebounds. But longer term, sales and marketing expense as a percentage of revenue will likely be lower post COVID than it was pre-COVID.

Yes. In terms of on the business side, I would say, the one area that really stood out -- one use case that stood out in Q2 was airport rides. And I think historically, airport rides, there's obviously consumer personal travel that they did, as well as corporate travel. In terms of just the overall impact to the results, we did see strengthening in airport rides. And so in airport rides as a percent of total rideshare rides was 8.3%, which is up 5x from the 1.6% at the bottom in April 2020. And quite frankly, it's approaching the 9.5% we had in December of 2019. And so I think that is a combination, I think in terms of post in this recovery, we expect all use cases to return. We expect that commute rides to strengthen as more companies return to the office and we expect business travelers should begin to increase, accelerate around the same time this year, and then really accelerate next year.

Your next question is from Stephen Ju of Credit Suisse.

I guess I have kind of an interconnected question on the incentives. So I guess maybe for John or Logan. So presumably, as you increase the payouts of driver incentives in the third quarter, your competitor will probably respond in a similar way. So it looks like you're going to reach over $1 billion of incentive spend this year, which is about 2x what you had been spending in 2019. So between the 2 of you and the steps that you're about to take, is this just a matter of making rideshare more attractive, and I guess, an irresistible thing for drivers to be doing to earn money versus other things that they can be doing? And I guess on the rider side of things, I guess one of the things that we worry about, as the ASPs remain at an elevated level, is perhaps the danger of some of your riders switching off and using something else if the prices are too high and especially if they have the option. So it seems like riders are coming back regardless given the sequential growth here. But is there anything you're seeing in terms of activity among existing users, maybe size of the switching off or churning off?

Thanks for the question. This is Logan. So first on the driver side, we've only viewed -- the market for drivers is large and broad, and we've always looked at it taking the broad view, looking at the whole labor pool. And obviously, COVID has sent chocks through the whole labor market that significantly impacted us and most of the other players out there as well as a host of other businesses. And so as we look at sort of driver incentives, they really blend for us as we're running the business along with just what is driver pack, right? What's the price of labor at that time of day in that city? It is unique. It is dynamic. And it's our job to stay on top of it and to move with the market. And so we're always looking to ensure we're paying drivers competitively and provide the best service levels. And as we pay -- as driver pay increases, more drivers come onto the platform. And it's not just pulling from our closest competitor. It's pulling from the market more broadly. So that's kind of our long view. We really don't kind of look at it in a narrow sense. Brian, I'm wondering if more color would be helpful.

Yes. I think John is going to say something and then let me chime in.

Yes. One other point I just want to make is -- and you see in some of the numbers Brian recently talked about is that one thing we've really invested deeply over the last, I'd say, 2 years has been the marketplace technology that underpins almost everything we do. So like as an example, these are not actual numbers. But if you have 100 drivers in the region, and prior to improving your routing and mapping technology, which we talked a bit about, you could complete 150 rides with -- in a 1-hour period with those 100 drivers. There are cases where you can complete more now, say, 175, 200 rides with that same pool of drivers. Now that's good for drivers. Drivers earn more, and they have less downtime. And it's good for the business, and it's good providers. So a lot of the investments that we've been making over the last 2 years will really show in an earnings report like this and we hope in the earnings reports to come, but often are hopefully invisible to the customer because it's more under the hood.

Stephen, let me just maybe just add, and then I'll pivot to your second part of your question. I would say, in general, both companies being focused on onboarding new drivers and welcoming back drivers who may have stopped driving during the pandemic. And so according to third-party data, the industry does continue to appear generally rational with design and structure of supply investments. So we don't see a strategic change here in terms of the competition. And from our vantage, we just achieved adjusted EBITDA profitability and plan to maintain it. And I think beyond Q3, we believe as federal unemployment benefits expire, we will benefit from organic supply tailwinds. We also expect that we may see an influx of delivery drivers as delivery slows once communities fully reopen. And just remember, gig economy, rideshare tends to be king. While exact comparisons are difficult, we believe the earning opportunities are greater in rideshare based on historical studies, which again does provide some organic tailwind. I think in terms of your second part of your question in terms of alternatives for riders, look, right now, the industry is supply-constrained given there's just so much demand. But to date, riders have been relatively patient with the less-than-ideal prices and service levels since they're faced industry-wide. And though -- we do again expect some of these tailwinds, we want to improve rider satisfaction, be ready ahead of additional demand. And I would just say, again, keep in mind, in Q2, we added over 3.6 million Active Riders, which again was up nearly 100% year-over-year, up 27% quarter-over-quarter. And new rider activations, again, these are people brand new to Lyft as riders, increased 112% year-over-year. So again, we expect our marketplace to fully rebalance. And eventually, we will exceed our prior Active Rider peak.

Our next question is from Mark Mahaney of ISI.

Could you talk about new use cases that you may have seen for Lyft for ridesharing over the pandemic if you've noticed new patterns, new use cases? And I guess, throwing into that, with still safety concerns over -- potentially over taxis and public transportation, whether that's created kind of at the margin incremental demand. Can you see that in the data? And then secondly, the profitability goal that you reached clearly have much lower say about your long-term profitability margins? And I can't remember. I think at the time of your IPO, you laid out some long-term margins, and that's a world away. So what are you thinking now in terms of long term, at scale, what kind of margins the business can generate given what you've now been able to accomplish, in obviously, a very different environment than we all thought would be the case a year or 2 ago?

Thanks, Mark. I'll start. This is Logan. In terms of use cases, one of the most, I think, exciting innovations is something we scaled up at the beginning of the pandemic was a product we're calling Wait & Save. And as we sunset Shared rides at the start of the pandemic, we wanted to give our riders another great option for trading off time and money. And that's what Wait & Save unlocks. It captures some of the efficiency of having riders wait a little longer until we have a nearby driver that we can match them with. And we still hit that within a sort of specified arrival window. So we just started a couple of weeks ago reintroducing Shared rides. So we're going to have both of those side by side and sort of learn what folks prefer and how those work together. In terms of kind of use case changes, there's definitely a good chunk of our riders who moved over from public transit as the pandemic sort of hit. So we saw a new type of rider join the network and sort of ride frequency increase there. And it's tough to know exactly how much will stick. We imagine a good chunk sticks. And some, I'm sure, will go back to transit. Transit ridership has picked up a little bit, but it's still kind of depressed overall. Another front is just on the bikes and scooter business. We've seen volume almost double year-over-year. So clearly, there's a real preference for outdoor transportation. So seeing some interesting things there. And as we kind of take a broader view on where we're going with the company in transportation, I think there's a lot of exciting things for us to do on the fleet side of the business and in terms of helping people manage their personal vehicles. And we know a good chunk of Lyft riders and regular Lyft users still have a car to park in their driveway. And so we're looking at more and more ways that we can help them. So broadly speaking, we don't know the timing, but we expect the rideshare business to make a full healthy recovery, and we expect the market to continue growing more broadly. Brian, did you want to weigh in on some of the long-term economics?

Sure. So Mark, obviously, the pandemic isn't over. And so given continued uncertainty, we're only providing a 1-quarter outlook at this time. And in terms of just where we are, look, we went public a little over 2 years ago. So it's still relatively early, but I am incredibly pleased about our progress to date. And again, our Q2 results speak volumes on our progress. But we're not going to speculate today frame on what ultimate margins could reach.

Next question is from Ed Yruma of KeyBanc Capital.

I guess, first, what's governing the rollout of Shared rides? And what has the consumer response been thus far? And then as a follow-up question, any update on Pink? And I know I think the JPMorgan agreement sunsetted. What is the retention of those customers into Pink that you onboard to see that product?

Sure. On Shared rides, we're learning. So we've done a lot of great work on the product to -- we took a lot of the year while it was sunset to rebuild a number of underlying systems and experiences so that we can provide riders with better reliability, both experience in terms of how quickly they're going to get picked up, in terms of how quickly they're going to get to the destination and sort of maximum number of stocks or reroutes along the way. And we think sort of top to bottom, it's a better product, but we haven't tested that in the real world. And so we're bringing that back to see how it performs and to see what rider reception is like. Obviously, it's the one product where you're in the car with multiple other riders. So we want to see what the reception looks like. And as we learn, we'll adjust and sort of dictate the roll-up from there. Right now, it's just been sort of very small area for us to learn at low volume. Can you repeat the second part of your question? It was on Lyft Pink?

I just wanted to maybe an update on Pink generally. And I believe that the agreement you had with JPMorgan where their customers get a 1-year pre, I think, sunsetted. Any sense as to kind of how many of those customers that maybe got the free year stayed on the program?

Sure. I can take the Chase piece -- the JPMorgan Chase piece, this is John, and then pass it back to Logan for higher-level thoughts on Pink. Overall, with Chase, we've been pleased with the program. And the partnership really gives millions of card members even more reasons to use Lyft. We actually extended the partnership benefits this year to include a 5x point promotion on all the rides for Chase's co-branded credit card members. And we think this will continue to be attractive. Obviously, as we come through the recovery and travel continues to rebound, we're excited about continuing to work with this partner. They've been great across the board, even supported us on our universal vaccine access program.

Yes. And just to be clear, the program has not sunset. So it was always designed as a free year for all new -- for all Sapphire members. That's still out there in the market, and in fact, it was extended for an additional 6 months for all those folks who participated. So that is still active and live. We're not disclosing any kind of unique metrics around Pink. It's a program we're still very excited about and continuing investing in adding new benefits. So now we have free upgrades. When you book a rental car, a Lyft -- used Lyft Rentals to book a SIXT rental, you will get a free upgrade if you're a Pink member. We, of course, are leaning into a great partnership we have with Grubhub, where Pink members get unlimited free delivery as part of the Grubhub+ program. So we're going to keep leaning into making Lyft Pink more and more valuable for our riders. But as far as kind of marketing Pink, at this moment, we've been holding back as we focus on the supply side of our market, right? So Pink will play a big role in the future of the company. But right now, it's all about supply. And so we are leaning in on all dimensions to bring new drivers onto the road and to engage existing drivers and make sure we have a great driver waiting for every rider.

Our next question is from Brent Thill of Jefferies.

In past releases, you put a monthly update for the last trailing month. In this release, I don't think you have that. Any color on July and maybe kind of reason why you left it out this time?

And maybe we -- I probably spoke too quickly. So if you look at average daily rideshare rides, July was our best month since March of 2020. We saw growth month-over-month, and it was an all-time high.

Next question is from Nikhil Devnani of Bernstein.

A couple, if I may. On the driver side, with the drivers that are reactivating, what kind of retention and engagement rates are you seeing? Are reactivated drivers sticking around? Or are they reactivating for maybe shorter to capture some of these incentives? And then second question, again, on the driver front, is you mentioned that in certain states where the federal funding programs to start to roll off seeing better driver applications. Just any way to quantify what that benefit looks like versus other states?

Hey, Nikhil. This is Brian. I think on -- let me just start with part 2 and I will come back to part 1. So on part 2, we saw this last summer, too. So we have a couple of data points here. When federal unemployment benefits initially expired last summer, we did see leads jump. Because again, you have to remember, most drivers, it's supplemental income. In 2020, 85% of drivers drove less than 10 hours per week. So again, when you have better unemployment benefits, it may solve that need that you are using Lyft to generate income. It may just have enough for the benefits. And so we saw it last summer. We saw it in the states that sunset the benefits early that leads jumped. And so again, I think we're -- we'll see, I think, at September 8 that the federal full program will sunset. But in general, it does increase leads from folks who were earning enough on the platform -- or sorry, where the benefits from the government and maybe some state benefits on top were covering whatever supplemental income needs they needed and why they were driving a Lyft in the first place. And then in terms of the -- on the drivers that are activating, I will say, I mean, directionally, retention has been phenomenal because you have to remember this environment. We're excited that drivers are earning all-time record hourly earnings right now. So it's very lucrative to drive. And so you can imagine, if you onboard in this environment, it's a great platform and it's a great time. So retention has been very strong. And as John mentioned, we're seeing that strong activation growth too, again, 50% growth quarter-over-quarter in Q2. And as I mentioned, in -- just in the month of July, we saw 11% growth month-over-month in new driver activations.

Our next question is from Brian Fitzgerald of Wells Fargo.

Maybe 2 quick follow-ups, 1 on drivers. And it's just as you're onboarding these guys, is it faster, easier to onboard existing drivers versus new ones? Or is it just road volumes is overweighing that? And then I want to go back to a comment you guys talked about, and that was the marketplace technology, optimizing routes and mapping and driving yields there. How much of that is also predicated on ample supply of certain ilks or experience levels of drivers so that you can properly do that route, so this experience guy doesn't have to take a left from the traffic? And are those 2 -- do those 2 flywheels impact each other? And do you get -- as you get more drivers on can -- does that just amp up the momentum you get out of your marketplace tech optimization flywheel?

I'll start with the second part of the question, maybe, Brian, if you take the first. I'd say the flywheel is improved by volume broadly. So the more volume we have on the platform, the more opportunities we have to learn. And we learn what the safest routes are, we learn what the characteristics of the safest and most productive drivers look like more broadly. So volume is important for driving learnings. We obviously have all of our historical data that we can learn from. So we're not sort of -- the kind of real-time data layers on is another factor. But we're not extremely sensitive to the kind of volume of real-time data we have, if that kind of gets at the crux of your question. Brian, if you want to talk to kind of the reactivation versus new driver activation.

Absolutely. So I think right now, it's not an either or, it's an and, right? So we are bringing on new -- sorry, new drivers. And as I mentioned, it's just -- it is an amazing time to activate on the platform. Because almost any hour of the day, you can turn on the driver at which we redesigned and you can start earning almost immediately, which has been fantastic. So as I mentioned, retention of new drivers is looking really strong. In terms of what we -- maybe, I'll call it, deep resurrection, these are drivers who drove a ton on our platform. And then maybe with the onset of COVID, they just didn't feel safe. I think as we get the nation vaccinated, we'll have to get through Delta, which will potentially impact certain regions, et cetera, we are going to see some of those folks come back. As I mentioned, sort of in the ecosystem of the gig economy, rideshare tends to -- based on historical studies, has tended to allow folks to earn more. And so we do expect that you'll see folks who like the independents from the gig work to come back to rideshares. So it's really -- it's an and not an or.

And our last question is from Itay Michaeli of Citi.

Just 2 quick ones for me. First, just on the financials. On the operations and support expense, it looks like you were at 11% this quarter. I think pre-pandemic, you were in the 13%, 14% range. Kind of just curious how much leverage you think you'll see there going forward as revenue recovers? And then secondly, just hoping to touch on the Argo announcement recently. Maybe talk to any -- should we think about that agreement being any different than what you're doing with Motional? Or are they fairly kind of similar deployments?

Sure. So let me take part 1 and then maybe I'll hand off to John. So I think for operations and support expenses, this is an area we probably expect it to tick up slightly in Q3. Within operations and support, we do have background checks and driving record checks as that expense hits that. So as we drive up driver activations, you'll see an increase there. And then it's sometimes correlated to just the ride growth on bikes and scooters. And so we do expect we'll probably go up a little bit, I would say, probably -- I think we're 11.3% in Q2, I think probably around 12% or under. So it will likely go up a little bit. But again, I think it's primarily tied to the fact that we're activating more drivers and filling up our funnel, which I think is very good in terms of setting up the marketplace for Q4 and beyond.

On the Argo deal, it's a third deal in a string of commercial agreements between Lyft and major automakers and their affiliates focused on self-driving technology. So as you mentioned, Motional, we're working to deploy fully autonomous cars on our network starting in 2023. Argo plus Ford as the first time with all 3 pieces, the cars, the AV software and the network, I think what we're really demonstrating is that the path to commercializing self-driving vehicles at scale is through the Lyft network. And it goes back to the point we've made about the marketplace technology. We can help drivers be more successful, Lyft be more successful. Riders have more affordable rides, and AV suppliers get a better return on their cars because of all these investments we've made under the hood that are leading to this great quarter. The other part of the Argo-Ford deal is that we had an anonymized service and fleet data partnership to help them also make sure they pick the right markets and the right technology to bring to the right routes.

All right. With that, thank you, everybody, for joining, for being here for this exciting milestone, and we look forward to talking with everybody next quarter. All right. Have a great one.