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Lyft Inc (NASDAQ:LYFT)
Q3 2019 Earnings Call
Oct 30, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Lyft Third Quarter 2019 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Catherine Buan, VP of Investor Relations. You may begin.

Catherine Buan -- VP of IR

Thank you. Good afternoon, and welcome to the Lyft earnings call for the quarter ended September 30, 2019. I'm Catherine Buan, VP of Investor Relations.

Joining me today to discuss Lyft's results are our Co-Founder and CEO, Logan Green; and Co-Founder and President, John Zimmer; and Chief Financial Officer, Brian Roberts. Logan and John will give an update on our business and key initiatives, and then Brian will review our Q3 financial results, as well as provide updated guidance.

This conference call will be available via webcast on our Investor Relations website at investor.lyft.com. I'd like to take this opportunity to remind you that during the call, we will be making forward-looking statements, including statements relating to the expected performance of our business, future financial results, strategy, long-term growth and overall prospects. 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 the call.

In particular, those described in our risk factors included in our final prospectus for our initial public offering filed with the SEC on March 29, 2019 and the risk factors included in our Form 10-Q for the second quarter of 2019 filed on August 30, 2018, and our Form 10-Q for the third quarter of 2019 that will be filed by November 14, 2019.

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 measures, 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 at investor.lyft.com.

I'd now like to turn the conference call over to Lyft's Co-Founder and Chief Executive Officer, Logan Green. Logan?

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

Thanks. Catherine. Good afternoon everyone, and thank you for joining our call today. Q3 marked a third quarter in a row of outstanding performance, since becoming a publicly traded company. Revenue grew 63% year-over-year. Active Riders grew 28%, revenue per Active Rider grew 27%, contribution margin was at a record high over 50%.

Our top line momentum and our success with strategic initiatives in our core operations led to a 32 percentage point improvement in adjusted EBITDA margin year-over-year. As we said, just last week, we expect to be adjusted EBITDA positive in Q4 2021. We believe this is a year earlier than consensus expectations. Clearly, we are focused on achieving profitable growth and our results this quarter demonstrate that.

As we approach this milestone, there are three key themes that we're focused on. First is product innovation, second is profitable growth, and third is operating leverage. John, Brian, and I will go through our initiatives in each of these three areas.

Our North Star is to make Lyft the fastest safest and most accurate way for people to compare time and money across all relevant modes of transportation, and allow users to frictionlessly complete their transaction on our platform. By delivering on that vision, we'll be well positioned to shift the $1 trillion personal car ownership market to a transportation as a service model. The starting point for building the world's best transportation network is product innovation. This is what powers our ability to deliver the right product to the right customers at the right time. Solving that formula scale drives higher user engagement and improves utilization within our marketplace. And by doing this, we best serve our users and maximize revenue per Active Rider.

A few weeks ago, we launched the redesign of our app with the goal of better surfacing all of the transportation modes available on our platform. Classic rides, shared rides, bikes, scooters and transit. By showcasing all of these modes, we can better match our riders with the right option for their specific trip.

Since its rollout, we've conducted rigorous testing and we've seen increased engagement across rideshare, bikes, scooters, and transit. This underscores our ability to drive higher engagement across our platform through the breadth of our multimodal transportation network. We believe this engagement will translate to increased revenue per Active Rider over time.

We've also been introducing new products within core ridesharing like Shared Saver, since launch earlier this year, Lyft drivers of already taken over 10 million Shared Saver trips. As a reminder, our Shared Saver products let's Riders, get a better price on a shared ride by waiting a few minutes or walking a few blocks. This extra minutes allow us to create more optimal matches which create value that we can pass on to the rider, the driver and our bottom line.

We continue to see improvements in monetization and systemwide efficiency from Shared Saver. To illustrate what this can look like on our platform, it's now possible for us to offer a Shared Saver ride that $7 instead of a shared ride for $9. By offering a new price point, we're able to drive more demand, while keeping our margin constant. This is all made possible by the investment in our underlying technology, the Lyft matching platform, which allows us to easily launch new modes and increased match efficiency.

We're now taking the successful elements of Shared Saver and applying it to a new version of Lyft classic rides, this new mode will allow riders to get a lower price on a classic private Lyft by waiting a few minutes to be matched with the driver. Like Shared Saver, we expect this new mode to generate similar benefits for riders, drivers and their business. We're already testing this new mode with a small group of users. So stay tuned for more information on this in the coming months.

Also in Rideshare, we've continued to expand our new airport pickup feature, Fast Match. This enables faster and more efficient pickups at higher volume locations like airports and large event venues. So instead of searching for your driver at hectic pickup areas, we will direct you to a clearly marked Lyft pickup area where drivers queue up and passengers can take the next available car.

In airports, where we've launched Fast Match we've seen decreases in rider wait times as well as increases in new rider activations, which in turn should improve revenue per Active Rider over time. This early success is particularly encouraging is airport rides and riders tend to be higher value for our business. Fast Match is now live at five airports, including recent launches in San Diego and LA. We'll be launching New Orleans in November and are in active discussions to expand this feature to more airports around the country.

For scooters we expanded the rollout of our newest model to 13 markets including Miami and Austin. This new hardware has a more comfortable ride with larger wheels and better branding. We've seen strong consumer demand for these scooters with higher trips per day on the new models versus prior versions. This new scooter also has better durability and a longer battery life, which we expect to benefit our utilization and bottom line.

As we said before, our long-term competition is personal car ownership. Today, personal transportation spend goes toward car purchases, auto insurance, gas, maintenance, repairs, parking and so on. We believe in a future in which Lyft can provide all of your transportation via membership plan that suits your needs. After testing several subscription plans over the last year, we took a step forward with this week's announcement of Lyft Bank [Phonetic]. This monthly membership plan offers preferred pricing and other benefits like free bike and scooter rides. By delivering more value to consumers, we believe Lyft Bank [Phonetic] will drive greater engagement and loyalty to Lyft, ultimately increasing revenue per Active Rider over time.

Now, I'll turn it over to John to talk about our momentum with enterprise partnerships and the new ways we're serving our driver community.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Thanks, Logan. We've seen a lot of momentum across our work with enterprises called Lyft Business. As we've discussed previously, enterprise customers have large existing budgets to address transportation challenges for employees and customers, but have had to historically use often fragmented, more expensive options.

Any organization, providing transportation for an employee, customer, patient or student can partner with Lyft and we believe this alone is a $25 billion addressable opportunity. Our enterprise business is high growth, high value and a good source of incremental riders and incremental rides. We identify companies where transportation is integral to their customers' journey or important to how their own employees get their work done. We then partner with these organizations to help provide a competitive advantage in terms of both cost and rider experience.

Additionally, our mission, values and brand are important reasons why organizations such as Disney, AT&T, Delta and state Medicaid agencies are choosing to partner with Lyft. This quarter we also expanded our partnership with SAP Concur, the leading travel expense and invoice management solution. Our new integration enables Ride to feed directly into the Concur expense reporting system and helps Lyft build preference with enterprises and their employees. In just the first month, we have seen significant adoption by companies with over 200,000 employees now enabled to utilize this feature. Partners are happy to see this integration and our sales cycle has been much faster now that we offer this integration.

Turning to healthcare, billions of dollars are spent annually on non-emergency medical transportation. Health care organization save millions each year by sponsoring rides for their patients to ensure they make their appointments. This quarter, we're excited to share that Lyft's work with our partners and state Medicaid programs has expanded our access to providing rides for Medicaid beneficiaries in five additional states, bringing our total coverage to six states.

With approximately 9 million Medicaid members living in these six states, Lyft has the opportunity to improve access to care for millions of underserved Americans. This also builds an important component of our business and unlocks valuable rides. It's important to note that these initiatives not only benefit patients, but also benefit drivers by bringing them more rides during off peak hours.

Our university strategy is also growing. As we launch more programs where students are provided university subsidized, late-night rides around campus. Winning contracts with universities can drive a significant volume of rides. As an example, our program at the University of Southern California completed an average of 120,000 rides per month last year, all of which were free to students and staff.

During this year's back-to-school season, we launched new programs at major colleges, including the Ohio State University, Duke University, and John Hopkins. In addition to creating a fantastic business opportunity today, these programs provide us with an important opportunity to build a strong relationship with the next generation of Lyft riders. This is particularly exciting, because we believe this next generation is increasingly looking to skip car ownership and rely on transportation as a service.

In addition to these enterprise relationships. We are also building strategic partnerships, such as our product integration with Delta. It's been a little over two years since we launched our exclusive partnership with Delta, which has helped us bring new riders and engage existing ones. Over 1.2 million riders have linked there Lyft and Sky Miles accounts and we have seen a substantial increase in spend from these users. Partnerships like this enhance the rider experience and have bolstered Lyft role as an essential part of the travel ecosystem.

As you can see from product innovation to strategic partnerships, we are finding smart and meaningful ways to expand the demand side of their business.

Moving on to the supply side, we are creating unique opportunities for drivers to earn more and reduce expenses so that they can increase their take-home earnings and Lyft preference. A few weeks ago, we launched our new Lyft rewards program that allows qualified drivers to earn points that can be redeemed for Lyft ride credits or cash bonuses. Drivers and qualifying tiers are also able to reduce their driving expenses with special savings on eligible AT&T Wireless plans and roadside assistance. We designed our program to focus rewards on peak hours, which is when drivers can earn the most. This is a great way to align incentives, because it is also when the business benefits the most from having more driver hours.

We have rolled the program out to 11 major markets including Denver, Chicago and Washington DC. We look forward to building upon this program to increase driver retention and their affinity toward Lyft. Another way we are improving drivers' take-home pay is through the continued rollout of Lyft Direct. Our no-fee bank account and debit card, that allows drivers to get paid instantly.

In addition to expanding Lyft Direct to more drivers, we've integrated the Lyft Direct debit card with our new Lyft Rewards program to boost certain benefits, including cash back on gas when eligible drivers pay with their Lyft Direct debit card. Lyft Direct is now available to approximately 40% of our drivers and we're seeing a resulting increase in driving hours.

We've also been launching several innovative features and tools for drivers in the app. For example, we have integrated local event guidance into the apps drivers can quickly pinpoint high earning opportunities. In total, we have launched 14 new features and tools over the last six months that together have led to improved sentiment an increased likelihood to drive with Lyft.

Across our business, we continue to innovate and execute to ensure we've become the clear platform and brand of choice for our drivers, riders, and partners.

I'll now hand it over to Brian.

Brian Keith Roberts -- Chief Financial Officer

Thanks, John, and good afternoon everyone. Our third quarter financial results were exceptional and underscore the impact of our strategic focus, platform leverage and strong execution. In Q3, we focus on driving strong top line growth, while significantly accelerating our path to profitability, and the results clearly speak for themselves.

Revenue grew by 63% year-over-year and even with increased investments in our strategic growth initiatives, we cut our adjusted EBITDA loss by more than half from the prior-year, which speaks to the strength in the underlying business. On an adjusted EBITDA margin basis, the impact is even more dramatic, as we improve margin by 32 percentage points year-over-year. Even the sequential trend, represented remarkable execution with a 10 percentage point margin improvement between Q2 and Q3.

Now let's dive into the details behind these important trends. Total revenue for the quarter increased to $956 million, up 63% from $585 million in the same period a year-ago. Revenue growth was well balanced driven by increases in both Active Riders and revenue per Active Rider. We ended Q3 with a record 22.3 million Active Riders, up 28% year-over-year with the majority of new rider growth driven organically.

Revenue per Active Rider increased by 27% year-over-year to $42.82. Both of these revenue drivers exceeded our expectations.

Now, 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 may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC, and is available on our Investor Relations website. This includes Contribution, which is defined as revenue less cost of revenue, adjusted to exclude amortization of intangible assets, stock-based compensation-related expenses and changes to liabilities for insurance required by regulatory agencies attributable to historical periods.

Contribution was $479 million in Q3, a record high, and up 82% year-over-year. Contribution margin for Q3 was 50% in line with expectations and up from 45% from the same period a year-ago as a result of our continued focus on expense leverage and improved monetization.

Now, as a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods. We experienced 87 million of adverse development this quarter. The significant majority of this adverse development relates to claim periods before we move to travelers as our third-party insurance claims administrator. To reduce future potential volatility, we are exploring a sale of certain legacy insurance claims to a third-party.

In terms of the current quarter, excluding the historical adverse development, I am pleased to report that the cost of insurance required for ridesharing as a percentage of revenue was lower in the third quarter than in the second. And looking forward, beginning on October 1, we had a progressive and State Farm partners who share insurance risk in key states in addition to our existing successful partnerships with AXA XL and travelers. We expect our insurance partners scale and world-class processes will help us further reduce our costs, risk exposure, and volatility.

We expect the cost of insurance required for ridesharing as a percentage of revenue will be lower in the fourth quarter than in the third. This is a key reason why we now expect Q4 contribution margin to expand to 52%, up 3 percentage points from our prior expectation of 40%.

Let's move to operating expenses. Operations and support expense for Q3 was $141 million or 15% of revenue, an improvement of 1 percentage point from the same period a year-ago and better than guidance. We continue to be laser focused on increasing efficiencies to drive margin improvements within operations and support.

Research and development expense was $130 million or 14% of revenue, which is up 1% versus the same period a year-ago, but better than guidance. Our investments in R&D are unlocking opportunities to increased revenue growth and drive cost efficiencies. R&D also includes our autonomous development program.

Now, when we reported Q2 back in August, I described the second-quarter sales and marketing leverage as truly exceptional. While sales and marketing leverage in the third quarter was truly, truly exceptional. As a percentage of revenue, sales and marketing was 16% in the third quarter versus 41% from the same period a year-ago, representing a decline of over 60% or 25 percentage points. We drove much of this strong performance by taking advantage of the healthy market environment to reduce coupon incidents and drive operating leverage.

That being said, some of this outperformance relative to our guidance was driven by certain sales and marketing investments being pushed into Q4, including our upcoming Vancouver launch and new branding campaign to support our app redesign. General and administrative expense was $202 million or 21% of revenue, up from 20% in the same period a year-ago, but 2 percentage points better than guidance.

Our revenue outperformance combined with extremely strong expense leverage led to a significant beat in adjusted EBITDA relative to our expectations. Our adjusted EBITDA loss for the third quarter was a $128 million compared to a loss of $263 million in the year-ago period and guidance for a loss of between $190 million and $210 million. And remember, we also significantly raised guidance during our last conference call.

Adjusted EBITDA margin improved significantly to a loss of 13% versus a loss of 45% in the prior-year, representing a 32 percentage point improvement year-over-year. We are extraordinarily pleased with our expense management in Q3 that helped deliver this massive beat, as we have stated, we are focused on driving profitable growth.

As of September 30, Lyft had over $3.1 billion of unrestricted cash, cash equivalents and short-term investments with no debt. With a rapid improvement in our adjusted EBITDA losses, our liquidity position remains extremely strong, and we continue to believe we are more than fully funded.

So to summarize, Q3 was an exceptional quarter that significantly surpassed our guidance on both the top and bottom line. Based on the continued strength of our execution and the healthy market environment, we are further increasing 2019 guidance. In terms of our outlook, let me start with revenue. For the fourth quarter of 2019, we anticipate revenue will be in the range of $975 million to $985 million approximately 5% higher than what was implied by our prior guidance.

For the full-year 2019, we now anticipate that revenue will be in the range of $3.57 billion to $3.58 billion, representing an annual growth rate of 66%.

Now moving to adjusted EBITDA. Our Q3 results help demonstrate the leverage in our model and our focused execution. Before I provide guidance, we want to remind investors that Q4 has seasonal headwinds. Our adjusted EBITDA loss will grow sequentially in Q4 as weather impacts usage of our network of shared bikes and scooters, and the second half of December is uniquely slow for ridesharing.

However, I'm pleased to report that we expect our adjusted EBITDA loss will be significantly improved year-over-year and considerably better than we previously expected. For the fourth quarter, we anticipate our adjusted EBITDA loss will be in the range of $160 million to $170 million versus $251 million in the year-ago period. This is an improvement of $75 million to $80 million or 31% to 33% versus our prior expectations.

For the full-year 2019, we now anticipate our adjusted EBITDA loss will be in the range of $708 million to $718 million versus the prior expectation of $850 million to $875 million. We are incredibly encouraged by our strong growth and this is accelerating path to profitability. It's worth noting that over the last two quarterly calls, our expected 2019 adjusted EBITDA loss has improved by approximately $450 million or roughly 39%. We believe the market is undervaluing our stock.

This year we are on track to realize 66% annual top line growth, which makes us one of the fastest growing public tech companies at our revenue scale. We are continuously optimizing our platform for growth and leverage, while also benefiting from an increasingly rational market. This is resulting in reduced incentive spending and lower sales and marketing expenses overall.

As John illustrated, we're making tremendous progress with enterprises and huge markets like corporate travel and healthcare. And as Logan highlighted product innovation, such as Fast Match, Shared Saver and our new app design are unlocking new use cases and increasing usage. All of this is enabling us to accelerate our path to profitability, while continuing to drive industry leading top line growth.

So with that let me turn it back to Logan.

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

All right. Thanks, Brian. I'm extremely pleased with our strong performance and momentum in Q3 across all aspects of our business, we're continuing to drive industry leading top line growth while accelerating our path to profitability. Looking ahead, I'll reiterate three themes that we're focused on, product innovation, profitable growth, and operating leverage.

In product innovation, we'll continue to innovate with products and features that connect the right ride for the right person at the right time and we'll continue to unlock new use cases. As we build toward profitable growth, we're focused on high-value rides and riders, whether it's through high-value modes like Lux Black or corporate travel use cases through Lyft Business partnerships.

And as Brian highlighted, we're focused on operating leverage and continually driving leverage and operating efficiency across the whole business. Before we take questions, I'd like to briefly reflect on how our work ties back to our mission, improving people's lives with the world's best transportation.

Research has shown that long commutes to and from work were the single biggest factor preventing the jobless from gaining sustainable employment. To help address this problem, we recently launched our Jobs Access Program in over 30 cities to provide free or discounted rides for employment seekers in three crucial Windows, job-training programs, interviews, and the first three weeks on the job.

We're implementing this through partnerships with several leading national and local organizations dedicated to workforce development. Continuing to invest in access to transportation for all communities as part of our social responsibility as a company and core to our values.

Catherine Buan -- VP of IR

Thanks, Logan. And with that, we'll move on to Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Ross Sandler of Barclays. Your line is open.

Deepak Mathivanan -- Barclays -- Analyst

Great. Hey guys, thanks for taking the question. This is Deepak on for Ross. So if you look at the sequential improvement in EBITDA, I understand that some of the marketing costs are pushed into 4Q. You could be achieving EBITDA profitability much sooner than the fourth quarter of 2021 you're talking about, and specifically considering the cost associated with the non-ridesharing businesses. What is in the investment plan that gives EBITDA negative until the fourth quarter of 2021? And how should we think about kind of the cadence of profitability improvements in 2020? And then just a housekeeping question, what was the contribution from Express Drive, bikes and scooters in terms of both revenue and the associated costs? Thank you very much.

Brian Keith Roberts -- Chief Financial Officer

Sure, this is Brian. So you're right. We've had three outstanding quarters in a row as a public company. We're on track for a very strong year-end. That said, we are literally in the midst of our budgeting for 2020. So there's really no reason right now to speculate on anything that's beyond what we've already said about Q4 profitability target. I think it's important to keep in mind that our target is for consolidated adjusted EBITDA since we are a single-segment company. As we said before, we are funding significant investments to drive long-term growth. While the strength of ridesharing is allowing us to accelerate our path to profitability, we are committed to making smart investments in newer initiatives that will drive growth and create long-term shareholder value. And again, the momentum this quarter was pretty exceptional in terms of what we deliver to the bottom line. In terms of the other questions, again we are single segment. So we will not be providing that.

Deepak Mathivanan -- Barclays -- Analyst

OK, that's good. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Brent Thill of Jefferies. Your line is open.

Brent Thill -- Jefferies -- Analyst

Good afternoon. Logan, could you have a number of new initiatives. And I'm curious if you could just maybe highlight what you're most excited by when you look at the business rollout Lyft Pink new things that are happening in autonomous. Anything kind of stand out to you that is may be gaining more traction quicker than you initially thought? Thanks.

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

Yes. Thanks a lot. So yes, I'd love to talk about Lyft Pink for a minute. We were very excited to take the wraps off that just yesterday. It's brand new and we're doing a very controlled rollout through the end of the year. And we've experimented a lot over the last year in the area of subscriptions. We had an all-access pass for about $299 a month that was great for our sort of most frequent users, but it wasn't a mass market product. And then we had done a lot of experimentation across different parts of the market and it sort of culminated in Lyft Pink, which is membership program, $90.99 a month, get to 15% off all rides. And a lot of other is creates it overall elevated experience with surprise upgrades, preferred pickups at the airport, free bike and scooter rides. And we plan to continue investing in it and improving this.

So, I think one of the things I'm really excited about for a membership is that it really aligns our business with our customers. And I think it will provide a nice mechanism for connecting the different pieces of our business from ridesharing to bikes and scooters and more as we grow into this multimodal-vision of transportation as a service. So very excited about that work now being public. That said, it's obviously been in the market for one day, so we don't have any sort of data on the program yet, but excited to keep learning from that and improving on it.

On the autonomous front, that's another area of the business that's really exciting. We have our pilot program with Waymo now live in the Metro Phoenix area and real Lyft customers you can open up the Lyft app and you may get picked up by a driver, this Waymo vehicle. And we're really excited learning a lot about the user experience, have a great relationship with Waymo. We also had a milestone of 75,000 rides completed with Aptiv and we've had a great partnership with Aptiv for well over a year now and have deployed their cars at our network in Vegas.

So I know that AV space is very much early days and, of course, all R&D But we're seeing a lot of programs across the board make very exciting progress and feel really confident that it will sense for all of the first folks to market to be deploying their vehicles on an existing network. So we think we're in a really good place.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

One of the thing that we're really excited about, Logan has talked about on all of our three earnings calls is kind of what we call the matching platform or having the right product or the right ride for the right person at the right time. I think that's maybe less understood or appreciated. But as Logan said in the comments upfront, to be able to have multiple price points when we started, we had one ride type, one price point and now we have several. So the example given in the opening was that you can have a $7 ride, and a $9 ride with the same margin profile. This is extremely powerful and getting better and better at targeting those rides to the right people at the right time increases our efficiency, increases our conversion and is a really big area of focus.

Brent Thill -- Jefferies -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Doug Anmuth of JP Morgan. Your question please.

Doug Anmuth -- JPMorgan -- Analyst

Thanks for taking my question. I apologize, I may have missed a little bit just from the direct comments on the scripts. But could you just help us understand a little bit more on the 4Q guide, anymore breakdown, you can provide across Active Riders and revenue per Active Rider. And then can you also just help us bridge the gap more between your 3Q performance in 4Q outlook and then the EBITDA profit by 4Q '21 that Logan talked about last week. Thanks.

Brian Keith Roberts -- Chief Financial Officer

Sure. Thanks, Doug, this is Brian. So before I guess jumping into the details of our outlook, I just wanted to say again, we are super excited about the performance of the business in Q3. I think it's just a great demonstration quarter in terms of the operating leverage of our platform in the growing rationality in the market. In terms of guidance, let me answer some of your questions more specifically. As you know, we have two revenue drivers. In terms of monetization, we seen expectations in Q3. Based on our execution and industry trends, we expect that revenue per Active Rider will grow sequentially in Q4 above prior expectations. So, we now expect Q4 revenue per Active Rider to grow to between $43 and $43.25, representing 19% to 20% year-on-year growth, which is up from our prior expectation of 16%.

Now in terms of Active Riders, we grew our community by 500,000 in Q3 versus Q2, well ahead of expectations. And in Q4, as I mentioned in my prepared remarks, we do face seasonal headwinds in terms of bikes and scooters as well as ridesharing. However, I would say based on projected industry growth and our current momentum, we expect 22.7 to 22.8 million Active Riders in Q4, up from our prior expectations of 22.3 to 22.4. So this is an increase of 400,000 and implies 22% to 23% year-on-year growth. And again, this is up from our prior guidance of roughly 20%.

Let me move to expenses and first just remind everyone that unless otherwise indicated, all income statement measures that follow are non-GAAP and exclude stock-based compensation and other select items. Now, as I mentioned earlier, we were very successful leveraging costs in Q3 and continue to see evidence of an improving market environment. So let me spend a moment talk you through some of the key line items for the fourth quarter. We previously expected contribution margin to decline by 1 percentage point in Q4 versus Q3. We now expect based on our momentum and success leveraging insurance expense that contribution margin will increase to 52% in Q4. So this is a 3 percentage point improvement from our prior expectations.

Now as I mentioned, to reduce future potential volatility, we are exploring the sale of certain legacy insurance claims. If we consummated sale, the transaction would include fees and expenses of this cash cost would be recorded to cost of revenue for accounting purposes. Given this is non-recurring in nature, if we consummate a transaction in Q4, we expect to normalize the expense and adjusted EBITDA on contribution to make prior periods comparable. So the guidance today, just to be super clear, excludes this potential non-recurring expenses.

Now, our operations and support expense in Q3 was 15% of revenue, which was nearly 2 percentage points better than Q2, despite the investments we're making in areas like bikes and scooters. So looking forward, we anticipate that our focus on cost efficiencies will drive a further reduction in operations and support of the percentage of revenue to 14% in Q4. So this is a 2 percentage point improvement versus our prior guidance of 16%. R&D as a percentage of revenue was better than expected in Q3.

Now, as we invest in our core platform, new strategic growth initiatives in a time [indecipherable] we expect that R&D as a percentage of revenue will increase in Q4. However, we expect that R&D in Q4 will be 15% of revenue, which is much better than our prior guidance. The leverage we drove in sales and marketing in Q3 was -- again, truly exceptional. As I mentioned, the 16% achieved in Q3 did include the benefit brand in Vancouver launch, than that was pushed into Q4. We expect that sales and marketing in Q4 will be approximately 19% of revenue, which includes an extra 1% for Vancouver and rollover brand spend from Q3. This is still 1 percentage point better than our prior guidance despite the fact that we shifted some expenses in Q4. So I think this just speaks to the overall improving market environment. And just for some reference, the expectation of 19% for sales and marketing is versus 33% in the year-ago period. So this is a 40% reduction year-over-year.

Finally, with the investments we're making [indecipherable] our new strategic initiatives as well as for SOX readiness, we continue to anticipate that G&A expense as a percentage of revenue will increase in Q4 relative to Q3. However, we now expect Q4 G&A expense as a percentage of revenue will be 23%. So, better than our prior guidance. For Q4, we expect capex will roughly be 5% of revenue. This is lower than what we previously expected as we now realize seasonality really impacts deployments, and I should also mention that Q3 capex was better than guidance. And then for Q4, we also expect that depreciation and amortization will be approximately 3% of revenue.

So in total, for the fourth quarter, as I mentioned, we anticipate our adjusted EBITDA loss will be in the range of $160 million to $170 million versus $251 million in the year-ago period. This represents an improvement of $75 million to $80 million or 31$to 33% from our prior expectations at the end of last quarter. For the full-year 2019, we now anticipate that our adjusted EBITDA loss will be in the range of $708 million to $718 million versus the prior expectation of $850 million to $875 million. Again it's worth repeating that over the last two quarterly calls, we've increased our expected 2019 adjusted EBITDA loss, we've improved it by $450 million.

So there is obviously a number of moving parts here. Hopefully, we've answered a number of questions to help you build your models. I think to answer your final part of your question in terms of how we bridge to Q4, 2021, there is three things I'd love to call out. I mean, we will achieve profitability. First, it's our focus, we're not doing food, we're not doing trucking, we are 100% focused on our transportation network. We're focused on profitable growth and just driving platform scale to help unlock new use cases, more business travel and these higher value modes.

Second, [indecipherable] hearing a recurring theme is the market is increasingly rational. There is significantly less discounting than a year-ago. If you look at our sales and marketing, it decrease as a percentage of revenue from 41% last year to 16% this year, and we expect that these market conditions will continue as the industry focus is on achieving profitability. And then finally, and most importantly its product innovation that Logan spoke about. We see continued opportunities to improve our products and just unlock new and better experiences for Rider and drivers and just attract new ones.

Doug Anmuth -- JPMorgan -- Analyst

Thank you, Brian.

Operator

Thank you. Our next question comes from Eric Sheridan of UBS. Your line is open.

Eric Sheridan -- UBS -- Analyst

Thanks for taking the question. I think one of the bigger topics we continue to get from investors is sort of on the regulatory front. Can we just get an update of your view sort of the developments as we've gone through this year in New York and the California and how you're sort of addressing those developments head-on both in terms of your approaches to adopting the regulation, and how you might be morphing supply or pricing or reactions to regulation in a couple of those key marketplaces, just so we could level set there. Thanks so much.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Thanks, Eric. This is John. So, as a reminder drivers on our platform have control over when and how they work and this is what they value most. Lyft drivers, about 91% drive less than 20 hours per week and 76% drive less than 10 hours per week. So kind of a lot of the recent conversation in California has been around how can we update decades on labor laws to create a new model that protects this flexibility that drivers want while providing additional benefits and protections. And so that is the focus. We're proud this week, we presented a new initiative that we're excited about that offers a progressive framework that includes a minimum earnings guarantee, a healthcare stipend, occupational accident insurance, and additional protections around discrimination and sexual harassment while allowing drivers to maintain their independence.

And so, I think just like we saw at the beginning, since our founding, we had to create solutions for regulation. So, going back several years, seven years ago, there wasn't a regulatory category for ridesharing, and our team has been extremely successful, it's now currently led by former Transportation Secretary, Anthony Foxx at creating these new ways of operating. And I expect that we're going to be able to do the same. So in that kind of middle period where people are trying to find out what the best model is for the future of this new type of work, we have a new model that we've put out in this initiative that we've done pulling out and we're confident about how that will perform. And then we expect that this model could be taken to other cities and it's a model that works well for our business, well for our drivers and well for our riders.

Eric Sheridan -- UBS -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Stephen Ju of Credit Suisse. Your line is open.

Stephen Ju -- Credit Suisse -- Analyst

Thank you. So it seems like within the last few quarters from the outside looking in offering Lyft to the business clientele has gone from something that felt more adhoc with universities to a more formal enterprise sales process targeting more vertical. So in that $25 billion in potential bookings that you're talking about that's like two actual your current run rate. So, can you talk about how long the sales cycles are and what percent of your rides this can be over the longer term? Thanks.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Thank you. This is John again. So one, as Brian mentioned previously, we don't break out the performance of this Lyft Business. But we can say that we expect growth to continue to outpace the overall business within these verticals. So, we have really strong momentum as you mentioned in corporate travel and healthcare and universities. There is a certified SpendSmart report, which tracks employee travel and expenses and we recently became the third most expensed vendor, up from five earlier in the year and nearly even with Starbucks, which was number two. And so, we're seeing great traction. As I mentioned, we reduced sales cycle with improved features. Sales cycles will range depending on the type of vertical. So healthcare partnership would likely take longer than a company, but those off in lock in large amounts of spend because we have often exclusive relationships with healthcare brokers. So we've really developed our footing in that space, and now we're seeing our ability to capitalize as regulations change to allow ridesharing to support non-emergency medical transportation.

Operator

Our next question comes from Mark Mahaney of RBC Capital Markets. Your question please.

Mark Mahaney -- RBC Capital Markets -- Analyst

Thanks John, that's a great little data point about being close to Starbucks. I'm surprised by that sounds very positive. I want to ask you about two things, one, insurance, I know you've talked about this a little bit before, but just talk about the long-term ability to get leverage against that. And then if you haven't talked about pricing the way you're thinking about pricing now as one of the tools to get to that profitability goal long-term? Thank you.

Brian Keith Roberts -- Chief Financial Officer

Sure. So, this is Brian. So let me start with the insurance question. I mean, this year we have been investing in our risk solutions team, and we're leveraging their technical skills and experience that just make better operational and product changes really informed by billions of miles of data to reduce the frequency of accidents on the Lyft platform. So, as I mentioned, we now expect the cost of insurance required for ridesharing will be lower in the fourth quarter than the third quarter and it's one of the key reasons why we are now increasing our contribution margin targets of 52%, which is up 3 percentage points from our prior guidance.

Let me just give you a couple of examples and then I'll move to your pricing question. We are increasing investments in proprietary telematics to monitor driving behavior like speeding and hard braking and just other driving habits that indicate riskier behavior. It's obvious, safety is just so important to us and just the overall Lyft community. We're also investing in predictive analytics to mitigate fraudulent claims and we're doing a great job partnering with the fraud specialist team at Travelers. We've avoided a significant amount of fraudulent losses this year, thanks to the excellent work by travelers, whose collaborating with our own internal team. And then finally, as I mentioned, looking forward, beginning on October 1, we added progressive and State Farm as partners who will share insurance risk in key states in addition to our own existing successful partnership.

So we expect our insurance partner scale and world-class processes will help us further reduce our insurance costs, risk exposure and volatility. And again, as I mentioned, Q3, the cost of ridesharing insurance as a percentage of revenue was lower in Q3 versus Q2, and Q4 we expect to be lower than Q3. So we're making a lot of progress. We are very excited on the risk solutions for us. We still think we have a lot of wood to chop. In terms of your question in terms of longer-term profitability, again in terms of how we would achieve that milestone again, it's our focus. Again, we're not food, we're not doing trucking, we're just focused on building the best transportation network there is.

There is this increasing rationality in the market. And so, we see a lower coupon incidents today than we did a year-ago. And so more people are paying full price for rides. And then again, it's just about product innovation. So Logan mentioned Shared Saver. This is a mode we launched earlier this year. Already, we've generated over $10 million Shared Saver rides this year. So it's a really part where we create these new modes. It just creates huge levers for growth.

Mark Mahaney -- RBC Capital Markets -- Analyst

Okay. Thank you, Brian.

Operator

Thank you. Our next question comes from Benjamin Black of Evercore ISI. Your question please.

Benjamin Black -- Evercore ISI -- Analyst

Thanks for the question, guys. So, you spoke about the matching algorithm improvements. I'm just curious how these improvement impacted the shared rides trip growth, which [indecipherable] are we in, in terms of the rollout of new shared products, also your ability to the segment users and how would the mix shift to shared rides most meaningfully impact the model. And then secondly, perhaps quickly on engagement, wondering, if you could shed some light on the engagement trends you had on the rideshare platform. I think last quarter you mentioned that rides grew faster than Active Riders, just curious to get an update there.

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

Yes, this is Logan. On the shared rides in the matching platform. We rolled out -- we've been working on the matching platform for over a year, we started to rolling that out at the beginning of this year. And the Shared Saver product is built on top of that. We talked a little bit earlier on about some improvements we're looking at making and for classic private rides as well. So, I think we're still early in terms of the amount of kind of iteration and benefit that we can harvest out of this platform and that it's going to unlock a lot of continued future growth. And we just keep getting better and better each time we takes a 1,000 experiments to figure out the right combinations and the velocity of tests and changes and improvements I think is moving at a very good clip. So we're happy with where we've come, but I would expect a lot of continued value to come out of that.

Brian Keith Roberts -- Chief Financial Officer

And this is Brian, let me address part two of your question. As you know, we don't report rides given we're focused on revenue which ultimately drives our P&L. But I would say we are holding right frequency at a good level despite both the price adjustments and the large reduction in coupons, which led to the record low 16% of sales and marketing as a percentage of revenue. If you're looking at third-party data, keep in mind, it can be noisy, but be -- keep in mind that you're really comparing periods before and after heavy discounting. So if you stop heavy discounts and still you lap them unit growth will be impacted and not only our coupons down significantly as a percentage of revenue year-over-year, but the average prices are also higher year-over-year normalized for mix shift.

Benjamin Black -- Evercore ISI -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Heath Terry of Goldman Sachs. Your line is open.

Heath Terry -- Goldman Sachs -- Analyst

Great, thank you. I did just want to clarify one thing on the comments around regulation earlier. Logan, we did take the comment about your drivers and the amount of time that they work as being sort of similar to what Uber had said that you do not intend to apply AB5 to your drivers when it goes into effect in 2020.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Hi, this is John, it was me that commented on the AB5. And the new legislation I think to be clear, the new legislation AB5 codifies and extends the ABC test for contractor classification. That was in effect already since April of last year. And so, again, that's codifying a Supreme Court decision from a year and a half ago. We are focused on operating as we are and running the ballot initiative that I mentioned previously. The ballot initiative that we just announced has more than $90 million behind it and would be the country's first protections and benefits for independent contractors while preserving the ability to control when and where they drive. So that is a focus over the next several months.

Heath Terry -- Goldman Sachs -- Analyst

Okay, great. And then on -- as we look at the growth in the third quarter, can you help us sort of disaggregate what part pricing played in the growth in revenue in the quarter to the extent that you've been able to leverage pricing toward profitability, toward better pay for drivers, what impact that's had on overall growth, and in that process, what you've learned about sort of overall elasticity of demand within the broader ride hailing ecosystem?

Brian Keith Roberts -- Chief Financial Officer

Sure, this is Brian. I mean, Q3 was exceptionally strong. I think again it was a great demonstration quarter in terms of just the leverage of our platform and the growing rationality in the market. I think it also just shows the impact of our innovation and focus on profitable growth. We are constantly innovating to deliver the right product to the right customer at the right time and these new products just -- and features attract new users and just increased activity by existing ones. And so, in terms of how this translates into our financial results, as you know, we have two revenue growth drivers? Both the number of Active Riders and revenue per Active Rider exceeded expectations and I just want to call, it's really important to evaluate both Active Riders and revenue per Active Rider together.

So it is much easier to grow lower value riders, conversely, is harder to grow higher value riders who generate more revenue per rides, I think business travelers. So we are pleased that we exceeded both expectations of these drivers. Active Riders again grew 28% year-on-year, we'd expected $22 million. So we are thrilled to grow Active Riders by $500,000 in Q3 $22.3 million, especially as we focus on driving improved monetization at attracting more valuable riders. And then revenue per Active Rider grew to $42.82, up 27% year-on-year, which was an acceleration from the 22% growth in Q2, and ahead of expectations. So as you mentioned, in addition to the June targeted price adjustments, we also continue to improve our pricing algorithms, we gained more favorable mix shift toward these higher value rides and modes that John spoke about and we launched even more efficient and effective driver incentives. So overall, this is what helped us hit the 63% revenue growth, up from our 55% expectations.

Heath Terry -- Goldman Sachs -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from Lloyd Walmsley of Deutsche Bank. Your line is open.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thanks, two questions if I can. First, can you just talk about kind of how the marketplace looks in terms of supply of drivers and whether you're at in place where you can kind of increasingly become more selective about onboarding, either drivers or car types, whether you need to continue to invest in things like the Express Drive program, things like that. And then secondly, on seasonality, you talked about bikes and scooters obviously get lowers whether it comes comes colder, but can you give us a sense for how that impacts kind of rides and revenue in 4Q. And then as we have a shorter holiday period, in terms of days between Thanksgiving and Christmas, is that something that we should think about as impacting consumer use of rideshare. Any color you could share there would be great.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Sure, thanks for the question. This is John. I'll start with the supply question about drivers. We've gone a long way from that kind of days a year or two years ago when we were limited in our growth by the need to acquire more drivers. Now we can be more selective as you mentioned, and we do have markets where we have already limited the car type, where we can do additional screening upfront and also create limiters on the number of drivers that can get on the platform so that we don't have onboarding costs and so that drivers can earn more money and retain better on the platform. So we're in a healthy position as it comes to driver supply. You've also mentioned Express Drive. We still believe that it makes sense to invest in Express Drive. It's important capability to be able to manage our fleet of vehicles. And there are -- we have reason to believe we can operate a profitable business with Express Drive as a stand-alone as well into the future.

Brian Keith Roberts -- Chief Financial Officer

Sure. And this is Brian. Let me talk a little bit about seasonality. So, we beat be Q3 by 5% and we're raising guidance by 5%. So this translates into a jump in our expected Q4 revenue growth rate. We are now increasing our guidance for Q4 revenue growth to 46%, 47% year-on-year, up from our prior guidance of 38% to 41%. Now, in terms of seasonality, Q4 has seasonal headwinds that impact our sequential growth rate. And it's not new news. It was in our prior guidance and so let me just share some additional context to remind folks. Weather will impact usage of our shared bikes and scooters. We could -- we expect that there could be up to a $10 million reduction in revenue related to bikes and scooters between Q3 and Q4. So this is reflected in our guidance. And for ridesharing, the second half of December is uniquely slow for ridesharing. And then as you pointed out, this is a very strange seasonal set up. Thanksgiving is unusually late this year. And what that does for us is eliminates a super valuable week from the holiday party season. So normally there's three weeks of holiday parties, this year it's getting compressed to two weeks.

Operator

Thank you. Our next question comes from Justin Patterson of Raymond James. Your line is open.

Justin Patterson -- Raymond James -- Analyst

Great, thank you very much. How important our partnerships as a customer acquisition vehicle going forward, it seems like the industry is increasingly shifting away from couponing and more toward business partnerships as a way of getting high-value users more efficiently.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Thanks for the question. Yes, I think it is important, but doing it in a way that is not just another coupon is obviously where we're going. So what we've done on healthcare where we've formed exclusive partnerships with brokers that are ranging transportation for patients that those are the smart type of partnerships that you will see us continue to do.

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

Yes, this is Logan. I'll just add that a lot of the leverage you've seen in sales and marketing is also attributed to the fact that most of our new user acquisition comes from organic. So partnerships are an important piece, but new user adoption is primarily driven by word of mouth and brand awareness.

Operator

Thank you. We'll take our last question from Ron Josey of JMP Securities. Your line is open.

Ron Josey -- JMP Securities -- Analyst

Great, thanks for taking the call. Maybe just quickly, Logan, you talked about some of the benefits and increase engagement rates from the redesign app launched recently. Can you just talk about what changes specifically might be leading that increased engagement. I know you talked about all modes being included there, but anything else that might have led to that increased engagement would be helpful to know. Thank you.

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

Yes, we are very excited to launch the redesign experience and really kind of start to bring to life this multimodal transportation as a service experience. And part of it is with the tabs at the bottom here one click away from sort of an optimized version of whatever mode you're using. So if it's transit you click in and you see power transit user. It doesn't want to bother entering their destination, they're standing out there, they know the bus stop as or where the train is they just want to see when that train is coming. And we now surface that data with just a single tab.

And similarly on bikes and scooters, you don't necessarily want to enter your destination. The experience can be a little more frictionless when you just see, OK, where is the closest spike. Get me there and let me unlock it. So, I think it's really about removing friction between using any of these different modes and making it really easy to compare time and money to pick the best one. I'll just take one other small piece is the new design works a lot better on smaller devices. So sort of prior design I think ate up too much of the screen as we sort of had the nearby experience surfaced. And so the new design is better accommodate smaller screens. So I think it is the collection of those things that really drove the increased engagement across the board.

Ron Josey -- JMP Securities -- Analyst

Super helpful. Thank you.

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

All right. Well, thanks for all the great questions and thanks for joining our call today. We will talk to everybody next quarter. Thank you.

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Catherine Buan -- VP of IR

Logan D. Green -- Co-Founder, Chief Executive Officer & Director

John Patrick Zimmer -- Co-Founder, President & Vice Chairman

Brian Keith Roberts -- Chief Financial Officer

Deepak Mathivanan -- Barclays -- Analyst

Brent Thill -- Jefferies -- Analyst

Doug Anmuth -- JPMorgan -- Analyst

Eric Sheridan -- UBS -- Analyst

Stephen Ju -- Credit Suisse -- Analyst

Mark Mahaney -- RBC Capital Markets -- Analyst

Benjamin Black -- Evercore ISI -- Analyst

Heath Terry -- Goldman Sachs -- Analyst

Lloyd Walmsley -- Deutsche Bank -- Analyst

Justin Patterson -- Raymond James -- Analyst

Ron Josey -- JMP Securities -- Analyst

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