Lyft, Inc. (LYFT) Q1 2021 Earnings Call Transcript

Lyft, Inc.  (NASDAQ: LYFT) Q1 2021 earnings call dated May. 04, 2021

Corporate Participants:

Sonya Banerjee — Head of Investor Relations

Logan Green — Chief Executive Officer, Co-Founder and Director

Brian Roberts — Chief Financial Officer

John Zimmer — President, Co-Founder and Vice Chair

Analysts:

Doug Anmuth — J.P. Morgan — Analyst

Stephen Ju — Credit Suisse — Analyst

Alex Potter — Piper Sandler — Analyst

Mark Mahaney — Evercore ISI — Analyst

Brent Thill — Jefferies — Analyst

Edward Yruma — KeyBanc Capital Markets — Analyst

Itay Michaeli — Citigroup — Analyst

Presentation:

Operator

Good afternoon and welcome to the Lyft First Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Sonya Banerjee, Head of Investor Relations. You may begin.

Sonya Banerjee — Head of Investor Relations

Thank you. Good afternoon and welcome to the Lyft earnings call for the quarter ended March 31, 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. These include 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, as well as our definitive agreement to sell our Level 5 self-driving unit and our agreement to reinsure our captive insurance subsidiary for certain liabilities. 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-K for the full year 2020 filed on March 1, 2021 and in our Form 10-Q for the first quarter of 2021, will be filed by May 10, 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?

Logan Green — Chief Executive Officer, Co-Founder and Director

Thanks, Sonya. Good afternoon everyone and thank you for joining our call today. Though rideshare recovery continued in Q1, we exceeded our outlook across revenue, contribution margin, and adjusted EBITDA. The improvements we’ve made over the last year are paying off. We’ve built a much stronger business and as the recovery continues, we’re confident we’ll be able to deliver strong organic growth and adjusted EBITDA improvements. We expect to build a significantly larger company by attacking the trillion dollar plus market opportunity in front of us.

Turning to our financial results. Average daily ride volume grew each month, with March showing the steepest recovery. Revenue for the first quarter grew 7% sequentially and outperformed the high end of the outlook range. Recall that in early February, we said that Q1 revenue may decline by 3% to 4% quarter-over-quarter. Active Riders increased by over 940,000 from Q4, representing 8% sequential growth as we welcomed back riders and increased rider activations in Q1. The rollout of vaccines and reduced pandemic-related restrictions helped support greater demand for our network as the quarter progressed.

However, stronger rider demand began to outpace driver supply at the end of February. This has been an industry-wide dynamic. Brian and John will speak to the issue in detail. But we are focused on increasing driver supply and achieving a better balance in our marketplace for Q2 and beyond.

Let me turn to April. Rideshare rides declined month over month due to typical seasonality and the impact of the holidays. However, on a year-over-year basis, rides grew by more than 100% as we lapped the pandemic trough. It’s worth noting that in early April, the CDC significantly reduced testing and quarantining requirements for fully vaccinated domestic travelers, which may have provided a boost in terms of airport rides. Average daily airport rides were up more than 65% in April relative to January.

Although people have started moving again, we expect there is still much more to come. We continue to believe that there is significant pent-up demand for mobility that will take time to play out. Over the last year, rider demand has been limited by how safe people felt going out and where they were able to go. As the vaccine rollout continues, warmer weather takes hold, and pandemic-related restrictions are eased, we anticipate more people wanting to go out and get together more often. And we’re working hard to get riders where they need to go.

We believe we are well-positioned for the rebound with our focused transportation network. Let me spend a few minutes talking about what this means and why it matters. To start, the transportation market opportunity is substantial and we see a long runway in front of us. In the U.S. alone, personal transportation is the second largest category of consumer spending behind housing. It exceeds $1 trillion annually. Transportation captures more of the consumer wallet than food, healthcare, education or entertainment. And car ownership, in particular, is expensive, inefficient and inconvenient in many ways.

We firmly believe that the future of transportation is as a service; one that offers the appeal of more flexibility at a lower cost than traditional car ownership. John and I have been building towards this transition for over a decade. We deeply understand the market opportunity and I’m confident that the differentiation in Lyft’s approach will be more and more apparent over the next few years.

Today, we are the only transportation network in North America, focused on a full set of integrated services across rideshare, car rentals, bikes, scooters, transit and vehicle service centers. We seek to deliver the best holistic experience to users by integrating the currently fragmented transportation ecosystem through a mix of great technology and operations.

When a rider opens the Lyft app, they know what to expect; seamless access to the wide range of transportation options available through our network. This is by design. We work hard to give people an incredibly simple experience with access to a ride at the tap of a button. But there’s a lot going on beneath the surface. For rideshare in particular, our transportation network takes into account a multitude of factors in real time across demand, supply, our marketplace and our platform.

Drilling a level deeper, when rides are requested, our systems dynamically price, dispatch and route riders to their destination at scale and nearly instantaneously. And we’re able to do this in a way that maximizes returns by taking into account complex inputs, a conversion rate and unit economics. Much of this is proprietary IP that is not easily replicated. Our systems are underpinned by the accumulated learnings from the billions of rides we facilitated with tens of millions of riders over nearly a decade.

[Technical Issues] to acquire our Level 5 self-driving division. This is strategically the right move at the right time. When we opened our Level 5 engineering center in 2017, the main goal was to make sure we’d have access to affordable and reliable autonomous technology. At that time, it wasn’t certain that there would be multiple well-funded autonomous vehicle programs. In just four years, we’ve built a world-class team and made remarkable progress developing a leading autonomous driving system.

Level 5’s differentiated approach to advancing autonomy, leaning in on simulations, state-of-the-art machine learning techniques and data collected from vehicles at large scale, helped speed up the development process and drove step changes in terms of capability. The team’s rapid progress and industry-leading positioning are reflected in the California DMVs most recent disengagement reports.

The market for AV technology has grown meaningfully since we first launched Level 5. This means we now don’t need to develop the technology ourselves to ensure we have access to a competitive market of providers and that we achieve our vision of integrating autonomous vehicles into our network. The Level 5 transaction will further strengthen our financial position and enable us to continue to focus on the unique value of Lyft’s network.

Going forward, we are doubling down on our industry-leading Lyft Autonomous Platform, previously called Open Platform, to deploy and scale AVs with partners on our network. This team will continue to focus on the autonomous user experience, marketplace and fleet management services that ensure Lyft riders have access to the safest, most advanced autonomous technology on the market and that our AV partners have access to the full power of Lyft’s transportation network.

John will talk more about our AV strategy and provide a few business updates. But before he does, I’ll turn the call over to Brian to review our financial performance and provide details on our path to profitability.

Brian Roberts — Chief Financial Officer

Thanks, Logan, and good afternoon, everyone. In the first quarter, while average daily ride volume grew each month, March showed the steepest growth inflection. Demand outstripped supply, which led to elevated prices for ridesharing. Based on third-party data, this dynamic appear to be industry-wide and it led to record earnings for drivers in most U.S. cities. We’ve been increasing investments to grow driver supply. This includes onboarding new drivers and welcoming back drivers who may have stopped driving during the pandemic.

Now, while driver incentives significantly increased, we had an extremely strong quarter. So let me explain how. First, the industry appears to have been generally rational in the design and structure of driver supply investments. Second, riders have been relatively less sensitive to the price increases triggered by the higher demand, especially since they were industry-wide. While conversion decreased, ride volume grew and the pricing surplus from the elevated demand helped offset driver supply investments. Rideshare revenue per ride increased even net of driver incentives in Q1, given certain costs are fixed or relatively fixed per ride. This drove increased contribution in contribution margin, especially in March, again while drivers enjoyed record earnings.

Finally, given the strong organic demand, we reduced marketing spend. Non-GAAP sales and marketing declined 15% quarter-over-quarter and reached an all-time low as a percentage of revenue. The net impact of these market conditions and business decisions led to an exceptionally strong quarter and enabled us to greatly exceed our outlook across revenue, contribution margin and adjusted EBITDA. While many factors in Q1 were unique and are not expected to recur to the same magnitude, we are optimistic about our ability to further reduce our adjusted EBITDA loss in the second quarter. I’ll share more thoughts shortly on Q2.

But, let’s start with a detailed review of the first quarter and begin with top-line metrics. In Q1, the number of Active Riders increased by 942,000 quarter-over-quarter to 13.5 million. As the economy began to reopen in select geographies, we benefited from a return of riders from prior quarters, as well as new rider activations, especially in March. Revenue per Active Rider declined by $0.27 quarter-over-quarter to $45.13. March was the strongest month in the first quarter for new rider activations. Remember, additions to our rider count near the end of any quarter are normally dilutive to revenue per Active Rider since there is only limited time for these new riders to help generate revenue.

The combination of these trends, especially the nearly 1 million incremental Active Riders, led to a $39 million quarterly sequential increase in first quarter revenue to $609 million. Q1 revenue was nearly $60 million above the midpoint of our revenue outlook of $545 million to $555 million.

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 is available on our Investor Relations website and may be found in our earnings release, which was furnished with our Form 8-K filed today with the SEC.

Let me remind everyone that elevated rideshare revenue per ride in the first quarter had a beneficial impact on profitability metrics, including contribution — contribution margin, and adjusted EBITDA. Contribution margin in the first quarter was 55.4%, which far exceeded our original outlook of 51% to 51.5%. The outperformance on revenue and contribution margin, relative to our original outlook, helped drive strong Q1 contribution of $337 million. We exceeded the midpoint of our original contribution outlook by $55 million or 20%. As a reminder, contribution excludes changes to the liabilities for insurance required by regulatory agencies attributable to historical periods.

In the first quarter, there was $128 million of adverse development, which we attribute to the continued impact of COVID on legacy insurance liabilities, more specifically the severity of claims from our legacy book as injury cost continued to climb.

On April 22, we executed an agreement to reinsure our captive insurance entity for $183 million of coverage above the insurance liabilities recorded as of March 31, 2021 for policies underwritten during the period of October 1, 2018 to October 1, 2020. We expect the transaction to close in mid-May. The net cost of this transaction will be approximately $20 million. Unlike when we did the Novation Agreement last year, the legacy insurance liabilities will remain on our balance sheet after the transaction closes, but we’ll recognize an offsetting reinsurance recoverable.

From an economic perspective, when the claims we are reinsuring are ultimately resolved, to the extent the ultimate value exceeds the liabilities as of March 31, 2021, Lyft will receive dollar for dollar coverage for up to $183 million. To the extent the ultimate insurance liability is below the March 31, 2021 balance sheet, the benefit will accrue to the reinsurer. No unrestricted cash will be used for the transaction. We will exclude the net cost of the reinsurance transaction from Q2 adjusted EBITDA. As part of our go-forward auto insurance strategy, we will continue to seek opportunities to transfer additional risk to partners to help reduce future volatility.

Let’s move to operating expenses. Operations and support expense for Q1 was $83 million, down 35% year-over-year. Operations and support expense, as a percentage of revenue, declined to 13.7% in Q1, down from 16.4% in Q4. Q1 R&D expense was $132 million, a slight increase from Q4 as we funded growth initiatives. As a percentage of revenue, R&D expense declined to 21.7% in Q1, down from 22.8% in Q4.

As I mentioned, given the strong organic demand, we reduced sales and marketing in Q1. Sales and marketing was only $69.5 million in Q1, down by over $120 million or 64% from $191 million in Q1 of 2020. Q1 sales and marketing declined by 15% or $12 million quarter-over-quarter. As a percentage of revenue, sales and marketing reached an all-time low of 11.4%. Within sales and marketing, incentives declined by 87% in Q1 on a year-over-year basis from $100 million to $13 million or just 2.2% of revenue.

G&A expense in Q1 was $156 million, down 17% from the year ago period. Relative to Q4, G&A expense declined by $36 million or 19%, driven by a decline in policy spend. Remember policy spend was elevated in Q3 and Q4 of last year related to Prop 22. In Q2, we expect G&A expense to increase in absolute dollars but decrease as a percentage of revenue.

In summary, total operating expenses below cost of revenue declined by $56 million between Q4 and Q1 representing an 11% quarter-on-quarter reduction. On a year-over-year basis, operating expenses below cost of revenue decreased by $220 million in the first quarter. In terms of the bottom line, our Q1 adjusted EBITDA loss of $73 million was 46% or $62 million better than our latest loss outlook of $135 million. On a sequential basis, our adjusted EBITDA loss improved by $77 million; meaning for each dollar of incremental revenue growth between Q4 and Q1, our adjusted EBITDA loss improved by $0.197 [Phonetic]. In fact, the adjusted EBITDA loss in Q1 was the smallest since going public and bolsters our confidence that we can achieve adjusted EBITDA profitability in Q3.

We ended the quarter with unrestricted cash, cash equivalents and short-term investments of $2.2 billion, down just $14 million from the end of Q4. We again were disciplined on capex, which came in at $11 million.

Now, looking forward, while we are optimistic about the potential economic recovery in our operating footprint, given the current fluidity associated with COVID-related government orders and healthcare recommendations, as well as the variability in vaccination rates and re-openings among cities, it is impossible for us to predict our results for the second quarter with any certainty.

However, let me share what I can. In April, rideshare rides showed strong growth on a year-over-year basis as we lapped the COVID trough. But April ride volume declined month over month, given seasonality and the impact of higher prices. However, from a revenue standpoint, the elevated pricing in April contributed to increased revenue per ride relative to Q1 and helped to offset the negative sequential ride growth, and similar to Q1, we are using the surplus from the elevated pricing to fund additional driver supply investments to better balance the marketplace.

We are hopeful that as the vaccine rollout continues, we will attract more new drivers and welcome back drivers who may have stopped driving during COVID. And as driver supply increases, we expect to see improving rideshare ride growth in May and June versus April.

In terms of our informal outlook, which is subject to change, given the uncertainty with COVID, we expect Q2 revenue of between $680 million and $700 million. This would represent growth of between 100% to 106% year-over-year as we lap the bottom of COVID. This implies revenue growth of 12% to 15% quarter-on-quarter, which is an acceleration from the 7% realized in Q1. Again, this outlook assumes we see improved sequential monthly rideshare ride growth in May and June. It also assumes revenue from bikes and scooters doubles quarter-over-quarter, given seasonality.

We expect Q2 contribution margin will be between approximately 56.5% and 57.5% as ride volume grows and we benefit from increased utilization across bikes, scooters and car rentals. The high end of this outlook represents an all-time high contribution margin. For each dollar of incremental revenue growth in Q2, we expect contribution to increase by approximately $0.70. Finally, we expect that we can limit our Q2 adjusted EBITDA loss to between $35 million and $45 million. This outlook assumes the operating environment improves in May and June relative to April, given the continued rollout of vaccines. The loss outlook for Q2 still includes approximately $25 million of net expenses related to our Level 5 self-driving program. These expenses will be eliminated when the transaction with Toyota’s Woven Planet closes, which is expected in Q3.

Let me provide an update on our path to profitability and I want to start with some historical context. Last August, after implementing a major business restructuring, we announced that we could be adjusted EBITDA profitable with rideshare ride volume only 5% to 10% above the level achieved in Q4 of 2019. And just to remind everyone, in Q4 of 2019, we lost $131 million of adjusted EBITDA. Given the additional cost reductions in Q4, just three months ago, we shared that we could be adjusted EBITDA profitable with rideshare ride volume 15% to 20% below the level in Q4 of 2019.

Last week, we announced that with the sale of Level 5 and the associated cost savings, we are confident that we can achieve adjusted EBITDA profitability with rideshare ride volume 33% below the level achieved in Q4 of 2019. And today, we shared our Q2 adjusted EBITDA outlook, which implies continued progress towards breakeven. While we do not expect the current elevated pricing environment or the increased revenue per ride to persist in Q3, given the higher volume of rides expected in the second half of 2021, we have strong conviction in our ability to achieve adjusted EBITDA profitability in Q3, especially with the $25 million of quarterly net expense savings from the pending sale of Level 5. Finally, once we become adjusted EBITDA profitable, we expect to remain so, even as we reinvest in future growth opportunities and TAM expansion.

So in closing, I want to emphasize three key points. First, we’ve built a much better business over the last year and we expect to deliver strong financial results as we progress through the recovery. In Q1, we narrowed our adjusted EBITDA loss to the lowest level since going public, even with revenue down 36% year-over-year. And we anticipate further progress in Q2, and then in Q3 we expect to achieve adjusted EBITDA profitability. Ultimately, we expect Lyft will emerge on the other side of the pandemic, structurally more profitable per ride than we were going in.

Second, we are well-positioned to generate strong organic revenue growth as a transportation-focused pure play. We have a TAM in excess of $1 trillion, which provides a long growth runway. As Logan shared, we expect to build a significantly larger company as we attack the market opportunity in front of us. We expect recovery tailwinds to drive compelling growth over the coming quarters, fueled by the long-term secular and structural trends that have underpinned our growth from day one. Further, as John will share in more detail, we are in a unique strategic position to capture significant benefits from the commercialization of AVs. This is a key way we will serve even more of our $1 trillion-plus TAM.

Finally, we are continuing to invest in growth initiatives to build on our core competencies and monetize assets that are part of or underpin the Lyft ecosystem. These strategic investments are expected to increase our already substantial TAM and contribute to our long-term free cash flow growth. They are also guided by our financial North Star; 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 a few key updates on the business and our strategy.

John Zimmer — President, Co-Founder and Vice Chair

Thanks, Brian. We’ve built a much stronger business. 2020 was a reset, and we are now leaner, more efficient and even more focused on the big market opportunity in front of us. I’m going to build on Logan’s earlier comments about autonomous vehicles. Most importantly, it is clear to us that the best way to commercialize AVs will be through an existing transportation network. We are already leading the industry in terms of paid AV rides and partnerships. And with our focus on Lyft Autonomous, we are uniquely positioned to win the AV transition.

This is based on three distinct elements: one, our hybrid network; two, our marketplace engine; and three, our capabilities in fleet management. I’d like to touch on each point. Our hybrid network brings together the combination of human drivers and autonomous vehicles to unlock the highest utilization and always-available rides. Our marketplace engine drives the highest revenue per mile with real-time demand prediction, vehicle positioning, routing and pricing. And last, our tech for managing fleets and our operations deliver the lowest cost per mile.

Collectively, these foundational pillars will allow us to create the most value for our riders by driving the highest revenue and lowest cost per mile for each autonomous vehicle. Additionally, unlike competitors and highlighted by our Level 5 transaction, Lyft is aligned with our AV partners. We will not have significant ownership in a competing AV program and we are focused on being a trusted partner that can be relied on to improve their success.

Switching gears, let me talk about what we’re doing to position ourselves to deliver strong growth throughout the recovery. Demand is improving rapidly. So I’m going to focus my remarks on what we are doing to bring balance to the marketplace with supply. We expect to see organic tailwinds to driver supply in the coming months for several reasons.

To start, in many markets, average hourly driver earnings have been up meaningfully relative to pre-COVID levels. In some markets, they’ve been at all-time highs. During the month of April, drivers in our top 25 markets were earning more than $30 per hour on average, which is up more than 85% relative to pre-COVID. In some of our busiest markets, drivers have been earning around $35 per hour on average. We believe more drivers may return to the platform or sign up to drive for the first time based on these dynamics.

Second, we believe that individuals who have been doing other forms of app-based work over the last years will transition to rideshare. Take food delivery for example. While exact comparisons are difficult, historically, studies have shown that rideshare represents a higher earnings opportunity than food delivery. Rideshare also offers a fundamentally different experience with social interactions that are largely absent from food delivery. This is important. After a year of social distancing, drivers are telling us they crave these in-person conversations. They miss the camaraderie and meaningful interactions they have while using Lyft and we believe this brand preference bolsters our competitive positioning.

Third, as pandemic conditions continue to improve and health safety concern abate, we see more drivers feeling more comfortable getting back behind the wheel. As the vaccine rollout continues, driver availability should naturally improve. While we expect to invest in incentives to improve supply, we are also leaning into the driver experience. We are focused on making sure driving with Lyft is as easy and rewarding as possible whether a driver is returning to the platform or opening the app for the first time. This includes proactively flagging potential roadblocks like the need for a vehicle inspection to qualify for the platform. We are also continuing to enhance the app to help drivers more easily identify opportunities to maximize earnings.

The bottom line is, we’ve seen versions of the supply demand imbalance play out multiple times in our history and we are confident in how we’ll steer our marketplace back to balance.

I also want to take a moment to address the regulatory backdrop. Over the last several months, we’ve had productive conversations with policymakers at every level. We continue to believe the win on Prop 22 in California, passed by nearly 10 million voters across the political spectrum, has shifted the policy conversation towards protecting independents, while also providing important benefits drivers want. We remain ready to work with policymakers, labor leaders and all interested parties who want to move forward and build a stronger safety net for app-based workers. I look forward to sharing more progress on these efforts in the months to come.

Before we move to Q&A, I want to provide a quick update on the work we are doing to help communities get back on their feet. In Q1, we officially launched our vaccine access program, a partnership campaign that is focused on ensuring that every American who needs to get to a vaccination appointment has a way to get there. Since the program’s inception, we’ve established more than 100 partnerships and we are actively facilitating access to rides nationwide.

With that, operator, we’ll now open it up to questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] We have your first question from Doug Anmuth with J.P. Morgan. Your line is open.

Doug Anmuth — J.P. Morgan — Analyst

Great, thank you. I just wanted to follow up on some of the driver supply comments, in particular, just trying to understand with April with the month over month decline. Just how to think about the driver supply dynamics relative to seasonality and anything else that was going on in the month there. And then how you envision any kind of thought just on timing for when supply will kind of normalize and you’ll get back to equilibrium? Thanks.

Logan Green — Chief Executive Officer, Co-Founder and Director

Yeah, this is Logan. I’ll weigh in on a couple of things and then turn it over to Brian. In terms of how we see this developing, we think that in Q3 and beyond, we’ll start to see some — a few trends that should give us real tailwinds on the driver side. One is just as more and more drivers are getting their second dose and feeling safer driving and as overall case rates come down, I think that’s really going to change a lot of the kind of feelings of health and safety around driving.

Two is, the federal unemployment benefits are sunsetting in Q3. And that’s clearly been having an impact, I think, on the whole ridesharing industry, but on the broader economy beyond ridesharing. So I think there will be a change we expect to see there.

And the third, nobody knows exactly what the delivery market will look like. But if delivery does slow down as the economy reopens, then we would expect to see a number of delivery drivers move back to ridesharing. And it’s hard to get kind of perfect data on this, but there have been some studies that have shown that historically ridesharing pays substantially more than delivery. So we think that, that could provide a tailwind.

So we don’t know exactly what the timing looks like, but we expect Q3 to be a kind of notable timeframe where this changes. Brian, do you want to cover some of the driver incentive piece?

Brian Roberts — Chief Financial Officer

Sure, absolutely. And maybe, Doug, just to take it at the top, I think in terms of April, I mean, demand was there, it was just prices were elevated and I just want to sort walk through — and I want to actually provide more details around the amount of driver incentives and just how this all impacts the P&L. I mean, relative to our initial outlook, we invested significantly more. But again, our outlook was made assuming there wouldn’t be this near term rapid demand acceleration. And as you can tell, despite the increase, our Q1 financial results significantly exceeded our outlook for revenue, for contribution margin, and adjusted EBITDA.

So the elevated pricing that Logan was referencing relates to primetime. And again it’s — there is plenty of third-party data that show that this is industry-wide and when primetime increases, let’s just say we collect then an extra $4 on a ride, say we invest $3 of that then into a driver incentive. All of the driver incentives will show up in our disclosure line item. But net-net, if we collected an extra $4 and we paid out $3, net-net we actually generated an incremental $1 of revenue. So in terms of specifics for Q1, incentives classified as cost of revenue increased by roughly $100 million quarter-on-quarter and led to record driver earnings.

But again for the reasons I just described, rideshare revenue per ride actually increased 7% quarter-over-quarter and again that’s net of driver incentives. And then in terms of our P&L, in certain parts, cost of revenue were fixed, such as depreciation or relatively fixed per ride but insurance is typically based on the miles traveled and not the price of the rides. So this elevated revenue from higher prices drove increased margins relative to our outlook that helped fund the incentives.

And then looking forward towards Q2, we’re constantly making dynamic adjustments to balance the marketplace. We don’t have an ability to forecast driver incentives in Q2 with any certainty, but our revenue outlook incorporates our best view of Q2 and that would be obviously net of driver incentives. So we’re assuming that elevated pricing will persist in Q2 and we plan to use that to help fund the investments to bring back drivers. So again, if you go to our outlook, we are — our Q2 outlook down to $35 million to $45 million in terms of adjusted EBITDA loss, a big improvement relative to Q1 even with those investments.

Doug Anmuth — J.P. Morgan — Analyst

That’s great. Thank you, both.

Operator

We have your next question from Stephen Ju with Credit Suisse. Your line is open.

Stephen Ju — Credit Suisse — Analyst

Hey, thank you so much. So, John, I think going off your prepared remarks earlier, the $30 to $35 per hour, I mean, that’s sponsored by higher prices to the consumer. So that’s probably untenable, but so is anything close to minimum wage on an hourly basis. So what do you think will be the optimal sort of hourly wage that the drivers may get when you have supply and demand balance? And I guess there is a bigger question here. Do you think the consumer desire for cheaper rides is ultimately at odds with the driver desire for more hourly earnings and what can Lyft do to serve both stakeholders?

And I guess also a longer-term question, this might be putting the cart before the horse a little bit, but one of your focus items prior to the pandemic was to generate incremental demand for Lyft from universities, healthcare organizations, etc., I mean, I guess more enterprise usage. So what do you think that looks like on the other side of the recovery? Are you having more conversations, less conversations? Or is there like a greater desire to use Lyft at an enterprise level? Thanks.

John Zimmer — President, Co-Founder and Vice Chair

Thanks, Stephen. Yeah, this is John. So just to start up in the first piece. Yeah, we are seeing driver earnings at all-time high, as you mentioned, that can get to the $30 to $40 range. I think what we saw historically was within the $20 to $30 range, which is, in many places, far above minimum wage. And we got to remember, we are coming out of the pandemic. So in terms of market balance or imbalance, both the beginning of the pandemic, where demand went down and now the end of the pandemic where demand is rising rapidly, that’s a good problem to have and one that will fix itself over time. And the $20 to $30 range, which is more normal, that also depends on the hour. And so at peak times, drivers, even in a more balanced environment, will — can be earning over that $30 an hour. Obviously, that depends on the specific city.

But I think as we’ve demonstrated over the last several years and the fact that Logan and I have been working on this specific business for close to a decade, we know how to balance the market and we know there is a lot of, not only demand for rides, but there’s a lot of demand for this type of work, which allows you to drive that hours that are most convenient for you and make above minimum wage and, in many cases, far above that if you drive during the right hours. So balance is the name of the game, it’s our business. It’s not at odds with anything. It’s just that, again, we’re coming out of the pandemic where supply and demand are spiking in different ways than they do on a more normal basis.

To the second part of your question about the enterprise business, we’re having a lot of great conversations. We invested a lot throughout the pandemic, obviously, in the healthcare industry. We launched Lyft Pass and more recently Lyft Pass for Healthcare. We announced the Chase partnership, I think, just prior to the pandemic. And so this is going to be a really exciting opportunity for Chase card members coming out of the pandemic when people will be more likely to travel to really take advantage of that relationship. In 2020, we extended that program with some 5x points promotion for Chase’s co-branded cards. So a lot of exciting things. You mentioned universities as well. I was just talking with our team earlier this week about a specific university deal that they’re likely to get. So I think, with the pandemic, a lot of people questioned our normal behavior and are looking for ways to, like many people have said, build back better, which is allowing us to have some really fruitful conversations.

Stephen Ju — Credit Suisse — Analyst

Thank you.

John Zimmer — President, Co-Founder and Vice Chair

Thank you.

Operator

We have your next question from Alex Potter with Piper Sandler. Your line is open.

Alex Potter — Piper Sandler — Analyst

Great, thanks. So I guess one question that I have wondered about and maybe you now have some of the ammo to start answering it. I know that during the pandemic, people wondered the extent to which consumer travel patterns might change pre-pandemic versus post-pandemic. Now that we’re starting to come out, I guess, of the pandemic, do you have any trends that you would maybe like to highlight to the extent that travel patterns actually are changing? There’s been more activity in suburbs. Are you seeing commute come back, airport rides? Anything that you can provide there would be helpful.

Logan Green — Chief Executive Officer, Co-Founder and Director

Sure, I can — I’ll provide a little bit of color there. I think we’re starting to see some real recovery in cities. I think cities are clearly starting to come back to life and we think — I think we’ve talked about this broadly before, but we don’t imagine there have been a steady march of the population to move into cities and denser suburbs and we don’t imagine that trend changing post-COVID. On the commute business, I think it’s too early to tell. We are seeing that tick back up a little bit. The commute business has historically been supply limited. So during rush hour, demand is off the charts. It’s one of the times during the day where — both morning and evening, when the spike is much higher than we’re able to serve.

And so if the commute sort of demand softens and it’s spread out a little more evenly throughout the day, I don’t think that’s a bad thing and I don’t know that, that impacts our broader volume. We are seeing travel and airport volume pickup. I think there’s clearly some pent-up demand and the — as the roaring ’20s kick off, I think we’ll play a real role in that. So broadly speaking, I think there will be a handful of adjustments here and there, but I don’t think it’s going to change the kind of the broader shift from car ownership to transportation-as-a-service.

And I think ridesharing has been the first real incarnation of that shift, but over the next decade, as AVs come to market, and we are incredibly well-positioned to be the primary platform for deploying AVs, I think we’re going to see one of the largest markets in the world shift from an ownership-based market to transportation-as-a-service, and that’s a $1 trillion-plus shift that’s coming down the line. And we don’t see that substantially altered. Brian, I don’t know if there’s any particular numbers that you want to…

Brian Roberts — Chief Financial Officer

Yeah, I mean, just to provide a couple of data points. I think in your prepared remarks you shared that. If you go back a year ago, airport rides as a percent of total rides in April 2020 dropped to 1.6% of total rides. And just to give you a sense, in January of this year, so just a few months ago, we were up 4.5% of total rides and in April — that we just closed April, 7% of rides were airport rides. And this is of rideshare rides. And the peak, at least I can see in sort of the last year and a half was Q4 of 2019 at 9.4% of rides.

So again we’re definitely moving in the right direction there and I agree with Logan’s remarks. I think there is a lot of people who couldn’t take a family vacation last year or couples or there were so many different events that got postponed and I think as more and more people get that second vaccination, it’s lining up a lot of leisure travel that I think we expect to see. We’re starting to see a little of it, but I think you’re really going to see it ramp up in late Q2 and into Q3 and Q4.

Alex Potter — Piper Sandler — Analyst

Okay, great. And then maybe one last question on, I guess, marketing and campaign spending. I can appreciate now that Prop 22 is over and done with, spending on that particular initiative has sort of dropped off the radar. Any visibility on some of the other states that have active campaigns? Are you planning on banding together with some of the other platforms and replicate the success in Prop 22 that you had in California? And if so, can you quantify it? Thanks.

John Zimmer — President, Co-Founder and Vice Chair

Yeah, I can give a high level kind of regulatory overview and then, Brian, I don’t know if you want to comment anything on the dollars there. At a high level, yes, we’re talking to policymakers across the country, having very good conversations about the — what drivers want, which was made clear in Prop 22. They want independence, as well as benefits. And so I would expect more models like that to come forward over the coming quarters. The way we were successful with Prop 22 was working together and creating a coalition of the industry and that’s how we’ll do it going forward. So overall, I’m optimistic we’ll have a few more success stories on bringing this model to more states this calendar year and — but don’t expect the type of dollar impact that we saw last year. Brian, anything you want to add?

Brian Roberts — Chief Financial Officer

No, I think that is spot on.

John Zimmer — President, Co-Founder and Vice Chair

Okay.

Alex Potter — Piper Sandler — Analyst

Thanks, guys.

John Zimmer — President, Co-Founder and Vice Chair

Thank you.

Operator

We have your next question from Mark Mahaney from ISI. Your line is open.

Mark Mahaney — Evercore ISI — Analyst

Okay. Let me try this, the new Active Riders that you had, you sounded like there was a mix of rejoins and maybe new riders. Do you have anymore detail on that? What was the mix? And then, I want to make sure I understand about driver incentives in the back half of the year. And it sounds like there’s some organic factors that’ll drive — pardon me, that will drive drivers back to Lyft, those hourly wages that you talked about, and coming out of the pandemic, etc. But how much do you think that you need to fuel that recovery? How much do you think you’ll need to spend or how much effort do you think you’re going to have to make financially to incentivize drivers to come back? That’s what I want to get at. Thanks a lot.

Logan Green — Chief Executive Officer, Co-Founder and Director

Thanks. Brian, any color we can share on that?

Brian Roberts — Chief Financial Officer

Sure. Let’s start with Active Riders. So again, we were very pleased to see the nearly 1 million increase in Active Riders, we grew 942,000. We definitely saw some increases in activations and these would be new riders to Lyft. And so if you look in the month of March, they jumped 43% month-over-month. And then again that put a little pressure on revenue per Active Rider because if you activate that last month, there’s just — there’s less time to take rides. But even if you look on the full quarterly basis, activations of new riders jumped 21% quarter-over-quarter. And again I think it just goes back to, we’re still in the early days. I mean, there is just long-term secular and structural trends that underpin our growth. I believe that the stat is there’s 4 million people each year who turn 18 in terms of these digital natives who really don’t want to own things, who really lean into the service experience for the reasons that Logan outlined.

On driver incentives, I think Logan outlined three potential tailwinds that we expect. Right? As more drivers get that second vaccine, I think you’re going to see some supply shift because again it’s — historically drivers had made a lot more doing rideshare versus delivery. Second, I think, again the several unemployment benefits are expected to expire within Q3. So I think that also provides a little tailwind. And then I think one thing that is worth calling out, in Q2, we expect to increase sales and marketing roughly, probably, $12 million or so. We have a lot of that spend focused on marketing for new drivers.

And so I think that is — as we bring in more drivers, because again as John pointed out, like the earnings right now are at all-time highs, it’s a really great time to bring new drivers into the system. And then again, I think we’ll get some organic supply help just in terms of drivers who come back, who maybe just didn’t feel super safe in the earlier parts of the pandemic before they got their vaccines to be giving rides on the platform.

Mark Mahaney — Evercore ISI — Analyst

Okay. Thanks, Brian.

Operator

We have your next question from Brent Thill with Jefferies. Your line is open.

Brent Thill — Jefferies — Analyst

Thanks. Just on the supply of drivers, I’m just curious if you can just update us and how that’s coming back. I think we’ve all noticed little longer wait times and clearly you’re constrained on some of the drivers availability. How are you seeing that progress right now? Are you getting the type of flow that you need, or is there more work that has to be done there?

Brian Roberts — Chief Financial Officer

Yeah, I mean, we can’t share much more than we have already, but I would say we’re pleased in terms of when we look at our funnel. We’re seeing growth in the number of leads coming into the funnel. And that is generally, obviously, you fill in the funnel and then you drive activations of new drivers. So we do expect more new drivers coming into the platform, as well as bringing back drivers who may have stopped driving during the pandemic.

Brent Thill — Jefferies — Analyst

Okay, that’s great. And your profitability goal, I guess, the question is that you’ve obviously, as you said, Brian, last quarter, I believe, brought the expense structure to the studs [Phonetic]. There is some concern on the opposite side of level of innovation and the things that you’re doing now that you have the expense structure set to grow beyond the recovery of this. Can you talk to how you’re setting aside the right investments to think creatively about the next chapter of this? I understand your comment last quarter in bringing that [Speech Overlap] back to the studs.

Brian Roberts — Chief Financial Officer

Sure, let me maybe kick this off and then I’ll hand it off to Logan. Just to be super clear, our restructurings are behind us. As you know, we took out significant costs for the business. There is a $360 million run rate annualized in Q4 relative to our original outlook and then even in Q1, we took down opex below cost of revenue by $56 million. So profitability is now all about growth and the leveraging of opex and we’re really excited about a number of different revenue streams and new initiatives. I think, just to steal sort of Logan’s words, we expect to build a significantly larger company as we attack the market opportunity in front of us. So maybe I’ll hand off to Logan to talk about some of the investments we are making.

Logan Green — Chief Executive Officer, Co-Founder and Director

Sure. So even as we made significant cuts across the business, we continue to place new bets and to invest substantially in innovation. So in the last year, we’ve rolled out some of the most significant fundamental innovations to our marketplace engine. So when it comes to one of the kind of effects that we haven’t talked about in terms of the supply side is that drivers make more money when they operate at higher utilization. And we’ve had some real breakthroughs in terms of how we operate our marketplace to be able to help drivers do more rides per hour, and operate more efficiently and every inch of waste that gets knocked out of the system unlocks huge amounts of value, and that goes to drivers, to riders and to the bottom line. And we’ve had similar breakthroughs on the rider side.

So we have not been sitting idle. A lot of this is under the hood. Some of it, we can’t get into detail for competitive reasons but we have continued to innovate through the last year and we are looking forward to placing significant new bets as we go forward.

Another couple of areas where we’ve continued to invest has been in our fleet management capabilities. We’ve done some quite exciting things on that side of the house. And then we’ve talked about it a little bit, but our B2B delivery initiatives. So we are very much leaning into growth and continuing to invest in innovation. We are not looking to cut down to the studs in terms of reducing the cadence and the velocity that we can move at when it comes to innovation. I do think we are at the very beginning of this gigantic shift and we are determined to be in the best possible position to capture it and to help drive that forward.

Brent Thill — Jefferies — Analyst

Thank you.

Operator

We have your next question from Ed Yruma with KeyBanc Capital Markets. Your line is open.

Edward Yruma — KeyBanc Capital Markets — Analyst

Hey, good afternoon. Thanks for taking the question. Just on that line of innovation, it seems like you guys continue to roll out new initiatives like Priority Pickup and Wait & Save. Just trying to understand kind of what uptake has been there and kind of opportunities there. And then second, it’s clear maybe with some apprehension on public transportation, you may have an opportunity with bikes. So just try and help us understand kind of where the bike business is today and how you would characterize the growth opportunity. Thank you.

Logan Green — Chief Executive Officer, Co-Founder and Director

Yeah. So I don’t know that we can share any specific numbers, but we’ve seen some great customer feedback around Priority Pickup, around Wait & Save. The whole idea of a rider being able to trade off time and money, I think, is really kind of at the foundation of what we do. So as we provide better options for paying a little bit more money to get a faster pickup, saving a few dollars to wait a few minutes, there’s a lot of value to be unlocked there, and we’re really able to serve our customers better.

Similarly, like you mentioned, on the — in the bikes and scooters business, absolutely, as more people have wanted to stay outside when they traveled, bikes and scooters have been a phenomenal option. So we’ve seen a lot of uptake there. And we’re quite excited about the level of future growth. We’re seeing Citi, at the same time, also lean into growing their programs. And as you know, we run the largest network of Citi-exclusive programs. So I think there’s an exciting horizon there.

John Zimmer — President, Co-Founder and Vice Chair

Yeah. And I can add a little more detail on the bikes and scooters. As Logan mentioned, we operate the largest shared micro-mobility network in the U.S. And as of 2021, the largest dock bike share system in the world outside of China. And this adds depth to our network, allowing us to offer a full set of transportation services. On Citi bike alone in 2019, riders took almost 21 million rides. That’s comparable to the pre-COVID annual ridership of San Francisco’s Bay Area, Caltrain. And in 2020, we had more than 1.8 million new riders, tried our micro-mobility systems. And going back to the strategy we set by having these single-operator frameworks with a deep partnership with Citi, a lot of others were going after the dock list craze and I think by sticking to our strategy, a thoughtful approach, those investments are really paying off. So as Brian also said, with warmer weather, we expect even more growth from bikes and scooters in the months ahead.

Edward Yruma — KeyBanc Capital Markets — Analyst

Yeah, we just got Citi bike here in Hoboken. So I’m excited to use it. Thanks so much.

John Zimmer — President, Co-Founder and Vice Chair

All right. Enjoy.

Operator

We have your next question from Itay Michaeli with Citi. Your line is open.

Itay Michaeli — Citigroup — Analyst

Great. Thanks, everybody. So I just had one question on AV and another actually on EV. On AV, just curious that you have a number of partnerships, whether you think you might need to have additional AV partnerships and if so, what the receptivity is from AV players, given that some of them seem to be angling to potentially become future competitors. Just wondering kind of what your thoughts are there. And hoping to get an update on what the plan is to bring electric vehicles on the platform in terms of kind of staying asset-light within that. And how do you view kind of the economics of EVs on the Lyft platform in terms of your driver, as well as your own kind of potential earnings?

John Zimmer — President, Co-Founder and Vice Chair

Sure. Thanks, Itay. I’ll try to hit both of those. So on AV, as we discussed last week, we feel like we are in the best position to win the autonomous transition for three distinct and main reasons. One is the hybrid network. So this goes to the point you asked about, if others want to go and do it themselves without — without human drivers and autonomous vehicles, it’s near impossible, I’ll say, to manage the demand curve. Demand is not a static line. And so if you were to ask an AV-only operator, would you buy 100,000 vehicles that meet a noon peak demand or 1 million vehicles that meet a Saturday night peak demand, maybe they’d pick something in the middle, and then that would really — their utilization would suffer and/or their prices would suffer. And so having that hybrid network is critical to operating in an AV environment.

The second piece is the marketplace engine. Some of the pieces Logan discussed on the call, all of the data science and tech built over the last nearly decade to get really good at ETAs, dispatch, routing, specific to this use case, we believe, gives us, depending on the market, 10%, 20%, 30% advantage in efficiency. And third, something that we do that no one else does is fleet operations and technology that is essential to maximize revenue per mile and minimize cost per mile.

And so those three pieces together are specific and unique to our approach. We are excited to work with multiple partners in the space who deliver the best, safest and readily available AVs over the coming years. We’re having great conversations, and I think more and more people are understanding the power of the network and the importance, now that we’re focused on what we do best, partnering on what they do best.

On EVs, just quickly as we’re coming up on time, we’re excited about EVs. When you think about utilization, again, the cost of the battery is often times a big part of why EVs are more expensive. And when you have drivers utilizing a vehicle much more than a kind of personally owned vehicle, you can make that payback equation work more quickly. I think we’re still hopeful to get more mass market EVs, which are starting to come out over the next couple of years and then using our fleet business, which we’ve talked about, to help drivers get access to them. So I think we’re in a great spot as EVs become more accessible.

Itay Michaeli — Citigroup — Analyst

That’s all very helpful. Thanks so much.

Logan Green — Chief Executive Officer, Co-Founder and Director

All right. Thank you so much, everybody. Great catching up with everybody, and we will talk with you next quarter. Have a good one.

John Zimmer — President, Co-Founder and Vice Chair

Thanks.

Operator

[Operator Closing Remarks]