Lyft Is Profitable Now? Look at the Accounting.

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The ride-hailing-network operator

Lyft

heralded its first quarterly profit ever on its second-quarter earnings call. The only problem is that it didn’t make any money—at least by the most commonly used accounting standards.

Confused? Don’t be. And don’t think that the question of profitability has anything to do with a the slide in

Lyft

(ticker: LYFT) stock on Wednesday.

Lyft did report adjusted earnings before interest, taxes, depreciation, and amortization of about $24 million for the second quarter, marking the first positive figure for that metric in the company’s history. “Going forward, we expect to remain adjusted Ebitda-profitable as we increase investments to fuel long-term growth,” said CFO Brian Roberts on the conference call on Tuesday.

Under generally accepted accounting principles, though, Ebitda came in at a loss of almost $210 million.

The majority of companies report adjusted figures, but ideally, the changes are small, used to factor out one-time expenses such as costs associated with a merger or laying off staff to boost margins. In Lyft’s case, recurring costs account for most of the vast difference between the adjusted and GAAP numbers.

The company didn’t immediately respond to a request for comment.

Stock-based compensation is about 75% of the difference between the GAAP and adjusted numbers. Employees are paid with stock and not cash. Since cash isn’t going out the door, the company excludes that from its adjusted reported results.

Of course, payments in stock are real compensation: Employees don’t work for free. Stock-based compensation at Lyft in the second quarter amounted to $201 million.

That affects the financial statements by causing the share count to go up over time. The company keeps its cash to use for other purposes, but each share accounts for a little less of the overall business as time goes on.

Lyft isn’t the only company to do this.

Tesla

(TSLA), for instance, adds back its stock-based compensation when reporting its adjusted Ebitda to investors. Tesla reported a record $2.5 billion a record in adjusted Ebitda for its second quarter, but stock-based compensation was $474 million, leaving GAAP Ebitda of a bit more than $2 billion. Tesla didn’t immediately respond to a request for comment.

High-growth companies based on the West Coast are the ones that seem to have the higher stock based compensation expenses.

Ford Motor

(F), hardly a high-growth tech company, uses adjustments too, but not for stock-based compensation. It reported an adjusted second-quarter operating profit of $1.1 billion, including $106 million of so-called special items. That is a catchall category that includes” global redesign actions and mark-to-market adjustments for our global pension and [benefit] plans,” according to company filings.

The $106 million for Ford is roughly 10% of total operating profit. That is significant, but an investor could argue it is more nonrecurring than Lyft’s adjustments. The global redesign relates to restructuring costs, such as paying for layoffs and plant closures, that should fall over time. Investors in any company should watch to be sure one-time restructuring charges don’t keep cropping up.

Pension-plan adjustments do recur, but small changes due to fluctuating asset returns and interest rates are unavoidable for any company with a large defined- benefit plan.

That “Lyft didn’t make a profit” isn’t a revelation. Investors know, or should know, how companies report figures and how analysts and other investors value stocks they hold. Still, calling a company profitable because of a positive adjusted Ebitda figure certainly isn’t typical.

Lyft stock fell 10.6% Wednesday, compared with respective declines of 0.5% and 0.9% in the

S&P 500

and

Dow Jones Industrial Average.

The likely reason is that Lyft’s forecasts for third-quarter sales were lower than analysts expected.

Wedbush analyst Dan Ives told his clients in a Wednesday research note that some of the anticipated weakness in sales is due to Lyft spending on driver incentives. Drivers are in short supply these days.

Lyft takes payments to drivers out of the total price of a ride, recording only its share as sales, so allowing the people behind the wheel to keep a bigger piece of the fare cuts into the sales total. That is another—widely understood—accounting quirk that investors have to deal with for Lyft.