Lyft CFO: 'We know the prices are too high'

Lyft saw sales top expectations in Q2 as demand recovers. Lyft CFO Brian Roberts joins Yahoo Finance Live to discuss.

Video transcript

AKIKO FUJITA: Welcome back to Yahoo Finance Live. Shares of Lyft are gaining in the session. That stock up more than 7% on the back of its quarterly results. The company reported earlier this week its first adjusted EBITDA profit in the quarter, posting $23.8 million. That timeline much quicker than the timeline the company had initially put forward. For much more on that, let's bring in our two Brians.

We've got Brian Roberts, the CFO of Lyft. And we've also got Brian Sozzi joining in the conversation. Brian Roberts, good to have you on today. I hate to start on the headwinds in a quarter where, you know, all signs pointed to continued improvement. But you, along with your competitors, have made no secret about the fact that you have had a hard time attracting drivers to meet this bounce back in demand.

Give me a sense of what the metrics look like for you, especially in markets where those enhanced unemployment benefits have already expired.

BRIAN ROBERTS: Sure. Maybe just to start, too, I mean, we are excited about Q2. It was a milestone quarter. To your point, we achieved the just EBITDA profitability on an entire company basis earlier then we said we would. And we did this while we delivered industry leading revenue growth. And so if you just zoom out for a second and if you look at Lyft over the past five quarters, you can see the business transformation we unlocked during the pandemic, so very excited about that.

And if you look at what we did in Q2, we aggressively invested in building driver supply. We know the prices are too high. We know the waits are too long right now. And so we increased, if you look at our P&L, our contra revenue by 92% quarter over quarter, as we delivered this quarter, so very excited about that. And then in the states where we did see federal unemployment get sunset earlier, we did notice that driver leads increased.

And so we're excited about the pickup we're seeing on the supply side. Demand continues to outstrip supply. That is not necessarily a bad thing. I was-- if you go back in time over say the-- during the pandemic, earlier in the pandemic, having more demand is a wonderful thing. I sleep better at night. So what we've seen in Q2, we saw a 60% increase year over year, in terms of active drivers.

And then another metric that we shared, which is really important, because it's not just the number of drivers, but it's how many rides or how many hours are they delivering on the platform. And what we saw in Q2 was that average driver increased the number of rides on our platform over 20% versus Q2 of 2019, pre-pandemic. So we're super excited where we are. And quite frankly, I'm even more excited where we're going.

BRIAN SOZZI: Hey, Brian, are you surprised by the market reaction to the quarter? Yes, a big sell-off yesterday, you had profitability for the first time. You had-- you went on the earnings call, said you were going to be profitable again, said the business model was going to be sustainably profitable. Why do you think investors reacted the way they did?

BRIAN ROBERTS: Quite frankly, I think people were afraid of what our competitor was going to report after the close. And I think there was just that overhang until they put out their announcement. But look, we're so proud of what our team delivered in Q2. And we love our strategy going into Q3. We want to continue improving service levels. We think that is the right strategy for Q3 but, more importantly, the right strategy going forward.

And we're able to do this while we actually, if you look at our outlook, we're increasing our adjusted EBITDA range for Q3. So we feel absolutely great about where we are, at just the ability to invest right now improving service levels. We know riders across the country want shorter pickup times and lower prices.

BRIAN SOZZI: For those new to the Lyft story, Brian, how have you been able to reach profitability, I believe you called out that marker in the fourth quarter of 2019, what have you done, and why do you think the model is, in fact, sustainably profitable?

BRIAN ROBERTS: Absolutely. Look, we've-- I've been at Lyft now for coming up on seven years. So I've seen this company from almost the very beginning. And if you look at what we've done just in the last two years, it's all about focus. We wake up and go to sleep thinking about US and Canada transportation. And that includes everything from ride sharing, which we're predominantly known for, but bikes and scooters and transit. We have rental cars.

And it's just this focus. And so if you look at what we've done on the adjusted EBITDA line, if you go back a year ago, we had a $280 million loss that we just took up to a positive $24 million. And the consistency of the performance over the last five quarters, every single quarter we're getting better. And what we're trying to tell investors is, look, we're not only focused at maintaining adjusted EBITDA profitability but actually increasing it. I would chalk a lot of it up to focus.

I'd also say, look, we're founder led. And it means something. John and Logan have been thinking about transportation for over a decade. And it means something to have founders that are so passionate about that, because they attract, you know, team members who believe in the vision and the mission. And just, when you think about what this company has faced in the last year, be it the pandemic, be it California regulatory, I mean, we faced a lot.

And the team just stepped up. And so the resilience and just that tenacious focus on delivery is bearing out in our numbers, so very excited.

- Yeah, I don't want to take away anything from the profitability on an adjusted basis. When you look at it on an unadjusted basis, and net loss for the quarter, $251.9 million, that was larger than what analysts expected, $230.1 million, we saw the stock down originally when you reported the numbers. And when you look at maybe a piece of that that people are interested in is the amount that Lyft has to pay to attract the drivers.

As you said, it's a big important piece of the customer experience on the platform. So how much more have you seen those prices to attract drivers rise? You had some estimates that was $12 million, $12 million rather during the quarter to get drivers back on. How are you seeing that cost rise, and what was it in the quarter?

BRIAN ROBERTS: Sure. So I think there's like-- where I think there may be some investor confusion is that the higher prices are paying for the driver incentives, in terms of how it flows for our P&L. And so if you just look at Q2, literally the quarter we just reported, we increased our, what's known as, contra revenue, these incentives, by 92% quarter over quarter. So we went from $196 million to $376 million, while we delivered adjusted EBITDA profitability and higher contribution margins.

And we've guided even to higher contribution margins in Q3 when you adjust, because we did have a little one-time, probably about 100 basis point benefit in Q2, in contribution margin. But I think where investors are confused is the higher prices are funding these incentives. So it is, in terms of how it flows through our P&L, you couldn't invest as much as we did and still generate adjusted EBITDA profitability if it wasn't being funded by the higher prices.

But we don't want to rely on that. We're really focused on improving long-term rider satisfaction. We have to improve service levels. And that's both pickup times and prices. So we're going to keep pushing. And, again, if you look at our outlook for Q3, we're doing this while we increase adjusted EBITDA in terms of our outlook.

AKIKO FUJITA: Brian, what's the conversation within the company right now about vaccine mandates for drivers as well as passengers? We've seen a number of firms come out and mandate vaccines for employees at the corporate level but not necessarily the front line essential workers. Why has Lyft been hesitant to do that? And do you think you'll move on it?

BRIAN ROBERTS: Sure. So as it relates to Lyft employees, we have mandated, for-- to return to the office, you have to be vaccinated. We think it's the right thing in terms of safety for our employee community. As it relates to drivers, we've been very focused on health safety. It's just so important in terms of, you know, we've never removed the mask requirement. It has always been there.

And so we are-- our drivers are independent contractors. We are a lead generation platform for our drivers. So we can't mandate that drivers have vaccines. But, again, this is maybe a personal plea, like get vaccinated. I mean, it is just that the data is so strong about the benefits and just do it for your family, do it for your neighbor. But we strongly encourage everyone. I mean, the access is there.

So and we've funded rides, even for people who have that transportation challenge, to get a vaccine. We've provided free rides. So we are definitely leaning in as much as possible, because we want this country to move forward. And it's just-- it's hard with all these variants, et cetera. But, again, the data is bearing out that the country is moving again. And even in July, we did see rides increase month over month, despite all the scary headlines around the Delta variant.

BRIAN SOZZI: And Brian, lastly for me, do you think Lyft is unfairly compared by investors to Uber? At this point in your cycle, where you companies-- where your companies are, they really are two different companies.

BRIAN ROBERTS: We actually love that. I mean, we're now competing against this conglomerate. And if you want to invest in freight, you know, you have a choice. We're this pure play around transportation. And I think, if you look at our results, and you look at the-- just look at, you know, in our supplement deck, we show our adjusted EBITDA progress in terms of where we were and this most recent quarter, but where we're going as well.

We think investors will, especially as we're emerging from this pandemic, we're a pure play into recovery. There was really, if you look at our business, we had nothing that helped us during COVID. And so coming out of it, we're a pure play. And so I think investors, there's a lot of investors who are excited about this ability to just invest on transportation and not worry about all this food competition, lots of different players, lots of aggressive companies out there, or freight, or all these other things.

It's just-- it's a pure play in markets that they understand, in terms of US and Canada.

AKIKO FUJITA: They Like some fighting words there, Brian. It's good to talk to you today. Brian Roberts, the CFO of Lyft, as well as Brian Sozzi joining in on the conversation.