Lightspeed Commerce CEO Dax Dasilva in the company's Montreal office, on May 8.Christinne Muschi/The Canadian Press
Lightspeed Commerce Inc. LSPD-T stock jumped Thursday after it beat forecasts in its second-quarter results and increased its earnings outlook for the year. The company also cancelled a capital markets day set for Nov. 20, fuelling speculation that a strategic review could be progressing toward a sale of the company.
The Montreal point-of-sale software vendor said Thursday that it booked US$277.2-million of revenue in the quarter ended Sept 30, up 20 per cent from the same period last year. That was above Lightspeed’s predicted range of US$270-million to US$275-million and higher than analyst estimates.
Adjusted earnings before tax, interest, depreciation and amortization (EBITDA) was US$14-million or $2-million above the company’s forecast.
Lightspeed, which sells transaction software to retailers, restaurants, golf clubs and hotels, narrowed its net loss to US$29.7-million from US$42.5-million a year earlier and cut the level of cash flows used in operating activities to US$11.3-million from US$24.8-million a year earlier. Chief financial officer Asha Bakshani said on a conference call cash flows would have been positive but for Lightspeed’s growing business of advancing funds to merchants, which generated US$9.3-million in revenue, up 121 per cent.
Despite its lack of bottom-line profitability, Lightspeed has now generated five quarters of positive adjusted EBITDA, a measure that is followed closely by analysts. Lightspeed in May forecast it would generate US$40-million of adjusted EBTIDA this year, and raised that goal Thursday to US$50-million.
Lightspeed has also sharpened its operational focus, starting with efforts to zero in on serving larger customers with US$500,000-plus in annual revenues. That has resulted in Lightspeed shedding many smaller customers – and the subscription revenue they contribute using its software. The move has weighed on overall subscription revenue for several quarters, including an anemic 6-per-cent gain in the second quarter. Meanwhile, the number of clients with US$500,000-plus revenues increased by 1 per cent.
Lightspeed had also focused on moving customers to using its in-house payments processing service, which helped boost average revenue per customer. Payments now account for 37 per cent of total merchant transactions through its platform. Lightspeed expects that to reach 40 per cent this year.
Now, company leaders say they are focused on expanding its software subscription revenue, aiming for 8 per cent to 10 per cent growth in the second half. Lightspeed is shifting account managers to focus on selling subscriptions and upselling existing customers, particularly in its two largest fastest-growing business areas, North American retail and hospitality in Europe. They account for more than half of revenues. Lightspeed has also started selectively raising prices.
Chief executive officer Dax Dasilva said in an interview Thursday the new focus stemmed from an operational review “that confirmed our instincts those are our best markets, and this is how we improve the financial profile.” For example, he said the company was no longer trying to compete against giant Toast Inc. for restaurant business in North America.
“I don’t think there is any analyst or investor that ever thought that was a good idea.” Meanwhile, he said North American retail is a strong market for the company and “we don’t need to run around the whole world spending marketing dollars and building teams when there is so much opportunity” there.
National Bank of Canada Financial Markets analyst Richard Tse said the results “look solid as does the guidance for the year. The concern is location count growth, which is how this stock will be valued once [its payments business] reaches a peak.”
Mr. Tse added that the company’s decision to postpone its capital markets day “will obviously lead to some speculation as to whether they are closing in on a sale.” The stock rose by as much as 13.2 per cent Thursday before closing up 7 per cent on the day. The stock is still more than 80 per cent below highs reached in 2021.
The company put itself in play in September, after a slew of recent buyouts of Canadian publicly traded tech companies. Lightspeed refused to answer questions about the strategic review but said all options remain on the table. Analysts have said there could have a long list of potential suitors, including rival operators, digital payments companies or private equity firms.