Lightspeed Commerce Inc. CEO Dax Dasilva poses in the company's offices in Montreal on May 8.Christinne Muschi/The Canadian Press
Lightspeed Commerce Inc. LSPD-T stock soared Thursday after the Montreal point-of-sale software company beat quarterly financial targets and issued a sharply higher operating profit forecast than analysts had expected for its new fiscal year. The company also said founder Dax Dasilva would become permanent chief executive officer, after he stepped in on an interim basis to replace ousted predecessor Jean Paul Chauvet in February.
The stock closed up 18.3 per cent, at $20.55, on the Toronto Stock Exchange, following a recent pattern for Canadian software vendors. Those such as Shopify Inc. SHOP-T, Open Text Corp. OTEX-T or Docebo Inc. DCBO-T that have given disappointing financial outlooks have had their stocks sell off by 15 per cent or more, while those such as Lightspeed and Copperleaf Technologies Inc. CPLF-T that have issued stronger-than-anticipated forecasts have jumped by a similar degree.
“As expected, but to a greater extent than expected, Lightspeed’s returning CEO is placing a greater relative emphasis on driving profitability, which we think should be helpful for the stock,” BMO Capital Markets analyst Thanos Moschopoulos said in a note.
Lightspeed said it generated US$230.2-million in the fourth quarter ended March 31, up 25 per cent year-over-year, and lost US$32.5-million, an improvement over a loss of $74.5-million a year earlier.
However, analysts pay more attention to its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), which came in at US$4.4-million for the quarter. It was the third straight quarter in which the company has delivered a positive result on this measure, which is not a recognized accounting standard and adjusts for items including share-based compensation and related payroll taxes. Both revenues and adjusted EBITDA beat analyst expectations.
Lightspeed also forecast much higher adjusted EBITDA for the year that started April 1 than the US$23.2-million analysts had expected, saying it expected to generate at least $40-million, and revenue growth of 20 per cent-plus.
“They’ve taken a keener eye on capital deployment,” National Bank Financial analyst Richard Tse said. “That puts them in a position for improving operating leverage which has become the meaningful driver of stock price performance across the sector.”
Much of Lightspeed’s improved performance is due to its push to convert its retail, restaurant, hospitality and golf course customers to use its payments processing product, while charging fees to those who use an alternative. The share of customers on its payment platform reached 32 per cent in the quarter, in line with its goal and up from 19 per cent a year ago. Mr. Dasilva projected that would exceed 40 per cent in a year.
As a result, Lightspeed’s average revenue per user increased by 29 per cent in the quarter to US$431. But it only expanded the number of customers with US$500,000 or more in sales – its key focus area of expansion – by 5 per cent as software revenues increased by only 7 per cent, to US$81.3-million.
Mr. Dasilva said in an interview Lightspeed would focus on driving software revenue growth by between 10 per cent and 15 per cent this year while continuing to focus on larger clients.
“What we delivered today shows that balance between growth and the ability to be operationally efficient,” Mr. Dasilva said, a nod to market expectations that software companies at Lightspeed’s stage of development need to both still be growing quickly while delivering bottom-line results. “This year we’re laser focused on software growth. It’s my top priority.”
Mr. Dasilva had ceded the chief executive title two years ago to his long-time right-hand man, Mr. Chauvet, and became chairman. But he returned in February in a shakeup prompted by negative investor reaction to the company’s third-quarter financial update. Mr. Chauvet had said the company would increase spending this year to generate software sales, but that the effort would only pay off months later. That sparked concerns operating margins would evaporate.
Mr. Dasilva promptly laid off 10 per cent of employees and promised to pursue further cost cuts. “We’ll remain a strong grower but are very focused as well on profitability,” he said. “I think the market likes that plan. That’s the plan shareholders have been asking for.”
Even if Lightspeed hits its financial goals this year, its sales growth rate plus operating profit margin will add up to about 24. Subscription software companies are only considered to be top performers if those two figures add up to 40, according to a common industry yardstick measurement. “That number will improve long term,” Mr. Dasilva said.