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JP Chauvet, president Lightspeed, sits in the company's offices in Montreal, on July 20, 2021.Christinne Muschi/The Globe and Mail

Jean Paul Chauvet once predicted his company Lightspeed Commerce Inc. LSPD-T would end up in an epic battle against fellow Canadian commerce software company Shopify Inc. Back then, Lightspeed was a stock market darling worth US$10-billion-plus.

Lightspeed’s chief executive is in a different fight now: trying to win back investors. While both companies saw their stocks crash from pandemic level highs, Shopify’s SHOP-T share price has recovered by 39 per cent in the past year while Montreal-based Lightspeed’s has fallen by 32 per cent. Lightspeed once traded for north of 25 times forecast annual revenue. It now trades for less than two times.

“I look at myself in the mirror and every morning I’m like, ‘What are we not doing, or not doing well enough; what is the market not getting,’” Mr. Chauvet said in an interview. But he knows the answer: “Everybody is in a ‘wait and see’” mode for the company, which sells point-of-sale software used by retailers and hospitality merchants to manage operations and handle payments.

On Thursday, investors will get the latest look at how Lightspeed is delivering on promises Mr. Chauvet has made for this fiscal year in hope of bringing favour back to his stock. Lightspeed will deliver earnings for the second quarter ended Sept. 30, a period Mr. Chauvet described as one of “heads-down execution”

Mr. Chauvet has made three pledges: that his money-losing company will be profitable for the fiscal year – albeit, profitable before interest, taxes depreciation and amortization and further adjusted for items including share-based compensation and related payroll taxes, also known as “adjusted EBITDA” – an accounting measure not recognized by the IFRS Foundation. For the second quarter, the company has forecast it will generate US$210-million to US$215-million in revenue, up from US$187.3-million a year earlier, and cut its adjusted EBITDA loss to US$4-million from $8.5-million.

The second promise is that Lightspeed will derive 30 per cent or more of total transaction volumes handled over its platform from payments (it reached 21.8 per cent of Lightspeed’s US$23.4-billion in gross transaction volumes in the first quarter). Until recently, the company offered a payments processing product but allowed customers to use whatever platform they wanted. As of last March, however, all new customers can only use Lightspeed’s payment’s program, which translates into more revenues, while existing customers who don’t use it will be charged punitive fees.

The third is to shift Lightspeed’s focus to serving larger customers such as restaurant groups that generate US$500,000 or more in billing volumes each year. That complement grew by 10 per cent year-over-year in the past quarter. Those larger customers generate more revenues for Lightspeed and are less vulnerable to softer economic conditions than smaller customers.

The strategy follows two years of big changes. Lightspeed was one of many tech companies whose share prices shot up during the pandemic. It took full advantage, buying five companies for a combined US$2.3-billion from November, 2020, to October, 2021, paying much of the cost with its inflated stock.

But the markets turned in fall 2021 and stocks crashed. Lightspeed shares were also hit that fall by a critical report from short seller Spruce Point Management. Lightspeed spent several quarters integrating its acquisitions, updating its technology and relaunching one global platform for each of its retail and hospitality customers.

“All those things happening one after the other caused uncertainty among investors” – many of whom are waiting to see consecutive, consistently strong quarters before buying back in, National Bank Financial technology analyst Richard Tse said.

Even if Lightspeed can deliver on its three promises, it’s no sure thing investors will reward the company right away. Stocks have been hit by mounting uncertainty. And Lightspeed’s numbers will be a bit messy for a while as its overall merchant count is expected to decline for several quarters.

As Lightspeed focuses on larger customers, smaller ones – particularly the roughly 70,000 with less than $200,000 in annual transaction volumes – are expected to leave. While smaller merchants represent more than 40 per cent of customers, they account for 5 per cent of volumes. Lightspeed expects higher average revenues from remaining customers and increased payments adoption to improve overall revenue and profit. Still, the departure of so many customers – more than 35,000 by April, 2025, by ATB Capital Markets analyst Martin Toner’s estimate – could weigh on results.

That leaves some wary. “Investors want them to prove that they can become profitable, continue to grow the payments penetration rate and keep growing software revenue, which is a function of location count,” said BMO Capital Markets analyst Thanos Moschopoulos. “When you have a flat location count it feeds into the narrative they are losing ground competitively. That is clearly weighing on the stock.”

Mr. Chauvet is eager to spend on growth and even start acquiring again (Lightspeed had US$780-million in cash on June 30 and no debt). But “the first step is regaining investor confidence,” he said.

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