Lightspeed (LSPD-T) jumps on better-than-expected results, guidance increase

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Lightspeed Commerce Inc. LSPD-T stock jumped Thursday after the company reported better-than-expected results and increased its revenue forecast for the year.

The Montreal commerce software company generated revenue of US$230.3-million in its second quarter ended Sept. 30, up 25 per cent over the same period a year ago and above its US$210-million to US$215-million forecast. It upped its forecast revenue for the year to between US$890-million and US$905-million, from its prior US$875-million to US$900-million range. Lightspeed shares closed at US$14.42, up 15.9 per cent, on the New York Stock Exchange.

For the first time since going public, Lightspeed also hit a key profitability target: positive earnings before interest, taxes depreciation and amortization and further adjustments for items including share-based compensation and related payroll taxes. The measure, known as “adjusted EBITDA,” is not a recognized accounting standard, but the company has said it will achieve break-even or better results by that measure for the year. Lightspeed made US$200,000 in adjusted EBITDA in the quarter after predicting a US$4-million loss and maintained its forecast of achieving break-even adjusted EBITDA for the year.

The company, which sells point-of-sale software used by retailers and hospitality merchants to manage operations and handle payments, also nearly halved its net loss to US$42.5-million from a year earlier period.

After promising this would be a year of “execution,” chief executive officer Jean Paul Chauvet said Thursday on a conference call with analysts, “The results from this quarter firmly show that we are delivering on that promise.”

Mr. Chauvet has made three pledges in an attempt to win back investors after the stock dropped more than 85 per cent from pandemic-level highs. In addition to reaching positive EBITDA, he said Lightspeed would derive 30 per cent or more of total transaction volumes over its platform from payments by year end. That figure reached 25.1 per cent in the second quarter, up from 21.8 in the first.

Until recently, Lightspeed offered a payments processing product but let customers use whatever platform they chose. As of last March, however, new customers can only use its payments offering, embedded into updated versions of its platform. That typically translates into twice the revenue per customer. Meanwhile, existing customers who don’t make the switch will be charged punitive fees. Mr. Chauvet said that, despite the changes, the rate of customers that left in the quarter was no different than normal.

The third promise is to focus on customers generating US$500,000-plus in billing volumes yearly. That complement grew by 8 per cent in the quarter, after 10-per-cent growth the prior quarter. Larger customers generate more revenues and are less vulnerable to economic weakness than small ones.

“The results showed much needed (consistent) progress” on the strategy, National Bank Financial analyst Richard Tse said in an e-mail. “While they continued to increase the attach rate of payments, it was positive to see they were able to grow location count in their targeted large markets” while improving profitability.

Some analysts noted Lightspeed’s tepid 9-per-cent subscription revenue growth for its point-of-sale platform. Mr. Chauvet said that was because it had shifted resources to pushing payments adoption. He said as Lightspeed hits payment goals it would reinvest in adding customers.

Lightspeed’s three-pronged strategy follows two years of change. As its stock soared during the pandemic it took advantage, buying five companies for a combined US$2.3-billion, paying much of that in stock. Then, tech stocks crashed starting in late 2021. Lightspeed shares were also hit that fall by a critical report from a short seller. It spent several quarters integrating acquisitions, updating technology and relaunching one global platform for each of its retail and hospitality segments.

Lightspeed still underperforms compared with top-rated subscription software companies, which typically have a revenue growth rate plus operating earnings margin of 40 per cent or more – the so-called “rule of 40.″ By comparison, Lightspeed is at 25 per cent.

Lightspeed’s numbers will be messy for a while, as overall merchant count is expected to decline. As it focuses on larger customers, smaller ones – particularly the tens of thousands with US$200,000 or less in annual transaction volumes – are expected to leave in droves. While smaller merchants represented 40 per cent of customers at one point in the last year, they accounted for 5 per cent of volumes.

Lightspeed expects higher average revenues from remaining clients and increased payments adoption to improve overall results. Still, some analysts have flagged the customer decline as a potential sticking point for investors.