“I believe as we show more proof points – more software growth, more locations, in addition to the success we already had with profitability that we’ll build on, and with payments, we’ll start to have more traction with investors.” says Lightspeed Commerce CEO Dax Dasilva.Christinne Muschi/The Canadian Press
Lightspeed Commerce Inc. stock saw a sharp sell-off Thursday after the Montreal point-of-sale software company said it had abandoned a sale process and would instead buy back US$400-million of shares, nearly 20 per cent of its float, bucking a trend that has seen many Canadian tech companies exit public markets.
The stock closed down 12.9 per cent on the Toronto Stock Exchange, at $18.04, hitting levels unseen since the company began its strategic review in September.
“It’s not the outcome we anticipated at the start of the process,” said BMO Capital Markets’ Thanos Moschopoulos, echoing other analysts. “Clearly the board determined that more shareholder value could be created relative to whatever price may have been offered.”
“There’s always going to be disappointment if certain parties were expecting a deal,” Lightspeed chief executive and founder Dax Dasilva said in an interview. “Ultimately, showing traction is what we need to do quarter after quarter” to win back investors. Lightspeed “needs to do a bit of a reset” in communicating its plan when it hosts a previously postponed capital markets day in March.
Lightspeed chairman Patrick Pichette said in a news release that the company received a lot of interest and had extensive discussions with several suitors, but management and the board “unanimously concluded that executing on our full transformation plan as a public company offers the best available path to maximize value.”
Lightspeed, which went public in 2019, is one of Canada’s largest tech companies by market cap.
The company already had authorization to buy back US$100-million of shares, which it will do immediately, and will expand the repurchase program by US$300-million. It had US$661.6-million in cash and equivalents on Dec. 31.
The decision to remain public got the blessing from Lightspeed’s largest shareholder, the Caisse de dépôt et placement du Québec. “The company has matured into a global champion, firmly established in the Quebec economy,” CDPQ executive vice-president Kim Thomassin said in a statement. “We support the conclusions of the strategic review.”
Lightspeed also released fiscal third-quarter earnings Thursday that show it is on track with a turnaround plan launched after Mr. Dasilva returned as CEO one year ago – but remains far from generating top-tier results that would warrant a premium valuation.
Lightspeed generated US$280.1-million in revenue in the quarter ended Dec. 31, up 17 per cent year-over-year. That was at the low end of the company’s forecast range, owing to strength in the U.S. dollar that weighed on results in other markets where it operates. However, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) – which is not a recognized accounting standard but a closely watched metric – were US$16.6-million. That was ahead of its forecast US$14-million and up more than four-fold from last year.
The company posted its best growth in revenue from subscriptions to its platform – a key measure of its ability to add customers – in nine quarters, up 9 per cent year-over-year. But it only increased the number of customer locations with $500,000 or more in transaction volume by 1 per cent.
Its overall customer location count has been stuck near 160,000 for several quarters, as it has shed smaller clients to focus on larger ones. The company remains hard to follow; it bulked up on acquisitions before the tech downturn and hasn’t fully broken out how the individual parts of its business are doing.
Lightspeed upped its projected adjusted EBITDA for the fiscal year to US$53-million from US$40-million. Its net loss was US$26.6-million in the quarter, better than the US$40.2-million of a year earlier.
Since his return as CEO, Mr. Dasilva has overseen steep layoffs and a new focus on growth initiatives in two areas of strength: retailers in North America and hospitality providers in Europe. He has also increased the number of customers that use its payment-processing service. Containing costs while expanding the business has been a juggling act. “We have to keep this in balance,” he said.
Payments accounted for 37.4 per cent of Lightspeed’s US$23.5-billion in total transaction volume in the quarter, more than double what it was two years ago. The goal is to get to 40 per cent this year.
Lightspeed is still well short of becoming a “rule of 40″ company – an industry benchmark that tracks performance in the subscription cloud software market. Investors add a company’s revenue growth rate to its adjusted EBITDA margin; if that adds up to 40, it is considered a top performer. By that measure, Lightspeed was 22.9 in the quarter.
“As we went into the process, we started to see fruit from the transformation,” Mr. Dasilva said. “I believe as we show more proof points – more software growth, more locations – in addition to the success we had with profitability that we’ll build on, and with payments, we’ll start to have more traction with investors.”