Lightspeed is undergoing a multi-year transformation under CEO Dax Dasilva, shown in 2024, shifting its focus to its faster-growing segments.Christinne Muschi/The Canadian Press
Montreal-based point-of-sale software company Lightspeed Commerce Inc. LSPD-T is open to more divestitures after recently unloading a declining U.S. business called Upserve for a fraction of what it paid, chief executive Dax Dasilva said Thursday.
“It’s all possible,” Mr. Dasilva said in an interview following the release of Lightspeed’s earnings for its fiscal first quarter ended June 30. “We’re continually evaluating what is the right timing” for divestitures given the potential impact on profitability.
“If we evaluate that it’s the right time then we’ll engage one like we did with Upserve,” which Lightspeed bought for US$430-million in 2020, and sold in April for up to US$81-million. Asked if further divestitures were a question of “if or when,” he responded: “There are things we are going to divest on a when basis, for sure.” He added there was no sales process currently under way.
Lightspeed is undergoing a multi-year transformation, shifting its focus to its faster-growing segments, serving North American retailers and European hospitality providers. The number of locations in those categories increased by 10 per cent year-over-year, to 99,000 at the end of the quarter, while revenue from those customers increased by 20 per cent. Subscription revenues from those customers increased by 12 per cent.
But Lightspeed still serves another 47,000 merchant locations it considers part of its “efficiency” portfolio. The company no longer prioritizes them because its software is less competitive in the segments they serve. That includes the North American restaurant business, which is dominated by Toast, Inc. Another Toast rival, Toronto-based TouchBistro Inc., struggled to grow and reach profitability; it was taken over last December by debtor Francisco Partners and sold to Constellation Software Inc. for $100-million this year.
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The top-line performance of Lightspeed’s efficiency unit is less impressive than its growth business, which accounts for 75 per cent of its revenues. The efficiency unit’s location count was essentially flat in the quarter, adjusted for the divestiture of Upserve (which served 3,200 locations) and the wind-down of another 500-location partnership. The efficiency unit did manage to increase revenue in the single-digits percentage wise in the quarter as more customers adopted its payments product.
Lightspeed’s strategy has been to invest in the growing parts of the business and milk the flat-to-declining efficiency portfolio for cash flows. Analysts agreed it was delivering on that plan – and that the stock looked cheap.
“The turnaround is moving in the right direction,” CIBC Capital Markets analyst Todd Coupland said in a research note. ”The debate now shifts to execution” including faster software revenue and location growth, better productivity from sales and marketing efforts and higher adoption of its payments and merchant cash-advance offerings.
Mr. DaSilva launched the transformation after returning to lead the company he founded 21 years ago in early 2024, two years after resigning as CEO to focus on conservation efforts. The company he now leads has struggled to regain its former glory following its March, 2019, initial public offering when its stock soared and the company bulked up with acquisitions.
One of Mr. DaSilva’s first commitments upon returning was that Lightspeed wouldn’t resume making acquisitions. Its stock is still more than 90 per cent off its peak valuation, which exceeded $150 a share in September, 2021.
BMO Capital Markets analyst Thanos Moschopoulos said in a note the stock “remains undervalued relative to the scarcity value” given the company handles about US$100-billion in gross transaction value through its platform, its financial results are improving and it has been executing on its plan.
Mr. Moschopoulos noted in an interview that “the catch” with selling more of the efficiency portfolio is that those locations are more profitable than the growth part of the business. But he said Lightspeed would benefit from “higher multiples for sure” as better overall growth would improve the company’s valuation. “That’s a tradeoff that management has to weigh. It could well make sense because it allows them to better focus on growth.”
For now, the efficiency portfolio continues to dilute top-line performance. Lightspeed reported revenue in the quarter of US$322.7-million, up 17 per cent over the same period a year ago adjusting for the Upserve deal and ahead of estimates, while operating earnings of US$17.5-million were in line with expectations. Overall growth in software revenue and average revenue per user was lower than for the higher-growth segments, due to the weaker growth of the efficiency unit.
Meanwhile, the company’s stock sank by 12 per cent after it kept its outlook for the fiscal year unchanged. Lightspeed forecasts that full-year revenue will come in between US$1.23-billion and US$1.27-billion, up 12 to 15 per cent, while adjusted operating earnings are expected to be between US$75-million and US$95-million.