Employees work at Lightspeed's Montreal office.Christinne Muschi/The Canadian Press
Lightspeed Commerce Inc. LSPD-T has sold a declining U.S. business for a fraction of the US$430-million it paid for it in 2020, part of a continuing strategy to focus on areas where the point-of-sale software company has had more success.
The Montreal-based company said Wednesday it had sold Upserve for US$44-million to Skyview Equity, plus up to US$37-million over two years if the divested company meets performance targets. Upserve provides internet-based restaurant management software to restaurants in the U.S.
It is Lightspeed’s first divestiture and marks one of the most significant moves of a turnaround plan that began after founder Dax Dasilva returned as chief executive officer in early 2024, two years after stepping down.
“This is all about focus for us,” Mr. Dasilva told analysts on a conference call.
When Lightspeed bought Upserve from Vista Equity Partners in December, 2020, the acquired company had 7,000 customer locations and had generated US$6-billion in gross transaction volume, or GTV, and US$40-million in annual revenue.
Upserve now generates US$140-million in revenue – more than 10 per cent of Lightspeed’s forecast US$1.2-billion revenue for its last fiscal year – but just US$5-billion in GTV. Upserve’s location count has dropped by hundreds a year to 3,200, in the face of competition from giants Toast and Square.
Chief financial officer Asha Bakshani said Upserve’s operating profit margins were also deteriorating while its software gross margins were about 10 percentage points lower than the overall company average.
“Because it was a declining asset there was some time sensitivity to find a new home for it,” Mr. Dasilva said.
But Ms. Bakshani stressed in an interview that Lightspeed had retained a valuable asset that was a key reason for the purchase of Upserve in 2020: its analytics and insights technology. That is now incorporated into Lightspeed’s software for restaurant customers and a key competitive differentiator and driver of new business in other markets, she said.
The acquisition “strategically lines up with their plan,” said National Bank of Canada financial markets analyst Richard Tse. “It eliminates a growth drag on their overall business while freeing up capital to invest in their targeted growth segments.”
Lightspeed also said revenue and gross profit will be ahead of forecast for the fourth quarter ended March 31 when it announces results next month, while adjusted operating earnings will come in around the previously established forecast of US$72-million.
In addition, the company said its adjusted operating earnings will grow to between US$75-million and US$95-million in its new fiscal year. Lightspeed said the divestiture would reduce its forecast gross profit, adjusted operating earnings and free cash flow through its fiscal year ending March 31, 2028, but also “meaningfully improve the company’s revenue growth and gross profit trajectory” for the overall company excluding Upserve.
Investors have proven indifferent to the turnaround at Lightspeed, which went public in 2019 and soared in stock market value as it did a series of pricey acquisitions through late 2021.
Since Mr. Dasilva’s return, Lightspeed has cut costs, streamlined operations and delivered improving results as it pivoted its strategy to focus on improving revenue growth in two core areas: North American retail and European hospitality. It continues to see declining location counts in what it calls its “efficiency portfolio,” which includes generally smaller, legacy customers in areas where it is less competitive, such as the U.S. restaurant business served by Upserve.
With the divestiture, Lightspeed’s higher-growth businesses now account for 75 per cent of its revenues, while its efficiency portfolio is stable and contributes positively to earnings.
But those non-core businesses have continued to drag on overall performance, making Lightspeed a tougher sell for software investors drawn to faster-growing companies, particularly at a time when investors are generally spooked about the prospects for older software companies over concerns that new artificial intelligence firms could threaten them. The stock closed up 0.4 per cent on the Toronto Stock Exchange on Wednesday.
Mr. Dasilva has brushed off concerns about the threat of AI to his company, saying that Lightspeed has introduced AI tools to help its customers run their businesses more efficiently, adding that they are trained on proprietary data running through its system.
Lightspeed has sworn off making large-scale acquisitions, though it could make smaller purchases of companies that help it deliver faster product development. Lightspeed last year abandoned a sale process for the whole business, bucking a trend that has seen many Canadian publicly-listed technology companies sell out.
In a research note Wednesday, CIBC Capital Markets analyst Todd Coupland called the divestiture “a strategically sensible clean-up,” but added “we expect the stock debate to remain centered on the timing and credibility of a durable growth re-acceleration.”