Why Lightspeed POS's strong quarter is a positive omen for the broader economy

Rather than retreat during the COVID-19 crisis, retailers and restaurants realized they needed technology of the kind that Lightspeed provides more than ever

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Montreal’s Lightspeed POS Inc. probably isn’t big enough to be a true bellwether for the economy, but its performance can likely tell us something about the trajectory of the recovery from last year’s epic recession.

Lightspeed, whose core business is designing point-sale-software for independent retailers and restaurants, suffered through the first wave of the pandemic along with everyone else. Its share price crashed almost a year ago, dropping about 70 per cent between late January and late March. With much of Europe and North America locked down, there was little reason to feel great about a company that primarily serves eateries and sellers of nonessential goods.

But it soon became apparent that the COVID-19 crisis would be different than a typical near-depression. First, governments and central banks put so much foam on the runway that a horrific crash would be impossible. Things were bad, but viable businesses could get loans and unemployed individuals could count on generous emergency benefits.

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Then, rather than retreat, retailers and restaurants realized they needed technology of the kind that Lightspeed provides more than ever. Demand held up, and the company’s stock by the end of the year was worth about $90 on the S&P/TSX composite index, double its previous peak.

There might be some froth in that valuation, just like in the rest of the stock market, but the direction is correct: Lightspeed is a good bet on where street-level commerce is headed. Its technology allows users to process sales face to face or over the internet, a combination that was still frivolous in February 2020, but essential a month later.

Lightspeed on Feb. 4 said its software was being used in about 84,000 customer locations (primarily North America, Europe and Australia) at the end of 2020, a 14 per cent increase from a year earlier. Including new clients that chief executive Dax Dasilva added via a couple of big acquisitions in the United States last quarter, Lightspeed’s location count, a key metric, is now at around 115,000.

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That’s good for the company’s growth prospects, but it also means tens of thousands of companies are better equipped to deal with the vagaries of the pandemic’s second wave. It’s a signal that the economy will be more resilient going forward.

“This wave feels different from the first within our customer base,” Dasilva said in an interview after releasing his company’s latest quarterly figures. “In places like Australia, where there is a reopening, we’re seeing how businesses are behaving during the reopening. There are new locations being added. People are moving off legacy (systems) and onto new cloud-based systems because it future proofs their business.”

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Lightspeed’s revenue over the final three months of 2020 was US$57.6 million, an increase of almost 80 per cent from a year earlier. That figure includes sales by ShopKeep Inc. and Upserve Inc., former rivals that Lightspeed purchased in the fall. Excluding those acquisitions, revenue was 53 per cent higher.

The company said it expects revenue of around US$70 million this quarter, which exceeded the Bay Street average of about US$65 million.

To be sure, Lightspeed remains unprofitable, but profit isn’t the goal at this stage of the company’s evolution. Executives on a conference call with analysts reiterated that they are “working hard to build a category leader,” which requires an emphasis on growth over a perfect balance sheet. The company has about US$240 million in cash on hand, even after spending around $1 billion on ShopKeep and Upserve, so it has room to manoeuvre.

Thanos Moschopoulos, a Bank of Montreal analyst, called the latest earnings report “very strong,” especially considering the second wave of COVID-19 infections was sweeping through all of Lightspeed’s most important markets.

“The results reaffirm our view that (Lightspeed) is very well positioned with respect to capturing its market opportunity, and that it can continue to achieve strong organic growth even in the current climate,” Moschopoulos said in a note to clients.

There’s evidence in Canada of an upsurge in business formation, which also bodes well for Lightspeed. Canada Revenue Agency issued more business and tax numbers during the final few months of 2020 than in the same period a year ago. Many of those new companies will fail, but it’s possible failure rates will be lower than in the past, because those companies will be geared for the digital economy.

“We have previewed that we may see more churn, that we may see more business failure in the coming quarter and beyond, but for now it’s fairly stable on the retail side,” Dasilva said. “Hospitality churn may be up a little bit year over year, but it’s below levels from the first lockdown. That’s because our customers are better prepared. They are leveraging digital and online strategies.”

• Email: kcarmichael@postmedia.com | Twitter:

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