Lightspeed POS Inc

Lightspeed POS Inc (TSX: LSPD) provides omni-channel commerce-enabling SaaS platform. Its software platform provides customers with the functionality it needs to engage with consumers, manage their operations, accept payments, and grow their business.

Key highlights 

• Robust Q3 2021 performance: The company reported decent performance in the Q3 2021, with revenue surged by 79% to USD 57.6 million compared to USD 32.3 million in the previous corresponding period and gross profit improved by 54% to USD 33.3 million against USD 21.6 million in pcp.

Source: Company 

• Balanced Portfolio: The corporation has worldwide footprints and is a market leader in North America, which accounts for 59% of sales, while Europe and the rest of the world account for 41%. This demonstrates that the company's market is diversified across countries and thus is not reliant on a single geography. However, on the business front, the retail division contributes 48% of the group's sales, while restaurant/hospitality contributes the remaining 52%.

Source: Company

• Impressive Growth Profile: In recent years, the business has seen a significant growth in Gross Transaction Volume (GTV) and Total Customers, owing to a change in market demand and customer inclination toward the eCommerce sector. Furthermore, the company has expanded its operation in a variety of markets, which has boosted overall performance.

Source: Company 

• Fresh acquisitions: ShopKeep Inc., a leading cloud shopping network for both retail and hospitality, and Upserve Inc., a leading restaurant technology cloud software firm, both based in the United States, were recently purchased by the company. Lightspeed's market share in the United States has increased as a result of these acquisitions. Furthermore, we expect that when Lightspeed Payments incorporates these services into its Payments solution, these acquisitions would create a growth catalyst for the company.

• Event update: The company will release its full year 2021 financial result on May 20, 2021.

Financial overview of Q3 2021 (expressed in thousands of US dollars)

Source: Company 

• The company reported an increase by 78.5% in its total revenue to USD 57.6 million, against USD 32.2 million in the previous corresponding period (pcp). The increase was primarily aided by strong performance within the Software and payments segment.
• Gross profit in Q3 2021 stood at USD 33.2 million, against USD 21.5 million in pcp, thanks to elevated revenue, partially offset by a significantly higher direct cost of revenues.
• In the reported period operating loss widened to USD 44.6 million from USD 16.4 million due to higher sales and marketing expense, increase in amortization of intangibles coupled with higher research and development expenses.
• In Q3 2021 the net Loss surged to USD 42.6 million, against a loss of USD 15.7 million in pcp. 

Risks associated with investment

To stay afloat, products and services need constantly innovation and upgrade, which may result in increased R&D costs. This might put pressure on already-negative operating margins. 

Stock recommendation

In the recent past, the company expanded the availability of Lightspeed Payments across the United Kingdom, and other parts of Europe. We believe this would fulfil the growing needs of payment services for small and medium-sized businesses in the hospitality industry due to the rising trend of contactless payment. The company witnessed a growth in its customer locations to almost 84,000 in the quarter, and to almost 115,000 overall after including the addition of Upserve and ShopKeep. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 70.09 as on May 12, 2021.

One-Year Price Chart (as on May 12, 2021). Source: Refinitiv (Thomson Reuters) 

Tecsys Inc

Tecsys Inc (TSX: TCS) is a Canada-based company engaged in the development, marketing and sale of enterprise-wide supply chain management software for distribution, warehousing, transportation logistics and point-of-use. The Company also provides related consulting, education and support services. 

Key highlights

• An eighth consecutive quarter of record revenue: The organization continues to perform admirably, as shown by eight consecutive quarters of record sales. Both divisions performed well in Q3 2021, with SaaS revenue increasing by 89% to CAD4.7 million and Cloud, support, and subscription revenue increasing by 26% to CAD13.4 million. Total revenue for Q3 2021, increased to CAD 31.94 million, CAD 5.1 million or 19% higher, compared to CAD 26.85 million for Q3 2020.

Source: Company

• Rising annual recurring revenue (ARR): Despite the turbulent year of 2020, the Company retained its momentum and saw its ARR perform admirably. The Company is constantly working closely with clients, and as a result, its footprint is growing in tandem with scale, which is commendable.

Source: Company

• SaaS segment bookings fueling recurring revenues: The company witnessed higher revenue from Cloud, maintenance and subscriptions, which increased to CAD 13.4 million, up CAD 2.8 million or 26%, in Q3 2021 in comparison to CAD 10.6 million in the previous corresponding period. SaaS primarily drives the increase. New SaaS revenue from bookings in the recent quarters drove the rise in SaaS revenue, which also gained from transaction volume-based SaaS fees. In Q3 2021, SaaS revenue was CAD 4.7 million, up 89% or CAD 2.2 million from the previous corresponding period.

Source: Company

• Strong and growing backlog: The business is gaining traction as its backlog increasing, owing to the company's success with SaaS. The contracted SaaS backlog was CAD57.6 million on January 31, 2021, up 11 percent from CAD 52.0 million on April 30, 2020, and the Professional Services backlog rose to CAD37.8 million.

Source: Company

Financial overview of Q3 2021 (in thousands of CAD)

Source: Company 

• In Q3 2021, the company posted higher consolidated revenue of CAD 31.9 million, compared to CAD 26.8 million in the previous corresponding period. Healthy performance from all the segments helped the company to achieve a higher mark, partially offset by revenue from proprietary products.
• Gross profit increased to CAD 15.4 million, up 20%, against CAD 12.8 million in Q3 2020.
• The company posted a profit from operations of CAD 2.6 million in the reported quarter, against CAD 1.3 million in pcp, partially offset by higher G&A expenses and higher R&D expenses.
• In Q3 2021, the company reported a net profit of CAD 1.8 million, against CAD 0.8 million in pcp, primarily due to higher revenue, partially offset by higher income tax expenses.  

Risks associated with investment

A large part of the company's sales comes from subscriptions. Customers cancelling their subscriptions or the company failing to draw more healthier customers may affect the company's financial results.

Valuation Methodology (Illustrative)

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The results in the third quarter of fiscal 2021 reflects the demand for the company’s solutions is growing. This is the company's eighth consecutive quarter of record sales. The company expects SaaS revenue to continue to rise due to extension and migrations of existing customers, as well as new customer wins. The second big COVID surge pushed out some deals, culminating in a sizable new company backlog for fiscal 2021's fourth quarter. Furthermore, the company is pleased to announce the signing of six new accounts in the quarter, three of which were large accounts that signed small initial orders with significant growth potential. Therefore, based on the above rationale and valuation, we recommended a "Hold" rating on the stock at the closing price of CAD 41.66 on May 12, 2021. We have considered Kinaxis Inc, Absolute Software Corp, Descartes Systems Group Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on May 12, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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