The independent retailers and restaurants that use Montreal-based Lightspeed’s point-of-sale technology are gradually getting back to business following pandemic-induced shutdowns. On Thursday, the company said it brought in US$36.2 million in revenue between April and June, a 51 per cent year-over-year increase. 

Despite that growth, Lightspeed’s shares were down almost four per cent in morning trading, as the company’s net losses doubled to US$20.1 million, up significantly from US$9.1 million in the same period last year. Here’s what you need to know about the firm’s quarter.

The big number: Lightspeed reported gross transaction volume (GTV)—which represents  the total value that merchants process through its software—of US$5.4 billion between April and June, up 17 per cent from the same period last year. 

Why it matters: While the uptick is significantly smaller than in previous quarters since the company went public, it’s a recovery from the early months of the pandemic—GTV dropped in March and April before rebounding to 53 per cent year-over-year growth in June. Hospitality customers make up about 45 per cent of locations using Lightspeed’s technology, and many were forced to shut their doors due to lockdown measures. “Restaurant volumes were down by 80 per cent or more in the last week of March and into April,” CFO Brandon Nussey said on the company’s Thursday earnings call. “However, by the end of June we saw overall restaurant GTV get back to its pre-COVID levels.” Retail customers have made up the lost ground and more, posting a 13 per cent year-over-year increase in volumes, with e-commerce nearly doubling.  

Staycations lifting sales: Retail GTV growth was strongest among stores selling outdoor and recreational products, as consumers cope with limited outing opportunities during lockdown. “There’s been an extraordinary period of time for bike shops and home and garden, and some of these verticals that we serve very well,” said Nussey, noting that the company expects that to “wane a little bit” in the fall. Golf has also been popular. “With any luck, offsetting that will be a good holiday season for retailers and restaurants,” he said. Lightspeed’s biggest quarters are traditionally the first three and last three months of the year.

Subscription sales remain dominant: Relatively little of the company’s income is directly tied to merchant transactions, but it’s working to earn more from their sales. The company charges customers a subscription for its technology, and typically signs customers up on year-long contracts. Software and payments brought in 92 per cent of revenue for the quarter. It doesn’t break out the latter category, but in a March interview with The Logic, PI Financial head of research Gus Papageorgiou estimated it at about seven per cent. By comparison, POS competitor Square made 36 per cent of its revenue from transactions last quarter, with those sales down 12 per cent. “We’re still only monetizing a small portion of our GTV through Lightspeed Payments,” Nussey said on the earnings call. The company said more than half of merchants with access to the processing service—which includes Canadian retailers and both U.S. stores and restaurants—are now using it. It’s also following Square and other independent retailer-focused tech platforms like Shopify into customer financing. On Wednesday, it launched Lightspeed Capital, which will loan up to US$50,000 per location to U.S. merchants using its payment product. San Francisco-based Stripe will finance the loans, meaning Lightspeed won’t have to use its own balance sheet to fund the new product. That’s a safer model than Square’s, which extends its own capital and quadrupled its loss reserves in the first quarter as it braced for more borrower defaults.   

The analyst’s take: Lightspeed is “showing significantly more resilience (especially from a GTV perspective) than expected,” Thanos Moschopoulos, managing director of equity research for technology at BMO Capital Markets, wrote in a Thursday research note, citing the restaurant recovery and retail e-commerce growth. The launch of Lightspeed Capital comes “perhaps sooner than we would have expected,” he added.

Costs up: Operating expenses totalled US$42.9 million, down slightly from the previous quarter, but up 65.5 per cent compared to the same period in 2019. That’s still slower than cost increases in the previous two quarters, as the fast-growing company has added staff through hiring and acquisitions. Lightspeed spent US$15.1 million on sales and marketing between April and June, almost as much as in the first three months of the year, despite the pandemic. “Demand has been good over the last couple of months and into July,” noted Nussey, so Lightspeed will be “ramping back up on some of that discretionary spend around sales and marketing to meet the demand.” 

What’s next: After suspending its guidance earlier in the pandemic, the company restored its forecast, projecting revenue of US$38 million to US$40 million in its fiscal second quarter and adjusted EBITDA loss of up to US$8 million. But it isn’t making any predictions for the full-year, citing the “ongoing uncertainty regarding the duration and magnitude of the COVID-19 pandemic and the possibility of a resurgence.”