Canadian tech firms face another uncertainty with stronger greenback
U.S. dollar rise good for some, not for others
OTTAWA • Canadian technology firms and startups, already facing a looming recession and possible cost-cutting measures including layoffs, have also been grappling with the effects of a stronger U.S. dollar since August — prompted, in part, by the U.S. Federal Reserve’s aggressive interest rate hikes.
Until the last several months, Canadian businesses had enjoyed a more favourable exchange rate, with the loonie valued at around $1.25 per U.S. dollar from Christmas 2020 to this summer. In September, the U.S. dollar-loonie pair jumped up to more than $1.35 and has experienced some ups and downs over the past eight weeks, returning to pre-pandemic levels.
A rising American greenback has affected everything from supply-chain costs to hiring plans, Canadian firms and experts told The Logic.
While more Canadian companies explored hiring talent from abroad with the rise of remote work during the pandemic, there are signs of a pullback on the trend with salaries paid in U.S. dollars suddenly becoming more expensive.
Jamie Savage, founder of the Leadership Agency, a headhunting agency for North American startups, said while Canadian firms haven’t made drastic changes to hiring plans due to the exchange rate just yet, the tone of those conversations is “shifting a bit.”
“They’re like, ‘If we find someone in Canada, that would be preferable,’” Savage said.
On the reverse, Canadian tech workers are now comparatively more affordable for U.S. companies to hire. Zak Hemraj, co-founder and CEO of Toronto-based response-management software company Loopio, said some of his staff have left for jobs at companies in other regions.
“That’s part of the threat — Linkedin inboxes are getting bombarded by recruiters from not only in your own city, but from everywhere,” he said. “I think companies that are based in the States all see that benefit, that their dollar can go a little further when they hire north of the border.”
Montreal-based fintech company Lightspeed Commerce, which lists its shares on both the Toronto Stock Exchange and New York Stock Exchange, adjusted its annual revenue forecast from US$740 million to US$760 million, down to US$730 million to US$740 million in its most recent quarterly report. CEO Jeanpierre Chauvet estimated US$13 million of that decrease will come from exchange rate fluctuations, because the firm reports in U.S. dollars but earns 40 per cent of its revenue from other countries.
“Because they report in U.S. dollars, the portions of their revenue … that are not denominated in U.S. dollars are negatively affected,” said Eugene Simuni, an analyst and managing director at New York-based research firm Moffettnathanson.
Lightspeed posted a second-quarter gross transaction value growth rate of 18 per cent, but the number rose to 26 per cent after it was adjusted for exchange rate fluctuations.
Simuni said he expects a strong U.S. currency to remain a financial reporting concern for Lightspeed over the next few quarters, but added that fluctuations won’t likely impact the fintech’s operations.
Meanwhile, some Canadian tech companies are monitoring the effects of the shifting exchange rate but haven’t acted yet. Vancouver-based culture- and team-building company Wavy has customers and employees in both the U.S. and Canada.
“Having U.S. customers that are paying in U.S. dollars can be really beneficial from a revenue side of things,” said Shawn Hewat, CEO and co-founder of Wavy. “So it can be a real upside getting U.S. dollars (from) customers.”
She also pointed out that paying employees and vendors in the U.S. has become more expensive, but it hasn’t stopped the company from engaging with them. “It’s something to pay attention to,” Hewat said.
While it may be challenging to predict which direction the U.S. dollar-loonie pair will move in the future, other companies said they’ve learned from previous volatility and have put safeguards in place.
The higher exchange rate has impacted the costs of producing Syngrafii’s Longpen, said John Gruetzner, COO of the Toronto-based e-signature company. The Longpen is a robotic pen that allows people to remotely sign physical documents on a smartphone or tablet. “Some of the key components come from the United States and some of them come from Asia, so those are denominated in U.S. dollars. So, when they land in Canada, obviously, the costs go up,” he said.
Gruetzner suggested the 80/20 rule, where the main supplier provides 80 per cent of a product’s components and another provides 20 per cent, so if supply-chain issues arise or costs go up, the company can ramp up production with the secondary manufacturer.
“You have to, in an ideal world, have two suppliers of what’s mission critical to your company, and ideally those are in different countries,” Gruetzner said.
He also advised that it would be useful, if cash flow allows, to “keep a kitty in your bank” of the currency from the country of production to mitigate exchange rate impacts.