Q3 2022 Lightspeed Commerce Inc Earnings Call
Good morning, My name is Rob and I will be your conference operator today.
At this time I would like to welcome everyone to the Lightspeed third quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you would like.
To withdraw your question again pressed the power press the star one key thank you Gus Peppa Giorgio head of Investor Relations you May begin your conference.
Thank you operator, and good morning, everyone and welcome to my speech fiscal Q3 2022 conference call.
Joining me today are Dax Dasilva, <unk> founder and executive Chair J P survey, our newly appointed CEO and Brandon <unk> Chief Financial Officer. After prepared remarks, we will open it up for your questions.
We will make forward looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Certain material factors and assumptions were applied in respect of conclusions forecasts and projections contained in these statements. We undertake no obligation to update these statements except as required by law.
Should carefully review these factors assumptions risks and uncertainties in our earnings press release issued yesterday, our third quarter 2022 results presentation available on our website as well as in our filings with U S and Canadian Securities regulators.
Also our commentary today will include adjusted financial measures, which are non <unk> measures. These should be considered as a supplement to and not a substitute for <unk> financial measures reconciliations between the two can be found in our earnings press release, which is available on our website on SEDAR dot com and on the SEC.
Edgar system. In addition, our commentary today will include key performance indicators that help us evaluate our business and measure our performance identify trends affecting our business formulate business plans and make strategic decisions such key performance indicators may be calculated in a manner different from similar key performance indicators.
Used by other companies and finally note that because we report in U S. Dollars. All amounts discussed today are in U S dollars unless otherwise indicated.
Before I turn it over to Dax I want to take this opportunity to remind everyone that lightspeed will be hosting a webcast to highlight the release of its flagship lightspeed restaurant offering.
We will take place on Tuesday February 8th at 12, 30 PM Eastern time. Please go to the events and presentations section of our IR site to register with that I will now turn the call over to Dax.
Okay. Thanks, Scott Good morning, everyone and thank you for joining us today.
I'm sure. Most of you have seen the press releases from last night announcing both the earnings for the quarter and changes amongst the senior executive leadership team.
He was pleased at light speed was again able to deliver results ahead of our previously established outlook.
<unk> organic growth.
With regards to changes in the executive leadership team I will be assuming the newly created role of executive chair and focusing my time on setting strategic priorities for the company at the board level and will be directly responsible for all ESG and <unk> initiatives.
GDP show they buy longtime colleague and friend has been appointed CEO .
He joined the light speed in 2012 as Chief revenue Officer. He became a board member in 2013 and was promoted to the role of President in April of 2016.
J P. It's driven the company's M&A strategy was instrumental for our listings on both the Toronto and New York stock exchanges.
The launch of the highly successful lightspeed payments offering.
His vision and focus on execution has helped lately transformed from a regional Pos provider to a global commerce platform integrating suppliers merchants and consumers.
As Lightspeed continues to execute on its mission and recognize its full potential.
Think of no one more qualified to J P to lead the company.
Given J P is assume more and more responsibility during his tenure lightspeed. This is a natural progression and I expect a seamless transition.
As executive Chair I will remain very involved in license future direction, ensuring the company remains the commerce platform of choice for businesses everywhere as well as the preferred employer for the world's top talent.
On that note I would like to take this opportunity to publicly welcome our two new board members, Natalie Gavel and Dale Murray.
Both women are distinguished leaders from the technology sector and possess extensive board experience.
<unk> was a co founder of one of the largest e-commerce market places in Europe , and Ms. Marie Cofounded Omega logic.
Both bring international experience that will be very valuable for the company.
I look forward to working with both Natalie and deal in the months and years ahead.
And with that I will pass it over to J P.
Thank you Dax before I begin I just want to thank you and our board for Entrusting me with the position of CEO .
<unk> has been my home for the past nine years and it has been both an honor and a thrill to help you build this company into the global player.
That it is today.
I joined Lightspeed, because I believe in the company mission, which is to help entrepreneurs all over the world operate and grow their businesses.
I believe strongly that what we do matters because it allows our customers to recognize their ambitions invest in their communities.
Employment.
Toward their families and deliver local flavor and color to their neighborhoods in cities Lightspeed.
<unk> is a mission driven company.
It will remain so under my tenure.
Before we discuss this quarter I wanted to provide a framework for how I view the company outlined might go over the coming years.
I think it's very important to stress that Lightspeed software company first and foremost.
Payments is an important revenue stream payment.
Payments is there to enhance the value of our core software offerings not replace it.
Our customers do not come to us.
Because of our payments offering they come to us because our software allows them to better manage our inventory.
Our customers simplify their operations and grow their businesses.
And this software provides tremendous value to.
I am sure. Many of you saw our press release from last month, which highlighted the fact that lightspeed retailers in the U S grew same store G television at nearly twice the rate of industry sales growth.
I know some companies are willing to give away their software in order to win the payments business, we do not believe in that model.
Maintaining a superior software offering will allow our customers to be more prosperous increase the value they derive from lightspeed and in turn allow us to deliver strong margins and growth to our investors.
Industry, leading software capabilities will remain an absolute priority for this company.
Whether that is accomplished through internal development or acquisition as a matter of tactics and both avenues will remain viable alternatives.
In terms of my goals over the next few years I want to highlight four key objectives.
Growth.
People.
Product and profitability.
On growth I want to provide confidence to our shareholders that licenses growth prospects remain very strong.
At our capital markets day in November of last year, we highlighted that we believe the company can grow 35% to 40% organically a year and we remain committed to that goal.
We maintain hundreds of thousands of customer locations in a market of maintenance, where David legacy systems hold the highest market share.
We've grown software <unk> every year that I've been with Lightspeed and plan to continue to do so.
And finally, our payments offering is still very much in its early stages.
Right the tremendous growth we've experienced over the last two to three years.
I believe that increasing our customer location.
Expanding software RP and growing our payments volumes should continue to provide growth for several years to come.
But in addition to this summer.
Something we have not fully contemplated in the 35% to 40% organic growth is.
Is the potential contribution of our supplier network initiative.
We're still in the early stages here.
And we will be making announcements through the course of this year.
When we deliver on this initiative I believe both our competitive position and growth prospects will only improve.
In terms of our people I believe lightspeed maintains the most talented and committed employees in the industry.
We hire people who want to make a difference our people are highly dedicated because they believe in the mission of this company.
We have the people, we hire come directly from the hospitality and retail industries and understand the challenges our customers face.
As CEO I want to maintain our high performance culture and ensure that lightspeed is seen as an employer of choice.
Moving onto product I believe our stress this point in the past.
I'll reiterate.
Lightspeed is not a consolidator every acquisition we have undertaken for a very specific per starts every single one will be integrated into one lightspeed product offering and brand.
Recently, we launched our flagship hospitality offering lightspeed restaurants.
Later this year, we will launch the latest version of Lightspeed retail.
By the end of this calendar year, we expect to be in market with two core offerings.
Restaurant and Lightspeed retail under one Lightspeed Brian .
We will continue to support customers on acquired platform for the foreseeable future we're providing.
Ample incentives for them to migrate to the latest and greatest release.
With two core offerings to maintain a highly integrated payments offering lightspeed should become even more competitive in the market.
An enhanced ability to increase software <unk> and benefit.
For a more simplified and cost effective operations.
But going beyond even this our supplier network initiative is very exciting for this company.
We believe we are in a unique situations pre merchant.
Flyers brands and consumers closer together and improve the retail experience for all constituents. Our goal is to provide small and medium sized merchants with a level of supply chain visibility and control that they have never experienced before to give suppliers and brands real time market insights that allow them to increase sales, while reducing inventory level.
And ultimately provide consumers with a more satisfying retail experience.
We have a very powerful vision for our product roadmap.
A unique position to revolutionize this industry and my goal will be to ensure we execute on this vision.
Finally, we know the market is interested in our profitability.
I want to stress that it will continue to invest in the business and growth remains our top priority.
However.
Given our increasing sales and strong improving unit development.
Path to profitability is becoming more apparent.
I want to ensure investors that reaching profitability remains a priority and that will continue to provide greater clarity on that front in the coming quarters.
Okay.
I'll, let Brendan discussed the quarter, but wanted to make a couple of general comments.
Despite some headwinds from the omicron variants late in the quarter Lightspeed had another strong quarter.
Revenues were up 165% year over year, and both revenues and adjusted EBITDA were ahead of street expectations and previously established outlook.
We saw strong organic software and transaction base growth of 74% in the quarter.
Payments volume increased 304% over the same quarter last year, and GTT was strong with organic GTD growth at 53%.
We announced at the iconic Canadian retailer debate.
Partnered we'd like to beat to digitally transform its in house buying and merchandising.
This customer was secured through new order by Lightspeed.
Large retailers like did they are not like these core target customer adoption of our supplier platform illustrates the power of this tool.
Maintaining these large retailers are customers only and charges more and more brands to come onto the platform, which then makes our platform even more attractive to our SMB customers. We continue to see momentum amongst other larger retailers as well.
All of which we are not at right now and are working diligently to rollout our supplier network to our core vertical over the next year.
And although we were happy to announce debate as a customer focus will remain on targeting small and medium sized businesses and we continue to see momentum among that core base. Some notable wins in the retail includes bond work of 49.
Location women's apparel chain in the U S that is using lightspeed retail and payments.
Brooks discount Fitments with 26 locations in Texas, taking on Lightspeed retail analytics loyalty.
Our intimate apparel with seven locations in Wisconsin that adopted like retail e-commerce accounting and payments.
In hospitality, we were happy to sign Gorilla cinemas in Cincinnati with fix immersive cinema and bar locations.
Okay hotels in France.
With nine locations.
Peerless restaurants, with 10 locations until you Philadelphia, which took on our hospitality solutions with payments.
Pulp and <unk>.
Three Michelin starred restaurants in Belgium that have maintained its waiting for 17 years and hotel <unk> in Paris.
That will be using lightspeed hospitality solution and things.
In the quarter, we saw some very strong activity from mid market customers.
These customers generally have multiple locations quite plus on GTA V in the millions.
Their operations tend to be larger and more mature and they are also less prone to churn.
They are also more likely to have a broader suite of solutions from lightspeed.
As a result, they tend to have a superior lifetime value as a customer.
I think the success Youre seeing in this segment is evidenced with Lightspeed solution is engineered for more complex businesses, which is exactly our target markets.
As we continue to show momentum in the mid market.
And believe this will show through in our financial performance.
To wrap it up I'd like to once again convey my gratitude for this opportunity to lead light speed on the next leg of its journey.
It's my view that Lightspeed has never been better positioned than it is today and I couldnt be more excited to take on this challenge.
And with this I will pass it onto branded.
Thanks J P.
It was another strong quarter from the business, we were able to deliver $153 million in revenue part of our guidance of $140 million to $145 million with software and transaction based revenue up 74% from last year.
<unk> basis.
And total revenue up 165% overall.
Our customers continued to show their resilience their positive outcomes drove our good results today as these businesses overcame supply chain disruptions and another wave of the global pandemic.
So despite our caution on the macro environment as we entered the quarter the <unk>.
<unk> and our business model, we're able to deliver some great results.
The diversity of our customer base and our multiple growth levers continue to serve us well.
That our business can continue to deliver organic growth at this level given the various challenges we have faced speaks well to our long term potential.
As an overall know youll see in our press release issued today that.
We have broken out the impact of equity on the quarterly results.
Given the timing of that acquisition and the different characteristics of their business versus our core.
We trust you will find this incremental disclosure helpful in tracking our progress.
I'll speak to the overall equity business later.
Looking at customer locations, we now serve approximately 315000 customer locations around the world.
Including approximately 156000 online businesses served by accurate.
When excluding these are locations grew from almost a 115000 a year ago to over 159000 at December 31.
We've provided the split of these locations in our press release issued today.
We.
They need to see good demand for our retail offering in the quarter, which provided strong organic growth.
We also saw improvements in Australia, and New Zealand after patent pandemic lockdowns affected that region last quarter.
And while not a significant contributor to customer locations overall, we had a very successful quarter and a <unk> supplier business signing a number of strategic accounts such as the bank.
However, we did see hospitality, particularly in Europe have a challenging month of December as the effects of Arbitron began to impact our selling activities in that region.
As we've learned through past waves, we expect this to be a temporary impact.
Not something long term in nature.
So looking now at payments and GTA V are transaction based revenue was $76 million in the quarter up 249% from a year ago.
This was driven by ongoing customer adoption of our payment solutions, where we act as principal.
And another strong quarter of volumes processed by our customers using those payment solutions.
Very clearly this part of our business model continues to drive outstanding results for us.
The customer locations that use them increased 195% as compared to a year ago and in aggregate our payment solutions processed over 300% greater payments volumes than we had a year ago at this time.
This is outstanding progress.
The payments volume processed player solutions was $2 2 billion in the quarter up from zero point $6 billion a year ago.
The macro factors regarding supply chain challenges and omicron surges, our customers drove strong volumes and in turn drove great revenue for us.
Our overall CTV in the quarter was approximately $19 8 billion, excluding the contribution from equities customers and $20 4 billion with the <unk> customer base. Please.
Please recall that <unk> does not include the <unk> volume handled by our supplier solutions and represents only the BDC volumes.
As we look deeper at CTV overall growth in <unk> was 124% on an organic basis CTV grew 53%.
Retail GTA V grew by 115% on an organic basis was up 36% year over year.
Hospitality <unk> grew by 137% and 79% on an organic basis.
We are encouraged by how our customers are using our solutions, we're able to overcome the macro factors that gave us caution that it started the quarter.
While we are seeing growth moderate in some of our high flying verticals during COVID-19 , such as bike and home and garden. We're now seeing growth picked up in other verticals that are helping to offset.
As we look at payments, we remain optimistic we have payment solutions that cover the majority of our customer base, we have a growing GTD base and customer uptake in volumes on our payment solutions remains strong.
We continue to make significant progress on our established Payment's markets in North America and remain confident we'll see that continue to grow.
We are now seeing early signs of success in new international markets, giving us confidence that we will see these new markets adopt our solution at an increasing rate.
We ended the last month of the quarter processing, approximately 12% of our global <unk> with our payment solutions.
Double where we were a year ago.
This is especially impressive given that our total <unk> has grown by 124% in that same period on the back of our organic growth and new sources of GTP from our acquisitions.
We believe that dynamic of expanding payments penetration into a growing base of GTA V sets up significant future potential here.
Our <unk> in the quarter was approximately $290 excluding equity up from approximately 180 a year ago.
This was driven by ongoing growth in our software <unk> and continued progress with payments excluding equity software ARPA was 130 in the quarter up from 110 a year ago.
Non <unk> gross profit followed this growth that was up 132% year over year.
This was a good indicator of the success of our business model.
All in all our revenue rose to $153 million in the quarter.
Software and payments revenue was $144 4 million and grew by 74% organically.
175% overall.
Of this $144 4 million $68 6 million came by way of subscription software revenue and $75 9 million came by way of our transaction based revenue stream.
As mentioned earlier, our revenue growth was driven by continued growth in customers and adoption of our payment solutions and in addition, we saw continued strong results from the <unk> side of the business through a new order acquisition.
Which successfully added significant customer wins with the bay and many top tier fashion brands and suppliers.
As contemplated in our guidance given for the quarter.
We were also successful in securing a contract with one of our payments processing partners.
Provided us improved net take rate on future volumes and also resulted in recognition of approximately $5 $5 million of revenue for the quarter on account of past volumes.
The successful outcome as another indicator of the benefits of our increasing scale.
Yes.
Hardware and other revenue made up the remainder of revenue in the quarter and was $8 $2 million as youll see in our financial disclosures.
Hardware gross margins were negative again this quarter.
We've been using discounts on hardware.
And incentives to drive new customer wins, mainly in the hospitality space.
We will continue to monitor the ROI of this incentive which is early in its lifecycle.
Transitioning down the income statement now our gross margin for the quarter was 52% as compared to 58% a year ago. The.
The shift is driven by success of our payment solutions, which carry a lower gross margin and the hardware incentives I previously mentioned.
This trend is not concerning nor unanticipated and in fact is encouraging the stronger the success of our payments rollout more gross profit dollars per customer location, we earn.
Higher gross profit per customer location is what leads to leverage in the business model and the long term.
We're already seeing that in our model as evidenced by sales and marketing as a percentage of revenue falling from 49% to 36% over the past year.
So our gross margin percent may fall with the ongoing rollout and success of payments. We're focused on the expanded gross profit dollars, we earn per customer location.
Last note on margins, we've always felt that scale matters in this business scale and the resulting brand recognition affects our ability to attract new customers and prospects.
And scale influences the spread we take home on our payments offerings.
Should processing volumes increase we expect to be able to realize improved gross margins over time on payment solutions and many of our existing contracts are already structured to achieve this.
And finally, then adjusted EBITDA loss for the quarter was $7 million ahead of our guidance of between 10 and $12 million.
This represents approximately 5% of our revenue.
Looking now at our balance sheet, we ended the quarter with just under $1 billion in cash on hand.
Cash used in operations in the quarter was $48 million and when excluding cash used and acquisition related activities.
Transaction based costs and other items as disclosed in our filings adjusted cash used in operations was $37 million. This.
This increase from $7 3 million used in Q2 and from 20 million used in Q3 of last year due primarily to timing of working capital items that were a typically large in the quarter.
The larger items here relate to our D&O insurance renewal pre purchases of inventory to combat the constraints in the supply chain.
A $5 million deposit paid to our lightspeed capital partner as part of an agreement to significantly improve our margins earned on our capital offering and an increase in our receivables balance due to timing of certain cash receipts.
So looking at that quid more closely during the quarter, we closed our acquisition of <unk>.
While equity allows us to deliver a more complete omnichannel experience for our customers.
Standalone business does have different characteristics from our traditional car.
<unk> customer count was approximately 156000 at December 31, representing the total customer count of paying customers and has an <unk> well below the rest of our customer base.
This reflects the broad diversity of customers. The business has served as a horizontal e-commerce solution provider.
Our focus going forward will be on driving strong revenue growth and delivering a no compromise omnichannel solution to our customers.
The integration of the product into Lightspeed core platforms, along with the integration of Lightspeed payments to the <unk> E Commerce solution is well underway.
With that said, we will be less focused on growing the equity store count as the progress measure instead focused on driving the solution into our existing base and our core verticals should we prove successful we will achieve revenue growth in line with our overall targeted levels with our customer mix and customer count that is potentially.
From what the equity business has today.
I'll wrap up now with our updated guidance.
Based on the good results today, we are updating our annual guidance to $540 million to $544 million in revenue from $520 to $535 million in guidance, we provided last quarter.
This implies Q4 revenue in the range of $138 million to $142 million.
We would represent organic growth above our long term target of 35, 40%.
As a reminder, our Q4 is affected by seasonality and transaction related revenue, which now represents approximately 50% of our total revenue.
Whereby our fourth quarter is our seasonally lowest quarter of the year.
We also remain cautious and mindful of the ongoing impacts of omicron across the various global markets we serve.
Is affecting consumer activity in many regions.
We expect that impact to be temporary and not indicative of long term potential.
We expect full year, adjusted EBITDA loss of approximately $45 million or 8% of revenue.
And is in line with our guidance from last quarter.
This implies Q4 adjusted EBITDA loss in the range of approximately $20 million.
This loss reflects the impact of our seasonally slower revenue in Q4.
And the increased selling and marketing costs as we close out our fiscal year.
Looking beyond next quarter, we remain confident that we will continue to meet our stated organic growth targets of 35% to 40%.
Continue to realize lower adjusted EBITDA losses, as a percentage of revenue on a year over year basis.
As J P mentioned driving the path to profitability in the near term is the priority for us.
And with that I will turn it back to the operator for your questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question comes from the line of Dan Perlin from RBC. Your line is open.
Thanks, Good morning, everyone and good quarter I wanted to ask.
A question around kind of what youre seeing and hearing.
Within the F&B space and I don't I don't necessarily mean micro I mean really sizable smbs with more complex environments.
What we've heard thus far from kind of our comp.
And maybe some other channels is that theyre, having a slower start to the year.
And we're also seeing kind of the non affluent consumers.
I think also starting a little bit more difficult. So I'm wondering if there's anything you can tell us about <unk>.
Trends that Youre seeing maybe more recently, let's say in January that would shed some light on that view.
Hey, good morning, I'll take it as JP I'm sorry.
Yes.
Look I think the first thing when we think about the trends as we went into this quarter.
<unk>.
Concerned about supply chain issues and would we see the lift.
Traditional kind of call it Christmas period lifts.
And we're very excited to see that actually we did have growth in GTA V that was very strong and we did see kind of similar patterns with the past. So that's good news that means that our merchants were not affected by supply chain and we did see the traditional verticals, where we are strong.
Bikes and outdoors slightly go down in the quarter, which is which is normal so I think for US right now where we stand.
Don't see any trend that is not in line with the traditional now every year of course January February March the lowest month for <unk> for our customers and what we're seeing for now is very much in line with the expectations nothing less nothing more.
Okay.
And then just a quick follow up if I could on.
The payments right. So as that gets calculated in the quarter. It looks kind of flattish sequentially. I know you called out December was up 12%.
But I often feel like I say, there's certain dynamics around your GDP growth, which Brendan I think you've kind of called out a little bit. So maybe if you wouldn't mind, we get a lot of questions on this.
Can you just talk about the dynamic there maybe in particular around hospitality, because I think that grew much faster than the overall company and I forget where that is in terms of payments penetration. Thanks.
Okay.
Yes for sure so.
Just a reminder, on some of the stats we do.
Just recite it on a year over year basis, we're seeing.
Close to 200% more active customers using payments those customers processed 300% more volumes on a year over year basis, and all of that drove to about 250% increase in revenue for us on a year over year basis. So this continues to go really well.
GTA V. As we mentioned has also been a growing thing.
That is a positive organic growth in <unk> was better than 50% in the quarter and up 100, and some odd percent overall.
Some of that of course comes by way of M&A and the fact that we've been able to double our penetration rate year over year, despite that M&A coming in we view as very.
Very positive overall ultimately if we're growing our payments penetration at the same time as we're growing GTA V.
That's a pretty good long term formula for us. So we think that's all good news.
Yeah.
Penetration rate for us we've always viewed this metric as being more of a potential indicator where the potential can go for this solution.
I think what we're seeing on a quarter on a corner penetration rate calculation.
Anomalies, Dan that Youre getting at.
You mentioned M&A, we had been a couple of quarters ago that goes into the denominator, we don't yet have a payment solution. There so that of course impacts things.
Just even the ebbs and flows of the virus on a quarter to quarter basis, some quarters, where hospitality is contracting other quarters like this one where hospitality is up 79% year over year organically.
And based on our various penetration rates in some of the segments in some of these countries.
Thats, what Youre also seeing on a quarterly measure basis.
And then finally JP also mentioned the seasonality aspects, we deal with some of our really strong verticals like bike and home and garden.
Our golf courses.
And those are segments, where we have a lot of market share, we do a lot of payments processing and as they go through seasonally different periods as we go through the year.
Penetration rate is going to fluctuate quarter to quarter. So that's why we think of this as being more of a long term potential measure as opposed to quarterly performance measure.
Ultimately end of the day performance is showing up in active customers volumes and revenue.
And I think.
We are seeing really good stats.
That's across all of those.
We will continue to penetrate payments no doubt as we look into the future.
But quarter to quarter measures.
There's a lot of puts and takes happening given what's going on in the macro environment overall.
Yeah understood just to be clear on the payment volume.
Sorry go ahead JP, just maybe wanted to add we're so net net we're very happy with the progress. We're incredibly thrilled that we are growing by 304% year over year and maybe one other dimension to add as you know, we've launched Europe , and we've launched Australia.
Repayments and the motions there we're very satisfied with the results.
That's great I, just want to make sure that the kpis payment volumes is going to be consistently reported I think its a great. Great report so thank you.
And we will do that.
Your next question comes from the line of Andrew Jeffrey from Jewish Securities. Your line is open.
Yes.
Hi, Good morning. Appreciate you taking the question congratulations J P and afford to working with you going forward.
Brandon I'm getting a lot of questions just on the organic calculation and certainly the equity disclosure is helpful. Can you maybe parse out a little bit the performance I think specifically of shop, keeping and observe versus prior quarters, just trying to understand what those businesses contributed revenue wise this quarter and how generally.
They are performing and I guess sort of as an adjunct.
Is there any COVID-19 impact, we should be thinking about in those businesses specifically in <unk>.
Terms of.
Their performance this quarter and then looking out in the future.
Okay.
Yes, so we.
We reported our organic growth rate software and payments revenue up 74% year over year. So you can quite.
Quite simply take last year's software and payments revenue.
Grow up by 74% and come to.
Our organic measure than revenue that includes then echoed in new order of course those acquisitions happen.
Partly through this cycle and it includes a stub period for shop keep enough serve because we they came into our mix partway through Q3 of last year.
Overall.
In terms of how those businesses are performing they're two very different.
Contributors I think overall upturn.
Got them in the midst of.
Some of them the depths of Covid and we always felt like that business has a lot of potential to bounce back as transaction volumes bounce back.
So we're seeing that play out in our results for sure.
The upstream business.
<unk> and related transaction volumes.
Really really well for us we're quite happy with those.
We've also been able to leverage a lot of the technology from from observe into our flagship hospitality offering that you hear from J P as well.
Shopkeeper.
Different situation there shop keep when we acquired the business the idea there was.
Bring it on the customers.
Bring some additional payments lift to that customer base.
And then redirect sales and marketing and do our flagship product.
<unk>.
We've been we've been quite happy with the progress there as well.
But all in all of those.
Those results are reflected in our organic.
<unk> excluded depending on which way you are approaching that question.
Organic is purely organic excluding the period.
Did not own businesses from the prior quarter.
Okay, Yeah, and I appreciate the disclosure it just seemed like maybe there was a little bit of.
Volatility, especially in the upsurge in shop key pieces. This quarter. So maybe we can talk about that offline.
And then I guess as a follow up.
In terms of locations excluding equity can you talk about sales productivity location growth has slowed a little bit here Q on Q and I'm just wondering how much that is.
Perhaps some businesses that are offline because of COVID-19 or if there's anything else, we need to be thinking about in that figure.
Yes, so I'll take that one.
Of course.
<unk> hip.
Yes.
In the quarter, but I think ultimately.
Here.
<unk> performed very well I'd like to see and I think for US we're not obsessed by locations.
I say this every every quarter but.
We could onboard many more locations of customers that would churn within a year and I think as we move along.
Your obsession is really around added MLR and I think another way to say this is I would rather have fewer customers with a higher MLR than more customers with lower MRO because they are they're going to be more established less prone to churn and more prone to take multiple solutions from lightspeed. So I think here as we go forward of course locations matter, but what am.
Matter is to bring on really good customers that do not churn and that will be with us forever and so I think that's the obsession and that's why when you look at <unk> you look at software our <unk> growth and you look at our churn numbers. They really reflect the fact that lightspeed is working with more established vendors and we actually like that so I think.
I think that's how we look at the business. That's how we'll be looking at the business going forward really here in our minds is what is the added MLR and what is the <unk> of the added MLR and also observing what is going to be the churn of those customers within year, one year, two year, three and really optimizing the business for the long term.
Okay.
Okay Super helpful. Thanks, I appreciate it.
Yes.
Your next question comes from the line of Tim Shadow from Credit Suisse. Your line is open.
Hey, Thanks, a lot for taking my question I wanted to I wanted to stick with the locations and I fully appreciate what youre, saying J P. There, but just wanted to get down some of the mechanics.
It's actually helping hoping Brendan maybe you could help me on this I know that in the past we've talked about in Q1 that were roughly 10000 organic location adds but a little bit of that was a boost from some of the reactivation that you saw and then last quarter. There were roughly 3000 or so but it was impacted negatively from some temporary.
D. Activations in this quarter is roughly 3000 organic location addition, number maybe you could just talk about the deactivation reactivation dynamics.
How that played out and how that worked into the 30, K and I guess, what we're really trying to get at is.
What was the underlying gross add trends, the churn et cetera, but the deactivation reactivation would be very helpful.
Yes, J P mentioned, a little bit of this churn, we actually saw pretty a.
Pretty positive corner overall for for churn so no.
Nothing by way of deactivation norm in fact it was.
It was one of our better quarters for churn.
So in terms of gross location adds.
Little bit of a mixed bag there I mentioned on the call we saw retail do well for us.
We're encouraged.
Trailing in New Zealand.
Again, it's it's.
Bounce back.
Really what affected the gross location adds in the quarter was just.
<unk> affecting certain markets mainly in December so that was a little bit of a headwind for us J P. Also mentioned.
Our increasing focus on making sure that the types of customers that we're bringing on are the types of customers that drive good long term LTV, so a little bit of a mix thing happening as well in that.
I think the biggest notable thing it was December was.
Was effected by omicron, mainly in our hospitality business mainly in Europe .
Okay I follow you, Brian and thank you Sir.
I fully appreciate your prepared comments you you referenced that would've impacted I guess implied gross adds.
Okay related to this so I just wanted to shift a little bit to the the recent hiring of some of the fee.
The feet on the street sales teams the job postings that are available in many major markets. Maybe you could just talk a little bit about this strategy change and what it might mean for LTV to CAC if anything.
<unk>.
How that progress of hiring those salespeople is going.
Yes, I'll take that one J P here again.
First of all the company is obsessed around LTV over CAC and on every cohort we look at it and we ensure that the unit economics are very strong and they have to be north of four to be very strong at light speed and so here.
Very simply put because we're attaching more and more customers on payments as we bring them in this gives us more room to spend on acquiring those customers and so I think generally speaking in the markets, where we have very strong attach on payments. So historically in North America, and now Europe and Australia. We now have these tactics are saying, okay well.
We can spend more to get those customers, which will.
Which should grow our <unk>.
Revenues long term and so I think going back to the previous question.
Trying to get customers at all costs, we're trying to get the right customers that have a high enough or <unk> that will not churn and that will be really good long term customers for life.
Now talking about to put on the ground whats happened in the U S.
Launched our U S.
Lightspeed restaurant solution, which is our new hospitality product, we have a strong belief that that is the best product in the industry and I would invite everybody to just look at the interfaces and how beautiful this thing is.
Now with that in mind, and knowing that we're going to attract higher G. TV customers that have a higher lifetime value. We are putting in place a blended model and a blended model is we will still use marketing and we know how to do this better than anyone we will still use marketing to drive the leads to our to our web site.
Still use internal sales to qualify those leads but windows leads are qualified we will then hand them off to field sales reps in the major cities in the U S. So that these reps can now go in person and meet the customer in person and create a much better experience and again why are we doing this because we can now afford it we can keep very strong.
Unit economics, but having people with foot on the ground and we're hoping that's going to be a really good strategy to accelerate so it's still early days, it's going well we've hired.
A couple of handfuls of people now.
Ultimately the company is getting ready for the full launch of Lightspeed hospitality, which will be at the end of this of this this fiscal year. So at the end of this quarter, we will be going out of beta and we will be going in full fledge.
And public releases and Thats when we want to have everybody on the ground trained and ready to just accelerate our penetration in hospitality in the U S.
Okay.
Excellent.
Thank you so much JP and Brendan.
Your next question comes from the line of Daniel Chan from TD Securities. Your line is open.
Hey, Good morning, Brendan do you have a view of when you'll reach breakeven I'm just trying to get color on some milestones as you move towards that 20% target you set out at your Investor Day.
It's a priority Dan.
Specific timelines, we haven't given yet.
We will provide our annual guidance and our upcoming corner.
I'll leave it at that for now.
Okay. That's fair and then you've also got $1 billion of cash on the balance sheet given that valuations have contracted significantly what's your view on acquisitions at this point.
Okay.
I'll take this I think.
Look we've been very active so we acquired seven companies in a year and a half something like that we are now really obsessed around execution. We have a very strong strategy with regards to our supplier network. We have a very strong strategy with regards to one lightspeed brand and ensuring that we have one product globally for each industry, that's really the focus of the.
The business right now.
Of course, if we see.
No.
And we've always said there are companies we love their company, if we don't care about in the industry. If we see that some of the companies, we love and which we have incredible relationships.
Are on the market and there is opportunity.
We will we will look at it at that time, but for now the obsession is.
The profitability sustained growth and really one lightspeed, which is launching all these products globally.
Okay. Thank you.
Your next question comes from the line of Scott <unk> from BMO capital markets. Your line is open.
Hi, good morning, and congrats stacks and J P on your new roles.
Brandon maybe just to clarify on the 35%, 40% growth targets I know youre not providing formal 2003 guidance at this stage, but is it safe to assume that thats the level of growth that Goodyear is achievable for 'twenty three.
Yes, when we made that comment in our prepared remarks, as we look beyond the upcoming quarter.
And into the future as.
As we sit here today, we remain confident that we can we can continue to achieve those.
Hey, Greg just clarifying that point.
Going back to the current business trends in January you talked about.
GTT and the normal seasonal trends what about.
Churn I mean, the margins in some uptick with omicron.
And.
In terms of software Arco any discounting that you're doing on the back of that or is that holding steady.
Yes churn is in line with the expectations.
It's always obviously a quarter with higher churn at the end of the fiscal year.
And as you know most of our churn I'd like for me. This business failure like most players in the SMB space, but nothing out of the norm really.
Finally on attach rates can you just comment on what you're experiencing in Europe , and Australia. Those continue to trend up now post launch.
Along the trajectory that you saw in North America or has it been different dynamic.
In those geographies.
So on the sales motion attach rates are arguably better than when we launched in the U S. So we are and where we're getting very close to similar attach rate. So we're very happy with the sales motion.
As you know.
When you launched payments in our region.
It starts with the sales motion and then your customers start coming in and then you need to ignite them. So you need to get them. The terminals do you need to be shored up and Thats really been a big focus right now is to getting all these customers that want to buy from us that assign the contract active and.
Let me another maybe a point that we could share is nobody wants to change terminals during the holiday season, because it's a very.
It's a season, where they make most of their revenues. So we're now in.
In the phase, where if all of these very strong sales are going to convert into into into GT.
So location penetration rates would probably be tracking somewhere above, particularly penetration is that fair.
Okay.
Yes, well know when we did say that.
195% increase in active customers on payments.
Great.
Yes, so it is tracking quite quite nicely with the overall revenue.
Great.
Thank you.
Our next question comes from the line of Josh Baer from Morgan Stanley . Your line is open.
Great. Thanks for the question I wanted.
Wanted to ask around the plans for getting customers over to the single restaurant.
Flagship platform and then eventually retail once those are both generally available just as far as timeline for doing so what kind of lift like what does it entail will be a seamless migration should we expect.
An increase in professional services or support costs. If you can just talk about that transition plan.
Yes.
I mean, it's in our DNA, we've done that a number of times. We also have evolved customers throughout the years on two different platforms. So we have onboarding teams that are very acquainted to doing this.
For us the goal here is to.
First of all provide.
The best platform in the world So.
Sample, our new hospitality now has been launched in many countries we need to launch it everywhere and then once that's launched what we do if we have all of our account management teams and Onboarding teams that put together promotions.
To support the customers and really the reality of this is customers go from a single point solution to a platform that does weigh more so as an example, our new hospitality have analytics that nobody else has and actually in any of the competitors in terms of analytics that we can provide to hospitality.
So there is enough books that the customers are going to be willing to move and then it's just a question of converting them. It's not a question of weeks or months. It's really a question of days to get customers ported over and we're very acquainted to doing this because we've done it many times before.
Got it that's helpful and then.
In thinking about that moved to a single platform can.
Can you talk through some of the impacts that we should expect to Cogs and Opex lines.
Okay.
The up tomorrow, we can.
Where we can integrate in the more quickly we can integrate the more leverage we will see on those.
Operating lines and a lot of work has already happened on.
That respect we are showing improvements year over year in terms of business model leverage.
But yes.
The more we can do and consolidated infrastructure consolidate.
Development resources and everything obviously has a lot of a lot ongoing leverage for us.
Great. Thank you.
Your next question comes from the line of Richard Tse from National Bank Financial Your line is open.
Yes. Thanks, you commented on sort of the <unk>.
So the revenue sharing contracts and payments Mike.
My guess is that it was primarily due to volume.
What do you think the upside is to renegotiate those contracts as you bring on further volumes.
Okay.
Tough to give you a precise number there Richard I think this is an ongoing exercise.
We've done this is actually a couple of times now at least since since we became public.
I think it's overall great news, we've always said that scale is important it's particularly important to this part of our business. We're finding these partners hungry to work with US given the scale, we are building and the progress we're making.
And that puts us in a good position to continue to.
Improved net take rates for us over time.
Tough too tough for me to give you a precise number though richard other than.
We expect.
To make this a part of our ongoing.
Way of doing business looking forward.
Alright, Okay and JP in your prepared remarks, you talked about supporting some of the acquired platform does it convert them.
Lightspeed.
How long do you think it'll take two.
Those conversions entirely complete.
Well.
First comment.
Supporting our platform versus developing new functionality.
There is no comparable in terms of resources. So what we've done immediately after all these acquisitions is we've taken at least 80% of all the developers that we're working on all of these desperate disparate platform, sorry, and we brought them to our core platform and that's why and that's the that's how we can get to still much progress so rapidly with our core plus.
So.
In other words the business models that remain are extremely profitable.
Most of the resources now ported onto the new platform and with 20% of the developers and then all of the customers paying a monthly fee. It makes those platforms are very profitable.
<unk>.
So I think thats the first comment the second comment is.
What we do is core to our customers' business this isn't an ERP.
We offer is not just.
Glorified cash register what we offer as a platform is is it as the ERP of the restaurant at the store managers everything for them. So we cannot force customers to move onto a new platform, we have to go with their rhythm.
And so that's why we made the first move to be sure.
Whatever the rhythm they want to take it as a very profitable venture.
So I think the.
Third comment I'm going to say, it's going to take a couple of years before we can get all the customers onto one platform, but the good news is that the maintenance of those platform. It doesn't require a lot of resources, we want to ensure that the core platforms or new platforms are the best out there so that they can attract as many new customers as possible and they can also attract as many call it.
<unk> customers can be afforded as possible. So we're building a lot of functionality on the new platforms that are not available on the old one set of customers or are inclined to move out.
Okay, great. Thanks for that detailed color just a quick last one for me.
When you look at sort of metrics like <unk>, just like you've disclosed this quarter given that could come to sort of a lower relative RFP.
How do you plan on reporting those metrics going forward here.
Okay.
We will continue to break out what we can Richard.
Being transparent on how some of these.
Different business types affect the overall results, we think it's important for our stakeholders. So.
We will continue to try and be transparent and helpful on all of that.
We do think it's important that you continue to track our underlying progress on <unk>.
It's an important part of our business strategy and.
We do think it's important that you can continue to track our progress there.
Okay. Thank you.
And your next question comes from the line of Josh Beck from Kb Cm. Your line is open.
Thank you and just wanted to say congrats stacks and JP on the new roles very exciting.
I wanted to ask about what you've learned with this hospitality platform launch obviously, you've gotten very far and you are just about out of beta, but just curious what you've learned in kind of how thats going to impact.
The retail Omnichannel launch and how we should think about the timing there.
Well look.
I think bottom line, we're very excited and very happy with the progress we.
For me this proves that.
These acquisitions were the right moves I mean, we've managed to completely we relaunched the product.
Within a very short amount of time and we've seen tremendous success. So Europe has now launched an incredible success in Europe and now we're starting to launch this in the U S were in line with where we want it to be and as I've said, we're really getting the teams ready for a full launch.
I think.
Again, it's not the first time that we bring a product to the U S. It's not the first time that we launched a new product to the market. So I think we're very well oiled and everything.
Everything is very much in line with what we're expecting.
The last thing we've learned is that.
Our product has.
Has real advantages compared to the market and happy to walk you through those on a one on one but we're very excited about the product and we feel really strongly about how competitive this is going to be.
Okay excellent and a follow up question really about the long term growth algorithm, the 35% to 40% if I listened to a lot of the commentary on the call. It certainly seems like Youre focused on really MRO are.
Quality, certainly seems like investing in CAC. So.
As is the.
Location growth and.
The mid teens type of.
Range, the right metric or is there a chance that could be augmented and replaced with more <unk> growth just kind of curious on on some of the puts and takes around the long term algorithm.
Yes, I'll start Brandon and then you can jump in look I think for me, it's very simple.
We are a business the way we need to run this business as being sure that we have a strong organic growth and a strong topline growth and that we we get to profitability. So with this in mind, we're going to use all the tech we have and all the all the know how we have in acquiring leads and closing leads to ensure that we optimize throughput.
Ultimately what this business is around.
And so I think thats really going to be the obsession and when we when we look at the drivers of growth the very simple.
More and more competitive.
So we should see very strong input of customers.
I don't know the account, but theyre going to be good customers that are that have good long term value for lightspeed the second thing.
Sure about is our pool of software alone is going to continue to grow because we have a ton of modules and our customers buy more from us over time and then the third thing we are certain about is that the launch would likely payments has been a tremendous success and now we have it available and we're going to have it completely available in every region by the end of this fiscal year and that's going to be a huge driver.
Growth also for topline and bottom line. So that's how we look at it and Thats why we are really bullish about the business today and we're very.
Yes, I mean.
We're very comfortable around this 35% to 40% growth long term.
Okay.
Thank you.
Okay.
And that is all the time, we have for questions I will turn the call back over to Mr. Pat Joe Joe for some closing remarks.
Okay. Thanks, everyone for joining us today I just want to remind everybody. There are quite few questions on lightspeed restaurant, we will be having a webcast next week on Tuesday at 12 30.
Going through that platform and J P will be joining us for our Q&A session at the end so look forward to hosting everybody. Thanks for joining US again today. If there is any follow up questions. Please feel free to reach out to Investor Relations Investor Relations. Thanks, everyone and have a good day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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