Q1 2023 Lightspeed Commerce Inc Earnings Call
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Good morning, My name is Angela and I'll be your conference operator today, 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'd like to ask a question. During this time.
Simply press Star followed by the number one on your telephone keypad.
I would now like to introduce Gus topic.
Gore G Whoa I do apologize for your name.
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Thank you operator, and good morning, everyone. Welcome to Lightspeed fiscal Q1 2023 conference call. Joining me today are J P Survey Lightspeed, Chief Executive Officer, Brandon Nazi Lightspeed, Chief operating officer, and Ashok Shiny, our 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 respective conclusions forecast and projections contained in these statements. We undertake no obligation to update these statements except as required by law you should carefully review these factors assumptions risks and uncertainties in our earnings press release issued earlier today, our first quarter <unk>.
'twenty three 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's Edgar system.
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 J P. I would like to remind everyone that we will be hosting a webcast on our new flagship retail offering lightspeed retail scheduled on August 30th at two PM. Eastern standard time. Please go to our IR website to register with that I will now turn the call over to J P.
Thank you, Jeff and welcome everyone. Thank you for joining us this morning.
Lightspeed reported another strong quarter to date, our 14th of the public company delivering revenues of $174 million, which was ahead of our previously established outlook of $165 million to $170 million.
Overall revenue grew 50% and GTD grew by 36%.
Revenues were strong this quarter as a retrenchment person shopping and dining drove demand for Omnichannel solutions.
We continued to see success in our target markets of complex smbs, especially among higher GP customers.
And thanks to our strong travel market, our European region, which is heavily slanted towards hospitality also had a strong quarter, we saw <unk> Greg.
Growing faster than any other region.
In hospitality, we signed several multi location and marquee customers, including patents one of the leading bakery groups in Belgium, with a 100 location, which will adopt lightspeed flagship restaurant platform.
Parker Palm Springs, and Paul Springs, California, one of the Premier independent luxury hotels in North America, which will adopt lightspeed flagship restaurant platform with payments.
And the Hollander group in Covington, Kentucky secured using our outbound sales force, which will use a host of lightspeed offering in their final locations, including payments.
In retail we were happy to sign the following customers.
Hello, Our ranch in Hawaii, where many of the Jurassic Park movies were filmed they will adopt our retail offering in addition to e-commerce analytics and payments.
Standing Lightspeed footwear customers, the one will be adopting lightspeed payments across their 40 locations in Australia.
Within <unk>, we were happy to add a world renowned luxury brands Michael Kors.
We were also very encouraged by the reception of our new flagship products this quarter.
I believe we have the most compelling products in the market.
For our target customer base Lightspeed.
Lightspeed retail and Lightspeed restaurant other result of thoughtful integration of some of the leading solutions in the market built by developers and extensive experience in the hospitality and retail software.
Food retail and restaurants are both modern modular software platforms with advanced Apis, which allow for expanded features that can either be developed internally or through our development partners. Our new products are fast stable and easy to use and I believe this is why we are seeing strong reception from our end customers.
I recognize I'd like ourselves many of you are concerned over the macroeconomic environment.
As you'll have noticed from our press release and as Ashley will outline in greater detail. We continue to be confident in the annual outlook, which we provided in our earnings call last quarter.
We are not immune to macroeconomic conditions at our knockdown paying the risks. However, I believe it is important to emphasize that the return to in person shopping and dining are positive influences for lightspeed that should at least partially helped to offset any challenging macroeconomic conditions.
With an increased focus on execution and because of the various growth levers at our disposal. We believes lightspeed can maintain strong growth through challenging conditions.
Even in this scenario of an economic downturn our approach to market does not change we will remain focused on adding higher JV locations of complex smbs that can take full advantage of our comprehensive software platform and adult payments. These customers generally deliver higher <unk> lower churn and superior lifetime value.
And in addition, there are much better positioned to weather any economic downturn.
I would also remind investors that the proportion of our GTD. There is growing through payments remained in the low double digit range.
The payments today available to the majority of our customer locations. Our focus is to get as many of these locations onto our payments solution as possible Brandon.
Brandon will discuss this shortly.
In addition to executing our payments opportunity I believe ICD is benefiting from two other strong trends in the industry, which is currently dominated by legacy systems.
The first is that merchants are turning to technology to help them do more with less.
With supply chain issues, and labor shortages, causing disruptions in every industry Lightspeed technology can help merchants automate and simplify their operations.
Better manage their inventory and improve their profitability.
Speed can help merchants and their employees become more productive so they can better serve their customers and drive growth for their businesses.
The second is that we believe merchants are increasingly looking for a one stop shop for all of their needs and this will likely become more important if economic conditions deteriorate.
Merchants are relying on separate vendors for their e-commerce and payments.
Apple they can create unnecessary complexity in their operations.
<unk> insight because of Siloed data generate extra work to reconcile these disparate systems and can end up paying more for that line.
Lightspeed can deliver comprehensive platform, where the shared data can deliver valuable insights remove the need for manual reconciliation of these systems simplify operations and generally do so for a lower price.
We are increasingly seeing both new and existing customers come to us for this reason and again I believe this is part of the reason we are experiencing solid demand for our software solutions I will now pass it over to Brian to take us through some operating highlights.
We will then take us through the financials and outlook and I'll wrap it up before we go into Q&A.
Thanks J P.
I'll speak briefly about some of our main operational focus is as we look to see progress on our core drivers continue.
As you heard from JP, we remain cautious on where our customers GTA V heads from here given the backdrop and have set our plans with this cautiousness in mind.
With that said our focus is on the things we can control and one of the biggest opportunities we have is to drive payments adoption.
Payments continues to trend well for us with our G. PV in the quarter at $3 3 billion almost doubling year over year.
But with over $22 billion of G television across our business in the quarter, we have plenty of opportunity still ahead.
We've made good progress in making our payment solutions available to the vast majority of our customer base outside of equities.
That in place, we're now doubling down on our efforts to drive payments uptake across our installed base along with as many new customers globally as possible.
We have a number of strategies in place to achieve this that incorporate incentives for customers adjustments to our selling and on boarding processes and ongoing support from our partners in this space.
The timing is right here with uncertainty looming for our customers, having payments and pls together and a streamlined workflow becomes more compelling to them.
Helping them save time, and money and freeing them up to focus elsewhere.
Ongoing good execution on this opportunity we believe it will help serve to offset any weakness that may lie ahead within our customers' volumes in aggregate.
Should they face a toughening macro economy.
We also remain focused on growing our share of the significant market opportunity was 166000 customer locations, excluding Standalone e-commerce customers brought on through the echoed acquisition.
We believe we have substantial opportunities still ahead.
And as we've said before our main focus is on finding a winning the customers with the best long term value for us.
That means more established customers that are less susceptible to churn that drive good GTD volumes and that eventually will play an important role in our networked supplier strategy.
The customers highlighted by J P earlier are good examples of this.
This quarter, we added approximately 3000 net customer locations as we continued to target these customers that meet our desired profile.
We saw our overall churn remained in line with our historical trends.
However, I want to provide some further context to this number as we integrate our various acquisitions and get closer to having a single flagship product for both retail and hospitality.
With some of our acquisitions, we inherited a base of customer locations that are not representative of our desired profile.
Examples of these are customers that have been sold through white label, OEM relationships, where we will not be able to monetize the GTA V.
Customers in non core verticals, such as concession stands convenience stores and food trucks.
Our customers using a small standalone product with little opportunity for up sell.
These customers typically have a lower <unk> than our average.
Lower ATV and do not represent a compelling fit for our supplier strategy.
Excluding customer locations acquired through <unk>, we estimate that between one to 2000 customer locations are churning per quarter in these categories and.
And we estimate that we have up to 10000 more that we expect will continue to churn over the next six to eight quarters.
This category of churn is incorporated into our plans.
Despite this we expect we will continue to grow our customer location base.
At healthy levels, given the opportunity that lies ahead.
I provide this context to be helpful for those who are tracking our overall customer locations start and our related progress on that.
And finally with respect to our acquisitions I'll speak quickly to our progress on our integration efforts. Our primary focus to date has been on integrating the underlying technology.
And ensuring a seamless go to market effort with the acquired resources.
We're pleased with our progress here our flagship products are now in market for both retail and hospitality and most of our markets around the world.
With that now largely complete we can finalize our brand transitions, which is important to ensuring we're getting the maximum benefit of our increased scale.
This effort internally called one lightspeed is expected to be complete by the end of this calendar year.
Other integration efforts, we are focused on relate to internal systems production environments and customer support centers, we're tracking well on these thus far as well.
And lastly, one of the primary benefits from our acquisitions has been the addition of some of the industry's most talented people with the integration of these teams into broader lightspeed now largely complete we are seeing the output of this effort and our product velocity and on delivering value to customers.
These synergies are important as we continue on our path to profitability will allow us to redeploy resources into areas of growth and innovation, while keeping our overall costs in check.
I'll pass it over to Ash and now to take you through the quarter's numbers and our outlook.
Thanks, Brendan it was another strong quarter from the business, our omnichannel balance has proven to be well positioned to accommodate the ongoing shift from ecommerce to in store and our hospitality presence is benefiting from the rebound in restaurants than globally.
As you heard from JP, we were able to deliver $173 9 million in revenue.
Head of our outlook of $165 million to $170 million with subscription and transaction based revenue up 38% from last year on an organic basis and total revenue up 30% overall.
First I'd like to address a few observations about what we saw in the quarter, both positive and negative.
And then I'll get into the financial performance for the quarter, including a discussion around our key metrics. Finally, I will end with our outlook for our Q2 fiscal 2023 and for the full fiscal year ahead.
The first observation is that the diversity of our business continues to serve us well.
I mean, our diversity and vertical geographies and revenue streams are extended payments availability in both the EMEA region and for hospitality customers helped boost overall growth this quarter.
As in previous quarters, we were more reliant on retail customers and primarily in the North American region. We expect to continue to diversify our revenue base by putting more of our customers on team.
Spanning our international retail customer base through our new lights at retail offering and by further increasing our north American hospitality presence, so our new flagship hospitality offering.
We continue to benefit from multiple growth levers growing our revenue through the combination of location and entre growth and expanding our payments and financial solution across the almost $80 billion of GTD, our customers collectively processed in the trailing 12 months.
As you have seen by now we do not need all leavers to be hitting concurrently and the opportunity for each remains compelling.
Secondly, I would like to discuss the trends we're seeing in CTV.
For the quarter, we saw GTD grow organically by 25% and 36% overall with hospitality is showing stronger growth in retail and EMEA showing the highest due to the growth of any region.
In the quarter, our customers processed over $22 billion of GTT.
Within retail we are seeing some of the end market growth decelerate for the most part it appears as though the sectors that benefited during COVID-19, such as bike and home and garden are seeing lower growth, while end markets, such as apparel and footwear that generally sound more challenging conditions under COVID-19 are performing better.
Also believe that factors such as rising interest rates and persistent inflation are impacting retail more than hospitality as consumers prioritize spending in areas such as travel and entertainment.
Despite this overall retail GTD still grew 15% organically and 32% in total.
Hospitality <unk> more than offset this as consumers resume spending on travel and dining out across the globe hospitality GTD grew 40% in the quarter organically and although we saw particularly strong uptake in Europe .
<unk> GTD remained at healthy levels in all regions.
We remain cautious in terms of GTD growth as we believe rising interest rates and higher inflation will impact our end market that.
And as Brandon mentioned, increasing our payments adoption, which is largely under our control can offset any challenges we face in CTV growth.
Finally, I will note that this quarter's results in which we reported 38% organic growth in subscription and transaction based revenues now fully lap easier comparative periods that were heavily impacted by COVID-19 as well as all of our acquisitions, except for new order and illustrating the businesses ability to deliver strong.
Organic growth, while integrating our acquisition.
Going deeper into our results reported today.
Overall revenue for Q1 was $173 9 million ahead of guidance of $165 million to $170 million.
Subscription and transaction based revenues for Q1 was $165 1 million, representing 95% of total revenue and growing 38% organically over a year ago.
Gross profit dollars grew by 35% in Q1 from the same period a year ago.
As a percentage of revenue gross margin for Q1 was 45% as compared to 50% last year, owing to a greater portion of our revenue now coming by way of our payment solutions, which carry a lower gross margin, but provide us important incremental gross profit dollars per customer location.
Our gross margin percent was impacted by increased hardware subsidies in the quarter, which we are addressing and which we expect to taper down to more normal levels through the rest of the year.
Adjusted EBITDA loss was $15 6 million in line with our outlook of 16 million. This loss was higher than a year ago, reflecting the impact of the adjusted EBITDA losses from our recent acquisition and includes costs associated with our annual sales customer and partner summit, which we moved to a virtual format during COVID-19 and.
Which we brought back to in person this year.
Turning to some of our additional business indicators.
Location, excluding those Standalone e-commerce customers brought onto the equity acquisition grew to approximately 166000 from 163000 a quarter earlier these.
These customer locations provided <unk> of approximately $320 per location, which is up from $230 a year ago subscription only <unk> was $136 up from approximately $113 a year earlier.
Both of these exclude the equity Standalone E com customer base, which carries a significantly lower <unk>.
As you heard from branded net location adds were impacted by the churn in our noncore customer category and given our continued focus on the type of customers. We onboard we are pleased with the quality of customers. We have successfully added this quarter.
Looking at our payments gross payment volume was $3 3 billion up 96% from last year and up 48% from our Q4.
Although our Q4 is historically, our seasonally slowest quarter for processing volumes and the sequential increase was expected the fat.
That we were also up 47% from Q3 of our fiscal 'twenty, two which is historically our seasonally best quarter is actually a very positive sign of progress overall.
Our cash position in the quarter declined to $915 million from approximately $934 million in March. This was a result of operating losses in the quarter certain working capital movements and an increase in cash advances deployed for Lightspeed capital.
Subsequent to the quarter end, we paid off the $30 million of debt arising from the loan drawdown made in connection with the acquisition of gastro picks in January 2020.
I view, our strong balance sheet as a source of strength in the current environment and we will continue to ensure we remain in a strong cash position.
As we look forward to the remainder of fiscal 2023, although we remain optimistic on the things under our control. We believe there are several reasons for caution given the trends, we're seeing in consumer spend inflation foreign exchange exposure and the overall macroeconomic backdrop.
While impossible to predict the severity of any recession, we have stress tested our forecast based on various economic outcomes and while we do expect inflation and continued softness in consumer spend will continue for the rest of the year given our multiple growth drivers the diversity of our customer base and the payments opportunity ahead of us.
We are confident in our ability to meet our previously established revenue outlook.
In addition, we continue to focus on finding efficiencies across the business through continuous integration of previously acquired businesses as Brendan mentioned and we continue to remain disciplined and intentional on operating expenditures, reducing spend and lower priority areas.
For Q2, we expect to achieve revenue in the range of $178 million to a $183 million and adjusted EBITDA loss of approximately $10 million.
For the full fiscal 2023 year, we maintain our previously established outlook on revenues at $740 to $760 million and adjusted EBITDA loss of approximately $35 million to $40 million or 5% of revenue at the mid range of our guidance, which has improved from 8% last year, we remain committed to <unk>.
Adjusted EBITDA profitability in our next fiscal year.
As a reminder, regarding this outlook, we expect seasonality to continue to have an impact on both our revenue as well as our adjusted EBITDA performance, whereby Q3 will be our seasonally strongest quarter and Q4 are seasonally weakest quarter.
Furthermore, as we continue to realize ongoing synergies we plan to reinvest in core areas of the business, allowing us to invest in growth areas, while improving EBIT performance throughout the upcoming year.
We believe our balanced approach to growth and profitability is the right one given the opportunity. We see ahead the strength of our balance sheet and our desire to run a disciplined long term business.
With that I'll hand, it over to JP for closing remarks.
Thanks Asher.
There is no question that the economic outlook has grown more pessimistic in the last few months.
And again I do not want to downplay the situation, but we believe lightspeed will continue to perform despite these challenges.
Our new flagship offering lightspeed retail and Lightspeed restaurant are the best product, we've ever delivered and I believe the best in the industry.
Payments is not available to most of our customer base and our go to market teams are more experienced than ever and selling that offering.
And finally, what I cannot emphasize enough is that we believe the return to in person shopping and dining is by far the biggest macro influence on this company's success and here I am very encouraged with what we're seeing.
Before we go into the Q&A session I want to take a moment to recognize all of the employees at light speed and the incredible job they're doing.
In the last two years, we were able to digest five acquisition launched two new flagship products rollout payments globally and continue to deliver strong growth throughout.
It's because of them that I remain confident in our ability to execute and optimistic on our prospects and with that we will take your questions.
Yes.
Okay.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad will pause for a moment to compile the Q&A roster.
We will now take our first question from Dan Perlin.
With RBC capital markets.
Your line is now open.
Thanks, Good morning, everyone.
I just wanted to.
Drill down a little bit on your commentary around.
Payments really driving.
Kind of offset potentially if clients weekend, you talk about doubling down to drive drive that opportunity and you talked about incentives for those customers.
Some easier Onboarding I'm wondering if you could go into a little more deep.
Detail in terms of what that means from an incentive base.
What youre doing specifically and is this a function of.
Going back into your existing book and.
And getting clients or.
Are you.
Are you just finding that theres more success as you bring on new clients.
Hey, Dan it's Brandon here, yes.
Given the macro backdrop of course.
We're cautious on where customer volumes go from here so that creates a lot of focus internally on the things. We can do that are under our control too.
Sure, we offset that.
So we've done a number of things are just Eric.
Areas of focus around making sure that right from the upfront selling process.
That.
We've got the right incentives we've tried a few things for our customers. We've tried a few things for.
How to make sure we incentivize the sales team all the way through to how do we make sure that customers get live more quickly and you'll have seen in the quarter that we made good headway.
Some of these early initiatives.
Have borne fruit.
Already and Thats, what gives us confidence as we go.
Through the rest of the year that those will have a cumulative effect.
And helped to offset any any.
Macro weakness that we see.
Ross the industry.
No thats, great definitely saw in the quarter I am wondering just as a follow up if you have.
Or you'd be willing to share kind of any kind of recent trends that you saw in particular through.
Through July and anything that you would be able to indicate in terms of you have a bit of a cautious outlook on the consumer I'm. Just wondering are you actually seeing that materialize through July .
And are you maybe seeing hospitality accelerate thank you.
Yes.
Want to remember that <unk>.
Our mix of customers, we started talking about some of the consumer spending shift happening last quarter.
So on our last quarter call, we started to see.
Consumer spending shifted a certain retail categories.
Into.
Other categories like hospitality and so on that continued into Q1 as you heard from ash or earlier.
July we've actually not seen anything.
Any different really.
If anything July looks a little more.
It's kind of stable from from some of the trends we've seen in those retail categories.
Previously so.
Yes.
Just important as we think about our customer base a lot of what.
Everybody is worried about the macro on the retail side, which we've actually been dealing with that for a few months now.
Okay. Thank you so much I appreciate it.
Next we have Andrew Jeffrey with <unk> Securities.
Please go ahead hi.
Good morning, I appreciate you taking the questions.
I wanted to ask a little bit about Brandon I appreciate the color kind of on the on the customer focus.
One of the things that I think about in this industry given the competition and the way that lightspeed continues to try to differentiate itself.
What the Tam can be and it's certainly a huge market, especially given your international footprint can you just maybe frame it up in the context of the customers youre going after which seem to be more and more specific which makes sense to me, but I'm just wondering with some of the questions. We get is around the Tam given youre very focused.
Customer profile.
Okay. Good morning, I'll, maybe take this one so.
We've shared a number of times the time and so our view at the time, there is roughly $46 million retailers and restaurants and the planet.
And as you know we're focused on the more established ones the ones that have higher <unk> and our direct addressable Tam. If you look at the industries, where we operate is about $6 million. So there is a there's a lot of room to grow and I think the good news about this addressable Tam is that when you get a customer you basically get them forever.
And they are not prone to churn because they're much limited business failures. So.
Three large Tam and I've said that in the number of times, but the majority of the market is on legacy systems.
It's very simple look at streets and around the World and you look at the businesses in the streets. The vast majority are still on legacy systems, and I think thats. The beauty of what we have to offer today, especially in the post Covid world.
The restaurants or other retailers are focusing again on technology for in store.
They will have at the back of their mind.
There is also the Omnichannel world, So and I think that's where we fit perfectly as workflows that bridge online and offline and in the segment, where we operate there are not a lot of companies that have the capabilities that we have and I would argue that the latest products that we've released are more competitive than they've ever been and I think theyre very much.
<unk> aligned with what the market needs today.
Okay. So no no change in your Tam or no modification based on this very kind of focused customer profile it sounds like.
No no absolutely.
We know our strategy, we know the segment, we want to own and we're doubling down on that.
At attracting the right profile of customers.
Okay, and then also just sort of a corollary one of the things that I think lightspeed just talked about in the past is the ability to accelerate growth of acquired businesses and it sounds like.
Because of the nature of some of the customers and the companies you've acquired in the last year year and a half.
Maybe the churn is higher in those businesses than it might have been in past acquisitions can you just talk about maybe I know so.
Same store sales metric or something for those merchants that you keep from acquired businesses. Just some sense of how does your shop keep up service et cetera businesses are doing.
After you bought them and have integrated them.
Yes.
You have the gross adds in the net adds and how we're presenting that if you look at the reality of the business and Brandon shared a little bit of color on that.
We basically have customers that are core to what we do but every time, we do an acquisition.
With.
Fair share of customers that are not valuable to us and I'll give you.
Gaslog fixing Germany came with a lot of very nice customers that are in line, but they came also with a number of customers that we were not interested in tiny.
Retailers same thing happened with them.
Of course, the majority of the customers who are in line with what we needed to do but they all come. So I think every one of them came.
With a segment that we were not interested in and Thats, where we see the highest churn within the company and its good for us because.
Because again, we want to double down on the segment, that's really interesting to us like grocery stores or this is not an interesting to our business and so we're going to let them churn and that's why what youre going to see is youre going to see heightened churn in the segments that are not interesting to us from the acquisition and then Youll see us really double down on the customer.
<unk> that are very strong to us and so if you. If you look at churn I mean churn is very much in line with what we had expected.
Fairly good level, but within that share and if you look at the customers that are interesting to us the churn is much lower and when you look at the churn of the segments that are not interesting to us they are much higher.
I appreciate the color. Thank you.
Your next question comes from Josh Beck with Keybanc.
Your line is open.
Yes. Thank you for taking the question one thing I wanted to ask about.
The pace of penetration and payments.
It seems like sequentially. It was one of the bigger jumps that we've seen so anything to read back into that maybe with respect to the impact of the flagship platforms or other just curious if there's any callouts there.
Yes.
Yes so.
So we talked a little bit Josh some of the things that we've been doing that are under our control.
And that meant sort of focusing on top end of the funnel to make sure we attach well.
Flagship products in retail and hospital, we've seen really strong attach rates there youre seeing that show up in our land at <unk>, our new store <unk>.
And then all the way through to our aggregate ARPA as well we've also.
We just have this tremendous opportunity inside our existing base of customers.
And we've we've taken on a number of initiatives to bring focus to how we convert those.
How we do it quickly and how we make sure they get transactional quickly as well so yes. Some good progress in the quarter on that obviously a lot more to do but.
Pretty pleased with the early outcomes on some of those initiatives for us.
Maybe Brendan do you mind, if I could.
Add a comment here.
We recently launched Europe , and Australia on payments and Theres always a delay between the moment you start selling well and then you control the wholesale customers. So I think here what youre seeing as a result of just the company globally, selling and onboarding and processing and delivering payments.
At the right pace and so I think that's for US that's why we're very encouraged by the progress here.
Okay.
That makes a lot of sense.
And then I also wanted to follow up on the organic growth.
Believe it was 38%.
Obviously thats right.
Towards the middle of your longer term model I think in the quarter.
Think it was around 11% location growth, so that would imply a little bit better than mid thirty's, sorry, mid twenty's growth on the <unk> side is that the right.
Algorithm for us to think about it wont really expect the guidance, but just kind of curious on how we should be framing that up.
Moving forward.
Hey, Josh Yes, totally that is that is the right way to look at it.
We've committed to 35% to 40% organic growth from here and given the payments initiatives that that both Brian and J P talked about that we've launched and we see continued success so far.
We're confident in that in that annual 35% to 40% guidance and that 38%.
He is right in the middle of that one one thing that we should be wary of.
To remind the public of is we had a very strong Q1 last year, we had an exceptional quarter last year.
With strong uptake for the verticals, where we're likely to strong and despite that we were able to grow 30%, 38% year over year on an organic basis. So.
Thats definitely the right way to look at it.
Yes. Thank you thanks Jay.
Next question comes from Andrew box with SMB Nikko Securities.
Please go ahead.
Hey, good morning, guys and thanks for taking my question just wanted to touch upon the <unk> network and some of the early feedback that you're hearing from clients.
And.
Thinking about this in the full context for the years.
Can we consider any contributions from that in in the full year guide or when does that do you guys anticipated.
Start.
Gain more traction.
Yes, good morning so.
I'll maybe address this one so as we said when we did our forecast this year and for next year by the way we are not expecting a lot of revenues from the <unk> network. The <unk> network for US is a is an investment.
Where what we were expecting to see it.
Again.
Much more competitive platform, if you will and what we're expecting is that over time, we're going to start building revenue. So here just being very clear on the launch what we did for now as we've integrated new order into the Lightspeed platform and now for the luxury brands that are on new order.
We enable anybody to do an integrated ordering.
From the storefront, which is pretty game changing we enabled the stores also now to have an automated descriptions and videos and pictures of the items. They order instead of doing it manually and then on the flip side of that what we're doing now if we're enabling the brands to access sell through on a consolidated basis for <unk>.
All businesses, so what we're enabling them to do basically is to sell through and SMB network and have the same level of feedback is that they were selling directly to consumers. So that's the first step for US and this is really now for now is focused on the key brands within new order.
And we decided to take that approach. So that we can learn and we can iterate and we can we can create value in what we're seeing so far is that there is a ton of value for the for the store owner because for them. It just takes some time and it makes the automated view and the real value for the brand as the sell through now.
For Us this is the step one but then as we go forward in this year and you'll hear more about auto verticals. We wanted to deploy verticals that are strong to lightspeed, not just luxury brand, but we want to try and deploy outdoors and sports.
And do some service repair so we aren't right now building. The plan now that we have the plumbing that we have the first few customers that are using it and we have the feedback we're now going to start building a plan on what verticals that we tackle win and you can hear more from us.
In the next quarters, where we'll be we'll be we'll be progressing there, but again being very clear we are not expecting anything. This is an investment zone for us and within horizon, probably 24 months before we start seeing material revenues, but we think it's game changing because if we do this right.
We're going to solve a really big problem for our customers.
Yeah, absolutely and could definitely be a.
And our solution that drives more stickiness in the platform.
I know, it's a really small piece of the business right now, but the $9 4 million in cash advances up 49% quarter over quarter, what do you guys see that going.
Over the next year.
Is your base may need additional.
Working capital to kind of keep things flow in uncertain times.
Yes, that's a that's an important.
Part of the portfolio for US we've had great success, there, we get wonderful feedback from our merchants.
It helps make the whole.
Platform more sticky we've seen solid evidence of that.
So far our loss ratios have been very very low.
Reflecting the more established customer base that we've launched us into.
So we're going to keep growing this we expect it to continue to grow at a very healthy clip.
But still of course be mindful of.
Of running this business as part of the business quite prudently.
Of course, thank you for the for the detailed answers.
Your next question from Richard <unk>.
With National Bank financial your line is open.
Thank you with respect to the payments over the next call. It 12 to 24 months do you expect it to continue.
Continue increasing at the same pace or actually accelerate given the number of initiatives you have underway now.
The things that we can control Richard we expect to accelerate.
The macro economy, and what that means for baseline volumes.
Inside our customer base, that's tough to predict you heard from Matt showed that.
We're taking a pretty cautious view of how that looks through the rest of the year.
But on the things that we can control in terms of the number of new customers that we onboard the amount of our existing base that we convert.
Yeah.
We're confident that we'll see that continue to accelerate.
Okay, and then from a competitive landscape perspective, obviously, you are becoming a much bigger.
How is that sort of kind of changed the profile of your business, meaning as your pipeline increased notably in any of the win rates and how the competition has responded.
Yes, so I'll take that one look we as you know we have this strategy to one product or one product in the retail one product in hospitality.
We've now launched.
Most products, but now we're tackling the biggest market for us which is the U S and so if you look at our retail platform. We are launching this in the in the U S. We launched a few verticals and what I can tell you is the verticals that we launched are doing extremely well you see better close rates, we see higher op, who we see better attachment payments, so and that's obviously because we.
Mingled.
The core software and the core payments very well in the new platforms. So I think for me the way we look at this is.
We've never been more competitive with the products the.
The gap between us and our competitors is broadened and we do not I mean, we see better close rates on the new product when we launched it.
Okay, and just last quick one here.
You're still talking about breakeven EBITDA next year.
Where does most of that through operating leverage is going to come from when it comes to the Opex line.
Hey, Thanks, Thanks, Richard most of that operating leverage really comes from the integration of our different acquisitions that we've made over the past few years.
As you've heard from that's where we're being very rigorous and disciplined in our spend but at the same time, we have so much opportunity as we integrate all the different companies that we bought over the last two years.
Integration leverage comes from not only <unk> and integrating our people, but also from contracts. When you think about things like AWS and Google cloud infrastructure contracts, where all of these companies had their own separate contracts as we consolidate those and we get volume we get more volume, we get much better right and so.
As we continue those integration efforts, we're starting to see more and more of that operating leverage.
Perfect. Thanks for the color.
Next up we have Daniel Chan with TD Securities. Please go ahead.
Hi, good morning.
Just wanted to get some color on the full year guidance. The Q1 revenue came in above.
The high end of your expectations. So.
Just wondering what youre thinking about for the rest of the year to keep it flat. Despite the Q1 beat.
Right so.
Thank God, we are we're obviously being being cautious for with respect to everything that's going on in the macro environment and as you've heard from Brendan.
There are things that we can control, which is how many customers we migrate onto our payments platform. How quickly we got customers transactional those things that are under our control. We feel very good about we have these initiatives that we've launched recently and we're continuing to see success with those initiatives. However, you know things like retail spend from an.
<unk> GTD perspective things like hospitality spend.
Inflation will impact consumer spending these things are out of our control and for those reasons. We wanted to make sure that we're cautious in our guidance and that we put guidance out there that way.
Are you comfortable in achieving.
That's helpful. Thank you.
And then I appreciate the color you guys gave.
Around what youre seeing with consumer spending a caution around there any color on the willingness of merchants to adopt or invest in new technologies, given the macro uncertainty uncertainty just any change in kpis you can share with us such as like imbalance conversion rates et cetera would be helpful. Thank you.
Yeah, So I think for me.
It's very simple as.
As we go into a recession potentially.
Scar city of hiring people.
Vendors basically need platforms that can do more with less and so I think there is.
That's exactly.
Wed like feed is about doing more with less so I think here. What we're seeing is we're seeing demands for platforms really strong like ours.
The thing we see.
Is that vendors want to consolidate onto one so you might have vendors that have an E. Comm and then have lightspeed and maybe have a play a payments provider and then they might have a loyalty provider what happens when there's a recession you normally Troy and.
And bundle more platforms with one vendor at a lower cost of acquisition and again here, we're very aggressive on bundling and proposing discounts based on bundles. So that people buy the platform. So I think for me the.
And as we said were cautious, but there's a lot of there's a lot of.
Greenfields and Theres, a lot of people who need platforms like ours.
Thank you.
Quick reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Next question comes from Dan of mass mass show up.
Polus.
I apologize from B and <unk> capital markets. Please go ahead.
Hi, good morning can.
Can you speak to the headwinds Youre seeing from FX, you, obviously had significant European exposure.
Have you been implementing any pricing adjustments in some of the geographies to offset FX or is it more of the fact, you've got other leavers.
And its ramp in <unk>.
Module that on sort of an offsetting that.
Hey, Donald Thanks for the question.
So FX for us at the end of the day, a strengthening USB is great for Lightspeed just from the fact that the majority of our revenues are in USD, whereas the majority of our operating expenditures on currencies outside the U S D such as the Canadian dollar and Euro. So overall strengthening strengthening USB is helpful for lightspeed.
Of course to your point there.
As an impact on the revenue line, but we need to keep in mind that the majority of our revenues are still U S. Dollar denominated and so given that fact, the strengthening USD against other currency caused you know.
1% to 2% impact on our on our on our revenue overall, so so really not a huge deal for us at this time.
Great and then for J P. You've talked before about your push into the U S hospitality market on the back of the new.
Hospitality platform and building out an in person sales presence. So maybe just update us in terms of where you are in building out.
The local sales teams and weather.
Whether the macro backdrop has influenced your plans and timing in terms of those investments at this point or not.
Yes so.
We mentioned last time, we were trying with salespeople with foot on the ground and so we started that initiative a.
A couple of handfuls of salespeople.
I am happy to report that the actual LTV over CAC is better.
With the outbound for the profile of customers, we're going after so we have decided to double down on that so we are now going to.
Move the needle and doubled the size of the team and continue pushing on that front. So we are adjusting the models for now we're happy with what we see and we're seeing better unit economics on our own outbound than we do performance marketing.
Great I'll pass the line thanks.
Next we have Josh Baer with Morgan Stanley . Please go ahead.
Great. Thank you just wanted to ask on on the one lightspeed the brand transitions are expected to be completed at the end of this year.
Are all those transitions going to the flagship platforms or also other like legacy versions of Lightspeed.
Yes.
I think again that goes back to it kind of touches all somewhat ashworth thing on cost savings. So what we're doing here and synergies, we're bringing everybody to one flagship product in all everybody is going to be brought to the lightspeed brand. So as we're deploying the flagship products everywhere in the world and we're getting them ready.
The brands. So the next one youll see is the <unk> brand in the U S. That are case series is out or our hospitality, what youre going to see in the next in the next quarters as we're going to complete the you will not have up serve anymore and everything is going to be under lightspeed and all of the salespeople are only going to sell than you'd like to see platform. After that the last step in this.
There are any for us is to move to Australia, and New Zealand.
Which we've already done now on the retail front, but for the hospitality. So yes. The short answer to your question is yes.
We go to one lightspeed that also means going to one product for hospitality and one product or region.
Okay, that's great and then.
Outside of the brand transition just like thinking about the total customer base, but what what percent of your total base is.
On the one product a flagship versions today and where can that go by the end of the year.
Yes so.
I think we were very clear on the steps step one for US was to get all go to market for new customers on one platform and then from that moment. We will then focus our account management teams on building conversion utilities and getting the base onto onto the new platform and here I think there's enough new function.
Alethia and enough new features that we're going to see a natural.
Progression of those customers moving over we haven't shared any any data for now on this but this is going to be.
On top of our mind as soon as we have the one brand everywhere in the world.
Okay. Thank you.
Your next question comes from Todd Coupland with CIBC.
Your line is now open.
Great. Thanks, Dan and good morning, everyone.
We've seen quite a few.
Jack lay offs and share price reductions impacting stock based compensation.
Wondering how you guys are thinking about that macro headwind then.
Impacting your hiring plans if you have any if you can share them.
And any issues around compensation with the share prices down. Thank you.
Yeah. So I'll address this on OSM rather than ask you if you want to jump in.
Look for me, it's very simple we are not a pure e-commerce or a pure digital company the strength of lightspeed, 90% of our <unk> physical retailers and restaurants.
So this return to the physical world is creating a lot of demand for us we have a forecast that we are we are committed to hitting 35% to 40% growth. This year, we are being cautious in the way. We forecasted is a very cautious way. So we're confident we're going to hit our numbers and for us to hit those numbers. It means that we.
We need to continue hiring we need to continue investing we need to continue bringing people, who can deliver to customers and deliver.
An incredible experience to our customers. So we're not in that mindset for now we are more in the mindset of hey, let's really focus on getting payments getting more customers, ensuring that customers have a higher <unk> and delivering on the numbers, we gave to the market.
Great.
That's great and then as a follow up.
<unk> really well in Europe in the quarter, citing hospitality and people traveling as we think through the summer and these macro headwinds that you were talking about.
Some concerns on Europe is there is there any anything for us to think about for that region into the fall.
Yes, So I think again for me the answer here is lightspeed is well balanced.
We work in retail and hospitality in golf, we work across all continents, and we've seen that even through Covid. When one area was not doing well. The other one was doing what little golf was not doing well hospital is doing well and so I think for now maybe the short answer is we're seeing a ton of demand in Europe for platforms like Lightspeed right now, we're seeing strong <unk> in the hospitality.
<unk> fronts.
I mean, the growth rates are good and the demand is good.
What's really interesting is we launched now also our X series product, which is a retail product.
In the U K in some regions of Europe , and we're seeing a really strong demand there for the new platform.
We think it's much more competitive.
Great I appreciate the color thanks, a lot.
Next question comes from Tim Chiodo with credit Suisse.
Please go ahead.
Great. Thank you everyone. Good morning, I, just want to circle back real quick on the guidance and the FX impact that Usher I completely appreciate that most of the gross revenues are more North America based I think when we go down to gross profit or net revenue. It's still holds but maybe to a lesser extent just with that context.
Could you maybe just give some context on what was the FX impact in the original guidance for revenue for the year and what is the FX impact in the guidance today. So just so we can get a sense of how much incremental FX impact that youre working in and still able to maintain the revenue guide.
Hey, Tim Thanks for the question.
Just like I mentioned earlier on a net revenue basis Youre right. The mechanics are slightly different but overall at the end of the day. The majority of our payments revenue is still coming by way of North America.
So even though we are diversified the majority of the net revenue is still U S dollar denominated and so given that when we look to our guide and you know we have factored in FX, it's really.
Small percent range, 1% to 3% range not more than that.
Okay, Alright, Thats really helpful context. Thank you so much and then my brief follow up is I just wanted to confirm I think the math suggests this is a yes, but if we were to back out the roughly I think you said one to 2000 of incremental churn from some of the legacy noncore smaller lower <unk> type of locations that for.
The core business, let's call it X gastro fix.
Ex shop keep that the location adds are roughly trending and sort of the mid teens, maybe even slightly higher is that a fair characterization.
Yes.
Okay, Alright, great. Thank you so much for both of those.
Okay.
Well thank you Paul.
Thanks for taking the question.
Our last question comes from Clark Jefferies with Piper Sandler.
Please go ahead Hello, Thank you for taking.
Thank you for taking the question one brief one for me just has there been any change in the approach to integrated payment partners. The partners that you negotiated Rev share agreements as I tried to foot lightspeed payments <unk> typical take rates. It seems like theres, a pivot happening there, but maybe you could help me out with any other dynamics.
Playing out in the non life to be transaction revenue.
Yes.
No nothing new there I think you know our.
Our core partners are those remain the same and all of the incremental business basically flows through to those core partners.
We do have the legacy call it referral line.
From prior to our launch of Lightspeed payments and of course that revenue line continues to decline.
We expect that to continue.
That might be what youre seeing as well.
Well low our overall payments in rural or LG TV is growing we do have.
This declining line that's within that that overall transaction based revenue line and perhaps that's what you are seeing.
Perfect and then if I could maybe squeeze one ended.
Any update to how you're thinking about the approach and go to market in the macro environment I know you were investing in.
A director field sales initiatives as part of the flagship releases does that change in any way as you look to the rest of the year or have you seen could you kind of feedback or its activity in those initiatives.
Yes, I think the.
To put on the ground for US is only in the U S. Only for hospitality and the reason why we're doing this is of course too.
And our competitors are doing that in the hospitality space on the retail space, we're very happy with the model that we have.
I always said, it's a very predictable model, we really understand all the economics very well close rates are very well monitored so for us it's almost I always say internally, it's like doing a soup. We know the ingredients. So if we want to grow more.
A fairly simple stack of getting more more into marketing and generating more customers.
Again for us the balance is important because we are seriously committed to to me.
Making.
EBITDA breakeven or profitable next year and because of our payback is more than 12 months, if we decide to grow too much on the new customer front that will generate losses within within the first year. So.
We're trying to take the most balanced approach to getting the right profile of customers, but there is no change expected there in our go to market and actually what we see and we've seen actually in Covid is in the context of recessions or difficulties with our customers. They normally want to buy more than one product. So I think here we're geared towards bundled.
<unk> towards doing everything we can to associated payments every day.
New customer and to have kind of more of the previous telecom operator approach, where the more packages you buy from Lightspeed, who will give you a bundled discount and I think that that should work well in the context of a potential recession.
I appreciate it thank you very much.
Yes.
Okay.
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