Q3 2023 Lightspeed Commerce Inc Earnings Call
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the Lightspeed third quarter 2023 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 at that time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question again Press Star One it's now my pleasure to turn today's call over to George That's top of George Hill head of Investor Relations. Please go ahead.
Thank you operator, and good morning, everyone.
Welcome to Lightspeed fiscal Q3 2023 conference calls join.
Joining me today are J P survey by speeds, Chief Executive Officer, Brendan Nazi Thanks, Baetz, 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 respect of conclusions forecast and projections contained in these statements.
Undertakes 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 third quarter 2023 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 and ratios.
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 with that I will now turn the call over to J P.
Thank you Jos and welcome everyone. Thank you for joining us this morning.
Lightspeed reported another strong quarter today.
Our adjusted EBITDA loss of $5 4 million came in better than our expected loss of $9 million.
Our revenue of 189 million came in at the higher end of our outlook range of $185 million to $190 million.
PV grew 75% much higher than our CTV growth of 10% and on a constant currency basis GTD grew 17%.
I believe our results today reflect <unk> commitment to profitable growth.
Part of that commitment is a deliberate effort to pursue larger more profitable customers.
Although customer locations were flat from the previous quarter, we continued to shift towards higher GTD locations.
Excluding certain locations as highlighted in our disclosures customer locations with over $500000 in annualized CTV grew by 15% over the same quarter last year and now represent 32% of total locations up from 29% in the same quarter last year.
Customer locations with over $1 billion in annualized CTV were our fastest growing cohort both year over year and from the previous quarter and were up 19% year over year.
In this quarter, we signed several multi locations and marquee customers.
All with our latest flagship offering including.
Total trader or British shoe retailer that operates 28 locations across the U K adopted our latest lightspeed retail offering along with payments.
Casefy one of the fastest growing tech accessory brands, reaching $1 seven millennials shows lightspeed retail with payments to power their first Australia flagship store.
Three Michelin star restaurants liquid tin is located and put off we'll be adopting lightspeed restaurant in payments.
And as she will be using lightspeed restaurants and its rollout.
Its initial restaurant projects.
The Skyline club, a Chicago fine dining institution delivering world class cuisine. Since 1926, we'll adopt lightspeed restaurants, along with analytics and payments.
In our <unk> network, we were happy to add some Tony the high end handmade Italian shoe brand as well as Gerber Charles were.
Earlier this fiscal year I laid out three priorities for Lightspeed, which were one to finish the integration of our acquisitions into two core platforms and one company and effort, we refer to as one lightspeed to expand payments across our global customer base and three positioning the company to reach profitability.
Two weeks ago, we announced a reorganization that included eliminating approximately 10% of our head count.
The main catalyst for this reorganization was the near completion of our one lightspeed initiatives.
As we focused on two flagship offerings.
It was always our intention that this initiative would unlock considerable savings for the company.
I believe our new structure gives more accountability and authority.
Existing senior management team, while at the same time, removing costs and complexity from the organization.
Approximately 50% of the cost reduction will come from management roles.
Under the new Org structure, we expect to streamline the organization to leaner working models.
Focus on key projects and customers and continue to invest in our growth drivers.
Deciding to reduce head count is never an easy decision.
<unk> ways with many talented and dedicated employees.
<unk> build lightspeed into the company it is today.
But it was a necessary decision that strengthens our foundations for future growth.
In terms of payments as I mentioned, we had another strong quarter, although our G. P V still heavily depends on North America, we continue to see strong momentum in APAC and EMEA, where payments was launched just over a year ago.
Before I discuss profitability I want to touch on the current macroeconomic conditions and how lightspeed is positioned.
Given the macro uncertainty our focus has turned to running the business with a greater focus on profitability.
This includes focusing on attracting the right customers those with over 500000 in annualized through television and Upselling, our existing base, reducing operating expenses and limiting marketing spend to areas with the highest returns.
I know that the macro environment is presenting challenges for our customers, but these conditions only highlights the need for complex smbs to adopt technology.
<unk> cloud based platform can help smbs better manage our inventory operators fewer employees.
Eliminating mundane tasks deliver data driven insights and give managers and owners more time to dedicate to their customers.
Over the last two years, we have been building the most compelling offerings for complex Smbs and I've received very positive feedback from our customers in my view, we have never had a stronger product market fit.
In addition, we have a more agile cost effective and accountable organizational structure.
With costs coming out and accountability, increasing I believe we will be in a better position to address the long term opportunity ahead of us.
And finally, we.
We assembled an exceptionally strong management team with the right experience to take us forward.
Through a combination of strong internally develop talent and the addition of experienced and distinguished external candidates. We have the right people in the right position to continue to build lightspeed into the dominant platform for complex Smbs the world over.
The macroeconomic conditions will likely present a challenge.
But economic cycles come and go I believe lightspeed has never been better positioned.
Getting back to profitability.
In the quarter, we delivered adjusted EBITDA loss ahead of our previously established outlook and we took the hard but necessary decision to reduce our overall head count and cost base.
I believe we are on track to meet our commitment of adjusted EBITDA breakeven or better in fiscal 2024, I am very proud of the company we are building.
Our mission of igniting businesses everywhere in the World is an important one.
And our suite of competitive products means we have never been in a stronger position to deliver on this mission.
But in the end profitability is a vital part of building a successful business and to that end profitable growth will be the key driving force for the company for the foreseeable future and.
And with that I will hand, the call over to Asia.
Thanks, J P and good morning, everyone I will first provide an overview of our third quarter results highlighted in particular, our continued focus on operating discipline and profitable growth then I will discuss trends, we're seeing across our global merchant base and finish with our outlook for the remainder of this fiscal year.
Before getting into our third quarter results I'd like to remind everyone that this quarter's total growth represents organic growth given that our latest acquisition with me at the very beginning of our third quarter in the prior fiscal year.
Now turning to the quarter likely delivered another strong quarter with adjusted EBITDA loss ahead of our previously established outlook and revenue of $188 $7 million at the high end of our range growing 24% from Q3 last year.
Subscription and transaction based organic revenue growth was 28% year over year on a constant currency basis recall that in Q3 of last year, we received a one time.
$5 5 million from one of our payment partners and in this quarter, an additional $3 million from a different partner.
When excluding the impact of these onetime catch ups subscription and transaction based revenue grew 31% year over year again on a constant currency basis.
We exceeded our adjusted EBITDA loss outlook with an adjusted EBITDA loss of $5 $4 million ahead of our previously established outlook of $9 million, our lowest quarterly adjusted EBITDA loss in over two years.
As you've heard from US before we continue to exercise prudence in our spend the result of this is continuous improvement and operational efficiency, which has been driving better than expected EBITDA margin, we're happy with our progress here.
Turning more specifically to the market environment, we continue to see the impact of foreign exchange rates inflation and shifting consumer spending on our merchant businesses I will walk you through some of the specific trends, we are seeing across our customer base.
Last year, we saw third quarter, GTD grew 124% and 53% organically over the previous year, driven by back to physical shopping and dining in many of our region.
This year, our total GPC in Q3 was $22 4 billion.
Which grew 10% year over year or 17% on a constant currency basis.
Omnichannel retail GPP grew by 6%, whereas hospitality GTD grew by 16%.
In retail we saw average GTD per location decline in several of our verticals with bike shop home improvement and pet stores being particularly weak as these categories spiked during COVID-19 and are now coming back to more normal pre pandemic level.
Hospitality due to the growth with stronger year over year, given the impact of the Covid resurgence is in the three months period ended December 31, 2021, but declined from our previous quarter.
Helping to offset this macro weakness is our ongoing rollout of payments. We are fortunate to have a large customer base that remains underpenetrated with our payments solution. Our payments uptake has resulted in our gross payment volume growing 75% year over year to $3 $9 billion.
We launched payments globally in our last fiscal year and although still early in our rollout gross payments volume coming from outside North America is up 44% from the prior quarter.
Turning to location, we would like to remind everyone that lightspeed remains focused on profitable growth as you heard from JP, given the uncertain environment and the fact that we derive our highest ROI from Upselling our base. Our go to market focus has shifted to prioritizing high value TV customers from a net new.
And growing our ARPA within our base primarily through attaching payments.
The result is a quarter, where overall net new location count was flat from last quarter, but with larger dtb locations growing within the overall mix.
Customers with annual GTD, a $500000 were up 15% year over year and customers with under $200000 in annualized D. TV were our fastest declining cohort down 4% year over year.
I think it's worth repeating that not only through larger GTD customers tend to adopt more software and their payments potential is much greater but they also exited less churn.
As I mentioned last quarter customer locations with over $500000 in annualized ETV represent less than 10% of the churn of our overall base.
The higher overall ARPA and lower churn from these customers result in our highest LTV to CAC ratios coming from this customer base.
After excluding customer locations attributable to the equity E Commerce Standalone product <unk> continues to trend in the right direction with total <unk> of $348, increasing 20% year over year.
The bulk of the increase came from increased payments revenue.
The headwinds brought on by a strengthening U S dollar relative to foreign currencies was most felt in our subscription revenue line, which was flat quarter over quarter and grew 13% from the third quarter last year on a constant currency basis.
Transaction based gross margin improved over last quarter, thanks, largely to the onetime catch up payment of $3 million from one of our payments partners as well as to Lightspeed capital our merchant cash event business is gaining traction with merchants globally, particularly in today's economy, where traditional lending institutions are becoming more and more.
Selective with lending to smaller businesses.
I'd like to keep capital revenue grew 26% from the last quarter and 221% from a year ago with our default ratios continuing to remain under 2%.
Hardware gross margins continue to bring down overall gross margins as rising costs and supply chain issues continue to drive the cost of our hardware up.
We had a goodwill impairment charge in the quarter of $749 million.
Walk you through the mechanics of this goodwill is required to be tested for impairment at least annually. Our annual test date is December 31st given.
Given the decline in the valuations of technology companies broadly and lightspeed share price specifically, our net assets exceeded our market cap at December 31, 2022.
This was a goodwill impairment trigger Friday. This goodwill charge is a noncash accounting entry that does not reflect any current or future cash outlay for lightspeed.
We're also prudently managing our share based compensation expense and have taken a number of actions to reduce it as a percentage of revenue are share based compensation expense has declined as a percentage of revenue for every consecutive quarter. This fiscal year from 22% in Q1 to 18% in Q3 and with.
The impact of the recent restructuring we expect this ratio to decline even further.
We ended the quarter with approximately $838 million in cash our cash decreased by approximately $24 million in the quarter. The largest uses of cash were working capital movements, including the growth of our merchant cash advance business, which we found from our own cash balances today.
Now turning to our outlook.
We expect consumer spending to remain challenged in the near term and given that our transaction based revenues are now over half of our total revenues weaker growth of GTP presents a headwind for us in the months ahead, we expect to remain vigilant on spend and to continue to focus on profitable growth.
For the full year of fiscal 2023, Lightspeed now expects an adjusted EBITDA loss of approximately $37 million improved from previously established outlook of approximately $40 million.
The company now expects annual revenue to come in at the low end of the previously established outlook of $730 million to $740 million or approximately 740 million to $750 million on a constant currency basis.
We remain committed to adjusted EBITDA breakeven or better in fiscal 2024.
With that I'll hand, it over to JP for closing remarks.
Thanks, Asher before we go into Q&A I want to welcome a new member to our senior executive team Caddy Sweeney vaccine.
That is our new Chief marketing officer and comes to US with over 15 years of experience, leading marketing efforts at organizations, such as Dropbox and electronic Arts.
Thrilled to have Kathy on our team as we continue to focus on our core customers have complex smbs raise our brand awareness and improve our go to market momentum.
And with that we will take your questions.
Yeah.
At this time, if you would like to ask a question press star followed by the number one on your telephone keypad. Your first question comes from the line of Dan Perlin with RBC. Your line is open.
Thanks, Good morning, I just add.
A couple of questions here.
Specifically around subscription ARPA being flat over the past several quarters, you've kind of touched on it a little bit but I guess my question is as you're as you're making this pivot to obviously more profitable clients I'm wondering what the pricing environment is.
Around subscription and to what extent do you have to have discounts to incentivize certain.
Certain merchants, who want to take payments. Thank you.
Yes, good morning, So I think.
The last phrase you said I think is very much in line is what we look at is net take rate, which is net payments in that software and on that front, what we try and do is bundle or package that is going to be just positive for lightspeed. So when you look at the bigger customers, especially the higher <unk>.
If I attach payments to the software you'll realize that the bulk of the revenue.
On the net take basis is the software.
So again, what we try and do is we.
We just try and ensure that we maximize our take rate from when we sell to customers.
Okay, and then on the just quickly on the.
Is that EBITDA guidance for 'twenty for that.
It looked back it looks like you tweaked the language a little bit you know I think previously it was breakeven at breakeven or better, but you've got the $25 million of incremental annualized savings from this workforce reduction I'm just wondering.
Are you, suggesting that maybe you're more concerned about the top line to just kind of stay in that breakeven or slightly better range or should we be thinking about that 25 million actually.
Falling through as we think about 'twenty numbers. Thank you.
Yes, thanks for the question.
The $25 million in the re org.
Had already contemplated that we would unlock operating efficiencies from the integration of our acquisitions. When you know when we when we committed to EBITDA breakeven next year.
We do anticipate breakeven or better we anticipate that that's going to happen somewhere in the mid range of the year given that in Q1, we have our in person sales in our partner and customer summit, which does drag down EBITDA and as you know Q4 is our seasonally weakest quarter, but we do expect adjusted EBITDA breakeven or better for the full year.
Falling within the two quarters.
Okay. Thank you.
Your next question is from the line of Daniel Chan with TD Securities. Your line is open.
Hi, good morning. Thanks.
Thanks for all the color on the customer locations.
Just wanted to help you hope you can help me reconcile your comments about targeting larger locations, but if we look at the X equities locations those were flat quarter over quarter and then the equity locations actually grew by 1000 quarter over quarter. So I'm. Just wondering if there is some strategic initiatives that still needs to be rolled out or.
Or whether there was.
Okay.
And Dan you cut off there at the end.
Yes, just wondering if you can just help provide some color on why the heck with locations grew sequentially by 1000 locations, whereas the nanak with locations stayed flat sequentially.
Whereas you guys are targeting to go after the larger locations.
Yes again just.
When we look at <unk> now Equitas part of Lightspeed, Omnichannel and inside of the Omnichannel strategy, we're going after bigger customers and we're selling them color call. It a channel agnostic platform. So with that in mind that has an impact when you. When you when you upsell or you sell to existing customers the omnichannel platform.
That creates new stores on accurate so maybe that's one of the reasons, but I think.
Ultimately we are focused on attracting the larger more sophisticated and that's going to continue and that's going to be the focus for the company and that really brings us to profitability.
Thats really wants.
The key message is profitable growth as I said.
Okay. That's helpful. So is it fair to say that when you upsell, a brick and mortar store to the Omnichannel that one location gets counted for the brick and mortar store and then the other location gets counted for the equity.
Yes, when we say stores these are storefront to digitally the storefront.
And physical storefront.
Okay. Thanks for that.
Any update on getting <unk>.
Restaurants traction in the U S.
Yeah look I think for the U S just being very <unk>.
Clear.
We are going after the more sophisticated segments, we're going after the more established segment. We gave a few few names here and in our script.
So again, we are going to be deploying marketing dollars and sales teams to ensure that we attract the customers in a profitable way and so we will not be going off to the entire market, but going after the more and more established and on that front, we are happy with the progress.
Great. Thank you.
Your next question is from the line of Andrew Baum with SM BC Nikko Securities. Your line is open.
Taking my question.
Andrew We can't hear you very well.
Alright.
Yeah.
Occasion disclosures.
Okay.
Five.
Uh huh.
Thank you Bob.
Thank you.
Sure.
No.
Lincoln.
You haven't seen in prior quarters.
Thanks.
Management.
Sure.
The lower.
Merchant.
<unk>.
Hi.
Thank you Mark for a more.
Centralized focus on that.
Okay.
Yes so.
I think I understood.
We could barely hear but.
I'm going to address the question. So we are focusing more and more on the 500000 tests in the million plus.
We talked about this at the Investor day, when you look at LTV over CAC and you look at profitable growth do you have to double down on that segment. So what we've been seeing this quarter like all the other quarters is the vast majority of our churn comes from customers that are under 200000 of GMB.
And what we're seeing here, especially with the economic headwinds are.
Difficulties in the economy.
Smaller ones are much more prone to churn than the larger customers.
So I think for us this.
15, and 19% growth is very much in line with what we've been seeing all year and I think it's just a good reflection of our focus.
On that segment. So again, yes, this is going to be more and more priority.
If you remember, but even at the Investor Day, I said, if we have the same number of locations a few years from now but all of these are within the REIT segment Lightspeed will be in a really strong position.
Yes.
And of course, those are the fastest growing cohort for lightspeed.
Okay.
<unk> you touched upon.
Mike.
We actually there yet.
Restructuring announcements two weeks ago or is that still on the come.
In the months.
<unk>.
Sandy.
Yes.
Anticipating.
Yes so.
The question I guess with regards to one lightspeed and are we on track and we.
We always said as we hit the end of the fiscal year. The vast majority of all our sales are going to be on the new platforms. We did the restructuring early January because that was the right time, because we now have very strong confidence in the product going forward. We are in the final steps of this.
We are slightly more advanced with retail than we are with hospitality, but theres still a few a few little tweaks to do but we are very much.
Very much on track with what we said.
With regards to the expectations here in I mean.
We are seeing we are going to see what we have seen leverage because now we restructured. According to these two products and we will continue to see leverage it will just simplify the business everywhere. When you look at acquisition when you look at it.
On boarding of customers support calls.
It's going to just the factor will become a much simpler business because it will be just selling one payment platform globally and one one retail platform globally and one hospitality platform globally.
Same code base.
Thank you David.
Your next question comes from the line of Andrew Jeffrey with true with Securities. Your line is open.
Hi, Good morning, everybody I appreciate you taking the questions.
J P.
I Wonder if you could comment a little bit on sales cycle as you.
Increase your focus tightened focus on bigger more complex merchants and whether or not.
That's affecting payments attach or if the payments attached that kind of stalled out this quarter, a little bit as a percent of total volume as more of a macro impact and I've got a follow up.
Yes, so maybe.
Sales cycles, we've always had we always have well understood the sales cycles with the.
The larger segments, we've been doing this forever I think thats the real when you when you when you look at the real value prop of Lightspeed, we really shine with the more sophisticated smbs and we know how to sell we know how to onboard so it doesn't change much in our sequence on that front.
Second piece of the question attach rates, we are seeing very good attach rates on new customers.
If you look on.
What gets us excited is attach rates in new customers even outside of the U S are very strong. So we're not having any difficulties on that front and maybe just to address the last piece of the question which is.
And attrition that is purely a factor of industries and <unk> merchant.
Okay.
Okay, and just as a as a follow up.
Recognizing that.
Nobody's macro crystal ball is.
Particularly clear.
It feels like perhaps we're coming to the end of this normalization period that has seen retail, especially in certain verticals to which lightspeed over samples, perhaps get to appoint a normalization and maybe start to bottom out.
How do you think I understand you are taking an appropriately conservative approach to guidance, but how do you feel about returning to a more normal sort of consumer spend environment, where we could see more balanced growth across your two primary verticals.
So youre absolutely right, we are taking a conservative approach to guidance, especially given what we saw in the third quarter, where youre seeing overall G&A pretty flat versus the quarter before.
But we are we are in a position of strength in terms of focusing on profitable growth and if and when the macro does turnaround are to your point.
We're in a position to take advantage of those growth opportunities as they arise.
Okay I appreciate that thank you.
Your next question is from Josh Beck with Keybanc. Your line is open.
Yeah.
Thank you for taking the question and I appreciate the disclosures.
On the locations by size I'm, just kind of wondering if we play this forward.
A couple of years more or less how much of a change you expect or potentially we could see in the locations with greater than 500 K of GMP.
Yes.
Again just to.
Yes.
Talking about a big theme here the company is focusing on this.
No.
Just maybe two years ago, we would probably be much broader than in our fishing that with marketing we would be much broader with sales and this has changed so right. Now we are hyper focused when it comes to every function in the company, even in our roadmap to creating more and more value to that segment.
That segment is really important to us and I think it's very important to the SMB space because when you look even at the GM V. The total GMB its hyper concentrated into the more established and so because we are doing suppliers were doing payments.
For us it's just it's Justin.
It's just going to continue to be the focus as we go forward and so what we what we are hoping is that as we continue to focus on that segment, we will see the numbers.
In the segments that matter do better for Lightspeed.
Yes, so I don't know how much how much more do you want that again, what is really great for us and when we look internally.
As we are attracting more.
Of the established we're looking at churn.
Sure.
Is decreasing in that front when we look at payments attached we're now focusing more and more and even when we're looking at Upselling. The base. There is a lot of initiatives internally around getting the more established customers.
And I think finally, what you can expect.
He is with what we're doing with suppliers and Verticalizing <unk> here, you can expect us to see better attach rates as we go forward and better close rates because there'll be helped by the brands and suppliers within those industries to sell.
So yes, feeling good about the strategy and very happy with the results on that front and with the progress with the more established merchants.
Okay great.
Great to hear and maybe just a related follow up so when you look at.
Really the marketing and advertising budget hasn't been fully recalibrated with imagine involves the shift from digital and performance more so towards outbound in field sales and that type of thing has it been poorly recalibrated or is that something that will continue.
To shift as we exit fiscal 'twenty, three and go into fiscal 'twenty four.
Yes. So we are in the midst, we just hired a new CMO.
And that is probably our number one focus today is to try and recalibrate, even you'll see updates on the messaging.
But I think just to be clear more established SMB for Lightspeed doesn't mean field sales. We are we are the majority of our motion is still going to be there's going to be marketing led.
And he's going to be I mean, the majority of our deals are still going to be closed.
With zoom and on boarded with zoom.
And I think that's what's very exciting to lightspeed is that even though these are much more established merchants and you look at the cohorts and they're much more profitable. The good news is the cost of acquisition is very similar.
And most of it is done inbound in.
With a recipe that we understand very well.
Okay.
Thanks J P.
Your next question is from the line of Raimo <unk> with Barclays. Your line is open.
Thank you.
Obviously, you can only control what you can control in this environment, but can you talk a little bit about the.
The churn levels on the on the lower end have you is it just what we're seeing now is that just kind of you'd be emphasizing a little bit or do you see elevated churn coming from the recession already and how do you see that playing out.
So I think maybe just.
Overall churn for the company is in line and so there's no major changes there, but what we are continuing to see and we started exposing this is we are seeing very much higher levels of churn in the in the lower end in the under 200 K that's really.
If I remember correctly was 84% of our churn.
Coming from under $200000, whereas if you go up and as you go to the 500 plus million plus that's where your churn really.
It becomes almost an existence and thats because there is no business failure.
Yes, if I can just add onto that J P used the fishing net analogy when you when you.
When that isn't cast is wide to catch that cohort of customer quite as much as we are now focused less on youre not replacing that cohort in that churn as much as we would have in the past so youre seeing it come through a little more.
That makes sense, okay, yeah, no. It makes sense and then one follow up on.
On the <unk>.
You adjusted the cost base now adjusting your program like how.
<unk> like what do you anticipate like.
In terms of the impact that will have on the organization in terms of people in the right position people to the organization settling down at that part of your thinking as well and when do you think we've kind of done with that.
Yes.
First of all as you know we did a big restructure.
And the goal of this restructuring to really remove a lot of management remove a lot of overhead become much leaner.
And also focusing on the right segment of customers and so there's a number of initiatives that we now narrowed to okay. Now we know this is what we're going after what are we doing that is not in this segment that makes no sense, what part of our Org chart has people working on this segment that is not not vital to us. So I think highest level we're going.
To be automating as much as possible for our existing smaller customers and we're going to focus our people focus our attention.
On the segments that matter for us. So it is a journey and we started the journey at the beginning of the year. We are now well progress with this but I think in my mind.
And then.
It's the only way forward is to look at where is it profitable and then you start digging there.
And you remove the nice to have and you just focus on the must have the real answer is there and so.
Just a simple example is if I know that 50% of my customers are the more established that means instead of having all my support agents just focus on every customer I am going to always privilege. My my highest GMB customers when leads come in and they are.
Under 200, and we know that we will probably actually not even try to serve them and not onboard them. So I think we need to just remain hyper focused and as I said for me. The store counts are not the drivers. The drivers is for every dollar of marketing and every dollar of spend what is my return and.
That's the only way forward and so as we go forward.
We're hoping to get better and better numbers in the more established and we're hoping that the entire company is just going to be focused on that.
Yeah, Okay. Thank you.
Your next question is from Eugene Simonyi with Moffett Nathanson Your line is open.
Hi, guys good morning.
Just wanted to come back to a macro headwinds for a minute can.
Can you elaborate a little bit on the sources.
Sources of the headwind I can think of kind of two types right wanted a normalization, which I think was already mentioned so kind of the bike shop example, and the other is more is more fundamental.
Weakness in consumer spending that might be related to.
You kind of a recessionary environment can you elaborate a little bit I think both of those or is it more one versus the other.
Yeah, Thanks, Tien tsin.
It is really both of those youre right about the Covid the Covid normalization, but we're also seeing with rising interest rates and inflation just consumer spending is shifting shifting to groceries gasoline things that are not in our core verticals.
In addition to that we're also seeing some FX headwinds about.
Most half of our customer locations are outside the U S and so that that revenue is worth less in U S dollars and so outside of what you mentioned I would say those would be the other two headwinds that we're seeing.
Got it Okay. That's helpful. And then related question I wanted to ask about Lightspeed capital, which you highlighted again.
Sounds like doing very well so.
Yes, maybe you can elaborate a little bit on now on the traction you're seeing there and also in the more challenging economic environment, obviously, a product like that.
Could be a little tricky so would love to hear your philosophy on how you're managing that through data through that kind of potential recessionary risk.
Yes capital continues to go well revenue I think is better than 200% this quarter.
<unk>.
We continue to make it available to a broader base of our customers and that advance volume has been increasing as well so far so good on.
Losses remaining minimal for us as well so we're seeing great returns there the benefit we have of course and the impact of the macro is not something we consider and we factor in.
As we see all the trends on a daily basis from our customer base and that informs the offers we extend from a merchant cash advance, but we have because we have that line of sight and visibility into these trends we can make.
We think a pretty farms.
And good decisions.
Who to advance two and how much.
Got it okay. Thank you.
Your next question is from the line of Sandoz must shop list with BMO capital markets. Your line is open.
Hi, good morning.
With respect to becoming cash flow positive how should we think about timing you said profitability should be middle of fiscal 'twenty four just given the working capital dynamic.
Should we think about cash flow being positive maybe couple of quarters after.
How should we think about that.
Hey, Thanos.
So for now we're focused on adjusted EBITDA breakeven or better we do manage our cash flows from operations very closely but as Brian just talked about our merchant cash advance business is growing and we are funding that from our own cash balances and so as we see that business growing we should expect to see cash from ops.
Out of line with our adjusted EBITDA as that business grows larger and larger we are considering putting that off our balance sheet, but in the interim while it's on our balance sheet, we wouldn't expect cash from ops to be breakeven.
Okay.
Any update in terms of monetizing the supplier network, such as with BW payments.
Will that be sort of the next focus now that you've launched again provides.
Retail and hospitality platforms or how should we think about timing.
Yes, Youre exactly right. So we are investing a lot in our <unk> network, we do believe thats going to be the moat.
As we go forward and going into the verticals working with the suppliers ensuring that suppliers get the sell through from the network.
So that's a big piece of our strategy, but youre absolutely right.
When you look at the sequences for us the number one sequence was to get one product globally.
Which is lightspeed retail X series integrating all of the greatest of E Com and Omnichannel workflows, and so that now is out or will be fully out by the end of this fiscal year than the next step now and we have a lot of initiatives and we will be announcing a lot on that front.
We have now the <unk> team working in conjunction with this launch to now create value for the suppliers. We have a number of beta customers on the suppliers and everyday we're continuing to improve this.
It will be.
That's next next fiscal year will be coming out with a lot of announcements on this and progress with suppliers within the industries that matter for us.
Thanks, I'll pass the line.
Your next question is from the line of Josh <unk> with Morgan Stanley . Your line is open.
Great. Thank you for the question I know the inbound sales and virtual sales will remain the most important and dominant I was wondering what the update is on the size and productivity of the outbound sales force and.
I guess more broadly like just the update on that the go to market.
In U S restaurants.
Cool so.
Maybe just just again being clear the outbound as well we progress well we've hired a lot of people.
And we are tracking very carefully.
Over CAC.
And here in our mind, we are going to use a lot of the outbound from the more established because that's where we can afford to to.
To have that sequence.
And we're happy there with what we're doing and I think as we go forward, especially in the context of payments and especially in the context of geographical areas, where we have a lot of concentration cities basically around the world. We will have teams that are going to be.
Upselling customers on payments and installing customers with.
<unk>.
Pure outbound motion.
So that's the now with regards to X series.
Sorry case series and hospitality, we're very pleased with the progress we've signed a few really marquee good marquee customers in the U S.
And that motion is going well and again for us just being very clear we are optimizing every dollar we spend and that's the theme.
And so again being very focused on hospitality on the more established those that really find the value.
I think a lot of you have seen the progress we did on that product its absolutely outstanding but it is very well suited for established merchants.
So like all the other divisions at light speed.
Coffee shop small medium large coffees.
Quick serve is not what we're going to be focusing on we're going to be focusing on fine dining table service Michelin stars.
Because those are hi, Jim V customers and give us a really good unit economics.
Great that's clear.
On hardware just wanted I know it's not.
Super important part of the financial statements, but the decline in hardware or was that also a function of of discounting.
And just related to payments attach and sort of how you think about everything altogether or more reflective of.
New location additions or just a change in customer behavior. Thanks.
Youre absolutely right its really a result of the discounting.
Particularly in North America, hospitality, where that's what the customer base has come to expect given the competitive environment there.
But as J P mentioned, we're laser focused on LTV to CAC and unit economics on a customer by customer basis.
These discounts are worse in the end for us because the LTV to CAC ratios of those customers, which as you know for US is is the larger more established the LTV to CAC ratios are very high and so it makes sense for us even though it requires discounting.
That hits, our P&L and immediately.
Great. Thank you.
Your next question is from Clarke Jeffries with Piper Sandler Your line is open.
Hello. Thank you for taking the question first is JP what was the most meaningful change to you in the business environment since last quarter with all this discussion of the macro I'm trying to get a sense, whether Q2 Q3 was really a continuation of the same trends we've been talking about for previous quarters or if there was really a change here that.
It makes your view of the business environment worse or an improvement potential.
Potentially so I'd love to get your thoughts there.
Yeah.
Think that.
In my mind that distinguish what we can control versus what we can't control.
On what we can't control the biggest driver and I'm just going to try and give you a few numbers that are in my mind last year. If you look at G. Jeep GMB or GTD growth from Q1 to Q3 was about 25%.
And if you look at this year GMB growth from Q1 to Q3 was zero.
We're $21 billion $21 billion to 21.
Sorry, 'twenty 2 billion 22 billion $22 billion. So I think just there. This is for me the biggest headwind that is not related to lightspeed is just.
<unk> spending is not what it was.
So you compared to last year at 25% growth on two quarters versus this year flat.
There's not much you can do against that and so I think for me. The macro is confirming that our strategy is the right one.
The strategy of profitable growth is the right one the strategy on focusing on the larger customers is the right one because that's how we've been paring well in a market that's been very difficult. When you look at the consumer spending and I think thats why I look at the <unk>.
It is a tough year for restaurants and retailers no doubt when you look at <unk> globally.
Yet we can help them and so that's why we're focusing on the higher <unk> merchants and doing everything we can to help them automate.
And do more with less I think thats the main main answer.
Really appreciate it and then just a follow up.
As we think through the implied guide for Q4.
Could you just help us think through the different offsets I think you've mentioned to catch up payment. There is a currency headwind here and so when you think about the items that would grow sequentially versus being flat.
<unk> offsets that mean that the underlying growth may be up sequentially, but the reported number maybe it's still flat.
Could you help us think through the factors there to consider.
Yes, absolutely.
So the one time as you mentioned is something that we saw in Q3 that was about a $3 million onetime catch up from a payment processor, which we don't see in Q4.
But I think what's also important to keep in mind is that Q4 is seasonally our weakest quarter and you know even in years, where there is there are no macro headwinds, we typically see about a 20% decline from Q3 to Q4 and overall D&B and so as we enter our seasonally slowest quarter of the year, that's what we're contemplating in terms of.
The Q4 guidance.
We expect FX to remain around the same in terms of Q3 levels.
But I think it's really more the <unk> decline and the one time those are the two biggest items that we're expecting.
To affect this sequential Q3 to Q4 revenue.
Thank you very much.
Your next question is from the line of Richard Tse with National Bank Financial markets. Your line is open.
Yes. Thank you.
Sort of move upmarket with these larger merchants like how does the competitive environment changed with respect to how you sort of go after those markets.
Yes, I think thats the.
I think thats, the good news and Thats why store count is growing well.
As you go up there is.
Fewer competition.
I'm just going to give you a few examples here.
If I'm a coffee shop I have no real value in understanding lightspeed analytics that gives you a magic quadrant.
Of your menu items, yet if I'm, a Michelin star IC tons of value in this.
If I'm a retailer and there's no value in our advanced analytics, if you're only selling a couple of hundred Skus, yes, if I have 10000, Skus, that's where I see so I think that as we go up market just simply answering the question.
It is a much better landscape for us.
Where we provide a ton of value to customers.
Okay.
And then in terms of capital allocation clearly you are focused on sort of efficiency here.
If you sort of look at this can you sort of look at your cash balance, it's just under $1 billion.
Would you ever sort of consider kind of a buyback program.
It seems that as you get more efficient and approach breakeven cash.
Cash flow I get a bit of relief. So what's your thinking on that especially given where the stock is today here.
It's something we continue to evaluate.
The board of directors obviously.
We certainly still feel like we're early in the journey here, we've got a growing part of our business on the merchant cash advance.
Program that.
We're leaning into lots of growth opportunities, we still see and hopefully the macro environment.
Will we will start to solidify at some point these economic cycles do come and go.
So to date, we haven't concluded to do anything specific there but.
We will continue to evaluate it.
Okay. Thank you.
Your next question is from the line of Koji Ikeda with Banc of America Securities. Your line is open.
Hey, guys. Thanks for thanks for taking the questions I wanted to ask a question on payment attach rates.
Doing the math it looks like it's about flat quarter over quarter is that right and I guess kind of thinking forward, how should we be thinking about payment and attach rates over the next several quarters.
And presumably tougher macro environment.
So I think so payment attach rates when we speak to those that means how many what percentage of our new customers take payments alongside.
Software when they buy it I think based on your question. What you are probably referring to is how much of our GTD do we monetize through our <unk>.
And that continues to progress well for us a lot goes into that.
The equation when you divide those two numbers.
Lot of mix things, both geographically and how specific verticals are performing at any given quarter.
So you just have to be there is a lot that a lot of variability that goes into that when you start to divide those two numbers overall, what we focus on is our <unk> and is it growing.
And it's up 75% year over year.
Which is good steady progress from our standpoint, and we will work hard to keep that going in the right direction.
Got it got it. Thank you and just one follow up here if I may when I look at the head count reduction in the $25 million in annual savings of 300 people being affected roughly shakes out to about 83000 per employee so with that the prior commentary, 50% coming from managers of the head.
Production I was just looking for some more color maybe to reconcile the profile of the remaining 50%.
What departments were affected there thanks guys.
Yes.
Just simply per ton.
Paint the story just so we can understand that if I'm selling seven products.
Across multiple regions.
And each of these products I'm selling you have many layers of contributors of managers and then at the top I probably have.
Somebody accountable for this globally and so when you go from call it 7% to two which is what we are preparing to go for as we go into the end of this fiscal year, you're naturally just have layers of people in all groups that have been removed from the organization or replaced and at the top that means you need fewer <unk>.
Leaders to run the business and you have more accountability with fewer leaders.
And.
Whaler distortion in terms of.
Focus points, so thats really what happened. So I think just answering your question is like it is yes. Unfortunately contributors.
Managers directors Vps.
Six so there is a.
Theres, just a simplification of the business that impacts pretty much everybody, but I think for US now that we are in a much leaner.
A leaner organization, we now need to double down on hiring more salespeople and hiring more on borders and hiring more support people in the right divisions in the right geographies.
And so that's what we're doing now is were between now and call. It. The end of Q1 next year we're building.
We're building our go to market engine, we're building all the functions to double down on what matters now fertilizer.
Got it thanks, guys. Thanks for taking the questions.
Your next question is from the line of Kim <unk> with Credit Suisse. Your line is open.
Great. Thank you for taking the question I know, we touched on this a little bit but it is a really important idiosyncratic driver for the company the payments penetration.
But specific to the attach meaning for new customers. So I know that we talked about this a little earlier in terms of some of the promotions that you've been doing I believe those started two or three quarters ago could you just talk about what that has done to the payments attach in other words, how much success is driven meaning if the new customer attach for payments used to be.
X percent, how many points higher hasnt been as a result of these promotions and do you expect to continue to offer these given maybe some success that you've seen or have not seen.
Yes, So I think there's two things in my mind. When you look at these promotions we have two objectives. The first objective was to attach more new customer payments and the second objective was to reduce time to transact because you understand that the new economics for us is.
Previously when it was just software I sign a customary start recognizing revenues now what happens is I sign a customer I get the revenues on software, but I don't get the kick in on payments before they are transactional.
And so here a lot of those promotions were really related to getting the customers transactional. So if I tell the customer within their first three months youre getting a better rate.
That's going to give them an incentive to get the payment terminal up and running plugged in et cetera, as quickly as possible, which in returns for lightspeed will give us faster revenue recognition.
And for that will decrease greatly or payback so.
That front, maybe just again looking at the two blocks they've had a really good impact.
And that's why I think for us, especially in markets outside of the U S that are much more conservative in terms of adopting payments, we were very happy because these promotions of.
I've created attach rates for lightspeed everywhere in the world from Australia to Europe to any country in Europe to the U S, where we have very strong attach rates on new customers.
And that's why for me when when I look at it medium term and.
And you look at how churn works in our cohorts just assuring that you have the majority of new customers that are buying payments means that over time youre going to end up with 50% of your at least 50% of your <unk> that is unlikely be payments and.
Are your GPS and so that's why we're very happy with both and the promotion has really had a very strong impact on time time to transact.
And actually this is still the number one focus in the company is removing the backlog between when someone signs and someone becomes transactional and I think they're going back to the first question. We had on the call. We will be probably also for the larger customers doubling down with.
People would put on the ground that are actually going to physically go in and.
And plug the terminal in because it is a world where our customers have a number of priority then you've got to get them to.
Plug in the terminal to make it work et cetera, and so we're doing everything we can to reduce time to transact.
Excellent. Thank you that's really helpful and the time to transact.
Follow up is around payments penetration you mentioned earlier that some of the sort of flat quarter over quarter and part of that was just related to the verticals that might have higher or lower payments penetration, maybe you could just recap what those verticals where in the calendar Q4, and how that might change over the coming quarters clearly golf is one right that's more seasonal.
But also correct me, if I'm wrong, but U S. Retail was one of the earlier parts of the business to get Lightspeed payments and I would've expected that Q4 U S retail to have stronger.
<unk>, just due to holiday season et cetera, but maybe just recap some of those various industries that are higher and lower and how that will look over the coming quarters.
Yes, It just comes back to us.
Messages, we've kind of outlined earlier.
We're well penetrated in some of our our strongest verticals like bike shops in.
Sporting goods stores and things of that nature, and Youre, absolutely right that typically entering the holiday season, we see a nice bump there as you heard from Asher earlier.
And J P earlier as well this holiday season for those verticals due to a normalization of COVID-19 and be weaker consumer spending just didn't have the bump that we typically see and not just all contributes to that mix thing when you're when you're doing that math Tim of <unk>.
Dividing <unk> TV.
No.
That's the macro again as JP said, we focus on what we can control.
Unfortunately, consumer spending isn't one of them right now.
Okay perfect. Thank you, Brian and so if I heard that right, it's more or less but yes. The calendar Q4 actually would have a better mix of payments penetration, but it was more just that those verticals with the higher penetration, maybe we're a little bit macro impacted and that left us with the overall number in that 17% ish range.
You got it yes.
Perfect Alright, Thank you for taking all of those I appreciate it.
Thank you. Thank you.
I'll now turn the call back to Mr. Gus Papa George Hill for closing remarks.
Thank you Brian Okay. Thanks, everybody for joining us today, and we will speak to you all again after we release, our Q4 results and have a great day.
Okay.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
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