Q4 2023 Lightspeed Commerce Inc. Earnings Call

Speaker 1: Hello and welcome to the Lightspeed 4th quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a Q&A session. If you would like to ask a question during this time simply press star 1 on your telephone keypad. If you would like to withdraw your question again press the star 1.

Speaker 1: I would now like to turn the call over to Gus Popajourjou.

Speaker 2: Please go ahead.

Speaker 3: Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal Q4 2023 conference call. Joining me today are JP Chauvet, Lightspeed's Chief Executive Officer, and Ashraf Bakshani, our Chief Financial Officer. After prepared remarks, we will open it up for your questions.

Speaker 3: We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements except as required by law.

Speaker 3: You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today. Our fourth quarter 2023 results presentation available on our website, as well as in our filings with US and Canadian securities regulators.

Speaker 3: Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a Supplement 2 and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website at cedar.com.

Speaker 3: in US dollars. All amounts discussed today are in US dollars unless otherwise indicated. With that, I will now turn the call over to JP. Thank you, Gus, and welcome everyone. Thanks for joining us this morning.

Speaker 4: Overall, I was very happy with our results this quarter. Revenue grew in line with our outlook. We achieved an organic revenue growth rate of 26%.

Speaker 4: Our GPV volumes were up by 70% year over year and our adjusted EBITDA loss of 4.3 million came in significantly better than expected.

Speaker 4: As we enter fiscal 24, let me walk you through how we see this year unfolding. Since we went public on the Toronto Stock Exchange in 2019, we have been laser focused on becoming the go-to platform for sophisticated retailers and restaurateurs around the world.

Speaker 4: Delivering on this strategy meant building our payments platform from ground up. It meant making key strategic acquisitions. It meant honing on our sales and marketing organization to better target higher GTV customers.

Speaker 4: And earlier this year, it meant reorganizing how we operate to become a more nimble and streamlined company. I would say that we have spent the last four years establishing the foundations of this formidable company. And now, Fiscal 24 will be our year of execution.

Speaker 4: As we look to better align ourselves to the Rule of 40 metrics,

Speaker 4: The fiscal year Lightspeed expects two. One, reach the benefits of having our one Lightspeed flagship product in market. We expect this to show up as an increased platform adoption among high GTV merchants, higher ARPU and more efficient and rapid product innovation.

Speaker 4: 2. Accelerate revenue growth from financial services including both light speed payments and light speed capital. 3. Continue building products that solve our customers' problems and help grow their businesses, particularly with our supplier network. 4. Accomplish our goal of becoming adjusted at that break even better.

Speaker 4: for the full fiscal year.

Speaker 4: In terms of OneLightSpeed, I'm really happy to report that we have achieved our goal of going to market with our two flagship products, LightSpeed Retail and LightSpeed Restaurants by the end of fiscal 23. In fact, at the end of Q4, 70% of new customer locations were on these flagship platforms.

Speaker 4: And with very few exceptions, our entire go-to market team is now exclusively selling these two products.

Speaker 4: These industry-leading platforms are the best we've ever shipped and offer our merchants unique features that help simplify and scale their businesses.

Speaker 4: We've seen their added value reflected directly in our customer wins this quarter. A few examples.

Speaker 4: In retail, we are pleased to welcome Eastern National, an entity that operates 127 locations across America's national parks.

Speaker 4: We're also thrilled to call Apricot Lane one of our own. With 150 locations, this California-based women's fashion franchise will be using our flagship offering with payments in 12 of their locations with plans to roll out across the entire network.

Speaker 4: I'm super excited to announce a four-year contract extension with SACS 5th Avenue for our B2B platform, which SACS uses to automate their ordering and curating activities.

Speaker 4: In the world of hospitality, we were honored to sign two locations from Joël Robuchon Group.

Speaker 4: one in Morocco and one in their newest concepts in Monaco.

Speaker 4: The Joël Robichon group maintains more Mission Star restaurants than any other organization in the world.

Speaker 4: We also welcomed Rosie O'Grady's, one of the busiest restaurants in New York Times Square,

Speaker 4: and Locanda Locatelli, a Michelin star restaurant located in a 5-star Churchill Hotel in London.

Speaker 4: Both of these customers adopted Lightspeed restaurants with payments.

Speaker 4: We're also thrilled that Sandals, all inclusive Caribbean resort in Jamaica, St. Lucia and the Bahamas joined the Light Speed family.

Speaker 4: The road to one light speed was challenging but rewarding.

Speaker 4: Now that we're focused on two platforms instead of nine, light speed is able to data gate efforts to achieving more rapid innovation and more focus go to market output, which gives me confidence that will continue to grow our high GTV customer base.

Speaker 4: Speaking of which, this quarter alone we delivered several key product features.

Speaker 4: We enabled self-serve capital advances in our flagship products and expanded the offering to several new geographies, including the UK and New Zealand.

Speaker 4: In hospitality, we brought even more value to our US customers with new features such as tip management and enhanced APIs, but I'm most excited about the launch of Tap to Pay on iPhone.

Speaker 4: This removes the need for expensive payment terminals and allows restaurants to serve their customers better and turn tables faster.

Speaker 4: Our customers are thrilled with these features which we believe is unmatched by our competition.

Speaker 4: In retail, we went upmarket with new features of facilitate repairs and installations, making it easier than ever for merchants to streamline their business.

Speaker 4: With our service modules, retailers can now create, schedule, track and sell services offering within the Lightspeed retail.

Speaker 4: And we continue to roll out our payments to all paid e-commerce standalone customers in the US with plans to expand into Canada and Q2.

Speaker 4: Moving on to our financial services. It's been four years since we launched our initial light speed payments offering for retail customers in the US. And in that time, we've evolved into an exceptional global payments platform now available across three continents.

Speaker 4: think about payments and PUS platform as one unified product.

Speaker 4: We have heard from our merchant that they have seen noticeable up lift in their business operations when they use our entire suite of tools.

Speaker 4: That's why we launched Unified Payments and POS earlier this month.

Speaker 4: Moving forward, both new and existing customers will be asked to sign up for one cohesive and comprehensive product offering for light speed payment is embedded directly into their POS.

Speaker 4: For new customers globally, this change is immediate. For existing customers, this change will roll out gradually, starting with our retail customers in North America, then expanding to hospitality and across all regions globally throughout the year.

Speaker 4: We've spent considerable time understanding how best to streamline the onboarding process and have made it as easy and compelling as possible by offering free hardware, free installation, competitive rates, and contract buyouts where necessary.

Speaker 4: In North America, light-feet payments deliver slower rates than competing solutions to vast majority of the time.

Speaker 4: giving me confidence that we can save our customers money. But we also want to deliver a better service.

Speaker 4: One example of this is the fact that light speed will now offer North American customers cash deposits within one business day in contrast to some competitors typically taking twice as long.

Speaker 4: Merchants who currently use our embedded payments in POS platforms have shown us the value we have added to their business.

Speaker 4: It saves them time and money, eliminates the need to reconcile separate systems, improves accuracy,

Speaker 4: Reduces manual tasks and gives them far better data insights into their business.

Speaker 4: It's clear to us that trying to use a modern software platform with legacy payment systems and outdated terminals holds them back and limits their experience they provide to their own customers.

Speaker 4: I think it's important to understand how much our customers love light speed payments.

Speaker 4: So here's some direct feedback from Silo and Crate, one of our restaurant customers in the UK.

Speaker 5: Having integrated payment and tail screen system, revolutionised the speed of service we could do. And the time saved on the transaction period between the old system and the new system was phenomenal. And I think our busy day, we ended up making 10% more on our record that we had before, which was amazing. Weekly, I used to have to spend three...

Speaker 4: rollout, but first let me reiterate that with our unified payments and POS offering we expect to accelerate our GPV as a percentage of GTV during fiscal 24.

Speaker 4: This year, we also expect to continue to grow our capital business.

Speaker 4: Light-feed capital is now easier to access and more widely available.

Speaker 4: Salesforce Capital is embedded directly into our products and has been expanded to more and more countries.

Speaker 4: We also have a sales team dedicated to increasing awareness with our customers. Capital continues to be one of our highest growth margin businesses, even surpassing software and still maintains very low default rates.

Speaker 4: Many of you have expressed interest in our Lightspeed Supplier Network strategy, which connects our merchants with brands and consumers. Lightspeed Supplier Network is our key strategic initiative and represents one of the most significant R&D investments. Our supplier network will fundamentally revolutionize the retail industry and the retail industry.

Speaker 4: and completely distinguish us from the competition. The ability to search for products, enter orders, and automatically upload inventory from POS will save our merchants time and money. These features are currently rolled out to hundreds of customers, and we have received exceptional feedback on our efforts so far. Although we will not see any direct financial contributions from Lightspeed,

Speaker 4: supplier network this year, we do expect it will improve our close rates and lower customer acquisition costs.

Speaker 4: I look forward to keeping you updated on this initiative throughout the year.

Speaker 4: I also believe we have significant opportunity to use AI and machine learning to improve our service offerings.

Speaker 4: Today, AIS helped light-feed to reduce cost and better serve our customers.

A lot of our customer Chapsos are driven by AI. We have the ability to translate customer requests from any language into English and respond in a native language.

Meaning we can service our European customers from lower cost regions.

In product development, we are evaluating the use of AI to drive better efficiency in programming and lower costs.

In the future, we are experimenting with using AI to help customers in creative ways, like generating menus and item descriptions.

We have a very large transactional data set and we plan to use this to help our customers become more successful.

We expect to be beneficiaries of AI and will continue to explore how we can use it in other parts of the business to complement the exceptional work our teams are doing.

in terms of profitability.

Last year, we committed to being adjusted if it did break even or better in our fiscal 24. I cannot stress this enough. Lightspeed will meet this goal in fiscal 2024. As I said earlier this year, it's about execution. And we intend to place this company in a position that highlights the sheer potential of our business model.

while still investing in our growth opportunities. I will now turn the call over to Asha to take us through the quarterly results and provide outlook. Thanks, JP. I'm pleased to announce that Lightfeed was able to deliver a revenue in line with our previously established outlook.

and an adjusted EBITDA loss better than expected. I'm going to provide a recap of the quarter, discuss the expected financial impact of our unified payments and POS launch, and then provide an outlook for the upcoming quarter and full year.

Given there were no acquisitions in this quarter or the prior year comparable, all growth numbers I will quote are organic.

In the interest of time, I will focus most of my comments on the quarter versus the full fiscal year.

But overall, for Fiscal 2023, Lightspeed delivered revenues of $730.5 million, an increase of 33% year-over-year. On a constant currency basis, revenues were $743.4 million, increasing 36% year-over-year.

Adjusted EBITDA loss came in at $33.9 million, and despite the impact of challenges and uncertainty in the macroeconomic environment, for fiscal 2023 we had an annual net retention rate of approximately 110%.

One of the highlights of our fourth quarter is our progress towards adjusted evict of profitability.

We saw subscription gross margins improved to multi-quarter highs, transaction-based gross margins stabilized, and we were more disciplined with hardware subsidy.

In addition, we began to see the benefits of the recent restructuring. And now that we're focused on two core products, I expect we will recognize further cost savings, which we can use to invest in accelerating our product innovation.

In the quarter, revenue came in at $184.2 million, an increase of 26% year-over-year, and inlined with our previously established outlook.

On a constant currency basis, revenues increased 27%. Subscription and transaction based revenues grew by 28% or 30% on a constant currency basis.

Subscription revenue increased 8% year over year to $76.2 million and 11% on a constant currency basis.

Gross margins on subscription revenue increased to 75%, the highest in over two years, thanks to a dedicated effort to consolidate cloud vendors and improved overall efficiency.

Transaction based revenue grew 49% to $99.6 million.

In the quarter, we saw gross payment volumes increase 70% year-over-year to $3.8 billion as a greater portion of our GTV went through our light speed payments platform.

Expanding our payments offering to more locations and industries helped offset the weakness we saw in certain retail verticals.

Because of the growing number of customers on payment coupled with a strong quarter in hospitality, we saw healthy growth in payments revenue.

In Q4, Gross Payments volume as a percent of GTV came in at 19%, versus 13% in March of fiscal 2022.

Gross margins for transaction-based revenue came in at 33%, flat to the previous quarter and down only slightly year over year.

Lightfield Capital had its strongest quarter yet, with revenue growth of over 200% versus our fourth quarter of last year.

Total adjusted gross margin, which excludes the impact of share-based compensation, came in at 48%, a slight increase from the previous quarter and roughly flat to last year.

Adjusted gross profit dollars came in at $87.8 million, an increase of 22% year-over-year.

Despite the growing proportion of payments revenue, Leicide was able to maintain its gross margin, given improving subscription margin, and significant growth in capital, which carries gross margins of over 90%.

Adjust it even though in the quarter came in at a loss of 4.3 million dollars. This is much improved from a loss of 19.7 million dollars in the same quarter last year.

This improvement is the result of our continued focus on prudent spend across our organization, including the efficiencies we identified and implemented through actions like our reorganization done in our fourth quarter.

We had an adjusted loss of $0.4 million versus a loss of $22.9 million last year. Thanks largely to the improvement in the items driving our adjusted EBITDA loss performance and growing interest income in the quarter, which increased by approximately $8 million from a year ago. Excluding the impact of equity accelerations, included in restructuring.

Share-based compensation came in at $16 million, down substantially year over year from $41.6 million.

Coming in at approximately 9% as a percentage of revenue down from 28% in the same quarter last year and down from 18% in our previous quarter.

Although we expect our share-based compensation to be higher on a quarterly basis than it was in our fourth quarter, we expect our annual share-based compensation to decline over time from historical level.

GTV in the quarter came in at $20.2 billion, a 10% year over year, and 13% on a constant currency basis. Omni-channel GTV was up 3% whereas hospitality grew by 20%.

We continue to see some of our verticals within retail face challenging conditions as consumers continue to prioritize experiences. Hospitality GTV remains strong as consumers continue to dine out and travel.

This quarter, we also continue to grow our complex customers with higher GTV tiers.

For example, customer locations with over $500,000 in annual GTV grew by 13% in the quarter, whereas those with under 200,000 in annual GTV fell by 6%. Again in this quarter, the fastest growing cohort was locations with over a million dollars in annual GTV.

which grew 16% year over year. Overall customer locations increased by 1000 from last quarter.

As we focus on more complex higher GTV merchant, we expect the under 200,000 cohort to continue to decline. As a reminder, this cohort of customers represent only 5% of our overall GTV.

The annual net retention rate I outlined earlier is testament to the fact that we are successfully monetizing more GTV from our existing customer base.

As you've heard from us before, our focus remains on adding the right customers and monetizing GTV. Not on maximizing our total location count.

As a result, we will only be disclosing location count on an annual basis.

Turn rates in the quarter remain consistent with last quarter, despite challenging macroeconomic conditions. And similar to last quarter, the vast majority of our overall customer turn is in the under $200,000 cohort.

In terms of our balance sheet, light feed closes the quarter, with just over $800 million in cash and cash equivalent, down from approximately $838 million in the previous quarter.

The most significant use of cash was the reorganization we announced early in the quarter, which led to approximately $18 million in cash charges along with the increase in our merchant cash advances by approximately $13 million.

Turning now to our unified payments and POS efforts. Before I get into the details, let me share some general comments. As JP mentioned, we are confident that combining our products into one powerful suite of tools will save our customers time and money and provide a superior service.

Although we are forecasting a short-term increase in turn as a result of this initiative, largely with lower GTV customers, overall we believe it will have a favorable impact on our financials, particularly in the second half of the year.

Put simply embedding payments to a customer's POS system doubles the lifetime value of that customer at almost the same cost of acquisition.

Second, on the cost of this initiative, there will be some accelerated spending on items such as contract buyouts, hardware, and implementation support as we help make this change as smooth as possible for our customers.

We will pay for existing contracts where it is reasonable to do so. Payment terminals will be provided at no cost to our customers, and we will be sending people into the field to help our merchants get up and running on light speed payment.

These upfront costs have a payback of a few months once the customer is transactional, which justifies the investment on our part. Finally, untiming, as of May 1st, 2023, all new eligible customers are required to sign up for payments with their subscription service, significantly improving unit economics for new customers going forward.

For existing customers, this initiative has already launched in retail in North America. Next month, we plan to roll it out to our hospitality customers in the region as well.

We then plan to further roll out this initiative to the UK and Australia, and then on to the rest of India.

Now onto Outlook.

With unified POS and payment, we are making the right investment and strategic decision to drive durable, long-term and profitable growth, positioning us to accelerate towards the rule of 40 financial metric as we exit this fiscal year.

In the first half of the year, however, we will be impacted by the launch costs associated to our unified payments offering, which we estimate will total approximately $12 million for the year, $7 million of which is expected to occur in the first half of the year.

These launch costs include free hardware, technical support, and contract bios were necessary to ensure a smooth attestion as possible for our customers.

In light of this, our account management team that are usually upselling our customer base will be focused on successfully onboarding customers to unified payment. And we do expect some customer disruption as we roll through this, particularly amongst our lower GTV customers.

all of which may negatively impact revenue growth in the first half of the year, but accelerate revenue growth in the back half of the year.

Taking all of these factors into consideration, we're approaching our outlook with a heightened level of caution.

For the full year of fiscal 2024, we expect total revenues of between $875 million and $900 million with break-even adjusted EBITDA.

Because of the launch costs associated with unified POS and payments I referred to earlier, we expect adjusted EBITDA performance in the second half of the year to be significantly better than the first half. For the first quarter of fiscal 2024, we expect revenues between $195 to $200 million.

We saw weakness in many of our retail verticals in Q4, and as such, we're being cautious on our GTV forecast.

We expect an adjusted EBITDA loss of approximately $10 million. This expected adjusted EBITDA loss includes the first quarter impact of the launch cost on unified payments, as well as approximately $4 million of costs associated with our in-person sales and customer summit, which takes place in June each year. With that, I will pass the call back to JP.

Thanks, Asha. As I said, 2024 will be a year of execution's light speed. I expect to exit the year with strong momentum.

We will accelerate payment penetration, we will win more complex high GTV customers, and we will innovate like never before.

We are very excited for our Unified Payments and POS initiative and our two flagship platforms, Lightspeed Retail and Lightspeed Restaurant.

With that, I will turn it over to the operator to take your questions.

Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again.

One moment for your first question.

Your first question comes from the line of Daniel Chan of TD Cowan.

Your first question comes from the line of Daniel Chan of TD Cowan. Please go ahead.

Hi, good morning guys. You mentioned that you expect some churn in your larger customers as you roll out to see if I pay them a strategy. Can you just talk about what you saw with your North American retail customers as you roll this out? Where did they go and what was the feedback that they provided to you on why they were leaving the POS system as you rolled out?

clear there. For me there's two big blocks to the unified payment strategy. The first one is on new business. So when you look at the new business customers, every customer now everywhere in the world where we have payments cannot buy Lightspeed without Lightspeed and for now we've seen

Actually no close no change in the close rates and we've seen of course higher up who because customers are all buying payments So I think they were very confident and feeling good about good about the strategy And then the 8th second fold to this are existing customers and Existing customers for now. We're launching in the US on retail and as we get to the end of the fiscal year We'll be launching everywhere in the world

And on that front, I mean it's very much in line with what our beliefs were. We do not believe that people are going to change their point of sale and core business platform for the payment terminal. And actually we have strong belief that on the other side of this journey, we're getting extremely good feedback from customers who are using the payment platform.

what we're getting from them is you know of course unified reporting makes their lives much easier, you know less errors because the customers have an integrated payment platform, better customer experience because these are not I mean you know old terminals we're giving them state-of-the-art brand new terminals and maybe the last thing I want

is we're making it as easy as possible for them. So we're giving them free terminals, we're buying out their contracts, we're sending people on site to help them install. And of course we'll be, and I think we shared the statistic before, but in the majority of the cases, I think it's 70% of the cases, we always have lower rates than the rest of the market. So it should be a full net policy.

initiatives.

Yes, I'll take that Daniel. So the majority of our customers that we offer capital to are actually light speed payments customers. And as we mentioned in the prepare remarks, we have now self-serve on capital several of our regions. And so what that means is as more and more customers come onto light speed payments.

We've already underwritten those customers. So as a result, those customers will be offered capital. We have algorithms that determine the amount of merchant cash that we advance to each merchant that they're eligible for. So we definitely expect that business to continue to scale as we get more and more customers on to light speed payments because then they by default become eligible for light speed capital.

Can you just detail how it sort of changes from what you've been doing to date with payments that's gotten the payment attached up to 19%, are there pricing changes that are part of this, does this look like other competitors in the market? I just kind of want to understand some of the nuance.

behind this shift and then I got a follow-up. Yeah, so look, until now, payments was not mandatory. I think that's the best way to say it. So we were in a way kind of more with the carrot and kind of Switzerland. So yes, I suppose.

we would go to see the customers and say hey if you want there is Lightspeed payments and so it was not mandatory for new customers and it was not mandatory for existing. So here what we have done is we have spent the last three years.

really developing one service that could work everywhere in the world. And as you know, we have one payment service that works all across Europe that works in Asia and in the US hospitality and retail. And so we didn't want to be too aggressive because we wanted to reach scale and ensure that all of our customers were happy and sure that we know we knew sorry

For us, we felt it's the right time to do this because we know, I mean, I think we have our processes internally that work. And we also know that there's a lot of value. And frankly, I think that's the most exciting part for the market and our customers is when they use lightspeed payment.

They save time, they have a much better experience for their customers and when you look at the market today with cost of labor going up and interest rates and everything, for them the only way out is doing more with less and that's why we feel now is the right time to say well you know what, we cannot consider any more payments in software.

as being dissociated, they are one platform and it's actually gonna simplify our business going forward because every customer now is gonna follow the exact same onboarding flow, where everybody is on payments.

Every new customer and every existing customer is gonna move to like repayments. And that means we will only develop one version of our software instead of having all these integrations with all these different partners, one version of our software that will provide value to every single one of our customers. It becomes an attach rate function primarily is what it sounds like.

And then just, Ashra, when I look at 1Q and the guide, you had a very nice ARPU. You know, the subscription yield was up really nicely in 4Q. Is the implication that GTV on a reported basis could be down in 1Q year on year? Yes, yes, we're forecasting, we're being very cautious on GTV.

LightSpeed who typically focus on upselling our base on software is going to be 100% focused in the first couple of quarters on onboarding five to six times the number of customers that we typically onboard on LightSpeed payments. So there's that that impacts one queue as well in the in the software revenue growth.

over the year, though you see that we have given the guide for the year, it is evidence that we expect very strong revenue acceleration in the back half of the year as the initial launch of unified payments is behind us. In addition, we start seeing the extra volume on those additional customers getting up and running onto light speed payments. Your next question.

How successful are you at implementing a third-party processing fee?

I'll take this one in a good morning. So the plan is very simply put.

that we believe we can move the majority of our customers between now and the end of the fiscal year onto light speed payments.

As I said, we're gonna start with retail in the US, which is our biggest vertical and the biggest concentration of customers and we'll move to hospitality in the US. And then we're gonna move to Europe and A-PAC. So this is the year for me of, we take all of our existing customers and we bring them to light-feed payments. We've done a number of,

of initiatives there and we know what it's going to take to get there. And I think that's why going back to what Ash was saying. Normally, you know, when you sell software, you recognize the revenues immediately. But we're going to take the majority of our going to market people and say, instead of selling software to our customers, we're going to move them to payment. But there is a delay between the moment they say, I'm coming to payments and then we got to get them unborted transactional shipped all the hardware.

And we knew this was the final step of light speed payments. You know, when we always said that we believed we could get to 50% penetrated, we knew there was a step in there which is, okay, now we know it's working, we know our customers love it. So now we have to go into, okay, now let's bring the majority of our customers onto the platform.

That's great, thanks JP. To talk a little bit about the, a little more about the implementation, are there limitations to the pace that you guys can move based on people and availability of hardware?

No, I think it's just gradual. You know, it's just, I mean, we have a lot of customers in every country. So I think for us, we want to be cautious again in how we do it. We want to be sure that it's a successful outcome. And so that's why we're starting and we're going to be learning all year long, as we continue to deploy. But for now, just very clearly, the process is,

You're going to speak to all of our account managers now or just focus on calling the customers, reaching the customers.

And as you know, we're going to be accommodating the rate. So we need to take their current statements. We need to look at the rate that they have. We need to get back to them with what is the real rate versus your legacy systems are always very smoke and mirror when it comes to rate. So we give them the same rate, we accommodate the same rate.

are shipped and this is where it's going to be obviously...

kind of costing us a lot of money in the first half the year, is we're then going to be sending people on site.

who are going to be kind of holding the hand of the customer all the way, and are gonna be plugging in the terminals, getting in the, and so then it's as simple as plugging in the terminals, getting the, the putting the right code number, and then the customers are up and running. So it's a well understood repeatable process we've been doing, but now the idea is in the first half of the year,

We're going to put as many people as we can at light speed to do what I just described, which is going on site, which is shipping those terminals and holding the hands of the customers. Because the one thing we know about retailers and restaurateurs, they don't really like change. So we're doing everything we can to make this change as seamless as possible. We're giving the terminals, we're buying out the contracts, we're accommodating the same rate.

We're sending people on site because we want the experience to be good because we know that once they use it

We want the experience to be good because we know that once they use it, they will love it.

Your next question comes from the line of Thanos Moschopoulos of BMO Capital Markets. Please go ahead. Hi, good morning. If you look at your retail versus hospitality mix, as you're shifting towards...

the higher GTV locations, is there any shift in that thing? Are you having more traction and sending up one of those verticals versus the other when we talk about higher locations?

Yes, so Tanav, I think again we're seeing what we've seen for the past year. So we're seeing the under 200k cohort, we're seeing that shrink actually now about 6% year over year and we're seeing the higher GMV or GTV cohorts grow and I think that's kind of been happening all year round but I think the good news here is when you look at the 200k.

cohort that represents 5% of our GMV and represents I think 80% of our turn. So we're seeing good adoption from new customers. We're seeing RPU grow. We announced a few very large retailers and restaurant owners that have been moving to light speed that we acquired in the quarter and the flip side of that is we're seeing this you know this flu of low GMV customers.

churn at a higher rate and I think even if you look at the macro environment and we have planned for that, you know, I kept saying the whole year, hey, we think that, you know, with what's happening in the economy, that cohort is not going to be a good one and we're seeing heightened churn in those cohorts.

And we're actually seeing really good adoption on the higher chords. The only thing I would add to that, Don, is from a vertical perspective, we remain in the 60% retail, 40% hospitality markets, despite the move up market. The split by vertical is still 60 retail, 40% hospitality.

Okay, thanks. And in terms of your approach to outbound sales, to date it's been exclusively in North America. As you launch the famous initiative globally, given some of the hand-holding you might need to do, might you start...

deploying direct sales and other geographies as well. Yeah, so just be we are you're right and you know more and more as we look at the higher GMV merchants we're doing more and more outbound and not just for existing customers with terminals and everything but also even to try and attract customers and we're taking a very

hyper geography, very focused approach in all the different countries and all the different, so we have teams, you know, as you know, all over the world. So that is one of the blends that we're seeing is that we're seeing more and more outbound and again, I think that's very much in line with, you know, the cautiousness that we have, we want to be sure that our unit economics are strong.

So we are really focusing on the right customer base. And I think for me, the other data maybe that I think is interesting is, our cohorts are growing at 110% year over year. And that's because, you know, the customers that stay on the platform are buying more and are buying more modules and more from Lightspeed. So that's why we really have to continue on.

of JP Morgan, please go ahead. All right, thanks. Good morning. I know a lot of hard work went into getting to this point. So it feels like JP, very big bet, obviously, on the product and fitness and that clients are going to love it.

I guess my question is as you go out into the field and you face resistance whether it's

businesses aren't ready to do it now, they're too busy or they're happy with what they have or they get price matching from other peers. Is there a plan B? I'm just curious how much force are you going to put in to effectuate the plan?

Because again I'm sure you're confident in the product and whatnot, I'm just curious about the plan B. Yeah so look, if you do not want to move to lightspeed we will be charging you a transaction fee. And like all the other companies in our space that are the newer generation.

So I think nothing new there but we really have strong confidence and we did a few tests before we launched the initiative on cohorts of customers. And what we're seeing is, I mean, that's where we feel strongly, first of all the new platforms we just launched, I don't know if you saw but yesterday we launched our new hospitality, so it's Droidtainment. You got that in Google partners certainly in Google Drive hold, and the other big thing is while it's building Downloading platforms. So it's about like building a new platform I didn't lack it with this photography app, we'll have sound corpus is pretty much all If you want to playable, how the new versions.

are probably the best products we've ever built and creating a lot of value and with a very clear understanding of where we bring value to customers. And I think we just have very strong confidence that people are not going to replace the core platform that runs everything in their business.

for the payment terminal. We think everybody's gonna see this once they've... and change is the, I think, the most difficult piece is how do I make change as simple as possible, but once they're on the other side we're very confident that they're gonna like what they see. And if the customers do not want to, well we will be charging them a transaction fee. You know when we've modeled a year, we've modeled all the scenarios.

the marketing front here, beyond the outreach that you described. Well, look, we've hired a new chief marketing officer. She was a client before in Dropbox, so we've hired somebody that's definitely going to step up our game. I think for me, when I look at marketing, and you know,

That's where I get probably very emotional excited is if you actually look at our restaurants and our retailers and how they use the platform, they use us for everything. They use us to run their email campaigns, to manage their food, to manage their menus, to manage their kitchens, to manage back office, to manage and I've always said it's the hidden side of the iceberg. We truly...

are the core platform running their businesses. And I think we need to do a better job at being the go-to brand and making that very clear that we're not just a cash register, we're not just a POS, we run their businesses. And yeah, so the big mandate here for Caddy who's joined us is...

is twofold, is one to ensure that we become the go-to platform globally for the, call it the higher GMV SMBs, and ensuring that I think we need to develop the brand in a much stronger way. Your next question comes from the line of Josh Baer of Morgan Stanley . Please go ahead. Great, thanks for the question. I just wanted to clarify which of the location disclosures will be moved.

to annual disclosures? Hey, Josh. We won't disclose annual total location count quarterly, but we will on an annual basis. So you'll get that from us yearly. We did disclose it this quarter at the year end that the total location count was 168,000 locations outside from Equid at the end of March.

We expect a growth rate of about 10%. GPV to continue to grow 50% plus year over year. We also expect overall gross margins in the 40% to 45% range. So between those components and ARPU, we will ensure you have what you need to continue to model our business. Your next question comes from College of Business School District.

Koji Akita of Bank of America Securities. Please go ahead. Yeah, hey guys, thanks for taking the questions. A couple from me here, and I wanted to kind of go back to the unified payments and the...

and the POS initiative. So just digging in, wondering if you could talk a little bit more about if customers opt out. Can you talk a little bit more about what sort of fee is involved if the customer does not, or decide not to use light speed payments? Is that gonna be same around the world? Is it a monthly fee, percent of transaction?

And then, how do you think about churn assumptions or longer sales cycles due to this initiative that is embedded in the guidance? Great. Okay, so let's start, I'll start with the easy one, which is sales cycles. We have already launched payments now and we have a couple of months behind our, under our belt, sorry, globally. And here we have seen zero change in length.

zero change in close rates, and we've seen higher RPU. So on that front, extremely confident that this is not going to be an impairment to growth and to attracting the right customers. Yeah, on that front, so feeling very confident there. Going back to churn assumptions,

We do not believe that churn will be high as we launch unified payments to our existing customers on the cohorts that matter. We believe that the high GMV merchants,

will actually love what we're doing because the bigger the merchant, the more they need automation, the more they need speed of transactions to check out, the more they're going to like unified payments because it is the best way to provide the best experience to your customers in a very fast and efficient way. We think that those that might not...

We see them as the more emotional customers, which are the lower GMV ones. And those we think that churn is going to be high, but it's not that important to us given that 5% of our total GMV comes from the customers under 200.

under 200k and that is a significant amount of customers still. So I don't know how to answer this differently, but we're feeling really confident around bringing the customers that matter that are going to have a really big impact on revenue for light speed and growth in our group. If they don't, just being very clear, if they do not want to, at the end of all of this,

they've all received communication and they're going to continue throughout the year in all the other regions that says that they have a grace period but at the end of this grace period, if they don't use light speed, they have two options. They have one option is to go and find another vendor, which is okay for that cohort of customers. And then the second option is

they can use light speed payments, but they're going to be charged a transaction fee. And in the US, it's going to be about 50 basis points, which is again, very much in line with, you know, other vendors who are proposing this to their customers. So that's just being very clear. That's the scenario, but we do not believe that there are many customers who are going to go with the transaction fee. And we've modeled the churn assumptions to levels that, you know, I think we've been very conservative. And even in those scenarios.

when we look at our guidance for the year, we're very confident in it. Got it, JP. That's super, super helpful. And then my follow-up here, and it's really on the withdrawal of the 35-40% organic revenue growth guide. I'm trying to really reconcile here the positive comments, the long-term strategy, the payments rollout, and I do understand the caution with the macro.

and maybe just a tilt of caution with the payments initiative just because it's so new, but it does sound so long-term positive for the business. What other factors are coming into play or anything else to specifically call out for the reason to withdraw this medium-term guide here, the 35 to 40 percent? Thanks guys. Yeah, absolutely. You know the main factor for the withdrawing the 35 to 40 or...

that we typically onboard. And so you're seeing the impact of that in the first half of the year, as the company is gearing up to onboard, underwrite, five to six X the number of customers that we typically would. However, in the back half of the year, as the company, you know, that launch of unified payments is behind us, the initial launch, and we get the benefit of the added volumes of all these customers coming on.

to unified payments and using light speed payments, we start to see very strong momentum and strong revenue growth as we exit fiscal 2024.

Yeah, just maybe just clarifying, the difference between software and payments is, and I know I said it, but in software when you sell and the customer buys your software, it immediately translates into revenues.

on payments and especially with the unified payments approach, in some cases we're giving our customers a quarter to move because the larger ones take a lot of time to deploy so that's why it's a year of two halves basically. And that's why, again, going back to why we withdrew is

For this year we're certainly not giving the guidance that we had historically given. And that's because it's two halves, even though we think we'll end the second half in a very strong position. Your next question comes in the line of Suzanne Sukumar of Stifle. Please go ahead.

Good morning. A couple questions for me. Firstly, on the go-to-market piece, it sounds like your sales model has been evolving to more direct sales to go after the higher TTP merges, which obviously makes sense. How are you thinking about…

your CAC, I'm just kind of curious how that's been trending given the higher LTV potential. And do you also see opportunity for more focused investment from a sales and marketing standpoint to drive more impact with these large merchants? Yeah, so just again being very clear, the CAC hasn't changed. And I think that's the

That's the good news, your CAC hasn't changed but now we have all customers who are buying payments. On a UNICE economics front, we've seen really good progress there. I think going back to the, of course, outbound is slightly more expensive than inbound, as we can all imagine. But here again, if you're attracting high GMV customers and they're all attaching payments,

you can easily afford a slightly higher CAC because your payback is going to be shorter because your customers are on payments and if you go for the right segment of customers you're actually going to have better unit economics. So that's how we run the business, that's always going to be how we run it and I think for us we're just obsessed around unit economics but that's why we do believe, and again if I have to just on a macro map the year, when something really works for us, we really think compare it to other names of baths and safe them, one of them is actuallyRosemary AFTER

as we end the year and we have more and more customers on unified payments, we will be investing more in go-to-market just because our LTV is going to be stronger and just because we'll have unified payments with everyone. So I think here going back to the description of the year, first half of the year is about execution, bringing as many customers as possible on payment. Second half of the year is tailwinds of payments and we'll see high growth in revenues and it'll also enable us to invest way more in attracting more customers.

So that's how we view it right now, but I think just being clear, the CAC over the last year has really gone in the right direction. So it's actually not increased, it's been declining. Thank you, that's helpful. Next I wanted to touch on the competitive landscape. Just curious what you're seeing in terms of the competitive intensity in the market today. What you see.

competition or rather competitive intensity increase as you move up market or is it largely consistent with what you've been seeing in prior periods? Yeah, so I think so we have two big categories of products and I'm just gonna go through both of them. On the retail front, you know, we now have our new platform.

We are extremely competitive everywhere in the world. I think we are the go-to everywhere in the world for more established merchants. We're even seeing customers actually move from other platforms because they scale off the other cloud-based systems. Actually, we are very excited because what they're telling us is even our e-commerce capabilities are now, they would arguably say better than competition.

because we've been hard at work for two years, I mean rebuilding from scratch our retail platform. And it's brand new, no technical debt, state of the art. And really what we're hearing from our customers is it's better than it's ever been and it's extremely competitive. I mean I think we are the go-to globally for retail.

Now unfortunately GMV in that segment and retail has not been as good as hospitality, but that is really the strongest suit for Lightspeed globally. When you take hospitality, I think hospitality we have basically two large markets and I'll start with what I call outside of the US, rest of the world. Rest of the world we are the global dominating go-to.

merchant for established. So if you go to London, you go to Paris, you go to Germany and any city, we are the kind of go-to platform and we're not seeing any competition there. And really we spent a lot of time just making this better. We've launched actually, you know,

you might have read yesterday we've launched a new version of our hospitality and really we think that's really good. Now in the US, you know we have a competitor called Toast that's doing really well and in the US we don't want to own everything in the US. What we want to own are the fine dine Michelin Star more established merchants and actually very excited about the launch we did yesterday.

because that launch is a bundle of basically hardware, software, analytics, and it's very, very adapted. I mean, that was focused really on the US market. And maybe just as an example here, the point of sale, which is on the iPhone, is also your payment terminal. And that is major for the larger restaurants, because now mobility comes at no cost. You don't have to now buy an extra payment terminal.

your iPhone is your payment terminal. And I think we're one of the only ones out there now that has launched this and and it's just much slicker than anybody on the market. Now, and that's why I'm not saying we want to own the entire market, we want to own the more established, Michelin star, fine dine and and also all restaurants associated to hotels and resorts and you probably read the announcement there. So that's the strategy but

in those segments that I just described, we're feeling really good about the product. And I think the most important part, you know, my background is really product. The most important part is that these products are brand new. This means it's new code. This means there's no technical debt. And that means that as we go into the next year, we will be delivering...

at a much faster rate than we have historically because we now have two products that are brand new and that are extremely competitive and that means our velocity in terms of development is going to be really strong. We will take one last question and try to make it quick please.

So your last question comes from the line of Richard T. of National Bank Financial. Please go ahead. Yes, thank you for taking my question. So in the release you talked about sort of the rule of 40 and kind of curious to see you know what's your ideal balance of growth and profitability you know as you look forward over the next couple years.

if I can kind of just slip another one in. I'm kind of also curious to see of the proportion of your customers that have adopted payments, how many of those on a percentage basis have taken on capital? So I'll maybe start with capital. Capital is very small right now. We're just getting it launched. We just recently released it in the product. And the story around capital is you need to surface.

the right offer at the right time. So we're putting a lot of effort into that and as Asha said, we pre-approve a lot of our customers and so when they're in a workflow of reordering or that's when you pop up the offer and it's great for them because it's just easy access to funds. And for us it's great because we withhold on the sales side so default rates are very low and we know everything about our merchants given we run their businesses.

Sorry, I forgot the first question. Rich, what was the first part of the question? Sorry about that. It was between growth and possibility.

Sorry, I forgot the first question. Rich, what was the first part of the question? Sorry about that. Jokes between growth and possibility, you know, as you sort of. Oh yeah, sorry.

Yeah, rule of four. So look, we are going to run the business this year really focusing on trying to be as close as possible as we end the year to the rule of 40. And we are going to run the business on looking at sales efficiency, I think we got to do better there and naturally as we deploy payments, that's going to look much better. I think for us and again, I don't think we have any significant market share, I think the market is up for grabs.

And so for me, it's going to be the balance between how much do we reinvest and if the unit's economics are good. And I guess the other way to say it is, I'll put it differently, we know that our cohorts grow 110% year over year.

We know that our customers in the right segment are going to stay with us forever and continue buying more. And we know that we have no significant market share for now. So I think we need to show that we can be break even or better, show we can be profitable. But then I want to be able to, if we define to, to double down on getting the market. Because I think there's a real opportunity out there.

to build a much larger company than we have today. And I think if the units are strong, we need to double down on going off to the market. So that's how we're looking at it right now. Rule 40 is always going to be weighted towards growth. But we need to be able, if we want to, to show that we can be profitable as an organization. There are no further questions at this time.

I would now like to turn the call back to Dus Papajorju for closing remarks. Okay thanks everyone for joining us today. If there are any follow-up questions please reach out to the IR team and we look forward to speaking to you again after our next quarter. Have a great day everyone. This concludes today's conference call. You may now disconnect. Please wait. The conference will begin

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