Q1 2024 Lightspeed Commerce Inc Earnings Call
Please wait the conference will begin shortly.
[music].
Thank you for standing by my name is Barry and I will be your conference operator today.
At this time I would like to welcome everyone to the Lightspeed first quarter 2024 earnings call.
Lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press star and the number one.
Now I'd like to turn the call over to Beth Cooper you may begin.
Thank you operator, and good morning, everyone welcome to Lightspeed fiscal Q1 2024 conference call joining.
Joining me today are J P Survey <unk>, Chief Executive Officer, and Ash have a shiny our chief financial officer. After prepared remarks, we will open it up for your questions.
We will make forward looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Certain material factors and assumptions were applied in respective conclusions forecasts and projections contained in these statements. We undertake no obligation to update these statements except as required by law you should carefully review these factors assumptions risks and uncertainties in our earnings press release issued earlier today.
Our first quarter 2024 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.
This 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 senior dot com and on the SEC's Edgar system.
And finally note that because we report in US 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 Ross and welcome everyone. Thanks for joining us this morning.
Overall I was very happy with our results this quarter.
Revenue came in better than expected with revenue growth of 20% versus the approximately 14% contemplated in our outlook.
<unk> volumes increased by 56% year over year, and our adjusted EBITDA loss of 7 million came in lower than our outlook of adjusted EBITDA loss of $10 million.
As I mentioned in our last conference call. This year fiscal 'twenty for Lightspeed, its focus on execution and better aligning ourselves to the rule of 40 financial metrics.
Our main goals for the year remain the same namely.
To reap the benefits of one lightspeed acts.
Salaried revenue growth for financial services, including both license payments and nicely capital continue building products that solve our customers' problems and help them run their businesses, particularly with our supplier network and.
And finally.
Accomplish our goal of becoming adjusted EBITDA breakeven or better for the full fiscal year.
In terms of one lightspeed, we're closer than ever to deploying our flagships in all key markets.
At the end of the quarter, we obtained <unk> approval for Belgium, one of the last remaining markets, where our flagship hospitality product was not available and we expect to receive approval in the province of Quebec for a full launch.
One lightspeed has allowed us to simplify our operations and reduce cost and complexity across the organization.
I think more importantly, it is helping us win the right customers the customers with higher sales volumes and more complex needs are.
Our data shows that these complex smbs adopt more software and churn less.
Joining our customer base with the right customers remains an important goals for lightspeed.
In this quarter, we saw <unk> reached all time highs our flagship products are allowing us to attract customers.
Who can take full advantage of our software platforms, and whose high volume drive our payments revenue.
Let me share a few examples of new customers, who joined by fleet this past quarter.
In retail we are pleased to welcome Spice <unk> exchange with over 80 locations across the us adopting our lightspeed retail offering.
Women's designer clothing.
So they are more with two locations in Maine also adopted our licensed retail solution with E Commerce.
And in the U K bathhouse luxury fragrance skincare provider with fixed location has become one of our newest slightly to retail customers.
Yes.
In the world of hospitality, we welcomed Australia kick on group and organization with six locations that operate large venues that range from full table service to classic hubs.
We continue to expand our footprint in the important U S market by adding March 1st Breath March 1st run four breweries and tasting rooms locations in Cincinnati and have adopted our lightspeed restaurant offering along with insights.
And we were honored to be chosen by chef Paul to power has four locations in the greater Toronto area, including Michelin recommended restaurants Union.
In golf, we were chosen by the Coke a golf course in Clearwater, Florida, who are now using our retail and hospitality platforms to run their golf Academy restaurant Pro shop, and golf course.
I am thrilled to keep adding more names to our roster of customers around the world.
But I also think it's worthwhile, reflecting on the sheer scale and impact our platforms have had on growing our customer businesses.
In the 12 month period ended May 2023, Lightspeed hospitality customers have served over 1 billion meals and facilitated over $300 million dining experiences globally.
It's very satisfying to me and the entire lightspeed team to be a partner of growth and build innovative products and technology that impact both smbs and their customers around the world.
On the topic of scale.
Also want to touch on Lightspeed continued commitment to growing our sustainability impact as a global company.
To date, we have planted more than one 4 million three so our carbon III dining initiative.
Our industry, leading inventory and ingredient management capabilities are helping reduce weight and streamline our merchant supply chain.
In July we published our second annual sustainability report, which is available on our website and showcases how our customers are leveraging <unk> technology to transform the world and build a vibrant diverse communities.
Moving back to one lightspeed.
This strategy has allowed us to attract the right kind of customer, but it has also led us to a more successful R&D efforts.
And this quarter, we were able to deliver several new products and releases that are directly responsive to our customers' needs.
In hospitality, we were very excited to launch our advanced insights module in Europe .
Advanced insights gives our customers real time access to data and offer proactive suggestions for how to run their businesses more efficiently and.
And in a way that helps them comply with their obligations under GDP.
It is one of our best selling modules in North America, one that often command the higher monthly fee and the pass itself and we hope to see a similar level of success in Europe .
Advanced insight is a major differentiator for our offering and something that separates us from the competition.
And our continued commitment to create a best in class unified payments offering.
We enabled next day payouts for many retail customers using lightspeed payments globally.
Giving merchants access to their cash faster than we have ever done before and twice as fast as many legacy system can provide.
We're hearing great feedback from customers, who made the switch customers like Melissa Joy Manning and ethically made jewelry store with two locations in New York City.
I think lightspeed benefits, our business daily and we're saving a lot of time in the reconciliation process. We're also saving a lot of money in peace and made the business much faster much easier and so much cheaper to operate on that end.
We also enabled self service capital for OLED digital customers in Canada, and expanded likely capital into new regions, including Australia.
In retail we enabled multilayered pricing that allows our retail customers to charge different prices by location or customer group.
A feature we believe is unmatched by our competition and highly sought after by high volume merchants.
And at New order by Lightspeed, we released the Assortments for brands, allowing brands that operate their own retail outlets the ability to visualize inventory in the cloud optimizing inventory allocation and identify merchandising gaps. This technology has been successfully used by our retail partners and we're excited to bring its.
Directly to brands themselves.
Moving onto unified.
Last quarter, we announced the introduction of unified payments, our initiative to combine the power of Pos and payments into one platform.
By making it mandatory for eligible new and existing customers to adopt lightspeed payments.
We're confident that more and more like these customers will soon experienced the positive impact of a unified platform can bring to their businesses.
Last quarter, we notified eligible retail and hospitality customers in North America that they will have to adopt lightspeed payments.
And for new digital customers, we made payments mandatory we.
We will continue to launch this initiative to customers around the world during Q2 and throughout the year.
I know many of you are instructed and our progress we're still very much in the beginning stages of this rollout, but overall I'm encouraged by what we're seeing.
First of all I'm very happy to see that our close rates have remained relatively consistent since we made payments mandatory for all new eligible customers. This tells me that the new customer see the value in license payments and understand the benefits of embedding payments with the Pos.
More sales cycles also remain unchanged with deal closing very much within our typical timeframe.
Thirdly as I mentioned previously are now reaching all time high.
Thanks to our deliberate efforts to target high <unk> customers.
And to unify teams and we're getting these customers transactional faster thanks to our efforts to improve the on boarding process.
Finally, our biggest concern was that we would see customer churn increased substantially as a result of this initiative.
So far that has not been the case as it remains within historical ranges.
It has also become very apparent is how cost competitive we are at this stage of our rollout we are quite confident in telling our customers that we are able to meet or beat their current payments rates and even though we aren't really competing on the costs. The fact that we can deliver a superior experience at a similar or lower cost is in.
<unk> added benefits to our customers.
Overall, I am convinced that unified payments will be a success.
The Big question in my mind really revolves around timing.
For our larger customers, who command the bulk of our GCB, we're being as accommodating as possible if they require longer than two to three months to switch to payments. We are of course willing to work within their timelines.
India and the goal for US is to get all of our eligible customers onto lightspeed payments no matter how long it takes.
I intend to places company in a position of highlight the sheer potential of our business model, while still investing in our growth opportunities.
I will now turn the call to ask her to take the three reportedly results and provide artwork.
Thanks, J P O.
Overall lightspeed started to your strong delivering revenue and an adjusted EBITDA loss that we're better than a previously established outlook. We continue to execute on our strategy of attracting hygiene teevee customers and expanding our payment offering across our new and existing customer base.
On today's call I will provide a recap of the quarter discuss the progress of our unified payments lunch and then provide an outlook for the upcoming quarter and full year.
I was pleased with the progress we've made this quarter. Despite the attention and resources that are unified payments initiative is demanding we were able to maintain our discipline on costs.
Increase the number of hygiene teevee locations and drive towards our goal of adjusted EBITDA breakeven or better for the fiscal year.
I was also happy to see our total cash balance excluding merchant cash advances went down by less than $10 million in the quarter.
In the quarter revenue came in at $209 $1 million, an increase of 20% year over year and ahead of our previously established outlook sub.
Subscription and transaction based revenues grew by 21% year over year.
Subscription revenue increased 7% year over year to $78.7 million gross margins on subscription revenue remain consistent with last quarter at 75% the highest in the past two years, thanks to a dedicated effort to consolidate cloud vendors and improved overall efficiencies.
I want to stress again that in the quarter, our account management team, which is usually focused on up selling our customers on software has been temporarily assigned the job of Onboarding new payments customers.
Our account management team historically accounts for half of our added software M. R. R. In any given quarter and so it was encouraging to see that despite their temporary reallocation of duties subscription revenue grew by 7% year over year.
Transaction based revenue grew 32% to $121 million in.
In the quarter, we saw gross payments volumes increased 56% year over year to $5.1 billion as a greater portion of our GTE V went through our lightspeed payments platforms.
Gross margins for transaction based revenue came in at 26% down from the previous quarter and year over year.
There were several factors that negatively impacted transaction based gross margins this quarter, including costs associated with unified payments. We expect many of these factors to dissipate next quarter.
Total adjusted gross margin, which excludes the impact of share based compensation and related costs came in at 43% down from the previous quarter and year over year.
Dusted gross profit dollars came in at $89.8 million, an increase of 13% year over year.
Adjusted EBITDA in the quarter came in at a loss of $7 million. This is much improved from an adjusted EBITDA loss of $15.6 million 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 last year.
Total adjusted R&D S N N and G&A costs increased by only 5% from last quarter. Despite the added cost of our sales summit, an annual salary increases that were put through this quarter.
We had an adjusted loss of $2.2 million versus an adjusted loss of $17.6 million last year. Thanks, largely to the improvement in the items driving our adjusted EBITDA loss performance and growing net interest income in the quarter, which increased by approximately $8.4 million from a year ago.
Sure based compensation and related costs came in at $18 $7 million down from $38.3 million a year ago.
Coming in at approximately 9% as a percentage of revenue down from 22% in the same quarter last year and flat to a previous quarter once removing equity accelerations included in restructuring.
In the past few years sure based compensation has been elevated partially due to equity incentives grabbed it to employees of the various acquisitions we have undertaken.
G T V in the quarter came in at $23.4 billion up 6% year over year.
On the channel and hospitality G. T V. Both crew at similar rates in the quarter.
This quarter. We also continued to grow our complex customers with higher GTD tears customer.
Customer locations with over 500000, a year in annual GTD grew by 10% in the quarter, whereas those with under 200000 a year in GTP declined.
Again in this quarter the fastest growing cohort was locations with over $1 million in annual G television, which grew 11% year over year.
As we focus on more complex higher dtb merchant, we expect the under 200000 G T V cohort to decline.
As a reminder, this cohort of customers continues to represent approximately 5% of our overall G television.
I want to add a little more color on what is happening with new location wins.
As we keep stressing our goal is to attract larger more sophisticated customers, who can take full advantage of our software platforms.
If I look at the our approve it has continued to increase reaching all time highs in the quarter.
At the same time or acquisition costs have remained relatively steady.
We're also seeing our churn rates remain very much within our historical ranges.
As a result of this increase in our <unk>, we expect our payback period and LTV to CAC ratios to continue to improve which bodes very well for our ambitions of being adjusted EBITDA breakeven are better for the fiscal year.
As I mentioned churn rates in the quarter remain consistent with last quarter, despite challenging macroeconomic conditions as well as the launch of unified payments.
Also the vast majority of our overall customer churn is in the cohort of customers processing under $200000 in annual G television.
We continued to grow the capital business in the quarter under normal circumstances, we would likely be pushing capital even harder.
However, given the current macro environment, we're being conservative on the ramp there's no lack of demand from our customers and we believe our high due to the customer base is an ideal demographic to use this financial service, especially in the long term.
Risk of business failure is much lower with hygiene teevee customers, but the need for capital is still substantial.
In terms of our balance sheet lightly closed the quarter with just over $780 million in cash and cash equivalents down from approximately $800 million in the previous quarter.
The largest uses of cash we're working capital items and the increase in merchant cash advances of $11 million during the quarter.
Turning now to a unified payments effort.
As J P mentioned, we are still very early in this process and are only now beginning to launch this initiative outside of North America as.
As a reminder, international markets account for approximately half of our total customer locations.
In terms of our existing base of customers. What we're seeing is a strong contingent of customers adopting our payments solution almost immediately.
In addition, the number of customers that are churning is lower than we expected. However.
However, there are still a large number of customers that have not taken any action in the coming months. They will see the new transaction costs on their monthly statements and we expect that will act as a catalyst for action.
Based on our experience we are confident in our ability to match or beat rates for most of our customers, but we are not competing on cost alone.
Lightspeed payments allows our customers to save time and money and gives them unprecedented insights into their operations.
Our value proposition is very strong and in addition, we continued to deploy technical support contract buyouts and free hardware to our customers to help them in this transition.
That is why we believe this initiative will be a success.
Now onto outlook.
I was encouraged by our performance this quarter, we believe that our business remains incredibly strong with abundant opportunities for sustainable long term growth.
We continued to add higher dtb customers at our new platforms combined with the unified payments initiative is helping ensure our <unk> ratios are headed in the right direction.
I believe we have established the foundations to accelerate towards the rule of 40 financial metric as we exit the fiscal year.
Our key concerns remain the overall macroeconomic environment as well as the timing of unified payment.
Transaction based revenue is over 50% of total revenues and highly dependent on GTP growth.
Despite the growth and GTP, we saw in the first quarter were being increasingly cautious on the macro environment given central banks continued to increase interest rates.
As a result, we are keeping our GTE expectations modest.
Additionally, although the signs are promising it is still too early to determine the full impact of our unified payments efforts on our fiscal year.
Key concern here is on timing our end goal is to get are eligible customers on to payments, but we want to be as accommodating as possible. After all we are here to try to help our customers.
This may impact the overall time, it will take to get our customers transactional.
For the second quarter of fiscal 2024, we expect revenues between $210 million to $215 million and an adjusted EBITDA loss of approximately $4 million.
For the full year of fiscal 2024, given the macro uncertainty outlined above we continue to expect total revenues of between $875 million and $900 million was breakeven or better adjusted EBITDA we.
We expect both revenue and adjusted EBITDA performance in the second half of the year to be significantly better than the first half.
With that I will pass the call back to J P.
Okay suffer.
Before we get your question.
Worth highlighting one more items from our sustainability reports.
Third of the executive roles I'd like these are occupied by women, which is approximately three times the average of the tech sector for women in leadership roles.
Accomplishment travels.
You're committed to hiring and promoting the best and brightest in the company and maintaining a diverse workforce is crucial to obtain.
So far our fiscal 44 is also a good source and our goals are simple.
One benefit from one might be to expand payments three grilled great product for our customers and finally for Jesse profitability.
We are fully committed to meeting these goals.
That I will turn it over to the operator to take your questions.
At this time I would like to remind everyone in order to ask a question press star and the number one on your telephone keypad.
And we will take our first question from <unk> Chan with T. D. Cohen Your line is open.
Good morning, let's see some good progress on the payments front, but it sounds like there is some uncertainty on the time you're going forward are you still on tries to get the majority of customers all payments by the end of the year.
Hey, Daniel Thanks for your question and Sasha, where what we had committed to was a north America launch it both hospitality and retail and then APAC and in Europe follows. We had mentioned that we expect to see the penetration to be in the 30 to 35 per cent range as we exit the year.
You know and we're still very much a lined with with that trajectory. We we have to keep in mind that when we say the majority of our customers. We have to keep a couple of things in mind, there's still search and vertical is that we don't underwrite in certain regions, where lightspeed payments are still not available we plan to unlock those regions in the coming quarters and vertical.
As well, but the the goal that we would outline at the beginning of the year for fiscal 2004, Oh, we're still very much aligned with that.
Great. Thanks for Russia, and then on the fiscal twenty-four gardens, you reiterated that despite the beat this quarter relative to the gardens of Jihad.
Anything to call out there that's that's changed that you're thinking in the.
Next three quarters, you called up macro and timing of those those gotten worse than what you expected.
Last quarter, considering the beat this corner.
No not at all actually the beat in our first quarter really resulted from two things as you mentioned the first is gross payments volume growth better than expected and that's just given the verticals, where where well penetrated on payments as well as some early signs that are quite encouraging on unified payments such as lower churn then we forecasted as well.
It's time to transact are much more quickly in certain contingents of customers. However, as we look forward into the you know the following three quarters were choosing to remain very modest on our G. T V assumptions, we do believe that the end consumer hasn't fully felt the impact of rising interest rates and inflation.
Actually being more modest on our G. T V expectations for the next three quarters and with respect to unified payments, we have to keep in mind that 50% of Lightspeed customer base is international and we haven't yet fully launched in those markets. So we're not you know we don't want to take the early encouraging signs of unified payments on it and apply it to to those regions we feel it.
Still early days and we're choosing to remain cautious.
Thanks to all customers.
And your next question comes from Andrew Jeffrey Electric Securities.
Hi, Good morning appreciate you taking the question.
I wanted to dig in a little bit retail versus hospitality trends interesting to see that those categories. You should've growing at the same rate right now and I appreciate the the high level macro commentary, but that's a notable change from recent periods, how would you sort of anticipate.
Those two categories growing it sounds like there may be a shift back to more discretionary spend from experiences and maybe you can parse that by geography, a little bit just a little more color on expectations.
Thanks So.
You want me to start off and then we can look I think is very similar to what we talked about last quarter. What people are wearing to go to a restaurant those categories are doing well, so we're seeing luxury apparel apparel.
There and also jewelry going very well and we're continuing to see go with the Covid that's positive not do that well so outdoors sports bikes or have still not recovered and it's still down year over year and on the hospitality side were C. Still good demand globally, so, but I think for.
We just want to remain cautious because we think there might be you know.
You don't know, what's gonna happen, but we might be cautious as we get into the second half of the year.
Okay.
I can appreciate that given the uncertainty and then just wondering whether or not some of the sort of.
C issues that have arisen customer fee issues that have arisen in the U S was sort of.
Nominal competitor.
Around that has helped as hurt as major selling motion and easier I know you're not big in U S restaurant, but I wonder just generally the cost of.
Payments for merchants. It sounds like you think you have a price advantage I'm wondering if you're sort of seeing anything if you're in the market that is notable in that regard.
Maybe I'm paid with what we're seeing is one customers you'd like repayments. The lovers. So I think that's very encouraging.
Your savings time, they love to consolidated reports they loved the actual hardware and the ease of use and mobility and all of these are important and I think what they like also they're getting all of that at a rate that is very competitive. So we are so confident now with our rates that were telling our customers were gonna match or beat your rates.
Regardless of what happened so I think what we're seeing is that people July speed is a very good choice.
At a at a good price and.
Again, <unk>, we're seeing or close race and I think maybe that's the most exciting to all <unk>.
Unified payments, we were really looking at making payments mandatory for all new customers.
Here, what we're seeing is our clothes, where they're just as good or plans to close or just as good and <unk> has gone up pretty significant.
Customers.
So.
Nothing too to add except that we're very happy with the outcome for now.
But we wanted to <unk> for the rest of the year.
Alright I appreciate it.
Your next question comes from Santos, most shoplift like B M capital markets.
Hi, good morning, with respect to the costs for transitioning customers the payments such as buying after contract the handholding required to get them up and running are those funding pretty wild expected resigning caught in that regard.
Hey, Thanks for the question what those costs are actually trending slightly better than the expectations. What we are finding and again, we you know it's only really the north American launched is because it's very very early days for the others, but we are finding in North America that there is a lot less handholding that our customers are requiring.
Many customers are not requiring onsite installations, we still have some significant cause of unified payments in the quarter and we expect to have them into you too as well, but they are lower than the original expectation.
Yeah for the first half of the year, we expect a softer subscription revenue growth, we do expect that to improve slightly in the back half of the year, but you know as we said last quarter. We physical 24 for US is really the year of execution on unified payments and so you know even for the full year at large we we do expect overall subscription revenue grow.
To be a softer than what we've seen in previous years and once we exit the year, we expect that to improve to to historical more historical level.
Alright, that's fine thanks.
Your next question comes from Koji Aikido with Poppy Securities.
Hey, guys. Thanks, Thanks for taking my question I got a question on.
G T V here as a percentage of G. T V. So during the quarter 22 per cent, that's great an increase of three quarter over quarter.
And the way I understand it as much of that near term growth is fueled by payments adoption, but as payments get more and more penetrated within your your base.
G B G T V becomes it should get back to you.
T V as a driver of growth and that metric route.
Percent year over year this quarter. So how how do we think about the puts and takes with G. T V growth over the next 12 to 24 months.
Thanks, Thanks for the question Koji, So you're right or you're absolutely right. The the relationship between G. T V growth in G. P V. Gross today for Lightspeed is is quite disconnected because we're only 22 23 per cent penetrated at the end of the quarter and as you know as we become more and more penetrated GTD growth will.
Become a much more aligned with our our gross payments volume growth, what we need to keep in mind with the 6% which was you know.
Single digits year over year growth not not Super high is the <unk>.
Fact that 50% of our locations at Lightspeed are outside North America, and so you know we have we do have some FX headwinds that are impacting that number. In addition, there are certain verticals. We're we're well penetrated from a G. T V perspective, like J P mentioned, and they're still declining year over year, and so that is impacting our.
<unk> G T V growth.
We do find that as we focus more and more up market on the over 500, K a cohort of customers as you know as our our main focus that we do expect that light speeds GTP growth year over year should should be better than the overall G. T V growth and the S. M B market.
Got it okay. Thanks for that and one follow up primary care and your prepared remarks, you were mentioning capital and you mentioned that you would be pushing harder, but given the Mac or you're being conservative on the ramp.
But then you also mentioned that there is demand for it. So if there is demand why not push it a little bit harder for capital.
Yeah, you're you're absolutely right capital is a very promising business for us, but what we have to keep in mind is that it still represents today Ah low single digit millions in terms of revenue and so you know when the company is fully focused our sales teams are fully focused on unified payments. There. There was some distraction in the quarter on capital and in addition.
And we want to make sure that you know in today's macro that we're not rushing anything we wanted to make sure that we ensure that we stick with the very very high rated credit rated customers for eligibility, but you're absolutely right. There's there's tons of demand. We're just we're taking our time intentionally given the macro are.
<unk> still remain extremely low, but we definitely should see that pick back up in the back half of the year when a unified payments is behind us.
Got it that makes a lotta sense. Thank you so much.
Your next question comes from Max which economists research.
Alright, Hey, guys. Thanks for taking my question here, just one on a unified payments you guys mentioned that.
Gateway Lightsey, that's going to be implemented is going into effect in a couple of months. Just curious if you could kinda like bifurcate for us is that.
Strategy, just focused on the smaller customers or will that be impacting the larger customers.
Like any any color there on your strategy it would be helpful.
Yeah Uhm so.
That fee is really the sick.
So when you look at our unified payment strategy. What we're trying to do is we're trying to get all of our customers on the payments and I think that's the expected outcome as we want everybody on on you reported.
But what we're doing there the characters, we're giving away hardware.
Installation, we're beating your rates were committed to to match and you're beating your race, we're sending people on site. So we're giving a lot but the six year is we're saying well if you don't move to likely payments were going to be charging you a transaction fee of 50 basis points and so that's been now communicated to our customers we have a certain person.
<unk> our customers that are now paying the fee, but just just being very clear we have a whole set of people that are actually reaching out to those customers.
That are paying this transaction fee and telling them, hey, you shouldn't be paying the fee because you'll be you'll be paying way less if you're using <unk>. So it is just a <unk>.
Three loser.
Yeah, I think I think we lost J P.
I'm Gonna I'm Gonna continue, but I think to answer your question I think J P answered it but you know we are we are ensuring that the transaction fee at 0.5% is is across the base. It's not just for the smaller customers.
And so we you are finding that there's a large contingent of customers that have taken the transaction fee still very early days on unified payments and what we are doing is reaching out to those customers to ensure that they understand the implications and trying to you know again reiterate the benefits of lightspeed payments, but so far you know there's.
There's no concern on our end there.
Awesome Super helpful Asher.
One other one just on the transaction based gross margin and you mentioned the one time items there.
But could you just kinda like walkers through the puts and takes of should we be modeling that similar to what we've seen in the past couple of quarters should that'd be coming down a little bit due to make shift maybe payment is growing faster than capital.
Just any puts and takes that will be helpful.
So the transaction based gross margins that you're right. There were several temporary I items impacting the margins this quarter.
One of which is the the one time costs are the launch cough and unified payments, we do expect that to dissipate in the coming quarters, there will still be some launch costs in the second quarter.
Beyond that we expect that's dissipate the commentary on Lightspeed capital, we should see that improve in the second quarter from from the front.
You've just in in Q1 and to further improve in the back half of the year. So those are the one time items that will improve and we do expect transaction base gross margins and overall gross margin growth year over year to improving Q2, and then improve even further beyond we have to keep in mind referral fees are declining as expected.
That's not one time and that will happen every quarter as we take those cohorts of customers onto lightspeed payments, but we do expect you to and beyond the transaction base gross margin and overall gross margin to improve given the one time.
Thanks.
Your next question comes from Richard K with National Bank financial markets.
Yes to start a question of balance or payments adoption, then obviously with a focus on larger merchants what are your existing large merchants thing.
In regards to adoption lightning or whatever they need to be convinced on like.
What sort of any obstacles for their adoption I'm sure you have conversations with them but.
Sure that that'd be helpful.
Yeah, I'll take the two I'm, sorry, I got kicked out earlier on the.
The higher G M V merchant or actually I'm more inclined to go with.
Your conversation gets a business conversation and at the end of the day, what they want to they want they're really focused on optimizing productivity.
Uhm optimizing number of transactions per employee basically until hear the conversations are easy. It's like if you can accommodate my right cool, let's go let's go with the conversation is actually easier with the big ones and a small one.
The only thing with the larger ones that have multiple locations you know like.
Well what happens there is there is a rollout so between the moment. They say, yes, we're ready to go ahead and reload it out to all of your location you could take it takes time, but.
Generally speaking, we're feeling very confident with the the high G M D merchants.
Because the conversations with the business, especially when there's no motion to three rounds.
Productivity.
Okay, and then I think you just touch briefly and you're prepared comments about new order can you give us a sense of what the revenue model may look like going forward now that you've sort out a bit of time with it and then also you know the potential time, you know you know one that sort of commercial model would be available.
Yeah. So.
New orders of business by itself inside of like they work with brands and they they basically are the pipeline.
<unk> of all their goods.
Two older networks float to the branch so that's been in place that's convenient to generate revenue every every quarter will continue <unk>.
The real value of your order for like to use is the network between the brand in the store.
And so we have nothing for this year that is in our revenues for that so we're continuing to develop but what we are theory is that for the sore that are using light speed and new order.
Tremendous value of C. G M P S for those customers much higher.
You think this is.
Heard it better than sliced glad for them because of all the coins are saving.
Kenneth paper and being more efficient so we're confident in the order for the future. We are investing along with your new developments to continue to integrate within a very tight where you have to like be we actually hired John Shapiro, who is not gonna be needing to finish it for like the.
Senior executive a lot of technology background with suppliers and M. P. O S. So we're progressing well, but we're being cautious again, there's no revenue you recorded for the integration, we think we need to spend another till the end of the fiscal year continuing to give you information before we see the benefits now the.
Benefits, we're gonna see as I go with that three distribution, we will be between the brand in the store. So we will help brands define or identify new sores.
Will also help Ramsey sell through.
You know throughout the entire Lightspeed network. So that they can they can readdress manufacturing and finally for the sore or we can just use value. There is a different theater, where we're gonna automated everything's <unk>.
So I think it's a very exciting.
We've always had a very exciting products.
I mean, we're building history ear and it's gonna take time, but we are very confident in India and the outcome.
Okay, and just quickly lost one for me.
Mmm no doubt in your balance sheet as trials and you've got a lot of financial flexibility and it was the sort of path to break even are positive EBITDA.
Sort of the year do you have.
Increasing flexibility. So what do you think you know in light of the relative valuation on the sock any possibility of kind of buying back some of your shares.
Yeah. Thanks for the question. We you know we talk about we've talked about a stock buyback we were always evaluating our options. There you know we we discuss it with our board regularly as well, it's it's very important to us that we maintain flexibility around our options whether it.
The ebony or or anything of the sort. It's not you know, we're not gonna be likely raising anytime soon in these markets and so we want it we're trying to balance buying back our stock with what we need the cash for things like our merchant cash advance business is thriving.
We continue to evaluate our options there, but no no real decision yet.
Okay. Thank you.
Your next question will come from <unk> hung the J P. Morgan.
<unk> Your line is open.
Okay apologies hope you can hear me now thanks for the the good detail here.
I think Andrew S. D. J P on the on the toast consumer fee that the initiated and then they subsequently had to retract that I'll just ask about supposedly any lessons learned from that I know you're going to a transaction fee intro and you're bracing for an executive good good outcome, but I'm just curious if there's any lesson learned from that and.
You might respond to.
Any negative feedback.
<unk> I think the only comment I can make this is not a short term without here for the short term and I think you have to be careful.
When you drop jack-up prices, just because it's a fairly easy exercise you know sir.
Revenue by increasing <unk>, increasing fees in a in a way that's not that's.
That's not acceptable to the customer so I think for me the feedback that we have to be called <unk>.
And we we look at our customers as a longterm relationship.
So we have to we have to ask well and especially in the context of unified payments.
You know, we we want our customers to know that we will not you know because I think it's a question of power. Once you have the power and you do everything for the customer.
You have to behave well and I think for US we just have to be cautious and how we do price increases and they have to be reasonable.
Cause it's not the customers are going to react very call you to that.
Sure. Thank you.
Your next question comes from adhere cabinet with a capital.
Thanks, guys for taking my question Uhm, maybe just one on the the unified offering are you <unk> and then the new product development that you guys talked about this quarter can you give us a sense of how the unified uhm platforms are now kind of helping your cross sell it up some lotion are you finding that customers are much more <unk> recipient.
<unk> given this tougher macro in terms of labor and everything around that.
Absolutely so actually the reason why we loan payments when we launched it when you look at the market basically prices are going up you know cost of labor is growing up cost of goods are growing up margins are tightening and the only way out for for our customers is to do more with less and that is really the main driver.
We are helping our customers safe time, and you know we have numbers like productivity gains is 20%.
<unk> customer so the idea of a unified payments.
<unk>.
Mmm Mmm Mmm, if one solution. So when will your if your clerk when you're selling or your waders you don't have to you know pull out multiple things everything happened within one environment.
I think when you look at the back office capabilities also when you look at the reporting and you looked at you know.
If you <unk>, if you have a payment platform and if you're asking you to consolidate <unk> figure out where the funds are going whereas we give you a simple report at the end of the day time saving everywhere you look productivity gain wherever you look so I think that's really what's driving our customers.
And the last piece is is.
Access to <unk> you know.
So we have a number of derivative products that are using <unk>. The first one is capital once you're unlikely payments.
Rugby for capital. So you can have access to capital that is a big wins for them and and our customers and I think the last one that comes to my mind that is really important is our inside Benjamin Franklin.
Analytics or encourage platform.
<unk> uses payments given sites that they've never seen before and thought it would be just launched it now in Europe , and sorry, with three G. P R or helping our customers comply with G. P. R. Cdpr correct. So all of these are products that are really good and are really helping our customers with productivity and understand how to run a better visits and we are deriving a lot of <unk>.
<unk> that are using payments at the core.
Excellent. Thank you for my second question just on the customers who are immediately opted for the 50 basis point transaction fee do you see an opportunity in the future to reengage those customers to kind of keep the conversation going or is it more of a kind of like a one and done and then you guys kind of leave them alone.
No no no. It's it's an ongoing and I think that that's really when you look at our when you look at unified pavement.
Every customer that goes under you know we don't have time, we're paying transaction will look at this later et cetera. Those are the customers, we really want to bring on space.
A lot of our customers are just using the the transaction fees because they don't have time right now so if it gets the wrong time of it if I'm a restaurant, but I'm in France.
My money in summer at the Beach Road.
I'm not going to use like the payments I'm gonna pay a transaction fee. So what we're trying to do at the end of the day, we do not want any customer. Thank transaction do you think that is not the right way to run the business. So we're doing everything we can to bring them onto like people.
Soon as they take it you have a.
A whole set of of of of people that are calling them and trying to workout timeframe, so bring them onto might be it.
Thanks, a lot that's fine.
Your next question comes from Kevin Krishna K with Scott Bank. Your line is open.
Hey, there good morning at a question a question on software you mentioned that the the cohorts under 200000 or five per cent of G. T V. Any sense of how much of your software revenue they account for.
Hey, Kevin Thanks for the question.
Yeah, we haven't typically disclose the percentages of software revenue from that cohort. We the way we look at our customer cohorts are you know total the total net revenue that we get from the customer and when we look at it from that perspective. The ratios are quite similar from the G. T V right because obviously the the larger D T V.
Customers with payments and so I'll I'll you know payments is is embedded now into our platforms. The larger dtb customers with payments, obviously is very representative.
Of the split so so that's typically how we look at it if you know in a in a typical a customer if I. Just gave you. An example of a very small customer we have customers that are paying us 50 $50 per month on software. We also have very high G. T V customers that are paying us $500 a month in software so.
You know it really it really is difficult for us to just cohort those customers because even in the over 200000 bucket, there's quite a large range.
Okay, No no I appreciate that and that that kind of leads to my second question just on the larger emergency you know over 500 or over a million dollars. You mentioned you know $500. As an example, but you know maybe bigger picture even medium to longer term, how how how much do you think you can extract out of out of <unk>. Your best merchants in terms of a bar.
<unk> <unk>, where do you think it can go.
Yeah. So I think we're early days frankly.
Just look at our customers a 10 million dollar G M V and add payments in there and you'll see that based.
Basically the software becomes a small fraction of whatever their payments and I think that that's why we're doing it but I think that's that's where we are obsessed if you look at the baskets. We look at all the text with the customers are buying and we think there's there's room to go well above a thousand bucks a month drug for software for those.
Customers so.
Per location. So there's there's a lot of room to grow one thing is certain is we are <unk> I said that a number of quarters, but we are doubling down as a high Jesse merchants all the way from marketing to onboarding into supporting to how we we position ourselves we are growing up market and that is really.
Good for like you because all through is much higher and we're seeing it actually the new customers that are drawn like do you have a much higher <unk>.
Then you know in every quarter. The R. P seems to be growing the new platform.
Command and much hierarchy. So we're doing what's right. We know that we could get a much higher level than we have today and the first step for us as as you said, it's unified payment because that really move the needle quite significantly, especially for the idea of your budget.
Got it got it I appreciate the color J P. Thanks.
Your next question comes from <unk> Kumar, which stifle.
Good morning.
Just had a question here on a merchant grow with you saw.
Solid double digit growth in large emergence this quarter.
Just curious as as that'd be changed from a selling motion.
You guys and also what do you see from a competitive attempt to be <unk>.
You could do folks on large emergencies.
Yeah. So I think the good news is the more the large the merchants the last competition. Okay. That's very simply because if you. If you look at the larger merchants none of the other subjects competitors can can offer what we do so I think that's why we're really focused on that because it has lower churn hierarchy and lower competition.
We have adjusted Ourself motion.
Now you know, we're working very tightly with the Google and Facebook that the world to actually feedback G. M. V. So that we can do a better job of just targeting them and then what we're doing now is we are creating cohort.
Of salespeople based on the types of customers. So are more experienced salespeople now with <unk> and if you just wanted likely you'll probably gonna start with the large empty person. So we are equipping the organization in a way.
Just optimize throughput of large customers and we're very happy because it's working any way we look at it.
Seeing.
Scene basically payback.
I'll go down so we get paid back in a shorter and shorter amount of time.
<unk> closed rates remain very strong and we are seeing <unk> really strong for new customers. So very happy with what we're doing and I think again, it's the journey.
The journey that started for six quarters ago I think.
Just continue improving as we go forward.
Great.
Lately and it will take one last question.
Absolutely and our final question will come from <unk> with Barclays.
Alright. Thank you. This is Jeremy on <unk> I just wanted to ask on on the light speed supplier network. So I understand that it's not being montage now, but has sort of been like rolled out customers as a as a test case and if so can you share a little bit on what the feedback has.
Been there thank you.
Yeah, so when.
When we look at the supplier network the peace that is monetize as we work with the brown.
By our software and then we become the platform to distribute their good for anybody who wants to place an order.
Including our competitors, including Big box retail N S. M. B. So that's at peace with being in motion is going well the peace that is still under Kathleen Reedy I'm, taking the brand and I'm connecting those grants to like the stores.
I'm in labeling the sores to be way more efficient and how the offers so instead of going outside of the platform as they would know.
<unk> and then receive half the girls because they don't have anything at what.
What we're helping them to do is we're helping them first of all identify how much they should the ordering <unk> analysis of their fell through and then what we're doing is we're connecting that order directly to the brand.
Then we're enabling them to place an order from the brand looking at the inventory levels at the branch and then finally, what we're helping them do is when they receive the good we have no work.
Scan the good and the descriptions of their the videos and and that is really important part merchants right now because.
If you want to sell online and you Wanna sell across multiple channels you need to have a rich packages that describe the goods with videos and images and acceptance and I know that sounds.
August .
But the reality is for this industry nobody does it so why am I, saying this is that the test case, we've done we have a.
A couple of hundred customers are using the full integration.
The feedback we have from them is outstanding.
They believed.
This is better than sliced bread.
Giving them hours and hours everyday and again going back to my previous comment any.
You could help today resellers save hours of work. They loved you because you know they don't have the bandwidth anymore. They don't have the manpower and it's all around doing just optimizing and doing more than that so that's why we're very excited about this but we need to start the networks and all the vertical is where we operate.
And that's gonna take time, but we know that once they're on it.
P S score and the side effects.
People are really happened.
Got it thank you.
Mmm.
I will hand, the call back over to catch my closing remarks.
Okay. Thanks, everyone for joining a stray if there are any follow up questions. We are around all day look forward to speaking to you again next quarter have a great day everyone.
This does conclude today's conference call you may now disconnect.
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