Q2 2024 Lightspeed Commerce Inc Earnings Call
Thank you for standing by and welcome to the Lightspeed second quarter 'twenty to 'twenty four earnings call.
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Like to ask a question during this time simply press star followed by the number one on your telephone keypad.
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Assistance throughout the call. Please press star Zero, and finally, I would like to advise all participants that this call is being recorded. Thank you I'd now like to welcome Gus perpetuity <unk> head of Investor Relations to begin the conference over to you.
Thank you operator, and good morning, everyone. Welcome to Lightspeed fiscal Q2 2024 conference call. Joining me today are J P Survey Lightspeed, Chief Executive Officer, and Ash about shiny, our chief Financial Officer. After prepared remarks, we will open it up for your questions.
We will make forward looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Certain material factors and assumptions were applied in respect that 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 second 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.
Should be considered as a supplement to and not a substitute for <unk> financial measures.
Reconciliations between the two can be found in our earnings press release, which is available on our website on SEDAR plus Ts.
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And finally note that because we report in U S dollars. All amounts discussed today are in U S dollars unless otherwise indicated.
That I will now turn the call over to J P.
Thank you and welcome everybody.
This quarter Lightspeed made great progress towards achieving our key goals for fiscal 'twenty four.
Thanks to our powerful products and strong execution in our unified payments initiative, we delivered an excellent quarter with revenues of $233 million and 25% year over year growth.
Is well ahead of our previously established revenue outlook of $210 million to $215 million.
We're making tremendous progress executing on our unified payments initiative with our G. P V now exceeding 25% of our total G television.
And for the first time since we went public we delivered positive adjusted EBITDA in the quarter. This again was well ahead of our previously established adjusted EBITDA outlook of negative $4 million and positions us well to meet our goals of adjusted EBITDA breakeven or better for fiscal year 'twenty four.
At the beginning of this year I promised at fiscal year 'twenty four will be the year of execution.
The results from this quarter firmly show that.
That we are delivering on that promise.
As a reminder, let me walk you through our main goals for the fiscal year.
One reap the benefits of one lightspeed to accelerate revenue growth from financial services, including Lightspeed payments in Lightspeed capital.
Three continue building products that solve our customers' problems and help them run their businesses, particularly with our supplier network and for accomplish our goal of achieving adjusted EBITDA breakeven or better for the full fiscal year.
In terms of when light speed, we continued to see good progress.
By the end of this quarter, excluding equity customers, our new flagship product accounted for approximately one third of overall customer locations.
T V from flagships grew 35% year over year and total revenue for flagships grew 124% year over year.
Our flagships and our code complete complied with regional regulatory requirements and we will very soon be available in all of our global markets.
In fact, our two flagship products at the best Codebase, we've ever delivered.
These two products and market the competitive gap between our flagships and others in the market continues to grow delivering two industry leading products in the last two years would not have been possible without the M&A strategy we deployed.
We moved quickly to integrate some of the best technologies from our nine acquisitions into their flagship such as.
Industry, leading analytics from observed.
Ingredients management from counter <unk>.
Advance blockchain technology for mic into and best in class Headless Commerce from equities.
We simply could not have developed these features in our own in such a short period of time in part. Thanks to these acquisitions, we have developed an organization with unparalleled depth of management and technical talent to address the needs of Smbs and I'm. So proud of our product teams for delivering these game changing product.
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With industry, leading products that have scale and global reach combined with our continuously improving financial performance.
<unk> is in its strongest position ever.
This is helping us attract and win more high TV customers.
Let me share a few examples of <unk>, who joined lightspeed in the last quarter.
In hospitality.
We're incredibly honored to add the iconic <unk> international is one of our newest customers.
With dozens of owned and operated locations across Europe, North America, the Middle East and Asia.
Well it will be strong group has been awarded more Michelin stars than any other restaurant group in the world with over 15 current emission story.
They came to us looking for a global player that could manage our complex workflows under one integrated software and payments platform.
We were also happy to add good still so group in Germany with over 100 restaurants operating under six different brands.
We started rollout of a number of their restaurants and lightspeed restaurant.
In the U S. After a very competitive sales process, we signed seven locations with Indiana State Park gains for both Lightspeed restaurant and payments.
And in Sydney, Australia, we were selected by Kensington Street, operator of nine Asian inspired food vendors.
Two bars, two events basis in fixed full service restaurants kenzie.
Kensington Street, it's exact type of complex SMB that can leverage the full power of our products to simplify and scale their operations.
Kensington Streets management chose lightspeed to deliver more data driven decisions for their business.
On the retail front, we had an incredible quarter.
<unk> retail is emerging as a leading cloud platform for complex Multilocation hygiene television retailers the world over.
Notable wins this quarter included.
Get boards.
Key snowboard retailer with three locations across California wanted to upgrade from their legacy solution and they have now adopted both lightspeed retail and payments.
Bluestar eyewear, the independent high end eyewear retail, who chose lightspeed to power their businesses across its four locations in Australia.
And finally, leisure and Antwerp, Belgium, with 250000, Instagram followers. This women's apparel boutique shows like fee to power their two locations.
And Gulf, we added two big wins after an extensive due diligence process. We were selected by great life Gulf Power 14 of their 56 U S locations and.
And Blue Star resorts in Gulf selected Lightspeed for all 15 of its Arizona courses, both organizations will be using lightspeed restaurant and retail in addition to golf to manage their dining facilities pro shop, as well as lightspeed payments.
And finally, we were able to sign up several new brands to our supplier network, including Jordache.
Actually Lauren and his team.
Moving on to unified payments, we made great progress this quarter.
Although too early to comment on the international rollout I want to specifically call out our north American teams for their excellent execution this quarter.
We on boarded a record number of payments customers and September was our strongest month ever.
I shared earlier this year that we were prepared for potential bumps along the way as we launched unified payments. Our biggest concern was that we would see higher customer churn as we made payments mandatory.
Fortunately this risk has not materialized on the contrary our churn levels remain very much in line with our historical ranges.
Lightspeed E Commerce platform is at the core of our customers' operations. We act very much like an ERP system, managing inventory employees customer loyalty payments and accounting integrations, while also offering valuable data insights into their business change.
Changing your Pos is far more complex and disruptive than changing payments provider. It's only when you combined payments with software that you can create real value for your customers.
I'm also very encouraged that our close rates for new customers remained very consistent and in many cases better than historical levels.
New customers understand the benefits of buying a unified solution.
Our new customer funnel remained strong even as we become more rigorous on marketing spend or who is the highest its ever been given the impact of flagships commanding higher approved unified payments as well as our focus on targeting higher <unk> customers.
I think it's safe to say that unified payments has been a great success in North America, and we are now turning our attention to international markets.
Market dynamics internationally are different in North America.
European Smbs have a closer association with their regional banks. However, the value proposition of unified payments is the same no matter, where our customers are located.
Absolutely no reason for our customers to isolate their payments offering from their software.
Embedded solution allows them to reduce the time and effort needed to reconcile two disparate systems.
It delivers far greater data insights into their business and more often than not it comes at minimal to no additional cost.
Although we have more to do I'm very encouraged by what we saw this quarter. Our new business is thriving our teams are on boarding a record number of customers to payments and churn remains in line with historical levels. Our focus now will be to keep the momentum going through the rest of the year as we expand this effort internationally.
On the product side, we continue to deliver innovative features that help our customers scale their businesses.
In hospitality, we created smart items, and AI tool that creates menu descriptions and even generates images for online ordering compelling descriptions and images can increase revenue for restaurants, but many of our customers like the time and expertise to properly develop these we believe smart items can help them solve this problem and make our restaurants.
Customers more successful.
It will also translate menu items into other languages, such as French or Spanish.
It is also worth repeating that our advanced insights module is now fully available for our hospitality customers globally, we sold for a regional regulatory and privacy requirements, which are global scale and footprint are uniquely positioned to address.
Advanced insights has proven very popular with our north American customers and because it requires payments in order to collect data. We believe it will be a driver of both higher <unk> and higher payments adoption for hospitality customers in EMEA and APAC.
Delivering an advanced solution like insights to a global audience requires a broad range of expertise that we do not believe any other organization can match.
In retail the company delivered new Omnichannel capabilities for Multilocation merchants that accommodate complex workflows around inventory management for physical and digital customers.
For new order by Lightspeed, we enabled vertical assortments, which allows brands with their own retail locations to merchandize assort and visualize their own products.
Lastly in terms of profitability.
Again, we are committed to being adjusted EBITDA breakeven or better in fiscal 'twenty for.
This quarter, we came in with a positive adjusted EBITDA ahead of our outlook, which places us in an excellent position to meet our goal of breakeven or better for the fiscal year. I believe we will continue to drive operating leverage in our business.
We are expanding financial services, such as payments and capital and we're seeing our strongest ever unit economics with new customers.
We continue to monetize more GDP, we expect to better align ourselves to the rule of 40 metrics focusing on balancing both sustained growth and profitability and we are at the right path to get us there.
I will now turn the call over to Asher to take us through the quarterly results and provide outlook.
Thanks J P.
<unk> had an excellent quarter with revenue and adjusted EBITDA coming in well ahead of our previously established outlook and our unified payments efforts continuing to gain traction.
And then provide an outlook for the upcoming fiscal quarter and full year.
Overall, I was very happy with our progress this quarter.
We achieved positive adjusted EBITDA for the first time since becoming a public company.
Additionally, we are seeing many of our key performance indicators move in the right direction.
Revenue and gross profit growth accelerated from the previous quarter.
<unk> hit record highs this quarter with 26% growth year over year.
<unk> grew 59% thanks in large part to our unified payment Jeffrey.
Churn was lower than anticipated and remained within historical ranges.
And again I'm happy to report that total cash burn in the quarter was under $10 million, excluding cash used to fund our merchant cash advances.
We continue to grow our high GTD customer base, although not at the rates, we would like to see we.
We believe there is room for improvement here and this will be a continued area of focus for us.
In the quarter revenue came in at $230 3 million.
An increase of 25% year over year and more than 8% ahead of our previously established outlook.
Subscription and transaction based revenues grew by 24% year over year.
Subscription revenue increased 9% year over year to $81 million.
Gross margins on subscription revenue remain consistent with last quarter at 75% and when removing the impact of share based compensation expense gross margin on subscription revenue was 77%.
Distant with last quarter and at its highest in over two years.
Thanks to a dedicated effort to consolidate cloud vendors and improved overall efficiency.
Hundred and 20% year over year.
Referral fees continue to decline in the quarter as customers move on to Lightspeed payments.
Gross margins for transaction based revenue came in at 28% up from the previous quarter, but down year over year, given declining referral fee.
Total adjusted gross margin, which excludes the impact of share based compensation and related costs came in at 43 per cent.
To the previous quarter, a down year over year.
Although the increased transaction based revenue is putting pressure on gross margins. This is being partially offset by growing capital revenue <unk>.
Justin gross profit dollars came in at $97.8 million, an increase of 17% year over year.
Justin EBITDA in the quarter came in positive at zero point $2 million. This is much improved from an adjusted EBITDA loss of $8.5 million in the same quarter last year.
This improvement as a result of our continued focus on prudent spend across our organization, including the efficiencies we identified and implemented through actions like our reorganization that was completed in our fourth fiscal quarter of last year.
Total adjusted research and development sales and marketing in general and administrative expenses were relatively flat to last quarter and up 6% from a year ago.
Or one lightspeed efforts are increasing sales productivity sales growth is greatly outpacing any increase in sales and marketing costs.
We had an adjusted income of $6.4 million versus an adjusted loss of $7.5 million last year.
Thanks, largely to the improvement in the items driving our adjusted EBITDA performance at growing that interesting come in the quarter, which increased by approximately $5.9 million from a year ago.
We continue to actively manage our share based compensation and related costs, which were $23.3 million down from $34.9 million a year ago and approximately 10% of revenue.
Down from 19% in the same quarter last year at roughly in line with our prior quarter.
G T V in the quarter came in at $23.5 billion up 5% year over year.
Hospitality growth was stronger than retail.
We saw strong growth in Europe, which is dominated by hospitality customers at G. T V in North America, and Apacs remains relatively slot.
This quarter. We also continue to grow our sophisticated higher G T V customer base customer.
Customer location with G. T V exceeding 500000, a year grew by eight per cent in the quarter, whereas those with G. T V under 200000 declined.
Again in this quarter the fastest growing cohort was locations with annual G. T V exceeding $1 million this customer cohort grew 9% year over year.
As we focus on more complex higher G. T V merchant, we expect the under 200000 annual G. T V cohort to continue to decline.
Churn his plan for and as a reminder, these customers represent only five per cent of our overall G. T V.
As we turn off these lower valued customers. We expect it will continue to view our net location.
However, the overall health of our customer base as a whole will continue to improve.
Currently unified payments is dominating our attention and resources.
Growing our high G. T D location count is very important to us and remains a core focus for lightspeed.
<unk> in the quarter came in at $425 up 26% year over year.
Although unified payments is helping increase overall <unk> as we mandate payments for all eligible new and existing customers. We're also seeing healthy growth in software art <unk> as well.
Churn rates in the quarter remain consistent with last quarter and within our historical range, despite challenging macroeconomic conditions and 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. T V.
In terms of our balance sheet lightspeed closed the quarter with just over $761.5 million in cash and cash equivalents.
From approximately $780.3 million in the previous quarter.
The biggest uses of cash was the increase in merchant cash advances of $10.1 million during the quarter.
If we exclude the growing capital business overall cash for it in the quarter was under $10 million.
Turning now to our unified payments efforts.
As you heard from J P. We were very happy with the progress we've made this quarter.
A record number of customers become transactional and our onboarding teams really executed well.
Our efforts in North America, thus far have been very successful and we saw last church than we expected.
We will continue to encourage the remaining existing customers with software only to add payments.
Our attention will now turn to international markets, we expect markets such as the U K and Australia will act much like North America.
However, continental Europe, maybe more challenging as customers there are generally more conservative.
In Europe, we expect the recent launch of our insides module will help encourage customers to adopt payments as that module requires payment to provide meaningful insight.
We're all armed with strong customer testimonials that are helping convince our European customers that switching to lightspeed payments will simplify their operations.
Give them time and deliver better data insights into their business.
Now to our outlook.
This quarter illustrated that our strategy of pursuing high G. T V customers mandating payments advancing are capital business.
Making profitability of priority is working.
Given transaction based revenue is over 50 per cent of our total revenues and highly dependent on G. T V growth, we're being conservative on our G. T V growth assumptions.
We remain cautious on the macro environment, given central banks continue to suggest potential future rate hikes.
Also we believe that there are increasing signs that consumers plan to be more frugal this upcoming holiday season.
For the third quarter of fiscal 2024, we expect revenues between $232 million to $237 million.
Add an adjusted EBITDA of approximately $2 million.
For the full year, a physical 2024.
Increasing our outlook the total revenues of between 890 $905 million with breakeven or better adjusted EBITDA.
Despite the macroeconomic backdrop, we expect both revenue and adjusted EBITDA performance in the second half of the year to be better than the first half with that I will pass the call back to J P.
Before we take your questions I want to welcome.
<unk> to a board of directors.
Minimum is over 20 years of experience have you had a global medium telecommunications company, including the last two years at Verizon.
A proven leader in the industry.
I'm very excited to have her back on our board.
We are now halfway through our fiscal year I'm encouraged the fee.
<unk>, particularly in the area of profitability.
<unk> I believe we made tremendous progress.
As we look beyond this year I continued to see incredible potential philosophy.
We will continue to build a category leader for sophisticated assembly used the world over.
With the acquisition fully integrated our industry, leading products improving financial performance strong balance sheet, we are in a position of strength.
And we will use this version to grow our business.
<unk> help our customers and create value for shareholders.
<unk> I will turn it over to the operator to take your questions.
Thank you all for the presentation and at this time I would like to remind everyone in order to ask a question. <unk> then the number one on your telephone keypad and in the interest of time and to answer as many questions as possible with your request to please keep your questions to one and one follow up.
Again to join the queue. Please press star one.
And your first question comes from the line of Andrew Jeffrey from Truth Securities. Your line is open.
Thanks, Good morning, I appreciate you taking my question.
J P.
I want to understand a little bit maybe how you're looking at the.
Unified payments efforts as you move beyond the U S and and particularly nausea, too I guess your comments on Europe.
Should we be thinking about perhaps.
Catch rates swelling, a little bit and software becoming more of the revenue in gross profit growth driver as we exit physical twenty-four not ask you to guide them just faking Directionally you know do you declare victory in North America. This year and refocus the team on software, how how does that all sort of balance out.
Yes, good morning, Uhm. So just uhm simply just stayed where we are when you look at North America. I think we have enough you know months and quarters behind us to to think that there's gonna be a really really successful.
When we look at Europe, we're early on and you know in Australia, and New Zealand the same thing.
But for now the early signs that churn.
Remains low.
And we have no reason to believe that it's not gonna go well and I mean, we're bringing the same valued customers. So I think for me I'm just gonna go back to this year. This year is all around unify payments, we want to insure.
The majority of our customers.
Who are existing customers.
Touched lightspeed payments and we want to also ensure that all new customers attached like three payments that almost 100 per cent and so so that's really it's going to be the focus once we have unified payments under our belt.
Of course, we're gonna go back to selling more financial services capital being one that has a really good gross margin and of course, we want to continue selling more software and with that in mind. We have a number of initiatives that are underway. The first one is analytics. We are you know, we've we've launched analytics across Europe.
Which is a big big module there and we are also now launching our insights modules on on the retail side, which is we think could I have some some great success. So just answering your question Directionally, if we're going to focus on unified payments this year and as we get into the end of the year, we will refocus all of our teams back on.
Selling software and growing up.
Okay. That's helpful. Thank you and then just in terms of adding flagship customers. These more complex higher G. T V customers, a little bit of a down taking the growth rates in those this quarter is that macro or is there something else going on and and can you re accelerate the growth and.
And those large customers.
Yeah, So I'll I'll take this one too.
Let's start with how competitive these products are and and and here you know we're we're excited about it is that these products are the most competitive they've ever been.
If you look at our retail North American market that is a huge driver huge demand and I would say that the gap between us and our closest competitors has broadened and <unk> new customers is up and I would say payback is is the lowest it's ever been so we're really in a good position for competitiveness same thing.
[noise] hospitality when you look at Europe. This is our largest market and we are extremely confident that K accommodates the more complex and I think just look at the wins disorder and it gives you a good idea. So for me it's not around.
You know is this the macro or.
Are the products competitive or not.
It has to do with the year of two half the first half of the year for US we were very clear is going to be around unified payments.
And focusing all of our teams on you to fight payments and then the second half of the year as we get into the end of this fiscal year, we will refocus everybody back on software.
And maybe the last point just to answer your question very.
Precisely as as unified payments becomes a success.
Will generate more free cash flow and.
And we're gonna take a portion of that and re injected into go to market. So we can have strategies, where we have people with food on the ground everywhere accelerating our growth with a higher G. M V merchants.
I appreciate it thank you.
Your next question comes from the line of status Metropolis from BMO capital markets. Your line is open.
Hi, good morning.
Maybe on that last point, what else can we think about operating leverage you know as as.
Give me your problem will this quarter and is your probability ranch.
How do you intend to strike a balance between reinvested in the business versus wrapping up the margins, but you look to cap margins at a certain level and then and then drive it into a customer acquisition given strongly becker seeing or.
Kind of an ongoing rabbit and margins as as you are profitable.
Yep, So I'll start and I should maybe if you wanted to jump in on on the second half here, but for me. It's around rule of 40, and we've been very clear, we Wanna, We Wanna get closer to the rule of 40 and I think so that's the first answer here is we will we will be getting closer to rule of 40 as we exited the year.
And then for me the the second view is it's a huge market it's up for grabs.
Our products are extremely competitive we know that you know from the feedback from our customers that we have the best platforms in the market. So now the question for us becomes how.
How do we balance our profitability versus this market that's up for grabs and I'm I'm a strong believer we need to generate you know.
And the rule of 40, some adjusted EBITDA positivity, but I think we should we should favor owning this market and going back into a higher growth.
That's helpful. And then just remind us of the seasonal dynamics for this quarter and how that might influence the the payments ramp. It just because you know given the Christmas season could you have a dynamic where retailers or maybe more reluctant to transfer payments provider this quarter might there be a lag in.
Switching on merchants, who committed this design for payments.
Hey, Daniel I'll take that one you know you're right in the third quarter, which is our you know our our biggest quarter for retail given the holiday spend we we do expect merchants are not gonna be switching over their their payments provider and that's why the north American lunch is largely behind us in hospital.
<unk>, it's actually the opposite we had the summer months, which is our you know our highest seasonal quarter in hospitality and that's why the hospitality launch, which is primarily Europe happened at the end of the second quarter and so we you know we will start seeing those merchants switching in the third quarter. So you know again, you know keep in mind you too.
Strongest quarter for hospitality, so we expect to see those merchants switching in the third quarter and Q3 is the strongest quarter for return and so the majority of the North American launches behind Us, which which is you know is primarily retail.
Great. Thanks.
Your next question comes from the line of <unk> from Autonomous Research. Your line is open.
Alright, Hey, guys. Thanks for taking my questions just wanted to touch on the macro you guys.
Darkly have taken more of a conservative approach I would say to kind of like your assumptions around same store sales growth for your merchants. So I was just hoping that you could have pine on you know like what's embedded in your guidance and then more broadly what you're seeing in terms of the consumers dragged in terms of discretionary versus non discretionary spend.
Yeah sure I'll I'll start ma'am, so from a G T V perspective, and and what we're including in the guide, although we did see strong growth this quarter and particularly in hospitality, what we're what we're thinking as we enter the you know very strong retail span Susan is that we really don't believe the end consumer has felt.
The full impact of rising interest rates and inflation, we're hearing about student loan repayments as well. So we are keeping our expectations on G. T V models for the rest of the year, including the upcoming busy retail season. So so when we when we think about verticals across our different vertical is what we're seeing is we are actually see.
<unk> and many of our retail vertical same store sales declining things like bikes home improvements sporting goods and even golf year over year. The G. T. V is is declining in many of these vertical and so we are being cautious as we as we walk into the very strong holiday season, we're being cautious on what that you're over here.
T V growth is gonna look like on hospitality as I mentioned, just now earlier Q2 is our seasonally strongest quarter. That's when you know folks dine out in the summer months and so we expect to see Q3 to be down from Q2 from our hospitality perspective. So all told you know given given those.
[noise] factors as well as what we're seeing happen in the macro we are being prudent on the guide.
That makes a ton of sense as a thank you and then I I may have missed it and Ah apologies if I did but previously you've talked to the payment penetration ratio exit Angus fiscal year at I believe 30 to 35 per cent ranch.
Yes.
Yes that that's correct Uhm, we've said <unk> <unk> in the past quarter that we expect to exit the you're right at 30% to 35% you've seen as move the needle by about 300 basis points in Q1, a little more than 19, Q too and and we do expect by the end of the year will be in the 30 to 35 per cent range.
Awesome. Thanks Ash.
Your next question comes from the line of Andrew Both from Wells Fargo. Your line is open.
Hey, guys. Thanks for taking my question in a nice job on the payments processing strategy.
You mentioned made some comments around once the payments modernization efforts or complete than the software side of the business would accelerate again I guess could you pull a finer point what do you mean by the completion of that I know it sounds like the back half of the year, you're gonna start to pivot toward software.
Just a little bit more color there would be helpful.
Yeah, I'm, just gonna try and reiterate what I, what I said earlier on so.
Of course as payments becomes a success.
We are doubling the are approved for customer just give her taken on a net basis. So that's trees a lot of money for us to be able to reinject and if you look at if you look at today, we are in a way <unk> because because we don't have enough that basically money to allocate to grow.
<unk> when when we look at the at our overall balance sheet. So the idea here is to say.
I'm now Gonna use you know call at three quarters of this year to get as many customers as possible onto payments and.
And then as the the regions are fully down on the payments job that means I can now redirects my salespeople into going after new customers and more salespeople instead of having them you know focused on unified payments and at the same time I can allocate enough cash for marketing and and you know in and out.
And Ah strategies, so that I can accelerate growth of customers today, if I had way more free cash flow to give to my.
My marketing engine in my sales engine.
I could intake way more customers and I'm taken today. So that's really the strategy, it's very simple, but it. It's we believe we're really going to be in a very strong spot and especially with North America. We're gonna start with North America, because that's the first industry. We went after with payments.
And that means as we get into the second half of the year, we will be allocating more and more salespeople to going to get new customers, mainly in North America.
The on the timeline and the only thing I would add to what J P. You're saying is that you know this year is is the initial launch of unified payments. So even though the the migration of our back book onto payments continues into next year, we should start seeing the improvement in software and next year as well.
Yeah, I mean, it's a multiyear strategy just a follow up one.
Four Q it looks like you guys are in better some softer assumptions for just that you would I would assume that this macro largely macro driven but are there any anything else in the camps or or other things, we should be considering as far as investments in the back half of the year that would be kind of bleeding that apply.
Being a little bit later.
Or prudent I would stay on the EBIT guide so that we have the flexibility to reinvest in sales and marketing to get more of the time. If if you know that's what maximizes a rule of 40 matrix because that's really what we're anchoring ourselves around.
Understood. Thank you so much.
Your next question comes from the line of modern China from a T V capital markets. Your line is open.
Thanks, so much good morning, everyone.
Wanted to ask a little bit about growth of large merchant locations. It's strong but has to celebrate it a little bit can you talk a little bit too.
The extent to which.
As a distraction and do you expect that growth rate to reaccelerate going forward.
Yeah. So look it's a year or two half. So we were expecting less growth in the first half versus the second half and just going back to what we just discuss cause I get more money.
And I can free my resources I'm going to accelerate that.
I think the other piece for me that is very important is that it's not a question of numbers.
That number I mean, you look at the profile of the customers. We brought in this quarter, they're absolutely outstanding you know and who still so group you know with hundred locations.
That would be shown so I think those are the most important for us and so what we're seeing simply put is we're seeing <unk> of new customers go up we're seeing <unk>, which is revenue per user of all the flagships be much stronger than the old product and we're seeing higher tax rate, so even though the growth as b, 9%.
We're very happy with the profile and the RP that these customers bringing.
That's great. Thanks, J P follow up is on cash flow the cash flow burn I think this quarter was about the same as last quarter can you talk a little bit about what those dynamics will look like for the balance of the year and what items are sort of holding you guys back from like reducing that bird even.
Further.
Yeah sure Mike now I'll take that one so from a cash flow perspective overall, Katherine with a little under $10 million for the quarter similar to last quarter. As we look forward. There are a couple of things that that will you know improve that but also certain things such as I mentioned in cash advance business growing.
Is it to be more more negative than our adjusted EBITDA. For example, as we move into next year. Our our view is that we will be incentivising, our sales team to bring in more annual deals paid upfront and that should that should alter the working capital dynamics on that front and then the other the only last thing to keep in mind is we do intend to.
Continue to grow our merchant cash advance business, which is which is a large you use of our working capital, but outside of that business growing and outside of the cash used to fund that business. We expect in in you know in a few quarters that cash from Opsal align more closely with adjusted EBITDA as we start to align our incentive plans accordingly.
Thanks, very much great quarter.
Your next question comes from the line of <unk> from RBC. Your line is open.
Thanks, Good morning, I I wanted to just kind of delving, a little bit on our poo here. It was it was great to see up 26%, obviously payment penetration is a key component of that but by our math. It also is like your software <unk> I think was up mid to high single digits. I guess <unk> is that math kind of plus or minus correct and then if it is directly can you just.
Talk about some of the incremental drivers, especially given you know all the commentary around the.
Sales team being just so focused on unified payments and not so much on on software I suspect it's mix.
Part of it but any color there would be would be great.
Yeah, So I'll I'll start I'm not sure if you want to jump in but the just simply put let's start with the new products.
They drive higher are approved for software.
So given that now the new products or more than 30% of our total.
Total store count and that we've been doing really well there that just has a big driver on <unk>. So that's the first comment. The second comment is we are developing a lot of software modules that basically need payments to be unlocked. So as an example of analytics engine.
For hospitality needs payments for this to become a module. So as we compound people onto payments were were driving more software.
So yeah I think on all fronts were feeling good about this.
And we think we're really in a position of strength because of those new platforms that are that are really attracting the right profile of customers that are giving us more on software.
That's great can I just.
Yeah, sorry about that.
The only thing I would add and I would just wanted to confirm that you know your math on the software or to uplift. It is right. It is very high single digits.
Excellent that's great. The other thing I just wanted to touch.
Touch on in terms of subscription gross margins being steady.
This is I guess it really a question I know you talked about vendor arrangements and improve deficiencies, but it also seems to suggest that the pricing environment around you know that software is pretty stable and you're not having to give up kind of as much pricing is I need some had thought in order to kind of drive maybe somebody that unified payment. So can you just talk to that point a little bit of <unk>.
Well thanks, so much.
Yeah, absolutely. So you know the subscription revenue growth you know we had we had said to expect modest growth, we are doing better than that expectation and and you're right. That's coming from the fact that we've had to discount the software less than we anticipated, but also the fact that churn has been lower than than we had anticipated short term has been.
Very much in line with historical levels, and we had expected an uptick insurance from the unified payments efforts and we're not really seeing that so all told our subscription growth is better than anticipated.
Excellent. Thank you so much.
Your next question comes from the line of just Beth from Morgan Stanley. Your line is open.
Great. Thank you for that question just wanted to focus on that I go to market and sort of overall strategy I guess just.
Start I'll show you mentioned that <unk>.
Growth and like the key larger G. T V customer cohort was not quite where you want it to be is that a reallocation of resources to unified payments or is there something else that <unk>, causing that situation for sure aspirations.
Well, let's just start with the macro okay. A lot of the industries, where we operate have still not recovered from you know the.
The post pandemic kind of scenario.
Scenario. So here if you look at just G. M V for merchants for bikes are for outdoors and sports and home where these are categories, where we have a lot of customers and they are still.
In decline year over year, So I think that's the going back to ashes comment.
On on the on the new customer front.
We're we're getting a lot of and taken those industries I mean, if you look at bikes I think we are the the facto leader anybody opening a bike store is gonna buy from light speed or and if you look at all the progress we've done in golf, we are gaining a lot of courses and that means those industries are doing well.
Okay, I guess I'm I'm wondering like it's it sounds like it's clear that the some of the resources on selling more software back into the base like those are shifted toward attaching payments I guess I'm just wondering the structure of the sales force if the if.
Of new customers been <unk>.
Reallocated towards the payment strategy also.
Again, just going back to it. It's a question of dollars. So of course, we have we have allocated a lot of dollars in our go to market overall too upselling payments versus going after new customers and I think it goes back to the dynamics are described earlier on as as we give customers on payments, we will allocate more money on to go.
We have a strong belief that that in North America for retail.
There is a really good play to be had where we have people with food on the ground in every city. So in another way of saying it is we we Wanna take kind of Ah the hospitality approach that some of our competitors.
You've been having an applied as to retail where there was nobody else in lightspeed in the more sophisticated so I think there's a real opportunity there and that's really what's gonna happen as unified payments is behind us and we're getting more I mean, we're doubling our net take right from customers. We're gonna take a lot of that money and we're going to actually hire people with foot on the ground.
And for retail in North America. The other dynamics, that's going to happen is for rest of the world call. It outside of the U S.
On the hospitality side, we want to take the exact same approach as we get more and more of our customers aren't the payments and we free a lotta money, we want to have a lot of salespeople with food on the ground in hospitality.
Outside of the U S O in Canada across Europe, and a pack because those markets are up for grabs and there are no competitors in those markets and I think that's a real opportunity for us. So I think you will see.
<unk> on a dollar basis, we're going to allocate more and more money to our to our finding new logo kind of teams.
And we will also over time as we don't need as many people up selling payments, we will reallocate some of those into going after new customers.
Okay very clear thank you.
Your next question comes from the line of <unk> from Barclays. Your line is open.
Great. Thank you. This is Jeremy on <unk> I I just wanted to ask on the payments capture right. So it looks like this quarter came in.
Around 2.3 per cent only only slightly lower than Q1 and can you just touch on like the different factors that are impacting that number and the direction going forward in terms of when you think you could sort of bottom out. Thank you.
Hey, Jeremy Thanks for the question Yeah for sure I think we should look at it from a gross margin perspective from a capture right perspective, there, there's a bit of noise because.
North America grows take rates are between two and 2.5% depending on the industry and the net take rates are in the 50 to 65 basis points in international markets the growth take rate's actually between one and 1.5% depending on the country and the net take rates are between 35 and 45 beds and so.
What we should focus on is really the gross margins. The gross margin you know this quarter of the gross margins on transaction based revenue was 28%, which was slightly upfront from Q2, sorry from Q1 and that increase is is what we should sort of expect slowly over time, you know you've heard from us that melting.
Referral fees are arena residual partner fees will put downward pressure on transaction base gross margins, which is true, but the increase in our capital revenue, which comes in at 95% gross margin. In addition to the fact that you know when we go after international markets on on payment the gross margins are 30% <unk>.
35% range. So all told the increase in international markets and the increase in capital revenue should more than offset any decline from the referral fees from here on.
Got it thank you.
Your next question comes from the line of <unk> from J P. Morgan Your line is open.
Hi, Thanks, so much for all the the detail that's good stuff just J be able to ask you about some of the new releases.
Cause we've been studying a lot of the restaurant tools that had been coming out it looks like your the smart items.
The magic menu quadrant, I think as solving a lot of challenges around around the menu items, how Ah home grown and how quick was that to develop I'm. Just curious if that's giving us a clue on on your focus areas within the Verticalized.
Retail restaurant areas that you are going after.
Yeah good morning.
So just simply put so I'm just gonna try and make it we have brand new products that have very very limited technical debt.
That are in code bases that are easy to evolve okay. Just start there so.
Hear what you're seeing now is accelerated roadmaps, you're seeing accelerated the delivery of features because.
That the code is new and when you're developing a new technology.
The order of magnitude of speed is completely crazy versus what we had with our previous products that were you know 10, 12 13 years old in the World of Technology 13 years as a lot and there's a there's a real gap between the ability to execute with new platforms versus old. So that's my first point.
And I think that's why I keep saying we're in a position of strength as we now have products that are the leading products on the market that are brand, new which means we're going to accelerate roadmaps when.
When you look at what we delivered this quarter.
The value of bringing to our customers has nothing to do with features for smaller merchants, it's for well established merchants and so here when you look at what we're doing with AI and we're making smart descriptions and we're just basically looking at the flows of our customers and we're saying how can I help our customers do.
More with less how can I remove all kind of manual tasks and thats what resulted in us know automating descriptions of menu items and then the second one you talked about which is.
Our quadrant is I'm now helping.
Merchants identify returning visitors and actually what are returning visitors ordering versus when they order for the first time, which is extremely important for profitability for merchants. So I think all in all the products are going into high speed with you you didn't talk about this but we also released on the retail side advanced workflows.
Omnichannel, where now you know you and that's not valuable for a moment pop it's valuable if I have multiple locations and now I can define how.
My pick up and store all my Omnichannel workflows will work across locations and again not very valuable for the small merchants very valuable for the merchants that are on my speed. So we're really just focused now on delivering value.
And focusing on where do our customers spend too much time, where are the workflows inefficient and how can we deliver and I think for me just saying that it one last time, we are going to accelerate roadmaps, because we have a code base that is brand new and it's so much easier than than.
I would argue our competitors are what we used to have in the past.
Got it yet so proud of philosophy is definitely accelerating okay. Great. Thank you just one quick clarification on the North America side, given what you've learned so far the targeted customers that did not become transactional that are choosing to absorb the higher fee any surprise there does it change your thinking around maybe pricing philosophy.
In general Thank you that's all I had.
Yeah look I think I mean, the <unk>. We made was we don't think people are going to change their core operating system, because we're giving them free terminals and accommodating their rights you know and we're saving them hours every day. So that was the best going into this and.
We had modeled slightly more churn because we were like maybe people are not gonna like to be you know force into this and actually what we're seeing is the the churn levels are within a historical ranges, which is incredible news for us when you look at the North American market.
And the other thing we're seeing is that our customers are paying are paying those who don't want to move or an agreement to pay the transaction fees and I think for me.
What we're hearing from the customers is not I don't want to move it's like we're not ready to move now can you. Please work within our time frames and so we have uhm cohorts of customers, who are giving us the 50 basis points transaction fee and that are telling us okay. Let's work on a schedule because now is not the right time actually gave you an example of.
You know.
Holiday seasons restaurants didn't want to move.
Summer when they have all their terraces office open sorry, and I don't think hospital I don't think the retail customers are going to want to move around Christmas when that's when they make most of their revenue. So I think we're taking all of these into account, but net net.
The best we have made when we started this initiative has proven out 100% in North America for now.
Operator will take one last question.
So I did and your next question comes from the line of Patrick N S. From UBS. Your line is open.
Hi, Thanks for taking this question I wanted to ask about the migration to the flagship restaurant retail products now you touched on this a bit in the prepared remarks around some of the more robust features that are being quoted in but can you provide specifics around some of the advantages of sticking with light speed as it relates to data transfer implication.
And may be moving to a different provider and what some of the parts of takes there are and I just had a quick follow up on pricing environment.
Yeah, maybe I'll just talk about the philosophy here, we call. It an upgrade internally so and I think it it means a lot because it says we are going to.
Find a path to least resistance to migrate our customers or to upgrade our customers to the new platforms and so here just going back to your question. We are now investing time in investing software resources and development resources to convert and we are starting actually.
<unk> on some of the cohorts of customers and so you can expect that over time, we're going to upgrade our customers to the new platforms. We will be cautious around these upgrades. We will go cohort by cohort and we will ensure that there's a lot of software to make it as seamless as possible.
I think for me when I think about seamless we don't want our customers to lose history, we don't want our customers to lose customer information.
And of course, we want to support the inventory. So we are we are building tools and overtime, we're gonna bring our customers onto the new platforms and.
Maybe the last philosophy as the last belief internally is those products are so much better than the old ones that we believe our customers are going to follow follow us in their migration.
I appreciate it make sure all the color there and could you. Please I know you talked briefly about some of that he puts and takes between North America and international gross take race, but could you comment on the pricing environment generally and how we should be thinking about light speed payments gross take race considering.
<unk>, maybe some of the accommodations or concessions, you're giving to some of the migrations and mix shifted larger customers as well as this international growth.
Yeah. So I'll I'll, just start by saying that I I think it was 93% of the cases, we are lower than what they are currently paying so I think here.
You can you can expect.
That we.
We maintain the rates that we have in the two geography's I think for me, we're trying to get away from a commoditized right to providing software value and I'm just gonna go back to.
There is a ton of value of using lightspeed payments integrated with light speed software and the resounding feedback we're getting from our customers is that they are saving hours everyday they're running a more efficient business.
And once they were on the other side they love it. So I think for US we are going to use this.
The technology that we have in the capabilities with the software to to maintain as much as possible the rates and not go into this commoditize war of right.
Alright.
Thank you Sir.
That concludes today's Q&A assertion I'd like to hand, Nicole back over the gas for closing remarks.
Okay. Thanks, everyone for joining us today, we will be around if there are any follow up questions. We will speak to everyone in about three months have a great day everyone.
This concludes today's conference call enjoy the rest of your day you may now disconnect.
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