Lightspeed Commerce Inc. (LSPD) Q3 2021 Earnings Report, Transcript and Summary

Thank you for standing by and welcome to the Lightspeed's Third Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Gus Papageorgiou. Thank you. Please go ahead.

Thank you, operator, and good morning everyone. Welcome to Lightspeed's fiscal third quarter 2021 conference call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Brandon Nussey, Chief Financial Officer; and JP Chauvet, President of Lightspeed. After the prepared remarks, we will open it up for your questions.

Thank you, Gus, and thank you, everyone, for joining us this morning. Lightspeed had another strong quarter as we continue to support the efforts of our customers to adopt the omni-channel strategies that are helping them navigate the global pandemic and position themselves for eventual recovery. Thanks to the dedication and tenacity of our remarkably committed employees, a solid and ever improving product offering, our global footprint and the success of service offerings such as payments, Lightspeed was able to deliver stronger-than-expected results. In addition, we were also able to complete two major acquisitions and accelerate our innovation initiatives. At times, the pressure on our people has been noticeable with our employees pushing themselves to the limit in order to deliver new solutions aimed at helping our customers. Despite this pressure, our employees have risen to the challenge, and I could not be prouder of them. I believe that their strong dedication is largely due to the fact that we, as an organization, deeply believe in our mission as a company. Lightspeed was founded on the belief that the resilience of the entrepreneurial spirit of small and medium-sized businesses is fundamental to maintaining vibrant cities and communities.

Thanks Dax. Today, we reported another terrific quarter, once again, in a very challenging macro environment. Given the many moving pieces this quarter as the result of our recent acquisitions, I encourage you to refer to our investor presentation on our website, our MD&A, as well as the appendix of our press release, where we have added several summary charts to show a more normalized view of certain figures. All told, as you'll see, we had a great quarter across the board. The strength of the quarter was led by the four primary drivers of our business model. First, continued growth of our customer base, which, as you've have heard, is now just under 115,000 total locations at December 31. We saw another strong quarter of organic customer location adds, which I believe is one of the most important metrics for us. Second, ARPU expansion, as we grow our customer base, our land-and-expand strategy kicks in, and we saw continued success there. ARPU for the quarter was our highest ever as more and more customers adopt a broader portion of the solution set. Third, Lightspeed payments with $29 billion in overall GTV, we have a tremendous opportunity for Lightspeed payments. The number of customers' contracting for payments alongside their core subscription were an all-time high this quarter.

Thank you. And your first question here comes from the line of Richard Tse from National Bank Financial. Please go ahead. Your line is now open.

Yes. Thank you. So as we look on the other side of this pandemic, what would you say is sort of the most locking or most demand of these incremental services you've added lately, capital, for instance? I'm kind of just curious to see what the uptake currently is across that base for these services.

Yeah. Maybe I'll start with this one. So I think really, nothing has changed. Overall, we're hearing a ton of demand for omni-channel. And as we said many times, our customers went from requesting a point solution for their stores and their restaurants and now there's a ton of demand for omni-channel. The second thing we're seeing a lot of is payments. We are bundling more and more payments with our software and our core offering. This is creating a lot of demand. And as we've launched capital and capital now is ramping up, and we're seeing a lot of demand for that also.

Okay. And then, the supplier network sounds like a pretty interesting development. Can you maybe share with us some of that early feedback from the current base? And are you going to be targeting specific markets to start off with? Or are you just going to pretty much try to take it broad across the base here?

Yeah. So we're very bullish about suppliers. We think this is a very big differentiator for us in the market. As you understand, what suppliers enables us to do is to really completely integrate the ordering process and the supply, preparation of the catalogs inside of Lightspeed, and it really creates this incredible flywheel of value between suppliers, stores and consumers. As we - the first test case we had was on bikes, and that proved to be very good for us. And when we look at metrics and data on bikes, what's interesting is everybody within the ecosystem is recommending Lightspeed. So it has a really good impact on cost of acquisition and lifetime value of customers. We're going to - we've now launched this as a real product and service. So that means now we can have all of the suppliers within the vertical that makes sense for us fully integrate their catalogs and their supply levels to Lightspeed. And we already have 100 suppliers now on the platform, and we are going to be focusing on the core verticals where Lightspeed has a lot of customers and penetration. And as we go into the year, we'll be expanding to others, but there's a few verticals right now that we are focusing on, and those are the verticals where we have the highest concentration.

That's perfect. Okay, thank you.

Your next question comes from the line of Raimo Lenschow with Barclays. Please go ahead. Your line is now open.

Hey, thank you, and congrats from me on these amazing numbers. Can I stay on that supplier network, please, Dax? That - so if you look - I mean, there are some guys out there that have kind of created these networks like Ariba and Coupa more on the cleanup - procurement side. Do I need to think about this like that that you just kind of basically, you centralize all the whole thing? And then, the second question is, like, there was always a big debate about how to how to monetize that, and Ariba and Coupa had like very different views of how to monetize it. How do you think about that? That's on the supplier side. And then, the second question I had was on the reopening. If you look at Australia and compare the run rate post-COVID versus pre-COVID, has there been any learning, any experience that you can share so far as we're looking out through this year with vaccinations getting better and everyone else kind of opening up as well? Thank you.

Hi, Raimo, I'll take the first question and JP will take the second. So regarding supplier network, I think the big advantage here is you have this - your opening discoverability for suppliers' right within the POS system. So it's not a separate system, another set of B2B portals. We're combining all of that functionality directly into Lightspeed and connecting more than 100 suppliers today, and we hope to expand that rapidly in the future. And so it's an integral part of the system where they're already managing inventory and they're already managing their ecommerce assets in site. So that I think is a huge advantage here. And I think that the big benefit to us is that eventually, that we are going to be the system of choice. Suppliers are already recommending Lightspeed to their independent - to the independent merchants that sell their goods because they're going - over time, they'll have aggregate real-time selling data. So there's benefits for the suppliers, in that regard, there's benefits for the stores. And of course, the benefit for us is we become the system of choice. And eventually, there will be other opportunities for us to facilitate B2B invoices, etc.

Yeah. Okay, yeah, makes sense.

And JP, regarding Australia?

Your next question here comes from the line of Andrew Jeffrey from Truist. Please go ahead. Your line is now open.

Hi, guys. Good morning. Thank you for taking the question. I also have a reopening question. I wonder about sort of your views of net growth and mix. And I guess, what I'm thinking about is, you mentioned e-com doubled this quarter. You're seeing good uptake in some relatively protected verticals like golf, as well as Australia. Are there any trade-offs as hospitality comes back and consumers return perhaps more to card present? Or is reopening a net positive any way we look at it?

I'll take that one. Yeah, I think it's a net positive any way we look at it. What we're seeing is in Australia, I think we mentioned best quarter ever to get back to Raimo's question. We saw hospitality decline, obviously, in many of our markets, but we saw that segment come back, and that led to just a wonderful quarter in terms of new customer additions and revenue growth for our business there. I think the reopening process not only drives better volumes across the board, which will help in our ongoing rollout of payments, it just spurs new business creation as well, I think. And as you well know, with the majority of this market in legacy systems, the more new business creation we think is only beneficial to Lightspeed, given our position as a modern cloud advanced platform here. So we see nothing but positives, and we really look forward to the year ahead.

Okay, that's helpful. Thank you. And just as a quick follow-up, obviously, the value proposition that Lightspeed brings is stark compared to legacy providers. I assume there's still some merchants that are reluctant to do a rip and replace at any time, let alone during a pandemic. Are you seeing any changes in merchants' willingness to perhaps take the leap and move to a cloud solution? Just sort of culturally in the market have attitudes changed?

Yeah, I'll take this one. So I think it's a very good question, and I think that's why we're very excited about the post-pandemic world. I think we're seeing quite the opposite. So think about someone who has the legacy system and now the majority of their business, if I'm a restaurant that's going to be online, it's going to be through delivery platform, it's going to be through order ahead. And if you don't have a platform like Lightspeed, you're basically stuck with silos and trying to manage a ton of different applications. So the view here is that it's become way more complex for the traditional platforms to operate. And actually, we are seeing more demand from actually more established vendors who maybe would have never moved and now are looking at this, and they understand that they have to do something about it. So I think that's why we're very excited about the next few years because the harsh reality is the majority of the platforms on the market are still legacy systems. They're completely underserving their merchants. And then, there are platforms like Lightspeed that integrate everything and make it much easier for our customers, and we're seeing a ton of demand there.

Thank you.

Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead. Your line is now open.

Hi, good morning. In terms of the current weakness you're seeing in hospitality where there have been more lockdowns, maybe just qualitatively, can you characterize it? Is it similar to what you're seeing, kind of say, back in April? Or is it any different this time around maybe because of survivorship bias? Have you gone back to implementing any cost containment plans or not this time around?

Yeah. It does - to me, Thanos, it does feel different this time around. Certainly, in-person dining is suffering as hard as it was in March. I think the difference now is our customers have adapted. Those that have taken advantage of things like Order Ahead and home delivery have those business models in play. I think from our standpoint, we feel better instrumented to know what to expect going through this and the things we can do to help customers. Certainly, if you go back to March, April when this first started, there's a whole lot of uncertainty and unknown. And we do feel differently about it this go around that we have better visibility and know more what to expect, and just by virtue of that, in a position to give the guidance that we gave this quarter.

Okay. And then, with respect to ShopKeep and Upserve, I realize it's maybe still early days. But now that you've owned the assets for a few weeks, can you update us on your thinking as far as the Lightspeed payments opportunity within those customer bases and maybe the time frame for being able to start to capture some of that?

Well under way. It was up near the top of the to-do list, for sure. And teams from both of those businesses are actively working on that rollout now. So we're optimistic. Those teams have settled in nicely and already driving significant value into Lightspeed, so all good so far.

Yeah. And maybe Brandon, just to add, by the end of April, we will have the go-to-market teams fully integrated and focusing on selling one product. And the goal is also by the end of summer, we will have Upserve's advanced analytics platform fully integrated with our restaurants and with one product going to market in the US, so very happy with the progress there.

Great, thanks, guys. I'll pass the line.

Your next question here comes from the line of Daniel Chan from TD Securities. Please go ahead. Your line is now open.

Yeah. Thanks. Good morning. Just a question on the supplier network, with the Anheuser-Busch relationship, you did announce that they would be devoting some resources to selling your product. Are these new suppliers that you're onboarding now also committing any resources to this engagement?

Yeah. So super excited, it's all the contracts that we are putting in place in the context of the suppliers are - have exactly the same logic. So as you know, there's benefits for the suppliers and then there are benefits for the stores. And so the value proposition here is for suppliers to see sell-through. So as soon as you've connected your catalogs and your inventory to Lightspeed, what we will do is for the stores that are ordering directly in Lightspeed, we will give you the sell-through, which is very unique in small business. And vice versa, we enable all of the stores to actually see - have visibility on inventory levels at the supplier. And that whole relationship is really around basically suppliers and stores promoting Lightspeed within their network.

Okay. And what are some metrics that you're tracking to help guide you on how this new venture is doing?

Yeah. So a number of metrics, we're looking at the number of suppliers that we are onboarding. We're looking at the number of SKUs, and we're looking at, obviously, transaction volumes on ordering inside of the platform.

Okay and then, Brandon, one for you. Your guidance for next quarter suggests that EBITDA margin comes off. Can you just give some color on that?

Yeah. It's really just a couple of things. One, as you heard from our comments, it's a seasonally down quarter. And with an increasing portion of the revenues coming through payments, especially with the addition of ShopKeep and Upserve now onboard as well, you kind of take a seasonally lower quarter on transaction volumes against largely fixed cost base that is a technology company, and that's one contributor, just a sequential change. Secondly, the integration of ShopKeep and Upserve, we are expecting a slight downward impact in this first quarter, again, mainly due to the seasonal nature of that - those businesses, which is very comparable to our own. The last thing, though not a very main thing, is piece of the FX environment isn't helping us at the moment. It's not too, too big in the grand scheme things, but that's also playing a role in it.

Great. Thank you.

Your next question comes from the line of Josh Beck with KBCM. Please go ahead. Your line is now open.

Thank you for taking the question. I also wanted to ask about the supplier network. Obviously, really unique that you have a B2C software and payments business, and now you're certainly getting more into the B2B realm. So I'm just kind of curious like what's the time frame that we should be thinking about? When I think about to when you went public and you started to embark on Lightspeed payments, you, obviously, have given us a lot of color and updates since then, but it was certainly a journey. I mean, is this a multiyear initiative? And what milestones should we be really focused on? Certainly, the size of the supplier network, you gave us an update, which I think is a really important indicator. But just what other metrics should we be focused on in the coming quarters and years tied to this initiative?

Okay, great question. So it is a journey. It's a bit - it's like payments. But I think maybe I'll try and share our mindset with the steps and where we see this heading. So I think Step No. 1 for us, and this was listening to our customers actually, we need to make it easier for a customer to order directly through the supplier network. The harsh reality in small businesses is everything is pen and paper, there's a lot of back and forth, it's manual, it's inefficient, and it's also inefficient for the supplier. So step one for us was to make automation possible within the network, within the software and go vertical by vertical to try and go inside of the verticals where we have a lot of penetrations. And here, there's really two advantages. We see one is operational efficiencies for our stores. And the other advantage is really for the suppliers having visibility on sell-through and helping them adjust manufacturing so that we can get to a model that's fully integrated. So here, what you can expect in the coming quarters is expect to see more and more verticals where we have concentration, where we'll just be onboarding more and more suppliers within the platform and with the goal of efficiency. I think one - so that's one track. The second track in our mind is payments. Lightspeed payments right now - we're using Lightspeed payments from store to consumer, we should be using Lightspeed payments from store to supplier. And this means that when - once they select the items they want to order, once they've had visibility on the stock and the inventory levels at the supplier and once they've passed the order, we expect them to use Lightspeed payments to actually pay for that order. And then, for us, the value here is we monetize both ways, and we monetize on the sell side, but also on the buy side. And then, I think as we go into all of this, I think the last piece for us is, think about all the acquisitions we've done, and we acquire normally companies that have basically sourced within the same verticals as Lightspeed, we want to make all of this available to all of the stores within the network. And here, you can imagine that as, I don't know, we put all these - you put ShopKeep and Lightspeed together in the US, there's a ton of commonalities in the verticals where we both operate. And I think there, we can gain concentration. And then, I think the last piece for us is really to look at commerce at large and figure out how we're going to use data to actually help suppliers identify new stores that should be selling their supplies that are not selling their supplies. And here, you can think about this with us looking at the data, analyzing the data and really fingerprinting suppliers to stores by looking at commonalities of inventory and outliers that should be sold by those stores. So I think for us, it's a journey. It's a very exciting journey, and it's just the first step. But I think when you think about this, once you're in the core of all of this and you're providing value to the entire flywheel from suppliers to stores to consumers, you really become a very sticky platform. And I think the last piece is think about cost of acquisition and lifetime value. As soon as you have the network and you have the entire ecosystem promoting Lightspeed, the cost of acquisition goes down and lifetime value goes up. So it's a journey, but we are very excited about the journey. And really excited that the product is finally out, and we can bring it to market.

Thanks for sharing those thoughts, JP, super helpful. A follow-up for you Brandon, on the payments opportunity, you have the very helpful slide that shows the adoption and some of the geos and verticals. Certainly seems to be going in the right direction. I'm just kind of curious once we think about what this is going to look like maybe after we've incorporated ShopKeep and Upserve, which I believe have higher ARPUs in part because they've been successful at payments, if we should be expecting it to kick up? Or just curious on how the incorporation of those companies will impact these dynamics?

Yeah, for sure, will tick up the Upserve business in particular; the vast majority of their customers were using Upserve payments as kind of they have a really nice elegant solution that embeds payments right into the product itself. ShopKeep, they were further along as well on the payments journey from a customer adoption perspective, though as we've talked about, largely through a referral model, but a good percentage of their customers do use a payment solution there. And as we talked about earlier, the teams are working hard to move those or to build the infrastructure to make sure that Lightspeed payments is available to those customers. So all told, we expect those things to really positively impact our overall penetration at a global level. And of course, that's core to what we're trying to do around here is to make sure that the vast majority of our customers worldwide take payments. So all these things, I think, are helpful.

Great, thanks Brandon.

Your next question comes from the line of Timothy Chiodo from Credit Suisse. Please go ahead. Your line is now open.

Great, thanks a lot for taking the question. I wanted to dig in a little bit more about the path ahead for embedding additional financial services beyond payments and capital. So we've talked a little bit in the past about how instant payouts could be a logical next step for you guys. And maybe you could just talk a little bit about how you would see the demand for that offering. What the penetration of the payments volume that would sort of be able to be recycled and go out that path? And maybe some sample use cases. And also how the monetization of that might work?

Yeah, hey, so look, I think we're in the early stages here for Lightspeed. We're at an exciting stage where we're seeing, obviously, payments uptake accelerates and all that's good, and that puts us in a position to start to launch some of these things. We're - probably the best example of what we are doing right now is the capital offering itself, and we're a couple of quarters in working with - largely with stripe right now to kind of test that, and we're seeing a lot of good customer receptivity to this. We're still, as I mentioned in prior quarters, we expected the first goal at this to be a little bit of getting used to each other, a little bit of working out some of the workflows and processes, but we're seeing good customer interest. We're seeing good initial progress with capital. And end of the day, I think it's too early to say exactly what percentage of our customer base is going to take advantage of some of these opportunities or financial opportunities, but we are excited about it. There's enough there that kind of suggest that this is - these are going to be good contributors to the business in the mid to long term, for sure.

Great, thanks a lot. And just since you mentioned it, just a quick follow-up on capital, are there any metrics you can share around just average loan sizes or repeat rates or any metrics? I know it's very early, but anything you might be able to share.

So with stripe, loans are up to $100,000. We're largely sitting on top of their infrastructure, I think, as you know still early days, so certainly too early to be measuring repeat rates and that sort of thing. Average loan size is, obviously, a lot less than that $100,000 number, but that is the offer right now. ShopKeep, Dax mentioned in the call, ShopKeep had a much more advanced capital product than we did as well, and we've started to leverage now their expertise. They pressed pause a little bit at the onset of COVID here and ramping that back up now. So we'll have some more things to share there, I think, as we learn from their experience, and we can start to share some of the metrics we're seeing there. But suffice it to say, they were at it a couple of years ahead of us in terms of this offering and had some really nice returns and really nice success with it, which gives us optimism for the overall business.

Excellent. Yes, it's a great point on the ShopKeep capital. Okay, thanks a lot for taking questions.

Your next question comes from the line of Todd Coupland from CIBC. Please go ahead. Your line is now open.

Yes, good morning, everyone. I wanted to ask about competition. A number of cloud players seem to have gained some stable footing during the second half of 2020. And I'm just wondering if you see any risk of pressure on pricing, whether subscription rates or payments rates? Or is it still features and functionality of omni-channel supplier network and that kind of thing that's driving decisions? Could you just talk about the landscape in the last six months? Thanks a lot.

Yeah. I'll take this one. In all transparency, I think we've never had a better model. So we don't feel pressure from competitors. We - if you look at our organic, if you look at our close rates, if you look at the ARPU, we're not feeling that pressure. We're actually seeing more and more customers wanting to buy a full package from one vendor versus buying from multiple vendors. We see our customers wanting solutions like ours because they need to integrate all of the delivery networks on the restaurant front, and they need to have true omni-channel when you think about physical retailers with multi-location support. So I think the offering is very strong. And I think that the market is stronger than it's ever been, and we do not feel any pressure right now on pricing for many of our competitors.

Okay. Thanks very much. Appreciate it.

Your next question comes from the line of Paul Treiber from RBC. Please go ahead. Your line is now open. Q - Paul Treiber Thanks so much, and good morning. I was just hoping could you bridge between the strong growth in revenues this quarter? I think excluding ShopKeep and Upserve, it was up 53% and then GTV, also on an organic basis. And is the faster growth of revenue - is it predominantly due to payments and perhaps additional software modules that's driving the stronger growth there?

Yes. So you kind of have to deconstruct that a little bit. So within the GTV and some of these were in my prepared comments, I think they're - you'll find them in the press release as well, retail had a wonderful quarter, up 41% year-over-year. Within that, ecommerce volumes up 100% year-over-year. Overall GTV organic growth dragged down, though, by hospitality, which was down 19% organically. And so that's what's happening inside of GTV. And when you convert that into revenue, as you'll see in the payments kind of penetration slide, most of our payments revenue comes from our retail space right now. So we're sort of benefiting on the payments uptake, primarily through retail, which is performing exceptionally well. And on the hospitality side, it drags down GTV, but really doesn't have a huge impact on revenue until we kind of look at the additions of Upserve, which is going to be a next quarter thing more than this quarter thing as they wrestle with the impact of lockdowns. Makes sense?

Yeah. No, that's helpful and connects the dots there. When you look at longer term in those two segments of retail versus hospitality, should the correlation between revenue and GTV over time align? Or do you think that they'll always be fairly independent of each other?

No, it will start to align. We're just - we launched in US retail for payments first. Canadian retail is the second market we launched mainly because that's where the majority of our own GTV was. So we are just newer into the hospitality space with payments. I think we launched it kind of, I don't know, maybe March of this past year. And of course, that hospitality segment has been dealing with some things all year long. So once we get back to a more normalized environment, we're going to see hospitality uptake of payments rival or exceed, I think, retail, and those things will start to align.

Okay, thanks for taking my questions.

Operator, we'll take one last question.

Great. Thank you. Your next question here comes from Tien-Tsin Huang from JPMC. Please go ahead. Your line is now open.

Thanks so much, really great results. I wanted to ask on the location growth being very, very strong. How broad-based was the location strength? Any additional color you can share on where you were positively surprised? Are there, say, geographically or vertically or by size or type of client? Same question on attrition, too, if you have anything to share there.

So retail, we continue to do really, really well in retail right now. It's - the omni-channel solution, I think is resonating really well and retail really been a great performer despite even the challenging overall environment in that space. Europe has had a tougher go of late just because of the lockdowns in Europe have been fairly strict and firm, and that tends to mute the new customer adds. And we shone a light on Australia as just having a wonderful quarter as they've kind of emerged a little more quickly from this virus situation, I suppose, and we saw really good performance there. The last area we wanted to highlight where we're seeing just really, really strong momentum and kudos to the Lightspeed team behind all this is the golf segment. We're seeing triple-digit revenues almost in that - growth in that space right now as golf has kind of had a rejuvenated experience globally, I suppose. And as golf courses around the world look to upgrade their own infrastructure, we're really benefiting right now.

Great for social distance in golf, I want to ask one more. Just on sales and marketing. That did step up quite a bit sequentially on a dollar basis, Brandon. Is this a new baseline to consider? And are you seeing better returns on efforts here? And is that related to my first question on location growth, for example? Just curious on anything else you could share on that.

Yeah. I think it's one of the more encouraging things, not that we are laser-focused on EBITDA positivity at the moment given all the growth opportunities. But if you look at sales and marketing as a percentage of revenue year-over-year, and I encourage you to look at the last table in our press release where we sort of normalize all this, I think we are really starting to see the leverage in the model, and we're seeing the benefits of just some momentum in the increased brand worldwide. We're adding more stores than ever. Sales and marketing as a percentage of revenue is going down significantly. So the uptick in dollars is mainly addition of the acquisitions, just taking in their own sales and marketing, but the overall percentage of revenue is we're really starting to see some nice leverage.

Understood, thanks for taking my question.

And there are no further questions at this time. I'll turn the call back over to Gus Papageorgiou for any closing comments.

Great. Thanks, everybody, for joining us today. And just a reminder, on February 17 we are going to be having a webinar on the supplier network. JP will be joining us, along with Peter Dougherty, our VP of Partnerships, and we will have speakers there from Giant Bicycles as well. So if you haven't registered, please go to our - to the IR portion of our website to register, and we look forward to speaking to everybody there then. Thanks, everybody, for joining us, and have a great day.

And ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.