Good day and thank you for standing by. Welcome to the Lightspeed Fourth 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. Please be advised, today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Gus Papageorgiou. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed’s fiscal fourth quarter and full year 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 prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are based on assumptions and therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements, except as required by law. You can read about these risks and uncertainties in our earnings press release issued earlier today 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-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on sedar.com and on the SEC’s EDGAR system. In addition, our commentary today will include key performance indicators that help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Such key performance indicators may be calculated in a manner different than similar key performance indicators used by other companies. And finally, note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Dax.

Thanks, Gus. Good morning, everyone, and thank you for joining us today. Before I get started, I just wanted to welcome everyone from Vend from the Lightspeed team. We are thrilled to have Ana and her colleagues join Lightspeed as we seek to transform the retail experience for our customers and consumers alike. This past quarter closes off our 2021 fiscal year. And I think it is safe to say that it has been the most transformative year in the company’s history. Despite a global pandemic, there was particularly hard on our customer base of small and medium sized businesses. Lightspeed managed to deliver some of the strongest performance in the company’s history, undertake three landmark acquisitions, which greatly improved our presence in the key U.S. market. We listed on the New York Stock Exchange, released a series of new offerings, including Lightspeed Capital, curbside pickup, e-commerce for restaurant, order ahead and subscriptions, and launched two major strategic initiatives with supplier network and our recently announced global partnership with Google.

Thank you. Our first question comes from the line of Andrew Jeffrey with Truist Securities. Your line is open.

Hi. Good morning, everybody. I appreciate you taking the question. Nice job on renegotiating payment terms on recent acquisitions. And Brandon, you mentioned that you now have more control over the merchant relationship. Can you elaborate on what you think that means for potential penetration of the back book of those recently acquired companies?

Yes. Thanks for the question. It’s all good news. We’re quite pleased with our ability to get this done at the pace we got it done. And what this amendment does is most importantly, it allowed us to achieve better economics. But not too far behind that, of course, is just getting better control over the end-customer relationship, which is important. To your question, I think it really opens the door for us to continue to migrate the back book, as you called it, at a good pace this year, alongside what we do with the rest of the Lightspeed’s core business. So this really kind of opens the door and let that happen.

Okay, looking forward to seeing that. And I think encouraging comments too on customer acquisition costs. Can you provide an update on what LTV to CAC looks like today and/or what the breakeven time by cohort is? It sounds like that’s improving pretty nicely.

Yes, it is. I think it all starts with some of the ARPU stats that we gave, obviously, in that growth, 50% year-over-year, which was pretty core to the thesis. We just think there’s a lot more economics to capture for the customer. That of course lead them to an ever-improving LTV-to-CAC ratio for us, which has been also pretty fundamental to the model. We’re really encouraged by what we’re seeing in terms of leverage sales and marketing as a percentage of revenue. It’s coming down significantly year-over-year. And all that kind of comes together and allows us to continue to invest for growth, which is what we’re privileging right now, given the position we feel we’re in a market that is only accelerating right now in our view. And our ability to capture more dollars per customer, of course, allows us to keep that investment at a level that makes sense from the overall business with an eye to long-term as being a really profitable business.

I appreciate it. Thank you.

Your next question is from Daniel Chan with TD Securities. Your line is open.

Well, hi, good morning. Congrats on a strong quarter. You talked about you’re seeing the benefits of the reopening. Have you seen the mix of e-commerce versus brick-and-mortar GTV in regions that reopened? Have you seen the mix of that change?

JP, you’re on mute. Sorry. I can see you’re talking, but…

Sorry. Can you hear me now?

Yes.

Sorry about. So, very quickly. Sorry, I don’t want to lose too much time. But we’ve seen – when you look at our business, e-commerce continues to be very strong. So, we’ve seen growth year-over-year at about 100%. Retail physical brick and mortar has rebounded, and we’ve seen growth up to 65% year-over-year. And hospitality, of course, with the curfews and COVID, have continued to remain low where they’re still under year-over-year. But what we’ve seen in the last quarter and we – if we look at the month of March, we’ve seen a real rebound there. So, I think for us, what’s important is as we’ve always said, omnichannel is core. And I think the value of that is we can help our merchants service their customers on any channel. And herewith now, we’re seeing the reopening, which we’re seeing revenues go back into strong growth on physical. And so, it makes us very positive about the future.

Okay. Thanks. Can you remind us if there is a difference in economics between online payments versus brick-and-mortar payments’ transactions?

Slightly better online. Not overly materially different, but we do get slightly better online.

Okay. And then just one follow-on for me. How are the early days of Payments doing in Europe? I know you just recently launched it, but is the adoption rate comparable to what you saw when you first launched it in the U.S.? Thanks.

Very early days, Daniel. So, more to say in the future on that. But yes, we’re optimistic that’ll be a great market for us. It’s just really early on at the moment.

Our next question is from Raimo Lenschow with Barclays. Your line is open.

Merci. Thanks for squeezing me in. Last quarter, you talked about Australia as an example for a region and country that is reopening. Can you just kind of maybe kind of continue there like how did that kind of evolve from the opening last quarter? And then the follow-up to that is if you look at March being the strongest quarter, was that kind of pent-up demand, or do you think that’s the new normal? Thank you.

So, Australia continues to be very strong. And actually, what we’ve seen in Australia was starting in the UK with all the reopening. So, again our thesis here is as markets reopen, this is going to be a strong positive for Lightspeed. GTV in Australia is growing 75% year-over-year and I think that’s a great number, considering last year they were not in the same position we were with COVID. So, what we’re seeing is as markets reopen, there’s a lot of new concepts that are created, there’s a lot of investment going in into our markets and this creates a higher GTV and a lot of demand for our products.

Thank you. And then the – if you think about it, you had the strongest new customer quarter you mentioned on – in months on March. Is that like – do you think that’s a pent-up demand or it’s just like a idea of what’s going to come? Thank you.

I think it’s the result of Lightspeed having a good offering for the market and the results of a very dynamic market and the reopenings. So, we’ve always felt good around the after-COVID world and everything we see now confirms what our thoughts have been, which is after COVID, Lightspeed is even more relevant given how strong our platforms are for the physical world. And yes, so I think March – if March is a reflection of what the year is going to look like, we’re very happy.

All right. Perfect. Congratulations.

Your next question is from Thanos Moschopoulos with BMO. Your line is open.

Hi, good morning, guys. With respect to the new payment agreements for ShopKeep and Upserve, just to clarify, did you move those from a referral relationship to Lightspeed Payments? Are you now paying it back to those customers, if you could confirm that?

Yes. We didn’t – so I think as we mentioned, there was going to be a period of technical integration with these newly acquired businesses that was going to take us some quarters. So we haven’t completed that. That work still remains ahead as my earlier comments, hopefully, reflect it. And our intention is to, obviously, not just with Payments, but with everything we do is to get all of these customers on the Lightspeed core offerings. But recognizing that that was going to take some time, what we did is approach payments partners and say, you know, look, we’ve got this infrastructure. We’re happy to take on more of the obligation historically it had been. And that – and then also leveraged kind of the scale of the business to encourage folks to give us better economics on the overall transactions as well. So it just allows us better customer control. It got us better economics, which is really important. And we were able to do it all on a much quicker pace than we otherwise would have. So that makes sense.

Yes. But to clarify, then, that means that maybe over the next year as you – there could be further upside in economics as you actually grow some of those customers to full Lightspeed Payments? Is that the takeaway?

Yes. Yes.

Okay. Great. Dax, if you could give us an update in terms of just the integration of various platforms and where that stands? I mean, obviously, early days events, but just in terms of the prior acquisitions, what remains to be done to get a different kind of platform?

Yes. So I think we’re highly encouraged by what we’re seeing on the hospitality convergence of platforms. We’ve got our flagship product now being sold in EMEA, generally, we call it K Series. That will be making its way to the U.S., by summer. But we also have amazing assets, analytics from Upserve, other functionality around inventory management for restaurants from counter that we’re all making the reference platform. So on the hospitality side, where things are really rolling and we expect to have extremely competitive products worldwide this year. On the retail side, retail e-comm side, we’re also barreling forward on that convergence plan. And we’re going to go from what I think is the best retail cloud platform to a truly unbeatable one with the combo of ShopKeep and all the Lightspeed technology assets.

Great. I’ll pass the line. Thanks.

Your next question is from Josh Beck with KBCM. Your line is open.

Thank you, team, for the update. I wanted to go back to the Google integration that seems quite notable. So I’m just curious, once this is fully fleshed out and rolled out, will a consumer be shopping online and maybe whatever the category is, say, a bicycle and see, okay, this is, for example, what I could buy from an online-only merchant and right next to it. Like here is an image from a supplier at the bike shop down the street. So I’m just – you may not know at this point, but I’m just kind of curious how this is going to be presented from a consumer perspective?

Yes. Local inventory ads, which is Google LIA, that’s one part of our integration with Google, will show consumer where they can buy that item nearby. As a business, now in Lightspeed, you can set a radius that shows where your locations are and what radius they serve. And so serving up high-quality images, potentially from our supplier network, allows them to be prioritized in the Google search engine. So it’s discoverability for local merchants. Those merchants may also have an online presence. So it will serve to drive traffic to both channels. And that’s really the idea here is how do we help our businesses succeed as omnichannel merchants, how do we drive traffic to them? And I think Google is the perfect partner for this. And if they want to go further, they want to go further than these local inventory ads, which are free as part of our system. They can set up smart shopping campaigns, which is also a part of this integration, which allows them to more proactively market to customers in their area.

Very helpful, Dax. Go ahead.

No, I was just going to say, I mean, all of this is part of our strategy to actually help physical businesses have the same strategies as digital businesses. So giving the ability for someone who’s spending an ad online with Google to actually measure the real return on investment in physical sales. And I think that’s really exciting. And that’s, again, the value of our platform in the cloud is we can now do this.

That makes total sense. I also wanted to ask on the new customer front, you had some pretty high-profile, well-recognized brands. When you look maybe just across the composition of the gross add that you’re bringing in, do you feel like there’s a notable shift upmarket taking place? Or maybe that’s just more natural evolution that you’ve seen in the types of customers you’re bringing on?

We’ve seen this since the beginning. So, we started and we had a lot of relocations and then multilocation. And what we’ve seen last time is that we have bigger and bigger customers, but I think it’s just a natural growth. What we did, remember last year, as we’ve said, we put in place a team in charge of mid-markets, and we structured the company to support mid-market in a better way. And I think it’s just the result of that strategy that are paying off then.

Really good to hear. Thanks, team.

Your next question is from Tim Chiodo with Credit Suisse. Your line is open.

Great. Good morning. Thanks for taking the question. I want to dig in a little bit on the location ads. So that was a real highlight of the quarter, a top-leading indicator of future results. So in terms of the mix, if we think about any group of new locations coming in, let’s just say there were 10 or 100, just to make the math simple. Can you just talk about what portion of those would be newly formed businesses, just being created a new retailer or a new restaurant versus existing businesses that might have switched over to Lightspeed? And maybe just talk about how that might have evolved, what that percentage those mix percentages might have looked like a year or two ago, and what it might look like now? And how it might look ahead as more and more new businesses are formed coming out of COVID?

Yes. So I think – so we haven’t seen an evolution in the blend. So we’ve always had kind of a give or take, the same blend of new creation, people creating new concepts versus switchers. So we have this logic of starters and switchers, and the blend hasn’t changed. However, what we’ve seen is that during the pandemic, we have more and more digital demand, where we had a lot of demand for curbside pickup, and we had a lot of demand for e-commerce. What we’re seeing in the markets that are reopening is that the demand goes back to the other side, where there’s a lot of demand for our physical platforms and actually for new concepts. So I think for me, what we’re seeing is as markets reopen, the blend in terms of digital versus physical go back to what they were pre-pandemic, but we haven’t seen any kind of visible shift from, these are only people opening new versus switchers. I think we’ve always had a good blend of each. And what we see also is that on different geographies, we have very different demand. And the markets that are completely reopened like now the UK or Australia, we see a lot of demand that goes back to the physical world.

Okay. Great. That’s really a good context. I really appreciate that. A second question or a follow-up somewhat, I guess, unrelated actually. But back to the Payments business, within some of the revenue share agreements that you have, either with your existing within Lightspeed’s revenue share agreements, so not Lightspeed Payments, more of the sort of traditional ISP rev share business that’s more legacy for you guys and then maybe in some of the acquired properties as well. I understand there are some non-solicit agreements in there, and there’s sort of a timeframe where you can’t maybe approach all of those customers as quickly as you would like and maybe puts a little bit of a governor, but that should be opening up at some point. And maybe you could just put a little bit of context around the mechanics of how that works and how that presents a nice opportunity ahead.

Yeah. I think it’s pretty standard practice in this industry where you’re getting kind of a referral-based revenue stream from one of the payment processing partners that coincident without your signing a non-solicit. These contracts also will have terms on them that will expire at various points. And of course, we’re – these are partners of ours and we will honor every contractual obligation we have. Longer run, longer-term, we just believe in the customer experience being a lot stronger, bringing together software and payments from a single provider. And of course, that’s the reason we exist is to make our customers happy. So in the long run, we do expect to continue to wean off of these referral-based relationships, but working well with our partners as we do so. So there’s various opportunities, Tim. And I know I’m not answering your question directly. But, there’s various windows where we can take on that activity a little more directly than we can currently do. And some of those windows will open kind of tail end of this fiscal year for us. But yeah, in the long run we expect all of – just – we really believe the value prop of bringing these things together as strong customers will be coming our way as much as we want them to anyway.

Great. No, Brandon, that was really helpful. I really appreciate it. Thanks for taking both of those.

No problem.

Your next question is from Richard Tse with National Bank Financial. Your line is open.

Yes. Thank you. On the ShopKeep and Upserve payment amendments. I just wanted to clarify. Is it sort of largely the scale now of Lightspeed that allowed you to sort of kind of get that bargaining power? Or was it kind of your relative offering prowess to sort of recognize that opportunity post those acquisitions that led to those amendments?

I think all of those things. If you think about how this naturally would play out, we’ve got a partner of those businesses who now gets the deal with a much larger entity where the greater opportunity is aggregating all these things together. So that creates opportunity for them/leverage for us. And then the conversation then chosen to what’s important to Lightspeed, what’s important to our customers, how can we do this in the way that puts our joint customer at the forefront. And because we have the infrastructure, we become a trusted entity in the processing relationships. Those partners are willing to help us in that regard and help our customers in that regard. So I think it starts with scale or we have a much more compelling opportunity for these partners. And then from there, just our capabilities and our infrastructure, allow that conversation or allowing that conversation to progress pretty quickly, which allowed us to make some of the improvements you saw in the quarter.

Okay, great. And my other question has to do with, I think you talked about the subscription revenue up 10% and it’s tied in to serve the supplier network, which sounds like it’s actually a bit more increasingly more meaningful, especially with that sort of connection in Google. So is the supplier network going to be sort of a module that merchants have to pay an incremental fee for or will it be part of Lightspeed’s platform in general?

So I’ll take this one. The way we look at it is the supplier network is a module is going to become as we go forward a module of the commerce platform. As we said, we really want to go deep into verticals that matter for us. And within those verticals, we really want to triangulate supplier, stores and consumers because there’s a ton of value for everybody in the ecosystem. So I think here, we’ve had an incredible reception from a lot of our suppliers. And actually, what we realized from this is they want to go faster than we can go today. So we need to invest a lot in those capabilities to go faster. But here, as we go forward, this integration and this visibility we get for suppliers to see what is the real sell-through at the store level and vice versa, the ability we get the stores to order directly from suppliers and see inventory levels of suppliers, we think it’s key to the success in the verticals where we operate. So there’s a lot as we go forward there that we’re going to be investing.

Okay, great. And that supplier network is available across the board now to all merchants?

It is.

Okay.

And we’ve been onboarding them very slowly, and there’s a lot of – again, we’re very early in setting up the whole structure for every vertical. But within – we’ve been progressing a lot within the key industry, but there’s still a lot to do.

Okay, great. Thank you.

And, Richard, just to clarify one thing and maybe unnecessary too, but the average revenue per customer, ARPU, on the subscription side was up 10%. Revenue, obviously, ahead of that.

Yeah. Okay, thanks.

Your next question is from Paul Treiber with RBC Capital. Your line is open now.

All right. Thanks very much and good morning. Just wanted to delve a little bit more into the Google partnership. Just without getting into specifics, could you speak to the general economic model with partners like Google? You mentioned it’s free for the merchant. Is it coming up as a free organic search or – and not part of Google Ads, or is – are you paying, effectively, Google for it? Could you elaborate a bit there, please?

Yeah, I think the basic inventory ads, solely local inventory ads, that is a part of the Lightspeed retail offering. And that we’ll publish and make discoverable the local inventory within a radius for that store. Beyond that, retailers can set up smart shopping campaigns. That’s another part of the integration, and that is paid for, but it is eight times – we’ve always calculated it, it’s eight times more efficient to use a smart shopping campaign because Google and Lightspeed leverage data to make that ad spend even more efficient, eight times more efficient than if that retailer was doing that on their own with their own buys. And the idea there is to make sure that we’re democratizing this kind of capability so that it’s accessible to all SMBs and not just big-box retailer, big-box e-com that can afford to plan such a campaign or optimize such a campaign. So yeah, one is free, and one is a part of a highly optimized paid campaign.

Thanks.

Ultimately, if the merchants are doing well, there’s a lot of transaction volume, and that’s how he gets the payback is we’d like to earn. So our goal, again, is to just get all of our customers to be more successful than the average when they’re on Lightspeed platform.

That makes sense. Is there’s not an opportunity to expand that out into additional ad networks? And then can you also surface the ability for your own merchants if they so chose, pay for higher visibility, either pay per click or pay per conversion?

Yeah, I think we’ve gone from helping a business manage and operate a store, to interfacing with consumer. And now, I think we’re driving traffic to the consumer. And so I think that this is a big I think partnership that shows what Lightspeed can do at scale, which is partner with the largest companies out there in order to benefit our customers. And I think there’s lots of opportunities to continue to drive traffic to our customers. There’s many channels and we want our customers to be on as many channels as possible.

Okay, great. Thanks. That’s really interesting.

The next question is from Josh Baer with Morgan Stanley. Your line is open.

Great. Thanks for the question. A couple on M&A. It seems to me even outside of the contribution from the renegotiated payment terms and some of the commentary around efficient customer acquisition like ShopKeep and Upserve together have outperformed under your ownership. I’m wondering if you degree in any context for what’s driving that, like at this point, are those acquiring customers adopting more software, more Lightspeed modules from you?

Hey, Josh. Yeah. So I think one of the things we’re encouraged across our business, and certainly what we see in Upserve and ShopKeep as well is just the benefits of the reopening. If you think about Upserve’s business, in particular, we’ve seen the GTV growth, which in turn turns into payments revenue for that business, coincident with the reopening in the U.S. I gave you some stats, 10% up March over February, and further 14% up in April over March. And that’s been really encouraging. I think the whole hospitality segment of our business, which Upserve is the beneficiary, is showing signs of a good life as we go through the reopening in all of our markets, and that’s led to some of the outstanding numbers we saw in March. So I think that’s the main contributor. And I think, there’s other things we’re doing inside these customer bases to make sure that they know they have migration paths and the things that they can do in the long run with Lightspeed. And I think that’s helping overall as well. But I’d say the primary factors has been how the collective business, including those acquisitions, have benefited from the reopenings.

That’s helpful. And more broadly on M&A, I’m wondering if this strategy looking forward is the same in the past and really focusing on I think on the pace of M&A. Meaning you’ve done a lot of acquisitions recently. Is that pace sustainable, or should we expect a period of digestion at this point? That’s it for me. Thanks.

So maybe I’ll take this one. If you look at the M&A, first, two things. If you look at hospitality in the U.S. and you look at Upserve, they’re now fully integrated with Lightspeed. Actually, the CEO of Upserve is now the GM of Global Hospitality, and that’d be Sheryl. And then if you look at ShopKeep, ShopKeep is fully integrated also with Lightspeed, and Mike DeSimone now being the Head of Global Retail at Lightspeed. So I think we feel good about the acquisitions. We are seeing the returns. We’ve set up account management teams to upsell, and also to cross-sell when customers are outgrowing the platforms we’ve acquired. And even, you know, the CFO of ShopKeep now is in charge of Lightspeed Capital. So I think we’re a good company in acquiring. I think we understand what we need to do. And I think we feel very good about the returns. And as you mentioned, the companies within Lightspeed are doing better than outside of Lightspeed. So with that in mind, we want to – I think we will continue to be active with M&A. I think maybe the slight change is until now, we’ve increased geographical penetration and concentration by acquiring companies that were in our sector. I think as we go forward, we’re more thinking now about how do we scale and how do we combine more technology to help accelerate the growth of these companies. And so when we think about that, we think about omnichannel, which is key. We think about suppliers. But I think you can expect active M&A, but not within the same categories that we’ve had in the last two year.

Thank you.

Your next question is from Todd Coupland with CIBC. Your line is open.

Yeah. Good morning, everyone. One quick follow-up on the location count. Has ShopKeep and Upserve started to benefit from location growth as the U.S. has been opening?

Certainly, the Upserve business has. I think we’ve been, as you may recall, Todd, with ShopKeep, itself, we very quickly moved that product into more of a nurture mode. And with Lightspeed Retail being the core product, we’re taking the market in North America. So that customer base is a little bit different. But with Upserve, yes, for sure, the reopening has been a really nice contributor to that business.

And then a follow-up. We didn’t talk too much about could you just give us an update on how that’s going and some of the milestones for the coming fiscal year? Thanks a lot.

You broke up there, Todd, just when you – just on the subject of that question.

Can you hear me now, Brandon?

Yeah.

Yeah, yeah. The question was on Lightspeed Capital, we didn’t talk too much about it today. Could you give us an update and what we should expect in the coming fiscal year?

Yeah, I’ve seen more encouraging signs there. We’ve rekindled the – what was the ShopKeep capital product, JP mentioned the former CFO of the ShopKeep businesses has been helping to drive that for us. So we’re seeing lots of encouraging signs. We’re seeing lots of good momentum. And if anything, our optimism is brighter than ever on that product line as we head into this fiscal year. It’s still early. It’s still not a huge contributor. But from what we’re seeing both with our rekindling of the ShopKeep program and taking that a little bit wider across our customer base. And then what we’re seeing with our ongoing relationship with Stripe in that respect. We’re seeing good momentum across both of those right now. So pretty encouraged, though it is still in early days.

Mary, I think we’ll take – we have time for one last question.

Your last question is from Tien-Tsin Huang with JPMorgan. Your line is open.

Thanks so much. I’ll keep it quick. I’m curious did you give what the Vend revenue contribution would be for the fiscal 2022?

Yeah, when we announced that acquisition, it’s about 34 million in revenue.

Right. I wasn’t sure if there was any assumed growth beyond that, but I could just start with that. And just my quick follow-up. Is just the gross profit contribution from the payment contract changed? I think you said 7 million revenue, Brandon. So what’s the gross profit impact from that, just help us understand the P&L impact?

Yeah, we didn’t give a specific number there, but it was – if you follow through what our typical margin is on that line of business, it wasn’t quite to that extent, but we got a nice little bump from that as well.

Got it. Thank you, guys.

There are no further questions at this time. Now, I turn the call back over to you Gus.

Okay. Well, thanks for joining us this morning on the call. If anyone has follow-up questions, please feel free to reach out to me. We are around all day today. Thanks again, everyone, and have a great day.

That concludes today’s conference call. Thank you everyone for joining. You may now disconnect.