Lightspeed Commerce Inc.

Ladies and gentlemen, thank you for standing by and welcome to today's Lightspeed second quarter 2021 earnings call. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone keypad. If at any time you need assistance, please press star zero. I would like to turn the call over to Gus Papagiorgio, head of investor relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal second quarter 2021 conference call. Joining me today are Dax De Silva, Lightspeed's founder and CEO, Brendan Newsey, chief financial officer, and JP Chauvet, president of Lightspeed. After prepared remarks, we will open it up for 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 supplements to and not substitutes for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website on cedar.com and on the SEC's EDGAR system. And finally, note that because we report U.S. dollars, all amounts discussed today are U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Dax. Thank you, Gus, and thank you, everyone, for joining today. Nearly nine months after the outbreak of COVID-19, small and medium-sized businesses continue to face challenging conditions. In addition, we've experienced rapid changes in consumer behavior, necessitating a reinvention of commerce for the retail and hospitality industries. Despite these challenges, Lightspeed had one of its strongest quarters yet, which results exceeding our expectations and characterized by a growing customer base, expanding our pool, and increased adoption of our ever-growing service offering. LightSeed was founded on the belief that the resilience and entrepreneurial spirit of small and medium-sized businesses is a key ingredient of vibrant cities and communities. In the face of persistent challenges, most LightSeed merchants have continued to sell and serve, keeping staff employed and providing innovative means of social engagement in a world that feels increasingly isolated. We are proud to be the technology partner of choice for many of these SMBs as they adapt to their new realities and reinvent their business models by embracing Lightspeed's modern cloud-based platform. A strong omnichannel presence, once considered a nice-to-have for SMBs, is quickly becoming a necessity. As such, independent businesses are increasingly abandoning legacy systems and embracing Lightspeed solutions, a trend that accelerated this quarter. As a result, Lightspeed saw year-over-year GTV growth of 56% and software and payments growth of 62%, aided by a growing customer base, increased ARPU, and the acquisitions of Counta and Gastrofix. We had a very busy quarter with many notable initiatives, but I would like to highlight four key themes. the continued innovation of our platform, the strengthening of our board of directors, our NYFC listing, and finally, our pending acquisition of Shopkeep. First, on innovation. As our customers scramble to adapt to their new reality, Lightspeed has been busy delivering new solutions to help them reach an ever more demanding and concerned consumer. Since the last quarter, we announced three new product initiatives. The first is Econ for Restaurants, Designed to allow light-feed restaurants to seamlessly transition their businesses online and integrate new revenue streams, Econ4Restaurants allows light-feed merchants to display their menus online, link to delivery systems, and integrate into OpenTable for bookings and Instagram for social media. As restaurants worldwide have endured rolling closures of their dining rooms, an online presence and frictionless delivery and takeout experience have provided a crucial lifeline. The second recent innovation is Order Ahead, The cost-efficient online ordering platform designed to facilitate takeout, Order Ahead integrates into e-confer restaurant, creating a powerful digital hub that enables restaurants to provide a completely contactless customer experience. Online orders appear directly in the plate feed platform, and customers can track their orders from start to finish with real-time status updates via text message. Finally, we introduced Lightspeed Subscriptions, a new module that allows local North American retailers using Lightspeed payments to collect recurring revenue through their PLS. Subscriptions should appeal to new target verticals, such as health and wellness, by allowing monthly membership capabilities. We are also hopeful it will increase payments penetration. subscriptions should help retail customers develop a stable recurring revenue stream and build a loyal customer base while seamlessly integrating into their existing platform dynamic market focused innovation is a key part of our culture and strategy and particularly relevant in the current fluid environment our strong service offerings have allowed us to land several notable customers and partners this quarter including Ultima Courchevel, which operates an award-winning selection of ultra-luxury hotels, villas, spas, clinics, and private residences located in the most exclusive destinations around the world. Ben Lee's Pet Stuff, an all-natural pet food store with over 50 locations in the Midwestern United States, selling natural pet food, pet care essentials, toys, grooming products, and treats for your pets. 7th Sense Botanical, a high-quality line of specially designed body and skin care products made with essential oils and CBD, the finest gifts nature has to offer with over 50 locations in the U.S. Kapalua Golf, located on the popular island of Maui and home to the PGA Tour's Century Tournament of Champions, Kapalua Golf maintains two of the most majestic golf courses in the world, the Plantation and Bay courses. And finally, Landscape Golf Management, which operates 30 golf courses throughout the United States. These high-profile customer wins demonstrate our leadership in the complex SMB segment of the market, as well as our continued leadership in select verticals, such as golf. Additionally, Anheuser-Busch, the global drinks and brewing company with 630 beer brands in 150 countries, will partner with Lightspeed to market our solution to restaurants and bars in Belgium, Anheuser-Busch maintains over 70 direct sales representatives in this market who will be trained on the Lightspeed solution. Finally, we are proud to partner with Pannier Bleu in our home market of Quebec. Pannier Bleu has developed the popular Quebec-based online market, offering over half a million products from over 2,000 Quebec-based merchants. Many of these merchants will be processing their transactions through Lightspeed payments. We believe this initiative will go a long way in helping local merchants capitalize on the busy holiday season that is likely to see increased customer desire to buy from and support local merchants. Next, strengthening the board of directors. I believe maintaining a strong board of directors is an important part of demonstrating our commitment to our shareholders. We have thus far in our history had the good fortune of maintaining a highly effective board with incredible depth and breadth of experiences in the technology and retail sectors. This quarter, we further enhanced the strength of the board with the addition of Merlene Chantil. Merlene has over 20 years of experience as a technology leader and business executive at organizations such as Intuit, Yahoo, and PayPal. She is an experienced board member and has received numerous accolades during her career, most recently being named one of Women Inc.' 's most influential corporate board directors. Most importantly, Merlene has demonstrated a passion and commitment to the success of our merchants. I look forward to working with Merlene in the years to come. Our NYSE listing. During the quarter, LightSeed completed a successful listing on the New York Stock Exchange, a major milestone in the company's history. It is a great privilege to be one of the 2,300 leading companies listed on this 228-year-old institution. We issued approximately 11 million shares, raising gross proceeds of $332 million. Our New York listing and equity issue should help the company gain a broader investor base in the key U.S. market, increase liquidity for all of our shareholders, raise our public profile, improve the recognition of our platform, and not least of all, allow us to continue to pursue our growth strategy. That growth strategy includes acquisitions, and I am happy to say that our efforts to date have delivered strong success. All four of our recent acquisitions, ChronoGulf, ICAN2, Counta, and Gastrofix, delivered their strongest quarters yet, demonstrating our ability to integrate and enhance the operations of our acquisition targets. I'm also happy to report that the integration of these acquisitions into our flagship hospitality platform continues at a rapid pace, with the majority of the developer resources now directed toward the converged efforts. We've also made excellent progress on rebranding the various websites and integrating the go-to-market teams to achieve the growth acceleration we have shown. Finally, our proposed acquisition of Shopkeep. We are happy to announce that Lightspeed has entered into a definitive agreement to acquire one of the leading cloud commerce platform providers, Shopkeep, for a total estimated consideration of approximately $440 million. Shopkeep powers over 20,000 retail and restaurant locations in the United States, and with its acquisition, firmly positions Lightspeed as a category leader in that highly fragmented market. The combined company will have over 100,000 customer locations globally and approximately 33 billion in GTV. Shopkeep will help bring scale and a seasoned management team to our U.S. presence, along with a highly developed capital business, which we hope to leverage. and we will bring a broader solutions portfolio, such as Lightspeed payments, loyalty, e-commerce, analytics, and multi-location capabilities to Shopkeep's customer base. Lightspeed can provide the customer base with all of the capabilities required by a growing business, removing the need for them to re-platform as they grow. We're excited by the many synergies we see with this combination and think this will be a landmark combination in our space. Brandon will speak further on the details of this acquisition in his remarks. Before I conclude, I want to thank the entire Lakeview team for their commitment and dedication over the last quarter. These remain challenging times for each and every one of us, but we have much to celebrate this quarter. I want to take a moment to acknowledge that our success comes due to the grit and resilience of the entire Lakeview team. Their commitment to Lakeview merchants worldwide is unmatched and unwavering. And with that, I will pass it on to Brandon. Thank you, Dax. Today we reported one of the most exceptional quarters in the company's history. This quarter demonstrated not only that the business model is working, but also the long-term potential that it has. In the face of a global pandemic that has created significant disruption in our end markets, we grew our net customer location count to over 80,000 at September 30. This was driven by a surge of gross new customer location additions, which increased by 68% when compared to the same quarter a year ago. As I mentioned last quarter, this metric is the most encouraging thing we can see as we firmly believe the replacement cycle of legacy systems is accelerating and moving towards solutions like ours. Our customers collectively processed approximately $8.5 billion of volume in the quarter, up from $5.4 billion in Q1 of this year. That was over 56% higher than the same quarter a year ago. This indicates that despite the many new restrictions placed on these customers, they've been able to adapt and thrive. Our strategy of using our privileged position as a core software provider for these businesses to expand into new areas, such as payments, also continues to pick up momentum. Payments uptake remains strong, and we're now processing better than 10% of our GTV through lightspeed payments in U.S. retail, with momentum continuing to build in the new markets in which we have launched. As a result of payments and continuing to upsell customers' new software modules, Our ARPU per customer location in the quarter grew to better than $170 per month. And finally, as Dax mentioned, our recent acquisitions are thriving, giving evidence that this aspect of the strategy is working as well. The cumulative results of our execution on these key drivers are that we grew our overall revenue better than 60% year over year and up 26% sequentially. We are really proud of these exemplary results, but of course, globally, we still face many uncertainties surrounding COVID-19 and its resurgence. And I'll speak to that shortly. So recapping the second quarter in greater detail, total revenue was $45.5 million, up from $28 million a year ago, representing growth of 62% and well above our guidance of $38 to $40 million. Software and payments revenue is 62% higher than a year ago at $41.1 million. Excluding the impact of counter and gastro fix, which were not included in last year's numbers given the timing of those acquisitions, software and payments revenue grew 42% versus the same quarter a year ago. Adjusted EBITDA loss for the quarter was $2.8 million compared to $5.1 million loss from a year ago. And as mentioned, our GTV for the quarter was $8.5 billion. Over the past 12 months, our GTV was over $26 billion. We ended the quarter very well capitalized with unrestricted cash on hand of approximately $513 million. Looking deeper at some of the specific business trends we saw in the quarter, within our overall GTV, we saw retail grow almost 34% versus the prior year. and restaurant increased by approximately 97% compared to a year ago. Retail GTV was aided by continued success of e-commerce, which is up over 80% versus the prior year, and from strong performance in some of our seasonal verticals. While e-commerce has been an important tool for our retailers, we saw a strong resurgence in physical transaction volumes in the quarter as lockdowns eased globally over the summer months. Our restaurant segment recovered nicely in the quarter from the lows seen in March, April, and May. As a reminder, the majority of our restaurant customers are currently in international markets outside of North America. On the back of these strong GTV levels, we saw our customer churn rates improve from the first quarter's levels. Churn remains slightly elevated versus our typical levels. However, we continue to be encouraged by the resiliency of the customer base. Looking at Lightspeed Payments, it continued its rapid growth trajectory once again in the corner. Overall Lightspeed Payments revenue grew by over 300% versus a year ago on the back of strong customer demand from both new and existing customers, an industry-wide move to electronic payments and away from cash, and outstanding performance from some of our end markets like golf and bike. The portion of new customers contracting for payments alongside their core software subscription remained steady in the quarter at our recent levels, and overall penetration of Lightspeed payments as a percentage of GTV was over 10% in U.S. retail in the quarter. We are also seeing good early momentum in recently launched new markets with better than 4% penetration in Canadian retail and over 3% in U.S. restaurant. So turning now to our Q3 outlook, the performance achieved in Q2 leaves us very confident in our business in the long term. However, we are mindful in the near-term outlook that the effects of the pandemic remain. We are now seeing a resurgence in case counts and subsequent government lockdown measures in some of the markets we serve around the world. Leaning on the experience gained in dealing with these lockdowns in the spring, we have confidence that our customers will fare better than the broader industry and that we will continue to gain market share during this time. However, we have to expect that lockdowns will increase customer churn will impact purchase decisions by our prospects, and will affect our customers' transaction volumes. Our outlook also incorporates our expectation that the seasonal nature of some of our verticals will slow down in the fall and winter. And while we typically also expect the holiday season of November and December to be strong in many verticals, but this year will be an uncertain one given the situation we face globally. So with all that in mind, we expect Q3 revenue in the range of $44 to $47 million, We expect Q3 EBITDA to be a loss of approximately $8 to $10 million. Owing once again to the prevailing macro uncertainty, we'll decline to give a full year outlook at this time. One quick note, our adjusted EBITDA outlook reflects the impact of our new NYSE listing and its associated incremental compliance costs, including higher costs associated with D&O liability insurance. which saw a significant increase in premiums to approximately $10 million annually. So while we continue to take a cautious view of the near-term results, given the many uncertainties right now, we feel very good about the company's position for the long term. This quarter's results demonstrate the power of the business model and the results we can drive in a normalized market environment. I'll wrap up by discussing the acquisition of ShopHeap that we announced today. The guidance I've just spoken to excludes any impact from Shopkeep in the quarter as the closing date for this acquisition is not presently known. The purchase agreement with Shopkeep is for $145 million in cash on closing, plus the issuance of approximately 9.5 million shares of Lightspeed for estimated consideration of approximately $440 million. Shopkeeps trailing 12 months revenue is approximately 50 million, and they bring over 20,000 customers and approximately 7 billion of TPV to this combination. Echoing DAX's comments, we see many synergies with this combination and are excited by the potential future together. We believe this is a landmark acquisition for our space, and the resulting combination will bring a company with the resources, scale, and momentum to lead complex retailers and restaurants through this period of rapid transformation and beyond. With that, we'll turn it back to the operator for your questions.

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