Lightspeed Commerce Inc.

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 speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that this conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Gus Papagiorgio. 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 Zach DeSilva, Lightspeed's founder and CEO, Barron Nisi, 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 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 cedar.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 Stacks. Thanks, Gus. Good morning, everyone, and thank you for joining us today. Before I get started, I just wanted to welcome everyone from Venn from the Lightspeed team. We are thrilled to have Anna 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 that 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, list on the New York Stock Exchange, release a series of new offerings including Lightspeed Capital, curbside pickup, e-commerce for restaurant, order ahead, and subscriptions, and launch two major strategic initiatives with Supplier Network and our recently announced global partnership with Google. Our transformation was definitely by design but also highly influenced by our environments. I believe that every one of our customers will look back on the past year as the moments where they realized that an omnichannel strategy was no longer optional. It has become an absolute necessity. Never has our goal of arming our customers with the technologies they need to operate and scale their business felt so relevant. And we are proud that they have chosen Lightspeed as their technology partner of choice. We were happy to end the year on a high note with LightSuite delivering quarterly revenues that exceeded previously established guidance and street expectations. We grew revenue 127% year over year with organic software and transaction-based revenue growth of 48%. LightSuite Payments had another record quarter and grew revenues both year on year and from the previous quarter. And we are now present in over 140,000 customer locations when we include the recent acquisition of Vend. Some notable customer wins in the quarter included AG Jeans. This premier denim and knit warehouse chose Lightspeed's modern cloud-based platform to upgrade from their legacy system. AG Jeans will be using a series of Lightspeed offerings, including payments, in their 18 locations across the U.S. Tommy John. This husband and wife-backed venture designs, manufactures and sells quality undergardens for men and women in their six locations throughout the U.S. using Lightspeed retail and payments. Zeus Street Greek focuses on high quality and consciously sourced ingredients. Zeus Street Greek maintains 20 quick-serve restaurants throughout Australia and came to Lightspeed to improve their operations through features like better inventory management. In usual Lightspeed fashion, it was a very busy quarter. In addition to announcing and more recently closing the acquisition of Vend, we launched payments in the United Kingdom, undertook a very successful offering of $620 million, and more recently announced our strategic partnership with Google to improve the discoverability of SMBs on that popular search engine. Brandon will take you through the numbers in greater detail. I would like to focus on some key topics, including the recent announcement of our partnership with Google, some of the initial success we are experiencing with the integration of our latest acquisitions, and some of the more recent trends we are seeing in our business. Earlier this month, we announced a partnership with Google. The goal of this joint initiative is to improve product discovery for small merchants on Google's popular search engine. Through the LightSuite platform, our merchants will be able to display live inventory levels on Google search results. Rather than ordering online, consumers will know they can walk down the street and find what they are looking for at a local merchant. Our rich Google integration also allows merchants to easily manage ad spend and improve the discovery of their locations, truly unlocking the omnichannel potential of businesses powered by Lightspeed. We believe this initiative will help small merchants compete with large online marketplaces. However, when combined with the capabilities of Supplier Network, we think the two are even more powerful. Supplier Network allows merchants to pull high-quality images directly from their suppliers' catalogs. By enabling our merchants to display both live inventory and compelling images, we believe the consumer experience will easily rival anything from big box competitors. I think initiatives such as these illustrate that Lightspeed has evolved beyond being a simple point solution for the payments offering. Our scale and technology allow us to go beyond helping SMBs simply manage inventory and transact. we are helping them solve a greater variety of challenges from online discovery to optimizing their supply chains. As we continue to evolve, I believe our value proposition can go beyond the merchant and the supplier and onto entire industries. By acting as the common thread amongst merchants, suppliers, and consumers, we believe Lightspeed can help make products more available, merchants more successful, and consumers more engaged with local retailers. I think this will be especially true in our focus verticals. Part of the reason we are able to expand our ambitions, attract partners such as Google, and invest in new technologies is our scale. That scale has been a result of our considerable organic growth, but also thanks to our M&A efforts. M&A has always been a part of our strategy, and in the last six months, it has been front and center. Over time, we should continue to recognize the benefits of our M&A strategy across our entire business. but I believe it is important to highlight that we are already seeing some of these benefits. As many of you know, when we acquired ShopKeep and UpServe, both of those companies maintained high levels of payments penetration within their customer base. However, the economics they were recognizing were inferior to our own. Since joining Lightspeed, we have had success leveraging our combined scale to recognize more favorable terms from one of our payments providers. Improving the payment economics for these acquisitions was always a priority, but in this case, we achieved our goals much earlier than anticipated. This is one of the reasons we had such strong results in this quarter. In addition to improving the top line, our greater scale is also helping on the cost side as well, notably on our customer acquisition costs. Our increased scale and brand recognition in the US market is resulting in increased traffic to our own site. with US site visits up 50% in this quarter versus the same quarter last year, which generally leads to more cost-effective lead generation for Lightspeed. In an industry where customer acquisition costs are increasing, we are happy to see our costs remain relatively flat. I think these two examples illustrate that the benefits of our M&A strategy are not distant or qualitative, but rather immediate and real. Over time, we will continue to recognize more and more benefits as we harmonize our go-to-market teams fold the best of all technologies into one light-speed platform, and continue to use our scale and technological depth to deliver more solutions to our customers. Before I hand it over to Brandon, I just wanted to highlight some key trends in the quarter. Overall, as we entered Q4, we were seeing increased lockdowns, which negatively impacted our business. But as we exited, we saw some regions begin to lift those restrictions, and March proved to be a very strong month. We saw new business really advance, especially in EMEA and in hospitality. Payments again had a very strong quarter, both in terms of revenue and new customer wins. We added more payments customers than in any other quarter so far by a wide margin. I think we are experiencing strong trends for various reasons. Firstly, I think LightSeed is benefiting from economies reopening globally. We maintain strong footprints in the US, UK and Australia, all of which are in advanced stages of their COVID recovery. But even in regions where lockdowns are still present, like Central Europe, we are seeing signs that our customers are beginning to prepare for an eventual reopening. France, for example, has been showing very promising signs in recent weeks. Secondly, as payments become more widely available, we are seeing that offering continue to boost our overall growth rate. Payments has only been made available in our hospitality business more recently. As hospitality GTV improves, when economies reopen, we should see payments continue to be a strong contributor to growth. Finally, and I think most importantly, we believe our customers are recognizing that an omnichannel approach is no longer optional. Before COVID, many of our potential customers understood the inherent benefits of a cloud-based omnichannel commerce platform, but were perhaps too distracted by just running their business to undertake the effort to change. The challenges of the COVID-19 pandemic have made it quite evident that business as usual is no longer possible. Merchants need to be able to conduct business on their customers' terms, be it in-store, online, or through curbside pickup. And we believe Lightspeed is becoming the platform of choice as these SMBs adopt omnichannel strategies. As I said at the beginning of my comments, this past year has been the most transformative our company has ever seen. There is no shortage of challenges ahead of us, but as a company, we have never been stronger or more confident than we are today. I am very proud of what we have accomplished in the past year, but I am even more excited about what lies ahead. And with that, I will pass it on to Brandon. Thanks, Dax. Another good quarter across the board. As you heard from Dax, we continue to be encouraged by the trends we are seeing as economies around the world reopen, along with the benefits we are seeing from our increased scale as customers seek upgraded technology to help them run their businesses. Looking at the building blocks of our business, everything starts with customer locations, which grew to approximately 119,000 on March 31st and is now over 140,000 on a pro forma basis, including our recent acquisition of Vend. This is up from 115,000 a quarter ago and from 76,500 last year. As we anticipated, lockdowns around the world in the first part of the quarter impacted new customer location additions in January and February, particularly in Europe. However, by March, we had our best customer location addition month ever, with strong demand coming from all markets and a resurgence in hospitality and Europe as those markets began to prep for reopening. All told, for the quarter, gross location additions were up 51% from a year ago and 27% organically, a strong result, all things considered. While gross customer location additions were terrific, as we mentioned last quarter, we did face ongoing heightened churn, particularly in hospitality, reflecting the toll of the lockdown some of our customers have faced. We've seen that moderate into April, however. But so long as the pandemic remains, we will continue to be cautious in our outlook to reflect increased churn owing to business failure in our customer base. The great news is that we're seeing plenty of reasons for optimism in our customer base as customers find success using our omnichannel solutions to reach their consumers. This shows up in our GTV, which was almost $11 billion in the quarter, up 76% from a year ago. Excluding shopkeep and upservs contribution, overall GTV was $7.6 billion, up 25% versus a year ago. Omnichannel retail continues to perform exceptionally well for us, with GTV up 65% from a year ago organically. Within retail, e-commerce volumes were up almost 100% from a year ago. Hospitality was down 15% year-over-year organically, but saw a solid resurgence in March, which continued into April. March grew approximately 10% sequentially from February, and April grew by approximately a further 15% from March. We're quite bullish on how these trends continue as economies reopen around the world, and look to our Australian market as a bellwether here, which saw GTV growth of over 75% year-over-year in the quarter. ARPU per location was up to $215, representing an increase of approximately 50% from a year ago. Subscription ARPU, which excludes our transaction-based revenue stream, increased by over 10% as more and more customers adopt functionality beyond the basic POS. An ARPU increase as a result of payments grew significantly given the success we have had with driving payments revenue. Lightspeed Payments continues to be an exceptional performer for us. We had our best quarter ever for customers contracting for Lightspeed Payments alongside their core software subscription, and overall payments revenue was up by well over 300% from a year ago. In the last month of the quarter, our overall penetration of GTV was approaching 10%, excluding Upserve and Shopkeep, showing the runway we still have ahead of us. All of this led to overall revenue of 82.4 million, up 127% from 36.3 million a year ago. For the full year, revenue was 222 million, up 84% from 121 million a year ago. Excluding the impact of shopkeep and up-serve, revenue was 51.2 million in the quarter. Within our total revenue, Our software and payments revenue for the quarter was $75.3 million, up 137% from $31.8 million a year ago. When excluding shopkeep and up-serve, organic software and payments revenue grew by 48%. And for the full year, software and payments was $202 million, up from $107 million a year ago. You will see in our filings that we have provided supplemental disclosure of our subscription revenue and transaction-based revenue. Prescription revenue for the year was 119 million, or 54% of our total revenue. This represents growth of 51% from the prior year. Transaction-based revenue, representing our payments business, plus our legacy payment referral-based revenues, was 83 million, or 37% of total revenue, and was up by 195% over last year. Included in transaction revenues was the impact of a newly negotiated contract with our payments partner at UpServe and ShopKey. This new contract did two things, provide us with better economics than the businesses were achieving on their own, and also brought us better control over the end customer relationships. As a result of this, we were able to realize an uplift in revenue of approximately $7 million in the quarter and greater gross margins as well. This is a great news story and reflective of how our scale has improved our negotiating power. But it's worthwhile noting that even without this, our revenue performance for the quarter handily beat our previous guidance of $68 to $70 million. While we will continue to work on bringing all customers from our acquisitions to Lightspeed core offerings over time, this contract amendment does put us closer to the economic outcome we expect in the meantime, far earlier than we otherwise had planned. Gross margin for the quarter was 53% and was 57% for the year. Overall gross profit grew by 85% in the quarter and 57% for the year. The decline in gross margin year over year reflects the growing impact of our payments business and lower hardware margins achieved this year due to various incentives we extended to our customers to encourage adoption of our solutions as economies reopen. Adjusted EBITDA loss for the quarter was $9.6 million, ahead of our guidance of $12 to $14 million, and was $21.2 million for the year. And adjusted EPS was $0.09 a share in the quarter and $0.23 a share for the year. As a percentage of revenue, adjusted EBITDA loss declined from 17% a year ago to 11.7% this quarter, reflecting the ongoing leverage we are seeing in our business model. We'll note a new item on the income statement, a restructuring charge we booked in the quarter. Following our most recent acquisitions of Shopkeep and UpServe, we reorganized the leadership layer of the business to ensure we maintained organizational agility and to capture certain synergies. As a result of these actions, we anticipate annual savings of approximately $8.4 million and recorded a $1.8 million severance cost charge in the quarter. All told, a really great quarter, and a great year for the business. As Dax mentioned, this year was a transformative one for us, and I'm really encouraged by the positioning of the business in our markets, which brings me to our outlook for fiscal 22. There's reason for plenty of optimism as we look ahead. The trends we are seeing in markets that are reopening, the ongoing benefits of our increased scale, and the tremendous opportunities that still lie ahead in payments and financial services are some of the contributors to this optimism. For the first quarter, we expect to achieve revenue in the range of $90 to $94 million and adjusted EBITDA loss of approximately $10 million. For the full year of fiscal 22, we expect revenues to be in the range of $430 to $450 million with adjusted EBITDA of approximately $30 million loss or 7% of revenue, which has improved from approximately 10% this year. With that, we'd like to open it up for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Jeffery with Truist Securities. Your line is open.