Lightspeed Commerce Inc. Subordinate Voting Shares

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.

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 at those recently acquired companies? Yeah. Thanks. Thanks for the question. It's all good news. You know, we're quite pleased with the, our ability to get this done at the pace we got it done and what this amendment does is most importantly allows to achieve better economics but uh 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 and uh at a good pace this year alongside what we do with the rest of the Bladespeed's core business. So this really kind of opens the door to let that happen. Okay. Looking forward to seeing that. And I think encouraging comments too on customer acquisition cost. Can you provide an update on what LTV to CAT looks like today and or what the break-even time by cohort is? It sounds like that's improving pretty nicely. Yeah, it is. I think it all starts with some of the ARPU stats that we gave. We're seeing that grow 50% year over year, which is pretty core to the thesis. We just think there's a lot more economics to capture per customer. That, of course, leads into an ever-improving LTV to CAC ratio for us, which has been also pretty fundamental to the model. We're really, really encouraged by what we're seeing in terms of leverage. Sales and marketing as a percentage of revenue has come 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 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 for the overall business with an eye to long-term, this being a really profitable business. I appreciate it.

Thank you.

Your next question is from Danielle Chen with TD Securities. Your line is open.

Oh, 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 regions, the reopening? 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? Sorry about that. Very quickly, sorry, I don't want to lose too much time. But, you know, we've seen, when you look at our business, e-commerce continues to be very strong. So we've seen growth year over year, you know, at about 100%. Retail, physical brick and mortar has rebounded, and we've seen, you know, 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 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 here, now we're seeing the reopening, we're just 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 payment transactions? Slightly better online. Not overly materially different, but we do get slightly better online. And then just one final one 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 in the U.S.? Thanks. Early, early days, Daniel. So more to say in the future on that. But, yeah, we're optimistic that will be a great market for us. It's just really early on at the moment.

Our next question is from Raimo Rancho in Barclays. Your line is open.

Thanks for squeezing me in. Last quarter you talked about Australia as an example for a region, 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 then if you look at March being the strongest quarter, was that kind of pinned up the mound 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, we're starting to see 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 in a lot of demand for our products.

Thank you. And then if you think about it, you had the strongest new customer quarter you mentioned a month in March. Do you think that's a pent-up demand, or is it just like an idea of what's going to come? Thank you.

I think it's the result of Lightning having a good offering for the market and the result 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, yeah, 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 Tana from Tecopolis. 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 LIC payments, or you now pay back to those customers? Do you confirm that?

Yeah, 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 reflected. And our intention is to obviously not just with payments, but with everything we do is to get all of these customers on to Lightspeed core offerings. But recognizing that that was going to take some time, what we did was approach payments partners and say, look, we've got this infrastructure. We're happy to take on more of the obligation historically had been. 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. It just allows us better customer control. It got us better economics, which is really important. And we were able to do it all at a much quicker pace than we otherwise would have. So, does that make sense?

Yeah, but to clarify then, that means that maybe over the next year, there could be further upside in economics as you actually move some of those customers to full lifetime payments? Is that the takeaway? Yes.

Yeah. 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 for Vend, but just in terms of the prior acquisitions, what remains to be done to get everything on a cloud platform?

Yeah, so I think we're highly encouraged by what we're seeing on the hospitality convergence of platforms. You know, we've got our flagship product now, you know, being sold in EMEA, internally we call it K-Series, and that will be making its way to the U.S. by summer. But, you know, we also have amazing assets, analytics from UpServe, you know, other functionality around inventory management for restaurants from Counta that will all make it to the reference platform. So on the hospitality side where, you know, things are really rolling and we expect to have an extremely competitive product worldwide this year. On the retail side, retail e-com 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 ShopKey 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 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.

Yeah, local inventory ads, which is Google, that's one part of our integration with Google, will show a consumer where they can buy that item nearby. You know, 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.

Oh, 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 giving the ability for someone who's spending an ad online at google to actually measure the real return on investment in physical sales and i think that's that's really exciting and and that's again the value of our platform in the cloud is we can now do this that makes 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 ad that you bring in, do you feel like there's a notable shift up market taking place, or maybe that's just more natural evolution that you've seen in the types of customers you're bringing up?

I think we've seen this since the beginning. So, you know, we started, we had a lot of single locations, and then we had multi-locations. And what we've seen over 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 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 results of that strategy that are paying off now.

Really good to hear. Thanks, Dean.

Your next question is from Tim Teito with Credit Suisse, the Alliance Open.

Great. Good morning. Thanks for taking the question. I want to dig in a little bit on the location ad because 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, 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 mixed 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?

Yeah, so I think, so we haven't seen an evolution in the blend. So we've always had kind of a, you know, give or take the same blend of, you know, new creations, people creating new concepts versus switchers. So we have this logic of starters and switchers, and, you know, the blend hasn't changed. However, what we've seen is that, you know, 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 demand goes back the other side, where there's a lot of demand for physical platforms and actually for new concepts. So I think, for me, what we're seeing is, as markets reopen, the blends – 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, oh, these are only people developing new versus twitchers. 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 demands. 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 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 ISB rev share business that's more legacy for you guys, and then maybe in some of the acquired properties as well, I understand there's some non-solicit agreements in there and there's sort of a time frame where you can't maybe approach all of those customers as quickly as you would like and maybe put a little bit of a governor, but that should be opening up at some point. And maybe you 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. 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 with that you're signing a non-solicit. These contracts also will have terms on them that will expire at various points. So And, of course, 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. 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 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 with National Advanced Financial. The line is open.

Yes. Oh, thank you. On the shopkeep and up-serve 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 operating prowess to sort of recognize that opportunity post those acquisitions that led to those amendments? I think it's all of those things. You know, if you think about how this naturally would play out, you know, A partner of those businesses who, you know, now it gets to deal with a much larger entity where, you know, the greater opportunity is aggregating all these things together. So that creates, you know, opportunity for them slash leverage for us. And then the conversation then ensues into, you know, what's important to Lightspeed, what's important to our customers. How can we do this in a way that, you know, puts our joint customer at the forefront? And, you know, because we have the infrastructure and we've become, you know, a trusted entity in the processing relationships, you know, those partners are willing to, you know, help us in that regard and help our customers in that regard. So I think it's I think it starts with scale where, you know, we have a much more compelling opportunity for these partners. And then from there, you know, just our capabilities and our infrastructure allow that conversation or allow that conversation to progress pretty quickly, which allowed us to, you know, 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 subscription revenue of up to 10%, and it's tied into sort of the supplier network, which sounds like it's actually a bit more, increasingly more meaningful, especially with that sort of connection to 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?

I'll take this one. The way we look at it is the supplier network is a module. It's 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 suppliers, 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 that 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 give to suppliers to see what is the real sell-through at the store level, and vice versa, the ability we give to stores to order directly from suppliers and see inventory levels at 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 in.

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 we've been progressing a lot within the key industries, but there's still a lot to do.

Okay, great. Thank you. Richard, just to clarify one thing, maybe I misheard it, 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 Traber with RBC Capital. Your line is open.

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

Yeah, I think the basic inventory ads called LEIA, local inventory ads, that is a part of the light food retail offering. And that is... that will 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 calculated that 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 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 retail or big box econ 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.

Ultimately, if the merchant is doing well, there's a lot of transaction volume, and that's how we get the payback. Our goal, again, is to just get all of our customers to be more successful than the average when they're on the live feed platform.

That makes sense. Is there 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, you know, I think we've gone from, you know, helping a business manage and operate a store, you know, to interfacing with consumer. And now I think we're driving traffic to the consumer. And so I think that this is a big partnership that shows what Lightspeed can do at scale, which is partner with the largest companies. you know, 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, you know, 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 Dyer with Morgan Family. 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'd agree in any context for what's driving that. At this point, are those acquired 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, certainly what we see in UpServe and Shell Keep as well, is just the benefits of the reopening. If you think about UpServe's business in particular, we've seen the GPV growth, which in turn turns into payments revenue for that business, Coincident with the reopening in the U.S. Gave some stats, 10% up March over February, further 14% up in April over March. And that's been really encouraging. I think the whole hospitality segment of our business, in which up serves the beneficiary, is showing signs of good life as we go through the reopening. in all of our markets. That's what led to some of the outstanding numbers we saw in March. So I think that's a 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, you know, the things that they can do in the long run with light speed. And I think that's helping overall as well. But I'd say the primary factor has just 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 the strategy looking forward is the same in the past and really focusing, 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 at Lightspeed, Shirel. And then if you look at Shopkeep, Shopkeep's fully integrated also with Lightspeed, and Mike Simone 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, you know, to upsell and also to cross-sell when customers are outgrowing the platforms we've acquired. So... and and even you know the cfo of shopkeep now is in charge of like the capital so i think we're we're a good company at 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 i think we will continue to be active with m a um 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 omni-channel, which is key. We think about suppliers. But I think you can expect active M&A, but not within the same category that we've had in the last few years.

Thank you.

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

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

Certainly the up-serve 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 to market in North America. So that customer base is a little bit different. But with UpServe, yeah, 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? Yep. Yeah. Yeah. The question was on Lightspeed Capital. We didn't talk too much about it today. Could you just give an update and what we should expect in the coming fiscal year?

Yeah, I'd say more encouraging signs there. You know, we've rekindled what was the Shopkeep Capital product. JP mentioned the former CFO of the Shopkeep business has been – has been helping to, uh, to drive that for us. So we're seeing, um, lots of encouraging signs. We're seeing lots of good momentum. Um, and, uh, if anything, our optimism is brighter than ever on that, on that product line. Um, as we head into this fiscal year, it's still early, you know, it's still not a huge, uh, huge contributor. Um, but, um, from what we're seeing both with our, um, the rekindling of the ShopKey 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, 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 Tianjin Wang from JP Morgan. The line is open.

Hey, thanks so much. I'll keep it quick. I'm curious, did you give what the VEND revenue contribution would be for fiscal 22?

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... Happy to start with that. And just my quick follow-up. It's just the gross profit contribution from the payment contract change. I think you said $7 million in revenue, Brendan, so what's the gross profit impact from that, just to help us understand the P&L impact?

Yeah, we didn't give a specific number there, but it was, you know, 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, Gus.

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

Okay, everyone. 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 Even Now Disconnected.