Lightspeed Commerce Inc. Subordinate Voting Shares

on your telephone keypad. If you would like to withdraw your question, again, press the star 1 key. Thank you. Gus Pappagiorno, Head of Investor Relations. You may begin your conference.

Thank you, Operator, and good morning, everyone. Welcome to NiceBeats Fiscal Q3 2022 Conference Call. Joining me today are Dax De Silva, Lightspeed's founder and executive chair, J.P. Chauvet, our newly appointed CEO, and Brandon Nessie, chief financial officer. After prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts, and projections contained in these statements. We undertake no obligation to update these statements except as required by law. You should carefully review these factors, assumptions, risks, and uncertainties in our earnings press release issued yesterday, our third quarter 2022 results presentation available on our website, 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 from similar key performance indicators used by other companies. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. Before I turn it over to Dax, I want to take this opportunity to remind everyone that Lightspeed will be hosting a webcast to highlight the release of its flagship Lightspeed restaurant offering. The webcast will take place on Tuesday, February 8th at 12.30 p.m. Eastern Time. Please go to the events and presentations section of our IR site to register. With that, I will now turn the call over to Dax.

Thanks, Gus. Good morning, everyone, and thank you for joining us today. I'm sure most of you have seen the press releases from last night announcing both the earnings for the quarter and changes amongst the senior executive leadership team. I was pleased that Lightspeed was again able to deliver results ahead of our previously established outlook with strong organic growth. With regards to changes in the executive leadership team, I will be assuming the newly created role of executive chair and focusing my time setting strategic priorities for the company at the board level and will be directly responsible for all ESG and DEI initiatives. JP Chauvet, my longtime colleague and friend, has been appointed CEO. JP joined Lightspeed in 2012 as its chief revenue officer. He became a board member in 2016 and was promoted to the role of president in April of 2016. JP has driven the company's M&A strategy, was instrumental for our listings on both the Toronto and New York stock exchanges, and led the launch of the highly successful Lightspeed Payments offering. His vision and focus on execution have helped Lightspeed transform from a regional PO provider to a global commerce platform, integrating suppliers, merchants, and consumers. As Lightspeed continues to execute on its mission and recognize its full potential, I can think of no one more qualified than JP to lead the company. Given JP has assumed more and more responsibility during his tenure at Lightspeed, this is a natural progression, and I expect a seamless transition. As Executive Chair, I will remain very involved in Lightspeed's future direction, ensuring the company remains the commerce platform of choice for businesses everywhere, as well as a preferred employer for the world's top talent. On that note, I would like to take this opportunity to publicly welcome our two new board members, Natalie Gaveau and Dale Murray. Both women are distinguished leaders from the technology sector and possess extensive board experience. Ms. Gaveau was a co-founder of one of the largest e-commerce marketplaces in Europe, and Ms. Murray co-founded Omega Logic. Both bring international experience that will be very valuable for the company. I look forward to working with both Natalie and Dale in the months and years ahead. And with that, I will pass it over to JP.

Thank you, Dax. Before I begin, I just want to thank you and our board for entrusting me with the position of CEO. Lightspeed has been my home for the past nine years, and it has been both an honor and a thrill to help you build this company into the player that it is today. I joined Lightspeed because I believe in the company mission. which is to help entrepreneurs all over the world operate and grow their businesses. But I believe strongly that what we do matters because it allows our customers to recognize their ambitions, invest in their communities, provide employment, support their families, and deliver local flavor and color to their neighborhoods and cities. Lightspeed is a mission-driven company, and it will remain so under my tenure. Before we discuss this quarter, I wanted to provide a framework for how I view the company and outline my goals over the coming years. I think it's very important to stress that Lightspeed is a software company first and foremost. Yes, payments is an important revenue stream, but payments is there to enhance the value of our core software offering, not replace it. Our customers do not come to us because our payment software. They come to us because our software allows them to better manage their inventory, reach their customers, simplify their operations, and grow their businesses. And this software provides value. I'm sure many of you saw our press release from last month, which highlighted the fact that light-speed retailers in the U.S. grew same-store GTV at nearly twice the rate of industry sales growth. I know some companies are willing to give away their software in order to win the payments business. We do not believe in that model. Maintaining a superior software offering will allow our customers to be more prosperous, increase the value they derive from MySpeed, and in turn, allow us to deliver strong margins and growth to our investors. Industry-leading software capabilities will remain an absolute priority for this company. Whether that is accomplished through internal development or acquisition is a matter of tactics, and both avenues will remain viable alternatives. In terms of my goals over the next few years, I want to highlight four key objectives. Growth, people, product, and profitability. On growth, I want to provide confidence to our shareholders that like these growth prospects remain very strong. At our capital market day in November of last year, we highlighted that we believe the company can grow 35% to 40% organically a year, and we remain committed to that goal. We maintain hundreds of thousands of customer locations in a market of millions where dated legacy systems hold the highest market share. We've grown software ARPU every year that I've been with OneSpeed and plan to continue to do so. And finally, our payments offering is still very much in its early stages, despite the tremendous growth we've experienced over the last two to three years. I believe that increasing our customer location, expanding software RP, and growing our payments volume should continue to provide growth for several years to come. But in addition to this, something we have not fully contemplated in our 35% to 40% organic growth There's a potential contribution of our supplier network initiative. We are still in the early stages here, and we will be making announcements through the course of this year. When we deliver on this initiative, I believe both our competitive position and growth prospects will only improve. In terms of our people, I believe Lightspeed maintains the most talented and committed employees in the industry. We hire people who want to make a difference. Our people are highly dedicated because they believe in the mission of this company. Many of the people we hire come directly from the hospitality and retail industries and understand the challenges our customers face. As CEO, I want to maintain our high-performance culture and ensure that LightSeed is seen as an employer of choice. Moving on to product, I believe I've stressed this point in the past, but I will reiterate it. Lightspeed is not a consolidator. Every acquisition we have undertaken is for a very specific purpose, and every single one will be integrated into one Lightspeed product offering and brand. Recently, we launched our flagship hospitality offering, Lightspeed Restaurant. Later this year, we will launch the latest version of Lightspeed Retail. By the end of this calendar year, we expect to be in market with two core offerings. LightSeed restaurants and LightSeed retail under one LightSeed brand. We will continue to support customers on acquired platforms for the foreseeable future that are providing ample incentives for them to migrate to the latest and greatest release. With two core offerings that maintain a highly integrated payments offering, LightSeed should become even more competitive in the market, see an enhanced ability to increase software output and benefit from more simplified and cost-effective operations. But going beyond even this, our supplier network initiative is very exciting for this company. We believe that we are in a unique situation to bring merchants, suppliers, brands, and consumers closer together and improve the retail experience for all constituents. Our goal is to provide small and medium-sized merchants with a level of supply chain visibility and control that they have never experienced before. to give suppliers and brands real-time market insights that allow them to increase sales while reducing inventory levels and ultimately provide consumers with a more satisfying retail experience. We have a very powerful vision for our product roadmap and are in a unique position to revolutionize this industry, and my goal will be to ensure we execute on this vision. Finally, we know the market is interested in our profitability. I want to stress that I will continue to invest in the business and growth remains our top priority. However, given our increasing sales and strong, improving unit economics, the path to profitability is becoming more apparent. I want to ensure investors that reaching profitability remains a priority and I will continue to provide greater clarity on that front in the coming quarters. I will let Brandon discuss the quarter, but wanted to make a couple of general comments. Despite some headwinds from the Omicron variant late in the quarter, Lightspeed had another strong quarter. Revenues were up 165% year-over-year, and both revenues and adjusted EBITDA were ahead of street expectations and previously established outlook. We saw strong organic software and transaction-based growth of 74% in the quarter. Payments volume increased 304% over the same quarter last year, and GTV was strong with organic GTV growth at 53%. We announced that the iconic Canadian retailer The Bay has partnered with Lightspeed to perform its in-house buying and merchandising. This customer was secured through new order by Lightspeed. Although large retailers like The Bay are not Lightspeed's core target customer, their adoption of our supplier platform illustrates the power of this tool. Maintaining these large retailers as customers only encourages more and more brands to come onto the platform, which then makes our platform even more attractive for our SMB customers. We continue to see momentum amongst other larger retailers as well, some of which we are not aware of right now and are working diligently to roll out our supplier network to our core verticals over the next year. And although we were happy to announce the Bay as a customer, our focus will remain on targeting small, medium-sized businesses. We continue to see momentum as long as that core base. Some notable wins in the retail includes Bondworth, a 49-location women's apparel chain in the U.S. that is using Lightspeed retail and payments. Rocks Discount Business, with 26 locations in Texas, taking on Lightspeed retail, analytics, loyalty, and Allure Intimate Apparel with seven locations in Wisconsin that adopted Lightbeak retail, e-commerce, accounting, and payments. In hospitality, we were happy to sign Guerrilla Cinemas in Cincinnati, six immersive cinemas and bar locations, Oco Hotels in France with nine locations, Fearless Restaurant with ten locations in Philadelphia, which took on our hospitality solution with payments, Hof van Cleve, a three-mission-star restaurant in Belgium that has maintained its rating for 17 years, and Hotel Suki in Paris that will be using Lightspeed hospitality solution and payments. In the quarter, we saw some very strong activity from mid-market customers. These customers generally have multiple locations, five-plus, and GTV in the millions. Their operations tend to be larger and more mature, and they're also less prone to churn. they are also more likely to have a broader suite of solutions from Lightspeed. As a result, they tend to have a superior lifetime value as a customer. I think the success we are seeing in this segment is evident that Lightspeed's solution is engineered for more complex businesses, which is exactly our target market. As we continue to show momentum in the mid-market, I believe this will show through in our financial performance. To wrap it up, I'd like to once again convey my gratitude for this opportunity to lead Lightspeed on the next leg of its journey. It's my view that Lightspeed has never been better positioned than it is today, and I couldn't be more excited to take on this challenge. And with this, I will pass it on to Brandon.

Thanks, JP. It was another strong quarter from the business. We were able to deliver $153 million in revenue, head of our guidance of 140 to 145 million, with software and transaction-based revenue up 74% from last year on a organic basis, and total revenue up 165% overall. Customers continued to show their resilience. Their positive outcomes probe our good results today as these businesses overcame supply chain disruptions and another wave of the global pandemic. So despite our caution on the macro environment as we entered the quarter, the business and our business model were able to deliver some great results. The diversity of our customer base and our multiple growth levers continue to serve us well. That our business can continue to deliver organic growth at this level, given the various challenges we have faced, speaks well to our long-term potential. As an overall note, you'll see in our press release issued today, that we have broken out the impact of ECWID on the quarterly results, given the timing of that acquisition and the different characteristics of their business versus our core. We trust you'll find this incremental disclosure helpful in tracking your progress. I'll speak to the overall ECWID business later. Looking at customer locations, we now serve approximately 315,000 customer locations around the world. including approximately 156,000 online businesses served by Equin. When excluding these, our locations grew from almost 115,000 a year ago to over 159,000 at December 31st. We provided a split of these locations in our press release issued today. We continued to see good demand for our retail offering in the quarter, which provided strong organic growth. We also saw improvements in Australia and New Zealand after pandemic lockdowns affected that region last quarter. And while not a significant contributor to customer locations overall, we had a very successful quarter in our B2B supplier business, citing a number of strategic accounts such as the Bay. However, we did see hospitality, particularly in Europe. of a challenging month of December as the effects of Omicron began to impact our selling activities in that region. As we've learned through past waves, we expect this to be a temporary impact and not something long-term in nature. So looking now at payments in GTV, our transaction-based revenue was $76 million in the quarter, up 249% from a year ago. This was driven by ongoing customer adoption of our payment solutions, where we act as principal, and another strong quarter of volumes processed by our customers using those payment solutions. Very clearly, this part of our business model continues to produce outstanding results for us. The customer locations that use them increased 195% as compared to a year ago. In an aggregate, our payment solutions processed over 300% greater payments volumes than we had a year ago at this time. I view this as outstanding progress. The payment volume processed by our solutions was $2.2 billion and a quarter up from $0.6 billion a year ago. Despite the macro factors regarding supply chain challenges and Omicron surges, our customers drove strong volumes and in turn drove great revenue for us. Our overall revenue GTV in the quarter was approximately $19.8 billion, excluding the contribution from Equid's customers, and $20.4 billion with the Equid customer base. Please recall that our GTV does not include the B2B volume handled by our supplier solutions and represents only the B2C volumes. As we look deeper at GTV, overall growth in GTV was 124%. On an organic basis, GTV grew 53%. Retail GTV grew by 115%, and on an organic basis was up 36% year over year. Hospitality GTV grew by 137%, and up 79% on an organic basis. We were encouraged by how our customers using our solutions were able to overcome the macro factors that gave us caution at the start of the quarter. While we are seeing growth moderate in some of our high-flying verticals during COVID, such as bike and home and garden, we are now seeing growth pick up in other verticals that are helping to offset. As we look at payments, we remain optimistic. We have payment solutions that cover the majority of our customer base. We have a growing GTV base and customer uptake, and volumes on our payment solutions remain strong. We continue to make significant progress in our established payments markets in North America, and remain confident we'll see that continue to grow. We are now seeing early signs of success in new international markets, giving us confidence that we'll see these new markets adopt a solution at an increasing rate. We ended the last month of the quarter processing approximately 12% of our global GTV with our payment solutions, double where we were a year ago. This is impressive given that our total GTV has grown up by 124% in that same period on the back of organic growth and new sources of GTV from our acquisitions. We believe that dynamic of expanding payments penetration into a growing base of GTV sets up significant future potential here. Our ARPU in the quarter was approximately $290, excluding ECWD, up from approximately $180 a year ago. This was driven by ongoing growth in our software ARPU and continued progress with payments. Excluding ECWD, software ARPU was $130 in the quarter from $110 a year ago. Non-IFRS gross profit followed this growth. It was up 132% year over year. This is a good indicator of the success of our business model. All in all, our revenue rose to $153 million in the quarter. Software and payments revenue was $144.4 million and grew by 74% organically and 175% overall. Of this $144.4 million, $68.6 million came by way of subscription software revenues. and $75.9 million came by way of our transaction-based revenue stream. As mentioned earlier, our revenue growth was driven by continued growth in customers and adoption of our payment solutions. And in addition, we saw continued strong results from the B&B side of the business through our new order acquisition, which successfully added significant customer wins with the Bay and many top-tier fashion brands and suppliers. As contemplated in our guidance given for the quarter, We were also successful in securing a contract with one of our payments processing partners that provided us improved net take rates on future volumes and also resulted in recognition of approximately 5.5 million of revenue for the quarter on account of past volumes. This successful outcome is another indicator of the benefits of our increasing hardware and other revenue made up the remainder of revenue and was $8.2 million. As you'll see in our financial disclosures, our hardware gross margins were negative again this quarter as we've been using discounts on hardware as an incentive to drive new customer wins, mainly in the hospitality space. We'll continue to monitor the ROI of this incentive, which is early in its life cycle. Transitioning down the income statement now, our gross margin for the quarter was 52% as compared to 58% a year ago. The shift is driven by success of our payment solutions, which carry a lower gross margin and the hardware incentives I previously mentioned. This trend is not concerning nor unanticipated and, in fact, is encouraging. The stronger the success of our payments rollout, the more gross profit dollars per customer location we earn. Higher gross profit per customer location is what leads to leverage in the business model in the long term. We're already seeing that in our model as evidenced by sales and marketing as a percentage of revenue falling from 49% to 36% over the past year. So while gross margin percent may fall with the ongoing rollout and success of payments, we're focused on the expanded gross profit dollars we earn for customer location. Last note on margins, we've always felt that scale matters in this business. Scale and the resulting brand recognition affects our ability to attract new customers and prospects, and scale influences the spread we take home on our payments offerings. Should processing volumes increase, we expect to be able to realize improved gross margins over time on payment solutions, and many of our existing contracts are already structured to achieve this. And finally then, adjusted EBITDA loss of the quarter was $7 million, ahead of our guidance of $10 and $12 million. This represents approximately 5% of our revenue. Looking now at our balance sheet, we ended the quarter with just under $1 billion in cash on hand. Our cash used in operations in the quarter was $48 million, and when excluding cash used in acquisition-related activities, transaction-based costs, and other items that was disclosed in our filings, Adjusted cash used in operations was $37 million. This increased from $7.3 million used in Q2 and from $20 million used in Q3 of last year, due primarily to timing of working capital items that were atypically large in the quarter. The larger items here relate to our D&O insurance renewal, pre-purchases of inventory to combat the constraints in the supply chain, A $5 million deposit paid to our Lightspeed capital partner as part of an agreement to significantly improve our margins earned on our capital offering and an increase in our receivables balance due to timing of certain cash receipts. So looking at ECWID more closely, during the quarter we closed our acquisition of ECWID. While ECWID allows us to deliver a more complete omni-channel experience for our customers, The stand-alone business does have different characteristics from our traditional core. Ecwid's customer count was approximately 156,000 at December 31st, representing the total customer count of paying customers and has an ARPU well below the rest of our customer base. This reflects the broad diversity of customers the business has served as a horizontal e-commerce solution provider. Our focus going forward will be on driving strong revenue growth and delivering a no-compromise, omnichannel solution to our customers. The integration of the product into Lightspeed core platforms, along with the integration of Lightspeed to the Eckward e-commerce solution is well underway. With that said, we'll be less focused on growing the Eckward store count as a progress measure, instead focused on driving the solution into our existing base and our core verticals. Should we prove successful, we will achieve revenue growth in line with our overall targeted levels with a customer mix and customer count that is potentially different from what the equity business has today. I'll wrap now with our updated guidance. Based on the good results today, we are updating our annual guidance to 540 to 544 million in revenue, from $520 to $535 million in guidance we provided last quarter. This implies Q4 revenue in the range of $138 to $142 million and would represent organic growth above our long-term target of 35% to 40%. As a reminder, our Q4 is affected by seasonality and transaction-related, which now represents approximately 50% of our total revenue. whereby our fourth quarter is our seasonally lowest quarter of the year. We also remain cautious and mindful of the ongoing impacts of Omicron across the various global markets we serve, which is affecting consumer activity in many regions. We expect that impact to be temporary and not indicative of long-term potential. We expect full-year adjusted EBITDA loss of approximately $45 million, or 8% of revenue, and is in line with our guidance from last quarter. This implies Q4 adjusted EBITDA loss in the range of approximately $20 million. This loss reflects the impact of our seasonally slower revenue in Q4 and the increased selling and marketing costs as we close out our fiscal year. Looking beyond next quarter, we remain confident that we'll continue to meet our stated organic growth targets of 35% to 40%, and will continue to realize lower adjusted EBITDA losses as a percentage of revenue on the year-over-year basis. As JP mentioned, driving a path to profitability in the near term is a priority for us. And with that, we'll turn it back to the operator for your questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Dan Perlin from RBC. Your line is open.

Thanks. Good morning, everyone, and good quarter. I wanted to ask a question around kind of what you're seeing and hearing, you know, within the SMB space. And I don't necessarily mean micro. I mean really sizable SMBs with more complex environments because what we've heard thus far from kind of our companies and maybe some other channels is that they're having a slower start to the year. And we're also seeing, you know, kind of the non-app consumers, I think, also starting a little bit more difficult. So I'm wondering if there's anything you can tell us about trends that you're seeing maybe more recently, you know, let's say in January, that would shed some light on that view.

Good morning. I'll take it, JP, answering. Look, I think the first thing when we think about the trend is, you know, we went into this quarter, you know, concerned about side chain issues and we see the lift, you know, the traditional kind of call it Christmas period lift. And we're very excited to see that actually we did have, you know, growth in GTV that was very strong. And we did see kind of your similar patterns with the past. So that's good news. That means that our merchants were not affected by supply chain. And we did see the traditional goals, you know, where we are strong like bikes and outdoors go down in the quarter, which is normal. So I think for us right now where we stand is, We don't see any trend that is not in line with the traditional. Now, every year, of course, January, February, March are the lowest months for GTV for our customers. And what we're seeing for now is very much in line with the expectations, nothing less, nothing more. Okay.

And then just a quick follow-up, if I could, on – kind of the payments rate. So as that gets calculated in the quarter, it looks kind of flattered sequentially. I know you called out December was up 12%. But I often feel like, you know, there's certain dynamics around your GTV growth, which, Brendan, I think you kind of called out a little bit. So maybe, if you wouldn't mind, we just get a lot of questions on this. Can you talk about the dynamic there, and maybe in particular around hospitality? Because I think that grew much faster than the overall company. And I forget where that is in terms of payment penetration. Thanks.

Yeah, for sure. So, you know, just a reminder on some of the stats we just recited, you know, on a year-over-year basis, we're seeing close to 200% more active customers using payments. Those customers processed about 300% more volumes on a year-over-year basis, and all that drove to about a 250% increase in revenue for us on a year-over-year basis. So this continues to go really well. GTV, as we mentioned, has also been a growing thing. We view that as a positive. Our organic growth in GTV was better than 50% in the quarter and up 100 and some odd percent overall. Some of that, of course, comes by way of M&A and the fact that we've been able to double our penetration rate year over year. Despite that M&A coming in, we view as very positive overall. Ultimately, if we're growing our payments, penetration at the same time as we're growing GTV. That's a pretty good long-term formula for us, so we think that's all good news. Penetration rate for us, we've always viewed this metric as being more of a potential indicator, where the potential can go for this solution. I think what we're seeing on a quarter-to-quarter penetration rate calculation, some of the anomalies, Dan, that you're getting at, I mentioned M&A. You know, we had Venn a couple quarters ago. That goes into the denominator. We don't yet have a solution there. So that, of course, impacts things. Just even the absence of the virus on a quarter-to-quarter basis. You know, some quarters where hospitality is contracting, other quarters like this one where hospitality is up 79% year-over-year organically and based on Our varying penetration rates in some of these segments in some of these countries, that's what you're also seeing on a quarterly measure basis. And then finally, JP also mentioned the seasonality aspects we deal with. Some of our strong verticals like bike and home and garden, our golf courses, those are segments where we have a lot of market share. We do a lot of payments processing. And as they go through seasonally different periods as we go through the year, that penetration rate is going to fluctuate quarter to quarter. So that's why we think of this as being more of a long-term potential measure as opposed to a quarterly performance measure. Ultimately, at the end of the day, performance is showing up in active customers, volumes, and revenue. And I think we are seeing really good stats across all of those. We'll continue to penetrate payments, no doubt, as we look into the future. But the quarter-to-quarter measures, there's a lot of puts and takes happening, given what's going on in the macro environment overall. Yeah, understood.

Can you be clear on the payment volume?

Sorry, go ahead, JP. Yeah, just maybe wanted to add, so net-net, we're very happy with the progress. We're incredibly thrilled that we are growing by 304% year-over-year. And maybe one other dimension to add is, you know, we've launched Europe and we've launched Australia on light-speed payments, and the motions there were very satisfied with the results.

That's great. I just wanted to make sure that the KPI of payment volumes is going to be consistently reported. I think it's a great thing to report.

And we will do that then, yeah.

Your next question comes from a line of Andrew Jeffrey from Truist Securities. Your line is open.

Hi, good morning. Appreciate you taking the question. Congratulations, JP. Look forward to working with you going forward. Brandon, I'm getting a lot of questions just on the organic calculation, and certainly the equity disclosure is helpful. Can you maybe parse out a little bit, The performance, I think, specifically of shopkeep and up serve versus prior quarters is trying to understand what those businesses contributed revenue wise this quarter and how generally they're performing. And I guess sort of as an adjunct, is there any COVID impact we should be thinking about in those businesses specifically, you know, in terms of their performance this quarter and then looking out in the future?

Yeah, so we record our organic growth rate, software on payments revenue, up 74% year over year. So you can quite simply take last year's software on payments revenue, grow it by 74%, and come to our organic measure on revenue. That includes VANDEC with a new order, of course. Those acquisitions happened recently. partway through this cycle, and it includes a stub period for ShopKeep and UpServe because they came into our mix partway through our Q3 of last year. Overall, in terms of how those businesses are performing, they're two very different contributors, I think, overall. UpServe We bought them in the midst of, you know, some of the depths of COVID, and we always felt like that business had a lot of potential to bounce back as transaction volumes bounced back. So we're seeing that play out in our results for sure, you know, the upserved business and transaction volumes. have performed really, really well for us. We're quite happy with those. We've also been able to leverage a lot of the technology from Observe into our flagship hospitality offering that you hear from JP as well. Shopkeep, a different situation there. Shopkeep, when we acquired the business, the idea there was bring on the customers, bring some additional payments list to that customer base, and then redirect sales and marketing into our flagship product. And we've been quite happy with the progress there as well. But all in all, those results are reflected in our organic calc or excluded, depending on which way you're approaching that question. Our organic is purely organic, excluding the period we did not own the businesses from the prior quarter. Okay.

Yeah, I appreciate the disclosure. It just seemed like maybe there was a little bit of volatility, especially in the upserve and shopkeep pieces this quarter. So maybe we can talk about that offline. Then I guess as a follow-up, in terms of locations, excluding ECWID, you talk about sales productivity. Location growth has slowed a little bit here, queue on queue. I'm just wondering how much that is.

perhaps some businesses that are offline because of covet or if there's anything else we need to be thinking about in that figure well yes i'll take that one i mean of course uh you know omicron hit uh uh you know in the quarter but i think ultimately um here you know churn performs very well at light speed and i think for us we're not that obsessed by locations and i you know i know i say this every every quarter but we could onboard many more locations of customers that would churn within a year. And I think as we move along, the obsession is really around added MRR. And I think another way to say this is I would rather have fewer customers with a higher MRR than more customers with lower MRR because they're going to be more established, less prone to churn, and more prone to take multiple solutions from large speed. So I think here, as we go forward, of course, locations matter. But what matters is to bring on really good customers that do not churn, and that will be with us forever. And so I think that's the effect. And that's why when you look at ARPU, you look at ARPU growth, and you look at our churn numbers, they really reflect the fact that Lightspeed is working with more established vendors, and we actually like that. So I think that's how we look at the business. That's how we'll be looking at the business going forward. Really here in our mind is what is the added MRR and, you know, what is the ARPU of the added MRR, and also observing what is going to be the churn of those customers within year one, year two, year three, and really optimizing the business for the long term. Okay. Super helpful. Thanks.

Appreciate it.

Your next question comes from the line of Tim Shadow from Credit Suisse. Your line is open.

Hey, thanks a lot for taking my question. I want to stick with the locations, and I fully appreciate what you're saying, JP. We just want to get down some of the mechanics. I was actually hoping, Brandon, maybe you could help me on this. I know that in the past we've talked about in Q1 there were roughly 10,000 organic location ads, but a little bit of that was a boost from some of the reactivations that you saw. And then last quarter, there were roughly 3,000 or so, but it was impacted negatively from some temporary deactivations. In this quarter, it's roughly 3,000 organic location addition number. Maybe you could just talk about the deactivation-reactivation dynamic, how that played out, how that worked into the 3K. And I guess what we're really trying to get at is, you know, what was the underlying gross ad trend, the churn, et cetera. But the deactivation-reactivation would be very helpful.

Yeah, JP mentioned a little bit of this. Churn, we actually saw a pretty positive quarter overall for churn. So nothing by way of deactivation out of the norm. In fact, it was one of our better quarters for churn. So in terms of gross location ads, a little bit of a mixed bag there. I mentioned on the call we saw Retail do well for us. You know, we're encouraged. We saw Australia and New Zealand begin its bounce back. Really what affected the gross location ads in the quarter was just Omicron affecting certain markets, namely in December. So that was a little bit of a headwind for us. JP also mentioned, you know, our increasing focus on making sure that the types of customers we're bringing on are the types of customers that drive good long-term LTV. So a little bit of a mixed thing happening as well, but I think the biggest notable thing was December was affected by Omicron, mainly in our hospitality business, mainly in Europe.

Okay. I follow you, Brandon. Thank you. I fully appreciate your prepared comments. You You referenced that that would have impacted, I guess, implied gross ads. Okay. Related to this, I just want to shift a little bit to the recent hiring of some of the feet on the street sales teams, the job postings that are available in many major markets. Maybe you could just talk a little bit about this strategy change and what it might mean for LTV to CAC, if anything, and how that progress of hiring those salespeople is going.

I'll take that one, JP, here again. Look, first of all, the company is obsessed around LTV over TAC, and on every cohort we look at it and we ensure that the unit economics are very strong, and they have to be north of 4 to be very strong at light speed. And so here, very simply put, because we're attaching more and more customers on payments as we bring them in, This gives us more room to spend on acquiring those customers. And so I think, generally speaking, in the markets where we have very strong attachment payments, so historically North America and now Europe and Australia, we now have this tactic of saying, okay, well, we can spend more to get those customers, which should grow our revenues long-term. And so I think here, going back to the previous question, we're not trying to get customers at all costs. We're trying to get the right customers that have a high enough R2 that will not churn and that will be really good long-term customers for Lightspeed. Now, talking about foot on the ground, what's happened in the U.S. is, you know, we've launched our U.S. Lightspeed restaurant solution, which is our new product. We have a strong belief that that is the best product in the industry. I would invite everybody to just look at the interface and how beautiful this thing is. But now, with that in mind, and knowing that we are going to attract higher GTV customers that have a higher lifetime value, we are putting in place a blended model. And the blended model is we will still use marketing, and we know how to do this better than anyone, we will still use marketing to drive the leads to our website. We'll still use internal sales to qualify those leads. But when those leads are qualified, we will then hand them off to field sales reps in the major cities in the US so that these reps can now go in person and meet the customer in person and create a much better experience. And again, why are we doing this? Because we can now afford it. We can keep very strong unit economics of having people with foot on the ground. And we're hoping that's going to be a really good strategy to accelerate. So it's still early days. It's going well. We've hired a proper handful of people now. Ultimately, the company is getting ready for the full launch of Lightspeed Hospitality, which will be at the end of this fiscal year. So at the end of this quarter, we'll be going out of beta and we'll be going in full-fledged in public releases, and that's when we want to have everybody on the ground trained and ready to just accelerate our penetration in hospitality in the U.S.

Excellent. Thank you so much, JP and Brendan.

Your next question comes from the line of Daniel Chan from TD Securities. Your line is open.

Hi, good morning. Brandon, do you have a view of when you'll reach breakeven? I'm just trying to get color on some milestones as you move towards that 20% target you set out here yesterday.

It's a priority, Dan. Specific timelines we haven't given yet. We will provide our annual guidance in our upcoming quarter

um i'll have to leave it okay that's fair and then you've also got a billion dollars of cash on the balance sheet given that valuations have contracted significantly what's your view on acquisitions at this point

Yeah, I'll take this. I think, look, we've been very active. So we acquired, what, seven companies in a year and a half, something like that. We are now really obsessed around execution. You know, we have a very strong strategy with regards to our supplier network. We have a very strong strategy with regards to one light speed brand and ensuring that we have one product globally for each industry. That's really the focus of the business right now. Of course, if we see, you know, And, you know, we've always said there are companies we love, there are companies we don't care about in the industry. If we see that some of the companies we love and which we have incredible relationships, you know, are on the market and there's opportunity, we'll look at it at that time. But for now, the obsession is path to profitability, sustained growth, and really one life speed, which is launching all these products globally. Okay, thank you.

Your next question comes from the line of Thanos Miskopoulos from BMO Capital Markets. Your line is open. Hi, good morning, and congrats, Dax and JP, on your new roles. Brandon, maybe just to clarify on the 35% to 40% growth targets, I know you're not providing formal 23 guidance at this stage, but is it safe to assume that that's the level of growth that you'd use achievable for 23?

Yeah, we made that comment in our prepared remarks as we look beyond the upcoming quarter and into the future. As we sit here today, we remain confident that we can continue to achieve those. Great, just clarifying that point.

And just going back to the current business trends in January, you talked about the GTV and the normal seasonal trends. What about churn? I mean, I imagine there's been some uptick with Omicron. And in terms of software, are there any discounting that you're doing on the back of that, or is that more than steady?

Yes, churn is in line with the expectations. It's always obviously a quarter with higher churn at the end of the fiscal year. And as you know, most of our churn is likely business failure, like most players in the SMB space. But nothing out of the norm.

Great. Finally on attach rates, can you just comment on what you're experiencing in Europe and Australia? I mean, do those continue to trend up now post-launch along the trajectory that you saw in North America, or has there been a different dynamic in those geographies?

So on the sales motion, attach rates are arguably better than when we launched in the U.S., and we're getting very close to similar attach rates, so we're very happy with the sales motion. As you know, when you launch payments in a region, it starts with a sales motion, and then your customers start coming in, and then you need to ignite them. So, you need to get them to the terminal, and you need to be sure to – and that's really been the big focus right now, is to getting all these customers that want to buy from us, that have signed the contract, active. And another maybe point that we could share is, nobody wants to change terminals during the holiday season. the very, you know, it's a season where they make most of their revenues. So we're now in, you know, in the phase where all of these very strong sales are going to convert into GTD.

So location penetration, Ray, could probably be tracking somewhere above GTD penetration. Is that fair?

Yeah. Well, no, what we did say, Thanos, is 195% increase in active customers' attainments. And, yeah, so it is tracking quite nicely with the overall revenue.

Great. I'll pass the line. Thank you. Our next question comes from the line of Josh Baer from Morgan Stanley. Your line is open.

Great. Thanks for the question. I wanted to ask around the plan for getting customers over to the single restaurant flagship platform and then eventually retail once those generally available. Just as far as timeline for doing so, what kind of lift, like what does it entail? Will it be a seamless migration? Should we expect an increase in professional services or support costs? If you could just talk about that transition plan.

I mean, it's in our DNA. We've done that a number of times. We've evolved customers throughout the years onto different platforms. So we have onboarding teams that are very acquainted to doing this. For us, the goal here is to first of all, provide the best platform in the world. So as an example, our new hospitality now has been launched in many countries. We need to launch it everywhere. And then once that's launched, what we do is we have all of our account management teams and onboarding teams that put together promotions to support the customers. And really the reality of this is customers go from a single-point solution to a platform that does way more. So as an example, our new hospitality has analytics that nobody else has, and actually in any of the competitors in terms of analytics that we can provide to hospitality. So there's enough hooks. that the customers are going to be, you know, willing to move. And then it's just a question for us of converting them. It's not a question of weeks or months. It's really a question of days to get customers ported over. And we're very acquainted to doing this because we've done it many times before.

Got it. That's helpful. And then in thinking about that move to a single platform, can you talk through some of the impacts that we should expect to COGS and to OPEX lines?

Yep, the more we can integrate and the more quickly we can integrate, the more leverage we see on those operating lines. A lot of work's already happened on that respect. We are showing improvements year over year in terms of business model leverage. But, yep, the more we can do and consolidate infrastructure, consolidate development resources and everything, obviously has a lot of ongoing leverage for us. Great, thank you.

Your next question comes from the line of Richard C. from National Bank Financial. Your line is open.

Yeah, thanks. You commented on sort of the amendment to the revenue sharing contracts and payments. My guess is that it was primarily due to volume. What do you think the upside is to renegotiate those contracts as you bring on further volumes?

Tough to give you a precise number there, Richard. I think this is an ongoing exercise. We've done this actually a couple of times now, at least since we became public. I think it's overall great news. We've always said that scale is particularly important to this part of our business. We're finding these partners hungry to work with us, given the scale we're building and the progress we're making. And that puts us in a good position to continue to, you know, improve net take rates for us over time. You know, tough for me to give you a precise number though, Richard, other than, you know, we expect to make this a part of our ongoing way of doing business looking forward.

Right. Okay. And, JP, in your prepared remarks, you talked about supporting some of the acquired platforms as you convert them to Lightspeed. How long do you think it will take to have those conversions entirely complete?

And, you know, supporting a platform versus developing new functionality, I mean, you know, there's no comparable in terms of resources. So what we've done immediately after all these acquisitions is we've taken at least 80% of all the developers that were working on all these desperate, disparate platforms, sorry, and we've brought them to our core platform. And that's why and that's how we can get to so much progress so rapidly with our core platform. So, in other words, the business models that remain are extremely profitable because most of the resources now ported onto the new platforms. And with 20% of the developers and then all of the customers paying a monthly fee, it makes those platforms very profitable. So, I think that's the first comment. The second comment is, What we do is core to our customers' business. This isn't ERP. What we offer is not just a glorified cash register. What we offer as a platform is the ERP of the restaurant of the store that manages everything for them. So we cannot force customers to move on to a new platform. We have to go with their rhythm. And so that's why we made the first move to be sure that whatever the rhythm they want to take, it's a very profitable venture. So I think the third comment I'm going to take is it's going to take a couple of years before we can get all the customers onto one platform. is that the maintenance of those platforms doesn't require a lot of resources. We want to ensure that the core platforms, the new platforms, are the best out there so that they can attract as many new customers as possible, and they can also attract as many existing customers to be ported as possible. So we're building a lot of functionality on the new platforms that are not available on the old ones so that customers are inclined to move over. Okay, great. Thanks for that detail, Kyle.

Just a quick last one for me. When you look at sort of metrics like ARPU, just like you disclosed this quarter, given that would come to sort of a lower relative ARPU, how do you plan on reporting those metrics going forward here?

We'll continue to break out what we can, Richard, you know, being transparent on how some of these trends Different business types affect the overall results. We think it's important for our stakeholders. So we'll continue to try and be transparent and helpful in all that. We do think it's important that you continue to track our underlying progress on ARPU. It's an important part of our business strategy, and we do think it's important that you can continue to track our progress there.

Okay, thank you.

Next question comes from the line of Josh Beck from KBCM. Your line is open.

Thank you. I just wanted to say congrats to Dax and JP on the new roles. Very exciting. I wanted to ask about what you've learned with this hospitality platform launch. Obviously, you've gotten very far and you're just about out of beta, but just curious what you've learned and kind of how that's going to impact the retail omni-channel launch and how we should think about the timing there.

Well, look, I think bottom line, we're very excited, very happy with the progress. I think for me this proves that these acquisitions were the right moves. I mean, we've managed to completely relaunch a product within a very short amount of time, and we've seen tremendous success. So Europe is now launched, and incredible success in Europe. And now we're starting to launch this in the U.S. We're in line with where we want it to be. And as I said, we're really getting the teams ready for a full launch. Again, it's not the first time that we bring a product to the U.S. It's not the first time that we launch a new product to the market. So I think we're very well oiled, and everything is very much in line with what we're expecting. I think the last thing we've learned is that our product has real advantages compared to the market. And happy to walk you through those on the one-on-one. But we're very excited about the product, and we feel really strongly about how competitive this is going to be.

Excellent. And a follow-up question, you know, really about the long-term growth algorithm, the 35% to 40%. If I listen to a lot of the commentary on the call, it certainly seems like you're focused on really MRR quality. It certainly seems like, you know, investing in CAC. So, you know, is the – you know, location growth in the mid-teens type of range the right metric? Or, you know, is there a chance that could be augmented and replaced with more ARPU growth? Just kind of curious on some of the puts and takes around the long-term algorithm.

Yeah, I'll start, Brendan, and then you can jump in. Look, I think for me it's very simple. I mean, we are a business. The way we need to run this business is being sure that we have a strong network organic growth and a strong top line growth and that we you know we get to profitability so with this in mind we're going to use all the tech we have and all the you know all the know-how we have in acquiring leads and closing leads to ensure that we optimize throughput that's that's ultimately what this business is around and and so i think that's really going to be the obsession and when we when we look at the drivers of growth they're very simple we are more and more competitive so we should see very strong input of customers and I don't know the count, but they're going to be good customers that have good long-term value for Lightspeed. The second thing we're very sure about is ARPU of software alone is going to continue to grow because we have a ton of modules and our customers buy more from us over time. And then the third thing we're certain about is that the launch of light-speed payments has been a tremendous success, and now we have it available, and we're going to have it completely available in every region by the end of this fiscal year, and that's going to be a huge driver of growth also for top line and bottom line. So that's how we look at it, and that's why we're really bullish about the business today, and we're very, yeah, I mean, we're very comfortable around this 35% to 40% growth long term.

Thank you.

And that is all the time we have for questions. I will turn the call back over to Mr. Papachiojo for closing remarks.

Okay. Thanks, everyone, for joining us today. I just want to remind everybody there are quite a few questions on Lightspeed Restaurant. We will be having a webcast next week on Tuesday at 1230. We'll be going through that platform, and JP will be joining us for a Q&A session at the end. So I look forward to hosting everybody then. Thanks for joining us again today. If there's any follow-up questions, please feel free to reach out to Investor Relations. Thanks, everyone, and have a good day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.