Lightspeed Q4 2020

Thanks Ethan and others for bringing this one to the board - you know who you are.

If Shopify and Coupa had a child, it would be Lightspeed. I ended up taking a bit of a starter position in LSPD, but at first I was a little reluctant because of its acquisition related complexities and its similarities to Shopify. They compete more directly than any two companies I own and even have specific pages on their company websites comparing one against the other.

https://www.lightspeedhq.com/pos/lightspeed-vs-shopify/
https://www.shopify.com/retail/lightspeed-vs-shopify

My favorite thing about Lightspeed is that they are one of only a few things I own that get vaccine tailwinds as opposed to vaccine headwinds. Unlike Shopify, Lightspeed has a particularly heavy focus in restaurants, retail, and hospitality. This is why, as the pandemic wore on, Shopify had its greatest quarter of all time, meanwhile Lightspeed had its worst. One piece of amazing news out of Israel and the UK, is that once they vaccinated 50ish percent of their population, covid dropped precipitously. I suspect (and hope) the U.S. and soon thereafter the rest of the world will have similar results. This will bode extremely well for restaurants, hospitality, and Lightspeed.

Lightspeed has made 3 moderately sized, meaningful acqusitions in the past 5ish months, which adds some complexity to the investment because it means we have to guess more about what revenue numbers are really saying. Guidance is for $70mm in the upcoming quarter vs $57.6mm in the most recent quarter, a projected gain of 21.5% QoQ. This would be fantastic, but we just don’t know how much of it is organic. I am deciding to give them a break in this regard and see how things go, but I don’t think I would be keen to have this be a premier position in my portfolio.

Another negative I will be keeping my eye on is the declining gross margins, which were as high as 65% in q2 of 2019 but now stand at 58%. This is almost as low as Shopify’s, but on a base of revenue that is about 1/10 of what Shopify has.

Acquisition Notes

Shop Keep: cloud based retail and hospitality commerce platform
–Lightspeed finalized the acquisition for consideration of $145.2 million in cash and the issuance of 7,437,397 subordinate voting shares in the capital of Lightspeed
–Has $50mm of revenue in the preceding twelve months.
–$7B LTM GTV from 20k Customer Locations
–closed acquisition on 11/25/2020

Upserve: cloud based restaurant mgmt software company
–generated revenue of approximately $40 million3 for the trailing twelve-month period ending September 30, 2020. Lightspeed acquired Upserve for estimated total consideration of $430 million, consisting of approximately $123 million in net cash and up to 5,895,365 subordinate voting shares in the capital of Lightspeed, subject to customary post-closing adjustments.
–7k customer locations
–$6b LTM GTV
–enhances LSPD analytics, inventory mgmt and workfroce mgmt capabilities
–Searched but could not find when this deal closed. But it is mentioned in the CC that the deal has closed.

Vend: Cloud based retail management software company
–generated revenue of approximately $34 million and GTV3 of more than $7 billion in the trailing twelve month period ending December 31st, 2020.
–Lightspeed will acquire Vend for total estimated consideration of approximately $350 million, satisfied by way of payment on closing of approximately $192.5 million in cash and the issuance of subordinate voting shares in the capital of Lightspeed valued at approximately $157.5 million.
–deal expected to close towards the end of April

LSPD Quarterly Presentation Notes - Q4 2020
–115k customer locations
–$29B LTM Gross Transaction Volume
–In more than 100 countries
–~600k/yr GTV/ customer
–91% recurring software and payments rev as of Q321

What does LSPD’s platform do:
–back office suite - complex workflows, employee and inventory mgmt, product and menu mgmt, booking and membership mgmt, floor & table mgmt, customer mgmt, discounts, price rules & gift cards, reporting, analytics and dashboards, accounting, loyatly and subscriptions, supplier network

–Omni channel reach - engaging customers everywhere: in store cloud POS, eCommerce, Mobile, Curbisde Pickup and delivery, Marketplaces/pltforms, order ahead, API’s

–Payments and financing: lightspeed payments. Lightspeed Capital

Conference Call

Notable customer wins in the quarter included group alkalage with hotel, restaurant and spa properties in Lyon, France; Ski Banff, a legendary Canadian ski resort, where we will be supporting their four existing retail shops with plans for three more to open shortly; and Lan Kwai Fong Group, a household name in Asia with 21 restaurants and hotels in Hong Kong.

Our team’s dedication continues to pay off for our customers and investors in Q3 as Lightspeed on a year-over-year basis delivered revenue growth of 79% (non organic), relocations by 74% (non organic) and expanded GTV by 48%. Although the addition of Upserve and ShopKeep boosted our performance for the quarter, even without their contribution, Lightspeed delivered revenue ahead of our previously established guidance and reached software and payments organic revenue growth of 47% year-over-year, accelerating from the 42% we saw last quarter. We had a very busy quarter, but I want to highlight some key themes.

The continued success of payments, the official launch of our supplier network, the completion and planned integration of our latest acquisitions and finally, a view into what a post-COVID world can look like for Lightspeed. Payments had another stellar quarter with year-over-year revenue up almost four times the levels of the same quarter last year. Adoption of our payments offering among our customer base is growing rapidly, both in terms of the number of customer locations and the proportion of GTV. Payments remains a priority for us, and we expect to have the offering rolled out in all of our key geographies, including the U.K., Australia, Germany, the Netherlands, Belgium and France in calendar 2021.

And although we have seen great success so far, the proportion of our total GTV that flows through payments is still in the single-digit percent range and as such, we have a long runway and sizable opportunity ahead of us. In mid-January, we announced the initial availability of the Lightspeed supplier network. I’m very excited about this initiative. We believe it will revolutionize how SMB’s order and manage inventory interact with their suppliers, populate their ecommerce sites and eventually pay invoices.

The supplier network will eliminate the time-consuming and frustrating experience of managing multiple B2B supplier portals, allow SMBs to more easily discover new products, keep merchants up-to-date on the latest product offerings and inventory levels and allow them to import high resolution images directly from their suppliers onto their own Lightspeed powered ecommerce sites.

In short, for our SMB customers, the supplier network offers a seamless supply chain that will save them time and frustration and hopefully help increase sales through better inventory management and ecommerce capabilities. But the benefits of this initiative are not only limited to our existing customers. In order to create a network effect, we need to offer value to all the participants in this ecosystem. In launch, we had signed over 100 suppliers to the network in key verticals. The motivation for these suppliers to join the network is clear. Not only does it simplify product discovery and ordering for their customers, it also provides them with real-time sell-through data.

The benefits of this data should not be underestimated as suppliers can now see, almost instantly, what products are selling at what prices and where. This data should grant them far superior supply chain agility, ensuring that they are manufacturing the products that consumers are demanding so that they can maximize their revenue and profitability while minimizing working capital requirements. I know many of you have been asking how we plan to monetize this initiative. For now, access to the supplier network is free for our customers, and that is unlikely to change, but it is already having an impact.

For example, it is already helping to generate new customer leads as suppliers are recommending the Lightspeed solution as the system of choice. However, we are also developing plans to further capitalize on this initiative in ways that we believe will minimize the overall cost of sourcing, ordering and paying for products for our SMB customers and their suppliers. Connecting SMBs directly to their suppliers is one-way Lightspeed’s innovative offerings can help level the playing field for our customers, but we also want to help them connect to consumers who spend much of their time searching for products online.

Moving on to our recent acquisitions of ShopKeep and Upserve, now that the acquisitions are complete , the teams are actively integrating into our operations and sharing best practices. As we mentioned before, ShopKeep maintained an advanced capital business, and we are working with that team to help develop the road map for Lightspeed capital. With Upserve, we are actively looking to integrate their advanced hospitality analytics solution into the broader Lightspeed platform.

[Drivers of revenue:]The first is the positive impact from ending lockdowns and allowing consumers to flock back to restaurants, bars and retail. But the second is the ongoing migration of these small businesses from legacy to cloud-based commerce solutions. COVID is highlighting that cloud-based commerce solutions have moved from being a nice to have to an absolute necessity.

Looking at the quarter in more detail, total revenues of 57.6 million were up 79% year-over-year and were 49.3 million (54% YoY organic)when excluding the recent acquisitions of ShopKeep and Upserve. This exceeded our previously issued guidance of 44 million to 47 million.

Software and payments revenue represented 91% of total revenue in the quarter at 52.5 million, which was up 85% year-over-year. Excluding the impact of all acquisitions that were not in the company’s results from a year ago, software and payments revenue grew 47% compared to that same quarter a year ago, an increase from 42% growth reported last quarter.

Adjusted EBITDA loss for the quarter was 6.6 million, compared to $5.2 million loss from a year ago. As a percentage of revenue, EBITDA loss was 11%, a five percentage point improvement from 16% a year ago as we continue to see the leverage of the business model even while investing for growth.

This quarter, we are introducing an adjusted net loss and adjusted net loss per share metric to further align our investor community on a net income loss measure that excludes the impact of acquisition accounting and stock-based compensation, which is largely non-cash in nature.

The adjusted net loss for the quarter was 7.1 million or $0.06 a share, up from a loss of 5.9 million a year ago. You’ll find a summary table of the calculations for both adjusted EBITDA and adjusted net loss in our press release, MD&A and investor presentation on our website.

We ended the quarter very well capitalized with unrestricted cash on hand of over 230 million.

As I mentioned earlier, customer locations grew to 115,000 in total. Excluding ShopKeep and Upserve, our customer locations were almost 84,000 at December 31, up from 80,000 three months earlier. This growth was achieved despite the ongoing impacts of the pandemic and various lockdown restrictions in our markets around the world, and I view this as highly encouraging progress.

Also as mentioned, overall GTV grew 48% versus the same quarter a year ago and 29% when excluding ShopKeep and Upserve. Within this, we continue to see strength from our retail customers, where overall retail GTV grew 41% versus the prior year. Retail GTV was aided by continued success of ecommerce, where GTV was up by approximately 100% versus the prior year.

Last but not least, payments continues to be an outstanding performer for us. We now are processing 15% of US retail GTV with Lightspeed payments and more than 10% of Canadian GTV and retail, with our US restaurant payments business still in early stages. I view this as great progress, but we have so much runway still to go, not only in existing markets, but with Europe and Australia approaching launch later this calendar year.

However, our near-term outlook reflects the realities we are now facing in the core markets where government lockdowns, many of which are as restrictive as they were in the spring, are once again impacting our end markets.

We expect that these lockdowns will increase customer churn, will impact purchase decisions by our prospects and will affect our customers’ transaction volumes. We’ve seen the softness in our hospitality segment continue into January as our customers deal with these government restrictions.

Our outlook also incorporates the seasonal impact in our business. January and February, in particular, are slow months in retail and hospitality even in normal years. And we expect this year to be worsened by the lockdowns around the world. These drivers of lower volumes are a larger portion of the revenue now given the acquisitions of ShopKeep and Upserve, along with our own ongoing success of Lightspeed payments.

So with all that in mind, we expect Q4 revenue in the range of $68 million to $70 million. This represents growth of approximately 90% from a year ago. We expect Q4 EBITDA to be a loss of approximately $12 million to $14 million.

Analyst Q & A
Richard Tse

Yes. Thank you. So as we look on the other side of this pandemic, what would you say is sort of the most locking or most demand of these incremental services you’ve added lately, capital, for instance? I’m kind of just curious to see what the uptake currently is across that base for these services.

JP Chauvet

Yeah. Maybe I’ll start with this one. So I think really, nothing has changed. Overall, we’re hearing a ton of demand for omni-channel. And as we said many times, our customers went from requesting a point solution for their stores and their restaurants and now there’s a ton of demand for omni-channel. The second thing we’re seeing a lot of is payments. We are bundling more and more payments with our software and our core offering. This is creating a lot of demand. And as we’ve launched capital and capital now is ramping up, and we’re seeing a lot of demand for that also.

Richard Tse

Okay. And then, the supplier network sounds like a pretty interesting development. Can you maybe share with us some of that early feedback from the current base? And are you going to be targeting specific markets to start off with? Or are you just going to pretty much try to take it broad across the base here?

JP Chauvet

Yeah. So we’re very bullish about suppliers. We think this is a very big differentiator for us in the market. As you understand, what suppliers enables us to do is to really completely integrate the ordering process and the supply, preparation of the catalogs inside of Lightspeed, and it really creates this incredible flywheel of value between suppliers, stores and consumers. As we - the first test case we had was on bikes, and that proved to be very good for us. And when we look at metrics and data on bikes, what’s interesting is everybody within the ecosystem is recommending Lightspeed.

So it has a really good impact on cost of acquisition and lifetime value of customers. We’re going to - we’ve now launched this as a real product and service. So that means now we can have all of the suppliers within the vertical that makes sense for us fully integrate their catalogs and their supply levels to Lightspeed. And we already have 100 suppliers now on the platform, and we are going to be focusing on the core verticals where Lightspeed has a lot of customers and penetration. And as we go into the year, we’ll be expanding to others, but there’s a few verticals right now that we are focusing on, and those are the verticals where we have the highest concentration.

Raimo Lenschow

Hey, thank you, and congrats from me on these amazing numbers. Can I stay on that supplier network, please, Dax? That - so if you look - I mean, there are some guys out there that have kind of created these networks like Ariba and Coupa more on the cleanup - procurement side. Do I need to think about this like that that you just kind of basically, you centralize all the whole thing? And then, the second question is, like, there was always a big debate about how to how to monetize that, and Ariba and Coupa had like very different views of how to monetize it. How do you think about that? That’s on the supplier side. And then, the second question I had was on the reopening. If you look at Australia and compare the run rate post-COVID versus pre-COVID, has there been any learning, any experience that you can share so far as we’re looking out through this year with vaccinations getting better and everyone else kind of opening up as well? Thank you.

Dax Dasilva

Hi, Raimo, I’ll take the first question and JP will take the second. So regarding supplier network, I think the big advantage here is you have this - your opening discoverability for suppliers’ right within the POS system. So it’s not a separate system, another set of B2B portals. We’re combining all of that functionality directly into Lightspeed and connecting more than 100 suppliers today, and we hope to expand that rapidly in the future. And so it’s an integral part of the system where they’re already managing inventory and they’re already managing their ecommerce assets in site.

So that I think is a huge advantage here. And I think that the big benefit to us is that eventually, that we are going to be the system of choice. Suppliers are already recommending Lightspeed to their independent - to the independent merchants that sell their goods because they’re going - over time, they’ll have aggregate real-time selling data. So there’s benefits for the suppliers, in that regard, there’s benefits for the stores. And of course, the benefit for us is we become the system of choice. And eventually, there will be other opportunities for us to facilitate B2B invoices, etc.

Andrew Jeffrey

Okay, that’s helpful. Thank you. And just as a quick follow-up, obviously, the value proposition that Lightspeed brings is stark compared to legacy providers. I assume there’s still some merchants that are reluctant to do a rip and replace at any time, let alone during a pandemic. Are you seeing any changes in merchants’ willingness to perhaps take the leap and move to a cloud solution? Just sort of culturally in the market have attitudes changed?

JP Chauvet

Yeah, I’ll take this one. So I think it’s a very good question, and I think that’s why we’re very excited about the post-pandemic world. I think we’re seeing quite the opposite. So think about someone who has the legacy system and now the majority of their business, if I’m a restaurant that’s going to be online, it’s going to be through delivery platform, it’s going to be through order ahead. And if you don’t have a platform like Lightspeed, you’re basically stuck with silos and trying to manage a ton of different applications. So the view here is that it’s become way more complex for the traditional platforms to operate. And actually, we are seeing more demand from actually more established vendors who maybe would have never moved and now are looking at this, and they understand that they have to do something about it. So I think that’s why we’re very excited about the next few years because the harsh reality is the majority of the platforms on the market are still legacy systems. They’re completely underserving their merchants. And then, there are platforms like Lightspeed that integrate everything and make it much easier for our customers, and we’re seeing a ton of demand there.

Thanos Moschopoulos
Hi, good morning. In terms of the current weakness you’re seeing in hospitality where there have been more lockdowns, maybe just qualitatively, can you characterize it? Is it similar to what you’re seeing, kind of say, back in April? Or is it any different this time around maybe because of survivorship bias? Have you gone back to implementing any cost containment plans or not this time around?
Brandon Nussey
Yeah. It does - to me, Thanos, it does feel different this time around. Certainly, in-person dining is suffering as hard as it was in March. I think the difference now is our customers have adapted. Those that have taken advantage of things like Order Ahead and home delivery have those business models in play. I think from our standpoint, we feel better instrumented to know what to expect going through this and the things we can do to help customers. Certainly, if you go back to March, April when this first started, there’s a whole lot of uncertainty and unknown. And we do feel differently about it this go around that we have better visibility and know more what to expect, and just by virtue of that, in a position to give the guidance that we gave this quarter.

Thanos Moschopoulos
Okay. And then, with respect to ShopKeep and Upserve, I realize it’s maybe still early days. But now that you’ve owned the assets for a few weeks, can you update us on your thinking as far as the Lightspeed payments opportunity within those customer bases and maybe the time frame for being able to start to capture some of that?
Brandon Nussey
Well under way. It was up near the top of the to-do list, for sure. And teams from both of those businesses are actively working on that rollout now. So we’re optimistic. Those teams have settled in nicely and already driving significant value into Lightspeed, so all good so far.
JP Chauvet
Yeah. And maybe Brandon, just to add, by the end of April, we will have the go-to-market teams fully integrated and focusing on selling one product. And the goal is also by the end of summer, we will have Upserve’s advanced analytics platform fully integrated with our restaurants and with one product going to market in the US, so very happy with the progress there.

Daniel Chan
Yeah. Thanks. Good morning. Just a question on the supplier network, with the Anheuser-Busch relationship, you did announce that they would be devoting some resources to selling your product. Are these new suppliers that you’re onboarding now also committing any resources to this engagement?
JP Chauvet
Yeah. So super excited, it’s all the contracts that we are putting in place in the context of the suppliers are - have exactly the same logic. So as you know, there’s benefits for the suppliers and then there are benefits for the stores. And so the value proposition here is for suppliers to see sell-through. So as soon as you’ve connected your catalogs and your inventory to Lightspeed, what we will do is for the stores that are ordering directly in Lightspeed, we will give you the sell-through, which is very unique in small business. And vice versa, we enable all of the stores to actually see - have visibility on inventory levels at the supplier. And that whole relationship is really around basically suppliers and stores promoting Lightspeed within their network.

Daniel Chan
Okay and then, Brandon, one for you. Your guidance for next quarter suggests that EBITDA margin comes off. Can you just give some color on that?
Brandon Nussey
Yeah. It’s really just a couple of things. One, as you heard from our comments, it’s a seasonally down quarter. And with an increasing portion of the revenues coming through payments, especially with the addition of ShopKeep and Upserve now onboard as well, you kind of take a seasonally lower quarter on transaction volumes against largely fixed cost base that is a technology company, and that’s one contributor, just a sequential change. Secondly, the integration of ShopKeep and Upserve, we are expecting a slight downward impact in this first quarter, again, mainly due to the seasonal nature of that - those businesses, which is very comparable to our own. The last thing, though not a very main thing, is piece of the FX environment isn’t helping us at the moment. It’s not too, too big in the grand scheme things, but that’s also playing a role in it.

Josh Beck
Thank you for taking the question. I also wanted to ask about the supplier network. Obviously, really unique that you have a B2C software and payments business, and now you’re certainly getting more into the B2B realm. So I’m just kind of curious like what’s the time frame that we should be thinking about? When I think about to when you went public and you started to embark on Lightspeed payments, you, obviously, have given us a lot of color and updates since then, but it was certainly a journey. I mean, is this a multiyear initiative? And what milestones should we be really focused on? Certainly, the size of the supplier network, you gave us an update, which I think is a really important indicator. But just what other metrics should we be focused on in the coming quarters and years tied to this initiative?

JP Chauvet
Okay, great question. So it is a journey. It’s a bit - it’s like payments. But I think maybe I’ll try and share our mindset with the steps and where we see this heading. So I think Step No. 1 for us, and this was listening to our customers actually, we need to make it easier for a customer to order directly through the supplier network. The harsh reality in small businesses is everything is pen and paper, there’s a lot of back and forth, it’s manual, it’s inefficient, and it’s also inefficient for the supplier. So step one for us was to make automation possible within the network, within the software and go vertical by vertical to try and go inside of the verticals where we have a lot of penetrations.

And here, there’s really two advantages. We see one is operational efficiencies for our stores. And the other advantage is really for the suppliers having visibility on sell-through and helping them adjust manufacturing so that we can get to a model that’s fully integrated. So here, what you can expect in the coming quarters is expect to see more and more verticals where we have concentration, where we’ll just be onboarding more and more suppliers within the platform and with the goal of efficiency. I think one - so that’s one track.

The second track in our mind is payments. Lightspeed payments right now - we’re using Lightspeed payments from store to consumer, we should be using Lightspeed payments from store to supplier. And this means that when - once they select the items they want to order, once they’ve had visibility on the stock and the inventory levels at the supplier and once they’ve passed the order, we expect them to use Lightspeed payments to actually pay for that order.

And then, for us, the value here is we monetize both ways, and we monetize on the sell side, but also on the buy side. And then, I think as we go into all of this, I think the last piece for us is, think about all the acquisitions we’ve done, and we acquire normally companies that have basically sourced within the same verticals as Lightspeed, we want to make all of this available to all of the stores within the network. And here, you can imagine that as, I don’t know, we put all these - you put ShopKeep and Lightspeed together in the US, there’s a ton of commonalities in the verticals where we both operate. And I think there, we can gain concentration.

And then, I think the last piece for us is really to look at commerce at large and figure out how we’re going to use data to actually help suppliers identify new stores that should be selling their supplies that are not selling their supplies. And here, you can think about this with us looking at the data, analyzing the data and really fingerprinting suppliers to stores by looking at commonalities of inventory and outliers that should be sold by those stores. So I think for us, it’s a journey. It’s a very exciting journey, and it’s just the first step.

But I think when you think about this, once you’re in the core of all of this and you’re providing value to the entire flywheel from suppliers to stores to consumers, you really become a very sticky platform. And I think the last piece is think about cost of acquisition and lifetime value. As soon as you have the network and you have the entire ecosystem promoting Lightspeed, the cost of acquisition goes down and lifetime value goes up. So it’s a journey, but we are very excited about the journey. And really excited that the product is finally out, and we can bring it to market.

Josh Beck
Thanks for sharing those thoughts, JP, super helpful. A follow-up for you Brandon, on the payments opportunity, you have the very helpful slide that shows the adoption and some of the geos and verticals. Certainly seems to be going in the right direction. I’m just kind of curious once we think about what this is going to look like maybe after we’ve incorporated ShopKeep and Upserve, which I believe have higher ARPUs in part because they’ve been successful at payments, if we should be expecting it to kick up? Or just curious on how the incorporation of those companies will impact these dynamics?

Brandon Nussey
Yeah, for sure, will tick up the Upserve business in particular; the vast majority of their customers were using Upserve payments as kind of they have a really nice elegant solution that embeds payments right into the product itself. ShopKeep, they were further along as well on the payments journey from a customer adoption perspective, though as we’ve talked about, largely through a referral model, but a good percentage of their customers do use a payment solution there. And as we talked about earlier, the teams are working hard to move those or to build the infrastructure to make sure that Lightspeed payments is available to those customers. So all told, we expect those things to really positively impact our overall penetration at a global level. And of course, that’s core to what we’re trying to do around here is to make sure that the vast majority of our customers worldwide take payments. So all these things, I think, are helpful.

Timothy Chiodo
Great, thanks a lot. And just since you mentioned it, just a quick follow-up on capital, are there any metrics you can share around just average loan sizes or repeat rates or any metrics? I know it’s very early, but anything you might be able to share.
Brandon Nussey
So with stripe, loans are up to $100,000. We’re largely sitting on top of their infrastructure, I think, as you know still early days, so certainly too early to be measuring repeat rates and that sort of thing. Average loan size is, obviously, a lot less than that $100,000 number, but that is the offer right now. ShopKeep, Dax mentioned in the call, ShopKeep had a much more advanced capital product than we did as well, and we’ve started to leverage now their expertise. They pressed pause a little bit at the onset of COVID here and ramping that back up now. So we’ll have some more things to share there, I think, as we learn from their experience, and we can start to share some of the metrics we’re seeing there. But suffice it to say, they were at it a couple of years ahead of us in terms of this offering and had some really nice returns and really nice success with it, which gives us optimism for the overall business.

Todd Coupland
Yes, good morning, everyone. I wanted to ask about competition. A number of cloud players seem to have gained some stable footing during the second half of 2020. And I’m just wondering if you see any risk of pressure on pricing, whether subscription rates or payments rates? Or is it still features and functionality of omni-channel supplier network and that kind of thing that’s driving decisions? Could you just talk about the landscape in the last six months? Thanks a lot.
JP Chauvet
Yeah. I’ll take this one. In all transparency, I think we’ve never had a better model. So we don’t feel pressure from competitors. We - if you look at our organic, if you look at our close rates, if you look at the ARPU, we’re not feeling that pressure. We’re actually seeing more and more customers wanting to buy a full package from one vendor versus buying from multiple vendors. We see our customers wanting solutions like ours because they need to integrate all of the delivery networks on the restaurant front, and they need to have true omni-channel when you think about physical retailers with multi-location support. So I think the offering is very strong. And I think that the market is stronger than it’s ever been, and we do not feel any pressure right now on pricing for many of our competitors.

Q - Paul Treiber
Thanks so much, and good morning. I was just hoping could you bridge between the strong growth in revenues this quarter? I think excluding ShopKeep and Upserve, it was up 53% and then GTV, also on an organic basis. And is the faster growth of revenue - is it predominantly due to payments and perhaps additional software modules that’s driving the stronger growth there?
Brandon Nussey
Yes. So you kind of have to deconstruct that a little bit. So within the GTV and some of these were in my prepared comments, I think they’re - you’ll find them in the press release as well, retail had a wonderful quarter, up 41% year-over-year. Within that, ecommerce volumes up 100% year-over-year.
Overall GTV organic growth dragged down, though, by hospitality, which was down 19% organically. And so that’s what’s happening inside of GTV. And when you convert that into revenue, as you’ll see in the payments kind of penetration slide, most of our payments revenue comes from our retail space right now. So we’re sort of benefiting on the payments uptake, primarily through retail, which is performing exceptionally well. And on the hospitality side, it drags down GTV, but really doesn’t have a huge impact on revenue until we kind of look at the additions of Upserve, which is going to be a next quarter thing more than this quarter thing as they wrestle with the impact of lockdowns. Makes sense?

ExponentialDave: Worth repeating that hospitality, a large portion of Lightspeed’s business, was down 19% organically YoY. I think it’s important to think of how different the revenue numbers will look when hospitality starts to organically grow similar to the rest of LSPD’s business.

Paul Treiber
Yeah. No, that’s helpful and connects the dots there. When you look at longer term in those two segments of retail versus hospitality, should the correlation between revenue and GTV over time align? Or do you think that they’ll always be fairly independent of each other?
Brandon Nussey
No, it will start to align. We’re just - we launched in US retail for payments first. Canadian retail is the second market we launched mainly because that’s where the majority of our own GTV was. So we are just newer into the hospitality space with payments. I think we launched it kind of, I don’t know, maybe March of this past year. And of course, that hospitality segment has been dealing with some things all year long. So once we get back to a more normalized environment, we’re going to see hospitality uptake of payments rival or exceed, I think, retail, and those things will start to align.

Tien-Tsin Huang
Thanks so much, really great results. I wanted to ask on the location growth being very, very strong. How broad-based was the location strength? Any additional color you can share on where you were positively surprised? Are there, say, geographically or vertically or by size or type of client? Same question on attrition, too, if you have anything to share there.
Brandon Nussey
So retail, we continue to do really, really well in retail right now. It’s - the omni-channel solution, I think is resonating really well and retail really been a great performer despite even the challenging overall environment in that space. Europe has had a tougher go of late just because of the lockdowns in Europe have been fairly strict and firm, and that tends to mute the new customer adds. And we shone a light on Australia as just having a wonderful quarter as they’ve kind of emerged a little more quickly from this virus situation, I suppose, and we saw really good performance there. The last area we wanted to highlight where we’re seeing just really, really strong momentum and kudos to the Lightspeed team behind all this is the golf segment. We’re seeing triple-digit revenues almost in that - growth in that space right now as golf has kind of had a rejuvenated experience globally, I suppose. And as golf courses around the world look to upgrade their own infrastructure, we’re really benefiting right now.

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The gross margins have kept me out. Would be interested to hear bulls’ case for why this shouldn’t matter.

Swift…
No position.

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Swift… payment / transaction revenues have lower gross margins…

Look at TWLO, SHOP and SQ, they are all much lower gross margins than a typical SaaS business… LSPD has some of those characteristics…

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As Nilvest said, payments are lower margin so over time as payment penetration increases that will pressure the gross margins somewhat.

There are also a few short term things at play. In their last call they said they were giving some people payments at cost to help their customers during the pandemic. They were also working with some customers on their subscription fees to help get them through the pandemic.

Ultimately though here is what I would say.

LSPD has done relatively well during the most difficult time in history for their customers. Restaurants, hospitality and mom and pop retail were demolished over the last year and yet the worst LSPD ever did was had their gross margins drop a little and have a couple quarters of flat sequential growth. During the darkest of times, shutdowns, etc lightspeed at the very worst looked at least OK. They have rolled out lots of features for no additional cost to keep their customers alive as well as work with their customers on pricing all of which impacted margins and growth. I’m looking forward to what they look like when their customers are kicking butt because people want to travel, eat out, and shop in person.

-e

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ethan1234:

how is their business distributed geographically? are they doing business mostly in the US?

They are a Canadian based outfit and Canada has been shutting down again due to another COVID wave. Of course in the longer run that would also ease but you were talking about short terms challenges…

tj

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tj asked: “how is their business distributed geographically? are they doing business mostly in the US?”

Although they are based in Canada, the largest portion of their revenue comes from the US and they are in >100 countries total.

From the 2020 Annual Report:

Foreign currency
Our presentation and functional currency is the U.S. dollar. We derive the largest portion of our revenues in U.S. dollars and a smaller proportion of our expenses in U.S. dollars. Our head office and a significant portion of our employees are located in Montréal, Canada, along with additional presence in Europe and Australia, and as such, a significant amount of our expenses are incurred in Canadian dollars and Euros with a smaller proportion of expenses incurred in Australian dollars, GBP, and Swiss Francs. As a result, our results of operations will be adversely impacted by a decrease in the value of the U.S. dollar relative to these currencies but primarily the Canadian dollar or the Euro. See the “Risk Factors” section of our most recent Annual Information Form, which can be found on SEDAR at www.sedar.com, for a discussion on exchange rate fluctuations.

From their latest Q2 Investor Presentation:

59% of customer location count is in North America
41% in Europe and rest of World

Daws (long LSPD 3%)

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I’ve been reading up on the Restaurant Revitalization Fund, which was part of the $1.9 Trillion America Rescue Plan Act (e.g. the COVID bill), and is a new stimulus that is going to provide $28.6 Billion of grants to restaurants that were impacted by the pandemic

https://restaurant.org/downloads/pdfs/advocacy/understanding…

I could hopefully see a lot of Lightspeed’s restaurant customers using some of the funds they receive to upgrade their POS system (or switch to LSPD’s products) and make other improvements that will increase business, and hopefully boost LSPD’s restaurant business.

This application to apply for the funds is not yet even available, so this $28 Billion won’t start to circulate for at least a few more weeks/months. Hopefully it gets to the restaurants that need it right when business is ready to pick up.

Sounds like another positive reason to believe that Ligthtspeed will do really well as cities and economies get more and more open and closer to normal later this year and into 2022.

-mekong

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