Hello and welcome. My name is Clarke Jeffries, Senior Research Analyst here at Piper Sandler. Very pleased to be joined by JD Saint-Martin, President of Lightspeed. Thank you for coming to Nashville.
Yeah, thank you for having me.
Yeah, absolutely. So maybe we can just, you know, start with some level set. What is, you know, let's go through an overview of Lightspeed and the merchant platform for maybe someone who's not familiar with the company. What are you all about?
Cool. Yeah, I'll give you the Lightspeed world tour. So the company was founded in 2005 . We provide a commerce platform to 100,000 of retailers, restaurant operators, and golf courses. We went public in 2019 . As you can pick up from my accent, we're based out of Montreal, so it started with the TSX, followed by the New York Stock Exchange. At the time of going public, the company was doing about a 100 million in run rate. This year we're well on track to do 1.1 billion, powering about 90 billion in GTV across our platform. So yeah, it's been quite the journey.
Yeah, quite the journey.
Yeah, retail, hospitality being our big segments. I would say our retail business is heavily skewed towards North America. Our hospitality business is skewed towards Europe, Continental Europe, U.K., Australia, and New Zealand. We're in North America as well, but I mean, the bulk of our business is international there. Yeah, started as a point-of-sale provider. Moving to a commerce platform meant expanding our offering, not just from a software perspective, but also from a financial service perspective. Payments is a big story on our journey.
Mm-hmm.
Lightspeed Payments, that is, today is a product that we sell in tandem with our software solution. We've also started to provide capital merchant cash advance to our merchants. It's a nascent part of our business, but growing handsomely and, you know, solid profitability coming from that as well. In the early years, after the IPO, the story was growth, growth, growth, growth. Now more balanced, profitable growth, so happy to say that last year was the first year we were adjusted EBITDA positive. This year, we're well on our way to continue to double down on that. Guided, $45 million and beyond for this year, and then as the years progress, more to come.
Mm-hmm. Yeah, perfect. In terms of this space and, you know, a merchant platform, you know, what are the main factors that a customer goes through when they decide to change? You know-
Yeah
like, what are they experiencing with their existing platform? What do they get by moving to something like Lightspeed?
Yeah. So if you compare us relative to our peers, people come to Lightspeed because they have sophisticated problems to solve. So in retail specifically, we do really well in high SKU density segments. So our customers have thousands of SKUs. They typically operate in verticals where you start physical first and, you know, you potentially also wanna sell online, but the bulk of your revenue comes from your physical locations. So these are verticals like bikes, sports and outdoors, home and garden, multi-brand apparel, vape and smoke, jewelry, pets, golf. That's where we do really well. And they use our software to power their business. It's really the backbone of their business, so they generate more revenue, they reduce their costs, it streamlines their operations. In hospitality, the theme is similar.
Our customers are more sophisticated restaurants, more complex workflows, so fine dining, high-end fine dining, table side kind of workflows, so table service, hotels that have a restaurant and require a PMS integration. And that's really where we shine as well. Now, if you look at where they're coming from, there's still a lot of legacy solution out there.
Mm-hmm.
So a lot of our customers come from on-prem legacy solutions that, surprisingly, are still the market leaders in a lot of the segments that we operate in. We also see a lot of customers come our way that have outgrown the competition.
Mm-hmm.
You know, a lot of our competitors are broad and shallow. They don't go deep into a lot of functionality per vertical, so they outgrow that, they come to us. And then we still see a lot of business formation as well, even in this macro environment, and they leapfrog a lot of the simpler solutions to come straight to Lightspeed. So in the spectrum of SMB, I would say we're closer to the M, let's say, than-
Mm-hmm
than the S or the-
Yeah
the micro merchants that you would see on a Square or a Clover-
Yeah
terminal.
Makes a lot of sense. Let's dive into the Unified Payments. You know, the past year, the company has been very focused on the Unified Payments initiative. Could you maybe review what that program was?
Yeah.
What? You know, for a long time there was a payments, you know, revenue opportunity, but what caused the push forward or the pull forward of focusing on that? And what were some of the trade-offs that came with the Unified Payments program?
Yeah. So you know, if we take a step back and kind of reflecting on the journey I just talked about, we were a point-of-sale solution, first and foremost. And part of the story when we went public in 2019 was to broaden our offering, hence the commerce name, Lightspeed Commerce. And payments was the first thing we wanted to really hone in on. So we've been working on Lightspeed Payments since 2019. And last fiscal year, we got to a point where, you know, up until then, payments was optional. So you'd, you know, buy our software solution, you'd have the option to take payments, but you weren't forced to, you weren't mandated to do that.
We moved to bundling it, unifying it, and offering it as a platform, so you take both software and payments, both for net new customers coming our way, as well as our existing customers. So our existing customers prior to that would use our point of sale or other software solutions that we provided, but then would use payments on a standalone basis, not integrated, which leads to all sorts of issues, as you can imagine. Or they were using a third-party provider that has a basic integration, but even there, the integration wasn't top-notch. So we said to our existing customers, you now have to use both in tandem, and beyond the fact that it's an obvious choice for your business, it makes your, you know, it makes your operations that much better. We provided incentives for our customers to do that.
You know, our match or beat kind of a policy around whatever provider they have today, we'll at least match their rate, if not beat it. If they have a contract, we'll buy them out from their contract. We will provide free terminals to replace their existing payment terminal. We'll provide free onboarding, whether if it's virtual or even in some cases, we'd go on site to make sure, 'cause it's a daunting task.
Mm.
You know, payments is important. It can go down, so just making sure that we go down on site to set that up for them, and yeah, so far it's been very successful, so we've been rolling this out across our cohorts of customers, very methodical, you know, in each of our regions, each of our verticals. When we started the program, about 19% of our overall GTV was powered by Lightspeed Payments. You know, last quarter, that jumped to 36%, and will continue to accelerate in the coming quarters. We announced by the end of the year, we'll be at 40%-45%, and you might ask, why not 100%?
Mm-hmm.
So maybe just to provide a bit of context there. When I say payment penetration, it's relative to our overall volume. So that includes cash transactions, that includes transactions settled by checks, you know, tenders that are not necessarily digital. Of course, the trend is our friend, i.e., culturally, people are, you know, moving to credit cards more and more.
Mm
across the globe, but there are still some cash transactions and check transactions, and so on. Also, there are verticals at Lightspeed where we still cannot offer Lightspeed Payments, so for example, in retail, vape and smoke, high risk-
Yeah
industries. We use partners, but Lightspeed Payments is not a solution that we can underwrite here. There are still, like, a long tail of countries, like we're in a hundred countries, you know, very small cohorts of customers, but we're in Brunei, we're in Malta, we're in Curaçao, we're in all these random countries, and there we don't necessarily have Lightspeed Payments available. So the cap, in theory today, that we can address is about 60% of our back book, so still a ton of upside from here onwards. Then the remaining 40% will be as we kind of open up new markets, open up new segments, or the cash transactions continue to trend in favor of card transactions.
60% of the remaining penetration that is not being touched?
60% of the total GTV-
Okay.
is addressable for Lightspeed Payments.
Mm-hmm.
We're at 36 as of last quarter. We're, you know, trending well on our way to ultimately that cap of 60.
Mm-hmm.
Then from that point onwards, it's gonna be maybe a slower adoption because then that becomes a question of opening new markets or, you know, cultural trends kind of-
Yeah
trending in the right way.
Perfect.
Yeah.
So that's a great overview of the payments space and it kind of, you know, advances the point that some of my future questions don't need to be answered. You have already gone there. But let's talk about now, we are going through a period of pivoting back-
Yeah
and thinking about subscription as now the sort of go-to-market emphasis. You know, why now? And sort of what was the calculus in moving back, if maybe you could have pushed longer for that payments initiative? Sort of why, why go back to subscription, and what was the calculus there?
Yeah. So if you look at our go-to-market motions, and we can maybe leave our new business motion as far as how we acquire new locations aside for a second. For our existing business account management motion, that AM motion historically has always sold software and payments. Like, they would be assigned a book of business, and they'd cross-sell and upsell all the tools and solutions that we have under, you know, under our umbrella. And if you think of our AM motion from a subscription perspective, new software bookings, about 50% always came from our AM motion, kind of a land and expand motion.
Mm-hmm.
And then 50%.
New customers
came from new customers. Exactly. Now, obviously, when we decided to do Unified Payments, there was a significant back book of customers that we had to migrate to Lightspeed Payments. We said temporarily, for a period of time, we will be focusing our effort to moving those customers over to payments. That will naturally be at the detriment, short term only, of upselling software. So it was always meant to be a period in time that, you know, would be about 18 months or so, because as we go through this program, at some point, you get to a point where you've spoken to everyone, and you've moved them to payments, provided you're able to do that. So either you're a monthly customer paying month to month, then that is very straightforward.
For annual customers, we have customers that are on annual contracts. We have to wait-
Yeah
for the contract to lapse. We're entering kind of that seasonality now, where you know, annual customers are coming up for renewal. And then we also had in pockets in our of our portfolio, some non-solicits, because historically, we had-
Partners
partners.
Yeah.
Right? Which we're now not prioritizing anymore. So these contracts are coming up for renewal.
Mm-hmm.
As these contracts are coming up, these portfolios are also becoming available for unified payments. So last year, overwhelmingly, all of our account managers were focused on that. Bleeding into this year, the first two quarters of this fiscal year also, we're still unwinding a couple of non-solicits, one in Australia, one in the U.S., that is, you know, kind of sizable. But we always said, as of the back half of this fiscal year, you'd go back to software growth that is typical at Lightspeed, i.e., double digit software growth.
Mm-hmm.
That's always been the plan, right? So I know, you know, maybe outside looking in, it's like, why this movement? You know, inside looking out, it's always been the plan, right?
Mm-hmm.
Like, it's very temporary.... So moving back to account managers, having a book of business and managing the book in a net retention model with all the tools to continue to, you know, drive growth from that book. And a big chunk of that is software upsells, new modules that we're releasing that are a great fit for our customers. Like, we wanna have those conversations and those touch points with our customers.
Got it. Correct. So, when you think about driving that double-digit subscription growth, it's very aligned to that 50/50 relationship. You know, there's nothing new that will be required to get to that level in terms of subscription growth. And then lastly, to just clarify, you know, when you think about the back book of that will still come to market as opportunity for payments-
Yes.
Will that be AMs, or will there be an opportunity to maybe do some of that conversion motion outside of the sort of AM role, for payments?
Yeah. So we've really blended the CS, like CSM role and AM role into one role. So if you look at our go-to-market motion, which we split into four pillars, we have a team that's focused on acquiring new locations. We have a team that's taking those new locations and taking them transactional, and so they own that customer from Closed Won to transactional, and we define that Lightspeed transactional as 10 operating days where they're using the software. At that point, we're like: Okay, you're in good shape, then you're passed over to an account manager. And then our fourth pillar is technical support. So our account managers manage the relationship of their customers, and they're equipped to sell and upsell anything that is part of our, you know, of our suite of solutions. So, you know, for some AMs, the...
Let's say you're in New Zealand. Your book of business is composed of customers in New Zealand. We don't have Lightspeed Payments available in New Zealand, so naturally, you're not really cross-selling, upselling payments. If payments becomes available and it's a significant size, we might go back to the strategy we used with Unified Payments, where we would potentially split, in this case, the team. One team focused a bit more on upsell and cross-sell for software, and one team heavily focused on payments. We'll see. It really is dependent on the size of the book. But at the end of the day, once you're through a big, big Unified Payments motion, then it becomes very organic, right?
You're having conversations with your customers, and you don't wanna prevent the AM from selling everything that they can sell under their book, as well as mitigating churn and making sure that churn stays within a good amount.
All right. Perfect. Yeah. Maybe to talk about the, you know, the composition of the business. Part of the aspect of this business is you are multinational, you are SMB, but also some Ms that are a lot larger-
Yep
than the smallest of customers. And so, you know, in terms of navigating this environment, one of the initiatives had been focusing on the higher value merchants.
Mm-hmm.
Right? Merchants that could be bigger-
Mm-hmm
and have the higher, highest propensity to spend. You know, could you talk about the evolution of the company and how that's changed over time to focus on the high-value customers? A lot of change in a lot of new markets over the last decade in terms of-
Yep
what's been added to the business.
Yep.
You know, what does that focus look like now, and is there anything different in, you know, calendar 2024 ?
Yeah, yeah
than a few years ago?
Yeah, it's a good question, 'cause I think it's been... You know, we've been on a journey, especially from 2019 to 2021, where we did a lot of acquisitions. But if you look back before we were a public company, the DNA of Lightspeed has always been the more sophisticated, like, kind of like more complex, higher GTV merchants in the SMB spectrum. So our average customer does $500,000-$600,000 in annual turnover, and that was the case, you know, in the past, and it's always been part of our DNA. We acquired a couple of assets that made sense for us from a technology perspective, but by virtue of these acquisitions, we also inherited smaller customers-
Mm-hmm
smaller segments, in some cases, even segments that are not necessarily a fit for the future for us. So, you know, I know, again, in some ways it looks like we're changing our approach. We're really just going back to our core, which is-
Mm-hmm
we've always been focused on these more sophisticated businesses, businesses that are doing north of $500,000, $600,000 in annual turnover, and as a result of that, our go-to-market motion is evolving to continue to cater and focus on that, and then you touched on the international aspect of our business. Here, too, if you think about it, our retail business has always been heavily North America focused. We have an office in the U.K. and Amsterdam, and we sell in those two markets, in the Benelux and in the U.K. We're also present in APAC via an acquisition that we did a while back, but really overwhelmingly, it's a North American business.
Mm-hmm.
The inverse is very true for hospitality. Hospitality, by virtue of Lightspeed being in Europe since 2015, 2014, and some of the acquisitions that we did there, the bulk of our hospitality business is in Europe. If you think about really Lightspeed, it's non-retail, EMEA hospitality are two big growth vectors where we have amazing product market fit, really solid go-to-market fit, and we wanna continue to accelerate that. Yeah, I think it's, in some ways, it is a bit unique. In some ways, it provides some diversification as well, right? We're not maybe, you know, prone to as much volatility. From a macro perspective, it's always nice to have, you know, a bit more of that-
Mm-hmm
of that distribution.
Yeah. The opportunity is expanding because you can expand geographically or you can, you know-
Yep
expand, you know, product-wise. Then let's, you know, maybe kind of frame the go-to-market in terms of the split between inside sales, field sales, across these two product lines and across the geographies. Maybe to kind of dovetail into... Where, where are the net investment areas looking to fiscal 2025, where-
Yeah.
You know, it sounds like retail internationally could be one, but-
Yeah.
You know, let me know.
Yeah, I mean, look, retail, I mean, we're still for most of the verticals we cater to, except bike, which is exceptional, market share and penetration. But the other verticals that we really go deep into, we're still have a lot of upside from a market share perspective in North America. And then similarly in EMEA, with hospitality, there's a lot of upside.
What we have changed from a go-to-market motion perspective, you talked about inside sales, is that historically, Lightspeed was predominantly an inbound marketing motion, where people would land on the website, would hear from peers in the industry, or would, you know, kind of see one of our, you know, ads online, and would flow through our websites, and the classic, like, SDR AE motion, fairly shorter sales cycles, call it within, like, 30 days or so. And, you know, in the past four or five years, it's certainly been one of my big mandates, balancing a little bit more the different ways that we acquire customers. So inside sales and inbound marketing continues to be a big driving force, but moving towards more outbound and more partnerships. And when I say outbound at Lightspeed, we have two kind of subtext to that.
In hospitality, we find outbound in a field motion is quite successful for us. I would argue similarly with golf. In retail, it is a remote outbound, so it is account-based marketing, certain lists that we target. We can come back to that, but we acquired NuORDER, which is our B2B product.
Mm-hmm.
Retailers order from these brands on a daily basis. They all need a point of sale, so that's become a very strong source of outbound leads for us and so outbound has been a growing part of our business in the mix, like in relative terms to inside sales so about like last year, let's say, if you look at our quota carrying roles, about 18% of our quota carrying roles were outbound and partnerships. This year we're in the 35%-36% range. Healthy mix, I'd like to be at 50/50. 'Cause you benefit from both sides. There's a halo effect when you do outbound on inbound and vice versa so not for this fiscal year, but for, you know, for next fiscal year onwards, we'll continue to. We see opportunity to continue to double down on that outbound motion.
Does that slant to a specific product area or a geography where it'll have the... You know, that would be the 35 to the 50? Does it-
Yeah. So in EMEA hospitality particularly-
Mm-hmm.
We actually think we're gonna go beyond 50%. You know, today we have feet on the ground and offices in Germany, in Ghent, in Belgium, in Amsterdam, in France, in London, in the U.K.. And we think there's an opportunity to continue to capitalize on our brand there and our presence there. So, yeah, in the coming months and years, we're gonna probably go even beyond 50/50 on field outbound in EMEA hospitality. In non-retail, it's probably gonna be a 40, 60, 60 inbound marketing, 40% outbound.
But there are two, you know, if you think about it, B2B and our B2B network, there are tens of thousands of retailers every day that log into NuORDER to order from Canada Goose, to order from Brunello Cucinelli, to order from Arc'teryx. And, they all need a point of sale, right?
Mm-hmm.
and so there's a great opportunity now that we're integrating those two platforms together to cross-sell the point of sale, and we're doing that in an outbound motion as well. Yeah.
Sounds very interesting, especially.
Yeah.
Yeah. That asset becoming a you know, closer integrated part of the portfolio. Maybe to talk about profitability, you know. Companies targeting you know, a minimum of 45 million of EBITDA this year, but it's part of this broader initiative to kind of ramp profitability over the coming fiscal years. I think that conversation probably starts with you and the customer acquisition, customer lifetime value, the cost of servicing a recurring customer. All of those are kind of really the inputs.
Yeah.
So maybe two parts to this, of how do you think you'll be able to help deliver the most leverage here in terms of from your vantage point in your seat? And maybe thinking about that software upsell and that 50% where you go to the, you know, an upsell in a subscription motion, what does that look like? You know, what are most of those incremental products? And, you know, thinking about improving the lifetime value from a subscription standpoint, you know, what are you most excited about?
Yeah. So, in the last quarter, then the trend we're on, our ARPU, whether it's software or payments, keeps going up.
Mm-hmm.
Obviously, one big lever of profitability is payments, right? If you think about it, without necessarily influencing CAC, the fact that before we were just selling software, now we're selling software with payments. Yes, payments has a lower margin, but in the grand scheme of things-
More dollars
kind of free upside-
Yeah
so to speak. So more dollars, so more LTV. And so that's happened naturally in the business, and that continues to happen. So net new customers that land with Lightspeed go with both. And so that's, that's obviously, you know, participated in our ability to move to more profitability last year, this year and beyond. The other is software ARPU. So software ARPU last quarter, about $154, 8% year-over-year growth. And that's just by virtue of providing new modules to our customers. And by continuing to go upmarket a little bit, these customers have more needs, more complex requirements. And the modules that we have released and new ones that we can talk about are helping us move the needle on software ARPU. We also have opportunities in our back book around pricing levers.
You know, by virtue of just being very acquisitive, we've inherited all sorts of, kind of, pricing philosophies and so on. But if you look at typically SaaS companies, it's, you know, a muscle you flex normally of doing kind of price adjustments on an annual, biannual basis. So we also see opportunities there that we'll be leveraging this year and beyond. So in all cases, in the formula that you've highlighted, putting even customer acquisition costs aside, from an LTV perspective, like, our LTV keeps going up-
Mm-hmm.
Every quarter, every year, and that's helped a lot from a unit economics perspective. I would say interestingly, what we've also seen is, while I think there's a, there's an expectation that when you go outbound, it is more expensive, we've actually seen a very strong CAC when we go outbound. Whether if it's our field motion in hospitality or even our outbound motion in retail, calling, you know, lists of strong leads remotely, we've been able to make it work where the CAC is, you know, actually very strong, even as strong and in some cases better than, you know, our inbound marketing kind of performance marketing engine.
So the combination of LTV going up, and in some cases, finding pockets of business where CAC is going down, has been obviously, you know, very good for us. We still have a lot of operational levers as well in the business, without a doubt. Yes, some of the low-hanging fruits have been done around, you know, some RIFs we've done, too. But there's still a lot of room to continue to be more disciplined on that front. So profitable growth for us is a journey we're now well on, and there's, you know, continues to be a lot of upside going forward. We'll still wanna be a strong grower. You know, we said 20% this year on the top line, and there's opportunity to continue to do that and exceed that in the future years.
But of course, our EBITDA margin is gonna continue to grow at a healthy clip as well.
All right. Well, JD, I think we're out of time, but thank you very much for attending, and very dynamic business. Lots of opportunity. It's very interesting to hear about it.
Thank you for having us again.
Yeah, absolutely. Cheers.