Operator: Ladies and gents, thanks for standing by. My identify is Brent and I can be your convention operator as we speak. At this time, I wish to welcome everybody to the Lightspeed third quarter 2023 earnings convention name. All strains have been positioned on mute to forestall any background noise. After the audio system remarks, there can be a question-and-answer session. . Thank you. It’s now my pleasure to show as we speak’s name over to Gus Papageorgiou, Head of Investor Relations. Please go forward.
Gus Papageorgiou: Thank you, operator. And good morning, everybody. Welcome to Lightspeed’s fiscal Q3 2023 convention name. Joining me as we speak are JP Chauvet, Lightspeed’s Chief Executive Officer; Brandon Nussey, Lightspeed’s Chief Operating Officer; and Asha Bakshani, our Chief Financial Officer. After ready remarks, we’ll open it up in your questions. We will make forward-looking statements on our name as we speak which are topic to dangers and uncertainties that would trigger precise outcomes to vary materially from these projected. Certain materials elements and assumptions have been utilized in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to replace these statements, besides as required by regulation.
You ought to rigorously assessment these elements, assumptions, dangers, and uncertainties in our earnings press launch issued earlier as we speak, our third quarter 2023 outcomes presentation accessible on our web site, in addition to in our filings with US and Canadian securities regulators. Also, our commentary as we speak will embody adjusted monetary measures, that are non-IFRS measures and ratios. These needs to be thought of as a complement to, and never an alternative to, IFRS monetary measures. Reconciliations between the 2 will be present in our earnings press launch, which is offered on our web site, on sedar.com and on the SEC’s EDGAR system. And lastly word that as a result of we report in US {dollars}, all quantities mentioned as we speak are in US {dollars} except in any other case indicated.
With that, I’ll now flip the decision over to JP.
Jean Paul Chauvet: Thank you, Gus. And welcome, everybody. Thank you for becoming a member of us this morning. Lightspeed reported one other robust quarter as we speak. Our adjusted EBITDA lack of $5.4 million got here in higher than our anticipated lack of $9 million. Our income of $189 million got here in at the next finish of our outlook vary of $185 million to $190 million. GTV grew 75%, a lot larger than our GTV progress of 10%. And on a relentless foreign money foundation, GTV grew 17%. I consider our outcomes as we speak mirror Lightspeed’s dedication to worthwhile progress. Part of that dedication is a deliberate effort to pursue bigger, extra worthwhile prospects. Although buyer areas have been flat from the earlier quarter, we proceed to shift in the direction of larger GTV areas.
Excluding sure areas, as highlighted in our disclosures, buyer areas with over $500,000 in annualized GTV grew by 15% over the identical quarter final yr and now signify 32% of whole areas, up from 29% in the identical quarter final yr. Customer areas with over $1 million in annualized GTV have been our quickest rising cohort, each year-over-year and from the earlier quarter, and have been up 19% year-over-year. In this quarter, we signed a number of multi areas in marquee prospects, all with our newest flagship providing, together with Soletrader, a British shoe retailer that operates 28 areas throughout the UK adopted our newest Lightspeed retail providing together with Payments; CASETiFY, one of many quickest rising tech accent manufacturers reaching one in seven millennials selected Lightspeed Retail with funds to energy their first Australian flagship retailer; three Michelin star restaurant, Le Petit Nice, situated in , can be adopting Lightspeed’ Restaurant and Payments; Moët Hennessy can be utilizing Lightspeed Restaurants in its rollout of one among its preliminary restaurant initiatives; The Sky-Line Club, a Chicago fantastic eating establishment delivering world class delicacies since 1926, will undertake Lightspeed Restaurants together with analytics and funds; in our B2B community, we have been glad so as to add Santoni, the excessive finish handmade Italian shoe model, in addition to Gerber kid’s put on.
Earlier this fiscal yr, I laid out three priorities for Lightspeed which have been, one, to complete the combination of our acquisitions into two core platforms and one firm, an effort we known as One Lightspeed; two, broaden funds throughout our international buyer base; and three, place the corporate to succeed in profitability. Two weeks in the past, we introduced the reorganization that included eliminating roughly 10% of our headcount. The important catalyst for this reorganization was the close to completion of our One Lightspeed initiative. As we centered on two flagship choices, it was all the time our intention that this initiative would unlock appreciable financial savings for the corporate. I consider our new construction offers extra accountability and authority to our current senior administration staff, whereas on the similar time, eradicating prices and complexity from the organization.
Approximately 50% of the cost discount will come from administration roles. Under the brand new org construction, we anticipate to streamline our organization to leaner working fashions, concentrate on key initiatives and prospects, and proceed to put money into our progress drivers. Deciding to scale back headcount isn’t a straightforward resolution. We are parting methods with many gifted and devoted staff that helped build Lightspeed into the corporate it’s as we speak. But it was a vital resolution that strengthens our foundations for future progress. In phrases of Payments, as I discussed, we had one other robust quarter. Although our GPV nonetheless closely relies on North America, we proceed to see robust momentum in APAC and EMEA the place funds was launched simply over a yr in the past. Before I talk about profitability, I wish to contact on the present macroeconomic situations and the way Lightspeed is positioned.
Given the macro uncertainty, our focus has turned to operating the business with a larger concentrate on profitability. This contains specializing in attracting the suitable prospects, these with over $500,000 in annualized GTV, and upselling our current base, lowering working bills, and limiting advertising spend to areas with the best returns. I do know that the macro surroundings is presenting challenges for our prospects, however these situations solely spotlight the necessity for complicated SMBs to undertake know-how. Lightspeed’s cloud based mostly platform may also help SMBs higher handle their stock, function with fewer staff, eradicate mundane duties, ship information pushed insights and provides managers and house owners extra time to dedicate to their prospects. Over the previous few years, now we have been building probably the most compelling providing for complicated SMBs, and I’ve acquired very optimistic suggestions from our prospects.
In my view, now we have by no means had a stronger product market match. In addition, now we have a extra agile, cost efficient and accountable organizational construction. With prices popping out and accountability rising, I consider we can be in a greater place to handle the long run alternative forward of us. And lastly, we assembled an exceptionally robust administration staff with the suitable expertise to take us ahead. Through a mixture of robust internally developed expertise and the addition of skilled and distinguished exterior candidates, now we have the suitable folks in the suitable place to proceed to build Lightspeed into the dominant platform for complicated SMBs the world over. The macroeconomic situations will seemingly current a problem, however financial cycles come and go.
I consider Lightspeed has by no means been higher positioned. Getting again to profitability. In the quarter, we delivered adjusted EBITDA loss forward of our beforehand established outlook. And we took the onerous, however vital, resolution to scale back our total headcount and cost base. I consider we’re on monitor to satisfy our dedication of adjusted EBITDA breakeven or higher in fiscal 2024. I’m very happy with the corporate we’re building. Our mission of igniting businesses all over the place on the planet is a vital one. And our suite of aggressive merchandise means now we have by no means been in a stronger place to ship on this mission. But ultimately, profitability is an important a part of building a profitable business. And to that finish, worthwhile progress would be the key driving drive for the corporate for the foreseeable future.
And with that, I’ll hand the decision over to Asha.
Photo by christina wocintechchat on Unsplash
Asha Bakshani: Thanks, JP. And good morning, everybody. I’ll first present an outline of our third quarter outcomes, highlighting particularly our continued concentrate on working self-discipline and worthwhile progress. Then I’ll talk about traits we’re seeing throughout our international service provider base and end with our outlook for the rest of this fiscal yr. Before moving into our third quarter outcomes, I’d wish to remind everybody that this quarter’s whole progress represents natural progress, provided that our newest acquisition was made on the very starting of our third quarter within the prior fiscal yr. Now turning to the quarter, Lightspeed delivered one other robust quarter with adjusted EBITDA loss forward of our beforehand established outlook and income of $188.7 million, on the excessive finish of our vary, rising 24% from Q3 final yr.
Subscription and transaction based mostly natural income progress was 28% year-over-year on a relentless foreign money foundation. Recall that, in Q3 of final yr, we acquired a one-time cost of $5.5 million from one among our cost companions, and on this quarter an extra $3 million from a distinct companion. When excluding the affect of those one-time catch-ups, subscription and transaction-based income grew 31% year-over-year, once more, on a relentless foreign money foundation. We exceeded our adjusted EBITDA loss outlook, with an adjusted EBITDA lack of $5.4 million, forward of our beforehand established outlook of $9 million, our lowest quarterly adjusted EBITDA loss in over two years. As you’ve got heard from us earlier than, we proceed to train prudence in our spend. The outcomes of that is steady enchancment in operational effectivity, which has been driving better-than-expected EBITDA margin.
We’re pleased with our progress right here. Turning extra particularly to the market surroundings. We proceed to see the affect of international trade fee, inflation and shifting shopper spending on our retailers businesses. I’ll stroll you thru a few of the particular traits we’re seeing throughout our buyer base. Last yr, we noticed third quarter GTV develop 124% and 53% organically over the earlier yr, pushed by again to bodily procuring and eating in lots of our areas. This yr, our whole GTV in Q3 was $22.4 billion, which grew 10% year-over-year or 17% on a relentless foreign money foundation. Omnichannel retail GTV grew by 6% whereas hospitality GTV grew by 16%. In retail, we noticed common GTV per location decline in a number of of our verticals, with bike outlets, home enchancment and pet shops being notably weak as these classes spiked throughout COVID and at the moment are coming again to extra regular pre-pandemic ranges.
Hospitality GTV progress was stronger year-over-year, given the affect of the COVID resurgences within the three-month interval ended December 31, 2021, however declined from our earlier quarter. Helping to offset this macro weak point is our ongoing rollout of Payments. We are lucky to have a big buyer base that continues to be underpenetrated with our cost answer. Our funds uptake has resulted in our gross funds quantity, rising 75% year-over-year to $3.9 billion. We launched Payments globally in our final fiscal yr. And though nonetheless early in our rollout, gross funds quantity coming from exterior North America is up 44% from the prior quarter. Turning to areas, we wish to remind everybody that Lightspeed stays centered on worthwhile progress.
As you heard from JP, given the unsure surroundings and the truth that we derive our highest ROI from upselling our base, our go-to-market focus has shifted to prioritizing excessive worth GTV prospects from a web new perspective and rising our ARPU inside our base, primarily by way of attaching funds. The result’s 1 / 4 the place total web new location depend was flat from final quarter, however with bigger GTV areas rising inside the total combine. Customers with annual GTV of $500,000 have been up 15% year-over-year, and prospects with below $200,000 in annualized GTV have been our quickest declining cohort, down 4% year-over-year. I believe it is value repeating that not solely do bigger GTV prospects are inclined to undertake extra software program and their funds potential is way larger, however additionally they exhibit much less churn.
As I discussed final quarter, buyer areas with over $500,000 in annualized GTV signify lower than 10% of the churn of our total base. The larger total ARPU and decrease churn from these prospects ends in our highest LTV to CAC ratios coming from this buyer base. After excluding buyer areas attributable to the Ecwid ecommerce standalone product, ARPU continues to pattern in the suitable path, with whole ARPU of $348 rising 20% year-over-year. The bulk of the ARPU improve got here from elevated Payments income. The headwinds introduced on by a strengthening US greenback relative to foreign exchange was most felt in our subscription income line, which was flat quarter-over-quarter and grew 13% from the third quarter final yr on a relentless foreign money foundation.
Transaction-based gross margins improved over final quarter, thanks largely to the one-time catchup cost of $3 million from one among our funds companions, in addition to to Lightspeed Capital. Our service provider money advance business is gaining traction with retailers globally, notably in as we speak’s economic system the place conventional lending establishments have gotten an increasing number of selective with lending smaller businesses. Our Lightspeed Capital income grew 26% from the final quarter and 221% from a yr in the past with our default ratios persevering with to stay below 2%. Hardware gross margins proceed to carry down total gross margins as rising prices and provide chain points proceed to drive the cost of our {hardware} up. We had a goodwill impairment cost within the quarter of $749 million.
I’ll stroll you thru the mechanics of this. Goodwill is required to be examined for impairment no less than yearly. Our annual take a look at date is December 31. Given the decline within the valuations of know-how firms broadly, and Lightspeed’s share value particularly, our web property exceeded our market cap at December 31, 2022. This was a goodwill impairment set off for us. This goodwill cost is a non-cash accounting entry that doesn’t mirror any present or future money outlay for Lightspeed. We’re additionally prudently managing our share-based compensation expense, and have taken quite a few actions to scale back it as a share of income. Our share-based compensation expense has declined as a share of income for each consecutive quarter this fiscal yr, from 22% in Q1 to 18% in Q3, and with the affect of the latest restructuring, we anticipate this ratio to say no even additional.
We ended the quarter with roughly $838 million in money. Our money decreased by roughly $24 million within the quarter. The largest makes use of of money have been working capital motion, together with the expansion of our service provider money advance business, which we fund from our personal money balances as we speak. Now turning to our outlook. We anticipate shopper spending to stay challenged within the close to time period. And provided that our transaction based mostly revenues at the moment are over half of our whole revenues, weaker progress of GTV presents a headwind for us within the months forward. We anticipate to stay vigilant on spend and to proceed to concentrate on worthwhile progress. For the total yr fiscal 2023, Lightspeed now expects an adjusted EBITDA lack of roughly $37 million, improved from beforehand established outlook of roughly $40 million.
The firm now expects annual income to come back in on the low finish of the beforehand established outlook of $730 million to $740 million, or roughly $740 million to $750 million on a relentless foreign money foundation. We stay dedicated to adjusted EBITDA breakeven or higher in fiscal 2024. With that, I’ll hand it over to JP for closing remarks.
Jean Paul Chauvet: Thanks, Asha. Before we go into Q&A, I wish to welcome a brand new member to our senior government staff. Kady Srinivasan. Kady is our new Chief Marketing Officer, and involves us with over 15 years of expertise main advertising efforts at organizations akin to Dropbox and Electronic Arts. I’m thrilled to have Kady on our staff as we proceed to concentrate on our core prospects of complicated SMBs, elevate our model consciousness and enhance our go-to-market momentum. And with that, we’ll take your questions.
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