Lightspeed Commerce Inc. (LSPD) Earnings Call Transcript & Summary

All things digital, all things omnichannel, of course, come to the forefront. So omnichannel workflows and things that were fine when that was a smaller portion of an overall -- customers' overall business or things that we put out a lot of attention towards the outset. And then started to introduce a lot of new functionality to just help them for our restaurants, launching things like order ahead capability, delivery integration modules so that as orders come in from DoorDash or GrubHub or Uber or whoever, the restaurant doesn't need to manage multiple platforms. They can run all of that through Lightspeed. We've -- for our restaurants, we've done some things like launch or reposition our e-commerce platform for them so that they can start to sell meal kits and a lot of delivery options that way for restaurants. Done a lot of things around curbside pickup and digital wallet and contactless payments and things of that nature as well, just to help merchants during this very difficult time. So I'm pretty proud of that. I think the whole company is proud of how we kind of have quickly reacted and redirected product investment and a lot of good announcements over the past 6 months from the company in that respect.

What ties into this and the adoption of these new features and technologies is, to some degree, is customer churn in that. You've mentioned in the last couple of calls that there may be a higher degree of customer churn in this environment, but then from your data, do you see customer churn correlated or I guess negatively correlated with usage of these newer features, meaning if the customer is not using e-commerce or omnichannel, are they more likely to churn as opposed to those customers that you have that are using these new features and our signs for them?

Yes, for sure. I mean, we do -- we absolutely see those things internally, and we published some stuff externally as well even before COVID. We -- end of year reviews and so on where we would show that the average Lightspeed retailer because they're digitally savvy, making use of omnichannel capabilities and so on. Customer loyalty, customer targeting technology that we have grown 4 to 6x more quickly than industry average. And of course, we then saw this amplified. I think during COVID, back in March, April, even I was modeling some pretty draconian scenarios of what might happen to our customer base. And of course, they fared much better than broader industry just because they've been able to pivot and adopt and stay relevant during the difficult time. So for sure, we see that, and that's a strong part of the value prop in the pitch we bring to our prospects and customers.

And just also on e-commerce, I imagine there's -- not imagine, there is more and more overlap versus some of the e-commerce vendors, and they've talked about moving into more retail, more POS. How do you see from a long-term perspective, how do you see Lightspeed -- the competitive advantages of Lightspeed relative to more of a pure-play e-commerce vendor?

Yes. I think we'll stick to some of the customer verticals that we mentioned, right? You're going to come to Lightspeed though you're predominantly going to make your way to Lightspeed because you're running a physical shop, and that's the base on what you're building your business. You're a full service restaurant, you're a physical first retailer and omnichannel is important to you and that you also want to publish your inventory online, you want to be discoverable. You want to do all of those things, but the base on what you're managing your business is rooted in the physical, and that's why you're coming to Lightspeed. There's a complexity to managing that inventory. I mean you've got multiple locations you're trying to manage through and so on. And that's very different than if you're an e-commerce first retailer or -- I'm trying to think of the equivalent in the restaurant world, but might not be a good example, where it's just a different environment where you're not managing that inventory and having it on hand in multiple storefronts and so on, it's just a very different type of customer at the end of the day. A bike shop, a sporting goods store, a pet store, a furniture store, these are all core markets of ours. A golf course, where you got a pro shop in a restaurant and you're managing bookings and memberships and subscriptions, and that's our core customer at the end of the day. And we're not trying to be the standalone few product apparel retailer, where that's going to sell primarily online. That's not our -- it's our business and our focus. So it really just comes down to the targeted verticals we go after. And as I said, making sure we've got the differentiation and the platform to remain a leader there.

I wanted to switch gears to acquisitions. You've been successful in growing organically and also doing acquisitions, I think, in the last 2 years you've done, or you've announced 5 acquisitions. When you look at acquisitions and you look at your product road map or segmentation strategy, what is key that an acquisition would bring to you? What's one of the most important metric or characteristic of the acquired company that you're looking for?

So we're not looking to -- we're growing quickly. We're doing well. We love our position. Organic growth is paramount importance to us. So we're not looking for fixer uppers. We're not -- when we do an acquisition, there's tons and tons of on-prem, hundreds of on-prem point-of-sale software companies that, all of which make their way into our in boxes from the banking community of potential acquisition sources, but those technical integrations are going to slow us down. They're difficult to do. Customer migrations would be extremely difficult. So we're looking for like-minded growing companies with founders and teams that want to come on board and create a category winner here where the technical integration is understood. Cloud systems coming together, micro services that we can quickly put a road map together as to how we will bring the platforms together because our intention is not to be a company -- a holding company of various point-of-sale brands. Our intention is to run a single platform and go win this category. So that's kind of where it starts, and we're looking for things where we can add value and realize synergies. A lot of the acquisitions we've done have been exceptional businesses at selling that point-of-sale single point solution, where they haven't yet started to grow that average revenue per customer by doing things like omnichannel and customer loyalty and advanced analytics and payments. And that's where we look at these businesses. They're growing the customer base well. They have driven like mind and management teams, the technical integration is well understood. And then we know we can impact go to market, and we know we can impact average revenue per customer by starting to plug in some of the additional capabilities that we bring. And I think it's powerful from a financial sense. And at the end of the day, this -- while we're proud of our progress, we're now 100,000 customers in a sea of millions. There's so much more ahead of us. It's such a -- still a fragmented space and it's a space that's going through a rapid replacement cycle right now. And so we can't get -- going back to where I started, we can't get stuck. We can't get, I'll say, like stuck in the mud. We're not looking for that situation. We're looking for things that are net additive to growth that allow us to go even more quickly than if we hadn't done the acquisition.

I wanted to speak specifically about ShopKeep, which is your most recent acquisition that you announced, it hasn't closed yet. The -- what do you see with ShopKeep? How do you see the integration strategy relative to other acquisitions? And how do you see the segmentation strategy? And what areas is ShopKeep strong that is additive to Lightspeed and what areas would maybe you'd replace ShopKeep in certain areas with Lightspeed?

Yes. I mean, ShopKeep is a perfect example of what I just described actually. There were -- we've been talking to our management team for almost 2 years, tracking their progress, exploring. "Hey, if we were to do this, how would we do it" and making sure that we had good alignment there with the management team. They were driven to kind of come on board and make a difference and create this category leader. But ShopKeep has done a nice job of growing to 20,000-plus customers, selling basically a single point-of-sale point solution. They partnered with various companies to unlock omnichannel and loyalty and payments, but the customer experience suffers a bit in that and doing it that way. And so we found -- in terms of the integration, it's going to look a lot like all the other ones we did. We'll start with aligning the brand and the go-to-market teams. So instead of us shooting against each other in the market, we'll align those arrows and leverage the combined scale of the business. Well, of course, bring our payments capabilities and some of our additional modules to help customers graduate on to Lightspeed and leverage some of these capabilities. And in terms of the technical integration, they'll go just as I described, what we're going to take -- we're going to align around a single platform. We're going to take the best of what ShopKeep has got and make sure we integrate that into our core and make sure we continue to serve those customers well, but get the alignment around a common platform going forward. So yes, we're pretty excited. It really strengthens our U.S. presence. The U.S. is obviously our biggest market. And about half of our customers, about half of our business is in the U.S. right now. And again, just echoing my earlier comments, we're proud of our progress, but so much more to make and ShopKeep helps us double down in our biggest market and really build the brand and the scale. And we think those things matter in our space.

Yes, I'm going to jump to a question from the audience, and it ties into one of your last responses just in terms of the replacement cycle and the opportunity there. But one is, they're asking about the ability, how difficult or what's the switching cost for these merchants as they look to upgrade? And I guess related to that is in COVID, has COVID actually reduced switching costs because maybe not necessarily the replacing POS at this point, but maybe just adding something net new like e-commerce?

Let's start with the latter. Certainly, our ability to virtually onboard, and that's the way we've always done it. Mr. Customer, Mrs. Customer provide yourself an iPad, plug it in and then we're going to virtually onboard you through sessions like this. We didn't rely on physical install teams and complicated deployments that way. So that certainly helped us a lot through COVID as we got these panic inbound calls and, "Hey, can you get me live tomorrow?" We didn't have to. That wasn't a muscle we had to develop. That was something that was core to what we already did. So switching costs, they're not complicated at the end of the day. We have import tools that allow you to import inventory, if you are managing it that way. We've -- our installs and our onboarding happen in hours, not weeks and months. And so the switching costs aren't significant yet and it just requires you to take the leap, and that's what COVID has helped give that little push and that extra nudge from these folks who had it on the to-do list, but now, again, can't treat it as any longer being a nice to have, it's now a must have.

I'm going to wrap up here with my last question. And this -- it's looking out there, which is -- with the vaccine announced last week, successful results last week, if, in calendar year 2021, things get back to normal in terms of the retail environment, how do you see it shaking out for omnichannel? Do you think a lot of these behaviors are permanent and this -- there's no going back to the old way of these retailers growing themselves?

Yes. I do think some of the changes are permanent. I think, for sure, what's permanent is that consumers are going to want the choice of being able to be omnichannel to buy online or to buy in-store to return online or in-store and just be able to have their demand satisfied through all of those things. And being an omnichannel provider, at the end of the day, we shouldn't care which direction it goes. And that's really how we see our job. If e-commerce moves to a greater portion of the pie, that's fine with us. We're still going to have the same revenue model of subscription first, layer on payments to help monetize that GMV even further. And conversely, if e-commerce starts to shrink back to more historic norms, that's fine by us, too. And that's really how we see our job of helping our customers meet omnichannel demand, and it really shouldn't impact Lightspeed any way. So that's sort of how we view that.

Okay. Well, I want to thank you, Brandon. I want to thank everyone on the line, and we should wrap up there.

Thanks for having us. Paul, we really appreciate it.