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

Great. Thanks, everyone, for joining us. My name is Tien-Tsin Huang. I cover the payments, processors and IT services sector at JPMorgan. And really excited to have Dax Dasilva, the Founder and CEO of Lightspeed join us today for a fireside chat. And we're also going to take some questions from the audience, if that's okay. So feel free to ask that through the portal, and I'll be sure to get to it. But I think I'm going to hit a lot of the questions that I've gathered from investors and run those through with Dax to get an update on what Lightspeed is up to. And like I said, Dax, I really appreciate you being here. Again, I know how busy you are. And I know there's a lot going on and really grateful to have you and spend a few minutes with us this morning.

Thanks, Tien-Tsin. It's a real pleasure to be here.

No, it's great to have you man. So maybe I always like to start because I don't think we've had you here on this event or in this stage before. And I've asked you this before, and I've always like to hear the stories. I'll ask it again here for the benefit of everyone else. Maybe give us the story behind the founding of the company? What problem were you trying to solve? How has that changed since you started in what, 2005, if I remember, is when you put it up off the ground. So maybe we can share that story with us as a start, that would be great.

Yes. So Lightspeed started as a Mac product at a time when Apple was having its big resurgence. And a lot of -- I've been a Mac programmer since I was 13. So that's pretty geeky, I know, but I apprenticed at Apple developers from a very young age and had built actually software for lots of different kinds of retail and other kinds of business -- businesses in terms of like contracts, consulting and being independent. What I realize by the time 2005 rolled around and Apple was having this big resurgence is that a lot of SMBs were coming to me saying that they love to run their business on a Mac. And their businesses, the ones that I was working with tended to be more complex, things like Apple dealerships, electronic stores, jewelry, furniture. And instead of continuing to build custom solutions, I said there's a real -- there's a gap in the market for a complex deep solution. So that's how Lightspeed was born. And the interesting thing is that 15 years later, we're still serving the same profile of merchant. We're still serving those merchants that have -- on the retail side -- now we do hospitality, and we also do golf. But on the retail side, there's still the merchant with tens or hundreds of thousands of SKUs, the bike, the electronics, the apparel, the clothing, the pet, the toy, all those specialty retailers and now the complex hospitality. That's what we do well, and it's something we've never deviated from. The only difference is that the way that people shop and the way that people dining has radically changed. And of course, it's changed even faster with COVID. So this omnichannel vision that we've been preaching for 5 years is now sort of an acceleration. But that's -- it all came from re-empowering the small business owner. And that first step was on the Mac and just having people understand their business and be able to see their business in real time.

That's awesome. And obviously, it's growing into something very large, something to be proud of. So congrats on that. I want to -- before we get into COVID and some of the trends and the near-term trends, same thing, I want to go back to basics, Dax, sort of your customer acquisition, go after complex merchants. That's how I've always known Lightspeed, even well before you went public. So I want to ask how you think about the addressable market? And how you go about attacking that market and acquire customers? What's the philosophy?

Yes. So there's an SMB market out there of 48 million merchants worldwide. By our estimates, 7 million of that falls into the complex category. And so we are scratching the surface of that market. Us plus our recent acquisition of ShopKeep puts us in about 100,000 merchants. So we're at the beginning of this. But there is no global champion. There is no category name a leader for that complex SMB, and that's our project at Lightspeed is to become that and to become that quickly because the majority of that 7 million on the complex SMBs is served by legacy. And as they move rapidly into a commerce platform that's in the cloud that's one-stop shop for all their needs. We want to be the go-to in every country. And so that's really the mission of the company is to make sure that all of these merchants that are physical merchants but now need to employ digital strategies are on this platform. And we do that all through a virtual sales model. It's always been -- it's been at least since we went into the cloud, it's been how we've gone to market. Marketing [indiscernible] whether that's content marketing or that thought leadership or online search. Another interesting way is as we get more -- and as we get deeper and deeper into the supply chain, especially in verticals where we're quite important, let's say, golf or a bike, we're starting to be recommended by the suppliers because we integrate with their catalogs. We integrate with their -- and we're facilitating purchasing now. So that -- there's all sorts of ways that people find us, and then we close all those deals virtually through a virtual sales model. That's very high velocity. And then we onboard and we support virtually. And so this has been a model that's been well adapted for COVID, and it has helped us to report orders that we're extremely proud of.

Yes. So I don't -- we're going to talk about ARPU and products here in a minute. But how do you generally think about that CAC to LTV ratio, Dax? I mean do you feel like given you're built on virtual sales, you're built on virtual onboarding, right? It does seem like you have some efficiency as you get bigger with scale on the acquisition front. But where do you see that trend going?

Yes. I mean we like to keep our CAC to LTV at around 3 to 4x. That's -- but it's going to vary market by market. Obviously, in certain markets we're new. Or we've made an acquisition, we're building a brand recognition because brand recognition, obviously, can help with that ratio. The other thing that can really impact that ratio is payments. Payments dramatically changes the equation when it comes to LTV. And we have the best ratios where we have the most penetration of payments, for example, North American retail, where -- which is our biggest segment and is where we kicked off licensing payments, which if -- for those of you that don't know, it's the PayFac model that we debuted around the time of our Toronto Stock Exchange debut, and has been a great success story for the company. So payments is not deployed absolutely everywhere that we have customers. We have it deployed throughout North America, so Canada, U.S. for retail [ and it's technology ]. And we're going to be having more announcements surrounding our customers in Europe by the end of our fiscal year. And of course, we have significant customers in APAC as well. So our goal is to have Lightspeed Payments everywhere, and that does really change the equation in terms of CAC to LTV also.

Sure. Sure. And I would imagine your pipeline and how it's evolved here in COVID has been -- I'm sure it's been sort of up and down, but obviously, it's been starting to trend in a great way as more merchants are looking to the revive and enhance their business, but moving to something more modern, as we said, versus legacy. So my question, Dax, and I get this question a lot is sort of what did -- what have you learned here from COVID from a demand standpoint? And what's permanent in terms of some of these trends? And what merchants are demanding and maybe now realizing is necessary to survive and thrive?

Yes, omnichannel is no longer luxury. It's not a nice to have, it's a must have. And our definition of omnichannel has been enriched by this pandemic. The work -- the omnichannel workflows that are going to work for a quick-serve restaurants are very different from the omnichannel workflows that are going to work for fine dine versus different types of retailers. So we've really -- this has been the most innovative 6 months I've ever seen at the company in terms of rolling out new omnichannel workflows that are going to be better fitted to these merchants. And so we've seen that. So the other part of the CAC to LTV question, yes, payments changes the game, but so do modules. And I think there's huge module adoption and people have bought into the Lightspeed story, bought into the Lightspeed journey because they see the path ahead for them in terms of being able to adopt these modules, be able to do multi location, be able to do multiple channels, some of which are good bet. And so they enter into Lightspeed, enter into the platform, expecting to do more with modules. Now a couple of things that we've seen in this pandemic is a rapid adoption of the digital channel modules, delivery, e-com, curbside pickup, all of these. And we're also seeing that a lot of the innovation that we can deliver to the market a lot of those modules that we're rolling out are really tied into our Payment solution. We're able to innovate the most where software meets payments. So curbside pickup contactless experiences, contactless payment experiences, digital wallet on our e-comm solutions. All of these things are tied in to. And so we've seen since our IPO, us go from 1/3 of customers using more than 1 module now more than 40%. And we see that number and that ARPU number continue to grow. And those modules are more and more tying directly into payments. And as we roll more out in the payment sphere, things like capital and other functionalities, that Payment solution is going to be more and more essential as the software model.

Yes. No, that makes sense. So just to catch everybody else's up, Dax,, like how healthy are your clients? How do you gauge your population of clients and locations? I know you've seen a really nice recovery in terms of some of the merchants that were dark that are now live. Can you give us an update on that?

Yes. I think we've seen GTV growth. The growth was -- GTV growth was 56% year-over-year. And the -- just organically, without the acquisition, it was 25%, so very healthy. We have -- I think we have in this quarter -- we saw in this quarter an easing of restrictions and easing of lockdowns. At the current quarter we're in, we're seeing a bit more. So this Q2, gives us a little bit of a preview of what the business can really do and what our merchants can really do when they're leveraging the full omnichannel tool set when we're able to see growth for them. And so that's, I think, an indicator of the future, and we believe there will be a resurgence. And new businesses opening, we saw new ads and we saw GTV grow. We think that post-COVID, we're going to see people move to open new businesses, and they're going to choose platforms like Lightspeed if they're complex.

Yes. No, that's definitely seems to be the case. I guess, let me ask you and you touched upon it a little bit in terms of the technology and how you've been developing. You are an engineering company and you're a programmer, like you said, by trade. So talk to us about the tech stack that you have at Lightspeed? And how modern it is? And you talked about modulars, but your speed to market and the level of innovation and development that you've been doing organically, can you just catch us up on that?

Yes. So I think that this whole experience has really put our tech stacks to the tests, like how much can we deliver to the customers rapidly? I'm not going to do the laundry list, but there's 6 to 8 new things that have come out into one internal workflow. I'll give you a few of them, mobile tap, digital wallet, analytics core, like let people get into our analytic platform. We're in a lower entry point. There has been capital. There's been e-com for restaurants. There's been extensions to delivery. So there's a ton of innovation that we've been able to build on top of these 2 stacks. Well, we've got the restaurant stack, we've got the retail stack. That we've also got shared services, things like payments, but things like loyalty, in elements like analytics, our supplier services that we're really building that are core asset, core technology assets for Lightspeed, which we've seen in this period, us be able to really build on top of really quickly. And so that's been -- I think it's shown customers and shown the market that Lightspeed can provide crucial lifelines to these merchants. And as we include things into the platform, all our merchants can benefit pretty rapidly. We saw -- in the early months of COVID, we saw customers -- a lot of our teams pivoted to helping people get online with a delivery channel or within an e-com channel. 3/4 of our merchants were able to transact with customers by the time we did a bit of a market update in April. I think it was April 20. So 3 quarters, we're able to quickly get on to some of the digital channels. And that I think is -- that was the starting point for us, realizing that there's more variation in how people want to use digital. There's lots of different kinds of businesses that there's a great diversity of businesses that use our platform. And so that's where the innovation of like, okay, let's have multiple ways for people to get online and let them get creative. The things that we've seen, we just rolled out a feature on retail called subscriptions, which lets retailers build subscription models. And we're seeing people use this feature in ways that we love seeing that in ways that we would never expect. There's a medical manufacturer that's using it to replenish people on [ PBE ] right out of the gate. So there's really interesting things that people are doing with these features and combining them in ways that are super innovative. And that is -- future of these SMBs is to have business models that are differentiated.

And your legacy competition just can't do that, right, Dax? I mean just hearing you list all these things and how quickly you did that in such a short period. I mean, that's tough to do with some of the legacy providers that are out there, correct?

Absolutely, yes.