Lightspeed(LSPD) - 2023 Q1 - Quarterly Report

Management's Discussion and Analysis This section provides an overview of the company's financial condition and operational results for the three months ended June 30, 2023 MD&A Scope and Basis of Presentation This MD&A covers financial condition and operating results for the three months ended June 30, 2023, prepared under IFRS and Canadian disclosure requirements, with all amounts in USD - MD&A covers the three months ended June 30, 2023, prepared under IFRS and Canadian disclosure requirements, with all amounts stated in USD[1][2][3] Forward-looking Information This section describes the nature of forward-looking information, including financial outlooks, business strategies, and market expectations, emphasizing reliance on management judgment and assumptions, subject to risks and uncertainties - Forward-looking information covers financial outlooks, business strategies, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans, and objectives[5] - Forward-looking information is based on management's opinions, estimates, and assumptions, and is subject to known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from expectations[7][9][10] Trademarks and Additional Information This section mentions Lightspeed's trademark usage and directs readers to SEDAR and EDGAR for additional company information - Trademarks such as Lightspeed and NuORDER are protected by applicable intellectual property laws and are company property[12] - Additional information about Lightspeed is available on SEDAR (www.sedar.com) and EDGAR (www.sec.gov)[4](index=4&type=chunk)[13] Company Overview This section provides a general description of Lightspeed's business, platform, revenue streams, customer profile, sustainability efforts, and the impact of macroeconomic conditions Business Description Lightspeed offers a cloud-based commerce platform connecting suppliers, merchants, and consumers for an omnichannel experience, providing essential functions for SMBs to manage operations, accept payments, and grow - Lightspeed provides a cloud-based commerce platform connecting suppliers, merchants, and consumers to enable an omnichannel experience[14] - The platform offers core functionalities for consumer engagement, operations management, payment acceptance, and business growth, primarily serving small and medium-sized businesses (SMBs)[14][15] Platform and Solutions Lightspeed's cloud platform is designed around omnichannel consumer experience, comprehensive back-office operations, and payment facilitation, offering flagship solutions like Lightspeed Restaurant, Retail, eCommerce, NuORDER, B2B, and Lightspeed Capital - The platform is designed around three interconnected elements: omnichannel consumer experience, a comprehensive back-office operations suite, and payment facilitation[15] - Flagship solutions include Lightspeed Restaurant, Lightspeed Retail, Lightspeed eCommerce, NuORDER by Lightspeed, and Lightspeed B2B[16] - Lightspeed Capital offers merchant cash advance programs to help merchants manage cash flow, purchase inventory, and invest in marketing[17] Revenue Streams Lightspeed's revenue primarily comes from cloud software subscriptions and payment solutions, with significant growth in transactional revenue, supplemented by hardware sales and other services - Revenue is primarily derived from cloud software subscriptions and payment solutions, supplemented by hardware sales and professional services[22][24] - Starting in fiscal year 2024, the company is selling POS and payment solutions as a unified offering to enhance customer experience and simplify business[17] Total Revenue Composition and Growth (Three Months Ended June 30) | Revenue Type | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----------- | :-------- | :-------- | :---------- | :--------- | | Subscription Revenue | 78.7 | 73.6 | 5.2 | 7.0 | | Transactional Revenue | 121.0 | 91.5 | 29.4 | 32.2 | | Hardware and Other | 9.4 | 8.8 | 0.6 | 6.7 | | Total Revenue | 209.1 | 173.9 | 35.2 | 20.2 | Customer Profile and Geographic Reach Lightspeed targets SMBs with high GTV and complex needs, serving customers in over 100 countries, with North America accounting for 51% and retail and hospitality sectors representing 63% and 37% respectively - The company focuses on attracting SMB customers with high GTV and complex needs[19] - As of June 30, 2023, customers are located in over 100 countries, with North America accounting for 51% and the rest of the world for 49%[21] - Among customer types, retail accounts for approximately 63% and hospitality for approximately 37%[21] Sustainability Initiatives Lightspeed is committed to sustainability through "Carbon-Free Dining" with Sustainably Run, offsetting business travel with TravelPerk, using renewable-powered cloud platforms, and promoting a diverse, equitable, and inclusive culture - Partnered with Sustainably Run for the "Carbon-Free Dining" initiative, planting over 1.4 million trees and providing food, income, and education to communities[27][28] - Collaborated with TravelPerk to offset business travel carbon emissions and primarily uses Amazon Web Services (AWS) and Google Cloud platforms powered by renewable energy[28] - Committed to Diversity, Equity, and Inclusion (DEI), with 10% of employees identifying as LGBTQ2S+, and the board setting a gender representation target of at least 37.5% female members[29] Macroeconomic Conditions and Impact Despite macroeconomic uncertainties, Lightspeed sees accelerated demand for cloud solutions among retail and hospitality SMBs as a significant market opportunity, leveraging its diversified customer base and geographic reach - The macroeconomic environment remains uncertain, including inflationary pressures, changes in consumer spending, instability in the banking sector, and rising interest rates[30] - Despite risks, the accelerated demand for cloud-based solutions among SMBs presents a significant market opportunity for the company[31] - For the three months ended June 30, 2023, GTV was $23.4 billion, a 6% year-over-year increase, with the company viewing its diversified customer verticals and geographic reach as strong assets[32] Key Performance Indicators This section defines and presents Lightspeed's key performance indicators, including ARPU, GPV, and GTV, along with non-IFRS measures and their reconciliations Key Performance Indicators (ARPU, GPV, GTV) Lightspeed assesses business performance and identifies trends using Average Revenue Per User (ARPU), Gross Payment Volume (GPV), and Gross Transaction Volume (GTV), with ARPU (excluding Ecwid) growing 20%, GPV by 56% to $5.1 billion, and GTV by 6% to $23.4 billion as of June 30, 2023 - The company assesses its business, measures performance, and identifies trends through Average Revenue Per User (ARPU), Gross Payment Volume (GPV), and Gross Transaction Volume (GTV)[35] Key Performance Indicators (Three Months Ended June 30) | Metric | 2023 | 2022 | Change | Change (%) | | :-------- | :--- | :--- | :----- | :--------- | | Monthly ARPU (excluding Ecwid) | ~$383 | ~$320 | ~$63 | 20% | | GPV | $5.1 billion | $3.3 billion | $1.8 billion | 56% | | GTV | $23.4 billion | $22.1 billion | $1.3 billion | 6% | Non-IFRS Measures and Ratios and Reconciliation of Non-IFRS Measures and Ratios This section defines and reconciles non-IFRS financial measures like Adjusted EBITDA, Adjusted Loss, and Adjusted Cash Flow from Operating Activities, which supplement IFRS data for better understanding of core business performance - Non-IFRS measures and ratios, such as Adjusted EBITDA, Adjusted Loss, and Adjusted Cash Flow from Operating Activities, provide supplementary information for a better understanding of the company's operating performance[39][40] Adjusted EBITDA Reconciliation (Three Months Ended June 30) | (in thousand USD) | 2023 ($) | 2022 ($) | | :--------------------------- | :------- | :------- | | Net loss | (48,703) | (100,796) | | Share-based compensation and related payroll taxes | 18,733 | 38,302 | | Depreciation and amortization | 28,192 | 29,144 | | Foreign exchange loss | 671 | 443 | | Net interest income | (10,362) | (2,007) | | Acquisition-related compensation | 2,545 | 17,103 | | Transaction-related costs | 609 | 2,174 | | Restructuring charges | 472 | 1,207 | | Litigation provision | 9 | 918 | | Income tax expense (recovery) | 823 | (2,089) | | Adjusted EBITDA | (7,011) | (15,601) | Adjusted Loss Reconciliation (Three Months Ended June 30) | (in thousand USD, except share and per share amounts) | 2023 ($) | 2022 ($) | | :------------------------------------- | :------- | :------- | | Net loss | (48,703) | (100,796) | | Share-based compensation and related payroll taxes | 18,733 | 38,302 | | Amortization of intangible assets | 24,505 | 25,876 | | Acquisition-related compensation | 2,545 | 17,103 | | Transaction-related costs | 609 | 2,174 | | Restructuring charges | 472 | 1,207 | | Litigation provision | 9 | 918 | | Deferred income tax recovery | (392) | (2,353) | | Adjusted Loss | (2,222) | (17,569) | | Net loss per share – basic and diluted | (0.32) | (0.68) | | Adjusted loss per share – basic and diluted | (0.01) | (0.12) | Adjusted Cash Flow from Operating Activities Reconciliation (Three Months Ended June 30) | (in thousand USD) | 2023 ($) | 2022 ($) | | :--------------------------- | :------- | :------- | | Cash flow used in operating activities | (26,090) | (33,414) | | Share-based compensation related payroll taxes | 334 | 73 | | Transaction-related costs | 680 | 5,044 | | Restructuring charges | 830 | 583 | | Litigation provision | 76 | 2,159 | | Capitalized internally developed costs | (2,285) | (603) | | Adjusted cash flow used in operating activities | (26,455) | (26,158) | Summary of Factors Affecting our Performance This section outlines key factors influencing Lightspeed's performance, including market adoption, customer payment solution adoption, cross-selling, economic conditions, sales and marketing efforts, talent retention, international sales, seasonality, foreign exchange, and selective acquisitions Market Adoption of our Platform Lightspeed plans to drive market adoption of its advanced commerce platform, especially among complex, high-GTV customers, by expanding solutions, investing in product development and marketing, and pursuing selective acquisitions - The company aims to drive platform market adoption through solution expansion, product development, marketing, and selective acquisitions, focusing on complex, high-GTV customers[48] - The market is competitive and fragmented, and the company will focus on selling flagship products globally to reduce complexity and enhance performance[48] Customer Adoption of our Payments Solutions Payment solutions are a key revenue driver, with Lightspeed selling POS and payment solutions as a unified product to boost adoption, which may lower overall gross margin due to transactional revenue's lower margin but is expected to drive growth and simplify operations - Payment solutions are the largest driver of the company's revenue growth, and selling POS and payment solutions as a unified offering is expected to further increase customer adoption[49] - As payment solution revenue increases, overall gross margin may decline due to the lower gross margin of transactional revenue[49] Cross-selling and Up-selling with Existing Customers Existing customers represent a significant cross-selling and up-selling opportunity, with Lightspeed employing a "land and expand" strategy and investing in product development, including AI tools, to increase adoption of solutions like Lightspeed Advanced Insights, Payments, and Capital - Existing customers represent significant cross-selling and up-selling opportunities, with significantly reduced sales and marketing expenses[50] - The company employs a "land and expand" strategy and plans to continue investing in product development, including integrating Lightspeed B2B into POS and adopting AI tools[50] Economic Conditions and Resulting Consumer Spending Trends Lightspeed's performance is influenced by global economic conditions, where downturns can reduce consumer confidence and spending, impacting transaction volumes and customer churn, with SMBs being particularly vulnerable to macroeconomic factors, labor shortages, and supply chain issues - Global economic conditions and events may adversely affect consumer confidence, spending, and disposable income, thereby impacting the company's financial performance[51] - SMBs may be disproportionately affected by economic downturns, labor shortages, and global supply chain issues, leading to reduced usage of the company's platform[51][52] Scaling our Sales and Marketing Team Lightspeed's future revenue growth largely depends on the effectiveness of its sales and marketing efforts, with plans to continue significant investment in expanding the sales team and outbound lead generation, particularly in the US market and for complex merchants - Future revenue growth largely depends on the effectiveness of sales and marketing efforts, and the company plans to continue investing heavily in expanding its sales team[54] - Investing in outbound lead generation, particularly in the US market and for complex merchants and restaurateurs with high annual GTV[54] Retaining and Motivating Qualified Personnel Lightspeed's future success relies on attracting and retaining highly skilled talent, especially in technology, engineering, and sales, using equity awards as a key compensation component while balancing their impact on operating results - Attracting and retaining highly skilled talent, especially in technology, engineering, and sales, is crucial for the company's future success[55] - Equity awards are a key component of overall compensation, but share-based compensation expenses increase operating costs[55] International Sales Lightspeed sees significant international opportunities due to growing global demand for omnichannel platforms, planning investments in personnel, marketing, and selective acquisitions to support expansion while adhering to local regulatory frameworks - Global demand for omnichannel platforms continues to grow, presenting significant growth opportunities for the company's international business[56] - Plans to invest in personnel, marketing, and selective acquisitions to support international growth, while understanding and complying with local regulatory frameworks[56] Seasonality Lightspeed anticipates increased seasonality in its quarterly results as transactional revenue grows, with the quarter ending December 31 typically being the strongest due to the holiday season, and the quarter ending March 31 having the weakest GTV - As the proportion of transactional revenue increases, the seasonality of quarterly results is expected to continue to strengthen[57] - The quarter ending December 31 is typically the strongest for transactional revenue (holiday season), while the quarter ending March 31 usually has the weakest GTV[103] Foreign Currency Lightspeed faces foreign exchange risk, primarily from CAD and EUR, which can negatively impact USD-denominated revenues and expenses; the company uses forward foreign exchange contracts to hedge future cash flows and expenditures but not revenues - Foreign exchange fluctuations may negatively impact USD-denominated revenues (billed in local currencies) and expenses (primarily in CAD and EUR)[58] - The company has implemented a hedging program using forward foreign exchange contracts to mitigate the impact of FX fluctuations on future cash flows and expenditures, but does not hedge revenues[59] Selective Pursuit of Acquisitions Lightspeed complements organic growth with targeted acquisitions to accelerate product roadmaps, increase market penetration, and create shareholder value, though acquisitions can also divert management attention and lead to operational difficulties if not integrated properly - The company pursues targeted acquisitions to accelerate product roadmaps, increase market penetration, deepen vertical expertise, and create shareholder value for shareholders[60] - Acquisitions and investments may divert management's attention and lead to operational difficulties if not completed or integrated in a timely and proper manner[61] Key Components of Results of Operations This section details Lightspeed's revenue streams, direct costs of revenue, and operating expenses, providing a foundational understanding of its financial performance drivers Revenues Lightspeed's revenue comprises subscription revenue from software and services, transactional revenue from payment solutions and Lightspeed Capital, and hardware and other revenue from POS hardware sales and professional services - Subscription revenue is primarily generated from the sale of software solutions and add-on services, including maintenance and support[62] - Transactional revenue is generated from providing payment functionalities, including transaction fees and Lightspeed Capital's merchant cash advance programs[63] - Hardware and other revenue primarily comes from the sale of POS peripheral hardware and professional services for installation and implementation[65][66] Direct Cost of Revenues Direct cost of revenues includes subscription costs (support team salaries, hosting), transactional costs (payment processing, bank settlement), and hardware and other costs (hardware procurement, fulfillment, shipping, and professional services) - Subscription revenue costs primarily include support team salaries, employee-related costs, hosting infrastructure fees, and allocated corporate overhead[67] - Transactional revenue costs primarily include direct costs of payment solutions, direct costs of merchant cash advance programs, and support team salaries[68] - Hardware and other revenue costs primarily include hardware inventory procurement costs, third-party fulfillment company fees, shipping and handling fees, and professional services costs[69] Operating Expenses Operating expenses include general and administrative (finance, legal, HR), research and development (product management, core development), sales and marketing (sales, business development, customer acquisition), and acquisition-related compensation - General and administrative expenses include salaries and employee-related costs for finance, accounting, legal, administrative, and human resources departments, and are expected to decrease as a percentage of total revenue in the long term[70] - Research and development expenses are primarily for developing additional features and solutions, enhancing platform functionality and usability, and may qualify for tax credits[71] - Sales and marketing expenses are primarily for attracting new customers, retaining existing customers, and increasing revenue, and are expected to decrease as a percentage of total revenue with economies of scale and increased sales of the technology suite[72] - Acquisition-related compensation is the portion of consideration paid to key personnel of acquired companies, tied to ongoing employment or service obligations and specific performance criteria[73] Results of Operations This section provides a detailed analysis of Lightspeed's consolidated statements of loss, including revenue, cost of revenue, gross profit, and operating expense breakdowns, for the three months ended June 30, 2023 Consolidated Statements of Loss For the three months ended June 30, 2023, Lightspeed's net loss significantly narrowed to $48.7 million from $100.8 million in the prior year, driven by revenue growth and reduced operating expenses Consolidated Statements of Loss Key Data (Three Months Ended June 30) | (in thousand USD, except per share amounts) | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--------------------------- | :------- | :------- | :--------- | :--------- | | Total revenue | 209,086 | 173,882 | 35,204 | 20.2% | | Total cost of revenues | 121,181 | 96,357 | 24,824 | 25.8% | | Gross profit | 87,905 | 77,525 | 10,380 | 13.4% | | Total operating expenses | 146,147 | 182,417 | (36,270) | (19.9%) | | Operating loss | (58,242) | (104,892) | 46,650 | (44.5%) | | Net interest income | 10,362 | 2,007 | 8,355 | 416.3% | | Loss before income taxes | (47,880) | (102,885) | 55,005 | (53.5%) | | Total income tax expense (recovery) | 823 | (2,089) | 2,912 | (139.4%) | | Net loss | (48,703) | (100,796) | 52,093 | (51.7%) | | Net loss per share – basic and diluted | (0.32) | (0.68) | 0.36 | (52.9%) | Share-based Compensation Breakdown Total share-based compensation and related payroll taxes for the three months ended June 30, 2023, decreased by 51.1% to $18.7 million, primarily due to fewer and lower fair value equity awards issued in recent quarters and forfeitures Share-based Compensation and Related Payroll Taxes (Three Months Ended June 30) | (in thousand USD) | 2023 ($) | 2022 ($) | Change ($) | Change (%) | | :--------------------------- | :------- | :------- | :--------- | :--------- | | Direct cost of revenues | 1,853 | 2,246 | (393) | (17.5%) | | General and administrative expenses | 6,181 | 10,085 | (3,904) | (38.7%) | | Research and development expenses | 8,376 | 10,885 | (2,509) | (23.0%) | | Sales and marketing expenses | 2,323 | 15,086 | (12,763) | (84.6%) | | Total share-based compensation and related costs | 18,733 | 38,302 | (19,569) | (51.1%) | - The decrease in share-based compensation and related payroll taxes is primarily due to a reduction in the number and fair value of stock options and awards issued in prior quarters, as well as forfeitures in the current and prior periods (including during restructuring)[75] Revenue Analysis For the three months ended June 30, 2023, total revenue grew 20.2% to $209.1 million, with transactional revenue up 32.2% to $121.0 million, subscription revenue up 7.0% to $78.7 million, and hardware and other revenue up 6.7% to $9.4 million Revenue Growth Analysis (Three Months Ended June 30) | Revenue Type | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----------- | :-------- | :-------- | :---------- | :--------- | | Subscription Revenue | 78.7 | 73.6 | 5.2 | 7.0 | | Transactional Revenue | 121.0 | 91.5 | 29.4 | 32.2 | | Hardware and Other | 9.4 | 8.8 | 0.6 | 6.7 | | Total Revenue | 209.1 | 173.9 | 35.2 | 20.2 | - Transactional revenue growth is primarily due to the continued adoption of payment solutions, driven by the initiative to sell POS and payment solutions as a unified offering, resulting in a 56% increase in GPV to $5.1 billion[78][79] - Subscription revenue growth is primarily due to the adoption of flagship solutions, the addition of new customers, and existing customers adopting more platform modules[77] Direct Cost of Revenues Analysis For the three months ended June 30, 2023, total direct cost of revenues increased 25.8% to $121.2 million, with transactional revenue costs up 41.5% to $89.0 million, subscription costs down 5.3% to $19.3 million, and hardware and other costs down 1.6% to $12.8 million Direct Cost of Revenues Analysis (Three Months Ended June 30) | Cost Type | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :-------- | :-------- | :-------- | :---------- | :--------- | | Subscription | 19.3 | 20.4 | (1.1) | (5.3) | | Transactional | 89.0 | 62.9 | 26.1 | 41.5 | | Hardware and Other | 12.8 | 13.0 | (0.2) | (1.6) | | Total Cost | 121.2 | 96.4 | 24.8 | 25.8 | - The increase in transactional revenue costs is primarily due to the growth in payment solution revenue[83] - The decrease in hardware and other revenue costs is primarily due to salary and employee-related cost savings from restructuring, despite negative gross margins from discounts and free hardware offered to encourage new business and unified payment/POS products[84] Gross Profit Analysis For the three months ended June 30, 2023, gross profit increased 13.4% to $87.9 million, driven by subscription and transactional revenue growth; however, gross profit as a percentage of total revenue decreased from 44.6% to 42.0% due to the higher proportion of lower-margin transactional revenue Gross Profit Analysis (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Gross Profit | 87.9 | 77.5 | 10.4 | 13.4 | | As a percentage of total revenue | 42.0% | 44.6% | -2.6% | - | - The gross profit as a percentage of total revenue decreased, primarily due to the higher proportion of transactional revenue, which has a lower gross margin[85] Operating Expenses Analysis For the three months ended June 30, 2023, total operating expenses decreased 19.9% to $146.1 million, primarily driven by reductions in share-based compensation, acquisition-related compensation, and restructuring charges General and Administrative General and administrative expenses decreased 17.5% to $24.9 million year-over-year, mainly due to reduced share-based compensation, transaction-related costs, and litigation provisions, partially offset by increased bad debt expense General and Administrative Expenses (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | General and administrative expenses | 24.9 | 30.2 | (5.3) | (17.5) | | As a percentage of total revenue | 11.9% | 17.4% | -5.5% | - | - The decrease is primarily due to reduced share-based compensation (from $10.1 million to $6.2 million), transaction-related costs (from $1.9 million to $0.6 million), and litigation provision (from $0.9 million to zero)[86] Research and Development Research and development expenses decreased 4.5% to $34.0 million year-over-year, primarily due to reduced share-based compensation, partially offset by increased salaries and employee-related costs (despite restructuring savings) and professional service fees Research and Development Expenses (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Research and development expenses | 34.0 | 35.6 | (1.6) | (4.5) | | As a percentage of total revenue | 16.3% | 20.5% | -4.2% | - | - Share-based compensation decreased from $10.9 million to $8.4 million[88] Sales and Marketing Sales and marketing expenses significantly decreased 19.5% to $55.3 million year-over-year, primarily due to a substantial reduction in share-based compensation and prudent control over marketing and growth expenditures Sales and Marketing Expenses (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Sales and marketing expenses | 55.3 | 68.6 | (13.4) | (19.5) | | As a percentage of total revenue | 26.4% | 39.5% | -13.1% | - | - Share-based compensation decreased from $15.1 million to $2.3 million[89] - Other sales and marketing expenditures decreased by $2.6 million, reflecting prudent control over marketing acquisition and growth spending[89] Depreciation Total depreciation expense increased 12.8% to $3.7 million year-over-year, primarily due to additions to property and equipment and new lease commitments over the past 12 months Depreciation Expense (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Depreciation of property and equipment | 1.5 | 1.2 | 0.2 | 19.3 | | Depreciation of right-of-use assets | 2.2 | 2.0 | 0.2 | 8.9 | | Total Depreciation | 3.7 | 3.3 | 0.4 | 12.8 | Foreign Exchange Loss Foreign exchange loss increased 51.5% to $0.7 million year-over-year, primarily due to financial assets and liabilities denominated in non-USD currencies Foreign Exchange Loss (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Foreign exchange loss | 0.7 | 0.4 | 0.2 | 51.5 | Acquisition-related Compensation Acquisition-related compensation expenses significantly decreased 85.1% to $2.5 million year-over-year, as deferred compensation from the NuORDER and Ecwid acquisitions was partially or fully settled Acquisition-related Compensation (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Acquisition-related compensation | 2.5 | 17.1 | (14.6) | (85.1) | - The decrease is primarily due to the partial or full settlement of deferred compensation from the NuORDER and Ecwid acquisitions[92] Amortization of Intangible Assets Amortization of intangible assets decreased 5.3% to $24.5 million year-over-year, mainly because intangible assets such as Chronogolf customer relationships and software technologies from Chronogolf, Kounta, and Gastrofix were fully amortized by June 30, 2023 Amortization of Intangible Assets (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Amortization of intangible assets | 24.5 | 25.9 | (1.4) | (5.3) | - The decrease is primarily due to the full amortization of intangible assets such as Chronogolf customer relationships and software technologies from Chronogolf, Kounta, and Gastrofix[93] Restructuring Restructuring charges decreased 60.9% to $0.472 million year-over-year, entirely consisting of severance payments from the restructuring initiated during the fiscal year ended March 31, 2023, for synergy and organizational agility Restructuring Charges (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Restructuring charges | 0.5 | 1.2 | (0.7) | (60.9) | - Restructuring charges consist entirely of severance payments resulting from the restructuring initiated during the fiscal year ended March 31, 2023, to achieve synergies and organizational agility[94] Other Income For the three months ended June 30, 2023, net interest income significantly increased 416.3% to $10.4 million, primarily due to higher interest income from cash and cash equivalents and reduced interest expense from repaying the acquisition term loan Net Interest Income (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Net interest income | 10.4 | 2.0 | 8.4 | 416.3 | - The increase is primarily due to an $8.0 million increase in interest income from cash and cash equivalents and a $0.3 million decrease in interest expense from the repayment of the acquisition term loan[95] Income Taxes For the three months ended June 30, 2023, income taxes shifted from a $2.1 million recovery in the prior year to an $0.8 million expense, mainly due to a decrease in deferred income tax recovery Income Tax Expense (Recovery) (Three Months Ended June 30) | Metric | 2023 (million USD) | 2022 (million USD) | Change (million USD) | Change (%) | | :----- | :-------- | :-------- | :---------- | :--------- | | Current | 1.2 | 0.3 | 0.9 | 360.2 | | Deferred | (0.4) | (2.4) | 2.0 | (83.3) | | Total income tax expense (recovery) | 0.8 | (2.1) | 2.9 | (139.4%) | - Income taxes shifted from a recovery to an expense, primarily due to a $2.0 million decrease in deferred income tax recovery[96] Key Balance Sheet Information This section presents key balance sheet data and quarterly operating results, highlighting changes in assets, liabilities, and the impact of seasonality on revenue and gross profit Key Balance Sheet Information As of June 30, 2023, total assets decreased by $40 million (1%) from March 31, 2023, mainly due to reduced cash and cash equivalents, intangible assets, and trade receivables, while total liabilities decreased by $13 million (8%), driven by lower accrued compensation, trade payables, and income taxes payable Key Balance Sheet Information | (in thousand USD) | June 30, 2023 ($) | March 31, 2023 ($) | Change ($) | Change (%) | | :--------------------------- | :---------------- | :----------------- | :--------- | :--------- | | Cash and cash equivalents | 780,277 | 800,154 | (19,877) | (2.5%) | | Total assets | 2,628,740 | 2,668,732 | (39,992) | (1.5%) | | Total liabilities | 158,236 | 171,283 | (13,047) | (7.6%) | | Total long-term liabilities | 20,146 | 20,826 | (680) | (3.3%) | - The decrease in total assets is primarily due to a $19.9 million decrease in cash and cash equivalents from cash used in operating activities, as well as reductions in intangible assets and trade and other receivables[99] - The decrease in total liabilities is primarily due to reductions in accrued compensation and benefits, trade and other payables, and income taxes payable[100] Quarterly Results of Operations Lightspeed's quarterly revenue generally shows an upward trend, with seasonal dips in quarters ending March 31 due to lower post-holiday GTV; direct cost of revenues increases with transactional revenue, gross margin declines due to lower-margin payment solutions, and operating expenses fluctuate with share-based compensation, acquisitions, and restructuring - Quarterly total revenue has consistently grown over the reporting period (except for the quarters ended March 31, 2022, and March 31, 2023), primarily driven by increases in subscription and transactional revenue[103] - Total direct cost of revenues increased, primarily due to higher direct costs associated with the growing number of customers adopting payment solutions[105] - Gross profit as a percentage of revenue decreased due to the success of payment solutions, which have higher direct costs[106] - Operating expenses fluctuated due to factors such as share-based compensation, acquisition-related compensation, goodwill impairment, and restructuring charges[107] Liquidity and Capital Resources This section details Lightspeed's capital management strategy, liquidity position, base shelf prospectus, and cash flow activities, ensuring sufficient resources for operations and strategic goals Overview Lightspeed's capital management strategy aims to maintain operational capacity and provide shareholder returns, ensuring adequate liquidity through cash flow monitoring and existing financing, with a working capital surplus of $778.1 million as of June 30, 2023 - The capital management strategy aims to maintain operating capacity, provide benefits to stakeholders, and deliver an appropriate return on investment to shareholders[109] - As of June 30, 2023, the working capital surplus was $778.1 million, and the company believes existing cash and available financing are sufficient to meet current and short-term growth needs and long-term strategic objectives[110] Base Shelf Prospectus In May 2023, Lightspeed filed a new short-form base shelf prospectus, allowing it to issue various securities, including subordinate voting shares, preferred shares, debt securities, and warrants, over a 25-month period - In May 2023, the company filed a new short-form base shelf prospectus, allowing it to issue various securities, including subordinate voting shares, preferred shares, debt securities, and warrants, over a 25-month period[111] Cash Flows For the three months ended June 30, 2023, cash flow used in operating activities was $26.1 million, cash flow from investing activities was $7.1 million, and cash flow used in financing activities was $0.9 million, resulting in a net decrease of $19.9 million in cash and cash equivalents Cash Flows (Three Months Ended June 30) | (in thousand USD) | 2023 ($) | 2022 ($) | Change ($) | | :--------------------------- | :------- | :------- | :--------- | | Cash flow used in operating activities | (26,090) | (33,414) | 7,324 | | Cash flow from (used in) investing activities | 7,141 | (2,192) | 9,333 | | Cash flow used in financing activities | (925) | (1,810) | 885 | | Effect of foreign exchange on cash and cash equivalents | (3) | (1,449) | 1,446 | | Net decrease in cash and cash equivalents | (19,877) | (38,865) | 18,988 | - Adjusted cash flow used in operating activities was $26.5 million, a slight increase compared to $26.2 million in the prior year, primarily impacted by changes in working capital[113] - Cash flow from investing activities shifted from an outflow to an inflow, primarily due to an $8.2 million increase in interest income and a $2.0 million decrease in additions to property and equipment[114] Financial Instruments and Other Instruments This section addresses Lightspeed's contractual obligations, off-balance sheet arrangements, related party transactions, and various financial risks including credit, liquidity, foreign exchange, interest rate, share price, and inflation risks Contractual Obligations Lightspeed's contractual obligations have increased, including renegotiated contracts with payment processors that will incur $12.435 million in commitments over the next five years - The company has renegotiated certain contracts with payment processors, resulting in $12.435 million in commitments over the next five years[119] Off-Balance Sheet Arrangements Lightspeed has no significant off-balance sheet arrangements, apart from low-value and short-term leases and other purchase obligations - The company has no significant off-balance sheet arrangements, other than low-value and short-term leases and other purchase obligations[120] Related Party Transactions Lightspeed has no significant related party transactions, other than those disclosed in its unaudited condensed interim consolidated financial statements - The company has no significant related party transactions[121] Credit and Concentration Risk Lightspeed's credit risk, primarily from cash and cash equivalents and trade and other receivables, is managed by maintaining balances with high-credit-quality financial institutions and continuous analysis of trade receivables, with increased expected credit loss provisions due to macroeconomic uncertainty - Credit risk primarily arises from cash and cash equivalents and trade and other receivables, managed by maintaining balances with high-credit-quality financial institutions and continuous analysis of trade receivables[123][124] - Expected credit loss provisions increased due to the uncertain macroeconomic environment[126] Liquidity Risk Lightspeed manages liquidity risk by forecasting operating cash flows and investing financing activities; as of June 30, 2023, the company had $780.3 million in cash and cash equivalents and available credit facilities to meet financial commitments - The company manages liquidity risk by forecasting cash flows, and as of June 30, 2023, had $780.3 million in cash and cash equivalents and available credit facilities[127] Foreign Exchange Risk Lightspeed faces foreign exchange risk from financial instruments denominated in foreign currencies like CAD and EUR, which it mitigates through cash flow hedges using forward foreign exchange contracts, with a notional principal of approximately CAD 79.8 million as of June 30, 2023 - The company faces foreign exchange risk from financial instruments denominated in foreign currencies such as CAD, EUR, GBP, AUD, CHF, and NZD[128] - The company uses forward foreign exchange contracts for cash flow hedging, with a notional principal of approximately CAD 79.8 million as of June 30, 2023[128] Interest Rate Risk Lightspeed does not face significant interest rate risk, as most of its financial instruments, including trade and other receivables, payables, accrued liabilities, and lease liabilities, are non-interest bearing, with only a portion of its cash generating interest - The company does not face significant interest rate risk as most financial instruments are non-interest bearing[129] Share Price Risk Share price fluctuations impact accrued payroll taxes (social costs) related to share-based compensation, with an increase in share price leading to higher accrued social costs and vice versa - Share price fluctuations affect accrued payroll taxes (social costs) related to share-based compensation, with an increase in share price leading to higher accrued social costs[130] Inflation Risk Lightspeed faces inflation risk, which could increase operating costs and employee compensation, and negatively impact customer businesses and the company's financial performance by reducing consumer spending and transaction volumes - Inflation risk may lead to increased operating costs and employee compensation[131] - Inflation may negatively impact the company's financial performance by reducing consumer spending and transaction volumes[131] Critical Accounting Policies and Estimates This section outlines the significant management judgments and estimates required for financial statement preparation, covering revenue recognition, impairment of non-financial assets (especially goodwill), business combinations, deferred tax asset recoverability, share-based compensation, and provisions Critical Accounting Policies and Estimates Financial statement preparation requires significant management judgments and estimates in areas such as revenue recognition, impairment of non-financial assets (especially goodwill), business combinations, deferred tax asset recoverability, share-based compensation, and provisions - Financial statement preparation requires significant management judgments and estimates in areas such as revenue recognition, impairment of non-financial assets, business combinations, recoverability of deferred tax assets, share-based compensation, and provisions[132] - Goodwill impairment testing is based on internal estimates of fair value less costs to dispose, with key assumptions including discount rates, terminal multiples, and revenue growth rates[134][135] - Business combinations are accounted for using the acquisition method, with assets and liabilities recorded at estimated fair values, requiring significant estimates and judgments for intangible assets and contingent consideration[136] New Accounting Pronouncements As of June 30, 2023, no new accounting pronouncements are expected to significantly impact Lightspeed, though the company is evaluating the IASB's amendments to IAS 12 (Income Taxes) regarding "Pillar Two Model Rules" - As of June 30, 2023, no new accounting pronouncements are expected to have a significant impact on Lightspeed[141] - The company is evaluating the impact of the IASB's amendments to IAS 12 (Income Taxes) regarding "International Tax Reform—Pillar Two Model Rules"[142] Outstanding Share Information As of August 1, 2023, Lightspeed had 152,185,121 subordinate voting shares issued and outstanding, along with various options, DSUs, RSUs, and PSUs under different incentive plans Outstanding Share Information (As of August 1, 2023) | Instrument | Number Outstanding | Number Vested | | :-------------------------------- | :------------------- | :----- | | Subordinate Voting Shares | 152,185,121 | N/A | | Options (2012 Stock Option Plan) | 273,673 | 273,673 | | Options (Omnibus Incentive Plan) | 11,240,958 | 3,151,880 | | Options (Inducement Grants) | 104,167 | 104,167 | | Options (ShopKeep Inc. Plan) | 203,024 | 202,461 | | DSUs (Omnibus Incentive Plan) | 85,456 | N/A | | RSUs (Omnibus Incentive Plan) | 6,492,343 | 1,050,555 | | RSUs (Inducement Grants) | 273 | 273 | | PSUs (Omnibus Incentive Plan) | 95,328 | 0 | Disclosure Controls and Procedures and Internal Control Over Financial Reporting Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting, acknowledging inherent limitations of control systems - The Chief Executive Officer and Chief Financial Officer assessed and concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[149] - No changes to the company's internal control over financial reporting occurred during the period ended June 30, 2023, that materially affected it[151] - Management acknowledges that any control system has inherent limitations, providing only reasonable, not absolute, assurance and cannot prevent or detect all misstatements due to error or fraud[152]