Lightspeed(LSPD) - 2023 Q2 - Quarterly Report

Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Lightspeed offers a cloud-based commerce platform for SMBs, with its strategy focused on integrating POS and payments, driving 25% revenue growth to $230.3 million in Q2 FY2024 - Lightspeed provides a cloud commerce platform for SMBs, integrating omni-channel sales, back-office operations, and payments[14][15] - The company's flagship solutions, Lightspeed Restaurant and Lightspeed Retail, are being sold as a unified offering with embedded payments, a key strategic initiative to increase customer adoption and monetize a larger portion of GTV[16][17] Q2 FY2024 Key Metrics vs. Q2 FY2023 | Metric | Q2 FY2024 (3 months ended Sep 30, 2023) | Q2 FY2023 (3 months ended Sep 30, 2022) | YoY Growth | | :--- | :--- | :--- | :--- | | Total Revenue | $230.3 million | $183.7 million | 25% | | Gross Payment Volume (GPV) | $5.9 billion | $3.7 billion | 59% | | Gross Transaction Volume (GTV) | $23.5 billion | $22.3 billion | 5% | | Monthly ARPU (ex-Ecwid) | ~$425 | ~$337 | 26% | - Transaction-based revenue has become the largest revenue stream, accounting for 60% of total revenues for the quarter, up from 55% in the prior year, reflecting the success of the payments strategy[22] Sustainability and Macroeconomic Conditions Lightspeed commits to sustainability and DEI, viewing macroeconomic uncertainties as drivers for SMB adoption of its cloud-based solutions - Sustainability efforts include the Carbon Free Dining program, which has planted over 1.5 million trees, and partnerships with carbon-neutral cloud providers like AWS and Google Cloud[26] - The company maintains a target of at least 37.5% female representation on its board and grants equity to all permanent employees upon hiring[27] - Despite macroeconomic pressures, Lightspeed sees an opportunity as SMBs increasingly replace legacy on-premise systems with modern, cloud-based platforms to manage labor shortages and find new efficiencies[29] - The company has no significant operations in the Middle East, Russia, or Ukraine but has relocated many personnel from Russia and increased cybersecurity monitoring in response to geopolitical instability[31] Key Performance Indicators Lightspeed tracks ARPU, GPV, and GTV, reporting strong Q2 FY2024 growth in ARPU and GPV, reflecting payments solution scaling Key Performance Indicators (Q2 FY2024 vs Q2 FY2023) | KPI | Definition | Q2 FY2024 (3 months ended Sep 30, 2023) | YoY Growth | | :--- | :--- | :--- | :--- | | ARPU (monthly, ex-Ecwid) | Total subscription & transaction revenue per customer location. | ~$425 | 26% | | GPV | Total transaction value processed through Lightspeed Payments. | $5.9 billion | 59% | | GTV | Total transaction value processed through the software platform. | $23.5 billion | 5% | Non-IFRS Measures and Ratios Lightspeed uses non-IFRS measures like Adjusted EBITDA and Adjusted Income, achieving positive results in Q2 FY2024, signaling profitability progress Reconciliation of Net Loss to Adjusted EBITDA (Q2 FY2024 vs Q2 FY2023) | (In thousands of US dollars) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | | Net loss | (42,492) | (79,943) | | Adjusted EBITDA | 242 | (8,523) | Reconciliation of Net Loss to Adjusted Income (Loss) (Q2 FY2024 vs Q2 FY2023) | (In thousands of US dollars) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | | Net loss | (42,492) | (79,943) | | Adjusted Income (Loss) | 6,404 | (7,468) | | Adjusted Income (Loss) per Share | $0.04 | ($0.05) | Reconciliation of Cash Flows to Adjusted Cash Flows (Q2 FY2024 vs Q2 FY2023) | (In thousands of US dollars) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | | Cash flows used in operating activities | (24,846) | (23,859) | | Adjusted Cash Flows Used in Operating Activities | (26,455) | (22,840) | Summary of Factors Affecting our Performance Lightspeed's performance depends on platform adoption, unified POS/payments strategy, AI investment, and international expansion, facing economic, competitive, and FX risks - A core strategy is the mandatory adoption of Lightspeed Payments for eligible new and existing customers to increase transaction-based revenue and simplify operations[47] - The company plans to continue investing in product development, including Lightspeed B2B and AI tools, to enhance its platform and drive cross-selling opportunities[48][49] - Performance is sensitive to economic conditions that impact consumer spending and SMB health, as well as competition from a fragmented market of both large and small vendors[46][51] - Foreign currency risk exists as a portion of revenues and expenses are in non-USD currencies. The company uses hedging for some expenses but not for revenue[59][60][61] Key Components of Results of Operations This section details Lightspeed's revenue streams (Subscription, Transaction-based, Hardware) and cost categories, with operating expenses expected to decrease as a percentage of revenue - Revenue Streams: - Subscription Revenue: Fees for software solutions, sold on monthly or annual plans - Transaction-based Revenue: Fees from payment processing (Lightspeed Payments), revenue sharing with partners, and merchant cash advances (Lightspeed Capital) - Hardware and Other Revenue: One-time sales of POS hardware and professional implementation services[64][65][67] - Cost Structure: - Direct Cost of Revenues: Includes hosting, support salaries, payment processing fees (interchange), and hardware costs - Operating Expenses: Comprises G&A (finance, legal, HR), R&D (product development), and Sales & Marketing[69][70][72] Results of Operations Lightspeed reported Q2 FY2024 total revenue of $230.3 million, up 25%, narrowing operating loss to $52.0 million through disciplined expense management Consolidated Statement of Loss Summary (Q2 FY2024 vs Q2 FY2023) | (In thousands of US dollars) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | | Total revenues | 230,273 | 183,699 | | Total cost of revenues | 134,105 | 102,230 | | Gross profit | 96,168 | 81,469 | | Total operating expenses | 148,154 | 168,285 | | Operating loss | (51,986) | (86,816) | | Net loss | (42,492) | (79,943) | Revenues Total revenue for Q2 FY2024 increased 25.4% to $230.3 million, driven by 35.9% transaction-based revenue growth and 59% GPV rise Revenue by Type (Q2 FY2024 vs Q2 FY2023) | Revenue Type | Q2 2023 ($ thousands) | Q2 2022 ($ thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription | 81,043 | 74,494 | 6,549 | 8.8% | | Transaction-based | 137,672 | 101,304 | 36,368 | 35.9% | | Hardware and other | 11,558 | 7,901 | 3,657 | 46.3% | | Total revenues | 230,273 | 183,699 | 46,574 | 25.4% | - The increase in transaction-based revenue was primarily due to accelerated adoption of payments solutions driven by the unified POS and payments initiative, leading to a 59% increase in GPV[82] Direct Cost of Revenues Total direct cost of revenues for Q2 FY2024 rose 31.2% to $134.1 million, with hardware costs showing negative margins due to promotional incentives Direct Cost of Revenues by Type (Q2 FY2024 vs Q2 FY2023) | Cost Type | Q2 2023 ($ thousands) | Q2 2022 ($ thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Subscription | 19,963 | 20,657 | (694) | (3.4)% | | Transaction-based | 99,425 | 70,011 | 29,414 | 42.0% | | Hardware and other | 14,717 | 11,562 | 3,155 | 27.3% | | Total costs of revenues | 134,105 | 102,230 | 31,875 | 31.2% | - Hardware and other revenue had a negative margin (127.3% cost of revenue) due to discounts and free hardware provided to assist customers in transitioning to the unified Payments and POS offering[93] Gross Profit Gross profit for Q2 FY2024 increased 18.0% to $96.2 million, with margin decreasing to 41.8% due to revenue mix shift Gross Profit and Margin (Q2 FY2024 vs Q2 FY2023) | Metric | Q2 2023 | Q2 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Gross profit ($ thousands) | 96,168 | 81,469 | 14,699 | 18.0% | | Gross profit % of total revenues | 41.8% | 44.3% | - | - | Operating Expenses Operating expenses showed significant leverage in Q2 FY2024, decreasing as a percentage of revenue due to lower share-based compensation and restructuring savings Operating Expenses as a Percentage of Total Revenues (Q2 FY2024 vs Q2 FY223) | Expense Category | Q2 2023 (% of Revenue) | Q2 2022 (% of Revenue) | | :--- | :--- | :--- | | General and administrative | 11.4% | 13.7% | | Research and development | 14.4% | 19.9% | | Sales and marketing | 26.2% | 35.0% | - Acquisition-related compensation expense decreased by 95.6% to $0.6 million as amortization schedules for past acquisitions like NuORDER and Ecwid concluded[107][109] - Share-based compensation and related payroll taxes decreased to $23.3 million from $34.9 million in the prior year, contributing to lower operating expenses across all functions[77] Other Income and Income Taxes Net interest income for Q2 FY2024 increased 121.5% to $10.7 million, while income tax shifted from a recovery to a $1.3 million expense - Net interest income grew significantly to $10.7 million from $4.9 million year-over-year, driven by higher interest rates on the company's cash balances[113][115] - The company shifted from a total income tax recovery of $2.0 million in Q2 FY2023 to a total income tax expense of $1.3 million in Q2 FY2024[116] Key Balance Sheet Information As of September 30, 2023, Lightspeed maintained a strong balance sheet with $761.5 million in cash and total assets at $2.61 billion Balance Sheet Summary | (In thousands of US dollars) | September 30, 2023 | March 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | 761,491 | 800,154 | | Total assets | 2,610,857 | 2,668,732 | | Total liabilities | 162,607 | 171,283 | - Total assets decreased by $57.9 million, mainly due to a $38.7 million decrease in cash from operating activities and a $43.6 million decrease in intangible assets from amortization[119] - Total liabilities decreased by $8.7 million, driven by reductions in accrued compensation, income taxes payable, and deferred revenue[120] Quarterly Results of Operations Eight-quarter data shows consistent revenue growth and steady gross profit, with operating loss significantly improving to $52.0 million in Q2'24, reflecting cost management - Quarterly revenues have increased successively, except for seasonal weakness in the March quarters (Q4), which are historically the weakest for GTV post-holiday season[123] - Operating expenses have generally decreased sequentially in recent quarters (excluding a large goodwill impairment in Dec 2022 and restructuring charges in Mar 2023), reflecting cost control measures[127] Selected Quarterly Data (In thousands of US dollars) | Quarter Ended | Revenues | Gross Profit | Operating Loss | Net Loss | | :--- | :--- | :--- | :--- | :--- | | Sept. 30, 2022 | 183,699 | 81,469 | (86,816) | (79,943) | | Dec. 31, 2022 | 188,697 | 86,006 | (824,493) | (814,802) | | Mar. 31, 2023 | 184,228 | 86,961 | (82,839) | (74,468) | | Jun. 30, 2023 | 209,086 | 87,905 | (58,242) | (48,703) | | Sept. 30, 2023 | 230,273 | 96,168 | (51,986) | (42,492) | Liquidity and Capital Resources Lightspeed maintains strong liquidity with $761.5 million in cash and a $775.3 million working capital surplus, sufficient for its needs Cash Flow Summary (Q2 FY2024 vs Q2 FY2023) | (In thousands of US dollars) | Three months ended Sep 30, 2023 | Three months ended Sep 30, 2022 | | :--- | :--- | :--- | | Cash flows used in operating activities | (24,846) | (23,859) | | Cash flows from investing activities | 7,855 | 1,853 | | Cash flows used in financing activities | (1,485) | (28,829) | | Net decrease in cash | (18,786) | (52,213) | - The company has a working capital surplus of $775.3 million and believes it has sufficient liquidity for its requirements[130] - In May 2023, the company filed a new base shelf prospectus, allowing it to offer various securities over a 25-month period to raise capital if needed[131] Financial Instruments and Risk Management Lightspeed faces credit, liquidity, foreign exchange, interest rate, share price, and inflation risks, managing FX with forward contracts - Credit risk is primarily from cash and trade receivables, including merchant cash advances. The company maintains an allowance for expected credit losses (ECL)[145][147] - Foreign exchange risk is managed by using forward contracts to hedge cash flows for certain expenses (primarily USD/CAD), but revenue is not hedged[150] - Inflation risk is identified as a factor that could increase operating costs and negatively impact customer spending, which would affect transaction volumes[153] Critical Accounting Policies and Estimates Financial statement preparation requires judgment in revenue recognition, asset impairment, and deferred tax assets; a goodwill impairment test in Q2 FY2024 resulted in no charge - Key estimates involve revenue recognition (principal vs. agent), business combinations (fair value of intangible assets), and share-based compensation (valuation models)[155][158][161] - An impairment test for goodwill was performed as of September 30, 2023, because the carrying amount of net assets exceeded market capitalization. The test, using a fair value less costs of disposal model, demonstrated no impairment of goodwill[157] Outstanding Share Information As of October 31, 2023, Lightspeed had 152,585,256 Subordinate Voting Shares outstanding, plus stock options, DSUs, and RSUs Outstanding Securities as of October 31, 2023 | Security Type | Number Outstanding | | :--- | :--- | | Subordinate Voting Shares | 152,585,256 | | Stock Options (all plans) | 11,532,552 | | Deferred Share Units (DSUs) | 97,238 | | Restricted Share Units (RSUs) | 6,641,497 | Disclosure Controls and Procedures and Internal Control Over Financial Reporting Management concluded Lightspeed's DC&P and ICFR were effective as of September 30, 2023, with no material changes identified - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[171] - No changes were identified during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[173]