Q2 2023 Lightspeed Commerce Inc Earnings Call
Based on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
To withdraw your question. Please press star one again.
Thank you Gus Bob Giorgio head of Investor Relations you may begin.
Thank you operator, and good morning, everyone. Welcome to Lightspeed fiscal Q2 2023 conference call. Joining me today are J P Survey Lightspeed, Chief Executive Officer, Brendan Nafie, Lightspeed, Chief operating officer, and Ashok <unk>, Our Chief Financial Officer. After prepared remarks, we will open it up for <unk>.
Questions.
We will make forward looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Certain material factors and assumptions were applied in respect of conclusions forecasts and projections contained in these statements. We undertake no obligation to update these statements except as required by law.
Should carefully review these factors assumptions risks and uncertainties in our earnings press release issued earlier today, our second quarter 2023 results presentation available on our website as well as in our filings with U S and Canadian Securities regulators.
So our commentary today will include adjusted financial measures, which are non <unk> measures and ratios. These should be considered as a supplement to and not as substitute for <unk> financial measures reconciliations between the two can be found in our earnings press release, which is available on our website on SEDAR Dot com.
And on the SEC Edgar system, and finally note that because we report in US dollars. All amounts discussed today are in U S dollars unless otherwise indicated.
Before I turn it over to J P. I would like to remind everyone that we will be hosting our capital markets day on November 15th here at our headquarters in Montreal.
For investors that would like to attend please registered by visiting the Investor Relations section of our website.
With that I will now turn the call over to JP.
Thank you and welcome everyone. Thank you for joining us this morning.
Lightspeed reported another strong quarter today we.
We delivered revenue of $184 million ahead of our past outlook of $178 million to $183 million.
Overall organic software and transaction based revenue grew by 35% or <unk> grew 86% much higher than our <unk> growth of 18% and what's more our total <unk> grew 25% to 337 per location excluding equity.
On a constant currency basis revenue was $187 2 million, representing 41% growth year over year, and our GTD with $23 8 billion, representing 26% growth.
Our efforts of Upselling, our customers on software and payments helped us deliver strong revenue performance this quarter.
And we continue to see success in our target market of complex Smbs.
Actually among higher GTD customers.
Our customer base continues to shift towards larger more established customers that can use more of our software modules along with payments.
These more complex high GTD customers tend to generate higher <unk> show lower churn and are more likely to take advantage of lightspeed advanced inventory management capabilities.
Believe that the results for the quarter show that our strategy of focusing on quality over quantity of customers is working.
In the quarter, we signed several multi locations and marquee customers, including lost area with 130 restaurants in Germany and expanding across Europe .
<unk> offers authentic Italian cuisine to its many customers.
And for our flagship product Lightspeed restaurant with payments.
In all of their German locations and will soon be rolling out to European countries.
Spell Occitan five star resort and Spa in France will adopt our flagship lightspeed restaurants in payments.
The conflict of French casual fine dining restaurant in Manhattan's Upper West side shows lightspeed for a robust analytics and reporting capabilities.
And how is our Busch Inbev selected our headless e-commerce solution for their mobile offering to merchants across their southern American operations.
Our California food retailer with 53 locations, we will be using our flagship lightspeed retail offering along with payments.
Although the macro environment impacted our business.
It is encouraging to see that in the areas that we control we are performing well our new flagship products are being strongly received by customers globally.
Payments adoption continues to increase and our go to market teams are showing very good progress at both upselling, our existing customers and focusing on adding the right new customers to the lightspeed founded.
The macro environment does present its challenges, but it also presents opportunities.
Our customers are facing unprecedented conditions inflation is putting upward pressure on price and squeezing profit margins.
<unk> shortages are making it harder to operate a business and properly serve customers.
Net of a recession is making consumers more cautious about their spending habits and the omnichannel expectations consumers developed during the Covid pandemic made operating a small business more complicated than ever.
Meanwhile, many of the Smbs are still stuck with David legacy systems and capable of addressing the challenges they face.
I believe this presents a unique moment in time for Lightspeed.
Given the various challenges pressures on SMB customers.
On the way out is to leverage technology. The Lightspeed cloud based commerce platform can help smbs to operate with fewer employees by automating time consuming and mundane tasks.
Better manage their inventory.
Understand which menu items drive profitability and repeat business serve customers through in store and online channels and accept and process payments in person or online.
But to continue to help our customers.
As a business need to execute effectively.
This means meeting our short term and long term goals between now and the end of our fiscal year I have three key goals.
The first is the finished integrating our acquisitions into one company with one brand and two core product offerings globally.
The projects, we have internally labeled as one lightspeed.
The second is to drive payments adoption across as many customers are new and existing as possible.
And the last is to position the company to reach profitability.
Reaching our goal of one lightspeed is very important to me in this organization.
We are currently selling various platforms in various markets around the world. This adds unnecessary complexity and cost of our organization and hinders our go to market momentum.
By the end of our fiscal year, we expect to largely be selling only two flagship products globally, lightspeed retail and Lightspeed restaurant, which we believe are the most powerful modern and comprehensive offerings in the market today.
Being a unified company with two flagship offerings lets us reduce circumspect city improve our go to market momentum and deliver stronger financial performance.
Payments will also continue to be a priority, although I'm encouraged by our progress since launching this offering three years ago. There is still much more to do.
Payments is now available in all of our major markets and we're doing very well at selling it to new customers.
Our focus now is to get as many of our existing customers onto payments as possible. We have launched several initiatives to make it happen and I personally continue to motivate the teams to advance our payments offering to more and more customers.
Finally, as an organization, we continue to strive towards profitability.
Even with the macroeconomic environment presented its challenges we remain focused on profitable growth by Upselling, our customers expanding payments.
Adding the right customers to the Lightspeed family. We believe we can improve our unit economics, which is the foundation for reaching profitability we will continue.
To invest in our business, but reaching profitability will remain a priority for this company.
I'll now turn it over to brands internationally to go into more details and we'll wrap it up before we go into Q&A.
Thanks JP I'll.
I'll speak briefly about some of our main operational focuses at this time.
As you heard from JP adoption of payments remains one of our top priorities.
And we made good progress there again this quarter.
Payments provides us with a more complete customer experience is an important driver for our path to profitability and as a major growth area for us we.
We are fortunate, particularly during challenging times in the market.
To have the white space, we do within our existing base of customers.
Our <unk> in the quarter was $3 7 billion up 86% from the prior year.
With over $20 billion in total <unk> this quarter, we still have significant opportunities ahead as.
As many of you know, we first launched payments to our retail customers in North America.
We now have our payment solutions available in our international markets and across most of our products.
As I mentioned last quarter with that now in place we are doubling down on our efforts to increase adoption of lightspeed payments.
The results have been encouraging so far this quarter, we saw the number of payments sales and hospitality outpace our more mature retail product vertical.
We saw our markets outside of North America, representing close to half of our total payments wins this quarter.
This is encouraging early progress and is a main contributor.
Two our increased amount of GPP.
We continue to believe that the timing is right for this initiative with uncertainty looming for our customers, having payments and point of sale together in a streamlined workflow becomes more compelling to them, helping them save time and money and freeing them up to focus elsewhere.
Payments also helps us unlock other financial services opportunities one of those is lightspeed capital.
I'll still modest in overall dollars Lightspeed capital has been growing nicely, but we are seeing this as a valuable part of our portfolio.
We now have made capital available to eligible customers in both our retail and hospitality verticals in the United States, Canada, and Australia with more markets to follow.
Total revenue and gross profit from Lightspeed capital is up more than 200% year over year with the number and amount of advances made in the quarter more than doubling year over year.
At the end of the quarter over $12 million in advances were outstanding with minimal default losses from customers incurred to date reflective of our quality customer base.
We expect to see Lightspeed capital continued its growth path and we will continue to manage this sensibly with the current market context in mind.
Finally, we are closely managing our operating expenses, it's clear that the macroeconomic environment is impacting our end markets.
While we remain confident in our business model and long term prospects.
Management of our operating expenses as important during these times.
We have taken and will continue to take a very disciplined approach to opex, ensuring that our spend is directed in only the highest ROI areas.
We have already adjusted hiring plans to this effect across the business.
We're seeing the synergies from our recent acquisitions and they've been able to reduce our spending in areas such as G&A.
Infrastructure and other areas of overhead.
As we get closer to having one brand with our flagship offerings available in all of our markets globally, let's see other synergies unlocked as well.
As Youll hear from Asher, we remain committed to our path to profitability.
Despite these uncertain times and our end markets that will ensure we manage our expenses accordingly.
I'll now pass it over to Ashley to take you through the quarter's numbers and our outlook.
Thanks Brandon.
<unk> delivered another strong quarter with revenue and adjusted EBITDA loss about previously established outlook with revenue of $183 7 million growing 38% from Q2 last year and 41% on a constant.
Okay.
Software and payments organic revenue growth was 35% year over year within our targeted range.
We exceeded our adjusted EBITDA outlook with an adjusted EBITDA loss of $8 5 million ahead of our previously established outlook of $10 million.
As you heard from branded we're also very pleased with how well payments uptake has been going and our G. PV grew 86% year over year to $3 7 billion.
We are laser focused on improving our EBITDA margins as we continue to find efficiencies in our business and we are happy with our progress there.
But these are challenging times for end market and for our merchants.
There's a lot happening in the macro environment and I would like to provide some clarity on the main things we have on our minds as we look ahead.
First is our GTD.
Overall, GTD grew 18% to $22 3 billion.
Our $23 $8 billion on a constant currency basis, representing a 26% year over year increase which is very positive. Despite shifts we're seeing in consumer spending.
Our overall omnichannel retail GTP grew by 21% in the quarter significantly higher than the forecasted worldwide retail sales.
This reflects both the growth in our customer base as well as the impact of higher GTD customers coming to light.
What we see on a customer by customer basis on several of the verticals. We serve however is average volume shrinking in many cases from prior year levels as consumer spending shift.
This is out of our control, but something we are mindful of as we look ahead.
In hospitality CTV growth was impacted by deteriorating foreign exchange rates in the quarter.
Belting and overall hospitality GTD growth of 16%.
And although we have managed through this softness in average <unk> per merchant, thus far with the important holiday shopping and dining season approaching theres a lot of uncertainty at the macro level and that is keeping as cautious as we go into the second half of our fiscal year.
Our commitment remains to stay focused on growing our GTD with high value customers as that is what we control and to date. This has served us well.
Speaker 1: is average volume shrinking in many cases from prior year levels as consumer spending shifts. This is out of our control, but something we are mindful of as we look ahead. In hospitality, GTV growth was impacted by deteriorating foreign exchange rates in the quarter, resulting in overall hospitality GTV growth of 16%.
As customer location the numbers I discuss here exclude equity.
We have spoken at length about how we are prioritizing higher value higher DTC customer locations and our go to market approach within our customer base. We expect these customers to churn less drive higher Arco and benefit the broader lights each strategy.
Speaker 1: And although we have managed through this softness in average GTV per merchant thus far, with the important holiday shopping and dining season approaching, there is a lot of uncertainty at the macro level, and that is keeping us cautious as we go into the second half of our fiscal year.
We're seeing evidence of new customers coming on board with subscription <unk> that is higher than our average existing customer.
We are of course striving to grow our customer base and this remains a priority, but as we've said before we are valuing quality over quantity even more so in this environment.
Speaker 1: Our commitment remains to stay focused on growing our GTV with high-value customers, as that is what we control, and to date, this has served us well.
We are also mindful that as uncertainty increases our discipline in how we manage operating expenditures come into focus we.
Speaker 1: Second is customer location. The numbers
Speaker 1: We have spoken at length about how we are prioritizing higher value, higher GTV customer locations in our go to market approach.
We are fortunate to have a lot of white space within our existing customer base to grow our revenue.
As a primary example, gross payments volume as a percentage of GTT is only at 17% at the end of our second quarter, our highest ROI sales and marketing spend is with our existing base of customers.
Speaker 1: Within our customer base, we expect these customers to churn less, drive higher arc group and benefit the broader light speed strategy.
Speaker 1: We are seeing evidence of new customers coming on board with subscription ARPU that is higher than our average existing customer.
As a result of both the uncertain environment and the highest ROI for us in Upselling our base. Our go to market focus has shifted with the current backdrop to prioritizing high value GTP customers from a net new perspective, and growing our within our base primarily through attaching payments.
Speaker 1: We are of course striving to grow our customer base and this remains a priority. But as we've said before, we are valuing quality over quantity, even more so in this environment.
Speaker 1: We are also mindful that as uncertainty increases,
The result is a quarter, where overall net new location count grew by about 1000 this quarter.
Speaker 1: Our discipline on how we manage operating expenditures come into focus.
Speaker 1: We are fortunate to have a lot of white space within our existing customer base to grow our revenue. As a primary example, gross payments volume as a percentage of GTV is only at 17% at the end of our second quarter. Our highest ROI sales and marketing spend is with our existing base of customers.
Sure than previous quarters.
However, the mix of customers was favorable in the quarter the number of customer locations processing more than 500000 annual GTD grew by approximately 25% from a year ago, which is more than double the growth of our overall customer location growth.
Speaker 1: As a result of both the uncertain environment and the highest ROI for us being upselling our base, our go-to-market focus has shifted with the current backdrop to prioritizing high-value GTV customers from a net new perspective and growing our RPOOP within our base primarily through attaching payment.
In addition, the number of customer locations processing over $1 million in annual GTD grew by approximately 30% from a year ago.
More information on this can be found in our second quarter 2023 results presentation available on our website.
Speaker 1: The result is a quarter where overall net new location count grew by about a thousand in this quarter.
On this GTD cohort of customers. The average trend, we see is less than half of our overall customer location.
Speaker 1: lower than previous quarters.
Speaker 1: However, the mix of customers was favorable. In the quarter, the number of customer locations processing more than 500,000 in annual GTV grew by approximately 25% from a year ago,
As a result, we have focused on high value customers and this mix has been changing track.
Our strong <unk> growth of 86% year over year and better than expected adjusted EBITDA performance are both evident that this deliberate shift in strategy to focus on upselling payments to our base is working.
Speaker 1: In addition, the number of customer locations processing over $1 million in annual GTV grew by approximately 30% from a year ago.
The result is in our overall base of customers, we are seeing lower value customers being replaced by much higher value customers that is a great dynamic for lightspeed and is being reflected through our arco and GTD per customer location trend.
Speaker 2: More information on this can be found in our second quarter 2023 results presentation available on our website.
Speaker 1: On this GTV cohort of customers, the average term we see is less than half of our overall customer location term.
Third is foreign exchange were.
We're a global company with approximately half of our customer locations outside of North America, excluding equity.
Speaker 1: As a result, we have focused on high-value customers, and this mix has been changing for us.
This global footprint is something we are proud of and it's a big asset of ours that provides us with diversification.
Speaker 1: Our strong GPV growth of 86% year-over-year and better-than-expected adjusted EBITDA performance are both evidence that this deliberate shift in strategy to focus on upselling payments to our base is working.
We deal with FX fluctuations as a result and of course those swings have been very significant of link.
We can't predict where they will go in the future, but we are assuming that they don't recover to their prior levels anytime soon.
Speaker 1: The result is, in our overall base of customers, we are seeing lower value customers being replaced by much higher value customers.
We do hedge our foreign exchange exposure from a cash flow perspective in Canada, where much of our Opex slide as that helps ensure our cash flows and EBITDA are more predictable.
Speaker 1: That is a great dynamic for lightlightsbeam and is being reflected through our ARPU and GTV per customer location trend.
Revenues. However are recorded in their base currency and therefore, the portion of our revenue that is denominated in non U S dollars is worth considerably less today.
Speaker 1: Third is foreign exchange.
Speaker 1: We're a global company with approximately half of our customer locations outside of North America, excluding equid.
Speaker 1: This global footprint is something we are proud of and is a big asset of ours that provides us with diversification.
We estimate the impact was approximately $3 $5 million in the current quarter and when we extrapolate the current rates the full year is affected by $10 million to $15 million.
Speaker 1: However, we deal with FX fluctuations as a result. And of course, those swings have been very significant of late.
This too is out of our control, but we must plan accordingly.
Speaker 1: We can't predict where they will go in the future, but we are assuming that they don't recover to their prior levels anytime soon.
We ended the quarter with approximately $863 million in cash our cash decreased by approximately $52 million in the quarter as we voluntarily paid off the outstanding balance on our acquisition facility of $30 million.
Speaker 1: We do hedge our foreign exchange exposure from a cash flow perspective in Canada, where much of our opex lies, as that helps ensure our cash flows and EBITDA are more predictable.
Speaker 1: Revenues, however, are recorded in their base currency and therefore, the portion of our revenue that is denominated in non-US dollars is worth considerably less today.
Aside from the loan payback the largest uses of cash outside of normal course operations, where working capital movements, including the growth of our merchant cash advance business, Brandon spoke of which we fund from our own cash balances today.
Speaker 1: We estimate the impact with approximately $3.5 million in the current quarter, and when we extrapolate the current rate, the full year is affected by $10 to $15 million.
As we move on to outlook no matter, how confident we feel about our business model and prospects, we cannot ignore the backdrop and its impact on our business I outlined above.
Speaker 1: This too is out of our control, but we must plan accordingly.
With macro uncertainty looming it does cause us to exercise a heightened level of caution, especially as we go into the very important holiday season.
Speaker 1: We ended the quarter with approximately $863 million in cash. Our cash decreased by approximately $52 million in the quarter as we voluntarily paid off the outstanding balance on our acquisition facility of $30 million.
For the full fiscal year on a constant currency basis, we expect our revenue to be in the range of $740 to $750 million within our previously established range, though more towards the lower end.
Speaker 1: Aside from the loan payback, the largest uses of cash outside of normal course operations were working capital movements, including the growth of our merchant cash advance business Brandon spoke of, which we fund from our own cash balances today.
Incorporating the impact of new FX rates, we now expect our reported revenue in the range of $730 million to $740 million, replacing our previous outlook.
Speaker 1: As we move on to Outlook, no matter how confident we feel about our business model and prospects, we cannot ignore the backdrop and its impact on our business I outlined above.
For the third quarter on a constant currency basis, we expect our revenue to be in the range of $189 million to $194 million.
Speaker 1: With macro uncertainty looming, it does cause us to exercise a heightened level of caution, especially as we go into the very important holiday season.
Incorporating the impact of new foreign exchange rate, we expect our reported revenue in the range of $185 million to $190 million.
Speaker 1: For the full fiscal year on a constant currency basis, we expect our revenue to be in the range of 740 to $75 million, within our previously established range.
As a reminder, in the third quarter of our previous fiscal year, we had a onetime catch up from one of our payment partners of $5 5 million.
Despite this lower revenue we are managing the company with discipline and remain focused on our highest ROI activities, while the uncertainty persists.
Speaker 1: though more towards the lower end.
Speaker 1: Incorporating the impact of new FX rates.
Speaker 1: we now expect our reported revenue in the range of $730 to $740 million, replacing our previous outlook.
As a result, we expect an adjusted EBITDA loss of approximately $40 million still within our previously established outlook of $35 million to $40 million for Q3, we're expecting adjusted EBITDA loss to be approximately $9 million.
Speaker 1: For the third quarter, on a constant currency basis, we expect our revenue to be in the range of $189 to $194 million.
Speaker 1: Incorporating the impact of new foreign exchange rates, we expect our reported revenue in the range of $185 to $190 million.
We remain committed to our path to profitability.
With that I'll hand, it over to JP for closing remarks.
Thanks Sascha.
Speaker 2: As a reminder, in the third quarter of our previous fiscal year, we had a one-time catch-up from one of our payment partners of $5.5 million.
Before we go into Q&A I want to welcome a new member to our senior executive team Brian to Boon.
Brian is our chief product and Technology officer and comes to US after 15 years at Google.
Speaker 1: Despite this lower revenue, we are managing the company with discipline and remain focused on our highest ROI activities while the uncertainty persists.
He has extensive experience and cloud based platforms as well as the world of payments and financial services and I am looking forward to the impact you will make them lightspeed.
Speaker 1: As a result, we expect an adjusted EBITDA loss of approximately $40 million.
I also wanted to highlight that J D. Some markdown has been promoted to president.
Speaker 1: still within our previously established outlook of $35 million to $40 million.
J D was most recently, our chief revenue Officer, and we will now take on additional responsibility with all of our industry general managers reporting into him directly.
Speaker 2: For Q3, we're expecting adjusted EBITDA loss to be approximately $9 million.
Speaker 2: We remain committed to our path to profitability.
This change will help streamline our executive team, placing the accountability for the performance of each vertical with the same individuals who is responsible for our go to market and customer success.
Speaker 1: With that, I'll hand it over to JP for closing remarks.
Speaker 3: Thanks, Asha. Before we go into Q&A, I want to welcome a new member to our Senior Executive Team.
Speaker 3: Ryan Zabone. Ryan is our Chief Product and Technology Officer and comes to us after 15 years at Google.
As I look at our senior executive team I am confident we have the right leaders in place to execute our goals and continue to grow the company.
Speaker 3: He has extensive experience in cloud-based platforms, as well as the world of payments and financial services. And I'm looking forward to the impact he will make on light speed.
And with that we will take your questions.
As a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad.
Speaker 3: I also want to highlight that J.D. Saint-Martin has been promoted to President.
Our first question is from Tim <unk> with Credit Suisse. Your line is open.
Speaker 3: JD was most recently our Chief Revenue Officer and will now take on additional responsibility with all of our industry general managers reporting into him directly.
Great. Thanks for taking my question. So the first part the 500000 plus locations growing 25%, that's a very encouraging start.
Speaker 3: This change will help streamline our executive team, placing the accountability for the performance of each vertical, with the same individual who is responsible for our go-to-market and customer success.
For modeling purposes, though I'm sure we're going to be getting the question.
<unk> the 1000 location growth additions this quarter is that the new run rate, we should be thinking about until some of the churn from call. It shock keeping gastro sticks start to subside should we be thinking about roughly up one sort of quarter over quarter and then in terms of the sales team additions was that a contributor to the strong growth.
Speaker 3: As I look at our senior executive team, I am confident we have the right leaders in place to execute our goals and continue to grow the company.
Speaker 3: And with that we will take your questions.
Speaker 4: As a reminder, if you would like to ask a question, please press star then 1 on your telephone keypad.
And the 500000 plus locations and if you could give a little bit of an update on how large that team is given I believe you started hiring them.
Speaker 4: Our first question is from Tim Chiodo with Credit Suisse. Your line is open.
A year ago.
Speaker 5: Great, thanks for taking my question. So the first part, the 500,000 plus locations growing 25%. That's a very encouraging stat.
Yeah, good morning <unk>.
JP here I'll take the take this question.
So I think maybe just if we step back as you know.
Speaker 5: For the modeling purposes though, I'm sure we're going to be getting the question. For the 1,000 location growth addition to this quarter, is that the new run rate we should be thinking about until some of the churn from, call it, Shopkeep in that respect start to subside? Should we be thinking about roughly up one, sort of quarter over quarter? And then in terms of the sales team addition, was that a contributor to the strong growth in the 500,000 plus locations? And if you could give a...
Since I've been CEO , we've been explaining that not all merchants are equal.
And we were very clear on the fact that we want to focus on the larger the larger Gen Z customers because those are the one group weightless proven to churn churn is on the path actually more than half on those on that segment of customers.
And so what we are naturally seeing is that the 200 K and under customers are churning.
And we're not attracted to them.
Speaker 5: A of an update on how large that team is given. I believe you started hiring them about a year ago.
Focusing on them and we are really focused on the larger Jim B customers.
Also part of our path to profitability is to really focus on attracting the right customers that are not going to churn and then theyre going to buy the entire portfolio overtime.
Speaker 3: Good morning. So, JP here. I'll take this question.
Speaker 3: So I think maybe just if we step back, as you know...
Again, we wanted to disclose a little bit more just to give you some visibility here.
Speaker 3: Since I've been CEO , we've been explaining that not all merchants are equal. And we were very clear on the fact that we want to focus on the larger GMB customers. Because those are the ones who are way less prone to churn. Churn is almost half, actually more than half on that segment of customers.
We have our Investor day will also be sharing more data at that point.
And I think for me.
When we look internally at forecasting we do not look at locations.
What we focus on is maximizing every dollar of marketing spend.
Speaker 3: And so what we're naturally seeing is that the 200k and under customers are churning and we're not attracting them, not focusing on them, and we are really focused on the larger GMB customers. It's also part of our path to profitability to really focus on attracting the right customers that are not going to churn and are going to buy the entire portfolio over time.
To get the best returns and that means.
You look at it going forward more established customers in the SMB space.
Okay.
The next question is from Josh Beck with Keybanc. Your line is open.
Okay.
Yes. Thank you for taking the question maybe following up a little bit.
Speaker 3: So again, we wanted to disclose a little bit more just to give you some visibility here. We have our investor day, we'll also be sharing more data at that point. And I think for me, when we look internally at forecasting, we do not look at locations. What we focus on is maximizing every dollar of marketing spend.
Along the lines of adding these.
Larger customers when you think about the go to market motion.
Imagine that implies a little bit more.
Outbound for so are we going to be in a period here, where hiring is taking place, but maybe the productivity has not it in maybe a little bit.
Speaker 3: to get the best returns and that means any way you look at it going for more established customers in the SMB space.
Of the trough before you start heading back upwards with respect to the.
The customer acquisition efficiency.
Speaker 4: The next question is from Josh Beck with KeyBank. Your line is open.
Yes, so maybe.
We have just answering you answer the first question we have.
Speaker 6: Yeah, thank you for taking the question. Maybe following up a little bit along the lines of adding these larger customers. You know, when you think about the go-to-market motion, I imagine it implies a little bit more of an outbound force. So are we going to be in a period here where hiring is taking place, but maybe the productivity has not hit in?
<unk> been hiring outbound outbound reps and so really the way we look at it we have a certain amount of dollars that we are ready to spend to attract customers and here instead of spending everything on marketing and getting inbound. We have now started hiring loan teams that are doing outbound and getting deals from from that from that motion what is been very encourage.
<unk> to us is that the cost of acquisition and if you look at LTV over CAC.
It has been.
Speaker 6: So, it's maybe a little bit of a trough before you start heading back upwards with respect to the customer acquisition efficiency.
Even better when we look at the outbound motion versus the inbound so we are doubling down on this.
Frankly, we are very happy with the results that we're getting there. This being said there are many open positions right now I'd like speed.
Speaker 3: Yes, so maybe we have just answering also the first question we have been hiring outbound reps.
And go to market and mainly focusing on outbound reps.
Speaker 3: And so really the way we look at it if we have a certain amount of dollars that we are ready to spend to attract customers and here instead of spending everything on marketing and getting inbound, we have now started hiring a lot of teams that are doing outbound and getting deals from that motion. What has been very encouraging to us is that the cost of acquisition and if you look at LTV over CAC.
Very helpful. And then you've obviously you had a lot of momentum driving payments penetration certainly seems like there's a very strong.
Product market fit.
When we do think about some of the macro uncertainty is this an area that you feel like you can.
Some ways doubled down and have a very company specific driver to really kind of offset what could be otherwise a pretty choppy macro environment.
Speaker 3: has been as good and even better when we look at the outbound motion versus the inbound. So we are doubling down on this and frankly we are very happy with the results that we're getting there. This being said, there are many open positions right now at live speed for in go-to-market and mainly focusing on outbound reps.
Yes, Youre absolutely right. So when we look at this what is really important to us is path to profitability.
And when you look at path to profitability. This read too big vector is the first one is we need we need to do way more with payments and double down on Upselling. Our base as you know there's still a lot of white space there and the second thing we need to do is be very cautious on the profile of customers that we attract.
Speaker 6: Very helpful. And then you've obviously had a lot of momentum driving. Payments penetration certainly seems like there's a very strong product market fit. When we do think about some of the macro uncertainty, is this the area that you feel like you can in some ways double down and have a very company-specific driver to really kind of offset?
Because we do the worst case scenario, it's going off to our numbers.
Landing customers theyre going to churn because of business failures. So we want to go with the more established and I think those two sequences put together mean that you will probably have fewer stores, but we will have better revenues and will drive towards.
Speaker 6: what could be otherwise a pretty choppy macro environment.
Speaker 3: Yeah you're absolutely right. So you know when we look at this what is really important to us is path to profitability.
Towards profitability with this.
Super helpful. Thanks, Julien.
Speaker 3: And when you look at path to profitability, there's really two big vectors. The first one is we need to do way more with payments and double down on upselling our base. As you know, there's still a lot of white space there. And the second thing we need to do is be very cautious on the profile of customers that we attract.
The next question is from Dan Perlin with RBC. Your line is open.
Thanks, Good morning, I wanted to I wanted to follow up on the concept around.
Helping your clients kind of get through this macro time.
Through technology and the question there is really around.
Speaker 3: because we do, I mean, the worst case scenario is going off to numbers and landing customers are going to churn because of business failure. So we want to go with the more established. And I think those two sequences put together mean that you will probably have fewer stores.
The pricing environment for you are you willing to take advantage of kind of pricing here to gain some share.
Ultimately help these customers through this environment and then I'm thinking in particular are you willing to offer discounts in and around software in order to secure payments as you start to move upstream into some of those larger clients. So you can have a longer term.
Speaker 3: But we will have better revenues and we'll drive towards profitability with this.
Speaker 6: Super helpful. Thanks, JP.
On the LTV. Thanks.
Yes, so we.
Speaker 4: The next question is from Dan Perlin with RBC. Your line is open.
We are I mean, that's always been kind of the trick in the book is.
The big difference between IC than maybe other merchants as we have a full commerce platform. So we have many modules and we have payments so in the context of a downturn.
Speaker 7: Thanks, good morning. I wanted to follow up on the concept around
Speaker 7: helping your clients kind of get through this macro time.
Speaker 7: you know, through technology. And the question there is really around the pricing environment for you. Are you willing to take advantage of kind of, you know, pricing here to gain some share to ultimately help these customers, you know, through this environment? And then I'm thinking, in particular, are you willing to offer up, you know, discounts in and around software in order to secure payments as you start to move upstream into some of those larger clients, so you can have a longer term kind of LTV? Thanks.
What we are going to be doing is actually going to our existing customers and say hey, we.
Two way more than what Youre doing now and we're going to be willing to discount to get more customers on payments using more modules.
And then with regards to new customers, we are really going to be focused on unit economics, and ensuring that we're going to go after the more established at are not going to.
Not going to fail and I think that's really the two sequences there.
Speaker 3: Yeah, so we are, I mean that's always been kind of the trick in the book is...
I think when.
When you look at the market there is a lot of pressure on the merchants right now.
Speaker 3: You know, the big difference between LiveSpeed and maybe other merchants is we have a full commerce platform. So we have many modules and we have payments. So in the context of a downturn, we have a lot of people who are not familiar with LiveSpeed.
Inflation, which means that they cannot hire as many people that used to start the remarks, our customers did not strike profits you have the scar city of hiring they're having difficulty hiring people you have now a recession looming and so theres a lot of pressure points and the only way out for our merchants is really to do more with less.
Speaker 3: What we are going to be doing is actually going to our existing customers and saying, hey, you know, we could do way more than what you're doing now and we're going to be willing to discount to get more customers on payments using more modules.
Speaker 3: And then with regards to new customers, we're really going to be focused on unit economics and ensuring that we're going to go off to the more established that are not going to, you know, not going to fail. And I think that's that's really the two sequences there. I think when
And when you look at light speed everything we do is around automation automation with accounting systems automation with payments automation with delivery networks and order ahead. So.
We don't think that the legacy platforms that are the majority of the market today are serving these markets well and we think that in the context of <unk>.
Speaker 3: When you look at the market, there is a lot of pressure on the merchants right now. You have inflation, which means that they cannot hire as many people as they used to. Our customers will not strike profits. You have the scarcity of hiring. They're having difficulty hiring people. You have now a recession looming. And so there's a lot of pressure points. And the only way out for our merchants is really to do more with less. And when you look at Lightspeed, everything we do is around automation.
All of the pressure points on our merchants the only way out is going to be to adopt technologies like ours, but we don't want to go after every merchant in the context of our path to profitability and difficulties ahead, we want to be sure. We go off to the more established merchants.
Yes, no that's great and that actually kind of dovetails into my second question, which is as you're pivoting to going up to larger merchants higher value merchants I'm wondering if you could just outline maybe what are some of the key attributes right because its not obviously just volume it's the type of complexity take.
Speaker 3: automation with accounting systems, automation with payments, automation with delivery networks, an order ahead. So we don't think that the legacy platforms that are the majority of the market today are serving these markets well. And we think that in the context of all the pressure points on our merchants, the only way out is going to be to adopt technologies like ours. But we don't want to go after every merchant in the context of our path to profitability and difficulties ahead. We want to be sure we go off to the more established merchants.
Take you into different verticals, maybe that you haven't been in the past just anything there would be super helpful. Thank you.
Yes.
I know you've probably all heard me say this many times, but.
I'd likely we're not interested in small medium large coffees or small medium large T shirts.
We really want to go with established and what does that mean just answering your question. It's always the same the same logic is.
Volume of inventory the more you have inventory.
Speaker 7: Yeah, no, that's great. And that actually kind of dovetails into my second question, which is as you're pivoting to go in up to larger merchants, higher value merchants.
The more complex your businesses because you cannot manage your inventory with your eyes, you need platforms to work with your suppliers.
The vector here is multilocation as soon as you have two locations that you need to transfer inventory and you need to deal with your suppliers and you need to deal with your online presence.
Speaker 7: I'm wondering if you could just outline maybe what are some of the key attributes right, because it's not obviously just volume, it's the type of complexity is going to take it into different verticals. Maybe that you haven't been in the past just is anything that would be super helpful.
Where we shine and so I think generally speaking.
Our platform.
Speaker 3: Yes, I know you probably all heard me say this many times, but
This is significantly better than anybody in the market as you go into more complex vendors and there is a very strong correlation between complexity vendor at higher <unk>. So I think all of that to say that this is very much the strategy might be there's no no big change. We just wanted to be sure that as we go into.
Speaker 3: I'd like people who are not interested in small, medium, large coffees or small, medium, large t-shirts. We really want to go with established. And what does that mean in just answering your question? It's always the same logic as volume of inventory. The more you have inventory.
Speaker 3: At the more complex your businesses because you cannot manage your inentry with your eyes. You need platforms to work with your suppliers. The other big vector here is multilocation.
Due to more difficult times and as we have this very strong view on path to profitability, we just need to be cautious on really attracting the right profile of customers that are going to stay with us and that will find an entire that.
Speaker 3: As soon as you have two locations and you need to transfer inventory and you need to deal with your suppliers and you need to deal with your online presence.
That will find a lot of value in our in our solution set.
Speaker 3: that's where we shine. So I think generally speaking,
That's great. Thank you.
Speaker 3: Our platform is significantly better than anybody in the market as you go into more complex vendors. And there is a very strong correlation between complexity of vendors and higher GMB. So I think all of this to say that this is very much the strategy of Lightbeat as though no big change. We just want to be sure that as we go into more difficult times, and as we have this very strong view on path to profitability, we just need to be cautious.
The next question is from Thanos <unk> with BMO capital markets. Your line is open.
Hi, good morning can.
Can you speak to the near term trajectory you'd anticipate for your third party payment referral revenue obviously there is a.
Seasonal cyclical components, but just overall.
Should that revenue stream be up year over year in the near term given the renegotiation of referral fees or is it starting to come down.
You said some of these noncore customers and convert some customers to lightspeed payments.
Speaker 3: really attracting the right profile of customers that are going to stay with us and that'll find an entire, that'll find a lot of value in our solution set.
Okay fair enough.
No thats coming down has been coming down and we will continue to go down.
Speaker 8: That's great, thank you.
Okay and on the payments penetration.
Speaker 4: The next question is from fanos macchappolis with bemo capital markets. Your line is open.
We saw about 150 to 200 basis points sequential uptake something similar to the prior quarter is that the sort of trajectory you would anticipate going forward or.
Speaker 9: Hi, good morning. Can you speak to the near term trajectory you'd anticipate for your third party payment referral revenue? Obviously there's a seasonal cyclical component, but just overall should that revenue stream be up year over year in the near term given the renegotiation of referral fees or is it starting to come down as you shed some of these non-core hours and convert some customers to lights and payments.
Could there be a seasonal element as well, where maybe heading into December quarter, Tacoma reluctance to change equipment provider.
No.
We're pretty focused we're working hard on this and again the key metric we track and monitor is the PV.
<unk>.
Penetration rate is a little volatile quarter to quarter, depending on what's going on in the underlying.
Speaker 10: A panel. No, that's coming down, has been coming down and we'll continue to go down.
Customer base.
So when it comes to <unk>, though we're really really focused on how do we how do we ensure we we sell it well at the outset, so attach rates on new coming in and.
Speaker 9: Okay. And on the female penetration...
Speaker 9: You know, we saw a by one fifty two hundred base point sequential uptake something similar to the prior quarter is that the sort of trajectory you'd anticipate going forward or or it could be a seasonal element as well where we'd be heading for December quarter. People are more reluctant to change their payment provider.
And how do we onboard and.
And drive more more payments into our existing base.
<unk>.
Undertaken.
Whole bunch of initiatives internally around.
Speaker 10: No, we're pretty focused. We're working hard on this. Again, the key metric we track and monitor is the GPV, the
How we optimize each step of that journey.
Seeing some good progress so far more to do.
But now with payments available.
Basically across the world for us.
Speaker 10: The penetration rate is a little volatile quarter to quarter, depending on what's going on in the underlying customer base.
<unk>.
We're pushing on this is is a very key component of our.
On our business plans right now.
Speaker 10: So when it comes to GPV though, we're really, really focused on.
Okay.
Okay, great. Thanks.
Speaker 10: How do we ensure we sell it well at the outset? So attach rates on new coming in.
The next question is from Andrew Jeffrey with Truest Securities. Your line is open.
Good morning, everybody. Thanks for taking the question.
Speaker 10: how do we onboard and drive more payments into our existing base.
JP I have a competitive question, especially given my speeds.
Speaker 10: Undertaken a fuwhole bunch of initiatives internally around and how we optimize each step by that journey. We're seeing some good progress so far. More to do, but now with payments available basically across the world for us.
Significant rest of world positioning and the shift to.
Two to unified products.
Can you just comment on how you think the company competes I'm thinking, particularly in restaurants.
Speaker 10: We're pushing on this as a very key component of our business plans right now.
Rest of world versus in the U S where there is a clearly established sort of Nextgen cloud player and if you think rest of world is an area, where lightspeed is better positioned to reach ubiquity and ultimate scale compared to the U S or if you think you can be equally competitive.
Speaker 11: Great. I'll pass the line. Thanks.
Speaker 4: The next question is from Andrew Jeffery with Truist Securities. Your line is open.
Speaker 5: Good morning, everybody. Thanks for taking the question.
Globally.
No it look.
Speaker 12: JP, I have a competitive question especially given light speeds.
We're actually that's one of the big highlights for the quarter and the progress of the new platforms.
Speaker 12: significant rest of world positioning and the shift to unified products.
So as you know we have this we have the strategy between now and the end of the year, which is one lightspeed, which is really focused on we need one core platform for retail one core platform for hospitality globally. This is where I feel the strongest new platforms are extremely competitive.
Speaker 12: Can you just comment on how you think the company competes? I'm thinking particularly in restaurants, Rest of World versus in the US, where there's a clearly established sort of next gen cloud player. And if you think Rest of World is an area where Lightspeed is better positioned to reach ubiquity and ultimate scale compared to the US, or if you think you can be equally competitive.
And create more value than anyone even the established players in the U S.
Maybe just a data point here Thats really interesting the majority of our deals this quarter.
On the new platforms globally. So that's a very big step for us and in the U S. It's actually higher when you look at September .
Speaker 13: globally.
Speaker 3: No, look, actually that's one of the big highlights for me at the quarter, is the progress of the new platforms.
Which is the last month of the quarter versus the last month of last quarter. So we're getting some real traction some real progress.
Speaker 3: So as you know, we have this, we have the strategy between now and the end of the year, which is one life speed, which is really focused on. We need one core platform for retail, one core platform for hospitality globally. This is where I feel the strongest that the new platforms are extremely competitive.
On the retail front.
Really really bullish on <unk>.
Our new product, which is lightspeed retail ex that platform, especially with with our headlights capabilities our workflows.
Everything there is just fabulous and we're feeling really good about the U S market on that.
Speaker 3: And create more value than anyone, even the established players in the U's. Maybe just a data point here that's really interesting: the majority of our deals this quarter we're on the new platforms globally, So that's a very big step for us. And in the U's it's actually higher when you look at September , which is the last month of the quarter, versus the last month or last quarter. So we're getting some real tractions and real progress.
For K, just addressing which is our restaurant product just addressing the U S.
We are starting to see some strong traction in the U S and.
Mainly with our outbound reach and again, we're not trying to be everything for everyone. We want to go with the more established table service high end Michelin Star because if you look at our hospitality works. If you start at the top there is a ripple effect all the way down but there.
Speaker 3: On the rea front I have.
Speaker 3: really really bullish on on our new product which is like the retail X that platform you know especially with with our headless capabilities our workflows I mean everything there is just fabulous and we're feeling really good about the US market on that. 4k just addressing which is our restaurant product just addressing the US we are starting to see some strong traction in the US and mainly with our outbound region base which which makes a ton of sense especially given the low relative
As you know.
Theres, a big strategy for us to compete in the U S. Also.
And we're very happy with that progress.
Okay look forward to hearing more about that at the analyst day too and then.
With regard to the effort to penetrate the installed base, which which makes a ton of sense, especially given the low relatively low payments attached can you just speak to sales cycles I can imagine.
Sales cycles for new customers, especially larger customers have elongated elongated in this environment is the same true in the installed base or.
Is there a notable difference I guess.
Yes.
Look we are.
It's very clear front that we need to dedicate teams that are going to be up selling the base and so there is a lot of recruitment going on there that there is a lot of new hires that are joining might be there we need to.
To increase penetration and for US the best cycle. There again is to go and talk to the customer and say Hey, you are paying a couple of hundred Bucks a month. If you pay if you use like repayments would give you a discount on the software so and to attach payments and so we have all the strategies in place there and we're we're happy with the sequence.
I think what's very interesting when you look at the three blocks for payments for us attach rates on new customers is remaining very strong and not lower so we're doing better there.
Especially in Europe , now Brendan mentioned, 50% of all our deals now are outside of the U S. In terms of payments. So that's that's really strong news and then the second thing is we need to look at our strategies to just attach payments more when people are renewing and finally, the third one is to be.
Very very focused on the outreach to go after the higher GMB customers, who are not on lightspeed payments and ensure that they they move over throughout through our payments platform. So all of those sequences are working well and Thats why we are seeing.
Pretty pretty high growth.
On <unk>, which is the volume of customers who are on <unk>.
You can expect that to continue because of course. This is the most important step in our in our path to becoming a profitable company.
Sure Alright, I appreciate that thank you.
The next question is from Andrew <unk> with <unk> Nikko Securities. Your line is open.
Hey, good morning, and thanks for taking the question had one near term question and one longer term dramatic question. So starting with the near term just thinking through the third quarter dynamics I remember this time last year. There was there was better GCB trends and in segments without.
Payments versus those with payments and partially due to army ground. So just trying to think through some of the dynamics that we should be keeping in mind with regards to those comps and the locations that have higher payments penetration.
And the end of the calendar year here.
Yes, I mean, there is there's obviously a lot going on in the macro we have two primary.
Businesses as you all know that the retail.
Customer cohort so we've got the hospitality.
Retail, we do a lot with <unk>.
Sumer discretionary categories specialty retail.
Sporting goods home improvement categories all of them.
<unk>.
Signs of consumer discretionary spending stress in some of those markets I think as I mentioned.
Our prepared remarks, we're actually seeing same store basis like average <unk> per customer in those segments actually decline year over year.
So that that dynamic.
Difficult to predict as we look ahead into the holiday season.
As you heard from an issue we have to remain cautious on that for sure.
Hospitality, we certainly saw a resurgence in hospitality.
In the quarter.
Economies open up consumer starting to travel again.
Under our hospitality businesses for the most part outside of North America were good in Europe in places like Australia as well.
We did see some of that slowdown in the back part of the quarter as well.
And I think we will we will remain cautious on how that plays out.
And that in the upcoming holiday period as well.
That's the only prudent thing to do we will focus on the things we can control, which is JP has been emphasizing.
Emphasizing attracting the right types of customers into our customer base.
And of course, making sure we we take advantage of the white space that exists across our customer base.
Okay.
No. That's helpful color, Brandon and then J P. You mentioned.
A real focus on bringing these three assets together and creating one lightspeed just trying to think through a little bit clearer, what what does that kind of unlocked. When these three assets are fully integrated and fully combined in your go to market and when do you kind of anticipate that and are there any other financial.
Implications that we should be considering when those <unk>.
Integrations all done.
Yes, I think we've been very clear so that the end point of this at the end of this fiscal year. This is for me I view.
This is a transition year into one.
Why one I mean.
Getting all our developers working on one platform will make us go much faster it.
It'll bring a ton of simplicity in terms of go to market because right now there are markets, where we're still selling both products. So it just makes it much more complex for nothing.
And then there is of course, a ton of cost synergies.
<unk>.
If I have only one support team one onboarding team for one product globally.
If I only have one system for one CRM.
Right now there's a lot of unnecessary complexity, which we have plans for but as we get to one and one brand.
With one product in each category.
I'm going to make this business so much simpler and so here for US then it'll it'll just helped us double down and accelerate.
With less noise and less structural cost if you will.
No. It makes a lot of sense. Thank you.
The next question is from Eugene <unk> with Moffett Nathanson Your line is open.
Thank you.
Morning, guys.
So very clear very clear that you guys are shifting.
We reemphasize the strategy of the shift to a larger customer base and.
You also made it clear that it sounded like LTV is very attractive with its customers and Theres just a couple of.
Question, then maybe unit economics of these customers. So one on the yields on let's say payment yields in.
And payments larger customers, usually mean lower yields is that how you think about it over the longer term just to help us think how the unit economics of the business might evolve.
Yes.
Yes, just to zoom out quickly the advantage of bringing on larger customers.
And their impact on LTV.
Ultimately at the end of the day, what we're looking to do is grow the amount of commerce.
Through our network and you're seeing that show up in our aggregate of GTA V.
And then grow our our net take rate on that commerce, and you've seen that progress over.
Over time as well so as larger customers come on.
Vis vis a smaller customer we might get slightly worse payments acceptance rates from them.
That's kind of the micron as you zoom out and you think about really what we're trying to build and what we've been successful building.
We've now I think our trailing 12 months of GTA V is.
83 billion or so and as we've been growing that successfully we've been we've been taking in a larger and larger portion of the amount of that that turns into revenue and gross profit for us and thats corner. This strategy. So.
Yes, just to answer your question very directly it might look different.
Got it.
Customer by customer basis, but in the big picture at all that's all healthy for us.
Got it okay.
That's helpful. Yes.
Big picture question here.
The profile IR with wide comment on the key and was great to see so just curious what are the top couple of R&D priorities.
Lightspeed has that maybe arrive we will just stay ahead in that we might see bear fruit over the years to come.
Yes, so I'll maybe take this one.
Immediate number one priority for Ryan.
Is.
First question you had for me what a success that you now and the end of the year. It's one product globally in each category that is extra ultra.
Altra competitive and so thats the number one.
For me I look at it we can see the end of the tunnel, we're almost there.
Now we need to just finalized I want to be sure that next year. There is only one product globally for each category.
I think thats priority number one priority number two is what we're doing upstream we'd be talking about the <unk> network.
And here we have now.
Launched.
In beta in a number of categories and here why is this important because this is how we're going to help our customers we need to look at how they work with suppliers and we talked about this and we'll be talking about this again at the at the Investor day, but this is really important we need to know.
Go from a beta to a released product and we need to start going category by category and creating value because it's great value for everybody and really it is a flywheel. If we can do this right. The second and the third for me as Big data and financial services, where we.
I mean, as we aggregate data we are the largest sick of offline data in the world, We're normalizing thats across all stores.
There is so much we can do with that data.
Of course financial services is one of them of course, helping stores understand what they should be.
Putting in inventory because we know the consumer.
And I think ultimately we're in a really strong position to develop many new products that are around data and this aggregate view on data that we have that nobody else has so those are the three big priorities.
Really excited to have such.
Such a high profile candidates.
Decided to join lightspeed over any of the other options.
And really looking forward to to the evolution here for for our product Roadmaps.
Got it thank you.
The next question is from Josh Baer with Morgan Stanley . Your line is open.
Great. Thanks for the question I wanted to talk a little bit about software subscription argoud trend.
Like the mix shift towards the higher GCB customer locations would also benefit on the software side ability to adopt more module is not just transaction revenue.
Not really seeing that this quarter with subscription <unk>, I think flat quarter over quarter.
Talk talk through some of the dynamics there.
Where are the priority.
As far as selling more modules into the customer base.
Hey, Josh Thanks for your question.
First the first thing we have to keep in mind is foreign exchange headwinds in the quarter does impact our subscription revenue line more than our transaction based revenue line, particularly because our transaction based revenues is more mature in the U S. For the majority of that revenue is in U S. Dollars. So that is impacting the subscription <unk> in the quarter.
<unk>.
In addition to that as we sign the customer you should definitely see the impact in subscription revenue, but that impact is still marginal compared to the impact on transaction based revenue.
Think about our pool of a larger customer, although it's significantly higher than on an average customer is still.
Pretty insignificant compared to the RFP that we would get on a $1 million the GTD customer and so you will see the impact on subscription be much smaller than the impact on transaction based revenue just because of the magnitude of the numbers.
Yes, maybe if I could just add.
The conversation becomes more of a net take rate conversation and the net take rate based on the revenues of the customers.
And I think Theres a lot of improvement there, but I do think that payments and software our blended.
And really ultimately.
Our our salespeople look at this we need to get a good net take rate on those customers and we need to grow the net take rate on those customers. So I think that's more how we're looking at it which is the blended net take rate of software and payments and financial services.
Got it helpful perspective. Thanks.
The next question is from Daniel Chan with TD Securities. Your line is open.
Hi, Good morning, Brian and you clearly talked about the Lightspeed capital business. It seems like it's still very early days and still has a lot of potential just can you kind of frame that up for us where does that business currently relative to its potential and what are your plans to ramp that up over the short term. Thank you.
Yes, so we launched this.
Shortly after the acquisition.
Our shop keep they had a more mature offering in this space you may recall in.
The executive team from Chomsky patent some good experience in this.
We like we've approached many things kind of took this one step at a time.
Scott.
Got used to this business model and started too.
Try different tactics to make sure we understood what we were.
How this would work.
And now we're at a point where this this products.
Ready for us to start to think about scaling in a little more broadly now we've opened us up to some international markets as I spoke about so we've got this now in Canada, and the U S and Australia, and we've opened it up to more of our underlying product offerings as well.
So we are seeing growth rates.
Really start to move in the right direction here revenues are up more than 200%.
And in the number of advances as well.
That we've that we've done of course.
Not blind to the macro situation, but that's the advantage of this customer base, we have as well and a little more established less prone to default risks that experience has been.
Very minimal very manageable, so we really like what we see here and think there is a lot of potential still to be had and we're just getting going on and to your point.
Thank you.
The next question is from Matt Coed with Autonomous Research your line is open.
Hey, good morning, guys. Thanks for taking my question.
Just one from me on the gross margin it's been in the 46% range for the past couple of quarters could you talk about like anything in terms of maybe like funding mix that impacted in that take rate our expectations around hardware losses.
Going forward.
So we can start with with hardware you heard from us last quarter.
That we were able to improve that margin line and we have seen.
Some improvement in that margin line, however in hospitality U S. In particular, we're seeing very good uptake of our flagship product in the quarter and as you heard from JP and we do continue to heavily discount hardware to increase sales velocity in that vertical in that region and we will continue to need to do so as we continue our focus in hospitality in U S.
We are however, managing discounting in our other verticals in our region to continue to improve this margin lines and we do expect to see improvement in that margin line, but given the growth we're expecting in hospitality we.
Expect that margin improvement to be gradual.
In addition to hardware.
Other the other factors impacting the overall gross margin is transaction based revenue and as you heard from Brandon earlier.
Are more and more of our customers take lightspeed payments that does come with a lower gross margin percent than the.
Integrated payment partner residuals that we get and so those two factors together.
Do result in an overall gross margin that is lower gross margin percent that is lower but we are really focused on growing our gross margin dollars.
What you heard from GPS and that increased the net take rate that we get from our customer on a on a combined basis from an operating efficiency perspective, we are focused on reducing support costs, reducing infrastructure costs. All of these things will help the gross margin percent and we have been successful and we continue to undertake.
Those initiatives to improve margin percent.
Super helpful helpful.
Really appreciate it.
Just one more on locations and I know you guys have talked a lot about locations growth already to on this call, but I was hoping you could kind of like break it up into three buckets for us like gross locations location growth voluntary churn and involuntary churn just from bankruptcies kind of like break it up into those three.
That's for this quarter and then how youre thinking about the next couple of quarters going forward.
Just in terms of churn I mean, we put a slide on our.
On our Investor website in the investor deck to just outline the cohorts and what we're seeing.
So we are seeing and to J P. 's earlier comments, if you look at that sub 200, K CTV bucket, that's actually what is the headwind in the location count overall statistic, that's actually declining year over year majority of that should be.
Forget the how.
You characterized the buckets, but that'll be business failure churn.
For the most part in that bucket.
And that's in Powerpoint where privileges.
The more established under the customer.
Spectrum, we see that as soon as the merchant crosses 500000 churn drops significantly.
Furthermore, I want to get into the $1 billion plus drops even further.
No.
That's the role overseeing and churn and then us to gross adds I think you've heard from J P earlier.
Okay.
It's more about Roe growth.
Going.
Our aggregate GTA V and as that GTE, turning in the profitable revenue for US that's our focus right now more so than a specific number of locations and.
I think youre seeing.
The progress both in terms of GTA V growing our <unk> growing and ultimately the leverage we're seeing down in the adjusted EBITDA line and some of the ratios there so.
That's all that's all working in tandem there.
Thanks, guys.
Chris I think we'll take one last question.
Okay.
Last question is from Richard <unk> with National Bank Financial your line is open.
Hi, Thank you for taking my question here.
With respect to the direct sales reps and trying to understand how that sales forces organized or are they sort of originally focused mean that your reserve having certain people in all geographies are there kind of located more centrally and then kind of fly in these regions just trying to understand how operationally it works.
Yes, so it's a typical outbound motion so but maybe let's just start we are concentrating the effort in metropolitan areas.
And really it's a tender mode.
Some of an outbound rep basically just cold calling.
And a rep was put on the ground, who is then going to the customer.
So it's a dual call it team and.
Yes, I think what's very interesting to us as we are targeting the more established restaurants.
What we are seeing is better unit economics for that kind of model. So that's why if you. If you go to our website that I think there's something like 82 job openings.
Four salespeople generally speaking a lot of dose.
Going to the or focusing on upselling, the customers with payments and financial services or the outbound motion and hospitality in the U S.
Okay, and just a quick one if I might.
You used to sort of share with us the average number of modules taken on by your merchants, obviously, a big product offering is payments can you give us a sense of sort of the next most popular modules or are they sort of the omni channel.
Sort of a module or is it something else just so we can kind of get a feel for where that stands today.
Yes.
Number two is by far the Omnichannel so.
Let's commerce now if you're in retail.
For all of order ahead and delivery if you are in hospitality.
So that is by far the second and the third one is our advanced analytics engine.
It is a very big differentiator for our competition in the U S and hospitality Nobody does what we do in terms of.
Analytics, and giving some data that will help the restaurants or do better and on the retail front also we have a very strong events analytics engine.
Okay, great. Thank you.
Okay.
Okay.
Okay, I think we're going to wrap it up there.
Yes.
So I'd like to thank everybody for joining us today.
I remind everyone that we will be hosting a capital markets day here in Montreal on November 15th with a reception on the 14th I would hope to see as many of you here at our head offices as possible. So thanks again for joining everyone today and have a great day.
Okay.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Yes.