Lightspeed Commerce Inc

TSX:LSPD

Earnings Call Transcript 2022-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Lightspeed Second Quarter 2022 Earnings Conference Call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Mr. Gus Papageorgiou. Please go ahead.

[Gus Papageorgiou, Head of Investor Relations]

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal Q2 2022 conference call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Brandon Nussey, Chief Financial Officer; and JP Chauvet, President of Lightspeed. After prepared remarks, we will open it up for your 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. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our second quarter 2022 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators.Also, our commentary today will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website on sedar.com and on the SEC's EDGAR system. In addition, our commentary today will include key performance indicators that help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. Such key performance indicators may be calculated in a manner different from similar key performance indicators used by other companies. And finally, note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars, unless otherwise indicated. Before I turn it over to Dax, I want to take this opportunity to remind everyone that Lightspeed will be hosting its inaugural Capital Markets Day at the New York Stock Exchange on Tuesday, November 23, from 8 AM instead of noon. Please go to the Events and Presentations section of our IR site to register. We look forward to hosting as many of you as possible in New York City.With that, I will now turn it over to Dax.

[Dax Dasilva, Founder, CEO & Corporate Director]

Thanks, Gus. Good morning, everyone, and thank you for joining us today. As you will see from the press release we issued earlier today, Lightspeed had another strong quarter with revenue and adjusted EBITDA performance exceeding previously established guidance. Quarterly revenues, GTV, customer locations and our payments penetration rate, all reached all-time highs. At the same time, we continue to make progress on integrating our acquisitions, expanding the availability of Lightspeed Payments and launching our flagship hospitality offering, Lightspeed Restaurant. But before I move on to discussing these items in more detail, I would like to take a moment to address a short report that was recently issued on Lightspeed. As we stated in our press release on this matter, we found the report contained important inaccuracies and mischaracterizations and also that it was misleading and clearly intended to benefit the author.I would like to note that Lightspeed has made a genuine and consistent effort to establish a trusted and transparent relationship with the investor community, and we are always open to engaging with serious investors acting in good faith. Given the inaccuracies in this report, I want to address directly some of the key criticisms raised. First, since becoming a public company, we've always been consistent in how we account for revenue. Second, we have been transparent with the definitions of our key performance metrics, including ARPU, GTV and customer locations throughout our history as a public company. We firmly believe that our KPIs allow investors to measure our operating performance and identify trends in our core business that may not otherwise be apparent with relying solely on IFRS measures. Third, our organic growth rate, which we disclose, remains a positive driver of our overall business. Organic subscription and transaction-based revenue growth came in at 58% this quarter. Any suggestion that our business lacks organic growth is categorically false.And finally, we are proud of the acquisitions we have undertaken. They've brought us talented management teams and industry leading technology, which we are integrating into the core platform. And in the case of our hospitality solution has already shipped. In addition, these acquisitions have granted us scale, which helps tremendously in negotiating with our payments partners, investing in sales and R&D and attracting strategic partners such as Google and OpenTable. And finally, they have given us access to a large and growing GTV, which creates opportunity for our payments offering.With that said, I will move on to our latest quarter. Lightspeed had another strong quarter with total revenue of $133.2 million, up 193% year-over-year, with organic subscription and transaction-based revenue up 58%. The company now maintains approximately 156,000 customer locations, including approximately 3,000 brands brought on by NuORDER. GTV more than doubled from the same quarter last year, coming in at $18.8 billion. Organic GTV growth was 39%. And payments penetration continued to increase during the quarter with our payments penetration rate at 11%. We had several key customer wins in the quarter. Within hospitality, our newly released flagship platform, Lightspeed Restaurant, secured a contract for over 200 restaurant locations in Germany, which includes both the POS and payments. The original pancake house, which signed on for 10 locations, was secured thanks to the Lightspeed analytics functionality as was Indigo Road with 18 locations in South Carolina, and we also added the La Cardo Film Festival in Switzerland, the annual film festival that has been running since 1946.Within retail, we secured the Australian Football Club with all AFL clubs now using Lightspeed. CocoMats, the luxury mattress company, will be running its 3 stores in New York City using Lightspeed Retail and Payments. And last but not least, Groupe CH with 16 locations, operates all of the Montreal Canadian official retail outlets, along with large events, such as the Montreal Jazz Festival, Groupe CH will be using Lightspeed Retail, analytics, payments and e-commerce. In Golf, we secured an additional 7 locations with Pinnacle Golf through North Carolina, Salt Lake Country Golf with 6 locations and the San Rafael Golf Course and Ile Bizard, Quebec.We also continue to extend the number of suppliers on our network with brands such as Crocs, [indiscernible] and Augustinus Bader. In addition to continued strong operations in the quarter, the company also advanced some key strategic initiatives. First and foremost, after the quarter, like we launched this integrated hospitality platform, Lightspeed Restaurant. Initially available in Europe, Lightspeed Restaurant made its North American debut recently, and we will be rolling it out globally over the months ahead. Lightspeed Restaurant combines the best-of-breed from multiple acquisitions to deliver an industry-leading solution. Second, in October, we closed the acquisition of Ecwid as planned, and I would like to welcome the Ecwid team aboard. Ecwid's Headless Commerce solution will allow Lightspeed to offer no compromise omnichannel experience that will not only help us attract new customers, but also help our existing customers become more successful with their omnichannel strategies.And finally, Lightspeed undertook a successful financing, raising gross proceeds of $823.5 million and issuing just under 8.9 million shares to help fund the Company's operations and growth. Brandon is going to take you through the numbers more thoroughly, but I wanted to touch on a few topics beforehand. Specifically, the official launch of our core hospitality platform, Lightspeed Restaurant, the integration of Ecwid as our core e-commerce solution and the continued growth of our payments offering.First off, Lightspeed Restaurant. There's no better evidence of integrating our acquisitions than shipping products. And after the quarter, we announced the availability of our flagship hospitality platform, Lightspeed Restaurant. This offering brings together the best features of Lightspeed, Upserve, Gastrofix, Kounta, and ikentoo deliver an industry leading platform, which we believe is second to none. But in addition to industry-leading analytics, reporting inventory management and ease of use. Lightspeed Restaurant was engineered with payments at its core. Adding payments greatly enhances the data insights of Lightspeed Restaurant, allowing restaurant users to determine which menu items drive the highest guest retention and helping them differentiate between new and repeat customers in order to better tailor the experience.We believe the added insights the payments brings to the restaurant platform will make adopting payments with Lightspeed Restaurant and easy decision. As I've mentioned in the past, Lightspeed has no interest in maintaining a portfolio of brands and solutions. All of our acquisitions will be merged into 2 core flagship offerings, Lightspeed Restaurant and Lightspeed Retail. With the restaurant offering launched, we expect our integrated retail offering to be made available early in the new year. Staying with Retail, last week, we announced that the Ecwid solution is now fully integrated into our retail offerings. Our new and improved Lightspeed e-commerce was launched less than 3 months after the Ecwid deal closed and is now available to Lightspeed customers around the world. Lightspeed e-commerce will give our customers a no compromise e-commerce experience, allowing them to extend their channels into popular social media platforms, like Facebook and Instagram and integrate into popular digital marketplaces.We also announced a direct partnership with TikTok, allowing Lightspeed merchants to seamlessly access core functions of TikTok for business ads manager without leaving our platform. E-commerce has evolved beyond being just a website, and Lightspeed's easy-to-use headless commerce offering allows merchants to reach consumers wherever they are, maximizing their reach while reducing business complexity. Payments had another great quarter with transaction-based revenues now almost half of our overall revenues, and our payments penetration rate at 11% versus 5% for the same quarter last year. Earlier this week, we announced the availability of payments in Australia, addressing the last major region that was not covered by payments. We've committed to launching payments in all of our major international markets before the end of calendar 2021, and we are well on our way to meeting that goal.As a reminder, our international footprint is biased to tour hospitality customers. With the availability of payments now in all of our key geographies and the newly launched hospitality solution that deeply embeds payments functionality, we expect to see adoption of payments increase considerably in our markets outside of North America. Before I hand it off to Brandon, I wanted to thank our dedicated and extremely hard-working employees at Lightspeed. This past 12-month period has been the most transformative in the company's history with 5 acquisitions, several new product launches and a string of strong quarterly results. Not to mention weathering a global pandemic, our success would not be possible without their efforts.And with that, I will hand it over to Brandon.

[Brandon Blair Nussey, Chief Financial & Operations Officer]

Thanks, Dax, and I echo your earlier comments. Overall, it was another good quarter of progress. Our revenue for the quarter was $133 million, up from $45 million a year ago and as compared to our guidance of $120 million to $124 million. This represents overall growth in revenue of 193% year-over-year. As we typically do, we also provide our organic growth rate to help the market understand our performance without the impact of recently acquired businesses. Our organic growth rate for software and transaction-based revenue was 58% in the quarter. As a reminder, when we calculate organic growth, we do so by excluding the impact of acquisitions that occurred since the end of the prior comparable period. You'll find this definition and the others mentioned by me today in our filings on SEDAR and EDGAR.Accordingly, the revenue contributions from NuORDER, Vend, ShopKeep and Upserve, are not included in our organic growth calculations in the quarter. We continue to be pleased overall with the progress across the main business model drivers. We continue to grow our customer base, expand our ARPU and increase our payments penetration and we'll walk through these building blocks now. First is our customer locations. We provide the number of customer locations using our solutions instead of the number of unique customers, as this represents the primary driver of revenue for us since our software is typically priced on a per location per month basis.As outlined in our filings, we define a customer location as a billing merchant or in the case of NuORDER, a brand with a direct or indirect paid subscription for which the terms of services have not ended or with which we are negotiating a renewal contract. A single unique customer can have multiple customer locations, including physical and e-commerce sites, and as mentioned, we'll typically pay for each of those separately. For clarity, we have consistently defined customer locations in this way since our 2019 listing on the TSX, saving except for the amendment made this quarter to better incorporate the customers of NuORDER.Our customer locations grew to approximately 156,000 in the quarter from 150,000 at the end of last quarter. Please note that this stat now includes approximately 3,000 customer locations from our recent acquisition of NuORDER. We saw the following trends within customer locations in the quarter. Gross new customer locations added up 57% year-over-year and up 19% on an organic basis year-over-year. We saw good ongoing demand for our retail offerings in North America and hospitality in Europe as economies continue the reopening in those markets. We also saw an overall return to more normalized levels in many markets after a large increase last quarter driven by dormant businesses coming back to life.However, owing to renewed lockdowns in the quarter in Asia-Pacific, in particular, where we now have better than 25,000 customer locations, we saw increased churn in subscription positives in those markets, which served to offset some of the gains just mentioned. At the end of the quarter, 62% of customer locations were in retail and 38% in hospitality. Further, 53% were in North America and 47% outside of North America. Our diversification continues to serve us well. Lastly, please note that customer locations do not include any locations from our recently closed acquisition of Ecwid, which closed the day after our quarter end.Moving on to ARPU, we saw our average revenue per customer location increased to approximately $270 per month overall, an increase of 59% from $170 a year ago. Please note that we calculate ARPU as our subscription and transaction-based revenue, divided by the number of customer locations for the period. This is a straightforward calculation available at all of our publicly reported numbers. Please further note that we've always excluded hardware revenue from ARPU given hardware as a nonrecurring revenue stream, and ARPU is intended to reflect the amount of recurring revenue per customer. Within ARPU, the contribution from subscription-based revenue was almost $130 per month and was up 19% over the prior year. The remaining ARPU of almost $140 came from transaction-based revenues, which were up 111%.Expanding ARPU is an important part of our long-term plans, we believe that our customer segments seek a one-stop shop for the core things needed to run their operations, and our solutions put us in a privileged position to deliver this for them, and increasing ARPU per customer location is one good indicator of our progress there. And at 59% year-over-year growth in the quarter, we're pleased with our progress. Thirdly, we'll look at our GTV, which represents the total dollar value of transactions processed through our cloud-based SaaS platform in the period, net of refunds, inclusive of shipping and handling, duty and value-added taxes. GTV does not include any of the order volume processed by new order between the brand and retailer customers. We've excluded that B2B volume until such time as we have a more well-defined payment solution for that order volume.Aside from this clarification, to exclude NuORDER, the definition of GTV has also not changed since our TSX listing in 2019. GTV was $18.8 billion in the quarter, up from $8.5 billion in the same quarter last year and $16.3 billion in the first quarter of this fiscal year. Several insights in GTV for the quarter, organic GTV increased by 39% year-over-year. Overall retail GTV was up 115% year-over-year. And on an organic basis, it increased 38%. Total hospitality GTV, particularly in Europe, increased significantly in the quarter as economies continued the reopening in those markets. Hospitality GTV was up 131% and up 40% on an organic basis. For a period of overperformance throughout COVID, certain segments like Bike and Home & Garden began to moderate in September and more closely follow historical seasonal trends. While difficult to predict, we will assume that seasonality continues into the winter period, and our guidance reflects this assumption.However, as mentioned in our discussion earlier, lockdowns in Asia-Pacific served to offset some of these gains. Our GTV in the hospitality segment in Asia-Pacific fell by approximately 25% sequentially in the quarter as a result of these lockdowns. Our payment solutions processed 11% of our GTV in the quarter, up from 5% in the same quarter a year ago. We call this our payments penetration rate, and it is defined as the total dollar value of transactions processed in the period through our payment solutions in respect of which we act as the principal to the customer divided by our GTV. We think payments penetration rate is a better measure of progress than the number of customers using our payment solution as payments penetration rate best represents the potential that lies ahead without distortion from differing individual customer transaction volumes.Payments penetration rate in the quarter was influenced by ongoing strong adoption in North American retail and North American hospitality where our payments penetration rate is now over 20%. The recent launch in Europe for hospitality, were more than 800 customer locations in that market contracted for our payment solution. Although majority are not yet transactional, and we expect that we'll have growing pains as we launch in new international markets, this early success is quite encouraging for us. We're pleased with the ongoing success of payments, processing 11% of our $18.8 billion in GTV in the quarter from 10% of $16.3 billion in GTV just 3 months ago, shows the ongoing growth for our payments offering.As compared to the previous quarter, Lightspeed saw faster GTV growth in areas with lower payments penetration, such as hospitality in Europe versus areas with higher payments penetration rates such as North American and in Retail. Ultimately, an increasing GTV is a great long-term indicator of opportunity for us, particularly now that we have our payment solutions available in more geographies and with more of our customer base. So all of this results in the revenue we reported today at $133 million. And as you'll see in our disclosures, $124 million was recurring subscription-based and transaction-based revenue, which grew by 203% overall and 58% organically. Subscription-based revenue and transaction-based revenue were 59.4 and $65 million, respectively.Transitioning down the income statement, our gross margin for the quarter was 49% as compared to 61% a year ago. The shift is driven by the success of our payment solutions, which generally carry a lower gross margin. This trend is not unanticipated and in fact, is encouraging. Stronger the success of our payments rollout, the more gross profit dollars per customer location we earn. Higher gross profit per customer is what leads to leverage in the business model in the long-term. We are already seeing that in our model with only 11% payments penetration rate, as evidenced by sales and marketing as a percentage of revenue, falling from 43% to 39% over the past year. So while gross margin percentage may fall with the ongoing rollout and success of payments, we are focused on the expanded gross profit dollars we earn a customer location. With only 11% of our GTV being processed by our payment solution, we think there's tremendous potential ahead.Last note on margins, we've always felt that scale matters in this business. Scale and the resulting brand recognition supports our ability to attract new customers and prospects, the scale influences the spread we take-home on our payments offerings. Should processing volumes increase, we expect to be able to realize improved gross margins over time on payment solutions and many of our existing contracts are already structured to achieve this. Finally, then, adjusted EBITDA loss for the quarter was $8.7 million, ahead of our guidance of approximately $12 million. This represents approximately 6% of our revenue.I'll transition now to guidance. There are many reasons for optimism as we look ahead, and we remain confident in the long-term growth drivers of the business. We expect we'll continue to grow our market share, expand our ARPU and penetrate our payment solutions across our GTV. However, we're also mindful of certain market dynamics that are outside of our control will keep us cautious on the impact to our near-term results, namely, the impacts of COVID-19 remain in many of our important markets and that there continues to be uncertainty in how the economies in those countries will behave. Ongoing supply chain challenges affecting many parts of the global economy and the effects that may have on our customers' ability to have sufficient inventory to meet consumer demand as well as on our own ability to secure hardware to meet our own customer demand, which affects our owned hardware revenue.As some economies normalize, the return of historical seasonality to many of our end markets, such as Bike, Home & Garden, et cetera, whereby Q4, we will see seasonally slower GTV and payments volumes during the slower months of January, February and March. Despite some of these factors, we remain confident in the core drivers of the business and expect our ongoing rollout of payments and our ability to continue to win market share will continue. Factoring all of this in, we expect Q3 revenue in the range of $140 million to $145 million, representing growth year-over-year of approximately 143% to 152%, with an adjusted EBITDA loss of approximately $10 million to $12 million. As we look at the full year, we are updating our annual guidance to $520 million to $535 million in revenue. And for the full year, we are updating our adjusted EBITDA guidance to be approximately $40 million to $45 million loss. This loss reflects the impact of our acquisitions of NuORDER and Ecwid, where we've accelerated some of the integration efforts, some of which you saw from recent announcements, such as Ecwid's product already being integrated with our retail solutions.It further reflects incremental investment in bringing our new hospitality product to the market in the U.S. and we feel these incremental investments are prudent, given our strong balance sheet and the significant opportunity that lies ahead. This adjusted EBITDA loss would represent approximately 8% of revenue at our midpoint of our revenue guidance and has improved from prior year levels of 10%.With that, we'll take your questions.

[Operator]

[Operator Instructions] Our first question comes from Dan Perlin from RBC.

[Daniel Rock Perlin, Information Technology Analyst]

I just had a question on guidance. I know you just kind of walked through seasonality and code uncertainties. But you also have payment penetration rates that are definitely increasing. You've got Lightspeed capital, it seems to be gaining a lot of momentum. So I'm just trying to understand a little bit better like what's -- what you guys are actually embedding as you think about the cadence, both for third quarter and fourth quarter here?

[Brandon Blair Nussey, Chief Financial & Operations Officer]

Dan, this is Brandon here. I think the things that are under our control, we feel really good about that we're going to continue to grow the customer base, penetrate payments, as you mentioned. We're now available in new markets and off to a good start in Europe, where we recently launched. There's just a lot going on in the macro environment right now that we're just being cautious in how we build that outlook. Supply chain challenges affecting retail. It's a really important period of time for retail. And as we look into Q4, we've got a growing part of our business now in transaction-based revenue. And those are seasonally slow months. January, February, March are low points for both hospitality and retail. And given the transaction mix in our business now, and we're factoring all that in. So we're quite confident in the core drivers and our ability to execute. It's just some of these macro things. We'll take our usual cautious view of.

[Daniel Rock Perlin, Information Technology Analyst]

Yes. Just a quick follow-up, if I could. As we think about the supply chain issues, I'm just wondering in the context of your ability to kind of expand locations, at least in the near-term. Is it a cost issue on the inventory? Or is it a problem actually getting inventory at this point? And were you able to build a little bit in anticipation of some of these supply chain constraints?

[Brandon Blair Nussey, Chief Financial & Operations Officer]

Yes. We're doing what we can. We have secured inventory wherever possible in advance. We see a slight increase on the balance sheet there, where we've done that. So, so far, we've been managing. It hasn't been easy, but we'll keep doing our best there. But so far, we've been managing and doing whatever we can.

[Operator]

Our next question comes from Josh Beck from KBCM.

[Josh J. Beck, Senior Research Analyst]

I wanted to just ask about the organic growth with respect to locations. Obviously, that shifted down as we went into the September quarter. Maybe just help us walk through what were some of the major moving parts between, say, the June quarter and September? And maybe not quantitatively, but just how we should be approaching organic growth for the remainder of the year?

[Dax Dasilva, Founder, CEO & Corporate Director]

Yes. So I'll take this on, JP. So I mean, organically, store count has grown by 19%. If you look at the growth take, we were very pleased with the quarter. It was one of our strongest quarters. But as you know, we do have some business in Asia-Pacific and mainly in Australia and New Zealand, and those have been really affected by the lockdowns. And we've seen this actually when it happened in Europe and in the U.S., there's kind of temporary churn that happens because the stores shut down during the pandemic, and then they reopened licenses when the markets reopen. So I think, again, just going back to what Brandon was saying, under what we can control, we are very happy with the results. And organically, we're fairly happy with the progress there in terms of store count and also in terms of added MR.

[Josh J. Beck, Senior Research Analyst]

Very helpful. And maybe just a quick follow-up. Obviously, really pleased to see the launch of the flagship platform within the hospitality industry. Maybe just help us understand what are some of the early learnings? Is it really a kind of full on go-to-market now with that product? Just would love to hear a little more color there?

[Dax Dasilva, Founder, CEO & Corporate Director]

Yes. So maybe just going -- if we step back, when we did all these acquisitions, we always mentioned that there are components that we like from each one of those acquisitions. We also had the strategy, which was to actually put the majority of our developers on one product and build the future, and that's what we did. So we started by launching a few countries in Europe. Now we've launched this completely across Europe. So every country is now are on the new platform, and we're extremely happy with the progress. The platform embeds payments. As you know, it embeds analytics. It embeds ingredient management. So it's really a full-blown kind of built from scratch platform in hospitality. And as you've seen in the announcement of the last few days, we've now launched it in Utah in the U.S. and we have customers transacting with it. And for us, this is a really big milestone, and we're very excited about how this is going to span out in the coming months. And yes, this is a, arguably one of the best platforms out there for hospitality, and we are now launching it into the U.S. So the focus for us is next quarter, get everybody can go-to-market excited around this in the U.S. and go off to the market.

[Operator]

Our next question comes from Andrew Jeffrey from Truist Securities.

[Andrew William Jeffrey, Director]

I appreciate you taking the call. I guess I'd like to understand now that you have NuORDER under your belt, and I don't want to steal any thunder from the Analyst Day necessarily. But can you offer some thoughts around how you intend to commercialize the supply chain. On one hand -- your supply chain solutions. On one hand, it sounds like supply chain as being somewhat disruptive to some of your customers in important verticals. On another hand, it feels like Lightspeed has the ability to alleviate some of these challenges with your solutions? So I kind of wonder about the interplay there and whether this is sort of an air pocket from a supply chain standpoint in terms of what you can control?

[Dax Dasilva, Founder, CEO & Corporate Director]

Yes. I think -- sorry, Dax here. I think what this current experience has shown us is that we do want to bring our merchants closer to their suppliers, give them greater inventory visibility, give them the ability to discover new suppliers and discover new supply. And so our focus on bringing NuORDER into our supplier network strategy. The first priority is to get that experience right. And our priority is going to be to roll out in features like inventory visibility as well as virtual showrooms to all of our 12 verticals in retail. After that product is right, we can then start capitalizing on all the B2B opportunities and payments will be a priority. But yes, given the importance of supply chain and supply to retail and later to hospitality, it's important that this is a key part of the platform. And it's going to be a big driver for Lightspeed and driver for location growth in the future.

[Andrew William Jeffrey, Director]

Okay. Yes, I look forward to seeing color on that. I guess timing is going to be important for the numbers and for investor sentiment. And then, Brandon, I just wanted to pick up a little bit on the commentary about sort of mix of new GTV growth in markets or in geos or verticals where payments attach is a little bit lower. Is that -- how much of that is COVID? How much of that is timing? I just want to understand, again, what you can -- the company can control in terms of maybe driving that mix, because it's such an important component of your ARPU expansion?

[Brandon Blair Nussey, Chief Financial & Operations Officer]

Yes. It's quite simple, Andrew. European hospitality, where we have a good base of customers across the continent. It continues to grow considerably volume there as those economies reopen. So we just launched our payments there last quarter, as I mentioned, 800 customers in the hospitality segment in Europe contracted for payments. We weren't able to capture getting all of them live necessarily in the period. So it's not hitting the numerator of that payments penetration rate equation, but that's quite simply all that's happening is the hospitality segment of our business continues to show really good growth in GTV, and we're just getting going on payments there. So it's good for us for the long term.

[Andrew William Jeffrey, Director]

Sure. Okay. And if I can just sneak a quick one in just on the potential for a terminal shortage. My understanding is that most of your business runs on iOS and Android rather than vertically integrated tech. Is that mostly with acquired businesses? Or what are you seeing in terms of internal shortages?

[Gus Papageorgiou, Head of Investor Relations]

Terminals, we've been working through our partners, and that's an area where they've helped us secure inventory and meet demand there. The rest of our hardware solutions are things like iPads and generic third party devices. And obviously, supply and those things is tight at the moment.

[Operator]

Our next question comes from Timothy Chiodo from Credit Suisse.

[Timothy Edward Chiodo, Director]

I wanted to touch also on the 19% organic location adds, but not so much on the near-term, but more about the longer-term comments that you've made, generally talked about that organic location edge should be sort of in the 15%, maybe 15% to 20%, depending on the quarter, but that's a fair way to think about it over, call it, the medium term. I think it just would be helpful for investors. If you could just flesh out a little bit the location addition strategy in terms of marketing, whether it's the online content, the telesales, the new locations that could be driven to you via the supplier network and just the path for maintaining that, call it, 15% to 20% organic location growth ahead?

[Brandon Blair Nussey, Chief Financial & Operations Officer]

Yes. So maybe I'll take this one. So look, if you step back, the majority of the market is on legacy systems, okay? And these are kind of on-premise terminals. So I think everybody in this market knows that the replacement cycle is up. And so I think for us, it's very straightforward. We have a very good marketing engine where we have a blend of word of mouth, organic, paid for, we triangulate basically consumers and we get them to try the software. And then from there, we bring them into a complete sales cycle. So I think this year, nothing has changed. The only thing we've seen that has changed in the year is that the kind of the cost of a lead has gone back to normal because the demand has gone back to normal. So I think for there, we just readjusted the dials. The good news with Lightspeed is because of payments and ARPU expansion, we can now keep a very good unit economic and still accelerate the growth. So I think that's the fundamental of this. Of course, we do have content-driven strategy, I think we have a very strong 360 team in terms of marketing. Now long term, and going back to what Dax was talking about with suppliers, that's where we get very excited. What we know is that the industries where we have a full integration between the suppliers, the stores and the consumers and sports goods and bikes, we talked about this a lot. We know that in those verticals, the suppliers are the ones that are selling Lightspeed because the value for them is to get the sell-through within the network and also the values for them to be able to expand reach within the Lightspeed network. So that's where we get really excited with the integration of NuORDER and Lightspeed is we want to, as you know, go very deep into the verticals that matter for us. And within those verticals, as we go deeper and we integrate, basically, we call it the golden triangle or the flywheel between the supplier stores and consumers, what we do see is that the cost of acquisition goes down, and actually, intake of customers go up. And that's obviously because everybody gains and there's a little ton of value. So here, I think, for us, what you can expect moving forward, is you can expect us to focus on the 10, 12 verticals where we're strong, and you will start to see a strong integration between NuORDER and Lightspeed with regards to suppliers that are generating a lot of demand for Lightspeed. And there, when we do this right, what we see is LTV over CAC going really in the right direction, and we see the cost of acquisition going down and intake of customers going up.

[Timothy Edward Chiodo, Director]

That's excellent. And then a quick follow-up, and I apologize, I'm sure many of us are juggling a few different calls this morning. You may have given this context. But in terms of the whole supply chain issue or potential issue, I just want to clarify, is it something that is actually you're seeing at the moment? In other words, it is impacting potential location adds at the moment? Or is it more just something that may or may not impact location additions over the next few months?

[Brandon Blair Nussey, Chief Financial & Operations Officer]

Yes. So it's not impacting at the moment. The only thing we've done at the home is we've stocked ahead of time to be sure that we would -- we could get through this. So I don't think it's going to be so much a problem for us and our sales ability. I think the issue that we are questioning is with our merchants. So will our merchants have the merchandising for Christmas, where they have a strong retail month, and that's the nonpredictable part of this. So it's not so much about our ability to sell and ignite our customers. It's really about our customers. We know that normally Christmas for them is like it's the strongest month of the year for our retailers. And so I think we're very conservative in our views of is this going to do the usual hockey stick? Or is this going to be more difficult for them because they will not get the supplies they need.

[Timothy Edward Chiodo, Director]

Okay. That's great context in terms of your hardware. Appreciate that.

[Operator]

Our next question comes from Josh Baer from Morgan Stanley.

[Joshua Phillip Baer, Equity Analyst]

I wanted to focus on the flagship Lightspeed Restaurant platform. What are the best parts of the platform? And how do you think that it's competitively differentiated and maybe focusing on North America or the U.S. Can you talk a little bit about the competitive environment and how you're positioned there?

[Jean-Paul Chauvet]

Yes. Very good question. So it's been the focus for Lightspeed for the last 18 months. So look, the first comment I want to make is we are interested in complexity. So we're not that interested in coffee shops, and we really want to serve kind of the established restaurants that have -- most of them have cable service, have multi locations. And I think what this version does really well is that it handles the depth in a very simple way. And what do I mean by this is that it really has everything you can expect with ingredient management, routing rules that are very complex on printers. It also manages all the multi-location, kind of this logic of having one menu that's across multiple locations. And the last piece it does incredibly well, it triangulates the consumer with the consumption and payments. So I would say one of the key things as customers grow and restaurants become bigger, they really need a lot of data. And I think now when we look at what we've taken from Upserve and what we've done with Lightspeed payments and we package this with our core ingredient management and workflow capabilities of the platform. I think this is what makes it unique. So I think what you'll see is that customers will scale very easily with us and will provide them data that they do not see with other platforms right now.

[Operator]

Our next question comes from Daniel Chan from TD Securities.

[Daniel Chan, Research Analyst]

I know you mentioned that the supply chain constraints weren't impacting you now, but can you quantify how much you've kind of factored into your guidance?

[Dax Dasilva, Founder, CEO & Corporate Director]

No specific number there, Dan. As JP -- I think JP articulated it really well. The primary concern is what we're being cautious on is, will our customers be able to secure the inventory that they need to meet consumer demand this holiday season. With respect to our own hardware, yes, we've taken a cautious and conservative forecast in the mind as well. But the primary impact is how we're just being careful on what our customer GTV looks like in this holiday season and how that translates into our own payments revenue.

[Daniel Chan, Research Analyst]

Okay. That makes sense. Maybe sticking with the supplying challenges. Has that driven any increased interest in the supplier network? Are you getting more inbounds?

[Jean-Paul Chauvet]

Well, what we're getting a lot of, and I think we were kind of expecting this is a lot of the brands that are on the supplier network are now kind of pushing us to connect to the POS because they want to have consumer insights. They want to see sell-through. So again, within SMB, I mean, it is kind of a broken supply chain today. And the brands do not see anything about what's selling in real time, at what discount and what are the consumers buying. So I think what we're getting a ton of is a lot of suppliers now are willing to work with us in NuORDER, so that they can get sell-through with small businesses. And so I think that's very exciting because it actually shows that it's the right move. I think for us now, the real question is how fast can we launch a product that has an incredible experience. And so that's what our teams are working hard on right now is really integrating very tightly NuORDER with Lightspeed. So that someone within Lightspeed can order inside of the new order marketplace and vice versa if someone orders in the marketplace of NuORDER, that when they show up inside of Lightspeed POS, that all of the descriptions, the images, everything is loaded without them having to do anything. And so all this to say, we're very excited about this, but we need to now work hard at getting the products together exactly as we did with K-Series and the hospitality launch it. And I don't think it's a magical overnight. There's a lot of work to do to get this product out. The good news, nobody has done this before. So we will be ahead of the market if we can get this out fairly rapidly.

[Operator]

Our next question comes from Raimo Lenschow from Barclays.

[Unknown Analyst]

This is Ravi on for Raimo. So you mentioned the subscription contribution to ARPU being up 19% year-over-year. I was wondering if you could take us through how customer use of modules has progressed? And maybe also touch on where that could go as we look ahead, given some of the new product introductions you mentioned today?

[Jean-Paul Chauvet]

Yes. So I mean, maybe just going back in time, the strategy of Lightspeed is we started with the POS. And then over time, we've built a number of modules that creates value for the customer. So I think maybe a good way to look at it is kind of the Apple strategy. You start with the iPhone and then you buy more products, and they're so well integrated within each other that there's more value in buying more from the same, and that's exactly our strategy. So what we've seen over time, and I think this is really what helped us during the pandemic is because we had the capabilities for in-store, the capabilities for online, the advanced analytics engine, the loyalty platform, now we have payments. We basically -- what we're seeing over time is our customers are just buying more modules from us. And this has never changed, never stopped. And I think here, when we look back at the quarter, as usual, more customers bought more modules and adoption of payments was strong. And so that's why we're just excited about where we're heading is we don't see kind of ARPU per locations slowing down. And then just even look with payments, 11% is our payments penetration. So there's a ton of runway there to sell to the rest. We just launched payments in Europe. We just launched payments in Asia. We are about to launch -- we started launching payments with Vend, and we're going to have it released by the end of the year. So it just gives a ton of opportunity for us to just continue upselling. Well, maybe one last point here is Ecwid. We acquired Ecwid because we wanted our customers to have the best capabilities with commerce, and we worked really hard. And now Ecwid is fully available to our customers within our retail products. So there, again, what we can expect is for customers to buy more from us and follow the trend. So I don't know how much more you want, but I think that's pretty much our view is that ARPU is going to continue expanding, customers are going to continue buying more modules from Lightspeed.

[Unknown Analyst]

Perfect. That's very helpful. And maybe tailing off that last point on Ecwid. I know Ecwid didn't have a big sales team, but they did have a lot of self-serve and a big funnel of customers. So maybe you could talk to us about the potential synergies there as you layer on some of your S&M efforts?

[Jean-Paul Chauvet]

Yes. So that's typically what we do with companies that have good tech and not, let's call it, strong go-to-market. So we're working hard now that the product is integrated. We're now kind of beefing up all of our teams globally. And I think, again, what do we bring to the table, Lightspeed has local offices in every major country in Europe. We have local offices in Australia. So we can be hyper local in our go-to-market once the product is integrated, which it is now. So the focus is going to be okay. Let's get now this product in the hands of all our sales guys globally, and let's continue selling it.

[Operator]

Our next question comes from Thanos Moschopoulos from BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

Just clarify a point on the new restaurant platform. You alluded to the deep analytics functionality. And so is that something that would represent an upsell to existing customers migrating from current platforms? Or is that included in the base operating?

[Jean-Paul Chauvet]

No, this is going to be an option. We're going to have a tiered approach. But I think maybe just being clear with the analytics, the full power of analytics comes if you use Lightspeed payments. And so that's why we're very happy about this is that customers who want to have the advanced analytics need to buy payments. So it's going to create -- I mean, our view is that it's going to create a much stronger ARPU per customer and per location because we're triangulating basically multiple products together to create the value.

[Thanos Moschopoulos, VP & Analyst]

Great. And can you stick to the churn rates, you mentioned that churn was elevated in APAC. But how did it trends in other geographies? Last quarter, you said it was near record lows. Did that remain the case? Or was anything of note there?

[Dax Dasilva, Founder, CEO & Corporate Director]

Pretty normal quarter otherwise, Thanos for churn. And yes, just as JP mentioned, what we saw happen in Australia and New Zealand is what we've seen happen. And as we've gone through this -- the various waves of this over the past 18 months or however long it's been. So otherwise, pretty normal quarter on churn.

[Operator]

Our next question comes from Richard Tse from National Bank Financial.

[Richard Tse, MD & Technology Analyst]

As you guys get bigger today, I'm just wondering if you can maybe give us some perspective on the competitive landscape, with that sort of growth and scale, has it sort of increased your win rates and kind of change in any way how you market the brand going forward?

[Jean-Paul Chauvet]

Yes. So I think a few things. I mean of course, the brand now has a lot of visibility. People know Lightspeed. So the organic portion is doing well. Now this being said, it's offset by the fact that paid for since the end of the -- since everybody is going back to normal, is going back to the previous year. So we're happy. I mean I think we're very confident that our growth rates will remain the same. Now going back to your question on close rates, we've seen close rates maintain. We haven't seen any kind of degradation. So I think the -- I used to say we're doing a good soup, and we know the ingredients. And I think for me, nothing has changed on that front. The super still is good, and we control all the metrics well. And then the last piece when I think about competition is, do we have one single competitor showing up somewhere a bit more often? And the answer is no. We've -- I think we've remained very consistent. I would argue that with what we're doing with K-series and the new launch of hospitality. And all the work we're doing now with the new launch of our retail platform, following the ShopKeep and Vend acquisitions. I would argue we're in a stronger position than we've ever been in terms of competitive advantage. And I think now, for us, what we're seeing is that the reopenings are also playing very strongly in our favor, and we have a very strong on-premise platform. So now feeling really good about the competitive landscape and the value we bring in the market.

[Richard Tse, MD & Technology Analyst]

Okay. Great. And just one other quick one for me. On the transaction-based revenue beyond payments, which obviously, I think, is probably the bulk of it. What would be the next sort of service that you offer there in terms of the next biggest in size?

[Jean-Paul Chauvet]

Beyond payments, it will be capital. Capital is in its early stages still, Richard. We did give some disclosure on that in the press release itself. So it is growing. We've extended capital now to more of the customer base in this past quarter. We're seeing good uptake. I still think this is going to be a nice driver of growth for us in the long run, a good profitable driver of growth, a lot of good value-add to the customer as well. But that would be the next in line for sure.

[Dax Dasilva, Founder, CEO & Corporate Director]

Maybe just to give a bit of clarity there. What the obsession now is to embed this very tightly inside of the products and inside of the entire product portfolio, so we can make it available to as many customers as possible.

[Operator]

Our next question comes from Andrew Bauch from SMBC Nikko.

[Andrew Thomas Bauch, Analyst]

I mean how should we think about the cadence of payments penetration gains kind of changed throughout the rest of this year and into 2022, when you really start getting in all these markets? And how does kind of capital provide that incentive to convert to the platform?

[Jean-Paul Chauvet]

Great question. Yes, it's tough to give you a precise answer to how payments penetration will be a quarter-to-quarter as we go. We give a bit of color on we've been one quarter in Europe basically, now with our hospitality, 800 customers took it. We got to now make sure they get transactional. We got to make sure we continue to attach all new customers in that region. We're now entering hospitality in Australia as well. So we're going to go through the similar exercise. And we also integrated the payments platform, our payments platform with the Vend product as well, starting with the U.S. customer base there. So all those things -- I mean, those are big chunky parts of our GTV and how our GTV builds up. Just the initial launches of these things, while we are -- we get smarter and better with every time we do it. They're going to be lumpy. We're going to have growing pains, especially in new markets. But we did publish something last quarter about a 50% GTV penetration rate, and we still feel good about that, given how -- we have now got payments coverage across a much bigger part of our customer base.

[Andrew Thomas Bauch, Analyst]

Now, that's helpful. And then just a follow-up is, could you provide us an update on what total locations are today versus the 156,000 at the end of September?

[Jean-Paul Chauvet]

No, that's not something we disclose just yet. We'll update you next quarter on that one.

[Operator]

Our next question comes from Martin Toner from APB Capital Markets.

[Martin Toner, Analyst]

The advertising transparency tracking issues that worded online advertisers this quarter. Did that have any impact on your marketing efficiency? And how will you adjust going forward?

[Jean-Paul Chauvet]

No. It had zero impact. We're marketing to businesses, we use -- I mean, Google 360. So we haven't changed anything. As I said before, we know how to do the soup, we know the ingredients, and we've seen nothing but standard kind of adoption and growth.

[Operator]

Our last question comes from Todd Coupland from CIBC.

[Todd Adair Coupland]

I just wanted to ask, what type of hardware is required for payments rollout once a customer attaches? And how much of a constraint specifically is the supply chain having on that part of your hardware offer?

[Jean-Paul Chauvet]

That's an area we've been navigating pretty well, Todd. We get the payment terminals we deliver from our partners, primarily Strike and ADI and they've been quite supportive of us and making sure we have the -- what we need to meet customer demand there. So that part has gone okay so far.

[Todd Adair Coupland]

And when you talk about the hardware issues for you going into the next couple of quarters, does that impact sort of this comment from Strike and others? Like are you expecting that to change?

[Jean-Paul Chauvet]

No. It's -- there's lots of industry talk about chip shortages and that sort of thing. I think on the payment terminal side, Todd, we've been able to secure inventory, as some of the peripheral devices and so on that we're just being cautious. Again, I think we said earlier in the call, we haven't -- we've been managing through it so far. But this is just one of those macro factors right now that I just think we have to be mindful of. As our customers are -- a new customer of us is going to need an iPad, a scanner, a printer, all these things that are in tight supply worldwide.

[Todd Adair Coupland]

Okay. And then my second question related to your growing pains observation in Europe. What types of things might be an issue as you roll out in Europe? And I guess, now Australia where you've just introduced it. What types of things are you talking about in terms of growing things?

[Dax Dasilva, Founder, CEO & Corporate Director]

Yes. So maybe I'll take this one. I think for me, the way we look at it is the adoption within the new markets has been smoother than the initial adoption in the U.S. So we started in the U.S. We now have roughly 20% of our GTV in North America, that's on payments. And we see that continuing to grow. Then we launched in Europe. I mean Brandon mentioned, we signed 800 customers within the first quarter, which was very much in line or much better actually than what we did in the U.S. and we're launching now in Australia, and I'm certain we'll have very good adoption. So I don't think there are any issues there. I think we're just going to see the rollout. And I mean, generally speaking, the way it works is a customer sign and then what we have to look at is that between the moment they sign with us and they become transactional, our job is to run shorten that time as much as possible. We need to ship to terminals. We need to ensure that they plug them in, that they configure them in the right way. So I think nothing out of the norm, feeling really good about knowing how to sell it and knowing how to present the value to the customers. I think it's just the typical kind of lag that we've seen everywhere else between the moment you sign and then they start being transactional. So the 800 we signed this quarter will probably be transactional within the coming months. And so there's always this lag. So -- but we're very -- just again to be clear, we're very happy with the uptake. We're very happy with the sales effort. We now just need to be patient enough to start seeing the uptick in the revenues.

[Operator]

This concludes the Q&A part. You may now continue.

[Gus Papageorgiou, Head of Investor Relations]

Okay. Thank you, everyone, for joining us today. As usual, management is around, if anyone has any follow-up questions, please reach out to myself, if you do. We'll say goodbye, and have a great day.

[Operator]

This concludes today's conference call. Thank you all for joining. You may now disconnect.