Good morning. My name is Chris and I will be your conference operator today. At this time, I’d like to welcome everyone to the Lightspeed Second Quarter 2023 Earnings Call. [Operator instructions] Thank you. Gus Papageorgiou, Head of Investor Relations. You may begin.

Thank you, operator and good morning everyone. Welcome to Lightspeed’s fiscal Q2 2023 conference call. Joining me today are JP Chauvet, Lightspeed’s Chief Executive Officer; Brandon Nussey, Lightspeed’s Chief Operating Officer; and Asha Bakshani, our Chief Financial Officer. 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 2023 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 and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on sedar.com and on the SEC’s EDGAR system. 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 JP, I would like to remind everyone that we will be hosting our Capital Markets Day on November 15 here at our headquarters in Montreal. For investors that would like to attend, please register by visiting the Investor Relations section of our website. With that, I will now turn the call over to JP.

Thank you, Gus and welcome everyone. Thank you for joining us this morning. Lightspeed reported another strong quarter today. 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%. Our GPV grew 86%, much higher than our GTV growth of 18%. And what’s more, our total ARPU grew 25% to $337 per location, excluding Ecwid. On a constant currency basis, revenue was $187.2 million representing 41% growth year-over-year and our GTV was $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, especially among higher GTV 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 GTV customers tend to generate higher ARPU, show lower churn and are more likely to take advantage of Lightspeed’s advanced inventory management capabilities. I believe that the results for the quarter show that our strategy of focusing on the quality over quantity of customers is working. In the quarter, we signed several multi-locations and marquee customers, including L’Osteria. With 130 restaurants in Germany and expanding across Europe, L’Osteria offers authentic Italian cuisine to its many customers. They have signed for our flagship product, Lightspeed Restaurant with Payments, in all of their German locations and will soon be rolling out to European countries. Spa L’Occitane, a 5-star resort and spa in France, will adopt our flagship Lightspeed Restaurants and Payments. The Consulate, a French casual fine dining restaurant in Manhattan’s Upper West side, chose Lightspeed for our robust analytics and reporting capabilities. Anheuser-Busch InBev selected our…

Thanks, JP. I will 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 is a major growth area for us. We are fortunate, particularly during challenging times in the market to have the white space we do within our existing base of customers. Our GTV in the quarter was $3.7 billion, up 86% from the prior year. But with over $20 billion in total GTV this quarter, we still have significant opportunities ahead. 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. And 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 payment sales in hospitality outpace our more mature retail product vertical and we saw our markets outside of North America represent close to half of our total payment wins this quarter. This is encouraging early progress and is a main contributor to our increased amount of GPV. 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 and 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. While still…

Thanks, Brandon. Lightspeed delivered another strong quarter with revenue and adjusted EBITDA loss above previously established outlook, with revenue of $183.7 million growing 38% from Q2 last year and 41% on a constant currency basis. 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 Brandon, we are also very pleased with how well payments uptake has been going and our GPV 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 our end markets and for our merchants. There is 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 GTV. Overall GTV grew 18% to $22.3 billion or $23.8 billion on a constant currency basis, representing a 26% year-over-year increase, which is very positive despite shifts we are seeing in consumer spending. Our overall omnichannel retail GTV 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 GTV customers coming to Lightspeed. 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 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…

Thanks, Asha. Before we go into Q&A, I want to welcome a new member to our senior executive team, Ryan Tabone. Ryan is our Chief Product and Technology Officer and comes to us after 15 years at Google. 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 Lightspeed. I also want to highlight that JD St-Martin has been promoted to President. 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. 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. As I look at our senior executive team, I’m confident we have the right leaders in place to execute our goals and continue to grow the company. And with that, we will take your questions.

[Operator instructions] Our first question is from Tim Chiodo with Credit Suisse. Your line is open.

Great. Thanks for taking my questions. So the first part, the 500,000 plus locations growing 25%, that’s a very encouraging stat. For the modeling purposes, though, I’m sure we’re going at the beginning of 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 and Gastrofix 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 in the 500,000 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 about a year ago.

Yeah. Good morning. JP here. I’ll take this question. So I think maybe just if we step back, as you know, we’ve 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 GMV customers because those are the ones who are way less prone to churn. Churn is almost half, actually more than half of those – on that segment of customers, and so what we’re naturally seeing is that the 200,000 and under customers are churning. And we’re not attracting them, not focusing on them, and we are really focused on the larger GMV customers. It’s also a part of our path to profitability is to really focus on attracting the right customers that are not going to churn and are not going to buy the entire portfolio over time. So again, we wanted to disclose a little bit more just to give you some visibility here. We have our Investor Day, we 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. We – what we focus on is maximizing every dollar of marketing spend to get the best return, and that means any way you look at it going for more established customers in the SMB space.

The next question is from Josh Beck with KeyBanc. Your line is open.

Thank you for taking the question. Maybe following up a little bit along the lines of adding these larger customers. 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, so it’s maybe a little bit of a trough before you start heading back upwards with respect to the customer acquisition efficiency?

Yes. So maybe we have – just answering also the first question, we have been hiring outbound reps. And so really, the way we look at it is we have a certain amount of dollars that we already spend to attract customers. And here, instead of spending everything on marketing and getting inbound, we have now started hiring 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, 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 Lightspeed for – in go-to market and mainly focusing on outbound reps.

Very helpful. And then you’ve obviously had a lot of momentum driving payments penetration. It certainly seems like there is 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, in some ways, double down and have a very company-specific driver to really kind of offset what could be otherwise a pretty choppy macro environment?

Yes. You’re 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, there is 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 is 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 because we do – I mean the worst-case scenario is going after numbers, and landing customers are going to churn because of business figures. So we wanted to go with the more established. And I think those two sequences put-together mean that we will probably have fewer stores, but we will have better revenues and will drive toward profitability with this.

Super helpful. Thanks, JP.

The next question is from Dan Perlin with RBC. Your line is open.

Thanks. Good morning. I wanted to follow-up on the concept around helping your clients kind of get to this macro time through technology, and the question there is really around the pricing environment for you. Are you willing to take advantage of kind of pricing here to gain some share to ultimately help these customers through this environment? And then I’m thinking, in particular, are you willing to offer up discounting around software in order to secure payments as you start to move upstream into some of those larger clients that you have a longer-term kind of LPV? Thanks.

Yes. So we are – I mean that’s always been kind of the trick in the book is the big difference between Lightspeed 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, what we are going to be doing is actually going to our existing customers and say, hey, 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. 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 after the more established that are not going to fail. And I think that’s really the two sequences there. I think 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. If not, they will not – our customers do not strike profits. You have the scarcity of hiring. They are having difficulty hiring people. You have now a recession looming. And so there is 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, 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 all the pressure points on our merchants, the only way out is going to be to adopt technologies like ours. But we don’t go to go after every merchant in the context of our path to profitability and difficulties ahead. We wanted 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 it’s not obviously just volume, it’s the type of complexity. Is it going to take you into different verticals maybe that you haven’t been in the past? Just anything there would be super helpful. Thank you.

Yes Just – I know you 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 wanted to go with established. And what does that mean? And just answering your question, it’s always the same logic, is volume of inventory. The more you have inventory, the more complex your business is because you cannot manage your inventory with your eyes, you need platforms to work with your suppliers. The other big vector here is multi-location. 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’s where we shine. So I think generally speaking, 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 vendor and higher GMV. So I think all of this to say that this is very much the strategy of Lightspeed. There is no big change. We just wanted to be sure that we 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 on really attracting the right profile of customers that are going to stay with us and that will find an entire – that will find a lot of value in our solution set.

That’s great. Thank you.

The next question is from Thanos Moschopoulos with BMO Capital Markets. Your line is now open.

Hi. Good morning. Can you speak to the near-term trajectory you 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 as you shed some of the non-core customers and convert some customers to Lightspeed Payments?

Hey, Thanos. No, that’s coming down, has been coming down, and will continue to go down.

Okay. And on the payments penetration, we saw about 150, 200 basis-point sequential uptake, something similar to the prior quarter. Is that the sort of trajectory you’d anticipate going forward? Or could there be a seasonal element as well, where we will be heading into December quarter, people are more reluctant to change equipment provider?

No, we’re pretty focused. We’re working hard on this. Again, the key metric we track and monitor is the GPV. The penetration rate is a little volatile quarter to quarter depending on what’s going on in the underlying customer base. So when it comes to GPV, though, we’re really, really focused on how do we ensure we sell it well at the outset, so attach rates on new coming in, and how do we onboard and drive more payments into our existing base. We’ve undertaken a whole bunch of initiatives internally around how we optimize each step of that journey. And we’re seeing some good progress so far. More to do. But now with payments available basically across the world for us, we’re pushing on this as a very key component of our business plans right now.

Great. Thanks.

The next question is from Andrew Jeffrey with Truist Securities. Your line is open.

Good morning, everybody. Thanks for taking the question. JP, I have a competitive question, especially given Lightspeed’s significant rest-of-world positioning and the shift to unified products. Can you just comment on how you think the company competes? I’m thinking particularly in restaurants, rest of world versus in the U.S., where there is 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 U.S. or if you think you can be equally competitive globally.

No. Look, we’re – actually, one of the big highlights for me in the quarter is the progress of the new platforms. So as you know, 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. The new platforms are extremely competitive and create more value than anyone, even the established players in the U.S. And maybe just a data point here that’s really interesting. The majority of our deals this quarter were 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 of last quarter. So we’re getting some real traction and real progress. On the retail front, I’m really, really bullish on our new product, which is Lightspeed Retail X. That platform, especially with our headless capabilities, our workflows, I mean everything there is just fabulous, and we’re feeling really good about the U.S. market on that. And for Kei, just addressing, which is our restaurant product, just addressing the U.S., we are starting to see some strong traction in the U.S., mainly with our outbound reach. And again, we’re not trying to be everything for everyone. We wanted to go with the more established table service, high-end Michelin star. Because if you look at how hospitality works, if you start at the top, there is a ripple effect all the way down. But there, as you know, there is a big strategy for us to compete in the U.S. also, and we’re very happy with that progress.

Okay. I look forward to hearing more about that at the analyst day, too. And then with regard to the effort to penetrate installed base, 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 in this environment. Is the same true in the installed base? Or is there a notable difference, I guess?

Yes. No, so look, we are – it’s very clear for us that we need to dedicate teams that are going to be upselling the base, and so there is a lot of recruitment going on there. There is a lot of new hires that are joining likely there. We need to increase penetration. And for us, the best cycle there, again, is to go and talk to the customer and say, hey, you’re paying a couple of hundred bucks a month. If you pay – if you use like payments, we give you a discount on the software and to attach payments. And so we have all the strategies in place there, and 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 for new customers is remaining very strong and is not lowered, so we’re doing better there, especially in Europe now. Brandon mentioned, 50% of all our deals now are outside of the U.S. In terms of payments, so that’s really strong news. And then the second thing is we need to look at 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 GMV customers, who are not on Lightspeed Payments and ensure that they move over to our payment platform. So all those sequences are working well, and that’s why we’re seeing pretty high growth on GPV, which is the volume of customers who are on Lightspeed Payments. And you can expect that to continue because, of course, this is the most important step in our path to becoming a profitable company.

Yes, for sure. Alright. Appreciate that. Thank you.

The next question is from Andrew Bauch with SMBC Nikko Securities. Your line is open.

Hey, good morning. Thanks for taking the question. I had one near-term question that on a longer-term thematic question. So starting with the near term, just thinking through the third quarter dynamics, I remember this time last year, there was better GTV trends in segments without payments versus those with payments and partially due to Omicron. 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 as we end the – end of the calendar year here?

Yes. I mean there is obviously a lot going on in the macro. We have two primary businesses, as you all know. We got the retail customer cohorts, and we got the hospitality. Retail, we do a lot with consumer discretionary categories, specialty retail, sporting goods, home improvement categories, all of those. And we are seeing signs of consumer discretionary spending stress in some of those markets. I think as Asha mentioned in our prepared remarks, we are actually seeing same-store basis like average GMV per customer in those segments actually declined year-over-year. So, that dynamic, it’s difficult to predict as we look ahead into the holiday season. Though, as you heard from Asha, we have to remain cautious on that for sure. Hospitality, we certainly saw a resurgence in hospitality in the quarter as economies opened up and consumer started to travel again. As a reminder, our hospitality business is, for the most part, outside of North America. We are good in Europe and 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 remain cautious on how that plays out in the upcoming holiday period as well. I think that’s the only prudent thing to do. We will focus on the things we can control, which is, as JP has been emphasizing, attracting the right types of customers into our customer base and of course, making sure we take advantage of the white space that exists across our customer base.

No, that’s helpful color, Brandon. And then JP, you mentioned a real focus on bringing these three assets together and creating One Lightspeed. Just trying to think through a little bit clear, what does that kind of unlock 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 – that integration is all done?

Yes. I think we have been very clear. So, the endpoint of this at the end of this fiscal year, this is for me, I view this as a transition year into One. The – why One, I mean it’s getting all our developers working on one platform will make us go much faster. It will bring a ton of simplicity in terms of go-to market, because right now, there are markets where we are 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. If I have only one support team, one onboarding team for one product globally, if I only have one system for one CRM. I mean right now, there is a lot of unnecessary complexity, which we have planned for. But as we get to One and one brand with one product in each category, it’s just going to make this business so much simpler. And so here, for us, then it will just help us double down and accelerate with less noise and less structural costs, if you will.

No, it makes a lot of sense. Thank you.

The next question is from Eugene Simuni with MoffettNathanson. Your line is open.

Thank you. Good morning, guys. So, we are very clear that you guys are shifting or reemphasizing the strategy of the shift to larger customers, and you also made it clear that it sounds like LTV is very attractive with these customers. There is just a couple of questions and maybe unit economics of these customers. So, one, only yields, and let’s say, payment yields in payments, larger customers usually mean lower yields. Is that how you think about it over the longer term? Just help us think how the unit economics of the business might evolve?

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 are looking to do is grow the amount of commerce that flows through our network, and you are seeing that show up in our aggregate GTV. And then grow our net take rate on that commerce, and you have seen that progress over time as well. So, as larger customers come on vis-à-vis a smaller customer, we might get slightly worse payment acceptance rates from them. But that’s kind of the micro. As you zoom out and you think about really what we are trying to build and what we have been successful building, it’s – we have now – I think our trailing 12 months of GTV is $83 billion or so. And as we have been growing that successfully, we have been taking in a larger and larger portion of the amount of that. That turns into revenue and gross profit for us, and that’s core to the strategy. So, yes, just to answer your question very directly, it might look different on a customer-by-customer basis. But in the big picture, it’s all healthy for us.

Got it. Okay. That’s helpful. Yes. And then a big picture question here, high profile, higher with wide coming onto the team. It’s great to see. Just curious, what are the top couple of R&D priorities that Lightspeed has that maybe why you are able to stay ahead and that we might see bear fruit over the years to come?

Yes. So, I will maybe take this one. The immediate number one priority for Ryan is – and first question you have for me is what is success between now and the end of the year is like one product globally in each category. That is extra ultra-competitive and so that’s the number one. And we – for me, I look at it, we can see the end of the tunnel. We are almost there, but now we need to just finalize. I want to be sure that next year, there is only one product globally for each category. And so I think that’s priority number one. Priority number two is what we are doing upstream. We have been talking about the B2B network. And here, we have now launched this in beta in a number of categories. And here, why is this important, because this is how we are going to help our customers. We need to look at how they work with suppliers, and we talked about this, and we will be talking about this again at the Investor Day. But this is really important. We need to now go from a beta to a released product, and we need to start going category-by-category and creating value because this creates value for everybody. And really, it is a flywheel if we can do this right. That’s the second. And then the third for me is big data and financial services, where we – I mean as we aggregate data, we are the largest set of offline data in the world. We are normalizing this across all stores. There is so much we can do with that data. And 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 are 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 and really excited to have such a high-profile candidate decide to join Lightspeed over any of the other options and really looking forward to the evolution here 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. Wanted to talk a little bit about software subscription ARPU trend, it seems like the mix shift toward the higher GTV customer locations would also benefit on the software side and ability to adopt more modules, not just transaction revenue. Not really seeing that this quarter with subscription ARPU. I think flat quarter-over-quarter. Talk through some of the dynamics there and where the priority lies as far as selling more modules into the customer base?

Hey Josh. Thanks for your question. So, 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 revenue is more mature in the U.S., so the majority of that revenue is in U.S. dollars. So, that is impacting the subscription ARPU in the quarter. In addition to that, as we sign the customers, you should definitely see the impact in subscription revenue, but that impact is still marginal compared to the impact on transaction-based revenue. If you think about ARPU of a larger customer, although it’s significantly higher than an average customer, it’s still pretty insignificant compared to the ARPU that we would get on $1 million of GTV 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. And maybe if I could just add. The conversation becomes more of a net take rate conversation and a net take rate based on the revenues of the customers, and I think there is a lot of improvement there. But I do think that payments and software are blended. And really, ultimately, when our salespeople look at this, we need to get a good net take rate from those customers, and we need to grow the net take rate on those customers. So, I think that’s more how we are looking at it, which is a 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. Brandon, you earlier 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 is 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 of ShopKeep. They had a more mature offering in this space. You may recall – and the executive team from ShopKeep had some good experience in this. We, like we have approached many things, kind of took this one step at a time. Just got used to this business model and started to try different tactics to make sure we understood what we were – how this would work. And now we are at a point where this product is ready for us to start to think about scaling it a lot more broadly. Now, we have opened this up to some international markets, as I spoke about. So, we have got this now in Canada, the U.S. and Australia, and we have opened it up to more of our underlying product offerings as well. And so we are seeing growth rates really start to move in the right direction here. Revenues are up more than 200%, and the number of advances as well that we have done. Of course, we are not blind to the macro situation, but that’s the advantage of this customer base we have as well. We are a little more established, a little less prone to default risk. So far, that experience has been very minimal, very manageable. So, we really like what we see here, and I think there is a lot of potential still to be had, and we are just getting going on it to your point.

Thank you.

The next question is from Matt Coad with Autonomous Research. Your line is open.

Hey. Good morning guys. Thanks for taking my question. Just one for me on the gross margin. It’s been in the 46% range the past couple of quarters. Could you talk about like anything in terms of maybe like funding mix that impact the net take rate or expectations around hardware losses going further?

So, we can start with hardware. You heard from us last quarter that we were going to improve that margin line, and we have seen some improvement in that margin line. However, in hospitality, U.S. in particular, we are seeing very good uptake of our flagship product in the quarter, 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 U.S. We are, however, managing discounting in our other verticals in our region to continue to improve this margin line. So, we do expect to see improvement in that margin line. But given the growth we are expecting in hospitality U.S., we expect that margin improvement to be gradual. In addition to hardware, the other factors impacting the overall gross margin is transaction-based revenue. And as you heard from Brandon earlier, as our – 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, which you heard from JP, that increase in net take rate that we get from our customer 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 our margin percent.

Super helpful, Asha. Really appreciate it. Just one more on locations, and I know you guys have talked a lot about locations growth already on this call. But I was hoping you could kind of like break it up in the three buckets for us like gross locations, location growth, voluntary churn, and involuntary churn just from bankruptcies. Kind of like break it up into like those three buckets for this quarter and then how you are thinking about the next couple of quarters going forward.

Just in terms of churn, we put a slide on our investor website, in the investor deck to just outline the cohorts and what we are seeing. So, we are seeing and to JP’s earlier comments, if you look at that sub-200,000 GTV 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 how you characterize the buckets, but that will be business failure churn for the most parts in that bucket. And that’s in part why we are privileging the more established end of the customer spectrum. We see that as soon as the merchant crosses 500,000, churn drops significantly. And furthermore, once you get into the 1 million plus drops even further. So, that’s overall what we are seeing in churn. And then as the gross adds, I think you heard from JP earlier, it’s more about are we growing our aggregate GTV and is that GTV turning into profitable revenue for us, that’s our focus right now more so than a specific number of locations. And I think you are seeing the progress both in terms of GTV growing, our ARPU growing, and ultimately, the leverage we are seeing down in the adjusted EBITDA line and some of the ratios there. So, it’s all working in tandem there.

Thanks guys.

Chris, I think we will take one last question.

Okay. Our last question is from Richard Tse with National Bank Financial. Your line is open.

Hey, thank you for taking my question here. With respect to the direct sales reps, I am trying to understand how that sales force is organized. Are they sort of regionally focused, meaning that you are sort of having certain people in all geographies? Are they kind of located more centrally and they kind of fly in these regions? Just trying to understand how that operationally 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 tandem of some – of an outbound rep basically just cold calling and a rep with foot on the ground who is then going to go and visit the customer. So, it’s a dual, call it, team. And yes, I think what’s very interesting to us is we are targeting the more established restaurants. And what we are seeing is better unit economics for that kind of model. So, that’s why if you go to our website that I think there is something like 82 job openings for salespeople generally speaking, and a lot of those are going to be or focusing on up-selling the customers with payments and financial services or the outbound motion in 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 as 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 module, or is it something else that so we can kind of get a feel for where that stands today? Thanks.

Yes. So, number two is by far the omni channel. So, headless commerce now if you are in retail or all of order head and delivery if you are in hospitality. So, that is by far, the second. And then the third one is our advanced analytics engine, and that is a very big differentiator for our competition in the U.S. in hospitality. Nobody does what we do in terms of analytics and giving some data of how the restaurants do better. And on the retail front, also, we have a very strong advanced analytics engine.

Okay, great. Thank you. End of Q&A:

Okay. With that, I think we are going to wrap it up here. So, I would like to thank everybody for joining us today. I remind everyone that we will be hosting our Capital Markets Day here in Montreal on November 15th with a reception on the 14th. We would hope to see as many of you here at our head office as possible. So, thanks again for joining everyone today, and have a great day.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.