Earnings Call Transcript - LSPD Q2 2022

Operator, Operator

Good day and thank you for standing by. Welcome to the Lightspeed Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mr. Gus Papageorgiou. Please go ahead. 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 the 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 first-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 two can be found in our earnings press release, which is available on our website. 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 remind everyone that Lightspeed will be hosting NuORDER’s Inaugural Capital Market Day at the New York Stock Exchange on Tuesday, November 23rd from 8:00 AM until noon. Please go to the events and presentation 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, CEO

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 rates 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 Restaurants. 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 genuine and consistent efforts 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 have 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 by relying solely on IFRS measures. Third, our organic growth rate, which we disclose, remains the 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 have brought us talented management teams and industry-leading technology, which we are integrating into the core platform. 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 Open Table. And finally, they've 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%. Payments penetration continues 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. We also added the Locarno 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. Coca Mats, the luxury mattress company, will be running its three stores in New York City using Lightspeed Retail and Payments. And last but not least, Group CH, with 16 locations, operates all of the Montreal Canadians' official retail outlets along with large events, such as the Montreal Jazz Festival. Group CH will be using Lightspeed Retail, Analytics, Payments, and E-commerce. In addition to continued strong operations in the quarter, the company also advanced some key strategic initiatives. First and foremost, after the quarter, Lightspeed launched the integrated Hospitality platform, Lightspeed Restaurants. Initially available in Europe, Lightspeed Restaurant had its North American debut recently, and we will be rolling it out globally over the months ahead. Lightspeed Restaurant combines the best-of-breed features 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 a no-compromise omni-channel experience that will not only help us attract new customers, but also help our existing customers become more successful with their omni-channel strategies. And finally, Lightspeed undertook a successful financing, raising gross proceeds of 823.5 million and issuing just under 8.9 million shares to self-fund the Company’s operations and growth. Brendan 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 Restaurants, the integration of Ecwid as our core e-commerce solution, and the continued growth of our payments offering. First off, Lightspeed Restaurants; there is 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, delivering an industry-leading platform, which we believe is second to none. 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 Restaurants, allowing restaurants 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 that Payments brings to the restaurant platform will make adopting Payments with Lightspeed Restaurants an easy decision. As I have mentioned in the past, Lightspeed has no interest in maintaining a portfolio of brands and solutions. All of our acquisitions will be merged into two core flagship offerings: Lightspeed Restaurants 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 fully integrated into our retail offerings. Our new and improved Lightspeed eCommerce was launched less than three months after the Ecwid deal closed and is now available to Lightspeed customers around the world. Lightspeed eCommerce 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 possible digital marketplaces. We also announced a direct partnership with TikTok, allowing Lightspeed merchants to 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 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 have 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 toward Hospitality customers, with the availability of Payments now in all of our key geographies, and the newly launched Hospitality Solution, with deeply embedded Payments functionality, we expect these options for Payments to increase considerably in our markets outside of North America. Before I hand it off to Brandon, I wanted to thank our dedicated and extremely hardworking employees at Lightspeed. This past 12-month period has been the most transformative in the Company’s history with five 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 Nussey, CFO

Thanks, Dax. I echo 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 will find this definition and the others mentioned by me today in our filings. Accordingly, the revenue contributions from NuORDER, 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 will 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 filling 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 unit customer can have multiple customer locations, including physical and eCommerce sites, and as mentioned, we will 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, save and except for the amendment for this quarter to better incorporate 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 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 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 continued 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 and subscription pauses in those markets, which 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 subscription and transaction-based revenue divided by the number of customer locations for the period. This is a straightforward calculation available with all of our publicly-reported numbers. Please further note that we have always excluded hardware revenue from ARPU, given hardware's non-recurring revenue stream, and ARPU is intended to reflect the amount of recurring revenue for the customer. With 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 is 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 locations is one good indicator of our progress there. At 59% year-over-year growth in the quarter, we are pleased with our progress. Thirdly, we will look at our GTV, which represents the total dollar value of transactions processed through a cloud-based SaaS platform in the period, net of refunds and includes shipping, handling, duty, and value-added taxes. GTV does not include any of the order volume processed by NuORDER between the brand and retailer customers. We have excluded that B2B volume until such time as we have a more well-defined Payments Solution for that order volume. Beside 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 increased 38%. Total Hospitality GTV, particularly in Europe, increased significantly in the quarter, as economies continued their reopening in those markets. Hospitality GTV was up 131% and up 40% on an organic basis. For a period of over-performance throughout COVID, certain segments like bike and home and garden began to moderate in September and more closely followed historical seasonal trends. While difficult to predict, we will assume the seasonality continues into the winter period, and our guidance reflects this assumption. However, as mentioned in our discussion earlier, lockdowns in Asia Pacific serve 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 Payments Solutions in respect of which we act as the principal for the customer divided by our GTV. We think the payments penetration rate is a better measure of progress than the number of customers using our Payment Solution as it represents the potential that lies ahead without distortion from differing individual customer transaction volumes. The payments penetration rate in the quarter was influenced by ongoing strong adoption in North American Retail and North American Hospitality where a payments penetration rate is now over 20%. The recent launch in Europe for Hospitality, where more than 800 customer locations in that market contracted for our payment solution, shows early success, and we expect that we will have growing Payments as we launch into new international markets. 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 very important today at 133 million. As you will see in our disclosures, 124 million is recurring subscription-based and transaction-based revenues, which grew by 203% overall and 58% organically. Subscription-based revenue and transaction-based revenue were 59.4 million and 65.0 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 Payments Solutions, which generally carry lower gross margins. This term is not unanticipated, and in fact, is encouraging. The stronger the success of our payments, 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 an 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, our gross margin percentage may fall with the ongoing rollout and success of Payments, but we are focused on expanding the gross profit dollars we generate in our customer locations. Given the 11% of our GTV being processed by our Payments Solution, we think there is tremendous potential ahead. The last note on margins, we have always felt that scale matters in this business. Scale and the resulting brand recognition supports our ability to attract new customers and prospects, and 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. Many of our existing contracts are already structured to achieve this. Finally, the 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 will 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 will continue to grow our market share, expand our ARPU, and penetrate our Payment Solutions across our GTV. However, we are also mindful of certain market dynamics that are outside of our control that keep us cautious about the impact on our near-term results. Namely, the ongoing impacts of COVID-19 in many of our important markets and the uncertainty in how the economies in those countries will behave. Ongoing supply chain challenges are affecting many parts of the global economy and may impact our customers' ability to have sufficient inventory to meet consumer demand, as well as our own ability to secure hardware to meet our own customer demand, which affects our own hardware revenue. As economies normalize, we expect to see a return of historical seasonality to many of our end markets, such as bike and home and garden, whereby Q4, we will see seasonally slower GTV and Payment 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. For the full year, we are updating our adjusted EBITDA guidance to be approximately a 40 million to 45 million loss. This loss reflects the impact of our acquisitions of NuORDER and Ecwid, where we have 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 levels of 10%. With that, we will take your questions.

Operator, Operator

Thank you. Our first question comes from Dan Perlin from RBC. Your line is open.

Daniel Perlin, Analyst

Thanks, guys. Good morning. I just had a question on guidance. I know you have just kind of walked through seasonality and COVID uncertainty, but you also have payments penetration rates that are definitely increasing and you have got Lightspeed Capital seems to be gaining a lot of momentum. So I'm just trying to understand a little bit better like what you guys are actually embedding as you think about the cadence for both third quarter and fourth quarter here?

Brandon Nussey, CFO

Hi Dan. This is Brandon here. I think the things that are under our control, we feel really good about and we are going to continue to grow the customer base and penetrate payments, as you mentioned. We are now available in new markets and off to a good start in Europe with our recent launch. There is just a lot going on in the macro environment right now that we are just being cautious in how we build that outlook. Supply chain challenges are affecting retail and it is a really important period of time for retail. As we look into Q4, we have got a growing part of our business now in transaction-based revenue, and those are seasonally slow months. January, February, and March are low points for both Hospitality and retail. Given the transaction mix in our business now, we are factoring all that in. We are quite confident in the core drivers and our ability to execute; it is just some of these macro factors that we will take our usual cautious view on.

Daniel Perlin, Analyst

Yes. Just a quick follow-up if I could. As you 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? Thank you.

Brandon Nussey, CFO

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

Operator, Operator

Our next question is from Josh Beck from KBCM. Your line is open.

Josh Beck, Analyst

Thank you for taking the question. 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? Thank you.

Jean Paul Chauvet, President

Yes, I will take this one. This is JP. Good morning. Organically, store count has grown by 19%. If you look at the gross 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, mainly in Australia and New Zealand, and those regions are being really affected by the lockdowns. We have seen this actually happen in Europe and in the U.S. There was kind of temporary churn that occurred because the stores shut down during the pandemic, followed by reopened markets. So I think, again, going back to what Brandon was saying, under what we can control, we are very happy with the results. And organically, we are fairly happy with the progress there in terms of store count and also in terms of added market revenue.

Josh Beck, Analyst

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

Jean Paul Chauvet, President

Yes. So maybe just stepping back. When we did all these acquisitions, we always mentioned that there are components that we liked from each one of those acquisitions. We also had the strategy, which was to put the majority of our developers on one product and build the future, and that is what we did. So, we started by launching in a few countries in Europe. Now, we have launched this completely across Europe, so every country is now on the new platform, and we are extremely happy with the progress. The platform embeds payments, analytics, and ingredient management. So it is really a full-blown build-from-scratch platform in Hospitality. As you have seen in the announcements over the last few days, we have now launched it in Beta in the U.S., and we have customers transacting with it. For us, this is a really big milestone, and we are very excited about how this is going to stand out in the coming months. This is arguably one of the best platforms out there for Hospitality, and we are now launching it into the U.S. The focus for us is next quarter; everyone is going to market excited about this in the U.S.

Operator, Operator

Our next question comes from Andrew Jeffrey from Truist Securities. Your line is open.

Andrew Jeffrey, Analyst

Hi. Good morning, gentlemen, I appreciate you taking the call. I guess I would like to understand that now that you have NuORDER under your belt. 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 are somewhat disruptive to some of your customers and important verticals. On another hand, it feels like Lightspeed has the ability to alleviate some of these challenges with your solution. 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, CEO

Yes. 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, and provide the ability to discover new suppliers and sources. Our focus on bringing NuORDER into our supplier network strategy begins with getting that experience right. Our priority is to roll out features like inventory visibility as well as virtual showrooms to all of our 12 retail verticals. Once that product is right, we can then start capitalizing on all the B2B opportunities. Supply chain is crucial for retail and hospitality, it will be an integral part of the platform and a major driver for Lightspeed and location growth in the future.

Andrew Jeffrey, Analyst

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 the mix of new GTV growth in markets where geo's or verticals where payments attach is a little bit lower. How much of that is COVID? How much of that is timing? I just want to understand, again, what you can put the company can control in terms of maybe driving that mix since it is such an important component of your ARPU expansion?

Dax Dasilva, CEO

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

Andrew Jeffrey, Analyst

Okay. And if I could just sneak a quick one in, just on the potential for a terminal shortage. My understanding was that most of your business runs on iOS and Android rather than vertically integrated tech. Is that mostly with acquired businesses, or what do you see in terms of any internal shortages?

Dax Dasilva, CEO

We have been working through our partners to secure inventory to meet demand there. The rest of our hardware solutions are things like iPads and generic third-party devices, and obviously supply on those devices is tight at the moment due to ongoing global supply chain challenges.

Operator, Operator

Our next question comes from Timothy Chiodo from Credit Suisse. Your line is open.

Timothy Chiodo, Analyst

Thank you. Good morning and thanks for taking the questions. 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 have made, talking generally about that organic location edge. It'd be sort of in the 15% maybe 15% to 20%, depending on the quarter. But that is a fair way to think about it over the call at the medium term? I think it just would be helpful for investors if you could flush out a little bit on the location acquisition strategy in terms of marketing, whether it is online content, telesales, the new locations that could be driven to you via the supplier network, and just a path for maintaining that call it 15% to 20% organic growth ahead. Thanks a lot.

Dax Dasilva, CEO

Yes. If you step back, the majority of the market is on legacy systems, which are on-premise terminals. So I think for us it is fairly straightforward. We have a very good marketing engine where we have a blend of word of mouth, organic, and paid. We triangulate consumers and get them to try the software, and then from there, we bring them into a complete sales cycle. Nothing has changed this year except that costs are returning to normal because demand is going back to normal. We expect to accelerate growth with payments and ARPU expansion. Our consumers have been returning to businesses, which allows us to keep a very good unit economic while increasing growth. We also do have content-driven strategies; our strong marketing team is in place. Now, long-term, our focus will be on 10 to 12 verticals where we are strong, and you will see strong integration between NuORDER and Lightspeed with regards to suppliers that generate a significant amount of demand for Lightspeed.

Timothy Chiodo, Analyst

That is excellent. Thank you so much. And a quick follow-up. 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 you are 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?

Dax Dasilva, CEO

Yes. It is not impacting at the moment. The only thing we have done at this moment is to stock up ahead of time to ensure that we could get through this. So I don't think it is going to be a significant problem for us in our sales ability. The concern is really about our customers. Will they have the merchandise for Christmas, which is their strongest retail month? That is the unpredictable part. We are conservative in our views as to whether this will do the usual hockey stick or be more challenging for them due to a lack of inventory.

Operator, Operator

Our next question comes from Josh Baer from Morgan Stanley. Your line is open.

Josh Baer, Analyst

Great. Thanks for the question. 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 is competitively differentiated? Maybe focusing on North America or the U.S., can you talk a little bit about the competitive environment and how you are positioned there? Thank you.

Dax Dasilva, CEO

Yes. A very good question. The focus of Lightspeed for the last 18 months has been on complexity reduction. We are not that interested in coffee shops; we want to serve established restaurants that have table service at multiple locations. This version of our platform handles depths very simply. It includes everything you expect, such as ingredient management and routing rules that are complex on printers. It also manages the multi-location logic of having one menu across multiple locations. It is important to triangulate the consumer with consumption and payments. When we look at what we have taken from Upserve and what we sell with Lightspeed Payments, we package this with our core ingredient management and workflow capabilities. This makes it unique. We believe restaurants will scale with us because we provide them data that they do not currently see with other platforms.

Operator, Operator

Our next question comes from Daniel Chan from TD Securities. Your line is open.

Daniel Chan, Analyst

Hi, good morning. I know you mentioned that the supply chain constraints weren’t impacting you now, but can you quantify how much you have factored into your guidance?

Dax Dasilva, CEO

No specific number there, Dan. I think JP articulated it really well. The primary concern is what we are being cautious about is whether our customers will be able to secure the inventory that they need to meet consumer demand in this holiday season. We have adopted a cautious approach to forecast our own hardware needs as well. But again, the primary impact is how we are just being careful on what our customer GTV looks like in this holiday season.

Operator, Operator

Our next question comes from Raimo Lenschow with Barclays. Your line is open.

Unidentified Analyst, Analyst

Hey, this is Ravi on for Raimo. Thanks for taking my question today. So, you mentioned the subscription contribution to ARPU being 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? Thank you.

Dax Dasilva, CEO

Yep. So, going back in time, the strategy of Lightspeed is we started with the POS and then over time, we have built a number of modules that create value for the customer. A good way to look at it is similar to Apple's strategy. You start with the iPhone, and then you buy more products that are well integrated with each other while also offering more value. What we have seen over time, and I think this is what helped us during the pandemic, is that we have capabilities for in-store and online, the advanced analytics engine, and the loyalty platform. Now we have payments. Essentially, our customers have been buying more modules from us, and this trend has not changed. We believe that ARPU will continue to expand as customers buy more from us. We're seeing continued strong adoption of payments.

Unidentified Analyst, Analyst

Perfect, that is very helpful. And maybe carrying out that last point on Ecwid. I know Ecwid didn't have a big sales team, but they did have a lot of self-serve model front-end customer interactions. Could you talk to us about the potential synergies there, as you layer on some of your sales and marketing efforts?

Dax Dasilva, CEO

Yes, that is key. We work with companies that have good tech but may lack strong go-to-market strategies. Now that the product is integrated, we are ramping up efforts across all teams globally. Lightspeed has local offices in every major country in Europe, as well as in Australia, which allows us to execute hyper-local go-to-market strategies once the product is integrated. The focus is to put this in the hands of our lower sales teams globally.

Operator, Operator

Our next question comes from Thanos Moschopoulos with BMO Capital Markets. Your line is open.

Thanos Moschopoulos, Analyst

Hi, good morning. Just clarify points on the new Restaurant platform. You alluded to the peak analytics functionality. Is that something that represents an upsell to existing customers migrating from current platforms or is that included in the base offering?

Dax Dasilva, CEO

No, this is going to be an option where we are going to have a tiered approach. The full power of analytics comes when you also use payments. We believe that customers who want the advanced analytics will need to buy Payments. This will create stronger ARPU per customer and per location because we are triangulating multiple products together to create value.

Thanos Moschopoulos, Analyst

Great. And can you speak to the churn rate? You mentioned that churn was elevated in APAC, but how does the churn under geographies? Last quarter, you said it was near record lows; does that remain the case, or is there anything you would like to add there?

Dax Dasilva, CEO

Pretty normal quarter otherwise for churn, Thanos. As JP mentioned, what we saw happen in Australia and New Zealand is what we have seen happen during the various waves of COVID since the pandemic began. We are generally maintaining a pretty normal churn rate that we are content with.

Operator, Operator

The next question comes from Richard Tse from National Bank Financial. Your line is open.

Richard Tse, Analyst

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

Dax Dasilva, CEO

Yes. A few things come to mind. Our brand now has a lot of visibility; people know Lightspeed. The organic portion is doing well. Since the end of last year, we have seen the paid marketing return to pre-COVID levels. We are confident that our growth rates will remain the same. Regarding close rates, we have seen maintain over time; there has been no degradation. I would say we are doing a good job, we know the metrics and our ingredients for success. Nothing has changed for us on that front.

Richard Tse, Analyst

Okay. Just one other quick one for me. On the transaction-based revenue beyond Payments, which obviously I think is likely the bulk of it, what would be the next sort of service that you offer in terms of the next biggest in size?

Dax Dasilva, CEO

Beyond Payments, I would say Lightspeed Capital is in its early stages still. We provided some disclosure on it in the press release. It is growing, and we have extended capital to more of the customer base in this past quarter. We see good uptake. We believe this will be a nice driver of growth for us in the long run.

Operator, Operator

Our next question comes from Andrew Bauch from SMBC Nikko. Your line is open.

Andrew Bauch, Analyst

Good morning, guys. Thanks for taking my question. I mean, how should we think about the cadence of these penetration gains kind of changed throughout the rest of this year and into 2022, when you really start getting into all these markets, and how does kind of capital provide that incentive to convert to the platform?

Dax Dasilva, CEO

Great question. It is tough to give you a precise answer on how payments penetration will track quarter to quarter. We gave a bit of color on it; we have had basically one quarter in Europe now with Hospitality having signed 800 customers who need to become transactional. We will also be launching Hospitality in Australia, and we will go through the same process. These initial launches can involve growing pains, but we are confident that our GTV growth looks strong to us, especially now that we have payments coverage across a much bigger part of our customer base.

Andrew Bauch, Analyst

That is helpful. Thank you. Could you provide us an update on what total locations are today versus the 156,000 at the end of September?

Dax Dasilva, CEO

No, that is not something we disclose just yet. We will update you next quarter on that one.

Operator, Operator

Our next question comes from Martin Toner from ATB Capital Markets. Your line is open.

Martin Toner, Analyst

Hi, guys, thanks for taking the question. The advertising track transparency tracking issues have impacted online advertisers this quarter. Did that have any impact on your marketing efficiency, and how will you adjust going forward?

Dax Dasilva, CEO

No net zero impact. We are marketing to businesses. We are aware of this issue, but we haven't changed any parts of our strategy. We have seen continuous adoption and growth.

Operator, Operator

Our last question comes from Todd Coupland of CIBC. Your line is open.

Todd Coupland, Analyst

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

Dax Dasilva, CEO

We have been navigating that pretty well, Todd. The payment terminals we deliver from our partners are primarily with Stripe and Adyen, and they have helped us secure what we need to meet customer demand. That part has been okay.

Todd Coupland, Analyst

Okay. When you talk about hardware issues for the next couple of quarters, does that impact the comment from Stripe and others, like are you expecting that to change?

Dax Dasilva, CEO

No. there are many discussions regarding chip shortages and the like. What we have been able to do is secure inventory, and we have been managing the situation. However, we have to keep in mind that our customers, when they add new services, will require peripherals like iPads and other devices that remain in tight supply.

Operator, Operator

This does conclude the Q&A part. You may now continue.

Gus Papageorgiou, CEO

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

Operator, Operator

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