Asha Bakshani: Hey Jeremy. Thanks for the question. Yes, for sure. I think we should look at it from a gross margin perspective. From a capture rate perspective, there is a bit of noise because. In North America, the gross take rates are between 2% and 2.5%, depending on the industry. And the net take rates are in the 50 to 65 basis points. In international markets, the gross take rates actually between 1% and 1.5% depending on the country. And the net take rates are between 35 and 45 bps. And so what we should focus on is really the gross margins. The gross margins – this quarter, the gross margins on transaction based revenue was 28%, which was slightly up from Q1. And that increase is what we should sort of expect slowly over time.
You have heard from us that melting referral fees or residual partner fees will put downward pressure on transaction based gross margins, which is true, but the increase in our capital revenue, which comes in at 95% gross margins in addition to the fact that when we go after international markets on payments, the gross margins are in the 30% to 35% range. So all told the increase in international markets and the increase in capital revenue should more than offset any decline from the referral fees from here on.
Operator: Your next question comes from the line of Tien-Tsin Huang from JP Morgan. Your line is open.
Tien-Tsin Huang: Just JP I want to ask you about some of the new releases, because we have been studying a lot of the restaurant tools that have been coming out. Looks like you are the smart items, the magic menu quadrant, I think it is solving a lot of the challenges around the menu items. How homegrown and how quick was that to develop? I’m just curious if that is giving us a clue on, on, in your focus areas within the verticalized retail restaurant areas that you are going after?
Jean Paul Chauvet: So just simply put, I’m just going to try and make it, we have brand new products that have very, very limited technical debt and that are in code bases that are easy to evolve. Just start there. So here, what you are seeing now is accelerated roadmaps. You are seeing accelerated delivery of features because that the code is new and when you are developing a new technology, I mean, the order of magnitude of speed is completely crazy versus what we had with our previous products that were 10, 12, 13-years old in the world of technology, 13-years is a lot. And there is a real gap between the ability to execute with new platforms versus old. So that is my first point. And I think that is why I keep saying we are in a position of strength is we now have products that are the leading products on the market that are brand new, which means we are going to accelerate roadmaps.
When you look at what we delivered this quarter, the value we are bringing to our customers has nothing to do with features for smaller merchants. It is for well established merchants. And so here, when you look at what we are doing with AI and we are making smart descriptions and we are just basically looking at the flows of our customers and we are saying, how can I help our customers do more with less? How can I remove all kind of manual tasks? And that is what resulted in us now automating descriptions of menu items. And then the second one you talked about, which is our quadrant is I’m now helping merchants identify returning visitors and actually what are returning visitors ordering versus when they order for the first time, which is extremely important for profitability.
You didn’t talk about this, but we also released on the retail side advanced workflows for omnichannel where now – and that is not valuable for a mom and pop. It is valuable if I have multiple locations and now, I can define how my pickup in store or all my omnichannel workflows will work across locations. And again, not very valuable for the small merchants, very valuable for the merchants that are on live speed. So we are really just focused now on delivering value and focusing on where do our customers spend too much time? Where are the workflows inefficient, and how can we deliver? And I think for me, just saying it at one last time, we are going to accelerate roadmaps, because we have a code base that is brand new and it is so much easier than I would argue our competitors are what we used to have in the past.
Tien-Tsin Huang: Got it. Yes. So product velocity is definitely accelerating. Okay, great. Thank you. Just one quick clarification on the North America side, given what you have learned so far, the targeted customers that did not become transactional, that are choosing to absorb the higher fee, any surprise there or does it change your thinking around maybe pricing philosophy in general? Thank you. That is all I had.
Jean Paul Chauvet: Yes, look, I think, I mean, the bet we made was we don’t think people are going to change their core operating system, because we are giving them free terminals and accommodating their rates and we are saving them hours every day. So that was the bet going into this. And we had modelled slightly more churn because we were like maybe people are not going to like to be forced into this. And actually, what we are seeing is the churn levels are within historical ranges, which is in incredible news for us when you look at the North American market. And the other thing we are seeing is that customers are paying those who don’t want to move or in agreement to pay the transaction fees. And I think for me, what we are hearing from the customers is not, I don’t want to move.
It is like, we are not ready to move now, can you please work within our timeframes? And so, we have, cohorts of customers who are giving us the50 basis points transaction fee, and that are telling us, okay, let’s work on a schedule, because now is not the right time. Asha gave you an example of holiday seasons, restaurants didn’t want to move in the summer when they have all their terraces office open, sorry. And I don’t think, hospital – I don’t think the retail customers are going to want to move around Christmas when that is when they make most of their revenue. So I think we are, we are taking all of these into account, but net, net the bet we had made when we started this initiative has proven out a 100% in North America for now.
Gus Papageorgiou: Operator, we will take one last question.
Operator: And your next question comes from the line of [Patrick Ennis] (Ph) from UBS. Your line is open.
Unidentified Analyst: Wanted to ask about the migration to the flagship restaurant retail products. I know you touched on this a bit in the prepared remarks around some of the more robust features that are being folded in, but could you provide specifics around some of the advantage to sticking with Lightspeed as it relates to data transfer implications and maybe moving to a different provider and what some of the puts and takes there are, and then just had a quick follow up on pricing environment?
Jean Paul Chauvet: Yes, maybe I will just talk about the philosophy here. We call it an upgrade internally. So, and I think it means a lot, because it says we are going to find a path to least resistance to migrate our customers or to upgrade our customers to the new platforms. And so here, just going back to your question, we are now investing time and investing software resources and development resources to convert. And we are starting actually on some of the cohorts of customers. And so, you can expect that over time we are going to upgrade our customers to the new platforms. We will be cautious around these upgrades. We will go cohort by cohort and we will ensure that there is a lot of software to make it as seamless as possible.
And I think for me, when I think about seamless, we don’t want our customers to lose history. We don’t want our customers to lose customer information. We, and of course we want to port the inventory. So we are building tools and over time we are going to bring our customers onto the new platforms. And maybe the last philosophy of the last belief internally is those products are so much better than the old ones that we believe our customers going to follow us in their migration.
