Jean Paul Chauvet: Yeah, you’re right. Apparel and bikes, the strong ones, we now are going out to sporting outdoors. But I think for me again it’s, just if you look at the number of customers on retail, the largest segment for Lightspeed in retail is apparel. So we’re actually working really hard to make that experience even better for all the customers on apparel. As you know, we hired John Shapiro who came from Wayfair, who’s now really focused on driving a better experience for our customers. So — and then as you know, we historically had bikes, but now we’re expanding. And the next one is outdoors and sports.
Thanos Moschopoulos: Great, its excellent. Thanks.
Operator: Your next question comes from the line of Josh Baer from Morgan Stanley. Please go ahead.
Josh Baer: Great, thank you. And congrats on hitting the high 20s payments attached, setting up for 30, 35 next quarter. Question is on subscription. There were — the prior three quarters we saw really nice sequential subscription growth, and this quarter was pretty much flat, very slightly down. I’m just wondering if there’s any commentary for around that change in trajectory this quarter?
Asha Bakshani: Hey, Josh thanks for your question. The subscription revenue being flat to last quarter is very much again driven by the account management team and the Unified Payments motion. As you’ve heard from us, Europe and APAC were in the third quarter at the peak of the Unified Payments launch because we launched Europe and APAC at the end of the and early Q3. And so in that quarter, more than in previous quarters, we had the international account management teams now also fully focused on Unified Payments. And that’s really all you’re seeing in the quarter-to-quarter flatness in subscription revenue. As JP mentioned, the Unified Payments launch behind us at the end of this fiscal year we do expect our account management teams for the most part to go back to selling software, with all of them going back to selling software by mid fiscal 2025. And we are absolutely expecting subscription revenue to accelerate.
Josh Baer: Okay, got it. So even in like North America retail where you had payments, the Unified Payment strategy I guess for a while, they’re still focused on Unified Payments versus like shifting back to software at this point in time?
Asha Bakshani: Yes, absolutely, because Unified Payments launched in North America in May, but we launched in May in retail, and then we launched a bit later in hospitality. And as you heard from us on our last call, depending on the size of the customer, we’re giving some customers two, three, four months to get live and transactional. And so the account management team in North America are still in large part focused on Unified Payments, and that’s what you’re seeing impacting software revenue.
Josh Baer: Okay, perfect. And then the small customers only 5% of GTV, I’m just wondering what percent of the software subscription does that cohort represent? Thank you.
Asha Bakshani: No, thanks Josh. That’s not something that we have disclosed. But what we have said in the past is at the end of the day, GTV for us represents the monetization opportunity ultimately that we get from these customers. And so I think, 5% of the GTV, although that’s not representative of the overall revenue, it is representative of the potential of this cohort of customers.
Jean Paul Chauvet: Yeah, maybe I’ll just add that the smaller customers have normally one terminal instead of three, four, five. They have fewer users. So, even on the software front, the subscription is much lower with the smaller customers than it is on the larger ones.
Josh Baer: Great. That’s helpful. Thanks.
Operator: Your next question comes from the line of Dominic Ball from Redburn. Please go ahead.
Dominic Ball: Hello guys. Hello, Asha, Gus, JP. On software ARPU, so obviously the higher the better makes your merchants a lot more sticky. What sort of level can we expect as you transition merchants more onto the flagship products, are any numbers that you could help us with, especially as you onboard much larger merchants as well? Thank you.
Jean Paul Chauvet: Yeah, maybe I’ll start. I mean, of course the larger merchants have a much stronger ARPU, they buy more modules. And really when you look at it there’s a lot of Greenfield, there’s a ton of room for growth inside of our customer base. I don’t know, Asha, if you want to comment on this or…
Asha Bakshani: Yeah, we have been growing software double digits, and that’s really the result of software attached new modules that we’ve been building. But to answer your question very simply, there is a large opportunity for software to increase between 4x to 5x from where it is today. When we — that is the reality. We’ve got customers that can pay us 400 plus in just software ARPU. And as we continue to innovate and build more software modules, there’s lots of opportunities for growth. When I think about the flagships in particular, ARPU uplift can even be up to the high 30% when we’re migrating customers from a legacy to a flagship. And so there’s lots of ARPU uplift opportunity for us just from migrating customers to flagships. And then on top of that is all the other software modules that we continue to build.
Dominic Ball: That’s great. That’s really good. Thank you. And just one more quick one, is there any difference you see in software ARPU between your retail merchants and your hospitality merchants?
Asha Bakshani: There’s today because we have several products in our portfolio, there’s quite a difference depending on how many modules — have to offer. But when we think about our flagship product, ARPU is quite significant with retail and hospitality.
Dominic Ball: Cool. Thanks guys.
Operator: Your next question comes from the line of Tien-Tsin Huang from J.P. Morgan. Please go ahead.
Tien-Tsin Huang: Thanks for the question here. Just wanted to ask on the gross margin outlook. Asha, maybe you could get some help on the outlook there given some of the puts and takes. I know transaction based gross margins have been on the decline given the lower referral fees. Should we see that stabilize with the focus shifting back towards growing GTV and locations ahead?
Asha Bakshani: Hey, Tien-Tsin thanks for the question. Yes, absolutely. We expect, and you’ve heard this from us before, that overall gross margins will remain in the 40% plus range despite transaction based revenue or payments revenue in particular becoming a bigger and bigger part of the revenue portfolio. And there are a couple of competing forces in there versus on the negative side, there’s the declining residuals that come in at a 100% margin. But on the flip side, what we have is increasing international payments penetration. And even though international take rates are lower than North American, the gross margins are higher, they’re about 36%. And that’s what we’re seeing in the gross margins from APAC and Europe. So as we increase international penetration, we expect payments gross margin to improve.
And then last but not least is the growth of our capital business. Our capital business has, it’s grown — it’s doubled for over a year ago, and we expect that trajectory to continue, and capital revenue comes in at a 95% gross margin. And so all told we expect transaction based gross margin to pretty stabilize. So the declining residuals will be offset, more than offset by increasing capital revenue and better margins internationally. And what that means is that overall margin should remain over 40%.
Tien-Tsin Huang: Perfect. No, that’s what I was looking for. And just my quick follow-up, just with the focus again back on GDP growth and high GDP unit growth, can you maybe be a little more specific on the type of locations, whether it be geography or the vertical, just curious on that? Thank you.
Asha Bakshani: So what we’ve said on — from a high GTV growth perspective or customer perspective, our ideal customer at Lightspeed are retailers and restaurateurs that process half a million and more in annual GTV. And those are complex merchants, complex retailers that need inventory management, kitchen display, ingredient management, the full suite of technology that Lightspeed has to offer. And so we consider those merchants are ideal customer profile. So when we think about investing in outbound, what we found is our outbound field reps are most efficient in signing these high GTV customers cause it’s much easier for them to target the ideal customer of Lightspeed. And so the focus for Lightspeed in fiscal 2025, as you heard from JP, is to double down on growing software revenue through increase in our high GTV merchant base, through software attached.
And the best way to do that is through heavy investments in our outbound, which is our absolute focus for next year.
Tien-Tsin Huang: Got it. So no geographic bias, it’s just going after the larger retailer restaurants. Understood.
Asha Bakshani: Absolutely, absolutely.
Operator: Your next question comes from the line of Richard Tse from National Bank Financial Markets. Please go ahead.
Richard Tse: Yes. thank you. Obviously you’ve gained a lot of efficiencies over the course of the past year. Do you have a sense of the order of magnitude of how your LTV to CAC has kind of changed on a year-over-year basis?
Asha Bakshani: So the LTV to CAC is not a set that we have disclosed publicly in this past year. However, what you have heard from us, and then the reality is that with the increase in payments penetration, our unit economics is — has increased significantly. And what we’ve seen is for a customer that takes only software versus a customer that takes software payments and maybe even capital, the LTV to CAC is more than double. And so this was a part of why we went down this Unified Payment strategy. Obviously the unit economics are much better for Lightspeed. And then from a customer perspective, there’s a ton of benefits that our customers are unlocking from having a fully integrated payment solution and our customers are seeing that as well. And that is the result of why churn hasn’t ticked up, like we had forecasted because the customers are really seeing the benefit of having a full integrated payment solution.
