Lightspeed Commerce (LSPD) Q1 2024 Earnings Call Transcript

Lightspeed Commerce (LSPD 1.36%)
Q1 2024 Earnings Call
Aug 03, 2023, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed first-quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session. [Operator instructions] I would now like to turn the call over to Gus Papageorgiou. You may begin.

Gus Papageorgiou -- Head of Investor Relations

Thank you, operator, and good morning everyone. Welcome to Lightspeed's fiscal Q1 2024 conference call. Joining me today are JP Chauvet, our chief executive 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 first-quarter 2024 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. With that, I will now turn the call over to JP.

JP Chauvet -- Chief Executive Officer

Thank you, Gus, and welcome, everyone. Thanks for joining us this morning. Overall, I was very happy with our results this quarter. Revenue came in better than expected with revenue growth of 20% versus the approximately 14% contemplated in our outlook.

Our GPV volumes increased by 56% year over year, and our adjusted EBITDA loss of 7 million came in lower than our outlook of adjusted EBITDA loss of 10 million. As I mentioned in our last conference call, this year, fiscal '24, Lightspeed is focused on execution and better aligning ourselves to the Rule of 40 financial metrics. Our main goal for the year remain the same, namely, reap the benefits of One Lightspeed; accelerate revenue growth for financial services including both Lightspeed Payments and Lightspeed Capital; continue building products that solve our customers' problems and help them run their businesses, particularly with our supplier network; and finally, accomplish our goal of becoming adjusted EBITDA breakeven or better for the full fiscal year. In terms of One Lightspeed, we are closer than ever to deploying our flagships in all key markets. At the end of the quarter, we attained fiscalization approval for Belgium, one of the last remaining markets where our flagship hospitality product was not available. And we expect to receive approval in the province of Quebec for a full launch.

One Lightspeed has allowed us to simplify our operations and reduce costs and complexity across the organization. But I think more importantly, it's helping us win the right customers, the customers with higher sales volumes and more complex needs. Our data shows that these complex SMBs adopt more software and churn less. Growing our customer base with the right customers remains an important goal for Lightspeed. In this quarter, we saw ARPU reached all-time highs. Our flagship products are allowing us to attract customers who can take full advantage of our software platforms and whose high volumes drive our payments revenue.

Let me share a few examples of new customers who joined Lightspeed this past quarter. In retail, we are pleased to welcome The Spice & Tea Exchange with over 80 locations across the US adopting our Lightspeed retail offering. Women's designer clothing, [Inaudible], with two locations in Maine, also adopted our Lightspeed retail solution with e-commerce. And in the UK, Bath House, a luxury fragrance skincare provider with six locations, has become one of our newest Lightspeed retail customers, In the world of hospitality, we welcome Australia's Kickon Group, an organization with six locations that operates large venues that range from full table service to classic pubs. We continue to expand our footprint in the important U.S. market by adding March First brands.

March First runs four breweries and tasting rooms locations in Cincinnati and have adopted our Lightspeed Restaurant offering along with Insights. And we were honored to be chosen by chef Teo Paul to power his four locations in the greater Toronto area, including Michelin-recommended restaurant, Union. In golf, we were chosen by the Cove Cay Golf Course in Clearwater, Florida who are now using our retail and hospitality platforms to run their golf academy, restaurant, pro shop, and golf course. I'm thrilled to keep adding more names to our roster of customers around the world, but I also think it's worthwhile reflecting on the sheer scale and impact our platforms have had on growing our customers' businesses. In the 12-month period ended May 2023, Lightspeed hospitality customers have served over 1 billion meals and facilitated over 300 million dining experiences globally. It's very satisfying to me and the entire Lightspeed team to be a partner of growth and build innovative products and technology that impact both SMBs and their customers around the world. On the topic of scale, I also want to touch on Lightspeed's continued commitment to growing our sustainability impact as a global company.

To date, we have planted more than 1.4 million trees through our Carbon Free Dining initiative, and our industry-leading inventory and ingredient management capabilities are helping reduce waste and streamline our merchant supply chains. In July, we published our second Annual Sustainability Report, which is available on our website and showcases how our customers are leveraging Lightspeed technology to transform the world and build vibrant, diverse communities. Moving back to One Lightspeed. This strategy has allowed us to attract the right kind of customer, but it has also led us to more successful R&D efforts. In this quarter, we were able to deliver several new products and releases that are directly responsive to our customers' needs.

In hospitality, we were very excited to launch our Advanced Insights module in Europe. Advanced Insights gives our customers real-time access to their data and offers proactive suggestions for how to run their businesses more efficiently and in a way that helps them comply with their obligations under GDPR. It is one of our best-selling modules in North America, one that often commands a higher monthly fee than the POS itself. And we hope to see a similar level of success in Europe. Advanced Insights is a major differentiator for our offering and something that separates us from the competition.

In our continued commitment to create a best-in-class unified payments offering, we enabled next-day payouts for many retail customers using Lightspeed payments globally, giving merchants access to their cash faster than we have ever done before and twice as fast as many legacy systems can provide. We're hearing great feedback from customers who made the switch, customers like Melissa Joy Manning, an ethically made jewelry store with two locations in New York City. [Commercial break] We also enabled self-service capital for all eligible customers in Canada and expanded Lightspeed Capital into new regions including Australia. In retail, we enabled multi-layered pricing that allows our retail customers to charge different prices by location or customer group, a feature we believe is unmatched by our competition and highly sought after by high-volume merchants. In the NuORDER der by Lightspeed, we released assortments for brands, allowing brands to operate their own retail outlets, the ability to visualize inventory in the cloud, optimizing inventory allocations, and identify merchandising gaps. This technology has been successfully used by retail partners, and we're excited to bring its benefits directly to brands themselves. Moving on to unified payments. Last quarter, we announced the introduction of unified payments, our initiative to combine the power of POS and payments into one platform.

By making it mandatory for eligible new and existing customers to adopt Lightspeed payments, we are confident that more and more Lightspeed customers will soon experience a positive impact a unified platform can bring to their businesses. Last quarter, we notified eligible retail and hospitality customers in North America that they will have to adopt Lightspeed payments. And for new eligible customers, we made payments mandatory. We will continue to launch this initiative to customers around the world during Q2 and throughout the year. I know many of you are interested in our progress.

We are still very much in the beginning stages of this rollout, but overall, I'm encouraged by what we are seeing. First of all, I'm very happy to see that our close rates have remained relatively consistent since we made payments mandatory for all new eligible customers. This tells me that the new customers see the value in Lightspeed payments and understand the benefits of embedding payments with the POS. What's more, sales cycles also remained unchanged with deals closing very much within our typical time frame. Thirdly, as I mentioned previously, ARPU is now reaching all-time high, thanks to our deliberate efforts to target high GTV customers and to unify payments.

And we are getting these customers transactional faster, thanks to our efforts to improve the onboarding process. Finally, our biggest concern was that we would see customer churn increase substantially as a result of this initiative. So far, that has not been the case as it remains within historical ranges. What has also become very apparent is how cost competitive we are.

At this stage of our rollout, we are quite confident in telling our customers that we are able to meet or beat their current payments rates. And even though we aren't really competing on the cost, the fact that we can deliver a superior experience at a similar or lower cost is an added benefit to our customers. Overall, I'm convinced that unified payments will be a success. The big question in my mind really revolves around timing. For our larger customers who command the bulk of our GTV, we are being as accommodating as possible.

If they require longer than two or three months to switch to payments, we are of course willing to work within their timelines. In the end, the goal for us is to get all of our eligible customers onto Lightspeed payments, no matter how long it takes. I also want us to address our supplier network, which continues to be a key strategic priority for this company. We were happy to add John Shapiro to our product and technology team as our new senior vice president in retail to help further integrate the supplier network into our core platform. John recently joined us from Wayfair where he was responsible for the global supplier product and design organization and was previously at Intuit where he was director of the product management for QuickBooks, including serving as the GM for QuickBooks Payments. I expect John to help advance our ambitions here.

I remain encouraged by the feedback we are seeing from our customers and the potential for increasing monetization of this network. Lastly, in terms of profitability, again, we are committed to being adjusted EBITDA breakeven or better in fiscal '24. Given that the year started off better than expected, I believe we are in a good position to reach this goal. And at the risk of repeating myself, I want to make it clear to investors that we are 100% committed to achieving it. I intend to place this company in a position that highlights the sheer potential of our business model while still investing in our growth opportunities.

I will now turn the call to Asha to take us through the quarterly results and provide outlook.

Asha Bakshani -- Chief Financial Officer

Thanks, JP. Overall, Lightspeed started the year strong, delivering revenue and an adjusted EBITDA loss that were better than our previously established outlook. We continue to execute on our strategy of attracting high GTV customers and expanding our payments offering across our new and existing customer base. On today's call, I will provide a recap of the quarter, discuss the progress of our unified payments launch, and then provide an outlook for the upcoming quarter and full year. I was pleased with the progress we've made this quarter.

Despite the attention and resources that our unified payments initiative is demanding, we were able to maintain our discipline on costs, increase the number of high GTV locations, and drive toward our goal of adjusted EBITDA breakeven or better for the fiscal year. I was also happy to see our total cash balance, excluding merchant cash advances, went down by less than $10 million in the quarter. In the quarter, revenue came in at $209.1 million, an increase of 20% year over year and ahead of our previously established outlook. Subscription and transaction-based revenues grew by 21% year over year. Subscription revenue increased 7% year over year to $78.7 million.

Gross margins on subscription revenue remained consistent with last quarter at 75%, the highest in the past two years, thanks to a dedicated effort to consolidate cloud vendors and improved overall efficiencies. I want to stress again that, in the quarter, our account management team, which is usually focused on upselling our customers on software, has been temporarily assigned the job of onboarding new payments customers. Our account management team historically accounts for half of our added software MRR in any given quarter, and so it was encouraging to see that, despite their temporary reallocation of duties, subscription revenue grew by 7% year over year. Transaction-based revenue grew 32% to $121 million. In the quarter, we saw gross payments volumes increase 56% year over year to $5.1 billion as a greater portion of our GTV went through our Lightspeed payments platforms. Gross margins for transaction-based revenue came in at 26%, down from the previous quarter and year over year.

There were several factors that negatively impacted transaction-based gross margins this quarter, including costs associated with unified payments. We expect many of these factors to dissipate next quarter. Total adjusted gross margin, which excludes the impact of share-based compensation and related costs, came in at 43%, down from the previous quarter and year over year. Adjusted gross profit dollars came in at $89.8 million, an increase of 13% year over year. Adjusted EBITDA in the quarter came in at a loss of $7 million. This is much improved from an adjusted EBITDA loss of $15.6 million in the same quarter last year.

This improvement is the result of our continued focus on prudent spend across our organization, including the efficiencies we identified and implemented through actions like our reorganization done in our fourth quarter last year. Total adjusted R&D, S&M, and G&A costs increased by only 5% from last quarter despite the added costs of our sales summit and annual salary increases that were put through this quarter. We had an adjusted loss of $2.2 million versus an adjusted loss of 17.6 million last year, thanks largely to the improvement in the items driving our adjusted EBITDA loss performance and growing net interest income in the quarter, which increased by approximately $8.4 million from a year ago. Share-based compensation and related costs came in at $18.7 million, down from $38.3 million a year ago, coming in at approximately 9% as a percentage of revenue, down from 22% in the same quarter last year and flat to our previous quarter once removing equity accelerations included in restructuring. In the past few years, share-based compensation has been elevated partially due to equity incentives granted to employees of the various acquisitions we have undertaken. GTV in the quarter came in at $23.4 billion, up 6% year over year. Omnichannel and hospitality GTV both grew at similar rates in the quarter.

This quarter, we also continued to grow our complex customers with higher GTV tiers. Customer locations with over 500,000 a year in annual GTV grew by 10% in the quarter, whereas those with under 200,000 a year in GTV declined. Again, in this quarter, the fastest-growing cohort was locations with over $1 million in annual GTV, which grew 11% year over year. As we focus on more complex higher GTV merchants, we expect the under 200,000 GTV cohort to decline.

As a reminder, this cohort of customers continues to represent approximately 5% of our overall GTV. I want to add a little more color on what is happening with new location wins. As we keep stressing, our goal is to attract larger, more sophisticated customers who can take full advantage of our software platforms. If I look at the ARPU, it has continued to increase, reaching all-time highs in the quarter. At the same time, our acquisition costs have remained relatively steady.

We're also seeing our churn rates remain very much within our historical ranges. As a result of this increase in RPU, we expect our payback period and LTV-to-CAC ratios to continue to improve, which bodes very well for our ambitions of being adjusted EBITDA breakeven or better for the fiscal year. As I mentioned, churn rates in the quarter remained consistent with last quarter despite challenging macroeconomic conditions as well as the launch of unified payments. Also, the vast majority of our overall customer churn is in the cohort of customers processing under $200,000 in annual GTV. We continue to grow the capital business in the quarter.

Under normal circumstances, we would likely be pushing capital even harder. However, given the current macro environment, we're being conservative on the ramp. There's no lack of demand from our customers, and we believe our high GTV customer base is an ideal demographic to use this financial service, especially in the long term. Risk of business failure is much lower with high GTV customers, but the need for capital is still substantial.

In terms of our balance sheet, Lightspeed closed the quarter with just over $780 million in cash and cash equivalents, down from approximately $800 million in the previous quarter. The largest uses of cash were working capital items and the increase in merchant cash advances of $11 million during the quarter. Turning now to our unified payments effort. As JP mentioned, we are still very early in this process and are only now beginning to launch this initiative outside of North America.

As a reminder, international markets account for approximately half of our total customer locations. In terms of our existing base of customers, what we are seeing is a strong contingent of customers adopting our payment solution almost immediately. In addition, the number of customers that are churning is lower than we expected. However, there's still a large number of customers that have not taken any action.

In the coming months, they will see the new transaction costs on their monthly statements, and we expect that will act as a catalyst for action. Based on our experience, we are confident in our ability to match or beat rates for most of our customers, but we are not competing on cost alone. Lightspeed payments allows our customers to save time and money and gives them unprecedented insights into their operations. Our value proposition is very strong, and in addition, we continue to deploy technical support, contract buyouts, and free hardware to our customers to help them in this transition.

That is why we believe this initiative will be a success. Now, on to outlook. I was encouraged by our performance this quarter. We believe that our business remains incredibly strong with abundant opportunities for sustainable long-term growth.

We continue to add higher GTV customers. And our new platforms, combined with the unified payments initiative, is helping ensure our LTV-to-CAC ratios are headed in the right direction. I believe we have established the foundations to accelerate toward the Rule of 40 financial metric as we exit the fiscal year. Our key concerns remain the overall macroeconomic environment as well as the timing of unified payments.

Transaction-based revenue is over 50% of total revenues and highly dependent on GTV growth. Despite the growth in GTV we saw in the first quarter, we are being increasingly cautious on the macro environment given central banks continue to increase interest rates. As a result, we are keeping our GTV expectations modest. Additionally, although the signs are promising, it is still too early to determine the full impact of our unified payments efforts on our fiscal year.

Our key concern here is on timing. Our end goal is to get our eligible customers onto payments, but we want to be as accommodating as possible. After all, we are here to try to help our customers. This may impact the overall time it will take to get our customers transactional.

For the second quarter of fiscal 2024, we expect revenues between $210 million to $215 million and an adjusted EBITDA loss of approximately $4 million. For the full year of fiscal 2024, given the macro uncertainty outlined above, we continue to expect total revenues of between $875 million and $900 million with breakeven or better adjusted EBITDA. We expect both revenue and adjusted EBITDA performance in the second half of the year to be significantly better than the first half. With that, I will pass the call back to JP.

JP Chauvet -- Chief Executive Officer

Thanks, Asha. Before we take your question, I thought it's worth highlighting one more item from our sustainability report. A third of the executive roles at Lightspeed are occupied by women, which is approximately three times the average of the tech sector for women in leadership roles, an accomplishment I am proud of. We are committed to hiring and promoting the best and brightest in this company, and maintaining a diverse workforce is crucial to attaining this goal. So far, our fiscal '24 is off to a good start.

And our goals are simple: one, benefit from One Lightspeed; two, expand payments; three, build great product for our customers; and finally, four, get to profitability. We are fully committed to meeting these goals. With that, I will turn it over to the operator to take your questions.

Questions & Answers:

Operator

[Operator instructions] And we will take our first question from Daniel Chan with TD Cowen. Your line is open.

Daniel Chan -- TD Cowen -- Analyst

Good morning. Nice to see some good progress on the payments front, but it sounds like there's some uncertainty on the timing going forward. Are you still on track to get the majority of customers on payments by the end of the year?

Asha Bakshani -- Chief Financial Officer

Hey, Daniel, thanks for your question. It's Asha. We're -- what we had committed to was a North America launch in both hospitality and retail. And then APAC and Europe follows -- we had mentioned that we expect the -- the penetration to be in the 30% to 35% range as we exit the year, and we're still very much aligned with -- with that trajectory. We have to keep in mind that -- when we say the majority of our customers, we have to keep a couple of things in mind.

There's still certain verticals that we don't underwrite and certain regions where Lightspeed payments is still not available. We plan to unlock those regions in the coming quarters and end verticals as well. But the goal that we had outlined at the beginning of the year for fiscal '24, we're still very much aligned with that.

Daniel Chan -- TD Cowen -- Analyst

Great, thanks for that Asha. And then on the fiscal 24 guidance, you reiterated that despite the beat this quarter relative to the guidance that you had, anything to call out there that's -- that's changed that you think in the next three quarters? You called out macro and timing. Are those -- have those gotten worse than what you expected last quarter considering the beat this quarter?

Asha Bakshani -- Chief Financial Officer

No, not at all. Actually, the beat in our first quarter really resulted from two things as you mentioned. The first is gross payments volume growth better than expected, and that's just given the verticals where we're well penetrated on payments, as well as some early signs that are quite encouraging on unified payments such as lower churn than we forecasted as well as time to transact much more quickly in certain contingents of customers. However, as we look forward into the -- you know, the following three quarters, we're choosing to remain very modest on our GTV assumptions. We do believe that the end consumer hasn't fully felt the impact of rising interest rates and inflation.

So we're actually being more modest on our GTV expectations for the next three quarters. And with respect to unified payments, we have to keep in mind that 50% of Lightspeed's customer base is international, and we haven't yet fully launched in those markets. So, we're not -- you know, we don't want to take the early encouraging signs of unified payments and apply it to -- to those regions. We feel it's still early days, and we're choosing to remain cautious.

Daniel Chan -- TD Cowen -- Analyst

Thanks. I'll pass it on.

Operator

And your next question comes from Andrew Jeffrey with Truist Securities.

Andrew Jeffrey -- Truist Securities -- Analyst

Hi, good morning. Appreciate you taking the question. I wanted to dig in a little bit on retail versus hospitality trends. Interesting to see that both categories are sort of growing at the same rate right now, and I appreciate the high-level macro commentary, but that's a notable change from recent periods.

How would you sort of anticipate those two categories growing? It sounds like there may be a shift back to more sort of discretionary spend from experiences and maybe you could parse that by geography a little bit, just a little more color on expectations.

Asha Bakshani -- Chief Financial Officer

Thanks --

JP Chauvet -- Chief Executive Officer

I'll -- do you want me to start and then we can -- look, I think it's very similar to what we -- we talked about last quarter. What people are wearing to go to restaurants, those categories are doing well. So, we're seeing luxury apparel, apparel, footwear, and also jewelry going very well. And we're continuing to see, call it, the COVID net positive, not do that well. So, outdoors, sports bikes have still not recovered, and it's still down year over year.

And on the hospitality side, we're seeing still good demand globally. So -- but I think for us, we just want to remain cautious because we think there might be, you know -- we don't know what's going to happen, but we want to be cautious as we get into the second half of the year.

Andrew Jeffrey -- Truist Securities -- Analyst

OK. And I can appreciate that given the uncertainty. And then, just wondering whether or not some of the sort of fee issues that have arisen -- customer fee issues that are -- that have arisen in the U.S. with sort of a nominal competitor and some of the noise around that has helped, has hurt, has made your selling motion and easier.

I know you're not big in U.S. restaurant, but I wonder just generally the cost of -- of payments for merchants, it sounds like you think you have a price advantage on what you're sort of seeing anything in the market that's notable in that regard.

JP Chauvet -- Chief Executive Officer

Yeah, so maybe on payments, what we're seeing is once customers use Lightspeed payments, they love it. So, I think that's very encouraging to us. They're saving time. They love the consolidated reports.

They loved the actual hardware and the ease of use and mobility. And all of these are important. And I think what they like also is they're getting all of that at a rate that is very competitive. So, we're so confident now with our rates that we're telling your customers we're going to match or beat your rates regardless of what happens. So, I think what we're seeing is that people view Lightspeed as a very good choice at a good price.

And again, we're seeing our closing rates, and I think maybe that's the most exciting to us. As you know, with unified payments, we were really looking at making payments mandatory for all new customers. And here, what we're seeing is our closing rates are just as good, our times to close are just as good, and ARPU has gone up pretty significantly because a lot of our customers are now using payments. So, nothing to add except that we're very happy with the outcome for now, but we want to stay just cautious for the rest of the year.

Andrew Jeffrey -- Truist Securities -- Analyst

All right, appreciate it.

Operator

Your next question comes from Thanos Moschopoulos with BMO Capital Markets.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Hi. Good morning. With respect to the costs for transitioning customers to payments such as buying out their contracts, the handholding required to get them up and running, are those trending pretty well as expected, or is there anything to call out in that regard?

Asha Bakshani -- Chief Financial Officer

Hey, Thanos, thanks for the question. Those costs are actually trending slightly better than the expectations. What we are finding -- and again, we, you know -- it's only really the North American launch because -- because it's very very early days for the others, but we are finding in North America that there is a lot less handholding that our customers are requiring. Many customers are not requiring on-site installations. We still have some significant costs of unified payments in the quarter, and we expect to have some in Q2 as well but they are lower than the original expectation.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

OK, and then as far as subscription revenue, just given some of the puts and takes you referenced, how should we think about the trajectory? Would you expect growth to be sort of similar to what we saw this quarter for the remainder of the year or any color on that line?

Asha Bakshani -- Chief Financial Officer

Yeah, for the first half of the year, we expect a softer subscription revenue growth. We do expect that to improve slightly in the back half of the year. But as we said last quarter, we -- fiscal '24 for us is really the year of execution on unified payments. And so even for the full year at large, we do expect overall subscription revenue growth to be softer than what we've seen in previous years.

And once we exit the year, we expect that to improve to historical -- or historical levels.

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Right. I'll pass the line. Thanks.

Operator

Your next question comes from Koji Ikeda with BofA Securities.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Hey, guys, thanks -- thanks for taking the question. I got a question on GPV here as a percentage of GTV. So, in the quarter 22%, that's great, an increase of three points quarter over quarter. And the way I understand it is much of that near-term growth is fueled by payments adoption.

But as payments gets more and more penetrated within your -- your base, GTV becomes -- it should sit back to GTV as a driver of growth. And that metric grew 6% year over year this quarter. So, how do we think about the puts and takes of the GTV growth over the next 12 to 24 months?

Asha Bakshani -- Chief Financial Officer

Thanks for the question, Koji. So, you're right -- you're absolutely right. The relationship between GPV growth and GTV growth today for Lightspeed is -- is quite disconnected because, you know, we're only 22%, 23% penetrated at the end of the quarter. And as you know, as we become more and more penetrated, GTV growth will become much more aligned with our gross payments volume growth. What we need to keep in mind with the 6% which was, you know, single digit year over year growth, not -- not super high, is the fact that 50% of our locations at Lightspeed are outside North America.

And so, you know, we have -- we do have some FX headwinds that are impacting that number. In addition, there are certain verticals where we're well penetrated from a GTV perspective, as JP mentioned and they're still declining year over year. And so, that is impacting our overall GTV growth. We do find that as we focus more and more upmarket on the over 500K cohort of customers, as you know, as our -- our main focus, that we do expect that Lightspeed GTV growth year over year should -- should be better than the overall GTV growth in the SMB market.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Got it, Asha, thanks for that. And one follow-up, if I may, here. In your prepared remarks, you were mentioning capital. And you mentioned that you would be pushing harder, but given the macro, you're being conservative on the ramp.

But then, you also mentioned that there is demand for it, so if there is demand, why not push a little bit harder for capital?

Asha Bakshani -- Chief Financial Officer

Yeah, you're absolutely right. Capital is a very promising business for us, but what we have to keep in mind is that it still represents today a low single-digit millions in terms of revenue. And so, when the company is fully focused, our sales teams are fully focused on unified payments, there was some distraction in the quarter on capital. And in addition, we want to make sure that in today's macro that we're not rushing anything.

We want to make sure that we ensure that we stick with the very very high rated -- credit-rated customers for eligibility. But you're absolutely right, there's -- there's tons of demand. We're just -- we are taking our time intentionally given the macro. Our default rates still remain extremely low, but we definitely should see that pick back up in the back half of the year when unified payments is behind us.

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Got it. That makes a lot of sense. Thank you so much.

Operator

Your next question comes from Matt Coad with Autonomous Research.

Matt Coad -- Autonomous Research -- Analyst

Hi. Hey, guys. Thanks for taking the question here. Just one on unified payments.

You guys mentioned that the gateway, like, fee that's going to be implemented is going into effect in a couple of months. Just curious if you could kind of like bifurcate for us, is that strategy just focused on the smaller customers, or will that be impacting the larger customers as well? Like any -- any color there on your strategy would be helpful.

JP Chauvet -- Chief Executive Officer

Yeah, so that fee is really the stick. So, when you look at our unified payment strategy, what we're trying to do is we're trying to get all of our customers onto payments. And I think that's the expected outcome is we want everybody on -- on unified payments. But what we're doing there, the carrot is we're giving away hardware, we're giving away installation, we're beating your rates. You know, we're committed to matching or beating your rate.

We're sending people on-site. So, we're giving a lot. But the stick here is we're saying, well, if you don't move to likely payments, we're going to be charging you a transaction fee of 50 basis points. And so, that's being now communicated to our customers. We have a certain percentage of our customers that are now paying this fee.

But just --just being very clear, we have a whole set of people that are actually reaching out to those customers that are paying this transaction fee and telling them, hey, you shouldn't be paying the fee because you'll be -- you'll be paying way less if you're using, like, payment. So, it is just a stick and it's --

Asha Bakshani -- Chief Financial Officer

I think -- I think we lost JP. I'm going to -- I'm going to continue, but I think to answer your question, I think JP answered it, but you know, we are -- we are ensuring that the transaction fee at 0.5% is across the base. It's not just for the smaller customers. And so, we -- we are finding that there's a large contingent of customers that have taken the transaction fee.

Still very early days on -- on unified payments. And what we are doing is reaching out to those customers to ensure that they understand the implications and trying to, you know, again reiterate the benefits of Lightspeed payments. But so far, you know, there's -- there's no concern on our end there.

Matt Coad -- Autonomous Research -- Analyst

Awesome. Super helpful, Asha. One other one, just on the transaction-based gross margin, you mentioned the one-time items there, but could you just kind of, like, walk us through the puts and takes off, should we be modeling that similar to what we've seen in the past couple of quarters? Should that be coming down a little bit due to the shift? Maybe payments is growing faster than capital. Just any puts and takes on that would be helpful.

Asha Bakshani -- Chief Financial Officer

Right, so the transaction-based gross margins, you're right, there were several temporary items impacting the margins this quarter, one of which is the -- the one-time cost or the launch cost on unified payments. We do expect that to dissipate in the coming quarters. There will still be some launch costs in the second quarter, but beyond that, we expect that to dissipate. The commentary on Lightspeed Capital, we should see that improve in the second quarter from -- from the print that you've just seen in Q1 and to further improve in the back half of the year. So, those are the one-time items that -- that will improve.

And we do expect transaction-based gross margins and overall gross margin growth year over year to improve in Q2 and then improve even further beyond. We have to keep in mind, referral fees are declining as expected. That's not one time, and that will happen every quarter as we take those cohorts of customers onto Lightspeed payments. But we do expect Q2 and beyond transaction-based gross margin and overall gross margins to improve given the one time.

Matt Coad -- Autonomous Research -- Analyst

Thanks, Asha.

Operator

Your next question comes from Richard Tse with National Bank Financial Markets.

Richard Tse -- National Bank Financial -- Analyst

Yes, just had a question on sort of payments adoption, and obviously, with a focus on larger merchants, what are your existing large merchants saying in regards to adoption? Like, you know, what do they need to be convinced on; like, you know, what's sort of any obstacles for their adoption? I'm sure you've had conversations with them, but if you're willing to share that, that'd be helpful.

JP Chauvet -- Chief Executive Officer

Yeah, I'll take this one. Sorry, I got kicked out earlier on, but the higher GMV merchants are actually more inclined to go with Lightspeed. It's a much easier conversation. It's a business conversation.

And at the end of the day, what they want is they want -- they're really focused on optimizing productivity and optimizing the number of transactions per employee basically. And so, here, the conversation is very easy. It's like if you can accommodate my rates, cool, let's go, let's do it. So, I think the conversation is actually easier with the big ones than the small ones.

The only thing with the larger ones that have multiple locations, you know, like [Inaudible] well, what happens there is there is a rollout. So, between the moment they say, yes, we're ready to go ahead, and we roll it out to all of the 80 locations, takes -- it takes time. But generally speaking, we're feeling very confident with the high GMV merchants because the conversation is really a business discussion, and there's no notion that it's really around productivity.

Richard Tse -- National Bank Financial -- Analyst

OK, thanks. And then, I think you touched briefly in your prepared comments about NuORDER. Can you give us a sense of what that revenue model may look like going forward now that you've sort of had a bit of time with it, and then also the potential timing of when that sort of commercial model would be available?

JP Chauvet -- Chief Executive Officer

Yeah, so as you know, NuORDER is a business, by itself, inside of Lightspeed. They work with brands, and they basically are the pipeline for distribution of all -- of all their goods, all the network for the brands. So, that's been in place. That's continuing to generate revenue every -- every quarter, will continue selling big brands.

But here, the real value of NuORDER for Lightspeed is the network between the brands and the stores. And so, we have nothing for this year that is in our revenues for that, so we're continuing to develop. But what we are seeing is that for the stores that are using Lightspeed and NuORDER, they're seeing tremendous value with the NPS score of those customers much higher. And they actually think that this is -- you know, we heard it better than [Inaudible] for them because of all the time they're saving and removing pen and paper and being more efficient. So, we're confident in NuORDER for the future.

We are investing a lot this year in the development to continue to integrate it in a very tight way into Lightspeed. We actually hired John Shapiro, who's now going to be leading this initiative for Lightspeed, is a pretty senior executive with a lot of technology background with suppliers and POS. And so, we're progressing well, but we're being cautious. Again, there's no revenue this year recorded for the integration. We think we need to, you know, spend another -- till the end of this fiscal year continuing to do these integrations before we see the benefits. Now, the benefits we're going to see, as I've always said, through distribution.

We will be between the brands and the stores. So, we will help brands define or identify new stores. We will also help brands see sell-through throughout the entire Lightspeed network so that they can -- they can readjust manufacturing. And finally, for the store, we think a huge value there as a differentiator where we're going to automate everything that's manual with our competitors. So, I think it's a very exciting -- as we've always said, a very exciting product.

We are -- we are -- I mean, we're building history here, and it's going to take time. But we are very confident in the outcome once this is done.

Richard Tse -- National Bank Financial -- Analyst

OK. And just quickly last one for me, no doubt your balance sheet is strong, so you've got a lot of financial flexibility and with the sort of path to break even or positive EBITDA exiting sort of the year. You do have sort of increasing flexibility. So, what do you think, you know, in light of the relative valuation on the stock, any possibility of kind of buying back some of your shares?

Asha Bakshani -- Chief Financial Officer

Yeah, thanks for the question. We -- you know, we talk about -- we've talked about a stock buyback. We're always evaluating our options there. You know, we discuss it with our board regularly as well.

It's very important to us that we maintain flexibility around our options, whether it be M&A or anything of the sort. It's not -- you know, we're not going to be likely raising anytime soon in these markets. And so, we want to -- we're trying to balance the buying back our stock with what we need the cash for, things like our merchant cash advance business is thriving. But we're -- you know, we -- we continue to evaluate our options there, but -- but no -- no real decision yet.

Richard Tse -- National Bank Financial -- Analyst

OK, thank you.

Operator

Your next question will come from Tien-Tsin Huang with J.P. Morgan. Tien-Tsin Huang, your line is open.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Hey, apologies, hope you can hear me now. Thanks for the -- the good detail here. I think Andrew asked JP on the -- on the -- those consumer fee that they initiated and then they subsequently had to retract that. I'll just ask it more explicitly.

Any lessons learned from that? I know you're going to a transaction fee intro and you're bracing for and expecting a good -- good outcome, but I'm just curious if there's any lesson learned from that and how you might respond to any negative feedback.

JP Chauvet -- Chief Executive Officer

I think the only comment I can make, this is not a short term. We're not here for the short term. And I think you have to be careful when you just jack up prices just because -- it's a fairly easy exercise to grow revenues by just increasing -- increasing fees in a -- in a way that's not -- that's not acceptable to the customer. So, I think, for me, the feedback is we have to be cautious. And we -- we look at our customers as a long-term relationship, and so we have to -- we have to act well.

And especially in the context of unified payments, you know, we want our customers to know that we will not -- because I think it's a question of power. Once you have the power and you do everything to the customer, you have to behave well. And I think, for us, we just have to be cautious in how we do price increases and they have to be reasonable because, if not, the customers are going to react very poorly to that.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

That's fair. Thank you.

Operator

Your next question comes from Adhir Kadve with Eight Capital.

Adhir Kadve -- Eight Capital -- Analyst

Thanks, guys, for taking my question. Maybe just one on the -- the unified offering, are you -- and then the new product developments that you guys talked about this quarter. Can you give us a sense of how the unified platforms are now kind of helping your cross-sell and upsell motion? Or are you finding that customers are much more recipient -- recipient to it given this tougher macro in terms of labor and everything around that?

JP Chauvet -- Chief Executive Officer

Absolutely. So, actually, the reason why we launched unified payments when we launched it, when you look at the market, basically, prices are going up. You know, cost of labor is going up, cost of goods are going up, margins are tightening, and the only way out for -- for our customers is to do more with less. And that is really the main driver of unified payment is we are helping our customers save time. And we have numbers like productivity gains of 20%, in some instances, of customers.

So, the idea of unified payments is to say we -- it's one solution. So, when -- when you're -- if you're a clerk and you're selling or you're a waiter, you don't have to pull out multiple things. Everything happens within one environment. And I think when you look at the back office capabilities also, when you look at reporting and you look at -- if you have two payments -- if you have a payment platform and a POS, you need to consolidate those Excel sheets and figure out where the funds are going, whereas we give you a simple report at the end of the day, time-saving everywhere you look, productivity gains wherever you look. So, I think that's really what's driving our customers to this. And the last piece is -- is access to funds, you know, so we have a number of derivative products that are using Lightspeed payments.

The first one is capital. Once you're on Lightspeed payments, we underwrite you for capital so you can have access to capital. That is a big win for them and our customers. And I think the last one that comes to my mind that is really important is our insights engine. Our Advanced Analytics or Insights platform, that uses payments to give insights that they've never seen before.

And by the way, we just launched it now in Europe. Insights with GDPR are helping our customers comply with GDPR. So, all of these are products that are really good and are really helping our customers with productivity and understand how to run a better business. And we are deriving a lot of products that are using payments at the core.

Adhir Kadve -- Eight Capital -- Analyst

Excellent, thank you. And for my second question, just on the customers who have immediately opted for the 50-basis-point transaction fee, do you see an opportunity in the future to reengage those customers to kind of keep the conversation going? Or is it more of a kind of like a one-and-done and then you guys kind of leave them alone?

JP Chauvet -- Chief Executive Officer

No, no, no, it's an ongoing. And I think that's really when you look at our -- when you look at unified payments, every customer that goes under, you know -- who don't have time or paying transaction, we'll look at this later, etc., those are the customers we really want to bring on pay. A lot of our customers are just using transaction fees because they don't have time right now. They think it's the wrong time. If I'm a restaurant and I'm in France and I do all my money in summer at the beach, well, I'm not going to use likely payments; I'm going to pay transaction fees.

So, what we're trying to -- do at the end of the day, we do not want any customers paying transaction fees. We think that is not the right way to run the business. So we're doing everything we can to bring them on to Lightspeed payments. So, as soon as they take it, you have a whole set of people that are calling them and trying to work out time frames to bring them on to Lightspeed payments.

Adhir Kadve -- Eight Capital -- Analyst

Thanks. I'll pass the line.

Operator

Your next question comes from Kevin Krishnaratne with Scotiabank. Your line is open.

Kevin Krishnaratne -- Scotiabank -- Analyst

Hey there, good morning. I had a question -- a couple questions on software. You mentioned that the cohorts under 200,000 are 5% of GTV. Any sense of how much of your software revenue they account for?

Asha Bakshani -- Chief Financial Officer

Hey, Kevin, thanks for the question. We haven't typically disclosed the percentage of software revenue from that cohort. We -- the way we look at our customer cohorts are, you know, total -- the total net revenue that we get from the customer. And when we look at it from that perspective, the ratios are quite similar from the GTV, right? Because obviously, the larger GTV customers with payments -- and, you know, payments is -- is embedded now into our platforms.

The larger GTV customers with payments, obviously, is very representative of -- of the split. So -- so, that's typically how we look at it. If -- you know, in a typical customer, if I just gave you an example of a very small customer, we have customers that are paying us 50 -- $50 in ARPU a month on software. We also have very high GTV customers that are paying us $500 a month in software. So, it really -- it really -- it's difficult for us to just cohort those customers because even in the over 200,000 bucket, there's quite a large range.

Kevin Krishnaratne -- Scotiabank -- Analyst

OK, no, no, I appreciate that, and that kind of leads to my second question. Just on the larger merchants, you know, over 500 or over a million, you mentioned $500 as an example, but you know, maybe bigger picture, even medium to longer term, how -- how much do you think you can extract out of -- out of your best merchants in terms of ARPU, like, where do you think it can go?

JP Chauvet -- Chief Executive Officer

Yes, I think we're early days, frankly. I think just -- just look at a customer that has 10 million of GMV and add payments in there, and you'll see that, basically, the software becomes a small fraction of whatever they're paying. And I think that's why we're doing unified payments, but I think that's where we are obsessed. If we look at the basket, we look at all the tech that these customers are buying, and we think there's room to go well above 1,000 bucks a month just for software for those higher ARPU customers. So -- and that's per location.

So, there's a -- there's a lot of room to grow. One thing is certain is we are -- and I said that a number of quarters -- but we are doubling down in the high GMV merchants, all the way from marketing to onboarding to supporting to how we -- we position ourselves. We are going upmarket, and that is really good for Lightspeed because ARPU is much higher, and we're seeing it actually. The new customers that have joined Lightspeed have a much higher ARPU than -- you know, in every quarter, their ARPU seems to be growing. The new platform command a much higher ARPU.

So, we are doing what's right. We know that we could -- we could get to much higher levels than we have today. And the first step for us is -- as we said, is unified payments because that really moved the needle quite significantly, especially for the high GMV merchants.

Kevin Krishnaratne -- Scotiabank -- Analyst

Got it. Appreciate the color, JP. Thanks.

Operator

Your next question comes from Suthan Sukumar with Stifel.

Suthan Sukumar -- Stifel Financial Corp -- Analyst

Good morning. Just want to -- just have a question here on merchant growth. You saw fairly solid double-digit growth in larger merchants this quarter. Just curious, has everything changed from a selling motion here for you guys? And also, what are you seeing from a competitive intensity perspective as you -- as you continue to focus on larger merchants?

JP Chauvet -- Chief Executive Officer

Yeah, so I think the good news is the more -- the larger the merchants, the less competition, OK, that's very simply put. If you -- if you look at the larger merchants, none of the other cloud-based competitors can offer what we do. So, I think that's why we're really focused on that because it has lower churn, higher ARPU, and lower competition. We have adjusted our sales motion where now, you know, we're working very tightly with the Googles and the Facebooks of the world to actually feedback GMV so that we can do a better job of just targeting them. And then, what we're doing now is we -- we are creating cohorts of salespeople based on the types of customers. So, our more experienced salespeople now are talking to higher GMV merchants.

And if you're just joining Lightspeed, you're probably going to start with the lower GMV merchants. So, we are equipping the organization in a way to just optimize throughputs of large customers. And -- and we're very happy because it's working. Any way we look at it, we're seeing -- we're seeing basically payback go down, so we get paid back in a shorter -- in a shorter amount of time. We are seeing close rates remain very strong, and we are seeing ARPU really strong for new customers.

So, very happy with what we're doing. And I think -- again, it's a journey, and it's a journey that started six quarters ago, I think, and it's going to just continue improving as we go forward.

Suthan Sukumar -- Stifel Financial Corp -- Analyst

Great. [Inaudible]

Gus Papageorgiou -- Head of Investor Relations

Bailey, we'll take one last question.

Operator

Absolutely. And our final question will come from Raimo Lenschow with Barclays.

Unknown speaker

Great, thank you. This is Jeremy on for Raimo. I just wanted to ask on -- on the Lightspeed supplier network. So, understand that it's not being monetized now, but has it sort of been, like, rolled out to customers as a test-use case? And if so, could you share a little bit on what the feedback has been there? Thank you.

JP Chauvet -- Chief Executive Officer

Yes, so when we look at the supplier network, the piece that is monetized is we work with the brands. They buy our software and then we become the platform to distribute their goods for anybody who wants to place an order, and including our competitors, including big box retail and SMB. So that piece has been in motion. It's going well. The piece that is still under test is really the -- I'm taking the brand and I'm connecting those brands to, like, these stores, and I'm enabling the source to be way more efficient in how they operate.

So, instead of going outside of the platform, as they would now, and, you know, write POs, and then receive half of the goods because they don't have anything in stock, what we're helping them to do is we're helping them, first of all, identify how much they should be ordering through analysis of their sell-through. And then, what we're doing is we're connecting that order directly to the brand, and then we're enabling them to place an order from the brands, looking at the inventory levels at the brand. And then, finally, what we're helping them do is when they receive the goods, they have no work, they just scan the good, and the descriptions are there, the videos. And that is really important for our merchants right now, because if you want to sell online and you want to sell across multiple channels, you need to have rich packages that describe the goods with videos and images and etc. And I know this sounds obvious, but the reality is, for this industry, nobody does this. And so, why am I saying this? Is that the test case we've done, we have, you know, a couple of hundred customers now using the full integration, and the feedback we have from them is outstanding. They -- they believe this is the -- this is better than sliced bread.

This is saving them hours and hours every day. And again, going back to my previous comments, any time you can help, today, retailers save hours of work, they love you because they don't have the bandwidth anymore, they don't have the manpower and it's all around doing -- just optimizing and doing more with less. So, that's why we're very excited about this. But we need to start the networks in all the verticals where we operate.

And that's going to take time, but we know that once they're on it, the NPS score and -- it's just through the roof, people are really happy.

Unknown speaker

Got it. Thank you.

Operator

And with that, I will hand the call back over to Gus for closing remarks.

Gus Papageorgiou -- Head of Investor Relations

OK. Thanks, everyone, for joining us today. If there are any follow-up questions we are around all day. Look forward to speaking to you again next quarter.

Have a great day, everyone.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Gus Papageorgiou -- Head of Investor Relations

JP Chauvet -- Chief Executive Officer

Asha Bakshani -- Chief Financial Officer

Daniel Chan -- TD Cowen -- Analyst

Andrew Jeffrey -- Truist Securities -- Analyst

Thanos Moschopoulos -- BMO Capital Markets -- Analyst

Koji Ikeda -- Bank of America Merrill Lynch -- Analyst

Matt Coad -- Autonomous Research -- Analyst

Richard Tse -- National Bank Financial -- Analyst

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Adhir Kadve -- Eight Capital -- Analyst

Kevin Krishnaratne -- Scotiabank -- Analyst

Suthan Sukumar -- Stifel Financial Corp -- Analyst

Unknown speaker

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