Lightspeed Commerce, Inc. (NYSE:LSPD) Q1 2023 Earnings Conference Call August 4, 2022 8:00 AM ET
Company Participants
Gus Papageorgiou – Head, IR
Jean-Paul Chauvet – CEO, President & Corporate Director
Brandon Nussey – COO
Asha Bakshani – CFO
Conference Call Participants
Daniel Perlin – RBC Capital Markets
Andrew Jeffrey – Truist Securities
Josh Beck – KeyBanc Capital Markets
Timothy Chiodo – Crédit Suisse
Richard Tse – National Bank Financial
Joshua Baer – Morgan Stanley
Andrew Bauch – SMBC Nikko Securities
Todd Coupland – CIBC
Daniel Chan – TD Securities
Thanos Moschopoulos – BMO Capital Markets
Clarke Jeffries – Piper Sandler & Co.
Operator
Good morning. My name is Angela, and I’ll be your conference operator today. [Operator Instructions]. I would now like to introduce Gus Papageorgiou. I do apologize for your name. You may now begin your conference.
Gus Papageorgiou
Thank you, operator, and good morning, everyone. Welcome to Lightspeed’s Fiscal Q1 2023 Conference Call. Joining me today are JP Chauvet, Lightspeed’s Chief Executive Officer; Brandon Nussey, Lightspeed’s Chief Operating Officer; and Asha Bakshani, our Chief Financial Officer. After prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our first quarter 2023 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators.
Also, our commentary today will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on sedar.com and on the SEC’s EDGAR system.
And finally, note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. Before I turn it over to JP, I would like to remind everyone that we will be hosting a webcast on our new flagship retail offering, Lightspeed Retail scheduled on August 30 at 2:00 PM, Eastern Standard Time. Please go to our IR website to register.
With that, I will now turn the call over to JP.
Jean-Paul Chauvet
Thank you, Gus, and welcome, everyone. Thank you for joining us this morning. Lightspeed reported another strong quarter today, our 14th as a public company, delivering revenues of $174 million, which was ahead of our previously established outlook of $165 million to $170 million. Overall revenue grew 50% and GTV grew by 36%. Revenues were strong this quarter as the return to in-person shopping and dining drove demand for omni-channel solutions. We continue to see success in our target markets of complex SMBs, especially among higher GTV customers.
And thanks to our strong travel market, our European region, which is heavily slanted towards hospitality, also had a strong quarter. We saw GTV of EMEA growing faster than any other region. In hospitality, we signed several multi-location and marquee customers, including Panos, one of the leading bakery groups in Belgium with 100 locations, which will adopt Lightspeed’s flagship restaurant platform. The Parker Palm Springs in Palm Springs, California, one of the premier independent luxury hotels in North America, which will adopt Lightspeed’s flagship restaurant platform with Payments.
And the Holland Group in Covington, Kentucky secured using our outbound sales force, which will use a host of Lightspeed’s offering in their five locations, including Payments. In retail, we were happy to find the following customers: Kualoa Ranch in Hawaii, where many of the Jurassic Park movies were filmed, they will adopt our retail offering in addition to e-commerce, analytics and Payments. Long-standing Lightspeed footwear customer, The One will be adopting Lightspeed Payments across their 40 locations in Australia. And within Lightspeed B2B, we were happy to add a world-renowned luxury brand, Michael Kors.
We were also very encouraged by the reception of our new flagship products this quarter. I believe we have the most compelling products in the market, particularly for our target customer base. Lightspeed Retail and Lightspeed Restaurants are the result of thoughtful integration of some of the leading solutions in the market built by developers with extensive experience in hospitality and retail software. Lightspeed Retail and Lightspeed Restaurants are both modern modular software platforms with advanced APIs, which will [have] for expanded features that can either be developed internally or through our development partners.
Our new products are fast, stable and easy to use, and I believe this is why we are seeing strong reception from our end customers. I recognize that like ourselves many of you are concerned over the macroeconomic environment. As you’ll have noticed from our press release, and as Asha will outline in greater detail, we continue to be confident in the annual outlook, which we provided in our earnings call last quarter. We are not immune to macroeconomic conditions and are knockdown playing the risks.
However, I believe it’s important to emphasize that the return to in-person shopping and dining are positive influences for Lightspeed that should at least partially help to offset any challenging macroeconomic conditions. With an increased focus on execution and because of the various growth levers at our disposal, we believe Lightspeed can maintain strong growth through challenging conditions. Even in this scenario of an economic downturn, our approach to market does not change. We will remain focused on adding higher GTV locations of complex SMBs that can take full advantage of our comprehensive software platform and adopt Payments.
These customers generally deliver higher ARPU, lower churn and superior lifetime value. And in addition, they’re much better positioned to weather any economic downturn. I will also remind investors that the proportion of our GTV that is growing through Payments remains in the low double-digit range. The Payments will be available to the majority of our customer locations. Our focus is to get as many of these locations onto our Payment solution as possible. Brandon will discuss this shortly. In addition to executing our Payments opportunity, I believe Lightspeed is benefiting from two other strong trends in the industry, which is currently dominated by legacy systems.
The first is that merchants are turning to technology to help them do more with less. With supply chain issues and labor shortages, causing disruptions in every industry, Lightspeed technology can help merchants automate and simplify their operations, better manage their inventory and improve their profitability. Lightspeed can help merchants and their employees become more productive so they can better serve their customers and drive growth for their businesses.
The second is that we believe merchants are increasingly looking for a one-stop shop for all of their needs, and this will likely become more important if economic conditions deteriorate. If merchants are relying on separate vendors to their POS, e-commerce and payment solutions, as an example, they can create unnecessary complexity in their operations through valuable insights because of siloed data, generate extra work to reconcile these disparate systems and can end up paying more for them. Lightspeed can deliver a comprehensive platform where the shared data can deliver valuable insights, remove the need for manual reconciliation of these systems, simplify operations and generally do so for a lower price. We are increasingly seeing both new and existing customers come to us for this reason. And again, I believe this is part of the reason we are experiencing solid demand for our software solutions.
I will now pass it over to Brandon to take us through some operating highlights. Asha will then take us through the financials and outlook, and I’ll wrap it up before we go into Q&A.
Brandon Nussey
Thanks, JP. I’ll speak briefly about some of our main operational focuses as we look to see progress on our core drivers continue. As you heard from JP, we remain cautious on where our customers’ GTV heads from here given the backdrop and have set our plans with this cautiousness in mind. With that said, our focus is on the things we can control. And one of the biggest opportunities we have is to drive Payments adoption. Payments continues to trend well for us with our GPV in the quarter at $3.3 billion, almost doubling year-over-year.
But with over $22 billion of GTV across our business in the quarter, we have plenty of opportunity still ahead. We’ve made good progress in making our Payment solutions available to the vast majority of our customer base outside of Ecwid. And with that in place, we’re now doubling down on our efforts to drive Payments uptake across our install base, along with as many new customers globally as possible. We have a number of strategies in place to achieve this that incorporate incentives for customers, adjustments to our selling and onboarding processes, and ongoing support from our partners in this space.
The timing is right here with uncertainty looming for our customers, having Payments and POS together and a streamlined workflow becomes more compelling to them, helping them to save time and money and freeing them up to focus elsewhere. With ongoing good execution on this opportunity, we believe it will help serve to offset any weakness that may lie ahead within our customers’ volumes in aggregate should they face a toughening macro economy.
We also remain focused on growing our share of this significant market opportunity with 166,000 customer locations, excluding standalone e-commerce customers brought on through the Ecwid acquisition, we believe we have substantial opportunities still ahead. And as we’ve said before, our main focus is on finding and winning the customers with the best long-term value for us. That means more established customers that are less susceptible to churn that drive good GTV volumes and that eventually will play an important role in our networked supplier strategy.
The customers highlighted by JP earlier are good examples of this. This quarter, we added approximately 3,000 net customer locations as we continue to target these customers that meet our desired profile. We saw our overall churn remain in line with our historical trends. However, I want to provide some further context to this number as we integrate our various acquisitions and get closer to having a single flagship product for both retail and hospitality. With some of our acquisitions, we inherited a base of customer locations that are not representative of our desired profile.
Examples of these are customers that have been sold through white label OEM relationships where we will not be able to monetize the GTV; customers in non-core verticals, such as concession stands, convenience stores and food trucks or customers using a small standalone product with little opportunity for upsell. These customers typically have a lower ARPU than our average, have lower GTV and do not represent a compelling fit for our supplier strategy. Excluding customer locations acquired through Ecwid, we estimate that between 1,000 to 2,000 customer locations are churning per quarter in these categories, and we estimate that we have up to 10,000 more that we expect will continue to churn over the next 6 to 8 quarters.
This category of churn is incorporated into our plans. And despite this, we expect we will continue to grow our customer location base at healthy levels given the opportunity that lies ahead. I provide this context to be helpful for those who are tracking our overall customer location stat and our related progress on that. And finally, with respect to our acquisitions, I’ll speak quickly to our progress on our integration efforts. Our primary focus to-date has been on integrating the underlying technology and ensuring a seamless go-to-market effort with the acquired resources. We’re pleased with our progress here.
Our flagship products are now in market for both retail and hospitality in most of our markets around the world. With that now largely complete, we can finalize our brand transitions, which is important to ensuring we are getting the maximum benefit of our increased scale. This effort internally called One Lightspeed is expected to be complete by the end of this calendar year. Other integration efforts we are focused on relate to internal systems, production environments and customer support centers.
We’re tracking well on these thus far as well. And lastly, one of the primary benefits from our acquisitions has been the addition of some of the industry’s most talented people. With the integration of these teams into broader Lightspeed now largely complete, we’re seeing the output of this effort in our product velocity and on delivering value to customers. These synergies are important as we continue on our path to profitability will allow us to redeploy resources into areas of growth and innovation while keeping our overall costs in check.
I’ll pass it over to Asha now to take you through the quarter’s numbers and our outlook.
Asha Bakshani
Thanks, Brandon. It was another strong quarter from the business. Our omni-channel balance has proven to be well-positioned to accommodate the ongoing shift from e-commerce to in-store and our hospitality presence is benefiting from the rebound in restaurant spend globally. As you heard from JP, we were able to deliver $173.9 million in revenue, ahead of our outlook of $165 million to $170 million, with subscription and transaction-based revenue, up 38% from last year on an organic basis and total revenue up 50% overall.
First, I’d like to address a few observations about what we saw in the quarter, both positive and negative. Then I’ll get into the financial performance for the quarter, including a discussion around our key metrics. Finally, I will end with our outlook for our Q2 fiscal 2023 and for the full fiscal year ahead. The first observation is that the diversity of our business continues to serve us well. And by this, I mean our diversity in verticals, geographies and revenue streams. Our expanded Payments availability in both the EMEA region and for hospitality customers helped boost overall growth this quarter, whereas in previous quarters, we were more reliant on retail customers and primarily in the North American region.
We expect to continue to diversify our revenue base by putting more of our customers on Payments, by expanding our international retail customer base through our new Lightspeed Retail offering and by further increasing our North American hospitality presence through our new flagship hospitality offering. We continue to benefit from multiple growth levers, growing our revenue through the combination of location and ARPU growth and expanding our Payments and Financial Solutions across the almost $80 billion of GTV, our customers collectively processed in the trailing 12 months.
As you have seen by now, we do not need our levers to be hitting concurrently, and the opportunity for each remains compelling. Secondly, I would like to discuss the trends we are seeing in GTV. For the quarter, we saw GTV grow organically by 25% and 36% overall, with hospitality showing stronger growth than retail and EMEA showing the highest GTV growth of any region. In the quarter, our customers processed over $22 billion of GTV. Within retail, we are seeing some of the end market growth decelerate.
For the most part, it appears as though the sectors that benefited during COVID, such as bike and home & garden are seeing lower growth while end markets such as apparel and footwear that generally saw more challenging conditions under COVID are performing better. We also believe that factors such as rising interest rates and persistent inflation are impacting retail more than hospitality as consumers prioritize spending in areas such as travel and entertainment. Despite this, overall retail GTV still grew 15% organically and 32% in total.
Hospitality GTV more than offset this as consumers resume spending on travel and dining out across the globe. Hospitality GTV grew 40% in the quarter organically. And although we saw a particularly strong uptick in Europe, hospitality GTV remained at healthy levels in all regions. We remain cautious in terms of GTV growth as we believe rising interest rates and higher inflation will impact our end markets. But as Brandon mentioned, increasing our Payments adoption, which is largely under our control, can offset any challenges we face in GTV growth.
Finally, I will note that this quarter’s results in which we reported 38% organic growth in subscription and transaction-based revenues now fully lap or easier comparative periods that were heavily impacted by COVID as well as all of our acquisitions, except for new order and equity, illustrating the business’ ability to deliver strong organic growth while integrating our acquisitions. Going deeper into our results reported today. Overall revenue for Q1 was $173.9 million, ahead of guidance of $165 million to $170 million. Subscription and transaction-based revenues for Q1 was $165.1 million, representing 95% of total revenue and growing 38% organically over a year ago.
Gross profit dollars grew by 35% in Q1 from the same period a year ago. As a percentage of revenue, gross margin for Q1 was 45% as compared to 50% last year, owing to a greater portion of our revenue, now coming by way of our Payment Solutions, which carry a lower gross margin but provide us important incremental gross profit dollars per customer location. Our gross margin percent was impacted by increased hardware subsidies in the quarter, which we are addressing and which we expect to taper down to more normal levels through the rest of the year.
Adjusted EBITDA loss was $15.6 million, in line with our outlook of $16 million. This loss was higher than a year ago, reflecting the impact of the adjusted EBITDA losses from our recent acquisitions and includes costs associated with our annual sales, customer and partner summit, which we moved to a virtual format during COVID and which we brought back to in-person this year. Turning to some of our additional business indicators, customer location, excluding those standalone e-commerce customers brought on through the Ecwid acquisition, grew to approximately 166,000 from 163,000 a quarter earlier. These customer locations provided ARPU of approximately $320 per location, which is up from $230 a year ago. Subscription-only ARPU was $136, up from approximately $113 a year earlier.
Both of these exclude the Ecwid standalone e-com customer base, which carries a significantly lower ARPU. As you heard from Brandon, net location adds were impacted by the churn in our non-core customer categories. And given our continued focus on the type of customers we onboard, we are pleased with the quality of customers we have successfully added this quarter. Looking at our Payments, gross payment volume was $3.3 billion, up 96% from last year and up 48% from our Q4.
Although our Q4 is historically our seasonally slowest quarter for processing volumes and this sequential increase was expected, the fact that we were also up 47% from Q3 of our fiscal ’22, which is historically our seasonally best quarter is actually a very positive sign of progress overall. Our cash position in the quarter declined to $915 million from approximately $954 million in March. This was a result of operating losses in the quarter, certain working capital movements and an increase in cash advances deployed for Lightspeed Capital.
Subsequent to the quarter end, we paid off the $30 million of debt arising from the loan drawdown made in connection with the acquisition of Gastrofix in January 2020. I view our strong balance sheet as a source of strength in the current environment and will continue to ensure we remain in a strong cash position. As we look forward to the remainder of fiscal 2023, although we remain optimistic on the things under our control, we believe there are several reasons for caution given the trends we’re seeing in consumer spend, inflation, foreign exchange exposure and the overall macroeconomic backdrop.
While impossible to predict the severity of any recession, we have stress tested our forecast based on various economic outcomes. And while we do expect inflation and continued softness in consumer spend will continue for the rest of the year, given our multiple growth levers, the diversity of our customer base and the Payments opportunity ahead of us, we are confident in our ability to meet our previously established revenue outlook.
In addition, we continue to focus on finding efficiencies across the business through continuous integration of previously acquired businesses, as Brandon mentioned, and we continue to remain disciplined and intentional on operating expenditures, reducing spend in lower priority areas. For Q2, we expect to achieve revenue in the range of $178 million to $183 million and adjusted EBITDA loss of approximately $10 million.
For the full fiscal 2023 year, we maintain our previously established outlook on revenues at $740 million to $760 million and adjusted EBITDA loss of approximately $35 million to $40 million or 5% of revenue at the mid-range of our guidance, which has improved from 8% last year. We remain committed to adjusted EBITDA profitability in our next fiscal year. As a reminder regarding this outlook, we expect seasonality to continue to have an impact on both our revenue as well as our adjusted EBITDA performance, whereby Q3 will be our seasonally strongest quarter and Q4 our seasonally weakest quarter.
Furthermore, as we continue to realize ongoing synergies, we plan to reinvest in core areas of the business, allowing us to invest in growth areas while improving EBITDA performance throughout the upcoming year. We believe our balanced approach to growth and profitability is the right one, given the opportunity we see ahead, the strength of our balance sheet and our desire to run a disciplined long-term business.
With that, I’ll hand it over to JP for closing remarks.
Jean-Paul Chauvet
Thanks Asha. There is no question that the economic outlook has grown more pessimistic in the last few months. And again, I do not want to downplay the situation, but we believe Lightspeed will continue to perform despite these challenges. Our new flagship offering, Lightspeed Retail and Lightspeed Restaurants are the best we’ve ever delivered, and I believe the best in the industry. Lightspeed Payments is now available to most of our customer base and our go-to-market teams are more experienced than ever in selling that offer.
And finally, what I cannot emphasize enough is that we believe the return to in-person shopping and dining is by far the biggest macro influence of this company’s success. And here, I’m very encouraged with what we are seeing. Before we go into the Q&A session, I want to take a moment to recognize all of the employees at Lightspeed, and the incredible job they are doing. In the last two years, we were able to digest five acquisitions, launched two new flagship products, roll out Payments globally and continue to deliver strong growth throughout. It’s because of them that I remain confident in our ability to execute and optimistic on our prospects.
And with that, we will take your questions.
Question-and-Answer Session
Operator
[Operator Instructions]. We will now take our first question from Dan Perlin with RBC Capital Markets.
Daniel Perlin
I just wanted to drill down a little bit on your commentary around Payments really driving the — offset potentially if clients weaken. You talk about doubling down to drive that opportunity and you talked about incentives for those customers to meet your onboarding. I’m wondering if you could go into a little more detail in terms of what that means from an incentive base, what you’re doing specifically? And is this a function of going back into your existing book and given clients or are you just finding that there’s more success as you bring on new clients?
Brandon Nussey
Dan, it’s Brandon here. Yeah, we’ve — given the macro backdrop, of course, we’re cautious on where customer volumes go from here. So that creates a lot of focus internally on the things we can do that are under our control to make sure we offset that. So we’ve done a number of things of — just areas of focus around making sure that right from the upfront selling process that we’ve got the right incentives. We’ve tried a few things for customers.
We’ve tried a few things for how to make sure we incentivize the sales team all the way through to how do we make sure that customers get live more quickly. And you’ll have seen in the quarter that we made good headway. Some of these early initiatives have borne fruit already. And that’s what gives us confidence as we go through the rest of the year that those will have a cumulative effect and help to offset any macro weakness that we see across the industry.
Daniel Perlin
Definitely saw in the quarter. I’m wondering, just as a follow-up, if you have — or you’d be willing to share kind of any kind of recent trends that you saw in particular through July and anything that you would be able to indicate in terms of — you have a bit of a cautious outlook on the consumer. I’m just wondering, are you actually seeing that materialize through July? And are you may be even seeing hospitality accelerate?
Brandon Nussey
Yeah. And important to remember that our mix of customers, we started talking about some of the consumer spending shift happening last quarter. So on our last quarter call, we started to see consumer spending shift out of certain retail categories into other categories like hospitality and so on. That continued into Q1, as you heard from Asha earlier. July, we’ve actually not seen anything — any different really. If anything, July looks a little more kind of stable from some of the trends we’ve seen in those retail categories previously. So yeah, that’s just important as we think about our customer base, a lot of what everybody is worried about in the macro on the retail side. We’ve actually been dealing with that for a few months now.
Operator
Next, we have Andrew Jeffrey with Truist Securities.
Andrew Jeffrey
I appreciate you taking the questions. I wanted to ask a little bit about, Brandon. I appreciate the color kind of on the customer focus. One of the things that I think about in this industry, given the competition and the way that Lightspeed continues to try to differentiate itself is what the TAM can be? And it’s certainly a huge market, especially given your international footprint. Can you just maybe frame it up in the context of the customers you’re going after, which seem to be more and more specific, which makes sense to me? But I’m just wondering some of the questions we get is around the TAM given your very focused customer profile.
Brandon Nussey
I’ll maybe take this one. So, we’ve shared a number of times the TAM and so our view of the TAM there’s roughly 46 million retailers and restaurateurs in the planet. And as you know, we’re focused on the more established ones, the one who have higher GMV and our direct addressable TAM, if you look at the industries where we operate is about 6 million. So there’s a lot of room to grow and I think the good news about this — this addressable TAM is that when you get a customer, you get — you basically get them forever, and they are not prone to churn because there’s much limited business failure, so a very large TAM. And I’ve said that a number of times, that the majority of the market is on legacy systems.
It’s very simple, look at streets around the world and you look at the businesses in those streets. The vast majority are still on legacy systems. And I think that’s the beauty of what we have to offer today, especially in the post-COVID world. The restaurateurs, the retailers are focusing again on technology for in-store, but they still have at the back of their mind, oh, there is also the omni-channel world. And I think that’s where we fit perfectly as workflows that bridge online and offline. And in the segment where we operate, there are not a lot of companies that have the capabilities that we have. And I would argue that the latest products that we released are more competitive than they’ve ever been, and I think they’re very much aligned with what the market needs today.
Andrew Jeffrey
Okay. So no change in your TAM or no modification based on this very kind of focused customer profile, it sounds like.
Brandon Nussey
No, no, absolutely. We know our strategy. We know the segments we want to own, and we’re doubling down on that and attracting the right profile of customers.
Andrew Jeffrey
Okay. And then also just sort of a corollary. One of the things that I think Lightspeed has talked about in the past is the ability to accelerate growth of acquired businesses. And it sounds like because of the nature of some of the customers in the companies you’ve acquired in the last year, year-and-a-half, maybe the churn is higher in those businesses than it might have been in past acquisitions. Can you just talk about maybe on a same-store sales metric or something for those merchants that you keep from acquired business? Just some sense of how those ShopKeep, [Upserve], etcetera, businesses are doing after you bought them and have integrated them.
Jean-Paul Chauvet
Yeah. So that’s where you have the gross adds and the net adds and how we’re presenting net adds. If you look at the reality of the business and Brandon shared a little bit of color on that, we basically have customers that are core to what we do. But every time we do an acquisition, they come with a fair share of customers that are not valuable to us. And I’ll give you a — Gastrofix in Germany came with a lot of very nice customers that are in line, but they came also with a number of customers that we were not interested in tiny retailers.
Same thing happened with Vend, of course, the majority of the customers were in line with what we needed to do. But they all come. So I think every one of them came with a segment that we were not interested in and that’s where we see the highest churn within the company, and it’s good for us because, again, we want to double down on the segment that’s really interesting to us like grocery stores or this is not interesting to our business.
And so we’re going to let them churn and that’s what you’re going to see is you’re going to see heightened churn in the segments that are not interesting to us from the acquisition. And then you’ll see us really double down on the customers that are very strong to us. So if you look at churn, I mean, churn is very much in line with what we had expected, at a fairly good level. But within that churn, if you look at the customers that are interesting to us, the churn is much lower. And when you look at the churn of the segments that are not interesting to us, they’re much higher.
Operator
Your next question comes from Josh Beck with KeyBanc.
Josh Beck
Yeah. One thing I wanted to ask about was the pace of penetration in Payments. It seems like sequentially, it was one of the bigger jumps that we’ve seen. So anything to read back into that maybe with respect to the impact of the flagship platforms or other? Just curious if there’s any call out there.
Brandon Nussey
Yeah. So we talked a little bit, Josh, about some of the things that we’ve been doing that are under our control and that meant sort of focusing on top end of the funnel to make sure we attach well. Our flagship products in retail and hospital, we see really strong attach rates there. You’re seeing that show up in our landed ARPU, our new store ARPU and then all the way through to our aggregate ARPU as well.
We’ve also — we just have this tremendous opportunity inside our existing base of customers. And we’ve taken on a number of initiatives to bring focus to how we convert those, how we do it quickly and how we make sure they get transactional quickly as well. So yes, some good progress in the quarter on that. Obviously, a lot more to do, but I’m pretty pleased with the early outcomes on some of those initiatives for us.
Jean-Paul Chauvet
Maybe, Brandon, a comment here is — we recently launched Europe and Australia on Payments. And there’s always a delay between the moment you start selling well and then you control the whole flow of customers. So I think here, what you’re seeing as a result of just the company globally, selling and onboarding and processing and delivering Payments at the right pace. And so I think that for us, that’s why we’re very encouraged by the progress here.
Josh Beck
That makes a lot of sense. And then I also wanted to follow up on the organic growth. I believe it was 38%. Obviously, that’s right towards the middle of your longer-term model. I think in the quarter, I think it was around 11% location growth so that would imply a little bit better than mid-30s — sorry, mid-20s growth on the ARPU side. Is that the right algorithm for us to think about? I don’t really expect the guidance, but just kind of curious on how we should be framing that up moving forward.
Asha Bakshani
Hey Josh. Yeah, totally, that is the right way to look at it. We’ve committed to 35% to 40% organic growth in the year. And given the Payments initiatives that both Brandon and JP talked about that we’ve launched, and we see continued success so far, we are confident in that annual 35% to 40% guidance. And that 38% is right in the middle of that. One thing that we should be wary of or we want to remind the public of is we had a very strong Q1 last year. We had an exceptional quarter last year with strong uptick for the verticals where Lightspeed is strong. And despite that, we were able to grow 38% year-over-year on an organic basis. So that’s definitely the right way to look at it.
Operator
Next question comes from Andrew Bauch with SMBC Nico Securities.
Andrew Bauch
Just wanted to touch upon the B2B network and some of the early feedback that you’re hearing from clients. And thinking about this in the full context of the year, can we consider any contributions from that in the full year guide or when does that you guys anticipate to kind of start gaining more traction?
Jean-Paul Chauvet
Yeah. So I’ll maybe address this one. So as we said, when we did our forecast this year and for next year, by the way, we are not expecting a lot of revenues from the B2B network. The B2C network for us is an investment where what we’re expecting to see is, again, a much more competitive platform, if you will. And what we’re expecting is that over time, we’re going to start building revenue. So here, just being very clear on the launch, what we did for now is we’ve integrated new order into the Lightspeed platform.
And now for the luxury brands that are on new order, we enable anybody to do an integrated ordering from the store front, which is pretty game-changing. We enabled the stores also now to have an automated descriptions and videos and pictures of the items they order instead of doing it manually. And then on the flip side of that, what we’re doing now is we’re enabling the brands to access sell-through on a consolidated basis for small businesses. So what we’re enabling them to do basically is to sell through an SMB network and have the same level of feedback as they were selling directly to consumers.
So that’s the first step for us, and this is really now, for now is focused on the key brands within new order. And we decided to take that approach so that we can learn and we can iterate and we can create value. And what we’re seeing so far is that there is a ton of value for the store owner because for them, it just saves them time and it makes the automated view and the real value for the brand is the sell-through. Now for us, this is a step one. But then as we go forward in this year, and you’ll hear more about other verticals, we want to deploy verticals that are strong to Lightspeed, not just luxury brands, but we want to try and deploy outdoors and sports and do some service repairs.
So we are right now building the plans now that we have the plumbing that’s done. We have the first few customers that are using it, and we have the feedback. We’re now going to start building a plan on what verticals we tackle when, and you can hear more from us in the next quarters where we’ll be progressing there. But again, being very clear, we are not expecting anything. This is an investment zone for us and with a horizon of probably 24 months before we start seeing some material revenues. But we think it’s game-changing because if we do this right, we are going to solve a really big problem for our customers.
Andrew Bauch
Yeah, absolutely, and it can definitely be a solution that drives more stickiness in the platform. I know it’s a really small piece of the business right now, but the $9.4 million in cash advances, up 49% quarter-over-quarter. Where do you guys see that going over the next year as your base may need additional working capital to kind of keep things afloat in uncertain times?
Brandon Nussey
Yes. That’s an important part of the portfolio for us. We’ve had great success there. We get wonderful feedback from our merchants. It helps make the whole platform more sticky. We’ve seen solid evidence of that. So far, our loss ratios have been very, very low, reflecting the more established customer base that we’ve launched this into. So we’re going to keep growing this. We expect it to continue to grow at a very healthy clip, but still, of course, be mindful of running this business, this part of the business quite prudently.
Operator
Your next question from Richard Tse with National Bank Financial.
Richard Tse
With respect to Payments over the next, call it, 12 to 24 months, do you expect it to continue increasing at the same pace or actually accelerate given the number of initiatives you have underway now?
Brandon Nussey
The things that we can control, Richard, we expect to accelerate. The macro economy and what that means for baseline volumes inside our customer base, that’s tough to predict. You heard from Asha that we’re taking a pretty cautious view of how that looks through the rest of the year. But on the things that we can control in terms of the number of new customers that we onboard, the amount of our existing base that we convert, we’re confident that we’ll see that continue to accelerate.
Richard Tse
Okay. And then from a competitive landscape perspective, obviously, you’re becoming much bigger. How has that sort of kind of changed, I guess, the profile of your business, meaning as your pipeline increased notably, the win rates and how the competition has responded?
Jean-Paul Chauvet
Yes. I’ll take that one. Look, we — as you know, we have this strategy to one product. So one product in retail, one product in hospitality. We’ve now launched most products, but now we’re tackling the biggest market for us, which is the U.S. And so if you look at our retail platform, we are launching this in the U.S. We launched a few verticals. And what I can tell you is the verticals that we launched are doing extremely well. We see better close rates, we see higher ARPU, we see better attachment payments. So — and that’s obviously because we’ve mingled the core software and the core Payments very well in the new platforms. So I think for me, the way we look at this is we’ve never been more competitive with the products. The gap between us and our competitors has broadened, and we do not — I mean, we see better close rates on the new products when we launched it.
Richard Tse
Okay. And just a last quick one here. You’re still talking about breakeven EBITDA next year. Where is most of that sort of operating leverage going to come from when it comes to the OpEx line?
Asha Bakshani
Thanks Richard. Most of that operating leverage really comes from the integration of our different acquisitions that we’ve made over the past few years. As you’ve heard from us, we’re being very rigorous and disciplined in our spend. But at the same time, we have so much opportunity as we integrate all the different companies that we bought over the last two years. Integration, leverage comes from not only teams and integrating our people, but also from contracts. When you think about things like AWS and Google Cloud Infrastructure contracts where all of these companies had their own separate contracts, as we consolidate those and we get volume, we get more volume, we get much better rates. And so as we continue those integration efforts, we’re starting to see more and more of that operating leverage.
Operator
Next up, we have Daniel Chan with TD Securities.
Daniel Chan
Just want to get some color on the full year guidance. The Q1 revenue came in above your — the high end of your expectations. So just wondering what you’re thinking about for the rest of the year to keep it flat despite the Q1?
Asha Bakshani
So thanks, Dan. We’re obviously being cautious for — with respect to everything that’s going on in the macro environment. And as you’ve heard from Brandon, there are things that we can control, which is how many customers we migrate on to our Payments platform, how quickly we get customers transactional. Those things that are under our control, we feel very good about. We have these initiatives that we’ve launched recently, and we’re continuing to see success with those initiatives. However, things like retail spend from an average GTV perspective, things like hospitality spend, how inflation will impact consumer spending, these things are out of our control. And for those reasons, we want to make sure that we’re cautious in our guidance and that we put guidance out there that we’re very comfortable in achieving.
Daniel Chan
And then — I appreciate the color you guys gave around what you’re seeing with consumer spending, your caution around there. Any color on the willingness of merchants to adopt or invest in new technologies given the macro synergy, uncertainty? Just any change in KPIs you can share with us, such as like inbounds, conversion rates, etcetera, would be helpful.
Brandon Nussey
Yeah. So I think for me, it’s very simple. As we go into a recession, potentially, we have scarcity of hiring people. The vendors basically need platforms that can do more with less. And so I think there’s — that’s exactly what live feed is about — doing more with less. So I think here, what we’re seeing is we’re seeing demand for platforms really strong like ours. The second thing we see is that vendors want to consolidate on to one.
So you might have vendors that have an e-com and then have Lightspeed and maybe have a Payments provider and then they might have a loyalty provider. What happens when there’s a recession, you normally try and bundle more platforms with one vendor at a lower cost of acquisition. And again, here, we’re very aggressive on bundling and proposing discounts based on bundles to the people by the platform. So I think for me, the — and as we said, we’re cautious. But there’s a lot of — there’s a lot of greenfields and there’s a lot of people who need platforms like ours.
Operator
[Operator Instructions]. Next question comes from Thanos Moschopoulos, do apologize, from BMO Capital Markets.
Thanos Moschopoulos
Can you speak to the headwind you’re seeing from FX? You obviously had significant European exposure. So have you been implementing any pricing adjustments in some of the geographies to offset FX or is it more the fact you’ve got other levers like Payments ramp and module add-on sort of offsetting that?
Asha Bakshani
Hey Thanos, thanks for the question. So FX for us, at the end of the day, a strengthening USD is great for Lightspeed just from the fact that the majority of our revenues are USD, whereas the majority of our operating expenditures are in currencies outside the USD such as the Canadian dollar and euro. So overall strengthening USD is helpful for Lightspeed. Of course, to your point, there is an impact on the revenue line, but we need to keep in mind that the majority of our revenues are still U.S. dollar-denominated. And so given that fact, the strengthening USD against other currencies caused a 1% to 2% impact on our revenue overall. So really not a huge deal for us at this time.
Thanos Moschopoulos
Great. And then for JP, you talked before about your push into the U.S. hospitality market on the back of the new hospitality platform and building out an in-person sales presence. So maybe just update us in terms of where you are in building out the local sales teams and whether the macro backdrop has influenced your plans and timing in terms of those investments at this point or not?
Jean-Paul Chauvet
Yeah. So as we mentioned last time, we were trying with salespeople with foot on the ground. And so we started that initiative, a couple of handfuls of salespeople. And I’m happy to report that the actual LTV over CAC is better with the outbound for the profile of customers we’re going after. So we have decided to double down on that. So we are now going to move the needle and double the size of the LTV and continue pushing on that front. So we’re adjusting the model. For now, we’re happy with what we see, and we’re seeing better unit economics on our own outbound when we do performance marketing.
Operator
Next, we have Josh Baer with Morgan Stanley.
Joshua Baer
Just wanted to ask on the One Lightspeed, the brand transitions expected to be complete at the end of this year. Are all those transitions going to the flagship platforms or also other legacy versions of Lightspeed?
Jean-Paul Chauvet
Yeah. So I think, again, that goes back to — it kind of touches also on what Asha was saying on cost savings. So what we’re doing here and synergies, we’re bringing everybody to one flagship product. And all — everybody is going to be brought to the Lightspeed brand. So as we’re deploying the flagship products everywhere in the world, and we’re getting them ready, we’re porting the brand. So the next one you’ll see is the Upserve brand in the U.S. now that K-Series is out or our hospitality.
What you’re going to see in the next quarters is we’re going to complete the — you will not have Upserve anymore. And everything is going to be under Lightspeed. And all of the salespeople are only going to sell the new Lightspeed platform. After that, the last step in this journey for us is to move to Australia and New Zealand, which we’ve already done now on the retail front, but for the hospitality. So yes, the short answer to your question is, yes, as we go to one Lightspeed that also means going to one product for hospitality and one product for retail.
Joshua Baer
And then outside of the brand transition, just like thinking about the total customer base, what percent of your total base is on the One product, the flagship versions today? And where can that go by the end of the year?
Jean-Paul Chauvet
Yeah. So I think we were very clear on the steps. Step one for us was to get all go-to-market for new customers on one platform. And then from that moment, we will then focus our account management teams on building conversion utilities and getting the base onto the new platform. And here, I think there’s enough new functionality and enough new features that we’re going to see a natural progression of those customers moving over. We haven’t shared any data for now on this, but this is going to be, I mean, top of our mind as soon as we have the One brand everywhere in the world.
Operator
Your next question comes from Todd Coupland with CIBC.
Todd Coupland
We’ve seen quite a few tech layoffs and share price reductions impacting stock-based compensation. I’m just wondering how you guys are thinking about that macro headwind and how it’s impacting your hiring plans, if you have any, if you can share them and any issues around compensation with the share prices down?
Jean-Paul Chauvet
Yeah. So I’ll address this one also and Brandon and Asha, if you want to jump in. Look, for me, it’s very simple. We are not a pure e-commerce or a pure digital company. The strength of like the 90% of our GMV is physical retailers and restaurateurs and so this return to the physical world is creating a lot of demand for us. We have a forecast that we are committed to hitting 35% to 40% growth this year. We are being cautious and the way we forecast it is a very cautious way.
So we are confident we’re going to hit our numbers. And for us to hit those numbers, it means that we need to continue hiring, we need to continue investing. We need to continue bringing people who can deliver to customers and deliver an incredible experience to our customers. So we’re not in that mindset for now. We are more in the mindset of hey, let’s really focus on getting payments, getting more customers, ensuring that customers have a higher ARPU and delivering on the numbers we gave to the market.
Todd Coupland
That’s great. And then as a follow-up, you performed really well in Europe in the quarter, citing hospitality and people traveling. As we think through the summer and these macro headwinds that you’re talking about, some concerns on Europe, is there anything for us to think about for that region into the fall?
Jean-Paul Chauvet
Yeah. So I think, again, for me, the answer here is Lightspeed is well balanced. We work in retail and hospitality and golf. We work across all continents. And we’ve seen that even through COVID when one area was not doing well, the other one was doing well. When golf was not doing well, hospital was doing well. And so I think for now, maybe that’s a short answer, we’re seeing a ton of demand in Europe for platforms like Lightspeed right now. We’re seeing strong GMV in the hospitality front. And there — I mean, yeah, the growth rates are good and the demand is good. And what’s really interesting is we launched now also our X-Series product, which is our retail product in the UK and some regions of Europe, and we’re seeing a really strong demand there for the new platform. We think it’s much more competitive than the previous one.
Operator
Next question comes from Tim Chiodo with Credit Suisse.
Timothy Chiodo
I just want to circle back real quick on the guidance and the FX impact. Asha, I completely appreciate that most of the gross revenues are more North America based. I think when we go down to gross profit or net revenue, it still holds, but maybe to a lesser extent. Just with that context, could you maybe just give some context on what was the FX impact in the original guidance for revenue for the year? And what is the FX impact in the guidance today? So just so we can get a sense of how much incremental FX impact that you’re working in and still able to maintain the revenue guide.
Asha Bakshani
Hey Tim, thanks for the question. Just like I mentioned earlier, on a net revenue basis, you’re right, the mechanics are slightly different. But overall, at the end of the day, the majority of our Payments revenue is still coming by way of North America. So even though we are diversified, the majority of the net revenue is still U.S. dollar denominated. And so given that when we look to our guide and we have factored in FX, it’s really in a very small percent range 1%, 2%, 3% range, not more than that.
Timothy Chiodo
And then my brief follow-up is I just want to confirm, I think the math suggests this is a yes. But if we were to back out the roughly, I think you said 1,000 to 2,000 of incremental churn from some of the legacy, non-core, smaller, lower ARPU type of locations that for the core business, let’s call it ex-Gastrofix, ex-ShopKeep that the location adds are roughly trending in sort of the mid-teens, maybe even slightly higher. Is that a fair characterization?
Jean-Paul Chauvet
Yeah.
Operator
Our last question comes from Clarke Jeffries with Piper Sandler.
Clarke Jeffries
One brief one for me. Just has there been any change in the approach to integrated payment partners, the partners that you negotiated rev share agreements?? As I try to foot Lightspeed Payments, GPV to typical take rates, it seems like there’s a pivot happening there, but maybe you could help me out with any other dynamics playing out in the non-Lightspeed transaction revenue?
Brandon Nussey
No, nothing new there. I think you know our core partners are — those remain the same, and all of the incremental business basically flows through to those core partners. We do have the legacy, call it, referral line from prior to our launch of Lightspeed Payments. And of course, that revenue line continues to decline, and we expect that to continue. So that might be what you’re seeing is while our overall Payments and our overall GTV is growing, we do have this declining line that’s within that overall transaction-based revenue line and perhaps that’s what you’re seeing.
Clarke Jeffries
Perfect. And then if I could maybe squeeze one in. Any update to how you’re thinking about the approach in go-to-market in the macro environment? I know you were investing in direct or field sales initiatives as part of the flagship releases. Does that change in any way as you look to the rest of the year or have you seen good kind of feedback or receptivity in those initiatives?
Jean-Paul Chauvet
Yeah. I think the foot on the ground for us is only in the U.S. only for hospitality. And the reason why we’re doing this is, of course, to — and our competitors are doing that in the hospitality space. On the retail space, we’re very happy with the model that we have. I always said it’s a very predictable model. We really understand all the economics very well. Close rates are very well monitored. So for us, it’s almost — I always say internally, it’s like doing a soup. We know the ingredient. So if we want to grow more, it’s a fairly simple step of getting more into marketing and generating more customers.
But again, for us, the balance is important because we are seriously committed to making EBITDA breakeven or profitable next year. And because our payback is more than 12 months, if we decide to grow too much from the new customer front, that will generate losses within the first year. So we’re trying to take the most balanced approach to getting the right profile of customers, but there’s no change expected there in our go-to-market.
And actually, what we see and we see it actually in COVID is in the context of recessions or difficulties with our customers, they normally want to buy more than one product. So I think here, we’re geared towards bundled pricing towards doing everything we can to associate Payments to every new customer and to have kind of more of the previous telecom operator approach where the more packages you buy from Lightspeed will give you a bundled discount. And I think that should work well in the context of the potential recession.
Operator
Thank you for your participation. This conference has concluded. You may now disconnect.
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