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Lightspeed Commerce(NYSE: LSPD)
Q2 2025 Earnings Call
Nov 07, 2024, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed second-quarter 2025 earnings call. [Operator instructions] I would now like to turn the call over to Gus Papageorgiou, head of investor relations.
You may begin your conference.
Gus Papageorgiou -- Head of Investor Relations
Thank you, operator, and good morning everyone. Welcome to Lightspeed's fiscal Q2 2025 conference call. Joining me today are Dax Dasilva, Lightspeed's founder and CEO; Asha Bakshani, our CFO; and JD Saint-Martin, our president. After prepared remarks from Dax and Asha, 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 second quarter 2025 results presentation available on our website as well as in our filings with U.S.
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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+ and on the SEC's at your system.
Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars, unless otherwise indicated. Our commentary today is focused on our business and Q2 financial results.
As you can appreciate, we will not be taking questions concerning the company's ongoing strategic review. We respectfully refer investors to the press release we issued on September 25th and our quarterly filings made today with U.S. and Canadian Securities regulators. Before I pass the call on to Dax, I also want to announce that in light of such ongoing strategic review, we will postpone our Capital Markets Day previously scheduled for November 20th.
We note that there can be no assurances given at this time as to the outcome of our strategic review and that no further announcements or comments in respect of this matter will be made except as required under our regulatory obligations. With that, I will now turn the call over to Dax.
Dax Dasilva -- Founder and Chief Executive Officer
Thanks, Gus, and welcome, everyone. I am pleased to report another strong quarter from Lightspeed. Revenue grew 20% year over year to $277.2 million, exceeding our previously established outlook of between $270 million and $275 million. Payments penetration increased meaningfully to 37% from 25% in the same quarter last year which, in combination with our concentrated effort to control costs, allowed us to deliver record quarterly adjusted EBITDA of $14 million, ahead of our previously established outlook of $12 million and significantly better than breakeven adjusted EBITDA in the same quarter last year.
Another milestone worth highlighting, especially as we mark our 20th year of operations, is that on a trailing 12-month basis revenues exceeded $1 billion with adjusted EBITDA of $32 million. As we look toward the future, Lightspeed is in the enviable position of maintaining a large and growing top line, positive adjusted EBITDA, the strongest products we've ever had, and a very healthy balance sheet. Our mission remains to empower independent retail and hospitality entrepreneurs with the technology they need to help build and grow their businesses. We also continue to focus our efforts on our ideal customer profile, or ICP, sophisticated high-volume and multi-location SMBs with complex workflows transacting more than $500,000 in TTV per year.
Thanks to our industry-leading flagship platforms and strong go-to-market teams, we were able to add a host of compelling new customers this quarter, particularly in our key verticals of North American retail and European hospitality. In retail, one of our biggest customer wins in the quarter was GrowGeneration, America's largest hydroponic retailer. We signed over 30 locations with our flagship Lightspeed Retail offering, thanks in part to our seamless integration with NetSuite. In California, Barebones Workwear adopted Lightspeed Retail, offering over 100 workwear brands in their 10 locations across the state.
Lightspeed Retail is the perfect fit for this high GTV multi-location retailer. We also added the Nashville Country Music Hall of Fame with over 1 million new visitors per year. This country music institution will use Lightspeed Retail to power its multiple retail outlets. As part of our outbound initiative, we have been reaching out to new order retail customers who are using our B2B offering but are not using the Lightspeed Retail POS.
The ability of our POS to integrate into the new order B2B order management system is a meaningful differentiator for our retail offering, and we continue to grow the number of brands available on new order. By seamlessly importing orders from new order into the Lightspeed Retail POS, we save them valuable time and simplify their operations. This strong and unique value proposition is resonating with these customers, and we are gaining traction. We were thrilled to sign Mavi Jeans flagship locations in Canada and the U.S.
Our sophisticated inventory management capabilities, along with our well-developed APIs, new order B2B integration and competitive payment rates made Lightspeed Retail the natural choice for this expanding denim brand. Our new order B2B capabilities were also instrumental in signing Wayne's Boot shop in Cody, Wyoming, which was previously managing their inventory manually. Lightspeed Retail is saving them valuable time so that their team can focus more on their customers. Other notable brand additions from this quarter include J.
Lindeberg's, Bugatti Group, and Columbia Sportswear. Last quarter, I commented that we added 12,000 pet products to new order to open up the pet vertical. Since then, we have seen close rates on pet stores improve 40% in the quarter, a very encouraging sign. In hospitality, Lightspeed Restaurants ability to integrate with some of the leading ecosystem partners like 7shifts, OpenTable, and Uber remains a key differentiator for us.
It is one of the main reasons we are able to secure complex high GTV customers. Natalie, with two locations in the heart of Central London, chose Lightspeed because of our ability to integrate platforms such as optimized inventory and delivery solution deliver. We also added 4PM Entertainment in Amsterdam as a Lightspeed Restaurant customer, taking advantage of the booming Adult tennis market, 4PM. launched The Paddlers.
With over 20 locations across the Netherlands and Germany, 4PM. will be using Lightspeed Restaurant with Payments for their food and beverage service. Our ability to manage multiple locations across different countries under one software and payments platform makes us a natural fit for pan-European operators like 4PM. Another example of this is J'adore Hospitality Group.
J'adore operates a collection of restaurants, nightclubs, and bars across France and has started rolling out Lightspeed to help support their expansion. While our go-to-market teams continue to focus on our ideal customer profile, our product teams are delivering features that can make these customers more successful. In the quarter, we continued to accelerate the pace of innovation, releasing several new compelling features. We had the global launch of retail Insights for our retail customers, who use this module to help prevent stock outs of popular items to improve their revenue.
We also introduced automatic order distribution from multiple location retailers. With Lightspeed multi-location ordering, retailers can now create one purchase order for multiple locations and automatically distribute stock based on inventory plans. And finally, we released instant payouts for retail customers in the U.K., which carries a 95% plus gross margin. Eligible Lightspeed merchants will be able to access funds immediately after the transaction even on weekends and holidays.
Instant payout is already available to Lightspeed Retail customers based in the U.S. We are also excited about in addition to instant sites for e-commerce merchants, allowing merchants to create and design customized sections for their e-commerce sites. In hospitality, we released our groundbreaking Benchmarks and Trends module. Through the power of machine learning Benchmarks and Trends gives restauranteurs a clearer picture of how the restaurant compares to other local venues on several metrics, including pricing and customer favorites.
We launched our sales summary page, allowing restauranteurs to spot trends faster by leveraging improved data visualization. We extended happy hour pricing to Order Anywhere, our online ordering module. This feature allows businesses to dynamically adjust online menu prices, so guests ordering from their website can take advantage of happy hour pricing. This month, one of our newest features, Kitchen Display will go into general availability.
Kitchen Display allows for constant connectivity between the front and back of the house, which improves restaurant operations and customer service. We have recently launched this product in EMEA and are seeing over 10% of new customers adopt the solution, helping increase ARPU. This is the kind of innovation that allows us to win new customers and grow subscription revenue. In terms of the second half of the year, I will remind everyone that for fiscal 2025, we are focused on three key operational objectives aimed at achieving our goal of profitable growth.
And these are; accelerating software revenue growth, continuing to advance adoption of our financial services, and continuing to control costs and finding additional operational efficiencies. With respect to financial services and operational efficiencies, I am very happy with the significant progress we've made in such a short time, and I think the results today are a testament to our ongoing success there. On software revenue, we've initiated efforts this year that will start to impact these numbers in the next two quarters. These initiatives include; expanding our outbound sales team, aiming to increase the number of reps by over 60% by year-end, launching new software modules, which will expand software ARPU; implementing select price increases, which will increase software revenue growth; growing our brand awareness in key retail and hospitality verticals; and returning the majority of our account managers who were reassigned to executing unified payments to their traditional roles of upselling software.
Beyond these tactical efforts and since my return as CEO in February, I have been focused along with our world-class team on transforming the business toward a path of profitable growth. Based on our ongoing strategic review of our operations, we have decided to focus our efforts on the markets where we are strongest and have a proven right to win. These are retail in North America and hospitality in Europe. Our other markets will remain important to Lightspeed as they represent a strong customer base, and we will focus on growing revenue there, primarily through upselling existing customers.
We've decided to focus on retail North America and European hospitality, because they are our largest and fastest-growing customer base, accounting for the majority of revenues and growing faster than our overall business, have compelling unit economics, represents our strongest competitive position, our most compelling product market fit and have our highest close rates. There are two main actions that will result from shifting our strategic focus to these two markets. Firstly, our go-to-market efforts will bias strongly toward retail in North America and hospitality in Europe. The vast majority of inbound and outbound marketing efforts will be channeled to these two markets.
And these markets will represent the majority of new customer additions. Secondly, our product development efforts will also be concentrated on these markets. Our R&D is already focused on our flagship products, Lightspeed Retail and Lightspeed Hospitality, which are ideally positioned for the North American, retail, and European hospitality markets. By prioritizing R&D here, our flagship products will become even more compelling.
We believe this will improve our competitive position in these markets and boost software ARPU. While this adjustment will result in several changes in the business, many things will remain the same. Our ideal customer profile does not change. We will continue to focus on larger, more sophisticated SMBs with complex needs.
Leading with our flagships as the main product offering also does not change, as these products are ideally suited for the target markets. And finally, our goal of expanding financial services such as payments, capital and instant payouts remains the same. By focusing our organization's efforts on these two core markets, we believe we will improve our growth profile, simplify the organization and improve customer satisfaction. There are efforts that will be required to shift our organization toward this new operating model, but they are very manageable, as these two markets already represent the majority of our revenues.
Projects are now underway to align our business to the new model, and I expect it will be substantially completed by the end of the fiscal year. I will now let Asha, take us through the quarterly results and provide our outlook.
Asha Bakshani -- Chief Financial Officer
Thanks, Dax, and welcome, everyone. Lightspeed had a great second quarter with revenues and adjusted EBITDA coming in ahead of our previously established outlook. Our operations continued to show drastic improvement in adjusted EBITDA profitability. And this quarter, we were cash flow positive if we exclude cash used to grow our capital program.
I will walk you through our latest quarter's performance, our key metrics and, finally, provide an outlook for the upcoming quarter and fiscal year. Total revenues increased 20%, and gross profit dollars increased 19%, thanks largely to our unified payments efforts and growing software ARPU. Subscription revenue grew 6% year over year to $85.5 million with gross margins on subscription revenue increasing to 79% from 75% in the same quarter last year, thanks to a concentrated effort to manage costs. Excluding the impact of share-based compensation expense, gross margin on subscription revenue was 80%.
I continue to be very happy with our strong performance in subscription gross margin. As we have outlined in our recent earnings call, we expect subscription revenue growth to improve in the back half of the fiscal year, with subscription revenue growth for the second half of the year to be in the 8% to 10% range with accelerating momentum in Q4 versus Q3. Software revenue growth in Q3 so far has been encouraging. Transaction-based revenue grew 33% to $183.8 million.
In the quarter, we saw GPV increased 49% year over year to $8.8 billion, as we process a greater portion of our GTV through our Lightspeed Payments platform. Lightspeed Capital revenue grew to $9.3 million from $4.2 million in Q2 of last year, up 121% year over year as the program continues to be popular with our customers. Lightspeed Capital offers fast access to capital and automatic repayment through Lightspeed Payments. Merchants are leveraging this offering to finance inventory purchases, upgrade equipment and expand their overall business.
Gross margins for transaction-based revenues were 27% and include gross margins from our capital program, which continues to grow with healthy margins. As we convert customers to Lightspeed Payments, we increased our overall net profit dollars, and in the quarter, we saw transaction-based gross profit grew 33% year over year. Total gross margin was 41%, flat with the previous quarter and down only slightly year over year. Gross profit increased 19% year over year to $114.3 million.
Despite transaction-based revenues, increasing in the sales mix from 60% in Q2 last year to 66% this year, we were able to maintain our gross margins at comparable levels, thanks to continuous spend management and the growth of higher gross margin revenue from items such as capital. It's worth highlighting that gross profit per location grew 19% year over year, thanks to increasing payments adoption and a shift toward high GTV customers. Total adjusted R&D, sales and marketing and G&A expenses increased by 4% compared to the previous year. And as a percentage of revenue, our adjusted R&D, sales and marketing and G&A expenses declined significantly year over year from 42% in Q2 of last year to 37% this year.
Adjusted EBITDA in the quarter came in positive at $14 million. This marks a significant improvement from the adjusted EBITDA of $0.2 million in the same quarter last year. This positive trend in operating expense reduction results from our unwavering focus on finding efficiencies across the organization. This trend, along with our growing gross profit, has resulted in meaningful adjusted EBITDA margin expansion.
As we continue to examine and optimize our cost base, we are renegotiating significant contracts, reviewing global occasions to consolidate and reduce our footprint and scrutinizing corporate overheads such as travel and software licenses. We are confident that these efforts will result in an even more efficient and resilient organization. Reducing costs in several of these areas have allowed us more flexibility to continue to invest in products and go-to-market initiatives. As we have mentioned, we plan to continue to grow our outbound sales team as they are more effective at winning merchants in our ideal customer profile.
We will also continue to invest in product innovation to further strengthen our leadership position among complex high GTV merchants. Our focus on retail in North America and hospitality in Europe will allow us to concentrate our efforts so we can maintain strong growth while also expanding adjusted EBITDA margin. For the quarter, we had an adjusted income of $19.9 million, compared to $6.4 million last year, thanks largely to the improvement in items driving our adjusted EBITDA performance. We continue to actively manage our share-based compensation and related payroll taxes, which were $19.5 million or 10% of revenue for the quarter, down from $23.3 million or 10% in the same quarter last year due to the ongoing prudent management of our equity pool.
GTV from our flagships continued to be strong this quarter, up 26% year over year, demonstrating that for our target customers and with our flagship products, we are seeing good success with attracting the right customer base. Same-store sales in retail, however, remain challenged across many of our verticals. The good news here is that the rate of decline is easing. Overall GTV in the quarter, including nonflagship offerings, was flat to last year at $23.6 billion.
For the remainder of fiscal 2025, our focus will be on increasing our high GTV customer base and accelerating subscription revenue growth in both retail and hospitality. As Dax mentioned, we are increasing our outbound sales efforts, particularly in North America retail and EMEA hospitality, implementing targeted price adjustments, optimizing our customer onboarding, management and support processes and, as mentioned, we've already reoriented most of our account managers back to upselling software, all of which should show impact on subscription revenue in the second half of this fiscal year. Sophisticated customer locations with GTV exceeding $500,000 a year and $1 million a year continued to increase as a proportion of our customer mix, while those with GTV under $200,000 a year continue to decline. Given the initiatives we have launched and further actions we expect to launch that Dax mentioned, we expect to see an inflection point for growth in our ICP customers in fiscal 2026, particularly in North America retail and EMEA hospitality.
Excluding equity customers, our total ARPU for the quarter reached a record $527 million, an impressive 24% increase year over year. This improvement is the result of both unified payments, as well as an increase in software ARPU, given our focus on flagship products and shifting our customer base toward higher GTV locations, which typically adopt more software modules and generate higher payments revenue. In terms of our balance sheet, like we closed the quarter with just under $660 million in cash and cash equivalents, down from approximately $674 million in the previous quarter. Cash used to grow our merchant cash advance program was $18.8 million during the quarter.
Excluding cash used to grow our merchant cash advance program, Lightspeed had positive overall cash flow for the quarter. Lightspeed also had positive adjusted free cash flow in the quarter, which was great to see as we continue to the position company to deliver sustainable free cash flow. In the quarter, GPV as a percentage of GTV was 37%. Our unified payments initiative has improved our ability to sell, onboard and get customers transactional on payments.
We will continue to benefit from those improvements and we expect the proportion of GTV flowing through our payments offering to continue to increase as all new eligible customers onboarded must take payments. We expect to end the year with GPV representing between 40% to 45% of GTV. The LTV to CAC of our customers improves when they add payments, and we are seeing that in our results today. Now turning to our outlook.
Our year-to-date results have been encouraging with both revenue and adjusted EBITDA coming in ahead of our outlook. For Q3, we expect subscription revenue growth rates to improve over the levels seen in Q2, as we expand the outbound team, continue to return our AMs to upselling software, and implement price increases. In addition, we expect to see strong growth in transactional-based revenue as our GPV continues to climb. For the third quarter, we expect revenue between $280 million to $285 million and adjusted EBITDA of approximately $14 million.
For fiscal 2025, we are raising our adjusted EBITDA expectations to a minimum of $50 million, while maintaining our outlook for overall revenue growth of at least 20%. With that, I will hand the call back to the operator.
Gus Papageorgiou -- Head of Investor Relations
As we open up for questions, I just want to reiterate that with respect to the company's ongoing strategic review, the board and management team are squarely focused on acting in the best interest of the company and its stakeholders. Lightspeed does not have a presupposed outcome, meaning all options are very much on the table from remaining a stand-alone public company to all the alternatives we are exploring as part of the review process. As you can understand, it is in the best interest of the company not to communicate anything about the process at this time as it is still ongoing, so we won't be taking questions on the strategic review process. We will now take your questions.
Thank you.
Questions & Answers:
Operator
[Operator instructions] Our first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.
Daniel Perlin -- Analyst
Thanks. Good morning. Nice results here. The -- I guess, I just wanted to dig in a little bit more toward the pivot to software.
Actually, you mentioned that third quarter kind of thus far is showing the good signs of this acceleration. I mean, you know you've outlined multiple reasons why it should happen and they're all very logical. I'm just wondering kind of the early signs of what you actually are seeing. And then in relation to that, the pricing initiatives that you're putting in the market, are those squarely just the third quarter? Or have you been starting that a little bit in this current quarter in anticipation of that? Because it does feel like the -- there's others in the industry that are putting a lot of pricing on clients right now as well.
Thanks.
Asha Bakshani -- Chief Financial Officer
Hey, Dan. Thanks for the question. So yeah, you're right. We did mention that we are seeing encouraging signs in the quarter.
So we completed October and the software revenue were already starting to see improvements as well as the last month of Q2, which was September. But overall, inflection in software that we're already seeing comes from several areas, as we discussed in the prepared remarks, including the account managers that used to be inundated with payments have now come back to selling software, full-time or up-selling our base on software. And on the price increases, in particular, we've implemented the price increases -- communicated them in both July and October, so we should start to see that impact starting in Q3.
Daniel Perlin -- Analyst
OK. That's great. Just quickly on gross profit margins, came in better than what we had expected, and that's kind of despite payments continuing to be really strong in terms of its growth rate. And obviously, subscription margins were really good.
I guess, the question is, outside of just the mix shift associated with subscription getting a little bit stronger, is Lightspeed Capital like playing a role yet to help offset payments growth? Or is that just still really too early in the cycle to make that a meaningful contributor? Thanks.
Asha Bakshani -- Chief Financial Officer
Yeah. We're definitely seeing an impact from Lightspeed Capital. I mean, when we think about the numbers, and you'll see them in our disclosure docs, we're looking at high single digits per quarter in revenue. But because that comes in at 95% plus gross margins, it definitely has an impact already in offsetting both the residuals moving over to payments and also just more, more of our revenue coming in at Lightspeed Payments gross margin.
So capital is definitely having an impact already.
Daniel Perlin -- Analyst
OK. That's great to hear. Thank you.
Operator
Your next question comes from the line of Andrew Bauch with Wells Fargo Securities. Please go ahead.
Gus Papageorgiou -- Head of Investor Relations
Andrew, you might be on mute. Operator, maybe we'll go for next question.
Andrew Bauch -- Analyst
Sorry. Thanks for taking the question. Could you remind us how large North American retail and EMEA hospitality are, and potentially how fast those are growing? And then in this pivot to those segments and the reoriented focus, what's the goal on what the growth of those businesses could be?
Asha Bakshani -- Chief Financial Officer
Hey, Andrew. Thanks for the question. So North America retail and EMEA hospitality are the majority of our revenues today. And when we think about our flagship products, these are the two markets that they're primarily serving, NoAm Retail and EMEA Hospitality.
While we're not guiding on future growth rates, what I can say is the prioritization and the focus that we're now putting on the two markets where we have the highest right to win, the best unit economics, the best close rates, what that ultimately does is it does allow us to accelerate growth. But at the same time, it allows us to expand EBITDA margins given that we do have this efficiency portfolio that we're working on cost optimizing.
Andrew Bauch -- Analyst
Got it. And then if we think about these projects you have going on throughout that are exposed to be completed by the end of this fiscal year, is there any way that we could potentially see some of the fruits of that labor prior to the end of the fiscal year? And how are you thinking about how this all kind of spools up?
Asha Bakshani -- Chief Financial Officer
Yes, I'll start, and then maybe J.D. could go into go to market in particular. But assuming that what you mean by projects are splitting the business or sort of focusing the business on this growth portfolio versus this efficiency business. We've already started to reorient our teams to prioritize investments to the areas where we have the highest right to win.
And our team should be fully -- the reallocation of resources should be fully completed by the end of our fiscal year in March so that we can actually hit the ground running into 2026.
Andrew Bauch -- Analyst
Great. Thank you.
JD Saint-Martin -- President
Yes, maybe Andrew what I add it. NoAm Retail and EMEA Hospitality are already our strongest growth areas, but the reallocation of resources allows us to just go faster. And so that's very exciting for sure from a go-to-market perspective.
Andrew Bauch -- Analyst
Thanks, JD.
Operator
Your next question comes from the line of Trevor Williams with Jefferies. Please go ahead.
Trevor Williams -- Analyst
Great. Thanks a lot. Yes, I wanted to go back to the location growth with the higher GTV customers that slowed by a bit again this quarter. If you could just put some more detail around some of the drivers there.
And then with the Titan focus on retail North America and hospitality in Europe, at least in the near term, any impact we should think of that having on the trajectory of the high-value location growth? Asha, I think I caught you saying it sounds more like a fiscal 2026 inflection for the ICP growth. But any more help there would be great. Thanks again.
JD Saint-Martin -- President
Yes. Maybe I'll start. So from a location perspective, again, as you kind of pointed out already, our focus is really on our ideal customer profile. These are businesses that are doing north of $500,000 in GTV.
And I would say, as far as categorizing how we're trending on that, the best way to look at it is on our flagship products. And on our flagships, the growth of our ICP locations is up 27% year over year. So we're very happy with that. At this stage, about 40% of our overall location count is now on our flagships.
And so not only is it encouraging from a flagship perspective, but if you think about the next fiscal year, which you kind of touched on as well in the second part of your question, the majority of our customers will be on our flagships by then. And so it's going to start to have a meaningful impact on the overall portfolio.
Trevor Williams -- Analyst
OK. Great. No, that's helpful. And then just one on the model for Asha.
The payments gross take rate was up quarter over quarter. It's the first time in a couple of years we've seen that. Just any more detail there would be helpful. I'm just trying to understand if there's been any change just in what we should expect the trajectory for that to look like over the next year or two.
Thanks.
Asha Bakshani -- Chief Financial Officer
Yes, Trevor. So the payments gross take rate, again, it fluctuates with -- I'm assuming you're looking at total transaction revenue, and there's Lightspeed capital included in that number. From a gross take rate perspective, as you know, North America is in a 2.5, 2.6 range. And Europe is closer to the 1 to 1.3 range.
As we penetrate Europe more, we actually should see downward pressure on the gross take rate. I would say, we should land somewhere in the 2% range from a normal state because overall, there's more GTV to monetize in North America than Europe. So I would say there's puts and takes in the gross take rate. We should expect long-term, we land more in the 2% range.
But Lightspeed capital is in that transaction-based revenue, and that could be improving the number that you're looking at.
Trevor Williams -- Analyst
Great. OK. I appreciate it. Thanks.
Operator
Your next question comes from the line of Josh Baer with Margin Stanley. Please go ahead.
Josh Baer -- Analyst
Yes. I wanted to follow up on the location growth in the target GTV cohorts that year-over-year growth has declined now for eight quarters. I think by our estimate, it looks like locations probably down slightly quarter over quarter. You just mentioned much stronger growth with flagship products.
Could you talk a little bit about that dynamic? Is there -- like the conversion over to flagship, is that an opportunity for merchants to evaluate other options? Just wondering if there's churn associated with that upgrade.
JD Saint-Martin -- President
Yes. Thank you for your question. So keep in mind, again, the way we categorize our ICP locations is looking back on a 12-month run rate. So there is of course seasonality that can impact the ups and downs around that location count.
But ultimately, going back to your question, without a doubt on our flagship products, that's where we're seeing phenomenal growth. We're very happy with the progress there. On our legacy products, there is naturally a bit more churn. We allow our customers to upgrade to our flagship products.
And so we're confident as we enter fiscal year 2026, we're going to start to see the trend going in the direction that we're expecting. So all leading indicators are pointing in the right direction. And you'll start to see that pickup in that forward momentum come through in the next fiscal year.
Josh Baer -- Analyst
OK. That's helpful. And then maybe you could just talk more broadly about market share, like where you're winning and losing and competition. I guess the message is you're winning in retail in North America and hospitality in EMEA.
But I just wanted to check in on share and competitive dynamics. Thank you.
JD Saint-Martin -- President
Yes. Great question. So of course, this is supporting our strategy, right? The reason behind our focus on North America retail and EMEA hospitality, and Asha touched on that from a right to win perspective, that's really where we have our strongest product market fit and go-to-market fit. We really see our close rates and our conversion rates being the highest in those two markets and where we feel like we're in the lead as far as the type of verticals and type of businesses that we focus on.
And that's why we really want to double down on that, and we feel like there's a lot of TAM left for us to capture in the years to come. So excited for future years with that strategy.
Operator
Your next question comes from the line of Thanos Moschopoulos with BMO Capital Markets. Please go ahead.
Thanos Moschopoulos -- Analyst
Hi. Good morning. The PX penetration rate was up 100 basis points sequentially, which is a slower rate of increase than in prior quarters. Was that just a function of seasonality in the GTV mix being more weighted to European hospitality? Or is there something else that drove that?
Asha Bakshani -- Chief Financial Officer
Thanos, thanks for the question. As you know, payments penetration is based on the underlying GTV of which customers are on payments versus not and the seasonality of those customers. We actually increased by 170 bps this quarter just because of rounding, it's 36% to 37%, but we actually went up 170 bps. From -- and again, Unified Payments actually improved us from 25% in Q2 last year to 37% this quarter.
So we're quite happy with the rate of payments penetration. What we're seeing this year and where we're benefiting from a payments penetration perspective are annual contracts that are now coming up for renewal, and we're moving those cohorts over to payments, non-solicit restrictions that are coming off. And if you remember, all new eligible customers must take payments. So we do expect the penetration to land in the 40% to 45% as we exit this year.
And again, it's just the puts and takes of seasonality, but we did go up by 170 bps this quarter.
Thanos Moschopoulos -- Analyst
Great. And then as far as the 27% growth location growth for your flagships, just very broadly speaking, would it be similar across hospitality and retail or any big difference in that regard?
JD Saint-Martin -- President
It's a little higher. I mean as far as Q2 is concerned, it's a little higher on hospital than retail, but very, very comparable.
Thanos Moschopoulos -- Analyst
Great. Best of luck and thank you.
Operator
Your next question comes from the line of Dominic Ball with Redburn Atlantic. Please go ahead.
Dominic Ball -- Redburn Atlantic -- Analyst
Hi, everyone. Thanks for the question. So your hospitality European base, has the payment adoption curve here been maybe slower than it was initially in the U.S.? And then just a second question on the price increases. Is this at the same time that those larger merchants, we see quite a decel in the year-over-year growth rates from this quarter to last quarter.
Has there potentially been a pickup in merchant churn as well? Thank you.
JD Saint-Martin -- President
Yeah. Thank you for your question. So maybe I'll start with the last part of your question around price increases. So we started communicating with the first cohort of customers price increases in the summer.
And so that's coming into effect. And we're looking at this fiscal year through three waves, three cohorts. So the first cohort is communicated and implemented. The second cohort is coming through in the fall.
And then the third but smallest is coming through in our fourth quarter. So from an impact perspective, as Asha highlighted earlier, you're going to see the impact of that, of course, as of Q3 and beyond. Going back to hospitality and your question around payment penetration. So one thing that's important to keep in mind is that we are much later or we are later relative to North America to payments in Europe.
So we launched our payments product many years after our payments efforts, and from a unified payments program perspective, we also started a couple of quarters after. And so that is why from a payment penetration perspective, Europe and Europe hospitality is lagging, let's say, North America. But as far as the trend, we're very happy with the trend. If we look at from a net new perspective, our attach rates payments on new customers that we sign up to our solution, that attach rate is very high, it's very strong, which is also -- continues to be a strong indication of the adoption of our payment offering in Europe.
So confidence in the trend is going to be very similar to North America. We're just later to that market.
Asha Bakshani -- Chief Financial Officer
And the only thing I would add there, Dominic, on your churn question is we've not seen an uptick in churn resulting from the price increases to date.
Dominic Ball -- Redburn Atlantic -- Analyst
Cool. Thank you, guys.
Operator
Next question comes from the line of Timothy Chiodo with UBS. Please go ahead.
Timothy Chiodo -- Analyst
Great. Thank you for taking the question. I know you referenced this a few times in the prepared remarks around the increase in the sales teams. I believe at start of this growth, the sales teams were sort of in the 50 to 60 people, and I think the plan was to get it to roughly 100 or 120, something along those lines.
I was wondering if you could help us with an update on how large those sales teams are and also maybe just recap the company's kind of history and philosophy around hiring sales. I believe it originally started in the fall of 2021. Thanks.
JD Saint-Martin -- President
Yes. Thank you for your question. You're right as far as the numbers that you shared. You're referring specifically to our outbound motion.
As a reminder, in hospitality, we do outbound via field sales reps. On the retail side, we run our outbound playbook via remote outbound. so colleagues in offices that are outbounding from an account-based marketing. And we're really happy actually from a progress perspective, Q2 was a very solid quarter, doubled our growth in ARR in the quarter.
October again was a record month. And so in light of seeing that, we want to continue to invest in that motion. We see strong unit economics, strong payback ratios with that team. Today, it's about 15% of our overall quota-carrying reps that are focused on our outbound efforts.
And we are in the process of doubling that, and particularly in the two markets that we highlighted, NoAm retail, EMEA hospitality, where we have such a strong right to win. It makes perfect sense to continue to double down on that strategy.
Timothy Chiodo -- Analyst
Excellent. Thank you.
Operator
Your next question comes from the line of Todd Couplan with CIBC. Please go ahead.
Todd Coupland -- Analyst
Yeah. Good morning. I had a question on the pivot to focus areas. What actually has to change to the Lightspeed network? I know you have some operations in Australia and New Zealand.
Can you just comment on that and whether there's any restructuring required?
JD Saint-Martin -- President
Yes. The idea is that we're reallocating resources. Some of these markets are going to be oriented toward efficiency and some, of course, are high growth. North America retail, European hospitality, these are where we have the best right to win.
Our best LTV to CAC and our best product market fit. So that's how we're thinking about it. And so it will be a reallocation of resources and sales investment, marketing investment, as well as R&D.
Todd Coupland -- Analyst
OK. And my second question has to do with hospitality and retail. Are these two separate and distinct businesses in terms of R&D and sales? And are they run independently? Just give us a little color on that. Thanks a lot.
JD Saint-Martin -- President
They are separate platforms from a technology standpoint. Obviously, there's a shared platform of financial services. And in terms of sales teams, I mean, there's a lot of common practices, and we're using -- and there's some joint shared global marketing resources. But yes, they are separate efforts.
Todd Coupland -- Analyst
Thank you.
JD Saint-Martin -- President
Thanks.
Operator
Your next question comes from the line of Richard Tse with National Bank Financial. Please go ahead.
Richard Tse -- Analyst
Yes. When you talk about future products, what do you see as the product that would be in most demand by your broad-based or you can sort of split it up by retail versus hospitality? I'm just curious what's -- kind of what's next there?
JD Saint-Martin -- President
Yes. At retail, we're going to just continue to build out our competitive moat, complex inventory management, especially in the verticals where we are looking to double down in North America retail. There's a lot of specialty verticals where we're excellent, but we could continue to close the gap with some of the legacy platforms that have been out there for 30-plus years that are super specialized in, let's say, vertical like jewelry. And so that's part of the focus, managing multiple locations -- multiple physical locations, of course, for retail.
On the restaurant side, modules like the upcoming Kitchen Display module, where you create better communication within the facility as well as more things to do with managing workforce and other ways to communicate with customers and have online ordering, etc.
Richard Tse -- Analyst
OK. And then when it comes to sort of brand-new merchant wins, what's the mix coming from competitors versus kind of brand-new sort of shops that are opening up? I'm guessing the majority of it is from legacy, but just sort of curious has that mix changed over time?
JD Saint-Martin -- President
Yeah. Good question. I mean on -- from a new customer perspective, it's about a 60 or a 50-50 split between new businesses that are forming versus existing businesses that are effectively switching from an existing solution. And if you double-click on existing businesses that are switching, it's again about a 50-50 split between businesses that are outgrowing, let's say, more basic modern solutions versus merchants that are on legacy solutions and are looking for something that's modern, cloud-based with modern hardware and modern functionality.
Richard Tse -- Analyst
OK. Thank you.
Operator
Your next question comes from the line of Kevin Krishnaratne with Scotia. Please go ahead.
Kevin Krishnaratne -- Scotiabank -- Analyst
Hi, there. Good morning. Just a couple of questions. First, again on competition, maybe the European hospitality market.
There are some competitors that are moving into that market as well. So I'm just wondering if you can talk about what you're seeing there and remind us just on the competitive landscape there. And just remind us, is the goal there still mainly to take share from the non-cloud POS providers?
JD Saint-Martin -- President
Yes. Thank you for your question. Maybe for context, we've been in Europe for over a decade, right? So we've been in that market for a long time. And that's allowed us to really build a unique moat, particularly around fiscalization, around specific integrations that are required in local markets, tender methods that are specific to specific countries where we operate.
And when we say Europe, it's really for us four core regions: The British Isles, DACH region, so Germany, Austria, the Benelux and the French-speaking regions, so France and Switzerland. And there, we're a very strong competitor, a very strong solution in those markets. If you compare us to the competition, it's a very fragmented market. In each of those regions, it's a different competitive set.
A lot of legacy players, to your point, a lot of sub-scale players that have been around for a long time, but are much smaller in size and scale and capabilities and so we really see an opportunity for us to continue to be the default player and really the -- ultimately the strongest player in Continental Europe and as well the British Isles.
Kevin Krishnaratne -- Scotiabank -- Analyst
OK. Got it. I appreciate that, Dax. Maybe a second question for Asha, I don't know if you touched on it, but did you talk about what you're seeing same-store sales trends in the Q2 and then sort of what you're seeing right now.
And just remind us, if you've lapped some of those bigger pressures and certain verticals that seem to be pretty strong over the past -- or seem to be coming off of tough comps in the past couple of years. Just can you comment on same-store sales trends? Anything you can add?
Asha Bakshani -- Chief Financial Officer
Yeah. Thanks for the question, Kevin. From a same-store sales trend perspective, what we're seeing is quite different by geography and vertical. If we talk about North America retail, we are still seeing decline in some of the verticals where we do well, such as bike and home and garden.
However, the good news for us is that that rate of decline is easing. And we're actually quite close to coming back to growth in these verticals and when we start seeing growth in these verticals that should be a really nice tailwind for Lightspeed. Outside of that, when we look at customers that we've signed in the last couple of years, and particular on our flagships, we're actually seeing nice middle-digit growth -- middle single-digit same-store sales growth. And that's very encouraging, because what it tells us is for the customers that we're targeting in these demographics that we're targeting them, in particular North America retail and EMEA hospitality, not only are we seeing strong GTV and new customer adds in the 25-plus range, we're also seeing same-store sales grow, which is going to bode very well for us when they become a bigger part of our customer base in the next year.
Kevin Krishnaratne -- Scotiabank -- Analyst
Got it. That's good to hear. Thanks. I'll pass the line.
Operator
As there are no further questions at this time, I would like to turn the conference back over to Gus Papageorgiou, for any closing remarks.
Gus Papageorgiou -- Head of Investor Relations
OK. Thanks, everyone, for joining us today. We will be around, if you have any further questions. We look forward to speaking to you on our next conference call.
Have a great day, everyone.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Gus Papageorgiou -- Head of Investor Relations
Dax Dasilva -- Founder and Chief Executive Officer
Asha Bakshani -- Chief Financial Officer
Daniel Perlin -- Analyst
Dan Perlin -- Analyst
Andrew Bauch -- Analyst
JD Saint-Martin -- President
Trevor Williams -- Analyst
Josh Baer -- Analyst
Thanos Moschopoulos -- Analyst
Dominic Ball -- Redburn Atlantic -- Analyst
Timothy Chiodo -- Analyst
Todd Coupland -- Analyst
Richard Tse -- Analyst
Kevin Krishnaratne -- Scotiabank -- Analyst
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