Lightspeed Commerce Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
February 6, 2025
Skip to Participants
Operator

Thank you for standing by. My name is Gail and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed Speed Third Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I will now turn the call over to Gus Papagioliou, Head of Investor Relations. Please go ahead.

Gus Papageorgiou
Gus Papageorgiou
Head, Investor Relations at Lightspeed Commerce

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal Q3 twenty twenty five conference call. Joining me today are Dax DaSilva, Lightspeed's Founder and CEO Asha Bakshani, our CFO and JD Sammartin, our President. After prepared remarks from Dax and Asha, we will open it up for your questions. Before I provide some important information and disclaimers, please note that there will be a slide presentation that accompanies the initial portion of Dax's comments this morning.

Gus Papageorgiou
Gus Papageorgiou
Head, Investor Relations at Lightspeed Commerce

You can find the link to the webcast on our IR site. 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 third quarter fiscal twenty twenty five results presentation available on our website as well as in our filings with U.

Gus Papageorgiou
Gus Papageorgiou
Head, Investor Relations at Lightspeed Commerce

S. And Canadian securities regulators. Also, our commentary today will include adjusted financial measures, which are non IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on SEDAR Plus and on the SEC's EDGAR system.

Gus Papageorgiou
Gus Papageorgiou
Head, Investor Relations at Lightspeed Commerce

Note that because we report in U. S. Dollars, all amounts discussed today are in U. S. Dollars unless otherwise indicated.

Gus Papageorgiou
Gus Papageorgiou
Head, Investor Relations at Lightspeed Commerce

With that, I now turn the call over to Dax.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Thank you, Gus, and welcome, everyone. This month will mark my one year anniversary of returning as Lightspeed's CEO, and I'm very proud of the team's achievements during this time. We've accelerated software growth, dramatically improved payments adoption, established a solid foundation for profitability, maintained a very strong balance sheet, accelerated our innovation and focused the business on the areas where we have a proven right to win. Since our last earnings call in November, we've been very active across our portfolio, particularly in our key markets of retail in North America and hospitality in Europe. We've delivered yet another strong quarter, achieving 17% year over year revenue growth in line with our previously established outlook and adjusted EBITDA ahead of our previously established outlook.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

At the same time, I'm also aware that many of you are keen to learn more about our strategic review process, and I'm very pleased to provide you with an

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

update on that today.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

As you recall, we initiated a comprehensive strategic review of our business and operations to define the best path towards maximizing shareholder value and helping the company realize its full potential. The review included an in-depth evaluation of our portfolio, including market attractiveness, competitive dynamics and our right to win. This resulted in our conclusion to double our focus on growth in retail in North America and hospitality in Europe going forward, as well as to embark on a focused transformation plan, which we've started executing. As part of this review, we also evaluated the best ownership structures to navigate Lightspeed through this transformation. We received strong engagement from multiple participants over the last several months.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

After this review, our Board of Directors, a committee of independent directors and our executive management team unanimously concluded that executing on our full transformation plan as a public company offers the best path to maximize value for the company and its shareholders. I want to take the opportunity today to share a few highlights from our strategy and the company wide transformation program we launched before going into our quarterly results. First of all, as mentioned earlier, we are doubling down on two key markets retail in North America and hospitality in Europe. Retail in North America is a leading growth engine. Our strategic focus is to expand locations and increase software and payments ARPU.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

We've built a strong track record with merchants that face operational complexities in their day to day business. Our market leadership spends many of our focus verticals, which positions us to capture a much larger share of a thriving market where we are well equipped to succeed. As examples, in the sports and outdoor vertical, we've pioneered the software that bike stores use to run their retail and service operations. And for golf course operators, our offering is a clear market leader in North America. With our integrated supplier network, LifeSeed Retail is uniquely positioned to save our customers considerable time and resources while providing a key differentiator in fashion, apparel and footwear.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Hospitality in Europe is another leading growth engine. Our market leadership is bolstered by local presence across major geographies such as Germany, U. K, France, Switzerland and Benelux. We enable our customers to comply with a broad range of fiscalization rules, a key differentiator for the LightSpeed software offering. We've recently rolled out tableside, our handheld POS and our kitchen display system and are already seeing strong merchant adoption.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Just as with retail in North America, our strategy centers on expanding locations and driving software and payments ARPU growth.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Lightspeed has a set of

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

other strong assets across the globe that show immense potential to drive profitability for our company. With best in class account management and top tier customer support, our remaining markets will maximize profitability for the whole business, resulting in meaningful growth in adjusted EBITDA. To support doubling down on our two leading growth engines, we aligned our organizational structure to our new legacy strategy with a reorganization last December and plan to use these savings to hire in growth markets. Initiatives across pricing, packaging and cost optimization are showing results and have freed up resources to invest into our leading growth engines. From a go to market perspective, we continue to roll out our new sales motion designed to drive growth by focusing on targeted outbound strategies and sales efficiency.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Across retail in North America, we are optimizing outbound marketing, deepening supplier integration and focused verticals and deploying AI driven customer acquisition, all to accelerate location growth. In hospitality in Europe, we are scaling field sales teams and local marketing to support growing lead volume. Moving forward, we are prioritizing product and technology investments in our two leading growth engines. For retail in North America, we are responding to the needs of our focus verticals by delivering enhanced capabilities across inventory management, forecasting and insights, online channels and supplier network integration. In hospitality in Europe, we are optimizing front and back of house operations, including mobile reporting, enhanced guest experience, insights and analytics and payroll solutions.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

We've continued to grow the company since announcing the strategic review, having launched several new key initiatives, which have already made significant impact on our results, such as our software revenue growth of 9% year over year, the highest in the last nine quarters, and raising our adjusted EBITDA outlook for this fiscal year to over $53,000,000 more than 30% higher than the initial outlook of a minimum of $40,000,000 at the start of the fiscal year. We continue to accelerate toward positive free cash flow and plan to allocate capital strategically to achieve desired returns. As part of this, I'm announcing a share repurchase program to return up to 400,000,000 in cash to shareholders. We intend to immediately execute on all the remaining capacity of our current share repurchase authorization, approximately $100,000,000 at yesterday's closing share price, plus an additional $300,000,000 under a further authorization, in each case subject to market conditions. I'm also excited to announce that our Capital Markets Day will be held on March 26, where our management team will provide you with a comprehensive update on our transformation strategy, operational and financial impact, products, go to market efforts and provide a long term financial outlook.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

As Founder, CEO and third largest shareholder, I've never been more excited about LightSeed's future. Now on to some of the specific quarterly highlights. As mentioned earlier, revenue grew 17% year over year to approximately $280,000,000 This was driven by year over year software revenue growth of 9%. Additionally, we increased payments penetration across our base of merchants from 29% to 38% as compared to the same quarter last year. We also delivered quarterly adjusted EBITDA of $16,600,000 ahead of our previously established outlook of $14,000,000 Underpinning our transformation is a core focus on growing locations and increasing ARPU, specifically software.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

For retail in North America, our outbound go to market motion and investment in sales rep coverage are already yielding wins and helping conversions. I'll mention a few examples in our focus verticals. We signed Soccer Master and Epoxy Depot, both of which are multi location merchants with a need for omni channel capabilities. IGB merchants continue to choose Lightspeed over other solutions given our differentiated ability to handle complex inventory management needs and our ability to support omnichannel in a multi location environment. In our supplier network, we renewed contracts with three of the largest North American department stores.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

We also signed multiple new brands, including Caspari, Annin Bing and ASW Group, which is a distributor for Tommy Hilfiger and Calvin Klein. In golf, we signed the legendary St. Andrew's Links Trust, the home of The Open. On the product and technology front, I'll highlight how recently introduced software offerings are already contributing to our software revenue growth as well as some of the newer releases this quarter. The Retail Insights module, which we launched last quarter, is already contributing to our software growth and is enabling merchants to improve their gross margins by a 16% reduction in out of stock days for popular items.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Lightspeed Scanner gives sales associates the power to close sales on the move, improving the customer experience and eliminating the friction of in store lineups. Lightspeed also made significant advances in its supplier network, adding over 1,000,000 new items across key verticals like home and garden, golf and pet, enabling automatic POS integration and saving retailers valuable time. Additionally, real time supplier inventory visibility now allows retailers to check stock levels before ordering, eliminating supply chain uncertainty and improving efficiency. Lastly, we are uniquely positioned in the market with our supplier network and see tremendous potential of enabling payments for B2B sales. Brands can now accept payments from retailers in many other countries in addition to The U.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

S. And Canada where this is already available, and we have dedicated resources focused on its expansion across our supplier network. Moving to hospitality in Europe, our other leading growth engine, we are also building an outbound sales motion by strategically investing in field sales rep coverage across the key markets and cities in Europe. These efforts are starting to gain traction, and I'll share some highlights. We signed the three Michelin star restaurants, AM Par Alexandre, Mazieres en Marseille and Chefdag, a chain of Belgium based restaurants with seven locations.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

In the hotel adjacent restaurant space, we signed Hotel de Beaune, a five star luxury hotel in the heart of Burgundy. We continue to see excellent product market fit for Lightspeed with full service restaurants across our markets in Europe. And our key focus here is to accelerate growth with new investments in our go to market capabilities. On the products and technology front, our software ARPU growth reached 11% this quarter, driven in part by customer adoption of new software modules that help them manage and grow their businesses. As mentioned before, we launched our new kitchen display system, which seamlessly connects front of house and back of house operations, allowing restaurants to run more smoothly even during peak hours.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Customer adoption has been strong for this new offering. Additionally, we introduced LightSpeed Pulse, providing real time access to essential operating metrics from a mobile device. Restaurateurs and managers can now view sales, daily order averages and even see live orders by location from anywhere. Finally, we launched instant payouts for eligible hospitality customers in select markets, offering access to cash within thirty minutes of a transaction even on weekends. Reflecting on this quarter, we delivered against several key priorities.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Software and revenue growth accelerated payments penetration is nearing our end of year target legacy capital revenues more than doubled year to date and our adjusted EBITDA performance is well ahead of our initial outlook from the beginning of the fiscal year. As we look into next year and beyond, my goal is to drive software growth by increasing our ICP location count through efficient go to market investments and expanding our software offering through innovation. I'm looking forward to our Capital Markets Day in March to provide a more comprehensive update on those. I will now let Asha take us through the quarterly results and provide our outlook.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Thanks, Jack, and welcome, everyone. I'm very pleased with Lifespeed's results in the third quarter. Our strong performance, coupled with prudent cost management, has resulted in positive adjusted EBITDA for the sixth consecutive quarter and coming in ahead of our previously established outlook. In addition, as Zack highlighted, our refocus on software revenue growth is starting to gain traction with software revenue growing 9% year over year. As part of the transformation we launched, we are making targeted investments in both go to market and product development to fuel this growth, while also continuing to maintain a very healthy balance sheet.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Thanks to our dedication towards profitable growth, we're raising our adjusted EBITDA outlook for the fiscal year to over $53,000,000 which is over 30% higher than the initial outlook of a minimum of $40,000,000 at the start of the fiscal year. I will now walk you through the details of our quarterly performance and key metrics starting with our revenues and then close with our outlook for the remaining fiscal year. Total revenues increased 17% due to our growing software ARPU and unified payments efforts despite impacts from weakening foreign currency. Software revenue grew 9% year over year to $88,100,000 supported by recent product releases as well as increased pricing on software plans. GCV from our flagships for the quarter grew 23% year over year, indicating strong success in attracting our target customers.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

However, same store sales in retail remain challenged across many verticals, although the rate of decline is easing. Overall GTV in the quarter, including non flagship offerings, increased approximately 2% to $23,500,000,000 Sophisticated customer locations with GTV exceeding $500,000 and $1,000,000 continue to increase as a proportion of our customer mix, while those with GTV under $200,000 continue to decline. With our focus on retail in North America and hospitality in Europe and the expanded outbound sales team in these regions, we expect to see an inflection point for growth in our ICP customers in fiscal twenty twenty six. In the quarter, GPV as a percentage of GTV was 38%, up slightly from the previous quarter. The GPV mix in the quarter shifted away from verticals with higher payment penetration rates such as golf, which was largely a result of seasonality.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

We expect to end the year with GPV representing between 40% to 45% of GTV. Transaction based revenue grew 23% to $181,700,000 In the quarter, we saw GPV increase 34% year over year to 8,800,000,000 as we processed a greater portion of our GTV through our Lightspeed Payments platform. Lightspeed capital revenue grew to $10,200,000 almost doubling from $5,200,000 in Q3 of last year as the program continues to be popular with our customers. Lifespeed Capital offers fast access to capital and automatic repayment through Lifespeed Payments. Merchants are leveraging this offering to finance inventory, upgrade equipment and expand their overall business.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Across payments and software, our total ARPU for the quarter, excluding Ecwid customers, reached a record $533 an impressive 19% increase year over year. This improvement is a result of both unified payments as well as an 11% increase in software ARPU. Software ARPU is improving thanks to our focus on flagship product and shifting our customer base towards higher GTV locations, which typically adopt more software modules. Turning to gross profit, we delivered 14% year over year growth. Total gross margin was 41%, flat with the previous quarter and down only slightly year over year.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Despite transaction based revenues increasing from 62% of the sales mix in Q3 last year to 65% this year, we were able to maintain our gross margin at comparable levels through effective spend management and the growth in higher margin revenue from items such as capital. On the software side, I'm also incredibly pleased with our strong gross margins, which increased to 79 from 76% in the same quarter last year, reflecting our concentrated effort to manage costs. Excluding share based compensation expense, gross margin on software revenue was 80%. Gross margins for transaction based revenue were 28%, up slightly from the previous quarter and include gross margins from our capital program, which continues to deliver healthy margins of over 90%. As we convert customers to Lightspeed Payments, we increase our overall net gross profit dollars.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Adjusted EBITDA in the quarter came in positive at $16,600,000 and over 350% improvement from adjusted EBITDA of $3,600,000 in the same quarter last year, driven partially by early successes from our transformation plan. Total adjusted research and development, sales and marketing and general and administrative expenses in the quarter increased by 1% compared to the same quarter last year. As part of our continued push to drive profitable growth, we are driving cost reductions in many areas and reallocating savings to our growth engines. We continue to actively manage our share based compensation and related payroll taxes, which at $13,600,000 or 5% of revenue for the quarter were down from $23,600,000 or 10% in the same quarter last year. The decrease was partially a result of forfeitures due to the restructuring.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

For the quarter, we had an adjusted income of $18,500,000 compared to $11,800,000 last year, largely as a result of the improvement in the items driving our adjusted EBITDA performance. In terms of our balance sheet, Lifespeed closed the quarter with approximately $662,000,000 in cash and cash equivalents, up from approximately $659,000,000 in the previous quarter. The increase was driven primarily by improved adjusted EBITDA performance as well as an increase in merchant cash advances collected due to seasonality. Adjusted free cash flow used in the quarter was approximately $500,000 As Daph announced in his opening remarks, we are announcing a share repurchase program to return up to $400,000,000 in cash to shareholders. We intend to immediately execute on all the remaining capacity of our current share repurchase authorization, approximately $100,000,000 at yesterday's closing share price, plus an additional $300,000,000 under a further authorization, in each case subject to market conditions.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

In addition, we are forecasting meaningful improvement in our adjusted EBITDA performance in our next fiscal year driven by the execution of our transformation plan. Now turning to our outlook for this fiscal year. Lightspeed is encouraged by its performance to date with strong revenue growth and adjusted EBITDA that is on track to surpass the outlook provided last quarter. We're particularly pleased with the success of our packaging and pricing initiatives and the velocity of popular software module launches contributing to our software growth. In the near term, we are contending with two revenue headwinds.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

First, the strengthening U. S. Dollar is putting downward pressure on non U. S. Dollar denominated revenue.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Second, LightSeed's December restructuring impacted go to market position with savings being reinvested in hiring for North American retail and European hospitality. It will take time to ramp up new hires and we expect benefits to materialize in fiscal twenty twenty six. Finally, note the company's fiscal fourth quarter is seasonally the weakest for GTV performance. Based on our achievements to date and with the transformation plan in place, Lifesys' outlook for the fiscal year is as follows: We expect revenue growth for fiscal twenty twenty five to be approximately 20%. We are raising our adjusted EBITDA expectations for the fiscal year to over $53,000,000 This quarter's results are proof that our strategic pivot to focus on growth in our leading market and on efficiency everywhere else is working.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

I look forward to this momentum continuing into fiscal twenty twenty six. With that, I will hand the call back to the operator.

Operator

Okay. So your first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Dan Perlin
Dan Perlin
Managing Director at RBC Capital Markets

Thanks. Good morning. I was just going to start off maybe with a broader based question of Dax, if you can maybe just talk about why the sale process was maybe not the right choice at this time. I certainly understand the outline that you gave for the go forward, but I'm just wondering why the sale process maybe just didn't fit or failed. And then in terms of the strategy that you just laid out, are there things that it sounds very similar to the transformation that you had already laid out.

Dan Perlin
Dan Perlin
Managing Director at RBC Capital Markets

I'm just wondering in those non growth markets, are you going to be able to maybe accelerate the closures of those non core locations or markets? Because it sounds like a continuation of what you've done and you just think that the sale completed. So anything around that would

Dan Perlin
Dan Perlin
Managing Director at RBC Capital Markets

be really helpful. Thank you.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Yes. Thanks for the question. So yes, it's all about the transformation plan, right? We started the strategic review by evaluating our portfolio and really looking at market attractiveness, competitive dynamics and our right to win. And we did preview, I think, our focus on North American retail and European hospitality on our last earnings call.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

And so, we've built out more of the planning and we're going into fiscal twenty twenty six with a rock solid plan for execution. As part of the strategic review, we ran a process to determine what is the best corporate structure for execution of the transformation plan. And the strategic review accomplished exactly what it was designed to do, which was to answer that question. What's the best way for us to maximize shareholder value? And we didn't have a presupposed outcome that we were leading towards the sale.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

We wanted to know what were the options available, what were the different alternatives. But the object is how can we best execute the transformation plan and drive the most value. And after assessing multiple options, we concluded with our Board that continuing as a public company offers the best path to maximizing value. We did receive strong engagement, so the five month process and we had extensive discussions with several participants. But our focus now that we've resolved to this question of corporate structure is really executing on a transformation plan

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

and doubling down

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

on the lead growth engines. In regards to the efficiency market or all of the businesses where we aren't focused on them being a growth engine, what we're going to be doing is we're going to be maintaining those customers. Those are great customers for Lightspeed. They've contributed to the growing EBITDA picture that you're seeing quarter after quarter as we've raised guidance on EBITDA. And it's an important part of our business, but we're not investing in the same kinds of things as we are for our two growth engines.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

We're not doing the outbound. We're not doing the marketing spend. We've actually reallocated headcount and marketing spend from those markets to the growth market so that we can double down and we can see accelerated progress on location count and software revenue, which we actually showed a little we showed some progress on software revenue this quarter because of that focus.

Dan Perlin
Dan Perlin
Managing Director at RBC Capital Markets

Yes. That was great to see. Thank you for that. And then just a quick, I guess, second question to Asha. Any way to just help us with kind of the crossover period expected in 2026 where, obviously the restructuring pulls in the go to market motion a little bit and then you have to put new people out.

Dan Perlin
Dan Perlin
Managing Director at RBC Capital Markets

So I'm just trying to figure out like how long it takes to get salespeople fully productive to a level that's going to prove impactful to numbers and maybe where that crossover period might look in 2026? Thank you both.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes. Thanks for the question, Dan. So we're going to give detailed guidance on fiscal twenty twenty six on our next earnings call. You'll get a nice preview at our Capital Markets Day next month. Typically, our sales outbound sales folks take about six months to ramp up before we start seeing their impact in the financials.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And as you know, we had a reorganization early December and we are reallocating resources to our growth markets of North America retail and EMEA hospitality. So what I will say is that we do expect EBITDA meaningful EBITDA expansion given the portfolio mix. And on the sales side, we do expect to see increase in ICP location count and software continuing the momentum that you've seen started in Q3. We expect to see that continuing quite nicely in fiscal twenty twenty six.

Dan Perlin
Dan Perlin
Managing Director at RBC Capital Markets

Great. Thank you.

Operator

Your next question comes from the line of Andrew Baugh with Wells Fargo Securities. Please go ahead.

Andrew Bauch
Andrew Bauch
Director - Equity Research at Wells Fargo

Hey, good morning and thanks for taking the question. Just wanted to hone in on payments penetration real quick. The pace that you had over the last couple of years where you're pushing payments pretty aggressively, you're picking up payment penetration roughly 3% sequentially each quarter and now it's kind of stalled. I hear you that you're still pointing to that 40% to 45%. Should we expect the low end of that range?

Andrew Bauch
Andrew Bauch
Director - Equity Research at Wells Fargo

Because it would seem that the high end of that range would be a pretty sizable step up and what are the variables around this?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Thanks for the question, Andrew. We are pleased with the pace of payment penetration when you look at our progress. We increased GPV 34% year over year and we had a 900 basis point increase year over year from Q3 to Q3. You're right on the quarter to quarter, it was closer to 1%, but that's really just the result of seasonality. What we're seeing is now that more and more of our total GTV is penetrated, we're approaching 40%, you're going to see the impact of the seasonality on the underlying portfolios each quarter.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And that's really all the Q3 penetration number is about. In particular, golf is a very highly penetrated vertical for Lightspeed and Q3 is a seasonally slow quarter for golf. And so you're seeing the impact of that. We're still confident in the 40% to 45% exiting the year. It could be closer to 40% maybe even the mid range of that guide.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

But based on what we're seeing so far, we're quite confident we'll exit the year in that range.

Andrew Bauch
Andrew Bauch
Director - Equity Research at Wells Fargo

That's good to hear. And maybe we can get a refresh on your views of the competitive environment and how your current strategy kind of layers up against that. We've had a lot of the different competitors in the marketplace either moving from online to point of sale and vice versa or entering different verticals. So in your conversations with new locations and merchants, where do you think that Lightspeed continues to differentiate the most? And then a quick just like housekeeping note, could you size up the FX headwinds you're calling out?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Yes. I'll take the first part of the question. This is JD. From a competitive landscape perspective, it really highlights the strategy that Dax pointed out earlier. Our solution, our flagships are really, really strong in Noam retail and EMEA hospitality.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

In Noam retail specifically, we are the market leader for industries that have high SKU density, deep inventory management needs and that's really where our solution shines. And now particularly adding the supplier network to the mix, it's really putting ourselves in a position where we can really win in the fortress verticals where we're focused on. And then similarly in hospitality, as you know, we've been in Europe for over a decade now with our solution. We have tremendous product market fit and also very strong go to market fit. And there are two, we're a market leader in Continental Europe.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

And so we want

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

to accelerate

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

that growth in those two areas.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

From an FX perspective, we did you did see in the results that that was a headwind for us, both in the quarter we just reported and in the upcoming quarter. Lightspeed has significant international operations and so strengthening U. S. Dollar does put downward pressure on our overall top line. Ultimately though, we do still believe that we'll hit the guidance range that we provided at the beginning of the year.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And so it was a headwind, but despite that headwind, we're pleased with our results.

Andrew Bauch
Andrew Bauch
Director - Equity Research at Wells Fargo

All right. Thank you.

Operator

Your next question comes from the line of Raimo Lenschow with Barclays. Please go ahead.

Raimo Lenschow
Raimo Lenschow
Analyst at Barclays Capital

Perfect. Thank you. Can we hone in on the software performance one more time? Please, if you look at the good progression there and good reacceleration, can you talk a little bit about what you're seeing like in terms like obviously price held, so but so maybe like help us understand like price, but also what are you seeing kind of in terms of early signs in terms of re engaging with the customers there and how pipeline building is working on that part because that was kind

Raimo Lenschow
Raimo Lenschow
Analyst at Barclays Capital

of one of the highlights for the quarter? Thank you.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Yes. Thank you for the question. JD here. We're really pleased with our progress on software revenue. As you know, this has been a focus of the company and moving up to 9% growth year over year in Q3 is a strong sign and we expect that trend will continue in the future.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

As far as the why behind these strong results, ultimately, we're in this position thanks to the innovation that we're bringing to the market and to our customers. We've had a lot of modules that have been delivered by our product team in the last quarters in hospitality, KDS, our tableside devices are very well received by our customers. On the retail side, our new insights module as well as our ability to transform our scanner app into a mobile POS. That's a very strong value proposition. And so you see that impact our ARPU.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

You see our ability also with our outbound focus to target larger customers, which means larger deals and ultimately larger size of softer revenue. And then lastly, as you've heard from us in a previous quarter, we rolled out some price adjustments on the front book but also on the back book. And given the value and the innovation that we're providing our customers, we're in an ideal position to look at pricing and in some cases reprice some courts of customers that were on old pricing. And we've also had our account management team, which has been particularly focused on our payments offering and unifying our payment offering in the past quarters come back to selling and upselling software and retention. So all of these dynamics are coming through and that's why you're seeing that progress from Q2 to Q3 and you can expect that progress to continue next quarter and next fiscal year, of course.

Raimo Lenschow
Raimo Lenschow
Analyst at Barclays Capital

Okay, perfect. Thank you. And then

Raimo Lenschow
Raimo Lenschow
Analyst at Barclays Capital

one follow-up for Asha. On the share repurchase, like it was great to see here, like I saw the first one hundred million dollars maybe more aggressive. Like how do you think about the cadence there and how you kind of go about kind of finding the right kind of point in time to kind of go more aggressive or less aggressive on

Raimo Lenschow
Raimo Lenschow
Analyst at Barclays Capital

the share buybacks? Thank you.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes, sure. So as you mentioned, we do have $100,000,000 outstanding on the share repurchase we launched earlier this fiscal year, and we intend to start executing on that immediately. You'll hear an update on that at our Capital Markets Day next month as well. You're right, our board has authorized repurchase of an additional $300,000,000 And so we do plan to in fiscal twenty twenty six continue on the share repurchase. I mean, ultimately, we have high confidence in our plan and we do want to return meaningful capital to our shareholders.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

So you should expect to see us executing on that and through fiscal twenty twenty six as well.

Raimo Lenschow
Raimo Lenschow
Analyst at Barclays Capital

Okay, perfect. Thank you.

Operator

Your next question comes from the line of Trevor Williams with Jefferies. Please go ahead.

Trevor Williams
Managing Director at Jefferies LLC

Focused on outbound sales. Any context you can give us just on how big the outbound sales force is today? And it sounds like there's still some more hiring you're planning on doing. So just how long do you think it takes to get you to the right steady state size with the outbound sales force to kind of fully go after the two focus markets?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Yes. Thank you for your question. J. D. Here.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

We're really pleased with our progress on outbound, and it's a corner stone of our strategy going forward as Dax highlighted. If you look at the quarter, it's again a record setting quarter for that motion. November particularly was a record month. Overall across our quota carrying team, nineteen percent of our reps are focused on this outbound motion. We expect that number to climb to about 25% by the end of this fiscal year as you heard.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

We made some adjustments in January rightsizing the size of our team in the areas of the business that are more focused on efficiency so that we can invest in growth. And a portion of that investment is going into increasing our mix of outbound reps relative to our overall quota carrying team. And we intend to continue to do that next year as well, adding more to that motion. And the reason why we have strong confidence in that motion ultimately is our ability to really target our ICP or target customer via outbound is very successful. And also if you look at our unit economics, our payback, we're really, really pleased with what we're seeing.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

So expect to see that mix continue to trend upward and ultimately that will pay dividends as far as profitability, as far as market share. And we also see a halo a positive halo effect on our two other customer acquisition motions inbound and partnerships as a result of our efforts in outbound. So all in all, very pleased with the progress.

Trevor Williams
Managing Director at Jefferies LLC

Okay,

Trevor Williams
Managing Director at Jefferies LLC

great. And Asha, could you unpack just and I know it was slight, but just where the uptick in GTV growth came from this quarter? It sounds like there was maybe some smaller same store sales pressure in some of the retail verticals. But just with all the moving pieces around the transformation, I heard you guys say you expect ICP location growth to accelerate next year out of that. But how should we think of the mechanics and how that flows through GTV in kind of the nearer term?

Trevor Williams
Managing Director at Jefferies LLC

Thanks.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes, sure. Thanks for the question, Trevor. So if I start with GTV growth for Q3, I mean, that's really coming from retail. When you look at retail, although some of the verticals still remain depressed, what you heard from us in the prepared remarks is that rate of decline is easing, right? And that is helping the overall GTV growth.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And Q3 is our best quarter for retail. And so you're seeing GTV growth there as well. In addition, JD talked a little bit about our flagships, but our flagships are bigger and bigger part of our overall portfolio really approaching 50%. And the GTV growth on our flagships was over 20%. And so as the flagships, which is where we're attracting the right customers and majority of that is in the growth portfolio.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

So as that mix grows, you should start to see that reflected in the overall GTV growth for the company as well.

Operator

Your next question comes from the line of Josh Bair with Morgan Stanley. Please go ahead.

Joshua Baer
Joshua Baer
Analyst at Morgan Stanley

Great. Thank you for the question. Wanted to clarify with this shift in strategy and the focus on North America retail and rest of world hospitality. How should we think about your prior focus on the larger GTV merchants? Like I'm wondering if this new focus is opening up to smaller complex SMB merchants that fit into these target markets now?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Thank you for the question, JD here. It goes hand in hand with our focus on higher GTV customers. Again, as a reminder, that definition is customers doing north of 500 ks in annual turnover per location. If you think about it, another way to frame it is to look at our progress with our flagship products. Our flagship products are, really, dominating in Noam retail and EMEA hospitality.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

And there you can see that we've made some serious progress on location count. We're up 25% year over year. GTV, our flagship is up 23% year over year. And our focus there with those products from a product market fit and go to market fit perspective is really targeting those more complex SMBs doing north to pharma k and GTV, complex inventory management on the retail side, table side, restaurants on the hospitality side. So, all in all, this is flowing nicely with our strategy of going into those regions and focusing on high GTV customers.

Joshua Baer
Joshua Baer
Analyst at Morgan Stanley

Okay, great. That's helpful. I was hoping you could just give a little bit of transparency into how much of your business, of your revenue is coming from the over 500,000 GTV North America retail, rest of the world hospitality group, the new focus, and what that mix is and what the growth is of that business? Thank you.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes. Hey, Josh. So in the growth verticals, Nehaime Retail and EMEA Hospitality, the majority of our revenue is already in that portfolio, say approximately 70% and the majority of our growth as well. And so this strategic pivot was quite natural. What we did was having recognized that the highest growth is coming from this portfolio, we're just reallocating resources from the efficiency portfolio, which is essentially the rest of the world portfolio and doubling down in resources on both product and go to market in this growth portfolio.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

But today that portfolio is about 70% of our revenues already.

Joshua Baer
Joshua Baer
Analyst at Morgan Stanley

Okay, got it. Thank you.

Operator

Your next question comes from the line of Thanos Moskopoulos with BMO Capital Markets. Please go ahead.

Thanos Moschopoulos
Thanos Moschopoulos
Managing Director - Equity Research at BMO Capital Markets

Hi, good morning. I guess firstly for Asha, can you remind us regarding timing of the price increases? Was Q3 sort of a partial quarter of price increases and mostly the full benefit in Q4?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Hey Thanos, yes, thanks for the question. We Q3 is still going to be a partial quarter even though three out of the four waves of price increases that we're executing this year is behind us. But it's really in Q4 and actually even in Q1 of F26 when you're going to see the full impact because we do have one more wave coming out in Q4. So Q1 F twenty six is when you really see the full impact of all the price increases.

Thanos Moschopoulos
Thanos Moschopoulos
Managing Director - Equity Research at BMO Capital Markets

Great. And if you look at your two core markets, North American retail and European hospitality, is there anything you've called out as far as, I guess, the growth prospects of those businesses over the upcoming year? So when you look at some of the metrics under the hood, be it your LTV to CAC, be it serviceable TAM, just near term growth, term rates, all that kind of stuff, like any key differences you call out in those two segments as we think about fiscal twenty twenty six?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes. We'll get into we'll unpack a lot of that in our Investor Day next month Thanos. But ultimately, we have a proven right to win in these growth markets. And that was really the catalyst behind our decision to focus and double down on growth there. Our LTV to CAC ratios are highest in those markets because of the competitive moat that we have in retail, NOAM and hospitality in Europe, in particular in our fortress verticals.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

From a revenue opportunityTAM perspective, I mean, there's an $80,000,000,000 revenue opportunity when we look at the North America region hospitality and verticals. And so lots of room to grow there. And given that we have the highest right to win in those markets, the LTV to CAC there far outweighs the LTV to CAC in the rest of the world. So our return on every dollar invested is highest there. So that really made the most sense for us.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

So this pivot actually changes the financial profile of the company quite nicely and we will unpack a lot of that at our Capital Markets Day.

Thanos Moschopoulos
Thanos Moschopoulos
Managing Director - Equity Research at BMO Capital Markets

Great. I'll pass the line. Thank you.

Operator

Your next question comes from the line of Dominic Ball with Redburn Atlantic. Please go ahead.

Dominic Ball
VP - Equity Research at Redburn Atlantic

Hey, Dax, Asha, Gautam, JD. Thank you for the question. I think one to start with for Dax. I mean, in The U. S.

Dominic Ball
VP - Equity Research at Redburn Atlantic

Retail space, there's a lot of rapid change going on, like it's selling everywhere through multiple in store channels, multiple online channels. Can you give us any color on the way Lightspeed is helping its merchant in these regards and then the nature of competition? And just for the second question, in terms of the transformation plans, you mentioned transformation initiatives to free up capital for investment in growth areas. Does this sort of mean that you'd be looking to divest any part of your business outside of the retail and hospitality vertical?

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

I'll take the first question, Ash. We'll take the second. So in regards to Lightspeed Retail, we serve that medium and high complexity retailer. This is a portion of SMBs, the portion that actually transaction has the highest transaction volume. They're more at scale.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

They have more complexity of the business and they need essentially a light ERP. So they're not at the scale where they need enterprise software, but they need a substantial system that's going to manage all elements of operations, inventory across multiple locations. And in 2025, they also need to be able to manage inventory across multiple physical and online channels, in addition to integrating with many different kinds of online services and potentially ERP accounting systems on the back end. And so we are tailoring both our software and our service model, our go to market model and our support model to their needs. Like I said, they're medium to high complexity SMBs.

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

They're not quite enterprise customers. And so we're a perfect fit for answering what they need at that level of complexity. And I think that the benefit to Lightspeed is that they drive a lot of transaction volume. There's less churn. And so for us, the economics are very favorable.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Hey, Dominic. From a divestiture perspective, Amina, I'll start by saying that return on capital or capital allocation, these are always top of mind for us as we evaluate all our options. And that's why you see the increased share repurchase that we announced today. So from a divestiture perspective, while there are no immediate plans for any divestitures, we do remain focused on maximizing value and overall capital efficiency. And so we continue to assess any opportunities that would align with this strategy.

Dominic Ball
VP - Equity Research at Redburn Atlantic

Thank you.

Operator

Your next question comes from the line of Tianjin Wang with JPMorgan. Please go ahead.

Tien-tsin Huang
Tien-tsin Huang
Senior Analyst at JP Morgan

Thank you so much. On the software side, the growth of 9% given the focus on raising locations, is it fair to assume that this 9% is a 4% and you're targeting double digit growth ahead? Not sure if we could assume a dip from here, but it feels like this is a floor. Is that reasonable?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes. Hey, Tien Tsin. I think that's the right way to look at it. I think overall, we're expecting the strategic pivot will definitely accelerate growth in our growth markets and overall in the company. And so we're looking at that 9% as a floor as well.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

In F twenty six, we actually do expect double digit growth in subscription software. And so, yes, we're looking forward to that. I think that's the right way to look at it.

Tien-tsin Huang
Tien-tsin Huang
Senior Analyst at JP Morgan

Okay, great. And I understand the share repurchase, but looking ahead now that you know what your focus on identity will be, does M and A come back into the equation again for Lightspeed to build out capabilities? I think I heard Dax you mentioned payroll, for example. Just curious what you're thinking is on the acquisition front?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes, yes, I'll take that one. We have no intention on large strategic M and A at this time, Tien Tsin, but we remain opportunistic. And like you heard from Dax on payroll, if we see tuck in acquisitions that really further our mode or accelerate our roadmaps or actually provide any immediate software uplift through modules, then, yes, that would be something we would look at. We're always the dialogue with our customers is always open. And so we're always looking for how do we accelerate roadmap to put functionality in the hands of our customers that they're seeking.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And so if we were to find tuck ins like that, we would definitely be open to it.

Tien-tsin Huang
Tien-tsin Huang
Senior Analyst at JP Morgan

Thank you,

Operator

Your next question comes from the line of Timothy Keyodo with UBS. Please go ahead.

Timothy Chiodo
Timothy Chiodo
Managing Director at UBS Group

Great. Thank you for taking the question. Given the focus on the retail in North America, you mentioned the right to win there. I was hoping you could dig in a little bit on the competitive environment there and any updates there. Just noting that Shopify's retail point of sale globally, that's now approaching roughly $35,000,000,000 or so in volumes, so starting to scale.

Timothy Chiodo
Timothy Chiodo
Managing Director at UBS Group

And then this past fall, Clover released some new SaaS packages, including those for retail verticals. So I was just hoping you could provide a little bit of color on Lightspeed's retail differentiation versus those and or any other broader competitive environment updates?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Yes. Thank you for the question, Judy here. Some of the names that you mentioned there, ultimately their strategy is to be broad and shallow. And our difference at Lightspeed is that we go deep in specific verticals. We call them Fortress verticals internally, where our solution really differentiates relative to the competitive landscape.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

So in sports and outdoors, bike, golf, in apparel and footwear, in home and garden, in vape and smoke. These are categories where really our solution has the depth that these retailers are looking for, particularly around inventory management. That's a very strong moat for us and now coupled with our supplier network again, a strong differentiator. And so there, what you see from competitive landscape are more legacy solutions that have been around for a long time or subscale players that are focused on those verticals. And really, ultimately, for us, we see an opportunity to consolidate a lot of market share in those areas and continue to grow at a healthy pace.

Timothy Chiodo
Timothy Chiodo
Managing Director at UBS Group

Thank you.

Operator

Your next question comes from the line of Todd Copeland with CIBC. Please go ahead.

Todd Coupland
Managing Director at CIBC World Markets

Great. Thanks and good morning everyone. Excuse me. I had a follow-up on the strategic review. I know you talked about high levels of engagement, but are you able to disclose whether there were any offers for the company?

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

Yes, we're not going into the details of the process, fortunately. But yes, we had strong engagement and we did have extensive discussions with several participants in the process. I mean, ultimately, we determined and concluded that the best way to drive maximum shareholder value was to continue as a public company and execute our transformation plan in that context.

Todd Coupland
Managing Director at CIBC World Markets

Great.

Todd Coupland
Managing Director at CIBC World Markets

Thank you. And then on the buyback, I'm not sure of the exact structure. Is it a just a plain buyback? Or have you contemplated other options such as substantial issuer bids? Just give us a little color on that.

Todd Coupland
Managing Director at CIBC World Markets

Thanks very much.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Hey, Todd. Thanks for the question. For the $100,000,000 that we plan to start executing on immediately, that's under the NCIB, the normal course issuer bid that we filed in this fiscal year. And then for the additional authorization, we are looking at all our options. We do plan to return capital in this upcoming fiscal year as well in addition to the $100,000,000 but you'll hear more from us on the structure at our Investor Day next month.

Todd Coupland
Managing Director at CIBC World Markets

Great. Appreciate that color. Thank you.

Operator

And of Richard Che with National Bank Financial. Please go ahead.

Richard Tse
Richard Tse
Managing Director & Technology Analyst at National Bank

Yes. Just quickly on new order and the supplier network. Can you talk about how that's scaling and is the sort of B2B payments the way of monetizing that? Or do you have another sort of monetization plan for it?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Thank you for the question. I mean, there are multiple ways you can really see how our supplier network is materializing. First and foremost, as you pointed out, our wholesale platform, New Order, continues to make really solid progress. We announced some customers that were closed in the quarter. As a reminder, brands amazing brands like Arc'teryx, Toms, Ted Baker are using that platform.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Second, as you know, we've connected effectively our new order wholesale platform with our point of sale. And so at the point of sale level now, you can actually see the inventory of your suppliers, which is really a unique proposition that no one is able to offer. And we're really pleased with the progress there. We've seen over 2,000 POS customers connecting to the supplier network and that number is growing significantly. And then lastly, if you think of how we're monetizing this offering, you're really seeing it in our close rates.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Our close rates have increased significantly in the verticals where we have strong coverage with our supplier network. An example of that is in the Pet segment where we released our wholesale supplier catalog. We've seen close rates go up by 40%, which is really encouraging. And also, we're leveraging that as a cornerstone for our outbound motion. We're reaching out to retailers that are carrying those brands in their store and highlighting the value proposition of using our point of sale to connect to those brands in a seamless way.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

And here too, you can see the progress from a bookings perspective. Our outbound motion in retail is up 266% year over year, which is really encouraging. So all in all, those different vectors are contributing to the monetization and you see now the impact on our overall revenue for our retail category.

Richard Tse
Richard Tse
Managing Director & Technology Analyst at National Bank

Okay. And my other question has to do with sort of competition as well. So when you look at the mix of your sort of new customer growth, what proportion is that from kind of new companies that are starting out versus competitive displacements?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

Yes. I mean, typically, what you see is about a third of the customers we win are coming from legacy providers, existing businesses that are using legacy solutions. The other third typically come from businesses that are outgrowing the more basic cloud based solutions out there, some names that were mentioned earlier, they realize that with their growth, with their ambition, they can continue with those players and they need something more robust and with more functionality and that's where Lightspeed shines. And then lastly, about a third remaining are brand new businesses that are non suitably equipped with an existing solution.

Richard Tse
Richard Tse
Managing Director & Technology Analyst at National Bank

Okay. Thank you.

Operator

Your next question comes from the line of Martin Toner with ATB Capital Markets. Please go ahead.

Martin Toner
Managing Director - Institutional Research, Growth & Innovation at ATB Capital Markets

Thanks very much for taking my question. Can you talk about the drivers of gross margin compression

Martin Toner
Managing Director - Institutional Research, Growth & Innovation at ATB Capital Markets

in the payment segment?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes, absolutely. Thanks for the question, Martin. From a payments gross margin, what puts downward pressure on gross margin are two things in particular. The first one is residuals. Residuals come in at 100% gross margin.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Just as a reminder, residuals is before we had our own payment solution, we would refer customers to an integrated payment provider and we would get residuals on that revenue stream. That was recognized net in our books. And now as these non solicit run out, we're taking those cohorts of customers and putting them on to Lightspeed Payments. So that is the biggest driver of the compression that you're seeing on gross margin. But overall gross profit dollars increases when we do that.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And so it's an overall net positive to Lightspeed, but you will see compression on gross margin as a result of that motion. We're quite pleased with the fact that despite payments becoming such a big part of our overall revenue portfolio, we've been able to keep overall gross margins in the 40% to 45% range. And that's because of a couple of things. One is international expansion. So payments internationally carries a higher gross margin over 30% as compared to North America, which is in the 20%, twenty five % range.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

And in addition to that, we have some pretty high gross margin items such as capital and instant payout in our financial services offerings. These streams come in at over 90% gross margins. And so as we're growing those businesses, which are growing at a healthy clip, that is helping our overall gross margin remain in that 40% to 45% range.

Martin Toner
Managing Director - Institutional Research, Growth & Innovation at ATB Capital Markets

That's great. Thank you very much. Is there an opportunity to consolidate support by end of life being the some of the legacy acquired brands? And, like is it material and what type of where are you guys in terms of taking a look at that?

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

I mean, I think it's we've provided commentary on a couple of instances at this stage on our legacy products. At the end of the day, these are products that are driving a lot of EBITDA for us. These are great customers that for the most part are happy to stay on that platform. And so we don't intend to sunset those platforms entirely. We're encouraging some of these customers to move to our flagships because they see expanded features, expanded functionality, but we're not forced migrating those customers.

Jean-David Saint-Martin
Jean-David Saint-Martin
President at Lightspeed Commerce

And so what you can expect from us is over time, of course, those platforms are will have less and less of our base and then you'll continue to see our flagship products take on more share of our overall base. As of next year, we're expecting that across about 50% of our overall locations being on our flagships. But we're not forced migrating

Dax Dasilva
Dax Dasilva
Founder, CEO & Director at Lightspeed Commerce

these legacy products. And ultimately support costs are low and R and D costs are low for these products. So that helps them contribute to profitability for the company.

Martin Toner
Managing Director - Institutional Research, Growth & Innovation at ATB Capital Markets

Perfect. Thank you very much. That's all for me.

Operator

Your last question comes from the line of Daniel Chen with TD Cowen. Please go ahead.

Daniel Chan
VP & Director - Equity Research at TD Securities

Hi, Hi, good morning. Thanks for squeezing me in. Asha, you talked about some of the mix and seasonality in your GTV affecting the payments penetration rate. Can you remind us how that seasonality changes in Q1 to give you confidence around the end of year payments penetration target? Just thought golf would continue to be soft into your Q4 quarter as well.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Yes. Thanks a lot for the question, Dan. If I give you just sort of the sequencing of what happens to GTV throughout the year, I think you'll get a nice idea. This quarter, as you know, our fiscal Q4 is the seasonally weakest quarter for GTV and we see that across retail as well as hospitality. As you move into Q1, you actually do see that GTV improving for both retail and hospitality.

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

Q2, which is our fiscal Q2, which is the summer is a very high seasonal quarter for hospitality. That's where everyone is dining out and in particular European hospitality were very strong. And then in Q3, the GTV typically remains very strong because it's a very high GTV quarter for retail given the holiday shopping season as well. So with Q4 being the seasonally slowest quarter, Q1 where we see a nice growth and then Q2 and Q3 being our strongest GTV quarters, that's how you should look at it.

Daniel Chan
VP & Director - Equity Research at TD Securities

Okay. Thank you. And then on the increased fiscal twenty twenty five EBITDA guide, if I back into the Q4 EBITDA margin, it seems to indicate a sequential decline in the EBITDA margin. Any reason to expect that EBITDA to compress from the strength you saw this quarter?

Asha Bakshani
Asha Bakshani
Chief Financial Officer at Lightspeed Commerce

No, actually. When we we could talk about that in the one on one, but the sequential EBITDA margin, it stays the same and it actually improves a little bit when you think about overall adjusted EBITDA and the revenue for the quarter. And so you've seen us raise the EBITDA guide every quarter this year. The $53,000,000 or the over $53,000,000 that we just guided for the year is about 30% higher than the guide at the initial start of the year. So we're pretty pleased with EBITDA progression and we expect that EBITDA margin to improve each quarter from here on.

Daniel Chan
VP & Director - Equity Research at TD Securities

Sounds good. Thank you.

Operator

And that concludes our Q and A session for today. I will now turn the call over back to Gus Papageriu, Head of Investor Relations. Please go ahead.

Gus Papageorgiou
Gus Papageorgiou
Head, Investor Relations at Lightspeed Commerce

Thanks, Gail. Thanks, everyone, for joining us today. If anyone has any follow-up questions, we'll be around all day and we look forward to seeing everybody at the New York Stock Exchange on March 26 for our Capital Markets Day. Have a great day, everyone.

Operator

And that concludes ladies and gentlemen, that concludes our call for today. Thank you all for joining. You may now disconnect.

Trevor Williams
Managing Director at Jefferies LLC

Thanks.

Operator

Have a nice day everyone.

Remove Ads
Analysts
Powered by Quartr
Earnings Conference Call
Lightspeed Commerce Q3 2025
00:00 / 00:00

Transcript Sections

Remove Ads