Lightspeed Commerce Inc. Price & Performance (LSPD)

Welcome to Lightspeed's fiscal Q3 twenty twenty five conference call. Joining me today are Dax Dacilla, Lightspeed's Founder and CEO Asha Bachchani, our CFO and Lightspeed. D. Semortain, 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 there will be a slide presentation that accompanies the initial portion of Dax's comments this morning. You can find the link to the webcast on our IR site. We will make forward looking statements on our call today 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. S. And Canadian securities regulators. Also, our commentary today will include adjusted financial measures which are non IFRS measures and ratios.

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 is available on our website on SEDAR plus and on the SEC's EDGAR system. That because we report in U. S. Dollars, all amounts discussed today are in U. S. Dollars unless With that, I now turn the call over to Dax. Thank you, guys, 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. [indiscernible] 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, have been very active across our portfolio. Particularly in our key markets with 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. 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 update on that today.

As you recall, we initiated a comprehensive strategic review of our business and operations to define the best path towards maximizing shareholder value 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 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. After this review, we our Board of Directors a committee of independent directors 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 the company wide transformation program we launched. Before pointing 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 payments ARPU. We've built a strong track record with merchants that face operational complexities in their day to day business. Our market leadership spans many of our focused 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, Lifesize Retail is uniquely positioned to save our customers considerable time and resources while providing a key differentiator in fashion, apparel and footwear. Hospitality in Europe is another leading growth engine. Our market leadership is bolstered by local presence across major geographies such as Germany, [indiscernible] France, Switzerland and Benelux.

We enable our customers to comply with a broad range of fiscalization rules a key differentiator for the LightCube software offering. We've recently rolled out Tableside, our handheld POS, and our kitchen display system and are already seeing strong merchant adoption. Just as with retail in North America, strategy centers on expanding locations and driving software and payments ARPU growth. Like Zena has a set of other strong assets across the globe 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, plan to use these savings to higher end growth markets. [indiscernible] Initiatives across pricing, packaging and cost optimization are showing results. And have freed up resources to invest into our leading road engines.

From a go to market perspective, we can designed to drive growth by focusing on targeted outbound strategies and sales efficiency. 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 local marketing, to support growing lead volume. Moving forward, we are prioritizing product and technology investments in our two leading growth engines, retail in North America, we are responding to the needs of our focused 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. We've continued to grow the company since announcing the strategic review. Having launched several EU key initiatives, which have already made significant impact on our results, the highest in the last nine quarters and raising our adjusted EBITDA outlook 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. 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 our 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, [indiscernible] 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. As Founder, CEO and third largest shareholder, I've never been more excited about Nightcene's future. [indiscernible] Now on to some of the specific quarterly highlights. [indiscernible] mentioned earlier, approximately two eighty million 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. For retail in North America, our outbound go to market motion and investment sales rep coverage are already yielding wins and healthy conversions. I'll mention a few examples in our focus verticals. We signed SoccerMaster and Epoxy Depot. Both of which are multi location merchants with a need for omnichannel capabilities. High-tech e commerce continues to choose LiteSpeed over other solutions given our differentiated ability to handle complex inventory management needs, and our ability to support omni channel in a multilocation environment, In our supplier network, we renewed contracts with three of the largest North American department stores, We also signed multiple new brands including Caspari, Anen Bing and ASW Group which is a distributor for Tommy Hilfiger and Calvin Klein. In golf, we signed the legendary St. Andrews 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 [indiscernible] 16% reduction in out of stock days for popular items.

LightKey Scanner gives sales associates the power to close sales on the move improving the customer experience and eliminating the friction of in store lineups. Lightseed 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. 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 restaurant AM, Par Alexander, Mazzilla in Marseille and Chef Dag, chain of Belgian Maize restaurants with seven locations. In the hotel adjacent restaurant space, we signed Hotel de Bons, a five star luxury hotel in the heart of Burgundy. We continue to see excellent product market fit for light Speed 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. Customer adoption has been strong for this new offering.

Additionally, we introduced Lacey 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 [indiscernible] 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. Software and revenue growth accelerated, Payments penetration is nearing our end of year targets. Legacy Capital revenues more than doubled year to date and our adjusted EBITDA performance is well ahead of our initial outlook the beginning of the fiscal year. As we look into next year and beyond, my goal is to drive software growth by increasing our IT location count through efficient go to market investment and expanding our software offering through innovation. Looking forward to our capital markets day in March, to provide a more comprehensive update I will now let Asha take us through the quarterly results and provide our outlook.

Thanks, Zach, and welcome, everyone. I'm very pleased with LifeCe'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.

Addition, as Dex highlighted, we our refocus on software revenue growth is starting to gain traction. With software revenue growing 9% 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. 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. [indiscernible] 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 indicating strong success in attracting our target customers. 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 million dollars continued to increase as the proportion of our customer mix while those with GTV under 200,000 continued to decline. With our focus on retail in North America and hospitality in Europe, and the expanded outbound sales team in these regions, [indiscernible] 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. 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 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. And automatic repayment through Lightspeed Payment Merchants are leveraging this offering to finance inventory, upgrade equipment and expand their overall business.

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 Total gross margin was 41%, flat with the previous quarter and down only slightly year over year. 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 On the software side, I'm also incredibly pleased with our strong gross margins. Which increased to 79% from 76% 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 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. Adjusted EBITDA in the quarter came in positive at $16,600,000 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. [indiscernible] 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 our growth engine. We continue to actively manage our share based compensation and related payroll taxes. 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. For the quarter, we had an adjusted income of $18,500,000 compared to $11,800,000 last largely as a result of the improvement in the items driving our adjusted EBITDA performance. In terms of our balance sheet, Lightwave 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 Daphne 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 plus an additional $300,000,000 under a further authorization. In each case, subject to market conditions. 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 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. First, the strengthening U. S. Dollar is putting downward pressure on non U. S. Dollar denominated revenue.

Second, Life Sciences' 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 Seasonally, the weakest for GTV performance and with the transformation plan in place, LifeCy's outlook for the fiscal year is as follows: We expect revenue growth for fiscal twenty twenty five 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 markets and on efficiency everywhere else is working. Look forward to this momentum continuing into fiscal twenty twenty six With that, I will hand the call back to the operator. Okay. So your first question comes from the line of Dan Perlin. With RBC Capital Markets. Please go ahead.

Thanks. Good morning. I was just going to start off maybe with a broader base 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 transfer already laid out 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 at the sale completed. So anything around that would be really helpful. You.

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 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. And so 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 that we were leading towards the sale, 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 it's a 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 and doubling down on the lead growth engines. In regards to the efficiency market or all of the businesses where 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 tooth growth engines. We're not doing the outbound. We're not doing the marketing spend. We've actually reallocated headcount and marketing spend to from that from that 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 this quarter because of that focus. [indiscernible] That was great to see.

Thank you for that. And then just a quick, I guess second question to ASHA.

Where obviously the restructuring pulls in the go to market motion a little bit and then you have to put new people out I'm just trying to figure out like how long it takes to get salespeople fully productive to a level that's going to going to prove impactful to numbers and maybe where that crossover period might look in 2026. You, both. Yes. Thanks for the question, Dan.

So we're going to give detailed guidance on fiscal 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. 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.

Great. Thank you.

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

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 taking up payment penetration roughly 3% sequentially each quarter. Now it's kind of stalled. I hear you that that you're still pointing to that 40 to 45. Should we expect the low end of that range 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?

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 a 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. And and that's really all the Q3 penetration number is about, in particular, golf. 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. Could be closer to 40%, maybe even the mid range of that guide. But based on what we're seeing so far, we're quite confident we'll exit the year in that range.

That's good to hear. And maybe we can get a refresh on your views 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 your conversations with new locations and merchants, where do you think that Lotte's be continues to differentiate the most? And then a quick just like housekeeping note, could you size up the FX headwinds you're calling out?

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. 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 and also very strong go to market fit. And there are two too, we're a market leader in Continental Europe. And so we want accelerate that growth in those two areas.

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 in 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. And so it was a headwind, but despite that headwind, we're pleased their results All right. Thank you.

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

Perfect. Thank you. We hone in on the software performance one more time? Please, the 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 of like obviously price held, 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 reengaging with the customers there and how pipeline building is working on that part because that was kind of one of the highlights for the quarter? Thank you.

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. As far as 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 table side devices are very well received by our customers on the retail side or 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. You see our ability also with our outbound focus to target larger customers, which means larger deals. And ultimately larger size of software 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 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 in the past quarter has 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.

Okay, perfect. Thank you. And then one follow-up for Asha. On the the share repurchase, like, it was pretty great to see here, like like and I saw the first 100,000,000 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 share buybacks?

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 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. So So you should expect to see us executing on that through fiscal twenty twenty six as well. Okay, perfect. Thank you.

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

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 Yes. Thank you for your question. JD here. We're really pleased with our progress on outbound, and it's a cornerstone of our strategy going forward as Dax highlighted.

If you look at the quarter is again a record setting quarter for that motion. November particularly was a record month. Overall, across our quota carrying team, 19% 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 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 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, our 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. 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 of 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. Okay, great. Thanks. And Ashok, 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 just 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?

Yes, sure. Thanks for the question, Trevor. As 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 the 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. 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 a bigger and bigger part of our overall portfolio, really approaching 50% and the GTV growth on our flagships was over 20%. So as the flagships, which is where we're attracting the right customers and majority of that is in the growth portfolio. So as that mix grows, you should start to see that reflected in the overall GTV growth for the company as well. Your next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.

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?

Thank you for the question, J. D. Here. It goes hand in hand with our focus on on higher GTV customers. Again, as a reminder, that definition is customers doing [indiscernible] in annual turnover per location If you think about it, another way to frame it is to look at our progress with flagship products. Our flagship products are really dominating in noam or retail and EMEA hospitality.

And there you can see that we've made some serious progress on location count. We're up 25% year over year at 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 perspective is really targeting those more complex SMBs doing North Star MK 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 IGTV customers.

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

Yes. Hey, Josh. So in the growth verticals, no, I'm retail, 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. But today, that portfolio is about 70 of our revenues already.

Okay, got it. Thank you.

Your next question comes from the line of Spanish Moskovoulos with BMO Capital Hi, good morning.

I guess firstly for Ashia, can you remind us regarding the timing of the price increases Was Q3 sort of a partial quarter of price increases and we'll see the full benefit in in Q4.

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.

Great. And if you look at your two core markets, North American retail and European hospitality, there anything you'd call 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 difference you call out in those two segments as we think about fiscal twenty twenty six?

Yes. We'll get into we'll unpack a lot of that in our Investor Day next month, Anos. But ultimately, we have a proven right to win in these growth 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, no harm and hospitality in Europe. In particular in our fortress verticals. From a revenue opportunity TAM perspective, I mean, there's an $80,000,000,000 revenue opportunity [indiscernible] 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. 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.

Great.

I'll pass the line. Thank you. Your next question comes from the line of Dominique Ball with Redburn Atlantic.

Please go ahead. Hey, Dax. Asha, Gautam, JD. Thank you for the question. I think one to start with for Dax. I mean, in The U. S. Retail space, There's a lot of rapid change going on, when you come to Southern everywhere through multiple in store channels, multiple online channels. Can you give us any color on the way lights Speed 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 that's outside of the retail and hospitality vertical?

I'll take the first question. Ash will take the second. So in regards to Lightspeed Retail, we serve that medium and high complexity retailer This is a proportion of SMBs, the portion that actually transact and the highest transaction volume, they were more at scale. 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 in 2025, they also need to be able to manage inventory across multiple physical and online channels, in addition to integrating many different kinds of online services and potentially ERP accounting systems on the back end.

And so that we are tailoring our 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. They're not quite enterprise customers. And so we're a perfect fit for for answering what they need at that level of complex [indiscernible] Hey, Dominic. From a divestiture perspective, I mean, 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 increase 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. Thank you. Your next question comes from the line of Tianjin Wang with JPMorgan. Please go ahead.

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 could assume a dip from here, but it feels like this is a four.

Is that reasonable?

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 [indiscernible] floor as well. In F26, we actually do expect double digit growth. In subscription software. And so yes, we're looking forward to that. I think that's way to look at it.

Okay, great. And I understand 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 light Speed 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? Yes, yes, I'll take that one.

We have no intention on large strategic M and A at this time, Tien Tsin, but remain opportunistic. And like you heard from Dax on payroll, if we see tuck in acquisitions that really further our moats or accelerate our roadmaps or actually provide any immediate software uplift through modules, then, yes, that would 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 roadmaps to put functionality in the hands of our customers that they're seeking. And so if we were to find tech ins like that, we would definitely be open to it.

Your next question comes from the line of Timothy Chiodo with UBS. Great. Thank you for taking the question. Given the focus on the retail and North America, you mentioned the right to win there. Just 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 And then this past fall, Clover released some new SaaS packages, including those for retail verticals. So just hoping you could provide a little bit of color on Lightspeed's retail differentiation versus those and or any other broader competitive environment Yes. Thank you for the question, J. D. Here. 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 and specific verticals. We call them fortress verticals internally. Where our solution really differentiates relative to the competitive landscape. So in Sports and Outdoors, bike, golf, 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 [indiscernible] 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 consolidate a lot of market share in those in those areas and continue to grow at a healthy pace.

Thank you.

Your next question comes from the line of Budd Copeland with CIBC.

Great. Thanks and good morning everyone. Excuse me. I had a follow-up on Mr. I know you talked about high levels of engagement, but are you able to disclose whether there were any offers for the company? We're not going into the details of the process, unfortunately, 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 transformation plan in that context. Great. Thank you. And then on the buyback, 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.

Thanks very much.

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 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.

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

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?

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, the order continues to make really solid progress. We announced some some customers that were closed in the quarter. As a reminder, brands, amazing brands like Arterics, Toms, Ted Baker are using that platform. 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 a 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 [indiscernible] And then lastly, if you think of how we're monetizing this offering, you're really seeing it in close rates 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 as our 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. 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.

Okay. And my other question has to do 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 up versus compared displacements?

Yes.

I mean typically what you see is about a third of the customers we win are coming from legacy providers existing businesses [indiscernible] The other third typically come from businesses that are outgrowing the more basic cloud based solutions out there, some name that were mentioned earlier, they realized that with their growth, with their ambition, they can't 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 not necessarily equipped with an existing solution.

Okay. Thank you.

Your next question comes from the line of Martin Toner With ATB Capital Markets, Thanks very much for taking my question. Can you talk about the drivers of gross margin compression in [indiscernible] Yes, absolutely. Thanks for the question, Martin.

From a payments perspective, 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. Just as a reminder, residuals is before we had our own payment solutions, we we would refer customers to an integrated payment provider and and we would get residuals on that revenue stream. That That would 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 LiteSuite 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. 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%, 25% range.

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.

That's great. Thank you very much.

Is there an opportunity to, consolidate the support by end of life the some of the legacy acquired brands And it gives them material and what type of where are you guys in terms of taking a look at that.

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 are 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. 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 above 50% of our overall locations being on our flagships. But we're not force migrating these legacy products. And ultimately support costs are low and R and D costs [indiscernible] For these products. So that helps them contribute profitability for the company.

Perfect. Thank you very much.

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

Hi, good morning. Thanks for squeezing me in. Ashar, you talked about some of the the mix and seasonality in your GTV effect the payments penetration rate 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.

Yes. Thanks a lot for the question, Don. 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 weakest quarter for GTV and we see that across retail as well as house hospitality. As you move into Q1, you actually do see that GTV improving for both retail and hospitality. 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 in particular, European hospitality, we're very strong. And then in Q3, the GTV typically remains very [indiscernible] 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.

Okay. Thank you. And then on the increase fiscal twenty twenty five EBITDA guide, if I back into the Q4 EBITDA margin, 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?

No, actually. When we we could talk about that in the one on one, but the sequential EBITDA margin stays the same and actually improves a little bit when you think about overall adjusted 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 of the year the initial start of the year. So So we're pretty pleased with EBITDA progression and we expect that EBITDA margin to improve each quarter from here on.

Sounds good. Thank you.

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.

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.

And that concludes ladies and gentlemen, that concludes our call for today. Thank you all for joining. You may now disconnect. Thanks. Have a nice day, everyone.