Lightspeed Commerce Inc (LSPD) 2026 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Lightspeed's third-quarter 2026 earnings call. All lines have (Operator Instructions) I would now like to turn the call over to Gus Papageorgiou, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal Q3 2026 conference call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; and Asha Bakshani, our CFO. After prepared remarks from DAX in Asia, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our third quarter fiscal 2026 results presentation available on our website as well as in our filings with US and Canadian securities regulators.

Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on SEDAR and on the SEC's enter system. Note that because we report in US dollars, all amounts discussed today are in US dollars, unless otherwise indicated.

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

Thank you, Gus, and good morning, everyone. Our Q3 results highlight our disciplined execution against the strategy we presented at Capital Markets Day. We delivered another strong quarter with revenue adjusted for $312 million and adjusted EBITDA of $20.2 million, both exceeding our outlook. Our focus on the two growth engines of retail in North America and hospitality in Europe is driving results.

They account for two-third of our total revenue and generated 21% year-over-year revenue growth in the quarter. At our Capital Markets Day, we set three clear priorities to drive long-term value at Lightspeed. One, growing customer locations in our growth engines; two, expanding subscription ARPU; and three, improving adjusted EBITDA and free cash flow. In Q3, we made solid progress in all fronts.

Location growth reached its fastest pace since our business transformation began. Software revenue and ARPU increased even as we lapped prior price increases, especially within our growth engines and we achieved our second consecutive quarter of positive free cash flow and grew adjusted EBITDA by 22%.

These results demonstrate the effectiveness of our strategy and our ongoing momentum. Let me walk you through our performance against each of these priorities in more detail. Starting with customer locations. Our focus remains on quality growth winning sophisticated high GTV merchants in retail in North America and hospitality in Europe. Customer locations in our growth engines grew 9% year-over-year in Q3 with approximately 2,600 net new locations added in the quarter.

This acceleration is exactly what we would expect at this stage of our go-to-market ramp and sets us up well to achieve our targeted 10% to 15% a three-year customer location CAGR outlined for our growth engines at Capital Markets Day. Overall, total customer locations grew, reaching approximately $148,000 in the quarter.

In retail, we welcome leading global brands like Valmet, Dayan BanBustenburg; and Dickies the Lightspeed wholesale ecosystem. As a reminder, LightSpeed wholesale connects retailers using our LifeSpeedretail POS and brands using our new order by Lightspeed platform. With this integration, retailers can discover an order of 5 million products from over 4,000 brands all in one place.

This is a true differentiator with retailers like Averson, migrating their POS to Lightspeed just so they can benefit from our unified wholesale ordering. We also welcomed Irvine's tack in Western war, one of the largest Western retailers in the world. and value zone with seven locations that was attractive by Lightspeed advanced inventory fears and scanner app.

In European Hospitality, we continue to win high-profile multi-location operators such as Hotel Bell Reive on the French Riviera, Key Dasara and Monaco, Burger vision in Germany with over 20 locations and ambitious expansion plans and Colichi with more than 40 locations across the UK. These wins reinforce our conviction that as merchant complexity grows, Lightspeed's unique value stand out even more.

An expanded outbound sales efforts, increased investment in vertical brand marketing and more effective inbound spending have accelerated location growth, particularly in our growth engines. We have fully hired our team of 150 outbound reps for the year, and we continue to ramp them towards full productivity.

Our outbound motion continues to deliver highly targeted acquisition of our ideal customers with strong unit economics. Turning to software revenue and ARPU. At the company level, software revenue grew 6% year-over-year, reflecting the lapping of prior year pricing actions and expected seasonality effects in parts of our business.

Our growth engines delivered 13% software growth year-over-year, underscoring strong momentum. We continue to drive software ARPU higher through innovative products that empower complex multi-location merchants thrive. We launched Lightspeed AI bringing Agentic AI directly into retail and hospitality workflows.

These AI capabilities go beyond reporting to help merchants identify best sellers optimize inventory decisions and improve kitchen execution in real time. And National Retail Federation's big show we unveiled marketplace. Available in Lightspeed wholesale, retailers can now browse, compare and purchase inventory from multiple brands, all in one place, the next level of wholesale integration that we believe no other cloud POS provider offers.

We also expanded in-store monetization by adding Tap to pay for Android on Lightspeed's scanner and delivered customer-facing displays on Lightspeed and terminals, improving checkout efficiency and transparency. In hospitality, we continue to extend our product leadership in Europe. We launched -- like Tempo, which applies tasting intelligence to service flow.

Turning what has traditionally been an arc into a science by guiding servers through each stage of service. We also introduced Lightspeed reservations, offering independent restaurants and integrated alternative to costly third-party platforms. And Lightspeed tasks which standardizes workflows across locations to improve consistency and execution. Collectively, these releases help drive deeper engagement, higher module attachments and improved win rates with the types of merchants we are actively targeting.

These represent innovation-led growth that reinforces our confidence in the long-term ARPU and gross profit expansion we outlined at Capital Markets Day. Finally, on profitability and free cash flow. In Q3, we delivered $20.2 million in adjusted EBITDA and generated positive free cash flow for the second consecutive quarter.

Positive free cash flow of $15 million in the quarter helped increase our total cash balance by over $31 million since Q1. Importantly, we achieved this profitability while continuing to invest meaningfully in growth scaling our outbound sales organization and increasing product innovation in our growth engines.

The fact that we can do both, invest for growth and expand margins is a direct result of the structural changes we've made over the past year. Adjusted EBITDA reached 15% of gross profit, moving us closer to the 20% long-term target we outlined at Capital Markets Day. This progress reinforces our confidence in the operating model and in our ability to continue expanding adjusted EBITDA and free cash flow as we scale.

I will let Asha take you through the numbers before I make some closing comments.

Thanks, Dax, and welcome, everyone. Like had a strong third quarter. with many of our key financial metrics and KPIs surpassing expectations. We continue to deliver with strength in our growth engines and with disciplined commitment against the financial framework we outlined at Capital Markets Day. Our performance continues to be defined by two key trends.

First and most importantly, we are seeing a tremendous impact from our strategy to focus on our two growth engines: North America Retail and European hospitality. For these two markets, we generated strong year-over-year results. Total revenue increased 21%. Software revenue grew 13%. GTV was up 16%.

Payments penetration was 46%, up from 42% last year, and we added approximately 2,600 net customer locations in the quarter, driving a 9% year-over-year increase in ending location count, the highest rate since we began our business transformation. Combined, our growth engines make up two-third of our total consolidated revenue, and they will continue to represent an increasing portion of revenue, GTV and payments volume.

Second, even with expanding investment in product and go-to-market, the company's total adjusted EBITDA and cash flow metrics continue to improve. We delivered positive free cash flow for the second quarter in a row. Free cash flow of $15 million in the quarter is up from free cash flow use of $0.5 million a year ago, and we expect to generate positive free cash flow for the full fiscal year, a significant milestone for the company.

I will walk you through a detailed look at our financials and then provide our updated outlook. Total revenue grew 11% to $312.3 million, exceeding our outlook driven by an expanding location count, higher software ARPU and increased year-over-year payment penetration. Notably, we achieved 21% revenue growth in North America Retail and European hospitality. As we continue to scale our go-to-market efforts, we expect our total revenue growth to track closer to what we see in our growth engine. Software revenue was $93 million, up 6% year-over-year with software ARPU rising 4% year-over-year.

Software ARPU was helped by our outbound teams attracting larger, more sophisticated merchants as well as the impact of new product releases. As anticipated, software revenue growth moderated sequentially due to lapping last year's pricing. This quarter, we also experienced typical seasonal softness in our golf business and we made a strategic shift to focus on annual contracts.

While annual contracts result in modest upfront discount, they attract higher quality merchants with lower churn and higher lifetime value strengthening our cash flow and subscription base for the long term. We believe this shift is the right trade-off for the long-term durability and health of our subscription base and is already starting to yield results as evidenced in our free cash flow.

Transaction-based revenue was $209.4 million, up 15% year-over-year. GPV grew 19% year-over-year, and capital revenue grew 34% year-over-year. GPV as a percentage of GTV came in at 42%, up from 38% in the same quarter last year. Payments penetration dropped slightly from Q2 due to GTV mix. In Q2, we had very strong seasonal performance from certain verticals that have very high payment penetration rates, such as BiTE and Valle. We expect payment penetration to continue its upward climb over time. Overall, GTV grew by 8% to $25.3 billion and total average GTV per location continues to increase as we sign more higher-value customers.

Same-store sales were up in both retail and hospitality and across all of our main geographies. Total monthly ARPU reached $660 up 11% year-over-year driven by both higher software and payment monetization. ARPU grew across both our growth and efficiency market. With respect to our efficiency markets, our goal is to maintain the revenue base through additional module attachment and expansion of financial services, and we have been successful in doing so. Software and payments revenue from these markets was flat to last year.

There also continues to be a meaningful opportunity to grow payments revenue in these markets as payments penetration is below those of our growth markets. GPV as a percentage of GTV in our efficiency markets increased to 35% in the quarter from 32% in the same quarter last year. With respect to profitability and operating leverage, total gross profit was strong, growing 15% year-over-year outpacing revenue growth of 11% driven by strong top line performance and expanding gross margins in both subscription and transaction-based revenue.

This performance remains consistent with the medium-term framework we outlined at Capital Markets Day, where we targeted a three-year 15% to 18% profit CAGR, driven by customer location growth, ARPU expansion and operating leverage. Total gross margin was 43%, up from 41% last year, even with transaction-based revenue increasing to 67% of total revenue up from 79% a year ago. This was largely driven by increased cost efficiency. Our success over the past few quarters in consolidating our cloud vendors renegotiating better terms, restructuring the organization to take out costs and using AI to reduce the cost of support and service delivery have all contributed to industry-leading software margins.

Gross margins for transaction-based revenue were 31%, up from 28% last year. This improvement reflects increased payment penetration in our international markets where margins exceed those in North America and growth in our capital business. As we convert customers to Lightspeed payment, we increased our overall net gross profit dollars. And in the quarter, we saw a transaction-based gross profit grew by 28% year-over-year. Total adjusted research and development, sales and marketing and general and administrative expenses grew 14% year-over-year.

This is primarily driven by the meaningful investments we are making in field and outbound sales as well as product innovation within our growth engine. Adjusted EBITDA in the quarter came in at $20.2 million increasing 22% from $16.6 million in Q3 last year, driven by continued success from our strategic shift and our focus on AI and automation to accelerate operating efficiency. As a percentage of gross profit, adjusted EBITDA was 15%, approaching the longer-term 20% target we outlined at our Capital Markets Day.

This level of profitability enables us to continue focusing on our growth engines while maintaining strong capital discipline, including funding product innovation, scaling outbound sales and supporting our capital return priorities. I'm very happy to report adjusted free cash flow of $50 million in the quarter. Thanks to our improving adjusted EBITDA, disciplined management and certain favorable working capital movements, we were able to deliver positive free cash flow despite our accelerated outbound strategy and increased investment in R&D.

This quarter, we saw record capital revenue, while at the same time lowering outstanding cash advances from the previous quarter. Our goal is to target a shorter remittance time frame, and we are making great progress towards that end. To date, our typical remittance period for a merchant cash event is approximately seven months. We continue to actively manage our share-based compensation and related payroll taxes, which were $16.5 million for the quarter versus $13.6 million in the prior year quarter. holding constant at approximately 5% of revenue.

With respect to capital allocation and our balance sheet, our balance sheet remains exceptionally healthy. We ended Q3 with approximately $479 million in cash, an increase of approximately $16 million from last quarter. Approximately $200 million remains under our broader board authorization to repurchase up to $400 million in Lightspeed shares, and we continue to be opportunistic in evaluating further share repurchases. Total shares outstanding in the quarter were down by 10% versus the same quarter last year due primarily to the $179 million in shares repurchased and canceled over the last 12-month period.

As a reminder, our normal course issuer bid program that we have used to buy back shares is limited to 10% of our public float for a 12-month period. We've already exhausted our fiscal 2026 buyback program. Subject to TSX approval or approval and market conditions, we intend to renew this buyback program in fiscal 2027. Aside from potential buyback, our largest use of cash will be growing our merchant cash events business. There are currently $106 million in merchant cash advances outstanding, and we intend to continue to grow this high-margin business over time.

With respect to M&A, we remain opportunistic in the evaluation of small tuck-in acquisitions to help accelerate product development, but large-scale acquisitions are not a strategic priority for us. Our balance sheet remains healthy and positions us well as we continue our strategic forward. Now turning to outlook. Our fiscal Q4 outlook reaffirms our confidence in our profitable growth trajectory and is in line with the financial framework we outlined at our Capital Markets Day, balancing disciplined investment behind our growth engines along with continued profitability and cash generation.

There are several factors influencing our fiscal Q4. Fiscal Q4 is typically our lowest GTV quarter and we expect similar seasonal patterns this year. We also continue to lock pricing actions implemented last year and continuing to drive a mix shift towards annual contracts. In addition, as evidenced in our results, our go-to-market and product investments are driving strong sales momentum. Given that strength, we are choosing to pull forward incremental investment into Q4 in areas where demand is outpacing our initial expectations, such as in our retail outbound sales organization.

As a result of our execution to date, we are raising our guidance for revenue, gross profit and adjusted EBITDA as follows: For the fourth quarter, we expect revenue of approximately $280 million to $284 million. Gross profit of approximately $125 million to $127 million and adjusted EBITDA of approximately $15 million. For fiscal 2026 we expect revenue of approximately $1.216 billion to $1.22 billion. Gross profit of approximately $523 to $525 million and adjusted EBITDA of approximately $72 million.

With that, I will turn the call back to Dax.

Thanks, Asha. Before we take your questions, I wanted to take this opportunity to publicly welcome Gabriel benefit as to Lightspeed. In November, we appointed Gabe as our Chief Revenue Officer. Gabe brings two decades of experience scaling global sales organizations. His mission is clear: accelerate our go-to-market performance, add more high-value customers and help expand our software ARPU. I also want to acknowledge JB C Martin, who will be stepping down as President this March.

JD's leadership built the foundation for the transformation we are seeing today. His discipline allowed us to pivot toward profitability and Gabe's appointment now accelerates that trajectory. We are deeply grateful for JD's partnership over the last six years.

And with that, we can take your questions.

(Operator Instructions)

Dan Perlin, RBC Capital Markets.

Thanks. Good morning, everyone. Nice results here. I wanted to ask maybe a broad-based question and then maybe a little specific one. But, at a high level, how would you describe kind of the health of your end markets? I know actually, you said same-store sales, growth across all regions was positive. But maybe if you wouldn't mind a little more detail around the regions and maybe any pockets of surprise, both good and bad, as you think about where those opportunities are today? Thank you.

Thanks, Dan. Thanks for the question. Yes, same-store sales was very healthy in our fiscal Q3. When we look across retail, we saw all of our highly penetrated verticals do very well, positive growth year-over-year. Home & Garden bike, we saw a bit of a deceleration from Q2 to Q3 just because they're -- those are verticals that are very strong in the summer months, but nevertheless, we saw very strong growth in Q3 in all of the retail, given that, that is such a good quarter for the holiday shopping period.

In terms of surprises, I mean, I would just say the one area that helped slightly was FX in the European market. The euro has continued to remain strong into Q3, and that's helped the euro hospital GTV. Outside of that, I would say no other surprises. We're happy with what we're seeing in the macro.

Okay. That's great. I guess if you could maybe just spend a second on the gross margins around really software. They were pretty strong. I should say they're quite strong despite the fact that you had to lap the pricing. I heard kind of the reasons that you gave for the current quarter. I'm just wondering how do we think about sustainability of those levels?

Are there any things -- I know you said some investments that you're going to come in, but I'm just trying to understand how sustainable that is given the fact that you did kind of lap these pricing this quarter, and I'm not sure how much you actually have slated for kind of future quarters going forward? Thank you.

Yeah, sure, I'll take that one as well. We feel pretty good about our gross margins. The improvement in the software line comes from a couple of factors. There's obviously the growth in subscription. But also, we've -- we've done a lot of work on OpEx optimization.

We've done a lot of work on our cloud spend with Google and AWS getting better rates and also more efficient use of those platforms. And then last but not least, we've done some good work on efficiency in our support department deployed.

We've deployed AI in a lot of areas a very high percentage of the frontline support is Chatnow given the different AI tools that we've used. And so we do feel good about that 82%. We feel that over 80% margins on the software line is a sustainable place to be for us.

Dominic Ball, Redburn Partners.

Dominic, you there?

Hi, guys. (inaudible) So great job on locations. I mean just one sort of broader question. Software names have derated quite materially. All concerns around AI disruption. So Dax, could you tell us a little bit about which Lightspeed software capabilities are structurally differentiated is that built on more proprietary Lightspeed payment data?

Yeah Thank you. And I think you've put something out that's important, right? We've got payments data that we're building our Agentic workflows -- our Agentic AI workflows around. There's also very proprietary wholesale data. We're talking a lot more about Lightspeed wholesale, which is -- which includes the new order platform, which is a huge differentiator -- a growing differentiator for us on retail. It's now leading our outbound conversations. So there are things that we are building our Agentic workflows around that are very unique to Lightspeed and how we play.

So yeah, a lot of investment, we rolled out Lightspeed AI this quarter. We had two innovation events, one in a hospital in Paris, one for retail in New York at the big show. National Retail Federation's Big Show and just showing that AI vision. We really believe from a customer perspective, there's always going to be a role in a physical commerce setting for a software/hardware solution that can enable an interaction and that transaction.

But I do believe that these business owners require AI and Agentic-enabled workflows to be able to keep up with the demands on what it takes to have a successful business in retail and hospitality today. So we're very excited about the path forward from a software innovation perspective and an AI perspective and believe that this software is going to be what makes -- the difference that's going to be made for these particular business orders and helping them thrive.

One more thing, our insights in analytics products, as you alluded, the payments data and the wholesale data, it's really driving, of course, all of the Lightspeed AI conversational and the genetic workflows but also all those analytics and insight tools that we have that are on retail and hospitality as well as the benchmark and trend tools that we have. Those are all built on that proprietary data.

Thank you, everyone.

Raimo Lenschow, Barclays.

Thank you. Great progress on the four areas. Congrats from me as well. If you think about the -- on the software side, you obviously have the pricing changes, and that's something that's kind of -- we need to be aware of. Just following on from the earlier question, that growth path, like how should we think about that for you? And you won't say like, actually, you're not going to guide for next year, but like just more conceptually, like has your thinking changed in terms of what growth you can achieve there over the medium term? Thank you.

Yeah, of course. In the quarter, we did lap price increases, which has impacted growth. We had seasonality, of course. We also shifted to annual contracts that's a net positive for the company for a lot of our retail new adds. Getting to 10%, growth engines grew 13%, and that's where we're really focusing a lot of our go-to-market motion and landing new customers there.

That grew at 9%. Growth engines are now two-thirds of our revenue and growing. And we have a lot more modules on these growth engines. As you can see from the software innovation, the Q3 innovation release. We're shipping a lot of new modules and the cross-sell and upsell motions we expect to accelerate on those -- for those products.

Yeah. Okay. Perfect. That's really clear. And then the other things like, obviously, as you said, two-thirds of the business is now the growth engines, one for the other one. How do you think about that maintaining that balance on like what do you do with the last surge in terms of like how that kind of will evolve over time? Because otherwise, you just kind of -- you grow the good part, but when we need to think about the performance of the other part as well to see the overall growth. How do you think about that going forward? Thank you.

Yeah. I think the efficiency portfolio for us has been just a very strong performer. We've been very in line on our targets of beating some internal targets gross profit is up on that portfolio. So I think it's a mix of keeping those customers happy on those platforms, adding value, adding more financial services for those customers through our payments platform, both payments and capital.

And yeah, continuing to serve those customers as we grow the growth portfolio and continue to accelerate so that it can so that -- we are net positive on locations overall for the company. And this quarter, we were. We were up several thousand locations as you combine growth and efficiency.

Perfect. Thank you.

Matt Coad, Truist Securities.

Hey, good morning, guys. Thanks for taking my questions here. I just wanted to go back to the SaaS ARPU again to totally hear you that maybe the front book SRs coming down a little bit as you shift those contracts from monthly to annual. But I kind of wanted to talk about pricing on the back book. I know we're like lapping some pricing changes, but just wanted to kind of like get some high-level commentary on how you're thinking about pricing over time and how we should think about growth for the overall SaaS ARPU over time? Thanks.

Yeah. Thanks for the question, Matt. You're right, that the SaaS ARPU results that you're seeing now is really coming from the lapping of price increases, and it's up 4% for this quarter. When we think about specifically to your question, pricing on the back book, we've done a bunch of that starting in the back half of last year. When we look at -- when we think about the front book, we're actually doing a lot of work on pricing and packaging, and that one is more an evolving motion that we have as we released more and more software modules and Dax talked a little bit about that in the prepared remarks, we continue to evolve our pricing and packaging and working with the back book on moving them to higher tier products or higher-tiered packages.

So I would say on the back book, we've done a big motion there. You'll still see a little bit from us just on pricing in the back book. But for the most part, we're still evolving the pricing and packaging work. And as more and more software modules come to fruition, those pricing and packaging on the front will continue to evolve.

Thanks, Asha. That was super helpful. And then just one quick follow-up. I agree with the other comments so far like location growth surprising to the upside. I was hoping you guys could just unpack the 2.6 wins kind of just around on retail versus European hospitality. And then are we starting to see some of the benefits from some of the distribution reinvestment or is that more of a fiscal year 2027 story?

Yeah. location growth, we're very, very proud of this number. It's an acceleration. We're at 9% location growth that's accelerating up from 7% last quarter, the quarter before 3% all of the year before. So the strategy is really working in the investment in outbound -- outbound remote on retail and outbound field for MEA hospital, clearly successful. I think that those numbers are distributed across fairly evenly across retail and hospitality. What was the second part of your question?

So I just wanted to ask about like are we starting to see an uptick from the distribution investments you made? Or is that still to come kind of as the field -- the sales force season to build?

Yeah. If you're referring to partnerships, I would say that we are seeing some success -- some larger success in partnerships on the EMEA hospital side through distribution deals and are accelerating that motion on the retail side. And that's a big part of Gabriel Benefit, his expertise, as he has started in mid-December and is bring these expertise to bear here.

Very helpful. Thank you.

Josh Baer, Morgan Stanley.

Thanks for the question. Dax, earlier, you talked about some of the proprietary data sets that you have to help sustain your competitive moat, I think when it comes to the topic of AI. I was hoping you could expand and maybe talk a little bit about some of the network effects that you have or the complexity of your vertical sort of end-to-end workflows that you that -- that you offer that not only position Lightspeed well, but also make it hard for new entrants or smaller vendors or in-housing or point solutions or LLMs to kind of take share in the segments of the market that you sit in?

Yeah. I mean, first of all, the payments relationship that we have with customers and the fact that we do the transaction in the physical space is, I think, is in itself a unique moat. But of course, the wholesale ecosystem that we're building with a very powerful flywheel that we've really seen accelerate with our investment in the outbound that's led by the new order conversation. That is a very, very interesting and a growing moat for us, a very big differentiator.

And just to expand on that, we have several thousand brands that use our enterprise new order platform, and we're bringing those brands to independent retailers, the bulk of the Lightspeed user base. And that is a unique wholesale offering that no other comparable cloud POS has.

There's a supply all the way to consumer workflow there that's in comparable and that we're going to be able to do agentive workflows across that because nobody does that spend from consumer to merchant to a wholesale supplier, that we can do something very unique there, and we're starting to deliver that in products like Marketplace, which we just rolled out and Lightspeed AI, which offers some -- the start of AI tools across that whole chain.

So very excited about that. It's very unique in the market, and you're going to see continued acceleration that matches the pace of innovation that you've seen from Lightspeed in the last few years.

That's great. Thanks. And one follow-up on the location ads. Any sense for where that's coming from, just as far as competitive share gains, new stores opening or expansion within your existing base? Thank you.

Primarily brand-new brand well, new locations always represents a good third of all -- of all -- brand-new businesses is about one-third of new locations. The rest are coming from competing systems that are -- one-third is from competing systems that are insufficient and another is from legacy systems. So that's a split of any new location of -- that comes on to the platform, a third brand-new business is a third existing cloud vendors and one-third legacy.

Koji Ikeda, Bank of America.

Yeah, hey guys. Thanks so much for taking the questions here. I wanted to go back to an earlier question on AI and maybe ask it a different way from a customer perspective. And so how are your customers thinking about the pace of adoption of AI products? And when do you think it will become meaningful enough where we could see it driving improving fundamentals for Lightspeed?

Yeah. So we've been rolling out AI-powered tools for a while, starting with tools that help build out e-commerce presence, online presences and then later tools on hospitality like benchmark and trends, which allows -- which takes payments data, takes data, but not just at the store but across other stores, anonymized data in our network. So that's another element of network effect, where the more restaurants that are in a particular city or town in Germany, the more competitive data that we can give the hospitality business in terms of like how our neighbors pricing different menu items and what are the best hours to operate.

So those were early experiments in building out AI-enabled tools and that's driven upsell to larger plans that include those tools. Now with the launch of Lightspeed AI, that's being built into the core platforms and we'll be looking at segmenting that. We have -- as Asha mentioned, we've got pricing and packaging exercises ongoing that include the logic of like how do we offer different levels of AI insights and genetic tooling that will go and do work for these business owners. And that I think is an exciting path forward for the business that allows us to offer new software module value that's really powered by AI.

Got it. Thank you. And for my follow-up, maybe for Asha, on the gross payment volume as a percentage of GTV, you mentioned 42%. I think this is the first quarter that has declined on a quarter-over-quarter basis. And totally (inaudible) the reason for this quarter, but I wanted to think about this metric in the future. Is it -- could we expect maybe some more variability in this percentage of GMV going -- or GTV going forward because of strong penetration or seasonal aspects of this? I just wanted to understand that a little bit more.

Yeah. Thanks for the question, Koji. Payments penetration, we should always look at that as the opportunity in front of us. So what's left to monetize. Looking at it quarter-to-quarter, to your point, is difficult because of the seasonal trends. But we're super confident in this penetration continuing to climb over time.

So to your point, you'll see seasonal trends like we saw Q2 bike and Home & Garden were very strong, moderated slightly in Q3.And just payments on our front book, and we're continuing to go back to the back book as customers come up to their one-, two-, three-year renewals with their existing payment providers, then we move them over to Lightspeed. So definitely confident that, that will continue to climb over time.

Makes sense. Thank you.

Andrew Harte, BTIG.

Thanks for the question. Asha on the 4Q guidance, I know you've called out kind of some of the puts and takes, not getting the pricing benefit anymore. But is there anything else you'd call out when we think about the 12% gross profit guidance compared to 15% in the third quarter. Maybe related to that last question a bit on what the assumption is for GTV and payments penetration in the fourth quarter? Thanks.

Yeah. Thanks for the question, Andrew. Our Q4 guide really just reflects the seasonality that we typically see in our fiscal Q4, January to March -- the January to March quarter people just don't spend as much both on retail and in hospitality. And that's not light speed specific, that's industry-wide. And so we typically see overall GTV in our business drop by anywhere from 15% to 20% if you look at fiscal Q4 or last year, you'll see the same dynamics. Outside of that, there's nothing else that's contemplated in the guide. I mean when we think about our execution and the fundamentals of the business are account continued strength in our team's execution.

Thanks. And then with Gabe and the door now, I would love to kind of hear what the early conversations with him are like. It sounds like the go-to-market engines really improving and there are some of the investments that are getting pulled forward. So how should we think about go-to-market, especially as we start thinking about our 2027 numbers?

Yeah. I think lightens traditionally been very, very strong inbound and that continues to be a strength. We continue to be able to optimize that funnel and get more of the SMB and mid-market merchants into that funnel. And -- but I think it's the outbalance that we've really made the big investments in both our field. We're interested in really getting more productivity as we ramp those reps.

And in addition to that, from a mid- to long-term perspective, we feel like we can really grow the partnerships business, building on early successes in retail with partners like -- NetSuite and other ERP vendors that are excited to use Lightspeed in multi-location settings.

And be the ERP on the back end. And of course, we have a lot of great partnerships are driving the hospitality business and distribution deals there as well. So that, I think that his expertise is really going to accelerate all of those initiatives in areas where light speeds were like -- Lightspeed has a lot of opportunity ahead.

Thanks.

John Shao, TD Cowen.

Good morning. Thanks for taking my questions. For Lightspeed AI my understanding is there are going to be more advanced features to be added like catalog assistant and store generators, could you first remind us the timeline for those additional features? And maybe also talk about any margin implication because I can imagine that advanced feature is going to consume more tokens?

Right. So we rolled out Lightspeed AI officially during NRF and also previewed it in November for the hospital customers. Obviously, it is slightly different capabilities for retail versus hospital on the retail side, really focusing on insights into inventory and flows within the retail stores and across their chains. In hospital, there's kitchen execution and a lot of different kinds of insights around pacing and other areas.

So -- that is with select customers right now, and we'll be rolling it out to larger and larger sets of customers in the months to come. And it will start to -- we'll start to add more Agentic workflows to it. So beyond conversation and beyond getting insights into being able to do tasks which is what I think this are really looking for. They have to wear many hats nowadays.

And the more that we can do to allow them to unlock their creativity and unlock their desire to work on curation and taste making in their businesses and less sit behind lighted and mini screens, the better. And now I'll pass to Asha regarding any thoughts on that.

Yeah. I mean we're not seeing -- we've already started with Lightspeed AI, as Dax talked about, and we're not seeing any significant impact on margins. We feel good again about the software margin that -- we continue to be confident in delivering that.

Thanks for the additional color. And maybe on the payment side, could you maybe explain the trajectory for payment penetration in markets outside or growth engines?

Yeah, for sure. The payment penetration in the markets outside our growth engines is actually low 30s, whereas as a consolidated entity, we're at about 42% and higher than that in the growth. So all told, there's a lot of opportunity still in the payments penetration growing in the efficiency market. And quite frankly, that's one of the biggest modules that we're cross-selling and upselling in those markets. And at the end of the day, software and payments revenue in the efficiency markets are flat to slightly up.

And that's been our goal there, right, given that we're not really selling much new business in those markets. So we feel good about the pace of payments penetration in the efficiency market. It's grown year-over-year as well. And we expect that to continue to climb to the 40s and into the 50s over time. The last thing I'll say about that is it's actually a higher-margin business. Payments is a higher-margin business in rest of the world than it is in North America.

Our gross take rates are lower at about 1%, 1.5%. The net rates are about 40, 45 bps. So when you look at it from a margin perspective, you're actually getting 40% margins on payments or slightly higher. And so that is impacting quite positively the overall margin of that revenue line item as well.

Thank you, again.

Tien-Tsin Huang, JPMorgan.

Thanks. Good morning. Good location. I was just curious about your sales force headcount growth here. Are you satisfied with the quota attainment across the entire base here, especially the new hires? I'm just curious how productivity is tracking because if that continues, then obviously, we could see further improvement on the location side, so I wanted to update there.

Yeah. We're very excited about the trend on locations. I think that's -- it's one of the things that we're most proud of in the company. That acceleration from, as I said, from 3% to 5% to 7% to 9% is a big point of pride -- sorry, it's our number one priority of the company. And of course, that's all because of the investment that we made in outbound.

And of course, in addition to that, the refined pitch in retail around new order and the wholesale - the Lightspeed wholesale network very powerful in our -- in some of our top verticals like fashion apparel and the sport and outdoor.

And then, of course, in EMEA hospital, going city by city in the key markets with bright spots in penetration in key places in Germany and perhaps in addition to several other countries we are very, very excited about that. So we're continuing to accelerate. I think that full productivity -- we have 150 of our contemplated reps now hired now. And now the focus of Gabe and team is to really ramp them to full productivity. And I think his lens on how we get real -- real performance out of what we have is -- will result in more performance and results.

Great. That's great detail. Maybe you touched on it Dax, but just maybe elaborate a little bit more on the pulling forward of growth investments. Asha, I think you talked about that actually, but could we see more of that with him coming in? And is that incremental spend being informed by the production that you've seen so far? Or you may be borrowing it from some other areas that maybe it's not as productive. Just trying to get a little bit more understanding of that. Thanks.

So it's a little bit of what I was speaking about before, Tien-Tsin, in retail. We're quite excited about what we're seeing in retail outbound, especially leading with the Lightspeed wholesale new order pitch to those key verticals of apparel and footwear and Sport & Outdoor where we have very good density of brands. It's a very powerful pitch to those SMB and mid-market customers. We're closing them. And therefore, we've decided to pull forward some of those reps into Q4, hiring those reps into Q4 so that we can have a very, very good start into FY27.

I see. Yes. No, it stood at NRF, the new order side of it. Thanks. Appreciate it.

Very happy with where we're -- how we're trending there.

Martin Toner, ATB Capital Markets.

Good morning. Thanks for taking my questions. Two from me. Can you talk about plans for price increases looking into next year and also the prospect for our software ARPU growth from other sources? And then also, can you just talk about like the health of GTV in the non-core businesses?

Yeah, sure. Thanks for the question, Martin. With respect to price increases, as we mentioned, we did a pretty big book price action in the back half of last year, and that's what we've just lapped and why SaaS growth has moderated. Going forward, most of the uplift will come less from broad price hikes, but just more from evolving pricing and packaging as we add more modules, and we move customers to these higher tier bundles. Dax talked about the pace of innovation.

We're doing some really amazing things flagship products, which are the products that we're selling in North America Retail and EMEA hospitality primarily and the result of that innovation is going to be evolving pricing and packaging. We've already started doing that.

And so you should definitely see SaaS ARPU uplift as a result of that into fiscal '27. With respect to -- so that helps software ARPU into fiscal '27 for sure. With respect to GTV in the efficiency markets, we're seeing that customer base remain healthy. And you can see that from the software and the payments growth in the efficiency markets.

We've been able to keep that growth flat to slightly up despite really tempering new business in those markets. And that's because we have a healthy customer base that's growing. And you also see it resulting from the fact that the overall location Lightspeed was up a couple of thousand as well. And so it's happy with what we're seeing there and the health of that customer base.

That's great. Thank you very much.

Thanos Moschopoulos, BMO Capital Markets.

Hi, good morning. Just on capital, some nice growth there. And obviously, it's a very profitable revenue stream. So how should we think about the pace at which you'll lean in towards growing that over the coming months?

Thanks for the question, Thanos. Yes, you're right. Light Capital has done really well. We've grown over 30% this quarter and year-to-date as well. We expect similar levels of growth, I would say, in the future, you'll get detailed guidance from us on fiscal '27 in May. What I'll say about capital is that we're growing this business prudently. We've been very good at deciphering the most creditworthy customers.

And as a result, our default rate still remain in the low single digits, which is really remarkable for this type of business. It is a high gross margin business, close to 100%. Our churn is significantly lower for customers that take capital. And so all told, really excited about the future of capital. We are growing it prudently because we want to make sure that it is a service we provide customers, but we want to make sure at the end of the day that we are keeping the default rates really low, so that it continues to be a high EBITDA margin business as well.

Great. And then just on churn, qualitatively, within both the core markets in efficiency, any trends of positive or negative? Or is it remaining stable in both those markets?

Yeah. We are focused very heavily on optimizing the rest of the world portfolio and obviously, churn is a big driver, especially because we're not going strong on new business in those markets. And we're really happy with what we're seeing there. I mean, if you look at the total location count again, you'll see that it grew by about 2,000 locations. So we're really doing a good job at managing the churn in that portfolio.

And again, software and payments revenue and the efficiency markets have been flat to slightly up. So all told, we're excited about what we're seeing there. And we have been able to optimize that portfolio quite well.

Thanks. I'll pass the line.

Trevor Williams, Jefferies.

Great. Thanks very much. I wanted to go back to the hardware gross margins. If you could unpack where you're leaning in most heavily with the discounting, Asha, that you mentioned. And if we should expect to see that the headwind from gross margins continue to be bigger as the outbound sales reps ramp, that would be helpful. Thank you.

Yeah, sure. I'll take that one. Thanks for the question, Trevor. The negative margins on hardware is discounts and incentives that we provide to encourage new business. You've seen a healthy clip of new business and new locations come in and the result of that is we've given some more discounts on hardware. Again, that is pretty industry-wide.

When we think about what free hardware we provide, a lot of that is payments -- payment terminals as we encourage merchants to switch over to Lightspeed payments. They get prepayment terminals from us. Outside of that, we discount other hardware that we provide with the POS. We expect hardware margins will range in the minus 50%, minus 60%. It really depends on the clip of new business. Overall, we look at total net take from every customer. And at the end of the day, our focus is on growing the overall gross margin of the business, and we're happy with the growth we're seeing there.

Okay. I appreciate that. And then just to clarify on the software growth for the quarter and the call out on shifting some customers on to annual contracts. Any way you can quantify what that impact was on software growth? And if you're going to keep pushing for that transition, does that dynamic get more pronounced over the next few quarters? Or are we at kind of what you think the normal quarterly run rate impact is from that transition? Thanks.

Yeah. We didn't specifically call out the impact of annual. But what I would say is that I would expect to see similar levels of annual -- annual contracts going forward. It's like we said, very good for our business. In this fiscal quarter, we had about 50% of our retail North America contract that were annual versus 25% a few quarters ago. This is great for our business, great for cash flow, great for churn. The lifetime value of these customers is typically much higher. These are more established iGTB customers for the most part.

And so we should expect similar levels of annual discounting. But again, over time, we expect that software revenue growth number to accelerate as the growth portfolio becomes a bigger and bigger part of the total Lightspeed revenue. Today, it's two-thirds. We expect that to be much higher in fiscal '27. And so you should start to see the software revenue growth converge to the software revenue growth we're seeing on the growth portfolio.

Thank you.

There are no further questions at this time. And with that, I will now turn the call back over to Gus Papageorgiou for closing remarks. Please go ahead.

Thanks, everyone, for joining us today. We'll be around all day if anyone has any follow-up questions, and we look forward to speaking to you all when we report our Q4 results in May. Have a great day, everyone.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.