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Lightspeed Commerce Inc. misses on earnings expectations. Reported EPS is $-0.24 EPS, expectations were $0.12.

Operator: 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 Commerce Inc.’s Third Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. Now I would like to turn the call over to Gus Papageorgiou, Head of Investor Relations. Please go ahead.

Gus Papageorgiou: Thank you, operator, and good morning, everyone. Welcome to Lightspeed Commerce Inc.’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 and Asha, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts, and projections contained in these statements. We undertake no obligation to update these statements except as required by law. You should carefully review these factors, assumptions, risks, and uncertainties in our earnings press release issued earlier today, our third quarter fiscal 2026 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. 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 EDGAR 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.

Dax Dasilva: Thank you, Gus. 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 of just over $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-thirds 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 Commerce Inc.: 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 on 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-GDV merchants in retail in North America and hospitality in Europe, with approximately 2,600 net new locations added in the quarter.

Customer locations in our growth engines grew 9% year-over-year in Q3. 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% 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 welcomed leading global brands like Balmain, Diane von Furstenberg, and Dickies to the Lightspeed wholesale ecosystem. As a reminder, Lightspeed wholesale connects retailers using our Lightspeed retail POS and brands using our new order by Lightspeed platform. With this integration, retailers can discover and order 5 million products from over 4,000 brands all in one place.

This is a true differentiator with retailers like Everson’s migrating their POS to Lightspeed just so they can benefit from our unified wholesale ordering. We also welcomed Irvine’s Tac and Western Wear, one of the largest Western retailers in the world, and ValueZone’s seven locations, which were attracted by Lightspeed’s advanced inventory features and scanner app. In European hospitality, we continue to win high-profile multi-location operators such as Hotel Belle Reeve on the French Riviera, Qui des Artistes in Monaco, and ambitious expansion plans. Burger Vision in Germany with over 20 locations and Colichy, with more than 40 locations across the UK. These wins reinforce our conviction that as merchant complexity grows, Lightspeed’s unique value stands out even more.

An expanded outbound sales effort, 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 to thrive.

We launched Lightspeed AI, bringing agentic AI directly into retail and hospitality workflows. These AI capabilities go beyond reporting. They help merchants identify best sellers, optimize inventory decisions, and improve kitchen execution in real-time. At 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 Scanner and delivered customer-facing displays on payment terminals, improving checkout efficiency and transparency. In hospitality, we continue to extend our product leadership in Europe.

We launched Lightspeed Tempo, which applies pacing intelligence to service flow, turning what has traditionally been an art into a science by guiding servers through each stage of service. We also introduced Lightspeed Reservations, offering independent restaurants an 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 attachment, 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 have 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.

Asha Bakshani: Thanks, Dax. Welcome, everyone. Lightspeed Commerce Inc. 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-thirds 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 used of half a 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 payments 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 engines. 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 discounts and higher lifetime value, they attract higher quality merchants with lower churn, strengthening our cash flow 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 bike and golf. 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 continued 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 payments monetization. ARPU grew across both our growth and efficiency markets.

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 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 margin 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% gross 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, from 65% last year. Hardware gross margins declined this quarter due to strategic discounts and incentives to drive new business. We delivered strong software gross margins of 82%, 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 margin.

Gross margins for transaction-based revenue were 31%, up from 28% last year. This improvement reflects increased payments penetration in our international markets where margins exceed those in North America, and growth in our capital. As we convert customers to Lightspeed payments, we increase our overall net gross profit dollars. And in the quarter, we saw transaction-based gross profit grow 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 engines. 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 priority. I am very happy to report adjusted free cash flow of $15 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. Today, our typical remittance period for a merchant cash advance is approximately seven months. We continue to actively manage our share-based compensation and related payroll tax, 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 twelve-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 twelve-month period. We have already exhausted our fiscal 2026 buyback program. Subject to TSX approval and market conditions, we intend to renew this buyback program in fiscal 2027. Aside from potential buybacks, our largest use of cash will be growing our merchant cash advance 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 focus. 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 lap pricing actions implemented last year and continue 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 $1.220 billion, gross profit of approximately $523 million to $525 million, and adjusted EBITDA of approximately $72 million.

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

Dax Dasilva: Thanks, Asha. Before we take your questions, I wanted to take this opportunity to publicly welcome Gabriel Benavides to Lightspeed Commerce Inc. 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 Jean-David Saint-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.

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Operator: Ladies and gentlemen, we will now begin the question and answer session. As we enter Q&A, we ask that you please limit your input to one question and one follow-up. As a reminder, to ask a question, please press the star button followed by the number one. If you would like to withdraw your question, please press star one again. One moment please for your first question. Your first question comes from the line of Dan Perlin of RBC Capital Markets. Please go ahead.

Dan Perlin: Thanks. Good morning, everyone. Nice results here. I wanted to ask maybe a broad-based question and then maybe a little more specific one. But at a high level, how would you describe kind of the health of your end markets? I know, Asha, you said same-store sales growth across all regions was positive. But maybe if you would not 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.

Asha Bakshani: Thanks, Dan. Thanks for the question. Yeah. Same-store sales were 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 and garden, bike, we saw a bit of a deceleration from Q2 to Q3 just because 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 hospitality GTV. Outside of that, I would say no other surprises. We are happy with what we are seeing in the macro.

Dan Perlin: 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 were 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 the sustainability of those levels? Are there any things? I know you said some investments are going to come in, but just trying to understand how sustainable that is given the fact that it 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.

Asha Bakshani: 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 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. We’ve deployed AI in a lot of areas, a very high percentage of the frontline support is chat now, 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.

Dan Perlin: Great. Thank you.

Operator: Your next question comes from the line of Dominic Ball of Rothschild & Co Redburn. Please go ahead.

Dominic Ball: Hi, guys. Hey, Dax, Asha, and Gus. I was on mute, as embarrassing as it is. So great job on locations. I mean, just one sort of broader question. You know, software names have derated quite materially on concerns around AI disruption. So Dax, could you tell us a little bit about which Lightspeed software capabilities are structurally differentiated because they’re built on more proprietary Lightspeed payment data? Thank you.

Dax Dasilva: Yeah. And I think you’ve pointed out something important. Right? We’ve got payments data that we’re building our agentic AI workflows around. There’s also very proprietary wholesale data. You know, we’re talking a lot more about Lightspeed wholesale, which includes the new order platform. Which is a huge differentiator, growing differentiator for us on retail. It’s now leading our outbound conversations. So there are things that we are building our organic workflows around that are very unique to Lightspeed and how we play. So, yeah, a lot of investment. We’ve rolled out Lightspeed AI this quarter. You know, we had two innovation events, one in the 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 a transaction. But I believe 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 the software is going to be what makes the difference for these particular business owners and helping them thrive. One more thing. Yeah. On our insights and analytics products, as you alluded, the payments data, and I added the wholesale data, it’s really driving, of course, all of the Lightspeed AI conversational and agentic workflows, but also all those analytics and insights tools that we have that are on retail and hospitality as well as the benchmark and trends tools that we have.

Those are all built on that proprietary data.

Dominic Ball: That’s great to hear. Thank you, everyone.

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

Raimo Lenschow: Great progress on the focus areas. Congrats from me as well. If you think about the software side, you obviously have the pricing changes, and that’s something that’s kind of we need to be aware of. You know, just following on from the earlier questions, like, that growth path, like, how should we think about that for you and, you know, you want to say, like, 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 achieve there over the medium term? Thank you.

Dax Dasilva: 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, which is a net positive for the company. For a lot of our new retail ads, you know, getting to 10%, you know, our growth engines grew 13%. 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, you know, for those products.

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

Dax Dasilva: Yeah. I think the efficiency portfolio for us has been just a very strong performer. You know, we’ve been very in line on our targets and 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 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.

Raimo Lenschow: Perfect. Thank you. Well done.

Operator: Your next question comes from the line of Matthew Coad of Truist Securities. Please go ahead.

Matthew Coad: Hey, good morning, guys. Thanks for taking the question here. I just wanted to go back to the SaaS ARPU again to totally hear you that maybe the front book SaaS ARPU is coming down a little bit as you shift those contracts from monthly to annual. I kind of wanted to talk about, you know, 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.

Asha Bakshani: Yeah. Thanks for the question, Matt. You’re right. The SaaS ARPU results that you’re seeing now are really coming from the lapping of price increases, and it’s up 4% for this quarter. But when we think about specifically 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 release 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 know, 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.

Matthew Coad: 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 2.6k wins kind of just around, you know, North American retail versus European hospitality and then are we starting to see some of the benefits from some of the distribution reinvestments? Or is that more of a fiscal year 2027 story? Thanks.

Dax Dasilva: Yeah. Yeah. Location growth, we’re very, very proud of this number. You know, it’s an acceleration 9% location growth. That’s accelerating up from seven last quarter, five the quarter before, and 3% all of the year before. So, you know, the strategy is really working in the investment in outbound, outbound remote on retail and outbound field for EMEA hospitality. Clearly successful. You know, I think that those numbers are distributed fairly evenly across retail and hospitality. What was the second part of your question?

Matthew Coad: 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 Salesforce seasons to the…

Dax Dasilva: Yeah. If you’re referring to partnerships, I would say that we are seeing some success, some larger success in partnerships on the EMEA hospitality side. Distribution deals are accelerating that motion on the retail side. And that’s a big part of Gabriel Benavides’ expertise as he has started in December and is bringing his expertise to bear here.

Matthew Coad: Awesome. Really helpful. Thank you.

Operator: Your next question comes from the line of Joshua Phillip Baer of Morgan Stanley. Please go ahead.

Joshua Phillip Baer: Great. Thanks for the question. Dax, earlier, you talked about some of the proprietary datasets that you have that 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 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?

Dax Dasilva: 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, 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 growing moat for us. A very big differentiator. And just to expand on that, you know, 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 incomparable, and we’re going to be able to do agentic workflows across that because nobody does that span from consumer to merchant to wholesale supplier. 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 of the start-ups 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.

Joshua Phillip Baer: That’s great. Thanks. And one follow-up on the location ad. 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.

Dax Dasilva: Primarily brand new, you know, brand new. Well, new locations always represent a good third of all new brand new businesses is about one-third of new locations. The rest are coming from competing systems that are insufficient, and another is from legacy systems. That’s a split of any new location that comes onto the platform. A third brand new businesses, a third existing cloud vendors, and one-third legacy.

Joshua Phillip Baer: Perfect. Thanks.

Operator: Your next question comes from the line of Koji Ikeda of Bank of America. Please go ahead.

Koji Ikeda: Yes. Hey, guys. Thanks so much for taking the questions here. 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?

Dax Dasilva: Yeah. So, you know, we’ve been rolling out AI-powered tools for a while, starting with tools that help build out e-commerce presences, online presences, and then later tools on hospitality, like benchmarking trends, 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 are neighbors pricing different menu items and, you know, what are the best hours to operate. So those were early experiments in 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. You know, 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 the agentic tooling that’ll 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.

Koji Ikeda: Got it. 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 it’s declined on a quarter-over-quarter basis. And, you know, totally heard you on the reason for this quarter, but wanted to think about this metric going into the future. Could we expect maybe some more variability in this percentage of GTV going forward because of strong penetration or the seasonal aspects of this? I just wanted to understand that a little bit more.

Asha Bakshani: Yeah. Thanks for the question, Koji. You know, 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, you know, to your point, is difficult because of the seasonal trend. But we are super confident in this payments penetration continuing to climb over time. So to your point, you’ll see seasonal trends like we saw Q2 bike and home and garden were very strong, moderated slightly in Q3. And just because they’re highly penetrated verticals, you see that delta. But over time, we expect that payments penetration will continue to climb because we’re continuing to attach payments on our front book. We’re continuing to go back to the back book as they come up to their one, two, three-year renewals with, you know, their existing payment providers, then we move them over to Lightspeed. So definitely confident that that will continue to climb over time.

Koji Ikeda: Makes sense.

Operator: Thank you. Your next question comes from the line of Andrew Bauch of BTIG. Please go ahead.

Andrew Bauch: Thanks for the question. Nice results. 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.

Asha Bakshani: Yes. 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 do not spend as much both in retail and in hospitality, and that’s not Lightspeed 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 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, our guide takes into account continued strength in our team’s execution.

Andrew Bauch: Thanks. And then with Gabe in 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 are really improving, and there’s some of the investments that are getting pulled forward. How should we think about go-to-market, especially as we start thinking about our 2027 numbers?

Dax Dasilva: Yeah. I think, you know, Lightspeed’s always traditionally been very, very strong inbound. 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. But I think it’s the outbound that we really need the big investments in, both outbound remote and outbound field. Now 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, you know, 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 that are driving the hospitality business and distribution deals there as well. So I think that his expertise is really going to accelerate all of those initiatives in areas where Lightspeed has a lot of opportunity ahead.

Andrew Bauch: Thanks, Dax and Asha.

Operator: Your next question comes from the line of John Chao of TD Cowen. Please go ahead.

John Chao: 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 of the timeline for those additional features, maybe also talk about any margin implication? Because I can imagine that advanced features are going to consume more tokens.

Dax Dasilva: Right. So we rolled out Lightspeed AI officially during NRF and also previewed it in November for the hospitality customers. Obviously, slightly different capabilities for retail versus hospitality. On the retail side, really focusing on insights into inventory and flows within the retail stores and across their chains. In hospitality, there’s kitchen execution and a lot of different kinds of insights around pacing and 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 add more agentic workflows to it. So beyond conversational and beyond, you know, getting insights into being able to do tasks, which is what I think these businesses 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 Lightspeed admin screens, the better. And then I’ll pass to Asha regarding any thoughts on margin.

Asha Bakshani: 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 margins that we’re delivering. We continue to be confident in delivering that.

John Chao: Thanks for the additional color. And maybe on the payment side, you maybe explain the trajectory for payment penetration in markets outside your growth engines?

Asha Bakshani: Yeah. For sure. The payment penetration in the markets outside our growth engines is actually, you know, low thirties. Whereas as a consolidated entity, we’re at about 42% and higher than that in the growth portfolio. So, you know, all told, there’s a lot of opportunity still in the payments penetration growing in the efficiency markets. And, you know, quite frankly, that’s one of the biggest modules that we’re cross-selling and upselling in those markets. And, you know, 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 markets.

It’s grown year-over-year as well. And we expect that to continue to climb, you know, to the forties and into the fifties 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, you know, the rest of the world than it is in North America. Our gross take rates are lower at about one, 1.5%. The net take 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.

John Chao: Great color. Thank you again.

Operator: Your next question comes from the line of Tien-Tsin Huang of JPMorgan. Please go ahead.

Tien-Tsin Huang: Hey, thanks. Good morning. Good location outcome here. I was just curious about your Salesforce headcount growth here. Are you satisfied with the quota attainment across the entire base here, especially the newer 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 wanted to update there.

Dax Dasilva: Yeah. We’re very excited about the trend on locations. I think that’s one of the things that we’re most proud of with the company. That acceleration from, you know, as I said, from three to five to seven to nine is a big point of pride. 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 legacy wholesale network. Very powerful in some of our top verticals, like fashion apparel and sport and outdoor. And then, of course, in EMEA hospitality, you know, going city by city in the key markets, you know, with bright spots and penetration in key places in Germany and France in addition to several other countries, you know, very, very excited about that.

So, you know, we’re continuing to accelerate. I think that full productivity, you know, we have 150 of our contemplated reps now hired. 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 performance out of what we have will result in more performance and results.

Tien-Tsin Huang: Great. No. That’s great. 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. That’s all I have.

Dax Dasilva: So, you know, 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 and outdoor where we have, you know, 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, you know, some of those reps into Q4, hiring those reps into Q4 so that we can have a very, very good start into FY ’27.

Tien-Tsin Huang: I see. I see. Yeah. No. It stood out at NRF, the new order side of it. Thanks, Dax. Appreciate it.

Dax Dasilva: Yeah. Very happy with where we’re at, how we’re trending there.

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

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

Asha Bakshani: Yeah. Sure. Thanks for the question, Martin. With respect to price increases, as we mentioned, we did a pretty big back book price action in the back half of last year, and, you know, 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 on our flagship products, which are the products that we’re selling in North America retail and EMEA hospitality primarily. And, you know, 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 2027. With respect to so that helps software ARPU into fiscal 2027 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 count at Lightspeed was up a couple thousand as well. And so happy with what we’re seeing there and the health of that customer base.

Martin Toner: That’s great. Thank you very much.

Operator: Your next question comes from the line of Thanos Moschopoulos of BMO Capital Markets. Please go ahead.

Thanos Moschopoulos: Hi. Good morning. Just on capital, some nice growth there, 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?

Asha Bakshani: Thanks for the question, Thanos. Yeah. You’re right. Lightspeed 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 2027 in May. You know, 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 rates 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%. You know, 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 at the end of the day, 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.

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

Asha Bakshani: Yeah. We are focused very heavily on, you know, the rest of the world portfolio. And obviously, churn is a big driver, especially because we’re not, you know, 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, you know, we’re really doing a good job at managing the churn in that portfolio. And, again, software and payments revenue in 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.

Thanos Moschopoulos: Thanks, Asha.

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

Trevor Williams: Great. 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 headwind from gross margins continue to get bigger as the outbound sales reps ramp, that’d be helpful. Thank you.

Asha Bakshani: Yeah. Sure. I’ll take that one. Thanks for the question, Trevor. The negative margins on hardware are due to 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, you know, 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, you know, they get free payment terminals from us. Outside of that, we discount other hardware that we provide with the POS. We expect hardware margins will, you know, range in the minus fifties, minus sixties.

It really depends on the clip of new business. Overall, we look at the total net take from every customer. And, you know, 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.

Trevor Williams: Okay. No. I appreciate that. And then just to clarify on the software growth for the quarter and the call out on shifting some customers onto 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 at kind of what you think the normal quarterly run rate impact is from that transition? Thanks.

Asha Bakshani: Yeah. We didn’t specifically call out, you know, the impact of annual. But what I would say is that I would expect to see similar levels of 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 contracts 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 high GTV 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 2027, and so you should start to see the software revenue growth converge to the software revenue growth we’re seeing on the growth portfolio.

Operator: 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.

Gus Papageorgiou: Thanks. 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.

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

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