Thank you for standing by. My name is Gail and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed Third Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now 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 2025 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Asha Bakshani, our CFO, and J.D. Saint-Martin, our President. After prepared remarks from Dax and Asha, we will open it up for your questions. Before I provide some important information and disclaimers, please note that there will be a slide presentation that accompanies the initial portion of Dax's comments this morning. You can find the link to the webcast on our IR site. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts, and projections contained in these statements. We undertake no obligation to update these statements except as required by law. You should carefully review these factors, assumptions, risks, and uncertainties in our earnings press release issued earlier today, our third quarter fiscal 2025 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 at your system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I now turn the call over to Dax.

Thank you, Gus, and welcome everyone. This month will mark my one-year anniversary of returning as Lightseed's CEO, and I am very proud of the team's achievements during this time. We've accelerated software growth, dramatically improved payments adoption, established a solid foundation for profitability, maintained a very strong balance sheet, accelerated our innovation, and focused the business on the areas where we have a proven right to win. Since our last earnings call in November, we've been very active across our portfolio, particularly in our key markets of retail in North America and hospitality in Europe. We've delivered yet another strong quarter, achieving 17% year-over-year revenue growth, in-line with our previously established outlook, and adjusted EBITDA ahead of our previously established outlook. At the same time, I'm also aware that many of you are keen to learn more about our strategic review process, and I'm very pleased to provide you with an update on that today. As you’ll recall, we initiated a comprehensive strategic review of our business and operations to define the best path towards maximizing shareholder value and helping the company realize its full potential. The review included an in-depth evaluation of our portfolio, including market attractiveness, competitive dynamics, and our right to win. This resulted in our conclusion to double our focus on growth in retail in North America and hospitality in Europe going forward, as well as to embark on a focused transformation plan, which we've started executing. As part of this review, we also evaluated the best ownership structures to navigate Lightspeed through this transformation. We received strong engagement from multiple participants over the last several months. After this review, our Board of Directors, a Committee of Independent Directors, and our Executive Management team unanimously concluded that executing on our full transformation plan as a…

Thanks, Dax, and welcome everyone. I'm very pleased with Lightspeed's results in the third quarter. Our strong performance, coupled with prudent cost management has resulted in positive adjusted EBITDA for the sixth consecutive quarter and coming in ahead of our previously established outlook. In addition, as Dax highlighted, our refocus on software revenue growth is starting to gain traction, with software revenue growing 9% year-over-year. As part of the transformation we launched, we're making targeted investment in both go-to-market and product development to fuel this growth, while also continuing to maintain a very healthy balance sheet. Thanks to our dedication towards profitable growth, we're raising our adjusted EBITDA outlook for the fiscal year to over $53 million, which is over 30% higher than the initial outlook of a minimum of $40 million at the start of the fiscal year. I will now walk you through the details of our quarterly performance and key metrics, starting with our revenues, and then close with our outlook for the remaining fiscal year. Total revenues increased 17% due to our growing software ARPU and unified payments efforts, despite impacts from weakening foreign currency. Software revenue grew 9% year-over-year to $88.1 million, supported by recent product releases, as well as increased pricing on software plans. GTV from our flagships for the quarter grew 23% year-over-year, indicating strong success in attracting our target customers. However, same-store sales and retail remain challenged across many verticals, although the rate of decline is easing. Overall GTV in the quarter, including non-flagship offerings, increased approximately 2% to $23.5 billion. Sophisticated customer locations with GTV exceeding $500,000 and $1 million continue to increase as the proportion of our customer mix, while those with GTV under $200,000 continue to decline. With our focus on retail in North America and hospitality in Europe,…

[Operator Instructions] Okay, so your first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Thanks. Good morning. I was just going to start off maybe with a broader-based question of – you know Dax, if you could maybe just talk about why the sale process was maybe not the right choice at this time. I certainly understand the outline that you gave for kind of the go-forward, but I'm just wondering why the sale process maybe just didn't fit or failed. And then in terms of the strategy that you just laid out, are there things that – it sounds very similar to the transformation that you had already laid out? I'm just wondering, in those non-growth markets, are you going to be able to maybe accelerate the closures of those non-core locations or markets? Because it sounds like a continuation of what you've done and you didn't get the sale completed. So anything around that would be really, really helpful. Thank you.

Yeah, thanks for the question. So, yeah, it's all about the transformation plan, right? We started the strategic review by evaluating our portfolio and really looking at market attractiveness, competitive dynamics, and our right to win. And we did preview, I think, our focus on North American retail and European hospitality on our last earnings call. And so, we've built out more of the planning and we're going into fiscal ‘26 with a rock-solid plan for execution. As part of the strategic review, we ran a process to determine what is the best corporate structure for execution of the transformation plan. And the strategic review accomplished exactly what it was designed to do, which was to answer that question. What's the best way for us to maximize shareholder value? And we didn't have a presupposed outcome that we were leading towards a sale. We wanted to know what were the options available? What were the different alternatives? But the object is, how can we best execute the transformation plan and drive the most value? And after assessing multiple options, we concluded with our board that continuing as a public company offers the best path to maximizing value. We did receive strong engagement. So it was a five-month process and we had extensive discussions with several participants. But our focus now that we've resolved to this question of corporate structure is really executing on a transformation plan and doubling down on the lead growth engines. In regards to the efficiency market or all of the businesses where we aren't focused on them being a growth engine, what we're going to be doing is we're going to be maintaining those customers. Those are great customers for Lightspeed. They've contributed to the growing EBITDA picture that you are seeing quarter-after-quarter as we've raised guidance on EBITDA. And it's an important part of our business, but we're not investing in the same kinds of things as we are for our two growth engines. We're not doing the outbound. We're not doing the marketing spend. We've actually reallocated headcount and marketing spend from those markets to the growth market, so that we can double down and we can see accelerated progress on location count and software revenue, which we actually showed a little. We showed some progress on software revenue this quarter because of that focus.

Yep. No, that was great to see. Thank you for that. And then just a quick, I guess, second question to Asha. Any way to just help us with kind of the crossover period expected in ‘26, where obviously the restructuring pulls in the go-to-market motion a little bit, and then you have to put new people out. So I'm just trying to figure out, like how long it takes to get salespeople fully productive to a level that's going to prove impactful to numbers and maybe where that crossover period might look in ‘26. Thank you both.

Yeah. Thanks for the question, Dan. So we're going to give detailed guidance on fiscal ‘26 on our next earnings call. You'll get a nice preview at our Capital Markets Day next month. Typically our outbound sales folks take about six months to ramp up before we start seeing their impact in the financials. And as you know, we had a reorganization early December and we are reallocating resources to our growth markets of North America retail and EMEA hospitality. So what I will say is that we do expect EBITDA, meaningful EBITDA expansion given the portfolio mix. And on the sales side, we do expect to see increase in ICP location count and software continuing. The momentum that you've seen started in Q3, we expect to see that continuing quite nicely in fiscal ‘26.

Great. Thank you.

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

Hey, good morning and thanks for taking the question. I just wanted to hone in on payments penetration real quick. The pace that you've had over the last couple of years where you're pushing payments pretty aggressively, you're taking up payment penetration roughly 3% sequentially each quarter, and now it's kind of stalled. I hear you that you are still pointing to that 40% to 45%. Should we expect the low end of that range? Because it would seem that the high end of that range would be a pretty sizable step up and what are the variables around this?

Thanks for the question, Andrew. We are pleased with the pace of payment penetration when you look at our progress. We increased GPV 34% year-over-year, and we had a 900 basis point increase year-over-year from Q3-to-Q3. You're right, on the quarter-to-quarter it was closer to 1%, but that's really just the result of seasonality. What we're seeing is now that more and more of our total GTV is penetrated, we're approaching 40%, you’re going to see the impact of the seasonality on the underlying portfolios each quarter, and that's really all the Q3 penetration number is about. In particular, golf is a very highly penetrated vertical for Lightspeed, and Q3 is a seasonally slow quarter for golf and so you are seeing the impact of that. We're still confident in the 40% to 45% exiting the year. It could be closer to 40, maybe even the mid range of that guide, but based on what we're seeing so far, we're quite confident we'll exit the year in that range.

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

Yes, I'll take the first part of the question. This is J.D. From a competitive landscape perspective, it really highlights the strategy that Dax pointed out earlier. Our solution, our flagships are really, really strong in NoAm Retail and EMEA Hospitality. In NoAm Retail specifically, we are the market leader for industries that have high skew density, deep inventory management needs, and that's really where our solution shines. And now particularly adding the supplier network to the mix, it's really putting ourselves in a position where we can really win in the fortress verticals where we're focused on. And similarly in hospitality, as you know, we've been in Europe for over a decade now with our solution. We have tremendous product market fits and also very strong go-to-market fits. And there too, we're a market leader in continental Europe and so we want to really accelerate that growth in those two areas.

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

All right, thank you.

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

Perfect, thank you. Can we hone in on the software performance one more time please? If you look at the good progression there and good re-acceleration, can you talk a little bit about what you're seeing like in terms of – like obviously price health. So maybe help us understand price, but also what are you seeing in terms of early signs in terms of re-engaging with the customers there and how pipeline building is working on that part, because that was kind of one of the highlights for the quarter. Thank you.

Yeah, thank you for the question, J.D. here. We're really pleased with our progress on software revenue. As you know, this has been a focus of the company. And moving up to 9% growth year-over-year in Q3 is a strong sign, and we expect that trend will continue in the future. As far as the why behind these strong results, ultimately we're in this position, thanks to the innovation that we're bringing to the market and to our customers. We've had a lot of modules that have been delivered by our product team in the last quarters in hospitality, KDS, our table-side devices are very well received by our customers. On the retail side, our new insights module, as well as our ability to transform our scanner app into a mobile POS, that's a very strong value proposition, and so you see that impact our ARPU. You see our ability also with our outbound focus to target larger customers, which means larger deals and ultimately larger size of software revenue. And then lastly, as you've heard from us in a previous quarter, we rolled out some price adjustments on the front book, but also on the back book. And given the value and the innovation that we're providing our customers, we're in an ideal position to look at pricing and in some cases reprice some quotes of customers that were on old pricing. And we've also had our account management team, which has been particularly focused on our payments offering and unifying our payment offering in the past quarters, come back to selling and upselling software and retention. So all of these dynamics are coming through, and that's why you're seeing that progress from Q2 to Q3. And you can expect that progress to continue next quarter and next fiscal year, of course.

Okay, perfect. Thank you, and then one follow-up for Asha. On the share repurchase, it was great to see it here. Like I saw the first $100 million, maybe more aggressive. How do you think about the cadence there and how you kind of go about kind of finding the right kind of point in time to kind of go more aggressive or less aggressive on the share buybacks? Thank you.

Yeah, sure. So as you mentioned, we do have $100 million outstanding on the share repurchase we launched earlier this fiscal year, and we intend to start executing on that immediately. You'll hear an update on that at our Capital Markets Day next month as well. You're right, our board has authorized repurchase of an additional $300 million, and so we do plan to, in fiscal ‘26 continue on the share repurchase. I mean ultimately we have high confidence in our plan, and we do want to return meaningful capital to our shareholders. So you should expect to see us executing on that through fiscal ‘26 as well.

Okay, perfect. Thank you.

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

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

Yeah, thank you for your question, J.D. here. We're really pleased with our progress on outbound and it's a cornerstone of our strategy going forward as Dax highlighted. If you look at the quarter, is again a record setting quarter for that motion, November particularly was a record month. Overall, across our quota carrying team, 19% of our reps are focused on this outbound motion. We expect that number to climb to about 25% by the end of this fiscal year. As you heard, we made some adjustments in January, right sizing the size of our team in the areas of the business that are more focused on efficiency, so that we can invest in growth and portion of that investment is going into increasing our mix of outbound reps relative to our overall quota carrying team. And we intend to continue to do that next year as well, adding more to that motion. And the reason why we have strong confidence in that motion ultimately is our ability to really target our ICP, our target customer via outbound is very successful. And also, if you look at our unit economics, our payback, we're really, really pleased with what we're seeing. So expect to see that mix continue to trend upward. And ultimately, that will pay dividends as far as profitability, as far as market share. And we also see a halo, a positive halo effect on our two other customer acquisition motions, inbound and partnerships as a result of our efforts in outbound. So all-in-all, very pleased with the progress.

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

Yeah, sure. Thanks. Thanks for the question, Trevor. So if I start with GTV growth for Q3, I mean, that's really coming from retail. When you look at retail, although some of the verticals still remain depressed, what you heard from us in the prepared remarks is that rate of decline is easing, right? And that is helping the overall GTV growth. And Q3 is our best quarter for retail, and so you're seeing GTV growth there as well. In addition, J.D. talked a little bit about our flagships. Our flagships are a bigger and bigger part of our overall portfolio, really approaching 50%. And the GTV growth on our flagships was over 20%. And so as the flagships, which is where we're attracting the right customers, and the majority of that is in the growth portfolio. So as that mix grows, you should start to see that reflected in the overall GTV growth for the company as well.

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

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

Thank you for the question, J.D. here. It goes hand in hand with our focus on higher GTV customers. Again, as a reminder, that definition is customers doing north of 500k in annual turnover per location. If you think about it, another way to frame it is to look at our progress with our flagship products. Our flagship products are really dominating in NoAm retail and EMEA hospitality. And there you can see that we've made some serious progress on location count. We're up 25% year-over-year GTV. Our flagship's up 23% year-over-year. And our focus there with those products, from a product market fit and go-to-market fit perspective, is really targeting those more complex S&Bs, doing north of 500k in GTV, complex inventory, management on the retail side, table side, restaurants on the hospitality side. So all-in-all, this is flowing nicely with our strategy of going into those regions and focusing on high GTV customers.

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

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

Okay, got it. Thank you.

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

Hi, good morning. I guess firstly for Asha. Can you remind us regarding the timing of the price increases? Was Q3 sort of a partial quarter of price increases, and we'll see the full benefits in Q4?

Hey, Thanos. Yeah, thanks for the question. Q3 is still going to be a partial quarter, even though three out of the four waves of price increases that we're executing this year is behind us. But it's really in Q4, and actually even in Q1 of F’26, when you are going to see the full impact, because we do have one more wave coming out in Q4. So Q1 F26 is when you really see the full impact of all the price increases.

Great. And if you look at your two core markets, North American Retail and European Hospitality, is there anything you'd call out as far as, I guess, the growth prospects of those businesses over the upcoming year? So when you look at some of the metrics under the hood, be it your LTV to CAC, be it serviceable TAM, you know just near-term growth, term rates, all that kind of stuff. Like any key differences you call out between those two segments as we think about Fiscal ‘26?

Yeah, we'll get into – we'll unpack a lot of that in our Investor Day next month, Thanos. But ultimately, we have a proven right to win in these growth markets. And that was really the catalyst behind our decision to focus and double down on growth there. Our LTV to CAC ratios are highest in those markets, because of the competitive moat that we have in Retail NoAm and Hospitality in Europe, in particular in our Fortress Verticals. From a revenue opportunity/TAM perspective, I mean there's an $80 billion revenue opportunity when we look at the North America Retail and EMEA Hospitality and verticals, so lots of room to grow there. And given that we have the highest right to win in those markets, the LTV to CAC there far outweighs the LTV to CAC in the rest of the world. So our return on every dollar invested is highest there. So that really made the most sense for us. So this pivot actually changes the financial profile of the company quite nicely. And we will unpack a lot of that at our Capital Markets Day.

Great color. I’ll pass the line. Thank you.

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

Hi, Dax, Asha, Gus and J.D. Thank you for the question. I think one to start with for Dax. I mean, in the U.S. retail space, there's a lot of rapid change going on, like selling everywhere through multiple in-store channels, multiple online channels. Can you give us any color on the way Lightspeed is helping its merchants in these regards and then the nature of competition? And just for the second question, in terms of the transformation plan, you mentioned transformation initiatives to free up capital for investment in growth areas. Does this sort of mean that you'd be looking to divest any part of your business outside of the retail and hospitality vertical?

I'll take the first question. Asha, we'll take the second. So in regards to Lightspeed Retail, we serve that medium and high complexity retailer. This is a portion of SMBs, the portion that actually transacts and has the highest transaction volume. They are more at scale. They have more complexity of the business and they need essentially a light ERP. So they are not at the scale where they need enterprise software, but they need a substantial system that's going to manage all elements of operations, inventory across multiple locations, and in 2025 they also need to be able to manage inventory across multiple physical and online channels, in addition to integrating with many different kinds of online services and potentially ERP accounting systems on the back end. And so that, we are tailoring both our software and our service model, our go-to-market model, and our support model to their needs. Like I said, they are medium to high-complexity SMBs, they are not quite enterprise customers, and so we're a perfect fit for answering what they need at that level of complexity. And I think that the benefit to Lightspeed is that they drive a lot of transaction volume. There's less churn, and so for us the economics are very, very favorable.

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

Cool, thank you.

Your next question comes from the line of Tien-Tsin Huang with JP Morgan. Please go ahead.

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

Yeah, hey Tien-Tsin, I think that's the right way to look at it. I think overall we're expecting the strategic pivot will definitely accelerate growth in our growth markets and overall in the company, and so we're looking at that 9% as a floor as well. In F’26, we actually do expect double digit growth in subscription software, and so yeah, we're looking forward to that. I think that's the right way to look at it.

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

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

Thank you very much.

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

Great, thank you for taking the question. Given the focus on retail in North America, you mentioned the right to win there. I was hoping you could dig in a little bit on the competitive environment there and any updates there. Just noting that Shopify's retail point of sale, globally that's now approaching roughly $35 billion or so in volume, so starting to scale. And then this past fall, Clover released some new SaaS packages, including those for retail verticals, so I was just hoping you could provide a little bit of color on Lightspeed's retail differentiation versus those and/or any other broader competitive environment updates.

Yeah, thank you for the question, J.D. here. Some of the names that you mentioned ultimately, their strategy is to be broad and shallow, and our difference at Lightspeed is that we go deep in specific verticals. We call them fortress verticals internally, where our solution really differentiates relative to the competitive landscape. So in sports and outdoors, bike, golf, in apparel and footwear, in home and garden, in vape and smoke, these are categories where really our solution has the depth that these retailers are looking for, particularly around inventory management. That's a very strong moat for us, and now coupled with our supplier network, again, a strong differentiator. And so there, what you see from a competitive landscape are more legacy solutions that have been around for a long time or subscale players that are focused on those verticals. And really, ultimately for us, we see an opportunity to consolidate a lot of market share in those areas and continue to grow at a healthy pace.

Thank you.

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

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

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

Great, thank you. And then on the buyback, I'm not sure of the exact structure. Is it just a plain buyback or have you contemplated other options such as substantial issue or bids? Just give us a little color on that. Thanks very much.

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

Great. I appreciate that color. Thank you.

And now for Richard Tse with National Bank Financial. Please go ahead.

Yes, just quickly on new order and the supplier network, can you talk about how that's scaling and is this sort of B2B payments the way of monetizing that or do you have another sort of monetization plan for it?

Thank you for the question. I mean, there are multiple ways you can really see how our supplier network is materializing. First and foremost, as you pointed out, our wholesale platform, new order, continues to make really solid progress. We announced some customers that were closed in the quarter, as a reminder, brands, amazing brands like Arc’teryx, Tom's, Ted Baker are using that platform. Second, as you know, we've connected effectively our new order wholesale platform with our point of sale. And so at the point of sale level now, you can actually see the inventory of your suppliers, which is really a unique proposition that no one is able to offer and we're really pleased with the progress there. We've seen over 2,000 POS customers connecting to the supplier network and that number is growing significantly. And then lastly, if you think of how we're monetizing this offering, you're really seeing it in our close rates. Our close rates have increased significantly in the verticals where we have strong coverage with our supplier network. An example of that is in the pet segment where we released our wholesale supplier catalog. We've seen close rates go up by 40%, which is really encouraging. And also, we're leveraging that as our cornerstone for our outbound motion. We're reaching out to retailers that are carrying those brands in their store and highlighting the value proposition of using our point of sale to connect to those brands in a seamless way. And here too, you can see the progress from a bookings perspective or outbound motion in retail is up 266% year-over-year, which is really encouraging. So all-in-all, those different vectors are contributing to the monetization and you see now the impact on our overall revenue for our retail category.

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

Yeah, I mean typically what you see is, about a third of the customers we win are coming from legacy providers, so existing businesses that are using legacy solutions. The other third typically come from businesses that are outgrowing the more basic cloud-based solutions out there. Some names that were mentioned earlier, they realize that with their growth, with their ambition, they can continue with those players and they need something more robust and with more functionality and that's where Lightspeed shines. And then lastly, about a third remaining are brand new businesses that are not necessarily equipped with an existing solution.

Okay, thank you.

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

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

Yeah, absolutely. Thanks for the question, Martin. From a payments perspective, gross margin, what puts downward pressure on gross margin are two things in particular. The first one is residuals. Residuals come in at 100% gross margin. Just as a reminder, residuals is before we had our own payment solution, we would refer customers to an integrated payment provider and we would get residuals on that revenue stream. That was recognized net in our books and now as these non-solicits run out, we're taking those cohorts of customers and putting them on to Lightspeed Payments. So that is the biggest driver of the compression that you're seeing on gross margin. But overall, gross profit dollars increases when we do that, and so it's an overall net positive to Lightspeed, but you will see compression on gross margin as a result of that motion. We're quite pleased with the fact that despite payments becoming such a big part of our overall revenue portfolio, we've been able to keep overall gross margins in the 40% to 45% range and that's because of a couple of things. One is international expansion. So payments internationally carries a higher gross margin, over 30% as compared to North America, which as you know, is in the 20%, 25% range. And in addition to that, we have some pretty high gross margin items such as capital and instant payout. In our financial services offerings, these streams come in at over 90% gross margins. And so as we're growing those businesses, which are growing at a healthy clip, that is helping our overall gross margin remain in that 40% to 45% range.

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

I mean, I think we've provided commentary on a couple of instances at this stage on our legacy products. At the end of the day, these are products that are driving a lot of EBITDA for us. These are great customers that for the most part are happy to stay on that platform and so we don't intend to sunset those platforms entirely. We're encouraging some of these customers to move to our flagships, because they see expanded features, expanded functionality, but we're not forced migrating those customers. And so what you can expect from us is over time, of course, those platforms will have less and less of our base and then you'll continue to see our flagship products take on more share of our overall base. As of next year, we're expecting that to cross about 50% of our overall locations being on our flagships, but we're not forced migrating these legacy products.

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

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

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

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

Yeah, yeah. Thanks. Thanks a lot for the question, Dan. If I give you just sort of the sequencing of what happens to GTV’s throughout the year, I think you'll get a nice idea. This quarter, as you know, our fiscal Q4 is the seasonally weakest quarter for GTV, and we see that across retail as well as hospitality. As you move into Q1, you actually do see that GTV improving for both retail and hospitality. Q2, which is our fiscal Q2, which is the summer, is a very high seasonal quarter for hospitality. That's where everyone is dining out, and in particular, European hospitality, we're very strong. And then in Q3, the GTV typically remains very strong, because it's a very high GTV quarter for retail, given the holiday shopping season as well. So with Q4 being the seasonally slowest quarter, Q1, where we see a nice growth, and then Q2 and Q3 being our strongest GTV quarters, that's how you should look at it.

Okay, thank you. And then on the increased fiscal ‘25 EBITDA guide, if I back into the Q4 EBITDA margin, it seems to indicate a sequential decline in the EBITDA margin. Any reason to expect that EBITDA to compress from the strength you saw this quarter?

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

Sounds good. Thank you.

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

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

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