Lightspeed Commerce Inc. (LSPD) Q4 2025 Earnings Report, Transcript and Summary

Good morning, and welcome. My name is Aaron, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to the Lightspeed Fourth Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks we will have a question-and-session. [Operator Instructions] Thank you. With that, I am pleased to turn the call over to Gus Papageorgiou, Head of Investor Relations. Gus, please begin.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal Q4 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 Ash, 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 fourth 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 EDGAR 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 will now turn the call over to Dax.

Thank you, Gus, and welcome, everyone. Fiscal 2025 was a pivotal year for Lightspeed. We exceeded $1 billion in annual revenue for the first time in company history, delivered $53.7 million in adjusted EBITDA and realigned the business around a focused strategy designed to drive long-term profitable growth. There were many things to be proud of in fiscal 2025. Revenue grew 18%, adjusted EBITDA rose substantially from $1.3 million to $53.7 million. We launched a series of industry-leading innovations such as retail insights and our Kitchen Display System. We refocused our efforts on two core growth markets, retail in North America and hospitality in Europe, where we have strong product market fit and a proven right to win. We restructured the organization to better align with our new strategy and met our goal of profitable growth And we completed a share repurchase program for 9.7 million shares, returning over $130 million of capital to investors. In addition, after the year-end, Lightspeed further executed share repurchase program, buying back an additional 9 million shares. In the last 12 months, Lightspeed repurchased approximately 18.7 million shares or about 12% of the shares previously outstanding at the end of last year, for about $219 million. In Q4, we continued to make meaningful progress towards our strategic priorities. Software ARPU grew 11% year-over-year, reflecting strong adoption of our new modules and ongoing price optimization. Gross margin reached 44%, driven by disciplined cost management. We added quality customer locations in our growth markets, retail for North America and hospitality for Europe, supported by the growing effectiveness of our outbound sales teams. Importantly, March was a record month for outbound sales. These achievements reflect not only strong execution, but the foundational transformation we undertook this year. With many of the hard decisions behind us, fiscal 2026 will be a year of executing on our plan and delivering on our potential. While macroeconomic conditions remain uncertain across our global footprint, our ongoing strategic execution and product capabilities position us well for continued resilience. From forecasting demand to sourcing inventory from the thousands of suppliers on our wholesale network, the Lightspeed Commerce platform is built to help merchants thrive no matter what conditions they face. In late March, we host our Capital Markets Day in New York City, where we outlined our new strategy and financial goals. I want to recap some of the highlights from that day. Lightspeed is concentrating efforts on its growth markets, where we have a clear right to win. Our go-forward strategy is anchored in two high opportunity areas: North American Retail where we serve complex high GTV retailers with differentiated tools and deep vertical expertise. European Hospitality, a fragmented market where Lightspeed is already a leader with workflow automation, local support and fiscal compliance. In these areas, we are doubling down on outbound sales capacity, product innovation and customer experience. Elsewhere, we are focused on efficiency, continuing to support existing customers while realigning our cost structure to maximize adjusted EBITDA for the whole business. The success of our efforts within these growth markets will be measured by our ability to grow customer locations and software ARPU while improving overall profitability. I want to highlight the progress we are making on the first two goals, and Ash will follow with a more thorough discussion on profitability and our financials. Go-to-market progress. Customer locations in our growth markets grew over 3% in fiscal '25 and GTV for these customers grew 6%. Notably, this growth came despite the strategic pivot only beginning to ramp in December 2024 when we realigned our organization to execute on our profitable growth strategy. By making further investments in sales and product, we expect to accelerate net customer locations growth towards our targeted three-year CAGR of 10% to 15%. We're scaling our outbound sales organization rapidly. As of April, we filled over half of the 150 roles we committed to by fiscal '26. In Europe, field teams are now active across key cities in Germany, the U.K. and France. In North America Retail, our AI powered outbound engine is helping reps target and convert high-value merchants. We are leveraging AI to feed the top of the sales funnel through outbound cold calling and our salespeople then convert those leads into active customers. Our AI engine helps us prioritize outbound calling to the highest value leads. We are moving quickly to build all of our outbound positions. Outbound sales reps require some time to fully ramp usually around six months, so we will see a lag between hiring and results. But thus far, the results are very encouraging. Outbound salespeople are much more efficient in targeting our ICP customers. And because these are generally more established customers, they tend to go live much faster because they do not need to clear hurdles such as financing or signing leases. March was our best month yet for outbound revenue, which was driven by faster go-live times, higher average GTV per location and higher productivity per rep. Here are a few examples of such well-established customers signed in the quarter. Runners Roost in Colorado with 7 locations, carrying one of the most complete selections of fitness shoes and apparel in the USA. They have previously relied on separate POS and payment providers and were able to deliver an integrated solution. Tennis Plaza with 9 locations in Florida, frequently ranked as the #1 tennis specialty store in America. They have considered several cloud-based competitors that chose Lightspeed due to our inventory management, B2B and the ability to sell on the Lightspeed scanner app that we announced last quarter. Woodsteck with 7 locations in New York and New Jersey, a streetwear retailer known for its premium sneakers, apparel and accessories, they chose Lightspeed as their end-to-end solution provider. Half Moon Bay Golf Links in California with two world-class championship golf courses connected to a luxury resort. Finally, within Lightspeed new order, we signed several new brands, including Birkenstock Australia, Crew Clothing in the U.K. and the children's wear brands Tea Collection. In EMEA Hospitality, we also had great success during this quarter and signed a number of notable customers. We continued our winning streak amongst Michelin starred restaurants and chefs by adding La Vie in Dusseldorf, Zet'joe in Bruges, and restaurant Joelia in Rotterdam. High GTV restaurants with complex operations turned to Lightspeed to seamlessly power their operational flow. We added Groupe Éclore with 8 restaurants in Paris, five of which have Michelin star. They switched to Lightspeed from their legacy system with an impressive 7 of them going live on the same day. We signed [Le Relais de Chambord] (ph) located within a luxury hotel in the [Loire Valley] (ph). They chose Lightspeed for a centralized management system, modern tools, and integration with key partners. Finally, we also saw traction among the multi-location chains, signing burger and sauce with 18 restaurants in the UK. They were impressed with the flexibility of our platform and wanted a reliable partner to help them pursue their aggressive expansion plans. The second key metric by which we measure the success of our strategy is ARPU expansion, driven by product innovation and retention within our core markets. In Q4, software ARPU grew 11% year-over-year, driven by deeper module adoption and recent pricing initiatives, proof that our flagship platforms are resonating the right customers. As part of our strategic pivot, in fiscal 2026, we are investing over 35% more in product development than in fiscal 2025 to accelerate innovation across our offerings for retail customers in North America and hospitality customers in Europe. These capabilities are now being translated into modular features that help complex merchants scale efficiently. In retail, we shipped several key innovations to improve operational control and online reach for our customers, including seasonal trends to enhance inventory planning and insight for retailers to ensure accurate inventory levels. Sales visualization so retailers can view data in the interactive graphic form to better understand their business, a generative AI-powered web builder, which allows our customers to simply show a screenshot of what they want their website to look like, and our web builder will deliver a fully integrated professional looking online store with no coding required. Omni gift cards, so retailers can sell and redeem gift cards across in-store and online selling channels and the new order catalog portal, which creates a self-service portal for brands who want to share their catalogs with the thousands of merchants using the Lightspeed POS. In hospitality, we shipped several key features, including Google integration with order anywhere. Restaurants can now make sure they're showing up in Google searches increasing order volume and offering a convenient ordering experience, and we launched advanced production instructions and consolidated items. These releases allow kitchen staff to adjust menu items for variations such as allergens and it automatically cures multiple orders of identical items to minimize prep time. As we enter fiscal 2026 with our renewed focus on our growth engines, we expect even further acceleration in product innovation, which along with our aggressive outbound strategy, will drive improved sales velocity. Our goals for 2026 are clear: increased customer locations within our growth markets, expand software ARPU and enhance profitability for the entire business. I look forward to reporting on our progress throughout the year, and we'll now turn the call over to Asha.

Thanks, Dax, and welcome, everyone. Fiscal 2025 was a milestone year for Lightspeed, not only in hitting $1 million in revenue for the first time, but in laying the financial and operational groundwork for sustained profitable growth. We realigned the company around markets with the strongest unit economics, increased pricing to better reflect the value of our platform and double down on our payments and capital initiatives. As a result, we entered fiscal 2026 with a leaner, more focused business and significantly improved profitability. My comments today will walk through our financial performance for the year and our fiscal Q4, outline our progress on capital return as well as margin expansion. And finally, I will provide our outlook for the upcoming quarter and full fiscal year. Total annual revenue of $1.077 billion grew 18% year-over-year, with a positive retention rate and surpassing the $1 billion milestone on a fiscal year basis for the first time. Annual gross margins held steady at 42% despite an increase in transaction-based revenue from 60% to 65% of our total revenue. Adjusted EBITDA grew from $1.3 million year-ago to $53.7 million in fiscal 2025, reflecting both revenue growth and discipline cost control. Gross payments volume increased by 40% in the year, and GPV as a percentage of GTV increased from 32% in Q4 of last year to 38% in Q4 of this year, demonstrating growing adoption of Lightspeed payments. We ended the year with $558 million in cash after repurchasing 9.7 million shares and funding a net amount of $45 million in merchant cash advances in the year. Excluding these 2 outflows, our cash position increased year-over-year. These results illustrate our commitment to profitable growth and our focus on opportunistically returning capital to our shareholders. With respect to fiscal Q4, total revenue grew 10%, driven by software ARPU expansion and continued payments penetration. Despite macro headwinds impacting same-store sales and transaction-based revenue in a subset of our portfolio, gross margin performance was strong at 44%. Software ARPU grew 11% year-over-year, driven by new module adoption, price optimization and our continued shift towards high GTV customers. Software revenue was $87.9 million, up 8% year-over-year, supported by new software releases and fiscal Q4 pricing action. Transaction based revenue was $157.8 million, up 14% year-over-year. GTV rose 19% year-over-year to $7.9 billion, and capital grew 28%, benefiting from our unique visibility into merchant cash flow and real-time repayments through Lightspeed payment. GTV from our growth engines grew 6% year-over-year, despite the strategic pivot only beginning to run in December 2024, validating our go-forward strategy to focus on North America retail and European hospitality. Overall, GTV remained flat at $20.6 billion due to same-store sales softness primarily in our rest of world markets. In-line with our strategy, our customer mix continued to shift toward higher GTV merchants, locations with over $1 million in GTV increased while locations with sub [$200,000] (ph) in GTV declined. Importantly, customer locations in our growth markets of North America retail and European hospitality grew over 3% year-over-year. We primarily target ICP although many customers are opening new locations, and it takes time for them to ramp to higher GTV. Despite this ramp, on average customer locations across our customer base, excluding e-commerce sites, process in excess of $500,000 a year in annual GTV, which is evidence of our successful move of markets. All of our go-to-market and product development efforts are focused on these customers. GTV as a percentage of GTV remained flat to last quarter at 38%, given same-store softness in certain highly penetrated verticals such as hospitality customers in North America. We expect total GPV as a percentage of GTV to continue to trend upward as our customer location adds in our growth markets accelerate. In April of this year, we saw total GPV as a percentage of GTV rise to 40%, and we expect this will continue to improve throughout the year. ARPU excluding equity stand-alone, reached a record $489, up 13% year-over-year, driven by both higher software and payments monetization. With respect to profitability and operating leverage, in fiscal Q4, gross profit grew 12% year-over-year, outpacing revenue growth. Total gross margin was 44%, up from both the same quarter last year, as well as our fiscal Q3. Despite transaction-based revenue increasing from 60% to 62% of sales compared to last year, we were able to improve our gross margin through effective spend management. targeted price increases and the growth in higher margin revenue from items such as Lightspeed Capital. We delivered strong software gross margins at 81%, up from 77% a year ago, driven by pricing uplift and cost discipline. Our customer churn remained in-line with historical levels despite our price increases, demonstrating the strength of our platform and the value it brings to our customers. Gross margins for transaction-based revenue were at 29%, up slightly from the previous quarter and flat to the same quarter last year and includes gross margins from our capital program which continues to deliver healthy margins of over 90%. As we convert customers to Lightspeed payments, we increased our overall net gross profit dollars. And in the quarter, we saw transaction-based gross profit grew 11% year-over-year. Adjusted EBITDA in the quarter came in at $12.9 million, nearly triple the $4.4 million delivered in Q4 of last year, driven partially by early successes from our transformation plan. Total adjusted research and development, sales and marketing and general and administrative expenses rose just 3% year-over-year, well below gross profit growth. As we scale within our growth engine, we expect this leverage to continue. We continue to actively manage our share-based compensation and related payroll taxes, which were $11.8 million or 5% of revenue for the quarter versus $10.1 million or 4% in the same quarter last year. We continue to manage equity usage prudently. Adjusted income rose to $15 million from $8.5 million last year. With respect to capital allocation and our balance sheet, we executed aggressively on our buyback program, as you heard from Dax. Since March 31, 2024, we have repurchased 18.7 million shares approximately 12% of outstanding shares as of March 31, 2024, for $219 million. $84 million of these share repurchases were made after the quarter. As of now, approximately $200 million remains under our broader board authorization to repurchase up to $400 million in Lightspeed shares and we continue to remain opportunistic on further share repurchases. We ended Q4 with $558 million in cash, down from $662 million in the prior quarter almost entirely due to the $92 million used for buybacks in the quarter and $7.6 million used to fund our merchant cash advances. Adjusted free cash flow used was $9.3 million in Q4. We had a goodwill impairment charge in the quarter of $556 million. I'll walk you through the mechanics of this. Goodwill is required to be tested for impairment at least annually. Given the recent volatility in the valuations of technology companies broadly and Lightspeed's share price specifically, our net assets exceeded our market cap at March 31, 2025. This was a goodwill impairment trigger for us and our test resulted in a $556 million charge in the quarter. This goodwill charge is a noncash accounting entry that has no impact on our liquidity or execution capability. Our balance sheet remains healthy and positions us well for this upcoming year of profitable growth. With respect to our efficiency market, while our core focus is on retail in North America and hospitality in Europe, we maintain many happy customers in other markets, with the revenue from our efficiency markets increasing year-over-year in fiscal 2025 and GPV as a percentage of GTV in our efficiency market increasing from our fiscal Q3 to Q4. We will continue to add software value, drive adoption of financial services such as payments and capital and of course continue to drive efficiency in these markets while minimizing the distraction from our core. Before I move on to outlook, I would like to draw everyone's attention to the fact that going forward, from a total locations perspective, we are changing the definition of what constitutes a customer location. We have historically emphasized that a single unique customer can have multiple customer locations, including physical and e-commerce sites. So e-commerce site used by customers alongside a physical site have been counted as separate customer locations from the POS. As our POS and e-commerce solutions are bundled as a single omnichannel product, we believe this distinction has become less meaningful. Going forward, we consider this bundled product to be a single customer location. The end result is that the total number of customer locations changes from approximately 162,000 to approximately 144,000 as of March 31, 2025, while the monthly ARPU moved from $489 to $545. Going forward, we will consider stand-alone e-comm sites, those that are not bundled with any physical site separately as we have always done for equity e-commerce stand-alone sites. Please see our MD&A or press release for details. Now turning to our outlook. Despite continued macro volatility we enter fiscal 2026 with strong conviction in our strategy and in our ability to execute. We're on track to scale our outbound team to 150 reps by year-end and expect the continued rollout of new features to support both software and transaction-based revenue growth. This financial outlook reflects our most recent view of the macroeconomic environment and is consistent with our three-year gross profit CAGR of approximately 15% to 18% and 3-year adjusted EBITDA CAGR of approximately 35% that we presented at our Capital Markets Day in March. For fiscal 2026, we expect total revenue growth of approximately 10% to 12% year-over-year. Total gross profit growth of approximately 14%, total adjusted EBITDA to be in the range of approximately $68 million to $72 million. For the first quarter, we expect total revenue in the range of approximately $285 million to $290 million; total gross profit growth of approximately 13%, total adjusted EBITDA to be in the range of approximately $14 million to $16 million. With that, I'll turn the call back to the operator.

Thank you very much. Ladies and gentlemen, once again, we'll start our Q&A session now. [Operator Instructions] Our first question for today comes from the line of Trevor Williams from Jefferies. Your line is live.

Thanks very much. I wanted to go back to the full year guide, if we could, and just the embedded acceleration in revenue growth beyond the first quarter. If you guys just can talk to kind of the primary drivers behind that, the level of visibility just kind of -- and then any kind of underlying macro assumptions that we should be aware of within that? Thank you.

Hey, Trevor, thanks for the question. What's built in our fiscal 2026 guide is, as you know, we're investing quite a bit in go-to-market. We're hiring to 150 outbound reps we're over half of the way there already. And so once those outbound reps ramp, we expect them to start showing acceleration on both software and locations and then the payments revenue that comes with that. In addition to that, what's built in fiscal '26 is the incremental 35% of OpEx that we've -- 35% growth on total R&D spend that we've baked into fiscal '26 for product innovation that's going to start to be reflected in additional modules being released and upsell as well. So that is really what's baked into fiscal '26 from a revenue acceleration perspective and gross profit growth acceleration perspective. With respect to the macro, we have some softness in the fourth quarter, as you know, from a same-store sales perspective. And we do expect or we are baking into our guide at -- that macro that we saw in Q4. Now we did see the same-store sales stabilize in April and in early May, but we're still being conservative on the guide just given the uncertainty that's out there today, we want to put a guide out that we are very confident that we can hit.

Okay. Got it. Thanks very much. And then on the payments penetration rate, Ash, I heard you give the 40% number for April and the expectation for that to go up over the course of the year. if you could just put a finer point on maybe the range we should be thinking about by the end of the fiscal year and kind of key variables within that? Thank you.

Yes, for sure. So I'll start with talking about payments penetration overall in the quarter. There was a slight growth from Q3 to our fiscal Q4, the reason penetration didn't rise more sharply is really just a mix shift. We saw the same-store softness that I talked about but that happened in certain highly penetrated verticals such as hospitality in North America. But overall, payment penetration is really not a concern for us. The underlying trend is very healthy, as you mentioned. And as we said in our prepared remarks, we are already up 40% in the month of April and as we scale our go-to-market reps and continue to focus on payments attach, we have a pretty high attach rate, given that we sell the product as an integrated solution today. We do expect penetration to continue trending upward. We are not guiding on payments penetration because, as you know, with the uncertain macro and the impact on same-store sales, that goes up and down. We use -- we really use payments penetration more as a there's tons of opportunity out there for us. If we are at 40% in April, there's still a lot of upside for us there. And we expect that 40% to continue to grow through fiscal '26.

Thanks very much.

Thanks for your questions. Our next question is from the line of Koji Ikeda with Bank of America. Your line is live.

Hi guys. Thanks so much for taking the question. I wanted to go back to that prior question about the guide. And it sounds like there's two key levers here that are kind of informing your guidance for 2026, ramping sales capacity, balanced against an uncertain macro. And so thinking about those two levers, are both of those levers detuned meaningfully for the guide? Or is one of those factors more conservative versus the other? Thank you.

Yes. Thanks for the question, Koji. If we go back to the guide, when we look at outbound, if we take the catalyst for revenue acceleration. And we start with that. When we look at outbound, we have seen very encouraging signs to date. These are the reps that give us the highest unit economics, the lowest payback period. And so scaling the outbound is something that we have high confidence in, and that's what's baked into the plan. From a macro perspective, as I mentioned, there is a fair bit of conservatism baked in just given that there is still a fluid macro out there. And like I said, we want to put a guide out there that we are confident we can hit. The macro is less in our control, so we've baked more conservatism into that factor whereas the outbound, the hiring is going very well, we feel that, that is very much in our control. And so we're being -- we're very confident in the outbound in that ramp that we've assumed in our guide.

Got it. Thanks, Asha. And then when looking at the guide, it looks like gross profit is growing faster than revenue. So maybe walk us through what are the levers there for that for 2026. And then how to think about gross profit growth versus revenue in 2026 and beyond. Just thinking, is this a onetime faster growth in '26 and it will normalize after that? Or is this something we could continue seeing in the out years? Thank you.

Yes. Thanks for the question. Great question, Koji. We do expect, and you see that in our guide that gross profit growth outpaced top-line growth. And that's really coming from the fact that the majority of the growth that you're going to see from Lightspeed in fiscal '26 and beyond is from location ads and from software. And that's because the big ramp of unified payments and getting the back book on to payments is behind us. There's still some opportunity there for sure because we're only 40% penetrated as that April. But the majority of the growth that you're going to see is going to come from very high-margin software, which as you've seen from us, comes in at over 80%. And so we actually expect the gross profit growth to outpace top line growth. And as consistent with what we said at Capital Markets Day, overall gross profit growth we expect to be growing at a CAGR of 15% to 18% between now and fiscal '28. And so you should expect to see the 13% we outlined in Q1 to continue to grow every quarter into F'26 and even F'27 and beyond.

Thank you.

Thanks for your questions. Our next question is from the line of Andrew Bauch with Wells Fargo Securities, your line is live.

Hi, thanks for taking the question. In the press release, you talked about product and technology development investments being up, I think, 35% this year. Can you help us understand, better understand the places that you are investing maybe a finer point on what is being enhanced and how that translates to your confidence in the software uptake over time.

Yes. So thanks for the question. These are the two best platforms for retail and hospitality that – in Lightspeed history. As you've seen from the last quarters, we've had over tremendous amount of product velocity, adding software modules and software value on our retail on our retail flagship and then on our hospitality flagship. And of course, those products play extremely well in our two growth markets, Noam Retail and EMEA Hospital. Our focus is for retailer to go deeper into the -- an add software value for our key verticals, make sure that we are going deep into inventory management, deep into connections to the brands that those verticals rely on and increasing the online presence aspect for these businesses, which are -- many are physical first. On the hospitality side, front of house, back of house and administrative tools, we have an incredible suite of products that works seamlessly together. So enhancing that and making sure that, that is a great fit for hospitality businesses that are pan-European. We are the best pan-European solution for hospitality businesses with big ambition. So that's sort of the focus. But as you see in Q4, delivering a lot of value along those themes very, very aggressively.

That's great. And maybe if you could just give a refresh on the mix between the flagship businesses, retail and restaurant? And how should we think about the growth across each of those verticals into '26. Is this one kind of trending stronger than the other? And how do you think that progresses?

Yes, I'll take that one. From a mix perspective, retail is about 60% of our portfolio, hospitality is about 40%. As you know, our new focus is our new strategy focus is on Noam Retail and EMEA hospitality. We are -- when we talk about outbound 150 reps that we're hiring in the year, that does contemplate both retail and hospitality. They are different outbound motions, but they're outbound reps nevertheless. So when we think about fiscal '26 and beyond that 60-40 mix stays relatively the same from a retail versus hospitality perspective. And when we think about the growth markets, we are expecting gross profit to grow at a CAGR of 20% to 25% as we outlined at Capital Markets Day. And from an overall business, the gross profit growth to be in the 15% to 18%. And so we are maintaining that guide.

So it sounds pretty balanced. Thank you.

Thank you. Our next question is from the line of Dominic Ball with Redburn Rothschild & Company. Your line is live.

Hi guys. Thank you very much for the question. And I think the guidance and the cadence is quite clear. When it comes to Lightspeed Capital, this offers quite attractive gross margins. Can you sort of remind us or clarify how this is currently funded? Is it on balance sheet? How much of your cash balance sort of comfortable deploying here? And looking forward, would you ever consider a forward flow arrangement.

Hi, Dominic, thanks for the question. Yes, Lightspeed Capital is fully funded on our balance sheet today. As you can imagine, the economics are quite a lot different when we off-balance sheet. The economics are very favorable today. We have a take rate of between 12% to 15% on these merchant cash advances and our payback is 6 months to 7 months. So from an APR perspective, the take rate is well over 20%. And given that we've got pretty good insight into our customers, into their cash flows into what folks in their demographic are doing from a sales perspective, and we pay ourselves back through Lightspeed payments. We actually have a very low default rate in the low single-digit percent. And so for today, that is funded on our own balance sheet, we have $560 million almost of cash still on the balance sheet and we're nearing cash flow breakeven. So from a cash flow perspective, we can afford to keep it on our balance sheet. However, from a risk perspective, there is a point at which we will contemplate pulling this off the balance sheet or at least a part of it. But for now, if I look at the end of Q4, we have about $69 million outstanding at the end of the quarter, so still very palatable from where we sit. As that grows, we're definitely looking at how we off-balance sheet that and still keep some of the economics for ourselves.

Yes, that makes it seems like there's plenty of growth there. And just one on maybe Lightspeed Payments adoption. When that's been expanded to Europe, has this adoption curve being a little bit different to the U.S.? And is there a higher or lower structural [ceiling] (ph) into Lightspeed payments in the European markets?

Thank you for the question. From a payments in Europe from an attach rate perspective, is as strong as we see in North America. So when we go to market in our key markets in Europe, we really lead with the combined solution of software and payments, and we're really pleased to see that our attach rate remains as high as what we've seen in North America.

All right. Thank you Dax.

Thank you for your questions. Our next question is from the line of Thanos Moschopoulos with BMO Capital Markets. Your line is live.

Hi, good morning. With respect to same-store sales growth, can you provide some color in terms of the dynamic across the different end-markets and verticals and how that's been impacted by the macro?

Yes. Thanos, thanks for the question. We did see same-store sales pressure pretty much across the board when we think about the high-level geography and vertical. Of course, there were some same-store sales there was more softening in certain verticals, in particular, North America hospitality, which, as you know, is a very highly penetrated vertical. And so when we see softness in a highly penetrated vertical, that impacts our overall revenue, the impact is quite significant. But I would say, outside of North America Hospitality, which is where we saw the highest level of softness, we did see softness in Retail North America and European hospitality as well. That said, however trends did begin to stabilize in April and in early May. And while it is too early to call a rebound, we are really not seeing further deterioration either. But as I said earlier, we did plan for fiscal '26 quite conservatively so that we have guidance despite the macro uncertainty.

Great. And with respect to software ARPU, obviously a combination of your pricing adjustments and to get some extension in upsell. I know you've released some new modules recently. So maybe just speak to what you're seeing from an upsell perspective and the trajectory you're anticipating on that over the coming year?

Yes. Thank you for the question, Thanos. I think overall, we're really pleased with the progress we're making here. We've seen significant improvement from where we were in the first half of the fiscal year, and the momentum that you see in the back half, we expect to see continue in fiscal year '26. From a software module perspective, the new modules that we released on the hospitality side, KDS table-side devices, what we have upcoming on the benchmark and trend side. We expect that this will continue to be very strong from an attach rate perspective. And then similarly, on retail, whether it's insights or the evolution of our mobile scanner to become a true mobile POS. We also see significant improvement there, and that's contributed to our softer ARPU growing 11% year-over-year in Q4 so we're really pleased with the progress there. And as you highlighted, we had some core of customers that had to be adjusted from a pricing perspective, those ways have gone through now, and we're pleased with the progress on that front as well. So what you can expect from us is continued momentum going into fiscal year '26 from that point of view.

Great. Best of luck. Thank you.

Thank you. Our next question is from the line of in Tien-Tsin Huang with JPMorgan. Your line is live.

Hi, thank you so much. I ask my two questions just together. The 35% more in product development, is that just investments in people or tools back? I heard the detail across the two platforms. So just want to understand what exactly you're investing in? And if that continues on a run rate basis. And just on the location growth side in the growth markets, is that -- any change in where that's coming from? Is it more new business starts? Or are you seeing more flips of legacy, any interesting call-outs as you grow your go-to-market? Thanks.

Yes. On product development, it is increasing headcount on both our retail and hospitality development teams so that we can have more squads to be building out different product modules and enhance the product on locations?

Yes. As you know, we guided at our Capital Markets Day, customer location count growing at 10% to 15% from a CAGR perspective. So we're really excited for that, and we're already seeing some really strong momentum in that direction. To answer your question specifically, it continues to be about one-third, one-third, one-third. So one-third are brand new businesses opening going with us, about one-third are switching from legacy and about one-third are switching from more modern platforms that our merchants or prospects have outgrown because 2 basic and functionality, and they need something more robust that Lightspeed can provide. So we continue to see that trend.

Great. Thank you.

Thank you. Our next question is from the line of Josh Baer with Morgan Stanley. Your line is live.

Thanks for the question. One on strategy, one quick on financials. Just on strategy. I was hoping you could talk through some of the advantages of being a pan -- your pan-European when it comes to EMEA hospitality. Just wondering any sense for the number of restaurant groups that would fit into the pan-European category versus more country specific or independent?

Yes. We really see -- thank you for the question, Josh. We see the diversification that Lightspeed has playing in multiple markets as a key strength for us. And specifically in hospitality in Europe, as you heard from us at Capital Markets Day, we see the revenue opportunity to be in the $3 billion range from a TAM perspective in the direct markets where we operate today with an additional $2 billion in revenue for adjacent countries that we intend to expand into in the coming years. So there is a lot of TAM to capture for us. And we really have an amazing product in Europe in hospitality. It is the best product for the market. And we're hearing it from our customers. We're hearing from our reps. And so we're really stepping on the gas there. So quite excited for the revenue that we can tap into in the coming years.

Okay. Got it. And just on the financial side, I was hoping we could talk about free cash flow for this year. Maybe a review of the gap between EBITDA and free cash flow in fiscal '25 and how -- what we should expect for fiscal '26? Thanks.

Yes. Thanks for the question, Josh. When we think about free cash flow, you saw us nearing breakeven in fiscal 2025, and you should see that improve even further in fiscal 2026. As you mentioned, it's really driven by the majority of the items driving the improvement in adjusted EBITDA, where we're forecasting we're going from about $54 million in fiscal '25 to about $70 million in fiscal '26. And so we do expect to see the free cash flow of fiscal '25 of minus [11] (ph) improve. With respect to the items that are driving the difference, the typical working capital type items, prepayments, accounts payable and receivable, obviously, they don't hit the P&L at the same rate as they hit the cash flow. We have other things like taxes on the large buybacks that we did recently but it is nothing out of the ordinary that are the reconciling items between adjusted EBITDA and free cash flow. And we do expect with the improvements in adjusted EBITDA that we are going to near breakeven or better in fiscal '26.

Thank you for your questions. Our next question is from the line of Richard Tse with National Bank. Your line is live.

Hi, good morning. This is Mike Stevens on for Rich. Just wanted to revisit. You guys have talked in the past about new order payments opportunity and the volume that's running through that platform. Just wondering if we could revisit that and how efforts are going to monetize that? And are there any challenges in doing so on that platform?

Hi, Mike, thanks for the question. I'll take that one. You're right, there is a pretty large payments opportunity for the B2B volume that we have today. There's about $10 billion of B2B volume that flows through our new order system that's not in the $90 billion of GTV that we talk about for Lightspeed. We have started the monetization, although on a small scale. I would say today, it's low single-digit millions in terms of revenue, and we expect that's going to be growing in fiscal '26 and beyond. So still at the beginning of that journey, but we have started the monetization, and we expect that to continue in the coming quarters.

Okay. Great. And then I just wanted to dig in a little further on the Lightspeed Capital. You kind of touched on some of the puts and takes on that business. What -- generated about $35 million this year, what can we maybe expect in near-term as a target for that business? I know I think you guys are launching some other high-margin financial products as well. But yes, any kind of near-term growth targets that we can gather.

Yes. Thanks, Mike. I'll take that one. So when we think about Lightspeed Capital and what's baked in fiscal '26, around 30% or more growth on the top-line that comes in at about 95% gross margin and quite a bit of that falls down to the EBITDA line. There is a lot of opportunity. We can move faster if we wanted to. When we look at our peers, for example, they are giving out 1% of their GTV in merchant cash advance. Lightspeed is well below that. 1% of our GTV would be almost $1 billion in merchant cash advance. So when we think about the opportunity, it's there. It's just that in this macro, we want to move carefully on a product like Capital. Like I mentioned earlier, our default rates are in the very low single digits, and we want to keep it there. So while there is a lot of opportunity, what we are baking into our fiscal '26 guide is about 30% growth on the top --.

Okay, excellent. Appreciate and thank you.

Thank you. Our next question is from the line of Raimo Lenschow with Barclays. Your line is live.

Hi, thanks for squeezing me in. Two quick questions. First of all, you obviously, as you mentioned, you're focused on like retail U.S. hospitality, Europe but you still have the other businesses there. Like what is -- what are your planning assumptions in terms of stability rate of decline, et cetera, for the non-focused parts? That's question one. Question two is on the 150 sales count obviously, there kind of was an option that was available to you like before. Like how do we go and did we discover like the sales guys are so important? And how did you come up with that number there of 150, if they are kind of so amazing, why not hire more on that one? Thank you.

Thanks, Raimo. I'll take the rest of the world markets, and then I'll hand it over to JD to talk about outbound. So our noncore areas do remain important for us. We call them the rest of the world market. We're not prioritizing them where growth capital is concerned. But ultimately, we're running them for efficiency. We're running them in a more streamlined way. We have very happy profitable customers in that rest of the world portfolio. And we've optimized our team to support those regions and verticals so that these customers continue to be taken care of. These markets offer still lots of upside or growth opportunity from a net retention perspective. For example, we're still rolling out capital in those markets. Payment penetration is still lower in those markets. Payments does come in at a 30-plus percent margin in those markets as well. And we are happy with the progress there. Revenue in the rest of the world markets grew year-over-year, our payment penetration grew year-over-year. Our GPV as well grew 22% year-over-year. So again, very profitable markets for us. We are just not focusing on those markets from a growth perspective, but we are growing that customer base through net retention, and it's going well.

As per outbound, thank you for the question. We dive into that in our presentation at Capital Markets Day. But to summarize fiscal year '25 for us was really the first year where we did hold at scale, and we're really happy with the results that we saw, as you pointed out as well in your question, and that's why we are really doubling down there. We're effectively, essentially tripling the sales force on that side in that funnel or in that motion. And if you look at our progress in Q4, it was a record quarter from a bookings perspective in outbound March, as we highlighted in our prepared remarks, was really, really strong. So we're really happy with the momentum. As far as why not hire more than that, there is about a 6-month ramp from hire to full production from our outbound reps. And so while we see really strong unit economics, we see bookings relative to OpEx being very strong and stronger than all our acquisition motions. We also want to be conscious that there is a ramp, right? So we are taking that into account in our model and into our build for the year. But what you can expect from us going forward is that you'll see and you'll continue to see outbound becoming more and more of a driving force as far as how we acquire customers. And why we like outbound as well is that we are able to be very targeted when we acquire customers via outbound, we acquire the right customer, the customer that's generating the right GTV, the right unit economics that are a great fit for our product. Churn is lower when we go through outbound. So for all of these reasons, we are really pleased with the progress that we're seeing here. And I think as per why we didn't do it before, it is really the evolution of our product. Our product has really matured as Dax highlighted on both retail and hospitality and allows us now to offer a full suite that really caters to the more sophisticated retailers and restaurateurs out there and to really focus on those retailers and restaurateurs, outbound is the way to go. So it is really all these things are kind of coming to fruition and or clicking for us, and now we're doubling down on it.

Okay, perfect. Thank you.

Thank you for your question. And we have a final question for today from the line of Timothy Chiodo with UBS. Your line is live.

Great. Thank you. I think all the answers, Asha, around capital were really, really helpful. A minor follow-up there. It looks like in the quarter, capital revenue growth decelerated from 90 into the high 20s, if I'm not mistaken. And I think it was really -- it was helpful that you gave the implied guidance for capital next year would be a little bit of an acceleration. Was there any kind of nuance around this quarter's capital revenue growth, either just lapping dynamics or something else that would have made the growth decelerate to that extent this quarter?

Yes, for sure. Thanks, Tim. Thanks for the question. As we talked about, we did see the macro softness in Q4 on same-store sales, and that directly impacts capital revenue. As you know, capital revenue basically comes from the collections that we make from our customers sales. So we get paid back through Lightspeed payments. So when our customer same-store sales are declining or lower in terms of GTV versus the prior quarter, we get paid on a slower pace and that directly impacts capital revenue. As I mentioned, though in April and May, we started to see the same-store sales stabilize. So we should see that capital revenue come back in the first quarter.

Okay. Great. Thank you. That really helps. I was -- it wasn't clear to mean that, that would explain going from 90 to high 20s, but I was wondering if there was anything else there, but it sounds like no, but I appreciate the answer. Thanks.

Thank you for your questions. And ladies and gentlemen, that will conclude our Q&A session for today's call. I'd like to turn it back over to Gus for any closing comments.

That's it. Thanks for joining us this morning. The IR team will be around if anybody has any further questions, and we look forward to speaking to you at our next conference call. Thanks, everyone.

Thank you.