Lightspeed Commerce Inc. Subordinate Voting Shares

Good afternoon. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed second quarter 2025 earnings call. All lights have been placed on mute to prevent any background noise. After the speaker's 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, press star one again. Thank you. I would now like to turn the call over to Gus Papagiorgio, head of investor relations. you may begin your conference.

Thank you, operator, and good morning, everyone.

Welcome to Lightspeed's fiscal Q2 2025 conference call. Joining me today are Dax De Silva, Lightspeed's founder and CEO, Asha Bhakshani, our CFO, and J.D. Samothan, our president. 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 second quarter 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 CEDAR+, and on the SECs at your system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. Our commentary today is focused on our business and Q2 financial results. As you can appreciate, we will not be taking questions concerning the company's ongoing strategic review. We respectfully refer investors to the press release we issued on September 25th and our quarterly filings made today with U.S. and Canadian securities regulators. Before I pass the call on to DAX, I also want to announce that in light of such ongoing strategic review, we will postpone our capital markets pay previously scheduled for November 20th. We note that there can be no assurances given at this time as to the outcome of our strategic review and that no further announcements or comments in respect of this matter will be made except as required under our regulatory obligations. With that, I will now turn the call over to Dax.

Thanks, Gus, and welcome, everyone. I am pleased to report another strong quarter from Lightspeed. Revenue grew 20% year-over-year to $277.2 million, exceeding our previously established outlook of between $270 and $275 million. Payments penetration increased meaningfully to 37% from 25% in the same quarter last year, which in combination with our concentrated effort to control costs allowed us to deliver record quarterly adjusted EBITDA of $14 million, ahead of our previously established outlook of $12 million and significantly better than breakeven adjusted EBITDA in the same quarter last year. Another milestone worth highlighting, especially as we mark our 20th year of operations, is that on a trailing 12-month basis, revenues exceeded $1 billion with adjusted EBITDA of $32 million. As we look towards the future, Lightspeed is in the enviable position of maintaining a large and growing top line, positive adjusted EBITDA, the strongest products we've ever had, and a very healthy balance sheet. Our mission remains to empower independent retail and hospitality entrepreneurs with the technology they need to help build and grow their businesses. We also continue to focus our efforts on our Ideal Customer Profile, or ICP, sophisticated high-volume and multi-location SMBs with complex workflows transacting more than $500,000 in GTV per year. Thanks for our industry-leading flagship platforms and strong go-to-market teams, we were able to add a host of compelling new customers this quarter, particularly in our key verticals of North American retail and European hospitality. In retail, one of our biggest customer wins in the quarter was Grow Generation, America's largest hydroponic retailer. We signed over 30 locations with our flagship Lightspeed retail offering, thanks in part to our seamless integration with NetSuite. In California, Bare Bones Workwear adopted Lightspeed retail, offering over 100 workwear brands in their 10 locations across the state. Lightspeed retail is the perfect fit for this high-GDP multi-location retailer. We also added the Nashville Country Music Hall of Fame, with over 1 million visitors per year. this country music institution will use Lightspeed Retail to power its multiple retail outlets. As part of our outbound initiative, we have been reaching out to New Order retail customers who are using our B2B offering but are not using the Lightspeed Retail POS. The ability of our POS to integrate into the New Order B2B order management system is a meaningful differentiator for our retail offering, and we continue to grow the number of brands available on New Order. By seamlessly importing orders from New Order into the Lightspeed Retail POS, We save them valuable time and simplify their operations. This strong and unique value proposition is resonating with these customers, and we are gaining traction. We were thrilled to sign Mavie Jean's flagship locations in Canada and the U.S. Our sophisticated inventory management capabilities, along with our well-developed APIs, new order B2B integration, and competitive payment rates, made Lightspeed Retail the natural choice for this expanding denim brand. Our new order B2B capabilities were also instrumental in signing Wayne's Boot Shop in Cody, Wyoming, which was previously managing their inventory manually. Light feed retail is saving them valuable time so that their team can focus more on their customers. Other notable brand additions from this quarter include Jay Lindbergh, Bugatti Group, and Columbia Sportswear. Last quarter, I commented that we added 12,000 pet products to new order to open up the pet vertical. Since then, we have seen close rates on pet stores improve 40% in the quarter, a very encouraging sign. In hospitality, Lightspeed Restaurant's ability to integrate with some of the leading ecosystem partners like Seven Shifts, OpenTable, and Uber remains a key differentiator for us. It is one of the main reasons we are able to secure complex high-GDP customers. Natalie, with two locations in the heart of central London, chose LightSuite because of our ability to integrate platforms such as Optimized Inventory and delivery solution, Deliverect. We also added 4PM Entertainment in Amsterdam as a LightSuite restaurant customer. Taking advantage of the booming Pedel tennis market, 4PM launched The Paddlers. With over 20 locations across the Netherlands and Germany, 4PM will be using LightSuite restaurant payments for their food and beverage service. Our ability to manage multiple locations across different countries under one software and payments platform makes this a natural fit for pan-European operators like 4PM. Another example of this is J'adore Hospitality Group. J'adore operates a collection of restaurants, nightclubs, and bars across France and has started rolling out Lightspeed to help support their expansion. While our go-to-market teams continue to focus on our ideal customer profile, our product teams are delivering features that can make these customers more successful. In the quarter, we continue to accelerate the pace of innovation, releasing several new compelling features. We have the global launch of retail insights for our retail customers, who use this module to help prevent stockouts of popular items to improve their revenue. We also introduced automatic order distribution for multiple location retailers. With Lightspeed multi-location ordering, retailers can now create one purchase order from multiple locations and automatically distribute stock based on inventory plans. And finally, we released Instant Payouts for retail customers in the UK, which carries a 95% plus gross margin. Eligible Lightspeed merchants will be able to access funds immediately after the transaction, even on weekends and holidays. Instant Payouts is already available to Lightspeed retail customers based in the US. We are also excited about an addition to instant sites for e-commerce merchants, allowing merchants to create and design customized sections for their e-commerce sites. In hospitality, we released our groundbreaking benchmarks and trends module. Through the power of machine learning, benchmarks and trends gives restaurateurs a clearer picture of how the restaurant compares to other local venues on several metrics, including pricing and customer favorites. We launched our sales summary page, allowing restaurateurs to spot trends faster by leveraging improved data visualization. We extended happy hour pricing to order anywhere, our online ordering module. This feature allows businesses to dynamically adjust online menu prices so guests ordering from their website can take advantage of happy hour pricing. This month, one of our newest features, kitchen display, will go into general availability. Kitchen display allows for constant connectivity between the front and back of the house, which improves restaurant operations and customer service. We have recently launched this product in EMEA and are seeing over 10% of new customers adopt this solution, helping increase ARPU. This is the kind of innovation that allows us to win new customers and grow subscription revenue. In terms of the second half of the year, I'll remind everyone that for fiscal 2025, we are focused on three key operational objectives aimed at achieving our goal of profitable growth, and these are accelerating software revenue growth, continuing to advance adoption of our financial services, and continuing to control costs and finding additional operational efficiencies. With respect to financial services and operational efficiencies, I am very happy with the significant progress we've made in such a short time, and I think the results today are a testament to our ongoing success there. On software revenue, we've initiated efforts this year that will start to impact these numbers in the next two quarters. These initiatives include expanding our outbound sales team, aiming to increase the number of reps by over 60% by year end, launching new software modules, which will expand software ARPU, implementing select price increases, which will increase software revenue growth, growing our brand awareness in key retail and hospitality verticals, and returning the majority of our account managers who were reassigned to executing unified payments to their traditional roles of upselling software. Beyond these tactical efforts, and since my return as CEO in February, I have been focused, along with our world-class team, on transforming the business towards a path of profitable growth. Based on our ongoing strategic review of our operations, we have decided to focus our efforts on the markets where we are strongest and have a proven right to win, These are retail in North America and hospitality in Europe. Our other markets will remain important to Lightstream as they represent a strong customer base and we will focus on growing revenue there primarily through upselling existing customers. We've decided to focus on retail North America and European hospitality because they are our largest and fastest growing customer base, accounting for the majority of revenues and growing faster than our overall business, have compelling unit economics, represent our strongest competitive position, are our most compelling product market fit, and have our highest close rates. There are two main actions that will result from shifting our strategic focus to these two markets. Firstly, our go-to-market efforts will bias strongly towards retail in North America and hospitality in Europe. The vast majority of inbound and outbound marketing efforts will be channeled to these two markets, and these markets will represent the majority of new customer additions. Secondly, our product development efforts will also be concentrated on these markets. Our R&D is already focused on our flagship products, Lightspeed Retail and Lightspeed Hospitality, which are ideally positioned for the North American retail and European hospitality markets. By prioritizing R&D here, our flagship products will become even more compelling. We believe this will improve our competitive position in these markets and boost software ARPUM. While this adjustment will result in several changes in the business, many things will remain the same. Our ideal customer profile does not change. We will continue to focus on larger, more sophisticated SMBs with complex needs. Leading with our flagships as the main product offering also does not change, as these products are ideally suited for the target markets. And finally, our goal of expanding financial services such as payments, capital, and instant payouts remains the same. By focusing our organization's efforts on these two core markets, we believe we will improve our growth profile, simplify the organization, and improve customer satisfaction. There are efforts that will be required to shift our organization towards this new operating model, but they are very manageable, as these two markets already represent the majority of our revenues. Projects are now underway to align our business to the new model, and I expect it will be substantially completed by the end of the fiscal year. I will now let Ash take us through the quarterly results and provide our outlook.

Thanks, Dax, and welcome everyone. Lightspeed had a great second quarter, with revenues and adjusted EBITDA coming in ahead of our previously established outlook. Our operations continue to show drastic improvement in adjusted EBITDA profitability, and this quarter we were cash flow positive if we exclude cash used to grow our capital program. I will walk you through our latest quarter's performance, our key metrics, And finally, provide an outlook for the upcoming quarter and fiscal year. Total revenues increased 20% and gross profit dollars increased 19%, thanks largely to our unified payments efforts and growing software ARPU. Subscription revenue grew 6% year over year to $85.5 million, with gross margins on subscription revenue increasing to 79% from 75% in the same quarter last year. thanks to a concentrated effort to manage costs. Excluding the impact of share-based compensation expense, gross margin on subscription revenue was 80%. I continue to be very happy with our strong performance in subscription gross margin. As we have outlined in our recent earnings call, we expect subscription revenue growth to improve in the back half of the fiscal year, with subscription revenue growth for the second half of the year to be in the 8% to 10% range, with accelerating momentum in Q4 versus Q3. Software revenue growth in Q3 so far has been encouraging. Transaction-based revenue grew 33% to $183.8 million. In the quarter, we saw GPV increase 49% year-over-year to $8.8 billion as we process a greater portion of our GTV through our Lightspeed payments platform. Lightspeed Capital revenue grew to $9.3 million from $4.2 million in Q2 of last year, up 121% year-over-year, as the program continues to be popular with our customers. Lightspeed Capital offers fast access to capital and automatic repayment through Lightspeed Payments. Merchants are leveraging this offering to finance inventory purchases, upgrade equipment, and expand their overall business. Gross margins for transaction-based revenue were 27% and include gross margins from our capital program, which continues to grow with healthy margins. As we convert customers to light-speed payments, we increase our overall net profit dollars, and in the quarter, we saw transaction-based gross profit grow 33% year-over-year. Total gross margin was 41%, flat with the previous quarter and down only slightly year-over-year. Gross profit increased 19% year-over-year to $114.3 million. Despite transaction-based revenues increasing in the sales mix from 60% in Q2 last year to 66% this year, we were able to maintain our gross margins at comparable levels thanks to continuous spend management and the growth of higher gross margin revenue from items such as capitals. It's worth highlighting that gross profit per location grew 19% year-over-year thanks to increasing payments adoption and a shift towards high GTV customers. Total adjusted R&D, sales and marketing, and G&A expenses increased by 4% compared to the previous year. And as a percentage of revenue, our adjusted R&D, sales and marketing, and G&A expenses declined significantly year-over-year. from 42% in Q2 of last year to 37% this year. Adjusted EBITDA in the quarter came in positive at $14 million. This marks a significant improvement from the adjusted EBITDA of $0.2 million in the same quarter last year. This positive trend in operating expense reduction results from our unwavering focus on finding efficiencies across the organization. This trend, along with our growing gross profit, has resulted in meaningful adjusted EBITDA margin expansion. As we continue to examine and optimize our cost base, we are renegotiating significant contracts, reviewing global locations to consolidate and reduce our footprint, and scrutinizing corporate overhead, such as travel and software licenses. We are confident that these efforts will result in an even more efficient and resilient organization. Reducing costs in several of these areas have allowed us more flexibility to continue to invest in product and go-to-market initiatives. As we have mentioned, we plan to continue to grow our outbound sales team as they are more effective at winning merchants in our ideal customer profile. We will also continue to invest in product innovation to further strengthen our leadership position among complex, high-GTV merchants. Our focus on retail in North America and hospitality in Europe will allow us to concentrate our efforts so we can maintain strong growth while also expanding adjusted EBITDA margins. For the quarter, we had an adjusted income of $19.9 million compared to $6.4 million last year, thanks largely to the improvement in the items driving our adjusted EBITDA performance. We continue to actively manage our share-based compensation and related payroll taxes which were $19.5 million, or 7% of revenue for the quarter, down from $23.3 million, or 10% in the same quarter last year, due to the ongoing prudent management of our equity pool. GTV from our flagships continued to be strong this quarter, up 26% year-over-year, demonstrating that for our target customers and with our flagship products, we are seeing good success with attracting the right customer base. Same-store sales in retail, however, remain challenged across many of our verticals. The good news here is that the rate of decline is easing. Overall GTV in the quarter, including non-flagship offerings, was flat to last year at $23.6 billion. For the remainder of fiscal 2025, our focus will be on increasing our high GTV customer base and accelerating subscription revenue growth in both retail and hospitality. As Dax mentioned, we are increasing our outbound sales efforts, particularly in North America retail and EMEA hospitality, implementing targeted price adjustments, optimizing our customer onboarding, management, and support processes, and as mentioned, we've already reoriented most of our account managers back to upselling software, all of which should show impact on subscription revenue in the second half of this fiscal year. Sophisticated customer locations with GTV exceeding $500,000 a year and $1 million a year, continue to increase as a proportion of our customer mix, while those with GTV under $200,000 a year continue to decline. Given the initiatives we have launched and further actions we expect to launch that Dax mentioned, we expect to see an inflection point for growth in our ICP customers in fiscal 2026, particularly in North America retail and EMEA hospitality. Excluding Ecwid customers, our total ARPU for the quarter reached a record $527, an impressive 24% increase year over year. This improvement is the result of both unified payments as well as an increase in software ARPU, given our focus on flagship products and shifting our customer base towards higher GTB locations, which typically adopt more software modules and generate higher payments revenue. In terms of our balance sheet, Lightspeed closed the quarter with just under $660 million in cash and cash equivalents, down from approximately $674 million in the previous quarter. Cash used to grow our merchant cash advance program was $18.8 million during the quarter. Excluding cash used to grow our merchant cash advance program, Lightspeed had positive overall cash flow for the quarter. Lightspeed also had positive adjusted free cash flow in the quarter, which was great to see as we continue to position the company to deliver sustainable free cash flow. In the quarter, GPV as a percentage of GTV was 37%. Our unified payments initiative has improved our ability to sell, onboard, and get customers transactional on payments. We will continue to benefit from those improvements, and we expect the proportion of GTV flowing through our payments offering to continue to increase. as all new eligible customers onboarded must take payments. We expect to end the year with GPV representing between 40% to 45% of GTV. The LTV to CAC of our customers improves when they add payments, and we are seeing that in our results today. Now, turning to our outlook. Our year-to-date results have been encouraging, with both revenue and adjusted EBITDA coming in ahead of our outlook. For Q3, we expect subscription revenue growth rates to improve over the levels seen in Q2 as we expand the outbound teams, continue to return our AMs to upselling software, and implement price increases. In addition, we expect to see strong growth in transactional-based revenue as our GPV continues to climb. For the third quarter, we expect revenue between 280 to 285 million dollars. and adjusted EBITDA of approximately $14 million. For fiscal 2025, we are raising our adjusted EBITDA expectations to a minimum of $50 million, while maintaining our outlook for overall revenue growth of at least 20%. With that, I will hand the call back to the operator.

As we open up for questions, As we open up for questions, I just want to reiterate that with respect to the company's ongoing strategic review, the board and management team are squarely focused on acting in the best interest of the company and its stakeholders. Lightspeed does not have a presupposed outcome, meaning all options are very much on the table from remaining a standalone public company to all the alternatives we're exploring as part of the review process. As you can understand, it is in the best interests of the company not to communicate anything about the process at this time as it is still ongoing So we won't be taking questions on the strategic review process. We will now take your questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. In order to accommodate everyone, we would like to ask you to please limit yourself to one question and one follow-up only. We'll pause for a moment to compile the Q&A roster. Thank you. Our first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Thanks. Good morning and nice results here. I guess I just want to dig in a little bit more towards the pivot to software. Asher, you mentioned that third quarter kind of thus far is showing good signs of this acceleration. I mean, I know you've outlined multiple reasons why it should happen. they're all very logical i'm just wondering kind of the early signs of what you actually are seeing and then in relation to that the pricing initiatives that you're putting in the market are those are squarely just in the third quarter have you been starting that a little bit um uh in this current quarter in anticipation of that because it does feel like the uh there's others in the in the industry that are putting a lot of pricing on the on clients right now as well thanks hey don thanks for the question

So yeah, you're right. We did mention that we are seeing encouraging signs in the quarter. So we, you know, we completed October and the software revenue growth, we're already starting to see improvements as well as the last month of Q2, which was, you know, September. But overall, the inflection in software that we're already seeing comes from several areas as we discussed in the prepared remarks. including the account managers that used to be inundated with payments have now come back to selling software full-time or upselling our base on software. And on the price increases in particular, we've implemented the price increases, communicated them in both July and October, and so we should start to see that impact starting in Q3.

Okay, that's great. Just quickly on gross profit margins came in better than what we had expected. And that's kind of despite payments continue to be really strong in terms of its growth rate. And obviously, subscription margins were really good. I guess the question is, outside of just the mix shift associated with subscription getting a little bit stronger, is Lightspeed Capital playing a role yet to help offset payments growth? Or is that just still really too early in the cycle to make that a meaningful contributor? Thanks.

Yeah, we're definitely seeing an impact from Lightspeed Capital. I mean, you know, when we think about the numbers, and you'll see them in our disclosure docs, we're looking at high single digits per quarter in revenue. But because that comes in at 95% plus gross margins, it definitely has an impact already in offsetting, you know, both the residuals moving over to payments. and also just more and more of our revenue coming in at LightSuite payments gross margin. So, capital is definitely having an impact already.

Okay. That's great to hear. Thank you.

Your next question comes from the live Andrew Bolch with Wells Fargo Securities. Please go ahead.

Andrew, you might be on mute.

Operator, maybe we'll go to the next question.

Thanks for taking the question. Could you remind us how large North American Retail and EMEA Hospitality are and potentially how fast those are growing? And then in this pivot to those segments in the reoriented focus, what's the goal on what the growth of those businesses could be?

Hey, Andrew. Thanks for the question. So North America Retail and EMEA Hospitality are the majority of our revenues today. And when we think about our flagship products, these are the two markets that they're primarily serving, Noam Retail and EMEA Hospitality. While we're not, you know, guiding on future growth rates, what I can say is, you know, the prioritization and the focus that we're now putting on the two markets where we have the highest right to win, the best unit economics, the best close rates, you know, what that ultimately does is it does allow us to accelerate growth. But at the same time, it allows us to expand EBITDA margins given that we do have this efficiency portfolio that we're working on cost optimizing.

Got it. And then if we think about these projects you have going on throughout that are supposed to be completed by the end of this fiscal year, is there any way that we could potentially see some of the fruits of that labor prior to the end of the fiscal year? And how are you thinking about how this all kind of spools up?

Yeah, I'll start and then maybe JD could go into go-to-market in particular, but assuming that what you mean by projects are, you know, splitting the business or sort of focusing the business on this growth portfolio versus this efficiency business, we've already started to, you know, reorient our teams to prioritize investments to the areas where we have the highest right to win. And our teams should be, you know, fully, the reallocation of resources should be fully completed by the end of our fiscal year in March so that we can actually hit the ground running in fiscal 2026.

Yeah, maybe I should add, no, retail and email hospitality are already our strongest growth areas, but the reallocation of resources allows us to just go faster. And so that's very exciting for sure from a go-to-market perspective.

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

Please go ahead.

Great. Thanks a lot. Yeah, I wanted to go back to the location growth with the higher GTV customers that slowed by a bit again this quarter. If you could just put some more detail around some of the drivers there. And then with the Titan focus on retail North America and hospitality in Europe, at least in the near term, any impact we should think of that having on the trajectory of the high value location growth? Asha, I think I caught you saying it sounds more like a fiscal 26 inflection for the ICP growth, but any more help there would be great. Thanks again.

Yeah, maybe I'll start. So from a location perspective, again, as you kind of pointed out already, our focus is really on our ideal customer profile. These are businesses that are doing north of Farrakhan and GTV. And I would say as far as categorizing how we're trending on that, the best way to look at it is on our flagship products. And on our flagships, the growth of our ICP locations is up 27% year over year. So we're very happy with that. At this stage, about 40% of our overall location count is now on our flagships. And so not only is it encouraging from a flagship perspective, but If you think about the next fiscal year, which you kind of touched on as well in the second part of your question, the majority of our customers will be on our flagships by then. And so it's going to start to have a meaningful impact on the overall portfolio.

Okay, great. That's helpful. And then just one on the model for ASHA, the payments gross take rate was up. quarter over quarter is the first time in a couple of years we've seen that. Just any more detail there would be helpful. I'm just trying to understand if there's been any change just in what we should expect the trajectory for that to look like over the next year or two. Thanks.

Yeah, Trevor. So the payments gross take rate, you know, again, it fluctuates with, you know, it fluctuates with I'm assuming you're looking at total transaction revenue. and there's light-speed capital included in that number. From a gross take rate perspective, as you know, North America is in the 2.5, 2.6 range, and Europe is closer to the 1 to 1.3 range. As we penetrate Europe more, we actually should see downward pressure on the gross take rate. I would say we should land somewhere in the 2% range from a normal state because Overall, there's more GTV to monetize in North America than Europe. So, you know, I would say there's puts and takes in the gross take rate. We should expect long-term we land more in the 2% range. But Lightspeed Capital is in that transaction-based revenue, and that could be improving the number that you're looking at.

Great. Okay. All right. Appreciate it. Thanks.

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

I wanted to follow up on the location growth in the target GTV cohorts. That year-over-year growth has declined now for eight quarters. I think by our estimate, it looks like location's probably down slightly quarter over quarter. You just mentioned much stronger growth with flagship products. Could you talk a little bit about that dynamic? Is there... like the conversion over to flagship, is that an opportunity for merchants to evaluate other options? Just wondering if there's churn associated with that upgrade.

Yeah, thank you for your question. So keep in mind, again, the way we categorize our ICP locations is looking back on a 12-month run rate. So there is, of course, seasonality that can that can impact the ups and downs around that location count. But ultimately, going back to your question, without a doubt on our flagship products, that's where we're seeing phenomenal growth. We're very happy with the progress there. On our legacy products, you know, there is naturally a bit more churn. We allow our customers to upgrade to our flagship products. And so we're confident as we enter fiscal year 26, we're going to start to see the trend go in the direction that we're expecting. So, you know, all leading indicators are pointing in the right direction and you'll start to see that pick up and that forward momentum come through in the next fiscal year.

Okay, that's helpful. And then maybe you could just talk more broadly about market share, like where you're winning and losing and competition. I guess the message is you're winning in retail in North America and hospitality in EMEA, but just wanted to check in on share and competitive dynamics. Thank you.

Yeah, great question. So, of course, this is supporting our strategy, the reason behind our focus on North America retail and EMEA hospitality, and Asha touched on that from a right-to-win perspective. That's really where we have our strongest product market fit and go-to-market fit. We really see our close rates and our conversion rates being the highest in those two markets and where we feel like we're in the lead as far as the type of verticals and type of businesses that we focus on. And that's why we really want to double down on that, and we feel like there's a lot of time left for us to capture in the years to come. excited for future years with that strategy.

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

Hi, good morning. The payment penetration rate was up 100 basis points sequentially, which is a slower rate of increase than in prior quarters. Was that just a function of seasonality in the GTV mix being more weighted to European hospitality, or is there something else that drove that?

Hey, Thanos. Thanks for the question. You know, as you know, payment penetration is based on the underlying GTV of which customers are on payments versus not and the seasonality of those customers. We actually increased by 170 bps this quarter just because of rounding. It's, you know, 36 to 37, but we actually went up 170 bps. And again, unified payments actually improved us from 25% in Q2 last year to 37% this quarter, so we're quite happy with the rate of payments penetration. What we're seeing this year and where we're benefiting from a payments penetration perspective are annual contracts that are now coming up for renewal and we're moving those cohorts over to payments, non-solicit restrictions that are coming off, and if you remember, all new eligible customers must take payments. We do expect the penetration to land in the 40% to 45% as we exit this year. And, you know, again, it's just the puts and takes of seasonality, but we did go up by 170 bps this quarter.

Great. And then as far as the 27% growth, location growth for your flagships, just very broadly speaking, would it be similar across hospitality and retail or any big difference in that regard?

It's a little higher. As far as Q2 is concerned, it's a little higher on hospital than retail, but very, very comparable.

Great.

I'll pass the line. Thank you. Your next question comes from the line of Dominic Ball with Redburn Atlantic. Please go ahead.

Hi, everyone. Thanks for the question. So your hospitality European base, has the payment adoption curve here been maybe slower than it was initially in the U.S.? ? And then just a second question on the price increases. Is this at the same time that those larger merchants, you know, we've seen quite a decel in year-over-year growth rates from this quarter to last quarter. Has that potentially been a pickup in merchant churn as well?

Thank you. Yes, thank you for your question. So maybe I'll start with the last part of your question around price increases. we started communicating with the first cohort of customers price increases in the summer. And so that's coming into effect. And we're looking at this fiscal year through three waves, three cohorts. So the first cohort is communicated and implemented. The second cohort is coming through in the fall. And then the third but smallest is coming through in our fourth quarter. So from an impact perspective, as Asha highlighted earlier, you know, you're going to see the impact of that, of course, as of Q3 and beyond. Going back to hospitality and your question around payment penetration. So one thing that's important to keep in mind is that we are much later or we are later relative to North America to payments in Europe. So we launched our payments product many years after our NOAM payments efforts. And from a unified payments program perspective, we also started a couple of quarters after. And so that is why, from a payment penetration perspective, Europe and Europe hospitality is lagging, let's say, North America. But as far as the trend, we're very happy with the trend. If we look at, from a net new perspective, our attach rate of payments on new customers that we sign up to our solution, that attach rate is very high, is very strong, which is also continues to be a strong indication of the adoption of our

payment offering in europe so confidence the trend is going to be very similar to north america we're just we're just later to that market and the only thing i would add there dominic on your churn question is uh we've not seen an uptick in churn resulting from the price increases to date cool thank you guys question comes from the line of timothy chiodo with ubs please go ahead

Great. Thank you for taking the question. I know you referenced this a few times in the prepared remarks around the increase in the sales teams. I believe at the start of this growth, the sales teams were sort of in the 50 to 60 people, and I think the plan was to get it to roughly 100 or 120, something along those lines. I was wondering if you could help us with an update on how large those sales teams are, and also maybe just recap the company's kind of history and philosophy around hiring sales. I believe it originally started in the fall of 2021. Thanks.

Yes, thank you for your question. You're right as far as the numbers that you shared. You're referring specifically to our outbound motion. As a reminder, in hospitality, we do outbound via field sales reps. On the retail side, we run our outbound playbook via remote outbound, so colleagues in offices that are outbounding from an account-based marketing. And We're really happy, actually, from a progress perspective. Q2 was a very solid quarter, doubled our growth in AR in the quarter. October, again, was a record month. And so in light of seeing that, we want to continue to invest in that motion. We see strong unit economics, strong payback ratios with that team. Today, it's about 15% of our overall quota-carrying reps that are focused on our outbound efforts. And we are in the process of doubling that, and particularly in the two markets that we highlighted, Noam Retail, EMEA Hospitality, where we have such a strong right to win. It makes perfect sense to, you know, to continue to double down on that strategy.

Excellent. Thank you.

Your next question comes from the line of Todd Copeland with CIPC. Please go ahead.

Yeah. Good morning. I had a question on the pivot to focus areas. What actually has to change to the light speed network? I know you have some operations in Australia and New Zealand. Can you just comment on that and whether there's any restructuring required?

Yeah, the idea is that we're reallocating resources. Some of these markets are going to be oriented towards efficiency, and some, of course, are high growth. North America retail, European hospitality, these are where we have the best right to win, our best LTP to CAC, and our best product market fit. So that's how we're thinking about it. And so it'll be a reallocation of resources and sales investment, marketing investment, as well as R&D.

Okay, and my second question has to do with hospitality and retail. Are these two separate and distinct businesses in terms of R&D and sales, and are they run independently? Just give us a little color on that. Thanks a lot.

They are separate platforms from a technology standpoint. Obviously, there's a shared platform of financial services. Uh, and in terms of sales teams, I mean, there's a, there's a lot of common practices and we're using, um, uh, and there's a, you know, some, some joint shared global marketing resources. Uh, but yeah, there are separate efforts.

Thank you. Thanks.

Your next question comes from the line of Richard with national bank financial. Please go ahead.

Yes, when you talk about future products, what do you see as the product that would be in most demand by your broad base, or you can sort of split it up by retail versus hospitality? I'm just sort of curious what's next there.

Yeah, in retail, we're going to just continue to build at our competitive moat. Complex inventory management, especially in the verticals where we are looking to double down in North America retail, There's a lot of specialty verticals where we're excellent, but we could continue to close the gap with some of the legacy platforms that have been out there for 30-plus years that are super specialized in, let's say, vertical-like jewelry. And so that's part of the focus, managing multiple locations, multiple physical locations, of course, for retail. On the restaurant side, you know, modules like the upcoming kitchen display module, you know, where you create better communication within the facility, as well as, you know, more things to do with managing workforce and other ways to communicate with customers and have online ordering, et cetera.

Okay. And then when it comes to sort of brand-new merchant wins, What's the mix coming from competitors versus brand new sort of shops that are opening up? I'm guessing the majority of it's from legacy, but just sort of curious, has that mix changed over time?

Yeah, good question. I mean, from a new customer perspective, it's about a 60 or 50-50 split between new businesses that are forming versus existing businesses that are effectively switching from an existing And if you double click on existing businesses that are switching, it's again about a 50-50 split between businesses that are outgrowing, let's say, more basic modern solutions versus merchants that are on legacy solutions and are looking for something that's modern, cloud-based with modern hardware and modern functionality.

Okay, thank you.

Your next question comes from the line of Kevin Krishnarathne with Scotiabank. Please go ahead.

Hey there, good morning. Just a couple questions. First, again, on competition, maybe the European hospitality market, there are some competitors that are moving into that market as well. So I'm just wondering if you can talk about what you're seeing there and remind us just on the competitive landscape there and just remind us, is the goal there still mainly to take share from the non-cloud POS providers?

Yes, thank you for your question. Maybe for context, we've been in Europe for over a decade, right? So we've been in that market for a long time, and that's allowed us to really build a unique moat, particularly around fiscalization, around specific integrations that are required in local markets, tender methods that are specific to specific countries where we operate. And when we say Europe, it's really for us four core regions, the British Isles, the DACH region, so Germany, Austria, the Benelux, and the French-speaking regions of France and Switzerland. And there, we're a very strong competitor, a very strong solution in those markets. If you compare us to the competition, it's a very fragmented market in each of those regions. It's a different competitive set. A lot of legacy players, to your point, a lot of subscale competitors, players that have been around for a long time but are much smaller in size and scale and capabilities. And so we really see an opportunity for us to continue to be the default player and really ultimately the strongest player in continental Europe and as well as the British House.

Okay, got it. I appreciate that, Dax. Maybe a second question for Ash. I don't know if you touched on it, but did you talk about what you're seeing, same-store sales, trends uh in you know in q in the q2 and then sort of what you're seeing right now and just remind us um if you've lapped some of those uh you know bigger pressures and certain uh you know verticals that uh you know seem to be pretty strong over the past uh or seem to be coming off of uh you know tough comps the past couple years just can you comment on uh team store sales trends anything you can add yeah thanks for the question kevin

From a same-store sales trend perspective, what we're seeing is quite different by geography and vertical. If we talk about North America retail, we are still seeing decline in some of the verticals where we do well, such as bike and home and garden. However, the good news for us is that that rate of decline is easing, and we're actually quite close to coming back to growth in these verticals. And when we start seeing growth in these verticals, that should be a really nice tailwind for Lightspeed. Outside of that, when we look at customers that we've signed in the last couple of years, And in particular on our flagships, we're actually seeing nice, you know, middle-digit growth, middle single-digit same-store sales growth. And that's very encouraging because, you know, what it tells us is for the customers that we're targeting and the demographics that we're targeting them in particular, North America Retail and EMEA Hospitality, not only are we seeing strong GTV and new customer ads in the 25-plus range, we're also seeing same-store sales grow. which is going to bode very well for us when they become a bigger part of our customer base in the next year.

Got it. That's good to hear. Thanks. I'll pass the line.

As there are no further questions at this time, I would like to turn the conference back over to Gus Papagiorgio for any closing remarks.

Okay. Thanks, everyone, for joining us today. We will be around if you have any further questions. We look forward to speaking to you on our next conference call. Have a great day, everyone. This concludes today's conference call.

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