Lightspeed Commerce (LSPD) Q3 2025 Earnings Name Transcript

LSPD earnings call for the period ending December 31, 2024.

Image source: The Motley Fool.

Lightspeed Commerce (LSPD -13.10%)
Q3 2025 Earnings Call
Feb 06, 2025, 8:00 a.m. ET

Prepared Remarks:

Operator

Thank you for standing by. My name is Gail and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed third quarter 2025 earnings call. (Operator instructions) I will now turn the call over to Gus Papageorgiou, head of investor relations.

Please go ahead.

Gus Papageorgiou — Head of Investor Relations

Thank you, operator and good morning, everyone. Welcome to Lightspeed’s fiscal Q3 2025 conference call. Joining me today are Dax Dasilva, Lightspeed’s founder and CEO; Asha Bakshani, our CFO; and JD Saint-Martin, our president. After prepared remarks from Dax and Asha, we will open it up for your questions.

Before I provide some important information and disclaimers, please note that there will be a slide presentation that accompanies the initial portion of Dax’s comments this morning. You can find the link to the webcast on our IR site. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements.

We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our third quarter fiscal 2025 results presentation available on our website, as well as in our filings with U.S. and Canadian securities regulators. Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios.

These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC’s 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’ll now turn the call over to Dax.

Dax Dasilva — Founder and Chief Executive Officer

Thank you, Gus and welcome, everyone. This month will mark my one-year anniversary of returning as Lightspeed’s CEO and I’m very proud of the team’s achievements during this time. We’ve accelerated software growth, dramatically improved payments adoption, established a solid foundation for profitability, maintained a very strong balance sheet, accelerated our innovation and focused the business on the areas where we have a proven right to win. Since our last earnings call in November, we’ve been very active across our portfolio, particularly in our key markets of retail in North America and hospitality in Europe.

We’ve delivered yet another strong quarter, achieving 17% year-over-year revenue growth, in line with our previously established outlook and adjusted EBITDA ahead of our previously established outlook. At the same time, I’m also aware that many of you are keen to learn more about our strategic review process and I’m very pleased to provide you with an update on that today. As you recall, we initiated a comprehensive strategic review of our business and operations to define the best path toward maximizing shareholder value and helping the company realize its full potential. The review included an in-depth evaluation of our portfolio, including market attractiveness, competitive dynamics and our right to win.

This resulted in our conclusion to double our focus on growth in retail in North America and hospitality in Europe going forward, as well as to embark on a focused transformation plan, which we’ve started executing. As part of this review, we also evaluated the best ownership structures to navigate Lightspeed through this transformation. We received strong engagement from multiple participants over the last several months. After this review, our board of directors, a committee of independent directors and our executive management team unanimously concluded that executing on our full transformation plan as a public company offers the best path to maximize value for the company and its shareholders.

I want to take the opportunity today to share a few highlights from our strategy and the companywide transformation program we launched before going into our quarterly results. First of all, as mentioned earlier, we are doubling down on two key markets: retail in North America and hospitality in Europe. Retail in North America is a leading growth engine. Our strategic focus is to expand locations and increase software and payments ARPU.

We’ve built a strong track record with merchants that face operational complexities in their day-to-day business. Our market leadership spans many of our focus verticals, which positions us to capture a much larger share of a thriving market where we are well equipped to succeed. As examples, in the sports and outdoor vertical, we’ve pioneered the software that bike stores use to run their retail and service operations. And for golf course operators, our offering is a clear market leader in North America.

With our integrated supplier network, Lightspeed Retail is uniquely positioned to save our customers considerable time and resources, while providing a key differentiator in fashion, apparel and footwear. Hospitality in Europe is another leading growth engine. Our market leadership is bolstered by local presence across major geographies such as Germany, U.K., France, Switzerland and Benelux. We enable our customers to comply with a broad range of fiscalization rules, a key differentiator for the Lightspeed software offering.

We’ve recently rolled out Tableside, our handheld POS and our Kitchen Display System and are already seeing strong merchant adoption. Just as with retail in North America, our strategy centers on expanding locations and driving software and payments ARPU growth. Lightspeed has a set of other strong assets across the globe that show immense potential to drive profitability for our company. With best-in-class account management and top-tier customer support, our remaining markets will maximize profitability for the whole business, resulting in meaningful growth in adjusted EBITDA.

To support doubling down on our two leading growth engines, we aligned our organizational structure to our new Lightspeed strategy with the reorganization last December and plan to use these savings to hire in growth markets. Initiatives across pricing, packaging and cost optimization are showing results, and have freed up resources to invest into our leading growth engines. From a go-to-market perspective, we continue to roll out our new sales motion designed to drive growth by focusing on targeted outbound strategies and sales efficiency. Across retail in North America, we are optimizing outbound marketing, deepening supplier integration in focus verticals and deploying AI-driven customer acquisition, all to accelerate location growth.

In hospitality in Europe, we are scaling field sales teams and local marketing to support growing lead volume. Moving forward, we are prioritizing product and technology investments in our two leading growth engines. For retail in North America, we are responding to the needs of our focused verticals by delivering enhanced capabilities across inventory management, forecasting and insights, online channels and supplier network integration. In hospitality in Europe, we are optimizing front and back-of-house operations, including mobile reporting, enhanced guest experience, insights and analytics and payroll solutions.

We’ve continued to grow the company since announcing the strategic review, having launched several new key initiatives, which have already made significant impact on our results, such as our software revenue growth of 9% year over year, the highest in the last nine quarters. And raising our adjusted EBITDA outlook for this fiscal year to over $53 million, more than 30% higher than the initial outlook of a minimum of $40 million at the start of the fiscal year. We continue to accelerate toward positive free cash flow and plan to allocate capital strategically to achieve desired returns. As part of this, I’m announcing a share repurchase program to return up to $400 million in cash to shareholders.

We intend to immediately execute on all the remaining capacity of our current share repurchase authorization, approximately $100 million at yesterday’s closing share price, plus an additional $300 million under our further authorization, in each case, subject to market conditions. I’m also excited to announce that our Capital Markets Day will be held on March 26, where our management team will provide you with a comprehensive update on our transformation strategy, operational and financial impact, products, go-to-market efforts and provide a long-term financial outlook. As Founder, CEO and third largest shareholder, I’ve never been more excited about Lightspeed’s future. Now, on to some of the specific quarterly highlights.

As mentioned earlier, revenue grew 17% year over year to approximately $280 million. This was driven by year over year software revenue growth of 9%. Additionally, we increased payments penetration across our base of merchants from 29% to 38% as compared to the same quarter last year. We also delivered quarterly adjusted EBITDA of $16.6 million, ahead of our previously established outlook of $14 million.

Underpinning our transformation is a core focus on growing locations and increasing ARPU, specifically software. For retail in North America, our outbound go-to-market motion and investment in sales rep coverage are already yielding wins and healthy conversions. I’ll mention a few examples in our focus verticals. We signed Soccer Master and Epoxy Depot, both of which are multi-location merchants with a need for omnichannel capabilities.

High GTV merchants continue to choose Lightspeed over other solutions, given our differentiated ability to handle complex inventory management needs and our ability to support omnichannel in a multi-location environment. In our supplier network, we renewed contracts with three of the largest North American department stores. We also signed multiple new brands, including Casper, Anine, Bing, and ASW Group, which is a distributor for Tommy Hilfiger and Calvin Klein. In golf, we signed the legendary St Andrews Links Trust, the Home of the Open.

On the product and technology front, I’ll highlight how recently introduced software offerings are already contributing to our software revenue growth, as well as some of the newer releases this quarter. The Retail Insights module, which we launched last quarter, is already contributing to our software growth and is enabling merchants to improve their gross margins by a 16% reduction in out-of-stock days for popular items. Lightspeed Scanner gives sales associates the power to close sales on the move, improving the customer experience and eliminating the friction of in-store lineups. Lightspeed also made significant advances in its supplier network, adding over 1 million new items across key verticals like home and garden, golf and pet, enabling automatic POS integration and saving retailers valuable time.

Additionally, real-time supplier inventory visibility now allows retailers to check stock levels before ordering, eliminating supply chain uncertainty and improving efficiency. Lastly, we are uniquely positioned in the market with our supplier network and see tremendous potential of enabling payments for B2B sales. Brands can now accept payments from retailers in many other countries in addition to the U.S. and Canada, where this is already available and we have dedicated resources focused on its expansion across our supplier network.

Moving to hospitality in Europe, our other leading growth engine. We are also building an outbound sales motion by strategically investing in field sales rep coverage across the key markets and cities in Europe. These efforts are starting to gain traction and I’ll share some highlights. We signed the three Michelin Star restaurant, AM par Alexandre Mazzia in Marseille, and Chefdag, a chain of Belgium-based restaurants with seven locations.

In the hotel adjacent restaurant space, we signed Hotel de Beaune, a five-star luxury hotel in the heart of Burgundy. We continue to see excellent product market fit for Lightspeed with full-service restaurants across our markets in Europe and our key focus here is to accelerate growth with new investments in our go-to-market capabilities. On the products and technology front, our software ARPU growth reached 11% this quarter, driven in part by customer adoption of new software modules that help them manage and grow their businesses. As mentioned before, we launched our new Kitchen Display System, which seamlessly connects front-of-house and back-of-house operations, allowing restaurants to run more smoothly, even during peak hours.

Customer adoption has been strong for this new offering. Additionally, we introduced Lightspeed Pulse, providing real-time access to a central operating metrics from a mobile device. Restaurateurs and managers can now view sales, daily order averages and even see live orders by location from anywhere. Finally, we launched instant payouts for eligible hospitality customers in select markets, offering access to cash within 30 minutes of a transaction even on weekends.

Reflecting on this quarter, we delivered against several key priorities: software and revenue growth accelerated, payments penetration is nearing our end-of-year target, Lightspeed Capital revenues more than doubled year-to-date and our adjusted EBITDA performance is well ahead of our initial outlook from the beginning of the fiscal year. As we look into next year and beyond, my goal is to drive software growth by increasing our ICP location count through efficient go-to-market investments and expanding our software offering through innovation. I’m looking forward to our Capital Markets Day in March to provide a more comprehensive update on those. I will now let Asha take us through the quarterly results and provide our outlook.

Asha Bakshani — Chief Financial Officer

Thanks, Dax and welcome, everyone. I’m very pleased with Lightspeed’s results in the third quarter. Our strong performance, coupled with prudent cost management, has resulted in positive adjusted EBITDA for the sixth consecutive quarter and coming in ahead of our previously established outlook. In addition, as Dax highlighted, our refocus on software revenue growth is starting to gain traction, with software revenue growing 9% year over year.

As part of the transformation we launched, we are making targeted investments in both go-to-market and product development to fuel this growth, while also continuing to maintain a very healthy balance sheet. Thanks to our dedication toward profitable growth, we’re raising our adjusted EBITDA outlook for the fiscal year to over $53 million, which is over 30% higher than the initial outlook of a minimum of $40 million at the start of the fiscal year. I will now walk you through the details of our quarterly performance and key metrics, starting with our revenues and then close with our outlook for the remaining fiscal year. Total revenues increased 17% due to our growing software ARPU and unified payments efforts, despite impacts from weakening foreign currency.

Software revenue grew 9% year over year to $88.1 million, supported by recent product releases, as well as increased pricing on software products. GTV from our flagships for the quarter grew 23% year over year, indicating strong success in attracting our target customers. However, same-store sales in retail remain challenged across many verticals, although the rate of decline is easing. Overall GTV in the quarter, including non-flagship offerings, increased approximately 2% to $23.5 billion.

Sophisticated customer locations with GTV exceeding $500,000 and $1 million continued to increase as a proportion of our customer mix, while those with GTV under $200,000 continued to decline. With our focus on retail in North America and hospitality in Europe and the expanded outbound sales team in these regions, we expect to see an inflection point for growth in our ICP customers in fiscal 2026. In the quarter, GPV as a percentage of GTV was 38%, up slightly from the previous quarter. The GPV mix in the quarter shifted away from verticals with higher payment penetration rate such as golf, which was largely a result of seasonality.

We expect to end the year with GPV representing between 40% to 45% of GTV. Transaction-based revenue grew 23% to $181.7 million. In the quarter, we saw GPV increase 34% year over year to $8.8 billion as we processed a greater portion of our GTV through our Lightspeed Payments platform. Lightspeed Capital revenue grew to $10.2 million, almost doubling from $5.2 million in Q3 of last 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, upgrade equipment and expand their overall business. Across payments and software, our total ARPU for the quarter, excluding Ecwid customers, reached a record $533, an impressive 19% increase year over year. This improvement is the result of both unified payments, as well as an 11% increase in software ARPU.

Software ARPU is improving, thanks to our focus on flagship products and shifting our customer base toward higher GTV locations, which typically adopt more software modules. Turning to gross profit. We delivered 14% year-over-year growth. Total gross margin was 41%, flat with the previous quarter and down only slightly year over year.

Despite transaction-based revenues increasing from 62% of the sales mix in Q3 last year to 65% this year, we were able to maintain our gross margin at comparable levels through effective spend management and the growth in higher margin revenue from items such as capital. On the software side, I’m also incredibly pleased with our strong gross margins, which increased to 79% from 76% in the same quarter last year, reflecting our concentrated effort to manage costs. Excluding share-based compensation expense, gross margin on software revenue was 80%. Gross margins for transaction-based revenue were 28%, up slightly from the previous quarter and include 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. Adjusted EBITDA in the quarter came in positive at $16.6 million and over 350% improvement from adjusted EBITDA of $3.6 million in the same quarter last year, driven partially by early successes from our transformation plan. Total adjusted research and development, sales and marketing and general and administrative expenses in the quarter increased by 1% compared to the same quarter last year. As part of our continued push to drive profitable growth, we are driving cost reductions in many areas and reallocating savings to our growth engine.

We continue to actively manage our share-based compensation and related payroll taxes, which at $13.6 million or 5% of revenue for the quarter, were down from $23.6 million or 10% in the same quarter last year. The decrease was partially a result of forfeitures due to the restructuring. For the quarter, we had an adjusted income of $18.5 million compared to $11.8 million last year, largely as a result of the improvement in the items driving our adjusted EBITDA performance. In terms of our balance sheet, Lightspeed closed the quarter with approximately $662 million in cash and cash equivalents, up from approximately $659 million in the previous quarter.

The increase was driven primarily by improved adjusted EBITDA performance, as well as an increase in merchant cash advances collected due to seasonality. Adjusted free cash flow used in the quarter was approximately $0.5 million. As Dax announced in his opening remarks, we are announcing a share repurchase program to return up to $400 million in cash to shareholders. We intend to immediately execute on all the remaining capacity of our current share repurchase authorization, approximately $100 million at yesterday’s closing share price plus an additional $300 million under a further authorization, in each case, subject to market conditions.

In addition, we are forecasting meaningful improvement in our adjusted EBITDA performance in our next fiscal year, driven by the execution of our transformation plan. Now, turning to our outlook for this fiscal year. Lightspeed is encouraged by its performance to date with strong revenue growth and adjusted EBITDA that is on track to surpass the outlook provided last quarter. We’re particularly pleased with the success of our packaging and pricing initiatives and the velocity of popular software module launches contributing to our software growth.

In the near term, we are contending with two revenue headwinds. First, the strengthening U.S. dollar is putting downward pressure on non-U.S. dollar-denominated revenue.

Second, Lightspeed’s December restructuring impacted go-to-market position, with savings being reinvested in hiring for North American retail and European hospitality. It will take time to ramp up new hires and we expect benefits to materialize in fiscal 2026. Finally, note, the company’s fiscal fourth quarter is seasonally the weakest for GTV performance. Based on our achievements to date and with the transformation plan in place, Lightspeed’s outlook for the fiscal year is as follows.

We expect revenue growth for fiscal 2025 to be approximately 20%. We are raising our adjusted EBITDA expectations for the fiscal year to over $53 million. This quarter’s results are proof that our strategic pivot to focus on growth in our leading markets and on efficiency everywhere else is working. I look forward to this momentum continuing into fiscal 2026.

With that, I will hand the call back to the operator.

Questions & Answers:

Operator

(Operator instructions) So your first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Daniel Perlin — Analyst

Thanks. Good morning. I was just going to start off maybe with a broader-based question of — Dax, if you can maybe just talk about why the sale process was maybe not the right choice at this time? I certainly understand the outline that you gave for kind of the go forward. But I’m just wondering why the sale process maybe just didn’t fit or failed? And then, in terms of the strategy that you just laid out, are there things that — it sounds very similar to the transformation that you had already laid out.

I’m just wondering, in those nongrowth markets, are you going to be able to maybe accelerate the closures of those noncore locations or markets? Because it sounds like a continuation of what you’ve done and you just didn’t get the sale completed. So anything around that would be really, really helpful.

Dax Dasilva — Founder and Chief Executive Officer

Yes. Thanks for the question. So yes, it’s all about the transformation plan, right? We started the strategic review by evaluating our portfolio and really looking at market attractiveness, competitive dynamics and our right to win. And we did preview, I think, our focus on North American retail and European hospitality on our last earnings call.

And so, we’ve built out more of the planning and we’re going into fiscal ’26 with a rock-solid plan for execution. As part of the strategic review, we ran a process to determine what is the best corporate structure for execution of the transformation plan. And the strategic review accomplished exactly what it was designed to do, which was to answer that question. What’s the best way for us to maximize shareholder value.

And we didn’t have a presupposed outcome that we were leading toward a sale. We wanted to know what were the options available, what were the different alternatives. But the objective, how can we best execute the transformation plan and drive the most value. And after assessing multiple options, we concluded with our board that continuing as a public company offers the best path to maximizing value.

We did receive strong engagement through the five-month process and we had extensive discussions with several participants. But our focus now that we’ve resolved to this question of corporate structure is really executing on the transformation plan and doubling down on the lead growth engines. In regards to the efficiency market or all of the businesses where we are focused on them being a growth engine, what we’re going to be doing is we’re going to be maintaining those customers. Those are great customers for Lightspeed.

They’ve contributed to the growing EBITDA picture that you’re seeing quarter after quarter as we raised guidance on EBITDA. And it’s an important part of our business but we’re not investing in the same kinds of things as we are for our two growth engines. We’re not doing the outbound. We’re not doing the marketing spend.

We’ve actually reallocated headcount and marketing spend to — from that, from those markets to the growth markets so that we can double down and we can see accelerated progress on location count and software revenue, which we actually showed a little — we showed some progress on software revenue this quarter because of that focus.

Daniel Perlin — Analyst

Yes. That was great to see. And then, just a quick, I guess, second question to Asha. Any way to just help us with kind of the crossover period expected in ’26, where — obviously, the restructuring pulls in the go-to-market motion a little bit and then you have to put new people out.

So I’m just trying to figure out like how long it takes to get salespeople fully productive to a level that’s going to prove impactful to numbers and maybe where that crossover period might look in ’26.

Asha Bakshani — Chief Financial Officer

Thanks for the question, Dan. So we’re going to give detailed guidance on fiscal ’26 on our next earnings call. You’ll get a nice preview at our Capital Markets Day next month. Typically, our sales — outbound sales folks take about six months to ramp up before we start seeing their impact in the financials.

And you know, as you know, we had a reorganization early December and we are reallocating resources to our growth markets of North America retail and EMEA hospitality. So what I will say is that we do expect EBITDA — meaningful EBITDA expansion given the portfolio mix. And on the sales side, we do expect to see increase in ICP location count and software continuing the momentum that you’ve seen started in Q3, we expect to see that continuing quite nicely in fiscal ’26.

Daniel Perlin — Analyst

Great. Thank you.

Operator

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

Andrew Bauch — Analyst

Hey, good morning and thanks for taking the question. Just wanted to hone in on payments penetration real quick. The pace that you had over the last couple of years where you’re pushing payments pretty aggressively, you’re taking up payment penetration roughly 3% sequentially each quarter and now it’s kind of stalled. I hear you that you’re still pointing to that 40% to 45%.

Should we expect the low end of that range? Because it would seem that the high end of that range would be a pretty sizable step up. And what are the variables around this?

Asha Bakshani — Chief Financial Officer

Thanks for the question, Andrew. We are pleased with the pace of payment penetration. When you look at our progress, we increased GPV 34% year over year, and we had a 900 basis point increase year over year from Q3 to Q3. You’re right on the quarter-to-quarter, it was closer to 1% but that’s really just the result of seasonality.

What we’re seeing is, now that more and more of our total GTV is penetrated, we’re approaching 40%, you’re going to see the impact of the seasonality on the underlying portfolios each quarter. And that’s really all the Q3 penetration number is about, in particular, golf. Golf is a very highly penetrated vertical for Lightspeed and Q3 is a seasonally slow quarter for golf. And so, you just — you’re seeing the impact of that.

We’re still confident in the 40% to 45% exiting the year, could be closer to 40%, maybe even the midrange of that guide. But based on what we’re seeing so far, we’re quite confident we’ll exit the year in that range.

Andrew Bauch — Analyst

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

Could you size up the FX headwinds you’re calling out?

JD Saint-Martin — President

Yes. So I’ll take the first part of the question. This is JD. From a competitive landscape perspective, it really highlights the strategy that Dax pointed out earlier.

Our solution, our flagships, are really, really strong in NOAM retail and EMEA hospitality. In NOAM retail specifically, we are the market leader for industries that have high SKU density, deep inventory management needs and that’s really where our solution shines. And now particularly adding the supplier network to the mix, it’s really putting ourselves in a position where we can really win in the fortress verticals where we’re focused on. And then, similarly, in hospitality, as you know, we’ve been in Europe for over one decade now with our solution.

We have tremendous product market fit and also very strong go-to-market fit. And there too, we’re a market leader in Continental Europe and so we want to accelerate that growth in those two areas.

Asha Bakshani — Chief Financial Officer

From an FX perspective, we did — you did see in the results that that was a headwind for us, both in the quarter we just reported and in the upcoming quarter. Lightspeed has significant international operations. And so, a strengthening U.S. dollar does put downward pressure on our overall top line.

Ultimately, though, we do still believe that we’ll hit the guidance range that we provided at the beginning of the year and so it was a headwind. But despite that headwind, we’re pleased with our results.

Andrew Bauch — Analyst

All right. Thank you.

Operator

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

Raimo Lenschow — Analyst

Perfect. Thank you. Can we hone in on the software performance one more time, please. The — if you look at the good progression there and good reacceleration, can you talk a little bit about what you’re seeing like in terms — like obviously, price helps so but — so maybe like help us understand like price.

But also what are you seeing kind of in terms of early signs, in terms of reengaging with the customers there? And how pipeline building is working on that part because that was kind of one of the highlights for the quarter.

JD Saint-Martin — President

Yes. Thank you for the question, JD here. We’re really pleased with our progress on software revenue. As you know, this has been a focus of the company.

And moving up to 9% growth year over year in Q3 is a strong sign and we expect that trend will continue in the future. As far as the why behind these strong results, ultimately, we’re in this position, thanks to the innovation that we’re bringing to the market and to our customers. We’ve had a lot of modules that have been delivered by our product team in the last quarters in hospitality, KDS, our tableside devices are very well received by our customers. On the retail side our new Insights module, as well as our ability to transform our Scanner app into a mobile POS.

That’s a very strong value proposition. And so, you see that impact our ARPU. You see our ability also with our outbound focus to target larger customers, which means larger deals and ultimately larger size of softer revenue. And then, lastly, as you’ve heard from us in the previous quarter, we rolled out some price adjustments on the front book but also on the back book.

And given the value and the innovation that we’re providing our customers, we’re in an ideal position to look at pricing and in some cases, reprice some cohorts of customers that were on old pricing. And we’ve also had our account management team, which has been particularly focused on our payments offering and unifying our payment offering in the past quarters, come back to selling and upselling software and retention. So all of these dynamics are coming through and that’s why you’re seeing that progress from Q2 to Q3 and you can expect that progress to continue next quarter and next fiscal year, of course.

Raimo Lenschow — Analyst

OK. Perfect. And then, one follow-up to Asha. On the share repurchase, like it was great to see there, like I saw the first $100 million may be more aggressive.

Like how do you think about the cadence there and how you kind of go about kind of finding the right kind of point in time to kind of go more aggressive or less aggressive on the share buybacks?

Asha Bakshani — Chief Financial Officer

Yes. Sure. So as you mentioned, we do have $100 million outstanding on the share repurchase we launched earlier this fiscal year and we intend to start executing on that immediately. You’ll hear an update on that at our Capital Markets Day next month as well.

You’re right, our board has authorized repurchase of an additional $300 million. And so, we do plan to — in this — in fiscal ’26, continue on the share repurchase. I mean, ultimately, we have high confidence in our plan and we do want to return meaningful capital to our shareholders. So you should expect to see us executing on that through fiscal ’26 as well.

Raimo Lenschow — Analyst

OK. Perfect. Thank you.

Operator

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

Trevor Williams — Analyst

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

JD Saint-Martin — President

Yes. Thank you for your question, JD here. We’re really pleased with our progress on outbound and it’s a cornerstone of our strategy going forward, as Dax highlighted. If you look at the quarter, is again, a record-setting quarter for that motion.

November, particularly was a record month. Overall, across our quota-carrying team, 19% of our reps are focused on this outbound motion. We expect that number to climb to about 25% by the end of this fiscal year. As you heard, we made some adjustments in January rightsizing the size of our team in the areas of the business that are more focused on efficiencies so that we can invest in growth.

And a portion of that investment is going into increasing our mix of outbound reps relative to our overall quota-carrying team. And we intend to continue to do that next year as well, adding more to that motion. And the reason why we have strong confidence in that motion ultimately is our ability to really target our ICP, our target customer via outbound is very successful. And also, if you look at our unit economics or payback, we’re really, really pleased with what we’re seeing.

So expect to see that mix continue to trend upward. And ultimately, that will pay dividends as far as profitability, as far as market share. And we also see a positive halo effect on our two other customer acquisition motions, inbound and partnerships as a result of our efforts in outbound. So all in all, very pleased with the progress.

Trevor Williams — Analyst

OK. Great. And Asha, could you unpack just — and I know it was slight but just where the uptick in GTV growth came from this quarter? It sounds like there was just maybe some smaller same-store sales pressure in some of the retail verticals. But just with all the moving pieces around the transformation, I heard you guys say you expect ICP location growth to accelerate next year out of that.

But how should we think of the mechanics and how that flows through GTV in kind of the nearer term?

Asha Bakshani — Chief Financial Officer

Yes, sure. Thanks for the question, Trevor. So if I start with GTV growth for Q3, I mean, that’s really coming from retail. When you look at retail, although some of the verticals still remain depressed, what you heard from us in the prepared remarks is that rate of decline is easing, right? And that is helping the overall GTV growth.

And Q3 is our best quarter for retail and so you’re seeing GTV growth there as well. In addition, JD talked a little bit about our flagships but our flagships are a bigger and bigger part of our overall portfolio, really approaching 50%. And the GTV growth on our flagships was over 20%. And so, as the flagships, which is where we’re attracting the right customers and majority of that is in the growth portfolio.

So as that mix grows, you should start to see that reflected in the overall GTV growth for the company as well.

Operator

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

Josh Baer — Analyst

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

JD Saint-Martin — President

Thank you for the question. JD here. It goes hand-in-hand with our focus on higher GTV customers. Again, as a reminder, that definition is customers doing north of $500,000 in annual turnover per location.

If you think about it, another way to frame it is, to look at our progress with our flagship products. Our flagship products are really dominating in NOAM retail and EMEA hospitality. And there, you can see that we’ve made some serious progress on location count. We’re up 25% year over year GTV, our flagship is up 23% year over year.

And our focus there with those products from a product market fit and go-to-market perspective is really targeting those more complex SMBs doing north of $500,000 in GTV, complex inventory management on the retail side, Tableside restaurants on the hospitality side. So all in all, this is flowing nicely with our strategy of going into those regions and focusing on high GTV customers.

Josh Baer — Analyst

OK. Great. That’s helpful. I was hoping you could just give a little bit of transparency into how much of your business, of your revenue is coming from the over $500,000 GTV North America retail, rest of world hospitality group, the new focus and what that mix is and what the growth is of that business?

Asha Bakshani — Chief Financial Officer

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

But today, that portfolio is about 70% of our revenues already.

Josh Baer — Analyst

OK. Got it. Thank you.

Operator

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

Thanos Moschopoulos — Analyst

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

Asha Bakshani — Chief Financial Officer

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

So Q1 F’26 is when you really see the full impact of all the price increases.

Thanos Moschopoulos — Analyst

Great. And if we look at your two core markets, North American retail and Europe hospitality, is there anything you’d call out as far as, I guess, the growth prospects of those businesses over the upcoming year? So when you look at some of the metrics under the hood, be it your LTV by CAC, be it serviceable TAM, just near-term growth, churn rates, all that kind of stuff. Like any key differences you can call out in those two segments as we think about fiscal ’26?

Asha Bakshani — Chief Financial Officer

Yes. We’ll get into — we’ll unpack a lot of that in our investor day next month, Thanos. But ultimately, we have a proven right to win in these growth markets. And that was really the catalyst behind our decision to focus and double down on growth there.

Our LTV to CAC ratios are highest in those markets because of the competitive moat that we have in retail NOAM and hospitality in Europe, in particular, in our fortress verticals. From a revenue opportunity/TAM perspective, I mean, there’s an $80 billion revenue opportunity when we look at the North America retail, EMEA hospitality verticals and so lots of room to grow there. And given that we have the highest right to win in those markets, the LTV to CAC there far outweighs the LTV to CAC in the rest of the world. So our return on every dollar invested is highest there.

So that really made the most sense for us. So this pivot actually changes the financial profile of the company quite nicely and we will unpack a lot of that at our Capital Markets Day.

Thanos Moschopoulos — Analyst

Great. Thank you.

Operator

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

Dominic Ball — Analyst

Hey, Dax and JD. Thank you for the question. I think one to start with for Dax. I mean, in the U.S.

retail space, there’s a lot of rapid change going on where you can just sell in everywhere through multiple in-store channels, multiple online channels. Can you give us any color on the way Lightspeed is helping its merchant in these regards and then the nature of competition? And just for the second question, in terms of the transformation plan, you mentioned transformation initiatives to free up capital for investment in growth areas. Does this sort of mean that you’ve been looking to divest any part of your businesses outside of the retail and hospitality vertical?

Dax Dasilva — Founder and Chief Executive Officer

I’ll take the first question. Asha will take the second. So in regards to Lightspeed Retail, we serve that medium and high complexity retailer. This is — a portion of SMBs, the portion that actually transacts and has the highest transaction volume, they’re more at scale.

They have more complexity of the business and they need essentially a light ERP. So they’re not at the scale where they need enterprise software but they need a substantial system that’s going to manage all elements of operations, inventory across multiple locations. And in 2025, they also need to be able to manage inventory across multiple physical and online channels, in addition to integrating with many different kinds of online services and potentially ERP accounting systems on the back end. And so, we are tailoring our — both our software and our service model, our go-to-market model and our support model to their needs.

Like I said, they’re medium to high complexity SMBs. They’re not quite enterprise customers and so we’re a perfect fit for answering what they need at that level of complexity. And I think that the benefit to Lightspeed is that they drive a lot of transaction volume, there’s less churn. And so, for us, the economics are very favorable.

Asha Bakshani — Chief Financial Officer

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

Dominic Ball — Analyst

Thank you.

Operator

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

Tien-Tsin Huang — JPMorgan Chase and Company — Analyst

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

Asha Bakshani — Chief Financial Officer

Yes. Tien-Tsin, I think that’s the right way to look at it. I think, overall, we’re expecting the strategic pivot will definitely accelerate growth in our growth markets and overall in the company. And so, we’re looking at that 9% as a floor as well.

In F’26, we actually do expect double-digit growth in subscription software. And so, yes, we’re looking forward to that. But I think that’s the right way to look at it.

Tien-Tsin Huang — JPMorgan Chase and Company — Analyst

OK. Great. And I understand the share repurchase. But looking ahead, now that you know what your focus on that density will be, does M&A come back into the equation again for Lightspeed to build out capabilities? I think I heard Dax, you mentioned payroll, for example.

Just curious what your thinking is on the acquisition front?

Asha Bakshani — Chief Financial Officer

Yes, yes. I’ll take that one. We have no intention on large strategic M&A at this time, Tien-Tsin but we remain opportunistic. And like you heard from Dax on payroll, if we see tuck-in acquisitions that really further our moat or accelerate our road maps, or actually provide any immediate software uplift through modules, then yes, that would be something we would look at.

We’re always — the dialogue with our customers is always open. And so, we’re always looking for how do we accelerate road maps to put functionality in the hands of our customers that they’re seeking. And so, if we were to find tuck-ins like that, we would definitely be open to it.

Tien-Tsin Huang — JPMorgan Chase and Company — Analyst

Thank you.

Operator

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

Timothy Chiodo — Analyst

Great. Thank you for taking the question. Given the focus on the retail in North America, you mentioned the right to win there. I was hoping you could dig in a little bit on the competitive environment there and any updates there? Just noting that Shopify’s retail point of sale globally, that’s now approaching roughly $35 billion or so in volumes, is starting to scale.

And then, this past fall, Clover released some new SaaS packages, including those for retail verticals. So I was just hoping you could provide a little bit of color on Lightspeed’s retail differentiation versus those and/or any other broader competitive environment updates?

JD Saint-Martin — President

Yes. Thank you for the question. JD here. Some of the names that you mentioned there, ultimately, their strategy is to be broad and shallow.

And our difference at Lightspeed is that we go deep in specific verticals. We call them fortress verticals internally, where our solution really differentiates relative to the competitive landscape. So in sports and outdoors, bike, golf and apparel and footwear, in home and garden, in vape and smoke, these are categories where really, our solution has the depth that these retailers are looking for, particularly around inventory management. That’s a very strong moat for us and now coupled with our supplier network, again, a strong differentiator.

And so, there, what you see from competitive landscape are more legacy solutions that have been around for a long time or subscale players that are focused on those verticals. And really ultimately for us, we see an opportunity to consolidate a lot of market share in those areas and continue to grow at a healthy pace.

Timothy Chiodo — Analyst

Thank you.

Operator

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

Todd Coupland — Analyst

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

Dax Dasilva — Founder and Chief Executive Officer

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

Todd Coupland — Analyst

Great. And then, on the buyback, I’m not sure of the exact structure. Is it just a plain buyback? Or have you contemplated other options such as substantial issuer bids? Just give us a little color on that.

Asha Bakshani — Chief Financial Officer

Todd, thanks for the question. For the $100 million that we plan to start executing on immediately, that’s under the NCIB, the normal course issuer bid that we filed in this fiscal year. And then, for the additional authorization, we are looking at all our options. We do plan to return capital in this upcoming fiscal year as well, in addition to the $100 million.

But you’ll hear more from us on the structure at our investor day next month.

Todd Coupland — Analyst

Great. Appreciate the color. Thank you.

Operator

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

Richard Tse — Analyst

Yes. Just quickly on NuORDER and the supplier network. Can you talk about how that’s scaling? And is this sort of B2B payments, the way of monetizing that? Or do you have another sort of monetization plan for it?

JD Saint-Martin — President

Thank you for the question. I mean, there are multiple ways you can really see how our supplier network is materializing. First and foremost, as you pointed out, our wholesale platform, NuORDER, continues to make really solid progress. We announced some customers that were closed in the quarter.

As a reminder, brands, amazing brands like Arc’teryx, TOMS, Ted Baker are using that platform. Second, as you know, we’ve connected effectively our NuORDER wholesale platform with our point of sale. And so, at the point of sale level now, you can actually see the inventory of your suppliers, which is really a unique proposition that no one is able to offer. And we’re really pleased with the progress there.

We’ve seen over 2,000 POS customers connecting to the supplier network and that number is growing significantly. And then, lastly, if you think of how we’re monetizing this offering, you’re really seeing it in our close rates. Our close rates have increased significantly in the verticals where we have a strong coverage with our supplier network. An example of that is in the pet segment where we released our wholesale supplier catalog.

We’ve seen close rates go up by 40%, which is really encouraging. And also, we are leveraging that as our cornerstone for our outbound motion. We’re reaching out to retailers that are carrying those brands in their store and highlighting the value proposition of using our point of sale to connect to those brands in a seamless way. And here, too, you can see the progress, from a bookings perspective, our outbound motion in retail is up 266% year over year, which is really encouraging.

So all in all, those different vectors are contributing to the monetization and you see now the impact on our overall revenue for our retail category.

Richard Tse — Analyst

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

JD Saint-Martin — President

Yes. I mean, typically, what you see is about a third of the customers we win are coming from legacy providers to existing — existing businesses that are using legacy solutions. The other third typically come from businesses that are outgrowing the more basic cloud-based solutions out there, some names that were mentioned earlier. They realize that with their growth, with their ambition, they can’t continue with those players and they need something more robust and with more functionality and that’s where Lightspeed shines.

And then, lastly, about a third remaining are brand new businesses that are not necessarily equipped with an existing solution.

Richard Tse — Analyst

OK. Thank you.

Operator

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

Martin Toner — ATB Capital Markets — Analyst

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

Asha Bakshani — Chief Financial Officer

Yes, absolutely. Thanks for the question, Martin. From a payments perspective, gross margin, what puts downward pressure on gross margin are two things in particular. The first one is residuals.

Residuals come in at 100% gross margin. Just as a reminder, residuals is, before we had our own payment solution, we would refer customers to an integrated payment provider and we would get residuals on that revenue stream. That was recognized net in our books. And now as these nonsolicits run out, we’re taking those cohorts of customers and putting them on to Lightspeed Payments.

So that is the biggest driver of the compression that you’re seeing on gross margin. But overall, gross profit dollars increases when we do that. And so, it’s an overall net positive to Lightspeed but you will see compression on gross margin as a result of that motion. We’re quite pleased with the fact that despite payments becoming such a big part of our overall revenue portfolio, we’ve been able to keep overall gross margins in the 40% to 45% range.

And that’s because of a couple of things. One is international expansion. So payments internationally carries a higher gross margin over 30% as compared to North America, which as you know, is in the 20%, 25% range. And in addition to that, we have some pretty high gross margin items such as capital and instant payout in our financial services offerings.

These streams come in at over 90% gross margins. And so, as we’re growing those businesses, which are growing at a healthy clip, that is helping our overall gross margin remain in that 40% to 45% range.

Martin Toner — ATB Capital Markets — Analyst

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

JD Saint-Martin — President

I mean, I think it’s — we’ve provided commentary on a couple of instances at this stage on our legacy products. At the end of the day, these are products that are driving a lot of EBITDA for us. These are great customers that, for the most part, are happy to stay on that platform. And so, we don’t intend to sunset those platforms entirely.

We are encouraging some of these customers to move to our flagships because they see expanded features, expanded functionality but we’re not force migrating those customers. And so, what you can expect from us is, over time, of course, those platforms are — will have less and less of our base. And then, you’ll continue to see our flagship products take on more share of our overall base. As of next year, we’re expecting that to cross about 50% of our overall locations being on our flagships.

But we’re not force migrating these legacy products.

Dax Dasilva — Founder and Chief Executive Officer

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

Martin Toner — ATB Capital Markets — Analyst

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

Operator

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

Daniel Chan — TD Cowen — Analyst

Hi. Good morning. Thanks for squeezing me in. Asha, you talked about some of the mix and seasonality in your GTV affecting the payments penetration rate.

Can you remind us how that seasonality changes in Q1 to give you confidence around the end of year payments penetration target? Just thought golf would continue to be soft into your Q4 quarter as well.

Asha Bakshani — Chief Financial Officer

Yes. Yes. Thanks a lot for the question, Dan. If I give you just sort of the sequencing of what happens to GTV throughout the year, I think you’ll get a nice idea.

This quarter, as you know, our fiscal Q4 is a seasonally weakest quarter for GTV. And we see that across retail, as well as hospitality. As you move into Q1, you actually do see that GTV improving for both retail and hospitality. Q2, which is our fiscal Q2, which is the summer, is a very high seasonal quarter for hospitality.

That’s where everyone is dining out and in particular, European hospitality where we’re very strong. And then, in Q3, the GTV typically remains very strong because it’s a very high GTV quarter for retail given the holiday shopping season as well. So with Q4 being the seasonally slowest quarter, Q1, where we see a nice growth and then Q2 and Q3 being our strongest GTV quarters, that’s how you should look at it.

Daniel Chan — TD Cowen — Analyst

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

Asha Bakshani — Chief Financial Officer

No, actually. When we — we could talk about that in the one-on-one but the sequential EBITDA margin stays the same and it actually improves a little bit when you think about overall adjusted EBITDA and the revenue for the quarter. And so, you’ve seen us raise the EBITDA guide every quarter this year. The $53 million or the over $53 million that we just guided for the year is about 30% higher the guide at the initial of the year — at the initial start of the year.

So we’re pretty pleased with EBITDA progression and we expect that EBITDA margin to improve each quarter from here on.

Daniel Chan — TD Cowen — Analyst

Sounds good. Thank you.

Operator

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

Gus Papageorgiou — Head of Investor Relations

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

Operator

(Operator signoff)

Duration: 0 minutes