Good morning and welcome. My name is Aaron, and I'll be your conference operator for today. At this time, I'd like to welcome everyone to the Lightspeed fourth quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will have a question and answer session. And at that point, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. At any point, if you'd like to withdraw your question, just press star, followed by the number one again. We do ask that you please limit yourself to an initial question and then a single follow-up question when you're given the opportunity to speak. With that, I am pleased to turn the call over to Gus Papagiorgio, Head of Investor Relations. Gus, please begin.

Thank you, Operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q4 2025 conference call. Joining me today are Dax De Silva, Lightspeed's founder and CEO, Asha Bhakshani, our CFO, and J.D. St. Martin, 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. We should carefully review these factors, assumptions, risks, and uncertainties in our earnings press release issued earlier today, our fourth quarter fiscal 2025 results presentation available on our website, as well as in our filings with U.S. and Canadian securities regulators. Also, our commentary today will include adjusted financial measures, which are non-IFRS measures, and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on Cedar Plus, and on the SEC's Edgar system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Dax.

Thank you, Gus, and welcome, everyone. Fiscal 2025 was a pivotal year for Lightspeed. We exceeded a billion dollars in annual revenue for the first time in company history, delivered $53.7 million in adjusted EBITDA, and realigned the business around a focused strategy designed to drive long-term profitable growth. There were many things to be proud of in fiscal 2025. Revenue grew 18%. Adjusted EBITDA rose substantially from $1.3 million to $53.7 million. We launched a series of industry-leading innovations, such as Retail Insights, in our kitchen display system. We refocused our efforts on two core growth markets, retail in North America and hospitality in Europe, where we have strong product market fit and a proven right to win. We restructured the organization to better align with our new strategy and met our goal of profitable growth. And we completed a share repurchase program for 9.7 million shares, returning over $130 million of capital. After the year-end, Lightspeed further executed its share repurchase program, buying back an additional 9 million shares. In the last 12 months, Lightspeed has repurchased approximately 18.7 million shares, or about 12% of the shares previously outstanding at the end of last year, for about $219 million. In Q4, we continued to make meaningful progress towards our strategic priorities. Software ARPU grew 11% year-over-year, reflecting strong adoption of our new modules and ongoing price optimization. Gross margin reached 44%, driven by disciplined cost management. We added quality customer locations in our growth markets, retail for North America and hospitality for Europe, supported by the growing effectiveness of our outbound sales teams. Importantly, March was a record month for outbound sales. These achievements reflect not only strong execution, but the foundational transformation we undertook this year. With many of the hard decisions behind us, fiscal 2026 will be a year of executing on our plan and delivering on our plan. While macroeconomic conditions remain uncertain across our global footprint, our ongoing strategic execution and product capabilities position us well. from forecasting demand to sourcing inventory from the thousands of suppliers on our wholesale network. The Lightspeed Commerce Platform is built to help merchants thrive no matter what conditions they face. In late March, we hosted our Capital Markets Day in New York City, where we outlined our new strategy and financial goals. I want to recap some of the highlights from that day. Lightspeed is concentrating efforts on its growth markets, where we have clear right to win our go forward strategy is anchored in two high opportunity areas north american retail where we serve complex high gtp retailers with differentiated tools and deep vertical expertise european hospitality a fragmented market where light speed is already a leader with workflow automation local support in these areas we are doubling down on outbound sales capacity product innovation and customer experience. We are focused on efficiency, continuing to support existing customers while realigning our cost structure to maximize adjusted EBITDA for the whole business. The success of our efforts within these growth markets will be measured by our ability to grow customer locations and software ARPU while improving overall profitability. I want to highlight the progress we are making on the first two goals and ASHRAE will follow with a more thorough discussion on profitability and our financials. Market progress. Customer locations in our growth markets grew over 3% in fiscal 25, and GDP for these customers grew 6%. Growth came despite the strategic pivot only beginning to ramp in December 2024 when we realigned our organization to execute on our profitable growth strategy. By making further investments in sales and product, we expect to accelerate net customer locations growth towards our targeted three-year CAGR of 10% to 15%. We're scaling our outbound sales organization rapidly. As of April, we've filled over half of the 150 roles we committed to by fiscal 2016. In Europe, field teams are now active across key cities in Germany, the UK, and France. In North America retail, our AI-powered outbound engine is helping reps target and convert high-value merchants. We are leveraging AI to feed the top of the sales funnel through outbound cold calling, and our salespeople then convert those leads into active customers. Our AI engine helps us prioritize outbound calling to the highest value leads. We are moving quickly to fill all of our outbound positions. Outbound sales reps require some time to fully ramp, usually around six months, so we will see a lag between hiring and results. But thus far, the results are very encouraging. Outbound salespeople are much more efficient at targeting our ICP customers, and because these are generally more established customers, they tend to go live much faster because they do not need to clear hurdles such as financing or signing leases. March was our best month yet for outbound revenue, which was driven by faster go-live times, higher average GDV per location, and higher productivity per rep. Here are a few examples of such ones signed in the quarter with seven locations, carrying one of the most complete selections of fitness shoes and apparel in the USA. They have previously relied on separate POS Tennis Plaza with nine locations in Florida. Frequently ranked as the number one tennis specialty store in America. They had considered several cloud-based competitors, but chose Lightspeed due to our inventory management, B2B, and the ability to sell on the Lightspeed scanner app that we announced last quarter. Woodstack was seven locations in New York and New Jersey. A streetwear retailer known for its premium sneakers, apparel, and accessories, They chose Lightspeed as their end-to-end saloon bay golf links in California with two world-class championship golf courses connected to a luxury resort. Finally, within Lightspeed New Order, we signed several new brands including Birkenstock Australia, Crew Clothing in the UK, and the Children's Wear brand's tea collection. In EMEA Hospitality, we also had great success during this quarter and signed a number of notable customers. We continued our winning streak amongst Michelin-starred restaurants and chefs by adding La Vie in Dusseldorf, Zetjoe in Bruges, and restaurant Joelia in Rotterdam. High-GTV restaurants with complex operations turned to Lightspeed with eight restaurants in Paris, five of which have Michelin stars. They switched to Lightspeed from their legacy system, with an impressive seven of them going live on the same day. We signed Le Relais de Chambord, located within a luxury hotel in the Loire Valley. They chose Lightspeed for our centralized management system, modern tools, and integration with key partners. Finally, we also saw traction amongst multi-location chains, signing burger and sauce with 18 restaurants in the UK. They were impressed with the flexibility of our platform and wanted a reliable partner, their aggressive expansion plans. The second key metric by which we measure the success of our strategy is ARPU expansion, driven by product innovation and retention within our core markets. In Q4, software ARPU grew 11% year-over-year, driven by deeper module adoption and recent pricing initiatives, proof that our flagship platforms are resonating with the right customers. As part of our strategic pivot, in fiscal 2026, we are investing over 35% more in product development than in fiscal 2025 to accelerate innovation across our offerings for retail customers in North America and hospitality customers in Europe. These capabilities are now being translated into modular features that help complex merchants scale efficiently. In retail, we ship several key innovations to improve operational control and online reach to enhance inventory planning and insight for retailers to ensure accurate inventory levels and view data in an interactive graphic form to better understand their business. A generative AI-powered web builder, which allows our customers to see what they want their website to look like. And our web builder will deliver a fully integrated, professional-looking online store, Omni gift cards, so retailers can sell and redeem gift cards across in-store and online selling catalog portal with the thousands of merchants using the website. Restaurants can now make sure they're showing up in Google searches, increasing order volume, and offering a convenient ordering experience. And we launch advanced production instructions and consolidated items. These releases allow kitchen staff to adjust menu items for variations such as allergens and it automatically queues multiple orders of identical items to minimize prep time. As we enter fiscal 2026 with our renewed focus on our growth engines, we expect even further acceleration in product innovation which, along with our aggressive outbound strategy, will drive improvement. Our goals for 2026 are clear. Increase customer locations within our growth markets, expand software ARPU, and for the entire business. I look forward to reporting on our progress throughout the year, and we'll now turn the call...

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

Thank you very much. Ladies and gentlemen, once again, we'll start our Q&A session now, And please remember, if you would like to ask a question, it is star followed by the number one on your telephone keypad. And once again, we do respectfully ask that you limit yourself to one question, followed by a single follow-up question when you're given the opportunity to speak. Our first question for today comes from the line of Trevor Williams from Jefferies. Your line is live.

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

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

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

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

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

Yeah. Hey, guys. Thanks so much for taking the question. I wanted to go back to that prior question about the guide. And it sounds like there's two key levers here that are kind of informing your guidance for 2026 ramping sales capacity balance against an uncertain macro and so thinking about those two levers you know are both of those levers detuned meaningfully for the guide or is one of those factors more conservative versus the other thank you yeah thanks for the question koji uh if we go back to the guide um You know, when we look at outbound, if we take the catalyst for revenue acceleration and we start with that, when we look at outbound, we have seen very encouraging signs to date.

You know, these are the reps that give us the highest unit economics, the lowest payback periods. And so scaling the outbound is something that we have high confidence in, and that's what's baked into the plan. From a macro perspective, as I mentioned, there is a fair bit of conservatism baked in, just given that, you know, there is still a fluid macro out there. And like I said, we want to put a guide out there that we're confident we can hit. The macro is less in our control, so we've baked more conservatism into that factor, whereas the outbound, the hiring is going very well. You know, we feel that that is very much in our control. And so, you know, we're being, you know, we're very confident in the outbound and that ramp that we've assumed in our guide.

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

Yeah, thanks for the question. Great question, Koji. We do expect, and you see that in our guide, that gross profit growth outpaces top-line growth. And that's really coming from the fact that the majority of the growth that you're going to see from Lightspeed in fiscal 26 and beyond is from location ads and from software. And that's because, you know, the big ramp of unified payments and getting the back book onto payments is behind us. There's still some opportunity there for sure because we're only 40% penetrated as at April. But the majority of the growth that you're going to see is going to come from very high margin software, which, as you've seen from us, comes in at over 80%. And so we actually expect the gross profit growth to outpace top-line growth. And as consistent with what we said at Capital Markets Day, overall gross profit growth we expect to be growing at a CAGR of 15% to 18% between now and fiscal 28. And so, you know, you should expect to see the 13% we outlined in Q1 to continue to grow every quarter into F26 and even F27 and beyond.

Thank you.

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

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

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

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

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

So it sounds pretty balanced.

Thank you.

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

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

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

As that grows, we're definitely looking at how we off balance sheet that and still keep some of the economics for ourselves yeah that makes sense seems like it's plenty of sort of growth and just one on maybe light speed payments adoption when that's been expanded to Europe has this adoption curve been a little bit different to the US and is there a higher or lower you know structural ceiling to light speed payments in the European markets thank you for the question from payments in Europe from an attach rate perspective is as strong as we see in in North America so when we go to market in our key markets in Europe we really

lead with the combined solution of software and payments and we're really pleased to see that our attach rate remains as high as what we've seen in North America thank you guys thank you for your questions our next question is from the line of Thanos Moscapolis with BMO Capital Markets.

Your line is live.

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

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

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

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

Great. I'll pass the line. Thank you.

Thank you. Our next question is from the line of Tin Tin Hwang with J.P. Morgan. Your line is live.

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

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

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

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

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

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

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

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

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

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

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

Okay, great.

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

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

Okay. Appreciate that insight.

Thank you. Our next question is from the line of Ramio Lindschau with Barclays. Your line is live.

Thanks for squeezing me in. Two quick questions. First of all, obviously, as you mentioned, you're focused on retail, U.S., hospitality, but you still have the other businesses there. What are your planning assumptions in terms of stability, rate of decline, et cetera, for the non-focused parts? That's question one. Question two is on the 150 sales count.

Obviously, there kind of was an option that was available to you before. like how did we go and did we discover like the sales guys are so important and and how did you come up with a number to 150 if they're kind of so amazing why not hire more on that one thank you thanks Raymo I'll take the rest of the world markets and then I'll hand it over to JD to talk about outbound so our non-core areas do remain important for us you know we call them the rest of the world market we're not prioritizing them where growth capital is concerned but ultimately, you know, we're running them for efficiency. We're running them in a more streamlined way. We have very happy, profitable customers in that rest of the world portfolio. And we've optimized our team to support those regions and verticals so that these customers continue to be taken care of. These markets offer still lots of upside or growth opportunity from a net retention perspective. For example, you know, we're still rolling out capital in those markets. Payment penetration is still lower in those markets. Payments does come in at a 30 plus percent margin in those markets as well. And, you know, we are happy with the progress there. Revenue in the rest of the world markets grew year over year. Our payment penetration grew year over year. Our GPB as well grew 22 percent year over year. So again, you know, very, you know, profitable markets for us. We're just not focusing on those markets from a growth perspective, but we are growing that customer-based through net retention and it's going well.

As for outbound, thank you for the question. We dive into that in our presentation at Capital Markets Day, but to summarize, fiscal year 25 for us was really the first year where we did outbound at scale, and we're really happy with the results that we saw, as you pointed out as well in your question. That's why we're really doubling down there. We're effectively essentially tripling the sales force on that side in that in that funnel or in that motion and if you look at our progress in q4 it was a record quarter from a bookings perspective in outbound march as we highlighted in our prepared remarks was really really strong so we're really happy with the momentum as far as why hire you know why not hire more than that there is about a six month ramp uh you know from uh from hired to full production from our outbound reps. And so while we see really strong unit economics, we see bookings relative to OPEX being very strong and stronger than all our acquisition motions, we also want to be conscious that there is a ramp. So we're taking that into account in our model and into our build for the year. But what you can expect from us going forward is that you'll see and you'll continue to see outbound becoming more and more of a driving force as far as how we acquire customers. And why we like outbound as well is that we're able to be very targeted when we acquire customers via outbound. We acquire the right customer, the customer that's generating the right GTV, the right unit economics that are a great fit for our product. Churn is lower when we go through outbound. So for all of these reasons, we're really pleased with the progress that we're seeing here. And I think as per why we didn't do it before, it's really the evolution of our product you know our product has really matured as dax highlighted on both retail and hospitality and allows us now to offer a full suite that really caters to the more sophisticated retailers and restaurateurs out there and to really focus on those retailers and restaurateurs outbound is the way to go so it's really all these things are kind of coming to fruition and are clicking for us and and now we're doubling down on it perfect thank you thank you for your questions.

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

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

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

So we should see that capital revenue come back in the first quarter okay great thank you okay that really helped yeah i was it wasn't clear to me that that would explain going from 90 to high 20s but i was wondering if there was anything else there but it sounds like no but i appreciate the answer thanks thank you for your questions and ladies and gentlemen that will conclude our q a session for today's call i'd like to turn it back over to gus for any closing comments that's it thanks for joining us this morning the ir team we'll be around if anybody has any further questions, and we look forward to speaking to you at our next conference call.

Thanks, everyone.

Thank you.