Lightspeed Commerce Inc. Q1 2027 Earnings Call

You for standing by. My name is Jill, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed First Quarter 2021 Earnings Call. If you teleconference. Mere. Lightspeed. All lines being placed on mute to prevent any background noise. After the speakers remarks, it will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Gus Papageorgiou, Head of Investor Relations. You may begin.

Thank you, and good morning, everyone. Welcome to Lightspeed fiscal Q1 2027 Conference Call. Joining me today are Dax Dasilva founder and CEO Asha. And Gabriel Benavides, vice chief revenue officer. 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. 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 first quarter fiscal 2027 results presentation available on our website, as well as in our filings with the 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 and on. The SEC.

Edgar system. Note that because we report in US dollars, all amounts discussed today are in US dollars, unless otherwise indicated. With that, I will now turn the call over to Dax.

Everyone and thank you for joining us. Before we get started, I would like to welcome Lightspeed Chief Revenue Officer Gabriel Benavidez on the call today. Six months into his new role, Gabe is having a tremendous impact on our go to market efforts. He has already signed one of the largest partnership deals in the company's history, brought on strong new talent and restructured our entire go to market team. I thought it would be helpful to have Gabe in our Q&A session so you can hear about our go to market momentum directly from him. Fiscal 2027 started off strong for Lightspeed. With the company surpassing its revenue outlook in Q1 on an organic year over year basis. We delivered revenue of 323 million, up 17%, and gross profit of 139 million, up 12%. EBITDA of 18 million came in within our outlook range software. Accelerated to 8% and payments penetration was very strong at 44%, up from 40% a year ago. On an organic basis. Our performance was driven by strong execution in our growth engines, where we saw total revenue up 20%, GTV up 14%, customer locations up 10%, and payments penetration at 49%, up from 45% last year.

Thanks to our healthy performance and growing confidence in our strategy and operations. We returned approximately $86 million through share repurchases in the quarter. As part of our commitment to return capital to shareholders. Last year, we launched our refreshed strategy, sharpening our focus and concentrating our product and go to market resources on our two growth markets retail in North America and hospitality in Europe. With the. Of that transformation now firmly in place, year two is about pressing our advantage and executing with even greater discipline to drive stronger results. I'll walk through the progress we made this quarter and lay out some of the initiatives we're driving to accelerate our performance further. As always, I'll organize my comments around our three stated priorities. One growing customer locations in our growth engines. Two expanding subscription Rpu and three improving adjusted EBITDA and free cash flow. Let me start with customer locations and our growth engines. Total growth. Engine. Customer locations increased by approximately 10% year over year to a total of 99,000. Our. To create durable growth by focusing on higher quality agreements with customers extends to our partner ecosystem. In. One a legacy white Label Partnership agreement was terminated, resulting in the removal of approximately 500 low R locations from our customer base.

Total. Customer locations, including growth and efficiency markets, were 146,000 at the end of the quarter. After giving effect to the divestiture of the non-core Upserve US hospitality product line. We remain focused on winning more sophisticated Multi-location SMBs with complex needs. The customer's best positioned to take advantage of Lightspeed full software suite Examples include Adorned Boutique, which required advanced inventory management across multiple locations in Texas and Synergy Sportswear, which operates seven locations and was already a user of New Order by Lightspeed before recognizing the benefit of the Lightspeed POS with wholesale built right in. Attracting existing New order customers to Lightspeed, POS has become a leading driver of new retail customer locations for our recently expanded outbound sales teams. Also, during the quarter, we were pleased to add brands including Lafayette 148. Slowtide and Head Golf to New Order, providing them with a modern, collaborative wholesale experience while enhancing their product discoverability across thousands of Lightspeed retailers. As we continue to expand the number of brands on the order, we deepen the value of our Lightspeed wholesale network for retail customers by making it easier to discover and purchase from the brands that matter most to them all within a single platform.

This strengthens our flywheel. More brands attract more retailers and more retailers attract more brands in. We continue to build on our leading position in hospitality, driven by a product offering and go to market motion that we believe are unmatched. We added 19 locations of the Dutch chain. Which. Added a platform that could support table service, bakery and kitchen workflows. While centralizing management. Our. Strength was reinforced by our robust partner ecosystem and advantage that carries across our European markets. In the U.K., we welcome 17 locations of africana. Perry Kitchen and Grill, a growing African inspired restaurant chain. Gulf also remains a strong vertical for Lightspeed. This quarter, we signed Encore Leisure Group, 16 locations across the US and the prestigious Royal Golf Club in Belgium, combining our. Two flagship platforms. Lightspeed Retail and Lightspeed restaurant allows us to address this highly lucrative and significant growth market. High quality customer growth remains one of our top priorities, and we have launched several new initiatives to sharpen how we target on board and support the right customers for Lightspeed. The first is improving seller productivity. By modernizing our go to market systems and processes. Rolling out better training and enablement, and optimizing our organizational structure.

We expect to increase seller productivity, which will allow us to drive revenue growth without scaling costs at the same rate. In addition, we are refreshing our partner and channel strategies strength. And growing our ecosystem will help drive efficient revenue growth by expanding product availability, driving more value for our customers, partners, and Lightspeed, while improving retention and lowering churn. Turning to software revenue and Arppu. Organic. Year over year software revenue growth accelerated from 6% last 7:45 percent this quarter It was encouraging to see software growth accelerate this quarter, driven by continued efforts on upselling sharper focus on ICP customers, a stronger end to end customer journey, and a continued stream of new software features. In this quarter, we continued to deliver new innovations across our flagship platforms of Lightspeed retail and Lightspeed restaurant, which is key for long term software growth. In retail. We launched more AI enhancements, enabling our merchants to. Build blogs and websites faster and drive more traffic to their sites Our new Klaviyo integration saves time building personalized marketing campaigns, and we. Simplified the omnichannel experience. Enhanced Lightspeed scanners. In-Store checkout and rolled out better visibility into orders, revenue, and. The most popular SKUs on new order by Lightspeed.

In hospitality, the latest upgrades to Lightspeed AI allow merchants to simply ask a question and get instant reports, charts, and insights about their restaurant, as well as manage operational checklists and for multi-location restaurants. Our new locations. Manager. Manages menus and syncs updates across every venue in just a few clicks. Our AI. AI features have been well received by our customers of all the latest releases on Lightspeed restaurant. Lightspeed AI is tracking as one of the fastest adopted by users, signaling and opportunity to expand Agentic capabilities for restaurants. We are moving away from AI that just answers questions. The specialized agents that can help run your business to AI that can interpret and analyze data to actively suggest actions that can grow revenues or cut costs, such as reordering inventory of popular items, marking down inventory that is not selling and switching suppliers and prices increase. Imagine that our. Merchants could hire someone with decades of knowledge about what makes their business succeed. We have that. Data and that knowledge. And our AI improvements are making it more accessible to our customers. We believe no one is better positioned to deliver AI powered solutions that can help our customers run and grow their businesses.

Our. SMB and mid-market merchants priority is to build better businesses, not build their own software. Now, turning to profitability. Asha. We'll take you through the numbers in detail, but overall, I want to stress that in the second year of our transformation, we are very focused on improving profitability and in particular, increasing free cash flow. Our revenue. Growth remains strong, delivering on our profitability goals comes down to disciplined execution. To that end, we have undertaken some key initiatives. We are. Going to rationalize all of our costs across the organization. The deployment of AI tools and a more focused strategy have allowed us to concentrate our efforts and improve productivity This has led to lower headcount requirements. Particularly in product development. We've also stepped up our efforts to monetize our backlog, which was a driver of our improvement in payments penetration, which reached 44% in Q1, up from 40% a year ago. On an organic basis Within our growth engines. Payments penetration was even higher at 49%, driving more. From existing customers is a significant opportunity to scale the business efficiently. The. Executive team and I are focused on improving our profitability and cash flow, which we see as essential to creating long term shareholder value With that, I will turn it over to Asha.

Thanks, Dax, and.

Good morning everyone. Our first quarter results reflect a strong start to fiscal 2027. I want to highlight three key trends we saw in the quarter First, the underlying drivers of profitability were strong Software and payments. Gross margin continue to improve software gross margins of 83% were up year over year from 81% in the same quarter last year, and transaction based gross margins grew to 32% from 31% on an organic basis, or 29% a year ago. As reported second. Our efficiency markets delivered stronger growth this quarter Those markets saw organic revenue growth in the high single digit range, which helped to improve our overall growth profile. Finally. Payments was 44% this quarter, driven by healthy uptake from new customers and continued conversion of our backbone. Within our growth engine, payments, penetration was up 49%. Our growth engines represent approximately 75% of revenue, and that makeshift bodes well for long term payments penetration. Overall, we believe there's significant runway for payments penetration to continue to grow in the coming years. I will discuss the quarter in more detail, and then provide our outlook for Q2 and fiscal 2027. For year over year comparisons, I will reference organic figures that normalize the impact of the observed divestment.

Total revenue grew 17% to 322.7 million, exceeding our outlook for organic growth of 10 to 14%, driven by growth in high GTV. Customer locations. Higher software Rpu and increased year over year payments penetration. Notably, revenue in our growth engine increased 20%. Software revenue for the quarter was $95.4 million, up 8% year over year and up 12% in our growth engine software market increased 6% year over year, up from 4% last quarter. Software growth accelerated versus last quarter, driven by a higher location count in our growth engine, successfully landing high GTV customers who adopt more software, and a continued focus on upsell across our back book, we also saw much larger mix of annual deals this quarter versus the same quarter last year. Transactions based revenue for the quarter was 214.5 million, up 20% year over year. Growth. Payments volume also grew 20% year over year. TPV as a percentage of GTV came in at 44%, up from 40% in the same quarter last year. On an organic basis. Our. High margin capital revenue had standout performance and grew 56% year over year Customers who take Lightspeed Capital exhibit significantly lower churn and generate higher lifetime value, growing this high margin offering is a key priority for the business.

Overall, Q1, GTV grew by 9% to 25.7 billion. We saw positive same store sales overall, with particular strength in retail within our. Both engines, GTV grew by 14% year over year. Total monthly Rpu reached approximately $676, up 13% year over year, driven by both higher software and payments monetization. With respect to our efficiency, market, revenue growth was in the high single digit range, supported by strong payments adoption, payments penetration in our efficiency market was 32% in the quarter, well below the overall business, which gives us meaningful room to grow payments revenue. Turning to. Profitability and operating leverage per year over year comparisons, I will continue to reference organic figures that normalize for the impact of the observed divestment. Total gross profit for the quarter grew 12% year over year, driven by strong top line performance across both subscription and transaction based revenue. Total gross margin for the quarter was 43%, compared to 45% a year ago. On an organic basis, the decline was partially due to mix as transaction based revenue increased to 67% of revenue, from 65% in the same quarter last year. In. Addition, hardware gross margins declined due to supply chain constraints that resulted in higher freight costs.

This is not a structural issue, and we are implementing programs to improve our hardware supply chain management. We expect hardware margins to improve in the second half of the fiscal year. Software gross margin was 83%, up from 81% a year ago. This improvement was largely driven by AI resolving 80% of our support ticket, reducing our cost of support and service delivery, and driving efficiencies. Gross margins for transaction based revenue were 32%, up from 31% a year ago. On an organic basis. This improvement reflects increased payments penetration in our international markets, where margins exceed those in North America and growth in our Lightspeed capital revenue. 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 by 23% year over year. For operating expenses. Adjusted EBITDA, adjusted free cash flow and share based compensation. The year over year comparisons are on, and as reported basis. Total adjusted research and development. Sales and marketing and general and administrative expenses grew 7% year over year. This is primarily driven by investment in field and outbound sales. At the same time, we are taking action to improve productivity in addition to rationalizing headcount, we are expanding our self onboarding program for certain customer cohorts, which will fully automate onboarding and improve the overall merchant experience.

Initial efforts have already delivered improved conversion at lower costs, and we are scaling this program further. Adjusted EBITDA in the quarter was 17.5 million, up from 15.9 million in Q1 last year, driven by continued execution against our strategic shift and our focus on AI and automation to improve operating efficiency. It is noteworthy that divesting Upserve means that our fixed costs are absorbed over a lower revenue base. This impact will be offset by our growing revenue base, along with our efforts to reduce costs as a percentage of gross profit, adjusted EBITDA was 13%. For fiscal 2028. Goal is for adjusted EBITDA to be at 20% of gross profit. Our net loss was $2.4 million, or a loss of $0.02 per share, compared to a net loss of $49.6 million, or a loss of $0.35 per share a year ago, thanks to improved gross profit and having now fully amortized our acquisition related intangible. Adjusted free cash flow was -4.4 million in the quarter, which was impacted by working capital movements. The prior year period reflects a full quarter's contribution of Upserve to cash flows. Whereas the current period reflects upserve only up to its divestiture on April 28th, 2026. We remain confident that the actions we are taking to grow quality locations and revenues.

While finding significant operating efficiencies, have us on track to meet our three year free cash flow target of $95 million for fiscal 2028. For fiscal 2027, we expect free cash flow to show significant growth over fiscal 2026. We. To actively manage share based compensation and related payroll taxes, which were $12.7 million for the quarter versus $14 million in the prior year quarter. And declined as a percent of revenue versus Q1 last year from 5% to 4%. With. Respect to capital allocation and our balance sheet. Our balance sheet remains very healthy. We ended Q1 with approximately $372 million in cash. Down from $454 million in March. That reduction was driven by discretionary actions to return capital to shareholders and reduce the dilutive impact of share based compensation. In the quarter we spent $66 million to buy back and cancel 7 million shares, reducing our issued and outstanding share count by 4% year over year. We also used $21 million to repurchase shares in the open market to fund future share award settlement obligations, which limits dilution upon settlement in. Addition, we received approximately $19 million from the sale of Observe in the quarter. We will continue to be. Opportunistic with our remaining share buyback authorization. Approximately $150 million remains under our broader board.

Authorization to repurchase up to $400 million in Lightspeed shares. Aside from the potential share buybacks, our largest use of cash will be the continued growth of our merchant cash advance program. There were $160 million in outstanding at the end of the quarter. And we intend to continue expanding this high margin program over time as we. Grow the program we remain disciplined in our underwriting and default rates have stayed consistent in the low single digit range, which gives us confidence to continue expanding. Overall, our balance sheet remains strong and positions us well to continue executing against our strategic priorities. Now on to outlook for fiscal 2027. Our existing outlook remains unchanged and consistent with the company's three year targets for gross profit, adjusted EBITDA and adjusted free cash flow presented in our Q4 earnings release in May 2026 for fiscal. 2027, we expect total revenue of 1.225 billion to 1.265 billion, representing organic growth of 12 to 15% total. Gross profit of 565 million to 585 million, representing organic growth of 12 to 16%. Adjusted. EBITDA of 75 million to $95 million. For Q of fiscal 2027, we expect total revenue of 316 million to $326 million, representing organic growth of 12 to 16%. Total gross profit of 141 million to $146 million, representing organic growth of 10 to 14% and adjusted EBITDA of 20 to $25 million, with that, we will now take your questions.

Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute. When asking a question. And we do ask for today's session that you please limit yourself to one question and one follow up. And again to join the queue. That is star one. Your first question comes from the line of Dan Perlin of RBC. Your line is open.

Thanks. Good morning., actually, I just had a question in terms of subscription growth accelerated to 8% versus six. So that was that was really encouraging ., and. Who was up about 6%, I think., so I'm just trying to make sure I understand like the, the, the slight gap between the two. And then how do you think about the timing of closing that over the next couple of quarters? Thank you.

Thanks. Thanks for the question, Dan., you know, when we think about subscription revenue. You know, super happy with what we're seeing there going from 6 to 8%. There are lots of puts and takes in, you know, in the numbers, as you can imagine, timing the type of locations we're bringing on board as we're bringing more and more larger,, large DTV locations that take more of the sweet Lightspeed has to offer. We should continue to see that software output growth., you know, align better with the, with the total revenue acceleration on software.

Okay. So it's kind of mix and timing of types of locations that are getting onboarded. Got it., just,, a quick question on AI and maybe it's a little early to even draw the distinction here, but like, as the product. Increasingly embeds, you know, AI solutions,, how do you think about managing, you know, the cost of AI and is it priced like a, you know, token cost plus a margin?, for the client? Because the question is really, as clients start to,, utilize it, there's an opportunity, I guess for your cost structure to have some, some controls on it. And I'm just wondering how you're thinking about managing that. Thank you.

Yeah. I think like when it comes to the product, you know, I think we're being pretty judicious on, on what kinds of models we use for different kinds of tasks. You do not need to use a frontier model for,, for a lot of the things that Lightspeed AI is doing in retail and hospitality., and so, and there's a lot of options now., the team is,, is ,, doing a lot. Of experimentation and it's, it's really helping us manage costs that we can make sure that we have great software uplift from our, from our AI tools that we, that we have, that we have planned as we build more agents that are specialized in our product to, to handle everything from inventory to operations management. But yeah, you do not need,, high token cost frontier models to be doing all of those kinds of tasks,, you can get great insights and actions., out of the, you know, agentic driven actions. The software without leveraging frontier.

That's great insight. Thank you. Dax. Thank you. Asha.

Your next question comes from line of. Dominic. Ball of Rothschild and Company. Redburn. Redburn, your line is open.

Hey, Dax. Asha. Gus., yeah, thanks for the question and nice organic TPV numbers. So,, a kind of similar question to that in terms of, you know, some of your peers have started to directly monetize their AI products,, for example, like toast IQ grow ,, Lightspeed has Lightspeed AI., it would be great to understand kind of how many merchants are currently adopting this. And then the potential to monetize that going forward as well. Thank you.

Yeah, I think in hospitality, where we launched our,, you launched our AI products first. This is the fastest uptake of any module that we've ever seen in our history., we have a really high percentage of, of folks adopting the AI tools. If you think about ,, merchants in our SMB to mid-market space,, the ability for them to query the product for the charting, the insights, the reporting that they need rather than try to understand a reporting interface or build custom reports. I mean, it's very appealing., and so that's very encouraging because, because adoption usage means that we have in the future pricing power and we can, we can, you know, we can add more,, more AI and agentic tools,, across our pricing tiers. We haven't done that to date, but we're gathering the data to be able to do so.

Thank you.

Your next question comes from line of Thanos. Of BMO. Line is open. Hi.

Morning., could you speak to your,, hiring plans and sales for the upcoming year?, it sounds like a lot of the focus will be on, on improving productivity of the existing forests. And is the hiring slowing down as far as bringing on new bodies or what's your thoughts on that?

Yeah, Dennis, thank you for the question. I'll take this one. This is Gabe Benavides. Happy to be here. Chief Revenue Officer at Lightspeed., a couple of things. As Dax mentioned,, on one side, we've already welcomed new sales leadership to Lightspeed that brings with them tremendous experience and depth of expertise in just the right areas as regards our sales capacity, really our capacity build out is largely behind us and our growth ambitions are largely within reach with our existing capacity. As long as we successfully pivot to a real focus on seller productivity, which is where we're spending a lot of our time and focus right now.

Great. And then you. On,, expanding the partner ecosystem, spending more time on, on the partner strategy., can you expand on that as well in terms of some of the areas of opportunity there?

Yeah, absolutely. Another great question, really two big parts to, to take note of one deeper collaboration with our biggest and most important partners. We recently announced a deep integration with meta and a partnership with Klaviyo being extended as well, and maybe more to the point, a real focus on the monetizing the connectivity layer in our tremendous base of customers that creates bidirectional monetization opportunities for Lightspeed and our and our great partner ecosystem. And of course, it directly creates greater customer value as well. Dax in, his prepared remarks, we mentioned signing the largest one of the largest deals in our partner history this past quarter. And that was directly related to that second part of the strategy. Refresh.

Great. I'll pass along. Thank you.

Thank you.

Your next question comes from line of Matt Coad of Truist. Your line is open.

Hi. Hey. Good morning guys. Thanks for taking the question. I just wanted to ask about the net location ads in the growth engines that came in a little bit quarter over quarter. I kind of curious if maybe the World Cup had an impact. Maybe there was some delayed integrations, anything like that. And then any detail that you can give on kind of like seasonality or expectations for. Net location ads for the rest of the year would be helpful. Thank you.

Yeah. So we added a, you know.

Approximately 1300 net new locations., in the quarter,, you know, the first quarter is a bit,, you know, seasonally a lighter quarter than, for example, Q4., and,, and we had, you know, a removal of some locations from a, from a white label,, that we terminated,. Yeah, I think it's, we, we're, we're focused primarily on quality locations. I think, you know, there's the seller productivity efforts, but there's also, how are we getting the right locations for, for, for Lightspeed. That's a, that's a good fit with our, with our product lines. And so you see,, you know, location growth that's still at 10% within our, within our, within our CMG goal of 10 to 15%., as a three year kegger., but you also see software growth growing, right? So it's the higher quality locations that we're focused on., super high. Dax. Thank you. And then just a quick follow up, any commentary on the path forward for the hardware gross margin? I know there's a lot of moving pieces with discounting and go to market efforts and memory costs that we all have to take into consideration here. So any help would be helpful. Thank you.

Yeah, thanks. Thanks for the question, Matt., you know, we are seeing some compression hardware margins coming from, you know, the temporary supply chain constraints that we mentioned. We have put some guardrails in place and we genuinely believe that's going to bring those margins back to more normalized levels., in the back half of this year, I think what we need to keep in mind, Matt is, is that the hardware investments, the way we look at that is a means to a specific end. You know, expanding high margin payments and software. It is working. We saw GTV grow 20% organically. Papen reached 49% in our growth engines, which is an all time high for us. And more importantly, our core software. Gross margins expanded to 83%., so we, you know, we see these hardware investments as one time we do expect the margins to, to improve in the back half of the year as these guardrails that we put in place,, you know, start coming to fruition., but overall, we really don't see hardware capping long term margins. It's only about 4% of our revenue., and so, you know, the programs that were launched that we've launched will improve visa economics in the back half of the year.

Your next question comes from the line of Tien-tsin Huang of JP Morgan. Your line is open.

Hi. Thanks for taking the question. Just on the on the sales productivity. Just going back to that, just just curious around. Quota attainment. And if there's been any changes in the in the quota or commission structure overall, has that been progressing as planned Curious if there's been any pivoting there. Thank you.

Yeah. Great question., I want to share too many specifics around, you know, targeting or commissions. We've got a pretty broad audience in the call, but I can tell you, as we've shifted the focus to seller productivity, the early signs are are quite encouraging. We're already seeing, for example, inter pipeline deals of a size and scope emerge that we haven't really seen before without breaking the great velocity that we tend to have here at Lightspeed as well.

That's good to hear. But just for Asha, maybe just on the ,, just want to make sure I heard positive same store sales. Overall, it does seem like the spending environment has been pretty good in the geographies that that you're in any, any surprises? Would you call out and sort of in thinking around the second half of the year, has your, has your thought process changed there?, on just macro spend? Thank you.

Yeah, thanks. Thanks. Tien-tsin., no, you know what we are like we mentioned in the prepared remarks, we're seeing a very strong macro, pretty solid macro across North America, retail and EMEA hospitality. We saw total GTV up 14% in the growth engines., the same store sales if I, if I double click on retail, our largest verticals by exporting goods, golf, jewelry, you know, all had double digit or close to double digit growth year over year., when we look at EMEA hospitality, you know, we also see very solid growth., we saw the, you know, the euro temper a little bit in the, towards the end of the quarter. I mean, you're hearing that from others as well., but really nothing that concerns us. We're feeling really good about, about the macro.

Great to hear. Thank you both.

Our question comes from the line of Martin Toner of ATB. Your line is open.

Yeah. Thanks guys for taking the question. And,.

Martin, we can't hear you very well. Can you speak up, please?

Yeah. How's this?

Yeah, yeah. Much better.

You very much., can you kind of walk us through ,, any reasons for,, gross margin weakness in the quarter ?, was there anything transient? And,, and what are your thoughts on gross margin for the rest of the year?

Yeah. Thanks for the question, Martin., you know, the gross margin, what, what you're seeing in the quarter or a couple of, of, of factors or dynamics? First and foremost, we're our payments,, transaction based revenues doing really well. We had a solid quarter, as you saw transaction based revenue as that mix grows, you know, that comes in at 25 to 30% gross margins, depending on the region. North America and Europe and international higher. So as that grows, you know, you see more., more revenue coming in at the 20 to 30% gross margin. We're still feeling really good about, you know, 43 to 45% margins that, that we've put in, in our long term guidance., the only thing that I would say temporary transient is the hardware., we just talked about that. We did see some slight compression from normalized hardware margins that you would see from Lightspeed. We saw slight compression in the recent quarters coming from supply chain constraints. We talked about that in the prepared remarks. But, you know, we do definitely see this as something that's transient. We've put in some guardrails in place that we expect to see benefit us in the back half of the year, and nothing that concerns us ., you know, these, these programs are launching and will improve these economics in the back half of the year.

Overall, feel really good about where we are on gross margins and where we're headed in the rest of this year.

Your. Question comes the line of Matt. Bullock of Bank of America. Your line is open.

Hi. Great. Thanks for the question., I was hoping if you could, you could elaborate. Maybe give us an update on the strategy for the opportunity ahead., in driving payments penetration up within the efficiency market, specifically, then I have one quick follow up.

Yeah. I think, you know,, thanks for the question. The strategy overall ,, for payment penetration increase is very close., when we look at our efficiency portfolio, which is fairly broad as with our growth engine portfolio, it's the opportunities to drive better,, payment penetration into our back book. And we're off to a great start for this year. And in a more targeted fashion and our efficiency portfolio and a very broad fashion in our growth,, portfolio, we're looking to increase attach rate, of course, on our front book sales as well. Which for a. Little more color. Yep. Good.

Sorry.

Go ahead.

No, it's just we, I think Dax mentioned this in the prepared remarks. We lost. We've launched a couple of targeted, very specific initiatives for our back book base of customers. And I was going to mention that over the last few years, Lightspeed payment, capabilities, processing capabilities have really grown. And we've been a little bit quiet about those enhanced capabilities. We're bringing those to bear fully with full voice right now in the front book and back book, which really helps drive growth in the portfolio.

Got it. Thank you. And then just a quick follow up on the the termination of the white Label agreement., can you just remind us of how prevalent those white label locations are across the base of, of locations? And then would be interested to learn more if you can provide color on kind of what happened around that termination of the agreement.

Yeah. I can take the first half of this. Dax. Yeah. Well, first to your to your question, very, very few of these remaining in any way in the back book, I would say negligible. So look at this truly as a one time thing. And there's two big elements., this, this particular type of white label agreement didn't really fit our strategy going forward. We have a refreshed strategy around payments and certainly around partners, which we touched on., and so the termination, the agreement was terminated. And we've, we've both moved forward.

Got it. Thank you.

Your next question comes from line of Timothy Chiodo of UBS. Your line is open. Great.

Thanks for taking the question. This question is most likely, I think, mostly for Gabe. But in the last year or so, in terms of the US retail competitive environment, there's really two changes that stand out, at least to us. One is the revamped genius product and the hiring of a few hundred more salespeople. And then on the square side, Square's really pivoted to hiring field sales, and then also working increasingly with the ISO channel. And I wanted to see if your teams have noticed the impact of these two competitors, how you're responding to that, if at all, and any other context you could give around the general competitive environment in the US retail segment. Thank you.

Yeah. Of course., great question. Great multi-part question. So first, certainly competitive environment that is that is very true. I will say this. I believe in North America retail, the customer that we are purpose built to serve is underserved., even with such a competitive environment. So our opportunity in North America is terrific. Both near term and going forward, long tail, high ceiling ., and as I mentioned, our capacity build out phase was not just in North America, but it's largely behind us. So we're really focusing on the pivot to productivity as regards North America market. That's going to mean a little better. Well, sharper ICP. Definition and focus and targeting the value based in unified approach to selling the Dax mentioned a couple of times in the, in the prepared remarks to make sure that we are capturing that opportunity to the greatest extent possible. And so really for the, for the foreseeable future, I'll call it, it's about better performance in our ICP. Market. You know, opportunity and verticals within North America. There's a lot there for us.

Thank you.

Your next question comes from the line of Andrew Harte of Btig. Your line is open.

Hey, thanks for the question., following up on the, prior question on the back book opportunity, I guess, can you talk about why you think now's the right time to go to go after the back book?, and then when you think about getting those wins, what's the kind of gross profit uplift on a, on a per customer basis?, if you could talk about the sales motion there as well, and any impacts on churn or ,, you know, the adding customers. Thanks.

Yeah. Great question. I'll take the first part of this. Maybe,, as far as the timing. Listen, I think that maybe I'll start here very quickly. There's a bit of a formula. I think that we're adhering to at Lightspeed right now, which is, you know, being very purposeful at signing or bringing on board the right customer where our product depth, regardless of market, makes the biggest difference. And our go to market economics tend to be the strongest. Signing them to great deals with great deal economics and then retaining them over time and growing them as their business thrives. They should be adopting more and buying more., from,, from Lightspeed, both on a subscription basis and transactional basis. So all that said, we have 146,000 customer base, a tremendous opportunity for us to be very purposeful about driving value, bringing our terrific partner network and ecosystem to bear, and increasing the monetization there. So really, I think the the timing is right now, and it has been right for a little while and be right going forward. It's about purposeful execution, focusing on customer value. And that is at the center. Actually, it's a great because that's the center of a lot of the changes that we've made over the past couple of quarters.

That's helpful. And then just.

On that, curious if there's any kind of uplift we can think about when you went back with customer and then as my other follow up question,, the focus on cost rest, rationalization, I know there was a comment that there was a lot of opportunity in the R&D line. It also looks like G and a ticked up in the first quarter as well. On an adjusted basis. So Asha, if you could just kind of help us think about the entire cost structure going forward. Thanks.

Yeah, sure. Thanks, Andrew. From. I'll answer the margin question first. Gabe talked a lot about, you know, partnerships from a software perspective that that gives us more to upsell. We see no reason why those deals wouldn't come in at the 83% software margins that, that you're seeing from us. I mean, that's what we've seen to date from a payments perspective, depending on whether they're North America or international. The margins range from 25 all the way up to 40%. And as we get more and more of these back book customers onto payments, we should see them coming into our book at those margins as well. From a cost rationalization perspective. You know, as you know, we're relentless about cost discipline inside the company. We actively manage our structure as a part of normal operations consistent with that approach. We recently reduced about about 10% of our headcount in product and tech. We are being prudent with our resources. This was all a part of our transformation., increasing our operational efficiency and fueling these smart reinvestments into the high return growth initiatives is, you know, how we run, we run the business, the last thing I'll say is, as you know, we've focused, you know, in North America, retail and in EMEA hospitality.

And that focus really helps us to sharpen our execution. And we are concentrating our investments in the areas with the highest return and removing work. That's no longer a priority for us. So lots of really good work inside the company on cost rationalization. And we feel really good about about where we're going there.

And I guess lastly on the uplift part of your question, I think certainly I would I would put it this way, this is these are the metrics to watch software growth with, especially within our growth engine portfolio. And that's you'll see that's the area to watch as we go through the rest of the year and beyond. And certainly a lot of that will come from the back book strategies we're employing.

Again. If if you have a question, it is star one on your telephone keypad. Your next question comes from line of Todd Coupland of CIBC. Your line is open., great. Thanks. Good morning everyone. I wanted to ask about,, location growth., implied in Q2 and 2027 guide. I think you said ,, organic growth was 10% in Q1 ., what are you implying in the guidance for Q2 and 2027?

Thanks. Todd., from a location growth perspective, I think, you know, we, we're anchored around the capital markets day kegger. We provided a 10 to 15% there, you know, puts and takes quarter to quarter because there is seasonality in our business, but we feel really good about that 10 to 15% kegger. You know, we've we were at 10% in this past quarter. All of the initiatives that Gabe and Dax talked about earlier are going to help to drive and even accelerate location growth. And obviously, in particular, in, in our growth engines.

Great. Thank you very much.

Your next question comes from the line of Suthan Sukumar of Stifel. Your line is open.

Good morning and thanks for taking my questions., the first one I want to follow up on the channel., can you speak a little bit about your priorities for the overall channel strategy? Is this really to double down in core airs or help you penetrate net new markets and customer verticals?

Oh, it's a great question. I'll take this one. It's well, it's both I think when I talk about the size of our opportunity being near term as well as long term, long tail, high ceiling, a lot of that immediate or near-term opportunity. It's both, but it comes from this back book. So we have such a terrific and broad partner ecosystem. I will share one of the one of the very pleasant surprises that I had when I joined Lightspeed was just the number of partners that are really eager to work with us or expand their collaboration with us. And we have a real opportunity to drive. Customer value, which translates to revenue growth in our back book to drive improved retention in our back book, which of course contributes to all of the measures we watch as well. And then certainly there's a front book. Co-selling., opportunity as well. One of the things that we're looking at, as always, is as we expand our reach into, into additional markets nearer or longer term, we can really activate and leverage our great partner ecosystem to enter markets effectively. High yield, but low risk as well.

Okay, great. Appreciate that color., the second question I wanted to touch on capital allocation., you know, I think you kind of talked about maintaining flexibility for the capital program, but,, you know, curious, how do you, how active you guys expect to be on, on share buybacks going forward? And, and what other priorities are you, are you contemplating here from a capital allocation perspective?

Yeah. Thanks for the question., we're pretty serious about returning. Cash to shareholders. You know, we talked about the buyback. We bought back 7 million shares in Q1 of this year., you know, we're about a little over 80% through the buyback that we just announced in quarter ., we also purchased, you know, shares to help avoid on the open market share to, to prevent dilution from a shareholder perspective. So we are returning capital to our shareholders and we are doing so from a position of strength, even after repurchasing and canceling 7 million shares in Q1, we did end the quarter with over 370 million in cash. We have no meaningful long term debt, and alongside,, you know, positive free cash flow that we expect to generate this year,, outside of the merchant cash advance business, to be honest with you, no high margin business growing 56% year over year, super excited about where that's going. But outside of that,, you know, the, for us, it's really about where we investing for long term to, to deliver long term shareholder value., and for now, that is really the merchant capital advanced business and,, and returning cash to our shareholders through buybacks.

That concludes our Q&A session. I'll now turn the conference back over to Gus. Papageorgiou for closing remarks.

Great. Thanks, everyone, for joining us today, myself and the rest of the team will be around for the rest of the day. If anyone has any follow up questions and we look forward to speaking to you on our next quarterly call. Thank thank you and have a good day, everyone.

That concludes today's conference call. You may now disconnect.