Lightspeed Commerce Q2 2027 Earnings Call Transcript

Lightspeed Commerce (NYSE:LSPD) reported second-quarter financial results on Thursday. The transcript from the company’s second-quarter earnings call has been provided below.

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Summary

Lightspeed Commerce reported a solid Q2 2027 with revenue of $324 million, up 15% year-over-year, driven by strong software growth and a focus on higher quality customer acquisitions.

The company’s growth strategy emphasizes North American retail and European hospitality, with these markets representing 77% of total revenue, and payment penetration increased to 45%.

Lightspeed Commerce’s software gross margin improved to 84%, and adjusted EBITDA was $23 million. The company is seeing success in moving upmarket, with new customer locations generating 27% more software revenue year-over-year.

The company made significant organizational changes, reducing headcount by 10% in product and tech, and 250 roles across the organization, to improve efficiency and profitability.

Future outlook remains strong, with fiscal 2027 revenue guidance of $1.225 billion to $1.265 billion and adjusted EBITDA of $75 million to $95 million, emphasizing continued growth in high-margin markets and cost efficiencies.

Full Transcript

Rochelle (Operator)

Hello and thank you for standing by. My name is Rochelle and I will be your conference operator today. At this time I would like to welcome everyone to the Lightspeed Commerce second quarter 2027 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad.

To withdraw your question, press star, then one again. Thank you. I would now like to turn the call over to Gus Papagiorgio, Head of Investor Relations. Please go ahead.

Gus Papagiorgio (Head of Investor Relations)

Thank you, Operator, and good morning everyone. Welcome to Lightspeed Commerce’s fiscal Q2 2027 conference call. Joining me today are Dax DaSilva, Lightspeed Commerce’s founder and CEO, Asha Bakshani, Lightspeed Commerce CFO, and Gabriel Benavides, Lightspeed Commerce’s 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 material factors and assumptions were applied in respect of conclusions, forecasts, and projections contained in these statements. We undertake no obligation to update these statements except as required by law.

You should carefully review these factors, assumptions, risks, and uncertainties in our earnings press release issued earlier today, our second quarter fiscal 2027 results presentation available on our website, as well as in our filings with U.S. and Canadian securities regulators. Also, our commentary today will include adjusted financial measures which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures.

Reconciliations between the two can be found in our earnings press release which is available on our website, on SEDAR+, and on the SEC’s EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Dax.

Dax DaSilva (Founder and Chief Executive Officer)

Good morning everyone and thank you for joining us. Lightspeed Commerce had a solid second quarter characterized by accelerating software growth, expanding payments penetration, strong gross margins, improving profitability, and a customer base that continues to shift upmarket. In Q2, on an organic year-over-year basis, we delivered revenue of 324 million, up 15% and at the higher end of our outlook. Software growth accelerated to 9% and payments penetration was strong at 45%, up from 40% a year ago. On an organic basis, gross profit of 143 million was up 11% and adjusted EBITDA was 23 million. Our focused markets of North American retail and European hospitality continue to dominate our overall growth, with total revenue up 17% and now accounting for 77% of our revenue, thanks to our strong balance sheet, healthy performance, and growing confidence in our strategy and operations.

Year to date, we’ve repurchased $98 million of our own shares. Last year we launched our refresh strategy, sharpening our focus and concentrating our product and go-to-market resources on our two growth engines, retail in North America and hospitality in Europe. As always, I’ll organize my comments around our three stated priorities from that refresh strategy which are 1 growing customer locations in our growth engines, 2 expanding subscription ARPU and 3 improving adjusted EBITDA and free cash flow. I want to address the first two priorities, growing locations and expanding subscription ARPU and revenue together. Last quarter I stressed that high quality customer growth was one of our top priorities. Larger, more established customers drive higher software payments, revenue, stay with us longer and are better positioned to benefit from Lightspeed Commerce’s more advanced feature sets.

In general, they provide higher lifetime value. As you know, we have been making a concentrated effort to move our customer base upmarket and we are beginning to see the benefits of these initiatives in our results today. The increasing quality of the locations we are adding is driving our improved metrics. While deal quality improved noticeably, net location adds were softer than prior quarters over the past several months. We have meaningfully tightened our deal parameters as we move upmarket with our offering, prioritizing merchants who will attach more of our software over their lifetime and stay with us longer.

And not only are we seeing strong win rates with these customers, but we are doing it while discounting less often, winning at a significant premium over our biggest competitors. The early proof points tell us this approach is working. Our results today show that within our growth engines, Software revenue grew 14% year over year, up from 12% last quarter. Also within our growth engines GTV grew 14% year over year, greatly exceeding location growth of 8%.

Organic software ARPU grew 7% year over year. We had very strong software gross margins of 84%, improving from 82% last year, and we drastically improved hardware margins from negative 74% last quarter to negative 59% this quarter. Lightspeed Commerce has long been a velocity business with the proven ability to attract and sign new customers rapidly. While this isn’t changing, we’ve added a tighter focus on the upmarket, especially within our core verticals where Lightspeed Commerce has built a unique right to win.

We’re taking a more disciplined approach to execution, prioritizing strong deal economics, operating efficiency and profitability, and we have re-engineered and revitalized our go-to-market motions to enable our success. New deal criteria, new leadership and new ways of selling take time to fully embed across an organization. As we continue to focus on the volume and velocity of our business, we also expect the trend towards higher quality locations to continue.

We are not signaling a structural slowdown in our velocity, we are signaling a structural step up in the quality of our growth. Within our growth engines, new customer locations came on with 27% more software revenue on average than a year ago. These are clear signals that the merchants we are winning are higher quality and more deeply attached to our software. These dynamics are showcased in many terrific wins across the quarter. For retail, those included the Hockey Hall of Fame in Toronto that recognized Lightspeed Commerce as the official retail point of sale technology partner, the International Spy Museum in Washington, D.C. that sees over 700,000 annual visitors, Spider Surf with three locations in California offering premium surf and snowboard equipment in the state, and the Great Canadian Dollar Store with 73 locations, a fantastic multi-location and high value customer for Lightspeed Commerce which came to us through our growing partner channel.

We were also pleased to add brands including Everjay, Natori and the well known sock, apparel and footwear brand Bombas to NuORDER, providing them with a modern, collaborative wholesale experience while enhancing their product discoverability across thousands of Lightspeed Commerce retailers. Our hospitality teams continue to excel in Europe. In the UK we added the McManus Pub Company locations across the UK and Nappa, the creation of Michelin-starred chef Phil Howard serving freshly made pasta across London. In Luxembourg we welcomed the Hotel La Place d’Armes, supporting the restaurants within their luxury hotel. In France we signed Domaine and Demeure with luxury chateaux and restaurants in Southern France and also the Indie Group with bars and restaurants across Paris, Saint-Tropez, Courchevel and other locations across France.

In golf we signed Poppy Hills, one of the youngest courses at Pebble Beach, and the award winning Wailea Golf and Tennis Club in Maui. Signing these larger, more established and sophisticated customers helped lift our organic software ARPU growth to an impressive 7% this quarter. Larger customers generally buy more software and generate more payments revenue. We also continue to deliver new innovations across our flagship platforms of Lightspeed Retail and Lightspeed Restaurant, which is key for long term software ARPU growth. In retail, I’m excited to share that we recently launched new agentic capabilities within Lightspeed AI that move beyond insights to taking action on behalf of our retailers. Retailers can utilize Lightspeed AI to ask questions, receive recommendations and prepare tasks such as updating inventory, tagging clearance items or planning stock transfers, all within their existing workflows and with full visibility and approval before any action is taken.

This is a meaningful step in our mission to take complex, routine work off the plates of our retailers so they can focus on what matters most, their stores and customers. Later this quarter we plan to launch Phase two of our agentic offering in retail, one that will proactively understand all facets of a retailer’s business and help them focus on what yields the highest returns. In addition, we introduced the Meta Conversions API, allowing merchants to connect their stores directly to Meta so they can measure how digital advertising converts to in-store purchases and better understand their return on ad spend.

We released AI Doc Import, which automatically converts order confirmations, packing slips and invoices into purchase orders, streamlining inventory receiving and helping retailers get products onto the shop floor faster. Omni Customer Accounts, which gives shoppers the ability to create an account, view purchase history and loyalty information online, helping brick and mortar retailers strengthen customer relationships. And finally, we connected Lightspeed Retail directly with ShipStation so retailers can access shipping infrastructure without adding disconnected systems or manual workflows, enabling merchants to ship out of stock items directly to customers.

In hospitality, we launched new AI capabilities across the hospitality platform that enable hospitality merchants to turn AI-generated charts into live dashboard tiles and self-updating reports, helping operators to keep important business answers visible and current. We upgraded Lightspeed Reservations to support Reserve with Google, allowing guests to discover availability and book directly from Google Search and Maps, designed to help restaurants capture more demand and create a smoother path from search to reservation.

We launched new Customer Display hardware featuring an 8-inch customer-facing display and integrated payments designed to increase transaction speed and improve order accuracy at high-volume restaurants. And we upgraded Scan to Pay, allowing guests to scan a QR code on their receipt to view their bill, split payment, add a tip and pay directly from their phone. Within Lightspeed Golf we launched On Deck, allowing golfers to submit a request for a preferred tee time or window and then book when an opening becomes available.

I am very proud of the pace of innovation across our product teams. Concentrating on our two growth engines has allowed us to deliver cutting edge solutions to help our customers run and grow their businesses. We’ve also added considerable talent to that team, ensuring that Lightspeed Commerce can capitalize on the opportunity of agentic AI. Now turning to profitability, we have made tremendous strides towards improving profitability, with free cash flow increasing from last quarter and which we expect will continue to improve in the back half of this year. In the first year of our transformation, we mapped out where we plan to compete and how we will win. With our renewed strategy in place, we are now able to recognize some of the benefits of that plan, removing costs and improving our productivity.

As a part of this planned transformation, we recently executed several organizational changes which simplify our operations, improve our efficiency and create further capacity to reinvest in the areas that matter most: our software platform, our go-to-market organization and the customer experience. These actions are a continuation of the multi-year transformation we have been executing against over the last several quarters. We believe these are the right actions at the right time and they position Lightspeed Commerce to deliver both stronger growth and stronger margins.

As we move through our transformation, the entire 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.

Asha Hotchandani Bakshani (Chief Financial Officer)

Thanks, Zach, and good morning, everyone. Our second quarter results demonstrate solid progress across several key metrics. I’d like to highlight three important trends from the quarter. First, the underlying drivers of profitability remain strong. Software gross margin continued to improve, reaching 84% on an organic basis, up from 82% in the same quarter last year. Transaction-based gross margin was 32%, flat year over year organically. We also made significant progress in hardware gross margin, which improved to a gross margin of negative 59% from negative 74% last quarter.

Second, underlying cash flow was positive excluding cash used to grow our high-margin merchant cash advance business and cash used for buybacks. Overall cash flow was $10.9 million. Adjusted free cash flow was $4 million for the quarter, up $8.5 million from last quarter and before the cost reduction actions we took after quarter end. Third, and perhaps most importantly, our growth engines continue to perform very well in North American retail and European hospitality. Year over year, results were total revenue growth of 17%, software revenue growth of 14%, payments penetration of 50%, GTV growth of 14%, and location growth of 8%. New customer locations came on with 27% more software revenue on average than a year ago. Our growth engines now represent 77% of our revenue, up from 67% a year ago.

Our goal is to continue shifting our revenue mix toward these high-growth markets. I’ll now discuss the quarter in more detail, followed by our outlook for fiscal Q3 and fiscal 2027. Unless I note otherwise, year-over-year comparisons use organic figures that normalize for the impact of the Upserve divestment. Total revenue grew 15% to $323.8 million, at the high end of our outlook for growth of 12% to 16%. Growth was driven by an increase in customer locations, higher software ARPU, and increased year-over-year payments penetration.

Software revenue for the quarter was $97.8 million, up 9% year over year and up 14% in our growth engine. Software ARPU increased 7% year over year, up from 6% last quarter. Software growth accelerated versus last quarter driven by successfully landing higher-quality and high-GTV customers who adopt more software, as well as from a continued focus on upselling across our installed base. Transaction-based revenue for the quarter was $213.9 million, up 17% year over year.

GPV grew 19% year over year. GPV as a percentage of GTV came in at 45%, up from 40% in the same quarter last year. On an organic basis, our high-margin Capital revenue had another great quarter, growing 42% year over year. Customers who use Lightspeed Capital exhibit significantly lower churn and generate higher lifetime value. Growing this high-margin offering remains a key priority for the business. Overall, GTV grew by 8% to $25.8 billion. We saw positive same-store sales across both retail and hospitality within our growth engines. GTV grew 14%. Total monthly ARPU reached approximately $688, up 12% year over year, driven by both higher software and payments monetization. In our efficiency markets, revenue grew in the very high single digits, supported by strong payments adoption. Payments penetration in these markets was 31% for the quarter.

It increased year over year but remains well below the level for the overall business, giving us meaningful room to grow payments revenue. Turning to profitability and operating leverage, I’ll continue to use organic figures for year-over-year comparisons, normalizing for the impact of the Upserve divestment. Total gross profit grew 11% year over year, reflecting strong top-line growth and gross margin performance across subscription and transaction-based revenue. Total gross margin was 44% compared to 46% a year ago on an organic basis. The decline was partly due to mix. Transaction-based revenue increased to 66% of revenue from 65% in the same quarter last year on an organic basis.

Hardware gross margin also declined slightly year over year, although it improved sequentially to a gross margin of minus 59% from minus 74% last quarter. Given the actions we have put in place, we expect hardware margins to continue to improve significantly in the second half of this fiscal year. Software gross margin was 84%, up from 82% a year ago on an organic basis. This improvement was driven largely by high-GTV customers adopting more software and by AI resolving 80% of our support tickets, reducing our cost of support and service delivery.

Gross margin for transaction-based revenue was 32%, flat year over year on an organic basis. This reflects increased payments penetration in international markets where margins are higher than in North America, as well as growth in Lightspeed Capital, which was offset in part by declining referral fees. As we convert customers to Lightspeed Payments, we increase overall net gross profit dollars. Transaction-based gross profit grew 15% year over year.

For operating expenses, adjusted EBITDA, adjusted free cash flow, and share-based compensation, year-over-year comparisons are on an as-reported basis. Adjusted research and development, sales and marketing, and general and administrative expenses grew 5% year over year, largely due to investments in go-to-market. As Dax mentioned, we continue to take actions to improve operating efficiency and align our cost structure with our strategic priorities.

Following the quarter, we eliminated approximately 250 roles across the organization. These actions reflect changes to our go-to-market operating model, organizational simplification, and a broader effort to align resources with our highest-priority initiatives. We’re also leveraging the use of AI and automation across the business, which will continue to drive further productivity and operating leverage over time. Adjusted EBITDA was $22.7 million, up from $21.3 million in Q2 last year. This reflects continued execution of our strategic shift and our focus on AI and automation to improve operating efficiency. The divestment of Upserve means our fixed costs are now absorbed over a lower revenue base. We expect this impact to be offset by revenue growth and continuous cost reduction efforts. Adjusted EBITDA was 16% of gross profit. Our net loss was $4.2 million, or minus $0.03 per share, compared to a net loss of $32.7 million, or minus $0.24 per share a year ago.

The improvement reflects higher gross profit and the fact that we have now fully amortized our acquisition-related intangibles. Adjusted free cash flow was $4 million for the quarter, including a $4.3 million working capital movement related to higher inventory levels, which reduced the risk of stock shortages, and the expedited freight costs that weighed on hardware margins last quarter. This investment in inventory contributed to the sequential improvement in hardware gross margins.

That improvement, together with better deal quality, more favorable working capital movement, and the actions we took after quarter end to remove costs from the business, position us to deliver significant growth in adjusted free cash flow this fiscal year compared with last year’s $18.2 million. Our overall cash position declined from the previous quarter largely due to a $26 million increase in merchant cash advances outstanding and $11.2 million spent on buybacks.

Last year we were able to grow the Capital business by reducing the payback to approximately seven months. With payback periods remaining at this level and defaults remaining in the low single-digit range, we are dedicating more capital to growing this highly profitable business. We remain confident that our focus on growing quality locations and revenue while finding significant operating efficiencies keeps us on track to meet our free cash flow target of $95 million for fiscal 2028.

We continue to actively manage share-based compensation and related payroll taxes. These totaled $14.7 million for the quarter, compared with $17.4 million in the prior-year quarter, and declined as a percentage of revenue year over year. With respect to capital allocation and our balance sheet, our balance sheet remains very healthy. We ended Q2 with approximately $343 million in cash, down from $372 million at the end of Q1. The decline was almost entirely driven by discretionary actions to return capital to shareholders and to grow Lightspeed Capital. We spent $11.2 million on buybacks during the quarter. Overall, our issued and outstanding share count is down 5% year over year.

We will continue to be opportunistic with our remaining share buyback authorization. Beyond potential share buybacks, our largest use of cash will be the continued growth of our merchant cash advance program. There were $143 million in MCAs outstanding at quarter end, and we intend to continue expanding this successful high-margin program over time. Overall, our balance sheet remains strong and positions us well to continue executing against our strategic priorities.

Now on to outlook. Our fiscal 2027 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%; and adjusted EBITDA of $75 million to $95 million.

For Q3 of fiscal 2027, we expect total revenue of $310 million to $320 million, representing organic growth of 11% to 15%; total gross profit of $141 million to $146 million, representing organic growth of 11% to 15%; and adjusted EBITDA of $25 million to $30 million. With that, we will now take your questions.

Rochelle (Operator)

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press Star then the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, press Star one. Again, please limit yourself to one question and one follow-up only. Your first question comes from the line of Meryl Thomas with Morgan Stanley. Please go ahead.

Meryl Thomas (Analyst at Morgan Stanley)

Hi, good morning. Thank you. I wanted to ask about your Titan deal parameters. So I guess maybe could you just give us some examples of what those Titan deal parameters are, and then how we should be thinking about the outlook for growth engine location growth from here relative to your 10% to 15% target.

Gabriel Benavides (Chief Revenue Officer)

Yeah, great question. This is Gabe Benavides. Happy to take at least the first part of this question. Yeah, great to focus on the tightened deal parameters and there are a few comments here. As we shift our focus more meaningfully upmarket, winning and selling with discipline means tightening up deal parameters so that as we move to segments where we are very hard to beat, and segments for whom we’re purpose-built, we rely more on selling on value and customer outcomes than on price per feature, for example.

And tightening up the deal parameters, as well as concurrently selling on value, allows us to do a few things at the same time. We capture the highest deal quality, the best deal economics for Lightspeed Commerce, and we position our customers who are best positioned to capture value from Lightspeed Commerce. We best position them to find success in the immediate, medium, and long-term future. I think there’s some important context to add to that and then I can pivot to the second part of the question. We really think the opportunity for Lightspeed Commerce is to be a consistent, high-margin growth company and growth story, and there’s market share that directly supports those ambitions and there’s market share that more directly supports a lower-margin, volume-and-velocity play. And as you can tell, we’re tightly focused on moving into and being very difficult to beat in the first part—area of market share upmarket—really well-developed customers with a high propensity to stay with us in the long term and grow with us.

In our outbound motions, we saw terrific growth between North America and EMEA—nearly 30% revenue growth we saw in Q2 year over year. In our inbound motions, which have always been our highest-velocity, highest-volume motion, we also are being much more purposeful about where we spend our time and being very purposeful in the market share we’re targeting. That’s always been, as I said, the highest-volume part of our motion, so that’s where we saw some balancing on the number of closed-wons, the number of locations coming in.

However, if you think about that great statistic from this quarter—27% more software revenue per closed won—our inbound motion directly supported that as well. Going forward, we’re not going to lose this velocity that’s in our DNA. We’re going to continue to double down on focusing on the right market share, the right customers, with the right deals, and we’ll continue to pull that velocity and volume that’s in our DNA into our results and quarters as we go forward.

Asha Hotchandani Bakshani (Chief Financial Officer)

Yeah, thanks for the question. I’ll take that part. In our efficiency markets—and you’ve heard this from us before—the way we explain, you know, our growth in revenue and margins is really from upsell and cross-sell. There’s very limited new business happening in those markets, and so the expansion really comes from upsell and cross-sell, primarily Lightspeed Payments and Capital. And so that’s what you’re seeing on the revenue line and the expansion in the gross profit growth as well.

It’s really coming from the financial services uplift that we’re having in the efficiency markets—again, Lightspeed Payments and Lightspeed Capital.

Rochelle (Operator)

Your next question comes from the line of Matthew Bullock with Bank of America. Please ask your question.

Jacob Goodeen (Analyst at Bank of America)

Hi, good morning, this is Jacob Goodeen on for Matt. Just following up on the tightened deal parameters, could you talk about why now to start tightening those, given the acceleration that we had been seeing in core location growth? And then just as a follow-up, can we get an update on the partner strategy motion and how that plays into this higher-quality customer focus? Thank you.

Dax DaSilva (Founder and Chief Executive Officer)

Hi, this is Dax here. Thanks for the question. I think these are really important metrics to drive the growth metrics that you’re seeing in the growth portfolio. They’re important metrics for Lightspeed Commerce to meet our financial ambitions of our three-year transformation. With 8% location growth, we drove 14% software growth in our growth portfolio and 14% GTV growth. The software growth is meaningfully better than previous quarters where we had a higher location count—we’re driving a lot more from these quality locations.

We also drove better software gross margins and hardware margins—meaningfully better. That’s because we did tighten deal parameters, guardrails around discounting, and did value-based selling, as Gabe was talking about. We also drove higher software ARPU and, as Gabe mentioned, new customer locations came in with 27% more software revenue. So we are bringing in better deals for Lightspeed Commerce. That’s how we get to our three-year financial goals.

Yeah, on the partnerships, I think we’ll pass it to Gabe here.

Gabriel Benavides (Chief Revenue Officer)

Yeah, really glad to hear that part of the question as well. As we talked about last quarter, our partner strategy—our partner ecosystem and channel strategy—is a critical part of the same growth story: high-margin, consistent growth company and consistent growth story. Just like last quarter, we continued to develop the strategy, but we do see some really significant wins of a different sort coming through. As Dax mentioned in the prepared remarks, one of our best wins of the quarter came to us through, or in collaboration with, our partner channel—one of the marquee wins of the quarter—and we expect to see the same thing developing as we go forward.

One of the things you’ll continue to see is an impact on our back-book growth and the healthy monetization of our customer base, increasingly in collaboration with our great partner channel as well.

Rochelle (Operator)

Your next question comes from the line of Andrew Hart with U.S. Bank. Please ask your question.

Andrew Hart (Analyst at U.S. Bank)

Hi, thanks for taking my question. On the cost savings with the organizational changes, would love to hear if there’s anything you’d share on what the expected savings are—if the savings could show up in 2027, or if we’re thinking about it more as a fiscal year 2028 number—and just the balance between reinvestment and allowing it to flow to the bottom line with the emphasis on cash flow.

Asha Hotchandani Bakshani (Chief Financial Officer)

Thanks for the question, Andrew. I’ll take that one. We’re continuing to actively manage our cost structure as part of normal ops. We need to consistently remain disciplined on all the costs across the org, and of course headcount is one component of that. Consistent with that approach, we removed 10% of headcount within Product and Tech—that was within the quarter—and then after the quarter end we removed approximately 250 roles across the org. This included open vacancies as well.

One thing I want to call out, though, is as part of our three-year transformation, we had planned for cost reductions across the org. So this was all contemplated in our guide in order to reach the ambitions that you’ve seen from us in fiscal 2028 for both EBITDA and free cash flow. Cost efficiencies have always been a key component of that transformation. With respect to bottom line, some of the cost efficiencies that we’ve taken out in Q2 and subsequent to quarter end—some of that will definitely fall to the bottom line and some of it will be reinvested in the growth portfolio. You’ve seen some great metrics from us on the growth portfolio—software growth and GTV growth, margin expansion—and so we are making very targeted investments in that portfolio. But overall you will see EBITDA margins expand.

You’ll see that in the back half of this year—you see that in our guide that we’ve given for Q3—and as we enter fiscal 2028, we expect the efficiencies that we’ve taken out to continue to benefit the bottom line as well.

Andrew Hart (Analyst at U.S. Bank)

Thanks. And then maybe just a follow-up on some of the location questions. If we could get any color on what you saw in the second quarter—it seems like quarter over quarter it wasn’t necessarily—just would love to hear how we should be thinking about growth quarter over quarter; I appreciate year over year it was good. And then bigger picture, as you think about location growth going forward, I think there was a stat that you said our new customers are coming on with 27% more software revenue than a year ago.

So should we potentially be thinking about a shift in ARPU versus location growth as we think about our models, just given that stat of maybe there’s fewer customers coming in, but they’re coming in at a much more profitable level?

Gabriel Benavides (Chief Revenue Officer)

Yeah, listen, great question. I think that’s a great way to look at it. We talked about this a little bit last quarter. I would encourage everyone to look at the quality of our growth and the durability of that growth, and the great news is you’re seeing evidence that it’s already starting. As we move upmarket, higher-quality deals—deal economics—become very important. But that’s exactly how to look at it: look at the quality and durability of our software growth versus just a pure number or volume of locations view.

And it becomes increasingly important, again, as we really work to compete and be very hard to defeat in these core segments within the market share that we’re talking about—that’s a key part of the story. But again, as these new ways of selling and going to market, the new ways of building territories, continue to grow and be embedded within our business, we only expect all these things to continue to improve as we go forward.

Rochelle (Operator)

Your next question comes from the line of Tianjin Wang with J.P. Morgan. Please go ahead.

Tianjin Wang (Analyst at J.P. Morgan)

Hi, thanks. Just on the payments penetration, it looked like some improvement there. I was a little bit surprised by that. I’m curious if there’s been any change in approach or incentives to drive payments attach.

Asha Hotchandani Bakshani (Chief Financial Officer)

Hey, Tianjin, thanks for the question. Yeah, we’re really happy with the payment penetration and the progress we’re seeing there. Our growth markets went from 46% a year ago to 50% in the quarter, and overall as a company, we’re at 45%. When we think about what’s driving that, we’re always working on increasing that penetration in the back book—we’re going after the back book aggressively, as you know—and we have taken care of a lot of the reasons that had been causing friction for our merchants to adopt through product enhancements in particular, so really happy with what we’re seeing there. And then, in addition to that, every eligible new customer is taking payments. So over time, as we’re getting these bigger GTV customers and we’re igniting them onto payments, that’s improving the penetration as well.

Rochelle (Operator)

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

Todd Coupland (Analyst at CIBC)

Yeah, good morning, everyone. I wanted to talk about locations as well. So just a point of clarification: the net new 800, is that a clean comp to the 2,000 you added last quarter? So just to clear that up.

Gabriel Benavides (Chief Revenue Officer)

It’s a clean comp to the roughly 2,000 we added in Q2 of last year, if that’s what you mean. And yes, it is a clean comparison. And I’d encourage you to look at that for just a moment with me. So, significantly different number of net location adds if you compare Q2 of last year versus Q2 of this year, for all the reasons that we’ve discussed and all the reasons that, again, we think this focus right now really directly supports the terrific opportunity in front of us and how to seize it.

But even with that significantly different number, you know, compared to Q2 of last year to this one, we drove significant growth in revenue. The quality of our growth means that it really just requires fewer locations to drive really significant and meaningful and resilient growth, which is what you’re seeing if you compare that quarter versus this quarter. And really, one more comment. If you think about last year, what you saw was an organization really optimizing and refining their ability to win new customers at pace. That isn’t going away. We’re maintaining that as we seize the opportunity in front of us to really go up market and drive this durable growth we’ve been talking about.

Todd Coupland (Analyst at CIBC)

And what’s your view of how this updated focus, what’s your view of how the sales team in Europe is performing? Are they performing at capacity? Is there still improvements to make? Just give us your thoughts on that and the path to where you hope they get to.

Gabriel Benavides (Chief Revenue Officer)

Yeah, I think there are two things that are true here at once. I’m very pleased with the progress and the performance across Europe, where, you know, there are significant market dynamics and it’s a very competitive environment. And I’m very pleased with the progress of improvement and the progress at which we’re winning. And as I mentioned earlier, if you look at the outbound motions, the newest motions to our business, if you combine the two, it’s roughly 30% growth in the outbound motions year over year.

At the same time, when you think about focusing on the market opportunity in front of us, focusing on the segments, the fortress verticals for which we’re purpose built, it’s clear skies. We have a tremendous opportunity. And so I’m really pleased with the pace of performance and improvement. There’s a long way to go just because of the size of the opportunity in front of us.

Rochelle (Operator)

Your next question comes from the line of Sagar Kari with BMO. Please ask your question.

Sagar Kari (Analyst at BMO Capital Markets)

Hi there. Good morning. This is Sagar here. On behalf of Thanos, my first question is on the tightened deal parameters again. So if I understand correctly, these parameters are obviously for new customers that you’re winning, but as some of your legacy customers, their contracts come up for renewal, will you be tightening deal parameters for these? I mean, to what extent will the deal parameters be tightened, you know, at the risk of higher churn from these customers?

And then I have a follow up.

Gabriel Benavides (Chief Revenue Officer)

Yeah, another great question. For the most part, the tightened deal parameters—think about those, the most relevant when we’re welcoming new customers into the Lightspeed Commerce family, new customers that will stay longer, grow with us, buy more, have more success, etc. So that’s where that’s most meaningful, absolutely. And again, the reason behind that is we really believe we clearly differentiate from a product standpoint and now from a go-to-market motion standpoint.

And the tightened deal parameters help us focus on the right customers, the right way of winning, and where we’re going to spend our time. As far as the existing customer base, we continue to focus on a couple things. One, driving meaningful customer value—that’s our critical focus. And even more than tightened deal parameters, one thing to think about, however, over time what we’re doing is remaking the composition of our customer base. As we welcome larger customers with great deals and great deal economics, over time we remake—and it takes a while—we remake the complexion of that back book or that customer base, which only helps us as we continue to bring more, you know, customer contraction churn under our control and as we work to deliver measurable customer value consistently across the back book.

Sagar Kari (Analyst at BMO Capital Markets)

Perfect, that’s helpful. And then for my second question, it has to do with the hardware gross margin. So it’s good to see the margin improvement this quarter. You mentioned that, you know, you’ve secured—you invested a bit in inventory for hardware as well. But given the, you know, the memory crunch and the hardware, the component crunch that’s going on, how do you think you have secured the capacity just for 2027, 2028? Any visibility on how far along the hardware gross margins can be controlled?

Yeah, just any visibility on that would be helpful. Thank you.

Asha Hotchandani Bakshani (Chief Financial Officer)

Hey Sagar, thanks for the question. You’re right. We did implement several initiatives such as better demand forecasting and you could see that in the working capital investments we made early in the quarter, and that has yielded results with the improved margins that you saw from us. With respect to securing inventory, we have commitments that we make with our inventory providers that bring us well into fiscal ’28. And so we feel good about the pace of hardware margin improvement.

We make commitments on the hardware that we procure from Apple, on payment terminals from our PSP, and those commitments have the pricing secured well into fiscal ’28. And so we do expect that the measures, all of these measures we’ve implemented, including the deal parameters around hardware discounting and securing the inventory we just talked about, that hardware margins will continue to improve in the back half of this year and into fiscal ’28 as well.

Rochelle (Operator)

Your next question comes from the line of Matthew Inglis with RBC Capital Markets. Please ask your question.

Matthew Inglis (Analyst at RBC Capital Markets)

Hey, good morning. I just wanted to also ask on the new parameters. So with this shift, how do you think about your competitive advantages in the context of product and go to market, which I know both have changed quite a bit in recent years and quarters, to win here versus where you were focused before? And as you make this move, you know, given that you’ve already kind of made a lot of changes in the go to market, should we think about this as sort of another change that will need time to sort of ramp until we get full productivity from here?

Gabriel Benavides (Chief Revenue Officer)

Yeah, great question. I think one point of illustration—this might be obvious—when we talk about tightened deal parameters, we are absolutely maintaining the flexibility to be competitive and win where it matters. So these aren’t as rigid as you might imagine. But we are so differentiated in these core segments—again these core verticals for whom we are purpose built, where we are hard to beat—that it’s important to tighten up a little bit and make sure we’re focusing on the value of our software platform and the value it delivers to these customers who very specifically, they tend to differentiate on a differentiated experience, and that’s who we’re built for.

So, a little more context, but to your question, yeah, I think you’ll continue to see that as our sales teams, who have embraced these changes—and actually some of the results we’re seeing are much more rapid than I’ve seen in years past—as our sales team continues to embrace these changes, you simply get faster, better, more resilient. You understand your moments really quickly to offer some flexibility, and where you don’t need to because you’re just so clearly differentiated, you can hold your value.

So we expect all these things to continue to mature and get more galvanized in our business as we go forward.

Dax DaSilva (Founder and Chief Executive Officer)

Yeah, I just want to add kudos to Gabe and the go-to-market team for making these changes so rapidly. In Q2—it started earlier than that—but this has driven much better growth metrics for Lightspeed. I also want to salute the product team that we’ve shown over many quarters rapid rollout of AI, AI-built, AI-powered features. The latest being the agentic rollout that we’re currently in the midst of. Phase one was AI answering questions. Phase two, which we are in now, is those questions now being able to turn into actions.

We’re seeing 20 to 30% increases month by month in usage amongst our user base, rapidly being adopted, and we’re currently about to roll out customer testing of phase three, which is proactive AI agents that can actually do some of the very manually oriented tasks that, especially in retail, occupy so much of a business owner’s time. So these AI features are really relevant to our user base, and this is going to drive ARPU uplift. So amazing work by both the go-to-market teams and the product teams.

That’s why we’re able to, you know, do this meaningful tightening on deal parameters because we’re delivering a ton of software value.

Matthew Inglis (Analyst at RBC Capital Markets)

Got it. Super helpful, thank you. And just separately on New Order, I’m just curious, you know, what your thoughts are on sort of the outlook for monetizing—and I know it’s kind of been a really helpful, I guess, lead generation tool for you guys—but curious, kind of your sense for monetizing this asset as well, monetizing this asset but also monetizing it via payments. Thanks.

Gabriel Benavides (Chief Revenue Officer)

Yeah, I’ll take at least the first part of that. I’ll start kind of back to front. There has been great success as we have rolled out the payments capability to the New Order base of customers, and we expect that to continue. Speaking of things we expect to continue, New Order still is a really rich and enriched source of opportunities for the outbound team. That’s been a terrific bit of a part of our flywheel so far, and we think there’s a lot of opportunity to continue to go to market in a differentiated way partly based on New Order.

You’ll hear us talk a lot about the platform with wholesale built right in, which really resonates, and interestingly that value prop resonates increasingly as we go up market. So this is one of the areas where you see kind of all roads lead us to differentiated specialty restaurateurs and retailers in the SMB and mid-market segment where our platform differentiation and offerings like New Order resonate and differentiate even more.

Rochelle (Operator)

Once again, if you would like to ask a question, press Star one now on your telephone keypad. Your next question comes from Suthan Sokumar with FIFO. Please go ahead.

Suthan Sokumar

Hey, good morning, guys. This is SA speaking on behalf of CSE. For my first question I wanted to just double click on software. So on the organic and core market subscription growth improvement, I was curious how much of that reflects pricing versus module attach and larger customers, or better retention.

Gabriel Benavides (Chief Revenue Officer)

Yeah, it’s interesting. It reflects really most of everything that you mentioned. As regards pricing, not a real change in pricing except for the deal parameters that we’ve tightened up where it makes sense and again where we’re the most differentiated and competitive. The biggest difference really is—sometimes it sounds too simple to be true—really the biggest difference is focusing on our fortress verticals, our ICP, where we have the most differentiated offering, the most clear differentiation, and the most value to offer.

That’s the biggest difference. And again, I’ll point you to the very clear metric, which is as we welcome on new customers on a per-deal or per-close-won basis, they’re joining us with 27% more software compared to the same period a year ago. That really is tied to a tightened focus on the right type of market share that directly supports our high-margin, consistent growth opportunity.

Suthan Sokumar

Thank you. That was helpful. For my second question, I guess to follow up on that: Could you quantify subscription growth and churn outside of the core markets? When should this business stabilize, and can consolidated growth accelerate without assuming a non-core recovery?

Asha Hotchandani Bakshani (Chief Financial Officer)

Yeah, thanks for the question. In our non-core market we have very limited new business activity. But what I will say is, you know, a big part of our non-core markets today really are flagship products in the international portfolio. So we think about our flagship retail, our flagship hospitality in Australia, for example, and the rest of APAC—that is a part of our non-core markets. And so we, as Dax talked about, we continue to innovate on these products.

And so even though we’re not going to market in any significant way in the efficiency portfolio, the innovation that we’re driving on these flagships will continue to impact software revenue growth even though we’re not spending a ton on new business there. So we actually feel pretty good about the non-core markets. I mean, you saw total revenue growing in the high single digits. We were really, you know, really happy with the progress there despite, you know, the optimization of that portfolio and the very limited spend that we have there.

Rochelle (Operator)

Thank you. There are no further questions on the line at this time. I will now turn the call back over to Gus Papagiorgio for the closing remarks.

Gus Papagiorgio (Head of Investor Relations)

Thank you, operator. Thanks, everyone, for joining us today. We will be around if anyone has any follow-up questions, and we look forward to speaking to everyone on our next quarterly conference call. Have a great day, everyone.

Rochelle (Operator)

Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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