Lightspeed Commerce Inc. Subordinate Voting Shares

Ladies and gentlemen, thank you for standing by and welcome to today's Lightspeed second quarter 2021 earnings call. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one on your telephone keypad. If at any time you need assistance, please press star zero. I would like to turn the call over to Gus Papagiorgio, head of investor relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's fiscal second quarter 2021 conference call. Joining me today are Dax De Silva, Lightspeed's founder and CEO, Brendan Newsey, chief financial officer, and JP Chauvet, president of Lightspeed. After prepared remarks, we will open it up for questions. We will make forward-looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these risks and uncertainties in our earnings press release issued earlier today, 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. These should be considered as supplements to and not substitutes for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website on cedar.com and on the SEC's EDGAR system. And finally, note that because we report U.S. dollars, all amounts discussed today are U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Dax. Thank you, Gus, and thank you, everyone, for joining today. Nearly nine months after the outbreak of COVID-19, small and medium-sized businesses continue to face challenging conditions. In addition, we've experienced rapid changes in consumer behavior, necessitating a reinvention of commerce for the retail and hospitality industries. Despite these challenges, Lightspeed had one of its strongest quarters yet, which results exceeding our expectations and characterized by a growing customer base, expanding our pool, and increased adoption of our ever-growing service offering. LightSeed was founded on the belief that the resilience and entrepreneurial spirit of small and medium-sized businesses is a key ingredient of vibrant cities and communities. In the face of persistent challenges, most LightSeed merchants have continued to sell and serve, keeping staff employed and providing innovative means of social engagement in a world that feels increasingly isolated. We are proud to be the technology partner of choice for many of these SMBs as they adapt to their new realities and reinvent their business models by embracing Lightspeed's modern cloud-based platform. A strong omnichannel presence, once considered a nice-to-have for SMBs, is quickly becoming a necessity. As such, independent businesses are increasingly abandoning legacy systems and embracing Lightspeed solutions, a trend that accelerated this quarter. As a result, Lightspeed saw year-over-year GTV growth of 56% and software and payments growth of 62%, aided by a growing customer base, increased ARPU, and the acquisitions of Counta and Gastrofix. We had a very busy quarter with many notable initiatives, but I would like to highlight four key themes. the continued innovation of our platform, the strengthening of our board of directors, our NYFC listing, and finally, our pending acquisition of Shopkeep. First, on innovation. As our customers scramble to adapt to their new reality, Lightspeed has been busy delivering new solutions to help them reach an ever more demanding and concerned consumer. Since the last quarter, we announced three new product initiatives. The first is Econ for Restaurants, Designed to allow light-feed restaurants to seamlessly transition their businesses online and integrate new revenue streams, Econ4Restaurants allows light-feed merchants to display their menus online, link to delivery systems, and integrate into OpenTable for bookings and Instagram for social media. As restaurants worldwide have endured rolling closures of their dining rooms, an online presence and frictionless delivery and takeout experience have provided a crucial lifeline. The second recent innovation is Order Ahead, The cost-efficient online ordering platform designed to facilitate takeout, Order Ahead integrates into e-confer restaurant, creating a powerful digital hub that enables restaurants to provide a completely contactless customer experience. Online orders appear directly in the plate feed platform, and customers can track their orders from start to finish with real-time status updates via text message. Finally, we introduced Lightspeed Subscriptions, a new module that allows local North American retailers using Lightspeed payments to collect recurring revenue through their PLS. Subscriptions should appeal to new target verticals, such as health and wellness, by allowing monthly membership capabilities. We are also hopeful it will increase payments penetration. subscriptions should help retail customers develop a stable recurring revenue stream and build a loyal customer base while seamlessly integrating into their existing platform dynamic market focused innovation is a key part of our culture and strategy and particularly relevant in the current fluid environment our strong service offerings have allowed us to land several notable customers and partners this quarter including Ultima Courchevel, which operates an award-winning selection of ultra-luxury hotels, villas, spas, clinics, and private residences located in the most exclusive destinations around the world. Ben Lee's Pet Stuff, an all-natural pet food store with over 50 locations in the Midwestern United States, selling natural pet food, pet care essentials, toys, grooming products, and treats for your pets. 7th Sense Botanical, a high-quality line of specially designed body and skin care products made with essential oils and CBD, the finest gifts nature has to offer with over 50 locations in the U.S. Kapalua Golf, located on the popular island of Maui and home to the PGA Tour's Century Tournament of Champions, Kapalua Golf maintains two of the most majestic golf courses in the world, the Plantation and Bay courses. And finally, Landscape Golf Management, which operates 30 golf courses throughout the United States. These high-profile customer wins demonstrate our leadership in the complex SMB segment of the market, as well as our continued leadership in select verticals, such as golf. Additionally, Anheuser-Busch, the global drinks and brewing company with 630 beer brands in 150 countries, will partner with Lightspeed to market our solution to restaurants and bars in Belgium, Anheuser-Busch maintains over 70 direct sales representatives in this market who will be trained on the Lightspeed solution. Finally, we are proud to partner with Pannier Bleu in our home market of Quebec. Pannier Bleu has developed the popular Quebec-based online market, offering over half a million products from over 2,000 Quebec-based merchants. Many of these merchants will be processing their transactions through Lightspeed payments. We believe this initiative will go a long way in helping local merchants capitalize on the busy holiday season that is likely to see increased customer desire to buy from and support local merchants. Next, strengthening the board of directors. I believe maintaining a strong board of directors is an important part of demonstrating our commitment to our shareholders. We have thus far in our history had the good fortune of maintaining a highly effective board with incredible depth and breadth of experiences in the technology and retail sectors. This quarter, we further enhanced the strength of the board with the addition of Merlene Chantil. Merlene has over 20 years of experience as a technology leader and business executive at organizations such as Intuit, Yahoo, and PayPal. She is an experienced board member and has received numerous accolades during her career, most recently being named one of Women Inc.' 's most influential corporate board directors. Most importantly, Merlene has demonstrated a passion and commitment to the success of our merchants. I look forward to working with Merlene in the years to come. Our NYSE listing. During the quarter, LightSeed completed a successful listing on the New York Stock Exchange, a major milestone in the company's history. It is a great privilege to be one of the 2,300 leading companies listed on this 228-year-old institution. We issued approximately 11 million shares, raising gross proceeds of $332 million. Our New York listing and equity issue should help the company gain a broader investor base in the key U.S. market, increase liquidity for all of our shareholders, raise our public profile, improve the recognition of our platform, and not least of all, allow us to continue to pursue our growth strategy. That growth strategy includes acquisitions, and I am happy to say that our efforts to date have delivered strong success. All four of our recent acquisitions, ChronoGulf, ICAN2, Counta, and Gastrofix, delivered their strongest quarters yet, demonstrating our ability to integrate and enhance the operations of our acquisition targets. I'm also happy to report that the integration of these acquisitions into our flagship hospitality platform continues at a rapid pace, with the majority of the developer resources now directed toward the converged efforts. We've also made excellent progress on rebranding the various websites and integrating the go-to-market teams to achieve the growth acceleration we have shown. Finally, our proposed acquisition of Shopkeep. We are happy to announce that Lightspeed has entered into a definitive agreement to acquire one of the leading cloud commerce platform providers, Shopkeep, for a total estimated consideration of approximately $440 million. Shopkeep powers over 20,000 retail and restaurant locations in the United States, and with its acquisition, firmly positions Lightspeed as a category leader in that highly fragmented market. The combined company will have over 100,000 customer locations globally and approximately 33 billion in GTV. Shopkeep will help bring scale and a seasoned management team to our U.S. presence, along with a highly developed capital business, which we hope to leverage. and we will bring a broader solutions portfolio, such as Lightspeed payments, loyalty, e-commerce, analytics, and multi-location capabilities to Shopkeep's customer base. Lightspeed can provide the customer base with all of the capabilities required by a growing business, removing the need for them to re-platform as they grow. We're excited by the many synergies we see with this combination and think this will be a landmark combination in our space. Brandon will speak further on the details of this acquisition in his remarks. Before I conclude, I want to thank the entire Lakeview team for their commitment and dedication over the last quarter. These remain challenging times for each and every one of us, but we have much to celebrate this quarter. I want to take a moment to acknowledge that our success comes due to the grit and resilience of the entire Lakeview team. Their commitment to Lakeview merchants worldwide is unmatched and unwavering. And with that, I will pass it on to Brandon. Thank you, Dax. Today we reported one of the most exceptional quarters in the company's history. This quarter demonstrated not only that the business model is working, but also the long-term potential that it has. In the face of a global pandemic that has created significant disruption in our end markets, we grew our net customer location count to over 80,000 at September 30. This was driven by a surge of gross new customer location additions, which increased by 68% when compared to the same quarter a year ago. As I mentioned last quarter, this metric is the most encouraging thing we can see as we firmly believe the replacement cycle of legacy systems is accelerating and moving towards solutions like ours. Our customers collectively processed approximately $8.5 billion of volume in the quarter, up from $5.4 billion in Q1 of this year. That was over 56% higher than the same quarter a year ago. This indicates that despite the many new restrictions placed on these customers, they've been able to adapt and thrive. Our strategy of using our privileged position as a core software provider for these businesses to expand into new areas, such as payments, also continues to pick up momentum. Payments uptake remains strong, and we're now processing better than 10% of our GTV through lightspeed payments in U.S. retail, with momentum continuing to build in the new markets in which we have launched. As a result of payments and continuing to upsell customers' new software modules, Our ARPU per customer location in the quarter grew to better than $170 per month. And finally, as Dax mentioned, our recent acquisitions are thriving, giving evidence that this aspect of the strategy is working as well. The cumulative results of our execution on these key drivers are that we grew our overall revenue better than 60% year over year and up 26% sequentially. We are really proud of these exemplary results, but of course, globally, we still face many uncertainties surrounding COVID-19 and its resurgence. And I'll speak to that shortly. So recapping the second quarter in greater detail, total revenue was $45.5 million, up from $28 million a year ago, representing growth of 62% and well above our guidance of $38 to $40 million. Software and payments revenue is 62% higher than a year ago at $41.1 million. Excluding the impact of counter and gastro fix, which were not included in last year's numbers given the timing of those acquisitions, software and payments revenue grew 42% versus the same quarter a year ago. Adjusted EBITDA loss for the quarter was $2.8 million compared to $5.1 million loss from a year ago. And as mentioned, our GTV for the quarter was $8.5 billion. Over the past 12 months, our GTV was over $26 billion. We ended the quarter very well capitalized with unrestricted cash on hand of approximately $513 million. Looking deeper at some of the specific business trends we saw in the quarter, within our overall GTV, we saw retail grow almost 34% versus the prior year. and restaurant increased by approximately 97% compared to a year ago. Retail GTV was aided by continued success of e-commerce, which is up over 80% versus the prior year, and from strong performance in some of our seasonal verticals. While e-commerce has been an important tool for our retailers, we saw a strong resurgence in physical transaction volumes in the quarter as lockdowns eased globally over the summer months. Our restaurant segment recovered nicely in the quarter from the lows seen in March, April, and May. As a reminder, the majority of our restaurant customers are currently in international markets outside of North America. On the back of these strong GTV levels, we saw our customer churn rates improve from the first quarter's levels. Churn remains slightly elevated versus our typical levels. However, we continue to be encouraged by the resiliency of the customer base. Looking at Lightspeed Payments, it continued its rapid growth trajectory once again in the corner. Overall Lightspeed Payments revenue grew by over 300% versus a year ago on the back of strong customer demand from both new and existing customers, an industry-wide move to electronic payments and away from cash, and outstanding performance from some of our end markets like golf and bike. The portion of new customers contracting for payments alongside their core software subscription remained steady in the quarter at our recent levels, and overall penetration of Lightspeed payments as a percentage of GTV was over 10% in U.S. retail in the quarter. We are also seeing good early momentum in recently launched new markets with better than 4% penetration in Canadian retail and over 3% in U.S. restaurant. So turning now to our Q3 outlook, the performance achieved in Q2 leaves us very confident in our business in the long term. However, we are mindful in the near-term outlook that the effects of the pandemic remain. We are now seeing a resurgence in case counts and subsequent government lockdown measures in some of the markets we serve around the world. Leaning on the experience gained in dealing with these lockdowns in the spring, we have confidence that our customers will fare better than the broader industry and that we will continue to gain market share during this time. However, we have to expect that lockdowns will increase customer churn will impact purchase decisions by our prospects, and will affect our customers' transaction volumes. Our outlook also incorporates our expectation that the seasonal nature of some of our verticals will slow down in the fall and winter. And while we typically also expect the holiday season of November and December to be strong in many verticals, but this year will be an uncertain one given the situation we face globally. So with all that in mind, we expect Q3 revenue in the range of $44 to $47 million, We expect Q3 EBITDA to be a loss of approximately $8 to $10 million. Owing once again to the prevailing macro uncertainty, we'll decline to give a full year outlook at this time. One quick note, our adjusted EBITDA outlook reflects the impact of our new NYSE listing and its associated incremental compliance costs, including higher costs associated with D&O liability insurance. which saw a significant increase in premiums to approximately $10 million annually. So while we continue to take a cautious view of the near-term results, given the many uncertainties right now, we feel very good about the company's position for the long term. This quarter's results demonstrate the power of the business model and the results we can drive in a normalized market environment. I'll wrap up by discussing the acquisition of ShopHeap that we announced today. The guidance I've just spoken to excludes any impact from Shopkeep in the quarter as the closing date for this acquisition is not presently known. The purchase agreement with Shopkeep is for $145 million in cash on closing, plus the issuance of approximately 9.5 million shares of Lightspeed for estimated consideration of approximately $440 million. Shopkeeps trailing 12 months revenue is approximately 50 million, and they bring over 20,000 customers and approximately 7 billion of TPV to this combination. Echoing DAX's comments, we see many synergies with this combination and are excited by the potential future together. We believe this is a landmark acquisition for our space, and the resulting combination will bring a company with the resources, scale, and momentum to lead complex retailers and restaurants through this period of rapid transformation and beyond. With that, we'll turn it back to the operator for your questions.

Okay, at any time, if anybody would like to ask a question, please press star 1 on your telephone keypad. Again, that would be star 1 on your telephone keypad. Your first question comes from Remo Lentau from Barclays. Your line is open.

Hey, congrats on these great numbers. Two questions from me. First, if I think about the combination of shopkeep and you, like, how do you try, how do you envision this to kind of work out in terms of product, customer overlap? Maybe you could give us a little bit more detail there. And then as we, that's the first question. And the second question on restaurants, you mentioned you don't have that much or not really a Northern American exposure. Can you just kind of talk us through a little bit kind of where that exposure is so that we kind of, have a better idea how to think about it. Thank you.

Brandon, do you want to go or do you want me to take this one? Yeah. Go ahead, JP. Okay, go ahead, JP. Yeah, so maybe let's just step back and think about Shopkeep. This is our strategy. It's part of what we announced, which is consolidation of the market. And I think we've proven that we can – we can do some acquisitions and get some good returns. So here for Shopkeep, if you look at the company, they were one of our biggest competitors in the US. We have a very similar profile of customers if you look at the industry. And they also have a mix of restaurant customers and retail customers. So for us, this is very much in line with all the other types of acquisitions we've done. And with that in mind, we have a strategy to get to one product like we did with all the others and one brand. And so what we'll be doing is within the coming weeks, we'll be working on months getting to one product and getting everybody behind one solution, which is a mix of all worlds. And I think if you look at what we've done in the U.S., we haven't done an acquisition so far. But if you look at Europe, that's exactly what we did with all the brands that we acquired. They're now all under Lightspeed, and we're now pushing one product globally. I'll take the second part of that question, Remo. Restaurant distribution largely outside of North America. Countries like Germany, Belgium, Netherlands, UK, and Australia would be where we have the largest concentrations of customers. Okay, perfect. Thank you. Well done.

The next question will come from Thanos Machalopoulos from BMO Capital Markets. Your line is open. Dennis, are you on mute?

Sorry about that. Good morning. Congrats on the acquisition. So my understanding is that Shopkeep was struggling for growth over the last couple of years. First of all, can you confirm that? And secondly, if that was the case, can you comment on that dynamic? Were there missing some key capabilities that you can now offer, or was there something else going on?

Hey, Dan. This is Brandon. No, the company was growing pre-COVID, which will isolate, I suppose, as we think about that. But no, the company had a nice organic growth. Very similar view to approaching the market as Lightspeed and as JP mentioned. We would see them regularly in the market, similar types of customers, similar verticals. And Shopkeep had done a nice job, and that team had done a nice job of you know, positioning multiple, multiple software offerings, uh, for those customers. And, uh, uh, we're, uh, we're achieving some nice growth, uh, again, before, uh, COVID came along. So, you know, as we take a look at this, uh, we think we share very similar views of how this market will play out in the long run. And, uh, just like all the other acquisitions, how we can bring, you know, the increased functionality that Lightspeed offers, the increased, uh, breadth and depth to these customers. And I think where, you know, we really see opportunities as our joint customers now continue to grow, how they can leverage some of that increased functionality from Lightspeed over time.

Jeff, and my understanding is they had a relationship with First Data and were offering a software on the Clover platform. Can you speak to whether Clover and First Data were significant channels and how that relationship might change going forward?

Yeah, the shopkeep operated, again, as many of the acquisitions that we look at in this space, they operated by referring customers the payments opportunities over to several partners, one of which was First Data. And I think as we go forward, we have lightspeed payments, of course, but the long-term strategy there remains unchanged with how we approach this market and how we see these two things coming together naturally over time. I would say the same relationship they had as Lightspeed had before we launched Lightspeed Payments. So they have a number of partners for the payments. And so our strategy is exactly going to be similar to what we did with Lightspeed.

Okay, great. And finally, your gross margins went up sequentially, which is interesting, given that your payments revenue is ramping. Can you comment that dynamic? Is it that reflective of the strength in the software business in new ads and higher ARPU in the quarter? Or are you also seeing some improvement in your payment margins based on your growing scale?

Yeah, a little bit of all of the above. Obviously, given the growth in customers, you know, some nice increase in the subscription law insurance started to come back towards normal again, which helped a lot. Some of the discounting measures that we had in place, you know, those all start to roll off, as you know. We do continue to kind of look for ways to drive incremental margin in payments. And I guess the other aspect to the overall gross margin As you know, we do have some legacy payment referral revenue streams, and as those volumes are covered in the quarter as well, it would have been incremental in the margin. Great.

That's fine. Thanks, guys.

The next question comes from Josh Beck from KeyBank. Your line is open.

Yeah, thank you, team, for taking the question. You know, I was looking at the chart that you had included in the presentation, and I don't know if I'm maybe reading too much into it, but it certainly looks like U.S. hospitality and Canada retail have a steeper ramp on the payments adoption.

So, you know, I don't know if it's just, you know, early, don't get too excited about it, or

if you've been able to apply maybe some of the learnings from U.S. retail, just anything that's noteworthy on that slide. Yeah, I think as we've always said, we expect that we'll get better at this over time, just in how we package, position, sell. We do believe these markets increasingly come together, software and payments, into an integrated solution. I think we're just seeing that, generally speaking, play out. We also do expect restaurant to have higher attach rates than retail. The market, we think, is a little more conditioned to buying integrated software and payments than maybe the retail market. So I think that's what we're seeing play out in the early days here, Josh. Okay, really helpful. And, you know, the commentary on restaurants really stood out to me positively. Certainly there's been quite a resurgence, probably faster than many would have expected three to six months ago. So any other, you know, color, obviously you've done a lot of innovation for them with, you know, things like e-commerce for restaurants and order ahead. So have they, you know, really quickly embraced that? And that's what's helping the resilience there. Just would like to hear a little more context on that. I think this is a big quarter for innovation from the hospitality sector, especially with, as you mentioned, e-commerce restaurants, which gives those businesses a digital hub, which brings together reservations or social media, all the different pieces that they need, as well as restaurants. the order head capabilities can be tied in as well. And I think that on delivery, these are all tools that are coming out from us. They're helping these restaurants adapt business models for this particular moment. And we're seeing adoption really aid these businesses. And I think it will continue to help these businesses transform even post-COVID and have new revenue streams. Yeah, I think maybe just, let's not forget the majority of the market is on legacy systems. And in the context of COVID, legacy systems are really not, I mean, they're underserving the markets. There's a big transition there of people who want to move into the new world so that they can adapt and they can thrive, hopefully, in this environment. Okay. And the last question for me, the number of gross new customer additions certainly seem like a distinct positive. I mean, are you seeing some of these businesses set up in maybe a online first model and then, you know, look to open up a store as as maybe some of the restrictions ease? Just, you know, we'd be curious to hear any other context around that development.

I think, I mean, going back to what we had talked about last time, we still see the same ambition where, you know, we've been talking about omnichannel for five years and now everybody is coming to us and, you know, they want it, they want it now.

So we're still seeing that same trend of people needing to adopt digital platforms and to serve their customers in different means. And I think that's not going to slow down. And I think the other reason why we've seen such strong adoption of new customers is it's a scale i mean the strategy working uh you know our brand recognition is stronger and i think uh you know this ambition we have being one global brand is really helping us when you think about the intake of new customers great thanks dean and your next question will come from andrew jeffrey from truest securities your line is open thank you uh good morning appreciate you taking the question Maybe it's a bit of a follow-up on Josh's question with regard to new customer growth. Can you talk a little bit about how much of your customer growth this quarter and maybe trend-wise is coming from net new merchant creation versus competitive takeaways? I think there the blend hasn't changed, and I think that's a surprise. we have is that there are still new businesses being created in the space. And don't forget, Lightspeed is, you know, we're global. So we have businesses around the globe and some countries are are not seeing the impact of COVID like Australia and other countries like the U.S. are staying open while Europe is maybe having more difficulty. So I think there we've seen at a macro level the same thing as usual where it's a healthy blend of people graduating off kind of less powerful cloud-based platforms than the second big bucket of is really net new businesses who are opening and need a system, and obviously we're probably one of the chosen few. And then the third category we still see are people moving off legacy systems. And again, just try to imagine somebody on the legacy system in the context of COVID. They need to change to be able to adapt. So I think it's kind of a blend we've always seen. okay that's helpful thank you and then uh the follow-up with regard to uh vertical markets can you talk a little bit about a couple things one i guess do we need to think about difficult compares in bike and golf for example as we look out to next year uh you know in terms of you know maybe an easing of the pandemic hopefully given what might have been a bulge this year in those categories. And two, around some of the B2B ambitions you might have, I wonder if you could offer an update in terms of progress or how we might think about the roadmap for product introduction in your key verticals. There's always going to be some seasonality in the business. In the summer months, we do have golf, bike, home and garden, sporting goods where we have really strong retail numbers. But we'll also have strength in other verticals during the holiday season and so on. But regarding products for B2B, we've been ramping our tools for suppliers, and we're going to be talking about that more in the coming quarters. But that, I think, is an area where we did talk about one of the partnerships that we established in the earnings call with Anheuser-Busch, where we're now speaking with partners across retail and hospitality, whether it's bike or whether it's F&B, and starting to integrate more deeply and work more deeply with some of our partners that work with our merchants. Great. Thank you very much.

And your next question will come from Richard C. from National Bank. Your line is open.

Yes, thank you. When it comes to legacy players, like what areas of weakness do you think COVID has really amplified in terms of the challenges that they had before? Yeah, maybe I'll take it. But just think about the legacy players. Those are client server platforms. They have proprietary databases. They're on-premise. Most of them are not in the cloud. So just look at a workflow with COVID. You know, you're thinking about order ahead, you're thinking about online delivering, you're thinking about curbside pickup. And it's very difficult for a platform that is a client-server platform to be able to engage with cloud services. And so I think that's really the biggest shortfall is I think the legacy systems were good at managing, let's say, one workflow with one channel, which is a physical channel. So people going to a store or a restaurant, I think they were doing an okay job there. But I think the world of COVID now, and even think about payments, it's all around the connection between the physical world and the digital world. And this means ultimately on a technology standpoint that it needs to be, you know, services talking to services in the cloud. So this is really the biggest shortfall. I'll just give you other few examples, you know, If I'm not permitted to go – if I'm a store owner and I can't go to my store or my restaurant is closed and I have a legacy system, even reporting needs to be done on premise. So here again, the need to be able to virtualize the infrastructure is important. So I think there's a number of fronts, but I think really – The bulk of it is that these old legacy systems are really just good for one channel. And when you think about COVID and the new world, it's multi-channel interacting with each other across multiple digital channels. So they're just not adapted for that kind of workflow in the new environment. Right. And if they decide to sort of try to make a pivot, is that like a, you think like a two, three-year effort on their part or? Just trying to get a sense of like the lead you guys have here. Then if you go one layer underneath, it's not the same technology. It's not the same developers. It's not the same code base. So for them, this would mean a rewrite. And you know, it's interesting because like we had a product that was on premise and the listing is extremely heavy. So what we have to do was redevelop completely a cloud platform next to it. And this will take at least three, four, five, five years to get to the level of functionality needed within those businesses. These are big solutions to develop. So we're not too worried about that.

And actually, if you look at the evolution of technology throughout time, it's very rare that a company manages to reinvent themselves.

And then I think the last piece, sorry, is the business element. These platforms are sold with upfront payments. They're not cloud. So even their cost structures are not adapted for this new world. And just one last one for me. When it comes to acquisitions, what are the key attributes you're sort of looking for here? Is it geographic reach and opportunity to upsell existing products that you have into that base, like technology people? Just trying to get an understanding of what you're sort of prioritizing when it comes to acquisitions. Yeah, and so we've never changed our strategy there. We have three categories in which we acquire, but I think Even before we go into those categories, first of all, the DNA of the company needs to be light, light speed. This means it needs to be a high-growth company, needs to be a cloud-based system, so we wouldn't acquire a legacy platform, as an example. And we need to be sure that, culturally speaking, we're very aligned. Now, once we pass that step, there are three categories. First, we look at technology.

So here, over time, we need to grow our portfolio because our customers want to buy more and more from IT. So we will do acquisitions within the vertical of expanding our capabilities.

And here, I think a good example of what we did in the past was like the loyalty or analytics, where when we see technology that our base wants to acquire, we integrate it. The second category is really geographical expansion. so here i think a very good example would be you know counter or would be uh gastro fix before those two deals we were we'd have zero presence in australia almost and almost no presence in germany um and then the the third category is is verticalization which means we need to there are a number of verticals where we want to go much deeper and there i think a very good example is chrono where we you know golf courses do have retail stores they do have restaurants, but ChronoGolf brought us a set of functionalities that enabled us to go much deeper into the golf industry. And so we're going to continue pursuing those acquisitions within those three categories. And again, we want to acquire companies that have very similar DNA to ours, that are high growth. And again, if it's cloud, it makes it so much easier then to reuse services between the platforms. That's really helpful. Thank you.

And your next question will come from Todd Copeland from CIBC. The line is open.

Good morning, everyone. I have a couple of questions. My first one is a massive question. Shopify Toby Lucas talks about e-commerce from COVID being 10 years. This was the first quarter that you have called out a powerful pull-forward trend, a sort of a base upgrade cycle.

I'm just wondering if you could put some context around that pull-forward. How powerful is it?

Do you see it actually accelerating once we get through some of these lockdowns? Just talk about those dynamics, please. Yeah. Go ahead. I'll maybe start with the go-to-market and what we're seeing. So I think we have the same perspective on POS. We think that COVID is an accelerator. Obviously, it's going to be choppy, you know, as markets are forced to close. But ultimately, this is an accelerator to adoption of light speed. And I think this is what's driving our strategy. And so here, when we think about acceleration of adoption, we also need to think about acceleration of roadmaps. And so that's why we've really been accelerating our roadmaps on digital, on e-commerce, on curbside pickup, on delivery methods, because the market needs it now. And I think we, very similarly to our competitors, we thought we had, you know, maybe three to five years for the market to need the functionality they need today, and just COVID has acted as this. So now we're We announced, I think at the last earnings call, that we were increasing our development capabilities because if the market adoption is accelerating, we need to accelerate our roadmaps to be in line with this. And we've done tremendous progress if you look at the products we've been launching in the last few months. And here you can expect this to continue. We need to be sure that the product market fit is perfect for Lightspeed. And because the market is just accelerating, we need to accelerate the roadmaps. Yeah, we've been saying, you know, we've been preaching Omnichannel for the past five years. And we think Omnichannel has been brought forward three to five years. You know, it's no longer a nice to have, it's a must have. And it's a crucial lifeline if you're a business, small business. retail, restaurants, in order to continue to work with your customers, continue to serve your customers. So it's bigger than e-commerce. I think it's all these different models, things like order ahead. It's curbside pickup, mobile tap, contactless experiences. It's a wealth of things. E-commerce is one part of the puzzle of this on-channel approach. And it also includes the physical experiences, too, and how those are going to change. And so we think that this all favors lightspeed and acceleration towards our vision for how we're going to see commerce in regional hospitality completely reinvent over the next couple of years. Thanks, Dax. I had one follow-up question on payments. You've had a nice rhythm in payments the last couple of quarters.

In the past, you've talked about payments attached being the majority of your locations.

With the experience thus far, how long do you think it will take to get to that plus 50% attach rate? Just talk about the path to that.

Thanks a lot. So maybe if we step back on payments, we very intentionally started payments on retail in the U.S., and then we moved to RESTO U.S., Retail Canada, and now we're expanding, and we have plans, as you know, to continue deploying payments uh a payment um across all of the geographies between now and the end of our fiscal year and that plan is moving forward so but i think um just to be very clear we have more than a 50 attach rate on the regions where we've launched uh live speed payments and i think now for us what we're just what we just need to do is we need to continue deploying into all the countries where we operate And what we've seen also is as we've launched Ben's Restaurant and then we've launched Retail Canada, we've seen the exact same adoption of attach rates in those geographies. So we're very confident in payment, and we're very confident that as we continue to deploy payments globally, that we will have similar attach rates that are well north of 50%. Thank you.

Your next question will come from Subin Sukumar from 8 Capital. Your line is open.

Good morning, guys, and congrats on the strong quarter and congrats on the acquisition. My first question is on Shopkeep. The company appeared to have an integrated payments offering, which I think based on your earlier commentary suggested it was still more of a referral model, but you also had a capital offering in market as well. Can you touch on their progress to date in terms of penetration with respect to payments and capital, and secondly, what you're able to leverage, whether it be capabilities, go-to-market, or even just learnings from the acquisitions? Yeah, thanks for the question. In terms of their integrated payments offering, yeah, you're spot on. And just to make sure we clarify that from the earlier comments, they operated under a referral model to this point. As I mentioned earlier, this team had done a nice job of kind of rounding out a solution set for these customers. And one of those things, as you mentioned, was capital. And so they're much further along than Lightspeed on their capital offering. And it's one of the synergies we see is leveraging their experience and their results because they did drive some really nice results on capital across their customer base. And we look forward to seeing how we can leverage that here at Lightspeed across a broader customer offering. Okay. That'd be great. Thanks. And then... Do you want to address the customer learning? I think for me, just there, what we were amazed with this deal is that we have almost similar customer journeys. When you think about how they acquire customers, how they qualify the customers, how they convert the customers, and you look at all of the rates, they're very, very close likely. So the learning was that in the way we operate on the go-to-market standpoint, These are very, very similar processes.

Okay. Okay. That's helpful. And just a last one from you guys. I just want to touch on your technology role now. You guys have made significant progress on the innovation front, really bringing key capabilities really quickly to your merchant base in this time of need.

Looking ahead, do you guys see any new use cases, use case areas, to invest in or perhaps gaps in your merchant experience that you guys are uniquely positioned to address and the shopkeep bringing it unique on this front for you guys to leverage as well. Yeah, I think internally we look at a growth flag. We look at providing tools for merchants, so all of the things that are part of our core omni-channel offering. But then it also bleeds into consumer, where we have a tool with loyalty and order ahead. So you'll see more development there. And then finally, we're going to be delivering value to suppliers as we integrate them better with customers. uh you know with our retail and our hospitality customers so uh i think you'll see and then of course we have we have payments which uh which sort of you know uh bridges all three so you i think you're going to see an acceleration in roadmaps that uh that bring together physical and digital experiences you know i think we've had a pretty amazing track record for the last six months uh you know of covet of using the amazing technology stacks that we have and also the added engineering um you know, the engineering capacity that we've gained through these acquisitions to really start to bring to market things like order ahead, you come to restaurants, analysts, you know, analytics tools and more. And so in those themes and those categories, you're going to see a lot more product delivery. Okay. Perfect. And thank you for taking my questions, guys. I'll pass along. Thank you.

Your next question will come from Jinjin Wong from J.P. Morgan. Your line is open.

Hi, thanks so much. Really good results. I wanted to ask a couple of questions together, if you don't mind. Just on the shopkeep piece, was that a competitive process? And what does their profitability picture look like? I saw the revenue number, obviously. If you can give us anything there, that would be great. And then just on your business, your location growth did tick up. Nicely, as you called out. I'm curious, have you done any further thinking around customer acquisition costs? I know it's difficult in the pandemic to benchmark that, but do you think there's a different learning here in what customer acquisition might look like coming out of the pandemic? Thanks.

I'll take the first one and maybe JP you can take the second on the customer acquisition costs. But I think what we're finding, Kinjin, overall is just as merchants, echoing some of Dax's earlier comments, given everything they're forced to deal with and the rush to replace legacy systems, we are finding a lot of activity in the space right now. So without commenting specifically on whether it was a competitive process, let's just say we are seeing a lot of interest in the broader space of the cloud-based software platforms in our market and what that means for the long term in terms of the opportunity that Liza had in this replacement cycle with integrated payments. So I think that answers that. The company was roughly breakeven without getting too specific. And we'll look to obviously drive a lot of synergies from how we leverage our combined go-to-market prowess now that we have the scale and can align those resources. and so on, but this is very much about creating a lot more scale in our biggest market, which is the U.S., and how we move more quickly together rather than fighting each other along the way. Do you want to comment on the customer acquisition, Gus? Yeah, maybe I just want to make also a comment on Shopkeep. As we've always said, we know the market well, you know, it's a very fragmented market. There are companies out there that are not as well-run as Shopkeep. And as we always said, we want a team with companies that are well-run, that have similar DNA, that are not, you know, burning a lot of cash. And so I think for us, it was... regardless of a competitive bid or not, this was a very planned move and has been in discussion for quite a while now. And I think the timing is now right, especially given the dynamics on the market and COVID. So I just wanted to say a word on that. Now, when you think about customer acquisition costs, our plan has always been very, very kind of simple when you think about it. As we deploy payments into markets and verticals, And, you know, every customer who comes on to Lightspeed Payments, we double the lifetime value of the customer, give or take. So I think for us here, when you think about how we run the business and how we look at the dynamics, we just need to ensure that our cash LTV is strong. And what we know is that in a market where Lightspeed Payments is deployed, the economics are incredible. So I think for us, it's more about now combining forces with one of our competitors in the U.S., And then put on top of that the fact that we've fully launched payments in the U.S. for restaurants and for retail. And now we have a real opportunity to go and acquire at a faster rate customers, but with a very strong unit economics. Now, we have seen with COVID kind of the cost of acquisition softening because A lot of the competitors are spending less money on Google and digital platforms to acquire customers. But what we've seen throughout summer, we've seen those customer acquisition costs go back to normal. And so I think what we can expect now is with a little bit of a slowdown happening in the coming next month with the markets closing, we'll see cost of acquisition go down slightly again. But I think, again, for us, the way we look at this is, Long-term, there is a replacement cycle. We have the best platform on the market for the segment in which we're going after, and we have a lot of flexibility now to acquire customers that are great unit economic because we've launched live fee payments and because we're consolidating the market.

Your next question will come from Paul Trevair from RBC. Your line is open.

Thank you very much. Good morning.

Congrats on the good quarter. Just wanted to follow up a little bit on one of your last comments, and I've just asked a couple questions here that we'll address it as. Could you speak to the linearity of GTV growth sides in terms of the quarter and then also in particular what you're seeing so far in October? And then just in regards to your last comment, you mentioned a possibility of a slowdown, and you also mentioned that in regards to guidance. Have you seen any of that to date, or is it just conservatism as you look forward?

Hey, Paul. Yeah, the linearity question, I think if we go back to our last call, we started to speak about how we saw ever-improving trends culminating in June, where know gtv and customer location ads and so on were were quite strong in june and we just saw that more or less continue throughout the full quarter here um where you know um we saw churn continue to start to normalize we saw gross customer location additions uh be strong throughout the quarter and we saw those gtv trends kind of continue from what we first started to say on our last call in June all the way through the September quarter. As we look forward, you know, I think it's just we've always tried to be cautious and conservative, and I think that's what we need to do now. JP mentioned earlier that you know, um, the near term is, is just something I think we have to deal with. What we saw in the second quarter here that we reported is just, uh, I think when we're in a more normalized environment, you can see all aspects of the business model working, just the results that we can drive. Um, but certainly there's, you know, lots going on, um, in the various countries we operate in around the world. And I think it's just, uh, we're going to continue to be conservative and cautious as we, as we provide outlooks, uh, given some of this uncertainty. This is a second question. Long run, we feel, really. Obviously, well positioned here.

Okay, that's great. In terms of the re-platforming that you're seeing with customers and the increased priority there, could you speak to the switching costs or maybe the challenge of these S&P customers switching a platform in the midst of a pandemic? And is there anything that you're doing there to make it easier for them to switch over to a cloud-based POS?

Maybe I'll take that one. So, I think this is – let's step back, think about Lightspeed. Our model from day one has always been we've got to make this simple. And so when you think about our customer journey, even before COVID, everything was done virtually. So we had a centralized sales force, centralized installation team, centralized customer success. And so we're very acquainted to taking a customer and bring them on an onboarding session, which is a Zoom session. And generally speaking, within a matter of hours and maybe days, the platform is completely up and running. But I think for us there, this is a very strong differentiator for Lightspeed is we've managed to take a world of, let's say, very complex solutions and make it simple. and make the onboarding simple. So I think for us, it doesn't change much. And I think what we're seeing is we have the velocity to bring those customers on. I think the big change we've seen, and as I said at the beginning of the call, is historically people would come to us and they would want to start with the back office and the POS. And they would say, hey, I want to be able to manage in-store, and I need to manage it well. So what we did is we had workflows where people would just get a platform installed in-store. The big change we see now with the pandemic is regardless if it's restauranteurs or retailers, the majority of the customers are now coming to us. And if I'm a retailer, I'm saying, hey, I want to sell online. I want curbside pickup. If I'm a restauranteur, I want to have delivery services. I want to have – so I think what's changed is we get them started as quickly as possible on digital platforms before the POS. So I think this is a big change we have to adapt. This being said, because we've always operated virtually, COVID doesn't change much in how we can onboard customers and in the simplicity in which we can onboard customers. Okay, thank you.

Operator, I think we have time for one last question.

Okay, and our final question will come from Gavin Fairweather from Cormark. Your line is open.

Hey there, good morning. Just wanted to start on Shopkeep. Can you just expand on kind of their experience through COVID? I mean, given that the, you know, payments model is on a referral model, I'd imagine that the revenue mix can use more towards subscription. So, you know, potentially more insulated than some of the peers out there. Just hope you could expand on their experience, you know, this year.

Yeah, without getting too, too specific, Kevin, I think, you know, for... or any company in the broader space, we all generally see the same things happening. They have fared pretty well through COVID, but certainly the near term does get a little choppy as lockdowns happen. It affects our ability to sign new customers and customer volumes and all that sort of thing, and certainly some of that was evident affected them as much as it affected anyone else in this space. But overall, I think the team there did a great job of navigating through the first phase of COVID.

I will now turn the call back to our presenters for some closing remarks.

Okay, thank everybody for joining today. If anybody has any follow-up questions, management will be available. Feel free to reach out. Thanks, everybody, and have a great day. Thanks, everyone.

Thank you, everyone.

Have a good day. Bye.

Thanks, everyone. This will conclude today's conference call. You may now disconnect.