Lightspeed Commerce Inc

TSX:LSPD

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to today's Lightspeed Second Quarter 2021 Earnings Call. [Operator Instructions] I would now like to turn the call over to Gus Papageorgiou, Head of Investor Relations. Please go ahead.

[Gus Papageorgiou]

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Second Quarter 2021 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Brandon Nussey, 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 sedar.com and on the SEC's EDGAR system. And finally, 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, CEO & Corporate Director]

Thank you, Gus, and thank you, everyone, for joining today. Nearly 9 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, with results exceeding our expectations and characterized by a growing customer base, expanding ARPU and increased adoption of our ever-growing service offering. Lightspeed 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 Lightspeed 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 Kounta and Gastrofix. We had a very busy quarter with many notable initiatives, but I would like to highlight 4 key themes: the continued innovation of our platform; the strengthening of our Board of Directors; our NYSE 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 3 new product initiatives. The first is eCom for restaurants. Designed to allow Lightspeed restaurants to seamlessly transition their businesses online and integrate new revenue streams, eCom for restaurants allows Lightspeed merchants to display their menus online, link to delivery systems and integrate into OpenTable for bookings and Instagram for social media. As restaurants worldwide 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. A cost-efficient online ordering platform designed to facilitate takeout, Order Ahead integrates into eCom for restaurant, creating a powerful digital hub that enables restaurants to provide a completely contactless customer experience. Online orders appear directly in the [ VIP ] 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 POS. 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. Subscription 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; Bentley'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 pet; Seventh Sense Botanicals, 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 Sentry Tournament of Champions. Kapalua Golf maintains 2 of the most majestic golf courses in the world, the Plantation and Bay courses; and finally, Landscapes 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 Panier Bleu in our home market of Québec. Panier Bleu has developed the popular Quebec-based online market, offering over 0.5 million products from over 2,000 Québec-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 Merline Saintil. Merline 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, Merline has demonstrated a passion and commitment to the success of our merchants. I look forward to working with Merline in the years to come. Our NYSE listing. During the quarter, Lightspeed 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 1 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'm happy to say that our efforts to date have delivered strong success. All 4 of our recent acquisitions, Chronogolf, iKentoo, Kounta and Gastrofix, delivered their strongest quarters yet, demonstrating our ability to integrate and enhance the operations of or acquisition targets. I am 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 developed resources now directed towards the converged efforts. We have 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 this 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 replatform 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 Lightspeed 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 Lightspeed team. Their commitment to Lightspeed merchants worldwide is unmatched and unwavering. And with that, I will pass it on to Brandon.

[Brandon Blair Nussey, Chief Financial Officer]

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, and 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 million to $40 million. Software and payments revenue was 62% higher than a year ago at $41.1 million. Excluding the impact of Kounta and Gastrofix, 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 was 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 quarter. 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. 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 of the near-term outlook that the effects of the pandemic remain. We're now seeing a resurgence of 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 million to $47 million, and we expect Q3 EBITDA to be a loss of approximately $8 million to $10 million. [ Knowing ] once again that 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 ShopKeep 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. ShopKeep's trailing 12 months revenue is approximately $50 million, and they're bringing over 20,000 customers and approximately $7 billion of GTV to this combination. Echoing Dax' 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 in this period of rapid transformation and beyond. And with that, we'll turn it back to the operator for your questions.

[Operator]

[Operator Instructions] Your first question comes from Raimo Lenschow from Barclays.

[Raimo Lenschow, MD & Analyst]

Congrats on these great numbers. And 2 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 if 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?

[Jean-Paul Chauvet]

Brandon, do you want to go or do you want me to take this one?

[Brandon Blair Nussey, Chief Financial Officer]

Yes. Go ahead, JP.

[Jean-Paul Chauvet]

Yes. 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 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 U.S. We have a very similar profile of customers, if you look at the industry. 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 -- in months getting to one product and getting everybody behind one solution, which is a mix of all growth. 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 are now all under Lightspeed, and we're now pushing one product globally.

[Brandon Blair Nussey, Chief Financial Officer]

I'll take the second part of that question, Raimo, restaurant distribution. Largely outside of North America, countries like Germany, Belgium, Netherlands, U.K. and Australia would be where we have the largest concentrations of customers.

[Operator]

The next question will come from Thanos Moschopoulos from BMO Capital Markets. Thanos, are you on mute?

[Thanos Moschopoulos, VP & Analyst]

Sorry about that. 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? Was it that there are some key capabilities that you can now offer? Or was there something else going on?

[Brandon Blair Nussey, Chief Financial Officer]

Thanos, this is Brandon. No, the company was growing pre-COVID, which will isolate, I suppose, as we think about that. But our 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 with similar types of customers, similar verticals. And ShopKeep had done a nice job and that team had done a nice job of positioning multiple software offerings for those customers and were achieving some nice growth again before COVID came along. So as we take a look at this, we think we share very similar views of how this market will play out in the long run, and just like all the other acquisitions, how we can bring the increased functionality that Lightspeed offers, the increased breadth and depth to these customers. And I think where we really see opportunity is as our joint customers now continue to grow, how they can leverage some of that increased functionality from Lightspeed over time.

[Thanos Moschopoulos, VP & Analyst]

Okay. 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 a significant channel and how that relationship might change going forward?

[Brandon Blair Nussey, Chief Financial Officer]

Yes, 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'll -- 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 2 things coming together naturally over time. I would say -- I'm sorry, 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 -- is going to be similar to what we did with Lightspeed.

[Thanos Moschopoulos, VP & Analyst]

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

[Brandon Blair Nussey, Chief Financial Officer]

Yes, a little bit of all of the above. I mean, we obviously, given the growth in customers, saw some nice increase in the subscription line, churn started to come back towards normal, again, which helped a lot. Some of the discounting measures that we had in place, those will start to roll off balance, as you know. We do continue to kind of look for ways to drive incremental margin and payments. And I guess, the other aspect to the overall gross margin is -- 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 to margin.

[Operator]

Your next question comes from Josh Beck from KeyBanc.

[Josh J. Beck, Senior Research Analyst]

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 I don't know if it's just 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.

[Brandon Blair Nussey, Chief Financial Officer]

I -- yes, 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.

[Josh J. Beck, Senior Research Analyst]

Okay. Really helpful. And the commentary on restaurants really stood out to me positively. Certainly there's been quite a resurgence, probably faster than many would have expected 3 to 6 months ago. So any other color? Obviously, you've done a lot of innovation for them with things like e-commerce for restaurants and Order Ahead. So have they really quickly embraced that and that's what's helping the resilience there? Just would like to hear a little more context on that.

[Brandon Blair Nussey, Chief Financial Officer]

I think this was a big quarter for innovation from Lightspeed's [ core ] hospitality sector, especially with, as you mentioned, eCom for restaurants, which gives those businesses a digital hub, which brings together the reservations or social media, all the different pieces that they need as well as the Order Ahead capabilities to be tied in as well. And I think that -- and delivery. So these are all tools that are coming up. 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 add new revenue streams.

[Jean-Paul Chauvet]

Yes. I think maybe just as commenting, 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 market. So 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.

[Josh J. Beck, Senior Research Analyst]

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 an online-first model and then look to open up a store as maybe some of their restrictions ease? Just would be curious to hear any other context around that development.

[Jean-Paul Chauvet]

Yes. So I think -- I mean going back to what we had talked about last time, we still see the same ambition where we've been talking about omnichannel for 5 years. And now everybody is coming to us. And 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 with new customers is it's just scale. I mean the strategy is working. Our brand recognition is stronger. And I think this ambition we have of being 1 global brand is really helping us when you think about the intake of new customers.

[Operator]

And your next question will come from Andrew Jeffrey from Truist Securities.

[Andrew William Jeffrey, Director]

Maybe it's a bit of 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?

[Brandon Blair Nussey, Chief Financial Officer]

I think there the blend hasn't changed. And I think that the surprise we had is that there are still new businesses being created in the space. And don't forget, Lightspeed is -- we're global. So we have businesses around the globe. And some countries are -- don't -- 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. Then the second big bucket is really net new businesses we're 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 trying 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 a kind of blend we've always seen.

[Andrew William Jeffrey, Director]

Okay. That's helpful. And then the follow-up, with regard to vertical markets, can you talk a little bit about a couple of 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 in terms of 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 road map for new product introduction in your key verticals?

[Brandon Blair Nussey, Chief Financial Officer]

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 it more in the coming quarters. But that, I think, is an area where we did talk about one of the partnerships that we're -- that we -- in our -- 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 with -- and work more deeply with some of the supplier partners that work with our merchants.

[Operator]

And your next question will come from Richard Tse from National Bank.

[Richard Tse, MD & Technology Analyst]

When it comes to the legacy players, like what areas of weakness do you think COVID has really amplified in terms of the challenges that they had before?

[Jean-Paul Chauvet]

Yes. Maybe I'll take it. But just think about the legacy players, they have client server platforms. They have proprietary databases, they're on-premise. Most of them are not in the cloud. And so just look at a workflow with COVID. 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. For people going to a store or restaurant, I think they were doing an okay job there. But I think the world of COVID now, and even think about payments, is all around the connection between the physical world and the digital world. And this means, ultimately, on the technology standpoint, that it needs to be services talking to services in the cloud. So this is really the biggest shortfall. I'll just give you other few examples. If I'm not permitted to go -- if I'm a store owner, 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, they're really just good for 1 channel. And when you think about COVID in the new world, it's multichannel interacting with each other across multiple digital channels. So they're just not adapted for that kind of workflow in the new environment.

[Richard Tse, MD & Technology Analyst]

All right. And as they decide to sort of try to make a pivot, is that like a -- you think like a 2-, 3-year effort on their part? Or just trying to get a sense of like the lead that you guys have here.

[Jean-Paul Chauvet]

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 it's interesting because Lightspeed, we had a product that was on-premise. And the lifting is extremely heavy. So what we had to do was redevelop completely a cloud platform next to it. And this will take at least 3, 4, 5 years to get to the level of functionality needed within those businesses. This is -- 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 elements. These platforms are sold with upfront payments. They're not cloud. So even their cost structures are not adapted for this new world.

[Richard Tse, MD & Technology Analyst]

Okay. 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 up-sell existing products that you have in that base like technology, people? Just trying to get an understanding of what you're sort of prioritizing when it comes to acquisitions.

[Jean-Paul Chauvet]

Yes. And so we've never changed our strategy there. We have 3 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 like Lightspeed. 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 kind of culturally speaking, we're very aligned. Now once this is -- once we pass that step, there are 3 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 Lightspeed. 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 Kounta or would be Gastrofix. Before those 2 deals, we were -- we'd had 0 presence in Australia almost and almost no presence in Germany. And then the third category 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 Chronogolf where we -- 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 3 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.

[Operator]

And your next question will come from Todd Coupland from CIBC.

[Todd Adair Coupland]

I had a couple of questions. My first one is a macro question. Shopify's Tobias Lütke talks about pull-forward on e-commerce from COVID being 10 years. This was the first quarter that you had called out a powerful pull-forward trend [ internally ] based 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 lockouts. Just talk about the dynamics, please?

[Jean-Paul Chauvet]

Yes. I think we...

[Brandon Blair Nussey, Chief Financial Officer]

Go ahead.

[Jean-Paul Chauvet]

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 as markets are forced to close. But ultimately, this is an accelerator to adoption of Lightspeed. 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 road maps. And so that's why we've really been accelerating our road maps 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 maybe 3 to 5 years for the market to need the functionalities they need today and just COVID has activated 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 [ has accepted ] accelerating, we need to accelerate our road maps 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 road map.

[Dax Dasilva, Founder, CEO & Corporate Director]

Yes. We've been saying -- we've been preaching omnichannel for the past 5 years, and we think omnichannel has been brought forward 3 to 5 years. 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, a regional restaurant, 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. I think the Order Ahead, it's curbside pick-up, mobile-type contactless experiences. It's a wealth of things. E-commerce is one part of the puzzle of this omnichannel 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 is an acceleration towards our vision for how we're going to see commerce in retail and hospitality, completely reinvent over the next couple of years.

[Todd Adair Coupland]

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 attach 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.

[Brandon Blair Nussey, Chief Financial Officer]

Yes. So maybe if we step back on payments, we very intentionally started payments on retail in the U.S. and then we moved to rest of the U.S., retail Canada. And now we're expanding, and we have planned, as you know, to continue deploying payments across all of the geographies between now and the end of our fiscal year. And that plan is moving forward. So -- but I think -- so just to be very clear, we have more than a 50% attach rate on the regions where we've launched Lightspeed 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 then restaurants 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 payments, 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%.

[Operator]

Your next question will come from Suthan Sukumar from Eight Capital.

[Suthan Sukumar, Principal]

Congrats on a 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, you suggested it was still more of a referral model. But they also had a capital offering in the market as well. Can you touch on their progress to date in terms of the penetration with respect to payments and capital? And secondly, what you're able to leverage, whether it be kind of capabilities, go-to-market or even just learnings from the acquisition?

[Jean-Paul Chauvet]

Yes. Thanks for the question. In terms of their integrated payments offering, yes, 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. They -- as I mentioned earlier, this team have 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 as 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.

[Suthan Sukumar, Principal]

Okay. Great. And then...

[Brandon Blair Nussey, Chief Financial Officer]

Do you want us to address the customer learning? I think, for me, maybe just there, what we were amazed at 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 to Lightspeed. So the learning was that, in the way we operate on a go-to-market standpoint, these are very, very similar processes.

[Suthan Sukumar, Principal]

Okay. Great. That's helpful. And just last one for me, guys. I just wanted to touch on your technology road map. Now you guys have made a 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 does the ShopKeep bring anything unique on this front for you guys to leverage as well?

[Jean-Paul Chauvet]

Yes. I think internally, we look at -- growth-wise, we look at providing tools for merchants, so all of the things that are part of our core omnichannel offering. But then it also bleeds into consumer where we have [ Lightspeed ] 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, either with our retail or hospitality customers. So I think you'll see -- and then, of course, we have payments, which sort of bridges all 3. So I think you're going to see an acceleration in road maps that bring together physical and digital experiences. I think we've had a pretty amazing track record for the last 6 months of COVID, of using the amazing technology stacks that we have and also the added engineering -- the added engineering capacity that we've gained through these acquisitions to really start to bring to market things like Order Ahead, eCom for Restaurants, analyst -- analytics tools and more. And so in those themes, in those categories, you're going to see a lot more product delivery.

[Operator]

Your next question will come from Tien-Tsin Huang from JPMorgan.

[Tien-Tsin Huang]

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 pick up nicely, as you called out. I'm curious, have you done any further thinking around customer acquisition costs? And I know it's difficult in a 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?

[Brandon Blair Nussey, Chief Financial Officer]

Yes. Okay. I'll take the first one, and maybe, JP, you can take the second on the customer acquisition cost.

[Jean-Paul Chauvet]

Yes. Okay.

[Brandon Blair Nussey, Chief Financial Officer]

But I think what we're finding, Tien-Tsin, overall, is just as merchants -- echoing some of Dax' earlier comments, as they -- 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 at [ live add 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. JP, do you want to comment on the customer acquisition costs?

[Jean-Paul Chauvet]

Yes. And maybe I just want to make a couple of comments on ShopKeep. And as we've always said, we know the market well. 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 DNAs, that are not burning a lot of cash. And so I think, for us, it was -- regardless of the 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 ripe, especially given the dynamics in the market and COVID. So 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, 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 CAC to LTV is strong, and what we know is that in a market where Lightspeed Payments is deployed, that 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 Lightspeed 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 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 -- in the next months, 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 in the market for the segment in which we're going after. And we have a lot of flexibility now to acquire customers at a great unit economics because we've launched Lightspeed Payments and because we're consolidating the market.

[Operator]

Your next question will come from Paul Treiber from RBC.

[Paul Michael Treiber, Director of Canadian Technology & Analyst]

Congrats on a good quarter. Just wanted to follow up a little bit on one of your last comments, but -- and I'll just ask a couple of questions here that will address it. Could you speak to the linearity of GTV gross adds in churn through the quarter, and then also, in particular, what you're seeing so far in October? And then just in regard to your last comment, you mentioned a possibility of a slowdown and you also mentioned that in regards to guidance. Is it -- have you seen any of that to date? Or is it just conservatism as you look forward?

[Brandon Blair Nussey, Chief Financial Officer]

Paul, yes, 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 GTV and customer location adds and so on or were quite strong in June. And we just saw that more or less continue throughout the full quarter here, where we saw churn continue to start to normalize. We saw gross customer location additions be strong throughout the quarter. And we saw those GTV trends kind of continue from what we first started to say on the last call in June all the way through the September quarter. As we look forward, 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 the near term is just something, I think, we have to deal with. What we saw in the second quarter here that we reported, is just, I think, when we're in a more normalized environment and can see all aspects of the business model working, just the results that we can drive. But certainly, there's lots going on in the various countries we operate in around the world. And I think it's just -- we're going to continue to be conservative and cautious as we provide outlooks given some of this uncertainty. Long run, we feel really obviously well positioned here...

[Paul Michael Treiber, Director of Canadian Technology & Analyst]

Second question -- okay. That's great. In terms of the replatforming that you're seeing with customers, and the increased priority there, could you speak to the switching costs or maybe the challenge of the 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?

[Jean-Paul Chauvet]

Yes. Maybe I'll take that one. So I think this is -- when -- let's step back, think about Lightspeed. Our model from day 1 has always been, we've got to make this simple. And so when you think about our customer journey, we -- 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 bringing 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 doesn't change much, and I think we -- what we're seeing is we have -- 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 restaurants or it's 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 pick-up." If I'm a restauranteur, "I want to have delivery services. I want to have..." So I think that what's changed is we get them started as quickly as possible on digital platforms before the POS. So I think this is the big change we have to adapt. But this being said, because we've always operated virtually, COVID doesn't change much in how we can onboard customers and in the simplest [ scene ] in which we can onboard customers.

[Operator]

And our final question will come from Gavin Fairweather from Cormark.

[Gavin Fairweather, Analyst of Institutional Equity Research]

I wanted to start on ShopKeep. Can you just expand on kind of their experience through COVID? I mean given that the payment model was on a referral model, I'd imagine that the revenue mix skews more towards subscription. So they're potentially more insulated than some of the peers out there. Just hoping you could expand on their experience this year.

[Brandon Blair Nussey, Chief Financial Officer]

Yes. Without getting too specific, Gavin, I think for any company in the broader space, we all generally see the same things happening. They have -- they're steering pretty well through COVID, but certainly the near-term does get a little choppy. And 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 at least the first phase of COVID.

[Operator]

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

[Jean-Paul Chauvet]

Okay. Thank you, 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.

[Dax Dasilva, Founder, CEO & Corporate Director]

Thanks, everyone.

[Brandon Blair Nussey, Chief Financial Officer]

Thank you. Have a good day.

[Operator]

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