Shift4 Payments, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Shift4Payments third quarter 2020 earnings conference call. At this time, all participant lines are on mute. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to turn the call over to your speaker today. Sloan Boland, Investor Relations, please go ahead.

Thank you, Operator. I'd like to welcome everyone to Shift4's third quarter 2020 earnings conference call. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives, the potential annualized gross profit related to conversion of gateway-only merchants, our acquisitions, and their ability to bring us into a high growth vertical, the expected impact of COVID-19 on our business and industry, and anticipated financial performance, including our financial outlook for the fourth quarter of 2020. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in the risk factor section of our quarterly report on Form 10-Q for the quarter ended September 30, 2020 and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP measures on this call, which are reconciled to the nearest GAAP measure in the company's earnings release, which can be found on our investor relations website at investors.shift4.com. And with that, let me turn the call over to the Chief Executive Officer, Jared Isaacman.

Good morning, and thank you all for joining us today. We're pleased to report that Shift 4 had a reasonably strong quarter, despite a market backdrop that remains challenging. COVID-19, along with other factors, continues to pressure the economy and consumer spend at large. Year-to-date consumer credit card spend, as tracked by Visa, is down 7%. Including debit, the overall spend trend is still at a modest 4% increase from the prior year. While this marks improvement from the depths earlier in the year, the shape of the recovery remains uncertain. It's against that backdrop that our results stand out, and in our view, serves as a proof point that shift four provides a meaningfully differentiated solution, which ultimately creates demand for our services. In the third quarter, we grew end-to-end volume by just over 20%. In fact, every month this year, we've grown end-to-end volume year over year, except for April and May at the onset of the COVID-19 crisis. In the spirit of transparency and in line with the periodic shiftboardcares.com updates we have been releasing, it's worth highlighting that October was our highest month ever with end-to-end volume up 28% year over year. This performance is entirely attributable to the growth of our end-to-end merchant counts from both gateway conversions and net new wins. Year-to-date, we have boarded 18% more merchants in the same period in 2019. Our passion for constant innovation drives this growth, whether that be via new technologies, bolt-on capabilities, or disruptive go-to-market strategies. We don't sit still and are laser-focused on solving the pain points of the world's best merchants. Without grounding, let's turn our attention to the results for this quarter. As detailed in our release this morning, Shift4's third quarter results were reasonably strong, highlighted by our end-to-end payment volumes of $7.1 billion, which was up over 20% from last year, as I mentioned before. Our increased volumes drove 10% growth in gross revenues, less network fees, and resulted in an adjusted EBITDA of $28.7 million and an EBITDA margin of 32.7% for the quarter. You know, we spent quite a bit of time during the quarter speaking with investors, and I would like to now address a few questions or misperceptions that we have encountered in our discussions. The first misperception is that Shift4's growth story is only about converting gateway-only merchants to our end-to-end solution. To be clear, that is a big part of our strategy, and we see a huge opportunity in those conversions and believe, in aggregate, the opportunity could deliver as much as $500 million in annualized incremental gross profits. That said, we think it's equally important to recognize that Shift4's solution set is highly competitive and is winning us new merchants and payment market share as well. Solving pain points for merchants also means solving pain points for our software partners, and they, in turn, bring us more merchants. In a way, these new merchant wins says a lot about the other two main misperceptions we run into with our investors. One is that Shift4 is really just about the restaurant and hospitality space. The second is that Shift4 and our merchants operate on legacy technologies. To this, we'd first note that 40% or nearly 40% of our overall end-to-end volume is from merchants that fall outside of the restaurant and hospitality space. As we've discussed previously, the incredibly important and complex software integrations that make Shift4 so special in the hospitality market are used in a multitude of adjacent and entirely uncoupled verticals. For example, Our customers can be found inside healthcare, education institutions, specialty retailers, golf courses, entertainment venues, and more. To be clear, we love the advantage position we have worked hard to build in the restaurant and hospitality verticals, but that is clearly not the limit of our capabilities. In fact, we are expanding our reach into many new domains, and we're going to talk about that in just a minute. Second, it's probably worth pointing out that there is innovation and disruption happening across the spectrum of commerce. The technological approach some of our peers are taking to simplify commerce for the most basic merchants is not necessarily transferable or applicable to the more complex merchants we serve. The vast majority of Shift 4 customers depend on multiple software suites ranging from emerging cloud solutions to enterprise on-premise servers. Our technology allows merchants to operate a diverse array of commerce enabling software and take advantage of best-in-class payment solutions such as our contact lists and ordering products like SkyTab or QR Pay. We've also developed enterprise-grade business intelligence and analytic products. These are examples of merchant pain points that our technology is solving, which is very much different than, say, crypto enablement and peer-to-peer payments that a different category of merchants may require. On our second quarter earnings call, we provided a detailed overview of how Shift4 is differentiated and why our model has so much success with a growing set of merchants, Instead of repeating that story, I encourage those that are new to the Shift4 story to listen to the second quarter earning remarks. What I thought would be far more valuable today is to talk about where Shift4 is going. And this morning's M&A announcement is just one more step on that journey. In my IPO founder letter, I explained a lot about our history and our organizational philosophy towards seeking out problems and complexity and pain points and ultimately opportunity in order to further our grand payments ambitions. What began two decades ago with basic process improvements has, over the years, led to major pivots in technology and go-to-market strategy, and we've grown larger and more profitable each year as a result. For example, just three years ago, we operated largely as a payment provider for a single software brand and didn't work with a single hotel. During the last quarter, we powered payments for dozens of software brands in roughly one-third of the hotels in the U.S. We didn't have a single major league stadium prior to our Raiders announcement last quarter, and now we're in discussions with many venues around the country. Our performance is sometimes incorrectly measured solely on gateway conversions, as I touched on before, but three years ago, we didn't own any gateways. Seeking out opportunities and taking big evolutionary steps is core to this shift for DNA, and we're pleased to announce the next milestone in our mission to deliver a unified commerce experience on a global level. Our acquisition of 3Dcard is incredibly exciting as it brings to us yet another high growth vertical. For those not familiar, 3Dcard is an e-commerce platform powering over 14,000 web stores across the globe. It's a textbook shift for acquisition in that it's a highly capable platform with a strong brand and attractive economics with a revenue model that's easily portable to payments. I wanted to highlight some high level points that I think will be worthwhile to understand. First, The incumbents, like Shopify, BigCommerce, Wix, and Square, have really been doing an outstanding job. But this is a $2 trillion addressable market, and there's no such thing as a winner-take-all in business. Second, you know, we spent a lot of time researching the landscape and believe the competitors' revenue models that penalize business owners with escalating SaaS fees and multiple premium plans and add-on services are exhausting and really unnecessary. We believe we can approach this enormous TAM with a more disruptive and frankly customer-friendly model, choosing to forego SaaS and premium services and other setup fees and instead monetize our relationship with our customers the same way we have for the last two decades, which is through an aligned payment relationship. And so when our merchants do well, so does Shift4. Beyond the above foundational points, I'm confident you will find this acquisition to be highly synergistic with an opportunity to move the needle materially. And with that, let me turn this call over to Taylor, to provide more details on the quarter and the latest member of the SHIFT4 family 3D card.