Shift4 Payments, Inc.

Hello and welcome to the Shift4 third quarter 2021 earnings call. My name is Emily and I'll be coordinating the call today. During the presentation, you'll have the opportunity to ask a question by pressing start followed by one on your telephone keypads. I'll now turn the call over to our host, Tom McCrory, Head of Investor Relations. Please go ahead.

Thank you, Operator. I'd like to welcome everyone to Shift4's earnings conference call for the three months ended September 30th, 2021. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements within the meaning of the Private Security of 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 expected impact of COVID-19 on our business and industry, including with respect to economic recovery, increases in vaccination rates, the reopening of the country, and any volume recovery by us, gateway penetration and spend seen by our gateway merchants, expectations regarding new customers, acquisitions, and other transactions, and anticipated financial performance, including our financial outlook for the year ended December 31st, 2021, and any other comments regarding future operating performance. 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 factors section of their annual report on Form 10-K for the year end of December 31st, 2020, as updated by our quarterly report on Form 10-Q for the 9 months end of September 30th, 2021, 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 measures in the company's earnings release, which can be found on our investor relations website at investors.shift4.com. Lastly, we are hosting our Investor Field Day event later today at Allegiant Stadium in Las Vegas. As a reminder, the presentation portion of the event will be webcast and begin at 12 noon Eastern time, 9 a.m. Pacific. The webcast link can be found under the events section of our investor relations website, investors.shiftforward.com. We encourage you to tune in at noon today to hear from our executive management team regarding how the company is positioned to deliver superior results in the months and years ahead. And with that, let me turn the call over to our founder and chief executive, Thank you, Tom.

Good morning, everyone. Big day today, lots to talk about. As you may have seen this morning, Shift4 reported solid results, including N10 volume of $13.5 billion, up 90% versus the third quarter a year ago, and nearly 130% higher than the same period in 2019. Our quarterly volume results represent record levels of volume production for the company. We also reported impressive revenue and adjusted EBITDA levels for the quarter, with gross revenue less network fees up nearly 70% versus last year and adjusted EBITDA margins of 38%. Our adjusted EBITDA margins represent a nearly 500 basis point increase from last year's third quarter and about 450 basis points sequentially, evidence of our scale and operating leverage. This expansion was also in the face of increased investment to pursue several new verticals that I'm really excited to talk about in a few minutes and share more details on later today during our investor field day. While I believe our performance rivals that of our strongest peers, there's no question our volumes in parts of August and throughout September moderated more than we would have expected, which we can only surmise was attributable to the COVID Delta variant. There were several well-publicized comments by our airline and hotel executives that would also suggest fall travel fell below expectations from earlier in the summer. I'd like to focus my comments this morning on three areas, our core integrated payment performance, the amazing progress since our IPO, and finally the transformation that is about to take place. This will essentially be a summary overview of what we intend to expand upon during our investor field day later today. So first, our core integrated payments business, which enables us to differentiate and compete in the complex restaurant, hospitality, and specialty retail verticals, is performing incredibly well. As a reminder, we go to market with our aligned software partners and win in near equal parts across a large addressable market and by converting customers from our gateway platform to our end-to-end platform. Over 99% of the transactions processed at SHIFT4 are, in fact, integrated. And successes in these verticals is defined by, first, software integrations. At the time of the IPO, we possessed approximately 350 unique software integrations. Over the last 18 months, that number has grown to over 425, with most of the recent additions representing modern cloud-based solutions. Many of our merchants require multiple software integrations across multiple years of version history, which makes replication of our integration library nearly impossible. Our gateway volume specifically is so defensible that it has actually grown to nearly $170 billion in volume since the prior quarter. Our integration is connected to our gateway and representing such volume, it's connected to virtually every legacy merchant acquirer. That volume represents a significant economic opportunity with a four to five lift in gross profit from moving to our end-to-end platform. B, volume growth and resilient spreads. At Ship4, we've been growing so fast, investors sometimes lose sight of how hard it is to actually differentiate through technology, grow volume, and capture meaningful spread. This is probably why many of our competitors don't even report volume growth. At Shift4, we are growing volume so quickly and enlarge more complex merchants that investors confuse mixed shifts up market at higher revenues per merchant at spread compression. In reality, and as you will see during our investor field day presentation, our spreads have either remained consistent or grown in our core verticals despite the perceived threat of competition. And then add value through technology. Merchants are simply not signing up for non-integrated solutions. Legacy merchant acquirers with large books of non-integrated merchants are losing share, and they are gravitating towards technology-enabled platforms like Shift4 and others. We have developed technology that solves pain points like pay a table, order a table, QR code-based payments, QR code ordering, online ordering, loyalty, business intelligence, and even a brand-new full-blown POS platform that we'll talk about in a bit. We shared with you previously that our new carbohydrate-killing platform, codenamed Edgewater, and now I'm pleased to announce the platform has a name, and it's called SkyTab POS. And it's not PowerPoint. It's already in 2,000-plus merchants, including the United Center. This modern hybrid cloud software is feature-rich and driven by a customer experience-driven philosophy. SkyTab POS will drive incremental SaaS revenues, as roughly 85% of the 125,000 restaurants we presently serve today pay little to nothing in SaaS fees. It will also unlock other revenue opportunities as we roll out payroll, capital, and look to monetize our marketplace platform. Further, we expect our thousands of distribution partners to find success in what is an exciting addressable market, while also improving margins as customers migrate to a single, modern, and highly supportable platform. We're excited to share a lot more details on our SkyFab POS product during our investor field day. Our confidence in the competitive mode around our core integrated payment business is what has given us the confidence since the IPO to move into several new and fast-growing verticals. And on that note, we've deployed, since the IPO, some $200 million of capital between organic and inorganic initiatives to strengthen our core, but primarily to expand our TAM while bringing our integrated payment expertise into three new verticals, which are gaming, sports and entertainment, and e-commerce. Along the way, we have generated $45 million in additional revenue, while barely scratching the payments opportunity that is embedded within these products and their associated markets. This is primarily why we are raising our 2021 gross revenue less network fee guidance. On that note, we've made considerable progress across all three of these new verticals. This includes successes within the stadium vertical with the addition of Toyota Stadium in Frisco, Texas, and T-Mobile Arena here in Las Vegas. We currently have over 80 venues and sports teams adopting our Shift4 software and payment services and cannot be more pleased with our decision to enter this vertical through our acquisition earlier this year of Venue Next. We also signed several soccer teams during the quarter, including DC United and the Los Angeles Football Club. We're winning large books of business from our competitors, including industry verticals that were previously considered too difficult to switch over. Additionally, through the 3D card acquisition in 2020, now called Shift4Shop, we've increased site count to over 72,000 sites, launched a crypto acceptance service with BitPay, and advanced several strategic partnerships while booking notable wins like adventure gear company, Kamali. We're also still investing in the product by improving user experience, adding templates, and interfacing with our restaurant products to eventually have, in part, a Shopify for restaurants capability. Last, as a perpetual underdog in the gaming industry, we now have eight gaming licenses and several integrations with gaming software companies, gaming merchants, and alternative payment methods, all of which are necessary to compete and win this exciting new vertical. We've already announced preferred payment relationships with BetMGM and expect to have multiple relationships processing payments with us before the end of the year. We've built out our gaming specialty through entirely organic means, by leveraging our expertise in in-venue gaming, as a reminder, half the Las Vegas Strip has a relationship with Shift4, coupled with our immense right to win in stadiums. We made these investments while still expanding margins nearly 500 basis points for the overall business. I mentioned that I wanted to take this update in three parts. The core integrated payment business, the progress since the IPO, and the transformation that is about to take place. Well, we're on to the transformation portion of the update. And I'm beyond excited to announce we are entering four new verticals and expanding the overall organization's TAMs on the shoulders of these signature wins. This includes Allegiant Airlines, a multibillion-dollar airline and hospitality provider that will expand and strengthen our capabilities across the broader travel and leisure market. St. Jude Children's Research Hospital, an organization with a vital mission that accepts nearly $2 billion a year in donations and opens the door to both nonprofit and healthcare industries. And finally, a company that I've often said is the most well-run and innovative organization I've ever seen, and I have an obvious bias, but SpaceX and their Starlink broadband service. This five-year strategic partnership will take our integrated payment service across the world, With a specific Starlink payment opportunity, some analysts say it could reach over $100 billion a year. The agreement includes a commitment to convert domestic volume to shipboard beginning in the first quarter of 2022. And it's also worth noting that SpaceX has a restaurant and a few bars and other hospitality venues in the works in Starbase, Texas, and you can count on those locations using our new SkyTab-powered hospitality platform. These wins have displaced payment companies we immensely respect, like Adyen and Stripe. They'll result in numerous new software integrations to our platform, which allow us to pursue other merchants in those new and exciting verticals, and come with a stamp of approval that Shift4 can play in a lot of new verticals around the world, including what I would refer to as sexy tech. As mentioned in my shareholder letter, this quarter was quite interesting. We began with record volume in July. We definitely felt the impact of the COVID Delta variant. We had a confusing secondary offering from our former sponsor, the thesis service outage, a rocket launch, supply chain fears, and then several disappointing weeks in share price performance. Hopefully, I've eased some of these perceived concerns as clearly we've been quite busy and the results and outlook are quite bright. But there's certainly a lot more to discuss, including our multi-year outlook, and that's why we are hosting our investor field day this afternoon. We look forward to sharing our vision in a forum that allows more time and interaction with each of you. Before I turn the call over to Taylor and Brad, let me touch on a service disruption that occurred during this quarter. On Saturday, August 21st, most of our merchants experienced a service disruption due to a platform outage at one of the industry back-owned pieces. While this outage was caused by our vendor, we took swift, decisive action, including reimbursing those impacted merchants for lost revenue. The financial impact from the TSIS outage on our results for the quarter was approximately $25 million, of which approximately $22 million was recorded as contra revenue. Brad will review the financial impact from the TSIS outage in more detail later during this call, but we strongly believe this was the right action to take for our merchants since the feedback we have received from them has been overwhelmingly positive. and we still are very confident on our recovery through the appropriate parties. And lastly, I simply want to thank you all for those that were inspired to donate to St. Jude Children's Research Hospital. As you know, we set lofty goals, and this was one of our loftiest yet. Thanks to you, the Inspiration4 event raised over $250 million for a very worthwhile cause, and I can assure you The St. Jude children, their parents, and their extended families are very grateful for your generosity. And with that, let me turn the call over to our Chief Strategy Officer, Taylor Wauber, who will highlight volume trends and thoughts on trends heading into the year end. Taylor?