This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk09: Good morning and welcome to today's shift for fourth quarter 2021 earnings call. My name is Bailey and I will be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to Tom McClellan, head of investor relations. Tom, please go ahead.
spk13: Thank you, operator, and good morning, everyone. I'd like to welcome everyone to SHIP4's earnings conference call for the year ended December 31st, 2021. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements within the meeting 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 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, including Finero and the Giving Block, and anticipated financial performance, including a financial outlook for the year ended December 31st, 2022. and the anticipated impact of each of the FINERO and the giving block acquisitions on our adjusted EBITDA and end-to-end payment volume for the year ended December 31, 2023. 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 in reply by the forward-looking statements factors discussed in the risk factors section of our annual report on Form 10-K for the year ended December 31st, 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 their views to change. In addition, we may also reference certain non-GAAP measures on this call, including adjusted EBITDA, pre-cash flow, and adjusted pre-cash flow, 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.ship4.com. And with that, let me turn the call over to our Chief Executive Officer, Jared Isaac.
spk04: Thank you, Tom, and good morning to everyone joining us. We obviously have quite a bit to talk about today. But first, I'd be remiss if I didn't bring up the conflict that's ongoing in Ukraine right now and just say that all of our all of our thoughts are with the Ukrainian people during these really tragic times. So this morning, Schiphol reported another quarter of strong results highlighted by N10 volume of 13.4 billion. which is 97% higher than a year ago and nearly 100% higher than the same period in 2019. We've met or exceeded three of our four guidance metrics and built off the momentum we have in our high growth core, as well as making investments in new verticals, including two acquisitions that we announced today, all of which I'm looking forward to discussing further. It's important to call out that our full year 2021 volumes ended up coming in about 10 billion higher than the initial guidance introduced about a year ago at this time. Our high growth core continues to drive market share gains, evidenced by the fact that during the fourth quarter, we grew volumes four times faster than Visa and MasterCard. We achieved this industry-leading organic volume growth despite our end markets, like restaurants and hotels, continuing to be impacted by COVID. This includes delays in the return of business and international travel, and especially the Omicron variant, which dampened results in the fourth quarter. Our high-growth core, which represents domestic merchants in the restaurant, specialty retail, and hospitality industries, continues to represent the primary driver of our growth. As you all know, our gateway and 425 unique software integrations provides us with a captive backlog of volume, something we intend to attack even more aggressively this year. as well as a right to win across a very large addressable market. As I mentioned in my letter, merchants are not switching from one inadequate payment solution to another. We're growing volume at an accelerated pace, and it means merchants are switching to shift four because we are solving pain points. We're adding value, and we're delivering a superior experience than the previous provider. On that note, we're also excited about the early successes we're seeing with our new restaurant point of sale offering called SkyFab POS. Despite the product still being in beta, we are already seeing material take up with new merchants looking for a technologically robust cloud-based POS offering that provides a full suite of functionality and add-on modules that help differentiate us in the mid to higher end of the market we serve. While our high growth core drove our 2021 performance, and we expect will remain the primary contributor of growth well into the future, we do expect our new markets and verticals will start to contribute more meaningfully in the ensuing years. especially in light of the two acquisitions we announced today, both of which I'll elaborate on in a moment. As mentioned, COVID was a drag on our performance throughout all of 2021 and Omicron, especially in the fourth quarter. So I'd like to share some of our thoughts on how the pandemic informs our expectations for 2022. Throughout the fourth quarter, we do not see the return of business and international travel that we were expecting, and we believe Omicron had the most pronounced impact in the latter part of December. a headwind that continued through January. Despite the headwind, December was shaping up to actually be a record month. During the first few weeks of December, we were achieving our highest levels of weekly volumes in our firm's history. We went from hitting record weekly volume levels in early to mid-December to a sharp decline in late December, which bled into the month of January and actually into early February. While it remains difficult to attribute week-to-week volume movements between Omicron and other possible factors, it's reasonable to conclude that Omicron was the material reason the historic weekly volume levels we witnessed in early part of December did not sustain themselves throughout the entire month. Regardless, Omicron was definitely a headwind, but it was short-lived, as our weekly volumes have returned to over 1 billion a week in the first part of February and most recently set new weekly and daily volume records. The bottom line is that we view the pandemic impact for 2022 to be contained to the first quarter, and there is significant pent-up demand as mandate fees and consumers and businesses resume more normal travel patterns. Our weekly volumes in February are accelerating, and we are now achieving again new company records. Now, similar to our November analyst day or investor day, I'm going to structure my remaining comments into three areas. One, our high growth score and why we believe that our impressive growth is sustainable. Two, our new markets and verticals, specifically an update on our progress since announcing several major wins, including SpaceX Starlink, St. Jude Children's Research Hospital, and Allegiant Airlines just a few months ago. And three, the strategic rationale behind the acquisitions we announced today. Both acquisitions are foundational transactions fulfilling our commitment to globalize our existing business while providing new technology capabilities aligned with our previously communicated strategic priorities. So let's start with the high growth core. Over the past four years, we've delivered a CAGR volume growth of 37%, more than three times the industry with our restaurant and hotel volumes growing even faster over the period at 51% and 140% respectively. What's changed since our analyst day in November is continued stability in our average spreads, despite our volume mix shifting to larger merchants. Our success in signing larger merchants continued during the quarter, with signing of several new hotels, including the Palms Casino, Ogilvy Resorts, and Halukalani in Hawaii, as well as the country's largest self-storage operator, Storage Mart, and one of the largest airline concessionaires, Concessions International. All of these were gateway conversions, which means we received a three to four X gross profit lift from these merchants converting from gateway only to our full end-to-end acquiring solution. As mentioned previously, merchants do not switch to comparable or inferior technology solutions in 2022. They're switching to a shift-forward end-to-end offering because we are solving pain points, we're adding value, and delivering a more cohesive commerce experience than whoever they were using previously. On the above note, we do believe the time is right to reevaluate the free flexibility we currently afford our gateway-only customers. Our basic premise on gateway-only customers is that while we provide the majority of value, and all the technical capabilities in a gateway environment, the majority of transaction economics still accrue to third-party acquirers, providing functions we could easily do ourselves and should do. It's worth noting that few fast-growing fintech providers still offer an acquirer optionality through a gateway, and instead, they all endeavor to deliver a better and lower-cost experience through an end-to-end offering. We believe there are additional measures, incentives, and capabilities we can offer our very large population of gateway-only customers that will accelerate the migration to our end-to-end platform faster and free up organizational resources to focus on our many other strategic priorities. So our objective is to begin the process of starting these conversations that we believe will lead to an acceleration in the current pace, which is already very fast, of conversions from our gateway to our end-to-end platform, hopefully with tangible results beginning early next year. Outside the gateway opportunity, we continue to see an incredible opportunity in mid-market table service restaurants, with our overall restaurant volumes witnessing 51% CAGR growth since 2017. We are clearly very competitive in the marketplace and will continue to remain a market share gainer with our new SkyTap POS offering that we plan to release from beta and formally launch in the second quarter this year. We currently have approximately 3,000 restaurants already operating on our SkyTap POS solution, which represents 162% growth in merchants on the platform in December versus the same period a year ago. Moving to some of the new verticals we've entered into since the IPO. In stadiums and arenas, not only did we announce several new wins, but we extended our mobile fan-first experience to ticketing via an integration with SeatGeek. Ticketing can represent over five times the average volumes versus in-venue purchases and also comes with higher spreads. Our stadium business is evidence of how we successfully identified a new vertical, identified the best technology, and then go to market with a differentiated offering. Our wins this quarter include Audi Field in Washington, D.C., home of the professional soccer team, D.C. United, where we are powering all the in-game commerce, from mobile food and beverage to concessions to merchandising purchases, including an integration with Fanatics, who operates the Audi Field Club shop. At Children's Mercy Park in Kansas City, we partnered with Sporting KC to offer fans an integrated ticketing experience via an integration with the ticketing platform, SeatGeek. Supporting our growth in the sports and entertainment vertical, we serve as presenting partner for player signings, including shift board being featured on social media graphics and posts, and in-stadium branding. With all of our recent wins in this sport, I would be remiss if I didn't say that football is life. Our commerce technology is now powering payments in over 100 venues across the United States, and we can confidently say that venue next acquisition has exceeded all of our expectations. As we've mentioned before, we believe Shift4 has a unique right to win in the rapidly growing online gaming vertical. leveraging our expertise in business intelligence products from in-venue gaming and bringing it to the mobile world. I'm pleased to report that we now have over 10 gaming licenses, and we have begun the first phase of transaction processing for BetMGM, with transactions expected additionally from Siteline just later this month. Furthermore, we expect our growth in this vertical to only accelerate as a result of our two acquisitions that I'll touch on shortly. Moving on to the new verticals and signature wins that we announced at our recent Investor Day. St. Jude Children's Research Hospital, our first marquee win in the nonprofit and healthcare verticals, has begun processing their first end-to-end transactions already in January of this year, and we've completed several key software integrations. We will continue to take on more volume through phases over the next several quarters. And I'll have more to say on the nonprofit sector in a little bit, given one of the acquisitions we have announced is the crypto donation platform the Giving Block, which actually counts St. Jude as one of their customers. For Allegiant Airlines, we expect to begin processing our first airline transactions by June of this year, as integrations are presently underway. And finally, on SpaceX Starlink, we've already begun processing transactions and expect the first phase of their volume to cut over later this month. We are also anticipating the installation of SkyTap POS in their Starbase restaurant locations later this week. Finero, which I will discuss shortly, is especially relevant for our global expansion ambitions and supporting the SpaceX Starlink expansion across the world. All three of these signature wins represent entries into exciting new verticals like travel and leisure, healthcare, and nonprofits and sexy tech. When combined with our recent acquisitions that will expand Shift4's reach across the world, they represent a material TAM expansion. Much like Elysian Stadium from a year or so ago, I believe that we will look back on these three wins over time as a critical milestone in the growth of our company. So moving to the big news, we did announce two acquisitions today, The Giving Block and Finaro for a total upfront consideration of $579 million, comprised of an aggregate of $213 million in cash and the balance in equity. First, let's talk about The Giving Block. We closed on this acquisition yesterday for $54 million in total consideration, with an earn out of up to 246 million based on hitting certain revenue targets. The giving block is a crypto donation platform, an area of increasing interest for nonprofits. Crypto donors are seeking to donate their crypto to a charity and nonprofits are seeking access to this new category of donors, especially given the average size of a crypto donation is 10,500 versus around $300 for traditional donations. The addition of this crypto donation capability, coupled with the software integrations and charitable giving that we are building with St. Jude, give us a powerful go-to-market offering in the nonprofit space. Crypto represents a fraction of the donations received today by charity, but it's growing more quickly than the mid-single-digit growth of traditional charitable donations. We intend to bundle the crypto capabilities with our end-to-end processing to go after the $45 billion-plus of total donation volume that's already embedded within the GivingBlock's 1,300 contracted nonprofit customers. Additionally, through a bundled crypto plus traditional card offering, we now have a significant edge in pursuing what is a $450 billion charitable giving market across the world. The GivingBlock team includes incredibly talented crypto and blockchain talent that will establish the Shift4 Crypto Innovation Center with the aim to expand crypto acceptance and settlement capabilities across the organization. Finally, in connection with this transaction, we will be announcing shortly a campaign to challenge the crypto community to donate some of their crypto to their charity of choice through the GivingBlock platform. I will personally match dollar for dollar each donation with the aim of achieving the largest crypto funding campaign in history. We think this is an excellent way to raise awareness for both sides of the Giving Blocks network, connecting more donors with nonprofits in our crypto donation marketplace. We are also entering into an agreement to acquire a pan-European full-service e-commerce acquirer called Finero with licenses to support UK, Europe, Hong Kong, and Japan. Finaro is both a modern architected e-commerce and card present payment platform, as well as a bank with FX card issuing and capital offering capabilities. This transaction is not scheduled to close until regulatory approvals are received, which is likely later this year. We are acquiring Finaro for two reasons. First, it provides the foundational technology capabilities needed to support SpaceX Starlink and their global base of subscribers. Second, Finaro's card-not-present and international capabilities will meaningfully expand the reach of our existing products and software integrations. After extensive due diligence, Finaro's technology platform is best in class, particularly their AI-powered risk and fraud management capabilities, 170-plus alternative payment methods, multi-currency support, and the ability to maximize authorization rates through intelligent routing. This will serve well as the technology foundation for our global expansion strategies We're going to take SkyTab POS to restaurants all across Europe. We're going to take our Venue Next technology to stadiums and theme parks all across Europe. And we're going to take our Shift4Shop platform and all of our 425 integrations, including all those that power our hotel and hospitality integration library, coupled with a real right to win, and we're going to grow payment volume all over the world. We are purchasing Finaro for $525 million in upfront consideration and up to a $50 million earn out. We anticipate that Finaro will contribute over 15 billion in end-to-end volume and 30 million in adjusted EBITDA in 2023. We also believe Finaro, independent of all the synergies we have to offer, is a 30% net revenue grower with high adjusted EBITDA margins that we expect to continue. It's worth pointing out that our diligence has revealed a few digital content merchants representing a negligible amount of volume that are not compatible with our corporate values and will be phased out shortly after closing. These two acquisitions, we believe, are accreted to our long-term growth. We retain significant firepower with almost $1 billion in cash and are excited to continue our organic and inorganic investments to support our strategic plan. I would like to address our full-year reported adjusted EBITDA performance for the year, which came in slightly below our guidance range. Quite a bit of this was attributable to Omicron and the lack of business and international travel previously contemplated in our plan for the full year. But there were some continued growth investments we are making in the business as we enter new markets and prepare to go global. This should be consistent with our investor day where we emphasized our desire to expand margins in our high growth core while also investing in our new verticals, which are performing well and largely the reason for our outperformance on gross revenue-less network fees, but still early in the development of their margin profile. We will continue to balance profitability and growth, and our guidance calls for mid-30s margins for the full year in 2022. We also believe our guidance, which Brad will cover in a few minutes, is consistent with our medium-term outlook despite starting the year at a disadvantage due to the impact of Omicron. I'd also like to emphasize the organizational transformation that is taking place over the shift four way that was just implemented a few months ago. We've begun embracing a vision, a mission, values, and philosophies, many of which were influenced through my exposure to SpaceX. One component of this initiative, the dramatic expansion of our RSU program to include every employee in the company regardless of grade. This ensures our workforce has the right alignment promotes retention, and helps us recruit the talent we need to deliver on our ambitious objectives. It's also worth pointing out that I'm personally funding 50% of the stock being allocated to this program, which expands equity ownership to all employees. It also includes a five-year vesting that is back half-weighted to promote the right long-term commitment to the company. Before I turn the call over to Taylor, I want to highlight the news surrounding my personal participation in the privately funded space program called Polaris. I feel fortunate to be able to partner with SpaceX on this endeavor, which will further advance human spaceflight, conduct important scientific research, while also raising awareness for causes here on planet Earth. Similar to Inspiration4, I do believe this will likely result in good things for Shift4, in the same way my prior mission raised awareness for St. Jude and resulted in both St. Jude and SpaceX Starlink as Shift4 customers. As Shift4's largest shareholder, my interest is fully aligned with building long-term shareholder value for this company, which is to say I'm fully engaged and will remain fully focused as we take this company global and integrate these two exciting acquisitions. And with that, let me turn the call over to our President and Chief Strategy Officer, Taylor Lovren. Taylor.
spk03: Thanks, Jared, and good morning, everyone. Before touching on the acquisitions, I'd like to provide some additional color on the seasonal spending patterns we've seen over the fourth quarter and into the first. While we raised our guidance several times during 2021 due to outperformance, Our decision to raise our volume guidance was based on a slow but linear recovery of travel and leisure spending, as well as a more modest recovery in corporate and international travel. If not for this continued delay in business travel, we feel strongly that our full year volumes would have exceeded our expectations. Nonetheless, we delivered impressive 92% end-to-end volume growth and corresponding 81% gross revenue growth for the full year 21, which compares very favorably to our peers. our expectations for full year 22 remain cautiously optimistic. If you recall, we experienced a similar trend last year, whereby the second wave of COVID depressed volumes from Thanksgiving to Valentine's Day. That week, while our record at the time represented only 1.4% of our total volume for the year, as growth, recovery, and warmer weather caused rapid volume growth across our portfolio in subsequent months. Following that same logic, we're quite pleased with our positioning as we exit February with more record weeks. In fact, we had our first $200 million volume day just yesterday. To help you conceptualize how we construct our full year guidance, we included a volume bridge in our press release this morning detailing the main drivers of our next year's volume growth. In a typical year, the majority of volume growth is actually derived from merchants boarded the prior year, followed by new merchants and gateway conversions boarded during the year. For example, in 21, We estimate approximately $14 billion of our volume growth was derived from merchants boarded in 2020 and 2021, with the remaining growth from the pandemic recovery and contribution from merchants boarded prior to 2020. For 2022, we estimate we will have at least $16 billion of volume growth from merchants boarded last year, coupled with new merchants to be boarded during 2022. All of this pertains to just our high growth core. We deem this $16 billion as considerable conservative as it assumes 14% growth over 2021 production, despite exiting the year with record levels of active merchants. We also pushed into new areas such as stadiums, gaming, and new verticals such as nonprofits and SpaceX Starlink. Combined, we envision these new markets and verticals will contribute a conservative $3 billion of our volume in 2022, resulting in us arriving at the midpoint of our guidance range of $69 billion. We believe there is upside to our guidance from pandemic recovery, volumes exceeding our forecast, and the pace of gateway conversions show how fast we can scale these new markets we entered recently. On the other hand, our guidance is also informed by the realities that inflation and occupancy impacts our end clients, notably restaurants and hotels, which have been struggling to meet capacity demand due to labor issues. Regardless, our 2022 volume bridge hopefully provides some help as you think about the year. Turning to acquisitions, I want to talk through some of the terms of both transactions and how the combination of both sets of capabilities will provide unique differentiation to the markets we serve. The giving block is very exciting given the crypto donation space is relatively young, growing extremely fast, garners high spreads, and contains material cross-sell opportunities to offer a bundled end-to-end processing capability to nonprofits who are seeking to consolidate both their crypto and card-based donations with one platform. We were already excited about targeting the nonprofit vertical with the marquee win of St. Jude Children's Research Hospital and now are supercharging our right to win with the addition of crypto donations. There is also an interesting consumer play to this transaction given that the giving blocks relationship with crypto donors providing interesting conversations across all of our merchants who could benefit from these access to crypto holders. We're acquiring a talented team of technology individuals and intend to work with the founders of The Giving Block to create a crypto innovation center to become thought leaders in this emerging space that specifically enhances Shift4's acceptance and settlement capabilities across the organization. We structured this deal with a significant earn out. The upfront consideration is $54 million structured 75% in stock and 25% in cash. We are acquiring the company in its early years in a growing sector with expectations for considerable growth as crypto becomes mainstream. To this end, we structured the deal to have roughly 80% of the total consideration tied to future revenue growth with a total maximum earn out of $246 million. In 2022, we believe the revenue contribution to be modest and the EBITDA contribution to be neutral as we embark on our organic growth and cross-sell objectives. In 2023, we expect at least $5 million of adjusted EBITDA contribution, which is achievable through even a modest combination of crypto donation growth and payments cross-sell. And as Jared will always yell at me for, it's probably way too conservative. Turning to Finero, we entered an agreement to acquire Finero for $525 million in upfront consideration and $50 million in earn-out tied to integration objectives. The upfront consideration is structured approximately 62% stock and 38% cash, and given the scarcity value of these assets in the marketplace, our assessment of the banking and technology platform, the talent of the individuals who will be joining us, and the synergies we believe this combination will create, we view the multiple we paid as quite reasonable. We have confidence the combination of Shift4 and Finero will provide a winning combination needed to service Starlink and other multinational e-commerce merchants. It's important to note that over 95% of Finero's transactions are e-commerce and over 80% cross-border. The closing timetable is a bit longer in light of the fact that Finero is a bank, And we anticipate closing later in 22 after receiving regulatory approvals. Finero is expected to contribute over $15 billion in end-to-end volume in 2023 and over $30 million in adjusted EBITDA. This was a business historically growing adjusted EBITDA at over 50% given its capabilities and exposure to high growth verticals. We believe that growth is sustainable and can be accelerated by our business combination. As with any business combination, we believe strongly in aligning both sides around a common set of objectives. Each transaction not only includes a substantial portion of equity, but also mandates a holding period that is consistent with the long-term value we intend to create for shareholders. We have demonstrated that we are disciplined allocators of capital and have a track record of delivering an attractive return on our acquisitions from the two gateways that remain a cornerstone of our growth today to more recent acquisitions like venue next, which have resulted in continued cadence of new stadium wins. With that, I'll turn the call over to Brad.
spk08: Thanks, Taylor. So now I'm going to dive into the numbers for the quarter. So Q4 revenues, gross revenues were $399 million, up nearly 90% for the same quarter last year. Gross revenue plus network fees was $147 million, an increase of 65% over last year. Year-over-year growth breaks down as the following, a 79% year-over-year increase in net processing revenues driven by continued merchant adoption of our end-to-end solution, a 38% increase in our SaaS and other revenue stream driven by expansion into the stadium vertical and further penetration of our core restaurant and hospitality vertical, and finally, a 50% increase in our gateway revenue stream driven largely by a recovery in the hospitality sector over a COVID-depressed Q4 of 2020. Spreads for the quarter came in at 74 basis points, which is consistent with the spread we reported in Q3, and eight basis points lower than the same period last year. The mix of the book was largely stable between Q3 and Q4, with the only notable change related to a significant year-over-year increase from the recently boarded UPS stores during the holiday season. As we've talked about previously, the year-over-year spread decline is exclusively due to shifts in our mix, as our lodging vertical now represents approximately 19% of end-to-end volume, up from approximately 8% for the same period last year. It's worth noting that spreads in our restaurant and hotel verticals were up year-over-year 10% and 6% respectively. For the quarter, we reported adjusted EBITDA of $44 million, which is up 65% over the same quarter last year. These results represent a shortfall to our 2021 guidance by approximately $8 million due to the following three factors. First, as Jared mentioned previously, the rejuvenated impact of COVID in the fourth quarter temporarily challenged our restaurant segment and significantly set back the recovery in business and international travel. This negatively affected results by $3.9 million. Second, we consciously pulled forward $2.1 million of OPEX specifically targeted to accelerate the scale of our technology platform and provide upfront promotional support for the upcoming launch of SkyTab POS. Finally, we incurred $2 million of additional OPEX made up of a number of small items such as the timing of audit fees and some state-specific franchise taxes. Adjusted EBITDA margin for the quarter was 30%, which is flat to last year, and down from approximately 8 percentage points from Q3, due largely to the factors mentioned above, as well as some normal seasonal compression in Q4 margins that I'll discuss more later. With respect to capital transactions for the quarter, between October 1st and December 31st, we repurchased approximately 378,000 shares of common stock at an average price of $55.81 per share. Those shares are reflected as treasury stock on the balance sheet. Based on a number of discussions we've had with investors and analysts over the past several months, I'd like to start talking about our adjusted free cash flow. Our adjusted free cash flow is defined as free cash flow adjusted for the cash impact of the same items included in our reconciliation to adjusted EBITDA. For the full year 2021, adjusted free cash flow was $18 million. This represents a pass-through rate to adjusted EBITDA of 11%. More relevant, because of the depressed volume figures we experienced in Q1, our adjusted free cash flow in the back half of 2021 was $26.5 million. This represents an EBITDA conversion rate of 27%. A full reconciliation of free cash flow and adjusted free cash flow is available in the appendix of our earnings materials. So now looking on to 2022, I would like to provide the following for full year guidance. We expect end-to-end payment volume to range between $68 and $70 billion, and gross revenues to be between $1.9 and $2 billion. Gross revenue less network fees are expected to be between $675 and $705 million. And finally, we expect adjusted EBITDA to be between $240 and $250 million. This guidance implies a full-year margin of approximately 35%, up over 300 basis points from the 31.6%, Full year margin will report for 2021. A little more color on margin. So we told you at our investor day that our high growth core business has a margin profile approaching 40%. That trajectory is continuing into 2022. We also mentioned we are investing a portion of that margin back into our new markets and new verticals to support future growth opportunities. aggregation of our high growth core and our new growth opportunities brings our full year 2022 margin to the mid-30s, as I just mentioned. It's worth noting, however, that margins will fluctuate from quarter to quarter largely due to seasonality, with the first quarter margins typically representing the lowest point of the year. We expect margins to then expand as the year progresses before exiting the year in the mid to upper 30s. Lastly, I want to mention that our guidance does include the benefit of beginning the migration off the TSIS backend platform. The majority of that benefit is scheduled to be realized in the back half of the year in accordance with our merchant migration plan. For guidance on adjusted free cash flow conversion, we are projecting our cash conversion rate to adjusted EBITDA to fall between 35 and 40% for the full year. A few general comments I'd like to close with. It's worth reiterating that while Omicron Got 2022 off to a slow start. The management's confidence in our guidance is bolstered by the fact that by the end of February, we have once again returned to setting new weekly records for end-to-end payment volume. As a point of reference, our year-to-date volumes through February of this year have already totaled $8.2 billion. Also, we do believe this guidance is consistent with our medium-term outlook that we shared at our investor day at Allegiant Stadium in November. And finally, it's worth mentioning that the 2022 guidance that is provided does not include any significant contribution to the two acquisitions that Jared discussed earlier. By 2023, however, we do estimate that these transactions will contribute approximately $15 billion of end-to-end payment volume and at least $35 million of adjusted EBITDA. With that, I'm going to turn this back to the operator to facilitate questions.
spk09: Thank you. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. If you are using a speakerphone, please remember to pick up your handset before asking your question. The first question today comes from Darren Peller from Wolf Research. Darren, please go ahead. Your line is now open.
spk11: Thanks, guys. Congrats on these two acquisitions. Before we get into that, I just want to touch on the actual impact from Omicron. If you can provide us a little more detail in dollar terms on Q1, whether it's EDE volume or it's the revenue and EBITDA contribution that you saw it pull back in January and into February, and then maybe help us understand the exit run rate on weekly volume. Taylor, to your point on conservatism and the building bridge for 2022, I think a lot of investors coming in see those numbers as conservative also. We're just trying to figure out the magnitude of what kind of upside you could see from both the existing business you've already signed and obviously the new areas to grow. It looks like there's some real opportunity to beat and raise as the year goes on. Thanks.
spk03: Yeah, I'll start. That probably warrants a little bit of commentary from everyone. January was particularly depressed, you know, really throughout the entirety of the month. We saw a depression in kind of active merchant counts as well as volume. Now, interestingly, you know, a portion of that shortfall was actually made up in just the past two weeks here in February. So it does feel quite short-lived. I would say there wasn't, this is just kind of interesting, there wasn't a notable variance in the performance of kind of one subvertical or another. So like restaurants were significantly depressed as were hotels. As we think about the recovery in the year ahead, obviously restaurants have come a long way from where they were a year ago. I think we all know that, but hotels still have a substantial portion to go. And even at depressed levels, they represented roughly 20% of our end-to-end volume, if you recall. So I think there's a lot of room left to go in the hotel vertical specifically inside of the existing merchant base. I think there is some recovery only just started inside the restaurant vertical, although that tends to happen a lot more quickly than people can book trips and get on flights. The $200 million day that I referenced I think is anecdotal of kind of um, how we feel about things. Um, you know, Jared and I were commenting this morning that, you know, it was only, uh, it was only two years ago that, that we were celebrating our first hundred million dollar day right around the same time. So, um, we, we feel good. It does anecdotal of the experience we had last year where you had a pretty significant restrictions as a result of that second wave, largely lifting around Valentine's day. And if the weather got a little bit warmer, um, you know, people got out and spent at our merchant locations. I think that the unknown, and it's got, you know, pretty meaningful conservatism inside of it, is what does this do for stadiums? Because while you had some, you know, marquee sporting events that were filled up, you definitely didn't have kind of broad-based participation from the population in entertainment events across the country, and we had that many more venues signed up. So I'm particularly excited about that one. Brad, anything you want to add to that?
spk08: Yeah, I think you hit the subject. Darren, if you think about the impact in January, I do think it was kind of largely offset by February. So I think in terms of the quarter, it's going to likely wash itself out. But you're talking within a month of, call it a half a billion dollars of volume that's kind of shifting around. But what we've seen in February largely mitigated that chart that we provided in the earnings material.
spk11: OK. All right, guys. And then just quick follow-up, Jared. When we think about these deals that you're doing, whether it's Credorax or I forgot the new name, but either way, I mean, when you look at the two opportunities, obviously the growth of these things really should help supplement the international opportunities you were looking into. I know we've talked about Starlink. Can you just really hone in a little more on what that can do for your business when you think about how quickly you can actually leverage those abilities in Europe and other parts of the world now? versus what you've been able to do? Are you able to take some of the relationships you have in the U.S. and now leverage them internationally above and beyond things like Starlink and others? Thanks, guys.
spk04: Yeah, I mean, absolutely. So let's just start with the giving block because we already closed on it. I mean, if you think about it, we love that it's the nonprofit vertical because it plays to our strengths of multiple different types of software that's required to deliver, in the case of nonprofits, a donor experience. They don't have one donor management platform. They have like 40 or 50. So naturally, we're attracted to that because that's what we do really well in restaurants, hotels, stadiums is connect a lot of different software together to deliver a commerce experience. You know, we started with St. Jude Children's Research Hospital, which is what gave us exposure to all those pain points. And now we want to launch off of it. Having a signature partner like St. Jude is a great place to start. Having a technology solution that can solve real pain points across a $500 billion payment opportunity is even better. Nonprofits don't really know a lot about crypto. They just know they want to take it and they want to take those crypto funds and apply it to whatever challenges they're trying to address. They're giving blocks out for that. They create an awesome two-sided network, a marketplace where you know, crypto donors can find all the various nonprofits they want to support, which is 80% of the donation volume that's going through the platform. And then you've solved the pain point for nonprofit organizations that, again, didn't know how to, you know, receive these type of transactions. This is absolutely the solution that we needed to build off of the St. Jude momentum. I mean, we're going to be able to cross sell, you know, traditional card payments across you know, 45 billion plus of volume that already lives within the customer base today. And we do that well. So just think of that as a gateway conversion opportunity. And then it's a 500 billion market that we think we're going to do really well with it as well. So in any case, we couldn't be happier about that acquisition and the idea that this will bring crypto authorization and settlement capabilities across the organization. Now let's look internationally. I don't think it's been a secret. I mean, it's literally been one of the top questions that we've received from our shareholders since we went public is when are you going global? I mean, you look at our hotel customers, you have Hilton, Hyatt, Marriott, Mandarin Oriental. You look at our restaurants, they have chain locations all across the world, our specialty retail customers. And then we get into gaming. We have stadiums. There are stadiums all over the world. And you're like, why haven't you gone internationally yet? And the answer is we've been working on it. But I think once we signed SpaceX Starlink, which has a in its own right, you know, potentially a 50 billion plus payment opportunity over the years ahead. And they're going to be taking payments all over the world and they already are. I think that was the final motivation to to push us to completing this type of an acquisition. Now, to your point, the moment this closes, you're hitting the ground running with you're going after stadiums all across Europe with with Venue Next. you're going to put your SkyTab POS technology all across Europe. You're going after all of your hotel customers. So it's very empowering to all the integrations and products we have in the organization to extend your reach into new international markets.
spk11: That makes a lot of sense. Thanks, Jared.
spk09: Thank you, Darren. The next question today comes from Dan Perlin of RBC. Dan, please go ahead. Your line is now open.
spk02: Thanks. Good morning. And it's a lot to talk about great acquisitions here to expand this, Tam. But the question I wanted to go back on, Finaro, for a second, when we think about the Starlink relationship, and I know you had kind of the contractual obligations in the United States, is that similar as we think about the international opportunity? Or is that going to be more of a jump ball that you'll have to compete with Addy and understanding you're clearly coming at it from a position of strength?
spk04: Yeah, I mean, you know, thanks, Dan. I mean, I'm 100% confident. The agreement itself calls for all Starlink volume. The only obligation was the 120 days to convert domestic volume over, and that was because we possessed the capability at that time. I mean, to the extent permissible during the regulatory process, we're going to be doing integration so that we can be as ready to cut over the rest of the Starlink volume, which is going to leverage largely the same integrations work we've already done order to capture the first transactions that we're already doing for that for that organization um so that again as soon as like right as soon as approvals are complete and we can close on this we're going to cut over that volume so um i have no doubt we're going to power starlink transactions all across the world got it that's great and then uh just a follow-up on spread um
spk02: you know, they've actually remained quite a bit more stable than I think I would have thought. And you've alluded to the fact that some of these new opportunities that are facing you are potentially, you know, coming with higher spreads. So as we think about some of the years to come, you know, this year into next year, are we, should we be thinking that spreads are still going to be kind of degradating or is it possible that there's a lot more stability underpinning kind of all these new opportunities and cohorts that you're bringing on? Thank you.
spk08: Hey, Dan. This is Brad. I'll take that. I think you should still expect to see it. You know, mix is still going to change, you know, as you bring in some of the larger stadium merchants, et cetera. So we're still anticipating, you know, this, you know, call it three to five, you know, basis point decline on an annual basis. There's going to be some quarterly seasonality to that. But over time, I do think you're still going to see that spread gradually decline. And And like we said, it's completely due to mix. You know, I think our ability to maintain spreads in the vertical, you know, shows a lot of how sticky our solution is. And it also shows, you know, how we're continuing to kind of add feature functionality to those solutions that helps us maintain pricing so we don't fall into the, you know, the commoditized spread trap that you see in a lot of the traditional acquirers. But I would expect to still continue to see that decline over time exclusively related to mix.
spk03: You know, one interesting anecdote, Dan, this is Taylor, is if you think about kind of our continued march into bigger and better world-class merchants, The Giving Block has some nice kind of data points inside of it, right? They support about 1,300 charities who collectively do $45 billion in total donation volume. You know, you layer that against our book, and those merchants are all significantly more you know, larger than the average inside of our book. So to Brad's point, as we continue to press, we think we've chosen spots where our product offering is very differentiated. We can command a premium spread above peers, and we can maintain that spread over time. But just, you know, the fact that we keep winning in these larger merchant categories gives that pause to say, you know, at the aggregate level, expect a little bit of degradation.
spk02: Yep. High-quality problem. Excellent. Thank you, guys. Congratulations on the acquisitions.
spk09: Thank you. Thank you. The next question today comes from Tim Chiodo from Credit Suisse. Tim, please go ahead. Your line is now open.
spk06: Great. Thank you. Good morning, everyone. Just wanted to touch on the bridge that you provided on slide 14. That's really helpful to get to the 2022 volume guide. There's a nice component there from the new wins and gateway conversions during the prepared remarks. You mentioned some actions that you might take around accelerating gateway conversion for next year. So I'm assuming it's safe to say that next year's algorithm might include a slightly greater portion of gateway conversions. And I was just hoping you could put a little bit more context around essentially those actions that you might take and the mechanics behind accelerating gateway conversion, what that looks like in real life.
spk04: Yeah, for sure. Thanks, Kim. I mean, first, it's important to reinforce that, you know, the strategy has been working incredibly well now for, you know, close to five years, where at least with respect to our high growth core, 50% of our new customer wins, our customer wins come from just winning in the addressable market, leveraging our integration. And then the other 50% come from customers that are already on our gateway, that we're providing all of the technology and value to encryption, you know, the tokenization, the business intelligent product, and then we're outputting that volume to, you know, what is largely the kind of the legacy acquirer community and not really being rewarded for the value that we're providing. Now, we've had a carrot first approach, you know, for the better part of five years. And as a result, again, 50% of our production comes from customers who move from our gateway product to our end-to-end platform. And as a result, you get a pretty sizable list, as you know, in annual gross profit contribution. We've also been saying the entire time that as a public company that we don't need to be a gateway forever. If you look at like, again, some of the, you know, some of the most attractive FinTech players out there, they don't offer a gateway solution, only offer an end to end solution. So we have to think about, you know, the amount of resources that we have in the organization that are upkeeping connections to who are essentially our competitors. Every time there's a new device certified, every time there's a new security protocol, So I guess what we're communicating is the carrot-first approach that we're taking eventually has to transition to something else. One way or the other, we need to capture the majority of the payment economics for powering those transactions. So we could either do that by just being very well rewarded for the gateway service that we're providing, or they can migrate over to our end-to-end platforms. And I think what we're saying is that the planning for some of those measures is underway in 2022. And we expect it just to accelerate what is already very good trends of customers migrating to our end-to-end platform probably closer to the end of this year and then going into 2023.
spk06: Excellent. Thank you, Jared. I really appreciate that context on the gateway conversion. My brief follow-up is on the Processing coming in-house. This is more for Brad. Is there an updated estimate on what the gross margin benefit might be in terms of the basis points we might see in terms of the lift related to that move and when we should start to see that really phase in and start to impact gross margins?
spk08: Yeah. Hey, Tim. This is Brad. So our estimate on that is around 150 basis points in aggregate on a full year basis. But because of the way we're migrating our merchant base, I think you'll see probably half of that. starting in the, you know, call it May, June, July time frame.
spk06: Excellent. Thank you both.
spk09: Sure. Thank you, Tim. The next question today comes from Jason Kupferberg from Bank of America. Please go ahead, Jason. Your line is now open.
spk05: Thanks. Good morning, guys. I appreciate the year-to-date volume number through February. But we're just hoping you could maybe give us a little bit more detail on your Q1, your full Q1 expectations for volume, for revenue, for adjusted EBITDA, just to make sure we get the models into the right place. And then maybe a little bit more just on quarterly cadence of growth. I know the comps are going to get progressively tougher beyond the first quarter. Thanks.
spk08: Hey, Jason. This is Brad. I'll take that. So we're not explicitly guiding the Q1, but we did want to, to your point, we wanted to give some context for the year-to-date volume number. There's a couple of things, to your point, trying to calibrate Q1 model that you should expect, and we tried to mention them in my script. You will see some volume acceleration as you get into March. That's a normal seasonal pattern for us. you know, as the weather starts to improve and travel starts picking up with spring break specifically. But what we wanted to make sure we were clear of also is the Q1 margins are typically the lowest margins of the year, you know, anywhere between three to four to maybe 500 basis points lower than what you would see in Q2 and Q3 just because of that seasonality factor. So while we're not, you know, explicitly kind of trying to guide the Q1, we hopefully gave enough data points that you guys can start to calibrate better.
spk03: You know, one thing, just because this is the most interesting quarter for us, it probably helped you a little bit. We talked about that $8.2 billion in volume that we've seen in the first two months of the quarter. A little bit more than half of that was February. So that should jive with this concept of being slow in January as a result of Omicron. And then, you know, quite frankly, a really nice finish to the month of February. March typically has a pretty significant step function up off of February, if you recall from prior years. I don't think we would doubt that's likely to occur again, although we are cautious on spread and margin just because of the way T1 typically manifests itself vis-a-vis the others.
spk04: Yeah, I guess one last thing I would put into this is I don't know if anyone actually recalls what our updates were like in February of 21, but we basically were communicating that from Valentine's Day weekend through February, we were setting new weekly volume records every week. So now we've already said in February that we saw our first day, a daily record of over 200 million in volume. That's nearly double the highest volume day from last year in the same month.
spk05: Justin Capposian, Okay yeah that's all good car and then just to follow up on the volume bridge chart that I wanted to ask about just as we think about this 46 to 50%. Justin Capposian, guide for 2022 and I know you talked about 50% plus kegger at the at the analyst day, but it does sound like there's some elements of potential conservatism here, so I was wondering, as we look at those pieces of the bridge. where some of that conservatism might be most likely to manifest itself based on what you guys know today?
spk03: So I think we all have areas where we think we're probably being, you know, conservative. Mine in particular is that contribution of new markets. You see that $3 billion number. If you think about some of the marquee wins that we announced, you know, it doesn't take a lot from any one of those single names to get you most of the way there. I think the one thing that we're just slightly cautious about is just, you know, activation of those marquee merchants throughout the year. But any one of them, you know, in good progress and it could accelerate you. I mean, you know, we don't like to set immediate expectations around acquisitions because we really like to focus on getting the integration right and go to market perfect. But that $45 billion of donation volume across acquisitions, across the Giving Blocks charity base is something that I know our head of business development is laser focused on and they were talking about intensely last night at our closing dinner. So I think there's a bunch of areas inside of it. I talked about the return of hotel travel being something that could lift us meaningfully. But my particular favorite is this contribution of new markets, although I do expect it's a second half contribution more so than a first half.
spk04: Just to pile on to that point, probably a quarter or two ago, I guess it was last quarter since we announced St. Jude, the question came up of how big we see gaming contributing to our volume going into the years ahead. of which we've said we believe we're as well-positioned as anyone to win more than our fair share on wagering, especially considering our in-venue casino presence. But I also said that I anticipate nonprofits being far bigger. I mean, mobile wagering in the U.S. market could be mid- to high-single-digit billions in volume opportunity, which, again, we think we're pretty well-positioned to win. We now have a $45 billion cross-sell in nonprofits alone, just from the 1300 customers we already have by virtue of the giving block acquisition, along with the capability that virtually the entire nonprofit sector space is going to need to embrace at some point or another. If we are going to really surprise and shine this year, my bet would be is it's gonna come from the nonprofit vertical and maybe even directly from the wicked fast organic growth that you're seeing inside the giving block itself, even before the cross-sell synergies.
spk05: Okay. Very helpful, guys. Appreciate the commentary. Thanks.
spk09: Thank you, Jason. The next call today comes from David Toget of Evercore. Please go ahead. Your line is now open.
spk12: Thank you. Good morning. With 3,000 customers now on SkyTab POS, what are your expectations for the uptake of this product when it comes out of beta in the second quarter, and when should we expect to see related services like capital and payroll potentially added?
spk04: Well, let me just start, and thanks, David, for the question. Let me just start with expectations. I mean, our expectations are that we are going to like replace virtually every one of the existing POS customers that we have over a multi-year period from their Windows-based point-of-sale system into Skytap POS. That's going to deliver more capabilities, functionality, a ton of operational efficiencies for the organization, but it's also going to provide a significant SaaS lift because as we mentioned during the investor day, the majority of our massive base of restaurant customers are not paying really any or minimal SaaS contribution. So I want to be clear, like just existing within the company today, there is such a huge opportunity to help all of our existing customers migrate to the next generation of restaurant point of sale technology. So if you just think about the size of the base and the volume contribution we get from that base today, it's pretty sizable. You know, going forward. I think we have thousands of distribution partners that are very educated on the restaurant space and specifically the power of an integrated payments opportunity. They've really been dying for this kind of next generation cloud POS solution. So the best example of it is we've only released the product in beta to a handful of our more sophisticated dealers to learn from, and you can already see the contribution from it. In terms of capital offerings and payrolls, I would say by the summer of this year, you're going to have both of those capabilities included in Skytab POS offerings.
spk12: Understood. Thanks for that. Just as a quick follow-up, you know, as you bring Skytab POS International with the Finero acquisition, how will that product be positioned in the countries where Finero is currently doing business? For example, in its original incarnation, Skytab PLS was very unique in the sense that it had a lot of pay-at-table functionality, which tends to be a little bit more common in Europe than in the U.S., but this clearly is kind of a next-gen product. So how will it be positioned in some of the key countries where Finero is currently doing business?
spk04: Yeah.
spk07: First, I'd say there is a huge difference
spk04: bringing the device over to the table, you're completing a transaction, and all it's doing is maybe closing out the check in a semi-automated way. Actually having really full-blown ordering, reputation management, like our SkyTap product has had for years now and will only be better as part of SkyTap TOS, we think is rather unique to our product and will be a huge lift in operational efficiencies for these restaurants. I think the first country we're likely going to put this out in is going to be in Lithuania. As a reminder, that is a home for a research and development operation for Schiphor. We've had that facility for about seven years now. And they're some of our most . So the idea will probably deploy them in Europe in their backyard first to gain experience and then expand quite quickly throughout Europe. You know, our chief technology officer, Mike Russo, and his chief development officer, Dan Drazen, Both came from Oracle four or five years ago. They have tons of expertise taking products that were originally designed to serve a U.S. market and deploy it in hospitality and F&B environments all across the world. So you can probably guess we've been ramping up all the various localization efforts that are needed on a country-by-country basis, fiscal for tax compliance. And now, obviously, through the Finero acquisition, we have the payment platform to drive those card present transactions across here.
spk12: Understood. Thanks very much.
spk09: Thank you, David. The next question today comes from Ashwin Savika from Citi. Ashwin, please go ahead. Your line is now open.
spk01: Hey, Jared, Taylor, Brad. Good to speak again. Hey, I just wanted to pick up on one of the comments you had which pertains to cross-selling. As you look at just hotels, for example, you have many of these large global chains and franchisees which are clients in the U.S. Could you maybe provide some color on ongoing conversations that you've had with them over time with regards to globalization and You know, the reason why they've historically not had a global solution is that because there just wasn't one or are there other factors to kind of look at?
spk04: Yeah, I mean, with respect to hotels specifically, there was no solution provider. So, you know, who Hilton, for example, would use in the U.S., which, you know, as I think we've mentioned previously, is split between us and Elevon. Once you get into Europe, that's another provider. It's probably a separate gateway. It's probably a separate acquirer. It might even be a separate tokenization supplier. It's different than who they use in the Middle East versus APAC. Right now, you're really only talking about Adyen as the only integrated payment platform that can come close to delivering a global solution. Even then, their integration library, which can be adequate for retail, certainly adequate for e-commerce, you know, would never be as extensive as needed to, you know, pursue the entirety of like the hospitality vertical, if you will. So there's always been tons of opportunity there. I can absolutely tell you through conversation with our hospitality customers that they want a single integrated payments provider across the world. It would make their life easier on business intelligence, on their rewards and loyalty products. So that will certainly be one of the paths, but I mean, the idea for us is we're going to hit the ground running, you know, immediately closing with ideally not just Starlink volume on a global level or at least across Europe, but we're going to, I think our stadium product is one where you'll probably expect to see a lot of announcements out of the gate. It's the category leader in the U.S., so international stadiums want the same capability, and we've already had a lot of conversations on that, so that's one where I would certainly expect a lot of it out of the gate. Our restaurant product, ship or shop for sure. And then I think, you know, there's no question we'll be using this entire regulatory approval period to get all our hospitality customers and make them aware of this, you know, this pending capability.
spk01: Understood. And just given the relatively long time for the regulatory approval process takes all of this year, I think, are there milestones that investors should be looking for with regards to that process? And I guess the add-on there is, can you guys do something along the way to kind of build capabilities that can then result in a quicker integration?
spk03: Yeah, this is Taylor. That's exactly the point, is that while the regulatory approval takes some time, It is pretty sequenced, so we can give you frequent updates on where things stand with regard to that. Obviously, the sooner the better because it is a fast-growing high-margin business, so we're going to get it done as quickly as practical. But interestingly, they're in the business of accepting cross-border e-commerce customers. and doing integrations much like Ship4. So a healthy portion of our diligence was actually spent on this concept of how would we mutually support a customer like Starlink. And we can do that on a commercial basis prior to the acquisition closing. So I would expect, you know, a first transaction, and quite frankly, the transaction is designed to motivate them towards this. A first transaction via a mutual customer like Starlink could potentially happen before that regulatory approval. Obviously, we've got to take the right steps, but we can support them mutually if we choose to.
spk01: Understood. Thank you, guys.
spk09: Thank you. Our final question today comes from James Falsett from Morgan Stanley. James, please go ahead. Your line is now open.
spk10: Morning, thanks a lot. I wanted to ask just a couple of follow-up questions, both around acquisitions and then the recent business. I guess on the recent business, I'll start there. With the Omicron and the slowdown it created for you, and particularly the end of the December quarter and beginning of this year, how did that impact your conversations with clients around conversions and upsell opportunities? Then my second question is, with the acquisitions, both sound like very attractive and that kind of thing. I'm wondering how we should think about that impacting both the potential for incremental investment into those areas, into those businesses to continue to drive them kind of beyond the... And I'm thinking about the investment potential beyond kind of your guidance period. And then also... When you look at new incremental acquisitions, are you feeling fairly sated right now and kind of being able to and prioritizing integrating these? Or can you still be on the lookout for new incremental acquisitions, particularly as valuations may be coming down? Thanks.
spk03: Taylor James Yeah, sure. This is Taylor James. I'll address that. So, we put a slide all the way in the back next to the share reconciliation or a table. That addresses kind of what the leverage ratios are likely to be. Now, important to contextualize, that is like the most conservative scenario you can imagine, which is full cash outlay for both of the transactions. And no, even a contribution, despite what we highlighted, we believe will be $35 million plus in 2023. And the transactions themselves generate growing EBITDA and cash flow. So we think these transactions give us really, really good positioning into these areas that we told investors we want to be in and we want to focus on. But it doesn't limit us. nearly as much as you might expect when you look at it through that lens. So we're going to continue to keep an eye out. I think the integration of Venero is a little bit larger just because it's a bigger organization and it's based outside the US, but we've got time to plan for that appropriately given the regulatory timeframe. The giving block is a small business and the way we structured the earn out, we want them to sprint at their objectives and bring one of our business development professionals alongside them as they have these great conversations with charities that are, you know, in many cases just reaching out to them because they want to be able to accept crypto donations in a seamless way. So I think we'll be able to achieve what we want from these objectives, from these acquisitions, excuse me, with a reasonable amount of dedication from our core team, a lot of contribution from these new teams that are joining us, and it doesn't really limit us from looking at other things. I think it's a little too soon to speculate. We just did two transactions over the past month, but it doesn't limit us financially.
spk07: Operator, why don't we just take one more call?
spk09: Okay, final question. Today comes from the line of John Davis at Raymond James. John Davis, please go ahead. Your line is now open.
spk14: Hey, guys. Two quick ones for me. Brad, you called out spreads on Apple's to Apple's basis being up, I think it was like 10% year over year. Obviously, those are holding really well considering UPS drove a lot of volume in 4Q. Also, international travel not coming back probably yet. I'm also guessing was a headwind. So just maybe some commentary on the ability to extract more value from your merchants and the success that you're having there on more of an apples-to-apples basis, kind of setting aside the mixed issue that you talked about.
spk08: Yeah, no, that's exactly right. So we did mention, you know, I was specific about hotels and restaurants. Restaurants are up 10% year-over-year. Hotels were up six. And it's largely driven by what I mentioned. You know, we've have the ability to continue to add products to our total offering, whether it's QR pay, whether it's pay at the table. It keeps our position from pricing very stable. We're not able to be displaced in the market because of an end-to-end solution that provides much more so than most of our competitors are going to. So what you're going to see is that kind of manifests itself in the stability of pricing across each of our individual segments. You're exactly right. I mean, something like a UPS bill is certainly going to come in at a lower spread, and we'll see some periodic impacts of those things. But across the whole portfolio, we've seen very stable, if not increasing, spread across all of our verticals. And that's a trend we expect to see going forward as we continue to kind of add more capabilities and more feature functionality over time. You will see, like I mentioned, I want to make sure we're also clear about this aggregate spread decline over time to student base. It's a good expectation if you guys are building your models to still incorporate that. But within the segment, you know, those additional products and feature capabilities give us a lot of price to give.
spk04: Yeah, I would also layer on to just say that, you know, car type mix at these locations matters as well. You know, last year when there was so much, you know, stimulus getting loaded onto basically prepaid debit cards, It actually had a, you know, kind of a surprising impact on pulling down spreads in Q1 of 2021. As the year has gone by, there's less of that stimulus. You're seeing kind of a return to some normal card mix, which is also beneficial from spread as, you know, some, you know, corporate or signature reward cards carry with it more favorable pricing than what is maybe some of the most thin price transactions, which would be debit. There was considerably more of that probably last year than especially earlier last year than we've been seeing lately.
spk14: Okay, thanks. And then one quick follow-up, Brad, 35% to 40% free cash flow conversion is a percentage of EBITDA. Is that the right way to think about going forward, or is there more room for that to improve as we go into 23 and beyond?
spk08: No, I think there's some expansion in that. I think that's a solid number for 2022, but I would look for that number to creep up over time. Okay, appreciate it.
spk14: Thanks, guys.
spk09: Thank you, John. That concludes today's question and answer session. I would now like to pass the conference back over to Jared Isaacman, CEO, for closing remarks. Jared, please go ahead.
spk04: Thank you very much for joining us today. We know we had an awful lot to cover. Quite a bit took place, for sure, in the fourth quarter. But hopefully after going through everything, you know, it remains clear, you know, we're growing incredibly fast across all of our core verticals, as well as all the new ones that we've expanded into and we've reinforced that. with two acquisitions that are going to just further our right to win in some of these verticals and expand our reach globally. So a lot going on. I would say, really, speaking for all of management right now, we've probably never been more enthusiastic about the opportunities that are ahead and appreciate all the support. Thank you.
spk09: That concludes today's shift for fourth quarter 2021 earnings call. Thank you for your participation. You may now disconnect your lines
Disclaimer