Shift4 Payments, Inc.

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.

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.

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.