Shift4 Payments, Inc.

Call today are Jared Isaacman, Shift4's Chief Executive Officer, Taylor Lauber, our President and Chief Strategy Officer, and Nancy Disman, our Chief Financial Officer. This call is being webcast on the Investor Relations section of our website, which can be found at investors.shift4.com. Today's call is also being simulcast on Twitter Spaces, which can be accessed through our corporate Twitter account at Shift4. Our quarterly shareholder letter, quarterly financial results, and other materials related to our quarterly results have all been posted to our IR website. Our call and earnings materials today include forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as the result of certain risks, uncertainties, and many important factors. Additional information concerning those factors is available in our most recent reports on forms 10-K and 10-Q, which you can find on the SEC's website and the investor relations section of our corporate website. For any non-GAAP financial information discussed on this call, the related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me turn the call over to Jared. Jared?

Hey, thanks, Tom. Good morning, everyone. So we are pleased with our second quarter results, including how we're positioned heading into the back half of the year. So for the quarter, we posted 59% end-to-end volume growth driven by continued strength from our core of restaurants, hotels, specialty retail, along with an increasing contribution from our new verticals, especially in sports entertainment, ticketing, and our growing base of large enterprise accounts. In addition to Q2 performance, we're especially happy with the setup for the second half of the year, thanks to investments that began years ago, including international expansion along with July trends. To this end, we're raising our full-year guidance across all our KPIs. So we feel very good about our year-to-date financial performance and remain on pace to deliver full-year results in excess of what we assumed at the start of the year. We're generating margin expansion as we demonstrate the scalability of the business by maintaining a relatively flat headcount streamlining operations by taking out the parts, and adding incremental enterprise-related volume with no corresponding operational expenses. We're implementing new internal systems. We are leveraging AI and other productivity tools that will further streamline our operations and drive additional margins and free cash flow improvements in the years ahead. In addition to the profitability and free cash flow improvements, we continue to grow very quickly. So for the first half of 2023, we generated 30% growth in gross revenue, as well as gross revenue less network fees, in line with our medium-term targets established in the fall of 2021. The midpoint of our updated 2023 guidance implies that gross revenue less network fee revenue growth will average over 30% in the back half of the year as well, and especially in the fourth quarter, including strong visibility into enterprise and international opportunities. You know, as I've mentioned before, companies like Shift4 that are winning merchants and growing payment volume are doing so because they're adding value to the commerce experience well beyond just the credit card transactions. We add thousands of new customers every month. We're talking very busy restaurants, some of the nicest resorts in the country, demanding major league stadiums, theme parks. We've got a Fortune 500 customer this quarter and more. In fact, I believe the customer logos that we are featuring this quarter in our earnings material are the most impressive list yet and why we have so much visibility and confidence in the back half of the year. These customers didn't pick shift four because we were a penny less per transaction, but rather for how we enable a complete commerce experience and in turn provide more value to our merchants. So consistent with past earnings, I'm going to provide some additional color on our core, which as a reminder, consists mostly of restaurants and hotels, as well as our progress in new verticals and our global expansion initiatives. So starting with our core, our core remains the primary engine of our growth. And as you can see from the various logos in our quarterly shareholder letter, we continue to gain market share in restaurants and hospitality. And to be clear, we win a lot of net new customers. But we are also uniquely advantaged as we capture more wallet share by converting software and gateway merchants to our end-to-end offerings. For example, net new wins this quarter include the Fontainebleau Resort in Las Vegas that is scheduled to open this upcoming fall, as well as the Virgin Hotels in Chicago, Dallas, Nashville, the Langham Hotel on Fifth Avenue in New York City. We also captured more wallet share by moving gateway customers like Inktown Suite and Uptown Suite, which are two extended stay hotel brands, to our N10 platform. So we have always served a large and growing portion of the table service restaurants in this country, but we are especially proud of the growing momentum we're seeing with our new cloud-based POS solution, which is called SkyCab. So this past quarter, we installed nearly 6,500 SkyCab POS systems, including installations at some large venues such as KC Live in Kansas City, Texas Live in Arlington, Texas. These are all net new customers, and we released a pretty cool sizzle reel on Skytab last week, and I encourage you to take a look, so skytab.com. There's been a lot of news this quarter regarding competitors potentially introducing new fees on their restaurant customers. So more specifically, POS companies charging restaurant patrons directly for online orders. So we never considered implementing such fees, but we also don't have to charge more given our margin and profitability profile. I will say the events over the last month have created unexpected opportunities and boosted demand for SkyTab that we are beginning to realize now. For those not familiar, our SkyTab restaurant offering has a much lower total cost of ownership and lower cost of acquisition versus our peers. So for a typical restaurant processing 1.5 million of annualized volume, our solution is less than a third the cost of our primary competitor, including zero upfront costs. We believe restaurant operators are keenly focused on the total cost of ownership. And as we've said many times, there is nothing technologically cosmic about ringing up a cheeseburger. So we don't depend on pricing power to grow our restaurant business. And it's the total cost of ownership and trust matter. Guy Tab's looking extremely favorable in this regard. So this past quarter, we added thousands of new restaurant customers, including Clyde's Restaurant Group, which operates 11 restaurants in the Washington, D.C. area, including my personal favorite, the historic Old Epic Grill, which is Washington, D.C.' 's oldest saloon. To summarize, our core focus on restaurants and hotels remains a reliable engine of growth for Shift4 and will continue to deliver fantastic results as we win new merchants and take share of a large addressable market as well as gain more wallet share from those customers that move from our gateway and legacy software solutions. Despite balanced growth coming approximately 50-50 between net new customers and wallet share gains, we believe we remain a unique story in our ability to achieve growth targets without having to add a single new customer. Let's move on to new verticals. So we continue to crush it in the sports and entertainment vertical. This past quarter, we added the Carolina Panthers, the Texas Rangers, Charlotte Hornets, St. Louis Blues, Toronto Blue Jays, Philadelphia Phillies, Purdue University, and the University of Maryland. And these are just the ones we received approval to disclose, but we're having success across all professional sports, NFL, MLB, NHL, NBA, as well as college sports. We also renewed and expanded the scope of our agreement with the happiest place on earth. Again, these incredible merchants are not picking us because our service costs a penny less per transaction, But because our technology powers the entire guest experience from parking, retail purchases at Fanatics, to the concession stands, to the VIP suites, and the in-mobile ordering. And it's obviously working well. It's also worth noting that our sports and entertainment wins typically start with mobile in-seat ordering and then evolve into concessions, merchandise, parking. But the big prize is picketing. For example, this past quarter, we turned on SeatGeek ticketing for the Florida Panthers. It takes a long time to win and complete a ticketing integration. And I think most of you know we already turned on SeatGeek and Paculous, but we are really excited to announce that we've completed our Ticketmaster integration. So that rounds out the big three, and this is a pretty big deal. So after investing in the vertical for nearly two years and learning from a signature customer in St. Jude Children's Research Hospital, We have signed a number of nonprofit organizations to our end-to-end platform this quarter, including the American Cancer Society, Peer Rare Diseases, and the Health Wagon. And our pipeline of cross-sell opportunities remains very strong as the Giving Block continues to add new nonprofits to their platform, and we continue to use this as an important pipeline for our end-to-end payment lines. We also continue to build out key software and payment integrations with leading donation platforms like the DonorBox, which currently serves over 50,000 organizations worldwide, and Give and Gain, a crowdfunding platform for nonprofits that helps raise funds for events like the upcoming Boston Marathon. These wins represent the most material update since we entered the nonprofit vertical, which, as a reminder, represents over $450 billion a year in payment donation volume. Our ownership of the Giving Block has also opened up opportunities outside the nonprofit vertical. For example, we've helped several reputable crypto merchants with pay-in and pay-out requirements. For now, this volume is being handled exclusively by Finaro, given their card-not-present expertise and international capabilities. We have learned that these merchants have been underserved and overcharged and received suboptimal approval rates. For example, we are finding that the Finaro approval rates are 8 to 12% better than competitors for e-commerce transactions in this vertical. It further reinforces our decision in acquiring Finaro and their modern tech stack. So we're pleased with the results of our efforts thus far, and with respect to crypto merchants, we do intend to proceed slowly. We're learning a lot, and ideally, we'll meet the demand of this fast-growing and underserved market. So in gaming, we've completed an integration with GAN, the number one end-to-end gaming platform for brick-and-mortar gaming operators. In SexyTech, we signed a multi-year agreement with a Fortune 500 software company to utilize our payments platform and enable their SMB merchants the ability to accept payments. Our partnership with Fanatics also continues to bring us new N10 volume. As Fanatics grows, so do we. So Fanatics signed WWE, I think it's wrestling, and by virtue of our growing partnership with Fanatics, we will serve as WWE's in-venue payment provider for merchandising sales. Our relationship with Fanatics has also contributed to us being awarded the payment processing business for in-venue merchandise sales for the Intermiami Soccer Club, which is just in time for the massive spike in sales of Number 10, Messy Jersey. They are additional venues and interesting opportunities that we are exploring with Fanatics as well. So in a very short period of time, our new verticals and several strategic enterprise accounts are driving a meaningful portion of our growth and volume. The take rates are obviously very different when dealing with customers who process hundreds of millions, and in some cases, billions a year in volume. But these are profitable relationships that require far less overhead, almost no hardware or growth capex, and are growing at much faster rates than our core market. So let's turn to global expansion. For 24 years now, Shift4 has been growing in the most competitive payments markets in the world. We've accumulated incredible customer relationships across restaurants, hotels, specialty retail, travel, gaming, nonprofit, e-commerce, many of which have locations all over the world. It obviously took an agreement with a strategic merchant to finally kick off global expansion initiatives, that we see as key to fueling the next 24 years of growth at Shift4. As many of you know, we signed an agreement with the European payment platform, Finaro, in March of 2022, and we believe we're now on a path to close by the end of the current quarter. We are raising guidance to account for organic outperformance and visibility into the second half year opportunities, especially in the fourth quarter. Guidance also includes a Finaro contribution in the fourth quarter, But it's also important to note we would have been raising guidance regardless of the state of this transaction. It's also possible we could close prior to the end of the current quarter, which would serve as further upside for our already increased guidance. In addition to the important Panaro update, we've been moving on to the next chapters of our international expansion strategy. It's very important. We've organically expanded into several Eastern European countries, Canada, and into the Caribbean. We're very pleased with the progress and already have restaurants in Europe using SkyTab on the Panara platform. Additionally, we've begun testing several hotel property management system integrations in Europe. As mentioned above, we believe the bulk of our growth over the next few decades will come from taking the same products and services and integrations that made us successful in the USA and bringing them all over the world. To that end, international expansion remains our number one capital allocation priority, both in terms of our M&A pipeline and organic investment initiatives. It's important to emphasize that we are not flying blind here. We have the best customer possible to learn from, and we're going to follow them all over the world. And I know I mentioned it last quarter, but despite how we sound on earnings calls, we really spend very little time on what is clearly working and almost all of our energy on what is broken. We have a lot of parts to take out across our legacy gateway tech connections, legacy POS software, and we're leaning into the shift four ways so we can become a better, more efficient, and well-executing organization. Each day that goes by, we become a better business. And with that, I will turn the call over to our President and Chief Strategy Officer, Taylor Lovett. Taylor?

Thanks, Jared, and good morning, everyone. I'd like to provide an update on the operating environment, the status of Finera, and then our capital allocation priorities for the remainder of this year. As Jared mentioned, our primary growth algorithm has been adding new merchants, coupled with the growing share of wallet within our existing installment. We have a unique software and technology assets that not only afford us the ability to attract new merchants, but also convert existing customers to our end-to-end platform. The ability to gain share of wallet within our customers extends beyond our gateway as we have tens of thousands of software customers and restaurants who are already integrated with us but using others for payment processing. And the opportunity to add ticketing volumes to our sports and entertainment install base. For the quarter, our end-to-end volumes trended slightly better than we expected, largely due to strength in hotels, volume at enterprise accounts continuing to ramp to their full capacity, and adding incremental ticketing volumes within sports and entertainment. We experienced a typical seasonal pattern heading into the summer holiday period, with a step-up in spending beginning Memorial Day weekend that accelerated as vacations kicked into high gear in June through the July 4th weekend. We remain cautiously optimistic. Consumer spending will continue to remain resilient, although our guidance does contemplate continued moderation in restaurant spending. Spending at restaurants is moderated slightly, but not in excess of our early expectations. This moderation has been offset somewhat by better than expected trends in hotels, as Jared mentioned, sports and entertainment. Threads in our core verticals remain stable, and we've begun to annualize the impact of some of our new large customers, which slows spread compression. We anticipate that our blended spreads will average 65 basis points for the full year, and we do see opportunity for upside through international alternative payments and other initiatives. Last quarter, we announced the acquisition of a restaurant POS partner of ours called Focus POS. And since closing just a few months ago, we've successfully converted 10% of their customers to our end-to-end platform. While discussing restaurants, as Jared mentioned, we've added nearly 6,500 SkyTap systems this past quarter. As some of you may know, a few competitors have attracted attention with a pricing controversy that we fundamentally disagree with. We've recently launched a marketing promotion that is generating considerable interest and highlights our total cost of ownership advantages and the outsized value our products deliver to merchants. Importantly, with this campaign, our payback on customer acquisition costs is still within 18 months. we are confident this will attract increasing attention towards the SkyTab brand. After more than 15 months in signing an acquisition agreement with Finero, we believe we are on a path to closing by the end of this quarter, and as a result, we are updating our full-year guidance to include a portion of the expected Finero contribution. As a reminder, when we announced the deal, we estimated a full-year EBITDA contribution of $30 million, or a single quarter of roughly $7.5 million. And while we did not include revenue guidance, we did say that we anticipated Panera to be a drag on margins as we executed against our integration plan. The upside of this prolonged regulatory review period is that we've been able to work in partnership against our largest deal objectives in the meantime. And as a result, the combined EBITDA margin profile is expected to be better than we originally anticipated. As Jared mentioned earlier, we have great visibility towards many growth opportunities, especially as we look into the fourth quarter. We are excited to move on to our next chapter in the Finero story. We do have SkyTab POS systems in Europe using Finero's processing platform and have begun working on our product distribution and support strategy. While we anticipate the typical seasonal increase in Q3 volumes relative to Q2, the timing of new integrations, commercial partners, and international opportunities will result in Q4 representing our strongest quarter. In terms of capital allocation priorities, we're pursuing several M&A opportunities that are largely focused on our international expansion. These range from adding restaurant distribution in Europe to accelerate the introduction of SkyTab POS, as well as several transformational opportunities that will extend our presence in other regions around the world. I would like to note that we view capital allocation as a core competency of Shift4. Our disciplined approach to capital deployment is a cornerstone of delivering shareholder value. Whether it be venue next, focus pause, insourcing distribution, or even a small investment in SpaceX, all have served to grow shareholder value meaningfully. Conversely, we raised capital when the markets afforded us the ability to do so attractively. As an example, our weighted cost of debt is currently 1.35%, and we do not have any maturities until December of 2025. Our balance sheet, cash generation, and profitable growth has positioned us incredibly well for the current environment of uncertainty. We have the ability to move quickly in pursuit of businesses that possess capabilities that will enhance our offering and help us expand throughout the world. And with that, I'd like to turn the call over to our CFO, Nancy.