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spk03: 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?
spk06: 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?
spk04: 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.
spk00: Thanks, Taylor, and good morning, everyone. I'll first review our financial performance for the second quarter and then review our outlook for fiscal year 2023. As a result of our consistent execution, we delivered another quarter of impressive results, including quarterly records for volume and gross revenue less network fees. We continue to balance strong top line growth with disciplined investments as evidenced by the strength of our adjusted EBITDA margin and our adjusted free cash flow conversion. Second quarter volume grew 59% to $26.8 billion year over year. Q2 gross revenue grew 26% to $637 million, and gross revenue less network fees grew 25% to $228 million year over year. Our quarterly results were driven by the continued strength of our high growth core, momentum across our enterprise merchants, including new verticals, and improved economics earned from our gateway customers. We also entered the year with higher unit economics within our restaurant channel, due to our strategic decision to insource a large portion of our go-to-market distribution last year in connection with the launch of SkyTab. Second quarter gross profit was up 61% year-over-year to $159 million, and our gross profit margin was 70% for the quarter, representing over 1,500 basis points of improvement year-over-year. The blended spread for the second quarter was 65.3 basis points, driven by massive volume growth, including growth from enterprise merchants at lower but market-appropriate take rates. As Taylor mentioned, we continue to expect our blended spreads to average around 65 basis points for full year 2023, with Q3 likely being the low point and then a strong rebound in Q4 as more international volume and APM opportunities are unlocked. I want to reiterate that the year-over-year spread compression is a function of rapid volume growth from our enterprise accounts. Spreads in our high growth core, including restaurants and hotels, remain stable. In Q2, total general and administrative expenses increased 41% year-over-year to $82 million, primarily driven by headcount growth from the distribution insourcing and acquisitions we completed over the last 12 months. We are still fighting to finish the year with headcount flat to the start of the year. On that note, towards the end of the second quarter, we reduced headcount by 150 in line with our overall talent upgrade initiative, which came with a $3.5 million one-time severance cost. We are also taking advantage of some of our outperformance to consolidate, upgrade, and expand our facilities, replace legacy internal systems with Salesforce and other AI-based applications, that should further support our flat headcount goals. For the quarter, we reported adjusted EBITDA of $110 million, which is up 68% over the same quarter last year. The resulting adjusted EBITDA margin for the quarter was 48%, representing over 1,200 basis points of year-over-year expansion. We remain highly committed to a disciplined approach to cost management while continuing to balance investments to support our growth, including international expansion, new vertical expansion, the SkyTab product launch, and ongoing talent upgrades across the organization. Additional opportunities to further improve margins are still on the horizon as we harness the productivity of AI tools, implement new internal systems, and continue to take out the parts across the business to further enhance the scalability. Our adjusted free cash flow in the quarter was $64 million, and our adjusted free cash flow conversion was nearly 59%. well above our current full-year guidance of 55% plus. It is worth noting that Q2 includes a semi-annual interest payment of roughly $10.4 million, which can distort the quarter-to-quarter comparison. And then, with respect to capital transactions, during the quarter, we repurchased approximately 1.5 million shares. We have cumulatively deployed over $300 million on buyback purchasing, 5.8 million of shares at an average price of $52 since our IPO. Of note, the cumulative dilution in shares count and share counts from our IPO has grown by less than 2% in over three years. As employees, we own over 36% of Shift 4 and are very thoughtful about managing dilution. Our remaining buyback capacity is just over 150 million, and we will continue to be opportunistic in repurchases. you can see a complete reconciliation of our shares in the back of our earnings materials. Net income was $36.8 million for the second quarter. Basic earnings for Class A and Class B share was $0.43, and diluted earnings for Class A and Class B share was $0.62. Adjusted net income for the quarter was $63.4 million, or $0.74 per A and C share on a diluted basis, based on 85.7 million average fully shared Fully diluted shares outstanding. We are exiting the quarter with just over $725 million of cash, $1.75 billion of debt, and $100 million undrawn on our credit facility. Our net leverage at quarter end was approximately 2.8 times. Excluding the buyback, we would have ended the quarter at 2.5 times net leverage, which reinforces the rapid deleveraging capability of the business and the capital deployment flexibility our cash flow generation affords us. Our strong balance sheet and free cash flow profile will continue to allow us to invest in the business, pursue our strategic priorities, and opportunistically repurchase shares. Turning to full year 2023 guidance, we are increasing the low end of the range for all four of the KPIs and the high end of the range for volumes, gross revenue-less network fees, and adjusted EBITDAs. Our updated guidance for 2023 includes total end-to-end volumes of $108 billion to $114 billion, representing 51% to 59% year-over-year growth. Growth revenues of $2.6 billion to $2.7 billion, representing 30% to 35% year-over-year growth. Growth revenue less network fees of $945 million to $980 million, representing 30% to 35% year-over-year growth. and adjusted EBITDA of 435 million to 460 million, representing 50% to 59% year-over-year growth. We anticipate adjusted EBITDA margins to continue to expand to over 650 basis points at the midpoint of our guidance ranges, up from our initial assumption of 50 basis points, and adjusted free cash flow to be at least 240 million, up from initial guidance of 200 million. It is important to note that as the year progresses, we remain cautious about the macro environment and have reflected this in the entirety of our guidance ranges. The low and high estimates represent identified and quantified strategic initiatives, such as the FINARO acquisition, that cannot be precisely timed. Should these move more quickly, we expect financial impact sooner. Similar to last year, when you saw a sudden increase in activity as a result of all the work in our new verticals, you can expect some step function change and a heavier weighting to Q4 as we execute on our strategic plan. With that, let me now turn the call back to Jared.
spk06: Thank you, Nancy. And before opening up the call to your questions, I first wanted to thank those that tuned in to our inaugural simulcast via Twitter Spaces. I don't think we had it perfectly dialed in this morning, but we'll get that right going into the next quarter. But I did want to respond to a question that was submitted via social media. Our question comes from Krishna Mohammed from Toronto, Canada, who's been an investor in Shift4 since our IPO. The question was, what do you believe is the most challenging aspect in growing the company to the levels of a Stripe or an Adyen of the world? And what is the path to get there? And it's a great question. So, you know, look, our biggest challenge right now also represents our biggest opportunity, which certainly is taking the same products and software integrations that has made us successful in the U.S. over the last 24 years and bring them into markets all over the world. And probably the most challenging part of that is card present processing capabilities. I mean, chip force strength, unlike those names of Stripe and Addian, actually come from processing transactions face-to-face in venues. which is so much harder to do on a global level than doing card-not-present processing. So really what we're after has not been achieved yet, not even by those two great companies that you referenced in your question. So that, again, it represents the biggest challenge. It's also what we're most excited about because it represents the biggest opportunity. So thanks, Krishna, for that. And operator, we are ready to take questions.
spk08: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause just for a moment to compile the Q&A roster.
spk09: Your first question comes from the line of Darren Peller with Wolf Research.
spk08: You may go ahead.
spk01: Hey, thanks, guys. Nice job on the quarter. I want to just very quickly clarify the guidance rates came from a combination, it looks like, of organic and FNAR, obviously, being included for the quarter. So just if you could help break that apart and just let us know what's contributing from what. But also, I guess a bigger question for me is just the magnitude of upside to EBITDA continues to impress. And so when we break down whether it's gateway pricing or it's just operating leverage or and just how much visibility you have on that front to continue that trajectory. It'd be great to hear. Thanks, guys.
spk06: Yeah. Hey, thanks, Darren. Jared here. So copy on the first question. I think we fully anticipated that. So, you know, let's just talk about Finaro and guidance. So there, you know, there was a positive development, you know, in the last couple weeks that gave us a lot of confidence. on our ability to bring that transaction to a close potentially, you know, rather soon, although we said by the end of the quarter. Given that consideration, it just felt prudent at this time to provide, you know, appropriate guidance so we're not revisiting this conversation with everyone in a couple weeks. You know, that said, we tried to be pretty clear that we included a good portion of Tenaro in our fourth quarter. And that's meant to just give us a little wiggle room because it's still an international transaction here, right? So I think if you kind of like break down the expectations that were originally set with the Finaro transaction, which Taylor reiterated on the call, you know, assume a good portion of that. What that leaves you with is a very healthy, organic outperformance. And that's the message everyone should be taking away from that transaction. But it's also like, it's also important to put it out there so we can kind of move on to the next chapter because it's been 15, 16 months and we're doing an awful lot with international and we expect to be talking about an awful lot more and, you know, kind of the, you know, I mean, you know, in, in the future ahead. So, and then kind of moving on to the next portion of your question, which is, you know, just continued, you know, profitability, you know, the continued strength and the profitability profile of the business with margin expansion, free cashflow, EBITDA growth. I mean, You know, we keep talking about these same themes of taking out the parts. You know, we have a lot of, you know, for any of the negatives that have ever been said about Shift4, oh, they got a lot of gateway connections. You know, they got a lot of legacy software. We agree. That's why we're taking out those parts. I mean, we supported like seven, eight different legacy software solutions, you know, two, three years ago. We've now concentrated our resources and consolidated our brand on one. Every quarter that goes by, we're going to have more business, more resources on our cloud-based solution, less content. on our legacy solutions. We're doing the same thing on our gateway. We rolled out AI tools that can program a restaurant POS menu in 30 minutes instead of five hours. It's what we said before, almost every enterprise customer that we're chasing down right now, you know, requires less overhead to support than the small restaurant customers of years ago. I mean, you know, I think we talked about the Carolina Panthers this quarter adding picketing volume. We didn't have to hire anyone to do that. We didn't have to deploy any hardware devices. We didn't have to issue any signing bonuses. So it's like we said at the end of Q4 last year, literally every initiative that's underway in this organization right now is going to lead to better margins, and better free cash flow. And you're just seeing the results of it now halfway through the year. Wow.
spk01: Progress to go. I guess my quick follow-up would just be, there's so many areas that you're growing your volume and outperforming it. I guess if you could just help us understand the breakdown again of, you know, again, whether it's gateway conversion or same store sales or last year's anniversary of big clients or even new business now. Any sense in directional terms of what drove the most or, you know, maybe rank it in some form? Thanks, guys.
spk06: Yeah, I mean, just high level. And then I certainly open it up to Nancy or Taylor to fill in the blanks. But, you know, I highlighted my script like this past quarter was another 50-50 event, you know, and that's it's an approximation. But, you know, if you just look at the reference wins, you know, all the Virgin hotels were net new wins in this quarter. You know, obviously Fontainebleau was a net new win. I think last quarter, you know, there were two other, you know, big rig, you know, big spherical Vegas resorts that we talked about. Those were just constructed. So like you're getting half that's coming from net new. Almost all of our SkyTab is net new. I mean, we have no active upgrade campaign for our legacy customers right now on that. So you've got a lot of net new, but then you also have in-town suites, you know, that's 200 locations. It's still, I'd say, 50-50. I mean, maybe because we have so many new verticals, it's never represented a gateway conversion. It'll trend more to net new over time. I don't know if that works.
spk04: Yeah, so when you talk about customers joining, you know, this, that, Derek, Gabe are perfect. It gets a little bit murkier when you think about volume growth because you do have, you know, really big customers annualizing over the course of the last year. You have a strong ability to gain share of wallet in places like stadiums. Now, we mentioned this, you know, multiple times throughout our scripted remarks, but adding on ticketing to existing stadium customers, of which we have a lot, is, you know, going to be a big driver of growth now that we have, all of the requisite ticketing integrations completed. So the volume growth can get a little murky, but what we focus on is adding customers. That's really what drives the business. And then when you've got the right customers and you focus on your integrations, share it while it grows. Beyond that, as long as you're delivering for good customers who are growing. So hopefully that gives you enough color. Maybe just one thing to add on, and we foreshadowed this At the beginning of the year, you know, restaurant volumes moderate slightly. Hotels have been a bright spot. I think we mentioned probably with you, Darren, in an investor meeting, you know, a few months ago that we were pleasantly surprised by hotel volumes, a little bit more pessimistic than most, I think, at the beginning of the year. They've continued to shine. People are out and traveling.
spk01: That's great.
spk05: Sounds like broad-based strength, guys. Thanks again.
spk07: Your next question comes from the line of Will Nance with Goldman Sachs. Your line is now open.
spk09: Hey, guys. Good morning.
spk02: I appreciate you taking the questions. Hopefully you can hear me. I wanted to ask a question on sort of the cadence in the back half of the year, 2-3, 2-4. You know, I heard several comments throughout the script that, you know, some of the growth this year will be back half-weighted. It sounds like that's more kind of incremental growth in the fourth quarter and that kind of weakness in the third quarter. But maybe you could just help us think, you know, sequentially from second to third, what are your kind of expectations and how are you thinking about the ramp into fourth?
spk00: Yeah, I think the way you heard it is exactly right. Very similar to last year, we've got a couple of big irons in the fire that are kind of step function. And so we're kind of doing our best to kind of schedule when we expect to see those ramps, especially on the international and kind of some of the APM and exciting things we've got going on there. They're just a little bit pushed. I think in our probably early guidance, we thought maybe we'd see those a little bit sooner. So guide kind of put some caution in there and we've kind of back loaded those a little bit more than maybe when we started out the year at our original guide point. So that's really the message. It's not that something is really falling out of Q3. It's just kind of a step function of when some of that kind of higher take rate volume and some other.
spk04: Well, so for investors and analysts who followed us for a long time, Q3 is traditionally the strongest quarter. for the business, all of these new initiatives ballast out the business in a really nice way and sort of create a slightly different seasonal profile. So you saw this last year, as Nancy mentioned, with Q4 delivering, I think, stronger than
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