Shift4 Payments, Inc.

Greetings. Welcome to Shift 4, fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Thomas McCrowan, Executive Vice President, Investor Relations. Thank you. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to Shift4's fourth quarter 2023 earnings conference call. With me on the call today are Jarrett Isaacman, Shift4's Chief Executive Officer, Kayla Lauber, our President and Chief Strategy Officer, and Nancy Dissman, 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 xSpaces, formerly known as Twitter, 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 a 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 can be found 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?

Thanks, Tom. Okay. So we made a lot of progress in 2023. And I'm really pleased with how the year has ended. Every quarter, we delivered consistent growth, record KPIs, expanding margins, and free cash flow. Last year, we completed three synergy-rich acquisitions, Focus Paws, Finaro, and Appetize. We successfully unified our sales team around our flagship POS system, which is Skytab, and installed over 25,000 systems. And we also signed many notable hotel brands. We began processing for large ticketing partnerships and made investments in internal systems, AI, and took big steps on our geographic expansion journey with hotels and restaurants now processing in Europe and Canada. That was all last year, and I expect 2024 will be even more dynamic. Turning to the fourth quarter specifically, we did close on our long-awaited Finaro acquisition, but we also had our hands full with many enterprise go-lives, especially in the sports and entertainment vertical. And other than a few enterprise deals getting delayed and some timing nuances with our gateway migrations, we really delivered a reasonably strong quarter. On that note, our Q4 results were largely in line with our previously provided quarterly guidance. We generated 55% growth in end-to-end payment volume, 31% growth in gross revenue, 33% growth in gross profit, and 35% growth in gross revenue, less network fees. We also generated 136 million of adjusted EBITDA, representing 44% year-over-year growth as our margins expanded 320 basis points to 50.5% versus the corresponding year ago quarter. Our operating margins expanded despite the margin drag from acquisitions of Appetize and Finaro, both of which negatively impacted our margins by over 250 basis points for the quarter. We also generated 75.3 million of adjusted free cash flow, which was up 33% versus a year ago. Our blended spreads also remain stable, coming in at approximately 64 basis points. Now, our quarterly results would have been even stronger if it not for some large customers electing to delay their go-live dates and some timing nuances with a few enterprise gateway migrations. These include a large resort, VAI Hotel, which further delayed its opening to the end of Q2 2024. along with a major resort that's now going live in, expected to go live at the end of Q3 2024. As mentioned, we entered into agreements with multi-billion dollar enterprise customers at pretty aggressive initial terms, but they do include a meaningful revenue opportunity in the coming years as franchises adopt more of our services. The result in the short term is a reduction in gateway revenue and a slight drag on spreads, but we expect these deals to be more than worthwhile in the year ahead. And despite this timing nuance described above, we achieved our volume, EBITDA, and free cash flow targets for the quarter and feel confident we have a very strong foundation for growth in 2024. It is worthwhile to take a step back and evaluate our overall financial performance since our IPO. We have diversified into many new verticals. We've insourced a large portion of our restaurant distribution. We added thousands of hotels and resorts and expanded internationally. We've also invested in two new headquarters, internal system upgrades, and new products such as Skytap that have proven to be very successful while expanding margins and free cash flow. We haven't had to cut our way to profitability. We've been investing and growing profitably the entire time. So where does that leave us at the end of 2023? Our three-year CAGR growth for our primary KPIs, end-to-end payment volume, gross revenue less network fees, and EBITDA grew 50%, 33%, and 66% respectively. I think what also gets lost in this evolution, however, is the improvement in our unit economic model. Since our IPO, our incremental margins have improved considerably despite the mix shift driven decline in our blended spreads. It should be clear the trade-off between spreads and incremental margins was a very good trade. And I would refer you to the chart on page five of our shareholder letter depicting the three-year trend and incremental gross profit margins. In short, our strategic investments made since our IPO have resulted in an improved unit economic model, which in turn, ultimately over time supports margins and free cashflow. Now, I know many of you are waiting for an update on our recent acquisition of Appetize, as well as the current operating performance of Funaro, which from here forward, we're just going to refer to as our European operation. And I'm pleased to report that the integration of Appetize and Funaro continues to go very smoothly. We're unlocking meaningful synergies from both of these acquisitions in line with our expectations. Now, across our European platform, we have developed relationships to power EV charging and other unattended payment applications. Additionally, we have significantly expanded our relationship with European food delivery providers. As you may have seen on some of our Twitter slash X posts, we've been installing SkyTab systems in other UK locations. Now, in the UK, we signed our first retailer, which leverages our existing ISV integrations, which is Eid and Ravenscroft. We also have some big news on the horizon as we make our sports and entertainment debut in Europe. Now, turning to Appetize, we remain on track to achieve 15 million of run rate EBITDA by the end of 2024 as we migrate their 600 plus clients over to Venue Next and capture payment processing economics along the way. Some notable conversions that we are currently working on include Yankee Stadium and MetLife Stadium, home of the New York Giants and New York Jets. I'll be talking more on the overall sports entertainment momentum, including ticketing, in just a bit. Now, given the ongoing strategic review, we had no other M&A transactions during the fourth quarter, but we are pleased with the pipeline. We are good at identifying assets where we can unlock value that others simply cannot or possibly don't fully appreciate. And we do expect that acquisitions will remain a key part of our overall capital allocation priorities, especially those that can add distribution or other growth accelerants within our core or new verticals. Now, turning to our core, which is comprised composed primarily of restaurants, hotels, and specialty retail, again, contributed very meaningfully towards our growth, especially with the pace of progress as we convert and further monetize our gateway customers and distribute our cloud-based SkyTab POS solution. So let's drill down on restaurants. So in restaurants, we were awarded the payment processing business for several large establishments, including Rocket Farm Restaurants, which owns a portfolio of approximately a dozen different restaurant brands in Atlanta, Houston, and Nashville. Andrew Scotto Restaurants, which operates restaurant concepts in the New York area. Medium Rare Restaurant Group, which is a chain of steakhouses in the Washington, D.C. area with ambitious expansion plans. And they already opened a new location in New Orleans and have announced plans for Boston, New York City, Houston, and San Francisco. We also signed Elmer's Restaurants, a longstanding Portland, Oregon restaurant started in 1960 that now has 29 locations throughout the Pacific Northwest, California, and Arizona. Additionally, we won the Metropolitan Hospitality Group, which is Virginia Beach's chic oyster bar and four-top hospitality group. Now our next generation cloud-based Skytap POS platform continues to sign up thousands of new restaurants that are attracted to our modern architecture and really a low total cost of ownership. Not only are you seeing Skytap installed at standalone restaurants, but you're seeing Skytap deployed within very large high volume environments, such as the Cordish Company's live branded entertainment districts, many professional sporting arenas and other entertainment venues. And as mentioned earlier in the fourth quarter, we did begin rolling out SkyTab in the UK as we prepare for wider distribution throughout Europe. We do continue to invest in the platform and recently completed development on significant features targeting multi-unit operators, as well as an AI website builder that Taylor's going to touch on shortly. For those that are curious, I would encourage you to search on X or Twitter, just shift four. You can do it every day and see the dozens of SkyTab installs that are taking place again every day. resort signings, including a material expansion with one of our valued Las Vegas relationships. We signed Carter Hospitality, a family-owned hospitality company with four luxury hotels and resorts, including three wineries across California, Texas, and Florida. We signed Destination Residences Hawaii, which is a collection of 17 luxury vacation rental properties located in the Hawaiian Islands. We signed Kaya Beach Resort in Seacrest, Florida. We signed Westmont Hospitality Group, which is one of the largest privately held hospitality organizations in the world with over 500 properties. Old Edwards Hospitality Group, owner of several hotels, including Old Edwards Inn in North Carolina, which is consistently recognized as one of the leading resorts in the South, and the Cliffs Hotel and Spa located on California's Central Coast. All five of these hotels were gateway conversion wins. Additional wins include the Sunilap Resorts of Vail, Jiri Hotels, the Lenox Collection, the Beach House Hermosa Beach, Ojo, Caliente, and more. And as you can tell, this was an especially busy quarter for us with our hotel resorts and gateway conversion wins. Now, in specialty retail, we signed notable merchants, including Big Y, which is an operator of over 100 grocery stores throughout New England, an online jewelry retailer, James Allen Diamonds, Danielle's Jewelers, which is an operator of over a hundred jewelry stores in California, Arizona, Texas, and Nevada, a long time Detroit area business, which is man's lumber and Wilson Creek winery in Southern California. Now with that, let's move to new verticals, sports entertainment and ticketing. So in sports and entertainment, we have made tremendous strides integrating appetize and we're executing well on converting the 600 plus legacy appetize customers onto our venue next platform. And as I mentioned earlier, Yankee Stadium is converting over to our venue next platform in time for Major League Baseball's spring season. And we added several new ticketing deals during the quarter, including the Los Angeles Rams, the New York Giants, the New York Jets, San Diego Padres, St. Louis Blues, and the Florida Gators. We also entered into agreements to provide ticketing for eight minor league baseball teams, including concessions, and we will be processing all retail purchases at L.A. Dodgers Stadium. We also signed a comprehensive payment processing relationship with MetLife Stadium, the Ultimate Fighting Championship, Cirque du Soleil, Kia Forum, and a fast-growing chain of dining and movie theaters currently located in eight states called CMX Cinemas. Finally, on February 11th, we powered the payments for the fans that attended Super Bowl 58 held at Allegiant Stadium in Las Vegas. So congrats to the Kansas City Chiefs and the San Francisco 49ers on a great game. I think it is worth pointing out that you can't visit or wouldn't want to visit many of the customers of payment companies we are often compared to each quarter. But at Shift4, we power some of the coolest venues and experiences you could ever want to attend, including the Super Bowl just a few weekends ago. Now moving to new verticals, our donation platform, The Giving Block, which serves the nonprofit vertical, continues to add marquee clients around the world and recently added nonprofits like the Association for Autism and Neurodiversity, Cure Cancer Australia, Children's Medical Research Institute, Vision Australia, the Earthlight Foundation, Bay Area Services, and Hillsdale College. And we are successfully cross-selling our card processing capabilities into the installed base of these Giving Block customers. For example, this quarter, we signed an agreement with Give and Gain, to power its card transactions following Giving Gain's joining the Giving Block platform back in Q3. And as a reminder, Giving Gain is a leading nonprofit known for its relationship with other leading nonprofits, such as the Boston Marathon and UNICEF, among others. The integrations with DonorBox and Ministry Brands, two leading online donation platforms, were completed this past fourth quarter. We will support their full customer base of over 50,000 nonprofits. This sector remains an important growth vertical for Shift4, and the giving block remains the category leader in non-cash giving. Now, in SexyTech, we continue to innovate in the area of autonomous retail and recently joined forces with Portugal's Sensei to deliver a more streamlined shopping experience without the hassle of waiting on a checkout line. We announced a partnership with SoftPause provider Magicube to offer their unique tap-and-pay technology to our merchant base and partnered with MobilePay, one of the most popular payment methods in the Nordics. In gaming, we're in the process of rolling out hundreds of our SkyTab mobile devices throughout the BetMGM Sportsbook locations, including all 24 Sportsbook locations across nine states. And our SkyTab devices are also being integrated with Passport Technology, which is one of our technology partners in the gaming industry to enable various cashless gaming experiences on the casino floor. We are introducing this Passport Technology and the SkyTab experience at casinos such as Morongo Casino outside of Palm Springs. Lastly, we signed several new online gaming clients during the quarter, including Rivals.com, an online gaming site targeting the interactive competitive gaming community. Prime Sports Betting, an online betting platform currently in Ohio with plans to expand in other states. JefeBet, an online betting platform customized exclusively for the underserved Latino community. JefeBet is owned by Las Vegas hospitality operator Fifth Street Gaming and Rolling Riches, which is an online gaming site blending social media, with slot and casino type games. Now touching a little bit more on international, I did previously mention some of our early success with Skytab and our hotel integrations in Europe and Canada. To provide a bit more specifics, our relationship with online delivery platform Walt is ramping up extremely quickly. And for those unfamiliar, Walt is a global leader in home delivery of essential items from food to home goods that was acquired by DoorDash a couple years ago. We've also developed relationships with several European fintechs who enable unattended payments for Europeans EV charging and fuel stations, including NIAX, a European PSP focused on unattended use cases, including EV charging stations with customers in over 80 countries, and Fortec, an Italian fintech providing customized solutions for EV charging and fuel stations, as well as convenience stores. Lastly, we partnered with Tomra, the world leader in waste collection and sorting, to power payments for their innovative reverse vending machines across the Nordics, and leading Swedish neobank Northmill to provide their 6,000 plus merchants and 800,000 end users with a complete payment solution. Okay, so there's a lot there. We really ended 2023 positioned well for the year ahead. Our priorities in 2024 include installing over 30,000 new SkyTab systems domestically and an additional 10,000 new hotels and restaurants and numerous stadiums in Europe and Canada. And we're going to continue to execute on the integration of Appetize, signing up dozens of additional ticketing wins here in the U.S. and supporting the go-live of many major hospitality operators. We will continue to follow our signature customer, our strategic customer, into new markets and then bring the rest of the products and services to follow. Now, through the lens of a still uncertain economic environment and an ongoing strategic review, we have introduced 2024 guidance. And as you will see, we have contemplated a range of outcomes that Nancy will go into in just a minute. Most importantly, we see strong profitable growth, especially in the back half of the year ahead. Additionally, we have provided a progress update on our midterm outlook in the shareholder letter, which I'm sure you will find useful. We've been marching steadily and convincingly towards the achievement of this midterm outlook and have converted many skeptics to believers as evidenced by the upward revisions to consensus estimates since we introduced our outlook in the fall of 2021. Now, before handing the call over to Taylor, I am sure many of our investors would like to know the status of our ongoing strategic review. I will simply summarize what I wrote in my Q4 shareholder this morning. Our board of directors formal review of alternatives is still active and ongoing, and we will provide updates as soon as they are available. But in the interim, please know we do remain focused on running the business and executing on our game plan. And with that, let me turn the call over to Taylor. Thanks, Jared.