Shift4 Payments, Inc.

Greetings and welcome to the Shift4 Fourth Quarter 2024 earnings call. At this time all participants are in a listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Tom McCrowan with Shift4. Thank you Tom. You may begin.

Thank you operator. Good morning everyone and welcome to Shift4's Fourth Quarter 2024 earnings conference call. With me on the call today are Jared Isaacman, Shift4's Chief Executive Officer, Carolyn Lauber, President, 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 .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 follow-up 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 report on platforms 10K and 10Q, 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. We are hosting our Investor Day event today in Las Vegas and as a result we unfortunately do not have time to entertain any questions at the conclusion of our prepared remarks. With that let me turn the call over to Jared.

Jared? Hey thanks Tom. We clearly have a lot of exciting things to discuss today and we have an afternoon Investor Day to go through it. So despite my past tendencies and this likely being my last earnings call, I'm going to endeavor to keep this as brief as possible. So as such we plan to cover a summary of Q4 results, highlights from the quarter, our acquisition announcement of Global Blue, and finally expectations for 2025. So regarding Q4 results, we once again delivered reasonably strong results that represented records across all of our major KPIs including -to-end volumes, gross revenue less network fees, adjusted EBITDA, and especially adjusted free cash flow. So with that our -to-end payment volumes increased 49% year over year to $47.9 billion. Our gross revenue less network fees increased 50% to $405 million. Our adjusted EBITDA increased 51% to $205.9 million and our adjusted free cash flow increased 78% to $134 million. So all of these results represented quarterly records as I mentioned before. And despite the doubters we delivered on the promise of a back half ramp. The back half represented 57% of our full year gross revenue less network fees with the fourth quarter alone contributing 30% of full year gross revenue less network fees. We also delivered positive operating leverage for the year with adjusted EBITDA and adjusted free cash flow both growing faster than revenue growth. We accomplished all this while completing several acquisitions and deleveraging with the year-end net leverage of 2.5 times. So when we zoom out and look at the multi-year picture, we ended the year surpassing our Our medium term guidance, which as you know, called for 50% three-year CAGR growth in volumes and a corresponding 30% CAGR growth in gross revenue less network fees. Our actual performance came in at 52% and 36% respectively. We delivered these three-year results despite a more challenging economic climate than the one we were operating in back in late 2021. Since then, we experienced both record inflation and record increases in interest rates. The combination of which most certainly caused stress for the average consumer. I'm not sure how many tech or fintechs established a multi-year outlook in November of 2021 and actually delivered including surpassing expectations on the KPIs that really matter like free cash flow. Personally, I felt this was an important test for the company and the team and would speak to the credibility of the organization which is especially important going in today where we will establish our goals for the next three years. So let's turn to some of the highlights for the quarter. The team did a great job delivering signature wins across hospitality, restaurants, sports and entertainment and what we're now calling our unified commerce platform and across multiple international markets. So starting with Sky Cabin restaurants, we easily surpassed our initial 2024 goal of 30,000 plus Sky Cab system installations. And while we are the second fastest growing player in the space, we do not like settling for second best. So over the past year, we signed signature wins such as the Casa Cipriani, the Minetta Tavern, Burns Steakhouse in Tampa and Balthazar. Outside of the United States, we installed hundreds of international restaurants across Canada, the United Kingdom, Ireland and Central Europe. And the broad launch of our payment led value proposition to Vectron's 300 plus European dealer network in January was very well received with hundreds of deals already signed up in the month of January and a very successful UK Ireland sales conference in Q1 of this year. In short, we are winning restaurants very quickly in the USA, Canada, Ireland, UK, Central Europe and soon to be in Australia and New Zealand. So let's turn to hospitality. So if you like skiing, you're probably doing it as a shift for a customer. So last quarter, we talked about signing KSL resorts and Bell resorts. Well, this quarter we were adding Altera Mountain Resorts, which is an operator of 19 ski resorts in the US and Canada, including well-known ski resorts such as Mammoth Mountain in California, Deer Valley Resort in Utah, Palisades Tahoe in California, Steamboat in Colorado, Tremblant and Winter Park Resort in Colorado. We also now power the payments for the ICONI-ICON Pass. So the ICON Season Ticket Ski Pass, which provides skiers access to over 50 ski resorts in North America, as well as some of their international locations will be processed by shift four as well. Also in hospitality, we renewed our agreement with Great Wolf Lodge. So they're an operator of indoor water parks with multiple locations in the United States and Canada. And we signed many new hotels, including the Maritage Collection of Hotels, which is an operator of several luxury hotels such as Paso Hotel and Spa in Huntington Beach, California, Koake Resort in Hawaii, the Maritage Resort and Spa in Napa Valley, and Hotel Viada in Austin, Texas. This is just a sampling of the wins in hospitality this quarter. You know, it was not long ago that bears were saying we were a one trick pony in hospitality, simply converting gateway customers and likely losing an enterprise. The reality, and this has been demonstrated in our earnings deck over multiple quarters now, is we are number one in the world winning far more net new enterprise resorts and across multiple geographies. So let's turn to sports and entertainment. So the wins keep coming here. We entered into an agreement to power payments for 10 House of Blues locations across the U.S. And in sports, we sold, we cross sold ticketing to New York Yankees and the Dallas Mavericks. We signed the Arizona Dynabax, the Portland Trail Brazers, University of Southern California. We were also honored to power payments for college football national championship. And similar to hospitality when it comes to S&E, we are also number one in the world. Now let's talk about unified commerce. So we consolidated all of our Cardinaut present efforts into a new category called unified commerce. So over the past three years, we have quietly built a robust one platform, one integration capability that enables commerce all over the world. Our platform capabilities were informed by working alongside a strategic customer widely considered to be the most technologically advanced corporation in the world. And then we added other enterprise merchants like them. So St. Jude, Legion Airlines, BetMGM, WALT, and really thousands more have started using the platform while we simultaneously invested in technology capabilities such as pay ins, pay outs, cross border transactions, merchant of record, payback capabilities, local to local functionality, and a wide array of alternative payment methods, intelligent fraud monitoring tools, and really a very unique set of geographic coverage. And we can do this in a card present and card not present environment. So this platform is especially important in the context of the large acquisition announcement that we're going to speak to more about today. And I just generally believe it was in line with in a line of business that we have not been given really that much credit for. But we should because it's a TAM that's growing much faster than our base business and the competitive landscape, especially in less mature markets, is ready for a new entrant. So there will be growth here and it should be viewed as an exciting development that's really incremental to the shift for business that you were underwriting previously. So on that note, we continue to assign nonprofit marquee names like University of Miami, Mercy Corps in Europe, Lupus Research Alliance, Alon University, and dozens more. As a result, we had a record quarter and a record year serving nonprofits on our unified commerce platform. Q4 year over year volumes were up 660 percent and calendar year volumes were up 319 percent year over year. This growth is before some of our large partners like Gibb Lively have fully scaled up their integration. So we expect another year of very strong growth ahead. And while it is a small portion of our business, we do see crypto as an opportunity with material potential in light of the support of the new administration. So in addition to offering card acquiring services to the crypto industry, we announced that during Q4 we begin equipping our merchants with the capability to accept crypto payments across all our products. So this month we will wrap up our integration with SkyTab and make this capability available across a very large existing installation base. We will be the first major acquirer to have natively integrated crypto acceptance at the point of sale. And we plan to showcase this technology today at our investor day event. For gaming customers using our unified platform, we continue to enter new technology partnerships in support of both our land-based and online gaming casino customers. So with that MGM, we continue deploying our SkyTab mobile devices for in-person sports wagering throughout the MGM locations. And all of these end markets, whether it's nonprofit, gaming, crypto, retail and others, benefit from our unified commerce platform. So I can't emphasize the importance of our unified commerce platform enough and how this fits into our global blues strategy that Taylor is going to talk about in just a minute. So moving on to international, our strategy for some time now has been to follow our strategic customer all over the world and then bring the products, software integrations and services that have helped us be so successful in the USA into those new international markets. This process is going so well. It's driving restaurant, hotel, stadium and unified commerce demand in new geographies that it gives us the confidence to announce a deal like Global Blue to take full advantage of the capabilities we've been quietly building over the last few years. This past quarter, we launched several new countries and that has continued into the first quarter of 2025. We are now processing across LACAM and we expect to launch an additional four to six countries this quarter with Australia and New Zealand on the horizon for early 2025. We believe we have added sufficient global e-commerce capabilities, both local to local, cross border, MOR and payback that our solution is now a viable option for other global enterprise customers just like our strategic one. So as my shareholder letter states, we're going to spend this afternoon doing a deep dive on the business, the verticals we aim to conquer, the products that we have built, our go to market strategy and how deeply we are advantaged that we can predict outside growth for years into the future. So we are number one in hospitality, we are number one in sports and entertainment, we're number two in restaurants but we hate being second, we have a great strategy with our unified commerce platform and we are the best capital allocators in the industry. So we have proven this time and time again and we will continue to do so as we progress through our investor day to day. Our strategy gives us the confidence to provide impressive 2025 guidance alongside a new midterm outlook that takes into account a number of cases from simply sitting on our hands, in which case the results are excellent, to the pro forma case alongside our recently announced acquisition and last, the most likely case that further accelerates growth in line with what you've seen us achieve over the last three years. In any of these cases, we are growing faster and more profitably than any of our peers. It is with this confidence that I can comfortably step aside and pursue this next chapter of my life knowing shift four is on the correct course. And with that, I'm going to turn the call over to Taylor to talk about the recent acquisition. Taylor.

Thanks, Jared. As Jared mentioned in his remarks, it's been our strategy for some time now to build a one integration, one platform to power payments all over the world. Today we're announcing the acquisition of Global Blue for approximately $2.5 billion in an all cash transaction, which further builds upon our capabilities in this area. Global Blue is a market leading payment platform supporting tens of thousands of luxury brands worldwide, including Louis Vuitton, Hermes, Valentino, Fendi, Prada, Burberry, Cartier, and many, many more. They operate a two sided network offering over 15 million consumers quick and efficient VAT tax refunds when shopping abroad through one of their through their one of a kind mobile application and advanced dynamic currency conversion capabilities. To be clear, we spent many years admiring this business. The combination of their latest capabilities, our growing geographic coverage, Global Blue's existing scale and two sided network were all factors in helping us underwrite this transaction with a high level of confidence. Simply put, the business standalone is exceptional before revenue synergies, and yet we estimate over $80 million of revenue synergies will be unlocked by the end of 27 due to the material embedded cross-sell opportunity associated with the 400,000 plus merchants that are current Global Blue customers. We estimate the aggregate embedded payment opportunity to be over $500 billion. As a reminder, our cumulative cross-sell funnel is over $800 billion today, and with this transaction, it increases our unique advantage across this customer base to over $1.4 trillion. The opportunity Global Blue affords us within Unified Commerce has also attracted two of the world's largest fintech companies, Ant International and Tencent. Ant International and Tencent have historically collaborated with Global Blue to enable a seamless shopping and refund experience via their mobile applications and wallets. Both these valuable partners have committed to further collaborate with us on e-commerce opportunities all over the world, and have also agreed to remain shareholders of the combined business. This is an all cash deal to be financed with existing cash on hand and proceeds from a $1.8 billion short-term bridge financing that will be replaced with long-term debt and convertible financing following the launch of an offering shortly. We expect to close the acquisition in the second half of 2025, subject to regulatory approvals, and our proforma net leverage is expected to be approximately 3.6 times upon closing of the transaction, and we expect to delever to approximately 3.3 times by the end of the year. This transaction is the largest in our history, which speaks to the conviction we were able to gain as we learned about the business. Despite its scale and unique product offering, it leverages a playbook that we've continued to refine over the last decade at Shift4. Whether it be Rebel, Givex, Eigen, or now Global Blue, we are passionate about identifying critical but often overlooked businesses that have an incredible merchants who benefit immensely from a single comprehensive payment platform. We aim to deliver these merchants what they would have otherwise sourced from five or six different companies, and in turn deliver more value and convenience. With that, I'll turn the call over to Nancy, who will outline our 2025 financial guidance and other key stats for the fourth quarter.

Thank you, Taylor. Jared provided a summary review of the quarterly financial results, so I will just expand on a few additional items. Organic gross revenue less network fee growth for the full quarter 2024 was 26%. This reflects the ongoing strength and momentum across all of our verticals and the monetization and conversion of gateway and software only customers. Our Q4 blended net spreads were 60 basis points or 61 based on the average blended spreads for the full year in line with our guidance. Spreads across our core business remain stable. Our Q4 adjusted EBITDA margins were 51% and 50% for the full year, excluding a nearly 270 basis point drag from recent acquisitions, full year adjusted EBITDA margins were 53%, and we expect to synergize these acquisitions over the next 12 to 18 months. Subscription and other revenue was $115 million in Q4, up 100% compared to the same period last year. The growth was once again driven by our success across SMB, SkyTab, and further penetration of the sports and entertainment vertical, as well as a contribution from acquisitions completed during the quarter. Our adjusted free cash flow in the quarter was $134 million, bringing full year adjusted free cash flow to $399 million, up 46% compared to a year ago. Q4 adjusted free cash flow conversion was 65%, bringing full year to 59%. We are very pleased with our free cash flow generation, as we are one of the few companies that are extremely expense disciplined and laser focused on efficiency gains, which allows us to generate exceptional cash flow without sacrificing growth. During the fourth quarter, we repurchased over a million shares for $110 million, leaving approximately $350 million of capacity available as of December 31 under our current program. You can find a complete reconciliation of our shares in the back of our earnings materials. Gap net income for the fourth quarter was $139 million, and gap diluted EPS was $1.44. Non-GAP adjusted net income for the quarter was $123 million, or $1.35 per share on a fully diluted basis. As a reminder, we have not historically added back acquired intangible amortization to non-GAP net income and EPS, but plan to do so starting next quarter in line with our industry peers. Our total indebtedness now has a weighted average cost of .4% and our net leverage at quarter end was approximately 2.5 times. As we had previously indicated, the $690 million of convertible debt due in December 2025 was classified as current debt on our current December 31, 2024 balance sheet. However, after the recent financing activity last quarter and the shrunk cash flow profile of our operations, we are well positioned to pay it down at maturity. Now turning to 2025 guidance. We are introducing this guidance excluding the global blue impact, and as follows. Volume between $200 and $220 billion representing 21% to 33% year over year gross. Gross revenue list network fees between $1.65 and $1.72 billion representing 22% to 27% gross. Adjusted EBITDA between $830 and $855 million representing 23% to 26% gross. And adjusted free cash flow conversion greater than 50%. While we are not providing quarterly guidance today, Q1 is shaping up in line with our expectations for both volume and revenue. We anticipate adjusted EBITDA margins of approximately 45%, which is also in line with historical trends as Q1 is a seasonal low point for margins. We are also absorbing some drag from lower margin M&A completed in 2024, but again anticipate this to be mitigated by year end. With that, let me now turn the call back to Jared.

Thank you. Thank you, Nancy. We will be saving questions until after our investor day, but since this is likely my last earnings call, please know I leave SHIFT4 in the very capable hands of Taylor Lauber alongside a great leadership team, those who I have the utmost confidence in and who have been key architects in the firm's growth strategy and overall success over the years. While I can't predict how the process will go, I hope to be able to offer input to Taylor whenever it is requested, and to the extent it's permissible, I intend to remain SHIFT4's largest shareholder. As the founder of SHIFT4, from my parents' basement to the multi-billion dollar public company it is today, I'm incredibly proud of the team and what we've accomplished over the last 26 years. I'm really thankful to my family, friends, the incredible team, our advisors and investors who believed in us, and really in this incredible nation that makes stories like this possible. I will always be grateful. Thank you.

And thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.