Q2 2020 Shift4 Payments Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the shift for Peanuts second quarter 2020 earnings Conference call.

At this time all participants are in listen only mode. After the speaker's remarks will be a question and answer session.

If you'd like to ask a question during the session. Please press star one on your telephone if you require further assistance. Please press star Zero I'd now like turn the conference over to your Speaker today phone Bowen Investor Relations. Please go ahead.

Thank you I'd like to welcome everyone to shift for second quarter 2020 earnings conference call before we begin I'd like to remind everyone that this call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, all statements made in this call that do not relate to matters of historical fact should be considered.

Forward looking statements.

Including statements regarding management's plans strategies goals and objectives, the expected impact of covert 19 on our business and industry and anticipated financial performance, including our financial outlook for the third and fourth quarters of 2020 and full year 2020. These statements are neither promises nor guarantees, but involve known and unknown risks uncertainties and.

Other important factors that may cause our actual results performance or achievements be materially different from any future results performance or achievements expressed or implied by our forward looking statements.

Factors discussed in the risk factor section of our quarterly report on form 10-Q for the quarter ended June Thirtyth 2020, and our other filings with the Securities Exchange Commission could cause actual results to differ materially from those indicated by forward looking statements made on this call any such forward looking statements represent management's estimates as of the data this call while.

We may elect to update such forward looking statements at some point in the future. We disclaim any obligation to do so even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP measures on this call, which are reconciled to the nearest GAAP measure in the company's earnings release, which can be found on our investor relations website at investors dot shift for dotcom.

And with that let me please turn the call over to our founder and Chief Executive Officer Jared Isaac.

Thank you Sloane. Good morning, everyone. This is jeopardize dykman CEO ship for payments.

Thank you for joining us on our first conference call as a public company before we discuss our business in the second quarter I'd like to take a second to acknowledge really how proud I am to be part of such a talented Brazilian and innovative organization. We've all been living in really unprecedented time period that poses numerous challenges to us as individuals as bad.

Please professionally and as a society.

Empress beyond words with how we've navigated through these realities to become a better and stronger organization.

So many respects theres still so much left to do but for this moment. Thank you from the bottom my heart to all ship for employees as well as our value merchants and software partners. Thank you for all that we've achieved thus far and for your focus towards everything we still into accomplishes. This journey continues.

So clearly the founder I have biased because this company and its evolution had been might focal priority for the majority of my life.

So that disclaimer side ship, who are really incredible business with over 1000 dedicated employees 7000 software partners and over 200000 business customers all of which have been battling incredibly challenging circumstances and in many cases overcoming yachts and persevering.

The shipyard has been at the forefront of integrated payments since before that was really a thing.

We had strategically positioned ourselves to benefit from long term secular trends as commerce, enabling software continues its grand convergence with payments, we have anticipated on several occasions, where the puck is going to go and thats been of great benefit, especially of late when it comes to things like contact was forms of payment like our sky.

And our QR code base payment products.

I can also say with some sense of objective city that despite or 21 years of history.

I think the most interesting and exciting opportunity still lie on the road ahead.

We are passionate and ambitious organization and that seems to be one of the largest integrated payment companies in the world and June 5th was a major milestone in that ongoing endeavor.

So getting down to business as you saw from our released this morning shift for drove very strong results. Despite a market backdrop that clearly impacted our merchant base, particularly those in the restaurant and hospitality space.

Specifically ship were generated end to end volume 4.2 billion for the second quarter of 2020, which drove gross revenue less network fees of 67.4 million. While these figures represent a decline of 23% and 10% respectively from the prior year period keep in mind. This is against the cobot 19.

Environment, where the average industry restaurant.

Hospitality volumes were down and estimated 60% to 90%.

Perhaps more notable is our June bond, which was actually ahead at June 2019.

So this year over year volume growth trend has continued and in fact increase into July it's worth noting that July was actually the second highest month of end to end volume in our company's history.

Our outperformance was driven across both new merchant wins as well as continued conversion of merchants from our gateway platform to our end to end solution, which I will profile and just a minute.

As a result of our strong execution to four generated adjusted EBITDA of $14.8 million for the second quarter, which represents a margin of 22% against gross revenues less network fees. Lastly, we reported a net loss for the second quarter of 75 million or three cents per share.

When adjusted for stock based compensation and onetime events in net loss of 14.4 million.

On the topic of broader volume and Cobot 19, our Chief strategy Officer Taylor lumber will provide additional color on trends in the second quarter as well as some detail on proactive steps ship for took to help our merchants and also manage our expenses and optimize our profitability.

Brad hearing our Chief financial Officer will provide more detail on our financials later in the call, but right now I'd like to provide a brief overview shift for and our differentiated approach to payments.

So for those of you that are looking at ship for the first time, we began the company in 1999 from my parents basement with the goal of helping smaller merchants solve their payment needs. Our initial focus was and continues to be simplifying complex problems for our merchants with the aim of capturing James bond.

In the early days it was all about healthy small business with payment acceptance and onboarding, but that has evolved into supporting some of the largest and most complex merchants in the country, including the new Rader Stadium in Las Vegas, which were excited to talk about a bit later.

Most merchants have to manage eight confusing set of vendors. This includes company supplying point of sale software point of sale hardware security analytics that payment gateway merchant acquiring and more of course. This web of vendors can grow even further when you start thinking about gift and loyalty cards online ordering.

Contactless payments and so on in many cases these services aren't optional they are required to make a payment solution works securely as well as meet the operational requirements of the business. The problem gets exasperated when emerging has multiple revenue centers and multiple locations.

So if you think about the number of software solutions a hotel for example might be using and divergent history behind each of them. You can quickly understand why this multi vendor model results in pain.

Cost and service challenges and leave so much opportunity for improvement, which means that leaves a lot of opportunity for sure.

Chip for as vertically integrated and bundle many of the capabilities merchant would otherwise have to pay a multitude of different vendors to implement.

These critical links and depends value chain and the ability to support over 350 different software integration that most merchants in our target verticals are already using ultimately translates into a very large addressable market that as well served by very differentiated and cost savings value proposition.

This is really important because we believe we are the first in our industry to really do this and it's what is field so much of our year over year growth.

If you are getting a sense that typical shift for merchant is not a food truck you would be correct, we love to trucks, but serving their payments needs is not what really makes ship for special.

Many payments companies offer easy to use and then solutions for very small merchants, we take that exact philosophy and deliver to larger and more complex merchants that happens to be some of the most recognizable brands in the world.

In summary ship for is built to tackle the complex problems of multiple software solutions Omnichannel payment acceptance enterprise grade reporting and analytics and solve a number of other pain points through a single vendor solution as we forays into our customers. It's a one handshake service model.

I think it's worth taking a minute to describe how we grow.

Our partners provide us three things massive coverage across the us a rolodex of high quality merchants and a highly scalable service model.

Merchants can subscribe to ship for VR Gateway Omni channel or as is increasingly becoming the case through our full end to end payment solution. The key difference between the two path is that our gateway only customers rely on shift for for software integration and payments security, but also several third parties for things like merchant acquiring payment.

Devices themselves reporting our end to end solution on the other hand classes all of these functions with shift for as a single vendor solution.

Assays merchants money allows for better service and speeds up time to market for the business because we can fulfill the role of multiple vendors at scale, we can charge the merchant less than they are paying before and still generate four times. The gross profit of a gateway only customer or more.

Roughly 11% of our overall volume is driven through our end to end solution, but that volume represent over 80% of our total revenue.

Exciting growth dynamic that is you need to ship for is our opportunity to convert the remaining 89% of our volumes from gateway to our hand and platform.

This is not a heavy lift and in many cases moving a merchant from a gateway only subscription to an end to end offerings can be completed in less than 24 hours and Taylor will give an update on our progress there and just a minute.

Despite the enormity of the gateway only to end to end the opportunity. It's important to reinforce their growth is not limited to merchants already on our gateway in fact, a large portion of our growth comes from empowering our 7000 software partners with a compelling value proposition fueled by our integrated payments offering so they can seek out in winter.

Share what is a very large addressable market.

Before I turn it over to Taylor and Brad I'll end with a summary of our value proposition to investors as we see it first we operating industry with long term secular growth trends, including the digitization of payments checking our one of a kind payment platform attract high quality merchants and the thousands of software brands that serve them.

Third because of our history of highly strategic M&A. Many of our customers are legacy gateway only and we expect many of them to convert to our full intend solution overtime, which will further augment our growth lastly, our solutions can be applied in new market segments and geographies.

With that let me turn it over to tailor to give some color on volumes over the quarter and some unique initiatives we launch in mid to the pandemic.

Thank you Jared and good morning, everyone.

I'll begin by speaking a little bit about our merchants and what we've seen regarding payment volumes as the environment and the cobot 19 pandemic has evolved first I'll reiterate jerritts comments about how ship for thinks about our merchants and what I mean by that as we take a lot of pride and aligning ourselves with their success never has that been more evidenced in the past 100 days for those.

View that don't know ship for acted very early in the pandemic to launch ship or cares dot com.

In order to provide insights into the told the pandemic was having on the economy by sharing in a very transparent way the payment transactions, we are seeing each day.

Before I speak to these data I'd like to emphasize the chip for cares won't be a good proxy for thinking about our company's revenues, particularly particularly on a year over year basis, our rapid growth coupled with the incredibly high gateway volume. We support means that these data points while helpful for understanding a particular state or industry don't really tell the story of our profitability.

Brad will give more detail on our revenue drivers, but you'll see in a second there quite a bit different than what you see in the gateway transaction on should for cares.

But that said, let me provide some detail on what we've seen over the quarter.

As Jerry mentioned Q2 end to end payment volume was 4.2 billion with 2 billion of that occurring in June.

These June levels were ahead of June from last year, but roughly 10% below what we are seeing pre cobot.

Much of that recovery can be attributed to high quality gateway conversions, which contributed approximately 17% of our end to end volume for the quarter and also new merchant ads, which happen every day.

Jerry mentioned this but I do think it's worth restating July payment volumes have continued june's trends and are in fact, the second highest month in our company's history, that's something we're really proud of.

Overall, we observed a lot of resiliency across our base of merchants over the past few months and while there remains uncertainty in variability due to the pandemic across the country. We feel confident that the industries. We serve can largely withstand the pressures coated 19.

Our board of new merchants never really slowed during the quarter, which is also highly encouraging.

We can attribute this to a couple of things first our core value proposition it being one of savings and simplification those resonate during hard times second we are fanatical about innovation and released four different products.

To help our merchants and software partners adapt to the rapidly changing landscape.

With that let's turn our attention briefly to some case studies of new end to end merchants.

In our presentation, which you can find on our investors website. We've highlighted a couple of new end to end merchants, including a casino and resort that is very typical of high quality gateway conversion.

Not only benefited from consolidating the multi vendor payment solution that Jerry mentioned earlier, but also save significant money in the process for this particular resort they save over $17000 in upfront equipment expense beyond equipment. We will also save this merchant roughly $8500 per year by eliminating gateway and other vendor fees.

We're also able to take advantage of contact technologies Lakes contact list technologies like Sky fabric QR code based payments at no additional charge.

This is clearly a compelling value proposition, perhaps even more compelling during times like these when economic hardship is prevalent.

It's important to remember that gateway conversions are only a portion of our growth story. We also when share as Jerry mentioned, we announced our partnership with the Las Vegas Raters mid July as a company that handles payments for nearly half of the hotels and casinos across the Las Vegas strip, it's great to be partnered with the home team more importantly, we view this partnership is it.

Validation of our value and growth potential for merchants beyond our core restaurant hospitality base.

Before I turn the call the Grad, it's worth mentioning how shift for continues to innovate across all parts of our business and the introduction of QR pays latest example of how we put ourselves in our merchant shoes and work to salt pain points as consumer behavior changes due to cobot 19. It was clear to US early on the contact was payment options will be critical.

Option for merchants.

Sure for act actually already possess this technology dating back to 2014 and was able to quickly rolled it out across the software brands, we own and also make it available to hundreds of partner integrations.

With that let me turn it over to Brad for a review of our financials for the quarter.

Thanks, and good morning, everyone before I begin I'd like to note for those on the call, but there are a number of slide in the latter part of our presentation that will highlight a number of the metrics that I'm about to speak too.

Now to get to our financial results as we reported in our press release shipboard generated 67.4 million in gross revenues less network fees in the second quarter of 2020. This represents a 10% decline over the prior year, despite a 23% reduction in processing volumes during the same.

Period.

The key differences in the decline between the two figures is the continued onboarding of new merchants move from winning share in converting gateway only merchants in the addition of revenue streams from the merchant week acquisition.

Let me give a quick refresher on the economics of the Gateway conversion Jared and Taylor mentioned approximately 89% of our volume is generated from merchants that only use our gateway service shipboard revenue from this merchant base is generated at approximately three to five cents per transaction.

These merchants migrate to our in solution, we shift from transaction fees through a spread of approximately 40 to 60 basis points. The result is a step up in gross profits were four times or more when we compare that to our gateway only merchant.

These gateway conversions in addition to share gains through the new merchant wins that cured and Taylor mentioned previously both played a significant part in our overall growth.

Moving to adjusted EBITDA.

414.8 million in the second quarter, which compares to 24.0 million for the same period in 2019.

Our second quarter results represent an adjusted EBITDA margin of 22%.

Gross revenues less network fees, which is down approximately 10 points from the same period a year ago.

The drop in margin was due to the southern sharp declines in revenue seat in April in Bay.

Result, cobot 19 significant cost reductions that were implemented in may we improved margins by the end of the quarter.

Next I would like to highlight a few key points regarding capitalization and liquidity.

We use aggregate IPO proceeds of 464 million to repay $280 million debt within the quarter entirely eliminating our secondly facility repaying the entire balance on our outstanding revolver and reducing our first lien facility to a balance of $450 million.

As a result, our current leverage stands at 5.3 times on a gross basis and 2.5 times on a net basis as a multiple of our LTM trailing adjusted EBITDA.

With regard to liquidity, we ended the quarter with $244 million in cash and 89.5 million of capacity on our revolving credit facility.

Finally, given the amount of volatility within Q2 and the challenges to extrapolate. These results into the back half 2020, we wanted to provide some guidance on a few key measures. This guidance is predicated on volume and spread troops continuing to perform as they did at the end of Q2.

Our guidance is based on our current expectations and is subject to change based on many factors, including but not limited to the possibility of a second wave of coded 19 were states and municipalities further restrict dining travel or other forms of commerce.

That said, we exited the second quarter processing approximately $2 billion in the market June.

We anticipate volume to increase also Q2 levels to between 6.2 and 6.5 billion for Q3.

Vincent between 6.5, and 6.9 billion for Q4.

Our expectations regarding this volume growth or a function of continued strength in merchant production as well as slow and steady recovery of same store sales within the merchant base.

As typical in our industry, we do expect to see a slowing of growth related to same store sales in Q4.

Net spreads saw significant volatility in Q2 and ended the quarter at over 90 basis points.

The higher than normal spreads in Q2 were the result of certain merchants, reaching monthly minimums and certain fixed fees being charged against reduced volumes by the end of the quarter net spreads began to return to more normal levels I.

Assuming volumes continue to recover net spreads remained at more normalized level and we continue to see steady recovery in our staff and gateway revenue streams, we anticipate gross revenues less network fees to be between 74, and 78 million for Q3 growing to between 75.

And 79 million by Q4.

We anticipate net processing spreads to continue to declined slightly as we continue to execute on our strategy of attracting larger more complex merchants with higher volumes.

Finally, we expect adjusted EBITDA to return to more normalized level by Q3 that said our guidance for Q3 in Q4 would be to anticipate adjusted EBITDA of approximately $20 million to $23 million per quarter for each of Q3 Air Q4.

I want to highlight a few other topics that will manifest itself in our financials going forward.

Beginning in Q3 of 2020, we will be accounting for our Pos and terminal equipment deployments as operating leases. The result will be a shift from an expense in cost of sale to a leased assets that will be depreciated.

Second as Taylor mentioned previously July volumes are up meaningfully year over year as such we have included additional opex investments in our guidance to support where we are seeing as a strong interest in our into in offering.

I want to reinforce again this guidance is being given because of our strong Q2 financial performance in our belief that recalibrating expectations is appropriate theres still considerable uncertainty in particular as a result at the current cobot 19 pandemic.

Hey, Thanks, I wanted to say Hey, one thing I wanted to add this is Brad before we get into financial results as I wanted to provide the share count that are being used.

So for the a class year, we are using 19.0 million shares.

And for the C class is 20.1 million shares.

Now I will turn it back over.

Great.

Thanks, Brad we're going to turn into Marseille that goes to the instructions for queuing may.

The time constraints, we'd ask that everybody's limit themselves to one question on a follow up thanks.

Thanks Marcella.

At this time I'd like to remind everyone I'm not going to ask your question. Please press star.

I know telephone keypad.

Your first question comes from the line.

Yes.

Right, Okay fine.

Your line is okay.

Thanks, guys. Good morning, Thanks for taking my question I wanted to get into little bit around the gateway opportunity. It's clearly large at 585 billion in volumes last year I was hoping you could talk about the lack of alternatives in your core verticals in terms of the breadth and depth of the software integration is that you asked many of those having been built up over.

Years and years and years into some sort.

For the software platforms again in your core verticals, maybe you could just bring that to life, a little bit and talk about the extent to those and what that means for your business.

Sure Kim Thanks to the Great question jeopardizing coming here so.

You know as described during our during our on or during my opening commentary of this call. We live in a we intentionally position ourselves in a world of complexity. It almost every one of the merchants that is using a shift towards payment platform has a multitude of different software.

Applications install to deliver an experience now that could be a hotel property management system that can be restaurant point of sale system that can be a retail point of sale system in a gift shop. It could even be a golf course software system that is powering the golf course had a resort and they all need to connect together network together for a encrypted and secure payment XP.

Variants for Tokenization analytics, and then again, the the full payment processing service.

Now not every merchant is on the exact same version of software in fact in our deck and I think we highlight pebble beach tap mix.

One of our great signature locations that shift for.

You will find probably a dozen different software applications at that property using versions of software that could date back to 18 years, and that's really not uncommon at all in the verticals. We plan so when trying to assess the competitive landscape.

That ship for plays in you have to realize that not only do you need.

Potentially hundreds of different software application certified to your platform in order to compete you also need like potentially decades of version history behind it because a customer isn't going to transition from one payment platform that an x. and have to wait years in order to accumulate the integrations necessary to provide.

That experience I just described so when you take all that into account the actual landscape that exist as capable of addressing those unique requirements in the complex verticals. We plan is really like the repayment platforms out there and ship for is obviously want them.

Oh, that's excellent. Thank you for that color. The quick follow this on the Las Vegas creators and organic new and not a gateway conversion, maybe just provide some context you had a good press release in mentioned earlier in the slides but.

Was that a competitive process and also maybe just touch on the sponsorship element there as well.

Yeah. So again Jared here Im happy to answer the question. So we have never historically played in the sports and entertainment Arena as though it is quickly becoming an important focus for US now shift for we have a BD team that's assembled to really dedicate a lot of resources towards it.

And we were capable of addressing it because of those software integration that I'd.

Described previously the same software integrations, you would find in big resorts or arenas in resorts happens to be the same software that is capable of powering some very large stadiums. So.

And that's by the way not an uncommon story to a lot of other verticals that shift for is able to plan. You know just kick off track for a second a lot of people know us within the hospitality and and restaurant space, but the same software that powers retail shops and resort is the same software EPS stores, which is one of our signature accounts too and that's pretty far from from who.

The in restaurants, but back to your Raters question as Taylor mentioned during his remarks.

Thats kind of the Hometeam for us our second largest office in terms of our Workforces in Las Vegas, a lot of very important customers for shift we're in Las Vegas. So naturally when they are building a new stadium, we did approach them not about a payments conversation at all just could we get a suite at the stadium for some of our employees as well as on.

You know entertaining some of our customers who happens to be Las Vegas area anyway.

And in those conversations they brought up the payments conversation to be really honest. They were a couple of days away from signing with one of our competitors who happen to sponsor another stadium on the West coast in that created a conflict. So they approached us on this whole conversation.

Yeah. I mean sponsorship is is a component of that I would say that the relationship for US is is a profitable. One this is not a this is not a loss leader.

We were going to get it we were going to get a sweet and anyway, and probably hang our logo off in a few spots, but the net result is that it's a it's a signature when thats going to showcase our best technology, including contact with secure payment in the most demanding hospitality environment in the world. So it's exactly where we wanted to be and that won't be our last stadium on pre.

Sure.

Thanks, I appreciate taking the questions.

Your next question comes from the line David targets five Evercore. Your line is open Ah. Thank you good morning.

Could you walk through the third quarter guide on end to end payment volumes. It looks like you're guiding to about a 51% sequential increase at the midpoint of the 6.2 6.5 billion dollar.

Volume range, what are the underlying assumptions in terms of gateway conversion versus.

Kind of return.

Of the underlying.

Business to grow throughout the quarter.

Sure. This this is Taylor I'll address that.

What I think we aim to do it in providing the guidance was given to a more relevant jumping off point given the growth we'd seen out of Q2. So.

Just to put a finer point on it June we had just shy that's like couple of thousand dollars shy of 2 billion.

Payment volume and then in July we saw that recovery continue as we mentioned this in our deck I mentioned this in their marks july's actually the second highest month in our company's history in terms of end to end payment volume one thing I would say is there does remain a lot of uncertainty out there so carrying.

The.

The growth forward that we experienced in June and July into.

August and September it didnt seem particularly prudent.

We break that down into for a more conservative gross per existing site than what new sites contribute so new sites do tend to contribute.

The majority of the growth you'd see an order just because it wouldn't be prudent to assume that an existing locations and grow really quickly when there's as much uncertainty in the commerce environment as there is.

If it helps people calibrate one stat worth mentioning is that our July payment volume roughly 7% of that near record month was from customers who joined us. During Q2. So it gives you a sense as to what even in a muted growth environment for our merchants.

Our boarding mechanism can do.

Got it just as a quick follow up to what extent is the skycap product, helping you win business in the restaurant space as restaurants have moved more to a takeout framework and the code era.

That's a really excellent question and I can I think I can give you again jeopardizing. The here I think I'd give you a pretty pretty fair answer not getting down directly into specifics.

Skycap was originally a pay it table order a table program that we launched at the National Restaurant Association in early 2019.

Pay a table order table has never really taken off in the us markets compared to the international markets that have been doing it for its essentially decades.

So we felt when we released the program we had a ton of interest and traction in it now obviously during the cold the crisis.

No one is going to go into I mean, the idea of in venue commerce ground to halt, especially with restrictions in virtually every state on in venue dining.

We were able to push out a software update you all of those devices that were in the field that enabled curbside delivery takeout capability. So to help our merchants pivot to what was becoming the new norm of the crisis.

During the.

The late March through I'd say early June time period, we deployed three times the number of devices.

Two restaurants existing customers as well as completely net new customers as well is gateway to end to end migrations than we had in pretty much the year, probably when we initially released as a pay a table order a table product so.

Well over I'd say like 10000 devices.

But I know I don't want to get to specifics I don't have the exact number there, but it is about a threefold increase in utilization prior during the crisis and it was prior to the prices.

Understood. Thank you very much.

Your next question comes from the line Dan Perlin from RBC capital. Your line is open.

Thanks, Good morning, everyone and and congratulations on the quarter right at the box you make our lives and you need to this kind of stuff. So appreciate it.

The question I have couple questions one in some when we think about the merchant linked portfolio.

Where are we in regardless I know, it's a little bit early days, but where we were regards to at the beginning to converting some of those clients I know they tend to tilt towards larger kind of hotel and resort properties.

But can certainly be meaningful to this this conversion story. So I would just like an update there. Please.

Yes, so thanks, Dan Jarrett I've been here again.

I would say, we're still incredibly early on in the overall gateway to end and migration effort.

That said.

And actually I want tailor to kind of a fact check me a little bit on that.

From in fact, why don't you just get decision.

So so.

In the quarter following our acquisition, we had incredibly strong.

Migration of customers. So just to give a little bit of backdrop for folks that might not be is familiar the merchandising platforms lacked a handful of really critical.

Security features and.

Best in class.

Commerce features tokenization things that customers really wanted in their revenue model struggled because they were just payment gateway. So they couldn't implement a lot of these services for customers that price point that was that was rational. So a lot of our thesis was by acquiring this business. We can simply tell all these customers. It's free if you switch to around AD platform that was in.

Credibly well received we migrated.

Roughly 4000 merchants in that first quarter I would say in terms of our contribution in Q2. It is it's a meaningful contributor, but I wouldn't say outweighs sort of the other two two big pillars, we have which is that we've got the software brands we own.

In Harbortouch restaurant manager future, Pos and pozzi touch those can usually we can count on them for about a third of our production.

And then also.

The ship for Gateway itself, which we acquired two years prior so each of them can contribute about but about a third it bounces around.

That example of moving 4000 merchants in a few months following the acquisition certainly an outsized contribution I would say it's more normalized in.

In the second quarter, one thing Thats, particularly interesting that makes the data a little bit hard to dissect the be candid with you is that once you've sort of ingrained yourself in these channels. These merchant community is on with the software brands themselves.

You start to win new share and what I mean by that as you converted a restaurant over that was using the gateway, but they've also got another restaurant is using a different pieces software in a different gateway, but they like the value prop and they want to consolidate everything under yet so I would say merchant link is a great contributor to our production very meaningful.

In that concept of about it's one of the three pillars.

But.

Whether it's a conversion that we had in our rolodex or just simply a new site that we got as a result of a b relationships still tends to get a little bit a little bit more opaque and that's when we got to dive down so more granular data.

Yep no that's great.

The quick follow up is you know the July volumes being the second highest the company's history is pretty amazing.

Given that the current context on the backdrop, and so and and by the way, giving guidance for three and four Q is pretty unique amongst other payment companies. So we appreciate that.

I'm wondering how do how should we be thinking about.

You know that level of visibility over the next couple of quarters. I know you said, there's lot of uncertainties in the world, but the fact that you're giving it.

And the amount of visibility that you may have the in terms of some of these conversions and new wins.

Maybe you can just help us.

Put that in context. Thank you.

Yes, sure. So I think I mentioned this earlier, but the way I like to sort of contextualize. It is that if you look at that month.

You know, 14% up over the same period in the prior year and I'm talking about July specifically.

You had about.

South 7% of the volumes in that month was from merchants, who joined us or joined our end to end platform in the prior quarter and so while you're getting nice growth from merchant board, you're also getting almost equal weight or recovery inside of your existing base I.

I don't want to be too precise.

It would be a fools errand to try to pick exactly.

Turning to guidance, we are comfortable saying you know growth will continue we don't think that the pace of growth experience in June and July it's something that you want to extrapolate out over the next six to nine months, there's just too much uncertainty inside of that but given the boards that we had in the second quarter and the fact that.

A lot of them onboard in the month or two following.

Then executing the merchant application and the fact that we're supporting customers in July gives us good line of sight that even if there is a little bit of rock Eunice near term. We had we had an end to end volume range that we felt comfortable today.

That's great. Thank you guys.

Your next question comes from the line Matthew O'neill's from Goldman Sachs. Your line is open.

Yeah, hi, thanks, so much for taking my question.

Jared One thing you said in your prepared remarks that I, just I'm, particularly interesting I don't think I heard before is that.

As far as the cadence as the gateway conversion to end to end you indicated that in some cases it can actually be as quick and easy is you know being completed within 24 hours.

And so it's sort of a two part question I was hoping you could maybe give us a little bit more of an understanding of the process of.

Contacting gateway customer today.

You know explaining to them the virtues of vendor consolidation and moving not only gateway that also end to end to you guys.

And how the cadence of that is probably progressing as you know as a result of the pandemic.

Our inbound volumes.

Picking up significantly in it the prospect for converting the gateway.

No pool of customer base.

Potentially on an accelerated schedule at this point thank you.

Yeah, Matt really excellent question, so hitting the Q parts, the first really being about the technical means to migrate a gateway customer to and then and then the second part just on the rate of conversion and how that's trended in in Q2. So on the first part time when I said.

During the prepared remarks is absolutely correct them to be honest it can be less than 24 hours. So.

This really just goes to a new come and see advantage. We have as a result of the gateway in that all of the complex hooks.

That are in place with our payment platform in establishment like a hotel or a restaurant or resort environment. There already there. So all of the connection points to the front desk in the central reservation area and the and not in the restaurant in lobby bar, so and so forth, it's already in place where R&D driving those.

He is all we're doing is outputting them on the other end of our platform Q1 of our competitors a.

Yes, if I serve so on and so forth. So when a merchant makes a choice to leave that multi vendor environment and that comes with obviously cost and a lot of pain as I described in Miami in my opening remarks.

It's it can be a simple is just turning off the Val changing the merchant identification number in our system not our competitors system because again, it's important that all the intelligence thats driving that transaction all the capability is resident within our within our platform. So in many instances that advantage of art.

Being installed in.

Just a very large portion of the hotel restaurant specialty retail market gives us a great advantage for migrating customers over so again it can be very very simple.

Then the second point in terms of it the speed of the conversion.

What I'd say is you know a value proposition that does revolve around collapsing unnecessary layers of expense in complexity was obviously fueling.

Considerable growth before the crisis mean ship more was growing.

Our end and payment volume North of 40 plus percent before we went into year over year before we went into the Colby crisis now that kind of a value proposition absolutely continues to ring true a in a in an environment eminent were virtually every one of our customers is going through some sort of a cost rationalization exercise. So I don't want to say that the rate of.

Conversions from gateway to end and somehow accelerated even more because it was already on a great track when I say is it definitely been slowdown.

You approach them are they approaching you more is it as it is still primarily an outbound kind of sales an educational effort to say two hospitality gateway customer.

By the way now we can do all of this for you and consolidate you and how that is there any way to think about it.

It's a multi pronged effort between what we can do at shift for as an organization and what our 7000 software partners can do out in the field. We're all totally aligned around this concept of eliminating is multi vendor environment down to one I mean, especially in the colder climate, where it's not easy to get six or seven different parties.

On a conference call and come to some sort of an agreement on a technology solution or a service related challenge you mean.

Threw out a lot of different industries, there were furloughs mean points of contact were gone so.

Keep in mind, even our software partners in the field the software companies that deliver the property management system at the restaurant point of sale they want to collapse down a lot of the vendors in order to simplify their lives. So I do want to emphasize that our software partners had just as much in incentives. During this time period to go out and promote our solution as we do now.

Shift for this is where innovation comes into play in our strategy, it's our job.

You identify team point that live in the market pain points for our target customers.

And solve them through technology innovation, and then we deliver that at little to no cost presented to those customers in order to use them to move to our and then platform now the pain point of the last four months should not be surprised is all about contact the same.

It's all about our Skycap based products or our QR code based payments.

But really we we put together almost six years ago.

To help our customers in their reopening effort and deliver a safe commerce experience with their with their consumers. So sending a black E mail out for example to 60000 gateway customers that say.

Would you like to enable contact with payment or QR code based payment or get ready to reopen and trying to be helpful. In that regard will that certainly makes the phone ring.

And that in combination with our partner effort is how we drove a lot of gateway conversions, and then and how we continue to do so.

I think optionally helpful. Thank you very much.

[laughter].

Your next question comes from the line of Ashwin Schmidt.

Citi. Your line is open.

Hey, guys, Hey, agitator Fred.

Thanks, what are the detailed.

And I was kind of fading in and out so apologize if this with color, but as I look at Contv and Q4.

Yes, the you kinda Oh, you kind of suggesting.

In teasing end to end.

But the EBITDA margin seems to stay roughly consistent so is that a specific.

Investment that's contemplated in new innovative back ended the year that that that keeps it that way or are you, saying contains wouldn't be towards the lower end of testing it in fourq towards the higher any color there.

Hey, Ashwin. This is Brad I appreciate the question.

Exactly right in what you see in the guidance Theres a couple of things driving back what is when we think about Q3, obviously, we have a little more visibility with one quarter in by the time you get the Q4. It does open up kind of the realm of possibilities. So we tried to get to range that would open a little bit more.

But there are some additional investment that we have included.

As we get through Q3 in Q4, mainly driven by the fact that July was our second high volume month in history, we are seeing considerable growth in our merchant production in our merchant Onboardings. When we want to make sure we have enough opex in order to get those customers boarded and meet our operational fulfillments.

For that so we have included a portion of investment of into Q3 Q4. The other part that we've learned a little bit in a cobot environment, we've had to deploy a a little bit of extra opex. This in the near term to shore up you know some of the challenges were all finding the business world of dealing with the cobot environment, whether its work from overworked remote.

And different ways of working so we're making sure we sure those up about Q3 Q4, but we see those is very temporary investments are likely move into this year and the margins should return to our previous guidance by the time, we get into 2021.

Yeah, Hey, Ashwin Gerrick here, if I can just layer on to brad's commentary a little bit you know I think you know probably you as well as most of the analysts now that are starting place with the model that we discussed a couple of months ago versus where we're at today is pretty night and day, so as a new public company.

Management team, we felt we had an obligation and it was responsible thing to do to kind of recalibrate expectations in light of the pretty significant departure to the upside.

In our Q2 performance.

That doesn't mean, we still haven't you know taking a conservative look.

To the quarters ahead, and the Brad's point among deep into Q3, and an idea of what our productions and pipeline is like we can put more confidence together around that in Q4, we're gonna certainly takes some discounts because of the uncertainty, especially considering that time period may or may not be a more impactful period when it comes to cobot.

So hopefully that kind of you know helps with.

Some context this adds to the outlook.

Yeah, and I have said if he does.

Can I ask a asking guys too.

Perhaps comment on sort of me.

The nuances in ins and outs of me investing you guys have already major look into restaurants.

As well as is that as hotels.

We get a bunch of external data as well, but any conversations can you talk a little about sort of the next stage what sex next stage going to be new kind of seen any opening patios bars things like that what's the next stage piece, but your customers are looking for.

And.

Any incremental color on the hook had a front as that.

Yeah sure.

As Taylor I'll address that I would say.

It's all evolving very quickly so we caution when you look at it trends that exhibiting itself with regard to maybe merchant behavior you have to look at it as something that is.

A flavor of the moment.

But what I would say if you sort of step back and you piece a handful of these things together.

Technology adoption inside of restaurants has accelerated dramatically one of the things that I think if you're in a spot like like New York City, you probably take for granted.

Is that every restaurant does online order and online delivery that is not the case you look across the vast majority of the country at lots of merchants I like to say picture your favorite old Italian restaurant, that's been there 25 years.

That did have a robust online ordering infrastructure and quite frankly at a time like now not when you want to implement solutions the cost is 30%.

Of your revenue. So we saw a rapid adoption of technology first that was in relation to online ordering and streamlining. The you know whether it's the delivery via Skype device or your door the pickup.

At a restaurant and that very quickly wed.

More restaurants, sorry to open up QR codes became a became something that was prevalent and just to break that down right. QR codes are incredibly easy for a restaurant to implement because they've already got their website their menu on their website. Thank you. Our foot forward you can look at their menu, but when it comes to payment is very challenging I just think about the number.

Different a restaurant Pos brands out there implementing the QR code solution is kalenjin. So the idea that we're able to take our own solution that we built for one of our on brands push it out to all of these other software brands you know the micro since the world take advantage of was something that restaurants reacted to incredibly favourably.

But it it couldn't be disruptive to their their core service model and by that I mean, you could really break the original process of them, bringing out a check so we work with them and make sure. The QR code to get on the check on their existing software in a really seamless way that worked with our existing printer et cetera.

So thats a nuance example, but I would say technology adoption in the sit down restaurant has accelerated dramatically over the past few months.

Hotels I would say we're ahead of the curve on technology adoption. The contact list is just as big of a theme for them.

But you're just not seeing the level of commerce. There that you are in the restaurant space, it's probably premature to comment.

Understood. Thank you.

Next question comes from the line Gary Taylor from Wolfe Research. Your line is open.

Hey, Thanks, guys, a nice job look when we look at the growth profile, you're calling for in the hands and volume. The next couple of quarters more we're seeing in June and July it's pretty apparent that despite your verticals.

And even beyond the end to end converted the gateway conversion. There is something that is differentiating our tax standpoint, I know you just touched on that on restaurants, but I guess number one I'd be curious to hear what percentage are seeing of your volume that card not present, what percentage is maybe buy online pickup in store. If you can give us any color around that and where that compares to versus.

So a year ago, and how you guys can show those percentages versus the industry averages.

And then I also want to know how the trends are in your non hotel in restaurant verticals. He's done a I think a good job building out.

20, better 30% of your volume that's not in those two categories, which seems to be a you know I think winning a lot of new business for you as well and why are you waiting there in has it gone thanks guys.

Sure I'll comment on the card present card not present trends, we've always been a very card present business sitting just yet.

Restaurants hotels in venue experiences that sort of translates to that if I were to bring you in.

Larry we would've been 85%.

Card present, and 15% card not present.

That that Troughed out from a card present perspective in April as you'd expect with about 40% of our transactions being card not present, that's that big shift to online ordering even just calling in and given your credit card number over the following two a restaurant or take out that's really it's not back to set.

To worry levels, but it's about 80 20 today.

And its and its stayed relatively stable through June and July.

So we're not seeing the the level of in venue commerce with your car that you'd expect out of our business profile.

Ah, but but to be fair QR code payment is it is the card not present as its paid through their websites. So I think.

The encouraging sign is that you're seeing more cards use at or around the venue, but we're not back to what you would have expected from our business prior to.

Prior to coded and sorry, just remind me of your sort of following question there.

Oh, Okay, yes, so the Jared reminds me.

If you think about the other segments. We serve its is a good point to emphasize that if you look at the software integrations, we have they tend to start with.

Hotel or a restaurant, but they quickly sort of spider web out from there and a good example of that would be a Caesars palace right, where yeah. We handled the online reservation integrations into the property management system, but it was a shopping malls there with lots of other.

Lots of other software being used to power that that many.

As our value prop gets.

Disseminated out to those software brands, we start to diversify away from hotels and restaurants in and it's not necessarily deliberate you'd look even even in the code environment, We love those marching categories, but when you enable a software company that powers great retail software.

To go when more share and deliver a better customer experience you start to win more retail locations that have nothing to do with hotel. So we've seen growth in our.

In our merchandise mix outside of those two.

Core verticals of first restaurants, and then hotels, it's really a just an expansion of those other other software companies, bringing us to their wins on main street outside of just what they wanted to hotel I would say you saw faster recovery inside of those non hotel restaurant industries earlier on this you'd see in.

Before cares pretty pretty cleanly, you'd see a faster recovery in those although they haven't they haven't gotten a pop over the last couple of months that that debt restaurants have right as suddenly outdoor dining is opening up in the northeast and other places across the country. So they recovered a little faster, but they're not growing as fast in July.

As a is restaurants.

Yeah I cannot just.

Karen if I made layer on just a little bit on the technology side of things and one closed up one just on the on the on kind of specialty retailer noncore restaurant hotels to layer onto a Taylor said you had golf courses there that were operational throughout most of the cobot crisis.

You had you vs stores that were still open facilitating commerce too.

Both of which to tell his point originated from our hospitality business, but obviously categorize differently.

What I'd say in terms of adopting technology and I think is really important point to understand our business and it goes back to that whole incumbency thing.

As we estimated during the roadshow process potentially 35% or more of the restaurants in hotels in the country you some form of ship for payment technology, but but only a very small percentage right use our end to end offerings and that's the big opportunity. We all know we're chasing and it's not just on the gateway, it's absolutely on the software side, because we have a lot.

When you sell system software out there that incumbency advantage, coupled with 7000 software partners that are essentially local provides awesome coverage and an ability to introduce new technology to your question very very quickly so things like Sky Tap for example, which facilitate contact with payments in delivery.

And take out in such its a lot easier for merchants, who is who is battling through a crisis who's trying to implement new ways to do business with their customers a solution. When it's just an additional extension to their current product versus having to like rip everything out and do a brand new installations.

Very hard to do a in a crisis.

And when you think about some of maybe that the fast growing restaurant software players, who have largely like a direct model where their remotely implementing solutions.

That's very hard to affect a rip and replace introducing new form of technology versus you already have a customer using your software there already being supported by somebody who is in the geographic area and all you need to do his hand them over you know a contact was type solution like our skycap products. So it makes it very easy and into distribution.

Relationships, we have their software partners has always been huge asset the large install base that we have is a huge assets and it makes it very easy for us to implement new paint new types of technology that became very vital during this time during these challenging times.

Okay.

Our next question comes from the line John Davis from Raymond James Your line is open.

Hey, good morning, guys.

Just wanted to touch on capital allocation for a second obviously post IPO the balance sheets in good shape. So I guess first you know how soon would you be willing to do a deal and what's your leverage comfort level and then second what would you be interested in any product gaps or specific areas of interest any color there would be helpful.

Yeah sure I'm happy to answer that's again Jared here, you know to be to just to answer. The first question in terms of the comfort of leverage ratios.

Obviously, when you look at high net basis, our leverage ratio is incredibly low right now.

For the last five years of our company history pre IPO, we operated at almost continuously six turns of leverage on a net basis.

Just given the are great private equity partner and the efficiency of our capital structure and during that time period, I mean, we tripled EBITDA the business.

We deploy capital effectively towards organic initiatives.

Then ultimately yield it really strong unit economics.

And we completed its a number of acquisitions that unlock what was to become a great organic opportunity.

With our integrated payment strategy so I.

I wanted you set the stage and that of course, we will never see those leverage ratios again that existed when we were as a private business, but lets you know how comfortable the management team can be and how effective we can be even in a pretty levered up environment. Okay. So all that aside.

We are looking at the same thing now in terms of our capital allocation that we were previously which is we have really strong unit economics, our customer acquisition costs relative to the lifetime value of our customer has an incredibly quick payback period.

I think you'll find you know in the quarter in and really in a year ahead, we're going to allocate more capital towards customer acquisition cost to accelerate growth, especially migrating customers from our gateway to around in platform because.

The returns on an adjusted phenomena that goes right back to the Forex uplift the gross profit per customer at least for example.

Second we are going to continue to look at opportunities that may just in the market, where we can unlock an enormous integrated payments opportunity and that could be in the verticals were already in a as it doubled down or triple down or could be in adjacent verticals or could be in new geographies.

And I'd say, we have a pretty healthy pipeline in that regard.

But.

I'd say nothing.

You know, we're just obviously constantly evaluating them, but yeah I I'd say, it's the same thing we did before is the same thing we're doing now and we're just going to be real disciplined.

Okay. Thanks, and then maybe just a quick clarification on the implied take rate, Brad and the and the guide obviously it steps down pretty materially from Twoq. You I think you know it implies like a 120 basis points or so so maybe just just help us the frame that exactly what's driving that and how we should think about.

As we go into 2021 and beyond thanks.

Yeah sure. John appreciate the question. We did we did discuss Q2 take rate and I want to make sure. It's clear that Q2 take rates are spreads as we call them. We're we're pretty inflated we talked about.

Can you get into a modeling minimums and you get into some fixed fees applied to lower volumes. So when you calculate them when you calculate our spreads for Q2, you're going to get north of 90 basis points. What we've tried to do in the guidance is essentially step that back to more normal levels here, we're not going to provide guidance on spreads, but I would reverse you back to some of our history.

You look back into 90.

As a good benchmarked, you're kind of think about spreads and as we did talk about you will see some slight declines they're not they're not significant they're not.

You know declines that are going to look in the five to 10 basis points per quarter rage, they're going to be much smaller than that simply due to these mixed conversations we have right as we move down.

The merchant curve into larger merchants, they do have slightly over spreads and that will over time drive our spreads down, but you're not going to see that wildly significant over the next couple of quarters.

Alright, thanks, guys.

Your next question comes from the line have changed is that some Morgan Stanley. Your line is.

Great. Thank you very much and and great to talk to you guys, especially given.

The rapid recovery that we've seen even just to know the last few months. Since you came public wanted to ask you a couple of things.

First what kind of gateway businesses have you been able to convert over you called out the casino conversion are they all like this or are they in other verticals as well just kind of trying to get a little more color on Mike, what's happening and how you're being able to execute that particularly in a pretty volatile period.

Yes, so odd thanks, James Jarrod I've been here.

The type of.

The type of merchants that you would find on our gateway or those using the 350 different software applications. I described previously in decades of version history and almost in all cases, using the at least two or three different types of software in order to power their environment. That's again make a big distinction on for where we.

Live on one end of the complexity spectrum versus some of our you know really awesome.

Peers in the space like a like a square who's on a different end of complexity.

And those so those type of merchant that could be using those software integrations and versions could be golf courses that are in a resort environment. They can be golf courses that have nothing to do with the resort environment, but use the same software.

It could be some of the most well known restaurant brands that you would think about there on that have dozens of locations and certainly there's a lot of hotels and resorts and there's definitely some even larger casinos in resorts.

So I'd say the that is the typical profile of the customers that you would find on our.

On our gateway platform.

I'm sorry was there a second component to the question.

Yeah Justin.

That's helpful and I'm. The second thing I was it was going to ask was just around you've already touched a little bit on investment strategy, but given the faster than expected and improvement in the business overall.

How are you thinking about capital allocation priorities, especially as it relates to debt buybacks M&A et cetera.

Yeah I think.

If I were to try and rank in terms of priorities right. Now on number one is going to be to continue to core gasoline on just the organic growth engine.

So if I were to look back over the last few years and say you know where where did I think really where do we think as a management team could we have done more it would've been in inducing our customer acquisition cost more to accelerate growth I mean, you know being in the Levered at leverage environment that we were in previously.

There was only just so much capital we could allocate to that despite the growth success, we were experiencing and again, if you go to customer acquisition costs relative to lifetime value. The customer there is there isn't a little bit of room. There is a ton of room. There I mean, we've been living in a world of six eight month paybacks, which I think you know would be pretty best in class. So.

I think thats priority number one.

Theres 185 billion and volume on our gateways right now it's connected into our payment platform. They are highly dependent on our service right now and they're paying four or five different vendors to deliver an experience that we can do as a single vendor offering and that's going to deliver a lower effective cost to service that is just like hands down number one priority to continue that my.

Gration and they're in ways that we're going to be able to accelerate that by deploying capital efficiently. So that's number one I think number two is we're going to draw on the playbook that that is worked out very effectively for us again over the last five years Supine, you know undervalued underappreciated assets that live in the market and that could be in the U.S. market or could be in international.

Markets, where we know based on experience that we can unlock a lot of value through our integrated payment strategy and I think that's going to be.

Number two in the only thing I'd say that balances with you as we build a lot of software to unlock integrated payment opportunities me Skype is a great example, could've been more time, we'd have a solution that quickly enabled contact listening to our based payments and takeout and delivery.

So we build lot of software and we're going to keep building software to solve pain points that we know exists within our basic customers to accelerate adoption of our end and payment offerings. So I think that we'd be kind of be.

You know, where where we'd be prioritizing our our capital allocation, especially over the next couple of quarters.

I appreciate that John Thanks, a lot.

Your next question comes from the line of Andrew Jeffrey from S. T R.

It is open.

Hi, guys. Thanks for taking our question. This is Tom Blakey on for a transient.

You've given some great color on these savings.

[laughter], especially with regard to the casino the specifics I was wondering if you could.

If the savings as a percentage of harmonics acceptance costs or some other relative measure to help us, especially as we look out to ship for taking some share.

From larger merchants, who have more volume in the future.

Thank you.

Yeah. So Jared here again I'll take that one you know this is very very hard to quantify on your you're definitely not the first you've asked US you know really how compelling is the savings value proposition for these merchants.

In the answer is a lot of times, it's unknown, because there are four or five or more eight.

Plus vendors that can exist in a situation where we are eliminating.

Seven of them.

And providing solutions at little or no cost from our perspective in order to capture an end to end payments customer and we're not always like completely aware.

As to all those other costs layers, we provide contact list in chip card devices at no charge.

People charged to those devices.

And if you're talking about a large enough hotel resort environment that could add up to hundreds of thousands of dollars and that's not necessarily a onetime event because the PPI security Council make sure that we all replace devices ever every four or five years. So it almost becomes a recurring form saving.

But thats just on the hardware side I mean, right now in the world of QR codes.

For QR code payment acceptance there are probably like 50 companies out there right now who have some sort of a QR code enablement solution for restaurants, and there are hundreds of dollars a month per location.

And they require you to contract with another company you know two as a middleware to make it talked to the point of sale system. We don't have to make money at all on the QR code technology, because it's driving transaction volume, which is which is our number one revenue stream. So we can just give that away free you don't need analogy I like to use in this a lot as to.

When Apple released Apple pay.

And during their announcement Mrs. In 2014. They said you know do you know why every digital wallet has essentially failed prior to US is because everybody was trying to have a business model for to make sense, whereas for us. We can just build it into the phone because we cell phones and we want to have the best going out there.

And that's really no differences here for a strategy, we want to capture and then payments volume, we're going to build out a lot of different solutions.

That have in our mind little little to no organizational cost and we can make available at little to no cost in order to achieve our number one PPI on the other end from the merchants perspective. The savings is just you know untold in many cases, one of an incredibly large enterprise restaurant customer need thousands of locations in the U.S. is one of our gateway customers.

And we're in really advanced negotiations to who to end to end and it all revolves around QR code based payments and I guarantee you that has millions in hard cost implications of that business in terms of savings would really you're bringing revenue back into the restaurant, you're helping your customers feel comfortable coming in and Reengaging ecommerce.

In venue and that can be prices. During these times. So I know this wasn't super specific and it varies from restaurants, a hotel the golf courses and specialty retailer, but it's just numerous components to our value proposition that deliver really meaningful savings and it's hard for us always to quantify.

That's very helpful and I appreciate the analog.

No and Apple pay.

Segway, maybe there are loosely one.

New merchants.

From a color on the call great growth, there and understanding some of.

No shift for is unique.

Positioning with some of the legacy var channel providers I was wondering if you could just maybe provide some color in terms of the health of the legacy var channel during the distribution pandemic disruption.

You know what this kind of mix will look like going forward.

In terms of signing you guys signing up new merchants and converting merchants over to your platform going forward.

Yes, it's really an excellent question. So as you as you know I mean, we go to market, 100% through third party and very aligned.

Software partners.

So the health of our partners is essential to our entire distribution strategy.

What I'd say that production throughout the crisis never diminished. So in terms of just new customers that were entering our platform from our partners. It stayed rather consistent.

So they were able to continue to go out and generate business from their customers for sure. We did do various surveys, especially in a in April late April to figure out what percentage of our partners.

We're able to access PPP funds under the cares Act.

Because the health of our partners is very important to us as well and the majority hat. So our partners in large in large part our small value added resellers or software companies around the country that qualified as much through the benefits as our restaurant customers.

So that certainly helped I think a large portion of them weather the storm and then on the other end of the spectrum I mean, some of the partners that we have you know the largest.

Relationships with would be the likes of like an oracle or those using Microsoft software as such were stability was kind of always assured.

Even during the more darker points.

That's a great uptake.

Thank you very much for the color.

One last question comes from the line Michael Douglas.

The conference point your line is open.

Hi, guys. Thanks for taking my question.

Question on the Gateway volume do you disclose 17% of back was converted from.

I'm, sorry end to end volumes.

17% of your end to end volume was converted from Gateway. This quarter is is that correct and what was the the total gateway number this this quarter.

So we don't disclose the gateway volume not the least of which is because this would be a a wacky quarter.

Even try to on passionate given how many hotels, we support within our gateway.

And the trends that they've been experiencing with regard to this specific you mentioned, it's the way we broke it down for everyone is that if you looked at our end to end volume in the quarter, 17% of that came from a conversion meeting just customer that was sort of our books, but not an end to end customer so that.

It was to the contribution you'd see it a little larger if you looked in July but.

But hopefully that gives context that.

When we convert one of these customers.

You don't get one for one value for it when you convert one of the customers. They typically contribute more volume than the average customer in our books you get you get more end to end impact per person version spans the average customer in the base.

Okay. Thanks, and then on the end to end volume guide for Threeq and Fourq you.

I know you touched on this earlier, but how much of that is from conversion and how much of that as from reopening.

So we don't break it down.

That specifically in our guidance what I would tell you is and I think the most helpful way to think about it as uncertain of a world is we're dealing with.

Is that about 7% of ours volumes.

In July came from a customer that forwarded our end to end platform in the second quarter, and we don't care, whether that was a gateway conversion, whether it's a new end to end customer, but 7% of our total volume in July was from end to end growth as opposed to volume resurgence.

And and.

What we think Thats a healthy metric I think if you sort of tried to decipher guidance you'd probably see that that were counting more on merchant production that we're counting on recovery of our base, but but but I think we're being we're being pretty sober and the impact of both just given the uncertainty environment.

Thanks, Sorry, one last one if I could on on the of course way conversions.

Which platform of those coming from predominantly that is that mainly from merchant link or that there is that from kind of a legacy ship for platform.

So in this quarter it was not dominated by other one it sort of both were contributing to that in a if you were to look at the first quarter Youre look its fourth quarter of of 2019, you'd see more merchant lengths simply because we had just acquired the platform.

But nowadays it's more regular course for sort of both platforms.

To be a to be contributing to the I'd add production, yeah, and if I may just the layer on an example to help you understand.

Just even some of the complexity and arriving at these numbers.

Even cobot aside.

So at the time.

Yes store committed their 5500 physical locations to ship or we did not own merchant link and they were a merchant link customer.

They began their migration odd after we had acquired merchant links so that kind of muddies. The net new versus gateway conversion and then if you want to layer in even more confusion to it. They each location had in E. Commerce relationship on a platform that had nothing to do a shift for or merchant link that they committed.

And and actually boarded the entirety of onto the ship for platform. So.

A lot of stuff moving around it becomes really challenging you almost have to look at these on it on a deal by deal basis and trying to determine if it was a totally net new if it was a conversion which work which direction again.

Thanks.

[noise] there no further questions at this time.

I will turn call back over to Mr. Isaac for closing remarks.

Yes. Thank you so much thanks, everyone for for really joining our first call right now really big moment for US. Thanks for your time and interest in ship for.

As we said at the top despite some of the chaos in the world.

We're really excited about this company's potential for a long list of reasons, a I'd like to close out by expressing my appreciation once again to all our employees are valued customers and our partners for helping us achieve this very important milestone. Thank you.

This concludes today's conference call.

[music].