Q4 2020 Shift4 Payments Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the shake for payments fourth quarter, 2020 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today Sloan Bohlen Investor Relations. Thank you. Please go ahead.
Thank you I'd like to welcome everyone to shift force fourth quarter, 2020 earnings Conference call before we begin I'd like to remind everyone on this call and it will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, all statements made on this call that do not relate to matters of historical facts should be considered.
Forward looking statements, including statements regarding management's plans and strategies goals and objectives the potential annualized gross profit related to the conversion of gateway or the merchants are acquisitions and their ability to bring us into a high growth vertical the expected impact of COVID-19 on our business and industry and anticipated financial performance, including our financial.
The outlook for the first quarter of 2021, and the full year 'twenty 'twenty. One of these statements are neither of promises nor guarantees, but involve known and unknown risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking.
Statements factor.
The factors discussed in the risk factors section of our financial prospectus filed with the Securities and Exchange Commission.
Pursuant to rule 424 of beef four on December 4th 'twenty, and 'twenty and our other filings with the SEC could cause actual results to differ materially from those indicated by the forward looking statements made on this call any such forward looking statements represent managements estimates as of the date of this call. While we may elect to update such forward looking statements at some point.
And 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 and the company's earnings release, which can be found on our investor Relations website at investors day shift for Dot Com and wood.
That let me turn the call two of our Chief Executive Officer, Jerry Isaacson.
Yeah.
Thank you Tom and good morning, and thank you all for joining us today.
For our agenda. This morning, we will take you through the business performance payment and merchant trends and strategic initiatives and we're gonna stay of the bit of time for the fun stuff at the end, which is the road ahead.
And as I mentioned some of these points in my shareholder letter. We just concluded a very challenging year, the economic social and political issues did not spare any one.
Spite these extraordinary circumstances, and having exposure to highly impacted verticals like restaurants, and hotels and the team and shift work performed incredibly well and I'd like to highlight some of our 2020 accomplishments.
So for the year, we grew every material kpis, including number of merchants using our platform and the volume the process and the revenue of generated this marks our 20 <unk> consecutive year of year over year revenue growth.
But most of it reinforces the shift towards value proposition is compelling and it's winning share during the past and you know during the most challenging of economic circumstances.
We also completed multiple capital market transactions to strengthen our balance sheet diversify our base of shareholders and provide capital to fund organic and inorganic growth initiatives.
We also completed two great acquisitions, including the three D card ecommerce platform, which we now call shift for shop, which has greatly expanded our ecommerce capabilities and significantly expanded our Tam.
We also released several products like our new generation of online ordering products mobile payments for takeout and delivery and curbside ordering and QR code based ordering and payments all of which were quite timely given the pandemic and we think will continue to fuel growth in the post pandemic environment.
We all of our 2020 performance not just to these reasons, but also the dedication of our employees the support of our software partners and the perseverance of our customers. During these challenging times that they make me most proud of.
And so the fourth quarter, specifically, we delivered another reasonably strong quarter given the circumstances as previously shared we celebrate the highest volume month at the time in October which slowed in November and then significantly. So in December we attribute this entirely to COVID-19 requirements on social distancing and cold weather that was not conducive.
And the travel and outdoor dining.
Despite these reality Q4 end to end payments volume grew 12% from the previous year to $6 8 billion.
Our ability to grow merchant count and volume, while serving some of the hardest hit industries. The Testament to our technology, our business model and most importantly, our people.
Make no mistake as the quarter that included some really rough business conditions, while volume growth is nice to see during a tough quarter. We also look at active and to end merchant count, which grew 4% quarter over quarter is continued growth and our merchant base makes us incredibly optimistic as we look forward into 2020 one.
This end to end volume growth drove 5% growth and gross revenue less network fees, which resulted in adjusted EBITDA of $26 7 million for the quarter, which is up 10% from the prior year when normalized for our change in accounting for leased equipment.
Also worth reinforcing that virtually all of the shift force merchants and all of those debt we've been adding throughout 2020 are operating at substantially below normal levels, which we anticipate is becoming quite the coiled spring.
As previously announced we also acquired two businesses and the latter part of 2020, each very unique and serving different verticals and increasing both our capabilities and our Tam the.
Shift for shop acquisition has significantly expanded our capabilities to serve online merchants and dramatically expanded the market we were capable of addressing with our services.
Kevin will provide some additional color on our month to month trends, but as I noted at the onset of the call December volumes declined meaningfully as weather became colder and Covid cases, accelerated resulting and strict social distancing requirements across the country.
And we will speak to the uncertainty that still exists from COVID-19, but what is clear to us is that our non stop innovation and unique value proposition continues to win across a growing range of merchants and market segments.
For those of you who are new to the story and we hope you see Q4 as a perfect example of our business model, we offer innovative solutions to merchants across the broad range of industry categories. Our technologies go far beyond traditional payment acceptance and often give us and incumbency advantage versus other payments providers. We use these advantages to offer of vertically integrated solution and.
The lower total cost of ownership and the competition and lastly, we don't sit still and are constantly looking for new industries and geographies as evidenced by our acquisition of venue next which Taylor is going to talk about shortly.
And we spoke about on our last quarter's call and I described and my initial letter to shareholders at the IPO. Our philosophy is to drive change, where we see inefficiency and incremental value for our merchants and to ensure shift for us always positioned and the direction of the puck is going.
As you May recall during 2020 shift four became the official payments partner to the Las Vegas Raiders, the first sports and entertainment venue and our history.
Within a few months, we have found significant successes across what was a pretty neglected vertical supported by multiple expensive vendors and lots of legacy technology. We have found that our strength and serving some of the most complex and demanding environments and commerce and made us well suited to solve problems and deliver a better and experienced and sports stadiums theme parks.
And other similar venues.
This is why we're so excited to talk about our most recent acquisition of Nginx, which again Taylor will discuss shortly.
And the same note, we just announced today that staple center will be using shift where payment technology, we believe stadiums and theme parks will contribute meaningful incremental and 10 volume and the months and years ahead.
It was just a few months ago that we announced the acquisition of three D car E Commerce platform, which again, we now call of shift for shop, our entry into ecommerce came as the surprise to some of them, but I think it's worth reiterating this is textbook shift four we observed and industry category like E. Commerce that is massive and growing quickly yet unnecessarily complex and with multi.
Of the layers of fees.
And I will speak about our go to market strategy with regard to shift where shop and a few minutes, which I also believe will drive the new layer of growth for our business.
These are two new markets that are quite meaningful from a Tam perspective, and we're largely foreign just shift for it at the time of our IPO just nine months ago.
Despite having operated this business for over 20 years I can't recall the time when I was more optimistic about the road ahead.
Our merchants are back to experiencing healthy volume growth with the very strong start to 2021.
We continue to win share and our core markets and also find new exciting verticals and center.
We also have an impressive capital position right now and that affords us the ability to invest and growth accelerants for which I. Thank all of you again.
And while I have the mic I feel compelled the share of personal project and the call to action.
And some of you may know I am fortunate to command and the first of all civilian mission to space later, this year, which will be a personal achievement beyond my wildest childs of dreams.
And and reflecting on the significance of it and I Couldnt help but think about all of the children, who don't get a chance to live out their dreams. It's for that reason and that makes St. Jude Children's Research Hospital and my co pilot on the submission we began and very ambitious even even for US fund raising campaign and I would urge you all of the consider donation and you can still visit inspiration for dot com.
And more and with that let me turn the call over to Taylor to discuss our fourth quarter operating results in more detail Taylor.
Thank you Jared and good morning, I'm going to take a minute to give some additional detail on volumes through the fourth quarter and then also provide and update on what we've seen to date and 2021.
First we included a monthly snapshot of the quarter to give you all of sense for the reasonably pronounced impact the pandemic had on end to end volume throughout the holiday season.
We are pleased to report the this deceleration was isolated to the December January for example represented nearly 10% increase and end to end volume from the prior year.
Seven of our eight highest volume days and our history occurred during just the last two weeks of February.
These volume trends are quite positive when considering many of our merchants and large states like New York and California are operating at less than 50% capacity and several states, including Texas were without power. During this time period.
This ability to grow at a pace exceeding many payments leaders despite of merchant base. The continues to be heavily impacted by COVID-19 and occupancy and travel restrictions reinforces the power of our value proposition and the clear competitive advantages, we have and our core markets.
Jared mentioned, the 4% sequential growth and active merchant count during the quarter hotels represented a larger than typical percentages. We won several large hotel groups, including sonesta and the acquired brands to our platform.
I do want to note that this Q4 activity does not reflect the impact of our three D card acquisitions now branded as shift force shop as we've used the majority of the time since the acquisition to reposition the business for what we believe is a highly disruptive go to market strategy.
If you recall of the three D card platform was the mature feature rich web store builder largely relying on the SaaS revenue.
Platform was the driving force behind billions of dollars and payment volume and yet sending this volume of third parties for which merchants, we're paying yet another vendor for.
We've recently launched the shift for sure.
That form that is entirely free for any merchant using shift where payments competitive platforms charge as much as 300 per month and actually more for enterprise and beat of beef features and still rely on third party payments processing. This investment isn't simply of branding and marketing exercise. We also repackaged the platform to make it highly intuitive and created a <unk>.
Payments enablement process that is second to none and we also introduced Facebook and Instagram integrations and count fraud detection at no extra cost of our merchants.
On that note and the brief time.
And we've owned and operated shift or shop, we've accomplished many of the integration of brand and goals for our first year of ownership. We've also increased the number of web stores by roughly 8000 of 54% since acquisition, which we think is the appropriate way to measure success. This early and the integration process. We also have an exciting roadmap of shift for shop that we believe will.
And you to impress merchants and help them grow and make no mistake. We believe this platform will compete successfully among the best E Commerce businesses and the World and believe we can double the pre acquisition site count by the end of this year.
While the depressed volumes of real and the fourth quarter. What is masked is the upside potential that shift warehouses across the broader set of merchants and when the quarter began.
While there is uncertainty on the pace of economic recovery and consumer spend and 'twenty, one and our growth should compound is that activity recovers given our expanded share.
Before I turn it over to Brad I wanted to close with providing you an overview of our acquisition of venue index than <unk> is the best in class provider of mobile ordering and point of sales solutions for sports and entertainment venues their technology began as and in seat ordering app envisioned and seeded by the San Francisco 40, Niners and has evolved into a full stack solution, including.
Point of sale for concessions the applications have been proven and every major sporting category, including the NBA MLB and NFL NHL and MLS and also power mobile order and at some of the nation's largest theme parks.
And the story that should be familiar to you by now venue next was competing very successfully the win these marquee clients, but the integration of payments providers included of web of gateways merchant acquirers and hardware providers. We took an approach of partnering with venue next the offer more streamlined solution and quickly won several world class merchants, including the Staples Center in Los Angeles.
Angelus.
We've discussed our enthusiasm towards this channel in previous calls, but now own the entirety of the stack and believe our solution will be incredibly competitive the <unk>.
<unk> technology is also is application and adjacent verticals.
And we will have applications far beyond savings.
We believe that venue next best in class technology will track, two and a half the $3 billion of incremental volume by the end of 2023.
We published the summary of the transaction on our website and that included the chart to illustrate how through these two transactions our Tam growth has doubled since our IPO, which was just nine months ago.
Now I'll hand, the call over to Brad to walk you through our financials.
Thanks Taylor.
As mentioned in our release, we generated $88 8 billion of gross revenue less network fees and the quarter. This represents a 5% increase over the prior year, but was up just 1% compared to last quarter for the reasons year to Taylor spoke to.
The year over year variance was driven by a 23% increase and net processing revenues driven by continued share wins and gateway convergence net processing revenue now makes up 63% of our gross revenue less network fees up from 54% for the same period last year.
Growth and net processing revenue was offset by modest declines and gateway and the SaaS. The other revenue streams due.
Due to the impact of COVID-19 on our hospitality merchants and our continued efforts to convert gateway and non recurring revenue sources through our ongoing spread based monetization model.
And net spread for the quarter was approximately 81 basis points, while the spread on interchange remains at lower than normal levels due to shifts and card mix specifically the spread on interchange for the quarter was approximately 179 basis points, 8% lower the prior year.
We reported $26 7 million of adjusted EBITDA for the fourth quarter. If we apply consists of accounting treatment to our equipment leases and 2019. This represents of comparable increase of 10% over prior year.
Our fourth quarter results represent an adjusted EBIT margin of 30% against gross revenue less network fees again, applying consistent treatment of equipment leases. This represents a 110 basis points increase from prior years, we continue the benefit from additional scale compared to the third quarter adjusted EBIT margins declined by.
270 basis points due to COVID-19 related volume slowdowns and the back portion of the quarter as well as the impact of our recently announced acquisitions.
Next let me give you an update on our capitalization and liquidity as we had a very busy quarter.
First at the end of October we completed a successful offering of $450 million of senior notes that are due in 2026 and <unk>.
The coupon rate of four 6% to 5% the per.
Proceeds of the offering were used to pay off the entirety of our previous term loan facility, which saves us approximately $4 million and annual interest expense. Additionally, that offering establishes shift force participation and the public debt markets, which will offer us an additional source of capital going forward.
And in December we completed a highly successful offering of $690 billion of convertible notes that are due in 2025 of the deal was upsized from of original offer amount of $400 million and priced with zero coupon and the conversion rate of effectively $80.48 per share.
Finally in December we completed of $9 2 million share of secondary equity offering priced at $55 50 per share.
Shares were sold exclusively by search like partners.
As a result of these Q4 activities and our previous capital raises we ended 2020, with 927 8 million and cash and $89 $5 million of available capacity on our revolving credit facility subsequent to the end of the quarter, we've restructured our revolver and increased its capacity to and EBIT 100.
Yeah.
I wanted to take a minute to mention some financial revisions that will be disclosed in our 10-K filing. These revisions primarily impact 2018, and 19 and reflect non cash balance sheet adjustments and geography changes within the P&L.
And there is an immaterial net income impact it should be noted that these revisions of zero effect on our reported revenues EBIT or net cash flows.
Finally, I'd like to discuss our outlook.
And 2020, we provided quarterly guidance because of the significant variability and volume patterns driven by Covid with.
And with volume trends, returning to more normal levels of variability and the back half of 'twenty 'twenty four 'twenty 'twenty, one will be shifting to annual guidance.
Let me first make a few comments about the first quarter.
As you've certainly seen through our activities across various media channels. We've recently initiated a major rebranding effort related to the integration of <unk>. The cart. These.
These investments will place our new ecommerce solutions shift for shop as a leader of the ecommerce market to drive additional merchant boarding to significantly increase our Tam.
The impact of this effort will largely be isolated and Q1 and will be treated as a non recurring integration expense and our financials.
And that said here's our guidance for 2021.
We expect full year, 2021, and and volumes to be between 36 and $38 billion.
Gross revenues are expected to be between 1.1 and $1 2 billion.
While gross revenue less network fees are expected to be between 450 and $460 million.
Adjusted EBITDA is expected to be between 155 and $160 million note that this EBITDA guidance excludes the impact of the Q1 integration investments I mentioned previously as well as any inorganic sources outside of what has already been disclosed.
Similar to my outlook comments for the last few quarters, they'll still remains a lot of uncertainty related to the recovery curve, while the numbers for the first two months.
Of 2021 suggest the slow down in Q4 was largely temporary there are still a number of moving parts related to COVID-19 that could impact our volume and results in the near term.
With that let me turn the call back to the operator for questions.
As a reminder to ask a question you will need to press star one on your telephone and again that is star line. Please limit your questions to one question and one follow up to withdraw your question press the pound key.
We'll pause for just a moment to compile the Q&A roster.
Your first question is from the line of Darrin Peller with Wolfe research.
Hey, guys. Thanks for the question and congrats on the.
Goodyear and a tough environment.
And we look at the strategic investments Youre, making clearly it's much further into shift for shop E Com and obviously now stadiums as well as we as we see these moves probably more so than other and there's a lot of us have been expected.
At this point after the IPO. So when you talk about first of all if you have the right pieces now first on the E com side.
Where are you in terms of of your strategic build out there is there enough done that you could actually run with it how material can this be for you guys through this year of index and then maybe just touch a little more of the differentiation you guys. All of her besides pricing that can really help them succeed.
Yes, good morning. Thank.
Thank you I appreciate the question. So I guess first just to say I don't think.
It should be that surprising that we continue to seek out industries that.
Our challenged by multiple different software vendors, adding complexity and costs that we think we can do a better job providing more vertically integrated solution.
We were saying towards the end of <unk>.
Last year, we get an awful lot of questions about our gateway conversion strategy, but you know, we've been and business 21 years growing and payments and gateways and we're only part of our story for the last three and half of almost four years. So you should expect us to continue to kind of find these interesting opportunities with you know a lot of growth behind them, a substantial payments opportunity and.
And the big Tam to win share from going forward.
E Commerce.
If you look at kind of the spectrum that we're able to address if you go back six months ago. We.
We were able to do kind of the the ultra enterprise version of E. Commerce that complemented US you know some of our hospitality and type of customers.
And and then shift for shop is added at very F N B.
Kind of at the.
Entry point into ecommerce type of capabilities, there's an awful lot that lives in between that I would expect us to continue to invest in both organically and inorganically in order to cover the full spectrum of of Cardinal present commerce. So that can be a pretty big focus for us just when you consider how much opportunity of lives and that market and then.
Talking a little bit about venue next we loved the stadium space are exposure to and is actually rather recently with Raider Stadium, as we mentioned and our and our remarks, but what we've learned there is wow. This is this is not that dissimilar to the hospitality environments that we do exceptionally well you've got it.
And restaurants and side you of ticketing and you've got merchandise sales you of bars. Some of these newer and newer stadiums have nightclubs and and it's like Wow. This looks very similar to the hospitality environment. We're good at and it's got multiple different software applications that are all coming together. This is an area that should we should put more attention to and our journey began mostly with collaboration with venue.
And then it was just clear based on early successes as we mentioned Staples Center was the big win we announced today that we could take this a lot farther and and not just and and sports and entertainment, but bringing into theme parks and other large entertainment venues and and I would say towards the just the general question is is it done no no. It's not done because commerce is huge and theres a lot of opt.
Attunity as commerce, enabling software and payments come together, both in new verticals and in.
In the U S market is accelerants to the current verticals, we're already in and then and new geographies that we think could benefit from and integrated payments solution like what we're capable of offering.
Alright, Thats really helpful. Jared and Brad just a quick one on margins and then I'll turn it back to the queue, but you guys guided towards the numbers on revenues that were above us of the margin side. It seemed more in line I'm. Just curious I think you mentioned something about it expects and the at the beginning of the year of Ams, but just the investments versus any one time items. Thanks again guys.
Yeah, Hey, there and the spreads. So there are a couple of things. One is we do have some investments teed up next year the shore up some of the things we talked about of some previous calls and there's also a near term impact of some of the acquisition the that'll flow through over time as well, so you'll see that and the near term, but over time of the margins driven by those acquisitions are going to get us back to those numbers that we've previously guided to.
Youll see a little bit of of of compression here and the next couple of quarters, as we absorb and kind of digested the acquisitions.
Got it alright.
Your next question is from the line of Tim T O <unk> with credit Suisse.
Great. Thanks, a lot in that context on the margins and that's really helpful.
So the data you gave around the number of merchants being up year over year Super helpful as well as the up 4%.
Quarter over quarter, it really gets to your point earlier on the coiled spring in terms of a lot of these volumes in this year's cohort coming on at a very COVID-19 depress the level. If there is any context, you could give us around maybe the average size of the of the merchant base now and maybe relative to 2019 levels and I.
I guess further context, there you mentioned that some of those more recent additions were in the hotel vertical which would also be supportive of a larger sized merchant.
Good morning, Tim This is Taylor. Thanks for the question you know as we look at our average merchant size and we try not to spend too much time on 2020 over 2019, only because of the Covid impact.
The answer your question and sort of of pointed way, we see across of the Gambit, usually merchants coming out of.
The tail end of 2020 were down between 30, and 60% and then theres lots beyond that quite frankly of hotels that were flat out close a lot of the hotels, we bought it during the quarter.
Use that time that downtime to implement systems like around and so we would say that the average size of the merchant, we boarded and a normalized state of substantially higher but you can't really discern that from their 2020 levels.
Yes completely with you and that's exactly what I was getting at more of them and the normalized level of that on the COVID-19 depressed type levels, so fully value of their same age.
Okay, Great and then a minor follow up on three D card. So that 8000 incremental web stores pretty quickly pretty impressive could you just give a little more context on those 8000 web stores, where are some of them from existing shift for merchants, adding this capability, where they fully net new debt type of context.
Yes, sure Jared here and I'm happy to answer that so.
This is almost all just share wins and largely related to the rebranding and promotion effort debt that.
And that we undertook over the last really call. It five weeks or so so we spent the first two months. After the acquisition really just getting three D card ready for its big debut of shift for shop. There were a lot of things we had to do internally in terms of.
Having a more frictionless onboarding, that's hyper appropriate for a shift for shop type customer, but not not really typical for say of hyatt or of Hilton and the type of customers. We typically interact with so it was a lot to get ready for internally and then obviously around February one we really highlighted the platform and a big way and that's where all of that growth really came from.
And it's continued to maintain a very healthy state of production, even since we actually only just began.
Enabling our 7000 plus software partners with the means.
To sign up shift for shop customers and the last probably week and half to two weeks. So one of the areas that we're most excited about with the acquisition is enabling third party distribution because that is not very typical at all of call. It. The other shop, that's out there where the other web store E. Commerce players. So we're really kind of and the early innings of that.
And again, we actually haven't even really begun the cross sell to the existing base of customers either of this was really just highlighting the platform and meet with the with a pretty disruptive pricing model and making available and awful lot of features and capabilities that the other players charge quite of lot of premium fees for and seeing how the market reacts and then.
As you can tell I mean, we've really increased the size of the sites by about nearly 50% and a pretty short period of time.
Yeah definitely and thank you Jared so it sounds like all new and now third party distribution has enabled so.
Very good thanks, a lot of protecting both of those questions.
Thank you.
And our next question the top line of Ashwin share for <unk> with Citi.
Thank you.
The debt tender that the dispute with you guys again, and a good job winning and a very tough kind of environment.
I guess, let me start with asking about the.
And the cadence of quarterly expectations for 2021, particularly net revenues and EBITDA.
And what are you assuming with his August two and the economic at Ekati.
Hey, Ashwin, it's Brad I'll take the so.
And we put together our guidance, that's probably where we spent the majority of our time as the leadership team are kind of looking at patterns. In fact, we were looking at patterns up until the last couple of days.
Some of the number of tailored mentioned is starting to come in.
The well since January and February kicked off out of 2020.
And the recovery curve, you're going to be a good question. We think there's there's certainly signs that we are seeing recovery, we talked about the cold spring as merchants starting to get back to more normal processing levels. We still think that's probably a year a year plus before that full recovery really starts to kind of get us back to what we.
And would consider quote unquote normal.
The pace of which youre going to see some seasonality right. We always see seasonality of this business Q2 and Q3.
Are going to boost because of the weather a lot of outdoor dining et cetera.
But I still think 'twenty 'twenty, one is still going to be of recovery year, that's kind of behavioral different than a normal pattern, but I would expect youre plus four getting us back to normal and expect some seasonality.
Boost between the Q2 and Q3 just.
And just like we would normally see and a more normal environment.
Got it okay.
And then the the other question I, just wanted to dig in a little bit into sort of <unk>.
<unk> net revenue out of the courses and to and.
While the owns the the.
The net revenue outlook was a bit higher than other.
Estimates of how much per.
From a contribution perspective is inorganic contribution subscription and other and gateway and maybe some kind of a breakup like that and he killed if he could go wide net.
Net the great and before I get up I also wanted to say.
To get to just kind of pushed them out.
And really appreciate what youre doing sort of St. Jude.
Yes.
Yes, sure and so kind of talking about the revenue we've always had this ongoing.
Most of that goes back to us and the IPO road of talking about how we're shifting our revenue streams into the net processing revenue and one of the stats and I mentioned in the previous.
Readings was around shifting that from 54% last year and the <unk>.
Quarter now we're over 60%. So there is an ongoing movement on our behalf of very intentional.
To make sure that that net processing becomes bigger and bigger as the proportion of our revenue streams, we will be.
Looking at the gateways for conversions, we're always.
Targeting different ways of driving those merchants to convert from the gateway to the into the solution.
And then we still have some SaaS and other revenue streams now those of bid.
Boosted a little bit lately because of some of the acquisitions that have more SaaS models and what we are exploring is how do we how do we morph those back into our existing revenue model, where we convert the SaaS and other fees back into the payments model. So I think youre going to see a continued trend right and can see continued trends that the.
The net processing revenue becomes more and more of our revenue streams, which is also going to be very helpful. For us as soon as these recoveries do kick in and that's where those recoveries are going to monetize so I think we positioned ourselves really well and.
As part of our ongoing model, whether thats the back book and do you think of the gateway or the forward book. If you think about our recent acquisitions of three D card and other index.
Got it.
Thanks, Ashwin and thanks Ashwin.
Your next question is from the line of Matthew O'neill with the Goldman Sachs and the company.
Yeah, Hi, good morning, gentlemen, and thanks for taking my questions.
So I was hoping we could take and the tiny bit more on.
And the acquisitions so and.
And then you next for example, I appreciate the guidance.
And the out years, but I was curious if there is any way to frame either what you're expecting for this year for it to contribute or maybe what 2019 was like and kind of a pre COVID-19 more normal environment and.
And then similarly I was just curious on three D card now shift our shop is is that back and completely converted so the is it all accruing as of end to end volume kind of following the rebranding and I guess the same question for the next if it is now or will it be at some point.
Soon.
Yeah, Hey, Matthew it's Taylor thanks for the questions.
I'll answer your second question per switches from a payments compatibility standpoint, yes.
Both platforms are able to take.
Payments by a bias shift for it was actually relatively easy.
As we mentioned I think on and earlier call.
The shift of our shop platform and integrated to numerous payment gateways and so this was like a.
The week long effort and.
And from about the midpoint of November forward.
That was the preferred payment method for any of the new shops that were boarding venue next as we mentioned this is a phenomenal transaction that we're thrilled about I mean this is a partner that we would've considered one of our our top partners coming into the end of 2020 and.
And so software application that was winning and its own right with its full pricing and some of the most demanding venues and the United States that gave us all of the confidence and the world too.
The partner up with them and.
Through an acquisition and make the value prop that much clear the customers.
And so in terms of expectations, we sort of laid out.
A $3 billion by year end 2023 target I think the reality is that's.
Not a terribly significant portion of the sports and entertainment market and yet this tool has been able to win share and incredibly rapid rate with a sales model that somewhat this join it.
Meaning you got to bring it up payments partner and you got to bring in the gateway.
Sometimes youre integrating other software suite. So we think we'll be able to far surpass that we like the set conservative goals for our shareholders. When we put out guidance, but we're incredibly.
The optimistic about the past and also the adjacent verticals right. This is the mobile first technology that has.
Performed incredibly well and stadiums, but it is it is.
Is the demand that merchants and a lot of different categories.
It already exists and the largest theme parks and the country.
And you can see its application across lots of resorts and other things so.
We are incredibly excited not just for the ability to cross sell into a vertical that was and emerging vertical for us, but also the ability to deliver best in class technology across multiple verticals and do the payments work with shift part, yes, that's how we went out and one of the Staples Center.
Last year, yes.
And at Jaret here, just to just the layer onto <unk> comments and go into some of the specifics.
We wanted to set expectations, which is why we gave.
<unk> of where we thought we would be in terms of and debt volume contribution from venue and acts and the next couple of years.
But really didnt want to drill down into any more specifics because there's a lot going on here first of this business again is growing very very fast.
And you look at the presentation, we put out there is a lot of obviously recognizable sports team and entertainment venue logos those were accumulated essentially over the last 18 months. So the Taylor's point. This is technology, that's doing incredibly well and its own rights kind of charging full freight for everything.
So.
We just have a lot of past experience that when you combine those type of models with our integrated payments approach and eliminate some of those pinpoint you are only going to accelerate growth. So we have to see what that looks like and then second like and to Taylor's point and some of the Adjacencies and I think this is probably just a bullet point that may get overlooked and the presentation of itself. We see venue next is providing.
And our right to win within kind of regulate the gaming environment. So.
If you look at whether it's fantasy of some of the other sports sports betting type opportunities that are happening in app.
It's our relationship with vending and exits already made some of these conversations come together and that in itself is very very hard to predict because it is also growing and it had a really wicked fast rate. So we wanted to at least just kind of set some initial expectations with the idea that we're going to refine it and the quarters ahead, as we kind of bring together that vertically integrated value prop that's.
Done well for us and the past so I would expect more updates and in the future.
All right understood. Thanks, a lot of everyone.
Your next question is from the line of John Davis with Raymond James.
Hey, good morning, guys I just wanted to hit on <unk> revenue for a minute obviously with the the.
The Covid and spiking cases, and <unk> and the corresponding Lockdowns volume fell quite a bit short of your initial expectations. Yet you were still able to hit the revenue outlook. So just curious kind of what came in better and <unk> total revenue perspective, and your initial expectations.
Hey, John it's Brad I'll take that.
And so we've talked previously about kind of spread expectations right we've talked about.
The average merchant size grows we expect to see that the spread.
Spread parts of the decline just based on purely mix.
And from those larger merchants when the when the volume pulled back.
And it certainly had an impact on those larger merchants as well so what we did see the spread come and over over expectation for the quarter. That's why I mentioned, eight and one basis points for the quarter, which was slightly ahead of what the what we were expecting to see good.
Given the pattern, we would have expected to see with the larger merchant base coming onboard.
Okay, Great and then as we think about year to date trends I think January up tens of encouraging can you give us a sense on what February was on a year over year basis or even the exit rate just to help us with the <unk> modeling.
Yes, sure February was really interesting months and the exit rate, we really wanted to highlight because the back half of February and particular was incredibly strong.
And we sort of phrased it with the idea that seven of our eight best days and our history, where during that second two weeks and that's really what drove it February on a year over year basis was.
Up just shy of 6% and.
And that's comping off of a really strong February free pandemic 2020, but if you look at that exit rate you get pretty exponential growth and even into the early days of March.
This is an area where you are starting to be incredibly optimistic I think as you heard from Brad or our long term guidance suggests.
About the same recovery out of the pandemic that we would have told you pre IPO right. It takes it takes about 18 months and yet we're seeing we're seeing incredibly positive trends and just.
Just the last few weeks and I think what's important to understand is.
And there's really no no seasonality that should drive that so it's really just merchants across the country and it's also as was mentioned.
Occurring at a time when significant portions of the country like Texas had no power. So there was like no contribution of volume So we're incredibly optimistic.
Domestic I can't say enough about where we're at where we're exiting February and what early March looks like.
Okay, Great and then one final one.
And just capex outlook for 'twenty one.
Yes, I think what youre going to see we typically run.
Excuse me about.
And $5 million of quarter and Capex per acquisition cost, which is obviously the one of the biggest things that we focus our capital.
The deployment on I think youre going to see some gradual creep and that we've talked about increasing our.
Our customer acquisition costs of <unk>.
Short and the payback periods, because we think we of course of significant opportunity.
The board, new merchants, but I'm thinking of probably of 5% to 10% increase over the exit rate of 2020.
Okay, great. Thanks, guys.
Your next question and from the line of Andrew Jeffrey with the truly securities.
Hi, good morning, appreciate taking the questions.
Of Jarrett I Wonder if you could comment a little bit about a little bit on the on the growth youre seeing by channel.
The inference from.
The update you gave in January and fourth quarter volumes with 20% growth and.
The end to end channel suggests that the Thats really outperforming which I assume is a function of conversions.
Maybe you can elaborate a little bit there and just a sense of how youre doing and the ISP channel versus your direct channel was I assume some of that contributes to the comments about the.
And the leverage to recovery and the other side of Covid.
Well I mean first I'd say almost all of our customer production, whether it's gateway conversions or just pure net new wins originate through and a line software partners. So I mean that is our model we do have.
We do have a direct team, but they work and in.
And then they work in collaboration with our software partners. So virtually everything is and ISP channel for us because 99% of all of our transactions are connected in the software.
I would say in terms of the performance that we've been sharing over the last few quarters and even the update as of today, it's almost all coming from the core elements of the business, which is our focus on.
Hospitality restaurants, and more complex retail so the production mix between gateway conversions and net new win net new wins is still rather consisting of about 50% in each direction.
I think what you have here is just a lot of continued share taking merchants are continuing to migrate to a single vendor solution and cutting out the cost and complexity of of multi vendor environments.
The acquisition of of shift for shop, which has taken us more and E. Commerce. It was the recent event and we spent literally the you know the last three months and like.
The accelerated integration plan and focus.
To be able to board customers of that size and the impact of which we've only started to really see in terms of the the search and site down in February and and even our interest and stadiums of which certainly there was Raiders stadium and and what we've recently announced with Staples that contributed virtually zero volume at this point just given the realities of the pandemic. So all of the growth.
We're seeing like the the numbers that the Taylor of shared that have already been rather eye watering and the last couple of weeks of February and early March is all of the result of our focus on hospitality and restaurants.
Okay. That's helpful color so it sounds like.
Vertical driven growth and and then shift for you.
Jared you've done a lot of things that are pretty innovative and groundbreaking and the industry and now and I think about shift for shop and the pricing model can you talk a little bit about the economics around that and how over time.
Drive good good returns and the subsidized I guess, the maybe the front end of the e-commerce selling effort.
Yes.
And it certainly a good question right.
How we shift shift.
The shift for shop can and go to market.
And completely forgo a lot of SaaS and premium piece that it seems some of the largest <unk>.
And in the industry are heavily dependent on and how are we going to be able to monetize entirely through payments well I think theres a couple of factors there first.
We were very fortunate to buy an asset that had already invested quite heavily over the years and a lot of capabilities and features.
That we don't need to invest quite as much and in the road ahead. So that's one factor to the fact that we own all of our own payments infrastructure is pretty important because it means we're going to be able to capture greater spreads off payments, which will.
Contribute more meaningfully.
To the bottom line and allows us to monetize the relationship with that customer in of.
The way, that's a little bit different even from the the.
Super Behemoths that are out there that do depend on other third parties.
And which does eat into some of their payments related margins.
So we are pretty focused on this I think what else is important is that the story doesn't end with just buying <unk>.
<unk> carton and rebranding it and then having a disruptive pricing model there is an ongoing investment.
To fund various internal and through inorganic initiatives, we look at share for shop as a.
Kind of as a means to serve customers that are very different from our core.
I fully expect it to turn into something that has a lot more.
Direct to merchant and self help type capability for even card president retail shops smaller restaurants, we will absolutely incorporate as part of our roadmap capital offerings and <unk>.
Certain things, we're looking at with crypto acceptance, because youre dealing with the different audience than our traditional kind.
Of upmarket enterprise, the restaurants, and hotels, where some of those features wouldn't necessarily be of.
Of greatest utility and and these are all things, we're taking into account for the long term and how we're going to move the needle with shift pushout.
Super helpful. Thanks.
Your next question is one of the line of Jason Kupferberg with Bank of America.
Hi, Good morning, guys. This is Mike filling in for Jason just a quick follow up on margins. So if we look at the implied adjusted EBITDA margins at the midpoint of the guide.
Of around 34, 5%.
And I believe you had been expecting margins to approach the upper <unk> by the end of 2021 now is this still the case of should margins be slightly lower than this exiting the year, perhaps due to the step up in both the investments you talked about it sounds like there could be some pressure and the first quarter or two as you integrate recent acquisitions, but how should we think about.
Margins in the back half of the year. Thanks.
Yeah, sure, Mike Hey, the spread very good observation and you're exactly right. We are expecting the full year guide and the mid point within the.
And the mid thirties, but think about how that is going to evolve over the course of the year right. The first quarter or two as we digest. Some of these acquisitions, we mentioned those will be a little bit lower and then they will certainly accelerate as we get into the end of the back half of the year.
So the the guide for the back half of the year and the high Thirty's is not it's not true.
Great. Thank you.
Your next question is from the line of Chris Donat with Piper Sandler.
And good morning, gentlemen, thanks for taking my questions I wanted to ask.
One on the.
The end to end volume guidance for 2021, just to confirm is there any material volume coming from shift per shop and venue next in your 'twenty, one guidance or is that immaterial at this point from the acquisitions.
It's largely immaterial I mean, what we're signaling and its Brad sort of commented on a little bit with the the first quarter second quarter margins as we're signaling really strong assets and desire to invest and these businesses and incredibly strong potential over the back half of next year and into the following.
Okay, and then Jared and the and your shareholder letter you comment that you are pursuing several strategic opportunities just curious where you're allocating your time with the.
And the shift for shop acquisition, and you've got a lot of planned there and then venue next.
And then the other incredibly busy.
2020, I imagine youre going to have an incredibly busy 2021 with some other activities also just just trying to understand where you're putting your focus and this year.
Well the answer is where we're doing all of the above and you just don't need and awful lot of sleep.
So.
And we've spent an awful lot of time and well first I have to say like we have an incredible team just to be clear I think if you.
And you replace some of our discussions probably our Q2 and Q3 earnings calls, we said, we're going to be investing and talent.
Some of our competitors are going through their own big merger integration plans and talents, becoming available and the market, we're going to get it because we do intend to do take advantage of a lot of these opportunities, we see and the market at the same time.
There's a great team here and we have some really talented people focused very much on the shift or shop roadmap and what that's going to look like and I gave some some hints as to some of the things that we are that are and works right now.
And we obviously have a lot of good things going on from a day to day perspective, because that is what's moving the needle.
As mentioned all of the performance, we're seeing and a very very depressed market is coming largely from the hospitality restaurant and specialty retail customers. We have today and that will continue to win share from and the.
And the journey ahead, but there are also other strategic opportunities we're pursuing and.
And a couple of very interesting directions actually so.
I think the answer is it's certainly worth our time to pursue all of these opportunities while while they are available.
And do the other day to day things that are pretty exceptional right. So yeah.
And I think that's the philosophy right now is we're not going to pass up.
Okay got it thanks very much.
Your next question is from the line of Michael del Grosso with Compass point.
Good morning, guys. Thanks for taking my question.
I wanted to ask about some of the legacy gateway platforms merchant link et cetera.
You're a little bit over a year into those integrations.
But how much of that gateway volume has been converted and then some of the I guess the longer term question is just around your expectations.
For conversion and in 2021, 2020 was really of transplant transformative year in terms of tech investments for merchants.
Think of pretty significant opportunity for those merchants to shift if they wanted to so what are your expectations around 2021 and.
What are you thinking it's going to take to get those merchants across the line if they haven't converted already thank you.
Yeah. So a really good question and as I mentioned, our production still still is rather consistent on average debt 50% of the customers that are joining our platform of pure net new wins, just just share taking in the market and then 50% continues to come from the existing gateway customers who are shedding.
All of that complexity and cost from the multi vendor environment and adopting our <unk> solution, that's consistent even through today.
Largely as we think through our planning for the years ahead, we continue to make very <unk>.
Consistent type of assumptions.
And if theres a lot that goes on and that in that Gateway World. You have 350, plus Isps U of a lot of enterprise customers and as we've always said that the carats the incentives that we make available to our partners and customers.
Kind of click at different times.
And the problems that we south of our customers two years ago that influenced a lot of gateway migrations are different and the problems. We saw today and the last call. It two weeks I'd say.
The Radisson, which is one of our gateway customers Big hospitality brand actively started endorsing all of their customers all of their locations on our gateway to move to R&D and platform and that created a nice surge.
Jonas club, which is another ISP, that's more and like golf and.
Membership clubs, if you will there and existing gateway customer gateway ISP that we've had for a long time. They just started actively endorsing. So this type of thing just continues to happen and will continue to happen as it goes forward I think one of the questions that we're going to start asking ourselves and this is not in the next year or two years of three year type thing but.
Being a gateway, if you will and making available connectivity to what our essentially our competitors is that of giving a good strategy anymore or is it just the legacy model that should go away and we just no longer even offer that service and I mentioned that because if you look at some of the really fastest growing.
Type of integrated payment solutions and are and the market. They don't offer of gateway at all.
First date of Fiserv Cobra product does not have the gateway option to shift or global payments or anyone else out there.
Toast fast growing obviously restaurant and player does not have the gateway ox and square does not have the gateway option.
Shopify has some very punitive costs if the <unk>.
Using other providers so.
Right now, we love the kind of caret and the incentives first approach and that's been serving us really well with the with the gateway migration.
But certainly at some point in time, we might want to ask ourselves debt as the product and feature set we're making available to our customers of such value that it no longer is really even required and in doing so we would certainly expect that would also pull forward of lot of volume from that gateway to our end and platform.
Jared did a good job of about commenting on the future there, but I do think it's worth revisiting the passage of a little bit I think it's important to note out of single merchant, who has joined our end to end platform from the merchant link acquisition has given us a normalized like month worth of volume, there's still tons of growth potential inside of the merchants that are already.
<unk> migrated and I think thats worth emphasizing because we acquired that business towards the end of 2019, we bought it.
Merchant is pretty steadily throughout but the pandemic hit very shortly thereafter, so we.
We tried to sort of allude to this during our comments, but the volume potential inside of all of those merchants that are already joined us as pretty phenomenal as well.
Okay. Thanks, that's helpful color.
My follow up is on is on capital allocation.
I mean I think the.
And in the room, so to speak is the.
Nearly billing and and dry powder of that you guys have and.
And you just completed of $70 million or so acquisition.
Is that the is that the size of deals that we should expect going forward. Our Jared how are you thinking about some of the.
The options for strategic M&A going forward.
Yeah, and certainly Taylor should weigh in on this too, but one I mean, obviously, we feel very fortunate to have such a significant cash position that really affords us a lot of options that we can look at and the market.
One thing and we've said this before even in the fourth quarter when people were expecting us to do something rather large is like we're not going to feel pressured to do anything that we don't want to do right now is.
It playing small ball works for us really well and we can continue to find just total gems like venue next and three D card, where we know we can unlock a lot of value. That's what we're going to do I would say that Taylor has a very full pipeline right now and in terms of like deals of size that can be rather transformative.
We're talking about at least three that we've been investing a fair amount of time and and then if youre looking at smaller deals that kind of similarly have a profile like of venue next or like a three day theres, an awful lot of them there too.
So I think like throughout our whole history, and we've really been rather disciplined allocators of capital.
We tend to think about all the things that can go wrong and not get excited about necessarily that the you know the shiny thing and the moment and.
And that's going to continue to influence our decision making on the on the road ahead and tailored.
Yes, well said I think.
Jared summarized it pretty well the bookends are that Theres always the handful of really transformative transactions that we'd love to get done.
The complicated they require a party on the other side and we'd like to keep Optionality with those I can tell you. There's there's more than one that help us grow exponentially and completely opposite directions, and we keep those both on the table as long as we can and.
And we'd love to do both to the extent of the environment affords that there was also an incredibly long line of the venue next the three day carts of the world that.
And have just watched our ability to help of business like theres growth through a vertically integrated customer model.
And so there are quite frankly more of those and we can handle a plug for the strategy Department, we're taking resume.
We will do as many of those as we possibly can and to the extent they give us access to new verticals like both of those transactions debt, we love it.
So yes, we keep we keep of really open pipeline on the small and they're coming to us quite frankly.
And one thing I'd add in terms of <unk>.
And the area that we've kind of taken new interest and as of the last really quarter.
As in charitable giving.
Thank the exposure that we've had collaborating with St. Jude Children's Research hospital on inspiration for has really enlightened us add to the payment industries that kind of support.
Philanthropic and charitable, giving and theirs and actually an awful lot there.
There's a technology now that enables donations in livestream video games and and.
And it actually has quite the following so there's actually quite a few things as we turn our attention a little bit more towards that that had been rather and lightning to other I think.
Just will be something that will probably give some focus on and that in the months ahead.
Understood. Thank you I appreciate you taking my questions.
Your next question range from the line of James Faucette with Morgan Stanley.
Hi. This is first of all of US on for James Two quick question, So you've talked about the.
A number of hotel deals coming on on the platform can you talk about the RFP slash competitive dynamics, so far and 2021 and therefore.
Particular verticals or merchants that have.
And that had the <unk>.
And to look for alternative payments providers such as yourself.
Early on the CR.
But.
It's kind of we mentioned before there has been we actually reported quite of few hotels over the last two quarters.
Some pretty.
Sizable actual properties that would be and areas that were more impacted by the pandemic, which really afforded them the opportunity to have the conversation and look at their infrastructure from a technology perspective and.
And use that downtime to make good decisions.
Which would shift work certainly has benefited from and that just kind of reinforces the point. The tellers made a few times every single one of the customers that we have the chip for today and every single one of the customers. We reported essentially over the last years is operating at a pretty depressed state.
So that's that you know like hyper coiled spring effect that we're going to be paying attention to but as your question on RFP specifically.
Board of 25000, plus plus customers and that plays out it.
That doesn't take into account of any of the the shift of our shop numbers that we shared before just in the last year and I'd say, maybe less than five of those relationships came from and RFP.
And thats really consistent throughout our entire history.
And we try and position ourselves to that.
No one else, who can really compete from an RFP perspective, because certainly it was the thing of the past prior to shift our strategy really being developed over the last four years where hospitality.
<unk> would have an RFP for.
Payment hardware and it would have an RFP for six.
Secure payment gateway and they might even do an RFP per token is Asian or PCI validated encryption and then they do an RFP for merchant acquiring and Thats because of that industry was essentially served by four or five different vendors to complete the payment experience now with our M&A strategy and how we've kind of bundled together our services and really created that's vertically integrated.
<unk> for the market.
We were able to eliminate all of those vendors and all the costs associated with it to really have the differentiated solutions and as a result of lot of the merchants that we boarded have migrated to our platform without ever really needing to do an RFP because of the solution. We were able to provide was so unique and and.
And I actually can't recall of single RFP, we've seen in 2021, so far.
Perfect and then just one quick follow up Jack congratulations on the <unk>.
Operation for admission announcement should we.
How should we be thinking about the day to day operations and the management of of all of that.
And you proceed with the with that endeavor is there going to be any change to the shaft bore.
And if not.
Any cash cushion that'd be helpful.
No and as I mentioned before we really benefit by having a rockstar team that we've actually been investing and quite a bit over the last few quarters and adding talent to the organization. We actually have as Taylor was kind of joking before we actually have quite a few open positions due.
And that we're continuing to look to fill but.
I did said quite of bit of responsibility prior to the IPO I was out of one of the co founder and CEO of the reasonably the size of the defense Aerospace company for a decade.
I did give.
And give up my CEO position of ever signed my board position just to free up bandwidth. So that we could I could focus on all of the things that are very important to shift for.
As well as some of the other things of interest like like inspiration for.
And I'm Lucky that I am able to structure and awful lot of things and on nights and weekends. So it doesn't impact any of my day to day responsibilities, but of course, you see something and say these are conversations that have been well discussed with our with our board of directors.
All of the various you know appropriate governance and contingency things had been discussed, but I don't expect it to be impacting any of my day to day responsibilities.
Perfect. Congratulations again, thank you.
Thank you.
Your final question is from the line of Dan Perlin with RBC capital markets.
Thanks, guys and thanks for sneaking me in today.
I had a question about embedded in guidance is the gross profit margin at 60% and I fully appreciate the the mix shift that goes along with the <unk>.
And that's been a big part of the story, but 60% margins, that's even better than I think we would of all expected.
Even in the the out years.
And the IPO and so I'm just wondering what are some of the other incremental drivers to that.
Because obviously that cost of sales number at 40% is also a lot lower so is there a bigger mix shift that's occurring because of all of these other solutions that you've rolled in.
And then how do we think about the cadence of that gross profit margin throughout the year. Thank you.
Sorry, Hey, Dan, it's Brad I'll take that.
We're really proud of the of that gross margin.
Right I mean, I think a big part of that is going to be.
And what we think of our spread performance looks like.
This all comes back to the underlying strategy of how we're monetizing the different products and services. We offer and this is why when you monetize those items through spreads you are actually able to get some spread expansion. So that's why we we reported a spread of Q4, just around 80 81 basis points and we've seen that historically.
And if you look around our competitive lead.
And if youre not going to see those kinds of numbers. So as we shift these.
These monetization models out of.
The lower gross margin type of items think of equipment sales and a bunch of our competitors are going to see that.
One of the very thin margin business right. So the way we monetize.
Our equipment deployments of the way, we monetize the encryption and all of the different components of our into the solution through the spreads allows us to maintain gross margins that we're really proud of and theyre going to be in that 60% range.
Great and then how do we think about that as an exit rate when we go into the back half of the year since youre going to be jumping off of and a materially lower rate it seems like and the first half.
Thank you exit rate out of 2020.
2021 and Tony.
Between one and I'm, just thinking about the and I'm thinking about the second versus first half because the margin profile of looked quite a bit different.
Yes, and I think youre going to see that youre going to see the first.
And the first quarter is going to be first and fourth quarter typically our lowest margin quarters, just because there is some seasonality factors and youre going to see margin expansion and Q2 Q2 and Q3.
So as we get into the back half of it youre going to of the factory and kind of that normal seasonality and focus of Q1 and Q4 are going to be a little thinner Q2, and Q3 are going to be a little bit heavier.
But we still should see some expansion from Q1 into Q4, we've talked about this recovery curve and.
As we get back to normal the increased scale with us with the really high pass through rates are certainly going to flow through as margins. So I think you've got a little bit of abnormal abnormality related to the recovery curve, but exit numbers out of 2021 are going to be slightly higher than they are going to be in Q1.
And then.
The objective of by the time, we get into 2020, two we're going to be of much more normal.
Seasonality pattern.
Got it okay. Thank you guys very much.
Yes.
Well, thanks, everyone really appreciate the great questions.
So just to close things out here.
Obviously really appreciate everyones, giving us some time this morning some of.
Of the updates that we have going on and shift at Shreveport and by emphasizing again that 2020 for all of the challenges is the year that everyone would shift work and take a lot of pride and we not only operate the business day turmoil and volatility, but we grew rapidly because of our unique approach and value proposition for merchants and addition, we applied the ambition and shift towards DNA.
And to lay the groundwork for growth and new and large markets like E Commerce and most important our commitment to our customers has never been more evident through community engagement like shift where carriers. So I.
And again everyone's time for joining and thank you and have a great day.
This concludes the shift for payments fourth quarter, 2020 earnings call. Thank you for participating you may now disconnect.
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