Q1 2021 Shift4 Payments Inc Earnings Call
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Good day and thank you for standing by welcome to the shift for payments first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer the session. The ask a question dreamed of.
Simple outlook for the year ended December 31st 2021 of these statements or neither of promises nor guarantees, but involve known and unknown risks uncertainties. Another important factors that may cause our actual results performance or achievements to be materially different from any future results performance or achievement expressed or implied by the forward looking statements factors.
Discussed in the risk factors section of our annual report on the form 10-K for the year end of December 31, 2020 as updated by a quarterly report on form 10-Q of the three months ended March 31, 2021, and our other filings with the Securities and Exchange Commission could cause actual results the differ materially from those indicated by the forward looking statements made on.
On this call any such forward looking statements represent management the estimates as of the date of this call. While we may elect to update such forward looking statements at some point in the future. We disclaims any obligation to do so even as subsequent events caused our views. The change. In addition, we may also reference certain non-GAAP measures on this call which of reconciles Scott.
Or in the company's earnings release, which can be found on on an investor relations website at investors Dot shift for a dot com and with that let me turn the call to our Chief Executive Officer Chair would either of them.
Thank you so on good morning, and thank you all for joining US if you recall from our last quarterly earnings update in early March we were beginning to see signs of strong volume recovery across much of our merchant base I'm happy to share with you all of this morning. If these volume trends exhibited during late February <unk>.
<unk> through March, resulting in a reasonably Sean first quarter.
Just to reiterate and shift for we are an integrated payments company that focuses on some of the most demanding and complex environments and commerce. This includes a lot of of larger restaurants hotels, and hospitality merchants as well as specialty retailers and sports and entertainment venues. We saw some nice year over year volume growth in Q1, but the the majority of our gross.
Out the pandemic has been as a result of new and larger merchants joining our platform. While our performance has been strong most of our customers are in fact still operating below pre pandemic levels, which is important on two accounts one our value proposition is fueled year over year revenue growth for 21 consecutive years has proven.
To be compelling and the best and worst of economic times too as the country continues to reopen we expect considerable volume recovery from our existing customers as well as from all of the merchants joining our platform every single day.
With that stated let me provide a brief overview of our first quarter performance.
First we reported another record quarter of intent payment volume totaling nearly 8 billion, which is up approximately 30% over the same period last year as I mentioned in my shareholder letter, we actually had some tough comps as January and February of 2020, we're up over 50% year over year compared to 2019 levels the volume growth.
The Donna and it's really attributed the two factors first our first and only notable COVID-19 related business closure, which was a approximately $5 million risk loss attributed to the business failure of the specialty retailer.
This is the only notable risk loss in my 21 year history with the company and while we do expect some recovery we have chosen to the expense all charges at this time.
Second we are continuing to make investments and talent and system to ensure the scalability experience for our merchants partners and employees.
As of company, we've performed well during some of the best and most difficult times imaginable for our customers partners of employees.
As we look at Q1 performance and the and the and volume contribution from April we are very encouraging excited about the year ahead, we see significant runway both from the recovery of of the economy as vaccination rates increase as well as new market share gains as our value proposition continues to resonate and win.
As many of you know shift for is the company that has a hard time sitting still so I'd also like the few updates on some strategic initiatives that continue to accelerate our growth.
In October of last year, we made a relatively small investment to acquire of professional services company that specializes in supporting some of the most recognizable merchants in the hospitality industry.
Our objective was viewed this world-class team to further enable our capabilities and to allow our sophomore partners to lean on us more while engaging the largest and most sophisticated hospitality merchants.
Since that acquisition, we've seen the 50% increase in the end and merchant production from these market segments you of.
May have seen our announcements regarding Petco park in San Diego or my personal favorite Junior's Cheesecake.
These are just two examples of the accelerated growth. This capability is Ford enough in the market in which we were already performing reasonably well.
R E Commerce platform shift for shop is also off two of very promising start since our acquisition in November of 2020, we worked very quickly to deploy enhancements implemented disruptive go to market pricing model and lots of promotional campaign to help shine a spotlight on the scraped platform you will find our shareholder letter that the traction generated by these.
Efforts has exceeded our initial forecast to date, we've added 21000 incremental web stores, which more than double of the footprint of the business as a reminder, doubling the customer count of shift <unk> shop was our first year objective and it was surpassed in less than six months.
I also want to emphasize that the shift where shop acquisition has given us a good reason to explore and invest in technology like capital offerings. Bye now pay later of programs crypto currency acceptance crypto settlement that would've really been of stress for us to incorporate in our historic base of customers.
While it's only been two months since we announced our most recent acquisition of venue next we're already finding early success entertainment venues and theme parks across the country are eagerly seeking to enable a fan first technology contactless payment method and adjust workflows more and more mobile centric experience as you may have seen our shareholders shirt.
Elder letter, we're proud of the account to Washington Nationals, as a new customer based on our visibility into the pipeline, we expect there'll be many more.
Well actually I want to comment on the M&A environment shift for is a proven track record of identifying scarce assets that are complimentary to our integrated payments strategy and build upon our ambition to provide the unified global commerce experience for our partners and customers as.
As evidenced by the acquisitions, we just mentioned acquiring these assets can often lead to accelerated growth and valuable diversification.
The view the current landscape is right for numerous transactions ranging from the strategic tuck in the large scale of transformational deals.
We are dedicating more resources towards these opportunities while at the same time remaining discipline with regard of two evaluations.
And with that I'll turn it over to Taylor lover to comment on some of our quarterly trends and the other strategic updates.
Thanks, Jared and good morning, everyone is Derek mentioned and this was quite a strong quarter for US 8 billion on volume represents of record, but it's almost $1 billion higher than our previous record quarter for volume to provide some context on why that's so exciting the first six weeks of the quarter, we're actually quite surprised additional.
We exited March with roughly 9% more active margins and in December of 2020.
Because of this is our first you wanted the public company I think it's worth setting the stage of best for housekeeping, one would influence of typical year for us.
Prior to COVID-19, we would expect the one of our weakest quarter on both the volume and net spread basis. The holiday season, hangovers, we'd like to call. It often results from reduced consumer spending across the less favorable mix of merchants and card cuts and of normalized environment, we'd expect roughly 20% of our annual volume two occurred Q1.
As the weather warms across the country travel on consumer spending typically increase of the significant in Q2 and feel free which are historically our strongest quarters.
Until they are realized and more predictably model.
We will provide regular updates on these new merchant cohorts as they mature and we look forward to doing that and with that I'll turn it over to Brad.
Thanks, Taylor, just like last quarter Im going to reference the few pages in the back end of our earnings material that will highlight.
Several of the metrics that we're going to talk about.
So for the first quarter, we generated $239 3 million and gross revenues of 97 5 million and gross revenue less network fees.
Both of these figures represent our highest quarterly revenue production in the company's history the.
The 97 5 million of gross revenue of network fees represents a 23% increase over prior year, and a 10% increase compared to last quarter.
The year over year variance was driven by a 35% increase of net processing revenues driven mostly by new merchant Onboarding and the continued recovery of consumer spending across our merchant base.
First quarter net processing revenue made up 61%.
Of our gross revenue less network fees up from 56% from the same period last year.
Our gateway in the SaaS other revenue streams, both grew modestly year over year due to continued recovery of our gateway merchants and the impact of our recent acquisitions.
Net spread in the quarter was approximately 75 basis points, which represents an 8% drop from prior quarter and 4% increase over prior year the.
The drop from Q4 of 2020 was driven by a combination of factors, including some seasonal increase in travel and higher than normal debit card usage.
I'll note that April blended spreads of increased to approximately 78 basis points.
Of this pattern of typical for our business and while we do continue to expect blended spread compression as a result of boarding larger customers.
Q1 is typically lower than average spread we experienced throughout the year.
We reported $22 2 million and adjusted EBITDA for the quarter, if we apply a consistent accounting treatment.
Equipment leases in 2020 of these results are largely consistent with prior year.
As Terry mentioned in his opening comments, we have two extraordinary items worth mentioning that are affecting our adjusted EBITDA within the quarter.
First we reported a loss of $5 2 million.
The result of a multilocation specialty retailer of at a roughly close.
Both of the business failure during the quarter. These losses are the result of customer charge backs of preorder goods not delivered to consumers we.
We do believe that some of the balance to be recoverable as we work with the business the administrators, but we have chosen to record the maximum amount of ship force potential liability in the amount recovered would positively impact of future quarter.
Second given the faster than anticipated recovery of the merchant base, we elected to accelerate approximately $2 3 million of operating expenses that were previously budgeted for future quarters.
These expenses, primarily relate to increased software licenses to eight of the scaling of certain platforms and temporary staff to assist in customer boarding activities.
Both of these events are isolated to Q1 and should not be considered contributors of ongoing expenses.
Our first quarter results represent of adjusted EBIT margin of 23% against gross revenue less network fees.
The impact of the previously discussed nonrecurring loss in our Opex the acceleration decreased margins in the quarter by approximately eight percentage points.
As we mentioned in our Q4 earnings discussions we invested approximately $21 million in the first quarter on the integration and rebranding of shift for shop.
The portion of which was done in cooperation with the inspiration for and shift for shop entrepreneur contests. These expenses had been treated as non recurring costs within our financials are added back for EBIT the purposes.
We did not execute on any significant capital transactions in the quarter. However, the adoption of ASU 2020 dash of six did trigger of balance sheet reclassifications related to our outstanding convertible debt offering.
And our Q1 balance sheet, you'll notice $110 million of move from equity to debt related to that adoption.
With regard to liquidity, we ended 2020 with $845 million in cash of $99 5 million of available capacity on our revolving credit facility.
Now I'll move on the guidance for the year given our performance in the first quarter, we will be increasing our full year guidance for each of our kpis.
The physically now we expect full year end to end processing volumes to be between 44, and <unk> $46 billion.
These volumes will drive gross revenues between one two and one 3 billion.
And gross revenue less network fees between 480% of $490 million.
The revised range for adjusted EBITDA is now $165 million to $170 million.
The update to adjusted EBITDA does include the impact of the risk off the cost acceleration that was mentioned previously if we were the.
The normalize our guidance to exclude these charges our adjusted EBITDA margin on the incremental gross revenue less network fees will be approximately 50%.
With that I will turn it back to Jerry for some final comments.
Thanks, Brad and I think this is a good time to open it up for questions.
Yeah.
Ladies and gentlemen, as a reminder, if you would like to ask the question. Please press Star then the number one on the yarn Pal of found the back again to ask the question. Please perhaps tie and the number one on the young talent sound key pad.
Cost per test the moment to compile the <unk> roster.
And your first question comes from the line of on team and Chateau with Credit Suisse. Your line is helpful.
Thanks, Ryan Good morning, and thank you for taking the question I wanted to talk about some of your underlying organic share gains in the past you've talked about some of the very very attractive payback periods that you have I mean, essentially implying 90, 989, sometimes shorter being very attractive LTV to CAC.
And you've talked about at times selectively increasing Tac because the number of still work its still very attractive I just wanted to see if you could touch on that.
If you took care of employing that strategy sound like Youre seeing great success of it and really just any update on that broader topic of your attractive payback periods. Thanks a lot.
Right.
Okay.
Yes, sure Sam It's Taylor the morning.
It's a good question I think.
We really started.
Down this path in earnest.
I want to say Q3 Q4 of 2020.
Just to remind sort of everyone else on the call. Our payback methodologies was pretty standardized across the company. It would result in anywhere between a kind of a six to nine months payback as you mentioned with our standard incentives in the hardware deployments across our merchant base, but what we found was that.
You know.
The larger merchants would actually respond less favorably to financial incentives of much more favorably to technology incentives that actually costs less in some cases. So we went down this path of of modifying how we approach each of these segments and I'd say, it's worked tremendously well you'd see that evidenced by the increase in the hotel.
And that we saw.
Over the past really two quarters reported more hotels during that period during the last six to nine months than at any other point in our history and again. This is one of hotels are pretty significantly impacted now I don't want to make it too much about financial engineering, it's really about getting surgical around what's going to motivate the particular merchant base.
At a given point in time.
So keep in mind, you've got 350 different software suites, each of them, attracting a different quality of merchant and can be the the front desk of the hotel all the way down to the.
On the gift shop inside of the hotel.
On the incentives.
Venters work differently. So we have pushed the lever forward a little bit in aggregate, but it hasnt been about increasing across the board, it's about giving more targeted incentives the higher quality customers and it's worked well thus far.
Yeah, Tim Hey, Garen here, just hit the layer onto a little bit because it's such a good question I mean, we we IPO of it really the best in class on unit economics, and you're right I mean, we.
We live for several years the needs like eight nine months payback period.
On the customer acquisition cost perspective, and that was largely just due to constraints of having five to six times leverage at the time of the IPO, obviously expense deleveraged considerably we have a lot of cash of the question being why don't we just put more of it to work to accelerate growth and even with Taylor was saying it we're doing it in the dip in the number of different ways, depending on the target market with growth.
In the case of say our restaurant business like we know we're going to continue to take share in the late in that space by investing more in our research and development technology initiatives things like QR code contactless payments is what's going to drive customers over to US just as they did during the pandemic and they're continuing to sell now on the case of hospitality hotels at the combination of <unk>.
Having some pain points that a lot of these legacy London legacy property management systems, which still dominate the market need of Jive software database upgrades that support things like phone based checking.
For example, but I would say it.
The sports and Entertainment for example, that's one area where.
Additional financial incentives. This is an industry that was it.
Pretty hard due to the pandemic like day, welcome things like sponsorships and such.
She has absolutely been helping us.
Incorporate our technology like <unk> like our mobile solutions and payments in that market. The answer is we're just kind of like.
Fine tuning the strategies based on the verticals that we're trying to conquer.
Okay, Alright that really helps thanks, a lot share thanks Ross Taylor.
I hope the squeeze in one more on shift for shop, the 21000, new web stores and I apologize if you touched on this earlier, but.
Could you describe the types of businesses on the E. Com pure players are they offline stores are in store that are expanding online.
Is it start up a little.
But of a mix of everything some of your own merchants coming over.
Any color there would be great.
It's really a mix of everything, but I would say that from the most part of the pure play E. Comm simply because we haven't completed the integration to our online ordering products of our restaurant point of sale applications or card present retail applications. So.
Obviously those are all of roadmap items that we're working towards now we prioritized in the first quarter just frictionless on boarding to have that kind of Paypal square like.
On boarding experience, which is pretty vital for this type of market.
So the fact that we can integrate some of our card presence technology, yet or it's in the works now would suggest that most of the customers who are joining our just looking for a web store.
And it really reasonable price point, you know as we've mentioned we chose to monetize entirely free payments instead of SaaS or setup fees or premium marketplaces is such that others that it's kind of this whole like.
Bags fly free but in our case, it's like why pay rent for your online business marketing campaign, that's worth it.
We're attracting customers with today.
When we look at them every day, it's all across the spectrum, but generally you are talking in terms of the products and the goods being sold but the.
These are predominantly E com players and I would say it's.
Weighted way towards.
Share game, then it is existing customers.
That's perfect. Thank you so much for all of that color guys I appreciate it.
Your next question comes from the line Mike on Colony Suite of Bank of America. Your line is open.
Hi, Good morning, guys nice to see this level of recovering of the business. Despite some of these ongoing headwinds from the pandemic here.
So just just to talk more about the outlook here. So can you discuss some of the underlying assumptions embedded in the revise the outlook for <unk> volume growth of share.
Are you assuming for same store sales growth and 10 conversions as well as new merchant wins and also the expected contribution from recent M&A.
Yeah, Hey, Mike, It's Brent I'll take part of that type of problem to active on some of it so when we think about.
The guidance, we've laid out the biggest appropriate starting point is our current trends right. We've had as we've talked about some pretty substantial recoveries that started in the back half of February.
Those trends continued through March and we've actually seen those trends continue into April.
That was our starting point, we do sense.
The build a bit of recovery back into the merchant base.
It will come in over of probably a 12 month period.
But we don't necessarily break it out between all of the different components are on same store sales or the new merchant boards remember.
The dynamic for US is we have really good visibility of our merchant base.
Our current <unk> merchant base is still certainly not operating at its full full capacity for all of those merchants that we have board of in the last 12 months that we don't have the historical data on the we're still waiting to see how how robust those merchants turned out over time.
But I think the key point for you guys is building out your models and understanding of our guidance is it's really a host of where we sit today.
March and April of been Super strong, but we do sense from additional recovery throughout the throughout the rest of the year, Yeah, and I'll just sort of out of it.
A little bit there so keep in mind, it's the merchants that joined US last year that always contribute the most growth to the current year. That's just the way the macros for the right, especially in the year, where those merchants were depressed in the and Theres some degree of recovery occurring inside of them.
So while we trend of merchant production and Thats quite frankly, the single variable that we of the most confidence in because we've seen production stay constant sort of throughout pretty wild cycles, including the pandemic the trend that forward.
But it's really what's the behavior within that base of merchants that joined us over the last year or two on what's going on there. So I mentioned it on the call, but it was kind of quick the last month in April was $830 million of volume I'm sorry. The last week of April was $830 million in the end.
The end volume. So you can you can annualize that you can get to a certain number. However, if you think about the fact that April is nowhere near the average week in a year.
US from a seasonal basis, you can be optimistic sort of beyond that number so thats kind of underpins all right, we're going to take our merchant base, we're going to kind of forward are going to look at current trends and see what would happen at the annualize those I'd.
The point you too.
The point you to a pretty reasonable path of the guidance that Brad laid out.
Say it with your comment regarding M&A, we do it in a very methodical way, we take the revenue associated with M&A in the case of venue ex for example.
Subscription revenue they were earning prior to our acquisition of on trend that down.
Under the assumption that merchants are going to adopt our platform for payments.
And we will discount that revenue in exchange for that trade.
We also burden our guidance with the opex associated with running that business, but we do not model in the volume contribution so that's going to sound a little bit counterintuitive, we said we'd do.
Penalize the revenue of the business for cross selling but we don't count the benefit of that cross sell that's exactly right.
Because the profile of these merchants looks different and we just want to let that roll through so then the next.
Sorry shift for shop is a phenomenon of example, where we're carrying the burden of that Opex reported a boatload of great customers, but we want to let those customers even see the volume contribution on the spread contribution of those before we include that.
That's very helpful. Thanks, guys.
Your next question comes from the line of Dan Perlin with RBC.
Line is open.
Thanks, Good morning, everyone I hope everyone's well.
I just had a question probably for Brad.
Can you talk about maybe the progression of spreads on the first quarter is going to be the lowest but you also.
<unk> mentioned the of kind of maybe some compression throughout the year as you move to larger merchants. So I'm just I'm trying to understand maybe the interplay between the.
The larger merchants I kind of understand there's also a lot of this movement towards Omnichannel and maybe even what you just described because of pure E com.
Merchant. So maybe can you just talk to you a little bit of the dynamics of how the mix shift is going to <unk>.
<unk> spreads throughout the year and maybe even as you think about into the future.
Thank you, yes, sure that there's actually a couple of moving parts of the here one is what you mentioned.
This ongoing kind of migration towards larger merchants and we've talked about that's probably one to two basis points a quarter of <unk>.
Is that mix shift takes place over time.
Whats, becoming evident the or should we people graph. There's also there's a seasonal component is the how.
Spreads normally behave.
Public last summer, we didn't have a full year of kind of normal seasonality to put in front of everybody because the way of every day.
The response to COVID-19, but what type of events.
Mmm simple find the most complex commerce environments, like that's where shift for succeed so if.
If you were to take hospitality upmarket restaurants, you know kind of the core of original ship for business nothing has changed in that regard, they're still only really three payments platforms out. There you know that have the capabilities to address these verticals you know the 350 plus software integrations and all of that version of history too.
Compete for a pebble beach, or you know of Snowmass or killington or something of that nature. So in that respect you know nothing's changed in the competitive environment, obviously, we're growing volume it up and it had a pretty.
Wicked fast right. So we continue to you know find success on those core vertical if you look at how we've expanded on and and take the stadiums. For example, we were very thoughtful and actually say like probably just start or you know the long history of integrated payments. The idea of that you know you can buy an ISP or part.
<unk> or build the capability to go after a certain vertical you know all of the consideration that goes into it is not lost on Ah. So before buying an ice V. Like then we had decided that the competitive landscape and say, okay. Therefore software companies the pretty much try and compete for the sports and entertainment.
The market to are very very legacy.
And one is it is dependent on multiple other providers to deliver solution.
What gave us the confidence required venue net can say of vertically integrated solution. In this market is gonna find success it'd be differentiated so we can pull the trigger on an ice the acquisition burst of your partner. So that really is the long way of saying you of a lot of confidence in our ability to take like substantial share. It then sports and entertainment.
Venues like like we have we've been pretty much announcing stadium like every every month right now.
The funnels awesome now if we want to talk about you know shift workshop E. Commerce I totally would agree with you I mean, not a very competitive environment you up against 200 billion dollar market cap. The haemus you know.
It's 50% comes from our gateway conversions of which.
We obviously have a very very long way to go there with the $150 billion plus of of Gateway volume So remains on our platform.
And I guess, it's really just what where do you pick your positioning in the market to win right. So there's nothing about how shift for us equipped today to win the next food truck away from square.
There is we are very well.
Quip to win.
The the junior Cheesecake or the Tao group of the Hawk is on site.
So really look there procure there are a lot of new business is being created every single day and a lot of them fit within our sweet spot and when they do we have a greater chance to win of better right to win and I would say the competitors that we compete against and Thats whats contributing to.
All of the volume growth you've been seeing since we've IPO to now in the in the guidance we're providing.
I think.
As I've mentioned in the past with my Pangea analogy.
On the market.
Shifting tectonic plates of moving pretty significantly and legacy merchant acquirers that don't have the mature integrated payment strategy are donating share to those tech enabled vertically integrate platforms and you have some on one end of the spectrum that focuses on the extreme simplicity.
The simplest aspect of the market like the square for example, that's kind of win like crazy on that and shift.
<unk> has the vertically integrated.
Solutions to cater to the more complex and demanding merchant environments, and we continue to win share in that space yet.
Sure it somewhat differently, it's just the different lens on the.
The issue I think it's not a function of shift for having the legacy software integrations, we have big established merchants and big established merchants use of mature software.
It's just the byproduct of the type of business, they're in now with that being said any time on interesting piece of innovative software enter sort of the marketplace.
Support gets a call.
And the reason for that as you think about the largest hotel chains in the world anytime one of those hotel change once the piece of software in their ecosystem at the phone call. The ship for the integrator. So we've got a library of 350, plus integrations that gross constantly.
We do not forecast into the second part of it.
Yes, that's exactly right. So the venue environment is.
Like everything else, we embraced the complex.
It depends on the type of venue, you're in and the cadence of events within those venues, but I will say, even if you look at the largest stadiums in the country. The volume is phenomenal, but it happens on I don't know amount of football fan, but like some odd team weekends per year, it's really the the concerts and all of the other things that layer on around that and that volume zero not to mention the fee.
That we don't have a football season going on we have very modest volume participation.
If at all quite frankly from from venue next in any of the numbers, we would have signaled and quite frankly, it's just too early to forecast it out.
There is a really interesting trend going on.
And quite frankly, one we're going to benefit from tremendously in the space, which is.
Just just bear with me of moment, while I explained then you next technology one more time this is van.
<unk> first mobile ordering inside of the stadiums this volume prior to the pandemic with like 510% of ordering in a modern stadium would be coming through these applications.
Early evidence from from.
Theme parks and sports and entertainment venues that are open to some degree during the pandemic, we're seeing 90% of the ordering is coming through these applications, yes, theres much more modest dependent so we're tremendously excited about the opportunity, we think theres going to be a massive seed shift or.
Is the top of a funnel do you have enough like salespeople and things like that to cover all of the potential opportunity. There I mean am I right in saying, it's all of it RFP right now are of that a bit of an exaggeration.
Yeah, So Jared here happy to address the two first you mean, Brad can touched on it in our in.
Our prepared remarks that we have accelerated some of our opex investments you've actually been pretty open about that the second half of last year that we're going to invest the talent I can tell you specifically, we've invested in talent and fussing of the business development resources for venue next because we are talking everybody. We're talking to everybody for for a couple of reasons here.
So number one is the drive more towards.
The.
San first mobile experiences Taylor reference previously this is not just ordering a burger and the deer and having to live with your seats, which is long overdue anyway. This is like you know.
Ordering like your Jersey from the merchandise store going in taking it off the rack and just walking out without having the way to the checkout line. This is like integration.
Integration to Ticketmaster. He can buy you know your seats from the next game. This is potentially gaming integration. So you. When you first have been on a football game and then use the proceeds to buy food from the concession stand so the.
This is long overdue in this market and even though there's a couple of the stadiums out there that may be embraced this little early on probably usually within the next technology the vast majority or in the stone age that's one second.
Just from seeing email you announced the wind and one stadium every other stadium looks in that direction is like what are they doing this because they don't want it to be at a disadvantage. So every time, we put out of press release, there's like 40, other stadiums that robin balance because they want to see they want to know what raiders of doing or what Petco Park as soon as.
The acquainted there's just like a ton of demand.
And we've absolutely had the price plus up the Dep resources. This is absolutely give me a bind contributor for us.
We just haven't taken in the forecast I mean.
And it wouldn't have even gone through you know anything in Q1, I think some of the first MLP stadiums that were lit up with US only really began contributing either in the last week or so of March early April but the opportunity there for sure is pretty things why we acquired the business I mean, you know I.
I would say like in terms of technology capabilities or just even architecture venue next is affect the software we've ever acquired the bill.
Got it thanks chairs and then just wanted a shift over two of something for Brad on on kind.
He made about higher debit volumes I'm just wondering if you have any view on if that's the.
The higher debit represent debit displacing cash or if you are seeing more debit like the the mascot to talk more Gaba volume depending on it tends to be driven by the stimulus payments and if you have a view on that if that's cash explains displacement or screaming.
The stimulus payments and higher debit or it's just the seasonal issue.
Yeah of course, no I I personally think of spending withdrew of but now it looks like more of a trade the be when you look at the day to.
It played out through the first quarter of I was pulling out through the first part of of April lots of gets much more of the service that day.
General trend of of critical of cash.
And Derek you or just the layer on to that being too because it kind of ties back to some of the spread conversations before I mean, obviously, there's there's zero of corporate zero four foreign card.
Oh signature I mean, some of the you know.
Interchanged categories associated with these car types.
Naturally yield to a higher spread and it's still like relatively non existent. So.
When you think about Q1 and you have this greater percentage of debit, which is pretty much going to be the.
The thing that that is going to be like your lowest spread type transactions will naturally get off set you know as some of these other you know whether it's business travel or international travel you know start the resume.
And these car types of the you know utilize the day.
Understood. Okay, thanks, very much care of and breath.
The next question comes from the the line change from five to have Morgan Stanley.
Your life so from.
Hi, this is beside myself on for games.
The questions for me the first and take some day the economy of free bound faster than expected. How are you thinking about your expense fast and where would you put in the incremental die. Thank thank you catch her and then to clarify on the on the modeling side in the last quarter, you got 60% of crashed profit margins does that still of pain.
Well that sounds like it is I just wanted to confirm that's the kind of thanks.
So the bread I'll I'll I'll take both of US on the first of all of them on expose the appointment J a vision or the number one priority is the make sure. We can fuel the top line growth. So that comes with a couple of forms it's mostly.
People. It comes from the Beady resource perspective, and also the come the back office functionality around 40 of.
Underwriting et cetera, there are some of the look we also mentioned and the earnings and the and the earlier statements around of making sure of the platforms of scalable for growth. So the the two categories I would the overemphasize or how it is related to sales on on board technology in terms of of in terms of scalable.
So that's what the investment sort of a couple of in terms of of gross profit. Yes. We have two of targeting of 60 per cent of gross profit number obviously influenced in queue on bug that the by that loss, but we certainly see 60% of the choose both of the gross problem.
The other thing I'd I'd mentioned, the spread talked about sort of scalability. There's also.
Some really interesting innovation trends that we we tried to capitalize on as a result of our recent acquisitions. So keep in mind, while we had some card enough presence volume of prior to the.
The acquisition of of shift for shop, It was really large enterprise merchants leveraging our gateway.
Technology for their on websites and when suddenly when you're in Naughty cop well, if you get a lot of great ideas about what your E. Com experience for every merchant should look like whether it's of restaurants QR code payment experience.
Sure it's of web store or it's like a large enterprises website.
Now later and venue next free dot fans paying mobily inside of the inside of the stadium and you get more so it's an area where we're very excited we found more interesting places to invest in our indeed on we have you know in the past, where we were a little bit more centric too.
Handful of verticals as opposed to a bunch more now so I'd just layer that on because payments is the product is something that we're spending a ton of time on and it's been quite frankly really really interesting when you get all of the talent. These different organizations around the table talking about.
What the what the ship or experience should be like once two to three years now.
Perfect. Thank you.
To the next question comes from the line of John Davis.
Raymond James Caroline's open.
Hi, Thanks for the guys.
First of all you're getting a lot of of your call around April friends and I just wanted to ask maybe a different way. If we were the look at the April versus 2019, I can kind of compare that to March versus 2019 the.
Maybe call it a little more on the acceleration on or if you have those numbers that would be super helpful.
Yeah. It's a great question, it's exactly sort of the right place to focus there's nothing notable about April versus March and of seasonal environment I think.
The Easter calendar and school spring break calendar that typically defines which of those two months gets the balance of trade right. So just see in April of reasonably notably ups up 4% of over March is a good sign the C. Merchant accounts are active merchant account of 2.5%.
April over the last week of March that's a great sign as well. So those are all encouraging I would say the the calendar tended the fever marching this case, although pandemic impacted so the sea April whereas that were incredibly encouraged but really you have to look at the last week that we experience of the last one week. We had just the one that we talked about being 800.
$30 million.
In volume of and then the one I think that is perhaps more encouraging than even our and the and volume.
She's the 150 billion of gateway.
March keep in mind that as of cohort that's much more pandemic impacted then R and the end bucket, which includes a lot of restaurants retailers and the other thing so to have $150 billion of March gateway volume should give a sense of what the final looks like remember that was the 185 billion.
On an annualized basis in 2019, and it's 150 billion of March So as we think about sort of continued merchant production that that is perhaps the most of the encouraging sign because you know none of us can control when the various is the.
Various restrictions lift when vaccines occur you know went optimism gross but but but that's fine as of mentally it hurts.
Okay, Great and then maybe the numbers question of I'll, just look at the increase in the.
$80 billion on the volume guide for the year friend and Rubs up $30 million does that imply the 38 basis points on the incremental volume.
Just any commentary there.
What's the play and why you wouldn't feel a little bit more rub the flow through on that income on volume.
You know on the midpoint of the Guy we look at 50, the support of additional revenue coming in off of the volume it.
And you know of 50 basis point number is or the line with kind of the large emergence we've talked about right. We talked about gateway conversions coming over anywhere in the 40 to 60 basis Port range. So I think somewhere in the middle of that has the right to the right place, but also the factor of the point Taylor Bay. The litter to go with we are you know intentionally kind of of eroding some of the staff.
So as revenue streams in order to convert these over and so the.
There's an upside coming through of volume of a cold of 50 basis force spread but there's also a little bit of degradation on the the status of the gateways of those will be flatter come down slightly.
Okay, well that makes sense and the last one <unk> just talk a little about the slight line partnerships Uhm you guys made of investment there.
Just curious kind of.
What exactly it is and what the investment that you get any sort of processing.
Processing agreement or any sort of the commercial relationship with on the last month.
Sure. So I think I can speak a little bit more ultimately just in general about what we're doing with our kind of many ship for the sea efforts and I'll try and get you know what I can on sight line.
That's a pretty strategic relationships. So some stuff we gotta just wait to the press release, but you know I think one in general that we created shift for the the shift for a V. C effort. Because we are recognized in just the rapid transformation that's happening ecommerce right now we want to make sure. We're we have we had the seats the table with some of those day businesses that we think.
Could have an interest in payments opportunity for us in the long run.
And that's you know.
One one.
One reason that brought up the site line, but it's bring us to a lot of other opportunities that we're looking at as well.
In terms of sightline, so like well, what what's publicly out there I mean this is probably the most important piece of technology in that's going to support the rise of regulated gaming of the mobile regularly again U S market.
So if you think about a lot of card issuers do not directly authorized gaming related transactions on the credit cards, you know like the bank of America, a case of essentially an intermediary something which is like the site line, but then add substantial value in terms of the digital wallet integrations into really card pregnant.
And card not pleasant gaming applications.
So.
There's a lot of volume that's the flowing through that world today, and there's gonna be a lot of volume phone through in the kind of years ahead now we've said from the start that one of the the big kind of you know homerun opportunities and see what the next acquisition is the integration of.
Like the sports stadium application, so like I don't know of hypothetically, the Washington Nationals.
Application in San Diego Padres.
Consumer application.
With a like a gaming platform. So that when you are at the stadium you could make of wage or on a game you could see the proceeds from the wind and then you could use it to spend in a merchandising shop or something of that effect. So that gives me one potential opportunity. We're looking at but in general like we have made the statement before that we are interest.
Did.
In Tennessee, four it's regulate game the sports betting and we are looking condition ourselves strategically to have a seat of the table isn't that exciting market.
Okay Super helpful.
Your next question cancel the line of David M told get the Red Evercore, Uhm ISI or ninth open.
Thank you very much in the morning I apologize. If this was asked earlier on in your update of 2021 guidance did you discuss your ex vacations for how quickly at the stadium payments business comes on line for example, Petco Park Nationals writer Stadium.
We we did the David this is Taylor, but nowhere is happy to adjusted again the the truth is we're just not forecasting any of the.
It's too soon.
The normalized environment for these is not just that they're sporting events inside the stadium, but it's also full occupancy and then it's also a series of events around the concerts and things like that so it's.
It's way too early I'd say, where we start to have some confidence.
Like the back half of 2022.
But and you know a full year died like this we just don't include that we do include the Opex because we're gonna carry those people through.
While we do all of the World Normalizes, but we don't include the one.
I see any heart on sort of base.
Paul policy versus football I think kind of fell has set on me.
Paul.
Documents the are hardly still allow full occupancy this fall.
David I. This is Jared I think.
Your question is exactly why we haven't included the volume in our in our guidance I mean for the for sure like we know they're gonna be volume like we already you know we put out of the press release almost every month of the stadium, it's kind of live with shift for in either of bending extra one of our other integration.
You know we absolutely in April of seem volume flow through from some of those MLP stadiums that are using our technology. It's just we don't know enough about what kind of the future holds you know we're gonna win a lot of stadiums. We know we're going to capture the volume you just don't know rules, they're gonna change and what the occupancy restrictions are gonna be.
So kind of better when we put out that guidance instead, but we're pretty optimistic about the air headed we're just not including stadiums in it. So let me look I I'd kind of pets from a fan perspective, I certainly hope that you know vacuum continue to roll out as as they are and then we can get a lot of fans packed in the stadiums and Safeway, but we just we just don't have enough like kind of a visit.
And the unit, where it's too early for us in sports and entertainment is kind of make predictions. So.
I get the C, a really long way of saying that.
If if you see a.
A lot of press releases from us of the stadiums and you know there's a lot of fans going to them you're watching that on T. V. And then expect the volume to probably exceed what was in that guidance that we just didn't include any of the yeah.
This is not overeducated when when we put out guidance I think we probably do that internally and then we sort of step back and say, what's the world telling us.
I mentioned this before but the last week in April for US was 830.
Million of end to end volume that is not an average week in an average year that has a slightly below average week and an average of your meeting the last week of April from of seasonal basis. So when you simply take that in the multiply. It by 52, you get to a certain point and we say all right what's merchant production getting what would any amount of of recovery do.
And hopefully that brings you sort of inside our guidance process.
And how we get to where we are quite frankly merchants joining us in the current year don't contribute much it's actually the merchants she joined the prior year annualize Yang.
That that contribute to the most growth in a year and then when when there's recovery inside of it that's outside so.
A lot more to come.
Fair enough and I I appreciate I appreciate all of the inside of just a quick follow up are you seeing any halo effect on kind of new bookings from the inspiration for.
[noise], So I guess I should probably take that Jerry here so integration for is.
It's certainly raise the visibility of shift four and specifically the shift for shop platform, which was our objective.
Obviously, all of the marketing and you know of space competition ended several months ago, but the production on the ship for shop platform, there's really not slowed down.
You know if you recall is just a couple of months ago. We did our year end earnings we provided the ship for chop update and said Yeah. We think will be you know.
I could get the like 18000 sites by the end of the year. It was because we believed that production with slow down on after the competition for the ended on.
Terms of the new merchant sites are new web stores, and they didn't and the wind up exceeding our expectations on a pretty meaningful way that's shift shop, specifically now shift for the company.
Yeah, I mean, you know our visibility of his right to the I mean, we are having conversations with customers that we wouldn't of anticipated before.
So I think there's a little bit more.
And we can do a lot of of attention to the organization.
You know a lot of people probably didn't realize how big you know on how much commerce shift for touch previously until you know an interesting news story developed about it. So I mean, I mean, just being from myself, but the organizations that I'm speaking to whether it's by it's V partners Enterprise Martin.
Just really interesting opportunities that are coming our way like you know some of the investments. We've we've been fortunate to be able to make would not of been possible. Obviously without that you know kind of of inspiration for companies sorry.
Sorry, I know that's not very specific that helps us on.
Uh-huh got the hang of.
Congratulations.
Your next question comes from the line of bearing power Red Wolf Research on line so often.
Hey, Thanks, guys. Just a quick logistical question on the comment you made her on the merchant growth. It's really obviously great to see the sequential the broken merchant numbers does that also including the ship for shop merchant base that you've added and then on the sides of it Ah modeling also just touch on me and crate and if I missed the sorry the inquiry.
And the advertising of marketing costs in the quarter, we got it just because of the incremental spending around the finishing of the superbowl ads or anything else.
Yeah, So I'll touch the first one of <unk> and Brad can touch the the second one to the extent of it is an active volume producing web sore, yes, but and this sort of gets to this sort of the heart of the you know do you include these things the guidance are not question of why we don't specifically included the the guidance.
The web store platforms of totally different phenomena.
Our products being a gateway conversion contributes volume of the next day [laughter] for us and established merchant who signs of contributing volume within a week or two to our platform and it's volume and scale of new web store, especially sort of an E. Commerce first business is not contributing volume instantly I mean, it is a multi the geppert is.
They build out their product catalog as the designer website and.
And then it's attracting customers to it so if there's volume being produced store. That's included in that number but I'm on a caution that the majority of whose web stores or not yet producing volume of nor should they be.
They're building up their business for the first time right.
Right.
Okay and the code there in on.
The other the second part about average out here exactly right a lot of the new on mentioned the.
Rebranding of shift for shops, a lot of that took place in queue on on the majority of the update it with advertising Mark you on a little bit of the people.
On the way as well, but a lot of the the non-recurring kind of one time, so for Q4, but you're not going to sort of repeated go of course.
Alright, Thanks, and just a quick follow up chaired and Taylor I guess, when we think about M&A all the.
So you guys have been successful with a couple of you'll so far and you talk about a good environment, but thinking about what we should expect over the next 12 months or so is there are there things that are that near term on the horizon from your perspective that are bigger they're excited about and then.
Maybe just talk about transformational versus talking to go on what you see near term. Thanks for your interest.
Yeah, I mean, I'm I'm happy to sort of saw share. It here and then tell her she definitely jump in cause you know his teams you know keeping a pulse on various opportunities will pursuing the you know on a daily basis, but.
I guess nothing.
Nothing really has changed since a couple of months ago. It's really the same story, which is we have you know in the incredible theme of professionals, that's out exploring opportunities that I I would suspect if any one of them was announced people would say well that was unexpected because that's plenty of R. M O over the last five or six years as we do try and find these.
You know of under the radar under appreciated assets that we think we can unlock of pretty substantial integrate payments opportunity inside and whether that you know.
The capability enhancement. So we can continue to win share accelerated share within our within our current target verticals or an entry into new vertical like what we give the sports entertainment within the next.
Or you know, whether it's spending our reach into new geographic area. It's all of the same story right. We're just keeping tabs on everything and I tell you that like the pipeline as.
What I would prefer the you know kind of to some of those small ballpark in no.
The transactions kind of similar to the last handful that we would of you know announced and it also has you know on a couple of you know real transformational kind of game take the deal. It's just an interesting environment right. Now. We're just don't you know we don't want to be pressured to you know make a decision that we're not going to be happy with me valuation perspective.
You know, it's a really interesting climates, we're just trying to stay really disciplined on that and.
Yeah.
Yep, and Taylor feel free to check the.
I would actually say.
A bunch of has changed lots of certain contradicted the present of different lands, we get a heck of a lot more phone calls now.
Some of that I would say, it's due to our capital position I'm sure you know.
Is sort of David mentioned, the the notoriety of of things like inspiration for is raise the profile of the business. There's a heck of a lot in.
In our pipeline where the valuation.
The you know to be skeptical, though I think if we get a phone call about it we should question of what our right to win that business citizen of emanate transaction and our right to win will certainly not be that we pay more than anyone else like that's just not how we how we do emanate transaction. So.
Continue to invest in the team.
Which is good so that we don't make sure none of his fault of the cutting room floor of that you don't want to and then we deliberately tried to be a little bit more.
Pragmatic about opportunities the economy.
From the capital standpoint.
But where us controlling the business is not the right answer for those entrepreneurs. So.
We've made to investments thus far both the sort of wildly different examples where quite frankly, I think of the site line space.
Space you know it is it is better for us to be a a capital partner partner guidance than it is for us to control that business. It's a massive market they've got a great opportunity to wind chairs and so that's sort of the ventures angle that we're taking on the answers. We can mind expertise, we can come up with commercial partnerships.
But you don't stifling the growth of that business by saying every one of your deals is gonna come through us is not not the right thing to do so we widen the aperture quite a bit we've actually.
Maintain discipline in this environment, we try not to get overheated.
Regardless of the cost of the capital on on an opportunity and.
The only thing I'd say, it's there's always something we're very excited about we just we're not going on it we're not gonna jump without making sure it's incredibly thought through and that it's going to answer every question.
That are investors would have as the how it's gonna ground.
Alright, and it really makes sense to interest.
Your next question comes from the line of Math O'neill Red Goldman Sachs Airlines Okay.
Hi, good morning dawned on thanks, so much for cable.
Came on question here I was just something you could maybe help us triangulate the 150 million and run right Gateway volume is that you. He talked about on this this call thing yeah.
Do you think about how that may compare the the the 185, presumably the in between you guys have been converting a very successfully a lot of that gateway volume the and the and so is there any like same store sales or apples to apples way of thinking about like how close that 150 is back from what it would of been in in 2019.
The there really isn't.
It's the right question to ask I would just ask yourself as the is a basket of is a large basket of merchants, that's predominantly hospitality focused down 10% year of.
Over a year as a result of the pandemic of the down 20% of the down 30%. All of those are are are really compelling arguments to be made the point, we're trying to make with that statistic is it has been very hesitant to talk about our gateway volume because it is so pandemic impacted and I think when when you give a low number of people.
You'll start to say Oh, you eroded at all through the end of it and conversions and that's where all your growth is coming from the reality is R and the and volume growth is coming to equal portions from a steady penetration of that gateway volume and lots of of new customers joining.
Albeit of depressed levels over the past year so.
Choose your on adventure on this one you could say that the gateway volume, 10% of impact that you could say, it's 40% of impact than I am looking out of market research I could make compelling arguments for both of those things, but what it tells you is there are still plenty to go.
And it is not of flashing the Pan you know all of our end of and volume growth comes from this embedded based on customers. It's what we've been saying all along which is that the gateway affords you.
A phenomenal sticky basket of really thoughtful partnerships in the form of Isps end of nice rolodex of customers and those partnerships bring us both the bring us gateway conversions and they bring us net new wins, and then hopefully things like M&A of product innovation on overtime skew your growth towards.
More and more net new ends of the gateway volume contribute steadily so.
That's sort of how we're looking at it I think to say 150 billion would've looked like ex in in 2019 is probably not the right answer except that I would guess, it's reasonably impacted still in a month like March.
Yeah, no that I figured that was probably of any of the the answers. The it's a couple of different points to try and try and do it around I mean from from from the high level of perspective, you know with would you say of lean more towards the downturn are down 40 still or somewhere in the middle just you know anything anecdotal will be helpful. As we think through like the the remainder of the recovery on the.
Hospitality side.
Yeah.
This is entirely anecdotal, but I would say you know, it's not a lot more of a pet.
Yeah of about the top half of the country and every hotel the system.
[laughter] those are far more than 10% of your ear.
Okay. Thank thanks a lot.
Alright, there are no further question at this time on that will have to call back the Jarod Iceman.
Yeah. Thank you very much I appreciate everyone dialing in today to discuss the or Q1 earnings and wish everyone well. Thank you.
Thank you and that concludes today's conference pink on for joining can the amounts connect.
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