Q2 2021 Shift4 Payments Inc Earnings Call
Thank you for your patience today shift for payments second quarter 2021 earnings call will begin shortly.
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 plans strategies goals and objectives. The expected impact of COVID-19 on our business and industry, including with respect to the economic recovery increases in vaccination rate.
It's the reopening of the country in any volume recovery by us gateway penetration and spend seen by our gateway merchants expectations regarding new customers acquisitions, and other transactions and anticipated financial performance, including our financial outlook for the year ended December 31.2021. These.
These statements are neither promises nor guarantees about 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 factors discussed in the risk factors section of our annual report on form 10-K for the year ended December 31.
2020 as updated by our quarterly report on form 10-Q for the 6 months ended June 32021, and our other filings with the Securities and Exchange Commission 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 management's estimates as of the day to this call while we might elect.
To update such forward looking statements at some point in the future we disclaim any obligation to do so even if subsequent events caused our views to change. In addition, we may also referenced certain non-GAAP measures on this call, which are reconciled for the nearest GAAP measure and the company's earnings release, which can be found on on an investor relations website at investors dot shift for dot com and.
And with that let me turn the call for a chief Executive Officer Chair It is England.
Thank you from good morning, and thank you all for joining US have you saw on our pre announcement a few weeks back we achieved reasonably strong results for the quarter setting New records for and then crossing volume gross revenue less network fees and adjusted EBITDA.
Specifically, we reported and 10 volume of 11.8 billion.
Put it into perspective that is nearly 3 times the same period last year and is more than double the same period in 2019.
Similarly, we grew gross revenue less network fees to 136 million or 81% compared to the same period in 2019.
Gross revenue less network fee growth in the second quarter was up 40% compared to just a quarter ago.
As was the case last quarter. The majority of our growth was the result of new and larger merchants joining our platform over the last 12 months volume growth also improved as expected as the country continues to reopen consistent with our volume growth, we were driving a higher mix of our revenues from net crossing fees as more and more of our gateway customers migrate to our and then some.
<unk>, which as you know represent significant accretion to our profitability overall and we look at our top line growth. The second quarter is a great example of the multiple ways ship for can grow.
In our model has inherent operating leverage evidence this quarter by the improvement in our digested EBIT margin second quarter adjusted EBITDA margins came in at 33 per cent.
We were driving margin improvement, while simultaneously, making investments supporting our expansion into new verticals, including the introduction of many new digital capabilities. It's also worth reiterating that several of our acquisitions were EBIT neutral been negative but are expected to contribute meaningfully as we execute on our integrated payments strategy and unlock revenue synergies to put it more.
Plainly we believe there is embedded margin uplift, there's a new vertical strategies ramp in scale with that let me update you on a few strategic initiatives. We are pursuing a chip for in a few exciting new merchant winds from the second quarter as well as a little color as to where we are going.
Calgroup, which owns many of the most recognizable restaurants entertainment venues around the world selected ship for as it's and and payments solution provider for all of its uspa's venues Tao selected shift for not only for our holistic solutions package, but also for our contact was in mobile payments technology, which was critical for their nightlife venues in this current environment.
This win should really not be that surprising as an integrated payments company that focuses on the most demanding environments and commerce, including hospitality and F&B shift for is in an advantage position for opportunities like Calgroup.
What should be surprising is are notable wins, an online in venue and the overall regulated gaming market. We of course have stated our intentions to pursue this exciting vertical for some time, mostly leveraging our incumbency in many casinos around the country as well as our mobile capabilities and sports stadiums that stated shift for should've been viewed as the under.
Dog relative to other payment companies that had existing customer relationships and payment capabilities from the more mature European market that stated, we announced preferred partnership with that M. G M to power their online gaming and sports betting transactions. Similarly through our partnership with Sightline ship for as a growing capability to facilitate regulated gaming.
[noise] transactions, both online and in venue such as our castles casino payment experience that we expect to roll out at resorts World Casino in Las Vegas.
While we have not been putting out press releases each time estate improves shift for for a gaming license no that we've been accumulating licenses at an accelerated pace.
In addition to the significant accomplishments in gaming stadiums and hospitality, you'll find other wins in our materials, including reference to some ecommerce merchants that were the result of our acquisition an ongoing enhancement of the ship for shop platform.
We continue to see growing adoption of the product and since the acquisition. We've added over 36000, new web stores now with over 50000 businesses on the platform as of June 30th Chip for shop has grown its merchant base over 230 per cent, it's worth pointing out that it's a long road from a web store creation to immersion processing tree.
<unk> as such we are evolving our ship for shops strategy to include a aggressively prioritizing new user experience restaurant and hospitality specific themes with tight integration to R. P. O S platform and I'm Gonna talk about that in just a minute as well as our online ordering capabilities and other marketplace initiatives like capital on.
Brings and be simultaneously pursuing partnerships that will accelerate shift for shops entry into new geographic markets risk management tools and capabilities like crypto acceptance that we've recently released this 2 prong approach of organic development initiatives supported by strong strategic partnerships will meaningfully accelerate our roadmap objectives.
And the overall momentum of shift for shop.
I spent a good amount of time talking about recent performance and accomplishments before turning things over to Taylor I would like to take a bit of your time to talk about where we're going our organizational priorities are as follows.
Number 1 leveraging our 350 unique software integration to pursue 150 billion of gateway volume as well as the rest of the market that relies on these same integration. This is without question claim to our men strength and verticals, where it's very hard to replicate ship for his capabilities as many of you know the gateway conversion opera.
Unity that is embedded in our business is probably the single biggest point of difference between shift for in virtually every other fintech player on the market and order you achieve our objectives, we're going to continue to make investments in our products and capabilities to solve pinpoints for these customers as further incentive to move on and then platform. Some of these investments take the form of internal systems.
Customer self-help capabilities automation and other solutions to deliver a better experience for our merchants and the thousands of software partners that support them.
2 we were about 2 quarters away from leasing our next generation restaurant platform I say platform. Because this is more than just a new point of sale application. It's an entire experience based platform for restaurants and their patrons, we're leveraging our men expertise in the restaurant industry, along with feedback from roughly 1 third share it'd be F&B.
Market that our technology is presently touching today to deliver a platform that will have a major emphasis on QR and other contact with means to pay a tighter online ordering experience with our products as well as third party delivery providers, a modern low cost and reliable architecture business intelligence analytics, and our marketing engine to draw.
5 loyalty and frequency from patrons all wrapped up in a sexy mobile optimized hardware where.
We're building an ecosystem around this platform to include payroll capital offerings and other solutions, we think restaurant owners will find helpful.
We expect to go to market with this solution in late Q1.2022 through our vast network of sophisticated in a line distribution partners capable of selling and supporting merchants at a local level. This.
This will enable us to pursue an upgrade opportunity with our existing customers driving incremental SAS revenues and winning further share of what is an enormous and exciting market.
3 we're company that has created a lot of value over the years through a discipline, but aggressive approach to emanate when the right inorganic opportunities present themselves our momentum, adding new merchants in adjacent vertical such as stadiums in econ is proof we can successfully identify the right strategic assets to complement our business. We recently completed another.
[noise] convertible bond offering that significantly increased our cash position, we would not have gone down. This road. If we were not gaining some measure of confidence in our pipeline of opportunities.
As we progress a roadmap of opportunities amends for the 3 priorities I referenced above really just scratched the surface, we're adding capabilities for existing payment platform, then enable further scale and a right to win in new vertical and even taking us organically into new geographies. So with that let me turn this call over to Taylor love or give you some additional color on our volume through this.
Summer as well as some of our recent announcements and sports and entertainment Keller.
Thanks, Jared and good morning, everyone. We exited the very strong quarter with solid momentum and remain optimistic that we're returning to a more normal seasonal cadence by the end of this calendar year.
For example July and and payment volume was approximately 4.7 billion as we continue to benefit from a larger based on merchants and those merchants benefit from increased spending this.
Discontinued merchant growth is important to spend a moment on because I think oftentimes our dominance in hospitality in restaurants can give the misperception that we are in an economic recovery play from an investment standpoint.
Note that we exited Q2 with roughly 7 per cent more active merchants then in Q1 and this merchant growth of between half a per cent and 1 per cent per week has continued through July.
We would note that forecasting specifically with regard to seasonality is quite difficult. When you consider the impact on merchant road, new industry verticals and increased spending as a result of economic recovery, regardless, if it's safe to say that all the volume levels are improving some pockets of our merchant base continued to be impacted by COVID-19.
Barring any material new COVID-19 impose restrictions, we expect our third quarter volumes to continue benefiting from seasonality and the momentum we have on our business followed by a more typical seasonal moderation heading into the fourth quarter.
Is Jared noted we continue to sign new stadiums within the sports and entertainment market and we are excited to see on returned to live sporting an entertainment events. Some of our stadium clients have already hosted logged on that for instance, last month allegiance stadium in Las Vegas opens to a full capacity crowd attending an entirely cash on scarf Brooks concert.
Also as we mentioned in on release shift for was selected by Chicago's United Center to power all patterns throughout their venue, including integration with the Bulls Blackhawks and the United Center Mobile apps.
In addition to our previous wins these new merchants represent proof points that our value proposition to provide stadium clients for the best in class and venue mobile shopping experience for their fans, including everything from pregame ticketing to N C ordering and scan on the go merchandise.
We remain active in the market evaluating M&A opportunities and continue to view acquisitions is part of our growth strategy. The success, we had with venue next and shift for shop, including a recent partnership a site line has helped build upon our already strong reputation in the marketplace as a visionary partner with that let me turn the call over to our CFO, Brad Herring to review.
Our financials.
Thanks for <unk> similar to the last quarter the numbers I'll be referencing or included in the release, we distributed this morning.
I'll start with a few quick comments first we are very proud to mention that Q2 represents a record quarter for shift for across all of our key measures, including process volumes merchant accounts revenue production and profitability.
Second because of the impact of Covid on queue to 2020 results I'm.
I'm gonna focus more on relevant comparable such a sequential growth over to 1 and variances against Q2 of 2019, which represents our performance prior to Covid.
Is highlighted in a release, we generated $136 million of gross revenue, let's network fees in the quarter.
This record figure represents a 40 per cent increase compared to last quarter.
And at 81 per cent increase over 2.2 of 2019 pre COVID-19 level.
The continued growth in revenues over the first quarter was mostly due to a 54 per cent increase in net processing revenues driven by new perfect boardings and further recovery in consumer spending.
That processing revenue now makes up 68 per cent of gross revenues less fees.
Up from 61 per cent from the previous quarter as we continue to monetize our services through adoption of our into an solution.
Gateway and SaaS other revenue streams, both grew double digits from 2.1 due to the recovery of the hospitality merchants on the gateway and continued growth in the merchandise.
2.2 spreads landed at 78 basis points, increasing 3 basis points from what we reported in the first quarter the.
The increase over last quarter is a net of the normal seasonal lift a 3 to 5 basis points, we would expect for.
Combined with a 1 to 2 basis points sequential quarter decline, we've signaled boudoir continued shift toward larger and merchant.
With regards to profitability, we reported a record $45 million, an adjusted EBITDA for the second quarter.
This represents a 65 per cent increase over to 1 reported results when adjusted for the impact of the credit losses, we absorbed in the first quarter.
It also represents a 67 per cent increase over 2.2 of 2019 pre COVID-19 levels, when we normalize for consistent accounting treatment of equipment leases.
As Jerry mentioned, our second quarter results represented adjusted EBITDA margin of 33 per cent against gross revenues less network. These.
This represents 10 percentage points of margin expansion over 2 ones adjusted EBIT margin or 5 percentage points when adjusted for the impact the $5.2 million credit laws from Q1.
On margin trends continue to benefit from improved revenue generation and associated scale benefits within the cost structure.
It should be noted that the recent acquisitions of 3 D card venue next negatively impacted 2.2 margins by 240 basis points as we continue to shift their pre acquisition revenue streams to our spread based monetization model and integrate these businesses into our operating structure.
We reported our first quarter of positive GAAP net income since our I P O and as a result, you will notice. We've included an additional section on the table on page 11 of our press release, reflecting the dilutive effect from.
Unvested restricted stock and the outstanding convertible notes for purposes of calculating adjusted net income per share. We continue to use them more conservative non-GAAP diluted share account that includes class B shares.
As a result for the second quarter are adjusted net income per share of twenty-two suits is based on non-GAAP weighted average diluted share account for 85.1 million shares.
We did not execute on any significant capital transactions during the quarter. However, we issue just over $630 million a convertible debt in late July.
With regards to liquidity, we ended the quarter with approximately $700 million in cash and approximately 100 million of available capacity on a revolving credit facility.
Notable for the quarters of cash outlay of approximately $120 million for employee tax withholdings in payroll taxes on 3.1 million shares of stock invested on the 1 year anniversary of our I P O.
80 per cent of these shares were issued at the time of the I P O with a 1 year vesting period. So this is not representative of typical cash outlays related to our equity based compensation plan.
Now on to update for annual Garden to start we are increasing our full your volume guy by $2 billion to arrange a $46 billion to $48 billion and increasing our full year gross revenue guide by $100 million to arrange a 1.3 to 1.4 billion.
We are increasing our full your gross revenue less network for your guidance by $20 million to arrange a $500 million to $510 million. This increases coming from the incremental processing revenue generated by the raise on volume.
For EBITDA, we are increasing our annual guidance to land between 175 and $180 million.
The increase $10 million a a prior guidance is from an assumed 50 per cent pass through right on the incremental processing revenue mentioned earlier.
We use 50 per cent versus the gross margin of 57 per cent due to continued investments in opex related to technology scaling efforts and additional staffing to support new verticals.
Lastly, we would note that are due outlook range is do not contemplate any potential economic slowdown for further lockdowns due to the COVID-19 Delta variance.
As of now we do not anticipate any significant negative impact, but we'll update you all if needed.
With that let me turn the call over to the operator for your questions.
As a reminder, if you'd like to register a question. Please price <unk>, followed by 1 and your telephone keypad now if you change your mind. Please press star followed by 2 and we're prepared to ask you. A question. Please ensure your phone is on mute you'd locally.
On the last question comes from Darren Pillar of Wolf research on the line it's yours.
Hey, Thanks, guys. Congrats on these results you know when we look at the the.
The results what is the driving force of what we saw was a very I think you said 7 per cent new merchant grilled sequentially.
What does that translate to when you think about it on a year over year basis and.
Let me just try to break out the strong volume even further acceleration in July and that you said it was 4.7 billion hitting more than the 1 billion per week, how much of that is reopening versus the new emerging growth you're saying.
Hey, Darren Thanks for the question this is Taylor.
I think it was great to see about the 7 per cent sequential growth. Instead, if you recall, we had you know for.
4% on over 1 growth in April over March right. So that's really important number to ground up because you still had reopening going on especially within the hotel space for spring break started to occur. So C..7 on a consistent basis over the quarter.
You know really goes to show you that merchants or joint right and that's not you know.
A hotel that had closed and reopened for spring break for the first time. So this half a percent for 1 per cent of we'd get sort of bumps around for a little bit in between those 2 ranges is it consistent number that we've seen joining the platform quite frankly going back even before the pandemic.
And ready to see it continue cause I think really a testament to.
The quality of the product off right now.
Macy's augmenting slightly but I think what's really important to understand is that the the the real new markets are not yet active contributors. So there so.
You would have for example, a small handful of stadiums doing 1 adventure so uhm in July.
Not on at all and yet when they show up in our July reported numbers next quarter, what you're going to see it a lot more volume per site out of though and I think.
The July enough for shouldn't be a surprise right. When you add emergence at this pace on the larger merchants you should continue to grow I think the 1 thing we we just want to be.
Mindful of is that you know in the fourth quarter, we typically see a seasonal slowdown right. It is.
Cross all of our merchandise so we want to be cautious that for $7 million in a or exceptionally proud of and you want to be mindful on the fourth quarter that you see typically.
Lowdown within your existing based on we're not seeing a slowdown emerge as.
Alright, that's what's really also so I mean, obviously, it's a mixed when you think about that kind of growth of your for your basis. It's obviously a lot more than just the reopening when we're talking about the number of emergency if I remember correctly. It was over 20 per cent or 25 per cent. Your for your trendy last quarter. So it almost seems like it's accelerated a bit to some degree on here for your basis.
And then quickly just on the yield yeah. When we think about what the kind of bowling that's coming on is in the European and generally are we still confident in the 50 basis points for greater for the large emerging category.
Maybe 790 basis points average is gonna go on thanks again guys.
Yeah, Hey, there and this is Brad I'll I'll take that and you're exactly right. I mean, you know the the the 50 number we talked about last time is certainly a floor you know what we're seeing is certainly a mix of across the board you.
You know across the spectrum of merchant so while we are adding some of these large merchants in those 50 Rangers. We are certainly adding you know we continued at restaurants, we continue to add especially retail merchants you know in the 80 to 100 basis point range. So it'll go back down to a book right.
Great Great Alright, Thanks for me I guess.
On next question comes from David Toga is ethical on selling David. Please go ahead.
Oh. Thank you good morning, how are Ya.
Clearly underscored you know the strength of your liquidity and and a number of opportunities in the acquisition pipeline could you talk through your focus in terms of acquisition would this be in terms of adding new horizontal capability you know like a 3 D card or going more you know deeper into existing.
Or new vertical for like a venue next.
[noise] yeah. Thanks, David Good morning, Jeopardizing Green here. So uhm yeah. Good question I'd say you know the story really unchanged.
You know we've continued to say that we have a pretty healthy pipeline. The Taylor's team has been developing that really go into a number of directions right like on on 1 end of the spectrum you have the big transformational type acquisitions, we're looking for Allah 2017, when we acquired ship for and begin our gateway strategy in which case you know.
We can be talking about moving into new geographic markets extending our reach there we could be talking about you know an exciting new vertical that kind of share some of the characteristics that we've found very helpful. Within our current core markets like multiple different types of software to deliver a commerce experienced that's where we typically would wanna focus and then any kind of flip.
To the other end of the spectrum, where you're talking about smaller transactions consistent with some of our last deals like venue next like 3 D car, which is now ship for shopping in which case you could be talking about entering into vertical as you can be talking about accelerants within our existing vertical for example, we get an acquisition almost a year.
Maybe a little less than that which was micros retail systems was a proserv company and and helpful for a lot of our growth and our current markets.
As well as accelerate some of our gateway conversions as well. So I'd say those are really all on the table and nothing nothing really has changed as much other than he may have noticed in some of my remarks that even things like moving into new geographic markets, which probably would've said on other earnings calls.
Would have been favorite more in terms of a like an inorganic uhm initiative, we wound up.
[noise] allocating some of our dollars towards that and you know we're already right now doing some things in the Caribbean, we're already looking to develop that further for them in acquiring for you know to add additional acquiring type capabilities and that and that was an entirely organic initiatives. So even though we have some some wishlist items and we we certainly have a lot of firepower to deploy them we're not.
Slowing down on the organic site items.
Great I appreciate that just as a follow up question bread I, just Wanna confirm just the guidance methodology historically excluded the impact of acquisitions from future guidance and in the first quarter. You also excluded the impact of any stadium related volume.
As we think about the implied second half guide does that still looks good acquisition impact in stadium volume or are those now baked and.
Go ahead with your question. So no. The when you look at the back half we still do not have any assume additional acquisitions targeted for Q3 and Q for embedded in that God, nor do we have cygnet.
Significant stadium volume Taylor mentioned was coming through now is you know it's measured in hundreds of thousands of dollars. So no we do not have a.
Significant ramp at all come again from the the stadium critical just to clarify David We <unk>. We do obviously have the expense base right and this has been a theme we want to make sure is crystal clear. So we have to pull it annualized impact on the expense space on any of the accident and shift workshop and the microphone business day.
Jerry mentioned, so the Opex does does reflect sort of deal for.
Please.
[noise] understood I appreciate the clarification. Thanks, so much.
[noise] on next question comes from Ashwin sure. Thank Huh Ah City actually on please go ahead.
Thank you Hi, Janet Hi, Taylor, that's good money and congratulations on the quarter.
I I want Okay sure I I wanted to ask <unk> to the <unk>, what he did sort of what to get you to the high end <unk> and and you mentioned you know curtains, I think and 1 of the risk.
<unk> says here for Q for.
<unk>, it's been a minute later.
Obviously, even when we look at the past month, 1919 and 20 to.
A little difficult to figure out what to seasonality is if you could comment on how you thinking of that with respect to you and I'll Cook.
Yeah sure I'll start.
I think it's important to note that we continue to be.
We continue to be conservative in our volume I mean this is this is always evidence hopefully by the fact that 1 more guiding.
Annualized on your recent trends guess.
Guess you'd be on those guys uhm. So there's not a lot of science in the range, except that we think it's prudent to give a range and then there's there's a cautionary statement, which is we see <unk> much more normal seasonal patterns for this year and we talked about depressed payments volume leading up to the middle of February and then a strong increase.
March and then a strong increase again in June sustained through the summer and we would expect to the extent that the first sort of half of the year for 7 months of the year have been ethics for express normal seasonal patterns that the fourth quarter looks seasonally normal as well, meaning that that payment.
Volume per site declines during that quarter I think the the balance for that right is our strong merchant road, the balance to that or things like like.
Like a false sports events in stadiums that we we don't include in our guide because it's a bit unknown. So I I think the methodology on our guide hasn't really changed much from what we've done in the past, which is point for the most recent evidence and add some conservatives on for you know the months ahead given.
We've seen in the margin based on to the extent that are offering continues to outperform and merchants join at a strong pace that we hope will do better than what the guys suggest.
Mhm.
Understood and in the past you you've often talked about you know if if volumes came back for existing clients merchant to say 2019 levels hit for disasters in 90 per cent higher 35 per cent tire.
On outcomes.
Where do we stand now <unk> you have seen them quite a bit with a pinecone uhm on <unk>. If he can can comment about that.
Yeah, I'll I'll I'll take this 1 only because I'm probably responsible for the very unclear statement and our and are prepared for marks on it.
It's hard math to do you know I I think we're <unk> you have to look at pockets the merchandise and analyze them on a case by case basis, I would say restaurants in general from a payment volume perspective are are looking reasonably good you'd see this and things like the the visa and Mastercard or the American express categories that data.
However, the way it manifests itself is is is higher prices as opposed to pull her occupancy.
In most parts of the country. So so there is higher.
Higher prices per merchant average ticket volume is going on in a bunch of different places across our book So it's hard to pin down precisely.
Hovering occupancy versus a recovery of ticket prices are ticket prices quite frankly going beyond where they would have been prepandemic I would say the hotel space still.
At a macro level is depressed although at a more regionalized level. You know hotels are seeing really good tourism behavior X International right. So we're seeing pockets, where where volume in certain cases is above where it would've been prepandemic in other cases is still substantially below when you think about the international heavy markets and.
Tourism heavy market. So it's why we sort of keep pointing people towards the merchant account for us because if anything in a world where you've seen a pandemic get back to our end markets, maybe really significantly.
The idea that we can point to you know between half a percent 1 per cent active.
Active merchant account growth every week throughout that time frame.
That's what we like to rely on line.
In terms of predictability, whether sustained higher average ticket values continue with her occupancy grows. These are all things that quite frankly, it's just too hard for per day.
Got it got it thank you for that okay.
Our next question.
<unk> comes from Tim <unk> of Credit Suisse. Tim. Please go ahead.
Great. Thanks, a lot. Thanks for taking my question I Wanna dig into the next Gen restaurant platform that is coming in a few quarters and just talk about that opportunity. There. It seems like a pretty new tool to give to the bars that would be attractive to them in terms of on how they allocate their <unk> their time in selling and recognizes that they have options and then also when we.
Think about it as a way to attract new S. M. B restaurants, but also is there an opportunity for an upgrade within your existing base that might either be take right supportive or take rated creative in some manner.
Yeah, I hate him good morning, Jaredite, you've been here and Uhm Great question, maybe the answer is really yes, all around so it's certainly an opportunity to empower our men's distribution network.
Simply just go out differentiate and when and what is a huge market. So we touch a third of the restaurant market on today.
But not but we don't have the and then processing on a third of of the restaurant or F&B market today, so they're using some form of payment technology, which is a put on the door and an opportunity to have a conversation opportunity to convert gateway volume to and then but there's still the other 2 thirds of the market out there, which is pretty exciting so uhm it's in.
Opportunity for us to go out when share in the market, it's an opportunity to upgrade existing merchants that are within our our <unk> you know base of customers today and in doing so that's certainly going to create incremental opportunities for me like SaaS revenue perspective, it's an opportunity to drive gateway to and then volume conversions and then it's an opportunity as well the just tap into.
A lot of revenue opportunities in the broader kind of payment application ecosystem. Yeah, we've talked about in the past right that you know if you look at the the size of our customers and certainly the direction. We're going should it's you know to shift for have an opportunity to really you know get involved in payroll uhm and potentially monetize relationship to it.
Customer that way through other HR services or capital offerings, you know as we look to this new you know restaurant platform that we intend to roll out pretty soon and it's already in beta is right now it's actually be on base I would say, it's hidden pretty substantial number of customers.
It's a it is an opportunity for us to kind of dive into that broader ecosystem and other things I'd say too is if you look at some of the application that will be I don't know you know kind of spearheading what we're describing is this customer patron first approach like QR code based payments and what we've been doing with sky that you're accumulating Ah.
A lot of information on consumers that would and when I say that meaning like email address is for various marketing and loyalty based application. It gives it puts shipborne an interesting spot where we can start looking at things that you know otherwise wouldn't have been available to us not not totally going like claim 2 sides.
Like maybe some of the other organizations, but certainly an opportunity to get a little bit closer to it than we have been in the past that makes sense.
Absolutely does thank you so much for all that context I appreciate your day.
[noise] on next question comes from Mike Colonnade Day of Bank of America like the line issues.
Hi, Good morning, guys nice quarter, all around and congrats again on the the 1 your anniversary here for some T. I P. O. My question is on the revised I'll look for 2021, so if I take a look at the mid 0.2 provided for net revenue in in 10 volumes relative to the prior outlook I'm coming up with incremental spreads 1 per cent by taking the $20 million in incremental roads divided.
By the 2 billion of incremental volumes for the year. So I guess, what factors are driving your spread assumptions higher compared to the prior outlook.
Oh, yeah, he might just bread, so I'll I'll start off with saying you know 1 of the day, we learn the the conservative spread out look last quarter, we'd probably you know under shot when we talked about the 50 basis point. So when we approached this quarter.
We raise gardens, we wanted to make sure we were more reflective kind of on the spread side. So when you think about how 'bout 2 billions going to convert 200 million. The majority of that is certainly tell me through processing revenue you know, we called him that 80 basis point range. So I just kinda blend down like I mentioned with their in Awhile ago, you got new stuff coming on you know.
A floor call at 50 basis points, you've got <unk>.
Numbers of emergency still coming on and 100, it's 80 basis point range. So it's gonna blend down for more of an 80 basis Port range. You also do have some some lifting the guy related to some of the non processing revenue you got to have some slight lives from the gateway to hook up with a little bit quicker than we thought.
And some slight lived on the staff revenue. So if you think of this the 20 million the vast majority of its processing, but there are some other components that are non spread related.
That's very helpful. Thank you.
Yep.
Our next question comes from change full set of Morgan Stanley James. Please go ahead.
Thank you very much and good morning, everybody I wanted to touch on a couple of little bit of details is that first obviously did the rate at which you're adding a new customers is really impressive I'm wondering if you can give us a little bit of color or where those are coming from on these new custom.
New businesses are they coming from others providers and and you know it just kind of wondering where you're taking those new customers from.
Hey, James Thanks, very much good question jeopardizing from here on this 1.
You know this comes back to really just a foundational component to the ship for story, which is on the more complex and of the Commerce spectrum, where we play there's really only 2 other platforms that had the software integration that are capable of really competing with us. It is so important to understand in that right because it the payments Lance.
Cape is huge.
Probably everybody thinks that you know everybody has some day right to win especially as you kind of move up into that more up market. You know end of the spectrum, but it's really just not the case right in a world of integrated payments, where you're connecting software to a payment platform, especially multiple different types of software. We're talking about like you know specialty.
Pillars are ski resorts are big hospitality resorts are complex restaurants like like Tao root for example that we reference in our in our prepared remarks, there's only 3 platforms that had those software integration that would be able to compete for that business and that's.
Really the case on the whole upper and more complex ended that commerce spectrum spectrum and ship for is 1 of them now we've said for awhile, we on more links to the value chain than any other payments providers. So what does it mean, we just have more tools available for us to differentiate uhm when were already afforded a seat at the table. So you know things like cure kobe's payments in contact with.
Payments on mobile payments on online ordering we own all of these capabilities already so we just have so many different levers to pull so many incentives in carrot as inducements to make available these customers to move over on our end and platforms very powerful value proposition because it really comes down to taking out a lot of complexity, which means taken out a lot of course.
Which was important to our customers in like you know the best of economic times before the pandemic. It was obviously very relevant to them through the pandemic, because we were adding a lot of customers and actually growing volume.
During such a challenging time period and that's what we just continue to do as part of our ongoing strategy recognizing we're in such an advantage position. We we look for capabilities for further differentiate we look to take the the strength that we have in this complex end of the market and bring it into other comparable verticals like sports Entertainment and theme parks and do exactly the same thing right now.
So really we're in a competitive landscape a few and we're able to differentiate in a very effective way and that's why we're growing customer account in which is contributing volume.
The 1 thing James but I just want to be very specific on because there there was a comment by Jerry during the prepared remarks, when we say active merchant account growth that is merchants producing volume on our rails and that's really important right. So when when a stadium signs up and they don't have an event yet that's not included in that count went away.
Pet stores built unless that web stores that could be selling product every week, it's not that count as well. So all jurors comments ring true I, just there's not a lot of of.
Of the sort of emerging markets and that counts yeah. Because these are things that were still growing even though we're adding customers until the volume comes through it doesn't show up on that incremental except for something.
Got it and and I guess kind of a somewhat related question to your common shared in terms of the capability and the speed at which you're adding capabilities clearly we've looked at and and you've been very successful in finding acquisitions to add in to to the capability stack of shift for.
<unk> over the years, but if you're if you're unable to or you're not finding the thing solutions that you want in the market that you can acquire or that kind of thing should we think that it might make sense to increase our N D N or spend elsewhere to try to continue to improve the advantages of shift for.
More aggressively or do you think that you can still continue on on the kind of the strategy in a capital allocation path that you have in the past.
So you think the answer is we're we're doing both we we certainly like M&A I think we've been pretty successful at it over the years, we've done a number of transactions that are unlocked it substantial amount of value. We continue to look the other thing too is we just.
We're not gonna be pressured to do a deal that we're gonna regret I know a lot of us here myself into it you know we can we consider this like a life sentence. So uhm, we don't Wanna do a transaction 2 years down the road, where we're kicking ourselves for it. So we're trying to remain pretty disciplined in that regard and what happens is is we identify an opportunity and if we can't solve for in a way that anemone.
A transaction could we just prioritize and organic initiative a good example of that is what we did with pay a table or a table <unk>, which is R. Skycap product episode a solution. We released in 2019, it really took off during the pandemic and continues to be 1 of the strongest point strongest technology initiatives that we've gone to market with.
And the real reality was as every solution that was out there that will look at from an inorganic perspective was just no. Good and that was why I paid came order table. Just never took off you know in the U S market for like 20 years, even though it was predicted an international I think pretty much every earnings call. Since we've been public somebody asked the question about what are you.
Doing to enter into new markets and we point out that we have a lot of customers that have international presence and that this is not you know like we're.
We're very aware of the opportunity in front of US we just don't Wanna be pressured into a bad deal. What did we do we prioritize them you know in internal resources to start expanding our reach you know slowly like we didn't organically make a leap across the Atlantic into Europe, but we're starting to do more things and say the Caribbean markets and we're learning from it and it's in on.
Gimmick initiative and we'll see if we want to continue to fund that day potentially take US you know in even farther uhm geographic areas. So the answers you just we're just balancing both if something gets just really excited and we think we can create a lot of value. If it were certainly happening uhm allocate dollars in that direction is not where we're able to achieve an awful lot of like really power.
<unk> things in terms of our organic investments.
I appreciate that thank you.
On next question comes from John Davis of Raymond James John. Please go ahead.
Hey, Good morning, guys just wanted to touch on a comment I think he made and I wanted to clarify in in the prepared remarks. The gateway volume was not about $150 billion. I think we go back a year at the I P. O. It was 185. So just curious how much of that has been converted on if you don't have an explicit numbered as maybe an update on on gateway conversions.
Yeah, Let me just clarify.
I can talk about the conversion faith.
We just pulled we just reference to set that we gave on our lesser salt. So that was on March and your last number.
Of 150 billion, a gateway volume, we haven't refresh that for for the second order on it yeah and my apologies if I did that in approximately in there I don't think for you know significantly off I think that approximately 150 billion a gateway volume to go is probably pretty accurate.
Because even though it Taylor mentioned that was the number we sided on the end of the quarter, 1 and we of course had a fair amount of conversions like the actual pace of conversions from gateway customers to and then has been unchanged for several years. Now you also would have had somewhat of a recovery from within the gateway base anyway. So you probably get just as you know markets open so you <unk>.
In that same ballpark, but in terms of pay for conversion, it's very consistent I mean, very consistent that we win approximately 50 per cent of our new customers it'll be interest wouldn't share of the market connected to any number of organizations and the other 50 per cent is customers that are on on state where they migrate over.
Yeah.
Yeah. So there's certainly a lot of opportunity that remains within the existing basic gateway customers I don't think our position has changed at all and from from what we think is addressable which is all of it. It's just a healthy pace that for pursuing with our thousands of really a line software partner, yeah, and it shouldn't surprise people right. So when we quote that I'm happy for.
Per cent on 1 per cent and in customer growth and and everyone sort of recognize the sound great that is you know keep in mind, we've got 3 to 4 times the volume in our gateway that we have on our end debt platform. So it should be in Austin theater system for us for many years to come you know there are certain things.
Accelerating portions of those on we spent a lot of time with are based on the development teams. Each each week identifying pockets that are more right at that 0.5 for conversion on others think hotels coming back for light and bringing their <unk> their technology staff back yet for example, but you know it's a constant effort and it's a really really.
Big population. So so you know it largely unchanged is Garry that's it and still have time to go with we see it yeah.
Yeah, maybe just a build on that more so jarring in here uhm when I. When you went in my prepared remarks, I said, our number 1 priority is still pursuing the opportunity are 350 unique software integrations affords us of which.
The gateway volume is really top of the list right 150 billion in volume, we've always said that we develop various capabilities in in order to and then give them away and like little or no cost as an incentive to help those customers migrate from gateway to and then because it's such a significant lifting grow annualize gross profit so what did I.
Already share in the marks for developing next generation you know restaurant payment.
Payment plan P O S platform.
You know a lot of that 150 billion in gateway volume of restaurants, right. So maybe the incentive that they were waiting for over the last couple of years is the next generation platform that does things for them that their currencies and is unable to do it maybe it's free loyalty because we've been developing and enhancing our current royalty capability and they would otherwise.
Hang a third party in order to deliver a royalty experience for their customer alright. So these are things that are for.
They're gonna orders ahead that are additional incentives and capabilities to incentivize those customers to migrate trying and platform is no different than what we've done with QR codes or if you are ordering or online ordering or pay pay for order tables delivering takeout. It's just another example of it so number 1 priority focusing on that 150 billion in volume that we're just in such an advantage cause.
Mission to pursue as well as all of the other volume disconnected into those same integrations that are pretty uniquely situated on the ship for platform.
Okay, Great and then just as a follow up of January that we've been talking about M&A for Awhile you guys have done on a couple of nice tuck ins how how much of a struggle is valuation is that something that's holding you up you know obviously assets are relatively expensive. So does that mean, probably more likely they'll tuck.
And in the near term or just just curious on how much of a hang up evaluations have been in your heart for maybe something larger.
Yeah, So just to be clear like it's not just valuation right. It's also the quality of the assets in itself. So you know when I think back to 2017, when we acquired our first gateway, which was shipped for gateway I mean that was like a record multiple for US I mean, it was you know probably 24.25 times for an EBITDA for.
Even though you get your 1 synergize basis at average down you know pretty quickly, but you know we repaired to pay up for what would probably been considered you know you know topic valuations and at that time period, I don't I don't actually think anything's changed in terms of 2021 or 2020 in terms of the evaluation, we're willing to pay per call.
Yeah, I said I just I just don't think a lot of the deals you know of course, you'd probably would've seen some of them would've been announced from others, who wound up pursuing them, you know where that high quality, where we felt like we could leverage a playbook that's work incredibly well for us to just unlock you know and integrate payments opportunity. So yeah, I mean valuation is.
It certainly part of it but you know we want we want good quality assets and I don't think there's been too many out there that got US you know super excited.
And on Taylor for you want US later on that yeah. It's it's something we talk about a lot, especially with investors given the current climate I think.
You know the the the public Marcus from this back sort of sub sector of the public markets have done sort of very good and very bad things for for those of US focused on any day and the good cat they have shaken more trees than a single strategy department could ever shake and so.
The attitude towards selling.
Selling your business is much more positive and therefore, we see a ton more than we would in a normalized environments. It's very easy to sort of get your phone call taken on the other side of the coin they've set valuation expectations that are flat out like like unreasonable.
So in many cases, we find ourselves sort of waiting for a normalization or waiting for sort of a reckoning on which we saw a little bit right in queue to uhm within this back market of.
Valuation expectations tampering again, none of this impede sort of the.
The excellent highly strategic transactions, because we still.
<unk> managed to file you know plenty of that to spend time on but if you think it's worth sort of noting that right like it is a myriad of opportunities to a lot to sit through to gerets point on quality.
Because the difference between a nice product that might get traction later and a really strong inserted based on a customers across cell.
Is radically different than online.
I think the ladder is is tremendously undervalued right now I think the idea of finding a pocket Americans that you you can deliver a much wider platform to the way we have with our point of sale acquisition.
And our Gateway acquisition. This goes to our benefit, but I think that the the market sort of missing not at the moment and that's what makes us excited.
Yeah, I I'm already getting here I would I would like to think over the long run that just continuing to be disciplined and our strategy is gonna pay off you know very well for our shareholders and shipboard as an organization to be on it that it's not hard to win an auction. Let me just take the last comp and add like 20 per cent or something to it so.
I don't think it's very you're very good as a as a management team just to win every auction and like set new revenue multiples on every transaction.
Not very helpful for sales are guys.
On next question comes from Chris Turner of Pelinka Sandler Chris. Please go ahead.
[noise] [noise] good morning, and thanks for taking my question 1 to ask about the the new restaurant platform and.
Partly about the timing of it now of why why working on it now is is sort of pandemic related or is it just a need to reflect refresh a bunch of technologies and then thinking about it from the restaurant perspective, what what is a typical.
Lifecycle for a platform from a restaurant like how often do they typically.
Revisit what they do or I imagine, there's a lot of variation there, but I'm wondering if there's a general rule of thumb, but for when you might get an opportunity to revisit with restaurant.
Yeah. Thanks, Chris Jaron here. So this new platform, which is you know internally code named Edgewater existed prior to the pandemic.
We did think it was pretty prudent during the pandemic, you know, especially considering how impacted on our end markets where to re prioritize definitely sources to adding capabilities to existing solutions.
First I just I mean, just wasn't like you know an environment conducive to people coming on site and like ripping out hardware and software and reinstall on new ones like nobody even wanted to visit face to face. So you know as it became clear that we were you know you know emerging from the storm. If you will we just put the resources back on the project that.
We've been excited about for several years, which is which is Edwards and what does that border designed to do is designed to like take all the different.
Capabilities that we think are essential for N. S. M B type restaurant environment and deeply integrated into a single application. So instead of paying third parties for gifts and loyalty and online ordering of which there was like 100 companies out there doing that plus point of sale plus analytics, plus marketing and combining it on to a single.
Ground up application Android based hybrid cloud everything customers would want we've been excited about that idea for for a long time now now we do have you know I would say measured in the hundreds out there on beta.
Which has been deployed slowly through already existing distribution channels and as we continue to gain confidence at more capabilities, we think it'd be pretty big hit for existing customers new ones now in terms of like timing for customers.
I'd say like if we look at the like upmarket towards more enterprise customers regional chain not uncommon for them to be seeking bids on it in 3 to 5 year type interval, whether it's like a formal art theater, just soliciting interest I'd say S M B's like.
Till they have a problem, they're gonna continue to roll with what they got that's pretty much the general trend like we've certainly seen restaurants in the smaller than the spectrum throw out a solution inside of like months or a year. If it wasn't solving the pain point that they felt was most relevant for the business. We've also seen plenty of stuff out there and it's been around for for quite some time when I would say.
With high confidence is b like overwhelming vast majority.
Of the restaurant industry is using windows based point of sale application Uhm and Windows comes with like a lot of headaches right. It's just a lot of upkeep and it's pretty draining on hardware and you know every time as your windows update or something things start breaking so the market that's gonna be right for like a very sexy new platform following.
Along with our existing strategy don't charge for like 100 different annoying things and just monetize relationship to through payments. We think is is pretty large and rights of it for <unk> well.
Well time for our solution.
Okay, and then just related to that 1 day do you think is the platform will do you expect it bring into more competition on sort of the the smaller size S. M. B payments world or are you still <unk>. This is a different class of restaurant and say like a square goes after.
Oh, yeah definitely different classroom, where square would go after I mean.
You know you're really talking about within the restaurant market as of today. If you were to size. It up there's there's there's shift for and all the various applications detached and then they're toast.
And we think shift for us in a pretty advantaged position because we already touch your power about a third of the restaurant restaurants in the United States already so that's beyond to put on the door. That's a conversation anytime you want it says it's a black female away. So we already touch a third out there that we think are gonna be interested in migrating towards you know that more modern.
The architecture that more modern platform that I. Just described and then we also have literally thousands of sophisticated distribution partners that are out there able to have a conversation at a local level, which which further differentiates us from really the only other player out there so.
Do you think it's a pretty big opportunity and we think the competitive landscape within the space is still still quite narrow and we have our natural advantages [noise].
Got it thank you very much share.
As a reminder for any further questions stop stop for a buy 1 on your telephone keypad. On next question comes from Andrew check free of Truest Securities Andre The line is yours.
A good morning, I appreciate excuse me and lots of good stuff discuss alrighty Jarrett I Wonder can you update us on you're thinking on around the gateway strategy broadly and and I guess, what I'm asking is.
Is there any thought day, you can move directly to offering and and processing solutions Adam.
Nation too.
<unk> within the existing gateway as a means of accelerating growth and I guess, what would be required and are you investing against that kind of opportunity today.
2 I I want to make sure I understand the question because we've been pretty consistent that about 50 per cent of our production in any given month comes from just winning share of the addressable market, they're going right to the end and platform leveraging the software integrations, we already have.
I guess I'm only about about.
More of an enterprise level.
Level.
Thinking about more enterprise type customers that might traditionally had been on the ship for gateway.
Oh for sure I mean, I I I can think of just the number off the top of my head that we announced over the last year that were just enterprise grade customers reported directly to her on and platform. So Virgin hotels that Vegas property half of the semester relationships I mean, there's some M&A activity going on there.
From from the customer not us that you know, we're all net new when Creek casino resorts, that's a handful of resort casino.
Casino restaurant hotel properties, I think mostly on the east coast that was on a a net new win Calgroup, which is pretty huge was it was a net new win as well. So yeah. We're renting an enterprise customers independent of the Gateway business. In fact, it's it's kind of 1 of the reasons why I mean, everybody always asked us to give like specific.
Merchant accounts on gateway conversions, if it gets hard because U P. S stores at the time. The contract was Inc. Was it was a net new Wink you know we had no gateway affiliation with them whatsoever. We were displacing chase we were in competition with freedom pay then.
Then we acquired merchant link and that happened to be the gateway platform, they were leaving and it it it kind of muddied the waters and you call that a conversion, but point being is like a number of our just pure net new wins independent gateway, our our enterprise customers.
Okay, Yeah that helps a lot. Thank you.
We have no further questions on the phone line, so a hand back to Jared for closing remarks.
Oh, Thank you very much I appreciate everyone's time today, and we will speak very soon wish you all well.
Ladies and gentlemen. This concludes today's cool. Thank you for joining you may now disconnect your lines.
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