Q4 2021 Shift4 Payments Inc Earnings Call
Good morning, and welcome to today's shift for fourth quarter 2021 earnings call. My name is daily and that will be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you would like to ask a question. Please.
Resto, followed by one on your telephone keypad.
I'd like to pass the conference over to Tom Mccallum head of Investor Relations. Tom. Please go ahead.
Thank you operator, and good morning, everyone I'd like to welcome everyone to ship for US earnings Conference call for the year ended December 31, 2021, before we begin I'd like to remind everyone that this call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
All statements made on this call that do not relate to matters of historical fact should be considered forward looking statements, including statements regarding management's plans strategies goals and objectives.
The impact of COVID-19 on our business and industry, including with respect to economic recovery increases and vaccination rates the reopening of the country and any volume recovery Bye gateway penetration has been seen by our gateway merchants expectations regarding your customers acquisitions and other transactions, including the narrow in the giving block.
And anticipated financial performance, including our financial outlook for the year ended December 31 2022.
Anticipated an impact of each of the scenario and they're giving block acquisition.
Our adjusted EBITDA and end to end payment volume for the year ended December 31 2023.
These statements are neither promises no guarantees, but involve known and unknown risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements factors discussed in the risk factors section of our annual report.
<unk> Form 10-K for the year ended December 31, 2021, and our other filings with the Securities and Exchange Commission could cause actual results to differ differ materially from those indicated by the forward looking statements made on this call.
Any such forward looking statements represent managements estimates as of the date of this call well, while we may elect to update such forward looking statements at some point in the future. We disclaim any obligation to do so even if subsequent events cause the abuse. The change. In addition, we may also reference certain non-GAAP measures on this call, including adjusted EBITDA free cash.
Hello, and adjusted free cash flow, which are reconciled to the nearest GAAP measures in the company's earnings release, which can be found on our investor relations website at investors that ship for Dot com and with that let me turn the call over to our Chief Executive Officer Jarrett.
Thank you, Tom and good morning to everyone joining us.
We obviously have a quite a bit to talk about today, but first I'd be remiss, if I didn't bring up the conflict thats ongoing in Ukraine right now.
I say that all of our all of our thoughts are with the Ukrainian people. During these really tragic times.
So.
This morning, Chip where reported another quarter of strong results highlighted by intend volume of $13 4 billion, which is 97% higher than a year ago and nearly 100% higher than the same period in 2019.
We've met or exceeded three of our core guidance metrics and built off the momentum we have in our high growth core as well as making investments in new verticals, including two acquisitions that we announced today all of which I'm looking forward to discussing further.
It's important to call out that our full year 2021 volumes ended up coming in about 10 billion higher than the initial guidance introduced about a year ago. At this time, our high growth core continues to drive market share gains evidenced by the fact that during the fourth quarter. We grew volumes four times faster than visa and Mastercard, we achieved this industry.
Meeting organic volume growth, despite our end markets like restaurants, and hotels continuing to be impacted by Covid. This includes delays and the return of business in international travel and especially the omicron variant, which dampen results in the fourth quarter.
Our high growth core, which represents domestic merchants in the restaurants specialty retail and hospitality industries continues to represent the primary driver of our growth.
As you all know our gateway and 425 unique software integration provides us with a captive backlog of volume something we intend to attack even more aggressively this year as well as the right to win across a very large addressable market.
As I mentioned in my letter merchants are not switching from one inadequate payment solution to another we're growing volume at an accelerated pace and it means merchants are switching to ship or because we are solving pinpoints, we're adding value and we're delivering a superior experience than the previous provider on that note. We're also excited about the early successes we're seeing.
With our new restaurant point of sale offering called Skype at Pos Despite the products still being in beta we are already seeing material take up with new merchants looking for a technologically robust cloud based Pos offering that provides a full suite of functionality and add on modules that help differentiate us in the mid to higher end of the market we serve.
While our high growth core drove our 2021 performance and we expect will remain the primary contributor growth well into the future. We do expect our new markets and verticals will start to contribute more meaningfully in the ensuing years, especially in light of the two acquisitions, we announced today, both of which I'll elaborate on in a moment.
As mentioned Covid was a drag on our performance throughout all of 2021 and omicron, especially in the fourth quarter. So I'd like to share some of our thoughts on how the pandemic informs our expectations for 2022.
Throughout the fourth quarter, we do not see the return of business in international travel that we were expecting and we believe omicron had the most pronounced impact in the latter part of December a headwind that continued through January .
Fight that headwind December was shaping up to actually be a record month. During the first few weeks of December we were achieving our highest levels of weekly volumes in our firm's history.
We went from hitting record weekly volume levels in early to mid December to a sharp decline in late December which bled into the month of January and actually into early February .
While it remains difficult to attribute week to week volume movements between omicron. Another possible factors, it's reasonable to conclude that I'm a crop with the material reason the historic weekly volume levels. We witnessed in early part of December did not sustain themselves throughout the entire month, regardless Amazon was definitely a headwind, but it was short lived as a week.
Volumes have returned to over 1 billion a week in the first part of February and most recently set new weekly and daily volume Records.
The Bottomline is that we view the pandemic impact for 2022 to be contained to the first quarter and there is significant pent up demand as mandate and consumers and businesses resume more normal travel patterns are weekly volumes in February are accelerating and we are now achieving again New company records.
Now similar to our November analyst day, or Investor day, I'm going to structure my remaining comments into three areas one our high growth core and why we believe that our impressive growth as sustainable.
Two are new markets and verticals, specifically an update on our progress since announcing several major wins, including Spacex Starlink St. Jude Children's Research Hospital, and Allegiant Airlines, just a few months ago and three.
The strategic rationale behind the acquisitions, we announced today.
Both acquisitions are foundational transactions for filling our commitment to globalize, our existing business, while providing new technology capabilities aligned with our previously communicated strategic priorities. So let's start with the high growth Corp.
Over the past four years, we've delivered a CAGR volume growth of 37% more than three times the industry with our restaurant and hotel volume is growing even faster over the period at 51% and 140% respectively.
What has changed since our analyst day in November has continued stability in our average spreads despite our volume mix shifting to larger merchants our success in signing larger merchants continued during the corner with signing of several new hotels, including the palms Casino Ogilvy resorts and how it can lani in Hawaii as well as the country's largest self <unk>.
<unk>, operator storage Mart and one of the largest airline concessionaires concessions international.
All of these were gateway conversions, which means we received a three to four X gross profit lift from these merchants converting from gateway only two are full and then acquiring solution as.
As mentioned previously merchants do not switch to comparable or inferior technology solutions in 2022, they were switching to a ship for end to end offering because we are solving pain points, we're adding value and delivering a more cohesive commerce experience and whoever they were using previously.
On the above note. We do believe the time is right to reevaluate the free flexibility. We currently afford our gateway only customers are.
Our basic premise on gateway only customers is that while we provide the majority of value and all the technical capabilities and a gateway environment. The majority of transaction economics still accrue to third party acquirers, providing functions, we could easily do ourselves and should do.
It's worth noting that the few of the fast growing fintech providers that few fast growing fintech providers still offer.
And acquire Optionality through a gateway and instead, they all endeavor to deliver a better and lower cost experience through an end to end offering.
We believe there are additional measures incentives and capabilities. We can offer our very large population of gateway only customers that will accelerate the migration to our N. Gen platform faster and free up organizational resources to focus on our many other strategic priorities.
So our objective is to begin the process of starting these conversations we believe will lead to an acceleration in the current pace. She is already very fast of conversions from our gateway to our end to end platform hopefully with tangible results beginning early next year.
Outside the gateway opportunity, we continue to see an incredible opportunity in mid market table service restaurants, with our overall restaurant volumes witnessing 51% CAGR growth since 2017.
We're clearly very competitive in the marketplace and will continue to remain a market share gainer with our new Sky cab.
Offering that we plan to release from beta and formally launched in the second quarter. This year.
We currently have approximately 3000 restaurants already operating on our Sky cab Tof solution, which is one represents 162% growth in merchants on the platform in December versus the same period a year ago.
Moving to some of the new verticals, we've entered into since the IPO in stadiums and arenas not only did we announced several new wins, where we extended our mobile fan first experienced your ticketing V and integration with <unk>.
Ticketing can represent over five times, the average volumes versus in venue purchases and also comes with higher spreads.
Our stadium business is evidence of how we successfully identified in new vertical identified the best technology, and then go to market with a differentiated offering.
Our wins this quarter include Audi field in Washington D. C home of the professional soccer team D C, United where we're powering all the in game Commerce mobile food and beverage concessions to merchandising purchases, including an integration with fanatics, who operate the Audi field club shop.
At children's Mercy Park in Kansas City, we partnered with sporting Casey to offer fans and integrated ticking ticketing experience being integration with their ticketing platform cheeky.
Supporting our growth in the sports and entertainment vertical we serve as presenting partner for player signings, including shipboard being featured on social media graphics and posts and in stadium branding with all of our recent wins in this sport I would be remiss, if I didn't say that football is light.
Our commerce technology is now powering payments in over 100 venues across the United States and we can confidently say that venue next acquisition has exceeded all of our expectations.
As we mentioned before we believe ship or has unique right to win in the rapidly growing online gaming vertical leveraging our expertise in business intelligence products from in venue gaming and bringing it to the mobile world I am pleased to report that we now have over 10 gaming license licenses and we have begun the first phase of transaction processing for <unk>.
Again with transactions expected. Additionally from sightline.
Later this month. Furthermore, we expect our growth in this vertical to only accelerate as a result of our two acquisitions, but I'll touch on shortly.
Moving on to the new verticals and signature wins that we announced at our recent Investor Day St. Jude Children's Research Hospital are first marquee win in the nonprofit and health care verticals has begun processing. Their first end to end transactions already in January of this year and we completed several key software integrations, we will continue to take on more volume through phase.
This is over the next several quarters and I'll have more to say on the nonprofit sector in a little bit given one of the acquisitions, we've announced is the crypto donation platform, but giving block, which actually counts St. Jude as one of their customers.
For Allegiant Airlines, we expect to begin processing, our first airline transactions by June of this year as the integrations are presently underway.
And finally on Spacex Starlink, we've already begun processing transactions and expect the first phase of our volume our first phase of their volume to cutover. Later. This month. We are also anticipating the installation of Skype at Pos in their star base restaurant locations later this week.
A narrow which I will discuss shortly is especially relevant for our global expansion ambitions and supporting the Spacex starlink expansion across the world.
All three of these signature wins represent entries into exciting new verticals like travel and leisure health care and nonprofits and sexy taxes, when combined with our recent acquisitions that will expand <unk> reach across the world. They represent a material Tam expansion.
Much like Allegiant stadium from a year or so ago I believe that we will look back on these three wins over time as a critical milestone in the growth of our company.
So moving to the Big news, we did announce two acquisitions today, but giving block infinera for total upfront consideration of $579 million comprised of an aggregate of $213 million in cash and the balance in equity.
First let's talk about the giving block we closed on this acquisition yesterday for $54 million in total consideration with an earn out of up to $246 million based on hitting certain revenue targets, but.
Giving block is a crypto donation platform an area of increasing interest for nonprofits crypto donors are seeking to donate their crypto to a charity and nonprofits are seeking access to this new category of donors, especially given the average size of a crypto donation is $10500 versus around $300 for traditional donations.
The addition of this crypto donation capability, coupled with the software integrations and charitable giving that we're building with St. Jude give us a powerful go to market offering in the nonprofit space.
Crypto represents a fraction of the donations received today by charity, but it's growing more quickly than the mid single digit growth of traditional charitable donations, we intend to bundle the crypto capabilities with our end to end processing to go after the 45 billion plus of total donation volume that's already embedded within the giving blocks <unk>.
<unk> hundred contracted nonprofit customers. Additionally, through a bundled crypto bust traditional card offering we now have a significant edge in pursuing what is a $450 billion charitable giving market across the world.
The giving block it blocked team includes incredibly talented crypto and blockchain talent that will establish the ship for crypto innovation center with the with the aim to expand crypto acceptance and settlement capabilities across the organization.
Finally in connection with this transaction, we will be announcing shortly a campaign to challenge the crypto community donate some of their crypto to their charity of choice to the giving block platform I will personally match dollar for dollar each donation with the aim of achieving the largest crypto funding campaign in history. We think this is an excellent way to waive raise aware.
To raise awareness for both sides of the giving blocks network connecting more donors with nonprofit and our crypto donation marketplace.
We're also entering into an agreement to acquire a pan European full service E Commerce acquirer called Pinero with licenses to support U K, Europe , Hong Kong and Japan.
<unk> is both a modern architected ecommerce and card present payment platform as well as the bank with FX card issuing and capital offering capabilities.
This transaction is not scheduled to close until regulatory approvals are received which is likely later this year.
We are acquiring for neuro for two reasons first it provides the foundational technology capabilities needed to support Spacex Starlink and their global base of subscribers.
Second <unk> card not present in the international capabilities will meaningfully expand the reach of our existing products and software integrations.
After extensive due diligence bernardo's technology platform is best in class, particularly their AI powered risk and fraud management capabilities 170, plus alternative payment methods multi currency support and the ability to maximize the authorization rates through intelligent routing.
This will serve well as the technology Foundation for our global expansion strategy.
We're going to take Sky cab Pos to restaurants, all across Europe , we're going to take our venue next technology to stadiums and theme parks all across Europe , and we're going to take our ship for shop platform and all of our 425 integrations, including all of those the power of our hotel and hospitality integration library, coupled with a real right to win.
We're going to grow payment volume all over the world. We are purchasing for narrow for $525 million in upfront consideration and up to a $50 million earn out we anticipate that <unk> will contribute over $15 billion in N sand volume and 30 million and adjusted EBITDA in 2023.
We also believe denaro independent of all of the Dis synergies we have to offer is it 30% net revenue grower with high adjusted EBITDA margins that we expect to continue.
It's worth pointing out that our diligence has revealed a few digital content merchants, representing a negligible amount of volumes that are not compatible with our corporate values and will be phased out shortly after closing.
These two acquisitions, we believe.
Are accretive to our long term growth.
We retained significant firepower with almost $1 billion in cash and are excited to continue our organic and inorganic investments to support our strategic plan.
I would like to address our full year reported adjusted EBITDA performance for the year, which came in slightly below our guidance range quite a bit of this was attributable attributable to omicron and the lack of business in international travel previously contemplated in our plan for the full year, but there were some continued growth investments we are making in the business as we enter.
New markets and prepare to go global and this should be consistent with our Investor day, where we emphasized our desire to expand margins in our high growth core while also investing in our new verticals, which are performing well and largely the reason for our performance on gross or our outperformance on gross revenue less network fees, but still early in the development of their mom.
<unk> profile, we will continue to balance profitability and growth in our guidance calls for mid <unk> margins for the full year in 2022.
We also believe our guidance, which Brad will cover in a few minutes is consistent with our medium term outlook. Despite starting the year at a disadvantage due to the impact of Amazon.
I'd also like to emphasize the organizational transformation that is taking place.
Over the ship for way that was just implemented a few months ago.
We have begun embracing a vision mission values and philosophies many of which were influenced through my exposure to Spacex one component of this initiative the dramatic expansion of our RSV program to include every employee in the company regardless of grade. This ensures our workforce at the right alignment promotes retention and helps us recruit the talent we have.
Need to deliver on our ambitious objectives. It's also worth pointing out that I'm personally funding, 50% of the stock being allocated to this program, which expand equity ownership to all employees. It also includes a five year vesting that is back half weighted to promote the right long term commitment to the company.
Before I turn the call over to Taylor I wanted to highlight the news surrounding my my personal participation and the privately funded space program called Polaris I feel fortunate to be able to partner with Spacex on this endeavor, which will further advanced human space flight conduct important scientific research, while also raising awareness for causes here on planet Earth.
Similar to inspiration for I do believe this will likely result in good things for ship four in the same way in my prior mission raised awareness for St. Jude and resulted in both St Jude and Spacex Starlink as shift where customers.
As <unk> largest shareholder my interest is fully aligned with building long term shareholder value for this company, which is to say I am fully engaged and we will remain fully focused as we take this company global and integrate these two exciting acquisitions and with that let me turn the call over to our President and Chief Strategy Officer Taylor Laura Taylor.
Thanks, Sharon and good morning, everyone.
Before touching on the acquisitions I would like to provide some additional color on the seasonal spending patterns, we've seen over the fourth quarter and into the first while we raised our guidance several times during 2021 due to outperformance our decision to raise our volume guidance was based on a slow but linear recovery of travel and leisure spending as well as a more modest recovery in court.
Britain International travel.
Not for this continued delay in business travel, we feel strongly that our full year volumes would have exceeded our expectations. Nonetheless, we delivered impressive 92% end to end volume growth and corresponding 81% gross revenue growth for the full year 'twenty one.
Which compares very favorably to our peers are.
Our expectations for full year 'twenty to remain cautiously optimistic if you recall, we experienced a similar trend last year, whereby the second wave of Covid depressed volumes from Thanksgiving to Valentine's day.
At week, while our record at the time represented only one 4% of our total volume for the year as growth recovery in warmer weather caused rapid volume growth across our portfolio in subsequent months. Following that same logic, we're quite pleased with our positioning as we exited February with more record weeks. In fact, we had our first $200 million volume days.
Just yesterday.
To help you conceptualize, how we construct our full year guidance. We included the volume bridge in our press release. This morning detailing the main drivers of our next year's volume growth in.
In a typical year the majority of volume growth is actually derive for merchants for the prior year, followed by new merchants and gateway conversions, 4% during the year.
For example in 'twenty, one we estimate approximately $14 billion of our volume growth was derived from merchants reported in 2020 in 2021 with the remaining growth from the pandemic recovery and contribution for merchants boarded prior to 2020.
For 2022, we estimate we will have at least 16 billion in volume growth from merchants for us last year, coupled with new merchants to be boarded during 2022 all of this pertains to just our high growth Corp. We deem the $16 billion is conservative.
Conservative as it assumes 14% growth over 2021 production despite exiting the year with record levels of active merchants.
We also pushed into new areas, such as stadiums gaming and new verticals, such as nonprofits and Spacex Starlink combined we envision these new markets and verticals will contribute a conservative 3 billion of our volumes in 2022, resulting in us arriving at the midpoint of our guidance range of <unk> 69 billion.
We believe there is upside to our guidance from pandemic recovery.
Volumes exceeding our forecast and the pace of Gateway conversion show how fast we can scale. These new markets. We entered recently on the other hand, our guidance is also informed by the realities that inflation in occupancy impacts.
Our end clients, notably restaurants, and hotels, which have been struggling to meet capacity demand due to labor issues.
<unk>, our 2022 volume bridge hopefully provide some help as you think about the year.
Turning to acquisitions I want to talk through some of the terms of both transactions and how the combination of both sets of capabilities will provide unique differentiation of the markets we serve.
Giving block is a very exciting given the crypto donation space is relatively young growing extremely fast garners high spreads and contains material cross sell opportunities to offer a bundled end to end processing capability to nonprofits, who are seeking to consolidate both their crypto and card based donations with one platform. We were already excited about.
Targeting the nonprofit vertical with a marquee win of St. Jude Children's Research Hospital and now are Supercharging, our right to win with the addition of crypto donations. There is also an interesting consumer play to this transaction given the.
Given that the giving blocks relationship with crypto donors.
Providing interesting conversations across all of our merchants, who could benefit from these access to crypto holders we.
We're acquiring a talented team of technology individuals' and intend to work with the founders of giving back to create a crypto innovation center to become thought leaders in this emerging space.
That's specifically enhances sephora as acceptance and settlement capabilities across the organization. We structured this deal with a significant earn out the upfront consideration is $54 million structured 75% stock and 25% and cash we're acquiring the company in its early years and a growing sector with expectations for considered.
Growth as crypto becomes mainstream to this end, we structured the deal to have roughly 80% of the total consideration Tao.
Types of future revenue growth with a total maximum earn out of $246 million in 2022, we believe the revenue contribution to be modest in the EBITDA contribution to be neutral as we embark on our organic growth and cross sell objectives. In 2023, we expect at least $5 million of adjusted EBITDA contribution.
Which is achievable through even a modest combination of crypto donation growth in payments cross sell.
And as Jared will always yell at me for its probably way too conservative.
Turning to scenario, we entered an agreement to acquire scenario for $525 million in upfront consideration and $50 million in earn out tied to integration objectives.
From consideration is structured approximately 62% stock and 38% cash and given the scarcity value of these assets in the marketplace. Our assessment of the banking and technology platform. The talent of the individuals who will be joining us and the synergies. We believe this combination will create we view the multiple we paid is quite reasonable.
We have confidence the combination of ship for Infinera will provide a winning combination.
We needed the service Starlink and other multinational ecommerce merchants, it's important to note that over 95% of scenarios transactions or e-commerce and over 80% Cross border.
The closing timetables a bit longer in light of the fact that scenario as a bank and we anticipate closing later in 'twenty two after receiving regulatory approvals.
<unk> is expected to contribute over $15 billion and end to end volume in 2023.
Over $30 million and adjusted EBITDA. This was a business historically growing adjusted EBITDA over 50% given its capabilities and exposure to high growth verticals. We believe that growth is sustainable and can be accelerated by our business combination.
As with any business combination, we believe strongly in aligning both sides around a common set of objectives. Each transaction not only includes the substantial portion of equity, but also mandates a holding period that is consistent with the long term value, we intend to create for shareholders.
We have demonstrated that we are disciplined allocators of capital and have a track record of delivering an attractive return on our acquisitions from the two gateways that remain a cornerstone of our growth today to more recent acquisitions like vending next which have resulted in continued.
<unk>, some new stadium wins with that I'll turn the call over to Brad.
Thanks, Taylor, so now I'm going to dive into the numbers for the quarter.
So Q4 revenues gross revenues were $399 billion up nearly 90% for the same quarter last year gross revenue plus network fees was $147 million, an increase of 65% over last year.
Year over year growth breaks down as the following a 79% year over year increase in net processing revenues driven by continued merchant adoption of our end to end solution.
38% increase in our SaaS and other revenue stream driven by expansion into the stadium vertical and further penetration of our core restaurant and hospitality verticals and finally, a 50% increase in our gateway revenue stream driven largely by a recovery in the hospitality sector over a COVID-19 depressed Q4 of 2020.
Spread for the quarter came in at 74 basis points, which is consistent with the spread we reported in Q3 and eight.
Eight basis points lower than the same period last year.
Mix of the book were largely stable between Q3 and Q4 with the only notable change related to a significant year over year increase from the recently boarded U P. S stores during the holiday season.
And we've talked about previously the year over year spread decline is exclusively due to shifts in our mix.
<unk> vertical now represents approximately 19%.
From approximately 8% for the same period last year.
It's worth noting that spreads in our restaurant and hotel verticals were up year over year, 10, and 6% respectively.
For the quarter, we reported adjusted EBITDA of $44 million, which is up 65% over the same quarter last year.
These represent these results represent a shortfall to our 2021 guidance by approximately $8 million due to the following three factors first as Jared mentioned previously the rejuvenated impact of Covid in the fourth quarter temporary challenge our restaurant segment Insignificantly setback the recovery in business International travel this negatively affected.
Results by $3 9 million.
Second we consciously pulled forward $2 $1 billion of Opex, specifically targeted to accelerate the scale of our technology platform that provides upfront promotional support the upcoming launch of Scott. Pos finally, we incurred $2 million of additional Opex made up of a number of small items such as the timing of timing of Odyssey.
Fees and some state specific franchise taxes.
Adjusted EBITDA margin for the quarter was 30%, which was flat to last year and down from approximately eight percentage points from Q3 due largely to the factors mentioned above as well as some normal seasonal compression in Q4 margins that I'll discuss more later.
With respect to capital transactions for the quarter between October <unk> and December 31, we repurchased approximately 378000 shares of common stock at an average price of $55 81 per share.
Those shares are reflected as treasury stock or the balance sheet.
Based on a number of discussions we've had with investors and analysts over the past several months I'd like to start talking about our adjusted free cash flow, our adjusted free cash flow defined as free cash flow adjusted for the cash impact of the same items included in our reconciliation to adjusted EBITDA.
Full year 2021, adjusted free cash flow was $18 million. This represents a pass through rate to adjusted EBITDA of 11%.
More relevant because of the depressed volume figures, we experienced in Q1, our adjusted free cash flow in the back half of 2021 was $26 $5 million.
This represents an EBITDA conversion rate of 27% a full reconciliation of free cash flow and adjusted free cash flow. It was available in the appendix of our earnings materials.
So now looking on to 2022 I would like to provide the following for full year guidance, we expect in payment volume to range between $68 billion to $70 billion.
And gross revenues to be between one nine and $2 billion.
Gross revenue less network fees are expected to be between 675 and $705 million and finally, we expect adjusted EBITDA to be between $240 million to $250 million. This guidance implies a full year margin of approximately 35% up over 300 basis points from the 31, 6%.
Full year margin will report for 2021.
A little more color on margin. So we told you at our Investor day that our high growth core business have a has a margin profile approaching 40% that trajectory is continuing into 2022. We also mentioned we are investing a portion of that margin back into our new markets and new verticals to support future growth opportunities.
The aggregation of our high growth core and our new growth opportunities brings our full year 2022 margin to the mid thirties as I just mentioned.
It's worth noting however, the margins will fluctuate from quarter to quarter, largely due to seasonality with the first quarter margins typically representing the lowest point of the year, we expect margins to expand as the year progresses before exiting the year in the mid to upper Thirty's.
Lastly, I want to mention that our guidance does include the benefit of a getting the migration off the <unk> platform. The majority of that basket that benefit is scheduled to be realized in the back half of the year and our coordinates with our merchant migration plan.
For guidance on adjusted free cash flow conversion, we are projecting our cash conversion rate to adjusted EBITDA to fall between 35% and 40% for the full year.
A few general comments I'd like to close with Tom It's worth reiterating that while omicron got 2022 off to a slow start and management's confidence in our guidance is bolstered by the fact that by the end of February we have once again returned to setting New weekly records for and pay what volume is.
Didn't have referenced our year to date volumes through February of this year have already totaled $8 $2 billion.
Also we do believe this guidance is consistent with our medium term outlook that we shared at our Investor day at Allegiant Stadium in November .
And finally before I mentioned that the 2022 guidance I've just provided does not include any significant contribution with two acquisitions that Gerry discussed earlier.
By 2023, however, we do estimate that these transactions will contribute approximately $15 billion in payment volume and at least $35 million of adjusted EBITDA.
With that I'm going to turn this back to the operator to facilitate questions.
Thank you as a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
If you are using a speakerphone, please remember to pick up your handset before asking your.
Question.
The first question today comes from Darrin Peller from Wolfe Research. Please go ahead. Your line is now open.
Thanks, guys congrats.
Congrats on these two acquisitions before we get into that I just wanted to touch on the.
The actual impact from mobile Crown. If you can provide us a little more detail in dollar terms on Q1.
But whether it's ETE volume or it's the revenue and EBITDA contribution that you saw it pull back in January and into February .
And then maybe help us understand the exit run rate on a weekly volume.
Taylor to your point on conservatism in building bridge for 'twenty two.
I think a lot of investors coming in and see those numbers as conservative also we're just trying to figure out the magnitude of what what kind of upside you could see from both the existing business, you've already signed and obviously the new areas to grow it looks like there is there is some real opportunity to beat and raise as the year goes on.
Thanks.
Yes.
I'll start it probably warrants a little bit of a commentary from everyone.
January was particularly depressed.
Really throughout the entirety of the month.
We saw a depression and kind of active merchant counts.
As well as.
As well as volume now interestingly.
A portion of that shortfall.
Was actually made up in just the past two weeks here in February so it does feel quite short lived.
I would say there wasn't.
Interesting there wasn't a notable.
Variants in the performance of kind of one sub vertical or another so like restaurants or significantly depressed as where hotels.
As we think about the recovery in the year ahead, obviously restaurants have come a long way from where they were a year ago.
I think we all know that hotels still have a substantial portion of <unk>.
And even at depressed levels they represented.
20% of our end to end volumes, you'll recall, so I think theres a lot of room left to go in the hotel vertical specifically inside of the existing merchant base I think there is.
Some recovery only just started inside the restaurant vertical although that tends to happen a lot more quickly.
People can book trips and get on get on flights.
Flights to $200 million day that I referenced I think is anecdotal kind of.
How would you feel about things.
Jerry and I were commenting this morning, it was only.
It was only two years ago that we're celebrating our first 100 million a.
David around the same time so.
We feel good it does anecdotal or the experience we had last year.
Pretty significant restrictions as a result of that second wave largely lifting around Valentine's day, and as the weather got a little bit warmer.
People got out and said that our merchant locations I think that the unknown and it's.
Pretty meaningful conservatism inside of it is what does this do for stadiums because while you had some marquee sporting events that were filled up you definitely didn't have kind of broad based.
Participation from a population in the entertainment and that's across the country and we are definitely more venues signed up so I'm, particularly excited about that one.
Brian anything you want to add to that.
I think so.
It's Darren if you think about the impact of January I think it was kind of largely offset by February . So I think in terms of the quarter, it's going to it's going to likely to wash itself out but you are talking.
Within a month of <unk>.
Call. It a half a billion dollars of volume that's got a shifting around but but what we've seen in February largely largely mitigated that that short that we provided in the earnings materials.
Okay.
Alright, guys and then just quick follow up Jared when we think about these deals that youre doing.
It's <unk>.
<unk>.
The new name, but either way I mean, when you look at the two opportunities obviously the growth of these things really should help supplement the international opportunities you were looking into I know we've talked about starlink.
Can you just really hone in a little more on what that could do for your business. When you. When you think about how quickly you can actually leverage that those those abilities in Europe .
Other parts of the World now.
Versus what you've been able to do or are you able to take some of the relationships you have in the U S and now leverage them internationally above and beyond things like Starlink and others. Thanks guys.
Yeah, absolutely so, let's just start with giving block because we already closed on it and I mean, if you think about it we love.
The nonprofit vertical because it plays to our strengths of multiple different types of software that's required to deliver in the case of nonprofits that donor experience. They don't have one donor management platform. They had like 40 or 50. So naturally we're attracted to that because that's what we do really well in restaurants hotels stadiums as connect a lot of different software together deliberate commerce.
Experience.
We started with St. Jude Children's Research Hospital, which is what gave us exposure to all those pain points and now we want to launch off of it having a signature partner like St. Jude is a great place to start having a technology solution that can solve real pain points across the $500 billion payment opportunity is even better nonprofit.
Don't really know a lot about crypto.
They just know they want to take it and they want to take those crypto funds and apply it to.
Whatever challenges they are trying to address.
The giving baxalta they create an awesome two sided network a marketplace, where you know crypto.
Crypto donors can find all the various nonprofits they want to support which is 80% of the donation volume that's going through the platform.
And then you solve the pinpoint for nonprofit organizations that again didn't know how to.
Received these type of transactions. This is absolutely the solution that we needed to build off of the St. Jude momentum I mean, we're going to be able to cross sell you know traditional card payment across <unk>.
<unk> 45 billion plus of volume that already lives within the customer base today, and we do that well. So just think of that as a gateway conversion opportunity and then its a 500 billion.
Markets that we think we can do really well with it as well so.
In any case that we couldn't be happier about that acquisition and the idea that this will bring crypto authorization and settlement capabilities across the organization now lets look international I don't think it's been a secret I mean, it's literally been one of the top questions that we've received from our shareholders. Since we went public is when are you going global I mean, you look at our hotel customers you have Hilton.
Maryann Mandarin Oriental you look at our restaurants, they have chain locations all across the world our specialty retail customers and then we get into gaming we have stadiums theyre stadiums all over the world and you're like Wow why haven't you gone internationally and the answer is we've been working on it.
But I think once we signed Spacex Starlink, which has a in its own right you know potentially a $50 billion plus payment opportunity over the years ahead, and they're going to be taking payments all over the world and they already are and I think that was the final motivation to push us to completing this type of an acquisition now to your point the moment is.
Closes youre hitting the ground running with you going after stadiums all across Europe with menu next.
Youre going to put your sky tend to use our.
Technology, all across Europe , Youre going after all of your hotel customers. So it's very empowering to all the integrations and products. We have in the organization to extend your reach into new international markets.
Okay.
That makes a lot of sense. Thanks Ed.
Thanks Darrin. The next question today comes from Dan Perlin with RBC. Don. Please go ahead. Your line is now open.
Thanks, Good morning, and there's a lot to talk about great acquisitions here to to expand the Tam, but the question I wanted to go back on.
Scenario for a second when we think about the Starlink relationship.
And I know you had kind of the contractual obligations in the United States is that similar as we think about the international opportunity.
Where is that going to be more of a jump ball, but you'll have to compete with our with adient understanding you are clearly coming at it from a position of strength.
Yeah, I mean it.
Thanks, Dan.
I mean, I'm, a 100% confident at the agreement itself calls for all Starlink volume the only obligation, whereas the 120 days to convert domestic volume over and that was because we possess the capability at that time, I mean to the extent permissible during the regulatory process. We're gonna be doing integration. So that we can be as ready to cut over there.
Rest of the Starlink volume, which is going to leverage largely the same integrations. We work we've already done in order to capture the first transactions that were already doing so that so that organization.
So that again as soon as like right as soon as approvals are complete and we can close on this we're going to cut over that volume so.
I have no doubt, we're going to power starlink transactions all across the world.
Got it that's great and then just a follow up on spreads.
You know they they were actually remained quite a bit more stable than I think I would've thought.
And you've alluded to the fact that some of these new opportunities that are facing you are potentially.
You know coming with higher spreads so as we think about some of the years to come this year into next year.
Are we should be thinking that spreads are still going to be kind of degradation or is it possible that that there's a lot more stability underpinning kind of all these new opportunities cohorts that you're bringing on thank you.
Hey, Dan This is Brad I'll take that I think you should still expect to see that mix is still going to change.
As you bring in some of the larger stadium merchants et cetera, So we're still anticipating.
This.
Call it three to five.
Basis points decline on an annual basis, theres going to be some quarterly seasonality to that but over time I do think youre still going to see that spread gradually decline and like we've said it's completely due to mix I think our ability to maintain spreads within the vertical.
Shows a lot of of how sticky our solution is that it also shows how we're continuing to kind of add feature functionality to those solutions that helps us maintain pricing. So we don't fall into the.
Commoditized spread trough that you see in a lot of the traditional acquirers, but I would expect to still continue to see that decline over time.
Exclusively related to mix.
One interesting anecdote there.
Taylor. So you think about kind of our continued march into bigger and bigger.
Bigger and better World class merchants, giving block has some nice kind of data points inside of it Ryan They support about 1300 charities, who collectively do 45 billion in total donation volumes.
You layer that against our book and those merchants are all significantly.
And the average inside of our book so to Brad's point as we continue to perhaps we think.
We've chosen spots, where our product offering is very differentiated we can command a premium spread above peers and we can maintain that spread over time, but just the fact that we keep keep winning these larger merchant categories. It gets that far as to say at the aggregate level, we expect a little bit of degradation.
Yep.
High quality problem excellent. Thank you guys congratulations on the acquisitions.
Thanks, Dan.
Thank you.
Next question today comes from Tim Chiodo from Credit Suisse. Kim. Please go ahead. Your line is now open.
Great. Thank you and good morning, everyone. Just wanted to touch on the bridge that you provided on slide 14, that's really helpful to get to the 2022 volume guide there was a nice component there from the new wins and gateway conversions. During the prepared remarks, you mentioned some actions that you might take around accelerating gateway conversion for next year. So.
I'm, assuming it's safe to say that next year's algorithm might include a slightly greater portion of gateway conversions and I was just hoping you could put a little bit more.
Context around essentially those actions that you might take in the mechanics behind accelerating gateway conversion, what that looks like and realized.
Yeah for sure. Thanks, Kim So I mean, firstly, it's important to reinforce that the strategy has been working incredibly well now for close to five years.
Where at least with respect to our high growth core 50% of our new customer wins or customer wins come from just winning in the addressable market leveraging our integration and then the other 50% come from customers that are already on our gateway that we are providing all of the technology and value to encrypt in the.
The token of station that business intelligent product and then we're out putting that volume to what is largely the kind of the legacy acquired community.
And not really being rewarded for the value that we're providing now we've had a carried first approach.
You know for the better part of five years and as a result again, 50% of our production comes from customers.
Who moved from our gateway products, our end to end platform and as a result, you get a pretty sizable lift as you know on an annual gross profit contribution. We've also been saying the entire time that as a public company that we don't need to be a gateway forever.
If you look at.
Again, some of the you know.
Some of the most attractive fintech players out there.
Offer a gateway solution only offer an end to end solution. So we have to think about you know the amount of resources that we have in the organization that are upkeep and connections to who are essentially our competitors every time, there's a new device certified every time, there's new security protocol. So I guess, what we're communicating is the carrot first approach that we're taking.
King.
Eventually has to transition to something else, one way or the other we need to capture the majority of the payment economics for powering those transactions.
So we could either do that by just being very well rewarded as a for the.
Service that we're providing.
Or were they can migrate over to our to our end to end platform and I think what we're saying is that the planet at for.
For some of those measures is gone is underway in 2022.
And we expect it just to accelerate what is already very good trends of customers migrating to <unk> platform.
Probably closer to the end of this year and then going into into 2023.
Excellent. Thank you Jared I really appreciate that context on the gateway conversion. My brief follow up is on the processing coming in house.
More for Brad.
Is there an updated estimate on what the gross margin benefit might be in terms of the basis points, we might see in terms of the lift related to that move and when we should start to see that really phased in and start to impact gross margins.
Hey, Tim This is Brett so our estimate is around 150 basis points.
In aggregate protocol on a full year basis, but because of the way we're migrating our merchant base I think youll see probably half of that.
Starting in the call. It May June July timeframe.
Excellent. Thank you both.
Sure.
Thank you Tim.
The next question today comes from Jason Kupferberg from Bank of America.
Please go ahead, Jason Your line is now open.
Thanks, Good morning, guys I appreciate the the year to date volume number through February but was just hoping you could maybe give us a little bit more detail on your Q1. Your full Q1 expectations for volume for revenue for adjusted EBITDA just to make sure we get the the models into the.
Into the right place and then maybe a little bit more just on quarterly cadence of growth I know the comps are going to get progressively tougher.
Beyond the first quarter. Thanks.
Hey, Joe This is Brad I'll take that so we're not explicitly guiding to Q1, but we do quarter to your point, we wanted to give some context.
For the year to date volume number there's a couple of things.
To your point trying to calibrate Q1 model that you should expect and we tried to mention them in my script.
You will see some volume acceleration as you get into March that's a normal seasonal pattern for us.
As the weather starts to improve.
I will start picking up with spring break specifically.
But what we wanted to make sure. We were clear of also the Q1 margins are typically the lowest margins of the year anywhere between three to four maybe 500 basis points lower than what you would see in Q2 and Q3, just because of that seasonality factor. So while we're not.
Listen we've kind of tried to guide the Q1, we hope we gave enough data points that you guys can start to calibrate better.
One thing right because this is the most interesting quarter for us.
Help you a little bit we talked about.
At $8 2 billion in volume that we've seen in the first two months of the quarter a little bit more than half of that was February so that should drive with this concept of being slow in January and as a result of armour crime.
And then.
Quite frankly at a really nice finish to the month of February and March typically is a pretty significant step function up off of February as you recall from prior years I don't think.
We would doubt that's likely to occur again.
Although we are cautious on spread in margin just because of the way Q1, typically manifests itself is that maybe others.
Yeah, I guess, one last thing I would put into this.
Is.
I don't know if anyone we're actually recalls like what our updates we're liking in February of 'twenty, one, but we basically we're communicating that from Valentine's day weekend.
Through February we were setting new weekly volume Records every week.
So now we've already said in February that we saw first day and.
A daily record of over $200 million and volume that's nearly double the highest volume day from last year in the same month.
Okay. Yeah. That's all good car and then just a follow up on the the volume Bridge chart that I wanted to ask about just as we think about this 46% to 50% guide for 2022, I mean, I know you had talked about 50% plus CAGR at the at the analyst day, but it does sound like there's some elements of.
Potential conservatism here. So I'm just wondering as we look at those pieces of the bridge, where some of that conservatism might be most likely to manifest itself based on what you guys know today.
So I think we all have areas, where we think we're probably be.
Conservative.
Might've particulars that contribution of new markets, you see that $3 billion number if you think about some of the marquee wins that we announced.
Yeah. It doesn't take a lot from any one of those single names to get you most of the way there I think the one thing that we're just slightly cautious about is just you know activation of those marquee merchants throughout the year, but any one of them.
And good progress could accelerate.
We don't like to set the immediate expectations around acquisitions, because we really like to focus on getting the integration right in your go to market perfect, but at 45 billion of donation volume across.
<unk>.
Across the giving blocks.
Charity basis, something that I know.
Business development is laser focused on and they were talking about intensely last night.
And our closing dinner, so I think theres, a bunch of areas inside of inside of it I talked about the return of hotel travel.
The savings rate, but my particular favorite and its contribution of new markets. Although I do expect that it's a second half contribution more so than a person.
Yeah, and just to pile on to that point.
She is probably a quarter or two ago.
I guess it was last quarter since we announced St. Jude.
You know the question came up with how big we see gaming contributing to our volume going into the years ahead.
Which we've said we believe we're as well positioned as anyone to to win more than our fair share Hum on wagering, especially considering our in venue casino presence, but I also said that I anticipate nonprofits being far bigger I mean mobile wagering in the U S market could be mid to high single digit billions in in volume opportunity.
Which again, we think we're pretty well positioned to win we now have a $45 billion cross sell in nonprofits alone just from the 1300 customers, we already have by virtue of the giving block acquisition.
Along with the capability that virtually the entire nonprofit sector space is going to need to need to embrace at some point or another.
We are going to really surprising shine in this year my bet would be that it's going to come from the nonprofit vertical and maybe even directly from the <unk>.
Can fast organic growth that youre seeing inside of giving block itself, even before the cross sell synergies.
Okay very helpful guys I appreciate the commentary.
Yes.
Thanks.
Thank you Jason.
Our call today comes from David took it as a cool. Please go ahead. Your line is now open.
Thank you good morning, with 3000 customers now on Sky Tab pass what are your expectations for the uptake of this product when it comes out of beta in the second quarter and when should we expect to see related services like capital and payroll potentially added.
Well, let me let me just start and thanks, David for the question. Let me just start with expectations I mean, our expectations are that we are going to.
Like replaced virtually every one of the existing Pos customers that we have over a multiyear period from their windows based point of sale system into Skycap Pos.
That's going to deliver more capabilities functionality a ton of operational efficiencies for the organization.
But it's also going to provide a significant SaaS slip because as we mentioned during the Investor day. The majority of our massive base of restaurant customers are not paying any or minimal SaaS contribution so want to be clear like just existing within the company. Today, there was such a huge opportunity to help all of our existing customers migrate to that.
Next generation of restaurant point of sale technology.
So if you just think about the size of the base and the volume contribution we get from that base today, it's pretty sizable.
Going forward.
I think we have thousands of distribution partners that are very educated.
On the restaurant space and specifically the power of an integrated payments opportunity they've really been dying for this kind of next generation cloud Pos solution. So I mean, the best example of it is we've only released the product in beta.
Two a handful.
Of our more sophisticated dealers to learn from and you can already see the contribution from it.
In terms of capital offerings and payroll.
I would say by the summer of this year Youre going to have both of those both of those capabilities included in.
In the <unk>.
Yes.
Understood. Thanks for that just as a quick follow up.
As you bring Skype Skycap POF international with the narrow acquisition, how would that product be positioned in the countries where for narrow is currently doing business. For example in its original incarnation Sky cab Pls was very unique in the sense that.
A lot of pay at table functionality, which tends to be a little bit more common in Europe .
Then in the U S.
Clearly, it's kind of a next gen products. So how will it be positioned in some of the key countries where.
Scenario is currently doing business.
Yeah.
First I'd say that there is a huge difference, though between the European pay at table experience or even the Canadian one.
Q versus a really integrated offering like Skycap provide I mean in almost all cases, it's a it's called a non integrated solution, they're bringing the device over to the table, you're completing a transaction and all it's doing is maybe maybe closing out the checks.
In a semi automated way actually having like really full blown.
Ordering reputation management like.
Like our Skycap product has had for years now and will only be better as part of Skyjack Tos. We think is rather unique to our products and will be a huge operate lifting operational efficiencies for these restaurants I think the first country, we're likely going to put this out and it is going to be in Lithuania.
Mind, you that is a home for our research and development operation for ship or we've had that facility for about seven years now.
And there are some of our most it elsewhere so.
The ideal will probably deploy them in Europe in their backyard first to gain experience and then expand quite quickly throughout Europe .
Our Chief Technology Officer, Mike Rousseau, and his Chief Development Officer, Dan Drazen, both came from Oracle, you know four or five years ago.
They have tons of expertise taking products that were originally designed to serve the U S market and deploy it in hospitality in F&B environments all across the world.
So you can probably guess we've been we've been ramping up all the various.
Like localization.
<unk> that are needed on a country by country basis fiscal for tax compliance.
And now obviously you see the scenario acquisition, we have the payment platform to drive those card present transactions across here.
Yeah.
Understood Thanks very much.
Thank you David the next question today comes from Ashwin <unk> from Citi. Ashwin. Please go ahead. Your line is now open.
Hey, Gary Taylor, Brad to speak again.
Hey, I just wanted to pick up on one of the comments you had pertains to cross selling.
Okay. Just hotels for example, you have.
Many of these large global chains and franchisee.
In the U S.
Could you maybe provide some color on ongoing conversations that you've had with them over time with regards to globalization.
And the reason why they are.
<unk> not had a global solution is that because there just wasn't one or.
Other factors too.
Okay.
Yeah, I mean with respect to hotel, specifically was known solution provider, So who Hilton for example would use in the U S which is.
I think we've mentioned previously is split between us and in Alabama.
Once you get into Europe , that's another provider.
Probably a separate gateway, it's probably a separate acquirer might even be a separate tokenist Asian supplier is different than who they use in the middle east versus APAC.
There's just I mean, right now you're really only talking about adient is the only.
Integrated payment platform that can come close to delivering a global solution. Even then their integration library, which which can be adequate for retail certainly adequate for ecommerce.
We'd never be as extensive as needed to pursue the entirety of like the hospitality vertical if you will so there's always been tons of opportunity. There I can absolutely tell you through conversation with our hospitality customers that they want a single integrated payments provider across the world. They would make their life easier on business intelligence on there.
Our rewards and loyalty products.
So that will certainly be one of the past, but I mean, the idea for US is we're going to hit the ground running you know immediately at closing with ideally not just starlink volume on a global level or at least two across Europe .
But we're gonna.
I think our stadium product is one where you would probably expect to see a lot of announcements out of the gate as the category leader in the U S. So any.
International stadiums want the same capability.
We've already had a lot of conversations on that so that's one where I would certainly expect that a lot of it out of the gate our restaurant products shipped for shop for sure.
And then I think there's no question, we'll be using this entire regulatory approval period to get all of our hospitality customers and make them aware of this.
This pending capabilities.
Understood and just given the relatively long time for the regulatory approval process takes a lot of this year I think.
Are there milestones that investors should be looking for with regards to with regards to that process.
And I guess you can add on data can you guys do something along the way to kind of.
Build the capabilities that can then resulted in a quicker integration.
Yes. This is Taylor and Thats exactly the point.
Is that while the regulatory approval takes it.
It is it is pretty sequence. So we can give you.
Frequent updates on where things stand with regard to that obviously the sooner the better because it is.
Our fast growing high margin business, so we're going to get it done as quickly as practical but.
Interestingly they are in the business.
Excepting cross border e-commerce customers and doing integrations much like ship for so Paulo healthy portion of our diligence was actually spent on this concept of how would we mutually support.
Customer like Starlink.
And we can do that on a commercial basis prior to the acquisition closing so I would expect.
First transaction and quite frankly.
The transactions designed to motivate the differences are first transaction by our customer likes our mutual customer like starlink could potentially happen before that regulatory approval. Obviously, if we've got to take the right steps.
We can support a mutually if we choose sir.
Understood. Thank you guys.
Thank you.
Our final question today comes from James Faucette from Morgan Stanley . James. Please go ahead. Your line is now open.
Good morning. Thanks, a lot wanted to ask just a couple of follow up questions. Both around acquisitions and then the recent business I guess on.
The recent business I'll start there.
With the army Kron and in a slowdown it created for you and particularly the end of the December quarter and beginning of this year, how did that impact your conversations with clients around conversions in and up sell opportunities.
And then my second question is.
With the acquisitions, both sound like very attractive and and that kind of thing I'm wondering.
How we should think about that impacting.
Both the potential for incremental investment into those areas into those businesses to continue to drive them kind of beyond the and I'm thinking about the investment potential beyond kind of your guidance period, and then also when you look at new incremental acquisitions are you feeling fairly so you did right now.
And kind of being able to and then prioritizing integrating these or.
Can you still be on the lookout for new incremental acquisitions, particularly as valuations may be coming down.
<unk>.
Yeah sure. This is this is taylor.
Taylor James I'll address that so we put a slide all the way in the back next to the share reconciliation or a table.
That addresses kind of what the.
What's the leverage ratios are likely to be now.
To contextualize that is like the most conservative scenario, you could imagine which is.
Which is full cash outlay for both of the transactions and no EBITDA contribution despite what we all did well.
We believe it will be $35 million plus in 2023 so.
And the transactions themselves generate growing EBITDA and cash flow. So we think these transactions give us really really good.
Positioning into these areas that we told investors, we want to be in and we want to focus on but it doesn't limit us nearly as much as you might expect when you look at it through that lens. So we're going to continue to keep an eye out.
The integration.
<unk> is a little bit.
Larger just because it's a bigger organization than it is.
It is based outside the U S, but we've got time to.
Plan for that appropriately given the regulatory timeframe, the giving block as a small business.
We structured the earn out and you want them to sprint at their objectives and bring one of our business development professionals alongside them as they have these great conversations with charities that are.
In many cases, just reaching out to that because they want to be able to accept crypto donations in a seamless way. So I think we'll be able to achieve what we want from these objectives.
From these acquisitions excuse me.
With a reasonable amount.
Dedication from our <unk> a lot of contribution from these new teams that are joining us and it doesn't really limit us from looking at other things I think it's a little too soon to speculate we just did two transactions are the best.
Over the past month, but it doesn't limit us financially.
Operator, while we just take one more call.
Okay final question.
Comes from the line of John Davis at Raymond James John .
John Davis. Please go ahead. Your line is now open.
Hey, guys two quick ones for me.
I think Brad you called out spreads on apples to apples basis being up I think it was like 10% year over year. Obviously those are those are holding up really really well considering UBS drove a lot of volume in for Q also international travel amount coming back probably I'm also guessing was a headwind. So just maybe some commentary on the ability to extract.
Our value from your merchants are another success that you're having there or more of an apples to apples basis kind of setting aside the mix issue that you talked about.
Yes, that's exactly right. So we did mention.
Specific about.
Hotels.
Restaurants restaurants were up 2% Europe sales were up six.
This is largely driven by what I've mentioned, we've had the ability to continue to add products to our to our total offering whether it's <unk>, whether it's table.
Yeah.
It keeps source are positioned from pricing very stable, we're not able to be displaced in the market because of that.
And in the end solution that provides much more so than most of our competitors are going to so what youre going to see is that kind of benefit from the stability of pricing across each of our individual segments.
Youre exactly right I mean, it's something like the <unk> is certainly going to come in at a lower spread and see some periodic impacts of those things, but across the whole portfolio. We've seen very stable, if not increasing spreads across all of our verticals and that's a trade.
Spect to see going forward as we continue to kind of add.
More capabilities more feature functionality over time.
We'll see like I mentioned I want to make sure. We're also clear about this aggregate spread declines overtime just due to mix.
That's a good expectation that you guys are building your models to incorporate that but within the segment.
Digital products and feature capabilities gives us a lot of price reviews.
I would also layer on to just say that.
Car type mix at these locations matters as well you know last year when there was so much.
Stimulus getting loaded onto basically prepaid debit cards it actually had a.
Kind of a surprising impact on pulling down spreads in in Q1 of.
2021.
The year has gone by there is less than 10 minutes youre seeing kind of a return to some normal card mix.
Which is also beneficial from spread as some.
But her signature reward cards carry with it more favorable pricing than what is maybe some of the most in price transactions, which was the debit there was considerably more of that probably last year then.
Especially earlier last year than we've been seeing in place.
Okay. Thanks, and then one quick follow up Brad 35% to 40% free cash flow conversion as a percentage of EBITDA is that the right way to think about going forward or is there more room for that to improve.
As we go into 'twenty three and beyond.
No I think this is experiencing and I think that's a solid number for 2022, but I would look for that number to creep up over time.
Okay. Appreciate it thanks guys.
Thank you John that concludes today's question and answer session I would now like to pass the conference back over to Jared its Glenn CEO for closing remarks Jared. Please go ahead.
Thank you very much for joining us today, we know we had an awful lot to cover.
Right a bit quite a bit took place for sure in the fourth quarter.
But hopefully after going through everything.
It remains clear, we're growing incredibly fast across all of our core verticals as well as all the new ones that we've expanded into and we reinforced that with a with two acquisitions that are going to just further our right to win in some of these verticals and expand our reach globally.
So a lot going on.
Really I'm speaking for all the management right now, we probably never been more enthusiastic about the opportunities that are ahead and appreciate all the support thank you.
Yes.
That concludes today's shift full fourth quarter 2021 earnings call. Thank you for your participation you may now disconnect your lines.
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