Q1 2022 Shift4 Payments Inc Earnings Call
As we discussed in early March when reporting our 2021 year end result, yummy Cranberry and began to.
Impact our volumes in December of last year, and really continue to do so into 2022 by the end of February of this year omicron appeared to be behind Us and we once again began hitting new record levels of weekly and then volumes I'm also pleased to report that this trend has continued as we set numerous records throughout the month of April It's also worth three.
Enforcing that Q1 volumes included very little volume from our new verticals or much in the way of international or corporate spending, though we do expect to see gradual contribution throughout 2022.
Our adjusted EBITDA came in at $44 3 million, which was in line with our expectations and Brad will review, our quarterly financials in more detail in just a bit.
Similar to prior quarters I'd like to provide updates on each of the major components of our business starting with our high growth core.
As a reminder, our hydro core represents the payment opportunities, we pursue primarily in complex restaurants, hospitality and specialty retailers chip for its been growing at an accelerated rate in this arena by leveraging our 425 unique software integration and other pinpoint solving technology to win share by migrating merchants off our gateway platform.
And onto our end to end service as well as just net new wins in what is a very large addressable market.
We believe we operate in the competitive landscape, a few and we differentiate with our software integration and by divesting more links in the payments value chain to deliver a much lower effective cost of service to our customers.
Said differently when merchants in our high growth core you shippers and then solution, we're able to offer them more capabilities at a lower cost because we no longer need to depend on a multitude of other costly vendors to attempt to achieve a comparable solution.
During the first quarter. We began we again organically grew our end to end payment volume faster than any of our peers, including faster than visa Mastercard as we continued to take share in restaurants hotels and specialty retailers.
One proof point would be the 40% for year volume CAGR.
Another would be that we grew through an unprecedented pandemic when our end markets have been quite impacted and some continued to be impacted even today.
Additionally, our volume is 288% of pre pandemic Q1, 2019 levels, along with gross revenue less network fees at 224% and adjusted EBITDA at 215% over the same period.
This quarter, we signed a number of new resort properties in high end restaurants, including the soon to be opened well cuda restaurant at the Venetian resort in Las Vegas, and the Silverado resort and Spa in Napa Valley, California.
Our customers are moving to ship four to solve problems. So to be clear merchants are largely not switching to ship four to say basis points in pennies per transaction, even though they usually do benefit from an overall lower effective cost of service what they require is commerce solutions and enable them to better engage with their customers and patrons such a.
QR codes or online ordering mobile and contactless payments business intelligence and more and that is why despite our continued move upmarket or net spreads have remained relatively stable over a multiyear period.
Our above market volume growth remains the best leading indicator of our ability to deliver solutions that solve the needs of our merchants, which increasingly requires integrations with disparate and complex software required in the demanding commerce environments that we serve.
We understand that the payment ecosystem can be confusing from the outside looking in.
And we sometimes hear from investors that they're unsure where we fit in the competitive landscape.
So I look at the market along two dimensions, one axis, you have integrated and non integrated payment processors and along the other access you have scaled player versus niche player. We are a high growth scaled software integrated payments provider gaining share from low growth scaled non integrated legacy acquirers.
We're now approaching or 23rd year in business, having grown revenue every year throughout even the most challenging economic times.
We have an excellent track record in finding verticals, where our technology or expertise affords us the right to win and then building on a value proposition that is both unique and differentiated.
Our gateway with 425 software integrations as an example of a differentiated offering that affords us the right to win throughout our high growth Corp.
So on that note, we acquired our first gateway in 2017.
Our intention was to us.
It was always to offer our end to end payment processing capabilities to those merchants and we've been very successful executing against that strategy.
At the same time, we have mentioned to many of you over the last few years. It was never our plan to offer extensive gateway only services indefinitely. In fact over the last few years very few new customers, even elect to have that service when our end to end offering is clearly so compelling.
As we mentioned just a few months ago, you should expect to see an acceleration of our gateway to end and migration in the months and years ahead.
Our gateway platform is the IP, it's the technology that enables the commerce experience, including the software integrations the point to point encryption the token of station and ultimately the analytics and reporting despite that immensely valuable capability and a gateway only environment. The lion's share of the economics are captured by the leg.
<unk> merchant acquired considering there are virtually no modern fintech that embrace a gateway only strategy. We believe we owe it to our shareholders to capture as much of the unit economics for all payment transactions made possible by our technology and through the software integrations, we alone support.
So this has been a topic on our minds from the day, we acquired the gateways and something we believe is on the minds of our investors considering the enormous and easily quantified quantifiable opportunity that it represents.
So first before we get into the specifics of our initiative. It's probably helpful. If you give an example, and just how embedded are gateway only services across a large portion of the hotels restaurants and specialty retailers across this country.
For a hotel that is a gateway only customer ship four captures the online reservation and front desk checking our standard technology encrypt the customers' payment credentials to a PCI validated standard and token is isn't them and then provide those tokens to a hotel operator to capture a holistic view of their customers entire stake.
And then just authorization throughout the guest journey as they visit the lobby bar the restaurant the Spa, the golf course, and so forth.
We use the same token to submit a single card transaction.
In this scenario despite virtually the entire Congress experience being facilitated by ship where technology. The majority of the transaction economics accrued a legacy third party acquirers, providing little functions. So we could otherwise easily do ourselves. We view. We view. This imbalance is something that needs to be addressed and corrected at a faster pace.
Now of course this has been our strategy for years to convert what is a large population of gateway only customers to our end to end service, where we capture the entirety of the payment economics and provide a lot of value to our customers through additional technology products and services along the way.
But to be clear, we're in an enviable position that we can implement specific tactics to encourage gateway only merchants to take action and further accelerate the migration of those gateway only merchants to our superior end to end offering we believe there's an attractive risk reward to implement a new approach that will further accelerate these conversions. So how can we do this.
So through a combination of changes, including pricing actions and operational changes and encourage gateway only merchants to migrate to our end to end offering while also continuing to offer the same attractive incentives that have already proven to be very successful.
So with no sign of our historic Gateway to end to end strategy slowing why make this change now.
Theres, an important operational component to the strategy by eliminating third party connections, we free up technology and operational resources to focus on other important growth initiatives. We have almost 2000 employees now and a large portion of them spend time, maintaining connections that are dated serve to benefit our competition and do not help us deliver on our global com.
First vision or help us win the next signature merchant relationship.
By taking out unnecessary parts and Repurposing internal resources as part of our boldly forward ship four way initiatives to eliminate unnecessary processes components that are costly and might eventually fail and ops and optimize the excellent talent, we currently employ and.
And I'd be remiss, if I didn't give some credit to Spacex and organization unfortunate to observe closely and how well they have pioneered and embraced these philosophies.
So we will always remain a customer first organization, we cannot foresee gateway only customer to consolidate their end to end processing with show core. However at the same time, we believe implementing this new approach will result in conversations that are in our mutual interest to ship more and our gateway only customer and we want our gateway only merchants to consider the value, we're providing and how much better.
It gets when taking advantage of our end to end offering and incentives. This is always a good conversation for us both the half and we expect our results will begin to become quite apparent in the second half of this year.
So while we're still talking about our high growth core I'd like to update you on the progress of our next generation Pos product that will serve the restaurant market.
As we discussed before we're getting close to fully launching our new cloud based restaurant Pos platform called Sky cab.
We're already a major player in the restaurant P. O S arena coming grown payment volume had accelerated levels for well over a decade and this new offering will ensure we will continue to find success as new and existing restaurant customers seek out next generation solutions.
We currently have several thousand restaurants operating in beta on the Sky type Tof solution, which will move out of beta shortly total operating total merchants operating the Skycap Pos platform have increased 158% in March versus the same period a year ago.
We are positioning sky cab as the next generation cloud based Pos platform servicing the mid to high end restaurant customer. It is based on Android technology stack built from the ground up and ship or and equipped with very modern purpose built mobile.
Lucian, which is also comes with some pretty space age hardware.
We already have 125000 restaurants to pursue that are already customers of operating across the four software brands, we already own.
POS of course will be the migration path for existing our existing base of restaurants, who are seeking out new capabilities to better serve their patrons not to mention our distribution channels. We use sky tap P. O S to continue to take share and grow across the vertical just as we've done for well over a decade.
We also see an opportunity for Sky type Tos in sporting arenas theme parks and entertainment venues combined with our mobile technology from venue next we have a differentiated right to win in stadiums as venue operators continue to view us as the category meeting solution that delivers a unified commerce experience for their fans.
As mentioned previously <unk> has already been installed in several arenas.
Lastly, the fact that we have in excess of 3000 restaurant clients that signed up for Skycap P. O S. During the beta is clear proof statement that our offering is already been validated by the market.
To summarize what I've just covered in our high growth core we're excited about the combination of our accelerated gateway only conversion plan, our new Sky cab P. O S offering and our unique integration with 425 mission critical software suites, which leads us to believe our high growth core will remain the primary contributor to our growth over the next several years in fact, it's worth mentioning.
The above high growth core initiatives could have quite a meaningful impact as early as the upcoming second quarter.
Moving into our new markets and verticals, we continue to maintain momentum within stadiums and venues during the first quarter. We signed a number of new major league stadiums, including Philadelphia is Wells Fargo Center will provide ticketing and payments for all the events at this venue, including the Philadelphia Flyers and 70 Sixers.
We also entered into an agreement to power payments for all the food and beverage concessions and retail purchases at Oracle Park home of the San Francisco Giants Major League baseball team and the food and beverage and concessions and loan Depot Park home of the Miami Marlins.
In car and horse racing, we will power point of sale and mobile based solutions for four of the Speedway Motorsports racing venues across the United States and will also power payments at New Jersey's Meadowland racing and entertainment venues have been very busy.
We're also excited to share that the Ohio State University has selected our venue next software and payment services to power all of their sports and entertainment transaction, including the fourth largest college football field in the country go Buckeyes. We also signed an agreement to process, all food and beverage transactions for San Diego State's New Snapdragon Stadium scheduled to open later this year.
As mentioned before we believe our venue next mobile Commerce technology is the category leader in sports and entertainment venues. Our software is installed well over 100 stadiums and our new business pipeline space remains very strong.
In gaming, we're adding new gaming licenses in scaling our volume with that MGM, our daily gaming volume processed do bet MGM increased forex since we can began processing in February of this year, but it's still around 1% of the total volume we anticipate processing in the year ahead as new territories are at it Kimberly.
Lee and nonprofit began processing for St. Jude back in January this year, but also have only process about 1% of the volume we expect to capture over the next several quarters as we complete key software integrations to serve the nonprofit vertical.
I mentioned, that's not in the light of disappointment at all but to highlight how strong we performed this past quarter. Despite only just beginning to make traction in our new verticals.
And airlines, we remain on track to begin processing volume in June with leads and airlines and for Spacex Starlink testing is complete we will begin processing U S volume in Q2 with you its volume ramping up as the domestic subscriber base grows it's worth noting that Spacex is on a pretty eye watering paid to starwood satellite launches name to ramp up to a weekly lunch.
Cadence and grow their subscriber base domestically and across the world.
Moving on to our two recently announced acquisitions.
Giving block acquisition is an example of how we identify a pinpoint specific industry. In this case the desire by nonprofits to accept crypto currency donations, and then bundling and cross selling with our end to end payment solution to pursue what we believe is a 450 billion dollar payment opportunity.
For those of you on the call that are unfamiliar with the giving block the operated donation marketplace that connects nonprofit organizations with crypto donors and we acquired the company rather recently.
Since we closed in late February crypto donation donation volume is up $4 seven X versus a year ago. The number of nonprofit customers on the platform is up 7.3 acts and total revenue was up $6 five X.
We've also signed several giving block customers to our end to end platform, which was part of the $45 billion cross sell opportunity of existing giving block customers that we highlighted as part of the acquisition.
We are in active conversations with many others.
On the subject of giving block I'd like to personally. Thank those of you that participated in our carrying with crypto fundraising campaign. We launched this fundraiser in mid March to raise awareness within the crypto community and I agreed to personally match dollar for dollar for every crypto domain donation made on the giving block marketplace platform since launching the campaign, we've raised more than $15 million for charities and <unk>.
<unk> causes such as the humanitarian relief efforts in Ukraine.
We are increasing the network effects of our donation marketplace by connecting more members of the crypto community with more nonprofits and vice versa. The fundraising campaign is still underway and I encourage all of you to check, but giving block dot com website for more information.
Lastly, I'd like to give an update on the pinero acquisition and some of you may recall from our last report we announced the acquisition of the European Cross border ecommerce platform with processing capabilities and licenses in Europe and parts of APAC.
Structure of the transaction encourage as both sides to pursue commercial opportunities and begin integration efforts as early as possible. This means integrating the ship where platform and products such as our hotel software integrations. Our venue next stadium software are Scott That's U S restaurants software, our lighthouse business intelligence product and preparing for important customers like Starlink.
While we are waiting on the regulatory approvals I am pleased to share that we recently completed our first cross border test transactions Infinera was just the first step as we move boldly forward with our global expansion endeavors.
So we're not sitting still we retain significant firepower with just over 1 billion of cash a low pro forma leverage ratio and a ton of conviction around our strategic plan.
Despite our clear enthusiasm, we are leaving our 2022 guidance unchanged, we believe that the macro environment, including inflation in various varying consumer sentiment warrants. Some caution as we look out across the full year that stated we remain optimistic across the various initiatives I mentioned previously and May look I'd like to revisit guidance as the year progresses.
And with that let me turn the call over to our President and Chief Strategy Officer Taylor Love Us.
Thanks, Jared and good morning, everyone.
I will focus my prepared remarks on how we see our volumes trending for the balance of the year and update on our acquisitions and then some additional color on major strategic initiatives.
Our previously provided volume guidance for this year assumes a modest recovery in international and business travel absent any reinstatement of restrictions, resulting from Newark Covid variance currently impacting other regions of the world.
Not included in our guidance as a meaningful contribution from the new verticals Jared mentioned or M&A.
Despite a tough January and early February with Omicron March volumes were a record for the company, which was further exceeded in April of note. Our hotel volume grew meaningfully month over month.
This is a cohort we have yet to experience a normal contribution from and we've added over 5000 hotels since the pandemic.
Again, roughly two years ago.
Applying typical seasonality trends to our year to date performance you can be quite optimistic about the remainder of 'twenty two.
It remains challenging to model is the pace of recovery in light of higher inflation and rising interest rates and how this will impact consumer spending.
This is part of what informed our decision to leave our full year guidance unchanged at this point. Despite the weekly records, we continue to set.
Turning to acquisitions, we closed on the acquisition of the giving back on February 28, and are tracking for a fourth quarter close of Panera, we're making significant progress with identifying cross sell opportunities within the given blocks based on customers and have already begun outreach to prospective merchants, we are adding credit card acceptance to the giving blocks online widget.
Which we anticipate will be operational by the end of the second quarter from our Kpis standpoint donation volume for the month of March is included in our reported end to end volume because we derive a spread on that however, the impact is quite negligible less than 10 basis points for context. This business.
Except the majority of donations during the fourth quarter and in December more specifically are carrying with crypto campaign was quite successful in adding new nonprofits to the platform and should position us well for this year is giving season.
For scenario, we're working diligently on a pre closing objectives, which include partnering to deliver a global cross border solution for customers. We have already achieved notable milestone of running successful test transactions in both the U S and Europe .
Much more work to be done, but these are important first steps further validate our acquisition thesis and help build upon our strong conviction for international expansion.
The ship for Infinera teams are jointly energized we're excited about welcoming the <unk> employees to ship for later this year as a reminder, we're not including any contribution from the acquisitions in our guidance, but do anticipate positive contribution in 'twenty three for.
For <unk>, we anticipate $15 billion of end to end volume and $30 million of adjusted EBITDA contribution in 2023, and so they're giving block we anticipate $5 million of adjusted EBITDA contribution in 2023.
Turning to our gateway conversion strategy I want to provide some numbers that are anchoring our thinking and helps you model the potential revenue pool, we're going out there and.
In 'twenty, one gateway only revenue totaled approximately $70 million the gross profit lift from converting this gateway only revenue stream to end to end as a gross profit lift of roughly four to five times, implying a 280 to 350 million incremental gross revenue opportunity. If we converted 100% of the remaining gateway only cut.
<unk>.
To put that in context, we generated $278 million of gross profit in 2021 for the entire company.
While this conversion strategy has been a meaningful contributor to our growth already we're making a deliberate pivot to pursue the strategy more aggressively we believe the impact of this strategy will accelerate conversions, but also make us a more efficient company.
Lastly, we remain well positioned for further M&A and continue to pursue opportunities to enhance our global offering. This includes <unk> with unique front end capabilities and vertical specialization as well as scale gateway platforms, where our current strategy has proven to be quite successful and with that I'll turn it over to our CFO Brad ARINC.
Thanks Taylor.
Now I'll review the financial performance for the quarter.
Q1, gross revenues were $402 million up 68% from the same quarter last year gross revenue less network fees were $149 million, an increase of 53% over last year.
The components of our revenue growth break down as follows a 70% year over year increase in net processing revenue revenues driven by continued merchant adoption of our end to end solution, a 30% increase in our SaaS and other revenue stream driven by expansion into new verticals and further penetration into our core restaurant and hospitality.
Verticals.
And finally, a 16% increase in our gateway revenue stream driven largely by modest recovery in the hospitality sector.
Spreads came in for the quarter at 76 basis points, which is 1% or one basis point higher than what we reported for the same period last year. It's worth noting there was a pretty significant shift in the mix between debit and credit when compared to Q1 of last year.
It was primarily related to the second round of government stimulus checks or issued in March of 2021.
That mix shift resulted in a lower than normal spreads for last year's first quarter.
Using consistent debit credit books between last year's Q1 in this year's Q1 spreads were down approximately four basis points. This is in line with previous guidance on an overall spread decline due to moving up market into larger a larger volume merchants with lower spreads. This.
This move upmarket as evidenced by two factors one.
<unk>, which produced an average of two and a half times as much volume as the average restaurant now make up 21%.
And volume compared to 12% in the same quarter last year and to the size of our average restaurant customers increased by over 25% compared to last year.
For the quarter, we reported an adjusted EBITDA of $44 $3 million, which is up 100% over the same quarter last year.
Excluding the abnormal merchants failure, we experienced in Q1 of last year, which resulted in a credit loss of $5 $2 million adjusted EBITDA was up 62% over last year.
The resulting adjusted EBITDA margin for the quarter was 30% excluding the previously mentioned credit loss from last year. This represents approximately 170 basis points of margin expansion over the same period last year.
As we've talked about previously our hydro core continues to expand margins commensurate with our increased scale.
We believe that margin expansion with prudent investments in our recently announced new verticals.
That works scale, we believe will achieve the same margin profile similar to our core business.
With respect to capital transactions within the quarter between January 1st in March 31.
We repurchased approximately 300 in 2000 shares at an average price of $56 78 per share.
Our buyback program continued into April and by the end of April we Accumulatively purchased one 8 million shares at an average price of $55 eight per share.
Repurchase shares are reflected as treasury stock on our balance sheet.
Adjusted free cash flow for the quarter was $13 $7 million, which represents $22 $4 million of improvement over the same period last year.
Adjusted free cash flow as well as free cash flow conversion will both continue to increase as the year progresses due.
Due to the cash flow pass through of our incremental growth and the continued scale benefits, we will receive will achieve on our capex.
A full reconciliation of adjusted free cash flow was available in the appendix of our earnings materials.
With respect to our guidance have you as you've heard we are reiterating the figures we provided in our previous earnings call. While we are extremely confident in our continued ability to profitably grow our business. There are a number of uncertainties that could influence the trajectory over the next several months.
Most notably would be macroeconomic forces that could influence consumer behavior as the year progresses.
And the continued pressure on global travel and commerce, driven by the continued volatility in eastern Europe .
So with that I will turn it back to Jared for a few closing comments before we open it up for questions.
And thanks, Brad Yeah.
Appreciate everyone joining us earlier staring us this morning, and I think we can just roll right into Q&A at this point.
Okay.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
If you'd like to join a question. Please press star followed by two when preparing to ask a question. Please ensure you're opening them you said locally.
Our first question comes from Linda BOP, you see coming to market that your line is now open.
Great Good morning, and and thanks for taking my question Jared you you outlined a little bit.
Concept of kind of getting these conversions to be quicker for end to end from gateway, but can you just give us some sort of like a real life example of hypothetical example, maybe without giving kind of competitive I guess issues out there about what really is taking place like practically I know you've talked about pricing and some of the carats that you've put out there from incentives but.
The real World Examples about how you would structure that would be very helpful. Thank you.
Okay.
Ladies and gentlemen, Unfortunately, we've lost connection with the speakers please bear with us we reconnect them.
Uh huh.
[noise].
Okay.
He now has already talked with us.
Hey can you guys did you guys taking my question.
Yes, sorry.
I didn't mean to take you down right out of the game [laughter] right.
[laughter].
Sorry could you repeat the question I guess.
Oh, I'm sorry, yeah sure. So Jared I was just I was just saying you gave some details around the conversion like the ability to accelerate conversion from gateway to enter and I was hoping maybe you could provide a little more detail about.
You know kind of real world structures of what that might look like you called out pricing and then obviously, there's some carrots that you guys have historically done with incentives, but I think it's hard.
For outsiders looking in and and investors to really understand practically what you're doing.
And then I'm not asking you to give kind of the competitive strategy here, but maybe some real world examples even at a high level would be super helpful.
Yes, sure happy to do it.
So I think it's important to point out you know what when you're operating as a gateway, which again I think it's pretty clear. It's a it's a legacy model there aren't many new fintech again, starting up with the idea of routing transactions to their various competitors fully integrated end to end offerings is where the market is going but we did inherit.
You know what it could be dozens of pipes to all our various competitors that were essentially up keeping.
A very large portion of our resources.
Are being spent maintaining connectivity to our various competitors, it's actually quite resource intense.
Every time, a new security or ENB protocol comes out or a new device needs to be certified we have to do it for ourselves and everybody else and as a result of a very large portion of our workforce is spent kind of maintain the past and enabling our competition instead of winning our next like great customers.
No.
This strategy of moving customers off of those connections our end to end platform has been working incredibly well for a long time now what we're saying is you know there's an awful lot of volume there and we need to we need to pull it forward. So we can kind of free up our resources to focus on winning the next major merchants and building out our international strategy. So how do you do it well for sure. We can we can collect the talk.
We are providing all the technology that enables that commerce experience, we should be better rewarded for it.
Told you are definitely one component of the strategy another as we will outright sunset connection.
So for a very specific example in cutting into the heart of your question, we have a connection to.
Uh huh.
So one of the old legacy acquirers and one of their very first connections that they did like 25 years ago.
And there is probably less than 150 merchants on it. So you know there's kind of no choice. There. We're just going to give notice that at end of a period of time, we're just going to sunset. The connection and we will provide a lot of warning and we'll probably do some brownouts to make sure everybody. We have their attention of this you know relatively small population of customers and then.
And then it'll basically put him to the test.
Do you want to use one of maybe the other two payment platforms that are out there to conserve your vertical or do you want to take the easy button and just moved our antenna platform because cause disconnection has to go.
Our minds, we see this very similar as you know like forcing Microsoft to support Windows 95 indefinitely.
Can't make progress as an organization and think about the new technology. The new innovations that are that are required if you're continuing to maintain the software and the technology build 25 years ago, and we have a lot of connections to go through like that.
So what we're just saying as we were kind of taking a strategy that was very carrier first.
And that's what we've been doing for the last five years, and we're introducing some forcing functions to it to kind of pull forward that volume onto our <unk> platform and kind of liberate some of our resources to work on the next major projects for us.
Okay, now thats really really helpful.
Just a quick follow up if I could on sports and entertainment vertical you highlighted a lot of new logos on this slide.
And the question really is you know you called out some where you're processing ticketing food beverage retail like parking others, you've called out just utilizing venue next Pos.
And so the question is when we see these kinds of announcements how do we draw a distinction between the amount of India in volume.
That you're really getting because I would suspect there's there's a pretty material difference between how you are connecting and then is it your anticipation that over time, you were able to kind of pull all of those together under the same Pos and then obviously your and then processing. Thank you.
And then it's a really good question. So first just to be clear, we don't announce anything that we're not capturing both the software and payments on so.
So you know every one of these kind of signature wins, we're announcing there is payment volume coming along with it now how much. It's it's a great question, because if youre getting ticketing, you're getting a lot.
If you're getting point of sale mobile and seed ordering concessions.
You're obviously not getting quite quite as much and there is timing elements to this so you know these sports teams could time five year agreements with certain ticketing vendor that you know, we're not integrated into in which case for sure. We're happy to kind of get our foot in the door get our technology powering you know a large portion.
He said that venue and then you know when that when those contracts are up on ticketing, where in an optimal position to try and capture it now there are other venues.
That we're able to get it all right out of the gate.
And I think this is pretty exciting because last year. When we were having kind of these conversations are really just introducing you into venue next.
Ticketing with the upside.
There is a lot of volume there theres very good spreads.
But we had to get integrations into like C. D can ticket master, which we didnt possess at this time last year and really were unable to pursue that volume now we're announcing ticketing wins. So it's a huge step in the right direction in terms of like the overall contribution of.
Sports Entertainment venues and ticketing, it's still incredibly small like it's super small portion of our business today very very like minded portion of Q1, but we do expect this to become quite material probably not this year until we get a lot more of those.
Ohio State University type wins under our belt, but I think starting in probably 2023, where we might be able to cause a little bit more how much our sports and entertainment volume and ticketing is really contributing to our growth.
Excellent. Thank you so much.
Thank you.
Thank you John our next question comes from Darrin Peller, Karen Your line is now open.
Hey, Thanks, guys.
When we look at the magnitude of the wins you guys have had in the record volume weeks, you were having and you extrapolate off that plus the obvious with gateway conversion potential you would think that you'd see that and then volume is trending above what you would even if it expected and such that it took a little bit surprised that the guidance being maintained.
Now I understand conservatism and I think investors would be helpful to just get a sense of what what what assumptions really were built into that.
What kind of conservatism from a macro standpoint or any other variables that could be helpful.
Yes sure Darrin. This is Taylor I'll address that obviously the question that's going to be on People's minds in this kind of economic cycle brings.
Bring you through our thinking let's let's start with the data we're experiencing inside of the business and then let's kind of talk about the world around us.
Where we think conservatism is prudent.
Taking our payment volume from January through April .
And annualize them out on the same trajectory we experienced last year.
We would be ahead of our guidance for the full year.
That is what we've experienced year to date and that's what some Amit I'm across so thats encouraging of the new wins and an acceleration of the gateway strategy are obviously further encouraging.
It just felt like in the current environment with the macro picture is uncertain as it was it wouldn't be prudent to change that full year guide. This early in the year.
We debated it quite a bit and landed where we did based on those those that framing Jared I don't know if you want to lay or anything else into that yeah. I think I I think I would I mean, you know we've been we're approaching our second year as a as a public company.
We felt we had to overcome COVID-19, and then we ran into delta in the fourth quarter of 2020. We you know we thought we overcame it again and then we ran into omicron I mean.
There are things that are just unpredictable now.
That are out there where it just seems like you know.
One I don't think we were we're gonna be rewarded.
Properly for it either and and just you know there is uncertainty in the world that said like where we're being as transparent as we can about what we're seeing.
We're showing you where our records are in April we're delivering a lot of wins and we're telling you about really two organic initiatives that are underway right. Now that we think will have I think as I described in my letters like a pretty.
Impactful.
Quite quite impactful in 2022, and and May cause us to kind of revisit what we've what we've already shared so I don't think anyone should read into it other than look it's been a.
It's been an incredibly chaotic time to be a public company with our with our end markets the way they are.
And we just want to play it safe.
Yeah, I think that makes a lot of sense in this environment as long as that I think investors just want to understand if it really was just conservatism but.
Probably better off.
Right, that's really helpful and just one quick follow ups on free cash conversion, which we were we were obviously happy to see the inflection in the quarter due to a nice positive free cash conversion number in the mid 20% range can you just touch on that a little further, though maybe Brad just talking about the.
The trajectory of that I think you had talked about 30% or 35% potential conversion for the year as the year progresses. Thanks again.
Yeah, Hey, Darrin I appreciate the question you're exactly right I mean, that's one of the reasons, we've tried to be more front footed on talking about free cash flow based on some of the feedback we've gotten in Q1 is a really good quarter for US you know I think we'll post a it looks like a 30% conversion rate when you do the math on it our guide for the full year was 35 to 40.
You know one thing to keep them on for the quarter. You know there will be some quarterly interest payments that will hit in Q2 and Q4, so there's a little bit of a bouncing around across the quarters, but we still feel good about the 35% to 40% guide for the year and it's really driven by two things right as we because we continue to grow we have really good pass through rates at the cash level all of that incremental growth.
Talked about that overtime. The other piece that I think may have been kind of under appreciated was the value of scale benefits, we get out of our capex, which youll see even at our Q1 results.
Most growth as we've been able to put on the table for the last couple of quarters, our capex numbers haven't grown commensurate with those revenue streams or even the volume streams and that's what we've talked about you know we've been able to leverage some of the capex scaling as we go up market. We've talked about equipment remember, we don't we don't necessarily do.
As this is expensive of equipment into these new verticals.
So youre not going to see the growth in those capex lines commensurate with volume or revenue. So those two items are going to continue to expand.
Free cash flow just from a quantum number and as well from from a conversion number.
Okay very helpful. Thanks, guys.
Thank you Darrin. Our next question comes from David <unk> of Evercore, David Your line is now open.
Thanks, So much could you unpack your blended spread which improved two basis points sequentially to 76 basis points that was ahead of our expectations. It appears you picked up some yield in restaurants, and you're all other categories, while lodging was flat to down.
Recognizing that lodging is now 21% of end to end volume and what what what is the impact from that.
Progressing going forward.
Yes, David Good question, there's a lot of mix that goes on typically Q1 is going to have a little bit lower spread you know one of the things I mentioned in the script that we wanted to make sure people were kind of aware of is this this credit debit mix.
What we've seen in the data is finally by the time, we got to Q4 of last year. In Q4 Q1 of this year that number is largely stabilized just to put it in context. If you go look at Q1 of last year debit was 25% of our volume.
Q1 of this year its 18%.
So that's a pretty big spread lift you get a year over year, which is one of the points I was trying to articulate.
Remarks earlier when.
When you look at the spreads within the verticals, we have seen very solid spread behavior.
We've seen within restaurants within hotels spreads and maintain you know a lot of that has to do with our ability to continue to add feature functionality to the to our end to end solution, which we've always talked about we'll monetize through one or two basis points of spread at a time. So we can we expect the the spreads within the verticals.
To maintain themselves, but you will start to see.
Going forward now you got the spread mix as we move larger a market is going to be more evident because it's not gonna be bass as much by that debit credit mix that we think is largely behind us.
Understood. Thanks for that Brad just a quick follow up.
I think Jerry you mentioned you had under.
Under 1% of total annualized volume in the quarter from new verticals.
But the but these are growing very rapidly.
Are there any timing issues, we should consider in terms of seeing verticals contribute more materially and what's built into the guidance for this year from new verticals.
Yeah.
Really good questions there David I think again, just pointing out as you move into new verticals as an integrated payments company.
You need to integrate into software.
That's what makes US special when you put that software integrations I mean, it's very very hard for other payment companies kind of encroach on your territory, because we obviously have a lot of them in our high growth core as we expand whether its in gaming.
Airlines and the travel management systems E Commerce, some of our signature customers that are like well even nonprofit they have numerous systems like it takes time to accumulate those software integrations, but they are pretty rare and precious when you get them. So like nothing unexpected at this point at all I was actually kind of just highlighting that 1% just to point out.
Hey, we did you did pretty good with our restaurants and hotels in a quarter, where you know omnicom really really pulled back some consumer spending.
Imagine what it's going to look like when some of these new verticals are firing is as.
As we anticipate them to do so so yeah I mean, we're completing software integrations as we go I think we called out St. Jude.
We've been pricing since January but that means that was one integration that was live there. We've added a bunch more we'll continue to add throughout the year. You know the same goes for bet MGM and in some of these other so I'd say it was like very very little baked into our.
Our current full year volume.
<unk> on the on what these new new verticals will contribute but we obviously have you know pretty pretty high expectations for them when they all start coming online.
And David just to put a finer point on that.
This is taylor, it's less than 5% of our full year guidance.
So again conservatism on on that front, we believe.
And to <unk> point, highlighting the value of that high growth core and the progress yet to be made in these verticals was kind of at the point of the statement.
Understood look forward to seeing some of these are new verticals ramp. Thanks, so much.
Our next question comes from Chris Donat with Piper Sandler Chris Your line is now open.
Hi, good morning, everyone and thanks for taking my questions.
Jeremy.
Prepared remarks, he said that some end markets are still impacted can you give us a little color there and then.
Kind of ballpark, where we are in the recovery with with lodging and restaurants are we fully recovered.
Actually recovered just trying to get a sense on maybe what was not yet.
Working and understanding there's a lot of macro crosscurrents here going on also.
Yeah look I think it's a good question I mean, when we break.
Break down our portfolio based on you know various regions of the country by vertical I mean, there's certainly some cities, where you know people aren't going out to lunch for business meetings. The way. They did before there is certainly some hotels that cater to very much towards.
Business travel that arent back to where they were there are some hotels right now that are if we looked at it you know kind of on a static pool the 2019, they're up.
You know in volume, but they're still not at full capacity.
It's whether that's labor induced or or otherwise in terms of their ability to fully support their customers I think in general.
Lot of the customers that we support have you know have recovered quite well, but I wouldn't say it was at 100% tell US you want to add.
One is that I want to reiterate Jared mentioned that it's in our materials as well, but if you looked at our average merchant.
From 2019, they're up about 21% and total <unk>.
Since then.
If you look at our business were up nearly 300%. So I think those two stats are really important to ground the verticals are recovering.
And yet the business growth has really been the predominant driver of our overall volume growth. The one thing that I would call out and I think it's really important is.
We had very very little hotel exposure prior to the pandemic and we've added over 5000 hotels through the pandemic.
So this is a little bit of uncharted territory for us knowing what the full expected volume of those hotels should be is is something we struggled to forecast. Although we know in many cases, when we look at the growth when we look at things like spring break and compare that year over year that there's still room to grow inside of it.
That population.
Yes.
Okay got it and then just to see.
With the transitioning some of the gateway volume.
And get more of the gateway customers not so much the volume do you have any issues with having the capacity to do that transition or is that.
It's already baked in the cake as far as what you are doing so there's not much incremental expense from a ship for perspective that needs to be done there just help us understand if there.
There are some some challenges with those transitions.
No I mean, if anything it kind of frees up our resource capacity.
So I mean, we're processing ease transaction today I mean, we're doing all of the heavy lifting for it. We're just we're just then.
Putting the transaction volume to a third party acquirer instead of just you know crossing an entirely ourselves so.
Yeah, if we if not to say that if we didn't pull like we pulled 100 billion of gateway volume over to end to end over the next year. There is a certain amount of head count required in customer service and technical support for fielding some questions that we arent doing today for example, but like largely theres not a lot of incremental cost associated with it I think with the idea here.
There is though that you know there is a very large portion of our workforce today that is maintained in the past and not helping us build the kind of the future. We want to we want to conduct business and so on.
I think the idea is as we kind of progressed with this strategy and we start closing down some of this you know old piping that we don't we don't need anymore not only does it have like a pretty material impact on the performance of the company. We're hoping you start to see that and you know another another quarter or so.
But it also frees up resources to accelerate what we're trying to achieve everywhere else in the world.
You know, which is our strategy right now.
Yeah.
Got it thanks very much.
Okay.
Thank you. Our next question comes from Jason Kupferberg of Bank of America, Jason Your line is now open.
Hi, everyone. This is Kathy on vacation I, just wanted to ask a little bit about margins. So I I know that the margin guidance implies a significant step up for the rest of the year can you just help us think about the quarterly cadence of that and are you still planning to exit the year, maybe in the mid to upper 30% range. Thank you.
Hey, this is Brad I'll take that so you know one of the things that we certainly you know.
Talked about is how we're balancing topline revenue growth with margin expansion I think Q1 was a really good a good example of being able to put top line growth and margin expansion I think we're going to continue to see that there is a cadence across the quarters Q1 will typically be.
One of our lower lower margin quarters that will certainly expand into.
Into Q2 and Q3.
And then Q4, you'll see a small bit of retraction at all of that is just based on seasonality of how the business evolves throughout the course of the year, but we still standby you know our year over year margin expansion of 300 basis points I think that the.
The context of that is really kind of threefold. It's one that balance between topline revenue growth to margin expansion and three continued cash flow free cash flow production and free cash flow conversion. So we still feel very confident so that balance is the right balance and puts all three of those things at play.
Yeah.
Okay got it and can you provide any more color on maybe like some check vacations for top line metrics like volume the revenues I mean, obviously the year over year comps get significantly tougher, but just anything else you can share on that sense of your expectation. Thank you.
Yes, I don't think we've talked too much about Q2.
And generally what we have put out we did put out some numbers on April .
To give some context for that but I don't think we're providing necessarily Q2 numbers specifically.
Okay understood.
Okay.
Yeah.
Uh huh.
Our next question comes from Andrew Jeffrey of True Securities. Andrew Your line is now open.
Thanks. Good morning appreciate you taking the question.
Jared I'd like to ask about the the evolution of the gateway strategy and the way you describe it to changing its two things one.
Does it mean that the company will now pursue should've.
And to end relationships skipping the gateway step in and what does that imply if that's right what does that imply for for sale cycles, perhaps and then.
Is there a risk that.
<unk>.
With some of these customers is as you sort of try to.
Them off the gateway to end to end that they choose alternative providers, how do you frame that up.
Yeah. So let me let me just kind of start with the basic there with respect to our high growth core which is where our growth is coming from really it comes from one of two avenues you Ya.
Winning a net new customer and that requires the software integrations that we already possess and every quarter. There's a bunch of hotels restaurants specialty retailers that fall in that category, that's like 50% of our production and they come right into our end to end platform and then the other 50% is from this population of like call. It approximately 180 or so.
Billion of volume that's already on our gateway, that's already leveraging those integrations and we're doing all the heavy work, but we're out putting that volume too.
To a third party acquirer and every month that goes by we're kind of showering them with carrots and incentives to incentivize them to move over from the gateway to our end to end platform and that's 50% of our production every month.
That's a very easy thing to do you are you changing the merchant number in the system and kind of turning off the faucet to Ah Ah heartland or global our world paying you're keeping it yourself right what I'm, saying is that for five years now it's been pretty much of an entirely carat first approach and what we're gonna do is kind of like you said nudging them a little bit more.
Where we're either going to put tolls on or tolls or just and also kind of simultaneously sunset. Some of the connections that are just too small to you know, they're not really worth up keeping anymore.
Now this does put them to the test.
Can you move to one of the other two gateway platforms.
Yes, it's not very easy, though theres, an awful lot we're doing when we're token rising encrypting transactions and providing analytics that that doesn't like transfer over very easily.
We're going to wind up paying more.
In the process and they're not going to really get a better commerce experience going for their customers. So were attacking here is the status quo that people have other things to worry about in a given day and this isn't a high priority.
So we're kind of bringing it to the top of their decision list. If you will.
So I expect very very little as I mentioned in my prepared remarks like for sure. There is a risk reward here, we think it's a very attractive one.
We do absolutely think the end result is a large portion of that gateway business is coming for faster I do want to say, though that this is not actually a new strategy. This was always the strategy. It's just the last gateway that we bought was in the fourth quarter of 2019 and within like four months of that acquisition you had a worldwide pandemic.
And leading with anything other than carrots during that time period did not seem appropriate.
It's at a different point now so again, it's not it's we're not rethinking our approach. We're just it's just a better time to execute on what we had already planned.
And it has nothing to do with our current approach not working it's about making it work a lot faster.
Okay. That's really helpful color. Thank you and then just as a follow up on Sky Cab P. O. S. Can you talk about the kind of.
Monetization lift.
Do you think it can get I think you mentioned 120000 customers that it sounds like our back book conversion potential what are the economics of converting them to this new point of sale system.
Yeah, I mean, it's kind of twofold right too.
<unk> to the.
Just talking about our gateway strategy, we have a product that's going to be able to win very effectively and just an addressable market. We have lots of great distribution channels. So you're going to win the same type of customer. That's contributed contributing the same kind of spreads and annual gross profit contribution like they look today and our restaurant book, but on top of that you're also getting a SaaS lift.
Because the vast majority of the customers, where you're signing up today and 85% of our existing book of restaurant customers do not pay any fast speeds at all we monetize entirely through payments.
So youre going to Youre going to get the same type of customer you had before plus you're getting faster on top of it and then you know we don't charge for access to our marketplace, which is like your third party integration to Grubhub Uber eats endured as you know toast does charge that we don't we don't have a capital program, there's going to be a cap on the payroll program that are part of Sky cab pass. So you have a lot of.
Additional monetization opportunities that you know you are not presently getting today and then you have in your existing base of customers, where again, 85% or not paying taxes at all they're all going to want to move to a next generation Pos product with new hardware and new capabilities. So youre going to get a SaaS lift from the existing base, but then you're also going to get it through operational efficiencies.
Again, we think 2000 employees a large portion of them are supporting Windows based Pos systems that are more labor intensive you will more maintenance.
And then a newer cloud based product as well so there's a lot of benefits that we're going to get you know kind of on the top and bottom of our P&L.
I appreciate it thank you.
Our next question comes from Timothy Chiodo of Credit Suisse. Timothy Your line is now open.
Great. Good morning, everyone and thanks for taking my question I wanted to revisit the bridge that you provided for end to end volumes for 2022 and that original bridge you had a nice portion of about $3 billion or so related to the new markets, but also things seem to be going really well with stadiums and entertainment with a lot of the new wins that you announced today just wonder.
And if there's any change that we should think about to that bridge or if all of this was fully contemplated in that 3 billion for new markets.
Hey, Tim.
I'll address that.
The bridge again, I think we've been using the term provocative. It was designed to show you sort of a relatively.
Easy way for us to get towards our full year guide.
I think the the 3 billion is a conservative figure the only thing to keep in mind is that it's probably just the the SME vertical has some seasonality in the nonprofit vertical has some seasonality.
SME towards kind of the last three quarters of the year and.
Non profit specifically towards the last quarter of the year.
The giving back I called out. The example, the vast majority of their donations happened in Q4 and then the majority of those happened in December specifically, so still early in the year. All these wins are encouraging I would say the one <unk>.
Yeah, that's kind of outsized encouraging as the amount of ticketing wins and I think we called that out last quarter Q1 is relatively slow for us in general, but the number of ticketing wins are quite encouraging because of the outsized volume that contributed.
Excellent. Thank you tell a quick follow up I don't know if youre willing to share this or not but it's got to have it seems like the growth in locations is really strong are you able to share what the absolute number is that fully appreciate that it's still really early days.
We haven't disclosed the specific figure.
And our data this quarter, but it's over 3000, which I think that that would be around.
It's above where we were we listed last our Q4 call by several hundred merchants.
Great. Okay. Thank you for both of those really appreciate it.
Thank you.
Yeah.
Our next question comes from Jamie Friedman of Susquehanna International Group with Jamie Your line is now open.
Hi.
Gratulation is on the results here.
Ask my two questions upfront Taylor.
In your prepared remarks, you talked a little bit about inflation when we look at the like Rev. Par from some of your hotel customers for some of your restaurant customers. It looks like tickets are up.
So can you talk about how inflation in a take rate model might.
Help or hinder and then the second one is.
Can you talk at least at a high level about gateway volume growth.
Thank you disclosed that if you did I'm embarrassed I apologize, but if you didn't at least at a high level could you talk to that so first on inflation and second on gateway. Thank you.
Both good questions. So thanks for asking them.
Inflation helps to a point and I would say that the restaurant vertical as an example of that even at slightly lower than the peak capacity restaurants had been able to deliver volume in excess of pre pandemic levels.
And that's largely price lift.
That they've exhibited inside of their business I would say on.
On Revpar is a little bit of a different story and it's less of an inflation of more of a pent up demand and then inability to satiate that demand because of supply constraints at hotels. So two very different dynamics. One is that you've got a club industry average revenues inside of restaurants, because they kind of led the pricing.
<unk> increases even before inflation was talking if you went out to dinner last summer you probably looked once or twice in the menu.
At prices hotels, a different story, they're charging more because there's a lot of demand and quite frankly.
Over the past several months they haven't been able to.
Adequately addressed that demands now it does appear like labor challenges are softening and so hotels are filling up and again this kind of goes back to conservatism in guidance I think the question is.
As these businesses are able to satiate, a 100% of the demand that they see as they address their supply constraints.
More adequately do prices come down or the prices stay where they are and thats kind of the big macro level question, we consistently ask ourselves and it just leads to that you know cautionary level of conservatism. The other piece that we're always conscious of is that yes prices going up inherently supports our business model, because we drive a spread on those prices.
<unk>.
When customers pay but there is a tipping point at which you know.
People simply go out less and they spend less as a result of higher prices. So things like gas prices are something we focus on a lot and the potential impact that could have on restaurant verticals.
I will say if you look back historically these verticals have performed really really well people cut back on a lot of other discretionary spending before they cut back on taking their family out to dinner once a month or once a week. So we're encouraged but but I think it's prudent to be cautious because there's some pretty unprecedented trends that we're seeing.
Across the macro environment with regard to gateway volume.
We we quote it from time to time just to give a sense that it's very sticky volume. It's largely the same as it was when we acquired the gateways less what we've converted over.
There's probably room for that gateway volume to grow slightly because hotels, we do believe are still under.
Our normalized run rate and there's a lot of hotels inside of that gateway roughly.
40% of the hotels in the country are on those.
But.
We are we didn't.
Omit it for any reason other than it's largely status quo from quarter to quarter.
Got it thanks for the color.
Thank you. Our final question of today's cool comes from Eugene SUNY of Moffett Nathan Eugene Your line is now open.
Thank you very much hi, guys.
Wanted to ask about international and we haven't talked about as much on the call today are great to hear about the work you've been doing this scenario.
Just curious based on this work what's your greatest latest sense of kind of the timeline to ship for having the full scale capabilities to do global global payment acceptance processing and what are the pieces that you know after you integrate scenario you would still need to build out to kind of complete that process.
Yeah.
Yeah. So jaret here. Good question I mean, we were really pleased that we were able to share on this call that you know some of the first cross border test transactions between shift for platform hosted here in the U S.
And the scenario platform has already taken place so as we mentioned last quarter the.
E.
The earn out structure of the transaction very much incentivized as both parties to work towards connecting all the plumbing between our two worlds, which is great now now what does that mean.
When this deal closes and you know I would say like you know, we'll be able to immediately kind of go to market with a north.
Erica plus European capability that.
I'd say, it's pretty unique in terms of the number of payment companies out there capable of delivering such a solution, especially with like e-commerce capabilities.
But the work can't stop there.
We do we are very fortunate to have the strategic agreement with a.
Customer that will be delivering subscription services all over the world.
Not just in North America, and Europe . So you know for as much energy as we're putting into you know kind of connecting the dots. So we can hit the ground running for that big customer, but also for all the other integrations and products. We serve we're also putting a lot of energy towards the other parts of the world.
You know that we don't have covered yet and.
And some of those parts of the world like when you when you think about Central and South America Africa APAC. I mean, these are gonna be regions, where theres going to be very high demand.
For broadband.
Capabilities so I.
Hopefully that gives you you know if what we're telling you that we feel like we're very confident we're able to absorb Bob Munroe and hit the ground running with that.
While still at the same time looking at other international opportunities that should give you a sense of our our confidence on how that integration is going.
Got it got it very helpful. Thank you and then a quick follow up on just some of your distribution strategy and how it might be shifting overall. So you. Obviously historically relied very heavily on that partner network. It's worked very well for you guys as you're entering new vertical.
Are you growing your direct sales force.
How is that progressing and that way or is the impact of that on the P&L, how how we might.
Translate to kind of your expense structure of the P&L over the coming quarters or years. Thank you.
Yes, so jaret here I'll take the first half of that and then kick it over to Brad.
You know it's interesting two years ago that they you know you know our virtual road show going up to the IPO I mean, all we would have talked about is how important third party distribution is in the operating leverage it gives us.
And that's very you know very true for for the verticals at the time.
Since the IPO Geez, we've entered you know sports Entertainment E Commerce, nonprofits travel and leisure gaming.
All of our new verticals are being pursued via direct strategy I mean, it's not hard either I mean, we generally it's pretty easy to find where all the sports stadiums are out there and they're always willing to have a conversation so I'd.
I'd say that you know pretty much the entirety of kind of our new vertical expansion strategy has been around and in house enterprise and indirect sales team and.
Look obviously you had cut out.
Our residual expense that is you know pretty.
You know that that is.
Pretty meaningful.
Expense for us on an annual basis as we move into these new verticals.
And I'll kind of kick it over to Brad to share a bit more.
Hey, How're you doing so how that's going to manifest itself through Jerry just kind of teed it up a little bit. So residuals are obviously going to be zero on this on this particular distribution channel.
You'll see a couple of pick ups and some other spots you'll see some other cost of sale pick up slightly because that's what we'll do our integration costs to bring on these new merchants.
One of the calls earlier had mentioned some some discussions around adding some expenses into our G&A load. So that's where the body's you'll see as part of our in home sales efforts are going to put in the G&A line and you'll also see a little bit of advertising and marketing pick up to support some of the go to market strategy, but at the end of the day.
Those ads are going to be certainly favorable to what's going to come out of the residuals.
Youll see residuals come down more than what Youll see the ads coming back in those loans I mentioned.
Got it got it very helpful. Thank you very much guys.
Yeah.
Thank you.
Yeah.
Thank you Eugene.
Current stage, we have no further time for any questions. This concludes today's call.
Thank you for joining and you may disconnect your lines.
Thanks, everyone for joining us.
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