Q2 2023 Shift4 Payments Inc Earnings Call

Okay.

Ladies and gentlemen, thank you for standing by my name is Sharelle and that would be accomplished operator today.

At this time I would like to welcome everyone.

So the ship for second.

Second quarter 2023 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question during this time.

Please press star followed by the number one on your telephone keypad.

If he would like to withdraw your question Press Star one again, thank you.

I would now like to turn the call over to <unk>.

Mcallen.

And Investor Relations. Please go ahead.

Thank you operator, and good morning, everyone and welcome to ship for second quarter 2023 earnings Conference call with me on the call today are Jon Isaac mentioned Sport, Chief Executive Officer, Taylor, Laver, our President and Chief strategy Officer, and Nancy discipline, our Chief Financial Officer.

This call is being webcast on the Investor Relations section of our website, which can be found at investors that ship for Dot Com. Today's call is also being simulcast on Twitter spaces, which can be accessed through our corporate Twitter account at ship for.

Our quarterly shareholder letter quarterly financial results and other materials related to our quarterly results at Walt and posted to our IR website.

Colin earnings materials today. These forward looking statements.

These statements are not guarantees of future performance and our actual results could differ materially as a result of certain risks uncertainties and many important factors additional information concerning those factors is available in our most recent reports on forms 10-K, and 10-Q, which you can find on the SEC's website in the Investor Relations section of our corporate website.

For any non-GAAP financial information discussed on this call the related GAAP measures and reconciliations are available in todays quarterly shareholder letter with that let me call turn the call over to Jack Jared.

Hey, Thanks, Tom and good morning, everyone.

So we are pleased with our second quarter results, including how we position how we're positioned heading into the back half of the year.

So for the quarter, we posted 59% and volume growth driven by continued strength from our core of restaurants hotels specialty retail or with increasing contribution from our new verticals, especially in sports entertainment and ticketing and our growing base of large enterprise accounts.

Additionally, TCE performance, we're especially happy with the setup for the second half of the year. Thanks to the investments that began years ago, including international expansion along with July trends.

And we are raising our full year guidance across all our kpis.

So we feel very good about our year to date financial performance and remain on pace to deliver full year results in excess of what we assumed at the start of the year.

So we're generating margin expansion as we demonstrate the scalability of the business by maintaining a relatively flat headcount streamlining operations by taking out the parts and adding incremental enterprise related volume with no corresponding operational expenses were.

We're implementing new internal systems, we are leveraging AI and other productivity tools that will further streamline our operations and drive additional margin and free cash flow improvement in the years ahead.

In addition to the profitability and free cash flow improvement, we continue to grow very quickly.

So for the first half of 2023, we generated a 30% growth in gross revenue.

As well as gross revenue less network fees in line with our medium term targets established in the fall of 2021.

The midpoint of our updated 2023 guidance implied the gross revenue less network fee revenue growth will average over 30% in the back half of the year as well and especially in the fourth quarter, including strong visibility into enterprise and international opportunities.

As I've mentioned before companies like <unk>, four that are winning mercury and growing payment volumes are doing so because they are adding value to the commerce experience well beyond just the credit card transaction.

Thousands of new customers every month, we're talking very busy restaurants, some of the nicest resorts in the country demanding major league stadiums theme parks, we've got a fortune 500 customer this quarter and more in fact, I believe the customer logos that we are featuring this quarter and in our earnings materials are the most.

Impressive list yet.

Why do we have so much visibility and confidence in the back half of the year.

These customers he kicks ship or because we were a penny less per transaction.

But rather for how we enable a complete commerce experience and in turn provide more value for our merchants.

Consistent with past earnings Im going to provide some additional color on our core which as a reminder consists mostly of restaurants and hotels as well as our progress in new verticals and our global expansion initiatives.

So starting with our core our core remains the primary engine of our growth and as you can see from the various logos in our quarterly shareholder letter, we continue to gain market share in restaurants, and hospitality and to be clear we win a lot of net new customers, but we are also uniquely advantaged as we capture more wallet share by converting software in gateway markets.

Our end to end offering.

For example, net new wins this quarter include the Fontainebleau resort in Las Vegas that is scheduled to open this upcoming fall as well as the Virgin hotels in Chicago, Dallas Nashville, The Langham Hotel on fifth Avenue in New York City. We also captured more wallet share by moving gateway customers like <unk> suites in Uptown suites, which are two <unk>.

And it's a hotel brand store and <unk>.

That form.

So we have we have always served a large and growing portion of the table service restaurants in this country, but we are especially proud of the growing momentum, we're seeing with our new cloud based <unk> solution, which is called Sky cap for this past quarter. We saw nearly 6500, skycap Pos systems, including installations at some large venues such as <unk>.

<unk> live in Kansas City, Texas Slide in Arlington, Texas.

These are all net new customers and we released a pretty cool sizzle reel on Sky tab last week and I encourage you to take a look so sky cab dot com.

There's been a lot of news this quarter regarding competitors potentially introducing new fees on the restaurant customers so more specifically.

POS companies charging restaurants Patriots directly for online orders.

So we never considered implementing such fees, but we also don't have to charge more given our margin and profitability profile I will say the events over the last month have created unexpected opportunities and boosted demand for sky pad that we are beginning to realize now.

For those not familiar our Skycap restaurant offering has a much lower total cost of ownership and lower cost of acquisition versus our peers. So for a typical restaurant processing $1 5 million in annualized volume our solution is less than a third the cost of our primary competitor, including gear upfront cost. We believe restaurant operators are keenly focused on the total cost of <unk>.

And as we've said many times there is nothing technologically cosmic about bringing up the cheeseburger. So we don't depend on pricing power to grow our restaurant business and at a total cost of ownership and trust matter <unk> looking extremely favorable in this regard.

So this past quarter, we added thousands of new restaurant customers, including <unk> restaurant group, which operates 11 restaurants in the Washington, DC area, including my personal favorite the historic old debit Grill is Washington, Dc's oldest duluth.

To summarize our core focus on restaurants, and hotels remains a reliable engine of growth for <unk> and we will continue to deliver fantastic results as we win net new merchant <unk> share of a large addressable market as well as gain more wallet share from those customers that moved from our gateway and legacy software solution.

Despite balanced growth coming approximately 50 50 between net new customer and customers and wallet share gains. We believe we remain a unique story and our ability to achieve growth targets without having to add a single new customer.

Let's move on to new verticals.

So we continue to cross it in the sports and entertainment vertical.

This past quarter, we added the Carolina Panthers, the Texas Rangers Charlotte St.

St. Louis Blues, Toronto, Blue Jays, Philadelphia abilities, Purdue University, and the University of Maryland.

These are just the ones we received approval to disclose where we're having success across all professional sports NFL MLB NHL NBA as well as college sports, we also renewed and expanded the scope of our agreement with the happiest place on Earth again. These incredible merchants are not taking us because our service cost a penny less per transaction.

But because our technology powers the entire guest experience from parking retail purchases at fanatics.

<unk> stands for the VIP suites, and the in mobile ordering and it's obviously working well.

It's also worth noting that our sports and entertainment when typically start with mobile and seed ordering and then evolve into concessions merchandise parking, but the Big Prize is ticketing. For example, this past quarter, we turned on key ticketing for the Florida Panthers.

It takes a long time to win and completed <unk> integration and I think most of you know we already turned on <unk>.

We're really excited to announce that we've completed our ticketmaster integration that rounds out the big three and this is this is a pretty big deal.

So after investing in in the vertical for nearly two years and.

And learning from our signature customer and safety Children's Research Hospital, we have signed a number of nonprofit organizations through our <unk> platform this quarter, including the American cancer Society here rare diseases, and help wagon and our pipeline of cross sell opportunities remains very strong we've been giving block continues to add new nonprofit their platform and we.

We continue to use this as an important pipeline for our end to end payment volume.

We also continue to build out key software and payment integrations with leading donation platforms like the donor box, which currently serves over 50000 organizations worldwide and given gain a crowd funding platform for nonprofits that helped raise funds for events like the upcoming Boston Marathon.

These wins represent the most material updates since we entered the nonprofit vertical which as a reminder represents over $450 billion a year in payment duration line.

Our ownership really giving block has also opened up opportunities outside the nonprofit vertical for example, we've helped several reputable crypto merchants with pain and payout requirements for now this volume is being handled exclusively by scenario given their card not present expertise and international capabilities.

We have learned that the merchants have been underserved and overcharged and received suboptimal approval rates. For example, we are finding that the scenario approval rates are 8% to 12% better than competitors for E. Commerce transactions in this vertical it further reinforces our decision in acquiring scenario and they are modern tech stack.

We are pleased with the results of our efforts, thus far and with respect to crypto merchants. We do intend to proceed slowly we're learning a lot and ideally we'll meet the demand of this fast growing and underserved market.

So in gaming, we completed an integration with Dan the number one <unk> payment platform gaming platform for brick and mortar gaming operators.

In fact in second tact, we signed a multiyear agreement with a fortune 500 software company to utilize our payments platform and enable their SMB merchants the ability to accept payments.

Our partnership with Fanatics also continues to bring us new antenna volume as fanatics grows so do we so fanatic time WWE.

It is wrestling and by virtue of our growing partnership with fanatics, we will service WWE eat into any payments provider for merchandising sales.

Our relationship with Fanatics has also contributed to us being awarded the payment processing business for in venue merchandise sales for the intermodal Ami stocking Soccer club, which is just in time for the massive spike in sales of number 10, net New Jersey.

They are additional venues and interesting opportunities that we're exploring with fanatics as well.

So in a very short period of time, our new verticals and several strategic enterprise accounts are driving meaningful portion of our growth in volume.

Take rates are obviously very different when dealing with customers who process hundreds of million dollars in some cases billions a year in volume, but these are profitable relationships that require far less overhead and almost no hardware or growth capex and are growing at much faster rates than our core markets.

So, let's turn to global expansion.

For 24 years now before has been growing in the most competitive payments market in the world, we've accumulated incredible customer relationships across restaurants hotels specialty retail travel gaming nonprofit ecommerce many of which have locations all over the world.

It obviously took an agreement with a strategic merchant to finally kicked off global expansion initiative that we see as key to fueling the next 24 years of growth and shift for.

As many of you know we signed an agreement with a European payment platform for neuro in March of 2022, and we believe we are now on a path to close by the end of the current quarter, we are raising guidance to account for our organic outperformance and visibility into the second half year opportunities, especially in the fourth quarter guidance also includes a scenario contribution in the fourth.

Quarter, but it's also important to note we have been we would have been raising guidance regardless of the state of this transaction. It's also possible we could close prior to the end of the current quarter, which would serve as further upside for our already increased guidance.

In addition to the importance in our update we've been moving on to the next chapters of our international expansion strategy with very important we've been organically, we've organically expanding several eastern European countries, Canada and into the Caribbean. We're very pleased with the progress and already have restaurants in Europe using sky Tam on the Panera platform addition.

We've begun testing several hotel property management system integrations in Europe .

As mentioned above we believe the bulk of our growth over the next few decades will come from taking the same products and services and integrations that made us successful in the USA and bringing them all over the world to that and international expansion remains our number one capital allocation priority. Both in terms of our M&A pipeline and organic investment initiatives.

It's important to emphasize that we are not flying blind here, we have the best customer possible to learn from and we're going to follow them all over the world.

And then I know I mentioned, it last quarter, but despite how we found on earnings calls, we really spend very little time on what is clearly working and almost all of our energy on what is broken we have a lot of parts to take out across our legacy Gateway Nexsan legacy software and we're leaning into the ship for way. So we can become a better more efficient and while executing organization each.

Day that goes by we become a better business and with that I will turn the call over to our President and Chief strategy Officer Taylor, Robert Taylor, Thanks, Darren and good morning, everyone.

I'd like to provide an update on the operating environment the status with Panera and then our capital allocation priorities for the remainder of this year as.

As Jerry mentioned, our primary growth algorithm has been adding new merchants, coupled with the growing share of wallet within our existing installed base, we have a unique software and technology assets that not only afford us the ability to attract net new margins, but also convert existing customers to our end to end platform the ability to gain share of wallet within our customers.

Beyond our gateway is we have tens of thousands of software customers and restaurants are already integrated with us, but using other payment processing and the opportunity to add ticketing volumes through our sports and entertainment installed base.

For the quarter, our end to end volumes trended slightly better than we expected largely due to strength in hotels volume at enterprise accounts, continuing to ramp to their full capacity and adding incremental ticketing volumes within sports and entertainment.

We experienced statistical seasonal pattern heading into the summer holiday period with a step up in spending beginning memorial day weekend that accelerated as vacations kicked into high gear in June through the July 4th weekend, we remain cautiously optimistic consumer spending will continue to remain resilient, although our guidance.

Does contemplate continued moderation in restaurant spending.

Spending a restaurant has moderated slightly but not in excess of our early expectations. This moderation has been offset somewhat by better than expected trends in hotels, as Darren mentioned sports and entertainment.

Spreads in our core verticals remains stable and we have begun to annualize the impact of some of our new large customers, which slow spread compression, we anticipate that our blended spreads will averaged 65 basis points for the full year and we do see opportunity for upside through international alternative payments and other initiatives.

Last quarter, we announced the acquisition of a restaurant Pos partner of ours focused Pos and since closing just a few months ago, we have successfully converted 10% of their customers to our end to end platform.

While discussing restaurants as Jared mentioned, we've added nearly 6500 Skycap systems. This past quarter as some of you may know a few competitors have attracted attention with a pricing controversy that we fundamentally disagree with we've recently launched a marketing promotion that is generating considerable interest and highlights our total cost of ownership advantages and the.

Outsize value our products deliver to Mark's importantly, with this campaign our payback on customer acquisition cost is still within 18 months. We are confident this will attract increasing attention towards the sky brand.

After more than 15 months since signing an acquisition agreement with Minera. We believe we are on a path to closing by the end of this quarter and as a result, we are updating our full year guidance to include a portion of the expected generic contribution as a reminder, when we announced the deal we estimated our full year EBIT contribution of $30 million for a single quarter of roughly seven.

And while we did not include revenue guidance, we did say that we anticipated scenario to be a drag on margins as we executed against our integration plan.

The upside of this prolonged regulatory review period that we've been able to work in partnership against our largest deal objectives in the meantime, and as a result, the combined EBITDA margin profile is expected to be better than we originally anticipated.

As Jerry mentioned earlier, we have great visibility towards many growth opportunities, especially as we look into the fourth quarter.

We are excited to move on to our next chapter in the <unk> story.

We do have sky cab Pos systems in Europe , using scenarios processing platform and have begun working on our product distribution and support strategy.

While we anticipate the typical seasonal increase in Q3 volumes relative to Q2, the timing of new integrations commercial partners and international opportunities will result in Q4, representing our strongest quarter.

In terms of capital allocation priorities, we're pursuing several M&A opportunities that are largely focused on our international expansion. These ransom, adding restaurant distribution in Europe to accelerate the introduction of Skype.

As well as several transformational opportunities that will extend our presence in other regions around the world I would like to note that we view capital allocation is a core competency of ship for our disciplined approach to capital deployment as a cornerstone of delivering shareholder value whether it be venue next focus pause in sourcing distribution or even a <unk>.

Investment in Spacex all serve to grow shareholder value meaningfully.

Conversely, we raised capital when the market's afforded us the ability to do so attractive as an example, our weighted cost of debt is currently 135% and we do not have any maturities until December of 2025 or.

Our balance sheet cash generation and profitable growth has positioned us incredibly well for the current environment of uncertainty we have the ability to move quickly in pursuit of businesses that possess capabilities that will enhance our offering and help us expand throughout the world and with that I'd like to turn the call over to our CFO Nancy.

Thanks, Taylor and good morning, everyone.

First review our financial performance for the second quarter, and then review our outlook for fiscal year 2023 as.

As a result of our consistent execution, we delivered another quarter of impressive results, including quarterly records for volume and gross revenue less network feed we continue to balance strong topline growth with disciplined investment as evidenced by the strength of our adjusted EBITDA margin and our adjusted free cash flow conversion.

Second quarter volume grew 59% to $26 8 billion year over year kitchen gross revenue grew 26% to 637 million and gross revenue less network fees grew 25% to $228 million year over year.

Our quarterly results were driven by the continued strength of our high growth momentum.

The momentum across our enterprise margins, including new vertical and improved economic earnings from our gateway customers. We also entered the year with higher unit economics within our restaurant channel due to our strategic decision to in source a large portion of our go to market distribution last year in connection with the launch of Sky cab.

Second quarter gross profit was up 61% year over year to $159 million and our gross profit margin was 70% for the quarter, representing over 500 basis points of improvement year over year.

The blended spread for the second quarter was 65 three basis points, driven by massive volume growth, including growth from enterprise merchants at lower market appropriate take rate as.

3% over the same quarter last year, the resulting adjusted EBITDA margin for the quarter was 48% representing over 1200 basis points of year over year expansion. We remain highly committed to a disciplined approach to cost management, while continuing to balance investments to support our growth including international expansion.

Your vertical expansion Ah Sky K, a product launch an ongoing talent upgrades across the organization.

Additional opportunities to further improve margins are still on the horizon as we harness the productivity of AI tools implement new internal system and continue to take out the parts across the business to further enhance the scale the ability.

And we're just at free cash flow in the quarter was $64 million an hour just a free cashflow conversion with nearly 59% well above our current full year guidance at 55 per cent plus it is worth noting the queue to include the semi annual interest payment of roughly 10.4 million, which can distort the quarter to afford a comparison.

And then with respect to capital transactions during the quarter, we repurchased approximately approximately one and a half million shares we have cumulatively deployed over $300 million buyback purchasing $5.8 million of shares at an average price of $52 since our I P O.

Note, the cumulative dilution and chairs account and and share accounts from our I P. O has grown by less than 2% in over three years as employees, we own over 36% of <expletive> for and are very thoughtful about managing dilution.

Our remaining buyback capacity is just over 150 million and we will continue to be opportunistic and repurchases you can see a complete reconciliation of our shares in the back of our earnings materials.

Net income was $36.8 million for the second quarter basic earnings per class, a and classy share with 43 cents and diluted earnings per class a classy share with.

With 62 cents.

<unk> net income for the quarter was $63.4 million or 74 cents per ANC sure on the diluted basis based on 85.7 million average fully shared fully diluted share that standing.

Exiting the Korea with just over $725 million of cash 1.75 billion of debt and 100 million Undrawn on a credit facility.

Hour nap leverage at quarter end with approximately 2.8 times, excluding the buyback we would've ended the quarter at 2.5 times net leverage which reinforces the rapid deleveraging capability of the business in the capital of the appointment flexibility our cash flow generation afford that.

Our strong balance sheet and free cash flow profile will continue to allow us to invest in the business pursue our strategic priorities and opportunistically repurchase shares.

Turning to full year 2023 guidance, we are increasing the low end of the range for all four of the K P. I S and the high end of the range for volumes gross revenue left network fees and adjusted EBITDA.

Updated guidance for 2023 includes total end to end volumes of 108 billion to 114 billion, representing 51% to 59% year over year growth.

Gross revenues of 2.6 million to 2.7 billion, representing 30% to 35% year over year growth.

Gross revenue network fees of $945 million to $980 million, representing 30% to 35 per cent year over year growth and adjusted EBITDA of 435 million to 460 million, representing 50 per cent to 59% year over year growth.

We anticipate adjusted EBITDA margins.

Continue to expand to over 650 basis points at the mid point of our guidance ranges up from our initial assumption, a 50 basis points and adjusted free cash flow to be at least 240 million up from initial guidance of 200 million.

It is important to note that as the year Progressive we remain cautious about the macro environment and have reflected this in the entirety of our guidance ranges.

The low and high estimates represent identified and quantified strategic initiatives such as up in a row acquisition that cannot be precisely time should these moves more quickly we expect financial impact sooner.

Miller to last year, when you saw a sudden increase in activity as a result of all the work in a new vertical you can expect some step function change in a heavier waiting to P for as we execute on a strategic plan with that let me now turn the call back to Jared.

Thank you Nancy and before opening up the call to your questions I first wanted to <unk> inaugural student simulcast via Twitter spaces. I don't think we we had a perfectly dialed in this morning, but we'll we'll get that right going into going into the next quarter.

But I did want to respond to a question that was submitted via social media. Our <unk>. Our question comes from Krishna Mohammed from Toronto, Canada.

<unk>.

The question was what do you believe is the most challenging aspect and growing the company to the levels of a stripe or an AD in the world and what is the path to to get there and it's it's a great question. So you know look our biggest challenge right. Now also represents our biggest opportunities, which would certainly facing the same products and.

Software integration.

That has made a successful in the U S over the last 24 years and bring them into market all over the world and probably the most challenging part of that is is card present policy capabilities.

Two four strength. Unlike those names is striping ideas actually come from processes transactions face to face and venues, which is so much harder to do on a global level. The new recording our present processes. So really what we're after has not finished <unk> not even by the company that you're referencing.

At this time I would like to remind everyone in order to answer the question <unk> and a number one on your telephone keypad superbowl.

<unk> just for a moment to compile the king any faster.

Your first question comes from the line <unk> research.

You May go ahead.

Nice job on the quarter or just I Wanna, just very quickly clarify the <unk>.

Came from a combination of looks like of organic.

Sleeping.

So just if you could help break out of Florida, just let us know, what's what's contributed to what.

So I guess bigger question for me is just the magnitude of up sorry.

So when we break down you know whatever's gateway pricing or it's operating leverage or just how much visibility you have on that front to to continue that trajectory.

Okay.

Yeah, Hey, thanks guarantee out here so copy on the first question with I think we we fully anticipated that so you know what you're talking about about Monroe and guidance. So there there was a a positive development you know in the last in the last couple of weeks they gave US a lot of <unk>.

<unk> on our ability to bring that transaction to a close potentially you know rather soon although we reset by the end of the quarter.

Action here right. So I think if you you kind of like breakdown the expectations that were originally set with this transaction, which Taylor reiterated on the call you know assume a good portion of that what that leaves you with is a very healthy organic outperformance and that's the message everyone should be taken away from that transaction. It's also like it's.

Also important to to put it out there. So we can kind of move on to the next chapter because it's been 15 16 months and we're doing an awful lot with international respect to be talking about an awful lot more than you know kind of a.

You know.

You know in the future ahead.

Uhm.

So and then kind of moving onto the next portion of your question, which is you know just continued profitability you know to continue to strengthen the profitability profile the business with margin expansion free cash flow EBIT growth.

You know, we keep talking about the same themes of taking out the parts. You know we have a lot of <unk> you know any of the negative. So redfin set about your four Oh, they've got a lot of gateway connections you know they've got a lot of legacy software. We agree that's why we're taking out those parts I mean, we supported like seven eight different legacy software solutions, you know two three years ago with now.

Concentrate our resources and consolidate our brand on one every quarter that goes by we're gonna have more business more resources on our five bay solution less on our our legacy solutions. We're doing the same thing in our gateway, we rolled out AI tools that can program a restaurant P. O S menu in 30 minutes instead of five hours. It's it's what we said before.

For almost every enterprise customer that we're chasing down right now requires less overhead to support and small restaurant customers of years ago. I mean, you know I think we talked about the Carolina Panthers this quarter, adding ticketing volume we didn't have to hire anyone to do that we didn't have to deploy any hardware devices. We didn't have to issue any signing bonuses. So it's like we said at the end.

Q for last year literally every initiative is underway in this organization right now is going to lead to better margins and better free cash flow and you're just seeing the results of it now halfway through the year.

Progress to go I guess my my quick followed would just be there. So many areas that you're growing your volume and outperforming it I guess, if you could just help us understand the breakdown again.

You know again, whether it's gateway conversion or same store sales or last year's anniversary clients or even do business now any Samsung directional terms of what drove the most or Joe maybe ranking it in some form.

Yes.

Yeah, I mean, just high level and then I have certainly opened it up to to Nancy Taylor to fill in the blanks, but you know I I I highlighted my script like this past quarter was another 50 50 event you know and that's it's an approximation advice. If you just look at the reference wins you know all the Virgin hotels were <unk> in this quarter.

You know, obviously fontainebleau within that new when I think last quarter. You know there were two other you know big you know big spherical Vegas resorts that we talked about those were just constructed so like you're getting half that's coming from that knew almost all of our skycap. His nephew I mean, we we have no active upgrade campaign for our legacy customers right now on that so you've got a <unk>.

And that new but then you also have in town suites. You know that's 200 locations is it's still I'd say 50, 50, I mean, if it's maybe cause we have so many new verticals. It's never represented gateway conversion no more than that new overtime.

Yeah. So when you talk about customers joining <unk> are perfect. It gets a little bit murkier. When you think about all your throat because you do have really big customers Annualizing over the course of the last year you have strong ability to gain share of wallet in places like stadium somebody mentioned this you know.

Throughout our scripted remarks, but uhm, adding on to existing stadium customers, which we have a lot is going to be a big driver of growth now that we have all of the requisite ticketing integrations.

Completed so the volume drugs can get a little murky, but you know what we focus on is adding customers. That's really what drives the business and then when you got the right customers and focus on your integration sure wallet grows beyond that as long as you're delivering for good customers who are growing so hopefully that gives you enough color, maybe just one thing to add on and and we you know.

Foreshadowed this at the beginning of the year, you know restaurant volumes moderate slightly hotels have been a bright spot I think you mentioned probably with you Darren.

An investor meeting you know a few months ago that we were pleasantly surprised by hotel Williams, a little bit more pessimistic than most of the time at the beginning of the year they've continued to shine.

Traveling.

That's great.

Hey, guys. Good morning, I appreciate you taking the questions. So you can hear me I wanted to ask the question on set up a cadence in the back half of the year 2324, and I I heard several comments throughout the script that some.

Some of the some of the grocery so you won't be back have waited it sounds like that small kind of incremental growth in the fourth quarter and that kind of weakness in the third quarter, but maybe you can just help us bank sequentially from second or third what are you kind of expectations and how are you thinking about the ramp into forest.

Okay, Yeah, I I think that's the way I heard it is exactly right you know very similar to last year. We've got a couple of data irons in the fire that are kind of step function.

We're kind of doing our best to kind of schedule of when we expect to see those ramps, especially on the international kind of some of the a T M in an exciting things like that on there.

Just a little bit pushed you know I think I'd, probably early guidance, we thought maybe we'd we'd sit out a little bit sooner. So guide kind of put some caution in there and we've kind of backward I felt a little bit more than maybe when we started just started out our original guide point. So that's really the message is it's not that something is is really falling out of Q3.

Just kind of a step function of when some of that.

New vertical initiatives are gonna be kicking in.

And this is important well so for investors and analysts and followed us for a long time D. Three is traditionally the strongest quarter for the business all of these new initiatives Dallas out the business in a really nice way.

A year and we just want to caution that you know Q4 will represent a stronger order relative to kind of a full your picture than it has in prior years.

Got it that's helpful. And then just as a follow up in the Sky tab 6500 locations installed in the second quarter, Janet I know, you're not a subscriber to sort of location counts overall, but it has a pretty robust number pretty on par with.

The large competitor <unk>.

<unk>, maybe you could just talk about the the the cadence there like is that kind of a sustainable level of location growth and maybe just talk to any issues of comparability with with some of your peers.

Yeah, I mean, you know first of all we've we've tried to be very specific and not and not getting into the location count Kim like I I I think even you know previous expectations that is that we are very <unk> you know.

Second place at the end of the year with respect to locations. If we're targeting more up market higher take rate customers and nothing's changed in that regard other than I'd say look demand is good.

You know demand is really good right now whenever you know data that we've shared thus far was obviously prior to any marketing campaigns are incentives that we've made available which is only boosted demand.

So you know I I think we are pretty we've always been incredibly confident in our in our product in this vertical right now we have awesome distribution and we have decades of experience chasing down restaurants, and as I mentioned before like this is there's nothing cosmic about bringing up a cheeseburger like I don't think you can necessarily compare the products in that space too.

You know some of the most sophisticated like AI system as in the World you know, it's a cloud based solution brings up a cheeseburger drives operational efficiencies in a restaurant, we know a lot about it but the good product for in a good distribution, we expect to have very healthy demand throughout the year I think well again, we won't be location can count game every every quarter, but we will try and give you some.

Well I just the only thing I want to add onto that is.

<unk> at least not at all surprised the us from where we sit in the business I think it can be a little bit of a surprise that externally because we're corralling those ads around a single Brandon skydive, but keep in mind, even operating as Jerry mentioned in multiple restaurant point of sale brands for a long period of time and our ads have been you know very strong and steady yet.

Last fall the status over 50 per cent volume growth in restaurants over you know a multiyear figure that included a pandemic. So you know I I think the world is just getting around to seeing a consistent brand in the marketplace from shipboard, but under the Hood. We've been delivering this restaurant you know merchant add date of birth.

Wow.

Really impressive dish anything of the questions.

Your next question comes from a line of <unk> with credit Suisse per line is now okay.

Great. Thank you Wanna dig into the ticketing. So the ticket Master announcement now you have to ticket master <unk>. So I want to talk about how differentiated. This is maybe you could just talk about if anyone else. Even has this kind of set up when you go into a stadium or a team and you have the concessions you have the restaurant and now you have the ticketing. So you can.

Well, we provide to them literally payments across all of their main then use if you will.

Just talk about if if anyone else is in that ballpark or how differentiated that is and then a minor just modeling follow up on that.

Is there any kind of a revenue share that goes back to the what is effectively the ISP in terms of the ticket masters the backyard and the sea geeks. Thank you.

Yeah, Hey, Tim. Thanks. Thanks for that question now of course, we we we always believed that it's a very robust competitive landscape, especially with respect to sports entertainment, but we do believe we've been.

Uhm investing very healthy into a category leading products, that's only gotten better, especially with respect to all three of those ticketing integration I can't speak to what anyone else out there has but you know you can you can see the logos every quarter like we're doing a great job, they're winning ticketing is huge.

I think we we really prioritize that like you know a coupla years ago. I mean, we knew we knew in T. Mobile ordering was gonna be big but it's not the lion's share of the volume. So you know using that is kind of the the the foot.

Foot in the door to get what is the prize, which is which is taking volume was I think like a really smart tactic a few years ago and it's paying out very well now so having all three taken any integration is pretty important in terms of the Rev share to the I S vs.

My understanding is deal by deal based so it's I think nearby D. L team by team, but you know taking in general is is several times that in terms of a from a volume contribution perspective in the actual stadium itself and to take rates are better you know probably by several times.

As well so even with the revenue sure. It's still like it's <unk>, it's still a nice contribution to the business, especially since like again, there is no corresponding opex associated no growth capex associated with it just kind of flows through.

Excellent. Thank you Jared.

Your next question comes from a line per.

Per line with our D. C. Your line is now okay.

Can you just maybe flush out what that specifically means I mean are you thinking about there's there's distribution assets there that you're already tethered to that you Wanna buy N similar to what you've done with and sourcing or there.

Or is this kind of you know kind of a footprint grabbing a country I'm just trying to understand when you talk about capital allocation to distribution in Europe , what what that flavor really looks like.

So that's like a really great question Dan.

So it varies based on product and service right just the same way it does here in the U S. So we have 550 plus software integration that all had these are these are some of the largest software companies in the world. They all have their own support infrastructure. They have their own distribution arms in which case simply making available in in 10 payment solution.

So this is your Microtia Joseph you Microsoft These types of integration providers in which case again very little we have to do in Europe , because those isps themselves possess all the infrastructure and distribution capabilities now with respect to the Sky cab. That's a different story right. That's our product just like you know venue next door or sports Center.

Payment product is our product and in that regard we are looking at a lot of different different paths to distributing skycap in Europe , and then providing local services support which is pretty important that is at a very high priority for us now that the the product is in fact processing transactions at restaurants and your.

So I mean, it's Europe as I think many of you know like we spent a lotta time they replace it. It's it is you know well from an integrated payments perspective at least 10 years behind the U S. So this is a lot of opportunity I mean, there's there's gonna be a really interesting land grab it I think is coming up and it's why it's a it's a high priority for us to kind of open up.

Open up a new front, there with respect to our restaurant fewest product.

Awesome can I just have to follow up on that you mentioned micros. They used to have a lot of they still do have a lotta hotel a payment systems out in Europe . So I'm wondering is there a parlay for sky tab to be put into those hotels for restaurants and things of that nature is that just a natural extension for you or is that does that now is contemplated today. Thank you.

I mean, I I have to believe that shift for processes payments that originate from micros systems more so than anyone else in the world and I would say by like maybe even an order of magnitude so.

[noise] perspective, we are we are immense expertise with that product and if a merchant is very happy using micros in Europe and want to process across a rails are using opera their property management. The microbes property management system in Europe across a rail that's that's very enticing give us no reason necessarily to rock the broke both by replacing it with Skype habits.

Which is kind of our philosophy in the U S or you know restaurant customers like you know towel Hotchkiss on all use microbes in the U S.

Very well with you for that said, what's the the whole restaurant market in Europe right. Now is basically using you know nonintegrated terminals I mean, even if they have an old windows based P. O S system, they're using this like wireless handheld device that bring to the table. It's not integrated at all like that's what we're talking about in terms of prime opportunity to hit with.

You know hit with Skycap. So in many respects, we're spending a lotta time in Europe . It really does look like you know look like how it did in the U S. You know right at the early days of Mercury payments cause you know like 10, 10, 15 years ago, and that's gonna create an awful lot of opportunity for payments company that really knows integrated payment as well.

Excellent. Thank you.

Your next question comes from the line Raina Kumar.

Mine is now okay.

Good morning, <unk> iPhone, five seven, particularly interesting or you confirm saipov pricing or assist competitor pricing.

This as an opportunity to match pricing.

Silver Mainville out competitor pricing and then I'll just ask my follow up Uhm upfront you.

You highlight that competitor fee increase in that corner of that uhm most of us had.

No that did you see a notable up tech and Skycap sales as a result.

<unk>. Thanks for the questions Jared urinary definitely open up to everyone I I'd say like first in terms of our their pricing opportunities I mean, that's the farthest from our mind right. Now you know <unk> Taylor mentioned, even with this new incentive where we're offering you know $5000 to basically through.

Out your old system and pay the merchant you know a dollar for every online order for I think the first 90 days were still inside of an 18 month payback period.

You know this is the time to to take so that's entirely what we're focused on right now I mean, it's <unk>. This is the advantage we have like we've been doing restaurants and payments for a really long time in a profitable way you know we don't have to you know price are way to profitability. So that is that is the farthest thing from our mind at <unk>.

At this point in time, but I would say in terms of like demand. The results from this quarter, we're really prior to any any noise that was in the industry from like a competitive environment. I mean, most of that noise happened in early July after the quarter. It ended when I will say, it's like there is a lot of demand now you know there there.

Definitely like I said, some trust has been broken and we've got a promotion out there that I think is gonna be I think he's gonna be pretty enticing. So you know if we're expecting good results from it it's more what you'll see in the second half of it and what you saw this last quarter.

Great. Thank you.

Your next question comes from the line of <unk>, Sir Thank you Samantha Mmm.

Mmm alcohol.

Hey, Thanks, guys Uhm I chose you wanted to come back on the full year guidance and the increase that's related to funaro you talked about the EBITDA piece of it I think it's pretty clear you raised EBITDA guidance, even extra naro materially but wanted to hone in I guess on the volume side I think going back to when you originally announced.

<unk> you were talking about 15 billion a volume if I'm not mistaken. So you know if we take a quarter of that it's almost four you raise the intern volume guidance by four so just trying to parse out what's truly organic 10 volume raised horses for now thanks.

Yeah, So a few sort of disclaimer comments on that.

Never given any season seasonality profile.

So I don't want anyone to just divide everything by four it's very difficult business.

Then ship for Uhm would that being said the.

The volume guidance raise it does include obviously a volume contribution from the organic business you know all of the ticketing growth that we talked about a handful of enterprise customers that are activating all of them. We expect kind of in the third and fourth quarter. So there is suppose I want to caution, we're kind of deliberate and not giving like Puerto Rican level.

Financials of a business and that's I think is prudent, especially just resign up 15 months ago. So while we included a portion of the Q for you can't simply provides a year by four.

Yeah. I mean also just to reinforce that point I mean, we said we get we included a portion of funaro in the fourth quarter.

I think it's pretty healthy fair to say that a haircut was applied the volume growth trends and ship for over I mean, you look back at how ever. Many quarters. You want are are pretty strong nothing's changing about that going into the second half for Ya.

Yeah. It seems like there's a lot of underlying momentum.

For my follow up I wanted to ask about the M&A pipeline Tyler I know you talked about it it sounds like it's maybe getting even four and just wanted to take your temperature and what you're seeing in terms of valuations. I think you mentioned there was even some potential transformation of opportunities in that pipeline and you know in theory how high.

Yeah, well I'll start by saying I don't get to pick our leverage reddish [laughter] Nancy.

Comment on that but I will say you know this has been an increasing March since you know really the beginning of this year maybe in the end of last year towards I think I'm, a more rationalized seller right uhm. So we all know what the <unk> private company solar expectation.

Right, even if you didn't get done.

<unk> completely irrational levels. What you have now is a operating environment. Despite some uncertainty is a lot more predictable and a capital markets environment that I think is you know much more predictable for you know business operators to think about what the next three to five years, it's gonna look like and we are an incredibly safe pair of hands.

For those operators were also inclined which I think is somewhat unique to use equity to a line partners, which is you know not something many companies at valuations like will you be feel ours is are are willing to do for we will give an equity like we did in the case of in N out in like a while back and the street to a line the right shareholders.

Most important part where people are seeing it combine vision keep in mind, though when we sort of planted the seed for international your opportunity said, it's gonna grow naturally right. There are just tons of business is all over the world doing really interesting things on the international front and now with you know the completion of <unk>.

We got a real proof point and quite frankly, some champions are willing to tell the story about what it means to partner with US on this journey and that helps you know prototyping mine as well.

Yeah, and I would just check on to that.

<unk> will only say, we don't have a target leverage that certainly want to keep it <unk>.

Four times, but I I think you would see at that if we know that we can quickly synergize like like Taylor said, there's a lot of good good opportunities out there what we know we can quickly delever.

Let's do that and that was.

That would be part of that alright.

Alright, Yeah, that's the thing to keep in mind, there because I think a lotta people look at leverage ratios since it what's the cost of debt on you know the.

What's the cost of death has been taken on to maintain that leverage ratio our cost of that is 1.35%.

<unk>, we actually U capital allocation and m&a's or confidence in so we always need to preserve some dry powder, but you know our our cost factors into how we think about you know the cash we use in in M&A transaction as well in New York that is like pretty pretty best in class right now.

Makes sense.

Okay. Next question comes from the line of Ashley Rebecca.

Now go ahead.

Thanks.

Hey, good guys I wanted to ask about.

Yeah. The point you made in your sharing a letter about expense discipline in maintaining flat head count and.

And so on and so the scalability of those of those efforts because I think you said that for a few quarters now.

Given the pace of growth to what extent should we expect scalability to to continue and so maybe you could provide.

More information about the Phoenix initiate it.

Okay.

Sure Ashwin yeah. Thanks for the question I mean, I I tried to be.

You know it was like brutally honest about this in queue for as I could which is you know we grew an awful lot. During the pandemic is you know.

Does you know and you know what a what a terrible environment to hire people and you know it was tons of remote hiring all over the place and you know nobody is despite what they said had like their internal H R and hiring systems and learning and development education system Super Dialed in you know <unk>, you know and that and what that what that resolve.

Often as like a super inefficient pools talent like you know nobody who is gonna be as you know as productive as it is if they were under a single roof and I would say during the pandemic. When you had like all that you for Ya and craziness from a hiring perspective ship for probably wasn't the first choice you know for a lot of a lot of people looking to.

<unk> payment, so just being grounded in that reality at the end of last year. It was like okay.

Get.

In 2020, and 2021 during all that madness, and that's exactly what we're doing now. So you know we spent the first quarter and a half if you will like evaluating you know you know our talent and making investments in internal systems like project Phoenix, which is like.

Overhaul and replacement of many internal systems, we're adding salesforce, we are using a I for like like I said efficiency and productivity means and then we're upgrading the talent and once we have some of the account that can better contribute to our strategic priorities. We're again moving on very nicely from those that that aren't you know Nancy mentioned about 150 people at the end of.

The second quarter, and we're gonna keep doing that you have to share like we're gonna fight like L. You know to end the year with the same head count that we began and be a much better and stronger company and if the growth profile continues the way, we certainly expect it too and we do achieve even.

Being remotely and the ZIP code of that fly a head count then you know the results from a margin expansion perspective should be you know pretty pretty strong.

Okay, operator unlimited time.

Oh, sorry.

<unk>.

Did we lose you aspirin.

Operator there.

Yes, I'm here.

I'm not sure if he had a follow up but I can return to the queue.

Please.

Alright, asking are you still there.

Excellent.

Why don't we just take one final question.

Okay, but that's all.

The next question will come on the line of ancient Geoffrey Chaucer change your line is awesome.

Good morning, I appreciate you squeezing me and.

<unk> Sky Tab P. O S is super exciting given what's happening at the at the point of sale can you just comment on.

Ultimately how scalable you see the solution being I I know you have a very important partnership with with microbes as you highlighted again today, but it just feels like.

You have this incredible opportunity to perhaps go up market with your own integrated point of sale solution I Wonder if that's something that over time becomes a vision for this company.

Yeah, great. Thanks for the question I mean, what Skype.

In terms of the products that we built that we expect demand to exist for all over the world I mean, our restaurant product solution and our sports and entertainment solution are kind of the tip of the spear. So we're expecting a lot from both those products again, you know all over the world in terms of where we're gonna focus I mean, we said this many times.

You never want to be you know in a in a market where you can download an app on an iPad and run your business like that's you know square territory Paypal Culver like we're not going to be anywhere near that we're gonna be in the opposite end of the spectrum, where like nobody wants to be the most complicated and demanding customers and we absolutely have sky cab <unk>.

[noise] location for example, the wives locations, we highlighted I think they have hundreds of systems in certain locations like <unk> <unk>. They do a ton of volume we have on it you know United The center and then a lot of stadium restaurants, or you know the product itself as being battle tested you know in some really really awesome locations.

And I think like the next priority is to take it all over the world, but there are so many there are so many elements that roadmap that focus around enterprise menu management capabilities and if you you know you go on our website and you look at our logos you know there's some that we we don't talk about that have been customers for like 2025 years that have thousands of location this country <unk>.

In terms of opportunity, yeah, we like and we especially like it because we think it's a competitive environment.

Two or three.

That's always a good place to be in.

Alright, I appreciate it I'll leave it there.

Yeah.

Sorry [laughter].

I will now turn a call back over to Jerry Icicle.

No I said look I really appreciate everyone everybody joining the call today, we had some good questions and I'm sure we'll be chatting with many of you throughout the the next couple of days and I hope, you're all having a great summer take care.

Asian Gentleman that concludes today's call. Thank you also Johnny.

Disconnect.

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