Q3 2024 Shift4 Payments Inc Earnings Call
Greetings, and welcome to the Shift 4.
Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom McCrohan, Executive Vice President, Investor Relations for Shift 4. Thank you. You may begin.
Tom McCrohan: Thank you, Operator, and good morning, everyone, and welcome to SHIFT 4's 3rd Quarter 2024 Earnings Conference Call. With me on the call today are Jared Isaacman, SHIFT 4's Chief Executive Officer, Taylor Lauber, President, and Nancy Disman, Chief Financial Officer.
Tom McCrohan: This call is being webcast on the investor relations section of our website.
which can be found at investors.shift4.com
Tom McCrohan: Today's call is also being simulcast on X-Spaces, formerly known as Twitter.
Tom McCrohan: which can be accessed through our corporate Twitter account at SHIFT4. A quarterly share of the letter, quarterly financial results, and other materials related to our quarterly results have all been posted to our IR website.
Tom McCrohan: Our call and earnings materials today include 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.
Tom McCrohan: 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 and the Investor Relations section of our corporate website.
Speaker Change: for any non-GAAP financial information discussed on this call. The related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me call, turn the call over to Jared. Jared?
Jared Isaacman: Hey, thanks, Tom. So we have a lot to cover today, so I'm going to break up this call into the following sections. So we're going to start with Q3 results.
Jared Isaacman: And then we're going to go into the deep dive by vertical and major initiative. We'll talk about expectations for Q4. And then, you know, end off on reflections on our performance since the IPO.
Jared Isaacman: So we were really pleased with what was a reasonably strong quarterly performance and our overall execution within the variables that we can control.
Jared Isaacman: So, we've delivered quarterly records across all our major KPIs, so volume, gross revenue list network fees, adjusted EBITDA, and adjusted free cash flow.
Jared Isaacman: Our adjusted EBITDA margins were also a quarterly record of 51.3% or nearly 54% when excluding a 250 basis point drag from recent acquisitions.
Jared Isaacman: Specifically, we delivered $187.4 million of EBITDA, generating $111 million of adjusted free cash flow, which is up 46% versus a year ago, and represents a 59% free cash flow conversion.
Jared Isaacman: So, let's talk about what really went well in the quarter. So, it was absolutely one of our strongest quarters for new logo wins, especially within hospitality. So, I can actually recall.
Jared Isaacman: a better quarter for mega-hospitality wins. It starts right off with KSL properties.
Jared Isaacman: Similarly, we believe we're number one in end-to-end sports and entertainment payments provider in the world. So the stadium, theme park, and ticketing wins continue to roll on.
Jared Isaacman: We believe we're number two in the world when it comes to our cloud-based restaurant POS products, SkyTab. As SkyTab installs and the associated SaaS revenue streams continue a very strong growth trajectory.
Jared Isaacman: I'd say we are unranked when it comes to our global e-commerce capabilities, but that's quickly going to change as we follow our strategic merchant relationship literally all over the world, and we expect to win other blue chip customers just like them.
Jared Isaacman: Over the last quarter, our contracted volume saw $5 billion flow into actuals, and alongside an incredible list of new logos, brings our contracted volume backlog to $33 billion.
Jared Isaacman: We set a big goal to hit 10,000 international restaurants and hotels in 2024. I think it's pretty clear we're going to come up short in that regard, but we do have over 1,000 international card-present merchants with our first Vectron installations complete. So I think we're four down, 64,996 to go.
Jared Isaacman: We also enhanced our capital structure. We added more firepower and topped off our gateway conversion funnel, if you will, with the acquisition of Givex. That's going to add about 130,000 premium customers.
Jared Isaacman: and what we believe to be at least $300 billion in volume that we can convert alongside the fact that its gift and loyalty capabilities are very good and we're going to bundle that into the rest of our offerings.
Jared Isaacman: I'd say synergy realization and a culture of deleting parts and staying flat has resulted in expense discipline and continued profitable growth.
Jared Isaacman: As a result, we have once again raised the midpoint of our gross revenue less network fee and EBITDA guidance for the fourth quarter.
So that brings you to what could have gone better.
Speaker Change: Well, we grew incredibly quickly, but as you've heard from others, clearly there's been some consumer spending softening, especially in some of the verticals that we serve.
Speaker Change: As mentioned, we also would have liked to have been much farther along with our Canadian and European card presence strategy.
Speaker Change: So we have about 1,000 unique merchants processing card present payments in these new geographies.
Speaker Change: which is pretty good for a year's work, but we certainly were hoping to have had several thousand more processing by now.
Speaker Change: But the momentum is building very quickly, and there should be really no mysteries where the next 65,000 European restaurants will come from as we look to the years ahead.
Speaker Change: Now, similar to prior quarters, I'd like to do a bit of a deep dive into each vertical. Our customers are really the envy of the industry, and we appreciate the trust they've placed in SHIFT IV.
Speaker Change: So, for those questioning our growth rates, please keep in mind every one of these wins I'm about to rattle off includes payments, and the associated revenue stream is entirely organic. And this is just a summary of the wins that we have delivered this past quarter.
Speaker Change: So, as I mentioned before, I think we are clearly number one in hospitality payments in the world, and the announcements this quarter kind of reinforce that statement. So, you know, just starting off with KSL Resorts, operator of many incredible properties, including, you know, Blue Mountain or Camelback for us.
Speaker Change: East Coast skiers who learned how to ski on ice, and a variety of other mountaintop and beachside resorts, including nine other premier resorts, and we're going to continue to expand on this into the future.
Speaker Change: We are also very proud to sign a new and undisclosed mega resort in Las Vegas that also includes their other domestic and international locations.
Speaker Change: And I want to emphasize, we don't just process the payments for the restaurants in the hotel. I think at times people confuse us with others in this regard. When we announce all these resorts and refer to being number one in hospitality in the world, it means we are processing the reservations and the guest stays, the retail shops, the bar, the spa.
and the restaurants.
Speaker Change: So, moving on, I believe we are number two in the world in restaurant POS and payments with SkyTab leading the way as our signature cloud-based offering.
Speaker Change: We do spend considerably less on traditional sales and marketing than our closest competitor, but we believe our investments in deals like Revel and Vectron, even Givex, deliver lots of distribution, talent, and most importantly, a massive customer list to cross-sell payments to.
Speaker Change: And by virtue of these deals, we have more than a foot in the door to discuss a broader software plus payments relationship, and we can generate a lot of revenue without ever having to win a new customer.
Speaker Change: Now, the proof points include growing subscription and other revenue streams alongside our profitable results that demonstrate we know how to sunset legacy products quickly and rally the organization around a single product offering, which is SkyTab.
Speaker Change: Now, some notable restaurant wins this past quarter include Lombardi Family Concepts, which operates 22 restaurants primarily in Texas, Bigby Coffee, a fast-growing coffee chain that currently operates over 400 locations in 13 states, and Shakey's Pizza, which operates dozens of locations in California and Washington.
Speaker Change: Now we encourage investors to search SHIP4 on Twitter or X and you can see the wins are posted daily
Speaker Change: Now, since coming out of beta two years ago, we have installed over 55,000 SkyTab systems, and we are on pace to far exceed the 35,000 install goal that we set in 2024.
Speaker Change: It's also worth pointing out that we are never satisfied being second best. We have a great road map to further enhance the product. We have the experience and we believe we'll take SkyTap literally all over the world.
Speaker Change: So this quarter includes the Memphis Grizzlies, the San Antonio Spurs, the Brooklyn Nets, Dallas Stars, University of Arkansas, the Washington Capitals, the Washington Wizards.
Speaker Change: and more of your favorite teams. If you took your family to Six Flags or Disney or any other theme park this summer, you're almost assuredly interacting with our commerce technology.
Speaker Change: And we are still in the early days of gaining wallet share within this important vertical, but this past quarter marks the highest processing volume in stadiums yet, with no signs of it slowing down.
Speaker Change: Now, turning to non-profits, our donation platform, The Giving Block, continues to attract a lot of new non-profit customers.
Speaker Change: So this quarter we signed Habitat for Humanity of Silicon Valley, the American Israeli Education Foundation, the Montana Community Foundation, Follicular Lymphoma, Mount Sinai Medical Center. These are just to name a few.
Speaker Change: I can tell you year-to-date volume is already more than double last year's volume And we're not even in Prime Giving season yet
Speaker Change: So, moreover, our integration with GiveLively is now live and we've begun migrating merchants over to Shift4 from Stripe. So, as a reminder, GiveLively offers nonprofits a free-of-charge fundraising technology platform and it's currently used by over 9,000 nonprofits.
Speaker Change: We are also beginning to see the fruits of our prior investments in innovation. As a reminder, we acquired the Giving Block about two and a half years ago to pursue what is a $500 billion donation opportunity that's made annually through non-profits.
Speaker Change: Now at the time we also established the Crypto Innovation Center to explore ways crypto could benefit really all of our customers not just nonprofits.
Speaker Change: Now, this really goes back to our IPO commitment of always trying to be where the puck is going. And with a new administration that's very pro-crypto, we think our timing is rather opportune. So, to that end, we announced in October that we intend to make available crypto and stablecoins as a form of payment for many of our merchants.
Speaker Change: We see really three initial use cases, so luxury goods, where people who have significant crypto wealth seek to spend their crypto on luxury items. So this could be a hotel suite, a private jet charter, or even big events at high-end restaurants.
Speaker Change: These charges now would have historically been paid outside of the shift 4 platform via wire or other electronic transfers So the goal is we want to bring these transaction on the shift 4 rails
Speaker Change: A second use case, as we follow our strategic customer into developing and emerging countries all over the world, credit and debit card availability is low, but crypto and other APMs are growing in popularity.
Speaker Change: And last, there are merchant categories looking to combat fraud, typically encountered with traditional payment methods, and we think that is a great use case for crypto as well. So overall, we are seeing significant interest from existing clients to learn more about these capabilities.
Speaker Change: We already have customers such as Tal Group and luxury charter flight company Blade are among our early committed customers for this Pay with Crypto initiative.
Speaker Change: Now turning to gaming, we continue to roll out our SkyTab mobile devices at more BetMGM Sportsbook locations and we are now live at the BetMGM Sportsbook at State Farm Stadium, which is home of the Arizona Cardinals and the annual Fiesta Bowl. We're also live at the BetMGM Lounge at MGM Grand Detroit.
Speaker Change: So in online gaming, we went live with online gaming site Play Live, which is affiliated with the Live Casino located in the South Philadelphia Sports Complex, and we also expanded our relationship with Lotto.com for the state of Maine's lottery.
Speaker Change: Moving on to international, our strategy for some time now has been to follow our strategic customer all over the world and then bring the products, software integrations, and other services that have helped us be successful in the USA into those markets.
Speaker Change: That process is going very well. So this past quarter, we launched in four new African countries, Zimbabwe, South Sudan, Botswana, and Burundi.
Speaker Change: We expect to launch in between four to six additional countries in Q4, with LATAM and Australia and New Zealand on the horizon for early 2025.
Speaker Change: Now, we believe we have added sufficient global e-commerce capabilities, both local to local, cross-border, and soon MOR, that our solution is now a viable option for other global enterprise e-commerce customers, just like our strategic customer.
Speaker Change: So meanwhile, we are running the playbook and bringing our card-present capabilities and products into these markets. So, for example, I fully expect to see hotels, stadiums, and SkyTabs installed in Australia and New Zealand in 2025, alongside the rest of our card-present international rollout.
Speaker Change: Now, in Europe, we announced this last quarter the acquisition of Vectron and have already made meaningful progress transforming the revenue model and laying the foundation for our go-to-market offering to support restaurants throughout Europe.
Speaker Change: So we have a head start now through Vectron's existing install base of 65,000 merchants, and it's supported by a 300-strong POS reseller network. So the team is energized and motivated, and as I mentioned earlier, we already began installing our first several restaurants in Germany.
Speaker Change: We made progress expanding our relationship with other international merchants and have expanded into new use cases. So, for example, we increased the scope of our relationship with NIAX, providing card-present capabilities to their recently expanded base of global retail customers.
Speaker Change: And separately, we have developed a transit solution that is gaining traction within the European...
Speaker Change: public mass transit system. So our offering supports the Visa mass transit and MasterCard pay-as-you-go protocol and is currently live in Portugal, Spain, Germany, Romania, and Italy and our pipeline of other countries is growing.
Speaker Change: We've also signed additional international hospitality wins, including the Magnuson Hotels, which is a collection of over 2,000 independent hotels, and the Fort Garry Hotel, Spa, and Conference Center, which is one of Winnipeg's architectural landmarks.
Speaker Change: Some of our other international wins this quarter include Exovus, which is a software solution for auto workshops and their customers
Speaker Change: Class Wagon, which is a car rental service for Romania and Hungary.
Speaker Change: MOVE, which is an online travel agency, and two important non-profits, The Poppy Appeal, which provides key support services to veterans of UK armed services, and RNLI, which provides life-saving lifeboats for the UK and Ireland.
Speaker Change: So at times, our unique formula and growth rates make it hard to always nail the exact timing, but we're pretty pleased with how the stage is set for the balance of the year. As mentioned, with less than two months to go, we have once again raised the midpoint of gross revenue, less network fees, and EBITDA expectations to account for the, really the limited contributions from GiveX, but mostly our performance as we grow profitably in line with our plan.
Speaker Change: We continue to expect full-year organic gross revenue, less network feed growth to be in excess of 25%.
Speaker Change: Now, we will save 2025 expectations for our Investor Day early next year, and we have no desire to further raise expectations at this time, but if you simply take the midpoint of our updated Q4 guidance and annualize it, you will see we are already there on 2025 EBITDA consensus estimates without any growth or seasonal adjustments.
Speaker Change: Now, with Q3 and the balance of the year complete, I think it's worthwhile to take a step back and just view the progress we've made over the last four and a half years since we went public.
First
Speaker Change: We have accomplished everything we said we would since our IPO and since setting our midterm guidance. So, we established very ambitious medium-term volume and net revenue targets at our inaugural analyst day back in the fall of 2021, and we are currently tracking to meet or exceed those targets.
Speaker Change: including a 50% CAGR and end-to-end volume and 30% CAGR and gross revenue less network fees through the end of 2024.
Speaker Change: Now, since our IPO, we also diversified into a half a dozen new verticals, including expansion internationally and today dominate in some of these verticals, notably hotels and sports entertainment.
Speaker Change: We have followed our large strategic e-commerce customer into multiple geographies around the world and have executed well on our plans to use this opportunity as our yellow brick road towards geographic expansion.
Speaker Change: Second, we showcased our experience and accomplished this profitably, while most who established midterm goals in 2021 used economic and geopolitical challenges to explain away their shortfalls.
Speaker Change: We execute on our strategic objectives, which led to financial performance exceeding consensus expectations.
Speaker Change: So if you go back to November of 2021, our Inaugural Analyst's Day presentation, consensus expectations for our full year 2024 volume gross revenue less network fees and adjusted EVA were $144 billion, $1.1 billion, and $433 million respectively.
Speaker Change: It should be reasonably apparent we surpassed these expectations. Today's consensus expectations for our volumes are $25 billion higher than those numbers, or 17% higher, at nearly $170 billion. For gross revenue less network fees, consensus is now $250 million higher, or 23% higher at $1.35 billion. And for adjusted EBITDA, consensus is $240 million higher, or 55% higher at $673 million.
Speaker Change: Moreover, Juan Pace did deliver $390 million of adjusted free cash flow in 2024, nearly double what consensus reflected three years ago. I challenge you to find any other scaled fintech who similarly exceeded expectations over the past three years.
Speaker Change: Now, third, and despite what skeptics may think, we accomplished the majority of this growth through organic initiatives. So this includes simply adding tens of thousands of new payment, net new payment customers, unlocking material revenue synergies from cross-selling payments to an installed base of customers, and capturing more share of wallet with our existing customers by adding new software integrations, such as what we've done with ticketing and new geographies.
Speaker Change: As a result of our unique approach to acquiring customers, the cross-sell funnel you underwrote at the time of the IPO is actually meaningfully larger today. From an initial cross-sell funnel comprised primarily of gateway and software-only restaurant customers, we have materially topped off this funnel through acquisition.
Speaker Change: This past year alone, we've added over 200,000 additional customers and a funnel of nearly $350 billion in payment volume to cross-sell payments on, and we've just started at that.
Speaker Change: Now, on that note, we recently announced the acquisition of GIVEx.
which recently closed and represents another classic shift for acquisition.
Speaker Change: We acquired over 130,000 additional customers in what we believe to be a $300 billion payment cross-sell opportunity from GiveX alone. Now similar to our gateway strategy, we will use our proven playbook and cross-sell payments to these customers. Essentially, the same strategy that has worked so well with our gateway-only customers.
Speaker Change: Now, as a bonus, we also gain more distribution, a best-in-class gift and loyalty solution that we will bundle into the rest of our payment offerings, and talent to accelerate our product development and entry into new markets.
Speaker Change: Now, fourth, our balance sheet and free cash flow afford us the necessary flexibility to keep doing exactly what we've been doing.
Speaker Change: So we have continued to delete parts and expand margins, improve efficiency and free cash flow conversion.
Speaker Change: And with an attractive deleveraging profile that allowed us to opportunistically enhance our capital structure, we are constantly tracking a long list of targets that will keep us busy for quite some time, not to mention a healthy buyback authorization to ensure we always weigh any investment, again, simply the benefit of buying back our own stock.
Speaker Change: So we have the flexibility and track record to deploy capital intelligently, to take advantage of the opportunity that the convergence of software plus payments affords, and you should expect us to keep doing it.
Lastly,
Speaker Change: We have considerable work to do internally to improve our overall operational efficiency. So, as I mentioned in my shareholder letter, we are delivering all these results as what I would consider a good company, not an excellent one.
Speaker Change: So I've stated many times that our earnings reports inevitably force us to focus on celebrating the wins.
Speaker Change: But I can promise you, every other day of the quarter, we relentlessly focus on what we are not good at. So we have a lot of legacy parts to delete as we sunset gateway connections, upgrade legacy POS solutions, implement new internal systems like Project Phoenix.
Speaker Change: We're going to centralize all our operations around mission control, and then we're going to incorporate AI to improve the speed and quality of our services.
Speaker Change: These initiatives are in their early days, and as they play out, you should expect us to continue to expand margin and free cash flow generation and overall just consistent profitable growth.
Speaker Change: So, on that note, I've always run SHIP4 to be a profitable business and never really understood the mindset of growth at all costs. So, we welcome the industry shifting towards profitable growth. Not only does this drive more rational behavior, but it reinforces our conviction that our strategy was the correct one.
Speaker Change: So, profitability is where we derive our strength and informs all our decisions from keeping expenses flat but upgrading talent to underwriting an acquisition.
Speaker Change: So we will never let up on identifying ways to improve how we service our customers and manage operational complexity every single day.
which really brings us to complexity.
Speaker Change: So I think many of you appreciate that we have a lot going on in Shift 4, so over the last few years we have really transformed the business from a small domestic player focused really just on restaurants.
Speaker Change: to a commerce enabling platform uniquely equipped to serve not just restaurants but hotels, stadiums, global e-commerce, non-profits, theme parks, and now really all over the world.
Speaker Change: So, we have great products and services, we have growing distribution, we have the firepower, the formula, the strategic partnerships, and really the will to endure and succeed for years into the future.
Speaker Change: So, as a public company, our investors are entitled to a pretty extensive understanding on really how all this comes together.
Speaker Change: There's honestly only so much of an education that we can, that can reasonably capture between our earnings presentation, my letter, and really this call. So as such, we will be hosting a far more extensive investor event alongside our next earnings report. And with that, I will turn the call over to Taylor. Taylor?
Speaker Change: Thank you for watching. Please like and subscribe to the channel. See you next time.
Taylor Lauber: Thanks Jared. I will begin by discussing the current operating environment, provide some insights into our current backlog,
Speaker Change: and growing cross-sell opportunity, and also update you all on the progress with our key strategic objectives, and then share interesting efficiency indicators that we use internally to track our productivity.
Speaker Change: During the quarter, we experienced a customary seasonal spending lift in the months of July and August as consumers take vacations and travel more.
Speaker Change: Although, as we noted on the Q2 call, spending in restaurants had moderated, and most customers in that vertical were experiencing a roughly 3% decline in same-store sales year over year.
Speaker Change: While restaurants did not materially worsen, we also saw some modest softness and other verticals in September as leisure travel subsided in conjunction with back to school.
Speaker Change: These year-over-year declines in same-store sales have generally been low single-digit percentages and off of historic highs, but are notable in the context of consumer sentiment versus previous quarters.
Speaker Change: Looking at October, we've seen hotels improve to roughly flat year-over-year same-store sales, while restaurants remain modestly below last year's levels on a same-store sales basis.
Speaker Change: Sports and entertainment has been a particular bright spot with numerous overlapping seasons and the World Series leading to record weeks.
Speaker Change: Our current backlog is now approximately $33 billion, up from $25 billion in Q2 due to the many new wins signed during the quarter that have yet to be installed or are still ramping.
Speaker Change: Despite converting roughly five billion of our backlog, the pace of enterprise wins has been strong, resulting in a higher number than last quarter. We view our growing backlog as a testimony to the productivity of our sales teams and a positive leading indicator for sustained volume growth into future quarters.
Speaker Change: Of note, the vast majority of merchants have an installation time frame scheduled in the near term, typically within three to six months, which gives us confidence we can sustain our volume growth even during periods of consumer spending weakness.
Speaker Change: And it is important to remember that we sign thousands of restaurants, hotels, e-commerce customers, non-profits, and others every quarter that go live nearly immediately.
Speaker Change: Our key software integrations, expanding geographic footprint, and success closing the gap with our competitors in global e-commerce, is all contributing to our success, adding more enterprise merchants that builds on our backlog.
Speaker Change: The progress we are making expanding all over the world in support of our global e-com customer is Probably one of the most overlooked potential opportunities inside of ship for the more geographies We can support the more viable an option we've become to other global e-commerce businesses
Speaker Change: Not included in our backlog is the massive payments cross-sell opportunity that remains one of the primary focuses of our M&A efforts.
Speaker Change: Year-to-date alone, we added almost $350 billion of annualized cross-sell opportunity from Rebel, Vectron, and now Givex.
Speaker Change: We will pursue the same proven strategy we successfully deployed with our gateway-only conversion strategy to unlock the revenue synergies from all of these recent deals.
Speaker Change: That is to say, these merchants are currently using a web of vendors that SHIFT 4 can replace with an end-to-end solution.
Speaker Change: In consolidating their processes with us, the merchants reduce vendors, save money, and get access to a wider set of capabilities.
Speaker Change: To put this into perspective, the deals closed in 2024 alone have added more cross-sell opportunity than our previous transactions combined, including the two massive gateways.
Speaker Change: It would also be fair to say that our execution playbook has become meaningfully more refined over time, and so we're confident in the road ahead.
Speaker Change: GiveX is a perfect example of our M&A strategy, so I want to elaborate on that one for a minute.
Speaker Change: Givex historically operated a best-in-class gift card and loyalty offering, which they empowered over 130,000 merchants with.
Speaker Change: They operated as a standalone product for all these customers despite having very sticky solutions and an excellent industry reputation
Speaker Change: Their top 50 customer churn is under 1% and the overall churn is under 3%. Their customers, which include some of the most notable merchants in the world, were often required to hobble together a commerce experience across a dozen or so different vendors.
Speaker Change: This was not a deliberate choice, but rather a necessity because of the complex nature of their business.
Speaker Change: We intend to offer an end-to-end solution to these merchants, much like we've been able to offer our most complex hotels and stadiums.
Speaker Change: To give you a sense for the magnitude here, a 5 percentage point penetration of the GiveX customer base alone could represent a 5% increase in gross revenue less network fees to ship forward.
Speaker Change: And this is only one angle. The reality is the GiveX product will meaningfully enhance our capabilities across all our existing product lines, and we believe there will be substantial value in that as well.
Speaker Change: Their talent is also additive as we are constantly struggling to add talent and keep pace with our growth.
Speaker Change: While we are incredibly excited by the positioning of these transactions, it is worth noting that the deal environment also remains highly attractive. We are increasingly sought out as a buyer for interesting strategic assets, given our ability to approach transactions with creativity, proven revenue synergies, and not least,
a team that people want to be a part of.
Speaker Change: Additionally, some of our traditional buyers for businesses in our industry are sidelined for a variety of different reasons.
Speaker Change: The combination of these circumstances gives us a distinct advantage and we leverage that to be highly selective in our capital allocation.
Thank you for your attention.
Speaker Change: Earlier this year, we would often get challenged on our M&A strategy.
Speaker Change: Good Companies Don't Need M&A was a common phrase, along with anecdotes of competitors who did M&A poorly. While we disagree with the characterization, we do understand the concerns.
Speaker Change: One of our critical considerations when executing on our M&A strategy is a rigid adherence to measuring the efficiency of our company constantly and challenging our teams to repurpose talent on the genuine needle movers.
Speaker Change: and delete unnecessary parts. At the highest level we look at gross revenue less network fees and adjusted EBITDA per employee and then apply much more granular metrics to specific roles which help us constantly course correct as we learn.
Speaker Change: Since our IPO, and despite having five times the number of employees, adjusted EBITDA per employee has grown at roughly a 26% annual CAGR.
Speaker Change: While it's not the only measure of success, it should hopefully give investors confidence that overall productivity is as important of a deal objective as any other when we consider M&A. I'll now turn the call over to Nancy to discuss our financial results.
Nancy Disman: Thanks Taylor and good morning everyone. We delivered another quarter of consistent and solid results, setting quarterly records across all of our major KPIs, highlighted by strong adjusted EBITDA, margin and free cash flow conversion.
Nancy Disman: Total Q3 volume of $43 billion grew 56% year-over-year. Gross Revenue Less Network fees grew 50% to $365 million, and we remain on track to deliver organic revenue growth north of 25% for the full year.
Nancy Disman: Adjusted EBITDA grew 51% year-over-year to $187 million. Adjusted EBITDA margins were 51.3% or nearly 54%, excluding a 250 basis point drag from recent acquisitions, which we expect to synergize over the next 12 to 18 months.
Nancy Disman: Our quarterly results were driven by the continued strength of our hospitality and restaurant verticals, momentum across our enterprise merchants, further monetization and conversion of gateway and software only customers, and an increasingly larger contribution from stadiums and ticketing.
Nancy Disman: This quarter is yet another proof point that our vertical diversification since IPO allows us to deliver strong results even when facing macro headwinds in one or two verticals. We see the impact in both our payments-based revenue growth and the increased contribution from SaaS-based feeds.
Nancy Disman: Blended spread for the third quarter was 60 basis points. Despite a softening consumer, spreads across our core businesses remain stable and we still expect full-year spreads to average 61 basis points for the full year.
Nancy Disman: Subscription and other revenue was $102 million in Q3, up 111% compared to the same period last year. The growth was driven by our success across SMB, SCICAB, and further penetration of the sports and entertainment vertical, as well as a full quarter of Vectron and Rebel legacy revenue streams.
Nancy Disman: As I mentioned in previous earnings calls, growth in this category will not always be linear as we often blow up the legacy revenue model from acquisitions and pivot them towards a significant shift for payments field value proposition.
Nancy Disman: This will cause legacy revenue contribution from acquisitions to decline as we realize meaningful payments-related revenue synergies. Additionally, the timing of one-time revenue may cause some bumpiness quarter to quarter.
Nancy Disman: We remain focused on delivering profitable growth and driving significant operating leverage.
Nancy Disman: Our disciplined approach to expense management has allowed us to exceed expectations on EBITDA even when we run into a bit lighter volume.
Nancy Disman: This is the shift we're away. And even with achieving record-breaking adjusted EBITDA margins of 51.3% this quarter, we have high conviction in the many opportunities to further improve our underlying margins that are still on the horizon.
Nancy Disman: We still have parts to delete as we continue to integrate our recent acquisitions and we are in the early days on many internal system and AI investments that will drive further operational efficiencies and scalability across our platform.
Nancy Disman: Our adjusted free cash flow in the quarter was $111 million, up 46% compared to a year ago, representing adjusted free cash flow conversion of 59% in line with our full year expectations.
This will be...
Nancy Disman: There will be fluctuations in our adjusted free cash flow conversion rates on a quarterly basis.
Nancy Disman: due to the seasonality of our business, the deployment of capital to support growth.
Nancy Disman: and the normal working capital cycle changes, period to period. Overall, the improvement in our unit economics and efficient operating model continue to produce strong free cash flows.
Nancy Disman: We are able to continue to strategically invest in our product development, global expansion, talent, and operations.
Nancy Disman: We pride ourselves in being one of the few growth companies that are extremely expense-disciplined and maniacally focused on efficiency gains, which allows us to generate exceptional cash flow without sacrificing growth.
Nancy Disman: During the third quarter, we repurchased approximately 289,000 shares for approximately $20 million, leaving approximately $460 million of capacity available as of September 30th under our current program.
Nancy Disman: You can find a complete reconciliation of our shares in the back of our earnings materials.
Nancy Disman: Since our IPO, we have completed approximately $350 million on repurchases.
Nancy Disman: totaling 6.5 million shares at an average price of $54. As employees, we are SHIFT 4's largest shareholder, and we are very thoughtful about managing dilution.
Nancy Disman: Gap net income for the third quarter was $72 million, and gap diluted EPS was $0.74.
Nancy Disman: Non-GAAP adjusted net income for the quarter was $96 million or $1.04 per share on a fully diluted basis. As a reminder, we have not historically added back acquired intangible amortization to non-GAAP net income in EPS.
Nancy Disman: The full quarter impact of Revel in Vectron Purchase Accounting was a sequential headwind that was the primary driver of the increase in acquired intangible amortization of approximately 5 million or 5 cents per share from Q2 to Q3.
Nancy Disman: Looking ahead to 2025, we will conform with our industry peers and include the advect of acquired intangible amortization in our adjusted EPS calculations.
Nancy Disman: During the quarter, we took steps to further strengthen our balance sheet and enhance our capital structure. We issued $1.1 billion in bonds, expanded our revolving credit facility to $450 million, and implemented a new $100 million settlement line with citizens, which eliminated the requirement for cash collateral that we previously classified as restricted cash on the balance sheet.
Nancy Disman: Our total indebtedness now has a weighted average cost of 3.8% and our net leverage at quarter ends was approximately 2.4 times.
Nancy Disman: As a heads up, we do expect the $690 million of convertible debt due in December 2025.
Nancy Disman: to be classified as current debt on our December 31st, 2024 balance sheet.
Nancy Disman: However, after the finance activity this quarter and the strong cash flow profile of our operations, we are well positioned to pay it down at maturity.
Nancy Disman: I want to take a moment to highlight two notable but non-cash accounting items from this quarter.
Nancy Disman: Based on our growth and profitability since our IPO, we have now concluded that it's more likely than not that we will realize the tax benefits contemplated in the valuation allowance on our balance sheet. As such, we are required to record a release of this valuation allowance.
Nancy Disman: This appears as an income tax benefit on our Q3 income statement and as I mentioned, this is a non-cash item but necessary given the profitable status of the company.
Nancy Disman: Related, another item we are required to update based on our tax status is the potential liability associated with the tax receivable agreement. As such, we recorded a liability on our balance sheet totaling approximately $370 million.
Nancy Disman: Please note, though, that this is a theoretical liability based on our current tax status and current tax laws, but this amount will take many years to be realized. We only expect $4 million to be paid over the next 12 months.
Nancy Disman: Note that these are both positive signs of the strong fundamental growth of SHIFT-4, but given the large balances associated with them, I wanted to call them out specifically.
Nancy Disman: Our Strong Balance Sheet, Growing EBITDA, Growing Free Cash Flows, and Recent Capital Structure Actions
Nancy Disman: will afford us even greater flexibility as we continue to grow around the world, opportunistically buy back stock, and satisfy year-end 2025 maturities without being punitive to our equity.
Speaker Change: Before turning to guidance, as we are quickly approaching the end of our initial medium-term outlook, it is worth reiterating Jared's comments.
Speaker Change: We are on track to meet or exceed the ambitious volume and net revenue targets we set back in 2021, including 50% CAGR in end-to-end volume and 30% CAGR in gross revenue less network fees.
Now to guidance.
Speaker Change: We are updating our full year guidance to include Q3 outperformance and the contribution from GiveX, which just closed on November 8th.
Speaker Change: In the years ahead, we expect to capture meaningful payments-related revenue synergies from GiveX as we cross-sell payment processing to their installed base of merchants.
Speaker Change: With just under two months left in the year, we are tightening our guidance ranges across all of our KPIs and
Speaker Change: to reflect Q3 results and expectations for the balance of the year. For the full year, end-to-end volume, we now expect a range of $164 billion to $166 billion, representing 50% to 52% year-over-year growth.
Speaker Change: For gross revenue less network fees, we now expect the range to be $1.35 billion to $1.36 billion, representing 44% to 45% year-over-year growth.
Speaker Change: And for Adjusted EBITDA, we now expect the range to be $677 million to $688 million, representing 47% to 50% year-over-year growth.
Speaker Change: Year-over-year adjusted EBITDA margins at the midpoint of our updated guidance has increased to 50%, about a 100 basis point expansion from our prior guidance.
Speaker Change: We are also resetting our adjusted free cash flow conversion expectation to 58% from 59%, which will yield over $390 million of adjusted free cash flow for the full year 2024.
Speaker Change: Full year guidance reflects increasing the fourth quarter guide midpoints for growth revenue-less network fees and adjusted EBITDA.
Speaker Change: A couple of call outs as it pertains to our fourth quarter guidance.
Speaker Change: A long list of low-hanging fruit to cross out payments in SkyTab, including from our recent acquisition of Revel. Contracted annual volume backlog of approximately $33 billion that is already contracted but not yet implemented or at its expected run rate.
Speaker Change: SkyTab system installs continue to accelerate each quarter. We now have 55,000 installs since coming out of beta and are on pace to exceed 35,000 installs in 2024, well above our original 2024 goal of 30,000.
Speaker Change: Many of the wins featured each quarter, especially stadiums, ticketing opportunities, major enterprise ski resorts, are seasonally strongest in the fourth quarter.
Speaker Change: Despite falling short of our 10,000 international hotel and restaurant goal for 2024, we are still quickly ramping with proof points across Canada, UK, Ireland, and now with Vectron conversions in Central Europe.
Speaker Change: and our strategic e-commerce customer continues to add volume very quickly and we have been expanding organically into several new international markets with at least four new countries set to go live in the final months of the year.
Speaker Change: Importantly, we continue to expect organic growth of gross revenue less network fees to exceed 25%. And if you annualize our recently raised midpoint of Q4 EBITDA, you can see we are already in a good place relative to 2025 consensus estimates.
Speaker Change: Before turning the call back to Jared, I want to reiterate that our balance sheet, cash generation, and profitable growth position us incredibly well for the current environment of macro uncertainty.
Speaker Change: With that, let me now turn the call back to Jared.
and David Lauber. Thank you. Thank you.
Speaker Change: Okay, thanks Nancy and I appreciate everyone bearing with us. I know it was a little bit longer than usual.
Speaker Change: So we're going to have an investor day coming up. There's always a lot going on at CHIFT 4 and plenty to talk about. So before turning it over to the analysts for Q&A, I did want to take a question that was submitted.
Speaker Change: from Twitter, or X, sorry, so this is from John G. in Boston, Massachusetts. Two questions from the retail side. As someone who has followed SHIP4 and its creative acquisition strategy over the past few years, I was curious about the following. One, why do you believe that another firm hasn't replicated this strategy? And two, how long do you believe you can continue to pursue this strategy?
Speaker Change: So, John, thanks. A lot of companies are reasonably active at M&A, I mean, across all sectors. I think, you know, within payments specifically, Adyen is probably the only example of a scaled payments company that has not done an acquisition.
Speaker Change: I mean, even Stripe has laid square, they've all done deals. So I would say, you know, when an industry is in transition...
Speaker Change: And there's opportunity. Deploying capital intelligently to take advantage of it is a pretty obvious strategy. In fact, last quarter I gave examples of like Palo Alto Networks, Apple, Amazon, all of which have taken advantage of different transitions within their respective industries.
Speaker Change: So, you know, look, the issues are, are you doing a deal to take advantage of an opportunity or are you doing deals to fix problems? And I think many examples of late from people are trying to fix problems versus...
Speaker Change: actually having a pretty solid strategy and then using capital intelligently to pull it forward. So I think where people make mistakes, they don't have good conviction around their synergies, they become afraid to burn the ships and focus on the future, and that's scary for some.
Speaker Change: But failing to see it through is when all those worst fears are realized. You know, lots of tech debt, then your synergies start coming up short, you don't actually start delivering on your margin goals or free cash flow. I think that's where people make mistakes.
Speaker Change: We're good at it because we've been doing it for 10 years, since we started our own organic integrated payment strategy back to Harbor Touch. We saw the success from it and then moved to pull forward the opportunity by believing it was really our best use of capital, and we did this using our capital.
Speaker Change: Not others. And then we've since learned how to do it even better. Now the question of can this keep going on, look, it's very early days of software plus payment. So if you think we're going to run out of good ideas taking advantage of this convergence, then you have to believe that Add-In and Stripe will as well, since they are essentially chasing the same opportunity of software plus payments coming together. So we think that there is no shortage of opportunities ahead. This has been a particularly busy year in 2024, but it was also because there was a lot of opportunity. I mean, we didn't do much in 2021 when valuation expectations were in a different zip code. So we like our pipeline. I wouldn't worry about us coming up short on things that can move the needle. With that, we'll open up the call to the rest of the analysts.
Speaker Change: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: To allow for as many questions as possible, we ask that you each keep to one question. Thank you.
Speaker Change: Our first question comes from the line of Timothy Chiodo with UBS. Please proceed with your question.
Timothy Chiodo: Great, thank you for taking the question. I want to talk a little bit about the 49 billion high-end
Timothy Chiodo: of Guidance for End-to-End Volumes in Q4. You talked a little bit about annualization of EBITDA. So, two points I was hoping we could touch on. One is...
Timothy Chiodo: Q4 seasonality around end-to-end volumes. In the past, seasonality used to be a little bit lighter in Q4, but things have changed in terms of the mix.
Is it fair to assume that there's...
Timothy Chiodo: much less seasonality, and we could essentially use the 49 as a jumping-off point for next year. And as related to that, if we take that 49 and just multiply it by 4, we start to approach $200 billion in volumes versus the high end of this year at around $166 billion.
No, I was just hoping...
Speaker Change: appreciating that you are not giving a fiscal 25 guide, but just to help investors for some of the building blocks, right? There's Vectron and their dealers, there's the Revel and Givex opportunity, there's gateway conversion, both active and dormant, there's regular way production, there's just a lot of building blocks for next year. I was hoping you could just highlight or elaborate on those. Thanks a lot.
Taylor Lauber: Hey Tim, this is Taylor. I'll let Jared hit kind of the main building blocks. He's always great at summarizing the real big needle movers for 25, but in terms of thinking about, let's call it the seasonal cadence of the business.
Taylor Lauber: You're correct to assume that Q4 is somewhat more predictable than it had been in the past.
Taylor Lauber: What's happening there is you generally have sports and entertainment that is scheduled, quite literally, and it has a heavier impact on Q4.
Taylor Lauber: Somewhat volatile behavior in restaurants due to for just keep in mind weeks like Thanksgiving or not
Taylor Lauber: heavy restaurant spending weeks, travel can be mixed but I think all of that ballast with sports and entertainment adding to what traditionally would have been a quarter that's just a little bit below you know 25 percent of the year's volume even including some growth. Now in terms of how you use that as a jumping off point we think it is an appropriate thing to kind of consider Q4 is let's call it an average quarter on a volume basis for an average year but Q1 is probably not the right way to contextualize that right Q1 is always a little bit softer spending across all of our verticals
than 25% of the year, if that makes any sense.
And Tim, I'll just layer on, look, there's no way...
Taylor Lauber: I mean, look, the simplest answer on anything is, you know, if you just, you know, just annualize Q4, you're going to realize that we're in pretty good shape, you know, no matter what. We pointed to EBITDA because, you know, the emphasis is always on profitable growth.
Taylor Lauber: If you look at volume, we also said, you know, hey, we've got a $33 billion contracted volume backlog. We rolled five of it into actuals this past quarter. Like, these are – this is signed deals. It's not like a weighted pipeline, so you can count on that, too. So I think the idea is generally we're looking pretty good. In terms of just, like, where all the needle movers come from, that's why we have to have an investor day or else, like, I'm already long-winded as is when it comes to my script and my letter. We've got a lot going on. I mean, we talked about, like, I don't know, some of the largest cities in Europe.
Taylor Lauber: this past quarter rolling out shift 4 payments for their mass transit system. That doesn't come up all the time, not to mention what we're doing just in our core areas of focus like restaurants, hotels, stadiums, and global e-com. So we owe everybody like
Taylor Lauber: I don't know, at least three quarters of a day to just kind of break everything down so you have a good way to figure out what the next three years, you know, should look like now that we've...
Taylor Lauber: So I think like manualizing Q4, looking at the volume backlog, the idea is it should be giving everyone a fair amount of comfort in looking to the year ahead.
Speaker Change: Thank you. Our next question comes from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.
Dan Perlin: Thanks. I just wanted to dive in a little bit on the pull forward for Revell and Vectron's integration plan. So I guess partly like what drove that pull forward dynamic?
Dan Perlin: Secondly, kind of what are the some of the early learnings that you're seeing in POS in Germany, UK and kind of versus the U.S. And then if you could also just kind of put that to the cross current as Jared is what you kind of identified is what went wrong in the quarter where you did have, like you said, a little bit of a slowdown or
Dan Perlin: maybe under-execution in Canada and European card present transactions getting rolled out. Just trying to understand all the various dynamics and puts and takes that have to go into a lot of those complex transactions actually happening. And then just kind of how that's going to play out through the next couple quarters. Thank you.
Dan Perlin: Yeah, Dan, it's a it's a it's a good question. I mean, it's
Speaker Change: I think like there's just somewhat of a timing. So I mean, look, our playbook is it's, it's not that hard. We literally, you know, send a letter to, you know, every customer that like, like, take, take like a hypothetical Vectron or revel, for example, it says we will
Speaker Change: You know, waive gateway fees, or waive hardware costs, or waive some software cost if you sign up and then we give you, you know, free devices and some sort of signing bonus. I mean, this is literally what we've been doing since 2017. I think the timing of that doesn't always line up perfectly when-
Speaker Change: you know, you waive or make certain concessions or pivot a model versus when volume starts to ramp. So I actually would say, like, in terms of the pivot part, that's actually going exactly as planned.
Speaker Change: I'd say it's just that the timing of boarding thousands of accounts, you know, I put in there like hey We we went live with four of our beer gardens. My goal was a hundred You know in October so and then obviously my goal throughout the entire 2024 was 10,000 restaurants and hotels across Europe
Speaker Change: We always said at the beginning of last year, or beginning of this year and the end of last year, like, hey, look, the riskiest part of our guide is the 10,000 restaurants and hotels in Europe we don't have yet. And that was a big focus area for the year. I think the learning points are, I mean, look, there's always something, you know, there was, I think we, you know, we had some debit card certifications that we had to get going in, with like Bank of Nova Scotia in Canada. We had another debit card thing in Germany. I mean, you can't like, even if you're like 97%
Speaker Change: ready to go. Like no restaurant's going to be happy that 3% of expected transactions wouldn't have gone through or something. So you got to learn that quick, fix it, and then you go back to rolling it all out. So I think it was just more, it was less about like the kind of the predicted revenue destruction alongside some of these deals and just more about how quickly we ramped up the new customer ads. But it is working now. I don't think there again will be any mysteries where...
Speaker Change: Our next 65,000, you know, restaurants from Vectron come from in Europe. And then, you know, we also said this quarter we just signed another very big international hotel operator. So I think everything's generally working. Like when we trip and stumble and hit greater than 50% volume growth, like I think we're still doing okay.
Speaker Change: Thank you. Our next question comes from the line of Raina Kumar with Oppenheimer & Company. Please proceed with your question.
Speaker Change: Good morning. Thanks for all the details. Could you give us an update on your gateway conversion process? How much opportunity still exists and are you facing any challenges given the softening consumer spending on converting the remaining gateway?
Taylor Lauber: Hey Reina, it's Taylor. I'll hit that. The opportunity is still largely as it has been the past couple of quarters. So we've made good progress with
Taylor Lauber: some of the large enterprises that take longer for the conversation but bring meaningful volume when they come in. And there's still a lot of volume left. I think the last stat we quoted was probably 120 billion. There's still over 100 billion of annualized volume on the gateway today. So it remains the gift that keeps giving. I think the one thing, you know, to kind of balance my remarks is that the conversion pace is much more programmatic now. There's enterprise customers that we have mapped out over a series of
Taylor Lauber: of Dialog, and then there's like the smaller single locations that eventually get around to it. So it continues to give. The interesting kind of dynamic here is that the revenue contribution is like really, really paltry.
Taylor Lauber: And so you're left with kind of an interesting conundrum. It's not very consequential to the extent the revenue went away, but the opportunity is still enormous.
Taylor Lauber: So you want to keep it going. I would tell you the strategic focus of the business is really on continuing to make sure that funnel, that gateway conversion-esque funnel, is as full as possible, which is what things like GiveX bring us. But it is by no means a dormant opportunity, if that makes any sense.
Thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Darren Peller with Wolf Research. Please proceed with your question.
Speaker Change: Hey guys, thanks. Nice execution on adding this magnitude of new business. But I guess what I'd like to hear from you guys is a little bit more thoughts on some of the differentiation you find yourself having in the international markets. You've obviously done extremely well in stadiums and hotels and kind of your legacy verticals. As we move into some of these markets, there's some overlap, there's some incremental.
Speaker Change: So maybe just if you could list off the top areas you're most excited about for the international growth of the business. So many moving parts would be helpful and then what the differentiation you plan to bring there is going forward.
Speaker Change: you know, in the U.S. where software providers were coming to market with a bundled solution that is now completely commonplace in the U.S., has not yet happened throughout the majority of Europe, and that's really, really exciting to us.
Now, in terms of differentiation,
Speaker Change: What are we bringing to the market? Not only are we bringing a bunch of kind of go-to-market expertise on how software, hardware, and payments can be bundled together to deliver a heck of a lot more value to the merchant,
Speaker Change: But increasingly, we're bringing that entire stack as a single vendor.
So if you think about vector on...
Speaker Change: you know, the acquisition of Finero, our own go-to-market expertise and systems.
Speaker Change: you have a completely bundled solution that's entirely in-house. So even the software providers that we've seen try to approach Europe with this value proposition have largely outsourced.
Speaker Change: significant components to other vendors, which is, of course, as we've seen in the United States and hotels, it's multiple mouths to feed, it's multiple phone calls when something's not working. So we're highly convicted in how the macro theme of software plus payments will play out throughout Europe across basically every vertical. The ones we obviously own assets in is really, really compelling to us.
Speaker Change: So we're highly convicted in the macro theme. We also bring kind of operational expertise, but also every piece of the value chain for these merchants.
Speaker Change: Yeah, and Darren, just to layer on, I mean, keeping it like really simple, I think number one, which shouldn't be too surprising, but it even is to us in some respects, which is just complex card-present capabilities.
Speaker Change: So, if you think about the giants of Europe that, you know, that have done an absolutely outstanding job.
Speaker Change: Adyan started as a card not present player. You're talking more basic single software type integrations for card present because it's a relatively new world for them. Stripe.
Speaker Change: incredible, you know, e-commerce capabilities, very basic car present capabilities, I mean, you know, shop pay, simple terminal, you know, this is why, like, from my perspective, when I ask, like, why are we even involved in all these transit systems or why are we getting, why are we winding up in all these EV operators across Europe? It's because...
Speaker Change: There isn't, there isn't, there isn't like that super tech player in Europe that focused on card present capabilities. So it's, it's traditional old stuff. It's Barclay cards is huge, say in the UK. Worldline does a lot of volume.
Speaker Change: It is not an integrated payments player. So I think that is turning out to have some surprising benefits for us in Europe.
Speaker Change: But, I mean, our main focus of going over there with CardPresent was our restaurant product, our hotel integrations, our stadium product. But we are clearly doing well in kind of complex integrated payments from a CardPresent perspective.
Now when it comes to global e-commerce...
Speaker Change: Our eventual game plan there is to differentiate through geographic coverage.
Speaker Change: I mean, we have to take advantage of following our big customer into all these new markets. You can see our kind of Twitter releases going out.
Speaker Change: I mean, we're in a lot of places that others are not.
and eventually other blue chip players.
Speaker Change: are going to want to be in those markets too and take advantage of kind of the rails we laid for that one big customer. So I think it's like, and we've seen that happen already with Waltz right now, where they've kind of moved into countries that we only went into because of somebody else. So I think it's only a matter of time before we have others just like that. And look, there's only a few that can really serve.
Speaker Change: Global Ecom really well and we'll be really happy when we kind of join the stage. It's like a you know a strong third You know third choice
Speaker Change: Thank you. Our next question comes from the line of Andrew Schmidt with Citi. Please proceed with your question.
Andrew Schmidt: Hi Jared, Taylor, Nancy. Good morning. Thank you for taking my question.
Andrew Schmidt: I wanted to dig in just on, you know, the organizational approach to managing complexity. You guys are obviously doing a lot, you know, managing multiple acquisitions.
Andrew Schmidt: going through internal simplification, you also have an M&A pipeline. You know, obviously a lot of this is part of the shift for culture, but maybe just give us a glimpse into how you manage that complexity and you reduce risk associated with the number of initiatives you have spinning. Thank you so much.
Speaker Change: Yeah, I mean, I love this because it just goes to the shift four way and kind of the drum that I Literally try and beat every day and reinforce every week. I think the idea for one is to kind of try and
Speaker Change: take what is a lot of activity and concentrate it into two or three really needle-moving initiatives. Really, that's like when we just had our executive off-site a couple weeks ago.
Speaker Change: There's three needle-moving priorities for the year ahead. Now, there's a lot of, like, kind of sub-bulletin underneath it, and our goal is to always kind of empower small, scrappy teams to work on those, but in terms of leadership, it really all, you know, boils down to, like,
Speaker Change: three major things that we we have to get right. I would say it's anchored on an incredible
PMO office
Speaker Change: That's where we have some of our best talent that's just keeping all the other good talent across the organization, so from legal, finance, dev, moving in the right direction.
Speaker Change: So, PM, investing in a very strong project management office a few years ago, I think, was...
Speaker Change: I can't emphasize how much deleting parts matters when you do a reasonable amount of M&A and you want to burn the shifts and focus on the future. Procedurally driven so you don't stumble and make the same mistake twice, executing with urgency and again.
Speaker Change: You know, and staying flat, you know, not absorbing lots of layers of management which delays decision making and the spread of information. So, it's kind of, it is, the answer is, it is the heart of the Shift 4-Way culture. And I'd say, like, we also do a really awesome job elevating talent.
Speaker Change: There's leaders from the FANARO acquisition of a year ago that oversee aspects of our entire payments infrastructure. There's Q&A leads from Appetite that oversee Q&A for the whole organization.
Speaker Change: you know, reporting and multi-menu management for our restaurant division came out of Revel.
Speaker Change: So I think, you know, we have a lot of good proof points like that, so when you approach the next deal, you know, like say Givex, which we had the town hall recently, you can go into it telling everyone, like, absolutely the best athletes from here will wind up in key roles for the betterment of the whole organization. It makes people believe in that one plus one is a big number. But anyone else want to jump on?
Yeah, you covered it really well. I would also say...
Speaker Change: ROI is at the root of every decision made, and that's somewhat atypical with organizations. You are generally allowed a really long leash inside the company to be highly entrepreneurial and figure out the best path through, as long as your ROI map is sound. You can build, you can buy, you can partner, you can hire, etc. Nancy's organization has done a phenomenal job pushing that through. It's led to tons of success. How do we figure out a complicated enterprise win on the sales side? Well, ROI has to work, but you can be immensely creative in how you get there. That's just one more example.
Speaker Change: Thank you. Our final question this morning comes from the line of Sanjay Sankrani with KBW. Please proceed with your question.
Sanjay Sankrani: Thank you. Good morning. Obviously, the trends are strong despite this, but could you just drill down a little bit on the softer consumer spending?
Sanjay Sankrani: that you mentioned. Is there anything that changed significantly in the third quarter that leads you to be concerned, or is it just more on the margins? And then just maybe on Skytab, obviously you guys are doing really well there. Any observations above and beyond what you guys have talked about, given the success there? Thanks.
Speaker Change: Yeah, sure. I'll hit the consumer spending trends that we've witnessed.
Speaker Change: I would say there's been a notable same-store sales decline that's been reasonably persistent in restaurants since the middle of the summer.
Speaker Change: I don't know how much to think about this, largely because restaurants have done quite well throughout the last couple of years. So in some respects, we could have predicted that it wouldn't be perfect forever. And we diversified the business accordingly. Hotels had a really strong summer. They had a slightly softer September. September was probably the only month where there was...
Speaker Change: modest same-store sales declines across basically all of our verticals. But that rebounded across hotels, for example, in October, sports and entertainment. While you don't have as solid of a same-store sales base because we're adding tons of customers, there are zero signs of weakening consumer inside of that little facet of the economy. It's still mixed. There's no significant reason for high optimism or pessimism for that regard. And our diversification has been paying dividends, so we're quite content.
and Scott Chapman.
I think we're pretty pleased with the pace of...
Speaker Change: Progress with Sky Tab is, especially in Europe now, I think if you're following our Twitter or X account, you're going to see... We post a lot of Sky Tab wins in general. You're going to see a lot more out of the UK and Ireland, I think a lot more in Q4, we're pretty pumped about that.
Speaker Change: And then just the overall pace of progress. Every one of these deals, whether it's Revel or Vectron, even Givex, you're taking talent, again, you're burning the ships of the past and repurposing them on the things that matter. So like Revel, your QSR, your basic retail, and your enterprise multi-management capabilities, now build that into SkyTap, and only worry about that, because the Revel ship has been burned here on that. Or in the case of Vectron, where their product is all across Central Europe, yes, we have 65,000 Vectron systems across selling payments. Eventually, they have to be replaced with SkyTap. Start localizing the product for all these markets, fiscal compliance.
Speaker Change: So like you're always gaining more talent through every one of these deals that you can apply in our go-forward strategy So like just velocity there is continuing to increase which is which is nice So like I said, we're like we're number I think we're number one in the world at payments in a lot of categories and we're number two next to toast in restaurants That's that's that's totally fine Like we have a plan there and the more we close that gap the more value we create and who knows maybe we'll maybe we'll Edge one out at some point on them
Thank you.