Welcome to Evercore ISI seventh Annual Payments and Fintech Innovators Forum. I'm David Togut. I lead the payments processors and IT services research team here at Evercore ISI. Delighted to welcome Shift4 Payments Management. Joining us from Shift4 Payments are Jared Isaacman, founder and chief executive officer, Taylor Lauber, president, and Nancy Disman, chief financial officer. Welcome. Thanks so much for being part of our conference. Thank you. Thanks for having us. You're rapidly transforming Shift4 Payments. If we look at your four key growth drivers, high growth core, gateway conversions, new verticals, and M&A. Let's start with the high growth core. Focusing on next- gen SkyTab POS restaurant payment system and the insourcing of 50% of your distribution, which really go together. How do the 10,000 new SkyTab POS systems deployed to date compare with your expectations when you launched the product? Thanks, David. Yeah, certainly a lot to talk about within our high growth core, which again, reminder for everyone, is kind of the restaurants, hotels, specialty retail, you know, multi-software environment that Shift4 Payments has a pretty unique right to win within that space. You know, presently we touch about a third of all, you know, restaurants in this country across a variety of different restaurant POS software applications that are integrated into Shift4 Payments. We began many, many years ago, an initiative to build a cloud-based POS solution as the natural migration path for our existing customers, but also to ensure that all of our salespeople in the field, our direct team and our partners, you know, have a real right to win, you know, with a modern product that, you know, comes at a disruptive price point, solves a lot of problems. Leading into the launch of SkyTab, which is again, name of that product, towards the end of last, towards the end of last year, we took all the data we had on which markets we've had enjoyed the most success in with our restaurant business, so we could kinda predict the future a little bit, who our best partners were, insource them, arm them with a really awesome cloud-based product and set them loose. You know, we now have, you know, over, you know, 10,000 systems operational. To get to, I guess, the heart of your question, David, am I or like, we happy with the results? It's more than we thought. We, we did underestimate, you know, how much initial demand there would be, you know, from our formal go live in like mid-September. We actually had equipment backlogs for like 20 days, maybe 30 days, maybe even longer. I mean, we had surge efforts, you know, like working 24/7 in our deployment operation in Allentown to get devices out, which is great. I mean, it certainly speaks to demand. We are continuing. We have pretty tight feedback loops with our teams in the field to constantly optimize our process 'cause we want a five-day turnaround. From the time a salesperson sells a, you know, a restaurant, a POS system, we want the system operational in five days. There's a lot to do there. I mean, you have like the touchscreen workstations, you got the handheld mobile devices, you gotta program the menu, you gotta import the employees. Like, to get it done in five days would be pretty extraordinary, and I think we're getting a lot closer to it. We anticipate a lot of success with SkyTab in the year ahead. I mean, we touch a third of the restaurants in this country. They'll be great sources of referral partners. We have a lot of low-hanging fruit lists of customers that we can easily, you know, have this natural foot in the door to sell our product. Customers wanna migrate to, you know, more modern, you know, solutions, especially when you think about all the integrations to like Grubhub, DoorDash, there's mobile, there's loyalty. You just gotta make life easier, and cloud does that. I think, you know, us and Toast are gonna, you know, have a lot of success. There's just a lot of older systems, a lot of non-integrated stuff that customers are naturally gonna migrate away from, and SkyTab will be one of the beneficiaries. Got it. Do you have any targets, for number of systems deployed for SkyTab POS over the next 12 months? I mean, we have, you know, just based on how, you know, our finance team, Nancy's team, does the budget build up, yes, there's a number there. It's a lot. I don't think we'll speak to it very often. I mean, you know, we just don't ever wanna get into like a, you know, a comparison with, you know, a pure play company that solely focuses on restaurants. Like, we have massive share in restaurants, and we also have massive share in hotels and specialty retailers and stadiums. Like, we do a lot of other things. Like, you know, who's winning quarter to quarter on the number of location counts in restaurants is less important to us. I'd also say, like, we're also very upmarket from those that we would be compared against. Like, our, you know, the six or seven live locations that just went live with SkyTab, like they'll do a quarter of a billion in payment volume this year. You know, we're we're putting SkyTab in stadiums and our hotel restaurants and such. They're very upmarket, which is different than like if you're trying to win the stick count game, then you're doing a lot of digital marketing advertising and you're throwing capital offering programs out there, and you're trying to win that new restaurant, which could have a higher failure rate, lower, you know, and less long-term, you know, performance over time. Like, I think at the end of the year, like, you know, Toast will almost assuredly beat us on site count, and we will not be that far behind, and we will have done all the other things in all the other verticals that make us special. Understood. Related to that, can you quantify the impact on new bookings since you insourced 50% of your distribution from your software partners? In other words, what impact do you expect building out a direct sales force to have on the pace of new contract signings this year? It's gone up. I mean, you know, the majority of our production now is direct. So all of our new verticals were direct. You know, stadiums, nonprofits, travel, leisure, SaaS tech, gaming, those were all pursued direct anyway. Now, you know, the majority of our restaurant production is direct. Even though we have, like, kind of a 50/50 balance of direct and indirect within restaurants, the 50% that are indirect or authorized partners, they're in sparsely populated areas. They're not kind of major markets where the data would have supported us acquiring them. Like, you know, 50/50 mix, but the majority of the production is coming from the direct side, and production is up. That's why we, you know, underestimated some of the initial inventory demand in the fourth quarter, which, you know, we still worked through and got all those sites live and everything. Why is it incredibly beneficial? I mean, you know, our margins and free cash flow have been expanding in a, you know, in a pretty material way, even without insourcing our distribution partners. It definitely contributed to it. It's a, it's a dramatic improvement to the unit economic model, because not only do you no longer have to pay what can add up to be a very costly expense of sharing in the payments revenue with third-party distribution from a historical perspective. You don't have it going forward either, and you're adding a lot of customers. It actually, you know, I mean, it directly enhances the unit economic model and the payback on pursuing these customers. Yeah, I mean, it has immense benefit to the organization on top of all the other margin enhancement, you know, initiatives that are underway. Very clear. Gateway conversions drive about 50% of your end-to-end payment volume growth, and you're still early in this multi-year initiative. As part of your Gateway Sunset plan, you've recently renewed agreements with several enterprise customers at pricing that's actually equivalent to your end-to-end payment offering. How have you managed to do this, and what percentage of your gateway volume do you expect to renew at end-to-end payment volume pricing? I mean, all of the gateway-only volume that we touch today should make its way to our end-to-end solution, or they should pay the equivalent. Like, that's the position. You know, really, like, you know, people are like, "Why? Why can't they go somewhere else?" It's the same question as, like, well, why can't a Square customer use Global or a Square customer use, you know, Fiserv? You know, why can't a Shopify customer use Global? Why can't a Stripe customer use, you know, Worldpay or Heartland or something? Like, those choices shouldn't be available because all the value that's being delivered for that commerce experience is coming from the tech platform. That's what we have here. What we have to do is fix, you know, many, many years of history of the gateway previously being processor-agnostic and playing nice with everyone. That's not the world of integrated payments anymore. Like, you know, the position we've taken and, you know, keep in mind, this strategy has been working incredibly effectively for over five years now. We had to start with carrots only because there was a pandemic. It's not the time, you know, to kinda have a nudged migration path for restaurants and hotels that have a lot of other problems going on, you know, with COVID-19 everywhere. It was a carrot first approach, but now we're balancing, you know, carrots with, like, a tiny stick. What we're just trying to do is take what would otherwise be like a 10-year migration because you're talking about, you know, like $150 billion type plus of volume. That's a lot of commerce. You're trying to condense that down to, like, three years or so, you know, which is a path that we're going towards anyway. Our position is like there are some gateway connections that are just so old and uneconomic that we're gonna have to shut them down, and we think the majority of those customers will just come to end-to-end. Bear in mind, life is better. You only have to deal with one company, not five companies. Your overall effective cost of service is less. Like it is true, one hand to shake, one throat to choke, and in the process for us, it's a big gross profit lift. There, there are some connections that are just uneconomical. We're gonna shut them down. You're gonna have to move over. We'll give plenty of notice. We'll be really nice about it. We've only done one, by the way, so far, so it lets you know how early innings it is. There's other connections where there's a lot of volume and traffic, and maybe they're JPMorgan, First Data, Fiserv. What our position is like, you can move over and get all the benefits or pay us the equivalency. Because, like, we're delivering all the value. They're, you know, Global, Heartland, they're doing nothing for you over here. It's our integration, the software, it's our encryption, it's tokenization, it's our business intelligence product. You can pay us the equivalency, and then we'll give you all the benefits you want, and that's fine. Maybe you'll tell Global Payments, like, you want a better deal, and that's what I think many of them are doing. You'll migrate over to our end-to-end platform, and that's just... Again, this is all stuff that's been working really, really well over time. We're just trying to condense it a little bit, into, you know, like a three-year period because I wanna free up hundreds of employees to focus on building our products for the future across the world as part of our, you know, global expansion initiative and not maintaining our competitors' connections and security certificates and stuff, which is just a very dated model. With all of that said, it shouldn't be that surprising that enterprise customers are arriving at a point and saying, "You're right, this is where all the value is, and we should be renewing on more appropriate terms for the service we're providing." I mean, like I'll give you an example. I've had direct conversations with some of them saying, like, you know, you do, I don't know, $3 billion or $4 billion a year in payment volume, just hypothetically. We make, like, $0.01 a transaction off of you. I am not lying awake at night thinking about your account. Like, you could literally leave, and it has no bearing on our financials at all. Is that the kind of relationship you wanna have with the company that's powering all your commerce? Like I should be worried constantly about you leaving, but I'm not because these terms were constructed at a different time by other companies that own these assets and just completely uneconomic. Like, it doesn't make sense. That resonates with them. They're like, "You know what? You're right. Like, you should actually be having more in line with these spreads." Then they're going back to the other acquirers and telling them they wanna pay less because they're not doing much. It's working out quite well. Very clear. In the fourth quarter, your blended high-growth core spreads in restaurants and hotels dipped 2 basis points to 72.7 as you ramp payment volume from your large customers, even as spreads from your existing customers increased sequentially. What's your outlook for high-growth core spreads in restaurants and hotels this year? Yeah, I'll jump in there. Right now, I think the scripted comments that we shared were that both high-growth core and non-high growth core spreads improved in Q4, David. We have that same trajectory heading into next year for high-growth core. We definitely are expecting the blended spread to dip down as we get a greater share of these large enterprise contracts coming in and ramping, and we've got great line of sight, especially domestically, to what those wins are. We definitely see an overall dip. At the same time, I think, you know, as we look to kind of ahead and beyond, you know, I think as international starts blending in, you'll see that normalize again and probably be a little bit more like what we saw in Q4. You know, we'll have some dips and puts and takes as domestic large enterprises kind of ramp more quickly and inter-international kind of blends later in the year. I hope that kind of gives you some perspective there. Thanks for that. Just to layer on, I'd say, like, you know, as Nancy mentioned, like, all our high-growth core stuff is very stable, like restaurants, hotels especially. There's no competitive pressures really there at all. You know, being in business now 24 years, where 22 years of it, we were dealing with the same type of customer. Now we have multi-billion- dollar multinational customers. For sure, they come in at lower spreads. They're not, like, ridiculously low. They're comparable to what Adyen or so would get. Based on different international markets, like when you know, start supporting them in other geographic areas, those spreads naturally come up. I think what's really important too is, like, the margin profile associated with those spreads is considerably better. Like, you can get a, you know, a 90 basis points restaurant, but you have a lot of personnel to field phone calls every time they wanna change the price of buffalo wings or whatnot. You know, you take a customer like hypothetically like that MGM for us, where, you know, of course they're a very large customer, the spreads are gonna be well less than what you'd have with a restaurant or whatnot. As they light up more and more states with us and just turn more and more volume on, we're not hiring additional people for them. We're not fielding many more phone calls. You have like, you know, that's kind of a little bit of the Adyen effect that's happening on the other half of our business, where you've got really great customers that are growing really fast, which is contributing to your own growth, and you don't have a very large customer acquisition cost or OpEx required to support them, which translates into really nice margins, good flow through to free cash flow. Your pace of acquisitions has accelerated. You've added important new growth vectors, especially with Finaro, which brings substantial e-commerce payments and international expansion. On the earnings call, you indicated international expansion was your top capital allocation priority. What types of international acquisitions are you looking for? I'll start, and then Jared can layer in. You know, the world's really big. I think our priority is really around creating connectivity in the markets that our big international merchants wanna be able to access directly. It needs to be, you know, Jared comments on this as being Integrated Payments 3.0. They need to be able to light up geographies on behalf of your merchants in a really quick and seamless way. The Finaro acquisition gives us a really nice right to process payments throughout Europe, but there's lots of other continents out there. I think our priority is gonna be looking at platforms that give us, you know, what Finaro gives us, but in a few more geographies. Then, of course, we'll be organic in building out connectivity in markets, you know, singular countries, for example, that become important. Then also, partner where necessary, right? Like, you know, merchants wanna be able to easily do business all over the world and where it makes sense, we'll build a partnership for the smaller markets. I guess the only thing I'd add is just there's just so many more choices than ever now, which is great. You know, first, our expertise in international payments has grown to the extent, you know, that we can organically expand in certain areas, and we can partner to cover certain gaps, as Taylor just spoke about. You do need to own rails. The rails are very scarce. It's imperative in this 3.0 evolution of Integrated Payments right now, where you have to be able to take all those awesome product service integrations that make you special in one part of the world, like the U.S. for us, and enable commerce everywhere globally with it. You need a certain number of rails to get to kinda critical mass for that. You know, two years ago, it would've been incredibly hard. You know, one or two targets or maybe you know, or so out there, and if we even talked about them, it'd be like, "Oh, that's who they're thinking about." Now, there's like tons of choices. I mean, you know, VC and PE have pulled out of entire hemispheres. You got companies being starved for capital that way. SPACs are gone. Capital markets are closed for IPOs. You have three big public companies that are parting out assets right now. I mean, FIS, ACI, and Paysafe all have interesting assets in different parts of the world that may be under-delivered for them, but, like, we have tons of synergies we can bring to the table. Like, we have volume that we're just waiting to turn on in certain markets. It's actually like, you know, Actually, both Taylor and Nancy's team have benefited from our talent upgrading initiatives. Like, they're both stacked with awesome talent, and we're gonna need it right now because we have more choices to look through right now than we had since the entire time we've been a public company in support of international expansion. Well, on that score, would you do something large and strategic? Some of those assets would be very large. To be clear, I'm specifically saying parting out assets. We are not making a run for, you know, the entirety of any one of those businesses. Like, we don't need that. What we need is rails in certain geographic markets that are important for our customers. I do think it's imperative to own those rails. I think other companies, like, whether they had ambitions in, I don't know, LATAM or APAC and just didn't work out for them, like, it might very well work out for us based on, you know, what we already have in our pipeline. The point is, there's a lot of assets right now, which is great. Very clear. On the earnings call, you underscored your very disciplined approach to expense management this year. What is your view of the restaurant and hotel industries for 2023? We've definitely continued to hear pretty strong things about global travel, which obviously feeds through to your primary end markets. You know, you're definitely taking a pretty, you know, cautious/conservative approach. Yeah. I'll start here. I would say, you know, we or at least myself by nature, are pretty pessimistic, always very cautious. The pandemic recovery has led us to points where, you know, you think merchants recovered. You look back and find out that they actually did more volume in that recovery than they had at any point in the history. We really wanna be cautious around what same-store sales growth looks like coming out of this. I would say, we were particularly cautious on the restaurant vertical at the beginning of last year. I think that caution has been prudent, although we haven't seen a deterioration in volume. You've certainly seen a slowing in growth. You haven't seen, you know, same-store sales retract or anything like that. We're watching it, with, you know, I think just a keen eye, but there's no reason to believe that volumes will change materially inside of that sector. Travel's one we're looking at, with I think the same lens you are, which is global travel is still recovering. There are still countries that are opening up. There is a reason to be really optimistic about it, but we also had a really good summer last year with regard to travel inside the U.S. You know, what this all manifests itself in terms of our guidance is that we're being cautious around same-store sales, broadly speaking. We see as many reasons that they could moderate as that they can improve, and so we try to err on the side of expecting some moderation. You again haven't seen it in the data. It's a theory at the moment as opposed to anything else. Got it. you've highlighted four major growth initiatives, you know, high-growth core, gateway conversions, new verticals, and M&A. As you continue to introduce new products and globalize Shift4, how do you intend to build out your management team to support this expansion? Yeah. I mean, I think that, well, first of all, it's already in the works. You know, as I mentioned before, you know, Nancy is an incredible CFO. We're lucky to have her, and she's brought a lot of great talent, you know, into the finance organization. Taylor's strategy team has continued to make investments in really, really quality talent. That's the theme of our spending going into this year, is we are upgrading talent. We are not adding to it. With 2,300+ employees, and we're about to add, you know, several hundred more through Finaro, we did a lot of, we did a lot of hiring to support our growth during a very inefficient time in the world when people were working from home without good, like, learning and development and training tools and it, you know, that certainly hurts productivity. Also, you know, we didn't always attract the best talent. I mean, like, if you wanna change the world in payments and fintech, you probably went to Stripe, PayPal, Facebook, I don't know, somebody else. You weren't getting the best. Although we have a lot of great people, don't get me wrong, but this year, in support of all four, you know, those important growth priorities, we are going to upgrade talent. By upgrading talent, we're gonna get a lot more, we're gonna increase productivity a lot, but it's also, I think gonna really demonstrate the scalability of the organization. What I kinda hope to show, you know, over time, is this nice pie chart of just what the evolution of our headcount is. Like, and that, you know, in totality, the headcount ideally did not grow much at all, but, like, the mix between, you know, the, I don't know, 1,500 people supporting, you know, operational roles of legacy POS systems, data gateway connections can be repurposed into things that really move the needle, which is international expansion, supporting new verticals and such. Huge focus for this year. I'd just say it's already, like, actually well underway. Like, we've been trying to do this since some of, you know, since talent started becoming available, I'd say in, like, in the third and fourth quarter of last year. Got it. At the time of the IPO, you highlighted a major effort to insource your merchant processing, from TSYS, which had been doing that for you. You were building your own backend capability, taking that process in-house. You know, is that process completed at this point in time? To the extent it is, what additional capability does it give you in terms of winning business? It's not complete. We run every day transactions and settle transactions through our own backend systems. It just, you know, In 2022, beginning of the year, I mean, you think back, the letters I wrote to the team is like, "This is the time now that you know, you focus on the real needle movers," because, you know, I think we're, like, so much better equipped and experienced to navigate challenging times, because we've been there before than those that have never seen it. You know, you wanna make tough decisions. Last year, at the beginning of the year, is we're gonna unlock a lot of value with SkyTab, pursuing our new verticals and our Gateway Sunset program, and we gotta repurpose resources from somewhere 'cause we're not gonna spend in this climate. We deprioritize that. There's no question it's a margin lift. Like, there will be lots of savings coming from it, whether it's this year or in 2024. Like, it's always there, and it's growing, obviously, 'cause our transaction count is going through the roof. Just, like, if we have to pick three or four things and the others can create, you know, like literally billions in market cap value, it's gonna get the priority. I would also say that when we close on Finaro, you're now gonna be introducing a lot of talent in the organization that has been managing their own front-end and back-end settlement systems for the last 10 years. We hope to reassign some of that personnel to keep what is called our Everest project, moving forward. Great. Thank you for that. As the founder and CEO and the largest shareholder of Shift4, you by far have the most skin in the game. What are the principles by which you lead Shift4 that are likely to be different from many other CEOs in payments who are really more professional managers? Yeah. I mean, I think, like I have, you know, the other leaders within the payments industry fall into a couple categories. You know, I think, yeah, you have some, you know, you have some professional managers in there. I think, you know, a lot of legacy acquirers, and they're, you know, they're shrinking, so they're cutting costs and raising rates, and it's, you know, not a strategy that's, like, super compatible with my way of thinking. I don't even really think about them at all because I think it's pretty obvious when you look at Stripe volume, Adyen volume, Square volume, Toast volume, Shift4 volume that, like, they're losing. There's not a whole lot they can do to fix the leaky bucket. Then you have, you know, some of the more frustrating ones, like the ones that, you know, capital has always been available to them. Like they, you know, series, you know, A, B, C, D is just part of their vocabulary. Where I've never spoken it. Like, we self-funded our business our first 15 years, before we took on a PE partner. We grew through our own cash flows, through some really, you know, challenging times. Like, I do think, like. It's not just me. I'm, like, fortunate to have an incredible management team. Like, we've all seen tough times in the world. Like, we never thought the, you know, 15 years of zero interest rate would continue. At some point, like, you're gonna have to pay that bill. Growth at all costs and, you know, worry about margins and profitability later would come to catch up with you. I think, like, we've drew on that experience in 2020 and 2021 when people were out of their minds and doing a lot of crazy revenue multiple deals. We didn't do that. What did we do? We raised a ton of cash. Like, convert 0% coupon, cash on converts at a big premium over our equity price, and we said, "We are gonna wait for the world to turn, and we're gonna put it to work and make sure that we're a bigger and better, you know, more resilient company going forward." How do we do that? We diversify away from just restaurants, hotels and retail into a lot of new exciting verticals, and we improve margins and free cash flow along the way. How do you get everyone on board with a business model that kinda beats the drum around boldly forward? You make everyone an owner. I mean, literally everyone in the company is a shareholder. We did that at the time of the IPO. I took... I mean, I funded 50% of our FOUR Shares program, which made with my own stock, not shareholders, 'cause I'm, like, offended by stock-based comp in most of those other reckless companies. I funded 50% of that to make sure every employee, including those taking customer service and tech support calls, could at least, you know, have some good equity alignment. Then we educate them on what the hell it means, which is don't lose customers. Like, you know, sign new customers. Yeah, I think, like, 24 years of history, not growing up in Silicon Valley, self-funding, like, we've learned an awful lot. There's a lot of wisdom inside the organization that I think we've been, you know, has become part of the Shift4 way. I think it served us really well in times when it was hard to see, which was 2020 and 2021, then hopefully became very apparent in years like 2022 and how we positioned ourselves for the years ahead. Thanks for that. Just in closing, you've had a number of new wins in one of your fastest-growing verticals, sports stadiums. A lot of the business there is coming from concessions. How do you gauge the opportunity to win the ticketing business at a lot of these stadiums? How should we size the TAM from ticketing within your stadium vertical? Sure. I'll start with that. you know, It's a, it's an entirely new TAM for us. It's typically about 5- 6x the total concessions volume within a particular arena or team or something like that. The way to think about it is, it's a, it's a software integration, just like the 500 others that we have. Any merchant using that platform is now accessible to us once we've completed the integration. It opens up the TAM quite meaningfully. I think what's nice about our offering is that historically, teams have looked to separate vendors for all of these different pieces, and we can deliver them the entirety of the stadium and the ticketing much in the same way we can facilitate all of the revenue centers at a, you know, a large multinational resort. It's a benefit to teams. They're starting to be able to understand their business through a single lens that they haven't before, and it's a TAM expander for us that's quite meaningful, and it's well beyond, you know, the concessions volume itself. Got it. How does the RFP process work for ticketing versus concessions? It typically doesn't. The conversation with whether it's a sports team or a stadium operator, is talking about what they wanna do, which is get a fan-first mobile experience inside of their stadium, make concessions, you know, a much more efficient process, faster and better fan experience. We're the ones approaching them saying, "Hey, let's talk about all the ways you collect revenue, not just the concession stands and the ways we can make that experience better for you." It's a value proposition we're leading with. As I mentioned kind of briefly before, it's not something that teams and operators have been educated to even think about. They kinda just let the ticketing volume go through the default provider of their ticketing platform, and we're educating on them on why it might make sense to consolidate all of that around a provider like ourselves. Great. Thanks so much for that. Well, thanks so much for your time and insights. Greatly appreciated, Jared, Taylor, and Nancy. Have a great day up ahead. Thanks. You as well. Take care.