Good afternoon, everyone. I'm Tom McCrohan, Head of Investor Relations for Shift4. Thank you all for coming and joining us today for our SkyTab showcase and business update event. Thank you for all those that are participating virtually. Before I get started, just wanna flash up the disclosures, and these are all available online for everyone to read. I'll just give you a second to look at them. Now I'll introduce our founder and CEO, Jared Isaacman.
All right. I was kinda planning to start with that cover. Let's go back to that. Cool. I am curious how long it'll take before I go way off script today. Try and stick to it for a little bit. First, welcome Jared Isaacman, founder and CEO of Shift4. I think we had a pretty reasonably strong quarter today. There's certainly a lot to discuss, maybe more than I anticipated, but that's fine. We'll go through it all. First, just to begin, very proud of the Shift4 team. As mentioned, beginning of the year, you know, Shift4 is a 20+-year-old company. We've grown through absolutely the best and most challenging of economic times during periods of high and low interest rate.
We never took any outside capital for our first 15 years in business. We self-funded our growth even through the Great Recession. Things like growth at all costs is not in our DNA. We've always had an eye towards fundamentals and responsible growth. When we saw the direction the world was going earlier this year, we made a promise to kinda prioritize our resources towards really true needle movers to expand margins, to generate free cash flow, and prepare for the uncertain road ahead. I believe, based on the results of this quarter, that we have delivered on that promise. Yeah, we obviously picked this because of The Boring Company.
If we all live in a world someday where we're traveling in Boring tunnels, the payments are gonna go through Shift4, which, by the way, is not really much like that's not a joke at all. Las Vegas, you'd probably be surprised the amount of traffic through the Boring Tunnel, which is going through Shift4. I think reasonably strong quarter, 53% year-over-year organic volume growth. I'll probably emphasize that a few times. Predominantly driven by our high growth core, you know, but you can clearly obviously see some of the contributions from some of our new verticals and initiatives.
Volume drove 33% year-over-year gross revenue less network fees of $197 million, $85.4 million of adjusted EBITDA, which also grew 53% year-over-year, and a pretty material increase in LTM free cash flow, which we will go over shortly. I think there's a couple points just responding to some of the feedback that we received this morning that is probably worth some clarification. We did deploy capital in this quarter for sure. The majority of it went in fact to insourcing distribution, so probably not overly clear. You'll see it in the queue. It was a much smaller portion of the capital that went to our international PSP acquisition. Insourcing distribution was really smart. Obviously great use of capital right now, margin accretive.
If you believe in SkyTab POS and what its potential in the market and that we're uniquely advantaged to be in a landscape of two, by insourcing distribution in our key markets, we took out an ongoing residual expense going forward, which dramatically reduces the payback period within our unit economic model. Bottom line is really good, smart use of capital. The other capital we deployed in the period was for an international PSP. We talked about that on this morning's call. That brought us a lot of Stripe-like integration capabilities, recurring billing, BI. These are things you need when you move outside of the card present vertical, which is obviously the direction we're going with all our new verticals.
of which we do expect, 'cause we're not bad allocators of capital, we're good, that it's going to be a meaningful contributor in the years ahead, but those synergies are largely realized when we close on the Finaro deal. That's the back-end bank platform coupled with PSP equals real power, not from this. To say it differently, within this quarter, there was virtually no inorganic contribution to volume and net revenue. With respect to 2022, you're talking about less than 1% to volume and net revenue. Really kind of wanna underscore that point. Now, the other thing that we've been getting some feedback on relates to our volume growth in the quarter. Hey, these new verticals seem to be really pulling down spreads, right?
What I would tell you is, and I've been pretty consistent with this over the past year, for like 17 years of our history, we served one customer. It was the Irish pub on the corner. It's a 100 basis point take rate type customer, okay? As you move up market, inevitably the pricing is gonna go down. What I would say is our lowest priced customer that's represented within our net new volume from this quarter and clearly part of our new vertical initiative is priced at or above what they were paying Adyen when we moved them over. Okay? Just to be like very clear on that point in time, like the spreads are very healthy within new verticals. Now that said, we also made commentary in our prepared remarks that we expect new vertical spread to expand within the fourth quarter. Why?
These multinational, multi-billion dollar customers that we're not naming, but I think relatively obvious if you've been following us for some period of time, the lowest take rate is gonna be domestic U.S. You don't get the module benefits of like fraud screening. You don't get FX pickups. When you look at like an Adyen-like customer, you're gonna find that the higher take rates are gonna come from Europe. The higher take rates are gonna come from APMs. They're not generally gonna be the U.S. volume. That's saying something about, well, something we already have visibility into since it's November within the fourth quarter, that new volume contribution from those new verticals from that particular strategic customer will expand in the fourth quarter.
Not that we think anything related to the current volume growth or net revenue growth was not great in this quarter, 'cause it was. Okay. Let's go over the guidance raise. I think, you know, generally all this is was pretty much expected given the performance. Nancy will speak to guidance again when we get through the bulk of the presentation today. I think just again reiterating in terms of the capital that we deployed this quarter, which I think was really intelligent use of the capital, especially since the majority was insourcing direct sales within critical markets for our SkyTab POS product. You're talking again, less than 1% contribution to net revenue and volume for the full year. Pretty minimal impact there.
Next, in terms of free cash flow, again, this is also something that Nancy can speak to later today. We believe we were historically understating free cash flow, in a basically not conforming to industry standards in terms of settlement dollars within our settlement account. If you look at it purely on a like-for-like basis to what we communicated the last quarter, we raised by more than $10 million in free cash flow for expected contributions this year, so like 110+ . If you normalize for the settlement activity, you're talking $130 million+. Obviously a lot of this was created at a time when I think like some of the greatest sensitivity in this climate, rightfully so, is towards free cash flow growth.
I think we expanded margins and free cash flow pretty considerably this quarter. Expect to continue to do so going forward. I think that's also worth a point of emphasis. Every new vertical that we've entered into is direct. You don't have an ongoing residual expense associated with it. It's generally card not present, or it has a minimum hardware burden associated with it. Your customer acquisition costs related to the new verticals that we're all growing into are considerably less. Your COGS associated with it are less because you don't have third-party distribution associated with it. Also generally speaking, like the amount of workforce we need to support lots of smaller restaurants is quite high. You know, it's probably one or two employees that cover almost all of our new verticals.
Obviously that's a considerable amount of volume relative to like the hundreds that you need every time a customer wants to call in and change the, you know, the price of buffalo wings or something as it relates to their POS system. Bottom line is literally every initiative that we've embarked upon since the beginning of the year drives expanded margins and free cash flow growth. Let's get into the SkyTab POS showcase. It's only been a year since we've been together, but I think there's a lot has changed, excited to provide some updates. Let's go into the agenda here. We'll start with a little bit of a refresher on Shift4, just in case some of you are new to the story. We won't spend too much time there. We'll do double clicks within high-growth core.
What's kind of changed there? A component of high-growth core is really SkyTab POS. You know, I think over time people were very critical of you. Hey, you own a lot of legacy point-of-sale system brands. That's a lot of brands to maintain. That's got to be a lot of, you know, tech debt. You're at, you know, disadvantage, you know, to maybe a new emerging player or something. We've consolidated brands into a single cloud-based product, and now we're very advantaged 'cause we have 100,000 customers to cross-sell with, plus awesome distribution, a huge addressable market, and we're going international. That's all good. We'll talk about SkyTab POS. Then we're gonna talk about new verticals because the new verticals really represented no contribution to the business at all a year ago when we met.
I mean, we basically just announced entry into every new vertical and had a signature customer associated with it, and we were driving like really no processing volume at all with it. That kind of diversification was one of our priorities coming out of an IPO. We owe you some updates there. International expansion, we'll talk capital allocation, outlook financials. Before Q&A, you know, Michael Isaacman is gonna come up, our Chief Commercial Officer, just give you a little bit of an overview on how the actual SkyTab POS demo is gonna work when we kind of break out of the session at the conclusion of Q&A. That's our agenda. Okay. For those not familiar with Shift4, let's do a little bit of a refresher on the story. Shift4 is not a startup.
As I mentioned, I think several times today, we've been around for a long time. This goes back to when I started the company in my parents' basement at 16. We have grown through a lot of interesting and challenging times. We've grown year-over-year every year without missing a beat, even during the Great Recession, even during 2020 and the pandemic. I think sometimes people forget that. It kind of reinforces how advantaged we are as an organization. We grew payment volume double-digit in 2020, serving just restaurants and hotels. I think that's always an important thing to keep in mind with this business. We are an integrated payments company.
With nearly all of our revenue and $200 billion+ of our volume that goes across our various rails being derived from software, commerce-enabling software, and from merchants that are in the United States. Our 500+ technology integrations provide us with a unique right to win in hospitality, specialty retail, complex restaurants, and other verticals we've recently entered into. When you have as much share and you've accumulated as many of these integrations, it starts to, you know, kind of create a nice flywheel as you inevitably attract new software integrations from the companies that you've already integrated into and the new merchants that wind up joining your platform, bringing whatever new integrations are necessary for specific to that vertical.
That's why we've grown the number of software integrations from the time of our IPO that support our high-growth core pretty substantially. If you look at all of our three-year CAGRs, I think these are pretty impressive. In fact, I think there's plenty of people that could challenge me on this point. I don't think any fintech that reported this quarter delivered higher growth numbers in any of these KPIs. I think big takeaway, we've been around for a long time. We're pretty scaled. We're profitable. We're diversifying. We're continuing to grow. I like this slide a lot. You know, sentiments obviously change. The world around us change. I think I remember quite a bit throughout 2021, the sentiment that Shift4 was a reopening play.
You know, we benefited from all the restaurants and hotels reopening, plus all the, you know, stimulus-induced demand, and that it would be incredibly hard to comp off of 2021. I think as you can see, we've accelerated our growth from the time we met last year during Analyst Day in all three of the KPIs that really moved the needle here. I think that this demonstrates, one, the resiliency and opportunity that exists within our high-growth core. I think well-timed investments to expand and diversify into new verticals. We really began that journey pretty much a year ago. At the end of 2021, we started making some investments in these new verticals. Then a disciplined approach to balancing growth and profitability. We were never just a reopening play. All right.
I think this is kind of a cool diagram a little bit. As I mentioned before, Shift4 is an integrated payment company. Again, what does that really mean? It means 100% of the $200 billion in volume plus that's going across our rails is integrated into commerce-enabling software. Our platform is providing the integration into that commerce-enabling software that the merchant is using. We are doing the encryption, the tokenization. We're providing the BI reporting, and then we're solving a number of other, like, technological pain points that they may have, whether that's like contactless payments, mobile payments. You've probably seen a lot of our handheld SkyTab devices out there.
When I describe the evolution of payments having been around for a fair amount of time, I tend to use a little bit of like a telco kind of analogy. I also have my Pangaea analogy. You tell me which one you like better, and I'll use it more often. When I think of like a telco analogy, you kind of have these legacy merchant acquirers of old, and they've basically consolidated and, for the most part, made up of a lot of copper landlines. In the payments industry, we think of those landlines as kind of the brick Verifone terminals, if you will, if you can recall them. They just basically do an approval or a decline.
Sure, they may have invested in or purchased some modern assets, but for the most part, people are cord cutting, and they're getting rid of their landlines because they don't need them anymore. As a result, they'll be generally some sort of a leaky bucket. At Shift4, we saw the cord-cutting trend 17 years ago, essentially, which is when we began our Harbortouch integrated payments division. So we basically saw, call it, more than a decade before that happened, and we invested in integrated payments technology connecting our platform to commerce-enabling software. When you integrate and bundle payments into commerce-enabling software, you're able to differentiate. You're able to win customers you otherwise wouldn't, very high-quality customers with phenomenal revenue retention characteristics.
You're certainly able to differentiate from the legacy acquirers who are not adding value through software, and therefore, all they can do is essentially lower pricing and cut costs, which only goes so far before that eventually reveals itself. As a result, we really don't have any landlines to perpetuate the analogy in our in our book of business. Instead, our platform integrates into 500+ software integrations, driving commerce across, call it, some 33% of restaurants in this country, about 40% of hotels, and numerous specialty retailers like The UPS Store. Now obviously, we've expanded into new verticals, stadiums, nonprofits, gaming, airlines, even broadband satellite subscriptions. In every case, it's Shift4's platform integrated into some commerce-enabling software solution, and that's why we're able to differentiate and grow. We add value beyond just an approval or a decline.
It's why we retain those customers substantially longer. It's very hard to replicate, which is a really nice moat with high walls that we've enjoyed for some time. Very clear we're not a legacy acquirer. We're very differentiated, and that's why we continue to grow quite quickly. This is kind of your obligatory logo explosion, but they've got all the most recognizable brands in commerce. But you pick the verticals are pretty much a Shift4 customer, and we only add to these logos as we move into new verticals. As mentioned before, for 23 years, we've derived almost all of our volume and revenue in the United States. We've grown every year our revenue and volume in the most competitive payment market possible in the world.
Despite serving nearly 40% of the hotels in some capacity with our payment technology, we've never expanded our reach outside of the United States, which does reduce our TAM. It reduces the opportunity we have. That was until our investor update last year, where we announced a very strategic merchant relationship that would serve as our yellow brick road to global expansion. When we get there, we get into those new markets, we'll bring all the products and services that have made us successful in this very competitive environment in the U.S. into those markets. Bottom line, quite a bit of an opportunity when you expand internationally. This is how we looked at the time of the IPO. This is how we look today.
As a result of our European PSP tuck-in, we can now process payments in about 45 countries, support 170+ APMs in about 20 currencies. I will say that, as I mentioned before, this deal needs to really be looked at alongside Finaro to really unlock a lot of the synergies that we know, you know, or that attracted us to this acquisition. Kind of again reinforces this quarter in 2022 being organic. The technical integration work, I would say, as it relates to this acquisition is largely complete, so transactions are already processing. You know, this PSP brings us a lot of talent and Stripe-like integration capabilities, but that's just the start.
We fully plan on adding talent, growing our workforce, which we're absolutely gonna need to in order to continue our international expansion acquisitions. We did announce the Finaro acquisition in March of 2022, which does give us a lot of banking backend platform capabilities for settlement card issuing capabilities, and it's a very scaled platform we can build on as we continue this international expansion endeavor. We now are processing transactions on more than one continent, but it really is just the beginning, and as I mentioned before, it had virtually no contribution in quarter or year-end from a volume or net revenue perspective. Where are we going?
We are incredibly fortunate to have a strategic merchant relationship that is bringing us all over the world, help us enhance our capabilities and join the elite few of true global commerce, payment companies. This is why we raised low cost capital in 2021. It's why we're now deploying it at a responsible valuation to execute our strategic game plan. It's worth noting that this strategy does include both inorganic and organic initiatives. I think we'll talk about it a little bit later. Our expansion into Canada and the Caribbean is all organic in nature. This is where we're going. When we get there, again, it's not just about one merchant. Now that one merchant is very important to us.
This is why we've given a little bit less specificity around our kind of new vertical and strategic customer volume and take rates. Anything that backs into the revenue of that customer is very, very sensitive as they're a private company. Once we enter into these markets, it again is not just for the benefit of that one incredibly important customer, but everything that made our integrated payment strategy work here in the U.S. in the most competitive payments market in the world, we're gonna bring that special flavor into those new markets as well. With that, to take you through the next couple slides, I'm gonna hand it over to Taylor.
Thanks, Jared. Where do you want me on the mic? Good? Perfect. All right. Lots changing inside the company, a lot's changing in the world around us. In times like this, we always like to come back to what are the fundamentals we asked investors to believe at the time we took the company public. I think what you're gonna find is not a lot's changed, except that we've exceeded expectations on all, but I think one of the objectives we set out in that S-1. Despite all the change around us, the ability to grow as a best in class among all of our peers, to unlock value inside of our existing merchant base, to expand into new verticals, enhance the product portfolio, and so on and so forth, we've been able to achieve all those.
I do, by the way, think that there's still a ton of potential within this data monetization model. It just hasn't been the top priority for the business. We're immensely proud of what we've achieved at the IPO. What you find is it often manifests itself a little bit differently than what you might have expected back then. Just, Jared covered this. I don't think we need to spend a ton of time on it, but to remind you all, we're gonna walk through exactly what's going on in our high growth core and then the contribution from these new verticals. Our high growth core is the business that you invested in at the IPO. It was largely comprised of restaurants. 17 years of our history was operating primarily in the restaurant vertical.
Over the last five years, we've expanded dramatically into hotels. I wanna reemphasize, we weren't in a single hotel five years ago, and 40% of the hotels in the U.S. use some form of our payments technology. And then specialty retail has been an increasingly growing portion of our business. Interestingly, though, it's fed by the genesis of the high growth core, which is this software platform that has 500 integrations. So a lot of times what you find is a software integration joins the Shift4 platform because they wanna be inside of the hotel vertical, and yet they have massive prevalence inside of things like specialty retail. The UPS Store, we've hit this time and time again.
It's never a customer you'd expect out of a business like Shift4, except that the software they rely on is already integrated to our platform. They see how well it works for big enterprise customers, and when they think about where to go with their 5,000 locations, Shift4 is the natural conclusion. The new verticals, again, we've emphasized these. Jared will double-click on them. What's going on inside that high growth core? It's been growing at a tremendous rate. It's accelerated. It grows far in excess of the networks, which I think you should expect, but also in excess of many of our peers. I can't emphasize enough, this is not a time when you should expect a lot of growth out of restaurants and hotels.
What I mean by that is from 2018 through 2020, we saw a little bit of a recovery inside of restaurants last year. We've seen less recovery in restaurants, more recovery in hotels this year. The ability to grow far in excess of not just the networks, the markets we're in, is a function of that captive base of customers we have through software integrations. Then again, because as we enter these new verticals, the effective spread on the business, which is I think the number one thing that folks try to put into a model, is really hard to predict. The spread in that high growth core is not only incredibly constant, it's actually grown as we've implemented pricing power on the stickiness of the merchants that are using those solutions.
As you look at that high growth core, know not only has volume growth been really, really strong, but the spread has been stable inside of it. As we look to new verticals, you should feel good about the fact that we're not giving up the farm, so to speak, to enter those new verticals and to invest in that growth. Added a lot of interesting merchants to the high growth core. This is regular core stuff. There's a really big confusion among our investor base: is Shift4 an enterprise business or is it an SMB business? It's a lot of both, meaning that the majority of merchants that join us every day are a single location, single decision maker with increasingly growing volume, which is great to see.
Enterprise decisions don't necessarily determine the fate of Shift4, despite a lot of the logos that Jared showed earlier. On our gateway sunset initiative, we talked about a little bit of this on the earnings call, but for those that weren't able to dial into it, we'll talk about, for just a moment or two what it means and how we've been acting on it. This is a strategy that's largely been effected inside of Q3. While we talked about it, I think earliest was teeing it up in our Q1 earnings call and then talking about it being underway in Q2, but the bulk of the actual effect started in Q3. What are we doing? We're sunsetting legacy connections. These are connections where merchants are noneconomic.
The benefit we get from them is not worth keeping the platform up really at any price. In some cases, we actually can't change the price to something we think is interesting. I like it as the first case because we literally don't care if the volume stays or goes. When we act on it, when we say we're no longer gonna maintain this, the common reaction is, "Okay, tell me where to route my payment transactions," and we say, "You can actually join our end-to-end platform with no friction whatsoever. You're no longer on this legacy merchant acquirer.
You get feature upgrade, you pay less money in aggregate, and you join our end-to-end, and you're on a much more modern connection with a lot more state-of-the-art features." I like it as an example because we can be the most aggressive in saying we literally will not support you in this relationship. There's no amount you can pay us to do that. You got to join end-to-end, and the results have been pretty tremendous in that regard. We have also properly monetized relationships. Properly is probably not a good word. You always reevaluate the words you choose when you see them on a screen. I think, Jared, you might agree with this, but we have begun to monetize the portions of the gateway population where we haven't been paid appropriately for the service we provide.
As you recall, at the time of the IPO, this was largely a $0.03 per transaction business, and yet, those transactions were then routed from us to a merchant acquirer who's making 10x that amount in merchant acquiring spread and doing nothing in a differentiated way. We've implemented price lifts on portions of the population where we can raise price, and I think in retrospect, it didn't create any phone calls. While it created a nice benefit to the bottom line, and it did compel yet further merchants to join our end-to-end platform, it didn't create any consternation or attrition among that underlying merchant base. What that tells us is there's still a lot more to go inside of that population.
We've had conversations with the large enterprises that have very bespoke agreements specific to when they join the gateway. Some of these date back a decade or more, and we talked to them about the appropriate way to use our platform going forward. In every one of those cases, they've agreed to pay either a higher per transaction cost, a higher monthly fee, in some cases both. Through that effort, we have a stickier relationship with eyes wide open have rejoined the platform, so to speak, at a spread that's really, really attractive from our standpoint, but also recognizes the value that we're providing inside of those customers. Jared, do you wanna hit SkyTab?
Yep. Thank you. This is a lot of what we're here to talk about today. While this was a big quarter for SkyTab, it's important to know it's been a project that's been in work for years now. Again, I mentioned this before, but for a period of time, there was this general impression that Shift4 only derived payments from older legacy restaurant software integrations, and that would be an anchor that would hold us back compared to our competitors that have invested in new modern cloud POS software. You know, to those really who had that position, I would say, one, our approach within the restaurant POS vertical has been incredibly successful and profitable for 15 years. We've grown our payment volume despite the flavor of the day competitor, which goes long, long before Toast.
I mean, it was Square was gonna crush us. Revel, that was a big name for a while, NCR Silver. We always protected spreads. We always grew our restaurant payment volume, and we also grew in a lot of other verticals because the Shift4 integrated payment story is about much, much more than just restaurants. Within the restaurant vertical, our unit economic model was always superior to the competition and only continues to improve. We've always had a plan to consolidate our legacy POS brands around a next generation POS platform. SkyTab's been in development for a long time, and we have now launched out of beta this past quarter, and I think the results already are pretty significant. We'll double click on that for a little bit. Let's see. Yep.
Just gonna reiterate again, untouchable value proposition. Shift4 owns the entire POS ecosystem. I think that's important relative to some of our competitors out there by owning the payment platform, owning a lot of the hardware strategy, a lot of the integrations. Like, for example, one of the sizzle capabilities of SkyTab POS is that we don't charge for the marketplace, the online ordering, or the loyalty platform. We have competitors that spend hundreds of millions of dollars buying loyalty companies. Loyalty is actually fundamentally rather easy when you build it out. It's either point-based or dollar-based, triggers a redemption, pretty simple, rather than try and monetize it through costly SaaS subscriptions. We look at that as a way to differentiate. It's an example of just pulling as much of the ecosystem in-house. We've got some very cool state-of-the-art hardware.
You'll be able to see that during the demonstration. We continue to push out new functionality at pretty rapid pace. When you think about it, right, you know, when you have four restaurant POS brands, which was working really well for us. That's four brands to build. That's development teams split across four different products, essentially four different service and support desks. It's Windows-based hardware. They tend to break more. There's a lot of things that are generally negative about it. We've been able to consolidate all that into a single product. The pace of development features rolling out with SkyTab, which is essentially cloud-based, is wicked fast. And that's what you'd expect to see from it. I do think we lost our video here.
They got it.
Oh, it's not into the slide. My bad. It was in mine.
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All right. Again, as we mentioned at the conclusion of Q&A, you're free to interact with SkyTab. We have a number of demos and a lot of great SkyTab team members here that can kinda show you how that works. We're featuring our Glass hardware, which is pretty cool. It's our new tablet with integrated payments. The analytics of the demos you're gonna see will be available for you to look at in our InCharge app. That's kind of our mobile managers application. You can see kind of how our kitchen display system operates. What I'd say is, when you think about some of the features that we talked about, right? Like the sizzle features is what captures the attention of the restaurateur when you're trying to sell this.
Like, what are you using to try and differentiate? For the longest time, both Shift4 and I'd say Toast, it was really all about mobile. Like that, you show the handheld, that's cool, drives a ton of operational efficiencies, you know, quick table turn, get people in and out of the restaurants. You gotta go beyond that now. I'd say some of our competitors have gone in a direction of like payroll and capital. I would think those two sizzle features very much skew to smaller merchants that either require capital or are happy, like, bundling their payroll solution. You get up market, I mean, I even. In our organization, really hard to change HR systems and payroll. We've tried it a couple times. So instead chose to prioritize our feature development around things that we think up-market merchants would want more.
That's business intelligence-based products. That's, like I said, free online ordering, free marketplace, and especially our free loyalty. One other point I'd note, I'd just say on this is SkyTab is obviously more than just PowerPoint. We have the system now presently installed in well over 3,900 locations, and growing by the day. We'll give you a little bit more of a production update on that shortly. SkyTab POS, modern cloud-based POS system, space-age hardware. We built SkyTab, really taking our experience from over 100,000 restaurants, not to mention decades of talent that's been accumulated across what were the best POS brands for the last few decades, and drove that into our product. Beyond price and the disruptive value proposition, pretty much prioritized on some pretty exceptional sizzle features we talked about before.
Let's talk about growing it. Restaurant technology, POS payments, it's a huge TAM, right? With a new direct sales force balanced with our authorized SkyTab partner team in kind of the less sparsely populated areas, plus just a very clear intent to take this product all over the world, we think we're more than well-positioned to win our fair share of new restaurants. That said, what I think makes Shift4 very special is that we can grow without winning a single new customer. We've done this throughout our history, be that gateway conversion strategy or how we grew payment volume double digits in 2020 despite serving predominantly depressed restaurants and hotels. We got really three categories here. We can just migrate our existing SaaS customers across four different products into SkyTab, and that unlocks a lot of internal operational efficiencies.
That's a worthwhile thing to do. It allows us to build more of a brand out there, concentrate our customer service, technical support, development resources. That's a good win. Now let's move on to the more, like, highly impactful ones. We can upgrade legacy software-only customers. We've got payment or software customers plus payments. We've already got sticky customers. We're gonna get the organizational efficiencies we mentioned before, increased brand awareness. Now we're gonna get incremental SaaS revenue. 85% of the restaurant customers we serve today don't pay us any SaaS-related revenues. For five years, we wanted to move quick. We monetize predominantly through payments. We can capture SaaS revenues because they wanna move away from Windows-based POS systems, and we naturally have more than a foot in the door. And then you can convert your software-only and your gateway customers.
In that case, you get to stick to your customers, organizational efficiencies, which is enormous in a company of our size, increase brand awareness. You get the incremental SaaS revenues from here on 85%+ you get payments revenue. These are all examples of how we can grow across tens of thousands of customers without ever winning the next new one. The reality is, we do have a very large distribution force. We increased headcount 15% in the last quarter, predominantly related to our SkyTab initiative. These are experienced business development professionals and local support professionals that are gonna go out and distribute this product to new customers. We also have a massive force of authorized SkyTab partners in more sparsely populated areas to continue to pursue net new customers as well.
Bottom line, we're pretty advantaged, I would say, to grow both in the addressable market and grow revenues and payment volume just from within the existing customers that we have today. As mentioned, SkyTab POS was in development for years. Now that it is ready for prime time, we've begun consolidating our brands around SkyTab. This removes a lot of parts, it removes costs, and allows to focus our resources on our flagship cloud-based solution. Because we are leaving the world of Windows-based POS systems that are more maintenance intense. We can pivot our go-to-market strategy, as mentioned, from what was 100% third-party distribution at the end of the second quarter to now what is a much more balanced direct sales and third-party distribution. You can kind of see the blue dots represent areas of the market that we're very confident in.
We have a good track record there. We believe we should take that in-house. Some of the more sparsely populated areas, the reason you don't wanna acquire these, they do a lot of other things just given their limited market opportunity. They do alarm sales, they do drive-through headsets, video monitoring, cash registers, a lot of things that are outside of kind of our wheelhouse. To acquire them would be taking on more parts, and that's literally the exact opposite thing we're trying to do. Better to kind of supplement with third-party distribution that we know works. It's a variable cost for sure in these areas, but it makes sense. Take in-house.
Yeah, you're taking on some fixed OPEX associated with it, but you eliminate an ongoing residual expense, and if you believe, like, the future is any indication of the past, that is capital well deployed, with very quick payback periods. I mean, it brings our payback period and our unit economic model inside of 12 months, which is pretty awesome. As I mentioned before, the insourcing efforts we did in these key markets did bring on, in a very short period of time, like 370-some odd employees, again, predominantly business development solution specialists, as we refer to them, as also technical support experts that you know, really did well hitting the ground running, coming out of the gate.
We do believe this provides a superior, more standard customer experience along with, again, significantly enhancing our unit economic model. As I mentioned earlier on the call, we have more work to do. I think this was always kind of a weak spot for us right now. Think some people interpret it as, like, it's gonna be a continuation of these acquisitions. That's not the case. Like, we're really happy with what we've done here, and we're very deliberate on what acquisitions we chose to make versus not. But we definitely have to address a little bit more of the West Coast and in Arizona in order to provide better coverage for a product that we know is gonna win, 'cause it's never been a winner-take-all in virtually anything I've seen in technology or payments.
Speaking a little bit about the unit economic model. Let's see. You should see gross profit lifts about 112% per merchant. Now that's largely driven by eliminating the ongoing, residual expense. Now, the customer acquisition cost goes up a little bit because you traded a variable cost for a fixed cost in terms of the overhead of that workforce. This ultimately drives this, which is really important because I think if you were to compare pretty much our customer acquisition costs and payback periods to maybe somebody who took like a, I would say, a less creative way to solve distribution and basically has like a $10,000 per merchant like digital marketing budget, this makes a lot more sense.
Based on our approach, you generally wind up getting established restaurants, which eliminates some of the new business failure risks, which can be pretty devastating to an expensive customer acquisition cost model. I think big takeaway, we strategically insourced production in key markets. We would not have done this without SkyTab. You need a cloud-based solution that you feel very confident that allows you to centralize a lot of the service and support obligations to push more of your sales, push more of your local resources towards sales. I think the results, again, superior unit economic model, greater customer experience, and just a general lift to production. As I mentioned before, SkyTab is not PowerPoint. In the beta period, we signed up approximately 3,900 sites, actually installed about 3,900 sites.
In the less than two months since we've gone live, we've signed up over 1,000 locations. I think there's a few things to keep in mind here. We are just getting going. We did bring on 300 and like 50 some odd people in two months. Whatever you think of this number, which I think is pretty good, you're not 100% effectively mobilizing a brand-new workforce of that size in a span of like weeks, right? This production only ramps from here, which I think is pretty awesome. The other thing too, I'd say, when you talk about ticket count in terms of production is like, our average restaurant right now in terms of its volume contribution per year is 4x the highest category that Square reports on.
Like, you're talking about a very upmarket, high quality restaurant. That's what our product is optimized for. It's why there's no capital offerings with it. We'll do that through Marketplace. That's why there's no payroll offering related to it. When we use seat count, and these are generally real restaurants, I emphasize that because some of them I've seen in, like the Office Depot and the vending machines now, which, that's a pretty easy way to generate seat count. It's probably not a good return on investment. Okay, moving off of SkyTab, let's talk a little bit about our new verticals. As a reminder, we consider new verticals to be the diversification beyond our high growth core, which is essentially what you invested in at the time of the IPO.
This includes sports and entertainment, gaming, nonprofits, travel and leisure, SET, SE, tech. As a payments company that was focusing pretty much entirely on restaurants and some hotels, that had a successful IPO in June of 2020, we felt we had an obligation to further diversify and come out of the pandemic stronger than we went into it. I will say that moving into new verticals takes time. Integrated payments is very, very hard. You know, when we talk about new verticals, I know I emphasized this earlier, we're not talking about putting Verifone terminals in nonprofits, you know, or, you know, like The Boring Company or some of these, or Time. Like, you're talking about integrating your payment platform into software to deliver a very secure commerce experience, and that takes time.
you know, I think despite our immense progress, even though it did take longer than expected, it should reinforce how difficult it is to enter into new verticals. A year later, now that we have those integrations, we have the hunting license within those verticals, you know, growth from these verticals is obviously becoming an increasingly larger contributor, and it signifies really how hard it would be for anyone else to kind of follow. Let's do double clicks on each of them. Sports and entertainment, we don't have it up here, but in 2020, we had one stadium. It was Allegiant Stadium, and they weren't open because of the pandemic, so we had no volume. In 2021, we learned from that one stadium opportunity.
We realized its characteristics of a modern-day stadium are actually a lot closer to a resort where we have a lot of expertise in, we win quite a bit in, which attracted us to the vertical. We completed an acquisition of VenueNext. VenueNext had no net volume whatsoever as a component of the organization. They did not have an integrated payments field value proposition, and they were winning a lot. That's good because then we're saying, "Well, if we can monetize through payments and use that to make the offering even more attractive in a direction that virtually every stadium should go anyway, because who's not gonna wanna order a burger and a beer from their seats, we can have a lot of success." The success is we had 77 stadiums using our payment solution and software in 2021.
We now have over 120+ stadiums, including many of the highest volume football ones, NFL, NCAA. It's been really nice to see so far this fall in the third quarter as they start to make more of a contribution. We also have ticketing integration. Like when I think back to the, you know, the underwriting case for the VenueNext acquisition, the base case is your mobile application plus some of the concession stands plus payments equals a win. Bonus upside came from ticketing integrations and gaming. SeatGeek is one of three ticketing integrations we've completed. We expect to get some of that volume kicking in this quarter, more coming in the beginning of the year.
It's actually a factor of like the team's existing contractual commitments for ticketing, is kind of what slowed that down a little bit. That's awesome because that is a huge lift in volume and at take rates that are like well north of what you would typically expect from like stadium concessions. I mean, that's pretty low-risk volume. You should expect that's obviously not priced too high. Plus it's a lot of volume. We also now have gaming integrations alongside our stadium customers. That was another part of the bonus upside to the VenueNext deal, is our presence in stadiums going to give us more of a right to win within gaming? The answer is yes. Can you use it alongside each other?
Can you make a wager in a stadium, and then use the proceeds from that to maybe buy your burger and a beer in-app or something? We basically have two customers right now that are in early days of marrying that technology together, which is just interesting. We'll see where that goes. Obviously a lot of people are spending a ton of money to get consumers to want to wager through these applications. We'd like them spending that money so then we could eventually process the transactions across them, which is great. We also have taken the software into the leading theme parks in this country. I think at this point it's all of them. We just can't disclose any of them. I think it's all of them.
In terms of this quarter's performance, we always like to highlight some wins. We have many signature wins. We have the Houston Texans, which is awesome. University of Colorado, Chicago Symphony Orchestra kind of shows. I don't know how many people are ordering a burger and a beer in the Chicago Symphony Orchestra, but they could, I guess. Iowa State University of California, Berkeley, Villanova University, just some existing examples of it. We do marry VenueNext with SkyTab POS. We've taken our SkyTab POS solution and installed it alongside VenueNext in a number of stadiums. You can see that here, Wells Fargo Center, University of Notre Dame, The Ohio State University. I mean, these are all obviously very, very real customers where the solution's in practice today if you were to kind of go to the venue.
All right. Let's talk about nonprofits. That's another double click from where we were last year. Where were we last year? We had one customer. We had St. Jude Children's Research Hospital as kind of the anchor to move into the vertical. Personally getting very close to St. Jude, I realized again, it's kind of like how we learn from stadiums. It's like you find these industries that need lots of different software to deliver a commerce experience, and if it's not talking to each other, I mean, that's what we do well. That's opportunity. That's what we do in hotel resorts. That's why 40% of the casinos use Shift4. That's why, you know, pretty much every ski resort uses Shift4 as a customer. We can kind of take that same magic, bring it into nonprofits. Now, this is really hard.
Again, moving into new verticals is very hard because software companies and enterprise merchants are not excited every day to do payment integrations. They're not. They literally want to do anything other than that. If they already have software integrations, it's probably fine. You need some muscle, like a really big customer, to kind of say, "Hey, you got to do the integration. You don't have a choice on that one." But if you can get more of a foot in the door, that's even better. That's where The Giving Block came in. Within 5-6 months of announcing our entry into the nonprofit vertical, it's a $450 billion addressable market. We acquired The Giving Block. Really like that deal.
First of all, their technology is kind of like a need of the moment right now. Every nonprofit, they're gonna take crypto donations. I mean, they take donations from anything right now. I mean, whatever it takes to get the mission done for their nonprofit, and The Giving Block is the best platform in that regard, because it actually brings them donors. It's really interesting. Of the donation volume that goes across The Giving Block, approximately 80%, I don't know if that's changed in the last quarter or so, comes from crypto donors who go to the marketplace to find the nonprofit they want to give the money to versus going directly to the website. Nonprofits value that an awful lot.
Bottom line is you have about 2,200 or more, and you can see the stats as The Giving Block has continued to grow, even during a very obvious crypto winter. Gives us a foot in the door to every one of these nonprofits to say, "We're glad you like The Giving Block service, and by the way, we're adding a credit card widget module to it. Every one of your customers who come to the site and want to donate crypto, they also next to it have an option for credit cards because that's good. But we could probably handle everything else too, because now we have like a Salesforce integration that's coming along for Salesforce.org. Kind of give us an opportunity to help you similar to what we did with St.
St. Jude. It's beyond a foot in the door, in my mind, for what is a really, you know, attractive $450 billion addressable market. Like I think where you want to see this go is 2-3 years from now, we want to be talking to you having the same success within this vertical that you talked to us about within hotels. That it's just a given. You know, Shift4, lion's share of the market, went in really kind of revolutionized how all the different various commerce-enabling software within the nonprofit vertical and donor management software came together, and now they'll continue to have a great right to win for years and years because they have all these integrations that no one else will be able to get. That's what the game plan is here.
In the interim, while we're waiting for more donation volume to come on, we're growing SaaS revenues at a pretty attractive rate. Up 5.3 x September 2022 versus September 2021. That tells you, I mean, nonprofits, even if maybe it isn't the greatest time in the world for crypto are saying, "But if somebody wants to donate it, I have to have the means to be able to take it, and I'm signing up as a subscriber." All right, let's talk gaming. In 2021, we had one signature customer, which was BetMGM, and eight gaming licenses. I'd like to think that the BetMGM relationship was actually one at the time because of our relationship with a number of casinos. We have a very strong in-venue casino presence.
In fact, it came as a referral from a stadium with VenueNext that kind of saw the same thing of the marriage between gaming and sports and entertainment products. That's how we won BetMGM, eight gaming licenses. In 2022, we now have 21 gaming licenses. Volume is up 3x quarter-over-quarter. We've added additional customers and integrations along with identifying assets to expand our opportunity to support this vertical all over the world. I'd say very specifically, international acquisitions, Finaro will be a great example when we close on that, only enhance our right to win within this particular vertical. Not to mention they have existing gaming customers in Europe. They're using somebody else in the US, so there's a very natural cross-sell there. All right, travel and leisure.
One customer in 2021, we announced Allegiant Air. A year later, still not processing for them, although it might've been literally today or tomorrow. That took a little bit longer than we expected. I kind of offered that up in earlier remarks to be like, "Hey, you know, we did really good for volume in this one, which is pretty multi-billion dollar customer hasn't kicked in yet, so more coming." It was like, "See? I told you they can't win in new verticals." Anyway, sorry. In 2022, we now have four customers, three integrations, several other in negotiation. Most of these are processing already. These are pretty interesting vertical. The more we add international capabilities, the more we're able to differentiate, hopefully take on more in the travel and leisure space. All right.
Sexy Tech, we'll work on another name for it, but in 2021, we had one very significant signature strategic customer, a customer that requires very sophisticated recurring billing capabilities all over the world. I think as you guys noticed, we stopped referring to this private company by their name, as their volume contribution continues to grow, and the need for confidentiality becomes that much more important as with respect to those KPIs. As a reminder, this strategic customer gives us the primary rationale to expand all over the world through organic and inorganic means. Where are we in 2022? Our strategic customer integration took a little longer than expected, but that volume growth came.
We kind of gave you a little bit of a taste of that at the end of the last quarter by showing, like, just where the exit rate was to the next month. I think it was like July. It should have jumped out at you as, wow, that's pretty significant. You can probably guess, I guess it's really all you can do. I mean, it's probably a pretty big contributor right now as well. We've also signed additional customers within the family. The Boring Company is a good example of that. It's probably the last time we'll refer to that, disclose that company name. We signed Fanatics. Now, normally, you would think, well, isn't Fanatics just part of their sports and entertainment thing? It's not. Now Fanatics is huge.
It's obviously a huge e-commerce and in-venue retailer for like sporting goods and merchandise. This is very much along the lines of Sexy Tech. This is a completely different integration than VenueNext. We announced it last quarter, and over 40 locations are up and processing now, like really fast. I mean, we've added throughout the quarter, so you're not like, of course, seeing the full run rate of it, but really quick to light up all those customers. That was a nice competitive takeaway. We obviously signed Time. They will certainly benefit from our PSP acquisition because recurring billing is a pretty important priority for them, so we haven't gotten them up and running yet, but we will. This is again reinforces time it takes to complete an integration, get processing.
We generated a number of interesting RFPs. I mean, you're talking in the $10 billion+ volume global customers, and really, I think we owe it all to really one strategic customer, but the idea that there just weren't a lot of choices. I mean, we refer to Adyen quite a bit. I mean, Adyen is like the best when it comes to global commerce capability. You know, the fact that we're even moving generally in that direction, we now have two continents. We intend to get more as a result of our organic and inorganic initiatives. It's attracting some pretty awesome RFPs.
Probably worth reinforcing like a $50 billion a year, like, you know, you know, gig economy application is probably not priced at 76 basis points just to calibrate everyone's expectations there, but it'd be a pretty awesome win, and, those are the type of RFPs we're getting now, which is awesome. We keep building around this vertical, but I think a key, like critical step here is we gotta continue to expand our rails across the world. We obviously announced one acquisition in Finaro. We hope to close that as soon as possible. I think realistically it's in the first quarter now. We did do one tuck-in international PSP, brought us a lot of very important, front-end integration capabilities. I think Taylor will give a little bit more specifics.
He'll actually do a little bit of a demo on that. With that, I will turn it over to Taylor.
If most in the room are anything like me, what do these large, fast-growing e-commerce merchants need was like a total loss. We've been in card-present commerce with Enterprise, and the e-commerce experience is fundamentally different. We wanted to ground you all in what's important to these massively fast-growing e-commerce businesses that are just trying to accept revenue in as many corners of the world as possible. The first is I want to accept payments in as many different methods as my consumers are gonna approach me. I don't necessarily know, as I expand to Europe or I expand to South America, what those payments are gonna be.
Knowing they work out of the box is something that's critically important to me, and that the payment experience is as frictionless as possible for someone using Pix in Brazil as it is using a Visa, Mastercard, or Apple Pay inside the United States. This is critical technology. From the standpoint of the software integrator or the merchant themselves, they wanna make sure that they're accepting that revenue on a basis with minimal fraud as they enter different geographies around the world, and that it's really easy to integrate to this thing and get access and unlock countries around the world as your business model moves. We'll show you a real quick demo. It's not nearly as polished as the SkyTab demo, because we acquired this business, I don't know, 40 days or so ago.
To give you a sense of a business operator that's suddenly expanding into a lot of geographies around the world, opening an application, and navigating their business and their revenue. Keep in mind, this is all compatible today. The thing we're most proud of with regard to this acquisition is it was acquired in the last two days of the third quarter. It is integrated to Shift4. This all works today, and you can go try it at dev.shift4.com. Do you want me to leave it on this slide? Perfect. All right, in summation, we've added a heck of a lot of capabilities to support all of these different verticals. Hopefully, you have a little bit more color on what those capabilities mean to the merchants seeking out, a payments provider. You've also seen significant ramp in the contribution of these.
I think with just some admitted delays in merchants that we fully expect to continue to contribute or to begin to contribute but haven't yet. What does this mean for Shift4? We showed you this a year ago. This is the expansion of the TAM. The point of a year ago was that we've got a signature customer inked in every single one of these verticals, and the volume contribution hadn't yet begun. Well, now you've seen the volume contribution's just begun, and here's our penetration of that TAM. Still a long way to go. Jared, do you wanna hit kind of the grander vision with international expansion?
Yeah. As I mentioned, I mean, we've been looking to expand internationally for over a decade. Really it was a dream going back to the basement days, can you be a global payments company? Certainly never imagined the evolution that we've taken to today. With numerous international hotel operators as customers, we've always looked to move in this direction. I think landing a very important strategic merchant relationship we announced last year was really the catalyst to embark on this endeavor. What have we really done in that year? Obviously, starting point, nearly 100% of revenue and volume driven in the USA, still the case today. The year will still end that way. We also think we're being clear, we don't think Finaro is gonna close in the fourth quarter.
That's not obviously in our guide. In March 2022, we announced Finaro. We thought it was set to close in the fourth quarter, more likely gonna be in the first quarter. Great European payment platform, immense backend. This is the platform we're gonna build on for all of our international expansion. Obviously, it brings a lot of synergies when you start connecting it with a PSP like the one we've already acquired. Opportunity to build upon the R&D and development teams, which is gonna be necessary as you move into obviously new markets. There's an awesome cross-sell opportunity. I mean, a lot of their customers that are in Europe are also in the US right now, and they're not using us. They're using competitors.
Now, through arm's length partnership agreements, we've already referred a bunch of volume again, you know, to each other. I think Kiwi.com is a good example of that. You know, Wolt's got a very interesting parent company. It's cool opportunity. Zola is a very good opportunity. So good starting place. Obviously, we can't wait for the regulatory approval to go through, which we expect soon, close on that. Over the summer, especially as we started to see the volume really, really ramp from some of our new vertical customers, obviously one, you know, in particular, and get a sense of which markets for them are, like, really strong and kicked off some organic initiatives, Canada for one, Caribbean for another. Now, what's really cool about this, right? Like, these are two markets we have a lot of gateway volume.
I mean, there's billions in gateway volume in Canada alone. We just had really never even attempted a cross-sell associated with it at all. When you add the capabilities to support your big customer in Canada, you've got, I would say, somewhere north of, like, 1,000 POS customers that are in the region that you're really generating almost no revenues associated with, and then you have a lot of gateway volume you can cross-sell. The same is applicable to the Caribbean, although I'd say it's, like, considerably smaller cross-sell opportunities. There's a lot of hotels there that are on Shift4, but again, once you move in that region to support your big customer, all your other opportunities become available. That's gonna be a theme as we expand all over the world.
In this quarter, we signed and closed a European PSP. As I mentioned earlier, in case anyone forgot, that actually represented a very small portion of the capital that was deployed this quarter, and it added a lot of interesting capabilities that we think we absolutely need, but there will be, like we do think we're pretty good at allocating capital and pretty disciplined, so we do expect to unlock some pretty immediate synergies with it upon the closing of Finaro, and then obviously lots of various cross-sells in a number of directions, which we expect to be consistent throughout our international expansion effort. I think points of reinforcement here is, like, we are gonna profitably follow our signature customers all over the world.
You know, these are not like a loss leader endeavor. Our signature customers, like, as I mentioned, their pricing to us is comparable or greater than what they were, you know, paying basically in Adyen. We'll bring capabilities that made us successful in the U.S. and new markets, and we'll cross-sell like crazy. Taylor get back to you for capital allocations.
Sure. We'll see what the most common question is this quarter. This is definitely one of the most common questions last quarter. How do you think about capital allocation? How are you prioritizing the powder you have? We're in an enviable position, in my opinion, with regard to the amount of cash we have on the balance sheet. The amount it costs us to borrow is, despite our peer or vis-à-vis our peers, really quite attractive. What have we done with this capital? This slide I think sums it up in the most simplistic way we could think through, which is that we've deployed $720 million towards M&A and growth. 191 of that was issued in equity.
That was at times where we didn't necessarily like giving out our stock based on the valuation of the stock, but we thought the alignment in these transactions was critically important. $529 million was cash. At the same time, when we could and when we thought it made sense and when the stock was laughably cheap, we deployed about $200 million towards repurchases, effectively negating any dilution that those transactions had. At the same time, because we've been challenged on this, are we a software company? Are we a payments company? Are we capital allocators? We think we're all of those things. We 4.6x the amount we spent in R&D on an annualized basis, all while expanding free cash flow. You can back into a pretty interesting multiple here.
I think the punchline is we're 2.7 x more profitable than we were at the IPO at the tune of about $1 billion worth of capital deployed.
Okay. Similar to last year, and I guess probably have even more reason to complain about valuation now than I did at the start of the day, I asked Tom and our investor relations department to put together some slides that I thought were rather interesting. From the 2021 Analyst Day a year ago, estimates were revised down in virtually every competitor from a revenue perspective with the exception of Square, Four, and Toast. We revised up 16%. You know, in terms of adjusted EBITDA versus our peer group, again, from Analyst Day, virtually everyone with the exception of Four was downwardly revised pretty significantly, I would say. On average, downwardly revised 32%, up 14% for us.
From a free cash flow perspective, we're the only ones revised upwards at 24%, compared to -36% for the peer group. Then as probably you could guess where the punchline was going on this one, the price targets for Shift4 went down comparable to our peer set despite your upwards revisions on virtually everything else. With that, I will hand it to Nancy Disman to review our guidance.
All right, I only have two quick slides, and I know Jared already has gone through this, but I guess as kind of being up here for the first time as new CFO, maybe tending to be a little more conservative with this hat on, I guess I wanted to take the opportunity to just point out again that we've upped our guide for the year on all of our key indicators, and we are very confident that we will achieve this new guide. It's really based on four points that I think should be clear after today. One is outperformance of third quarter results. Obviously, sitting here beginning of November, we've got a very good first look. We're one month into Q4 and feel good about that.
Then really just the continuing strength of our high-growth core, and I would say a quick start and just really great momentum on all our strategic initiatives that we've been talking about today. Again, I would be short and sweet and just reiterate we feel very good and very confident in this full year guide. Now for the midterm guide. Obviously, we set this guide at the end of 2021, and kind of a similar theme. We're one year in to the midterm guide, and we're feeling great, right? We're outperforming expectations of that first year, and really just reaffirming the guide that was set a year ago. With that, I will hand it back to Taylor. I think Taylor, right? Yeah.
Any of us can hit it because.
Yeah.
You know, as the company's growing as fast as it is, we mentioned a lot of hiring, that's adding talent in all of the new verticals where we need outside talent. It's also insourcing our distribution partners. We found that social is probably the best way to embed a common culture across what is a company that's substantially larger on an employee basis than where we started, and even more so at the time of the IPO. This gives you a sense as to kind of what Shift4 employees are doing on a collective basis when we're not growing the business, has meaningful impact inside of our local markets. That's me reading to a kindergarten class. My wife...
It wasn't lost on her that I don't read to my own kindergartner's class as often as I should, so I got some heat for that one. This is really important. It's not just important from the external optics point of view, it's important because this is how you get a bunch of different people who started their careers doing very different things with a very different mission, all on the same page about what drives Shift4 and what drives Shift4's merchants. Again, this is kind of in the world is changing type moment, right? You respond to your investors and what questions they're asking that they didn't answer before, and then kind of share for the benefit of others.
I thought this was an interesting one just based on you know how we've issued stock over since the time of the IPO. Actually one that I was kind of a little bit always rather sensitive to I would say. The reason being is largest shareholder in the organization and I don't believe like irresponsibly you know issuing stock. This to me by the way is something that should count and should matter during the best of economic times when no one really you know paid too much attention to this and especially so in the more challenging ones. To give a sense 78 million shares at the time of the IPO 2.25 years later 84.5 million so 8% dilution.
I think, Taylor walked through how we created a lot of value as a result of that. Let's go into a little bit of, you know, the walk. We bought back 5.2% of the shares. Primary issuance, which was, I think, only one we ever did, which was alongside a Searchlight secondary sale, was 2.6%. Acquisitions, 1.9%. The four share program, this was my initiative during when, like, the labor market was ridiculous. I funded half of this program basically to offer more shares to every level within the organization to be able to, like, differentiate and attract talent, you know, during a time when you couldn't.
I think in doing so, it's actually like, it was able to allow us to attract the right talent, to retain them without, like, going way overboard, like you're seeing a lot of other tech companies have to correct for. In our case, like, we're actually can keep hiring to, in order to sustain growth versus taking big cuts. Then we had a one-time employee recognition, which is where I think some people get a little bit lost when they look at, like, our historical stock-based compensation and incorrectly mix this. This was a one-time, basically thank you for people with 20 some odd years in the company. It was done at the time of the IPO. What is actually, like, normalized ongoing comp? It's 2.4%, but that's over a two-year, you know, period.
Actually, when you look at it on an annualized basis, you see at the bottom of the screen, it's 1.2%. This is just, I think management, especially the board, the comp committee, especially myself, being very realistic over the last two and a half years about maybe the climate that we were in prior to that was not, like, very rational, and that we should be responsible throughout good and bad times. Hopefully, this walk, for those that didn't look at it quite as much, gives you a little bit more comfort in kind of how we look at something that has become, again, much more talked about today.
Again, just before we go into Q&A, I wanna give the floor just for a second to Michael to come up and just kind of set the stage on a little bit of the SkyTab demo that is, I know we've talked about a lot of things other than SkyTab, but you're here, you should check it out while you're here. Okay, Michael.
T hanks, Jared. Hello, everyone. So I think Jared covered it pretty well before. We really want to immerse everybody in the SkyTab POS ecosystem. So, when you do exit after Q&A, we're gonna have SkyTab at the bar, we're gonna have people walking around with SkyTab Glass, we'll have SkyTab Mobile. So it should feel like you're at a restaurant or a lounge, and we can take drink orders.
We'll bring the drinks over to you. We also have T-shirts in various sizes, so we can place orders for those T-shirts, and then somebody will bring them, and you can put them in the cool backpacks that are on the back of your chairs right now. Please take the time to get to know SkyTab. You're gonna see it in a ton of places, especially over the next few years. You'll also see the back office side of it 'cause we do have a kitchen display system set up right behind the bar. As your orders are being placed, you'll see them showing up in the bar. The bartender will use those to make the drinks.
We're going to have a laptop set up with the InCharge app, and the InCharge app is the engine that kind of runs the business if you're a restaurateur. You can actually go onto the App Store or the Google Play Store and download that application. You tap it, I think, 6x , and it goes into demo mode. But we'll have one that's actually running the Shift4 cafe that's set up today to serve everybody drinks and T-shirts, and you can see it working in real time. Thank you, and I will see you out on the floor at the cafe.
I think it's gonna be Q&A.
I think just one takeaway I'd have as we do migrate out of here and kind of go through some of the SkyTab demo is, like, it's gonna be a winning product. Like, if we've won for the better part of 15 years between Harbortouch, Future, POSitouch, Restaurant Manager, Micros, basically legacy point-of-sale brands that we've grown volume in, we've been able to modernize with our resources on technology that never was meant to handle aggregated online ordering or pay at the table or any of these things, and we've been able to find success with it. Imagine what we're able to do when we can concentrate that energy, it's a lot of energy and a lot of resources, on a single product that our existing customers and new customers wanna have.
Obviously it's a pretty big market and even more so when you think about it outside of the US. Hopefully you enjoy your interaction with it, and we've got a great team here to answer questions. Yep.
All right, we got two mics working the room, myself and our Chief Marketing Officer, Nate Hirshberg. So Jared, it'd be helpful if you just point to who you want the mic to go to, and we'll get the-
David, do you want it? He's right in front of me, so he's very easy to see.
Thank you, David Togut, with Evercore ISI. A question about the European expansion strategy. Historically, integrated payments have been relatively small in Europe. You're making a big push in Europe with Finaro and with the European PSP acquisition. You've also increased headcount 15% in the quarter, mostly tied to the SkyTab rollout. What are the key drivers in Europe, A, to get significant uptake of integrated payments where it hasn't existed much before? And B, what's the distribution strategy? Do you go to market through bank alliances like some of your competitors have? Is it partnerships, or do you build out your own direct sales force as well?
Yeah, it's a really good question. I mean, the critical component, like you obviously, number one, is you wanna take care of that strategic customer. That's the reason you're moving into that marketplace first. Then number two, you wanna connect the plumbing between Shift4 here in the U.S. and that overseas entity, so you can take advantage of the products and integrations that already work here and bring it into those markets. If you can do that, you already have a distribution force via the ISVs themselves. So if you think about, like, those 500 software integrations we have, who's in there? You got Oracle that's in there. Agilysys is in there. Springer-Miller is in there. Microsoft is in there. Like, you go through the list, they have this problem. There is no integrated payments really over there. I'm like.
Just saying, like, factually, every time I go to Europe and stay in a hotel, for sure they pull up the reservation from a property management system, and then they key it in to a bank terminal, and they certainly aren't integrating, like, the restaurant into it. Those handheld devices they bring to the table, like, don't be fooled. That's just a mobile credit card reader. It's not talking to anything. They're manually reconciling that later. Like, the demand is there. They're gonna want integrated payments, no different than U.S., 'cause it gives you greater insights into the consumer. I mean, that's what drives loyalty operations. You know, it's just a natural evolution for sure. The demand is there. We already have the products and integrations that we know work in this climate, so you gotta connect the plumbing.
The nice thing is, if you look at the Finaro deal, the whole, you know, earn out portion of that transaction was structured around technical integrations to Shift4, so that at the time you close, you can kind of hit the ground running. Like, I think, like, in terms of priorities, number one for sure is take care of the good customer, which is why you're doing this in the first place. Two is make sure all the plumbing works. Don't operate like two, three, four different companies. Like, have a lot of centralized approach to your integration strategy. Be able to obviously serve more than one just card-present integration. That's where our PSP came into it. That's how you can bring your products and services into those markets.
The third element I'd say to it is use cross-selling the volume. Like, that's actually the low-hanging fruit in every one of these is, you know, if Finaro hypothetically, you know, has $10 billion of volume, and, you know, we do an acquisition maybe in like another continent, and they have $10 billion of volume. Well, believe me, all those customers that drive that $10 billion of volume in it, in those economic climates probably do equal or maybe more in the U.S. market. That cross-sell is very important. It's the same as it is bringing our hotel customers that are probably using a multitude of different bank or non-integrated providers overseas and making it easy for them to take that volume through their existing integration. That's all the low-hanging fruit of it.
Thanks for that. Just as a quick second question, and mic on this time. David Togut with Evercore ISI. In the stadium business, which seems to be ramping pretty quickly, you're mostly focused on concessions at this point. How big is the ticketing opportunity in those stadiums, and what do you have to do to capture that ticketing revenue opportunity?
Yeah. Just to be clear, it's actually mostly mobile and concessions. It's basically everything that's happening in the venue, including retail, merchandise too. The ticketing integrations we now have. We have three, which there's not that many of them, so that's good. SeatGeek is probably one of the biggest ones. Now you have to wait for some of these agreements to run off, the teams have. Like MLB had a five-year agreement. It rolls off this year, which is good. That's why they actually even bothered doing the integration to us. That was something you had to learn after the fact is that you need the technical integration into the platform to even process the ticketing transactions.
The customers themselves, we didn't realize were already previously involved in various, you know, mid, long-term type agreements, and they're all starting to run off. I don't know, do you wanna speak to the volume opportunity?
Yeah, sure. Ticketing typically represents about, I don't know, 4x-6x what the concession spend is. It's also at quite attractive spreads, so it's a substantial opportunity. What teams are increasingly looking for, and again, this is a common thread as we weave it through, right? It's a single merchant that's trying to understand the totality of the revenue from the consumer, regardless of how that revenue's coming in. The idea that you wanna fold this into one spot is quite logical. Stadiums didn't have that benefit before. They had their ticketing provider, they had a myriad of different providers for all the solutions inside the stadium.
It started with the idea of consolidating around a great piece of technology that stadiums wanted, expanding into we can deliver similar functionality across all the different endpoints of parking and retail, like Jared mentioned. Lastly, what's the big source of revenue? It's outside of sponsorships. It's ticketing.
Thank you.
Tim.
All right. Yeah. Hey, Timothy Chiodo, Credit Suisse. Okay, I wanted to talk about the distribution. You gave some good numbers today, Jared. I wanna say you said 350 people roughly came in the last few months. Just for context, in Toast S-1, they said that this is about a year and a half ago, right? They said they had about 734 people in their sales and marketing organization. This 350, and it seems like it's a number that's gonna ramp. I think what investors would like to know is how many people, whether they're internal, external, eventually, will be out there selling SkyTab POS to restaurants relative to the Toast number, which is probably larger than it was at the time of the S-1.
Yeah, that's a really interesting question. I don't think the actual headcount, like, as it relates to our direct initiative, is gonna grow that much. Like, there are some markets like Arizona and California. You just look at the map and it's like, you gotta probably do something here. I think that, you know, like, doesn't move the needle at all. What I think you have to, you know, think about, and this is the advantage, I think, relative to Toast. They have a lot of salespeople, a lot of marketing dollars. It translates into a very high customer acquisition cost. That's on average, because I'm guessing in certain, you know, major markets, it's substantially less.
There's other markets where it's like, why do you have all this fixed cost for what is a very small opportunity of restaurant customers? So that's why the balanced approach was important to us. There are markets we know are gonna be winners for us. We have too many existing customers there. The opportunity is too large that you're gonna wanna bring in your best partners there, and the math is extraordinary really is on why you should be doing that. You're gonna have all these other authorized distribution partners covering out the sparsely populated areas. My guess is if you add the headcount between the two, we might even be higher in terms of our coverage relative to Toast on that.
Like, there's still a lot of gray dots that were up on that slide that are representing the Midwest, and markets where, again, it just doesn't necessarily make sense to have a direct sales presence. I think the key thing is, like, we have awesome coverage right now. I think the landscape will be very clear. Toast and Shift4 competing for restaurant business, which is there's a lot to take from others, along that journey. That we can do it in, like, kind of a responsible, balanced way. There should be no one should be interpreting that like, "Hey, next quarter, we now have, like, 700 and we're doubling the size." Don't read into that at all. That's not the case.
Like, we got to a really good spot now to support a launch of the product in September.
You know, just one more thing I'd like to layer onto that. When you think about a strategy like this, insourcing an existing distribution force as opposed to building a direct sales force, there's some fundamental things that I think are overlooked in the Toast versus Shift4 comparison. Number one, every one of these partners has been proven to be successful with us. They have an established book of business, and they've been doing this for 10, 20, 30 years. The restaurants they're going after are established, their Rolodex is already built out, their credibility is already established. Building a direct sales force with...
I don't know where we put ads these days for new employees, but that wasn't gonna work for us, because it's too much of a gamble that they're gonna number one, be successful in the first part, but number two, bring you restaurants that have first-year survival bias that is like really skewed towards the negative, and we don't want necessarily as customers. So that's really important. Then the last piece, to be able to hire at that scale in the way that we did, these people need to know that they're gonna be successful inside of our ecosystem. They're not just gonna take the gig, assuming that it's all gonna work out great.
It's a risk for them as individuals, and they had to get their hands on the product, really understand the go-to-market, understand what direct versus indirect meant, and they joined us kind of in scale. We're really excited about it.
Perfect, Taylor. Jared, you kind of alluded to it earlier, but it sounds like the average restaurant using SkyTab POS is in the $2 million range 'cause you said 4 x the highest bucket for Square.
Yeah, I'd say like, between like yeah. That's a good answer. Like, you're very much in the ballpark. Like, it does.
Just trying to be helpful.
We keep moving upmarket every quarter, so I don't wanna, like, understate anything.
Okay, great. That wasn't really my follow-up, though. Let me just hit it real quick, which is the original 7,000 resellers, bars, right? Sounds like now there's only a few hundred that are indirect distributing, you know, salespeople, essentially for SkyTab POS. How much runway is there if you wanna build out the indirect? How much further can you go into that 7,000 number, appreciating that some of them are maybe focused on other verticals, et cetera?
Yeah. I think that's really important to emphasize. I don't know. Somebody got that rather wrong recently, was like, "Oh, they, you know, say you have 7,000 partners, but, you know, that, we don't think that's representative of the restaurant distribution for us." The answer is we're in a lot of verticals. Like, Microsoft has, I don't know, a few hundred, you know, value-added resellers across the country. You know, that's how you got UPS Stores. That's how we've gotten other specialty retailers as well. I think we gotta be careful. Like, in the past, we would have just put a product out to everybody and see what happens. We were much more deliberate with this insourcing initiative not to create channel conflict.
That's why, you know, to Taylor's point, like you can put out an ad and hire like a ton of people, and they wouldn't really know what they're doing. What it would have done is irritate the hell out of our existing partners, and then you lose on both accounts 'cause you got inexperienced people here annoying your really good partners. They wind up going a different direction. I think the idea was like, "Let's make good bets within markets that we think will be real winners." That's what we did with the insourcing, and we will fill in the rest with authorized partners that have to pass certification courses that we feel confident will deliver a good customer experience for us. Now, there's a lot of gray that you can fill in there for sure.
Obviously, it's not up on the board, and like the West Coast is an example of it, and we'll just be really smart about where we choose to hire or if we have a partner and they're just really good in retail or they're really good in hotels. I mean, I can tell you like probably like four at least of our property management system ISVs have taken on SkyTab as a product to bundle with their hotel software. That's awesome. We'll look for other examples of that too. Yeah.
Hey, Darrin.
Hey, it's Darrin Peller from Wolfe Research. Guys, just a quick question is first on the strategic nature. When you think about what you're doing in restaurants, it really does seem like you're going more individual into your medium size type restaurants that you either have as existing customers or potentially new small customers. Your strategy's always been around going after very complex verticals.
Mm-hmm.
that have a lot of ISV integrations necessary, and differentiating yourselves, whether it's good tech or just good execution, it didn't really matter, you guys would win. This seems a little bit more like you're going with a POS solutions approach. I'm curious, I mean, it seems a little bit of a pivot to what I've known you for, right? Maybe it's, it dovetails. Then just touch a little more on the balance between you have so much going on. I mean, there's all those verticals you laid out, whether it's charity or it's stadiums or the European communications build out, and this seems like a pretty big effort. I'm curious how you think about balancing the effort.
Yeah. I actually think like we're staying pretty true within the restaurant vertical of being mid to upfront of the market. I don't expect you'll see SkyTab displace Square or Clover in kind of your smaller coffee shops or kiosks. Like, frankly, we've built in way too many features into the software to make it download on an iPad type thing. I think we're staying pretty true in the more complex or upmarket end of the restaurant space. We built out property management system interfaces, built out a lot of enterprise capabilities. You'll see a lot of these things.
I just think it would have been outright, you know, irresponsible for us being as strong as we have been for so long within the restaurant vertical, with really smart at distribution, with a lot of existing customers that you can further monetize through SaaS, for us not to have made, you know, a good bet on the space. I think we're able to do it really intelligently because we get to shed a lot of the old to concentrate on the new. We're not brand building four brands anymore. We're not gonna have four technical customer service departments supporting these four brands anymore. It's like, I don't think it's a departure at all.
I think it's just actually just a very logical evolution of what made us successful going all the way back to the Harbortouch days, you know, which was like the Toast in 2006 and 2007, well before there was a Toast. You know, that's driven a lot of success. We just, there's just no reason when you're like a clear top two within a vertical to give up on it. Like we're just gonna have a lot of good success there. In terms of, you know, juggling everything that's going on, I think you gotta just remember at its core, we're an integrated payments company, where software connects into our commerce enabling software connects into our platform. You know, Adyen does not build Facebook software or Uber software or Netflix software.
They build a really awesome platform that works for a lot of different verticals, and they attract these type of customers because their rails are everywhere and they make it really easy to kinda integrate and add and drop geographies as you go. Like in the end of the day, like when you're moving into the nonprofit vertical, for example, you're integrating software into a platform the same as you integrate restaurant and hotel software. Now, the difference is the restaurant and hotel software ISVs are far more inclined to drop what they're doing and integrate with you because you wield so much more influence in that vertical versus nonprofit, where it takes a signature customer to say you gotta get in gear. The same example exists in gaming.
You know, it takes a BetMGM to say, "You gotta get in gear," or a Allegiant or something like that. In the end of the day, the platform is fundamentally the same. We're not building out vertical specific technology in the platform. In fact, really, the broader payment platform strategy is just connecting rails all over the world, and making it a nice Adyen-like experience for that customer. In the end, it should be work really great for nonprofits, should work really great for airlines, and certainly restaurants, hotels.
Okay. That's really helpful. One quick follow-up on the financial side. There were some moving parts on some of the numbers this quarter that, you know, we're getting questions on. I guess when it comes down to it, your EBITDA margins were very strong. I think we're still getting questions on how much is that due to residuals coming through, you know, helping out or the financial operating leverage of the business. I guess the best question to ask is, regardless of whether it's gross margins or EBITDA, are your EBITDA margins at these levels sustainable in your opinion and have potential upside?
Yeah.
Thanks, Nancy Disman.
We can say absolutely. I would say, I would start with we think they are, but certainly acknowledge what you just said, that we will invest responsibly for growth to support the growth and kind of the pace of the business. With the trajectory as it stands today, we could expand. We could see margins and free cash flow still expanding, but certainly are taking opportunities. You know, I think the thing that impressed me the most when I got here is just there is a level of this extreme ownership, a lot of account owner accountability, investing a lot in what I would call kind of the PMO type of functions.
How are we going to be a best-in-class integrator, right? To make all of these puzzle pieces work, and that will come with some investment.
Yeah. I think even just to expand upon that a little bit, and I said it before in, you know, kind of the opening remarks, and I actually said the same thing in the beginning of the year, too. Literally everything we are working on right now expands margins and generates more free cash flow. Every new vertical we've gone into, again, like from an OpEx perspective, you could take on like $20 billion in additional volume from our new verticals, and like the amount of headcount you're hiring to support that would be like $2 trillion worth of volume from like, restaurant customers. You know? I mean, you can get so much, or maybe I have that in reverse. Sorry. Yeah. It would be the exact opposite. It'd be like $200 million in volume.
The point being is you need very little kind of fixed overhead to meet the needs of these really amazing enterprise customers. I think that's evident, by the way, when you look inside Adyen's numbers, like really high free cash flow conversion ratios. They don't have like. There's probably one person managing Facebook and one person managing Netflix and Uber on that. Moving into new verticals, moving upmarket, having a direct approach where you don't have residual expense, card not present, where you don't have the hardware from a customer acquisition cost perspective. Literally every direction we're going into, even with SkyTab right now, it's Android-based hardware. It costs less than Windows-based hardware.
Even in the one vertical that probably has the highest customer acquisition cost, which is still a sub-12-month payback period of time, like it's still driving costs down within those new verticals just by virtue of the Android-based hardware. I feel very good that everything we are doing organically will continue to trend in the right direction in terms of EBITDA expansion and generate more free cash flow. Now, where I think like internally we would hesitate, right, would be an example like another Merchant Link. When we bought Merchant Link right now, it was negative $6 million of EBITDA and trending down, right. It probably represents more than $1 billion of our market cap today. Like we 180-degree pivoted that thing, and made it like a much more value buy.
It was intentionally being mismanaged under its prior ownership. You want us to find another one like that. You want us to find 10 more like that. The reality is as we look globally, we are going to find them. If along the way it helps enable, you know, our strategic customer to get into a new continent that's important, and allows us to bring all these other integrations, and we find along the way that we can take something that wasn't like, you know, 50% EBITDA margins, but was something well south of that, but we believe in like within 12 months we can totally one eighty it, you want us to do those every time. Our track record you know, totally supports us doing those type of transactions.
This is Hal Cash from Blu Capital. I've got a quick question on your intermediate-term guidance of like $160 billion in end-to-end. Just for some perspective, you went through about $53 billion in end-to-end volume sometime in the first quarter on a trailing twelve-month basis. You have to kind of, you know, put on like two segments of volume, which you've done, that could maybe 15, 20 years to get to. Help us walk through and you bridge some of that. For example, you know, if you give any color on how much Finaro plus the acquisition, the PSP might add in end-to-end volume to get to your goals in two years' time.
Yeah. I think when we set the midterm outlook last year, I mean, I just look at it pretty much like another way of saying like how much of this is gonna be organic versus inorganic. I think the answer is like, we have a lot of demand right now, and the demand is gonna cause us to pick up assets in different parts of the world in order to meet the demand. We're probably gonna get some volume, some EBITDA, some net revenue alongside of that. Now you're in bonus upside-type territory. If we do our job right consistent with the past, we'll probably unlock a lot of other synergies that'll be organic in nature, and everybody will kind of celebrate that.
How do you get there then organically? It's you move from three verticals into a lot more that all have huge TAMs, and that you all have like you have a serious right to win in, like more than a foot in the door with either a signature customer or some other product means of differentiation, and then you take it globally. So like I think like, again, to maybe reinforce a key point from earlier is I was like very clear like, hey, margins are within our new verticals. Believe me, you know, margins are gonna expand in the fourth quarter. And that's because we didn't have the means in the third quarter to board international volume that comes in at higher take rates. It was just waiting.
Like we had the customer, we had the commitment, we needed to enable the capability. We were able to achieve that in the trailing portion of the third quarter. Now we'll be able to capture volume that we couldn't have had before, and it'll come in at better take rates. I think that's like really important to hone in on. I'm not saying that throughout our 20-some-odd-year history, we've grown volume at 50% every single year. But we've been growing really healthy for a very long time. We were growing 50% end-to-end volume prior to the pandemic. I think normalized for the pandemic, we were generally in that ZIP code. We just got a lot of lists to kind of burn down that kind of feed that growth.
A lot of gateway business, a lot of existing customers, and most importantly, taking what worked for us here and bringing it into international markets. We never had the means to do that up until now. I mean, it. I think there's analyst reports just on our one strategic customer, you know, that forecast like, hey, this could be $50 billion + in revenue in some period of time. I am not by any means saying like, that's how you can count on it as a slam dunk. But I think that significant customer plus gateway conversion, plus everything else that's worked for us, like it's not hard to arrive at it. We're fortunate we're year one down of three.
Yeah. You know, just to maybe take a different perspective to the same question, a year ago when we set that guide, it was under the pretense that we actually don't need to win a single new customer to have that much end-to-end volume. We've got more than that on our gateway today. We've got all these software-only customers that we can convert. What's happened a year later? Well, the
The geopolitical and macro picture has gotten a hell of a lot murkier than at the time that we set that guide. We've been able to execute really successfully on the handful of new verticals that we talked about a year ago. We've been able to get the inroads internationally that we want, and we've been able to grow organically in addition to all of these things. To answer the question, maybe a year later, we're a third of the way there. Maybe a third of the skepticism should diminish. We did it through everything that we said we were gonna do, and we still can achieve that guide with all of the customers we have today. We don't need to find another one.
If I could ask one follow-up.
Yeah, of course.
You know, there's a lot of business momentum at Toast, at Clover, at Carrot with Shift4 Payments. Can you help describe, like, what is the rivalry out there in the industry, like, to the extent of, like, how much of this business is still moving to integrated from maybe a cash register next to a dumb terminal? Like, how much of this is still left to go?
All right. I tried the telco one earlier. I'm gonna go the Pangaea route this time. I mean, just again, across my 23+ years in the payments industry, I looked at the payments landscape as just this one giant supercontinent, and basically everybody could do everything, and there was just so much demand. Nobody had to be really specialists, and it was all non-integrated terminals anyway. Even if it was basic integration like e-commerce from early days, well, you just use Authorize.net, and, like, everybody played nice together. Then, I think this payments like 2.0, 3.0 evolution happened. You started to have these really tech-enabled platforms that added so much more value than just an approval or decline.
That's when like the tectonic plates started shifting, and you had all these continents kind of break away. Once they did, woo, it's no longer everybody gets to play nice. Like, it is really hard to get that business, right? Square is a great example of that, right? You have a ton of legacy merchant acquirers that consolidate a bunch thinking it was all gonna be copper phone lines forever. Like, there's nothing that's gonna prevent those customers from going somewhere else. They are. They're gonna go to Square. They're gonna go to Shopify. That's another landmass that broke away. They're gonna go to Toast. They're gonna go to Shift4. They're gonna go to Stripe, and they're gonna go to Adyen. Now, these organizations have done something to try and stop the bleeding.
The best one, hands down, I've been very, very consistent on this one, is Fiserv with Clover. Clover's a great product. Clover fits, you know, a portion of, you know, like, kind of your general retail, you know, baby F&B type thing, and it works, and it wins, and it's a great product there. You still have everything else that they really have no kind of right to win on anymore other than, like, we'll just cut price associated with it. And then you have others that, you know, acquired, you know, various software companies and such.
I'd say, like, we don't, our sales team doesn't wake up, like, every single day within one vertical that we play in the restaurants and say, like, "Let's go out there and beat Toast." It's like there's Heartland business, there's terminals, there's ECRs, there's old NCR, there's old Micros. There's tons of old that we can win from. I would almost be willing to bet that, like, Toast would say the same thing, that there is, like, a lot out there. I actually think recently it was, like, somebody put out a report, it's probably one of you guys in this room, that, like, a lot of the most common upgrades to Toast is coming from Square. I found that super interesting. That's definitely not the case, you know, for us.
I think, like, you have these integrated tech-enabled plays that are out there taking this inevitable migration of non-integrated to some sort of a tech-enabled integrated solution. Shift4 is huge beneficiary in that. Everything we do is integrated across multiple verticals. And others like Toast and Shopify and, you know, Stripe and Square, they're all gonna keep winning. There's, again, nothing a lot of the legacy guys can do to really prevent that.
To use the other example, you know, and just bring it back to our gateway, we send well over $100 billion in volume to these legacy players. There's nothing they can do technically to service that volume.
Right.
They have to rely on the gateways that we're Shift4, Merchant Link to get it there. When you think about technical differentiation, it's not that the merchant experience is necessarily that much different in some of these cases, but the role that the legacy acquirer has in fulfilling that is just so diminished. As feature sets expand, they're expanding at our layer. They're not expanding in the, you know, merchant acquirer performing settlement activities.
Thank you. Eugene Simuni from MoffettNathanson. Hi, guys. Thank you for all this information. Very helpful. One follow-up question on SkyTab. You broke it down into a couple of buckets in terms of there is transitioning your legacy customers to SkyTab of various kinds. Then there's also, I'm sure, selling to new customers.
Yeah.
Can you give us a little bit of a view of kind of as we look to the next couple of years, the mix of, you know, SkyTab growth, whatever, thousands of locations added, what's the mix between those buckets?
Yeah. I mean, I can tell you internally, we would very much wish it to be balanced, because as long as you still have tens of thousands of customers on the older software, it means you need some development resources to support it, some customer service tech support resources. The reality is, like, salespeople always are gonna go out and try and, you know, kinda slay the next whale. We've seen that now in a number of verticals where we have, you know, upsell, cross-sell opportunities that all, like, work really well and demonstrated in our history, but it always skews more towards net new.
Mm-hmm.
I think, like, we have to find the right balance, you know, of incentives to continue to go out and win 'cause the addressable market is awesome, as well as, like, find a way to upgrade. I think the answer is we're gonna just do the upgrades at, like, a steady pace through our own kinda portal, you know, similar to an iPhone of, you know, you now qualify for an upgrade. We'll do that at kinda the right timing, and handle that with kind of operational resources, and that should free up the majority of our direct team and our authorized partners just focused on net new.
I think the answer is, like, we're gonna just continue to take share, and it'll be, you know, the majority for sure will come from net new. I think, feel pretty good on that.
Got it. Just clarification, are you still selling the legacy systems to new customers or no? Or are you stopping at this point?
It's by, like, policy exception. It's if you have an additional location or need an additional workstation or there's some, like, really unique reason why. I mean, it doesn't cost us anything. We have, like, unlimited licenses, if you will. But yeah, it's, like, by exception only. Almost all our restaurant production now is pretty much SkyTab.
SkyTab. Got it. Makes sense. High-level question. You provided some interesting calcs on how you allocated capital over the last couple of years. Can you speak a little bit to the going forward, what's your, you know, capital allocation philosophy over the next couple of years?
I'll let these guys jump in, but two primary priorities. One, invest for internal organic growth of the business, and second, strategic M&A initiatives. I mean, it really comes down to the core two, invest in the high core growth and all the strategic initiatives in M&A we've been talking about for global expansion, especially in support of our marquee customer.
Yeah. I'd just say the only thing I'd add is in the latter, it's laser-focused on international expansion on the back of that strategic customer that Jared mentioned. In the past, we've had you know probably three pillars around our M&A that would kind of bring a deal into the funnel. Now it's you know if it doesn't open up a geography in a profitable way out of the gates, we're gonna struggle with why we're allocating time on it when we've got this mega fast-growing customer that's agreed to give us payment volume in any geography we can line up for them.
Got it. Thank you very much.
Thank you.
Hey, guys. Darren Baker with PRIMECAP. I'm a little newer to your story, so I hope this question makes sense. It touches a little bit on kind of the macro environment, as well as your 2024 guidance with respect to the high growth core kind of segment specifically. I mean, I think, you know, we've heard very consistently from companies in the travel and hospitality industry that this has been an extremely strong year, right? I'm sure most of us have experienced that firsthand in terms of high prices and things like that.
I just find myself wondering against the backdrop of that really strong year and of course, a lot of unknowns about how the economy develops and how those spending trends kind of go over the next year or two. I can kind of imagine that on the one hand, this would have been an ideal year for you guys to go through these motions of gateway conversion and new customer acquisition and SaaS upsell and things like that, because your customers are arguably doing so well.
I could also imagine it kind of the other direction of, like, they're so busy fulfilling all this heavy demand, you know, that they don't have the time or the resources, so they don't wanna take the operational risk to actually kind of take those steps right now, and they might actually be more inclined in a slower period to kind of go through that process with you. I just wondered if you could kind of comment on what you're seeing in terms of that customer behavior, and, you know, how you would maybe expect the trend to kind of vary if we do see, you know, just a normalization of demand or even a, you know, a deeper slowdown, in that high growth core, the industries that you're serving over the next year or two. Thanks.
Yeah, sure. I'm gonna hit, first of all, our view on the macro and how it informs kind of the actions that we take. We've never been of the mind that the verticals we serve in our high growth core are inherently high growth. We've served restaurants for 17 years, we've served hotels for five, but we've stayed in them longer. These aren't verticals that we hopped into because they were, you know, e-commerce in 2019 or something like that. These are verticals that have presented us with extreme rights to win, and our market share is relatively low, and our wallet share within that market share is that much lower. That's why we pursue them. Our view, I think, has been prudently cautious on the macro picture.
I need to always reset when I make that statement. Our view is nothing compared to what we experienced as a business in March and April of 2020. If we think that spending might pull back at the consumer level, it's not gonna be down 80% and 90%, and we grew through that timeframe. The sky is not falling inside of our verticals. To contrast that, we think about the best competitor we have in every one of our verticals, and we say, "How does this operating environment change the way they need to do business?" In the majority of cases, they're cash-burning fintechs that have never had to be profitable. Suddenly, they're getting squeezed out to be profitable, and we say, "Well, what are we gonna do in that circumstance?" We are gonna lean in.
We're not gonna lean in in an irresponsible way. We're gonna lean in in a way where we can still expand profitability, but now is the time to continue to win share. The reason that merchants are attracted to our solutions is because not only do they provide a lot of technical innovation, but at the end of the day, they save them money and they create a lot of efficiency inside of it. We've struggled with the question and the way you asked it quite a bit internally. When merchants were joining us in a very steady way, both pre and in the darkest depths of the pandemic, we said, "Is ours a cost-based solution? Do merchants come to save money? Do they come to add value?" The truth is they do both, and they do it in a pretty durable way.
The last thing I'd say is we've got a huge, big, diverse basket of merchants. The circumstances compelling a merchant to join at any one time isn't necessarily the same thing that's gonna compel, you know, that gateway hotel conversion that I mentioned earlier. There's a lot of different circumstances, but our view is the climate's gonna be challenging. That's gonna make our operating environment, vis-a-vis competitors, that much stronger, and there's no reason that our solution shouldn't resonate in a challenged environment.
Yeah. I would just add, I think it's important that, you know, especially Taylor has been cautious all year about the macro, right? We've been waiting kind of for a step function drop in that macro. I think things, I know you said you're new to the story, but when Jared talks about the Shift4 way, I think this idea of taking parts out and really trying, whether it's two core verticals or six new verticals, really making our operating model as efficient as possible and kind of keeping our eye on that macro throughout all of this investment and kind of really running fast at strategic growth.
That's Nancy's subtle way of saying we can't spend as much on these events going forward.
Yeah. I mean, look, from my perspective, right, the macro's, it's very hard. We thought we were being cautious earlier in the year on it. You don't have a lot of data, you know, to suggest anything has changed yet other than it just, it has to. I think the idea is, like, our value proposition that allows us to win customers within the vertical, like, we can't make people come in and buy pizza. That value proposition works in the best and worst of economic times, and the proof point is throughout history. We're not new. Like, we've done this through really tough times and have grown through them every year throughout our existence.
The right thing to do, if you believe that, like, the world can change and you wanna be able to keep growing and kind of leverage your strengths in order to do so, is to diversify in other verticals that share characteristics of what made you successful in your core. That's where we started towards the end of last year, and that's largely what this update is about, like, everything that we've ever done to be successful and within our high-growth core, we've made better, and we've moved into new verticals that we all think we have a right to win in. Now a year later, we've made substantial progress. If all those things continue to hold true, they should be even more impactful when you can apply them across the entire world.
Yeah, I think that's just the best we can do kind of regardless of what happens with, you know, kind of consumer sentiment over the months and year ahead.
Very helpful. Thanks a lot.
Yeah. I forgot there's still coffee here.
Thanks a lot. It's Jamie at Susquehanna. I wanted to ask about the gaming update. I know you showed in the slide deck this morning, you tripled the volume just sequentially, I think. Two questions here. Is there an online narrative to your gaming solution as well as face-to-face? I'm sorry, I don't know this. And then is the licensing different? Like, you say you have 21 state and tribal licenses, but is the licensing different between the online component versus the card present?
I'll hit the last question. No, it's not different, generally speaking. They've increased their licensing scrutiny with regard to being omni-channel in gaming on a state-by-state level, but there's no difference when you get a license. Our answer to your first question, which is, are we in venue or are we digital? We're both. When you think about a customer we announced a year ago, like BetMGM, the relevancy of adding states is that every time you add a state, they turn on some volume to that state, and you grow with that national customer. We have a unique relevancy inside of physical casinos because prior to the digitization of gaming, we were everywhere but the floor, where you could spend your dollars.
Now, as gaming is becoming more digital, we can solve that for them too. If we were having this conversation maybe a year and a half ago, it would've been, you know, why are we getting calls from gaming operators? Well, we're getting calls because the online ones want to be in the physicals, and the physical wanna be more omni-channel online. That's kind of our unique right to win, and the relevancy of the states is that the more states you can enable, the more volume you get from those big national customers.
I think it is worth just a clarification, though, that, for example, when we showed our slides and talked about the gaming-specific update, that's all mobile wagering. That's all BetMGM-type, you know, wagering.
When we show a slide that says we won, you know, the world's largest, you know, tribal casino, that's high-growth core. That's hospitality. Just wanted to be really, really clear. Like, mobile gaming or whatever they're calling it these days, like that is a very new vertical for everyone 'cause it wasn't legal until rather recently, and that's where we're giving you kind of those growth stats. The probably 40%, you know, where our payment technology is in existing casinos around the country and obviously adding to it, that's very much part of high-growth core.
I just wanna flip to the travel and leisure update. How are you dealing with the, like, chargeback issues in that? 'Cause my understanding is, like, some companies like Adyen, they don't like to own the risk. Is that something you have a view on or a strategy about?
Oh, yeah, very much have a view on it. I mean, been in payments a very long time. Here's a couple things I would say is, like, throughout my more than two decades in payments is, you know, what was, you know, once viewed as like, high risk and undesirable sometimes becomes like the most desirable customers possible. For example, e-commerce was hated for a very long period of time. Mobile gaming was hated for a very long period of time. These are some of like, you know, the sexier verticals to be in.
In reality, I think from my perspective, and I have a little bit more than just payments to offer to this with a little bit of an aviation background, I think there's been a lot of good consolidation within the airline industry that has increased their stability substantially. Like, you wouldn't wanna start with like a, I don't know, like a Skybus, you know, $29 fare thing. You have a lot of chargeback exposure during that eventual bankruptcy.
If you've got an, like a, you know, an established airline that publicly traded, decent balance sheet, you know, you can underwrite based on, like, the time from ticket booking to when it's fulfilled, what kind of oversight they have from, like, a regulatory perspective in terms of escrows. You can get really comfortable with the risk, and I think airlines have totally pivoted in the other direction where if you're dealing, as long as you're dealing with, like, the major established ones, like, those are verticals you wanna be in. I mean, just factually right now, U.S. Bank is hands down the largest payment processor for airlines inside of Elavon, for sure. So, you know, it's.
I think the view is that, you know, like a good industry to be in. I think it's changed quite a bit.
We have time for, like, one more question.
Thanks. Sandy Beatty from Morgan Stanley. Just on the 2022 outlook for volumes, can you just talk about what you're expecting into the fourth quarter, what you're seeing so far? And I'll just loop in my follow-up as well. Seasonality, how the business has changed since the IPO, anything different on a quarterly basis that we should think about?
Yeah. I think for starters here, it's like I'm trying to figure out what is, like, a normal seasonal behavior, because the last couple of years have been a little unusual. For example, the last two December-Januaries were horrible from Omicron and Delta, in terms of its impact on things related to travel and hospitality. I'd say, like, at least from my perspective, and to open up, like, we're observing the normal kind of seasonal behavior that, you know, get all that excitement out of the way over the summer and back to school. You know, we dial back how many times we go out to eat and travel to Vegas. And I'd say it's being more than offset, you know, by design from our new vertical contributions.
Like gaming, sports stadiums and gaming. Football is a huge deal. Like, we've been in stadiums now for a couple years. This is the first season where, you know, you're getting Ohio State, Notre Dame, you know, a lot of NFL stadiums kicking in. That's huge volume drivers for us, which is great. Obviously, we have a strategic customer that's now, you know, increasingly playing a bigger role. Like, we don't expect that to slow down anytime soon at all. I'd say, like, our core is doing pretty much exactly what you expect. UPS Store is a very big customer of ours. They always tick up in December. I'd say the big kind of question mark that we're all playing wait and see on is nonprofits.
It's not even like the fourth quarter, it's December, is the whole year. We're kinda, you know, playing wait and see a little bit on how much, you know, we should expect to see from our nonprofit vertical. I'd say that, in terms of, like, our own guides into the fourth quarter, we took like a hyper-conservative view over what that vertical could potentially generate, as did probably most of the fourth quarter guides.
Yeah. Not much to add on that except to say that the outside of the nonprofit that Jared mentioned, there isn't an extremely strong seasonal profile to these new verticals that we're adding, right? Sports entertainment, we're in every league, so you get different benefits all the time. We had not been in football in a consequential way, so that feels good. Ballasting some of the slowdown that you get in travel for seasonal reasons into as you enter fall. We feel like the diversification has not presented any unique seasonal attributes, except potentially in nonprofit where we've been deliberately conservative. Again, you know, getting the benefit of having this conversation kind of a month to a month and a half in the year, we can feel really good about our guides.
Great. With that, I guess we'll go to any closing comments. Again, everyone, feel free to stick around to interact with SkyTab and some of the Shift4 SkyTab employees out in the lobby area after the concluding remarks. Thanks.
Yeah. I think that's pretty much, like, a wrap from us. We appreciate you taking the time to come here. Definitely please interact with the hardware, meet some of the broader SkyTab team. You get a lot of face time with Taylor and I, but we got a great organization here that's come out to support the product. We're happy to, you know, if any questions come up, feel free to come up with to us. Thank you.
Thanks.