Joining. Welcome back. My name's Dan Perlin. I head up the Payments Processing and IT Services Practice here at RBC. And I am delighted to have the team from Shift4 joining us today. We have Jared Isaacman, who is obviously the founder and CEO, and Nancy Disman, who is the Chief Financial Officer, excuse me. So thank you both for being here. I am going to get into the business questions in a second. But since I have Jared here, I thought it would just be interesting to hear, and I can say this with probably the most certainty of anything, that no one else has really walked in space, I think, at this conference. So I don't know if you want to say a couple of minutes. I'm fascinated by it. I think the audience would probably be fascinated to hear maybe two seconds of that.
And if you're willing to share, have at it. And if not, we'll go into Shift4's business.
You know what I want to talk about, like margin trajectories?
If we want to pull that into the space concept, that'd be fine.
Oh, I can do all sorts of puns on it. It's like ups and downs and the parallels to the market.
Exactly.
Yeah, it's like it was, I think, like maybe that what answers that question and also has a direct tie back to what we do at Shift4 is just the it's now been more than four years now since I've had an opportunity to spend time with what I think is the greatest company ever, with the best talent working on the most awesome mission and vision. And they have very interesting philosophies around innovation, execution, process. And for all the ones that were even remotely applicable to what we could do in our day job, I pulled it over. We called it the Shift4 Way. And it is fascinating, I think, for those of us, we're in business. Any major technological breakthrough, there is somebody that shows up not that long after with something else. iPhone comes out, there's an Android six months later, something like that.
They started landing rockets on ships almost 10 years ago. No one's done it once. And they've now moved on to catching skyscrapers with chopsticks. Pretty awesome. They built new spacesuits that we've obviously participated in development and tested in space over two and a half years. The U.S. government's been trying to replace the ones in the International Space Station for 40 years. They literally have costs and they've invested in billions to upkeep those things. So it's an incredible organization. I feel lucky to be able to spend some time with it, learn from as much as I can, and apply it back to what we do at Shift4.
So I've definitely got the hey, when everyone's tired of changing the world in space and you're looking for something else to do or you fail a drug test, please apply at Shift4 and join the come on over and help make Shift4 the SpaceX of fintech.
That's awesome. That's awesome. Well, congratulations on that amazing achievement, man. That was a hell of a thing. All right, so let's bring it back down. We'll come back to reality for everyone else.
Back down to real.
So let's just talk about the near-term priorities. So just as a reminder, kind of where we are heading into the end of the year, kind of near-term priorities. And as you're setting yourself up, I know we're going to have an Investor Day here not too distant, but thinking about the priorities that you're setting for 2025.
Yeah, I mean, just sorry for those. I know a lot of familiar faces in prior meetings. I think going into the Investor Day, we have a couple of objectives. Try and take some of the complexity out of what we do. I don't know. We don't feel it's that hard. It's kind of the same verticals running the same playbook, kind of playing to your advantages where you do have a unique right to win and then pulling growth forward where applicable. We don't think that story has changed a whole lot since our first Investor Day.
So, trying to bring that down to a simpler story, help our investors be able to kind of forecast what the next three years look like after we surpass the previous three years' guidance, and give you the picture of what the base business should look like, which is a great business, and then what you should expect us to do to kind of accelerate when right opportunities appear because we won't just ever kind of sit on our hands. I think that that's like what should you not expect? You should not expect us to enter into, like, oh, we have these all new verticals that we're getting into. We started essentially three years ago in a lot of lanes that we weren't in previously, so we were entirely within the U.S. for 22 years of our existence. That's all our volume and revenue.
We were almost entirely in restaurants. We were just starting to get good at hotels. We had like one or two stadiums, and we said, we're going to get into e-commerce. We're going to follow an important customer all over the world, and when we do, we're going to bring our restaurants, products, and hotel capabilities into those markets. We're going to do some gaming, some travel in the e-commerce world that we have zero at. We're going to do some nonprofits, which we had zero at up until that point, and now we'll be able to go into this Investor Day and say, like, all those things that we were at zero at are doing really awesome. I mean, just to give you some sense of it, if you were to cut up our volume into basically thirds, a little greater than a third is hotel and hospitality.
So that's like we are number one in. And we are growing very quickly now across the world. And number two, just slightly under a third, would be restaurants, which, fine, we're number two in. We'll take that. And we're bringing that product all over the world. And then the last portion of it would be new verticals, which almost all of it did not exist three years ago at the time of the last Investor Day. So it's like it all works. The table's set really well. Now here's what you should expect within these lanes that we're advantaged in for the next three years.
Yeah. So diversification and the structure of the business is actually the next little topic I really want to hit on because as all of those, I mean, it's massively changed since the IPO we worked on, right? It's massively changed.
All restaurants.
Yeah, 100%. And now you've got direct distribution. You've got international. You just rattled off a bunch of them. I guess maybe a question for Nancy here is, as you start to pull all these various pieces together, this diversification of the business, has it become harder to forecast or easier to forecast, in your opinion?
It's a great question. I think the forecast process has significantly gotten easier because we have a volume metric, right? So I mean, we've spent a lot of time today talking about volumes already. And so our model is based on credit card first, right? We want in-house processing. And obviously, we have these software components and these acquisitions coming in. What makes the forecasting process, I guess, not difficult is the diligence we do on every one of these deals that maybe for the external community is causing complexity. But for us, we have a very incredible deal process where the finance team is at the hip creating those models at the time of the deal. And I think what Jared does a great job with the team is we know what our objectives are. So even though they're different verticals, our model is very simplistic.
And we follow it kind of [audio distorted] . We know what's going to happen day one. We know what our assumptions are. Now, sometimes does the flood of the revenue happen faster? The conversions happen slower, of course. But I think the tenets of each deal, and even within each vertical, are the same. And so I think as long as we continue to stay within our lane, forecasting isn't difficult.
Can you also, and this is for both of you, but I mean, can you also speak to the durability that this kind of transition has obviously made? When people think about your company, and obviously the way you think about it and describe it, it's underwriting these multi-year growth trajectories. And you've put so many points on the board. I think we all agree that it's going to be a multi-point journey. We kind of have to figure out how durable that is over that, let's say, three-plus-year time horizon.
I think there's a couple of things I would say would go to that. We have an advantage that maybe isn't that appreciated, which is all of our customers are integrated, like 99.999%. What does that mean? It means our payment platform is connecting into software to deliver a better commerce experience. It could either be our products in restaurants or stadiums, or it could be the hundreds of software integrations that we have to go after hotels. That is very important because you take what has become like a fortress of a payments company in Fiserv and always felt like they were the ones that have been around for a half century. They are certainly the best. At one point, they processed like half the world's transactions through all the various alliances and partnerships.
Now, inevitably, when you touch that many transactions, you are going to have customers that are going to need Shopify or are going to need to go to Square or they're going to go to Stripe or Adyen. I mean, you've got Stripe and Adyen that are both like trillion-dollar payment companies. There's nothing that Fiserv can do to stop that. So for as much of a gem of a product that Clover is plus the distribution firepower they have, there are inevitably portions of their business that are non-integrated that will have to gravitate to some of the other winners. So when people talk about the durability of our growth, every one of our restaurant customers on integrated solution, every one of our hotel customers on our e-comm or gaming or whatnot.
So the idea to get away and go to Shopify dynamics does not exist within our business. Same for the idea to get away and go to Stripe or Adyen. So I think the existing base is far more durable than people can appreciate. And then it's just like, well, OK, so what about the inherent growth without them having to do M&A? There are only two restaurant products for table service that are actively being invested into and being distributed at scale, us and Toast with it. Everybody else is more or less capitulated or trying to extract what they can out of what they have. In hotels, we're number one in North America where there is a competitive environment for integrated payments. And we have a library of integrations to serve the hospitality industry that you can't replicate.
In the rest of the world, no one has it at all. They're using non-integrated terminals. Sports and entertainment is, like, should be a pretty competitive market in the U.S. We really took that one by storm and had it ticking. And so I think we obviously owe people some numbers they can put against it. That's the point of using an Investor Day to do that so you can kind of forecast it out a little bit. But the base is super strong because it's all integrated. And you clearly have a right to win in these handful of verticals. And then you have another vertical that we've been investing in. The other thing too, for the financial performance of business, we've been investing in products that are subscale.
Our whole global e-commerce strategy is to support one unbelievable customer, which is, by the way, exactly how Adyen and DLocal were formed following Facebook all over the world. We have our version of that customer doing it. We're not doing that just for that one customer. There will be others that will follow into that vertical, which is, again, I wouldn't say it's underappreciated. It's overlooked right now because we haven't given you a reason why. But at some point, you can bet there will be other monsters to follow and take advantage of those rails, which has, what has become, very interesting geographic coverage to it. And there's a lot of investments also in internal systems and such that have been just flowing through the last few years that haven't had a chance to really reveal themselves yet. But we talk about them like Phoenix and Mission Control.
A lot of good going on.
Yeah, no doubt. So let's talk about the international expansion for a second because I think that there are here again lots going on. But I'm kind of trying to break it down into I would almost call it distribution models. And you kind of talked about one. So the first one is following your strategic partner into all these new geographies. The other one I would say is you get SkyTab into U.K. and Ireland. So that feels more current, present restaurant, pub. Then you've got the Vectron acquisition in Germany at 65,000. And then you had Canada and the rest of Europe, which sounded like that was slower. So I threw a lot at you there. But that's kind of how we're trying to just dissect all of these opportunities that you have in the international market. How should we be prioritizing those?
Which ones are more meaningful? I know they're all important, but
I mean, look, I mean, our 2025 playbook is just to realize the results of those opportunities that we created in 2024. So cross-selling your 65,000 Vectron customers. Look, that's a gift that we'll have to give over 10 years because honestly, even if you converted 65,000 in one shot, your average volume per customer, for example, in Germany, which is 85% debit, is like it might be the equivalency of adding 10,000 restaurant customers in the U.S. The idea is they're very early in their cash-to-credit conversion. And there's all those 300 dealers that you'll now bundle. You've already told them you can't sell hardware and software anymore. You have to bundle software with payments and use that to differentiate to win lots of new customers. That gift will give for a very long time.
Givex the $300 billion cross-sell payment opportunity. It's almost exactly the same as a gateway conversion running the exact same playbook on. That will be a gift that will give for many, many years, but like 2025. So I think it's a long way of saying all these things you're referencing, the ramping of production across U.K. and Ireland for SkyTab is awesome. We get these into a good enough place so we can feel confident that 2025, to some extent, will take care of itself so that you can spend the first half of 2025, like I talked about in my prepared remark, turning on Australia, New Zealand, and LatAm. We do have a big customer that intends to process payments all over the world, and they give us a roadmap, and we meet that roadmap, and then again we bring in other products and services.
So probably a year from now, when we're sitting here, I'll say everything we set up in 2024 did exactly as we thought. There's a long runway. If we converted 2% of Givex in 2025, it would be awesome. And now it's the results of our 2025 efforts that make us feel very good about what's going to happen in LatAm, New Zealand, Australia, and 2026 because we set the table very well for it. So I think that's generally how we're thinking about it.
OK, OK. I want to touch on kind of the contracted volume backlog a little bit. And there's just so many questions I could go into here. But this one seems to be top of mind for a lot of people. So you gave the number, which was fantastic, $25 billion. Grew to $33 billion. You converted the $5 billion. And you added $13 billion, right?
So there is this constant motion that's going on. Can you just remind us how you think about that conversion pace? What are the things we as outsiders need to be paying attention to? And then how does that kind of roll into another year, so to speak, either?
Let me go first.
Sure.
I think right off the bat, it's just a confidence builder.
Yeah, absolutely.
We shared that information to really explain. It goes back to your question about forecasting. Our line of sight into 2025, we already have. We have the roadmap a year ahead, and it's because of the backlog of volume where we've signed customers that aren't implemented or we have customers that aren't at their run rate. It could be a stadium where we haven't gotten ticketing, but we haven't gotten a season ticket. It could be a hotel where we've installed two, but we know there's 20, so sharing the backlog, and it's always, as a CFO, I hate every time we add another indicator every single quarter. And we even had some people surprised that we gave it two quarters in a row, but it was really to build confidence of our visibility because we know people think there's a lot of complexity in the story.
So, I think that's what's most important is if it was $33 billion, it was $20 billion, or if it was $40 billion, it's a big number. And it's all stuff that we have compute on.
OK. How do you respond to the question? You probably got this 15 times in other meetings. But we hear it all the time right now. It's like when you think about the fourth quarter, the end-to-end volume implicit, can we extrapolate that on an annualized basis going into next year? And do we kind of roll this into it? Or what would be the guardrails, so to speak, that you'd want us to have as we think about pushing those numbers forward a little bit?
Yeah, it is interesting because we did get this once, and I know Tom's email box blew up from a bunch of people, so somebody's like, I don't know, getting like freaked or something on the numbers. I don't get the complexity of the whole thing. There's no mysteries on who these customers are. They're really big hotels, resorts, stadiums, picnic customers, and they signed an agreement and said, I'm in. Now, we don't get to necessarily control the timing of flipping a switch on it, but if it's like unpacking the mysteries on it, they either haven't been installed at all, or maybe the stadium's installed, but the ticketing won't go live for six months or something like that, or maybe it's a hotel operator where you have two locations that are up and running, but you don't have the rest, so it hasn't reached its full potential.
Now, I don't know if somebody's like, we got them because if we annualize Q4, isn't some of the 30-some-odd going to roll into Q4? So it's like it'll be double count. Do whatever math you want on the whole thing. You're going to get to a place that'll make you feel good on 2025 volume on the whole thing. You're going to hear like an evolution of that, which is like volume is no longer even a relevant KPI for Shift4. It's like a mind-boggling feedback on that one.
OK. Yeah, no, we get plenty of questions in all different kinds of derivations. So I just wanted to kind of put it out there and see what the stake in the ground was going to be. I want to touch on Revel and the Givex acquisitions here. Revel in particular, you've had it now for a little bit. And so I'm wondering, kind of you kind of laid out some plans as to how you're going to go about converting it and those things. But now you've owned a little bit. What are you thinking in terms of timelines there? Do you feel like, to your point, are we blowing it up quicker, not so much? Are there some things that were stickier than we thought? Are you maybe not as sticky?
No, I think that one went. I mean, the only reason we could convince ourselves that we should do Revel was the experience off of Appetize, which was, look, we've always underwrote any deal we've ever done on the cross-sell. You have a sticky customer, a foot in the door, you're going to get lots of shots on goal, better value prop will prevail, one throat to choke, you're going to win payment volume. With Appetize, so when you run into these scenarios of these companies that were historic cash burners, it is not in our profile to take on something that's going to be that much of a drag and bet only on a cross-sell. So you had to bet on that you could delete the fat. You had to take out a lot of expense to make Appetize work. Appetize for like 15 years only hemorrhaged cash.
Revel, same thing. So in Appetize, we were like, we'll burn the ships. We're only taking the commercial people, the account managers, and those that can help with VenueNext. We're not taking anyone to keep that product going. We're telling every customer the product goes away, you've got to move to VenueNext. We'll give you some great deals, but you're coming on over. It worked incredibly well. Totally turned around a historic cash burner today. That is, I would say, by now, Appetize has been one year approximately, is probably like synergized down into like, I don't know. It's definitely deleveraging. It's like a two and a half times problem. Maybe it's like three times. But that was a good deal. We applied the same logic to Revel. And that's another one where it was like, we have to burn the ships. The product goes away.
We move people over to SkyTab. And unlike the, we're not going to cross-sell them payments because we can't prolong them staying on the product. So it's basically burn the ships, get rid of the cost, maintain the customer base, and start signing agreements to convert them over to SkyTab at a future date. And we want to work within like a two-year time frame. I'd say that's going totally fine. If anything, there was something that we had to bet on, which was the same as Appetize, which is they're not going to like their current product. We knew they weren't going to like Appetize because they were moving to VenueNext anyway. And the belief that iOS, for as great as it is as a consumer, is probably a bad commercial product since Revel is an entirely iOS platform, that was very true.
They want to move very quickly away from iOS.
Got it. Got it, and Nancy, in terms of the subscription revenue number, that one gets a lot of questions as well. Incredibly strong this last quarter, and I think even the forward look was a lot better than a lot of people expected, so I guess any kind of just context to put around that certainly pertains to these deals.
Yeah, and I definitely tried to guide in last quarter's discussions what to expect for this quarter. I know people were surprised by the 90%. And then I kind of knew where it was going for this quarter. It's difficult. So this is definitely one for investor day. We're going to do our best to unpack. When you talk about forecasting, not difficult for me. But not wanting to really give everybody every last detail of information, you've got three underlying things going on that are just incredible, right? Pace of SkyTab acceleration, pace of SMB acceleration, which includes SaaS component, and just overall growth in SMB. And we've got our not-for-profits finally getting some growth. There's a SaaS component there. So the underlying SaaS growth, quite honestly, is actually better than where the total growth of subscription and other is right now.
Going the other way, though, is we have the Pledge of Take stuff. We bring in an acquisition. We have others that are being blown up. So I can't really unpack that better except to say that dynamic's going to be there. It's something we're talking about for investor day of what we'll give you to help you model that. But software only is the new gateway, right? That's where the funnel topper sits. So we are thinking about we need to reposition what's left of gateway with software only. And maybe there's a better way to package it. TBD still. We've got to spend some time on that and make sure that it provides greater clarity. But that's really what's going on. You've got this underlying incredible growth that's truly tied to our end-to-end volume growth, right? They're connected.
Then you've got some of the money from the acquisition. But all of this goes back to your forecast question where one thing I just want to add to everything Jared said is we underwrite a base case. We go to our board with base cases for all these deals. But we always have a mid and then a Jared case, right? So the complexity of how fast we execute on the Jared case is changing. People ask us all the time, what have we learned? Maybe our carrot and stick was too slow with Gateway. We test that out now with some of the deals. We get to a stick maybe faster. And so that push and pull will impact that category.
That's interesting. One of the questions I always ask, and I'm asking again, just because you have so much like this is such a bolus of growth, is just the sheer ability to have an implementation staff, team, organization to kind of facilitate all of these opportunities, which are pretty significant. So in the past, you've said not a problem. I suspect you'll say the same again. But maybe if you could elaborate on why it's not a problem.
I think that if you cut up any of these deals into two parts. So look, there is absolutely, kind of, really, one of our, I mean, the best talent in the organization are those that generally are working on this. So our PMO office, our strategy team, finance, legal, we have a lot of people that work really hard. And these are generally teams that, as Taylor's described, in a culture of trying to maintain a flat headcount, do get some latitude when they cry out and need new help on some of these things. I will say, though, that a lot of it is about integrating the personnel. It's more of the admin type of things, the pain of switching email servers over and signature lines and benefits and all that.
I'm trying not to understate any of this because it is pain. Importing billing systems, things of that nature. That's a lot of the first 90 days of hard part. The revenue synergy side is not the hard part. You're doing this already. That's the thing. There's no like, we have a new story now. You're taking all of the customers. So give us. We're just cutting that up. Who are the hospitality customers? Drop that on the hospitality cross-sell team from the gateway side. Who are the restaurant customers? Drop that on the restaurant software cross-sell team. They're going to the same people. And then you're always getting some headcount along with these deals, which is, hey, we will never set expectations really well in the town hall, by the way. We're very transparent. We're never going to sell another gift card-only deal or loyalty-only deal.
We do integrated payments. This is a feature as part of a company. It does not belong as its own separate company. So now you're on the team that's cross-selling restaurants and hotels, and you absorb them into those teams. So the actual revenue synergy component of these transactions is just topping off the funnel of a machine that works pretty well. And you try and make it better. There's the hard part of the other side of the leading part. Every expense gets a defend the spend component to it. Personnel got to get absorbed. There's all sorts of things like that that I'm not trying to undersell. But it's a lot different than, I think, other deals where you're like, there's a lot of new here. And we have to figure it out. And that's where people like to get in trouble.
Yeah. And I think the evolution that's happened with the company that's allowed us to get to the margin level that we're at and free cash flow conversion is we're investing on the needle movers. So we literally had a leadership meeting last year that said, we're going to take people from these three things that are where we've been, and we're going to put them towards where we're going. And everybody kind of had a rally cry around that. And so I think everything is very focused. And standard operating procedures have to be put in place. So Givex, I mean, it's been incredible. Watching my own team, right, just like execute on a playbook. And everything, just things that didn't exist two years ago that exist today. And I just think we wouldn't be able to do this if we didn't completely change that culturally for the company.
Yeah. And I think just on that cultural point, the Shift4 Away philosophy, what I opened by saying, like Rob, we SpaceX. We drill that so much. And it goes very much to how we execute, especially on M&A. Keeping things flat, communicating, radical ownership, which is lots of small scrappy and empowered teams incentivized to build up to bigger objectives. The leading parts don't try and make it work. If there's a weird, oh, they did something funky with a grocery, delete it. It doesn't matter what the revenue is associated with it. If I don't know about it, it wasn't a needle mover anyway. Get rid of it. Repurpose people on things that matter. Burn the ships very quickly. Proceduralize everything, like process, and then be able to execute urgently. It sounds like a lot of words.
But if you can get an organization that actually buys into the philosophies and applies it to the problems they encounter every day, you can do really good things with it. Very much part of how we approach M&A.
Yeah. Just one more thing on Givex. You brought that up a couple of times. I mean, one of the things that you said was the attrition rate on those clients was like less than 1%, which is an astoundingly low number. And I also had heard in the market that they had not been big in terms of pricing. And so I know you're dropping it into these various verticals. So I'm just wondering, usually when you map 1% attrition rates and very low pricing opportunities, you can either blow up your attrition rates or you just generate a lot more profit. So.
Yeah. I mean, I think there's a couple of things. This is another one building out our checklist for investor day. There's somebody I think was at our after-event dinner that questions came up. I would guarantee we have triple-digit Net Revenue Retention rates in every vertical other than restaurants. And that is just simply based on the fact that you can't fix bad pizza. It'll just go out of business. But within the hotel, we don't have. We never lost a major hotel customer under our watch since we've owned the Gateway. I'm not aware of a single stadium that said, I'm going back to the old ways. So of course, you have whether it's as simple as your CPI increase clauses and your SaaS agreements or something. You're always growing your revenue with these customers. And they're not moving.
I think, again, the only one that went through triple-digit year is your restaurant space. When it comes to Givex, I think that the previous CEO had an interesting philosophy on how we manage costs for customers on that one. I think that when we look at our playbook of a combination of carrots and sticks, they will all get a notice that your gift and loyalty fees can go to zero. Your gateway fees can go to zero for whoever you're using. You can get a free EMV upgrade device and some handhelds. But they'll probably get like, if you choose not to, at some point, costs are going to change. And we do that to make the phone ring for cross-sell operations.
Yeah. OK. I wanted to ask Nancy about just the margin trajectory. I mean, the organization remains flat. You talk a lot about taking out parts in these acquisitions. You still had an opportunity to actually increase EBITDA margins despite this huge drag that you had. So maybe can you just level set for us kind of the expectation? Not maybe, obviously, in the fourth quarter. That's important. But just underlying, again, the forecastability, durability as we think about going into 45.
Yeah. I think there's two things that are most important to remember about everything we've done over the last few years. We've improved the unit economics on every deal. So the flow through just from gross margin to EBITDA is increasing. Stadiums and ticketing, easiest comparison. But our enterprise customers generally require the least support. I mean, the way they're operating on a cloud-based model, SkyTab, cloud-based products. But the counter to that and where the opportunity is, is not only continuing that flow through, it's this operational efficiency that we still have more than half of our infrastructure in the company supporting that legacy SMB non-SkyTab business, right? So as that business either converts, as we implement our cloud-based infrastructure with Salesforce and Palantir, Mission Control, everything we're doing inside the company is to optimize that base. So that's the runway that we seed.
It's all within our control. When we talk about on this last quarter about a 51% that could have been 54% without the acquisition drag, that's just executing on the synergies that are completely within our control. That's where we feel really comfortable and why we talk about the drag because that's written. The other piece that we've been talking a lot about is this investment that's kind of going on while we are growing so fast. 2025 will be the first time that pieces of that start going live. That was always a 2025 into 2026 and probably 2027 where we're going to get the rest of that kind of just synergized opportunity from the infrastructure. Again, as that legacy base, we never had a cloud-based product like SkyTab, right? That's all new. We haven't attacked our base, right?
That's going to be something strategically that we do. Certainly something that I'm sure we'll talk about at investor day, but it's right within our reach. I mean, I know I get asked a lot, well, where do you think it could go? We've used the Adyen example at the '60s as like a guardrail, mainly because their mix of business doesn't have that large SMB legacy component, and I know Jared probably thought I was being conservative in an earlier conversation saying mid '50s, but I mean, that feels certainly really right within our reach.
Got it. We're out of time, and there's still so many questions we do have, but thank you both so much for being here. Really appreciate it.
Thank you.
Congratulations on an amazing achievement.