All right. Welcome back. Thank you, everybody, for joining us. I would like to welcome for the first time Shift4 to Barclays Payments Conference. We are joined today by President Taylor Lauber and CFO Nancy Disman. Thank you both for coming to New York and being at our conference.
Thanks for having us.
Yeah. Taylor, a very open-ended question for you to kick things off. I was wondering if you could say as incoming CEO what your priorities are for the company.
Yeah, sure. The most important thing is to change as little as possible. We're a 26-year company that's grown every single year. We're highly profitable. We've innovated throughout that entire time. As a baseline, you actually want to change as little as possible. There's a fundamental kind of algorithm that's driven our success. We don't want to disrupt that. The one thing I would say to balance that is we are a fundamentally different company than we were even just a few years ago. It's very typical of Shift4 to kind of grow in these leaps and bounds. To give some examples, we're in a majority of stadiums in the country. We weren't in a single one four years ago. We're in 40% of the hotels in the country. We weren't in a single one eight years ago.
We're operating in over 50 countries today. That is even before the acquisition of Global Blue. We were operating in one country just about 18 months ago. We have to adapt to what is increasingly becoming a big international business. One of the things that our founder always impressed on us was you have to have a point of difference. If you do not have a point of difference, and it is not an extreme point of difference, do not bother coming to work. Do not bother approaching business. We are approaching this international expansion with what we think are extreme points of difference, a very stark contrast in why you would choose Shift4 versus any of our competitors in the markets we serve. Hopefully we adapt to this new international environment, but with the ways that have kind of made us successful for 26 years.
All right. Great. Makes sense. The next question I have is really for both of you. For anybody who follows Shift4, there's been a lot of news recently. In addition to your Investor Day and Q1, the announcement of the pending Global Blue acquisition, plus all the recent rounds of funding with the preferred shares and the euro-denominated debt, I was wondering for both of you, what do you want investors to be most aware of when we think of Q1 earnings, the announcements at Investor Day, and recent rounds of financing? Nancy, I'll just start with you, and then we'll move over to Taylor.
You know, starting off, I would say this is a team that's very focused on a very limited set of priorities. While it seems like we have a lot going on, it's all toward growth, global expansion, filling the funnel of embedded opportunities. That's kind of the Shift4 way. I think we could connect the dots pretty quickly to a very small universe of things that we're focused on. While it seems like we have a lot going on, I think especially as we get through today's conversations, it will see that we've really set ourselves up for the future with the moves that we've made most recently.
All right.
Yeah, sure. So maybe the most important thing, we're almost done with the 8Ks and the PRs. It was like four different debt instruments of some kind. That's a lot of noise. I apologize. I apologize for that noise. It was all in the spirit of maintaining a bunch of flexibility coming into this transaction. I think the highlights are the transaction's paid for. We have a meaningfully better balance sheet as a result of the financings we did. We used a debt market that we had 6X oversubscription for the amount we were willing to raise across virtually every instrument we were trying to raise. We used that kind of enthusiasm to push out some near-term maturities as well. What investors should really take away is we're in great shape.
We think the economy is, I think, a lot sounder, especially globally, than people are giving it credit for. Despite that, we're kind of ready for whatever the world wants to throw at us with regard to our balance sheet, the certainty of the transaction, and kind of capital flexibility. The reason for as many instruments as we did was we wanted things like floating-rate debt. We wanted things like prepayable debt. We wanted things like euro-denominated debt to better match kind of the growing business. We were able to achieve all of those at prices that were, in terms of borrowing, as attractive as the market's seen in almost a year, I think.
All right. Great. Maybe following up on some recent events. Taylor, this next question is for you. When the company IPOed several years ago, I think COVID was still in lockdown, you benefited from a lot of that recovery in dining and travel spend. Now we're not quite in the same situation. There's probably some investor concern out there that we could be going to a tougher economic cycle. You might have some potential investors who could be standing on the sidelines saying, hey, I'm looking at Shift4. They're exposed to a lot of discretionary spend, lodging, dining, et cetera. What would you say to those customers who might be a little hesitant to come into Shift4 or have some doubts? What would you say to them?
I'll bifurcate kind of the opinions on the economy versus our ability to operate. I think the opinions on consumer discretionary spending are a little too primitive and myopic in the views of investors. You really have to cut up consumer discretionary spending across all of the categories to get a sense as to what's going to be impacted the most during times of uncertainty. Our analysis, having done this for 26 years, is the things that get the most impacted are the things that you take the longest to make a decision to spend on. It starts with houses, and then with cars, and then consumer electronics, furniture, et cetera. Really, the last thing that individuals pull back on is that night out. It's grabbing a beer after work. It's the burger.
The businesses that we serve, especially in the form of restaurants, are pretty highly resilient to shocks. You can go back and look at Visa card data throughout a lot of different significant times of economic turmoil. They know that when the $100 steak is no longer selling, they swap it with a burger. They can do that the day of. They can do that the day after. In times of extreme economic duress, and we are not seeing that, just to be clear, we see modest pullbacks across our categories. Obviously, things like international travel will be more sensitive to as a result of the Global Blue transaction, but hedged nicely because we are talking about 50 different countries we are operating in and a lot of consumers that we are serving. We feel generally OK about the overall state of the economy.
With that being said, we grow like the best in terms of payment volume across our competition. We grow like the Stripes and the Adyens of the world. Yet we do not really serve a lot of e-commerce customers. Our customers have never grown for us. That has been kind of the other side of the coin. We have very stable customers in terms of economic resiliency. Yet we need to add customers if we want to grow. That has been an ethos the entire time. Just to give you a sense for what it looks like in extreme circumstances, we have always had this philosophy, or at least for the last 10 years, M&A can give us this really, really good stable ability to cross-sell customers in the best and worst of times. When does that pay the best dividends? Actually, in those troubled times.
To give you a sense for what it looked like back in April of 2020, our customers were down about 60%-80% on a year-over-year basis. It is no surprise they were effectively regulated out of business. People were not allowed to go into restaurants, were not allowed to travel to hotels. Within two months of that, we were growing payment volume 20% year- over- year. That is not because in July of 2020, everyone was feeling great and suddenly eating out at restaurants and hotels. That is because we added so many damn customers during that three months that it literally offset it. Now, how were we able to do that? We were able to do it because we had this massive cross-sell funnel of MerchantLink and Shift4 and a bunch of software companies that we had acquired in the previous years.
These customers, ironically, in the best of times, they're not seeking to hyper-optimize their operations. They're just selling more product. When times get tough, they say, wait a minute, I can consolidate this payment stack of five or six different vendors with one and save a bunch of money. They're actually willing to have that conversation during the slow time. We kind of made a promise to ourselves that we would always position the business with this cross-sell funnel, if you will, that can help us double, triple, quadruple in the best and worst of times. I think that serves us well. In that way, we welcome a little bit of uncertainty because it certainly compels more conversations around merchants.
All right. Great. Following up on that topic of growth, I have a question for you, Nancy. When we look at the 2025 guidance, I think you mentioned that you expect at least 20%+ organic growth. Can you tell us a little bit more about what considerations go into that? When you think about consumer health or any trends you see in lodging and dining, any of the verticals you serve, what gives you confidence in that number?
Sure. I mean, Taylor touched on this. When we approach the guide, we are looking, especially with consumer spending, which is what everybody's so focused on, we look at what we saw this past year. Really, what we saw exiting this year has held for what we've seen year to date. Our guidance really assumes a fairly stable consumer, does not consider any material change, either to the positive or negative, to the macro. When we look, again, this is a high-confidence guide. When we say that, it's because of what Taylor said. We do not rely on same-store sales or the consumer for growth. We rely on winning new customers and installing and annualizing the customers that are already in our backlog. For us, the guide considerations are really based on history and what we've seen.
That mix of verticals, I think another key point that's always important to mention when we're talking about consumer spend and resiliency is we are a very different company than we were at the IPO. Through the global financial crisis, through COVID, our verticals now are just significantly more diversified. When we were initially just restaurant, then restaurant and lodging. Now when we talk about whether it's stadiums and entertainment or unified commerce, the company is just so well-diversified. That is a big component that I know is getting a lot of interest in the guide. It is really informed by annualization of the business that we've already won. Any time I'm asked about the guide, I really want to reiterate that we have such a good line of sight into this year's growth. We know exactly where it's coming from.
Really to continue to highlight that many of our customers never even hit our backlog of embedded opportunities because they're SMBs or they're smaller mid-market customers that immediately activate upon signing. There is just a high confidence because of where that growth is coming from. It's usually already somewhere in our backlog. It's business that's already started but hasn't annualized. It gives us the ability across all the verticals from that perspective.
Right. I think you once said that the backlog is always enterprise or almost always. Is that?
Yeah. I mean, I think, look, it's a large portion, right? Because something like Alterra that we just announced hasn't even begun to install. So you're going to see 100% of that sitting in a backlog. It will likely you'll see probably six to nine months of that, hopefully, in this year. If that gets pushed out, then that'll start informing next year's guide from that volume back as an example.
Going back to February, it seems like a long time ago, but you had your Investor Day. You had a very big announcement about your proposed acquisition of Global Blue. I think in your slide deck, you had your full Investor Day deck, and then you had another slide deck just for Global Blue. You highlighted a couple of different revenue opportunities. There is the VAT refund, which I am sure extends beyond VAT in Europe, but other countries as well. You have potential new revenues coming in from dynamic currency conversion. The one thing that was not entirely clear to me is if any of the revenues you are anticipating could be potentially from cross-selling your payment processing services to all the different logos we saw in those slides, a lot of very expensive European brands.
I was wondering if you could clarify that a little bit or maybe just generally speak of the different revenue opportunities that Global Blue can bring to Shift4.
Yeah, sure. So it's a phenomenal business. I'll start with that. It's really the hallmark of kind of how we look at what will be our point of difference if we're going to go after a vertical. We spent half a decade looking at retail and saying, what is our point of difference going to be in this? Great competitors in our space approaching it with good solutions. We knew that if we wanted to approach retail, we needed a product suite that was like hands down the best and had one or fewer great competitors. With their TFS product, they have that. For any of you that have traveled abroad, this is the idea of buying a Louis Vuitton handbag in Paris. Inside of that sticker price is 20% VAT.
You're eligible to get a refund of that to the extent you're leaving the country. It is meaningful. You're talking about a few thousand dollars back on an expensive product. Yet logistically, it's pretty hard to coordinate all this. You need to prove that they're a foreigner. You need to prove that they've left the country. There have really been only two companies that have served this space. If you're like me and remember kind of, I don't know, 16 years ago standing in line at the airport on your honeymoon with a few luxury items and this long receipt and then a nightmare of a process, that is largely what had to happen across all these countries around the world up until COVID hit.
Of these two companies, Global Blue and their competitor, Global Blue used that opportunity of literally negative sales to invest heavily in the digitization of that experience. Now I would encourage you all, go into Louis Vuitton in Paris. Go buy your spouse something really nice. What they will do is they will capture your email at the point of sale. By the way, the salesperson will know you are a foreigner, not from your accent or anything else. They will simply know based on the card that you presented that this is somebody eligible for this process. Highly digitized. They recognize you immediately. They say, wow, you know this purchase of EUR 10,000, you are actually going to get EUR 1,500 back. Just give me your email, and we will start you on the journey. You can fulfill it by an app. You can fill it via kiosk.
You can go to a booth at an airport if you're so inclined. They will capture all these details. When you leave, you get an instant refund on your credit card. Their nearest competitor has like 15% market share. They have 85%. Clearly, this is like a product that is demanded by the best retailers in the world for obvious reasons. This drives a lot of commerce into their store. When the product is that differentiated vis-à-vis their competitor, no one's kicking that product out for one reason or another. They really have to have more pieces of those to sell to retail. We're going to own this technology. The merchants that have traditionally used that plus, I don't know, three or four other things to make a sale work don't have to anymore.
We can actually deliver the entirety of the commerce stack to that hypothetical Swiss watch boutique in Switzerland. I will say it has been pretty resounding. The investor feedback has been, what the heck is this business? Is this the duty-free shops at the airport? Explain this to me. Yet the reaction from the payments industry and from, quite frankly, Global Blue's largest customers are, we want to learn more. I was with one of their largest customers yesterday here in New York. They were traveling from Paris. It was a reverse inquiry. It was, you are right, it is a tough payment situation. We are kind of excited by this transaction. We know we have got something great in this. We know we have got a really strong point of difference in a vertical that is going to matter a lot. By the way, an incredibly resilient shopper.
This is not somebody traveling abroad for the first time. This is somebody flying to a foreign country and then spending thousands of dollars on a luxury item while they're there. That's really well insulated from economic shock, which is great. Separately, I mentioned this concept that we're in 50 countries now. We were in one 20 months ago or so. It's no surprise that we're catching up to what are called table stakes capabilities around the rest of the world. Currency conversion is one of them. While in the U.S. it's less common, if you're traveling in Switzerland, you need currency conversion as an option for your guests. There are three different currencies, three different languages, lots of complexity in it. They run one of the largest businesses in the world in currency conversion.
The example I would give is we're supporting 40% of the hotels in the country. We've never offered currency conversion for foreign travelers. We now own one of the largest businesses in the world to that effect. That synergy is plainly obvious. We'll have a new vertical in the stack with a very clear point of difference, just like we do in restaurants and hotels and stadiums. We'll have a product suite that when you start to look at the Harvey Balls, we check a lot of boxes that virtually no one else in the world can.
All right. Great. We have talked about the upsides of the acquisition. I want to ask Nancy about how you are going to pay for it. Now, the roughly $1 billion of mandatory convertible preferred shares, why did you choose that vehicle instead of another round of debt? I will ask you the follow-up question right now. How should people who are modeling this out think about the impact to diluted shares?
Sure. We were very committed to staying under 4x net leverage. The mandatory convertible allowed us to do that, so simply stated. I think when you look at the rest of the stack, Taylor briefly mentioned this, we wanted to take a Euro note component to just better match not only with Global Blue closing, but our own expansion globally. We are going to have more revenue and expense denominated in euro currency and tied to the euro market. We wanted to have some portion of the debt stack to provide a natural hedge with that business. I guess the third component, maybe just to mention, was we also wanted some flexibility in the debt stack with some of the prepayable debt component from the TLB.
Really, that was the mix of the approach to how we were going to pay for it, why did we do it the way that we did. In terms of how to model it, we will present our non-GAAP EPS on a fully diluted basis. I think it will be approximately 11 million shares that we will add into the calc. You will see kind of the what-if modeled out pro forma as if the preferred came due and fully converted. We will keep the dividend associated then with that preferred out of the calc. It will be as if we had a full exchange on the convert when we come out with the non-GAAP EPS calc.
All right. I think it's important to realize we spent a bunch of time deciding the right path here. We had every option available to us from a debt perspective. This was a decision driven by ourselves and, by the way, our largest shareholder who had a loud voice in this. He still owns 25% of the company. Dilution is not something he takes mildly. The reality is we have a ton of economic flexibility. Should the market environment provide so, we'll simply buy back stock. Just to give people a snapshot of what the last four and a half years have looked like as a public company, there's been about 15% dilution since we've gone public. We've grown EBITDA 10X during that time. We bought back a healthy amount of stock.
We do often have this exercise of whether it's issuing stock in an M&A transaction while we're buying back in the open market simply to put our shares in the hands of people who we want to influence and we want really aligned to the stock or issuing equity-linked instruments to keep our leverage ratios low. It seems like the prudent thing to do. If there is uncertainty, we'll be glad we did it. If there's euphoria, we can buy our stock back.
All right. So continuing on the Global Blue topic, given the deck you had, all the different luxury logos, does this put you potentially in more competition with Adyen, who I think is often said to be very penetrated in that space?
They're a phenomenal company. I would challenge they're one of the few payments companies that their customers say they like, which is really interesting. I think they're a company to be admired very much so. It puts us inside of retail for sure. Where Adyen doesn't really have a great solution, and we kind of grew up, it was our DNA, is this SMB retailer. You can imagine, and I think any of you that have traveled around the world have seen this, there's like four payment terminals on the screen. The VAT is a completely different process. We see a ton of opportunity in cross-sell inside of that SMB population where the savings are dramatic. You're simplifying the world for the owner and the operator and the decision maker all at once. We expect to have a lot of success there.
The Adyen partnership has been great for Global Blue. That is the Louis Vuitton example I gave, by the way, of it working incredibly seamlessly. I do not expect near-term disruption to that. We have a solution now that puts us on par with the Adyens of the world and in a lot more countries as a result of it.
Right. What remains, this is my last Global Blue question. What remains until the deal closes? Are there any more hurdles you have to get through or approvals?
Yeah. There's one approval left from a regulatory standpoint. It is with the Bank of Italy. That's their money transfer license. Expect it'll be done. I think we set the expectations of kind of early Q3 is what we're anticipating. There's no change to that.
All right. Great. We've actually gone through quite a bit of time. I'm going to maybe jump ahead on a few questions. Nancy, I know you've gotten this question about a billion times in the past. I'm just thinking about some of your guidance for payment volumes. In Q1, I think you had about $45 billion of payment volumes. You can annualize that. You get about to $180 billion. You add in the backlog. You get pretty close, I think, to your annual guidance. I know you've gotten this math question before. Any other puts and takes or anything, any nuance you'd want to give to some of the people in the room saying, keep this in mind, that this could add or detract from that? Maybe it's not quite so straightforward as I just found out.
Sure. I do get this question a lot. I would say, first of all, I would point everyone back to Investor Day. I think that was the best presentation of the bridge for 2025 and how we expect to get there. It largely has two components. One is the volume that we'll annualize, so business that already started in 2024 and is annualizing into 2025, and then new wins that will come from either our embedded backlog or from just winning on the street as kind of the second component. It is fair that annualizing a quarter is always the guerrilla math that makes sense. What you miss in doing that potentially is seasonality and then the impact of maybe one large or a couple of large enterprise deals that certainly move quarter to quarter the timing. I do not think it is bad math. It is just not perfect math.
I always like to point back to the seasonal nature of some of our verticals, especially restaurants and hospitality. I would say other than that, we feel good about the guide. Right? I think the guide we put out for this year, we've said we've got high confidence in. We have high confidence in the midterm outlook as well. I would just contextualize, I guess, one more time the backlog, because I think that's the second question that always comes up as it relates back to the volume. They're not meant to be one for one. The backlog was always meant to drive confidence in the bridge that we put out, especially if you go back to Investor Day to say, yeah, this should pass the smell test pretty quickly.
Again, reminding everyone what's in that backlog, it's business that either has not fully ramped and annualized or business that we've signed that we haven't even gotten the first dollar of volume yet from that client. We've already signed it, and it has a date as to when it will start. The reminder to that is that most of our SMB business, and even as we move up mid-market, will never hit that backlog because typically we sign and board within a few days. Those are metrics really to give confidence into the bridge that we gave for guide this year.
All right. Great. You know, the one thing I just want to kind of add, because I do not think investors always have an appreciation for it, is we have a myriad of options in front of us as a company. So we grew up serving predominantly SMBs entirely in the United States. Now we are talking yesterday I was with one of the largest luxury retailers in the world. That is an option for us now, I think. What we do not always know is what this mix is going to look like. I am looking around the room. I see some faces that followed us through shocks to the business. I mean that perceived negatively. It was we added so much enterprise business that no one saw coming that it spreads down a little bit. We are not myopically focused on a single category of customer.
We have these real right to win in different verticals. We are happy to serve the largest customers in the world. We are only now getting the opportunity to be on that stage. When you think about our volume guidance, it's probably the least we've got really good line of sight, as Nancy mentioned, into kind of the effects of annualization and the backlog we have and everything else. What the average customer is going to look like, we're very flexible about two, three, four years from now. We try to give as much visibility as we can. Hey, we just signed a whale. Here's what it's going to look like. Nancy's been awesome at kind of steadying the ship on giving spread guidance around these things. We as a company don't operate that way.
What we do is we say we'll go after every customer in the verticals that we want to serve. And the biggest to the smallest. We're adding over 1,000 restaurants a month in the U.K., by way of example. We're very happy to keep doing that. That relative mix over time is something we're going to have to keep educating investors because we love this diversity. But investors obviously struggle to model it. All right.
We'll continue on the topic of investor education. I want to talk a little bit about revenues. And as we talked about volumes, but now as we move to revenues, I'd like to understand your thoughts a little bit on pricing or just how it works at Shift4. When you're talking to a new merchant, is it here's your price? Is the pricing fairly à la carte? They use one kind of service.
Another merchant doesn't. They use something else. How should we think about it in general and how it works? Also, how much do you use as a lever to say, hey, this is the appropriate time to increase price or perhaps decrease price?
Yeah. I'll start with philosophy. And then Nancy can give kind of the mechanics of how it works day to day. Philosophy is that payments is our North Star. That's the revenue stream we're going after within our merchants. There is a natural curve that every one of our merchants will be on, meaning the $500,000 girl in Boise, Idaho will pay a higher spread than the multi-billion dollar international merchant. And we have all of them. And we've increasingly been winning in that large segment of the market. So spreads have trended down over time. The bar and girl in Boise, Idaho is paying the same thing they always have. So we're not compromising on price where we have this strong product differentiation. But we're certainly willing to win new categories of customers that pay a lower spread on average.
That's led to volume growth higher than revenue growth, which we're quite content with. We also charge for SaaS within our products that offer that, whether it's our stadium product or our restaurant product. We try to keep the SaaS meaningfully lower than our nearest competitor. The payments revenue stream has been appropriate for us to monetize. We see the challenges of trying to raise SaaS price over time. Quite frankly, in environments like this, merchants really care about fixed cost. They really laser focus on fixed cost. If the fixed cost of our product is a third of our nearest competitor, that helps us differentiate. That's kind of the philosophy. We will also have a consequence inside of our business of acquired revenue streams that we are fiddling with for the sake of winning the payments volume inside of those customers.
I say fiddling with because we'll do a bunch of different things. We'll raise price with the intent of just making the phone ring. We'll immediately make that price go away in exchange for shifting the payment processing. We'll just offer it for free as a carrot. A lot of our invoices, believe it or not, say, stop paying this invoice. Just call this number. You don't have to pay it anymore. In some cases, we actually just don't have to do that, right, because we're adding on payments to a SaaS offering they historically had or something like that. We have all of these tools in our toolkit. Nancy, I don't know if you want to elaborate on kind of.
Yeah. I think you really said it well. I mean, the payment space operates kind of around the card brands. Right? So anyone that follows this space understands that the largest component of any bill that we're giving to one of our customers is actually a pass-through, right, of fees from Mastercard and Visa and so on. So we're certainly very cognizant. I would say we've been doing this a long time. So we understand the price sensitivity to our merchants. And we're super careful. We've talked a lot about carrot and stick when it relates to cross-sell. But it's kind of our philosophy, even with our existing merchants. Right? I think people believe there's more price sensitivity and price competition in this space. But Shift4's model is very integrated.
We're bringing a value to our customers that's typically tied to some software or some product that is embedded in their entire operating system. We're not really competing on price. We just have to deliver the best-in-class service delivery and be mindful of really how to pass on fees from Mastercard and Visa and be competitively sensitive to the environment that we operate in. Again, it's not something that we have to compete on once that merchant's in the door. We're winning based on the product that we've delivered and the service model.
All right. Perfect. We're almost out of time. I'm going to close out with one final question. It'll be for you, Nancy. It's something that may have befuddled many Excel modelers. If we do assume that you do acquire Global Blue, how should we think about the blended take rate for the company? It's confusing for us. It might be confusing for you as well. Is it just a matter of we layer in the Global Blue income statement on the Shift4s and kind of project out? Or are there other more complicated dynamics?
Here's what I'll say, which is an answer but not a specific answer to what you asked, which is, one, we owe everyone a teach-in with the close of Global Blue. We appreciate that that will need to happen. Also, we have two public companies with all of their data out there. There will be a couple of IFRS to GAAP differences that we want to point out right away that will bring down the blend of the two. It will not be one plus one. There are some takeaways that do not translate for GAAP that are in their financials. In terms of spread specifically, we are still working through segmentation in terms of how we will manage the business and how we will model the business because obviously a big focus for us is that cross-sell.
While Global Blue has an amazing business today, what they'll be focused on going forward will look different because they'll be very similar to the deals that we've done. We will be focused on a blended offering and focusing on cross-sell. You'll see more of a co-mingled presentation of our existing business versus how they present theirs today. I would just say for now, more to come. We'll be back to you.
Great. Thank you very much. I think we're out of time. Thank you, Taylor. Thank you, Nancy, for joining us.
Thanks.
Thanks for having us.