All right. Welcome, everyone. We're really glad to be joined here by the team from Shift4. So, Chris Cruz, the recently named CFO and longtime investor in Shift4. We've known Chris for many years now through various industry events, our NAPA conference, ETA, and some industry events. So we were just really happy to see Chris named to the CFO position. And we're really pleased to have him here with us on stage. Thank you, Chris.
Thank you, Tim. Thanks, everyone at UBS, for having us. Really excited to be here.
All right. And also, a special thanks to Tom McCrohan. Tom, Head of IR for Shift4, works very closely with our team and also made the trip out here to Arizona. So, again, we appreciate you both making time in your busy schedules to travel out here to be a part of our conference many years in a row now. So thank you to Shift4. All right. Well, we've got a great list of topics to get through. And we're going to start off just addressing some of the recent macro that's been called out by the Shift4 team. Chris and Taylor and team talked about a little bit of volatility, right? Some weeks up, some weeks down.
Chris was just going to put a little bit of context around that and maybe talk a little bit about how investors should be thinking about some of the Q4 guidance metrics.
Sure. I think what you're alluding to is, on our third quarter earnings call, we made reference to a couple of data points that we were seeing within a really broad data set. So, as a scaled payments company that has really great vertical leadership within areas like restaurant and hotel, we have the privileged position of seeing a lot of interesting data. And something that was coming in as a question was, what were the recent trends around that data? And one of those trends was that, in the domestic restaurant, domestic lodging categories, we were seeing kind of week over week, sorry, rolling seven-day, year-over-year trends that were, call it, + 1% to - 4%. For context, we're used to seeing those trends at the, call it, ± 1% to 2%. So a narrower band is what we're used to seeing.
The range was slightly more downside biased. We wanted to call that out because it has had an impact on the same store variable within those verticals in the base. At the same time, we're really proud of the fact that, from a vertical diversification standpoint, we are seeing the leadership position we have in stadiums entertainment, the leadership position we have now in luxury retail, and in other verticals more broadly. It gives us a vantage point that allows us to see not only those trends, but trends as a whole that I think are quite interesting in our business and certainly have been interesting to investors, topic of a lot of conversation.
All right. Great. Well, thank you. That's a great way to recap. Maybe you could talk a little bit about now, sort of a little deeper into the quarter and really what that means around that range that was provided for Q4 GMV.
Yeah. So let's start with the trends. I mean, they remain consistent in terms of what we had previously discussed and disclosed. And from that standpoint, we remain with a more cautious tone within it. But as it relates to the guidance itself, what we had talked about, really no change in sort of our thinking around it, consistent with the way we had felt in the quarter.
All right. Sounds great. Thank you, Chris. Let's move on to the Shift4 way. So this past year, we've seen Shift4 do more of the type of activity that would very much be aligned with the Shift4 way. So you've been making some acquisitions and really executing on some of the prior ones: Vectron, VenueNext, Revel, Appetize, and many more add to that list, which we like to say is they add to your cross-sell Rolodex and Global Blue, Bambora, Smartpay. The list just continues to go on. Maybe you could talk a little bit about some of these specifically and how this will feed into kind of next year's cross-sell funnel.
Absolutely. Well, actually, where you ended that question is exactly the most exciting part about the acquisitions that we make. Because from our perspective, topping the funnel or adding to this cross-sell potential that we have is one of the most attractive parts in what we believe is our unique model. The ability to deploy capital in order to obtain a unique and differentiated access to customer acquisition and expanding our markets is, I think, one of the most important things that we do in order to differentiate ourselves and drive a better return of capital outcome right at the unit economic level of customer acquisition. We could deploy capital in a lot of different distribution channels, distribution methods. You could put money into a Google AdWords campaign.
For us, this idea of being disciplined on the acquisition of a business that has an installed base and a stake, a cross-sell potential in its funnel that we can then, through that acquisition, have differentiated and low and disciplined cost of capital to really convert and acquire the customer, to us, it's really quite a distinction in our unit economic model and one that historically has driven high returns on capital over time. Bucket one, that's why in our kind of strategic priorities around acquisition capital allocation, we talk about the cross-sell funnel as one of the most important priorities. The second priority within it, though, that comes is often capabilities enhancements. So even though most of these acquisition theses are justifiable on their own from the perspective of the funnel, they often come with interesting capabilities enhancements. What is a capabilities enhancement?
In the case of Bambora, as we announced in the third quarter, the bringing on of a payment modality like EFT/ ACH in North America, that's a competency, a capability that we didn't have before. In the case of Global Blue, we often talk about the tax-free shopping, the entry into the luxury retail category. What we don't talk a lot about is that they brought a proprietary dynamic currency conversion capability. That DCC capability is not only an interesting product in and of itself, but it's something we can cross-sell back into our base. So this idea that capabilities come over and above these incredibly interesting cross-sell funnel opportunities to expand that is something that is an important part of what we underwrite within our models. And then the third from that is simply market expansion. So the opportunity to expand into a geographic region or densify a geographic region.
We announced the closing of Smartpay in the Australia and New Zealand region. That created a lot of density for us in a country that we were emerging and growing our share within. In the case of Bambora, that's giving us more North America, which really is about, in Canada, building some density there as well. So three big buckets: the idea of expanding funnel, the idea of capabilities enhancements, and the idea of market expansion. Those are all the ways with which we think about excitement within these underwritten acquisitions.
Excellent. Thank you, Chris. A minor follow-up before we get into some of the vertical mix. But related to that cross-sell funnel, shifting over to end-to-end volume, would you say that there's any change maybe in the composition of that as we head into next year, as we think about kind of higher-yielding merchants versus lower-yielding in terms of their merchant size?
Yeah. No, it's a great question. And it's an astute observation. Our business is one, when you go to the history of the company, we were really a business that was born SMB in the history of the business, really born one vertical where our first vertical of real strength and leadership was restaurant. We were born SMB there. And then for those of us that have followed the story over the years, we went from one vertical market leader to becoming now a vertical market leader in four verticals: restaurant, we add hospitality, you add stadiums and entertainment, and now luxury retail. The interesting thing within that mix is verticals two and three are good examples of places where our mix started to shift towards enterprise.
So over the last few years, you would have heard the story in our narrative, and you would have seen it in the numbers, that our volumes were growing faster than our spreads. And that was because of this mix shift towards enterprise. But now you can fast forward to Global Blue as a good example of an area where our most exciting opportunity within that business to cross-sell is within the SMB. It's not, contrary to popular belief, it's not necessarily in the enterprise side. It's actually about the opportunity in SMB. To contextualize it, there's a $500 billion sort of cross-sell funnel type opportunity for payments within Global Blue. $100 billion of it is the SMB component. And so when you think about, well, what does that mean over time within the narrative?
If you follow the history, born SMB, single vertical, adding leadership in verticals that tend to be enterprise, mix shifting towards enterprise, there is a scenario here. Not trying to do any sort of guides around this or anything, but there is a scenario here where we may see mix shift that is different than this historical trajectory.
Excellent. That's really helpful context. Thank you, Chris. All right. So I think you hit a little bit on the SMB versus the enterprise evolution over the years and how that could look a little bit for next year. Maybe we just touch on that point of yields. Maybe we can do that more from a vertical view and also a U.S. versus international. Just any high-level comments you could make around directional take rates? I mean, obviously, we know restaurants a little higher, hotel a little bit lower. And then maybe you could expand upon that across the other verticals.
Yeah. The take rate to volume question is something that, if you're a student of the payment space, and I've been investing in the payment space or around the payment space for almost two decades now, there's this very popular chart that's always shown to you when you first start studying payments. It's three pyramids that show you that volume is really a cascade. You have this inverted pyramid that shows you that volume, the most amount of the payment volume sits with enterprise, the least amount sits with SMB. But then right beside it is an inverted pyramid that shows you from a revenue standpoint, a.k.a. translating that into spread, the revenues and the spreads are the smallest in enterprise, and then they're the largest within SMB. And that dynamic is really something that I think is important to understand.
Because when you start to think about verticals, what we see is that a vertical like stadiums entertainment, a vertical like lodging even, they tend to be more enterprise skewed, and then within our base of unified commerce, you have very, very large enterprises that run everything from technology and telecom to public sector and a nonprofit and a variety of other areas, and so depending on that mix of the business from a vertical standpoint, you actually can triangulate a little bit to an enterprise versus SMB mix, in restaurant, more SMB, and in what could be luxury retail, probably to be more SMB.
Thank you, Chris. And on U.S. versus international, we understand there's a little obvious changes on the gross level. But when we get down to the net take rate level.
Yeah. So it's interesting because I think there's a prevailing view that take rates in international markets relative to the U.S. are lower. And actually, what we've uncovered is when you're bringing a value proposition of bundled integrated payments software mixed with the proposition that we bring of software, service support, hardware mixed with the bundled payment offering, that whole collection together is delivering value that actually is translating into a monetization of spread that isn't that dissimilar to what we're seeing in the U.S. And that, I think, is yet another surprise that no matter where you are, solving complex payment problems through an integrated solution and delivering this, call it one hand to shake kind of an approach, it really does have monetization power.
All right, Chris. That's really helpful. Thank you. All right. We're going to move on to SkyTab. So SkyTab, clearly well covered at the investor day. But let's do just a little bit of a kind of a recap and refresh on SkyTab, just starting with a little bit of what's the ideal or average restaurant size or what's the real target market for SkyTab? And then more specifically in terms of the competitors, I mean, how much is it up against a Toast, Clover, SpotOn, MICROS, NCR? Who are the most predominantly viewed competitors that you go up against head to head?
Yeah. I think we often talk about, with a healthy respect, Toast as within the restaurant space. I don't think that should surprise anyone that we sort of view them as the market leader. At the same time, I'd be remiss if we didn't mention that seeing MICROS, a.k.a. Oracle, in a lot of hospitality in restaurants that are tied to hospitality environments or enterprise restaurants themselves, that's fairly common too. Don't know where your dining patterns are, but if you took a look behind the wait station or the bar, you probably see those systems as being pretty prevalent, and that's really where I would say we see our offerings play and you could define the category that way. It's really about table-side dining, and it's really about the caliber of restaurant that you would see a Toast or a MICROS in.
Now, I think there are some unique differences, though, as well, which is to say each of those parties has their own subcategories. I think it's too easy to paint with a broad brush that restaurants are restaurants. The reality is table service restaurants, table service dining, and the complexity of what a POS does in table service is very distinct and different from what it does in QSR. And when you think about a Toast, for example, you might see them straddle that world of table side and QSR. In a world of Square, you don't see Square in table side, but you might see them more in something that is a mix of restaurant to retail. You might see that category.
So it is important to understand, I think, those distinctions when you're doing your market mapping of competition because not all of those categories are ubiquitously served by a single POS.
Excellent. Thank you, Chris. A minor follow-up to that. So clearly, when you're selling a modern point of sale with a software component to it along with end-to-end payments volume, there is a total cost which can be split across either SaaS fees or payments revenue. It's kind of your choice on how you want to do that. Clearly, Shift4 has gone a little bit more towards the payments means of monetization. But when you're pitching to a restaurant and you're talking about the total cost that they're going to pay, how would you compare the SkyTab offering to some of those major competitors that you just mentioned?
Yeah. I think we undoubtedly believe that we have lowest total cost of ownership to a restaurant merchant. And it's important not just from an upfront standpoint. It's also about the overtime, the idea that there isn't going to be a nickel and diming around peripherals. Our uptime is your uptime. Our North Star on the most important part of the revenue model is the transactional component of monetizing payments. If I take that out of the jargon for this room, it really means that if you're online, if you're uptime, if you're actually delivering revenue to yourself as a merchant, that's the only way we're also going to receive revenue. And so from that standpoint, I think we're very well aligned. So there isn't an upfront to buy multiple POS stations at $5,000 a pop.
And then every time a peripheral changes or a handheld changes or this, that, or the other, there aren't charges for those things from that perspective. We're really about trying to align ourselves to the uptime and deliver the lowest total cost of ownership.
Excellent. All right, Chris, we're going to move on to another great topic, which is stadiums and events, so at the time of the IPO, there was the one stadium, and there was the Raiders' Stadium, and now there's a whole bunch, and every shareholder letter has a bunch more in it, and it seems like there's a press release every few weeks. Part of winning those, we know, has to do with some of the ability for Shift4 to process payments across, again, in that multi-software environment. One of those environments is the ticketing environment, the integrations that you've done with Ticketmaster, SeatGeek, PacYole, and TicketSocket. The list goes on. Talk a little bit about how that's helping you sell to the stadiums. Clearly, it's been working quite well, and maybe you could give us a brief update directionally on where you think your market share sits.
Yeah. It's a great nuance because you can look at the stadiums and entertainment environment. You can look at the logos that we talk about. And we often make mention of three-quarters of professional sports venues are likely using our software. And this is really what we're talking about in the context of SkyTab Venue. And what does that really mean? That really means the in-venue experience around things like FMB and retail. What does it often not mean? It often does not mean the ticketing piece yet, which has been one of the fastest growing areas for us because even though we had the market-leading solution in SkyTab Venue delivering the software that allowed for an integrated payment experience inside the venue, we did not, at the early phase, have the payment integrations for the aforementioned ticketing vendors.
Building that integration library, so to speak, to the ticketing players was a piece in the deal objectives in the roadmap that we had to do, well, we got that done, and once that did get done, you started to see a very nice attach rate coming through as it relates to ticketing. An important component is on a relative volume basis. In some venues, ticketing relative to FMB volume, it can be one to one, but in some venues, you can see a six to one relative volume differential in the ticketing side relative to what is transacted inside of the four walls of the venue, and so the ticketing opportunity is very exciting, and we are not anywhere close to the same market share in ticketing as we are within the inside the venue experience of integrated payment and SkyTab Venue POS.
So that's still a nice growth driver within that business and something that we're obviously very excited about. It's also really important to note, just to underscore it, though, that it's easy for us to say we are a leader within a vertical, and that's the end of the story. I think this nuance that there are more opportunities to get volume across different revenue centers even once you've landed. So a lot of our verticals do still have land and expand potential even after the market share is determined.
All right. Excellent. What we're going to do with the time remaining, we're going to hit a couple of financial topics, and then Chris was kind enough to say that he'd be happy to take a few questions from the audience, so if you'd like to, I'll bring the microphone around to you. Let's hit a couple of these quickly on a couple of financial items, so the stock repurchase program, so you talked about a $1 billion repurchase program. I wonder if you could just expand upon that a little bit. What gave you the confidence and kind of put that in context of some of your leverage levels, et cetera?
Yeah. I think for one, it's actually just been a recurring component of the business from a board standpoint to evaluate the share repurchase authorization. If you look at the history of the company since public over the five years, we've gone from a no authorization to a $250 million authorization, doubling it to a $500 million authorization. And then the most recent announcement, which is a $1 billion authorization, that'll go all the way through to the end of 2026. In the ordinary course, the third quarter was the natural time for the board to evaluate the share reauthorization since the prior one or the most recent one was supposed to expire at the end of the year.
Now, it happened to coincide with things that seemed to happen within our industry and within our own valuation that makes executing against that share repurchase authorization actually more of a priority than it may have otherwise been, which is to say we view at present that the valuation underlying the shares seems like an attractive place to allocate capital. And something we talked about on the call for context, this valuation level of share repurchases would actually be below and lower than the lowest we've acquired shares in historical repurchase authorizations.
Excellent. Another $1 billion number, which is your guidance to reach that as exiting this guidance period in terms of your run rate for free cash flow. So you recently reiterated that. Maybe you could expand upon that target.
Yeah. I mean, it's one of those points of I think I did get asked the question around at one point if there was one KPI that mattered to you in terms of getting to know you, what is it? And at the end of the day, cash is king. Adjusted free cash flow as a metric is an important North Star. And it's one that I think at the end of the day is what we should be measured on. The $1 billion adjusted free cash flow target as an exit rate to the 2027, the end of our medium-term guide is what we've had as a target. And it is something that we are very focused on.
Excellent. All right, well, actually, why don't we wrap with one last, and then we'll go to the audience. So the medium-term framework, right? So the three scenarios that you laid out, maybe you could just talk a little bit about now we're close to one year past, how you're tracking against those, what kind of confidence you have in the medium-term outlook.
Yeah, so no difference in the way we talked about this at the third quarter call. I mean, I think one of the things that we did talk about was within these three medium-term outlook cases, we have the case that we phrase as sit on our hands, which is a high teens case. We then have a case of sit on our hands or high teens, but then you add in the acquisition of Global Blue, which we announced at the time of the investor day.
And then if we continue to deploy capital in a manner that's similar to what we've done in the past, we have this third case, which is a case that we feel strongly about because we actually have been able to announce things like Bambora, announce things like the closing of Smartpay, good places to have invested capital and places that we think will generate really attractive returns from. When you look at those three cases, I think from across the board, we view ourselves as having conviction around those cases. We even gave a kind of a pull forward of the medium-term guidance, a pull forward of an update to the medium-term guidance by disclosing an organic growth figure in the third quarter of year-over-year organic growth of 18%.
That actually, in our minds, is a tracker method against the sit on our hands case, and we think it compares favorably. So in summary, I think we feel good about where we're tracking on our medium-term outlook.
That's great, Chris. Thank you so much. And we did leave a few minutes in case anyone in the audience would like to ask a question. Please just raise your hand, and I'll bring you the microphone. Here we go.
Thanks, Chris. A lot of your competitors are talking about making larger investments within direct sales force. Can you just remind us what your distribution philosophy is? And especially as you buy and acquire these assets, I'm sure they come with their own distribution. How do you synthesize those together and create one organization that's working towards the same direction?
Sure. I'm going to start with a quick clarifier on your question. The phrasing of a lot of our competitors really speaks to one vertical where we're a leader, which is probably, I'm assuming, the restaurants vertical. Because when you actually look at our other three verticals of leadership, stadiums and entertainment, lodging, and now luxury retail, our competitive set within those verticals is much more benign, and it's areas that we are very strong market leaders within, so if I was to isolate on just the restaurants vertical and take your question of what is essentially the distribution or we'll say distribution method point of difference, we talk a lot about the idea that within a vertical, we can take an inorganic approach of acquiring a business that has funnel capability or funnel expansion opportunity, capabilities enhancements, and it opens up markets.
Once we have that position of an acquisition that gives us those things, within that acquisition, we now have a very unique seat with which to cross-sell our payments capability into, and we might do that with a deprecation of the existing revenue streams, whether they're software, whether they are other fees, in exchange for what we believe to be a much stronger form of revenue in payments. This idea of cross-sell being a component of how we win from a distribution standpoint because we're selling through the position of incumbency and giving more value in integrated payments and likely upgrading the solutions that they're utilizing, that to us is one point of difference. It's not to say we don't use the other methods of distribution as well. We do.
We absolutely have a very strong distribution motion that allows us to go out and win in the open market within these industry-leading verticals. But at the same time, everything should be adjudicated on relative return for a unit economic dollar deployed, right? The relative CAC in the cross-sell is superior in our minds to the open market. So when you think about your question of if competitive intensity rises, how does that impact? Well, actually, it would just tell me that on a relative basis, it's likely that the variance between my unit economic returns and my cross-sell to what's available in the open market probably got even better.
Well said, Chris. Thank you. I think we have time for one more if anyone would like to jump in. Here we go.
Hey, thanks, Chris. You guys have done a lot of acquisitions. You talked about how the pipeline for gateway volumes is currently as big as it's ever been. Something that Shift4 has talked about historically is kind of using the carrot and the stick of kind of harvesting that over time. Can you maybe talk about whether this current gateway volume, as big as it is, is time to maybe go back to that carrot and stick strategy, or is there more kind of farming of the top of funnel that you're looking at?
Sure. So let me one clarifier. When we talk about the funnel, we're not just talking about gateway. We're talking about the variations of funnel that come from anything from gateway to point of sale to gift loyalty to tax-free shopping, right? These are all various products that have a unique ability to influence the procurement of payments. That's what makes them really attractive to us because our North Star is about the payments. From that position, you have to do a very important analysis of what's going to work best within a gateway cross-sell versus a tax-free cross-sell versus a POS cross-sell because they are not created equal and different strategies and depends on the market you're into. Different strategies are going to work well in different permutations of market meets vertical. So I think if your question is, will you utilize more carrot, more stick?
To me, it's a nuanced question that you have to unpack by the situation. But we are utilizing kind of all of the variables that are inside of our playbook, and we have a lot of data to tell us and guide us into what playbook to use at a given time.
Excellent. I want to say again, thank you to Tom and to Chris for being here, a big part of our conference many years in a row. So thanks, guys. It was a pleasure doing this with you, Chris.
Awesome. Thank you very much.