Ladies and gentlemen, the program is about to begin. Reminder that you can submit questions at any time via the Ask Questions tab on the webcast page. At this time, it is my pleasure to turn the program over to your host, Jason Kupferberg. You may begin.
Thank you, everybody, for joining us here, day two of our annual Electronic Payments Symposium, fully in virtual mode this year. We do have with us from Shift4, we have Taylor Lauber. He is President and Chief Strategy Officer and always does a great job at these events, really happy to have him. Thanks, Taylor, for taking the time with us this morning.
Yeah, of course. Happy to do it.
We're starting off pretty much with everybody asking, I guess, the obvious question in the last couple of weeks since, we've had the regional bank crisis. Have you guys seen any discernible change in trajectory of payment volumes?
You know, it's a great question, and we haven't. We've actually been postured reasonably defensively for, you know, quite a while now, seeing, you know. Prepared for a pullback in consumer spending. Haven't. You know, even as recently as this past weekend, we hit records. Some of that can be St. Patrick's Day for a business like ours. Some of it can just be the warm weather encouraging people to go out and spend. You know, even in the face of some pretty, you know, serious banking issues going on, we haven't seen it impact the consumer just yet.
Good to hear. Good to hear. So far, that's consistent with what we've heard from others, so hopefully it stays that way for everybody's sake. Maybe let's just take a step back. You've obviously been at the company a long time, and would just love if you can give your perspective on how Shift4's business model and strategy have evolved over time, and then we'll go into a bunch more detail on the business.
Yeah, sure. Well, believe it or not, it's been 5 years on this version of my time at Shift4, but I date back to as far as our founder's parents' basement when he started the business. I worked summers there for the earliest days. What I'd say is a common thread throughout this 24 years of history, 24 years of revenue growth, is that there's just an obsession inside of Shift4 for finding the technology solutions that really attract the hearts and minds of merchants, and it is not an approval or decline.
Whether that was, you know, electronic cash registers back in 2000 or our Harbortouch point of sale brand that we created in 2005 or what we've done in the hospitality space and recently the stadium space, nonprofits, it's really about taking the technology solutions that merchants have the most challenge with, addressing them, delivering them, and bundling them with the payment services that they typically need to source, you know, regardless of the industry that they're in. I will say, we do this in a pretty unique way. It often feels like the company's kind of reinventing itself a little bit every three to five years, adding on an entirely new capability to let us attack a vertical, and it served us well.
You know, for many years of the company's history, we weren't in any restaurants. Now we're in roughly a third of the table service restaurants in the United States. We weren't in any hotels five years ago. We're in 40% of the hotels in the US today. We weren't in any stadiums two years ago, and we're in, you know, over 100 right now. This all boils down to the theme of identifying technology solutions that really attract merchants that they see a ton of value in, and bundling the payment services that have typically been pretty disparate and don't add a lot of value in their own right, as just an approval or decline.
Right. Right. Yeah, you definitely have a track record in that, in that regard. If you fast-forward to today based on where the model is, I mean, who do you really see as your primary competitors, recognizing that could certainly vary by vertical? Maybe just go a little deeper, even though you touched on it a little bit in your response to the first question, but just the true points of differentiation, and maybe illustrate that through an example or two if you would.
Yeah, absolutely. We've been doing software plus payments a very long time. While it's a foregone conclusion, I think in today's world that, you know, a software company's gonna, as tightly as possible, bundle the payment experience into their offering for their merchants, you know, we, in many ways pioneered that back in 2005. Understanding what it means to go to market with software, to bundle payments, to create a merchant experience that, you know, is seamless and drives a lot of value is something we think we're uniquely good at, despite how much software plus payments is kind of, as I said, a mainstay in business today.
One thing that makes us unique is that we pick a pretty, in our view, pragmatic approach to whether we build software, we buy software, or we partner with software brands, I do think that's unique in the marketplace. You have pretty, almost religious level philosophical views about, I need to build the software, that's the only way I'm gonna address a vertical, I need to buy software companies to defend my turf as a payments company, I'm just gonna partner with everyone and hope it works out well. Each of those strategies is incredibly important, You need to address them on a vertical specific basis and determine for that vertical what's most appropriate. In the restaurant vertical, for example, we have built our own software for many, many years.
We've acquired brands selectively where it gave us access to a portion of the market that our software might not have been competitive in. Right now, in that vertical in particular, we really see Toast as kind of, you know, the only good competitor out there, and we love that. They're a phenomenal company, and we think we have a ton of value to deliver, and competing alongside of 1 great competitor is like a really nice spot for us to be in.
And we try to differentiate within that vertical to focus on the higher end of the market, the locations that you typically see inside of a hotel or inside of a stadium, for example, where we're uniquely positioned to address them. The hotel vertical is actually quite unique, and this is an example where that partnership model, you know, is really relevant because a hotel is gonna use somewhere between 10 and, in extreme cases, 60 different point-of-sale software suites. There is no chance that any payments company is gonna own all of them, let alone the best-in-class player in salon, spa, you know, golf course, parking garage, ticketing, restaurants, front desk, et cetera. By having a payment platform that is compatible with over 500 software suites, we have very, very unique access to the market.
It's why we have the kind of share we, I mentioned earlier in 40% of the hotels in the U.S., is because the payment platforms that can support all of their needs and how disparate they are at the point of sale is, are really few and far between. Then I would say, you know, in other verticals like stadiums, it's a combination of these things. We own best-in-class software that really attracts stadiums to work with us in the form of VenueNext, but we know that we're gonna need things like a Fanatics integration to their retail store that might be in the stadium. You're gonna need parking integrations, et cetera, much like a hotel. We do a combination of things in that vertical.
I would say, you know, the competitive landscape varies a bit, but our approach to how we bundle software plus payments and make a really seamless merchant experience is really tailored to the vertical we're trying to address.
Understood. You know, look, I know at the time of the earnings call, you seemed to express some optimism around just overall trends for Q1, the way things were tracking at the time. We just talked about the fact that despite all the macro headlines, you haven't seen any discernible change since then. Obviously now we're drawing fairly close to the end of the quarter. Just would love your take on what do you think is really driving the consumer's underlying resilience? You know, you and I were talking a year ago about how inflation was gonna maybe upset the apple cart. It never happened in 2022, and, you know, at least the last couple of weeks of data would suggest so far it's not really happening to any significant extent in 2023.
would just love your guys' take on what you think explains it.
Yeah, sure. I'm gonna try to be less of an economist than I maybe was last year in predicting a moderation in consumer spending because I wasn't very good at it. It didn't happen in a significant way last year.
Most of the economists were wrong too, by the way, so don't feel bad.
Well, what I would say is this: I think in our business in particular, this is the inflection point for the year for us, right? You go from January and February, where it's typically pretty anemic, people are, have the holiday hangover, they're not going out and spending necessarily. They're not, certainly eating at restaurants when the weather's as cold as it is. You know, the weather starts to moderate. You start to have things like Presidents' Day weekend, Valentine's Day, spring break season just heating up. All of those trends really benefit the verticals we're in. One thing, you know, to have a casual knock on some of the verticals we serve, they don't grow, massively on a same-store basis. We need to grow, by adding customers.
We can feel pretty confident coming into a year like this that simply the customers we've added over the past year, are gonna really grow volume nicely when seasonality returns and people start going out to eat and people start traveling again. I think we're seeing that right now. A record weekend, for example, that like we just had, is not a surprise to us by any stretch of the imagination. We've added a lot of customers over the last year. And at some times it can be actually difficult to predict, to really unpack the same-store trends inside of a particular merchant, although I would say they're healthy. They're not exuberant. They're not, you know, diminished. They're just like modestly healthy.
We've added a ton of customers, that obviously helps our business a lot. You know, one thing that we made a pledge on when we went public is roughly 90% of our business was restaurants and hotels. You know, at the time we went public in June of 2020 we said, we're gonna use our really fortunate position to have raised capital at this time to diversify the business into verticals where we think we can have just as much of an edge as we've had in the restaurant and hotel vertical, but are in some ways diversified.
We started down a path, really at the beginning of last year to diversify into 6 new verticals and have, you know, pretty meaningful customer wins in each one of those, and those customers have gone live over the course of the last year. One thing that, you know, helps our business at a time like this is I probably wouldn't have the confidence that I do if we were just in restaurants or just in hotels. There's a lot of reasons you can be concerned about any one of them, but you know, we've added these 6 new verticals. We've got meaningful merchants in each one. They've all started producing volume in the back half of the year. Literally just annualizing those merchants creates really, really nice growth trends for our business.
You know, I'll tell you, in our sports and entertainment franchise, we, you know, have seen record weeks of volume as well, which is kind of interesting. This isn't a time seasonally where you'd expect that. The reason for that is that we're starting to see ticketing revenue for the first time inside of that, which is really nice and countercyclical to when the actual events happen for a particular team or league. All of these serve to really underpin our growth, give us a nice path that we can underwrite for the year ahead, and quite frankly, diversify us a little bit. I don't wanna be too extreme on the stadium front, but diversify us a little bit from the really large franchises that have kinda brought the business to where it is today.
Okay. Yeah, that's kind of a good segue to my next question, which is around your 2024 guidance that was presented back at the November 2021 analyst day. You know, I think at the time, a lot of people felt like, you know, that was kind of a show me part of the story. You know, here we are, you know, a quarter through 2023, and you guys certainly seem to be on track. I think mathematically your end-to-end volume growth would maybe need to accelerate to some extent next year to get to that $160 billion target for 2024. Maybe just talk about some of the primary drivers of that?
I suspect it's related to a lot of the dynamics you just started to touch on in the last question.
Yeah, sure. Well, let's sort of remind everyone of what that medium-term guide was, right? It was set November of 2021, it was this idea that we'd grow payment volume about 50% per year, and that would translate to 30% net revenue growth over the next 3 years. What I would say is, you know, the confidence we had at the time was the high growth core of our business, which is really our restaurant and hotel verticals and our gateway had contributed well over 40% CAGR of annualized volume growth from like 2018 to 2021. Through a pandemic that had ravaged those industries, we'd grown quite nicely, and, you know, above 40% in our high growth core.
That we have real high confidence we can continue to do that. We still have over $150 billion of volume on our gateway, for example, that can move over to end-to-end. We've got very strong win rates of net new customers joining that platform. We've got a brand-new restaurant point-of-sale platform in SkyTab that we're going to market with just at the end of last year. The high growth core gives us really good confidence that we can deliver a healthy portion of that guide over the over the next 3 years. Again, growing at over 40% in its own right. As I mentioned before, we announced our entry into 6 new verticals, which each was underpinned with an anchor customer that, you know, really acts as a beacon within their own vertical to attract other customers.
We felt good about that. And I would say the other thing in our back pocket was that we had about $1.3 billion in capital that we'd raised during kind of headier times in the capital markets that we knew we'd have the ability to deploy into choppier times. And that was, quite frankly, really exciting as well. What the first year was about was about getting the work done in all of those new verticals. Obviously, our high growth core continued to do what it does. It grew quite nicely. We added lots of customers, it's, you know, the anchor of our business, so it's pretty predictable in how many customers are gonna join us each year.
We completed over the course of 2022 critical integrations to all of the software suites that are relevant for those verticals that I mentioned earlier. We started to see volume just in the back half of the year. You know, I would say it's never mission accomplished, but we certainly got the technical work done to really address the TAM that is each one of these verticals. You know, I mentioned ticketing, for example. We completed integrations to Paciolan and SeatGeek, and suddenly any customer using those platforms are now part of our TAM, and we can go address. As we think about 2023 and then onto 2024, a lot of the technical work's been done.
The annualization of these big customers that joined us, really in the last year is gonna create really nice growth through 2023. 2024 is about more of the same and adding customers in these verticals that we really haven't had a right to up until the last, you know, few quarters of the year.
Yeah. I mean, it's almost not, it's not completely independent of the macro, but you do have these idiosyncratic growth drivers that sound like are driving what continues to be a high degree of confidence, if not, I don't know, maybe even a higher degree of confidence in the 2024 outlook than you would have when you first gave it, just given where you are.
Yeah. Well, I'd say if Jared were here, he'd say absolutely a higher degree of confidence because we needed to get the work done.
Yeah
In terms of creating these integrations that would that the customers, you know, could follow. We got that work done. It actually happened a little later than we had hoped, and yet the volume contribution from these customers is greater than we would have hoped. It's offset itself really nicely. With that work being done, we feel like we've got a much wider TAM than we started last year with, for example. We've got annualization of the customers that I mentioned. You know, one of the, probably the boldest ambitions of our medium-term guidance was being able to deliver our capabilities internationally, which, you know, for 24 years we've been entirely U.S.-based.
Through the acquisition of Finaro that we announced, just a year ago, we now have the capabilities to support many of our merchants throughout Europe. What I would expect is that 2024 is really a year of bringing all of the success that we've had in the US internationally.
Last month on the earnings call, you guys called out a new win, a unnamed global hospitality client. We'd like to hear a little bit about what enabled you to win that customer. When does it start moving the needle on end-to-end volumes and revenue?
Yeah, sure. What I'd say is this customer would be, you know, reasonably unremarkable in the Shift4 story, right? While we're not discussing the customer individually, they're very typical of the verticals that we serve. Bringing it back to our payment platform with those 500 software integrations that I mentioned, we are a natural home for a big hospitality brand that's got lots of locations all over the U.S. and the world and has lots of point-of-sale software that they need integrated through these platforms. We're a pretty natural home. We know the company exceptionally well, and what they are looking for, as in many hospitality operators, is they're looking for simplicity in what is a pretty complex web of software integrated payments across their franchise.
They need to manage, you know, both corporate and franchisee locations. They need to manage software integrations that sit all across their estate. They need to manage the hardware and encryption associated with getting payment devices that safely accept payment. They need to have analytics that help inform, you know, them as to what's working and what's not working inside of their own business. We deliver all of that under one roof. That is really what makes us as special as we are in the hospitality vertical is, this operator historically had worked with many different vendors to fulfill that value chain. We are, you know, whether it's one hand to shake at times or one throat to choke at times, we are uniquely positioned to support them in a pretty complex environment.
I think they appreciate that.
Okay. Anything in the 2023 guide for that, or is that more of a 2024 event?
No, we expect it'll contribute pretty meaningfully in 2023.
Okay. Okay. Great. Let's talk about the new insourcing distribution strategy. You announced that on your Q3 earnings call. What really drove that decision? Just touch a little bit on, you know, maybe the opportunities as well as, you know, any potential risks that it may present.
Yeah, sure. I'd say a handful of things drove this, but the core was us coming to market with SkyTab, which is our latest generation restaurant point of sale. It's entirely, you know, built on Android. It's cloud-based. Whether it's the hardware footprint, the service and support, the upgradeability of the platform, it's all, you know, really modern, and the service delivery model can be much more modern as a result of that. Just to give you a sense, you know, historically, restaurants with point of sale have operated in, you know, Windows-based workstations with software physically installed on there, you know, may not necessarily be cloud enabled, so things like DoorDash and Grubhub and Uber Eats are an iPad hanging on the wall next to this Windows workstation.
With SkyTab, it is, you know, an incredibly modern approach to solving both their historic needs, but also integrating and helping them adapt into the future. With this product, we saw an opportunity to insource what had historically been third-party distribution for us. We looked across our distribution partners and said, you know, "Who are the best, who have, you know, the library of customers that we want, you know, to be part of the Shift4 family for many years into the future?" Brought them in-house to help us deliver this product in a really seamless way.
You know, in many ways, these are folks that have worked with Shift4 for 10, sometimes 20 years already, really close to the family anyway, and getting them to rally around this new product was a pretty natural and foregone conclusion. There's some great unit economic benefits to it as well, which is that we don't necessarily have a third party with its own overhead and all that stuff to support. The cost of bringing the product to market and the cost of goods sold reduces dramatically. It's offset by roughly 400 employees that we hired to come work for Shift4 on a direct basis.
Now we've got a presence, that's really nicely dispersed across the country, of Shift4 employees that are all sort of marching to the same drum, and delivering this best-in-class product out to the market in a way that we think our merchants are really gonna see a lot of value in.
Mm-hmm. Okay. Yep, no, that all, that all makes sense. Since you mentioned SkyTab, why don't we talk a little bit more about that because it's obviously an exciting new product introduction for the company. I guess it's been, what? Maybe six months or so since it was rolled out. 10,000 units, I believe was the metric you gave on the last earnings call as far as how many have been rolled out so far. Just wanted to understand, has this mostly been for upgrades of existing Shift4 customers, or is this all, you know, or a lot of this net new for you guys?
Yeah, it's mostly net new.
Okay.
Part of insourcing distribution was that we did expect that, out of the gates, we'd have a lot of low-hanging fruit among our resellers that had customers that weren't necessarily using a Shift4 product before and were really ripe for it. We did kind of have the deck stacked in our favor, so to speak, as a result of this insourcing. Demand for the product was, quite frankly, a little bit in excess of what we expected. We had some logistical challenges getting that much inventory out the door. I would say all, you know, all good problems to have. Again, this is a marketplace that we are exceptionally well informed about.
Whether it was the Harbortouch brand that was created in 2005, whether it was Restaurant Manager, POSitouch, or Future, which were restaurant acquisitions that we completed, or, you know, even our technology team coming from the likes of, you know, MICROS, where our CTO and our Chief Development Officer and our Chief Product Officer all hail from. It's a marketplace that we sort of consider ours in a really big way, and getting this product into a position where we could distribute it kind of widely and quickly is something we're really proud of, and I think our distribution partners are excited by it.
You know, in many cases, a lot of these restaurants are operating some pretty legacy platforms and giving them the opportunity to upgrade their entire technology footprint at a reasonable cost, quite frankly, very reasonable cost, compared to some of others out there, is something that everyone kind of jumped at.
What kind of volumes should we think about SkyTab being capable of this year?
You know, All of the sort of, toeholds I mentioned within the restaurant industry, whether it's, you know, the brands that we own, whether it's our expertise from, you know, great companies like MICROS, whether it's, our hospitality gateway and understanding, you know, what the restaurants inside of those locations look like.
Mm-hmm
kind of help us determine the path we wanna take in the market. You should not be expecting to see us in kind of the fast food or fast casual segment of the restaurant vertical. You should not necessarily be expecting a lot of, you know, coffee shops and bakeries. These are really good territory for the likes of Square and Clover. We focus on table service, and we try to focus upmarket. You know, one thing we've tried to impress on investors is you can listen to what folks like us say in investor conferences.
Mm-hmm
In one-on-one meetings, or you can pay attention to the features that get developed by our product team, because that's what determines the success we're gonna have in the market. We have integrations to payroll platforms. We have integrations to all the third party, you know, delivery applications. We really focus on kind of the higher end of the market, where we think there isn't necessarily a great, you know, a modern solution for merchants to adopt. I would expect, you know, volumes, you know, million and a half and up per site is something that we hope to be in. And we're gonna focus on feature sets that attract those quality merchants. You're not gonna find us jumping into capital offerings, for example.
Mm-hmm.
By and large, our restaurants don't want capital from us, and we're quite content with that. We're gonna focus on feature sets that bring us, you know, upmarket in that table service vertical and also that have a lot of applicability in these multi-software environments, whether it's, you know, room charges to your hotel or whether it's sitting inside of a stadium where you're gonna have dinner before a game. All of those, you know, we think is pretty thin air from a competitive standpoint for us.
Okay. Just going back to the insourcing piece for a second, just talk about maybe a little bit more mathematically how some of the different pieces of the cost add against each other 'cause you guys are guiding to adjusted EBITDA margin expansion pretty significant this year, I think upwards of about 500 basis points at the midpoint, right, in 2023. How much of that is coming from the insourcing initiative? I know you've got some expense control initiatives as well, but any way to kind of break that down for us? You know, is 45 kind of then a baseline you build off of beyond 2023?
Yeah, of course. 45% is in our opinion, the floor on margins for the business as it exists today. The most expensive component in our unit economic model was the cost of third-party distribution. Quite necessary and a cost we were happy to bear in a more complex delivery model, where, you know, the feet on the street mattered quite a bit. In this new model where we're rallying folks around a single product, and quite frankly, in all of those new verticals I mentioned, that residual share that we would pay a partner is just not really a component of how we do business. We're going to market direct increasingly in these new verticals. In stadiums, it's obvious. We know where they are. Having third parties doesn't make sense.
In hotels, again, we're uniquely positioned to deliver a value prop. As we continue to march towards a business model that is direct distribution by and large, we're saving that residual expense in a pretty significant way. I don't wanna make it too myopic on the concept of insourcing our restaurant distribution 'cause we had about 400 basis points of year-over-year margin expansion in the first half of 2022, which is before we ever started this. Margin expansion as a result of these new verticals and scaling, you know, in the payments business delivers you margin benefit anyway, was happening. This did step function accelerate it in some cases.
What it also did was it meant that the average customer who joins us today has far less cost of goods sold associated with them than they do in the future. Now, keep in mind, we increased our headcount roughly 15% to fulfill this model, so it's not all flow through. We actually do need more talent.
Right
And more localized talent to achieve this objective. You know, even with that, it offered some margin expansion benefits. I think the most important thing to focus on is we like to kinda look at Q4 and annualize it as we're planning for the year ahead, because Q4 is kind of a mediocre quarter for us. It's seasonally not the best, and yet it's also not the worst. There was nothing really idiosyncratic about that quarter. We delivered margins of 47%. As we think about that being a really fair baseline, we padded it slightly in our full year guide, because you never know what's ahead.
The bookends for our business are that we've increasingly got customers that look very much like that of an Adyen, who's been able to deliver, I think, 65% margins in certain cases. We've also got this SMB portion of our business that's always a little bit more labor intensive, but we get paid a decent spread to support it. Whether it's the 45 floor that we keep marching up from or the 65, which we consider kind of best in class, for, you know, global e-commerce, for example, we're gonna live within this range for a period of time.
Okay. I wanted to come back to Europe for a second. You referenced, Finaro. It's supposed to close in Q2. You did a tuck-in acquisition of a payment service provider, maybe about 6 months ago. Just talk about the European growth strategy, go-to-market approach. You know, how big of a business could Europe become over the next few years?
This is the number 1 capital allocation and growth priority for the business today. We never take our eye off the high growth core and the things like our Gateway Sunset objective can deliver to the near term on the business. The international expansion is sort of where we believe the business needs to be to continue to dominate in the way we have, continue the growth trajectory we've had for the last 24 years. Let's talk about kind of the things that we have to make us successful and the things that we don't have that we need to expand internationally. We have 500 software suites integrated to Shift4 that are installed all over the world.
You know, the front desk software at the Hilton in Madrid is the same software, by and large, as the Hilton in Times Square. It's compatible with Shift4. We also have lots of big global customers that see value in what we do in the US and want that solution elsewhere in the world. What we don't have are all the local connections and local payment methods that consumers wanna use in these corners around the world. This has been a multiyear mission for us. What's been particularly fortunate is that we've won a handful of big global e-commerce customers in the last 18 months that are helping us on this journey, meaning that they've contractually pledged to give us payment volume wherever we can support them anywhere in the world.
The Finaro acquisition, we were able to approach with some pretty instant revenue synergies in the form of big global e-commerce customers that we knew we could light up upon closing. We follow through with all of these things that have made us really successful in the US, like our 500 software suite integrations, like SkyTab, like our VenueNext product inside of stadiums. It's been a little over a year going through regulatory approval, but all progressing, I think, in line with how these things progress. We've already proven e-commerce transactions through both platforms connected together with a single integration from the customer. We've already proven SkyTab transactions in Europe. We've already proven VenueNext transactions in Europe.
The technical plumbing has all been laid out really nicely through our partnership that we've had in the interim. When we close it, we're really excited to be able to deliver, you know, at least 1 incremental continent to our customers.
Okay. I guess, where does that leave us from an M&A pipeline perspective once you close Finaro? Do you feel like you go kind of into digestion mode a bit as it relates to international, or is there still kind of an active hunt for more deals outside the U.S.?
You know, We feel a slight sense of urgency here with regard to our international expansion priorities. What I mean by that is, you know, it's been pretty clear to us the large evolutions in payments over the past kind of 15, 20 years. You know, we like to talk about integrated payments 1.0 back in the mid-2000s about, you know, as crudely as possible, making software work with payments through a series of whatever middleware it took. Then integrated 2.0, the likes of Stripe being born, where every software company is integrating payments from the start in a very seamless and nice, vertically integrated way.
integrated payments 3.0 is about taking those same software-enabled merchants and letting them sell all over the world through whatever payment methods those consumers wanna use, and whether it's iDEAL in the Netherlands or it's Pix in Brazil or it's Amex in the US, consumers know how to engage with your brand and on their terms anywhere in the world. It's a trend we believe really strongly, and we see it clearly. If you look at the likes of an Adyen or a Stripe and you see how fast they're growing, it's because they're at the forefront of this kind of enablement, and we wanna be there too. It's a really important capital allocation priority. I would expect that we look to unlock another continent, much in the way Finaro enabled us to deliver Europe.
I would say from just a, you know, a balance sheet and mathematics standpoint, we feel well positioned to do it. We've got a decent cash balance still from the capital we raised during headier times. It's low cost of capital, so we don't feel any urgency in spending it immediately. We don't feel any urgency in paying it back before it's due. It's at, I think, a blended 25 basis points cost to carry, so that's really attractive for us. Again, if we can deliver on this in a meaningful way, the competitive air is really quite thin, and we think it's what's gonna position the continued growth of the business over the next decade.
Could we see, I guess I'll call it a deal of size, I mean, I guess depending how much you guys are willing to lever up, I mean, you know, multi-billion dollar kind of deal, is that feasible or is that kind of unlikely?
I don't like to speculate on the size of a transaction only because we look at everything across the gamut constantly. We've historically done smaller transactions that deliver a heck of a lot of value. That Merchant Link transaction that we made in 2019, roughly $60 million, is probably a healthy portion of our market cap today. We try to be exceptionally disciplined in looking at a wide variety of things. Quite frankly, the larger the transaction, the more you have to handicap an ability to get it done. We do challenge ourselves to look at everything from transformational to small ball tuck-ins that keep the sales funnel full all the time.
I would say, in this particular environment, meaning the last kind of month or 2, we've seen more opportunity of every size than we've seen in probably half a decade. It's a very exciting time to be positioned where we are. I think, you know, I have to remind the audience that many of our best competitors were Fintechs that had a license to light money on fire for a decade. That license has been revoked. We as like a really nice grower that also has really nice profitability for cash flow, are uniquely positioned to kind of lean into an environment where many competitors are hobbled a little bit, or quite frankly, just have to change the way they've done business and adapt to an environment where, you know, there might not be another series X, Y, Z around the corner.
We're in a highly advantaged position from sort of a unit economic model standpoint. We've got a good balance sheet. We're not, you know, too meaningfully levered. I think we're about 2.7x, and we're de-leveraging really quickly. We've got a target environment for M&A that looks as good as it's looked in a long time. Balancing kind of the moderate to sober views we have about consumer spending is this real euphoria we have for our ability to be competitive in what's gonna be, I think, a tough environment for many.
Okay. I wanted to talk about take rates a bit. I mean, you know, we've never been a fan of, you know, kind of just looking at take rates for take rate's sake, right? There are mixed differences in a lot of different payments businesses that can impact take rates over time. Yours is no different. You've touched on a whole bunch of larger wins that you guys have been successful with in the past 12 to 18 months. Just, I guess, any way to help people sort of conceptualize, you know, where take rates maybe migrate to over time? Are there any offsets to some of that pressure, i.e., international expansion, maybe drive some more cross-border volume at some point?
Yeah, sure. It's a great question. What I would say is take rate is a function of the size of the merchant that you're serving and the complexity of managing that relationship. Typically the bigger the merchant, the lower the take rate. It's kind of the laws of physics inside of our industry. We're not afraid of that as long as we are commanding best in class take rates for the size of the merchant that we're working with, and that merchant is seeing best in class value in working with us and is comfortable paying that take rate.
You can see everything from, you know, the bar and grill on the corner at 80 to 90 basis points, getting a heck of a lot of value of the software we deliver to them, up to, you know, the mega multi-billion dollar enterprise that we're trying to enable globally around the world, paying us, you know, a fraction of that, call it 20 basis points as just an example. We're very comfortable with a blended take rate that compresses modestly to the extent we keep adding bigger merchants, because the air is thin, as I mentioned, in these environments. There's really only a handful of very good competitors, and we think we can be one of them in the not too distant future.
I think investors, who have a little bit of gray hair, are used to payments businesses that maybe aren't as innovative, that don't grow as fast, and take rate kind of modestly compresses in order to maintain relevancy. What I would stress is if you look at the companies winning today, and those are the companies reporting payment volume, reporting location counts, they are all premium products. What that tells you is merchants are willing to pay for a premium service, and quite frankly, if you're not delivering a premium service, they're extracting a hell of a lot of margin out of their relationship with you, down to a couple pennies a transaction. That's just simply an environment we don't wanna be in. Take rate compression is healthy to the extent we continue to grow up market.
We continue to maintain, you know, really nice volume growth, 50%+ on a book that's getting bigger and bigger every single year. We're very happy with that. It means we're adding bigger customers, quite frankly. We pay really close attention to take rate by size cohort to make sure that, you know, it's not behaving abnormally or negatively in a particular size cohort. Yes, we constantly seek out things that we can embed into our offering, whether that's the restaurant software itself, whether that's capabilities of our payment gateway in the U.S., whether it's international features like fraud scrubbing, FX, all these things that become increasingly relevant for an international merchant.
We hope to monetize them through, you know, to your point, just a higher, you know, effective take rate on the relationship.
You mentioned earlier you still have $150 billion of gateway-only volume that over time could be converted to end-to-end. You introduced the Gateway Sunset Initiative last year. Just give us an update on how that's going. Do you think, you know, the pace of these end-to-end conversions over, let's say, the next 2-3 years will be accelerated versus what you've seen over the past 2-3 years?
I think there's certainly opportunity for acceleration. One thing that can get lost a little bit on in the Shift4 story is that we acquired two payment gateways, and the second and much larger of the two was just before the pandemic hit. It was in late 2019 that we acquired it. You know, I think a lot of people look at our volume growth and our success thus far, and they say, "Wow, you know, they really crushed the objective." We don't feel that way. We feel like we were actually pretty disadvantaged to execute on our business plan, you know, in 2020 and 2021 when, you know, a large base of hotels were shuttered and, you know, restaurants were struggling to survive.
I would say zooming out, with stability in our underlying verticals, that should naturally advantage us. There's a little bit of a reality that the bigger the customer, the longer the conversation takes. They don't make decisions quickly. They make them, quite frankly, intelligently, methodically, and over time, and we've just had the time now to do that. Our conversations with enterprise level, by any definition, the highest scaled enterprises within our gateway are increasingly productive and thoughtful, and we mutually see ways to add a lot of value to the relationship. Yes, these are easier times for our merchants, despite kind of the fears on CNBC, these are much better times than they've experienced over the last two years.
It should give us a lot more opportunity, and I would say we've had time to get better at it. You know, it's. We do try to get better at our tactics with age.
Okay. Been pleased with the progress of the Gateway Sunset Initiative?
Yeah, unequivocally.
Yeah. Okay, good. Just briefly on the new verticals, the new six verticals, which generate the most volumes today, you know, do you think those will still be the ones generating the most volumes if you look out a few years from now? Any kinda dark horse sleepers in the mix there?
What I'd suggest is that they're all quite different from one another. Sports and entertainment is, you know, a really compelling one, only because our competitive positioning is so nice in that vertical that we've had incredibly high win rates. The solution is, quite frankly, best in class. Our ability to deliver a common payment experience across these teams, venues, theme parks, et cetera, is so unique that we're winning a lot of that vertical. As seasons play out, it builds on itself. This is something that we got a little bit wrong when we announced the transaction. We didn't quite understand the sales cycle, which is actually during the season.
The installation cycle is in the off-season, then you gotta wait for the season to begin again before you see the volume. Ticketing, which we've only just unlocked in the last quarter, in any consequential way, is countercyclical to that whole cycle. Sports and entertainment, you know, despite all the wins that we've talked about over the last kinda 24 months, is really starting to contribute meaningfully, you know, in the last quarter, which is awesome, as ticketing volume layers against, what are becoming seasoned venues. That's really exciting. I would put at the other end of the spectrum, I would put nonprofits. Nonprofits are, you know, they're us seeing a vertical that is quite frankly really, really disparate in how it approaches revenue collection or donation collection.
Nonprofits that we've had the privilege of getting to know look like, in many ways like any big multi-billion dollar business. They're collecting their donations through lots of different software suites, but none of them are integrated together. They're all separate deposits, separate CRMs, separate reconciliation, and it's a nightmare. We sorta look at that and say, "Why is this vertical operating in the way it is? Can we deliver a Shift4-like solution that doesn't exist by and large for it?" I contrasted the stadiums because I think the TAM is actually substantially larger, and the opportunity is just as good for us to build a solution that has no rivals, and it takes a long time.
It takes a long time to amass, you know, the, all of the software integrations relevant to our, to our nonprofits. We're beginning in earnest, but I think it can be, you know, as large as any vertical over the next decade.
Well said. Well, we're out of time. Another great conversation. Taylor, always great having you at the conference. Appreciate everyone who tuned in for the session. Our next session will be at 10:15 A.M. with Flywire. Thank you, everybody.
Awesome. Thanks very much.
All right, have a good one. Take care.