Thank you for joining us today for the Shift4 Payments Fourth Quarter 2020 Earnings Call. I will now turn it over to Sloan Bohlen from Investor Relations. Please proceed.

Thank you. I'd like to welcome everyone to Shift4's fourth quarter 2020 earnings conference call. Before we begin, I'd like to remind everyone on this call that it will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives; the potential annualized gross profit related to the conversion of gateway-only merchants; our acquisitions and their ability to bring us into a high-growth vertical; the expected impact of COVID-19 on our business and industry; and anticipated financial performance, including our financial outlook for the first quarter of 2021 and the full year 2021. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in the Risk Factors section of our financial perspectives filed with the Securities and Exchange Commission pursuant to Rule 424(b)(4) on December 4, 2020, and our other filings with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP measures on this call, which are reconciled to the nearest GAAP measure in the Company's earnings release, which can be found on our Investor Relations website at investors.shift4.com. And with that, let me turn the call to our Chief Executive Officer, Jared Isaacman.

Thank you, Sloan, and good morning, and thank you all for joining us today. For our agenda this morning, we will take you through the business performance, payment and merchant trends, and strategic initiatives, and we plan to save some time at the end for the fun stuff, which is the road ahead. To begin, as I mentioned in my shareholder letter, we just concluded a very challenging year. The economic, social, and political issues did not spare anyone. Despite these extraordinary circumstances and having exposure to highly impacted verticals like restaurants and hotels, the team shaped and performed incredibly well. I’d like to highlight some of our 2020 accomplishments. For the year, we grew every material KPI, including the number of merchants using our platform, the volume they processed, and the revenue generated. This marks our 21st consecutive year of year-over-year revenue growth. But mostly, it reinforces that our shift toward value proposition is compelling and it's winning share during the best and during the most challenging economic circumstances. We also completed multiple capital market transactions to strengthen our balance sheet, diversify our base of shareholders, and provide capital to fund organic and inorganic growth initiatives. We completed two great acquisitions including the 3dcart eCommerce platform, which we now call Shift4Shop, greatly expanding our eCommerce capabilities and significantly increasing our total addressable market. We also released several products like our new generation online ordering products, mobile payments for takeout, delivery and curbside ordering, and QR code-based ordering and payments; all of which were quite timely given the pandemic. We think we will continue to see growth in a post-pandemic environment. We owe our 2020 performance not just to these reasons, but also to the dedication of our employees, the support of our software partners, and the perseverance of our customers. It's during these challenging times that they make me most proud. As to the fourth quarter specifically, we delivered another reasonably strong quarter given the circumstances. As previously shared, we celebrated the highest volume month at the time in October, which slowed in November and then significantly so in December. We attribute this entirely to COVID requirements on social distancing and colder weather that was not conducive to travel and outdoor dining. Despite these realities, Q4 end-to-end payment volume grew 12% from the previous year to $6.8 billion. Our ability to grow our merchant accounts and volume while serving some of the hardest hit industries is a testament to our technology, our business model, and most importantly, our people. So make no mistake, this is a quarter that included some really rough business conditions. While volume growth is nice to see during a tough quarter, we also look at active end-to-end merchant accounts, which grew 4% quarter-over-quarter. This continued growth in our merchant base makes us incredibly optimistic as we look forward into 2021. This end-to-end volume growth drove 5% growth in gross revenue less network fees, resulting in adjusted EBITDA of $26.7 million for the quarter, up 10% from the prior year when normalized for a change in accounting for leased equipment. It's also worth reinforcing that virtually all Shift4's merchants and all those that we have been adding throughout 2020 are operating at substantially below normal levels, which we anticipate will become quite the coiled spring. As previously announced, we also acquired two businesses in the latter part of 2020, each unique in serving different verticals and increasing both our capabilities and our total addressable market. The Shift4Shop acquisition has significantly expanded our capabilities to serve online merchants and dramatically expanded the market we are capable of addressing with our services. Taylor will provide some additional color on our month-to-month trends. But as I noted at the onset of the call, December volumes declined meaningfully as weather became colder and COVID cases accelerated, resulting in stricter social distancing requirements across the country. We will speak to the uncertainty that still exists from COVID. But what is clear to us is that our nonstop innovation and unique value proposition continue to win across a growing range of merchants and market segments. For those of you who are new to the story, we hope you see Q4 as a perfect example of our business model. We offer innovative solutions to merchants across a broad range of industry categories. Our technologies go far beyond traditional payment acceptance and often give us an incumbency advantage versus other payment providers. We use these advantages to offer a vertically integrated solution at a lower total cost of ownership than the competition. Lastly, we don't sit still and are constantly looking for new industries and geographies, as evidenced by our acquisition of VenueNext, which Taylor is going to discuss shortly. As we spoke about on our last quarter's call and I described in my initial letter to shareholders at the IPO, our philosophy is to drive change where we see inefficiency and incremental value for our merchants and to ensure Shift4 is always positioned in the direction the puck is going. As you may recall during 2020, Shift4 became the official payments partner for the Las Vegas Raiders, the first force in entertainment venue in our history. Within a few months, we found significant successes across what was a pretty neglected vertical, supported by multiple expensive vendors and lots of legacy technology. We found that our strength in serving some of the most complex and demanding environments has made us well-suited to solve problems and deliver a better fan experience in sports stadiums, theme parks, and other similar venues. This is why we're so excited to talk about our most recent acquisition of VenueNext, which Taylor will discuss shortly. On the same note, we just announced today that STAPLES Center will be using Shift4 payment technology. We believe stadiums and theme parks will contribute meaningful incremental volume in the months and years ahead. It was just a few months ago that we announced the acquisition of the 3dcart eCommerce platform, which we once again now call Shift4Shop. Our entry into eCommerce came as a surprise to some, but I think it's worth reiterating that this is textbook Shift4. We observed an industry category like eCommerce that is massive and growing quickly, yet unnecessarily complex and with multiple layers of fees. Taylor will speak about our go-to-market strategy with regard to Shift4Shop in a few minutes, which I also believe will drive a new layer of growth for our business. These are two new markets that are quite meaningful from a total addressable market perspective and were largely foreign to Shift4 at the time of our IPO just nine months ago. Despite having operated this business for over 20 years, I can't recall a time when I was more optimistic about the road ahead. Our merchants are back to experiencing healthy volume growth with a very strong start to 2021. We continue to win share in our core markets and also find new exciting verticals to enter. We also have an impressive capital position right now that affords us the ability to invest in growth accelerants, for which I thank all of you again. While I have the mic, I feel compelled to share a personal project and a call to action. As some of you may know, I am fortunate to command the first all-civilian mission to space later this year, which will be a personal achievement beyond my wildest childhood dreams. In reflecting on the significance of it, I couldn't help but think about all the children who don't get a chance to live out their dreams. It’s for that reason that I made St. Jude Children's Research Hospital my co-pilot on this mission. We began a very ambitious, even for us, fundraising campaign, and I would urge you all to consider a donation. You can visit inspiration4.com to learn more. And with that, let me turn the call over to Taylor to discuss our fourth quarter operating results in more detail.

Thank you, Jared, and good morning. I'm going to take a minute to give some additional detail on volumes in the fourth quarter and also provide an update on what we've seen to date in 2021. First, we included a monthly snapshot of the quarter to give you all a sense of the reasonably pronounced impact the pandemic had on end-to-end volume throughout the holiday season. We are pleased to report that this decelerization was isolated to December. January, for example, represented a nearly 10% increase in end-to-end volume from the prior year. Seven of our eight highest volume days in our history occurred during just the last two weeks of February. These volume trends are quite positive when considering many of our merchants in large states like New York and California are operating at less than 50% capacity, and several states including Texas were without power during this time period. This ability to grow at a pace exceeding many payment leaders, despite a merchant base that continues to be heavily impacted by COVID and occupancy and travel restrictions, reinforces the power of our value proposition and the clear competitive advantages we have in our core markets. Jared mentioned the 4% sequential growth in active merchant accounts during the quarter. Hotels represented a larger than typical percentage as we won several large hotel groups, including Sonesta and their acquired brands, to our platform. I do want to note that this Q4 activity does not reflect the impact of our 3dcart acquisition, now branded as Shift4Shop. We have used the majority of the time since acquisition to reposition the business for what we believe is a highly disruptive go-to-market strategy. The 3dcart platform was a mature, feature-rich web store builder, largely reliant on SaaS revenue. The platform was the driving force behind billions of dollars in payment volume, yet sending this volume to third parties for which merchants were paying another vendor. We've recently launched Shift4Shop, a platform that is entirely free for any merchant using Shift4 payments. Competitive platforms charge as much as $300 per month and often more for enterprise and B2B features and still rely on third-party payment processing. This investment isn't simply a branding and marketing exercise. We also repackaged the platform to make it highly intuitive and created a payment enablement process that is second to none. We also introduced Facebook and Instagram integrations and account fraud detection at no extra cost for our merchants. In the brief time we've owned and operated Shift4Shop, we've accomplished many of the integration and branding goals for our first year of ownership. We've also increased the number of web stores by roughly 8,000, or 54% since acquisition, which we think is the appropriate way to measure success this early in the integration process. We also have an exciting roadmap for Shift4Shop that we believe will continue to impress merchants and help them grow. Make no mistake, we believe this platform will compete successfully among the best eCommerce businesses in the world and believe we can double the pre-acquisition site count by the end of this year. While the depressed volumes are real in the fourth quarter, what is masked is the upside potential that Shift4 has across a broader set of merchants when the quarter began. While there's uncertainty on the pace of economic recovery and consumer spend in '21, our growth should compound as that activity recovers given our expanded share. Before I turn it over to Brad, I wanted to close by providing you an overview of our acquisition of VenueNext. VenueNext is a best-in-class provider of mobile ordering and point-of-sale solutions for sports and entertainment venues. Their technology began as an in-seat ordering app, envisioned and seeded by the San Francisco 49ers, and has evolved into a full-stack solution including point-of-sale for concessions. Their applications have been proven in every major sporting category, including the NBA, MLB, NFL, NHL, and MLS, and also power mobile ordering at some of the nation's largest theme parks. VenueNext was competing very successfully to win these marquee clients. However, the integration of payment providers included a web of gateways, merchant acquirers, and hardware providers. We took an approach of partnering with VenueNext to offer a more streamlined solution and quickly won several world-class merchants, including the STAPLES Center in Los Angeles. We've discussed our enthusiasm towards this channel in previous calls, but now only entirely of the stack, and we believe our solution will be incredibly competitive. The mobile technology has applications in adjacent verticals and will have applications far beyond savings. We believe that VenueNext's best-in-class technology will track $2.5 billion to $3 billion in incremental volume by the end of 2023. We published a summary of the transaction on our website that included a chart to illustrate how through these two transactions, our total addressable market growth has doubled since our IPO, which was just nine months ago. Now I'll hand the call over to Brad to walk you through our financials.

Thanks, Taylor. As mentioned in our release, we generated $88.8 million of gross revenue less network fees in the quarter. This represents a 5% increase over the prior year and was up just 1% compared to last quarter for the reasons Jared and Taylor spoke to. The year-over-year variance was driven by a 23% increase in net processing revenues, driven by continued share wins and gateway conversions. Net processing revenue now makes up 63% of our gross revenue less network fees, up from 54% for the same period last year. Growth in net processing revenue was offset by modest declines in gateway and SaaS revenues due to the impact of COVID-19 on our hospitality merchants and our continued efforts to convert gateway and nonrecurring revenue sources to our ongoing spread-based monetization model. Our net spreads for the quarter were approximately 81 basis points, while the spread on interchange remains at lower than normal levels due to shifts in card mix. Specifically, the spread on interchange for the quarter was approximately 179 basis points, 8% lower than the prior year. We reported $26.7 million in adjusted EBITDA for the fourth quarter. If we apply consistent accounting treatment to our equipment leases in 2019, this represents a comparable increase of 10% over the prior year. Our fourth quarter results represent an adjusted EBITDA margin of 30% against gross revenue less network fees, again, applying consistent treatment of equipment leases. This represents a 110 basis points increase from prior years; we continue to benefit from additional scale. Compared to the third quarter, adjusted EBITDA margins declined by 270 basis points due to COVID-related volume slowdowns in the back portion of the quarter, as well as the impact of our recently announced acquisitions. Next, let me give you an update on our capitalization and liquidity as we had a very busy quarter. First, at the end of October, we completed a successful offering of $450 million of senior notes that are due in 2026 and carry a coupon rate of 4.625%. The proceeds of the offering were used to pay off the entirety of our previous term loan facility, which saves us approximately $4 million in annual interest expense. Additionally, that offering establishes Shift4's participation in the public debt markets, which will offer us an additional source of capital going forward. Second, in December, we completed a highly successful offering of $609 million of convertible notes that are due in 2025. The deal was upsized from an original offer amount of $400 million and price with zero coupon and a conversion rate of effectively $80.48 per share. Finally, in December, we completed a 9.2 million share secondary equity offering priced at $55.50 per share. These shares were sold exclusively by Searchlight partners. As a result of these Q4 activities and our previous capital raises, we ended 2020 with $927.8 million in cash and $89.5 million of available capacity on our revolving credit facility. Subsequent to the end of the quarter, we've restructured our revolver and increased its capacity to an even $100 million. I want to take a minute to mention some financial revisions that will be disclosed in our 10-K filing. These revisions primarily impact 2018 and '19 and reflect non-cash balance sheet adjustments and geography changes within the P&L. While there is an immaterial net income impact, it should be noted that these revisions have zero effect on our reported revenues, EBITDA, or net cash flows. Finally, I’d like to discuss our outlook. During 2020, we provided quarterly guidance because of the significant variability in volume patterns driven by COVID. With volume trends returning to more normal levels of variability in the back half of 2020, for 2021, we will be shifting to annual guidance. Let me first make a few comments about the first quarter. As you've certainly seen through our activities across various media channels, we recently initiated a major rebranding effort related to the integration of 3dcart. These investments will place our new eCommerce solutions, Shift4Shop, as a leader in the eCommerce market to drive additional merchant boarding and significantly increase our total addressable market. The impact of this effort will largely be isolated in Q1 and will be treated as a nonrecurring integration expense in our financials. That said, here is our guidance for 2021. We expect full year 2021 end-to-end volumes to be between $36 billion and $38 billion. Gross revenues are expected to be between $1.1 billion and $1.2 billion, while gross revenue less network fees is expected to be between $450 million and $460 million. Adjusted EBITDA is expected to be between $155 million and $160 million. Note that this EBITDA guidance excludes the impact of the Q1 integration investments I mentioned previously, as well as any inorganic sources outside what has already been disclosed. Similar to my outlook comments for the last few quarters, there still remains a lot of uncertainty related to the recovery curve. While the numbers for the first two months of 2021 suggest the slowdown in Q4 was largely temporary, there are still a number of moving parts related to COVID that could impact our volume and results in the near term. With that, let me turn the call back to the operator for questions.

Your first question is from Darrin Peller with Wolfe Research.

Hey, guys. Thanks for the question and congrats on a good year in a tough environment. When we look at the strategic investments you're making, clearly, it's much further into Shift4Shop, eComm, and obviously now stadiums as we see these moves, probably more than I think a lot of us even expected at this point after the IPO. So when you talk about, first of all, if you have the right now first on the eComm side, where are you in terms of your strategic build-out there? Is there enough done that you can actually run with it? How material can this be for you guys through this year and next? And then maybe just tell us a little more about the differentiation you guys offer besides pricing that can really help that succeed?

Yes, good morning. Thank you. I appreciate the question. So I guess first, just to say, I don't think it should be that surprising that we continue to seek out industries that are challenged by multiple different software vendors adding complexity and costs that we think we can do a better job providing a more vertically integrated solution. As we were saying towards the end of last year, we got an awful lot of questions about our gateway conversion strategy. But we've been in business for 21 years, growing in payments and gateway for only part of our story for the last 3.5 almost 4 years. So, you should expect us to continue to find these interesting opportunities with a lot of growth behind them, a substantial payments opportunity to unlock, and a big total addressable market to win share from going forward. eCommerce, if you look at kind of the spectrum that we’re able to address, if you go back six months ago, we were able to do kind of the ultra-enterprise version of eCommerce that complemented some of our hospitality and type of customers. Shift4Shop has added a very SMB kind of at the entry point into eCommerce type capabilities. There's an awful lot that lives in between that I would expect us to continue to invest in both organically and inorganically to cover the full spectrum of card-not-present commerce. So that's going to be a pretty big focus for us just when you consider how much opportunity lives in that market. Then talking a little bit about VenueNext, we love the stadium space. Our exposure to it is actually rather recent with Raiders Stadium, as we mentioned in our remarks. What we learned there is, wow, this is not that dissimilar to the hospitality environments that we do exceptionally well. You’ve got a restaurant inside, you’ve ticketing, you’ve merchandise sales, bars, some of these newer stadiums have nightclubs. And it’s like, wow, this is very similar to the hospitality environment we're good at, and it’s got multiple different software applications that are all coming together. This is an area that we should put more attention to. Our journey began mostly with collaboration with VenueNext. Then it was just clear, based on early successes, as we mentioned, Staples Center was a big win we announced today, that we could take this a lot farther, not just end in sports and entertainment, but bring it into theme parks and other large entertainment venues. I'd say towards this general question is, is it done? No, it's not done because commerce is huge and there’s a lot of opportunities as commerce-enabling software and payments come together, both in new verticals in the U.S. market as accelerants to the current verticals we’re already in and then in new geographies that we think could benefit from an integrated payment solution like we’re capable of offering.

All right. That’s really helpful, Jared. Just a quick one on margins and I’ll turn back to the queue. But you guys guided towards numbers on revenues that were above us. On the margin side, it seemed more in line. I’m just curious. I think you mentioned something about an expense in the beginning of the year, I may have missed, but just investments versus any one-time items. Thanks again, guys.

Hey, Darrin. This is Brad. There are a couple of things. One is we do have some investments teed up next year to shore up some of the things we talked about in some previous calls. There’s also a near-term impact of some of the acquisitions that will flow through over time as well. You’ll see that in the near-term. But over time, the margins driven by those acquisitions are going to get us back to those numbers that we previously guided to. But you’ll see a little bit of compression here in the next couple of quarters as we absorb and kind of digest those acquisitions.

Your next question is from the line of Tim Chiodo with Credit Suisse.

Great. Thanks a lot, and that context on the margins is really helpful. So the data you gave around the number of merchants being up year-over-year, super helpful, as well as the up 4% quarter-over-quarter. It really gets to your point earlier on the coiled spring in terms of a lot of these volumes in this year’s cohort coming on at a very COVID depressed level. If there’s any context you could give us around maybe the average size of the merchant base now, maybe relative to 2019 levels. And I guess, for the context there, you mentioned that some of those more recent additions were in the hotel vertical, which would also be supportive of a larger size merchant.

Good morning, Tim. This is Taylor. Thank you for your question. When we examine our average merchant size, we don’t focus too much on comparing 2020 to 2019 due to the effects of COVID. To directly answer your question, we typically see that merchants emerging towards the end of 2020 experienced a decline of 30% to 60%. Many of the hotels we acquired during the quarter used that downtime to implement systems like ours. Therefore, we believe the average size of the merchants we acquired in a more normalized state is significantly higher, but this is not easily identifiable from their performance in 2020.

Yes, I completely agree. That’s precisely my point, focusing on the normalized level rather than the COVID-depressed level. I’m with you on that. Great. I also have a brief follow-up regarding 3Dcart. It's impressive to see the addition of 8,000 incremental web stores so quickly. Could you provide a bit more context on those 8,000 web stores? Were some from existing Shift4 merchants who added this capability, or were they all completely new?

Yes, sure. Jared here. I’m happy to answer that. This is almost all just share wins, and largely related to the rebranding and promotion effort that we undertook over the last five weeks or so. We spent the first two months after the acquisition really getting 3dcart ready for its big debut as Shift4Shop. There are a lot of things we had to do internally in terms of having a more frictionless onboarding that’s hyper-appropriate for Shift4Shop type customers, but not really typical for, say, a Hyatt or a Hilton that the type of customers we typically interact with. So there was a lot to get ready for internally. Around February 1st, we really highlighted the platform in a big way. And that’s where all of that growth really came from. It’s continued to maintain a very healthy state of production even since. We actually only just began enabling our 7,000-plus software partners with a means to sign up Shift4Shop customers in the last probably week and a half to two weeks. One of the areas we’re most excited about with the acquisition is enabling third-party distribution because that is not typical at all, call it the other shop that’s out there or the other web store eCommerce players. We’re really in the early innings of that. And again, we haven't even begun the cross-sell to the existing base of customers either. This was really just highlighting the platform with a disruptive pricing model and making available an awful lot of features and capabilities that the other players charge premium fees for and seeing how the market reacts. As you can tell, we’ve really increased the size of sites by about nearly 50% in a pretty short period of time.

Yes, definitely. Thank you, Jared. So it sounds like all new and now third-party distribution is enabled, so very good. Thanks a lot for taking both of those questions.

Your next question is from the line of Ashwin Shirvaikar with Citi.

Thank you. Hey, Jared, Taylor, Brad, good to speak with you guys again, and good job in a very tough environment. I guess, let me start with asking about the cadence of quarterly expectations for 2021, particularly net revenues and EBITDA. What are you assuming with regards to an economic recovery?

Hey, Ashwin, it’s Brad, I’ll take that. So we put together our guidance. That’s probably where we spent the majority of our time as the leadership team, looking at patterns. In fact, we were looking at patterns up until the last couple of days. Some of the numbers Taylor mentioned have started to come in pretty well since January, February kicked off out of 2020. The recovery curve is going to be a big question. We think there’s certainly strong signs that we are seeing recovery. We talked about the cold spring as merchants start to get back to more normal processing levels. We still think that’s probably a year to a year plus before that full recovery really starts to get us back to what we would consider "normal." The pace of which you’re going to see some seasonality, right? We always see seasonality in this business. Q2 and Q3 is going to boost because of weather, a lot of outdoor dining, etc. But I still think 2021 is going to be a recovery year. It’s going to behave a little differently than a normal pattern. But I would expect year to year plus for us to get back to normal and expect some seasonality boost between Q2 and Q3, just like we would normally see in a more normal environment.

Got it. And then I wanted to look more closely at the net revenue outlook compared to end-to-end volumes. The net revenue outlook was slightly higher than what we estimated. Can you break down the contributions from yield, inorganic contributions, subscriptions, and other gateways? That would be really helpful. Before I finish, I also want to personally thank Jared for the work he's doing for St. Jude.

Yes, sure, Ashwin. The ongoing premise has always been how we're shifting our revenue streams into net processing revenue. One of the stats I mentioned in previous readings was around shifting that from 54% last year in the quarter to now over 60%. So there is an ongoing movement on our behalf, very intentional, to make sure that net processing becomes bigger and bigger as a proportion of our revenue streams. We will be looking at the gateways for conversions. We're always targeting different ways of driving those merchants to convert from the gateway to the end-to-end solution. We still have some SaaS and other revenue streams. Those have been boosted a little bit lately with some of the acquisitions that have a more SaaS model. What we are exploring is how do we morph those back into our existing revenue model, where we convert the SaaS and other fees back into the payments model. I think you're going to see continued trends that the net processing revenue becomes more and more of our revenue streams, which is going to be very helpful for us as soon as these recoveries do kick in. That's where those recoveries are going to monetize. So I think we positioned ourselves really well. That’s part of our ongoing model, whether that's the back book or the forward book.

Got it. Thank you.

Thanks, Ashwin.

Thanks, Ashwin.

Your next question is from the line of Matthew O'Neill with Goldman Sachs and Company.

Yes. Hey, good morning, gentlemen. Thanks for taking my questions. I was just hoping we could dig in a tiny bit more on the acquisition. So on VenueNext, for example, I appreciate the guidance in the out years, but I was curious if there is any way to frame either what you're expecting for this year for it to contribute? Or maybe what 2019 was like in a kind of a pre-COVID more normal environment? And then similarly, I was just curious on 3dcart now Shift4Shop, is that back end completely converted? So is it all accruing as end-to-end volume kind of following the rebranding? And I guess the same question for VenueNext, if it is now, or will it be at some point soon?

Yes, it's Taylor. Thank you for your questions. To address your second question first, both platforms can accept payments through Shift4, and the integration was relatively straightforward. As we previously mentioned, the Shift4Shop platform integrates with several payment gateways, so this took about a week’s effort. Starting mid-November, that became the preferred payment method for all new shops we were onboarding. Regarding VenueNext, this partnership is excellent, and we consider it one of our top partners since the end of 2020. It’s a software application that has excelled in some of the most challenging venues in the United States, which gave us confidence in forming this partnership and enhancing our value proposition through acquisition. We have set a target of reaching $3 billion by the end of 2023. However, this figure represents a relatively small share of the sports and entertainment market. Nonetheless, this tool has been gaining market share at a rapid pace with a somewhat fragmented sales model. We believe we will exceed this target and prefer to set conservative goals for our shareholders in our guidance. We are very optimistic about past performance and opportunities in adjacent markets. This mobile-first technology has done exceptionally well in stadiums, and there is significant demand from merchants across various categories. It is already utilized in the largest theme parks nationwide and has applications in many resorts and venues. We are excited not only about the chance to cross-sell in an emerging vertical but also to deliver top-tier technology across multiple sectors, enabling us to perform payment work with Shift4, which helped us secure the STAPLES Center last year.

Yes, Jared here. Just to layer on to some of Taylor's comments and go into some specifics, we wanted to set expectations, which is why we gave a sense of where we thought we would be in terms of end-to-end volume contribution from VenueNext in the next couple of years. But we really didn't want to drill down into any more specifics, because there's a lot going on here. First, this business, again, is growing very, very fast. If you look at the presentation we put out, there's a lot of recognizable sports team and entertainment venue logos. Those were accumulated essentially over the last 18 months. To Taylor's point, this technology is doing incredibly well in its own right, charging full freight for everything. We just have a lot of past experience that when you combine those type of models with our integrated payments approach and eliminate some of those pain points, you're only going to accelerate growth. So we have to see what that looks like. Second, I’d like to point out on some of the adjacencies, which may get overlooked in the presentation itself. We see VenueNext as providing our right to win within kind of regulated gaming environments. So, if you look at whether it's fantasy or some of the other sports betting opportunities happening in-app, it's our relationship with VenueNext that has already made some of these conversations come together. That in itself is very hard to predict because it is also growing at a really fast rate. We want to at least just kind of set some initial expectations with the idea that we're going to refine it in the quarters ahead as we bring together that vertically integrated value prop that's done well for us in the past. I would expect more updates in the future.

Got it. Understood. Thanks a lot, everyone.

Your next question is from the line of John Davis with Raymond James.

Hey, good morning, guys. I just want to hit on 4Q revenue for a minute. Obviously, with the COVID spiking cases in 4Q in the corresponding lockdowns, volume fell quite a bit short of your initial expectations, yet you're still able to hit the revenue outlook. Just curious kind of what came in better in 4Q from a revenue perspective than your initial expectations?

Yes. Hey, John, it's Brad. I'll take that. We've talked previously about kind of spread expectations, right? We talked about as the average merchant size grows, we expect to see that soon, that spread starts to decline just based on purely mix from those larger merchants. When the volumes pull back, it certainly had an impact on these larger merchants as well. So what we did see is spread come in over expectation for the quarter. That's why I mentioned 81 basis points for the quarter, which is slightly ahead of what we were expecting to see, given the pattern we would have expected to see with a larger merchant base coming on board.

Okay, great. And then as we think about year-to-date trends, I think January was up 10%, which is encouraging. Can you give us a sense of what February was on a year-over-year basis? Or even the exit rate just to help us with our Q1 modeling?

Yes, sure. February was a really interesting month. The exit rate we really wanted to highlight because the back half of February, in particular, was incredibly strong. We sort of phrased it with the idea that seven of the eight best days in our history were during that second two weeks. That’s really what drove it. February on a year-over-year basis was up just shy of 6%. That’s comping up a strong February pre-pandemic in 2020. But if you look at that exit rate, you get pretty exponential growth, and even into the early days of March. This is an area where you're starting to be incredibly optimistic. I think as you heard from Brad, our long-term guidance suggests about the same recovery out of the pandemic that we would have told you pre-IPO, right? It takes about 18 months. Yet we're seeing incredibly positive trends in just the last few weeks. What’s important to understand is there's really no seasonality that should drive that. It’s really just merchants across the country. And also, as was mentioned, occurring at a time when significant portions of the country like Texas had no power. We're incredibly optimistic, I can't say it enough about where we're exiting February and what early March looks like.

Okay, great. And then one final one. Brad, just CapEx outlook for '21?

Yes, I think you're going to see about $5 million a quarter in capital expenditures per acquisition cost, which is one of our primary focuses for capital deployment. I expect to see some gradual increase in that. We discussed raising our customer acquisition costs as we aim to shorten the payback periods because we believe there’s a significant opportunity to bring on new merchants. I'm anticipating a 5% to 10% increase over the exit rates of 2020.

Okay, great. Thanks, guys.

Your next question is from the line of Andrew Jeffrey with Truist Securities.

Hi, good morning. Appreciate you taking the questions. Jared, I wonder if you could comment a little bit about the growth you're seeing by channel. My inference from the update you gave in January on fourth quarter volumes with 20% growth in the end-to-end channel suggests that that's really outperforming, which I assume is a function of conversions. Maybe you can elaborate a little bit there and just a sense of how you're doing in the ISV channel versus your direct channel, because I assume some of that contributes to the comments about the leverage to recovery on the other side of COVID.

First, I'd say almost all of our customer production, whether it's gateway conversions or just pure net new wins, originate through an aligned software partner. That is our model. We do have a direct team, but they work in collaboration with our software partners. So virtually everything is an ISV channel for us because 99% of all of our transactions are connected to software. I would say that in terms of the performance we've been sharing over the last few quarters, and even the update as of today, it's almost all coming from the core elements of the business, focusing on hospitality, restaurants, and more complex retail. So the production mix between gateway conversions and net new wins is still rather consistent at about 50% in each direction. I think what you have here is just continuous caretaking. Merchants are continuing to migrate to a single vendor solution and cutting out the cost and complexity of a multi-vendor environment. The acquisition of Shift4Shop, which has taken us more into eCommerce, was a recent event and we spent literally the last three months in an accelerated integration plan focus to be able to board customers of that size. The impact of which we've only started to really see in terms of February. Our interest in stadiums, which certainly included Raider Stadium and what we've recently announced with STAPLES, that's contributed virtually zero volume at this point just given the realities of the pandemic. So all of the growth that we're seeing, like the numbers that Taylor shared, that have already been rather eye-watering in the last couple of weeks of February and early March, is all a result of our focus on hospitality and restaurants.

Okay. That's helpful information. It seems like you're focusing on growth driven by specific sectors. Jared, Shift4 has made a lot of innovative and groundbreaking moves in the industry. Regarding Shift4Shop and its pricing model, can you explain the economics of that and how you plan to achieve strong returns over time, especially as you support the initial stages of eCommerce sales?

Yes, I mean, it's certainly a good question, right? How is Shift4 Shop's kind of go-to-market and completely forego a lot of SaaS and premium fees that it seems some of the largest giants in the industry are heavily dependent on? How are we going to be able to monetize entirely through payments? Well, I think there are a couple of factors. First, we were fortunate to buy an asset that had already invested heavily over the years in a lot of capabilities and features that we don't need to invest quite as much in the road ahead. So that's one factor. Two, the fact that we own all of our own payments infrastructure is pretty important, because it means we're going to be able to capture greater spreads off payments, which will contribute more meaningfully to the bottom line. It allows us to monetize the relationship with that customer in a way that's a little bit different, even from the super behemoths that are out there that do depend on third parties, which does eat into some of their payment-related margins. We're focused on this. I think what else is important is that the story doesn't end with just buying 3dcart, rebranding it, and then having a disruptive pricing model. There is ongoing investment to fund various internal initiatives and through inorganic initiatives. We looked at Shift4Shop as a means to serve customers that are very different from our core. I fully expect it to turn into something that has a lot more direct to merchant self-help type capability for even card-present retail shops and smaller restaurants. We will absolutely incorporate as part of our roadmap capital offerings, and certain things we're looking at with crypto acceptance because you're dealing with a different audience than our traditional enterprise restaurants and hotels, where some of those features wouldn't necessarily be of the greatest utility. These are all things we’re taking into account for the long term and how we're going to move the needle with Shift4Shop.

Super helpful. Thanks.

Your next question is from the line of Jason Kupferberg with Bank of America.

Hi, good morning, guys. This is Mike filling in for Jason. Just a quick follow-up on margins. So if we look at the implied adjusted EBITDA margins at the midpoint of the guide of around 34.5%, I believe you'd been expecting margins to approach the upper 30s by the end of 2021. Now is this still the case? Or should margins be slightly lower than this exiting the year perhaps due to the step-up in both investments you talked about? It sounds like there could be some pressure in the first quarter or two as you integrate recent acquisitions. But how should we think about margins in the back half of the year? Thanks.

Yes, sure, Mike. Hey, this is Brad. A very good observation, and you're exactly right. We expect the full year guide at the midpoint was in the mid-30s. But think about how that's going to evolve over the course of the year, right, the first quarter or two. As we digest some of these acquisitions, we mentioned those would be a little bit lower and they will certainly accelerate as we get into the back half of the year. So the guide for the back half of the year in the high 30s is not changing.

Your next question is from the line of Chris Donat with Piper Sandler.

Good morning, gentlemen. Thanks for taking my questions. I wanted to ask one on the end-to-end volume guidance for 2021. Just to confirm, is there any material volume coming from Shift4Shop and VenueNext in your '21 guidance? Or is that immaterial at this point from the acquisitions?

It's largely immaterial. What we're signaling, and Brad sort of commented on a little bit with the first quarter and second quarter margins is we're signaling strong assets and desire to invest in these businesses, and incredibly strong potential over the back half of next year and into the following.

Okay. And then, Jared, in your shareholder letter, you comment that you're pursuing several strategic opportunities. Just curious where you're allocating your time with the Shift4Shop acquisition and you got a lot of plans there and then VenueNext. You had an incredibly busy 2020. I imagine you're going to have an incredibly busy 2021 with some other activities also. Just trying to understand where you're putting your focus this year?

We are actively investing in talent as many competitors undergo significant merger integrations and more talent becomes available in the market. We plan to capitalize on these opportunities. We have a strong team dedicated to the Shift4Shop roadmap, and I shared some insights about what's currently in progress. Our day-to-day operations are driving performance, particularly in the hospitality, restaurant, and specialty retail sectors we currently serve. This focus will help us gain market share moving forward, and we are also exploring strategic opportunities in several promising areas. Our approach is to take advantage of all potential opportunities.

Okay, got it. Thanks very much.

Your next question is from the line of Michael Del Grosso with Compass Point.

Good morning, everyone. Thank you for taking my question. I wanted to inquire about some of the legacy gateway platforms, such as Merchant Link. I know you are just over a year into those integrations. How much of the gateway volume has been converted? Additionally, looking ahead, what are your expectations for conversion in 2021? Last year was transformative for tech investments among merchants, creating a significant opportunity for those looking to shift. What do you anticipate will be necessary to encourage those merchants to convert if they haven't done so already? Thank you.

Really good question. As I mentioned, our production still is rather consistent that 50% of the customers that are joining our platform are pure net new wins just share taking in the market, and then 50% continues to come from our existing gateway customers who are shedding all that complexity and cost from the multi-vendor environment to adopt our end-to-end solution. That’s consistent even through today as we think through our planning for the years ahead. We continue to make very consistent assumptions. There is a lot that goes on in that gateway world. You have 350 plus ISVs, you have a lot of enterprise customers. As we've always said, the carrots and incentives that we make available to our partners and customers, they kind of click at different times. The problems that we solve for our customers two years ago that influenced a lot of gateway migrations are different than the problems we solve today. In the last two weeks, I'd say, Radisson, which is one of our gateway customers, a big hospitality brand, actively started endorsing all of their customers, all of their locations on our gateway to move to our end-to-end platform, and that's created a nice surge. Similarly, Jonas Club, which is another ISV more in like golf and membership clubs, they're an existing gateway customer, gateway ISV that we've had for a long time, they just started actively endorsing. That type of thing just continues to happen and will continue to happen as it goes forward. One of the questions we're going to start asking ourselves, and this is not in the next year or two or three-year type thing, but is being a gateway and making available connectivity to what are essentially our competitors, is that even a good strategy anymore? Or is it just a legacy model that should go away, and we just no longer offer that service? I mention that because if you look at some of the fastest-growing integrated payment solutions on the market, they don't offer a gateway at all. First Data or Fiserv's Clover product does not have a gateway option to ship for or global payments or anyone else out there. Toast, fast-growing obviously, restaurant player, does not have a gateway option. Square does not have a gateway option. Shopify has some very punitive costs if merchants use another provider. So right now we love the kind of carrot incentive first approach that's been serving us well with the gateway migration. But at some point in time, we might want to ask ourselves if the product and features we're making available to our customers with such value that it no longer is really even required. In doing so, we would expect that would also pull forward a lot of volume from that gateway to our end-to-end platform.

Jared did a good job of commenting on the feature here. I think it’s worth revisiting the past a little bit. I think it's important to note that not a single merchant who’s joined our end-to-end platform from the Merchant Link acquisition has given us a normalized month worth of volume. There is still a ton of growth potential inside of the merchants that have already migrated. That’s worth emphasizing because we acquired that business towards the end of 2019. We onboarded merchants pretty steadily throughout but the pandemic hit shortly thereafter. We tried to sort of allude to this during our comments, but the volume potential inside of all those merchants that have already joined us is pretty phenomenal as well.

Okay, thanks. That’s helpful color. My follow-up is on capital allocation. I mean, I think the elephant in the room, so to speak, is nearly $1 billion in dry powder that you guys have, and you just completed a $70 million or so acquisition. Is that the size of deals that we should expect going forward? Or Jared, how are you thinking about some of the options for strategic M&A going forward?

Yes. And certainly Taylor should weigh in on this too, but we feel very fortunate to have such a significant cash position that really affords us a lot of options that we can look at in the market. One thing, and we've said this before, even in the fourth quarter when people were expecting us to do something rather large, is that we're not going to feel pressured to do anything that we don't want to do right now. If playing small ball works for us really well and we can continue to find just total gems, like VenueNext and 3dcart, where we can unlock a lot of value; that's what we're going to do. I’d say that Taylor has a very full pipeline right now. In terms of like deals of size that could be rather transformative, you're talking about at least three that we've been investing a fair amount of time in. If you're looking at smaller deals that similarly have a profile like a VenueNext or like a 3dcart, there's an awful lot of them there too. Throughout our whole history, we've really been rather disciplined allocators of capital. We tend to think about all the things that can go wrong and not get excited about necessarily the shiny thing of the moment. That's going to continue to influence our decision making on the road ahead. Taylor, if you want to…?

Yes, well said. I think Jared summarized it pretty well. The book ends or that there's always a handful of really transformative transactions that we'd love to get done, but they're complicated, they require a party on the other side, and we'd like to keep optionality with those. I can tell you there's more than one that helped us grow exponentially in completely opposite directions. We keep those both on the table as long as we can. We’d love to do both to the extent the environment affords that. There’s also an incredibly long line of the VenueNext, the 3dcarts of the world that have just watched our ability to help businesses like theirs grow through a vertically integrated customer model. There are quite frankly more of those than we can handle, plug for the strategy department or taking resumes. We'll do as many of those as we possibly can. To the extent they give us access to new verticals like both those transactions did, we love it. So yes, we keep a really open pipeline. On the small end, they're coming to us, quite frankly.

One thing I'd add in terms of an area that we've taken new interest in as of the last quarter is in charitable giving. I think the exposure that we've had collaborating with St. Jude Children's Research Hospital on Inspiration4 has really enlightened us as to the payment industries that support philanthropic and charitable giving, and there’s actually an awful lot there. There's technology that now enables donations in live stream video games and it actually has quite the following. There are quite a few things as we turn our attention a little bit more toward that that have been rather enlightening to us and I think just that will be something that will probably give some focus on in the months ahead.

Understood. Thank you. I appreciate you taking my questions.

Your final question is from the line of James Faucette with Morgan Stanley.

Hi. This is Priscilla Russo on for James. Two quick questions. So you've talked about the number of hotel deals coming on the platform. Can you talk about the RFP/competitive dynamics so far in 2021? Is there particular verticals or merchants that have decided to look for alternative payment providers, such as yourself, early on this year?

Well, as we mentioned, we boarded 25,000 plus customers, which doesn't take into account any of the Shift4Shop numbers that we shared before, just in the last year. I'd say maybe less than five of those relationships came from an RFP. That’s really consistent throughout our entire history. We try and position ourselves so that there’s no one else who can really compete from an RFP perspective because it was the thing in the past prior to Shift4 strategy really being developed over the last four years, where hospitality merchants would have an RFP for payment hardware, a gateway for secure payment, tokenization, or PCI validated encryption, and an RFP for merchant acquiring. Now with our M&A strategy and how we've bundled together our services and created that vertically integrated solution for the market, we were able to eliminate all those vendors and all the costs associated with it to have a unique solution. I actually can't recall a single RFP we've seen in 2021, so far.

Perfect. And then just one quick follow-up. Jared, congratulations on the Inspiration4 mission announcement. Should we actually be thinking about the day-to-day operations and the management of that as you proceed with that endeavor? Will there be any chance to Shift4 and if not, any classification that would be helpful?

No, as I mentioned earlier, we truly benefit from having an exceptional team that we've invested in significantly over the last few quarters. I actually reduced my responsibilities before the IPO. I co-founded and served as CEO of a mid-sized defense aerospace company for ten years. I stepped down from my CEO role and resigned from the Board to focus on what is essential for Shift4 and other interests, like Inspiration4. I'm fortunate to arrange many of my tasks during evenings and weekends, ensuring they don't interfere with my daily responsibilities. These plans have been thoroughly discussed with our Board of Directors, addressing all necessary governance and contingency matters. I don't anticipate it affecting my day-to-day responsibilities.

Perfect. Well, congratulations, again. Thank you.

This concludes the Shift4 Payments fourth quarter 2020 earnings call. Thank you for participating. You may now disconnect.