Good day, and thank you for standing by. Welcome to the Shift4 Payments First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Sloan Bohlen, Investor Relations. Please go ahead.

Thank you. I'd like to welcome everyone to Shift4's earnings conference call for the three months ended March 31, 2021. Before we begin, I'd like to remind everyone that this call 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 expected impact of COVID-19 on our business and industry; including that with respect to the economic recovery, increases in vaccination rates and the reopening of the country and any volume recovery by us; gateway penetration and spend seen by our gateway merchants; expectations regarding new customers, acquisitions or other transactions; and anticipated financial performance including our financial outlook for the year ended December 31, 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 annual report on Form 10-K for the year ended December 31, 2020, as updated by our quarterly report on Form 10-Q for the three months ended March 31, 2021 and our other filings with the Securities and Exchange Commission 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 caused 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. Good morning and thank you all for joining us. If you recall from our last quarterly earnings update in early March, we were beginning to see signs of strong volume recovery across much of our merchant base. I'm happy to share with you all this morning that these volume trends exhibited during late February, continued through March, resulting in a reasonably strong first quarter. Just to reiterate at Shift4, we are an integrated payments company that focuses on some of the most demanding and complex environments in commerce. This includes a lot of larger restaurants, hotels and hospitality merchants as well as specialty retailers and sports and entertainment venues. We saw some nice year-over-year volume growth in Q1 but the majority of our growth throughout this pandemic has been a result of new and larger merchants joining our platform. While our performance has been strong, most of our customers are still operating below pre-pandemic levels, which is important on two accounts: one, our value proposition that's fueled year-over-year revenue growth for 21 consecutive years has proven to be compelling in the best and worst of economic times; two, as the country continues to reopen, we expect considerable volume recovery from our existing customers and from all the merchants joining our platform every single day. With that stated, let me provide a brief overview of our first quarter performance. First, we reported another record quarter of end-to-end payment volume, totaling nearly $8 billion, which is up approximately 30% over the same period last year. As I mentioned in my Shareholder Letter, we actually had some tough comps, as January and February of 2020 were up over 50% year-over-year compared to 2019 levels. The volume growth was not isolated to this past quarter. April has also seen impressive sequential growth, as Taylor will talk about in just a bit. We don't generally focus on our gateway-only volumes on this call but it's also a very encouraging indicator that our annualized March gateway volumes totaled $150 billion, which is moving closer to our pre-COVID-19, 2019 volumes. Put more plainly, our gateway merchants are seeing a rapid recovery in spend already this year, in spite of colder weather in much of the Northeast and COVID-19-related occupancy restrictions. I mentioned this also to address frequent questions from our investors regarding how much of our gateway-only volume remains, considering it's one of the easiest growth opportunities to quantify inside of the Shift4 story. While we've exceeded early expectations on gateway penetration, there's still a long way to go. Volume growth drove record revenue of $240 million and gross revenues less network fees of $97.5 million, which is up 23% compared to just a year ago. What many may not know about our business is that in addition to typically being the lowest volume quarter for us on a seasonal basis, Q1 is also typically the lowest on a net spread basis, which Brad will talk about more later. Said plainly, we're very encouraged by how Q1 sets us up for the remainder of the year. Our adjusted EBITDA of $22.2 million was up modestly year-over-year but also included $7 million of accelerated expense and a one-time charge, which Brad will expand upon. As I mentioned in my Shareholder Letter, I do think it's important to explain why we didn't see more flow-through to adjusted EBITDA and it's really attributed to two factors. First, our first and only notable COVID-19-related business closure, which was an approximately $5 million risk loss, attributed to the business failure of a specialty retailer. This is the only notable risk loss in my 21-year history with the company. And while we do expect some recovery, we have chosen to expense all charges at this time. Second, we are continuing to make investments in talent and systems to ensure the scalability and experience for our merchant partners and employees. As a company, we have performed well during some of the best and most difficult times imaginable for our customers, partners and employees. As we look at Q1 performance and the end-to-end volume contribution from April, we are very encouraged and excited about the year ahead. We see significant runway both from the recovery of the economy, as vaccination rates increase, as well as new market share gains, as our value proposition continues to resonate and win. As many of you know, Shift4 is a company that has a hard time sitting still, so I'd also like to give you a few updates on some strategic initiatives that continue to accelerate our growth. In October of last year, we made a relatively small investment to acquire a professional services company that specializes in supporting some of the most recognizable merchants in the hospitality industry. Our objective was to use this world-class team to further enable our capabilities and to allow our software partners to lean on us more, while engaging the largest and most sophisticated hospitality merchants. Since that acquisition, we've seen a 50% increase in end-to-end merchant production from these market segments. You may have seen our announcements regarding Petco Park in San Diego or my personal favorite Junior's Cheesecake. These are just two examples of the accelerated growth this capability has afforded us in a market in which we were already performing reasonably well. Our eCommerce platform Shift4Shop is also off to a very promising start. Since our acquisition in November of 2020, we worked very quickly to deploy enhancements, implement a disruptive go-to-market pricing model and launched a promotional campaign to help shine a spotlight on this great platform. You will find in our Shareholder Letter that the traction generated by these efforts has exceeded our initial forecast. To date, we've added 21,000 incremental Web stores which more than doubles the footprint of the business. As a reminder, doubling the customer count of Shift4Shop was our first-year objective and it was surpassed in less than six months. I also want to emphasize that the Shift4Shop acquisition has given us good reason to explore and invest in technology like capital offerings, buy-now-pay-later programs, cryptocurrency acceptance, and crypto settlement that would have really been a stretch for us to incorporate in our historic base of customers. While it's only been two months since we announced our most recent acquisition of VenueNext, we are already finding early success. Entertainment venues and theme parks across the country are eagerly seeking to enable a fan-first technology, contactless payment method and adjust workflows for a more mobile-centric experience. As you may have seen in our Shareholder Letter, we're proud to count the Washington Nationals as a new customer. Based on our visibility into the pipeline, we expect there to be many more. Lastly, I want to comment on the M&A environment. Shift4 has a proven track record of identifying scarce assets that are complementary to our integrated payment strategy and build upon our ambition to provide a unified global commerce experience for our partners and customers. As evidenced by the acquisitions we just mentioned, acquiring these assets can often lead to accelerated growth and valuable diversification. We view the current landscape as ripe for numerous transactions, ranging from strategic tuck-ins to large-scale transformational deals. We are dedicating more resources towards these opportunities, while at the same time remaining disciplined with regard to valuations. And with that, I will turn it over to Taylor Lauber, to comment on some of our quarterly trends and other strategic updates.

Thanks, Jared and good morning everyone. As Jared mentioned, this was quite a strong quarter for us. $8 billion in volume not only represents a record, but it's almost $1 billion higher than our previous record quarter for volume. To provide some context on why that's so exciting, the first six weeks of the quarter were actually quite suppressed. Additionally, we exited March with roughly 9% more active merchants than in December of 2020. Because this is our first Q1 as a public company, I think it's worth setting the stage a bit for how Q1 would influence a typical year for us. Prior to COVID-19, we would expect Q1 to be our weakest quarter on both a volume and net spread basis. The holiday season hangover as we like to call it often results in reduced consumer spending across a less favorable mix of merchants and card types. In a normalized environment, we'd expect roughly 20% of our annual volume to occur in Q1. As the weather warms across the country, travel and consumer spending typically increases significantly in Q2 and Q3, which are historically our strongest quarters. We would characterize the most recent quarters exhibiting typical seasonal trends but still significantly impacted by COVID-19. As you can imagine, we are very optimistic about the exit rates experienced in Q1 and how this positions us for the remainder of the year. Our April end-to-end volume continued this growth trend. It was the highest month in our history and 4% above our very strong March. While there's some seasonal factors that can influence volume week-to-week, we've seen a consistent sequential increase in volume and active merchant counts. For example, last week, we saw end-to-end volume of $830 million and active merchant counts 2.5% higher than the last week in March. The expansion of our total addressable market has also fueled an expansion in our pipeline of desirable M&A transactions. We've made the decision to launch Shift4 Ventures as a means of capitalizing on earlier-stage opportunities we've been seeing. While we did not expect this to be a significant portion of our balance sheet, we do believe that these partnerships will involve both capital and collaboration. We are specifically pursuing investments where we can have a role in helping drive growth in the business through our technology and customers. In April, we've invested in Sightline Payments, which is a unique digital commerce platform for casino resort operators. Jared mentioned the traction we're seeing with three recent acquisitions. I think it's important to note that while these wins are encouraging, they don't influence our decision on the revenue guidance, which Brad will touch on in a moment. I think that's worth repeating. While we do include the increased operational expense from acquisitions, we do not include the revenue synergies until they are realized and more predictably modeled. We will provide regular updates on these new merchant cohorts as they mature and we look forward to doing that. And with that, I'll turn it over to Brad.

Thanks, Taylor. Just like last quarter, I'm going to reference a few pages in the back end of our earnings material that will highlight several of the metrics that we're going to talk about. So for the first quarter, we generated $239.3 million in gross revenues and $97.5 million in gross revenue less network fees. Both of these figures represent our highest quarterly revenue production in the company's history. The $97.5 million in gross revenue less network fees represents a 23% increase over prior year, and a 10% increase compared to last quarter. The year-over-year variance was driven by a 35% increase in net processing revenues, driven mostly by new merchants onboarding and the continued recovery in consumer spending across our merchant base. First quarter net processing revenue made up 61% of our gross revenue less network fees, up from 56% from the same period last year. Our gateway and SaaS other revenue streams both grew modestly year-over-year due to continued recovery of our gateway merchants and the impact of our recent acquisitions. Net spread in the quarter was approximately 75 basis points, which represents an 8% drop from the prior quarter and a 4% increase over the prior year. The drop from Q4 of 2020 was driven by a combination of factors including some seasonal increase in travel and higher than normal debit card usage. I'll note that April blended spreads have increased to approximately 78 basis points. This pattern is typical for our business and while we do continue to expect blended spread compression as a result of boarding larger customers, Q1 is typically lower than the average spread we experience throughout the year. We reported $22.2 million in adjusted EBITDA for the quarter. If we apply consistent accounting treatment to our equipment leases in 2020, these results are largely consistent with the prior year. As Jared mentioned in his opening comments, we have two extraordinary items worth mentioning that are affecting our adjusted EBITDA within the quarter. First, we recorded a loss of $5.2 million as a result of a multi-location specialty retailer that abruptly closed as a result of a business failure during the quarter. These losses are the result of customer chargebacks for pre-ordered goods that were not delivered to consumers. We do believe that some of the balance will be recoverable as we work with the business administrators, but we have chosen to record the maximum amount of Shift4's potential liability. Any amount recovered would positively impact a future quarter. Second, given the faster than anticipated recovery in the merchant base, we elected to accelerate approximately $2.3 million of operating expenses that were previously budgeted for future quarters. These expenses primarily relate to increased software licenses to aid in the scaling of certain platforms and temporary staff to assist in customer boarding activities. Both of these events are isolated to Q1 and should not be considered contributors to ongoing expenses. Our first quarter results represent an adjusted EBITDA margin of 23% against gross revenue less network fees. The impact of the previously discussed nonrecurring loss in our OpEx acceleration decreased margins in the quarter by approximately eight percentage points. As we mentioned in our Q4 earnings discussions, we invested approximately $21 million in the first quarter on the integration and rebranding of Shift4Shop, a portion of which was done in cooperation with the Inspiration4 and Shift4Shop entrepreneur contests. These expenses have been treated as non-recurring costs within our financials and are added back for EBITDA purposes. We did not execute on any significant capital transactions in the quarter. However, the adoption of ASU 2020-06 did trigger a balance sheet reclassification related to our outstanding convertible debt offering. In our Q1 balance sheet, you will notice $110 million has moved from equity to debt related to that adoption. With regard to liquidity, we ended 2020 with $845 million in cash and $99.5 million of available capacity on our revolving credit facility. Now, I'll move on to guidance for the year. Given our performance in the first quarter, we will be increasing our full-year guidance for each of our KPIs. Specifically, now we expect full-year end-to-end processing volumes to be between $44 billion and $46 billion. These volumes would drive gross revenues between $1.2 billion and $1.3 billion and gross revenue less network fees between $480 million and $490 million. The revised range for adjusted EBITDA is now $165 million to $170 million. The update to adjusted EBITDA does include the impact of the risk loss and cost acceleration that was mentioned previously. If we were to normalize our guidance to exclude these charges, our adjusted EBITDA margin on the incremental gross revenue less network fees would be approximately 50%. With that, I will turn it back to Jared for some final comments.

Thanks Brad. And I think this is a good time to open it up for questions.

Your first question comes from Tim Chiodo with Credit Suisse. Your line is open.

Thanks a lot. Good morning and thanks for taking the question. I wanted to talk about some of your underlying organic share gains. So, in the past, you've talked about some of the very, very attractive payback periods that you have, meaning essentially implying nine months, eight months sometimes shorter, meaning very attractive LTV to CAC. And you've talked about at times selectively increasing CAC because the numbers still work and it's still very attractive. I just wanted to see if you could touch on that? If you're employing that strategy to some? If you're seeing great success with it? And really just any update on that broader topic of your attractive payback period. Thanks a lot.

Yes, sure. Hey Tim it's Taylor. Good morning. It's a good question. I think we really started down this path in earnest I want to say it was Q3 and Q4 of 2020. And just to remind everyone else on the call, our payback methodology was pretty standardized across the company. It would result in anywhere between kind of a six- and nine-month payback as you mentioned with our standard incentives and hardware deployments across our merchant base. But what we found was that larger merchants would actually respond less favorably to financial incentives and much more favorably to technology incentives that actually cost less in some cases. So, we went down this path of modifying how we approach each of these segments and I'd say it's worked tremendously well. You'd see that evidenced by the increase in hotel volume that we saw over the past two quarters. We boarded more hotels during that period than at any other point in our history. And again, this is when hotels were significantly impacted. Now, I don't want to make it too much about financial engineering. It's really about getting surgical around what's going to motivate a particular merchant base at a given point in time. So, keep in mind we've got 350 different software suites, each attracting a different quality of merchant. It can be the front desk of a hotel all the way down to the gift shop inside of a hotel. And the incentives work differently. So we have pushed the lever forward a little bit in aggregate, but it hasn't been about increasing across the board. It's about giving more targeted incentives to higher-quality customers, and it's worked well thus far.

Yeah, Tim. Hey, it's Jared here. Just to layer on to it a little bit. It is such a good question. I mean, we IPO-ed with really these best-in-class unit economics. And you're right, I mean we lived for several years in these like eight to nine-month payback periods from a customer acquisition cost perspective. And that was largely just due to constraints of having five to six times leverage at the time of the IPO. Obviously, since deleveraged considerably, we have a lot of cash. So the question being why don't we just put more of it to work to accelerate growth? I think what Taylor was saying is we're doing it in a number of different ways depending on the target market we're going after. In the case of say our restaurant business like we know we're going to continue to take share within that space by investing more in our research and development technology initiatives. Things like QR codes and contactless payments are what's going to drive customers over to us, just as they did during the pandemic and they're continuing to do so now. In the case of hospitality hotels, it's a combination of solving some pain points that a lot of these legacy property management systems which still dominate the market need to address. Software database upgrades that support things like phone-based check-in for example. What I would say is we've looked to sports and entertainment for example, that's one area where additional financial incentives, this is an industry that was hit pretty hard due to the pandemic. Like they welcome things like sponsorships and such which has absolutely been helping us incorporate our technology like VenueNext with our mobile solutions and payments in that market. So I think the answer is yes, we're just kind of like fine-tuning new strategies based on the verticals that we're trying to conquer.

Okay. All right. That really helps. Thanks a lot, Jared. Thanks a lot, Taylor. I hope to squeeze in one more. On Shift4Shop the 21,000 new Web stores, and I apologize if you touched on this earlier, but could you describe the types of businesses? Are they eCom pure plays? Are they offline stores or in-store that are expanding online? Is it startups? Is it a little bit of mix of everything? Some of your own merchants coming over? Any color there would be great.

It's really a mix of everything. However, I would say that for the most part, they are predominantly focused on eCommerce since we have not yet finished the integration of our online ordering products, restaurant point-of-sale applications, or card-present retail applications. These are all items on our roadmap that we are currently working towards. In the first quarter, we prioritized seamless onboarding to achieve a PayPal or Square-like experience, which is crucial for this market. Since we haven't fully integrated some of our card presence technology yet, or it's still in progress, it indicates that the majority of new customers are primarily seeking a web store at a very reasonable price. As we have stated, we opt to monetize solely through payments rather than SaaS fees, setup charges, or premium marketplaces like others do. It's somewhat akin to a "Bags Fly Free" promotion, but for us, it's about avoiding rental costs for your online business. This is the strategy we are using to attract customers today. Our customer base is diverse, but generally, in terms of the products and goods being sold, it leans heavily towards eCommerce businesses. I would say there is a significant focus on gaining market share rather than on existing customers.

That’s perfect. Thank you so much for all that color guys. Appreciate it.

Your next question comes from the line of Mike Colonnese with Bank of America. Your line is open.

Hi, good morning guys. Nice to see this level of recovery in the business despite some of these ongoing headwinds from the pandemic here. So just to talk more about the outlook here. So can you discuss some of the underlying assumptions embedded in the revised outlook for end-to-end volume growth this year? What are you assuming for same-store sales growth, end-to-end conversions, as well as new merchant wins? And also the expected contribution from recent M&A?

Sure. Hi, Mike, this is Brad. I’ll address part of that, and Taylor might join in as well. When considering the guidance we've provided, our main focus is on current trends. As we've mentioned, we've experienced significant recoveries that began in late February. Those trends have continued through March and into April. That's our initial basis. We believe there's some recovery returning to the merchant base, which we expect to unfold over about 12 months, although we don’t really separate it by all the various components like same-store sales or new merchant additions. It's important to note that we have solid visibility on our existing merchant base, which is still not operating at full capacity. For the merchants we've onboarded in the past year, we still need to see how they perform over time. The key takeaway for your models and understanding our guidance is that it really depends on our current situation, as March and April have shown great strength. We anticipate further recovery for the remainder of the year.

Sure. I want to emphasize that the merchants who joined us last year typically drive the most growth in the current year. This is especially true in a year where these merchants faced challenges but are now experiencing some recovery. While we focus on tracking merchant production—our most reliable metric given its consistency through various cycles, including the pandemic—we also pay close attention to the behavior of the merchants who came onboard in the past year or two. To give you an idea, the end-to-end volume in the last week of April reached $830 million, which we can annualize. However, considering that April doesn't represent our average week seasonally, there's potential for optimism beyond that figure. This helps us project our merchant base and assess current trends to gauge potential annualized outcomes, aligning with the guidance Brad provided. Regarding mergers and acquisitions, we take a careful approach. We evaluate the revenue tied to M&A activities, such as the subscription revenue from VenueNext before our acquisition, adjusting that down, assuming merchants will opt for our payment platform. We factor in the operational expenses linked to running that business but do not include any expected volume contributions in our projections. This may seem counterintuitive, as we reduce revenue expectations for cross-selling but do not account for the benefits from that cross-sell. This is due to the different profiles of these merchants, and we prefer to assess their performance before incorporating that into our guidance. A great example of this is Shift4Shop, where we are managing the operational costs while bringing on many valuable customers. We want to observe their performance and contributions in terms of volume and spread before we factor that into our forecasts.

Very helpful. Thanks, guys.

Your next question comes from the line of Dan Perlin with RBC. Your line is open.

Thanks. Good morning, everyone. I hope you are all doing well. I have a question, likely for Brad. You mentioned that the progression of spreads is expected to be lowest in the first quarter, but you also indicated that there may be some compression throughout the year as we cater to larger merchants. I'm trying to understand the relationship between these larger merchants, which I somewhat grasp, and the increasing focus on omnichannel approaches and pure eCommerce merchants. Could you explain how this shift in mix will affect spreads throughout the year and even as we look toward the future? Thank you.

Yes, sure, Dan. There's actually a couple of moving parts in here. One is, what you mentioned is, this ongoing kind of migration towards larger merchants. And we've talked about that it's probably 1 to 2 basis points a quarter of impact as that mix shift takes place over time. What's becoming evident, although, we assure these people grasp is, also there's a seasonal component as to how spreads normally behave, right? When we went public last summer, we didn't have a full year of kind of normal seasonality to put in front of everybody, because the way of everything behaves in response to COVID. But what Taylor mentioned in his discussion earlier is the way we're trying to make sure people understand that, there is spread dynamics as well, as far as how the year rolls out. So Q1 will typically be your lower spreads. They will start to boost into Q2 and Q3 and then it will start to come back slightly again in Q4. But what you will see is this ongoing mix shift that will impact that as well. So, I think when you think about your model, it's important to note that our Q1 spreads even though they were lower than Q4, they're still up from prior year. So that's still a sign that prior year in 2020 felt that same dynamic for the most part, in terms of it was a lower portion of the year, but we actually grew the spreads year-over-year. But we do see spreads coming up slightly in April; we mentioned that in our previous comments. And that's going to be more of the seasonal pattern you're going to see from Q2 into Q3. We do expect some form of compression, but also some form of seasonality impact as well.

Okay. And then, just kind of a quick big picture one. As you have been moving into these larger merchants, you've done these acquisitions that have taken you into some exciting verticals. I'm just wondering, what the competitive landscape looks like for you guys now? Obviously, you've had a lot of success over the years. But as you've jumped into some of these newer and bigger verticals, I'm just wondering what that competitive landscape looks like going forward? And how you end up competing against maybe some of those other companies that have lower unit costs of process? Thank you.

Sure. So, Jared here, I'm happy to take that. And I think the answer is, it depends on the vertical, right? So we're specialists in simplifying the most complex commerce environments, like that's where Shift4 is a key. So if you were to take hospitality, upmarket restaurants, kind of the core original Shift4 business, nothing has changed in that regard. There's still only really three payment platforms out there that have the capabilities to address these verticals, the 350-plus software integrations and all that version history to compete for a Pebble Beach or a Snowmass sort of quilling pen or something of that nature. So in that respect nothing's changed in the competitive environment. Obviously, we're growing volume at a pretty rapid pace. So we continue to find success in those core verticals. If you look at how we've expanded our TAM and take stadiums, for example, we were very thoughtful. And I should say, like, by the way, just our long history in integrated payments, the idea that you can buy an ISV or partner or build the capability to go after certain verticals, all of the consideration that goes into it is not lost on us. So before buying ISV like then we had to size up the competitive landscape and say, 'Okay, there are four software companies that pretty much try and compete for the sports and entertainment market, two are very, very legacy and one is dependent on multiple other providers to deliver a solution.' That's what gave us the confidence to acquire VenueNext and say 'A vertically integrated solution in this market is going to find success and be differentiated.' So we can pull the figure on an ISV acquisition versus a pure partner play. So that really is a long way of saying, we have a lot of confidence in our ability to take like substantial share in sports and entertainment venues like we have. I mean, we've been pretty much announcing stadiums like every month right now. That funnel is awesome. Now if we want to talk about Shift4Shop and eCommerce, I totally would agree with you. I mean that is a very competitive environment. You're up against $200-billion-market-cap behemoths. But I would say, like our entry into that space was at like a really reasonable rate. As we talked about before, we acquired Shift4Shop on a reasonable EBITDA multiple to give us the capabilities to explore where it's a highly desirable vertical, a disruptive pricing strategy. I mean, I don't think the big guys are going to drop their SaaS pricing strategy anytime soon. I think that would be really hard for them. And our expectation there was not to be the next Shopify necessarily but to learn and use our entry into eCommerce to justify some investments in some of the things I mentioned before, crypto, capital offerings, things that we never could have done if we just focused on our core markets. So I would acknowledge, yeah, the most competitive environment that we've entered since the IPO is certainly that turnkey web store eCommerce environment the Shift4Shop, but like we're coming at it from an underdog, where we have very, very little to lose.

That's great. Thank you so much.

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

Thank you. Good morning. I appreciate the opportunity to answer your questions. Jared, we are currently at a very pivotal moment in the economy as we begin to reopen. I believe we are on the verge of a notable increase in the creation of new small and medium-sized businesses. Could you discuss your perspective on Shift4's share of these new SMBs, particularly regarding your partner business that caters to merchants potentially utilizing more traditional software or legacy point-of-sale systems? Is there any trade-off involved? What is the relationship between the shares of new business and the existing installed base?

Andrew, I'm glad to respond. I may not fully address your question, but I'll clarify if necessary. Currently, 50% of our production comes from gaining market share, while the other 50% comes from our gateway conversions, where we still have significant potential with over $150 billion in gateway volumes left on our platform. The key is determining where we position ourselves in the market to succeed. Shift4 is well-prepared to attract new businesses, particularly those in our target areas, compared to our competitors. This ability is driving the volume growth we've experienced since our IPO and in the guidance we're offering. As I’ve mentioned before, the market is evolving considerably. Traditional merchant acquirers without a robust integrated payment strategy are losing market share to tech-savvy, vertically integrated platforms. Some, like Square, are excelling by focusing on extreme simplicity. In contrast, Shift4 offers vertically integrated solutions that meet the needs of more complex merchant requirements, allowing us to continue gaining share in that sector.

Yeah. I'd just interpret it somewhat differently. I just see a different lens on the issue. I think it's not a function of Shift4 having the legacy software integrations. We have big established merchants. And big established merchants use mature software. It's just a by-product of the type of business they're in. Now, with that being said, anytime an interesting piece of innovative software enters the marketplace, Shift4 gets a call. And the reason for that is, think about the largest hotel chains in the world, anytime one of those hotel chains wants that piece of software in their ecosystem it's a phone call to Shift4 to integrate. So we've got a library of 350-plus integrations that grows constantly. The newer hip cloud-based stuff that might attract an SMB we get the phone call on those just as often. It's just the reality as big established merchants don't adopt that software very quickly. So I would argue, we've got as much of a right to win the SMB merchant through those software integrations as others with the heavy caveat being that if a single piece of software can run your business that is a fiercely competitive market. And one that we're less inclined to aggressively pour into versus the established merchants that we know have high barriers to entry through complex software and quite frankly more than one piece of complex software.

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

Thanks. You've given a lot of good color around April trends, but I just wanted to ask maybe a different way. If we were to look at April versus 2019 and kind of compare that to March versus 2019, maybe comment a little bit on the acceleration or if you have those numbers that would be super helpful?

Yes, that's a great question and it's an important area to focus on. There isn't anything significant that differentiates April from March in terms of seasonality. Typically, the Easter holiday and school spring break schedules influence how those two months compare. It's encouraging to see that April has increased by 4% compared to March. Additionally, the 2.5% rise in active merchant count from April compared to the last week of March is also a positive indicator. While March had certain advantages in terms of the calendar, the impact of the pandemic also played a role. The increase in April is very promising, especially when considering the last complete week we calculated, which showed $830 million in volume. Even more encouraging was the $150 billion in gateway volume for March. This figure is reflective of a group heavily influenced by pandemic conditions, contrasting with our end-to-end metrics that include many restaurants and retailers. To have $150 billion in March for gateway volume gives a strong indication of the current market dynamics. For context, that figure was $185 billion on an annualized basis in 2019, showing that while April has improved, we also need to acknowledge the broader trends and hope for continued positive developments as restrictions ease and vaccination rates increase.

Okay. Great. And then Brad, maybe a numbers question. If I just look at the increase in the $8 billion in the volume guide for the year for end-to-end and revs up $30 million that implies what, 38 basis points on incremental volume. Just any commentary there on what's at play and why you wouldn't see a little bit more revenue flow-through on that incremental volume?

Yes. On the midpoint of the guide, we look at 50 basis points of additional revenue coming in off of that volume. And a 50 basis point number is in line with kind of the larger merchants we've talked about, right? We've talked about gateway conversions coming over anywhere in the 40 to 60 basis point range. So I think somewhere in the middle of that is the right place. But also and a factor in the point Taylor made a minute ago is, we are intentionally kind of eroding some of the SaaS revenue streams in order to convert these over to end-to-end. So there's an upside coming from the volume and call it a 50 basis point spread, but there's also a little bit of degradation on the SaaS and the gateways that those will be flat or come down slightly.

Okay. That makes sense. And then last one Jared, just talk a little bit about the Sightline partnership. You guys made an investment there. It seems pretty interesting. Just curious kind of what exactly it is? And with the investment did you get any sort of processing agreement or any sort of commercial relationship with that investment?

Sure. I can provide more details regarding our mini Shift4 BC efforts and share what I can about Sightline, which is a strategic relationship for us. Some information will need to wait for an official press release. We initiated the Shift4 BC effort because we recognize the rapid transformation in eCommerce and want to be involved with early-stage businesses that may present interesting payment opportunities for us in the future. This interest also extends to other opportunities we're exploring. Regarding Sightline, it's critical technology supporting the growth of regulated mobile gaming in the US. Many card issuers don’t authorize gaming-related transactions directly on their cards, so intermediaries like Sightline play a substantial role with their digital wallet and integrations into both card-present and card-not-present gaming applications. A significant volume of transactions occur in this space now, and it's expected to increase in the coming years. We see major potential with our VenueNext acquisition, particularly in integrating sports stadium applications. For example, fans could place bets while at a game, access winnings, and spend those proceeds at merchandising shops. We have previously stated our interest in fantasy sports, regulated gaming, and sports betting, and we aim to strategically position ourselves in that exciting market.

Okay. Super helpful. Thanks, guys.

Your next question comes from the line of David M. Togut with Evercore ISI. Your line is open.

Thank you, and good morning. I apologize if this was asked earlier, but in your updated 2021 guidance, did you discuss your expectations for how quickly the stadium payments business comes online, for example, at Petco Park and Raiders' Stadium?

Yes, we did David. This is Taylor. But no worries happy to address it again. The truth is we're just not forecasting any of it. It's too soon. A normalized environment for these is not just that they're sporting events inside the stadium, but it's also full occupancy. And then it's also a series of events around the concerts and things like that. So it's way too early. I'd say where we start to have some confidence is like the back half of 2022. But in a full year guide like this we just don't include it. But we do include the OpEx because we're going to carry those people through while the world normalizes, but we don't include that one.

I see. Any thoughts on sort of baseball policy versus football? I think the NFL has said they'll be at full occupancy or at least they'll allow full occupancy this fall?

Jared here. I think your question highlights why we haven't included volume in our guidance. We are aware there will be volume; we issue press releases almost every month announcing that stadiums have gone live with Shift4 and either VenueNext or our other integrations. We saw volume flow in April from some MLB stadiums using our technology. However, we don’t have enough insights into what the future holds. We expect to secure many stadiums and capture their volume, but we cannot predict if rules will change or what occupancy restrictions will be in place. So when we provided guidance, we were optimistic about the coming year but chose not to include stadiums in it. From a fan perspective, I hope vaccines continue to be distributed effectively so we can safely welcome many fans back into stadiums. However, we lack sufficient visibility to make firm predictions at this point in sports and entertainment. Essentially, if you see many press releases about stadiums and know lots of fans are attending events, and you’re observing this on TV, then expect the volume to likely exceed what we've projected, which is why we did not factor any of that in.

Yes. This is not over-engineered when we put out guidance. I think we'd probably do that internally and then we sort of step back and say, what's the world telling us? I mentioned this before, but the last week in April for us was $830 million of end-to-end volume. That is not an average week in an average year. That is a slightly below-average week in an average year meaning the last week of April from a seasonal baseline. So when you simply take that and you multiply it by 52, you get to a certain point and we say, all right. What's merchant production doing? What would any amount of recovery do? And hopefully that brings you sort of inside our guidance process and how we get to where we are. Quite frankly, merchants joining us in a current year don't contribute much. It's actually the merchants who joined the prior year annualizing that contributes the most growth in the year. And then when there's recovery inside of it, that's outsized. So, a lot more to come.

That's fair enough and I appreciate all the insights. Just a quick follow-up. Are you seeing any halo effect on kind of new bookings from Inspiration4?

So, I should probably take that, Jared. Inspiration4 certainly raised the visibility of Shift4 and specifically the Shift4Shop platform, which was our aim. While the marketing and space competition ended several months ago, the production on the Shift4Shop platform has not slowed down. A couple of months ago, during our year-end earnings call, we provided an update on Shift4Shop and mentioned that we expected to reach around 18,000 sites by the end of the year. We thought production would slow down after the end of the competition regarding new merchant sites or web stores, but it didn't, and we ultimately exceeded our expectations significantly. Regarding Shift4 as a company, our visibility of these rates is extending, and we are having conversations with customers that we didn't anticipate before. There is increased attention on the organization. Many people probably didn't realize how significant Shift4's commerce impact was until an interesting new story about it emerged. Personally, and in discussions with organizations I am involved with, whether it's ISV partners or enterprise merchants, we are seeing really interesting opportunities come our way, some of which, like certain investments we've made, would not have been possible without the Inspiration4 topic. I apologize for not being very specific, but I hope this is helpful.

Well good to see. Congratulations.

Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.

Thank you. I have a quick logistical question regarding the comment about merchant growth. It's great to see the sequential increase in the number of merchants. Does this include the Shift4Shop merchant base that you've added? On a related note, I noticed an increase in advertising and marketing costs this quarter. Was that due to additional spending on initiatives like Super Bowl ads or something else?

Yes. I will address the first question, and Brad will handle the second one. If it is an active volume-producing web store, then yes. This leads into the discussion about whether we include these in our guidance and the reason we don't specifically include them. The web store platform operates differently. Our products, serving as a gateway for conversion, generate volume the following day. An established merchant who signs up starts contributing volume within a week or two. However, a new web store, particularly an eCommerce-first business, doesn’t generate volume immediately. It requires several weeks as they develop their product catalog, design their website, and attract customers. So, if volume is being generated, it is included in the overall figure, but I want to emphasize that most of these web stores are not yet generating volume, nor are they expected to since they are working to build their business for the first time.

Let me address the second part about advertising. You are correct. A significant portion of the rebranding of Shift4Shop occurred in Q1. Most of that, including the advertising and marketing expenses, improved slightly over time, but much of it relates to nonrecurring, one-time events in Q4, and you shouldn't expect to see it repeated in the future.

Thank you. I just have a quick follow-up. Jared and Taylor, considering your success with a few deals and your comments about a favorable market for M&A, what should we anticipate over the next 12 months? Are there any near-term opportunities that excite you? Additionally, can you discuss the difference between transformational acquisitions and smaller tuck-ins that you see coming up? Thank you.

Yes. I mean, I'm happy to start this off. Jared here, and then Taylor should definitely jump in because his team keeps a pulse on the various opportunities we're pursuing on a daily basis. But I guess nothing really has changed since a couple of months ago. It's really the same story, which is we have an incredible team of professionals that's out exploring opportunities that I would suspect if any one of them was announced people would say, well that was unexpected because that's kind of our MO over the last five or six years. As we do try and find these off under the radar underappreciated assets that we think we can unlock a pretty substantial integrated payments opportunity inside. And whether that's capability enhancements so we can continue to win share or accelerate share within our current target verticals or an entry into a new vertical like what we did with sports and entertainment with VenueNext or whether it's expanding our reach into new geographic areas, it's all the same story, right? We're just keeping tabs on everything. And I'd tell you that the pipeline has what I would refer to as kind of some of those small-ball tuck-ins transactions kind of similar to the last cancel that we would have announced. And it also has a couple of real transformational kind of game-changer deals. It's just an interesting environment right now where we just don't want to be pressured to make a decision that we're not going to be happy with from a valuation perspective. It's a really interesting climate. So, we're just trying to stay really disciplined on that. And yes, Taylor feel free to join.

Yes. I would actually say, a bunch has changed, not to sort of contradict it but just to present a different lens. We get a heck of a lot more phone calls now. Some of that, I would say, is due to our capital position. I'm sure, and as sort of David mentioned, the notoriety of things like Inspiration4 has raised the profile of the business. There's a heck of a lot in our pipeline that we're evaluating. To be skeptical though, I think if we get a phone call about it we should question what our right to win that business is in an M&A transaction. And our right to win will certainly not be that we pay more than anyone else like, that's just not how we do M&A transactions. So, we continue to invest in the team, which is good so that we don't make sure none of this falls to the cutting room floor that we don't want to. And then we've deliberately tried to be a little bit more pragmatic about opportunities that make a lot of sense from a capital standpoint. But, where us controlling the business is not the right answer for those entrepreneurs. So, we've made two investments thus far, both wildly different. Examples where, quite frankly, I think in the Sightline case it is better for us to be a capital partner and a partnering guidance than it is for us to control that business. It's a massive market. They've got a great opportunity to win share. And so that's sort of the ventures angle that we're taking on this is we can lend expertise. We can come up with commercial partnerships. But cycling the growth of that business by saying every one of your deals is going to come through us is not the right thing to do. So we widened the aperture quite a bit. We've actually maintained discipline in this environment. We try not to get overheated, regardless of the cost of capital on an opportunity.

All right. That really makes sense. Thanks, guys.

Your next question comes from the line of Matt O'Neill with Goldman Sachs. Your line is open.

Yeah. Hi. Good morning, gentlemen. Thanks so much for taking my question here. I just have something you could maybe help us triangulate the $150 million in run rate gateway volumes that you talked about on this call, did you think about how that might compare to the $185 million? Presumably in between you guys have been converting very successfully a lot of that gateway volumes to end-to-end. So, is there any like same-store sales or apples-to-apples way of thinking about like how close that $150 million is back to what it would have been in 2019?

There really isn't. It's the right question to ask. I would just ask yourself is, a basket of – is a large basket of merchants that's predominantly hospitality-focused down 10% year-over-year as a result of the pandemic? Is it down 20%? Is it down 30%? All of those are really compelling arguments to be made. The point we're trying to make with that statistic is it has – we've been very hesitant to talk about our gateway volume, because it is so pandemic-impacted. And I think when you give a low number people start to say, oh, you eroded it all through end-to-end conversions and that's where all your growth is coming from. The reality is our end-to-end volume growth is coming in equal portions from a steady penetration of that gateway volume and lots of new customers joining, albeit at depressed levels over the past year. So, choose your own adventure on this one you could say that, the gateway volume is 10% impacted, you could say it's 40% impacted. And looking out of market research, I could make compelling arguments for both of those things. But what it tells you is, there's still plenty to go. And it is not a flash in the pan. All of our end-to-end volume growth comes from this embedded base of customers. It's what we've been saying all along, which is that the gateway affords you a phenomenal sticky basket of really thoughtful partnerships in the form of ISVs and a nice Rolodex of customers. And those partnerships bring us both. They bring us gateway conversions, and they bring us net new wins. And then hopefully things like M&A and product innovation over time skew your growth towards more and more net new wins in the gateway volume contributes steadily. So that's sort of how we're looking at it. I think to say $150 billion would have looked like x in 2019 is probably not the right answer except that, I would guess it's reasonably impacted still in a month like March.

Yes. No, I fear that was probably going to be the answer. It's a couple of different points to try to triangulate around. I mean, from a high-level perspective would you say it leans more towards that down 10% or down 40% still or somewhere in the middle? Just anything anecdotal will be helpful as we think through like the remainder of the recovery on the hospitality side?

Yeah. This is entirely anecdotal, but I would say, it's down a lot more than that. If you think about the top half of the country in every hotel that sits there, it's – those are down far more than 10% year-over-year.

All right. There are no further questions at this time. I'll now hand the call back to Jared Isaacman.

Yeah. Thank you very much. I appreciate everyone dialing in today to discuss our Q1 earnings, and wish everyone well. Thank you.

Thank you. And that concludes today's conference. Thank you all for joining. You may now disconnect.