Thank you for being on the line. My name is Briana, and I will be your operator for this conference. I would like to welcome everyone to Shift4's First Quarter 2023 Earnings Conference Call. I will now hand the call over to Tom McCrohan.

Thank you, operator, and good morning, everyone, and welcome to Shift4's first quarter 2023 earnings conference call. With me on the call today are Jared Isaacman, Shift4's Chief Executive Officer; Taylor Lauber, President and Chief Strategy Officer; and Nancy Disman, our Chief Financial Officer. This call is being webcast on the Investor Relations section of our website, which can be found at investors.shift4.com. Our quarterly shareholder letter, quarterly financial results, and other materials related to our quarterly results have all been posted to our IR website. Our call and earnings materials today include forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as the result of certain risks, uncertainties, and many important factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our corporate website. For any non-GAAP financial information discussed on this call, the related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me turn the call over to Jared.

Thanks, Tom. Good morning, everyone. We are pleased to report a reasonably strong start to the year, including quarterly results that we believe will put us on pace to meet or exceed our previously provided guidance ranges. We set quarterly records for end-to-end volume, gross revenue less network fees, and free cash flow. Our performance was driven by momentum within our high-growth core, contribution from new verticals, and ongoing success converting gateway volume to our end-to-end service. Our 2023 plan assumed a likely pullback in consumer spending. For the most part, we did not observe any concerning spending trends in the quarter. January and February exhibited typical spending patterns, but we did see spending moderate towards the end of the quarter. Early March was, in fact, strong, including record weekends around St. Patrick's Day, but there was some softness in the last week of March. This does seem consistent with commentary provided by others. We are cautiously optimistic on April data, but the real test will be in May and June, where we would typically expect to see seasonal strength. So while we have positively revised our guidance for the quarter, we are taking into account and watching closely this data. It is important to emphasize that today restaurants represent approximately 40% of our total end-to-end volume, compared to around 55% of our volume back in early 2019. This percentage shift occurred despite growing restaurant volumes and is due to our rapid growth in hotels, new verticals, and larger enterprise merchants to our mix. On that note, we currently have roughly 50 merchants processing more than $100 million of annualized volumes on our end-to-end platform and an additional 70 that are in the addressable gateway-only population. We expect this trend of adding large enterprise merchants either through us converting a gateway customer or simply winning a net new merchant to continue and only accelerate as we expand internationally. This diversification is what gives us the confidence to raise guidance even in the face of what is still an uncertain economic environment. So now on to our quarterly performance and results. For the first quarter, we generated 66% year-over-year growth in our end-to-end payment volume, 36% year-over-year growth in gross revenues, and 34% year-over-year growth in our gross revenue less network fees, which were all quarterly records. Our high-growth core continues to be the primary driver of our growth with an increasing contribution derived from newer verticals such as sports and entertainment, travel and leisure, and gaming. We are very proud of our overall profitability, which is derived from the following four factors: continued momentum serving high-growth enterprise accounts, which require less overhead; growth in new and predominantly card-not-present verticals, which require less hardware; our Gateway sunset initiative, where we are deleting unnecessary parts and properly monetizing the value of our gateway services; and consolidating legacy POS brands and a direct sales model in support of our SkyTab POS program. All of these initiatives have either reduced or eliminated growth CapEx requirements relative to prior years and enhance the overall unit economic model of our services. I will focus the rest of my comments on three areas: our high-growth core; new verticals; and our global expansion initiatives. Starting with high-growth core at Shift4, our high-growth core does continue to be the primary engine of growth. And as a reminder, our high-growth core includes the entirety of our business at the time of the IPO and is our core integrated payments offering built on a library of over 500 mission-critical software integrations and over $150 billion of gateway volume available for conversion as of March. With many years of success executing on this strategy, we are still clearly in the early innings of our gateway conversion sunset and further monetization strategy. Our win rates between net new merchants and gateway conversions along with their associated take rates all remained consistent and stable. A component of our high-growth core also includes our new restaurant POS system named SkyTab. Like last quarter, we have added thousands of new systems with our Q1 volume growing at over 300% on annualized growth rates. We are uniquely positioned in our ability to offer our SkyTab POS across multiple verticals we serve, including stadiums, theme parks, and hotels. For example, this past quarter, we successfully renewed and expanded agreements with two major hotel clients, which also includes them promoting SkyTab in their restaurant locations throughout their franchise. Considering our strong presence in hotels and our close relationship with software companies that serve hotels, we believe this new business pipeline for SkyTab is very promising. Additionally, SkyTab POS capabilities are evolving quickly, and we recently entered into partnership agreements with OpenTable and Restaurant365, the two leading providers of online reservation and accounting software for the restaurant industry. As a reminder, the insourcing of our restaurant distribution late last year was timed to coincide with the launch of our new cloud-based SkyTab POS product offering. This important initiative served two purposes: it substantially improved the margin cash flow and unit economic model of our POS offering by pivoting to a more direct sales model. This initiative not only eliminated a recurring commission expense from existing accounts, but also from all new accounts going forward since we essentially hired 400 of our best partners as a component of the insourcing initiative. So, we basically acquired a costly variable expense and took on additional overhead in markets that we know we’re going to have a lot of demand for SkyTab, the results of which we believe are working out very, very well so far. Second, it also allowed us to gradually sunset several of our legacy POS software brands. This includes Future POS, POSitouch, restaurant manager, and Harbortouch. We basically unified and energized our development, engineering, sales, and service efforts to a single product strategy, which is SkyTab POS. This represents a significant efficiency gain that we believe will play out over many, many years and enable us to continue to grow rapidly without having to add headcount. It also freed up resources and capacity to run the playbook of acquiring another legacy POS software company, cross-sell their customers' payments, and eventually migrate their customers to our modern SkyTab software solution. This is very textbook Shift4. So we are back at it again. We completed an acquisition that has interested us for more than five years. This quarter we acquired a POS software company called Focus POS, which supports over 10,000 restaurants representing up to a $15 billion payment opportunity that are not on Shift4. Focus POS does not have a direct payment processing capability and instead relies on several other vendors, including an existing software integration with Shift4, which allows us to work very, very quickly. By acquiring Focus POS, we've added a major talent in the form of Mike Hamm. Together, we are executing on a playbook that we know very well, which is by owning the software, we plan to bundle payment processing capabilities and over time convert the installed base of 10,000-plus Focus POS merchants to use Shift4 payments and eventually migrate to SkyTab. Like we've shown in the past, we believe this approach represents a very low-cost way to acquire established high-quality integrated payment restaurant customers. As Taylor will talk about in a minute, we believe that Focus POS acquisition will ultimately prove to be an organic revenue and volume contributor in 2024 as we wind down the existing revenue model of the business, moving away from their historic hardware and software license sales model and instead pivoting them towards a payments and SaaS strategy consistent with the comparable deals we've done in the past. In short, we expect minimal revenue and volume contribution in 2023, and our guidance raise can be attributed entirely to Q1 outperformance and a slightly more optimistic view of the 2023 macro picture. Moving on to hotels. We signed numerous signature resorts during the quarter, including the brand new 60-acre resort property named VAI, which is now Arizona's largest resort. Additionally, we signed two large Las Vegas properties, one being a particularly new and notable entertainment center. We also signed Woodloch Spa retreat located in Pennsylvania, and The Lucerne Hotel in the Upper West Side of Manhattan. These signature wins represent a nice balance between gateway conversions and simply net new wins, leveraging the power of our 500-plus unique software integrations. Moving on to new verticals. Our end-to-end volumes continue to benefit from incremental contributions from verticals within our new verticals, which overall still have a long runway before reaching steady state levels. We define new verticals as consisting of all the new end markets we entered into post our IPO, including sports and entertainment, travel, nonprofits, and gaming, as well as volume contributions from international expansion and alternative payment methods. It's worth reiterating that as we continue to expand internationally and partner with international gateways and APMs like PayPal, we may not be directly settling funds for those payment transactions. The impact of which is that our gross revenue and gross revenue less network fees will essentially be the same, bringing this to your attention so you can take that into consideration when modeling future gross revenue in the context of international and APM volumes becoming an increasing portion of our mix. The overall ramp in new verticals witnessed late last year continued into this quarter with a nice uptick in volumes from our stadium and entertainment vertical, including incremental ticketing volumes, travel, gaming, and of course, our strategic enterprise relationships. Our recently announced partnership with PayPal also began to ramp throughout the quarter. In sports and entertainment, we will process all food and beverage volume for the Washington Commanders of FedEx Field as well as the Chicago White Sox, where we will process not just concessions at Guaranteed Rate Field, but all of their parking and retail too. In college sports, we signed an agreement to process food and beverage with the University of Arkansas and Oregon State University. Outside of sports, we also signed all the Six Flags locations in the US for their food and beverage operations, along with a ticketing and payment processing agreement with a popular water park in Denver called WaterWorld and all food and beverage processing for Chicago's Lincoln Park Zoo. In ticketing, we are live with Paciolan, and we are processing all ticketing for the Wells Fargo Center in Philadelphia, including advanced sales for non-sport performances, including the recently announced Alicia Keys summer tour. Now that Paciolan is live, we will now begin pursuing ticketing for college athletics as well, which includes advanced season ticket sales. In gaming, we went live last week in seven additional states throughout our partnership with BetMGM and are currently operating in 14 online jurisdictions. Shift4 also added OCT as a product offering, which is highly desired in the gaming market. Two online operators currently in integration are adding OCT to their go-live, which is anticipated later this quarter. Shift4 signed an agreement with Light & Wonder, the leading cross-platform global games company in the digital and brick-and-mortar casino verticals. Specifically, Shift4 will provide processing for Light & Wonder's Adam product, which is a cashless gaming solution for table games. Adam enables players to access funds via a debit card transaction without leaving the table. Initial support will be in the US, but we are also adding Canada. Moving on to nonprofits. We entered 2023 following a year of remarkable growth in the number of nonprofits joining the Giving Block marketplace despite an otherwise really challenging year for crypto in general. We added over 1,000 nonprofit clients last year, bringing our current roster of nonprofits connected to our donation platform to over 2,000. The pipeline to cross-sell card processing to this space has grown considerably, especially when you consider over 150 nonprofits currently on our platform processed more than $100 million of annual donation volume. As a result, the initial $45 billion-plus cross-sell opportunity we sized when we initially announced the Giving Block a year ago is now well over $50 billion. The $50 billion represents just the donation volume associated with our existing nonprofit customers; the total charitable giving opportunity we're pursuing is over $450 billion. We are still investing in capabilities including smart donation forms, recurring billing ACH, and integrations to important third-party donor management software. We've recently added key enhancements to our products such as stock donations, peer-to-peer fundraising, and donor accounts, all of which we believe will increase our right to win the traditional card cross-sell, which is why we pursued The Giving Block in the first place. I'd highly recommend you check out The Giving Block's 2023 annual report on charitable giving which can be found at thegivingblock.com for more key stats on the industry. Moving on to global expansion. As I've mentioned many times over the last 18 months, we're on a Payments 3.0 journey. We are expanding organically and inorganically all over the world following signature strategic merchant relationships and then bringing all the products, services, and integrations that made us successful in the U.S. into those new markets. To that end, expansion remains our number one capital allocation priority, both in terms of our M&A pipeline and organic investment initiatives. We are still awaiting regulatory approval from bank regulators in Europe regarding our acquisition of Finaro, which remains the final obstacle to get this deal closed. We recently met with the Finaro team in Europe, as well as the regulators, and believe the deal will close in approximately 90 days or less. Unfortunately, European banking regulators have had some high-profile and high-priority matters that have captured their attention in the last few months. We have made great use of this time, though, between signing and closing. Over the last year, we've completed technical integrations between Shift4 and the Finaro platform. We have begun processing live card-not-present transactions and now card-present transactions. We have collaborated on commercial opportunities, international expansion priorities, marketing, and go-to-market strategy, and the consolidated organization and operating plan. We are ready to hit the ground running after closing. In fact, we feel so prepared that we've been able to shift a fair amount of attention to other opportunities in support of our Payments 3.0 priority. Our 2023 guidance does not include any contribution from Finaro, which we will update accordingly following the deal closing. We are currently processing international volume in connection with the PSP we acquired last quarter and also benefiting from their strike-like offering, which is focused on developers and online card-acceptance tools for our enterprise customers. We currently offer these online capabilities now in over 40 countries. Our organic expansion into Canada, the Caribbean, and Eastern Europe is on track to be completed this year. We are exploring a number of M&A opportunities that will expand our reach into LatAm, Africa, and APAC. Before handing the call over to Taylor, I want to provide some additional comments on how we are currently thinking about 2023, our capital allocation priorities, and our general attitude towards success. We have been consistently forthcoming in expressing our concerns about the operating environment, including highlighting our concerns as early as March of 2022. As a result, our guidance and entire budgeting process has been informed by our view that current market conditions will test the sustainability of consumers' willingness to spend. Our upwardly revised guidance assumes consumer spending remains reasonably stable with the low end assuming a mild recession. Given this uncertain climate, we've been laser-focused on controlling expenses and continue to plan for our headcount to remain as flat as possible for the year. Our preference is to take advantage of the recent tech layoffs—including at several companies we admire—to upgrade talent where appropriate. I believe that is the responsible way to navigate the year ahead. Consistent with prior quarters, our top capital allocation priority is delivering on our Payments 3.0 Global Expansion requirements. We have a strong pipeline of opportunities ranging from completely transformational to strategically significant and smaller tactically beneficial transactions. We are generating a lot of cash, ending the quarter with an adjusted net leverage ratio of 2.5 times. Considering our stronger cash position, we have elected to make some small investments in facility upgrades while at the same time closing and consolidating a number of our operating locations. We also began making investments in internal system replacements to include a new sales force CRM, which we believe will improve the efficiency and productivity of our workforce. Considering our strong balance sheet and our present EV to EBITDA valuation being below prior buyback levels, our Board has authorized up to $250 million in share buybacks. While we are prepared to be opportunistic with this authorization, we are admittedly excited about a variety of other avenues available to create shareholder value. As a public company, it's pretty typical to spend earnings calls patting ourselves on the back and celebrating successes. I want to note this isn't the real Shift4 attitude, though. I can assure you, as a management team, we pretty much only talk about the things we don't do well at all. To that end, we are constantly improving our products, customer experience, and internal processes to ensure we are always in a position to win, no matter how challenging the operating environment. We believe that even small incremental improvements can have a powerful compounding effect over time, and we'll get there by following the Shift4 way, which is all about embracing radical ownership, staying flat, taking out all the parts, being procedurally driven, and executing with urgency. This is the way. With that, I'll turn the call over to our President and Chief Strategy Officer, Taylor Lauber.

Thanks, Jared, and good morning, everyone. I'd like to provide some context around Jared's remarks regarding the operating environment and update on Finaro and our capital allocation priorities for the remainder of the year. As a reminder, we have multiple avenues for growth that are unique to Shift4. $150 billion of gateway volume, tens of thousands of software customers who are technically integrated to us but using others for payment processing, an emerging franchise in several new verticals, and very little presence internationally. In pursuit of all of these, we tend to grow in roughly equal proportions, with 50% coming from gateway conversions and 50% being net new customers. Unlike other payments companies, virtually all of our volume growth comes from customer additions as opposed to industry growth. Although, our growing presence in e-commerce and international payments should be a nice tailwind for us. To give you just another way of thinking about the embedded opportunity, if half of our incremental volume growth this year were to come from gateway conversions, we would only need to convert roughly a third of that to exceed our medium-term guidance and still have nearly $100 billion remaining on the gateway. This is without adding a single new customer. For the quarter, our volumes came in better than our internal expectations despite the modest softening Jared mentioned in late March. A notable contributor in the quarter was from our first transactions in Starlink, which we've been discussing with you all for several quarters now. We are still getting familiar with the volume cadence from our new verticals, including the timing for such things as season ticket sales or the total time an enterprise merchant takes to fully ramp their volumes after integrating to our platform. Fortunately, we have several enterprise-level merchants that we now know are still in the ramp stage of their full volume potential. Our blended spreads are a reflection of a growing contribution from new verticals and enterprise accounts. International expansion and alternative payment methods will help balance this spread moderation as we pursue our Payments 3.0 strategy. But you should expect lumpiness as large merchants activate and ramp. Based on our updated guidance, we would anticipate our blended spreads to average around 65 basis points for the full year. It's important to note that several factors may influence our spreads from quarter to quarter. I pointed out one example in large merchants, but evolving seasonality, international business, and APMs all have an impact on the blended spread within a quarter. To the extent volume exceeds our guidance, it is likely that incremental spread may be a little bit lower during one quarter or another. In terms of our trends within the high-growth core, we witnessed the expected benefits from increased travel this quarter from spring break through Easter holiday and had an easier comp in January in light of Omicron's impact a year ago. Spreads across our various cohorts and the high-growth core remained very stable. In regards to Finaro, our team is fresh off the European trip and meeting with the bank regulators. This is the final step in closing. The final step in closing is for our regulators to notify us that our application is complete, which triggers a 30 to 60-day clock for final approval. To date, we have yet to be notified that our application is complete, and our plans are to notify investors either via press release or 8-K upon hearing about this status. Our advisers believe we are still on track to close Finaro by the end of June despite some unanticipated delays. I'd also like to mention that we have been very impressed with the team at Finaro and are excited to have this acquisition close. Once the deal closes, we anticipate providing an update on the expected financial contribution from Finaro for calendar year 2023 and updating our guidance accordingly. Turning to capital allocation. In early April, we acquired Focus POS for $45 million. This is a restaurant software point-of-sale provider with an installed base of over 10,000 restaurants that are not using Shift4. The company is profitable, generating roughly $7.5 million in revenue and $4.7 million in EBITDA in 2022. However, the card payment volume associated with this installed base of restaurants running Focus POS is roughly $15 billion. We anticipate this. We believe this acquisition was completed at reasonable valuations for a stand-alone business, but it actually represents highly attractive customer acquisition costs. We also believe it will further bolster our tech talent and distribution capabilities and provide downside protection due to the existing revenue and profitability. We do not place any weighting to the existing economics in our guidance, because our plan will mean pivoting the existing revenue model towards payments as we convert customers. Over time, this population will have the opportunity to upgrade the SkyTab as well which is what Jared mentioned earlier. As we've been mentioning for a few quarters now, we continue to put distance between ourselves and the competition. We believe our disciplined growth strategy, massive opportunity to convert existing customers' balance sheet, and strong cash flow generation puts us in rarefied air despite the uncertain climate. This attracts both talented candidates and acquisition targets, who see an opportunity to join Shift4 and win at an accelerated pace. We are investing a significant amount of resources towards M&A as a result. The environment for both tuck-ins like Focus POS and transformational deals is as ripe as we've seen in the last decade.

Thanks, Taylor, and good morning, everyone. In the first quarter, we delivered impressive results, including quarterly records for volume and gross revenue less network fees. We also delivered meaningful year-over-year improvement in our adjusted free cash flow, consistent with trends witnessed over the past several quarters. For the quarter, total Q1 volume of $22.3 billion grew 66% compared to the same period last year. Q1 gross revenues were $547 million, up 36% from the same quarter last year, and gross revenue less network fees was $200 million, an increase of 34% over last year. Our adjusted EBITDA for the quarter was $89.3 million, and our adjusted EBITDA margins for the quarter were 45%. Our quarterly results were driven by the continued strength of our high-growth core, momentum in our new verticals, improved economics earned from our gateway customers, and higher unit economics resulting from our decision to in-source a large portion of our go-to-market distribution in connection with the launch of SkyTab. As a reminder, this was a strategic decision to gradually sunset and consolidate legacy POS software brands, and establish a direct sales team to promote SkyTab POS in many major markets. As expected, we continue to add and ramp very large enterprise merchants, which is resulting in lower blended spreads. The blended spread for the first quarter was 66.5 basis points versus 76 basis points a year ago and 71.1 basis points last quarter. The sequential decline in spreads from Q4 to Q1 was driven by the new strategic enterprise agreement signed last quarter with a major hospitality operator and a stronger mix towards lower take rate merchants in our new verticals, against what is seasonally the slowest quarter for our higher take rate restaurant customers. เราคาดว่า the ongoing mix shift towards larger enterprise accounts will average down spreads. And as Taylor mentioned, we would anticipate our blended spreads to average around 65 basis points for the full year, though can vary quarter to quarter. Again, the spread compression is entirely a function of rapid volume growth from our strategic enterprise accounts and new verticals. Spreads in our high-growth core remained stable. We continue to be pleased with our margin expansion. For the first quarter, our nearly 45% adjusted EBITDA margins represented roughly 1,500 basis points of expansion compared to the first quarter of 2022 levels. We delivered this margin expansion despite ongoing growth-related investments, including international expansion, new vertical expansion, the SkyTab product launch, and ongoing talent upgrades across the organization. Additional opportunities to further improve margins are still on the horizon, including the ability to in-source processing for which we spend about $25 million per year. Our adjusted free cash flow in the quarter was $58.3 million and our adjusted free cash flow conversion was 65%, well above our full-year guidance of 52% plus. We are taking advantage of some of our free cash flow outperformance, as Jared mentioned, to consolidate, upgrade and expand our facilities, and to replace our legacy internal systems with more modern sales force-based applications. Capital expenditures for the quarter included $3.5 million towards these initiatives. We remain highly committed to a disciplined approach to cost management while continuing to balance investments to support our growth. Net income was $20.4 million for the first quarter. Net income per Class A share was $0.26, and $0.24 per share on a basic and diluted basis, respectively. Adjusted net income for the quarter was $44.4 million, or $0.51 per Class A share on a diluted basis on 86.4 million average fully diluted shares outstanding. We are exiting the quarter with just over $817 million of cash, $1.8 billion of debt, and $100 million undrawn on our credit facility. Our net leverage at quarter end was 2.9 times, and approximately 2.5 times when adjusted for the contribution of all recent initiatives based on the trailing four quarters of adjusted EBITDA. Our strong balance sheet and free cash flow profile will continue to allow us to invest in the business, pursue our strategic priorities, and opportunistically repurchase shares as Jared mentioned earlier. Turning to full-year 2023 guidance, we are increasing the low end of the range for our KPIs and the high end of the range as well for volumes, adjusted EBITDA, and free cash flow. The increase in our guidance reflects the first quarter outperformance and is tempered by cautious optimism regarding the current operating environment. When we introduced our guidance in late February, we indicated our ranges accounted for a variety of business and economic scenarios which proves appropriate in hindsight given the events of the first quarter. Since introducing the guidance, we believe the macroeconomic climate has only become more uncertain and the low end of our guide continues to contemplate modest headwinds in consumer spending. The high end of our guidance implies a continuation of recent trends. Regardless of the operating environment, we remain confident in our ability to deliver best-in-class growth and profitability among our peer set. As Taylor mentioned, Finaro is not included and we will be adjusting our guidance when the closing date becomes certain. Our updated guidance for 2023 includes total end-to-end volumes of $104 billion to $110 billion, representing 45% to 54% year-over-year growth; gross revenues of $2.55 billion to $2.7 billion, representing 28% to 35% year-over-year growth; gross revenue less network fees of $920 million to $955 million, representing 26% to 31% year-over-year growth; and adjusted EBITDA of $420 million to $440 million, representing 45% to 52% year-over-year growth. We anticipate adjusted EBITDA margins to expand approximately 600 basis points at the midpoint of our guidance ranges, up from our prior assumption of approximately 500 basis points, and adjusted free cash flow to be at least $225 million versus $200 million previously. As a reminder, this guidance does not include Finaro or any other contemplated M&A in 2023.

Thank you, Nancy. And operator, we are ready to take questions. Operator?

Your first question comes from Rayna Kumar with UBS. Your line is now open.

Good morning, Jared and team. Congrats on the new sports and entertainment wins. I noticed some of these wins include food and beverage concessions, while others just include ticketing. What are some of the factors that enable you to gain the ticketing processing as well? And do you see this as an opportunity for some of your existing sports and entertainment customers that you do not currently do processing of ticketing for?

Sure, Rayna. Thanks for the question. This really just comes down to the timing of existing agreements these sports teams or leagues have with existing providers. It's contemplated in our agreements with many of the sports and entertainment venues that we previously announced and going forward to get all of the processing. We have examples where we picked up parking and retail merchandise sales. Ticketing is the prize. Going forward, we'll try and capture ticketing upfront, which should be a lot easier now that we have integrations with everyone, but Ticketmaster as well as with our existing customers that we previously announced, as their agreements roll off with their current providers. It should be an easy switch to flip. I can already think of one other major NFL stadium that we announced probably 18 months ago that since that time, their ticketing agreement has expired and is moving over to Shift4. That should be the pace going forward. It's really just contractual timing.

Got it. Very helpful. You have 24 end-to-end customers with over $100 million in volume or gateway conversions. Can you share what that figure was last year? Additionally, what do you anticipate will be the timeline to convert the remaining 70-plus customers regarding the gateway for the business?

Sure. We don't have a specific count from a year ago to disclose, but I can say that the Gateway sunset efforts we worked on last year contributed significantly to that $24 million. We have publicly noted that we've had increased success with enterprise customers. I would estimate that more than half of that $24 million has been achieved since around March of last year. This gives us greater optimism about the remaining 70, but the outcome will still need to be evaluated.

Yes, Rayna. Just to point out one stat that's also interesting: of the approximately 50 end-to-end customers that we have today processing in excess of $100 million in volume, virtually half is net new wins. We've been rather consistent about this since our time as a public company, that every month, it just seems very close to about 50% of our production comes from net new wins and 50% come from conversions from our gateway. While there's still a massive population of 70-plus on our gateway of 100 million-plus customers to move over, the addressable market is still quite large, and that represents the other half of our production every month.

Thank you. Good morning, everyone. You mentioned a comment on the restaurant and end mix now at roughly 40%. You've also made some directional comments around hotels in the past, and the shareholder letter has a graphic that can kind of get us to a sense of new verticals. I was hoping you could just round it out and just put a little bit of a finer point on the updated end-to-end mix by vertical, maybe just going in hotel, retail, and other, and putting a finer point on new verticals? I have a brief follow-up on the guidance.

Yes. I can take first crack at that and invite Taylor or Tom to weigh in further. We don't have that data in front of us. It wasn't our intention to provide a full breakout by even subvertical within high-growth core. Going back to March of 2022, a year ago, I was on earnings calls saying, look, I don't know how long the $100 stakes are going to last, right? But the exuberance in especially the restaurant vertical has been something we've been expressing concern about for over a year now. Going into the year ahead, reflecting on our guidance, we raised volume a lot. We're more cautious on gross revenue less network fees, specifically because restaurants are the highest take rate contributor to the business. The business is far more diversified. If for whatever reason the restaurant industry starts to have a pullback, Shift4 is far better prepared to weather that now than we were at the time of the IPO.

And I can just layer in a little bit to stack rank it for you. The second-largest vertical in the quarter was lodging, followed by the new verticals and expansion opportunities we talked about. Retail and other has been a very stable contributor. We've got a handful of large enterprise customers. We grow modestly with them and win some on occasion, but it's a pretty stable contributor vis-à-vis all the other components that have been growing over the last few years.

Great. That's really helpful context across the board. Thank you both, Jared and Taylor. The brief follow-up is, I know you mentioned this earlier; I just want to make sure we got it right. The Focus acquisition, the revenue streams there currently would be SaaS and I'm assuming they received revenue share from some of their other partners to SaaS plus a revenue share. But you're including nothing in the current fiscal year 2023 guide, or are you including a small kind of token contribution associated with that acquisition?

So we're including nothing, but let me be specific as to why. Our internal plan for this acquisition is that the revenue contribution is diminished in the year that we acquired it, and the profitability has diminished as well. We want to point out that should the plan not go well as a business, we will contribute on the basis of what we paid for it through the remainder of the year, but that's not our plan. Our plan is to target that customer base to deliver them a much more cohesive and bundled software plus payment solution. To the extent the plan works well, we'd expect that to help us exceed our guidance goals for the year, but we'd like to emphasize that in the short-term the financial contributions of the business will be less than what we outlined they were in 2022.

Yes. Let me just reinforce some points here, Tim, because we've run this playbook three times before in 2017. The first thing that's going to happen is that the 10,000 accounts processing approximately $15 billion from our competitors will have their revenue shares cut off. The business will take some sort of a step backwards. Over time, as Taylor mentioned, we're going to pivot them away from currently selling hardware and software, which contributes to the current revenue model, and moved to SaaS and payments. For sure, if we're successful in converting $15 billion in payment volume from 10,000 accounts over the next handful of years, that will play out in our results, but it is not factored into our 2023 guide, because we're going to take the business a little bit backwards to go forward.

Hey, guys. Good morning. Thanks for taking the question. I wanted to maybe piggyback on that last question. Can you just talk about the sequencing of executing on this Focus POS acquisition? I mean, when you think about one, the financial benefits of converting that into end volume versus the longer-term strategic benefits of future-proofing the business with the SkyTab platform. What does that sequencing look like? Do you do that at the same time? Is it a two-step process? And then longer-term, how do you think about how aggressively to roll out SkyTab to this platform and really to all of the legacy ISV platforms that you have?

So Will, I'll hit the first point and then Jared can walk through the playbook, because as he mentioned this is something we've done in time part of sequencing a transaction like this is we're half of the negotiations. This is one we've been working on for many years in discussion with them. So, the fact that we were able to get it done in April is really exciting, but not necessarily a master strategic plan in that regard.

Yes. In terms of jumping in on the playbook, I mean, in a span of four months, we acquired three legacy POS providers in 2017 and over a span of several years pivoted their model away from one-time software, one-time hardware sales towards SaaS and payments; incredibly successful. Now what's the drawback there to that is, well, you're supporting lots of different software with your support teams and developing on lots of different software. This was a criticism that occasionally bears had over the last couple of years. What we did three quarters ago is sunsetted all those brands and really unified everyone around a single product offering, which is SkyTab. What that did is it freed up our developers, our engineering teams, our service support, our training teams, our marketing teams. You get so many efficiencies. A portion of the team is still supporting those legacy brands, but we've been able to free up some resources to take on Focus POS. So this can't be a total Focus for the executive team or even the senior leadership team. What it is, is a lot of people who were here in 2017 that know the playbook and since a middle management team is going to run with the ball. We believe we've got 10,000 customers, $15 billion in volume of merchants that have gone past their new business failure period, which is usually the first year in business and converting lots of volume over. This would fall into the camp of like nice tactical wins that you can pick up from time to time as part of our broader strategic plan.

Got it. I appreciate that color, Jared. Just maybe a follow-up on that last point. You mentioned around management team priorities and capital allocation. You have got a lot of initiatives going on, distributors and Focus POS, SkyTab, international, and Finaro. Do you guys feel like you have capacity on your management team for additional acquisitions from here, or should we think about this buyback as sort of a near-term stand-in as we digest some of the inorganic initiatives you've got going on?

Yes. It's really a great question. First of all, if you recall the Shift4 way, right the philosophies that I large from a really incredible organization about two years ago and started to bring the Shift4 way. One of the principles there is to take out the parts, right? Reduce the complexity because parts are costly and parts fail. The Gateway Sunset initiative at one point, we probably had 60 different connections we had to invest in and maintain to all of our various competitors. We have multiple different legacy point-of-sale brands that require developing on and providing service and support. We've seen spending in the last two years as we continue to take out parts, which provides a lot of efficiency without necessarily adding headcount. We have far more capacity today than we did years ago. This prolonged period from signing and closing on Finaro has allowed us to arm's length, to the extent permissible by our advisers to work the integration plan. I think we have a lot of capacity. With respect to capital allocation, the Finaro deal is going to close a quarter or two later than what we initially communicated a year ago. Free cash flow is way up, I think we have other priorities that we'd rather deploy capital into, but as I mentioned in my remarks, we're also prepared to be opportunistic with a little more cash than we probably thought we'd have had a year ago and still have plenty of capacity for other inorganic and organic investment; I think that's fine.

Hi, guys. Thanks. Nice quarter. I just wanted to follow up a little more on the international buildout. I know you guys have fortunately been able to do a lot of work to get ready for when the Finaro deal closes sooner than later, to move quickly. Can you help us understand a little more of what that means in terms of what you've done so far, what kind of position you're going to be in when the deal closes, not only with one large customer we've talked about, but just generally the expansion plans you hope to see internationally from leveraging some of the relationships you have in the US and others?

Sure. I'll let Jared hit on the business development aspects of this, but I'll talk about the technical work that's been completed. So as it stands today, Shift4 and Finaro are partners, and we're technically integrated to each other, meaning that should a Finaro customer want to process payment volume in the US and settle that to a US entity, the transaction begins at Finaro, it's routed to Shift4, and settled to Shift4 systems, all in a cohesive platform for the Finaro customer and vice versa for a Shift4 customer internationally. The technical ambitions of the project are largely complete. There's a lot to do on the business development front, and there's a two-pronged set of priorities. There’s executing against the big strategic international e-commerce customers that Jared mentioned, and then there's distributing our products which have made us successful in the US all over the world. Think hotels throughout Europe, think restaurants throughout Europe, etc. The underpinnings of all that technical work are largely complete, and now it's a question of how we drive the business development priorities in what is effectively a new region.

Darrin, there's so much to talk about here. We've had so much time to work. I think we've had like three months since we announced it. First of all, we have way more than just one strategic customer that's processing cross-border between both platforms. We have several now—somewhere in the dozen range—and not an insignificant amount of volume. We've been doing card-present transactions in Europe. We've been leveraging our 500 integrations which help make us special in the US in Europe. For example, one well-known restaurant group operator, hospitality operator I think people have referenced many times in the US, has locations opening in the UK. We have people there testing now so we can turn them live. There’s so much energy going into the post-marriage phase of an M&A deal that we're lucky we’re able to get ahead on because of such a prolonged signing to close process, not to mention the organic initiatives we're doing in North America like moving into Canada and the Caribbean.

I’d also be remiss if I didn’t point out that the Finaro business has performed pretty well throughout this whole timeframe as a stand-alone business. We’re obviously focused on the grand vision, but part of our M&A strategy is to acquire nicely growing, profitable businesses because at our core, we are risk-averse to the fact that we get it wrong. We want a business that has done well on its own before we execute against these ambitions. The good news is that business performed nicely over the year, supporting us especially well, which shouldn’t be taken for granted, given that they are largely cross-border e-commerce. 2022 was a tough year for that.

That's really helpful, guys. Nancy, can I just—I know you mentioned the improved margins and what's going on with free cash flow. I'm curious how we should think about going forward? Are there more levers that we should be able to see over the next year or two? Is it just an operating leverage story now, albeit offset by larger enterprise yields? Just a little more color on that would be great.

Yes. I think it's all of those things. I think the opportunity ahead of us, obviously, I called out the biggest one in the script, which is around processing right. The opportunity to still bring that in-house is certainly on our roadmap. But I think generally that operating leverage, as we continue to go upmarket— I know we talked about this a lot last quarter but the service model right—just a much more efficient model as we're servicing larger customers. That is still playing out in the mix. I think there's still room. We are making some investments as needed for in-house, so some of the nonrecurring stuff you'll see that we called out as kind of one-time. I think as we look at CapEx run rate versus kind of ongoing spread opportunities, we think there is still a little bit more room.

Okay. Thanks, guys.

Thank you.

Thank you, and good morning folks. Good results here. A question I had is within restaurants, can you speak to the sort of the breakout between say QSRs and maybe mom-and-pop diner type places, larger places, hotel restaurants, etc? What I'm trying to get to is to sort of dissect the impact of a downturn across your portfolio. It's becoming a smaller part of total, but it's still your largest end market.

Sure. I'll start and say that we're largely in table service restaurants. They can vary from a single location owner-operated diner all the way up to large multinationals. There is pretty broad diversification around that. In recent years, we've been winning more and more in the upmarket space. A handful of our large hospitality wins over the last year involved the opportunity to market SkyTab into their restaurant locations. We have unique pockets to win in hospitality specifically for the food and beverage vertical. But you want to start with table service and then expect that it's pretty diversified across that table service given the number of brands that we've operated historically in this space.

Understood. And SkyTab, as it continues to increase penetration, what if you could break out the sort of the relative benefits that you get from concentration of the sales effort versus winding down other brands? What are the relative benefits of the various pieces, and roughly speaking, how do you expect that from a cadence perspective to continue to hit your numbers? I know it's a multiyear benefit, but it would help to understand the cadence of the various pieces.

I mean, I’m going to throw a general approximation here. If I had to give a relatively educated guess, I would think nearly 50% of our workforce supports restaurants. It's really labor-intensive for us. I mean with these customers, there's a lot of hardware involved, and in the past, there were commissions and third-party distribution. We've largely insourced that, but you get all sorts of phone calls every month, new tax codes, various counties changing the price of menu items, managers quitting. You got to retrain new managers—all this is very labor-intensive. Imagine that across four or five different legacy POS brands. Now you have to know all these different software solutions really well, and that's not super efficient at all. So when I’ve been pounding the table for the last couple of quarters that we can go into this year staying flat on headcount while upgrading talent and still doing more, it’s because we’ve been able to take out a lot of those legacy-based systems. The actual cost of the hardware to support someone on SkyTab is considerably less. Windows-based POS systems are very bloated and expensive. SkyTab is a hybrid cloud solution, it's Android-based, the hardware is better, more attractive, and less costly to deploy. It also fails less, and the supportability of the product being cloud-based allows for easier management. All of this is to say, we’re in a great position to add new customers and leverage the capacity in the organization because we're not having to support so many different software applications anymore.

Jared, I love the description of SkyTab POS and the advantages that you just discussed. Can you talk a little bit about how you see the evolution path for SkyTab? And should we think about potentially going after some of these bigger enterprise customers with SkyTab as a means of further vertically integrating your solutions against what are mostly legacy installed point-of-sale systems?

Yes. There's so much to talk about there. Let’s start with what is our game plan for just winning net new customers out there, knowing the addressable market is pretty huge. There are really only two players in this hunt and both are going to do really just fine. That’s Toast and us. We certainly overlap a little bit in the middle of the market where we're going to differentiate more is just our access to hotel operators and teaming with hotel property management system providers. Many of our stadiums with mobile ordering and merchandising have their restaurants using SkyTab. We have two major hotel operators with renewed multi-year agreements to promote SkyTab into all their hotel properties. That's a huge advantage because we have the hotel property management system integrations already. This is also a huge opportunity for us because they are assuredly using an older costly Windows-based POS system. I think expanding to the existing installed base can unlock operational efficiencies by deleting unnecessary parts, but this is going to be a journey. We need to be mindful of free cash flow. If we start deploying many SkyTab POS systems to upgrade existing customers, we'll incur some costs in doing that. So we have to balance our existing client base transition from these legacy solutions to SkyTab with being responsible about free cash flow as we look ahead for the next two to three years. Thank you all for joining us on the call today, and we'll talk to you soon.

This concludes today's conference call. You may now disconnect.