Ladies and gentlemen, thank you for standing by. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Shift4 Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I would now like to turn the call over to Tom McCrohan, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning everyone, and welcome to Shift4's second quarter 2023 earnings conference call. With me on the call today are Jared Isaacman, Shift4's Chief Executive Officer; Taylor Lauber, our 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. Today's call is also being simulcast on Twitter Spaces, which can be accessed through our corporate Twitter account @Shift4. Our quarterly shareholder letter, quarterly financial results, and other materials related to our quarterly results have all been posted to our IR website. I'll call on earnings material today to 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 in 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. So, we are pleased with our second quarter results, including how we are positioned heading into the back half of the year. For the quarter, we posted 59% end-to-end volume growth driven by continued strength from our core of restaurants, hotels, specialty retail, along with an increasing contribution from our new verticals, especially in sports entertainment, ticketing, and our growing base of large enterprise accounts. In addition to Q2 performance, we're especially happy with the setup for the second half of the year, thanks to investments that began years ago, including international expansion, along with July trends. To this end, we're raising our full-year guidance across all our KPIs. We feel very good about our year-to-date financial performance and remain on pace to deliver full-year results in excess of what we assumed at the start of the year. We're generating margin expansion as we demonstrate the scalability of the business by maintaining a relatively flat headcount, streamlining operations by taking out the parts and adding incremental enterprise-related volume with no corresponding operational expenses. We're implementing new internal systems. We are leveraging AI and other productivity tools that will further streamline our operations and drive additional margin and free cash flow improvements in the years ahead. In addition to the profitability and free cash flow improvements, we continue to grow very quickly. For the first half of 2023, we generated a 30% growth in gross revenue as well as gross revenue less network fees, in line with our medium-term targets established in the fall of 2021. The midpoint of our updated 2023 guidance implies that gross revenue less network fee revenue growth will average over 30% in the back half of the year as well, especially in the fourth quarter, including strong visibility into enterprise and international opportunities. Companies like Shift4 that are winning merchants and growing payment volumes are doing so because they're adding value to the commerce experience well beyond just the credit card transaction. We had thousands of new customers every month, including busy restaurants, some of the nicest resorts in the country, demanding major league stadiums, theme parks. We've got a Fortune 500 customer this quarter and more. In fact, I believe the customer logos that we are featuring this quarter in our earnings material are the most impressive list yet, which is why we have so much visibility and confidence in the back half of the year. These customers didn't choose Shift4 because we were $0.01 less per transaction, but rather for how we enable a complete commerce experience and in turn provide more value to our merchants. Consistent with past earnings, I will provide some additional color on our core, which, as a reminder, consists mostly of restaurants, hotels as well as our progress in new verticals and our global expansion initiatives. Starting with our core, it remains the primary engine of our growth. As you can see from the various logos in our quarterly shareholder letter, we continue to gain market share in restaurants and hospitality. We win a lot of net new customers, but we are also uniquely advantaged as we capture more wallet share by converting software and gateway merchants through our end-to-end offering. For example, net new wins this quarter include the Fountain Blue Resort in Las Vegas that is scheduled to open this upcoming call, as well as the Virgin Hotels in Chicago, Dallas, Nashville, and the Langham Hotel on Fifth Avenue in New York City. We also captured more wallet share by moving gateway customers like In-town Suites and Uptown Suites, which are two extended stay hotel brands, to our end-to-end platform. We have always served a large and growing portion of the table service restaurant market in this country, but we are especially proud of the growing momentum we're seeing with our new cloud-based POS solution, SkyTab. In this past quarter, we installed nearly 6,500 SkyTab POS systems, including installations in some large venues such as KC Live in Kansas City and Texas Live in Arlington. We've also released a significant promotional campaign targeting these installations. There has been a lot of news this quarter regarding competitors potentially introducing new fees on the restaurant customers. We never considered implementing such fees, and since we don't have to charge more given our margin and profitability profile, we have seen unexpected opportunities and boosted demand for SkyTab that we are beginning to realize now. Our SkyTab restaurant offering has a much lower total cost of ownership and lower cost of acquisition compared to our peers. For a cyclical restaurant processing $1.5 million of annualized volume, our solution is less than a third the cost of our primary competitor, with zero upfront costs. We believe restaurant operators are focused on the total cost of ownership. As we've mentioned many times, there is nothing particularly complex about ringing up a cheeseburger. Thus, we don't depend on pricing power to grow our restaurant business. As we continue to gain net new merchants and take share of a large addressable market, despite balance growth coming approximately 50-50 between net new customers and wallet share gains, we believe we remain a unique story in our ability to achieve growth targets without having to add new customers. Moving on to new verticals, we continue to excel in the sports and entertainment vertical. This past quarter, we added customers such as the Carolina Panthers, Texas Rangers, St. Louis Blues, Toronto Blue Jays, and Purdue University, to name a few. These strong relationships have yielded substantial growth, and we are seeing progressive momentum across all professional and collegiate sports. Additionally, we renewed and expanded the scope of our agreement with a globally recognized brand, further validating the value we provide to our partners. Our technology enhances the entire guest experience, and it's been performing remarkably well. As evidenced by successful integrations, we've completed our collaboration with Ticketmaster, a major accomplishment that adds significant value to our offering. With our acquisition of The Giving Block, we are also engaging the nonprofit sector and have signed several notable nonprofit organizations to our end-to-end platform this quarter. Our pipeline of cross-sell opportunities remains strong, allowing us to expand our reach into other verticals. We have further opportunities being explored stemming from our cryptocurrency initiatives and a burgeoning customer base that has been historically underserved. In gaming, our collaboration with GaN, a top gaming platform, is progressing well. We are also extending our offerings to a Fortune 500 software company to empower their SMB merchants to accept payments. Our partnerships have been driving new volumes, serving clients such as WWE and Inter-Miami Soccer Club just in time for the sales surge from major events. Our focus on global expansion remains steadfast. Shift4 has been present in competitive payments markets for 24 years and is poised for continued growth. We signed an agreement with the European payment platform Finaro and expect to close by the end of this quarter, which will enhance our service capabilities and global reach. We also continue to penetrate Eastern European, Canadian, and Caribbean markets with our SHift4 products. The objective remains to replicate the successful strategies from the USA and implement them internationally. I know I mentioned last quarter, but we continue to work on removing legacy systems, ensuring our organization is efficient, and enhancing its overall execution approach. Every passing day makes us a better, more efficient business, and with that, I will turn the call over to our President and Chief Strategy Officer, Taylor Lauber.

Thanks, Jared, and good morning everyone. I'd like to provide an update on the operating environment, the status of Finaro, and then our capital allocation priorities for the remainder of the year. As Jared mentioned, our primary growth strategy has been adding new merchants, coupled with growing share of wallet within our existing installed base. We possess unique software and technology assets that not only afford us the ability to attract net new merchants but also convert existing customers to our end-to-end platform. The ability to gain share of wallet within our customers extends beyond our gateway, as we have tens of thousands of software customers and restaurants already using others for payment processing. For the quarter, our end-to-end volumes trended slightly better than we expected, largely due to strength in hotel volume and enterprise accounts ramping to full capacity, alongside the addition of incremental ticketing volumes within sports and entertainment. We experienced a typical seasonal pattern heading into the summer holiday period, with an increase in spending beginning Memorial Day weekend that accelerated as vacations began in June through the July 4th weekend. While we remain cautiously optimistic that consumer spending will continue to stay resilient, our guidance does reflect anticipated moderation in restaurant spending. Restaurant spending has moderated slightly, but the decrease is not excess of our early expectations. This moderation has been offset somewhat by better-than-expected trends in hotels, sports, and entertainment. Spreads in our core verticals remain stable, and we've begun to annualize the impact of some of our new large customers with slow spread compression. We anticipate that our blended spreads will average 65 basis points for the full year, allowing for potential upside through international alternative payments and other initiatives. Last quarter, we announced the acquisition of a restaurant POS partner, Focus POS. Since closing the acquisition, we have successfully converted 10% of their customers to our end-to-end platform. As for restaurants, we've added nearly 6,500 SkyTab systems this past quarter. Some competitors have attracted notice with a pricing controversy that we fundamentally disagree with. We have launched a marketing promotion that is generating considerable interest, emphasizing our total cost of ownership advantages and the outsized value our products deliver. Our payback on customer acquisition cost remains within an 18-month timeframe. We are confident this will garner increasing attention towards the SkyTab brand. Regarding Finaro, after more than 15 months in signing an acquisition agreement, we believe we are on track to closing by the end of this quarter, and we are updating our full year guidance to incorporate expected contributions from Finaro. We initially estimated a full-year EBITDA contribution of $30 million for a single quarter of roughly 7.5%. While we did not provide revenue guidance, we did mention that we anticipated Finaro would initially be a drag on margins during the integration period. The extended regulatory review period allowed us more time to work towards our largest deal objectives. As a result, the combined EBITDA margin profile is expected to be better than originally anticipated. We have great visibility towards growth opportunities, especially as we look into the fourth quarter. We're excited to turn the page on our Finaro story. We have SkyTab POS systems in Europe using Finaro's processing platform and are working on our product distribution and support strategy. While we anticipate the typical seasonal increase in Q3 volumes relative to Q2, the timing of new integrations, commercial partners, and international opportunities will lead to Q4 being our strongest quarter. In terms of capital allocation priorities, we are pursuing several M&A opportunities largely focused on international expansion. This includes adding restaurant distribution in Europe to accelerate SkyTab POS’s introduction, along with transformational opportunities extending our presence in other regions. We view capital allocation as a core competency of Shift4. Our disciplined approach to capital deployment is fundamental to delivering shareholder value, as evidenced by our various acquisitions and partnerships. We've been proactive in capital raises, having maintained a favorable weighted cost of debt at 1.35%, with no maturities until December of 2025. We remain well-positioned for the current environment of uncertainty and have the flexibility to move quickly toward businesses that can enhance our offerings globally. With that, I will turn the call over to our CFO, Nancy.

Thanks, Taylor, and good morning everyone. I'll first review our financial performance for the second quarter and then outline our outlook for fiscal year 2023. As a result of our consistent execution, we delivered another quarter of impressive results, including quarterly records for volume and gross revenue less network fees. We continue to balance strong top line growth with disciplined investments, which is reflected in our strong adjusted EBITDA margin and free cash flow conversion. Second quarter volume grew 59% to $26.8 billion year-over-year. Q2 gross revenue increased by 26% to $637 million, and gross revenue less network fees grew by 25% to $228 million year-over-year. Our quarterly results were driven by the ongoing strength of our high-growth core momentum across our enterprise merchants, new verticals, and improved unit economics from our gateway customers. We also commenced the year with improved unit economics within our restaurant channel due to our strategic decision to in-source a significant portion of our go-to-market distribution in connection with the launch of SkyTab. Second quarter gross profit rose by 61% year-over-year to $159 million, resulting in a gross profit margin of 70% for the quarter— over 1,500 basis points of improvement year-over-year. The blended spread for the second quarter was 65.3 basis points, driven by massive volume growth, including contributions from enterprise merchants at lower but market-appropriate take rates. As Taylor mentioned, we anticipate our blended spreads to average around 65 basis points for the full year 2023, with Q3 likely being the low point followed by a strong rebound in Q4 as more international volume and alternative payment methods are incorporated. I want to reiterate that year-over-year spread compression is tied to rapid volume growth from our enterprise accounts, while spreads in our high-growth core, including restaurants and hotels, have remained stable. Total general and administrative expenses increased by 41% year-over-year to $82 million, predominantly driven by headcount growth due to distribution in-sourcing and acquisitions over the past year. We are striving to finish the year with a headcount flat to the beginning of the year. On that note, towards the end of the second quarter, we reduced headcount by 150, in line with our overall talent upgrade initiative, which incurred a one-time severance cost of $3.5 million. We aim to leverage our outperformance to consolidate, upgrade, and expand facilities, as well as replace legacy internal systems with Salesforce and other AI-based applications that should support our flat headcount goals. For the quarter, we reported adjusted EBITDA of $110 million, an increase of 68% over the same quarter last year. The adjusted EBITDA margin for the quarter was 48%, representing over 1,200 basis points of year-over-year expansion. We remain committed to a disciplined approach to cost management, while continuing to balance investments supporting our growth, including international expansion, new vertical expansion, and the SkyTab product launch. Additional opportunities to enhance margins remain on the horizon as we harness AI productivity tools, implement new systems, and streamline processes across the organization to enhance scalability. Our adjusted free cash flow for the quarter was $64 million, and the adjusted free cash flow conversion was nearly 59%, well above our current full-year guidance of 55% plus. It is worth noting that Q2 included a semiannual interest payment of roughly $10.4 million, which may distort quarter-to-quarter comparisons. During the quarter, we repurchased approximately 1.5 million shares, cumulatively deploying over $300 million on buybacks, purchasing 5.8 million shares at an average price of $52 since our IPO. Of note, cumulative dilution and share counts from our IPO have grown by less than 2% over the past three years. Our remaining buyback capacity stands at just over $150 million, and we will remain opportunistic regarding repurchases. Net income was $36.8 million for the second quarter. Basic earnings per Class A and Class B share were $0.43, while diluted earnings for Class A and Class C shares were $0.62. Adjusted net income for the quarter reached $63.4 million, or $0.74 per fully diluted AMC share based on 85.7 million average fully diluted shares outstanding. We exit the quarter with over $725 million in cash, $1.75 billion in debt, and $100 million undrawn on our credit facility. Our net leverage at quarter end was approximately 2.8 times. Excluding the buyback, we would have ended the quarter at 2.5 times net leverage, validating the business's rapid de-leveraging capacity and the capital deployment flexibility our cash flow generation affords us. We can continue to invest in the business, pursue our strategic priorities, and opportunistically repurchase shares. Turning to our full-year 2023 guidance, we're raising the low end of the range for all four KPIs and the high end for volumes, gross revenue less network fees, and adjusted EBITDA. Our updated guidance for 2023 includes total end-to-end volumes of $108 billion to $114 billion, representing 51% to 59% year-over-year growth. Gross revenues of $2.6 billion to $2.7 billion, reflecting a 30% to 35% year-over-year increase. Gross revenue less network fees of $945 million to $980 million, equating to a 30% to 35% year-over-year rise. Adjusted EBITDA is projected at $435 million to $460 million, representing 50% to 59% year-over-year growth. We anticipate adjusted EBITDA margins to continue expanding to over 650 basis points at the midpoint of our guidance ranges, up from our initial assumption of 50 basis points. We also expect adjusted free cash flow to be at least $240 million, above our initial guidance of $200 million. It’s essential to remain cautious about the macro environment and we have reflected this in our guidance ranges, with the low and high estimates accounting for identified and quantified strategic initiatives such as the Finaro acquisition that cannot be precisely timed. Should these initiatives progress more quickly, we foresee an earlier financial impact. Similar to last year, when you observed an increase in activity as a result of new vertical developments, anticipate a notable change with heavier weighting towards Q4 as we execute our strategic plan. Let me now turn the call back to Jared.

Thank you, Nancy. Before opening up the call to your questions, I first wanted to thank those who tuned in to our inaugural simulcast via Twitter Spaces. We may not have had it perfectly dialed in this morning, but we'll be sure to improve for the next quarter. I would like to respond to a question submitted via social media from Krishna Mohamed from Toronto, Canada, who's been an investor in Shift4 since our IPO. The question was, what do you believe is the most challenging aspect of growing the company to the levels of Stripe or Adyen, and what is the path to get there? This is an excellent question. Our biggest challenge represents our biggest opportunity, which is taking the same products and software integrations that have made us successful in the US over the past 24 years and introducing them into markets worldwide. The biggest hurdle is card-present processing capabilities, which is inherently more challenging to achieve on a global scale compared to card-not-present processing. While we admire the advancements made by those companies you named, the level of success we aspire to has not been fully realized. However, this challenge also brings us excitement, as it represents our potential for growth. Thank you, Krishna, for that, and operator, we are ready to take questions.

Your first question comes from Darrin Peller with Wolfe Research. You may go ahead.

Hey. Thanks guys. Nice job on the quarter. I just want to clarify the guidance raise came from a combination of organic growth and Finaro obviously being included for the quarter. If you could help break that apart and let us know what’s contributing from what. Additionally, the magnitude of upside to EBITDA continues to impress. So, when we break down whether it is gateway pricing or operating leverage or how much visibility you have on that front, it would be great to hear.

Thanks, Darrin, Jared here. I think we fully anticipated that question. Let’s discuss Finaro and guidance. A positive development recently has given us confidence in closing that transaction, perhaps sooner than expected, although we said it will be by the end of the quarter. Given this, we felt it prudent to provide guidance so as not to revisit this in a few weeks. We attempted to indicate that we included a good portion of Finaro in our fourth quarter, which allows for some wiggle room because it remains an international transaction. To break down the expectations originally set with the Finaro transaction, I would assume a fair amount of that is due to healthy organic growth, and that’s the key takeaway for everyone. Regarding the ongoing strength of our profitability profile with margin expansion, free cash flow, and EBITDA growth, the recurring theme of streamlining operations is evident. We recognize the significance of legacy software solutions and gateway connections, and that is why we are actively revising them. Consolidating our resources on a single cloud-based solution allows us to generate more business and redirect focus. Programs we implement allow operations to be more efficient, and through integrating new internal systems, we’re future-proofing our organization.

That's progress to go. My quick follow-up would be about the various areas that you're growing your volume and outperforming. Could you give an idea of the breakdown again, whether it's gateway conversion, same-store sales, last year’s anniversary of big clients, or new business?

Sure, high level, and I’ll invite Nancy or Taylor to fill in the gaps. We highlighted that it was another fairly balanced split. If you examine recent wins—the Virgin Hotels and other new ventures—they are net new clients. A significant portion of our SkyTab installations were net new. Our win ratio remains balanced, and this sort of trend will become more evident with new verticals that have not previously represented any gateway conversion. We're experiencing a healthy mix of new customer additions and wallet share with existing customers that see value in our services. I would say what contributes heavily to our success is not necessarily transactional volume but rather the net new customers helped by increased focus on customer integration.

When looking at customer growth, the stats Jared provided are indicative. However, volume growth may be more complex to analyze because larger customers are growing, leading to a strong inflow of wallet share growth as they transition to ticketing and other new verticals. Ultimately, attracting good customers is key to driving sales growth, and with successful integrations, wallet share naturally grows.

Good morning. I wanted to ask a question about the cadence in the back half of the year. I heard several comments indicating growth this year will be back-half loaded. It sounds like that means more incremental growth in Q4. Could you help us understand the sequential expectations from Q2 to Q3, and how do you anticipate the ramp into Q4?

Absolutely, the way you interpreted that is right. It mirrors what we experienced last year. We have various data points that suggest shifts in timing and new integrations expected late this year, especially regarding international expansion and alternate payment methods. As a result, we expect an accelerated growth pattern into Q4, making it stronger than Q3. We're cautious about setting expectations, ensuring we emphasize that our pipeline is robust with incremental opportunities contributing significantly.

It's essential to highlight that historically, Q3 has been a strong quarter for us, but the introduction of new verticals adds complexity to the seasonal profile. Q4 should see these new initiatives produce significant growth returns, resulting in another year of revenue growth for the business.

I just want to reiterate that our growth strategies and trajectory are sustainable, and we have pursued avenues to ensure they remain intact. We've been focused on ensuring the right talent is in place. So I have confidence in our prospects moving forward and where we see the business going.

Thank you. I want to dig into the ticketing aspect. Now that you have Ticketmaster, Paciolan, and SeatGeek in your portfolio, could you share how differentiated that offering is? If anyone else has a similar structure when going into a stadium or a team, providing a complete payments system across venues. Also, is there a revenue share with ticketing ISVs?

Thanks for the question, Tim. We perceive the competitive environment to be robust, particularly in the sports and entertainment sector. We believe our ticketing integrations are market-leading and we have invested heavily in establishing ourselves in this sector. While I can't comment on competitor setups, our partnerships and increasing number of client logos speak volumes about our winning solutions. The ticketing world carries significant volume contribution and our integrations are structured to capitalize on that. Regarding revenue share with ISVs, it varies per deal and per team, with ticketing typically driving significantly higher transaction volumes than conventional sales.

Thanks. I wanted to revisit distribution in Europe. How do you envision that? Are you looking to acquire distribution assets or seeking partnerships in different countries?

Great question, Dan. It can vary by product and service. With our diverse software integrations, large ISVs have the necessary infrastructure for effective distribution already in place. This is highly advantageous for us. Therefore, much of the initiative involves organic investments rather than acquisitions. With SkyTab being our in-house product, we're examining various strategies to bring it to the European market with appropriate support and service.

Good morning. I find slide seven particularly interesting regarding comparing SkyTab versus competitor pricing. Do you see an opportunity to adjust pricing upwards while remaining lower than competitors? Additionally, have you experienced notable upticks in SkyTab sales due to competitor fee increases?

Thanks for the questions, Rayna. First, our focus isn’t on increasing prices; right now, our priority is to take market share. We are aware of industry trust issues and our current promotion is designed to address that. It's more about providing value and establishing our reputation at this moment. We expect demand to rise particularly as we enhance our marketing efforts in the second half. The results from this quarter were more heavily influenced by pre-existing conditions rather than the promotional noise circulating in the industry recently.

I wanted to address the full-year guidance increase related to Finaro. While you’ve raised EBITDA guidance, I want to confirm that the end-to-end volume guidance also includes contributions from Finaro. Can you clarify the organic growth relative to this?

A few disclaimers: we haven’t disclosed Finaro’s seasonality profile, so I wouldn’t simply divide by four. However, the increase in volume guidance does include contributions from our organic growth, the addition of ticketing growth, and transitions from enterprise customers anticipated to activate soon. I want to remain cautious and make it clear we’re being deliberate with how we communicate quarterly forecasts, especially given the nature of Finaro’s recent developments. The number of conversations is increasing, and we've seen more productivity in discussions. The groundwork we have laid for international expansion is starting to bear fruit. Our recent execution strategies have also helped align these opportunities with broader strategic goals.

I wanted to ask about the scalable nature of your expense discipline and maintaining flat headcount. Can you provide additional insights about the Phoenix AI initiative?

Absolutely. We want to maintain headcount as we’ve seen inefficiencies grow during the pandemic from rapid hiring and transitions to remote work. Therefore, we need to ensure that we have the right talent, and our internal systems require modernization. Project Phoenix represents our efforts to update internal systems and leverage AI for greater efficiency and productivity. We’re committed to rigorous talent evaluation practices this year, and we’ll ensure strategic alignment with hiring needs moving forward.

Let's take one final question.

Good morning! Could you comment on the scalability of SkyTab POS and any potential to expand into the integrated payments space?

Great question, Andrew. The scalability of our restaurant POS solutions, especially SkyTab, is something we are heavily leaning to for growth. We are currently maintaining partnerships with Micros while simultaneously marketing our own offerings which position us well. The core of our expansion strategy is aimed at complex, high-volume operations rather than low-cost, entry-level solutions. The demand for our products is strong, and the path forward includes leveraging our extensive experiences as we continue to expand internationally.

I will now turn the call back over to Jared Isaacman for closing remarks.

I appreciate everyone joining the call today and offering insightful questions. I look forward to further discussions in the coming days and wish everyone a great summer!

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.