Shift4 Payments - Q2 2024

Transcript

Darrin Peller (Managing Director)

Greetings. Welcome to Shift4's second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Tom McCrohan, Executive Vice President, Investor Relations. Thank you. You may begin.

Thomas McCrohan (EVP, INVESTOR RELATIONS)

Thank you, operator. Good morning, everyone, and welcome to Shift4's second quarter 2024 earnings conference call. With me on the call today are Jared Isaacman, Shift4's Chief Executive Officer, Taylor Lauber, President, 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 X Spaces, formerly known as Twitter, 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. 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 a result of certain risks, uncertainties, and many important factors.

Darrin Peller (Managing Director)

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. Jared?

Jared Isaacman (CEO)

Thanks, Tom. This is once again a very busy quarter, and I'm reasonably pleased with our quarterly results and the momentum we have heading into the back half of the year. So as a quick summary, we outperformed our financial KPI goals for the quarter. We closed on two acquisitions, Revel and Vectron.

Darrin Peller (Managing Director)

We continued our organic international expansion efforts in support of our very large strategic customer, and we won thousands of new hotels, restaurants, and stadiums here in the U.S. and internationally. So on to the quarterly results. For the second quarter, we generated 50% year-over-year growth in end-to-end payment volume, 38% growth in gross profit, and 41% growth in gross revenue, less network fees. We also generated $162 million of adjusted EBITDA, representing 48% year-over-year growth, as our margins expanded 240 basis points to 51% versus the corresponding quarter a year ago. Our operating margins expanded despite the margin drag from the acquisitions of Appetize and Finaro, which together negatively impacted our margins by approximately 250 basis points for the quarter.

Now, naturally, as synergies are realized, we expect that the drag, the drag from those acquisitions to disappear and contribute to our ongoing margin expansion targets. Most importantly, we generated $76 million of adjusted free cash flow, up 18% versus a year ago. Our blended spreads also remained very stable, coming in at approximately 62 basis points, despite considerable volume growth. Now, with the aim of being a bit more succinct compared to some of our, some of my prior prepared remarks, I wanted to share the following highlights. Now, starting with our core, our signature win this quarter is Whistler Blackcomb, which is part of Vail Resorts, as well as new hospitality properties, Nobu Chicago and Nobu Toronto.

We also signed Pier Sixty-Six Resort, Yosemite National Park, Scott Resort & Spa, Cobblestone Inn & Suites, Amrit Ocean Resort, Deer Valley, Stein Eriksen Lodge, Mount Airy Casino Resort, and the new Live! Casino & Hotel that is currently under construction and scheduled to open next year in Louisiana. You know, I've taken a close look at our pipeline of major enterprise resorts, many of which have never before been on our gateway, and it's nothing short of impressive. So for those that like to poke on our organic versus inorganic debate, these wins represent billions in net new volume at some of the most desirable hospitality locations in the country. And if you're paying attention, we cover a list like this every single quarter.

So now turning to restaurants, which I feel like at times we should not even talk about, because if we were simply known as the toast of hotels and stadiums, we'd probably be more appropriately valued. But the reality is, our SkyTab growth continues to accelerate, with nearly 10,500 system installs in Q2, representing 12% increase quarter-over-quarter. Now, we attribute our SkyTab success to: A, it's a feature-rich cloud product with strong mobile and online ordering solutions. B, it's the lowest cost of ownership, with the philosophy not to charge for every single module and feature. Strong distribution coverage, though we could always use more, between our direct and indirect teams, and a strategy that delivers a low customer acquisition cost through referral programs, lead incentives, and intelligent M&A.

Now, at current Q2 run rates, we will far exceed our 2024 system installation goals. And if you have any doubt about the momentum of SkyTab, just check out our daily posts on X or Twitter. Some of the more notable restaurant wins. And we post those results, like, every day on Twitter, so you can really kind of verify firsthand some really awesome restaurants and new startups. It's really going well. Now, some of the more notable restaurant wins this quarter include Xperience XRG, which is an operator of 11 distinct Mexican restaurant concepts, Alpaca Chicken, which is fast casual with 16 locations. Stanford Hotels, which will now deploy our SkyTab Mobile devices across restaurants at 13 of their locations. Angie's Lobster, which is an Arizona-based fast-casual chain.

The Casa Cipriani Club, located in Lower Manhattan, Il Gabbiano restaurant, Shuckin' Shack Oyster Bar and Group, which is converting 18 of their locations to SkyTab, and Tlaquepaque restaurant located in California. In specialty retail, we added Turner's Outdoorsman, which is a 13-store hunting and fishing specialty store chain located in Southern California and Arizona, and the University Bookstores for BYU and West Los Angeles College Wildcats.

Now, turning to some of our newer verticals, in sports and entertainment, we had a really strong quarter of signings, including the Miami Heat, the Indianapolis Colts, which also includes ticketing, the Chicago Bears, the Indiana Pacers, which has also got ticketing, the Memphis Grizzlies, the Triple-A team for the Oakland A's, which is Las Vegas, the Las Vegas Aviators, and the Lehigh Valley Phantoms, which is the minor league team for the Philadelphia Flyers. We also signed several college teams, including the University of Houston, Boise State, and their famous Smurf Turf, Indiana University, as well as a couple of MLS teams, the San Diego Football Club, the Austin Football Club. Additionally, we signed agreements with the New England Patriots to provide fans with a checkout-free concession experience at Gillette Stadium.

Now, five of these sports teams, as I mentioned, came in with ticketing, but just to reiterate, it's the Colts, the Pacers, Austin FC, San Diego FC, and the Las Vegas Aviators. Now, turning to nonprofits. The overall volume contribution from the vertical has ramped up really nicely this year. So in the first half of this year, we processed more volume than all of last year combined. We expect the second half of this year to be even stronger, given the typical seasonal nature of donations, including during an election cycle, that occur typically in the fourth quarter. And we're really on track to deliver 400% year-over-year volume growth in the nonprofit vertical in 2024, minus St. Jude Children's Research Hospital, which is already a very large, you know, billion-dollar-plus established customer.

Now, the volume growth was driven really by just winning a lot. Our strategy and differentiated value prop as the go-to payment processor for fundraising platforms continues to gain traction and market acceptance. This month, we fully moved all U.S card volume from GivenGain to Shift4 Payments, and we're gonna move their non-U.S volume later this summer. GivenGain supports a variety of high-profile fundraising events. So for example, we're pretty excited to be powering the payments for the Boston Marathon going forward. We also made great progress in our integration with fundraising platform Give Lively, and we're scheduled to go live with our initial merchants by year-end, and we expect volumes from these fundraising platforms to ramp really significantly over the coming months.

So outside of the fundraising partnerships, we've also just signed a lot of impressive nonprofit customers like Malala Fund, Amnesty International, the James Hutton Institute, OSF HealthCare, Migrant Help UK, Centrepoint, and World Vision Canada. Now, moving on to gaming. We continue to roll out our SkyTab Mobile devices at BetMGM Sportsbook locations, and we're now live at Great American Ball Park, which is home of the Cincinnati Reds. Next month, we're going live at State Farm Stadium, which is home of the Arizona Cardinals. And by the end of this year, we're gonna be live in all 24 sportsbook BetMGM sportsbooks locations across 9 states, including the locations located within the casinos in Nevada.

In online gaming, we expand our relationship with Lotto.com for the Massachusetts State Lottery, and signed several new gaming clients, including Prime Sports, where we're gonna offer their platform in the state of New Jersey. We also signed sports wagering platform, JACK Entertainment and Lottery Courier, YoLotto for the state of Texas. Okay, moving on to international. We've made a lot of progress here. So for example, we followed our most important strategic customer into several new markets, including Fiji and our first African country, Sierra Leone. By the end of this year, we expect to organically expand into 8-12 additional countries in Africa, as well as Moldova and countries located in Asia-Pacific, notably Sri Lanka and the Maldives. So we're very pleased with the progress of this important relationship.

We attribute a lot of it to the prior Finaro acquisition, as we're now able to expand internationally in a very organic way. Now, in Europe, we continue our momentum serving electric vehicle charging stations. We're now processing payments in 12 countries serving this vertical. So our right to win in this market is due to our early mover advantage and integrations with multiple players within the ecosystem. Our investment certifying the most EV ready devices, including strategic relationships with various hardware providers and really unique feature functionality to support the electric vehicle use case, like incremental authorizations that we use in our resorts. So today, we have a very turnkey EV charging station solution, and it's no wonder why we're growing so quickly within that lane.

Now, continuing on with our international results, we signed the prestigious Bombay Hotel in Tallinn, Estonia, the Italian jewelry and watch retailer, Binda Group, and German online travel agency, Travel Store, where we'll process transactions for their Holiday Heroes brand in Germany. We also entered into an agreement to process payments for Portugal's Payshop, which is a utility bill payment provider with over 7,000 locations throughout Portugal. We signed KM Air, which is formerly Air Malta. We signed Danish ski equipment retailer, Sportmaster ApS, and Danish LED developer, BMD Trading ApS. We're also boarding over 300 merchants per month in Germany, the Nordics, and soon Italy, through our partnership with Flatpay.

And we continue to grow our wallet share with major European delivery company, Wolt, which is owned by DoorDash, recently adding Albania to the list of more than 15 countries where we power their payments in Europe. Again, these are all newly contracted relationships, and the revenue associated with this laundry list of wins that I rattle off each quarter are purely organic. So moving on to capital allocation. So first, we closed on 2 acquisitions during the quarter that are gonna deliver very meaningful synergies. So starting with Revel, this is a proprietarily sourced transaction and very much follows the Shift4 playbook. So the opportunity includes a massive payment cross-sell, deleting duplicative products or parts, and reducing associated costs, along with arming distribution to sell SkyTab in multiple markets beyond just the United States.

Now, the talent from Revel will accelerate SkyTab capabilities in quick service, retail, and they have some awesome enterprise offerings, along with localization in several international markets that they've already been serving. So a big accelerant to SkyTab. And as we previously communicated, despite Revel having been a cash burner since the company's inception, we expect Revel synergies to contribute approximately $15 million of adjusted EBITDA in the back half of 2024. Now, like Revel, Vectron is another fine example of the Shift4 playbook. You know, proprietarily sourced transaction that we've been working on for some time now. So we recognize this monumental value unlock opportunity in the business. And as I mentioned, we spent 18 months working on this transaction.

Vectron Systems powers over 65,000 merchants, predominantly restaurants, and is distributed by 300+ dealers in Central Europe. The deal delivers a huge install base to cross-sell payments and eventually upgrade to SkyTab. We've got hundreds of distribution partners to pursue restaurant and hospitality opportunities across Europe, and the talent and infrastructure to approach the market at scale. So unlike Revel, though, where we have a more immediate impact on the business, we expect the opportunity with Vectron to develop over time. This is predominantly because of the longer closing and delisting process in Germany. Now, like similar deals in the past, we are definitely gonna take several steps backwards to ultimately sprint very far forward over the years to come.

So it should be clear, though, Vectron delivers a guaranteed path to scale and distribution and has completely de-risked our SkyTab restaurant production goals in Europe. Vectron also positions us to benefit from the anticipated secular shift to card-based payments throughout many European countries like Germany. So as some of you may know, Mastercard just recently called out this opportunity, specifically in Europe, just last week during their Q2 earnings call. And we agree, the overall digitization of commerce is influencing consumer behavior throughout Europe towards a more integrated and digital payment experience, and we are now positioned very, very well to lead that evolution and benefit from it. Also, as mentioned in my letter, we are not gonna sit on our hands and wait for the business to come our way when the opportunity is really obvious.

You know, some of the greatest tech companies were formed by deploying capital intelligently while the market was in transition. I mean, there are literally hundreds of examples that can be found inside Amazon, Microsoft, Apple, Meta, Palo Alto Networks. Even payment companies like Fiserv and their Clover product have benefited from intelligent M&A. So we've delivered a lot of winning transactions. We're very good at it, and Revel and Extron will be winners, and there's gonna be more like them. Second, we did repurchase over $35 million of our equity since implementing our $500 million buyback authorization last quarter, and we have ample free cash flow to fund additional buybacks and acquisitions. So Nancy's gonna talk a little bit more about our leverage and balance sheet in her prepared remarks.

Third, while we have many organic investments underway, we've become increasingly encouraged by recent momentum and have begun making incremental investments to accelerate our progress with SkyTab and our international expansion efforts. Further, it's no secret I would like to see Shift4 become essentially the SpaceX of Fintech. We have been funding major internal system initiatives, including our new Mission Control Center, Project Phoenix, and AI initiatives, where we will endeavor to take the innovation magic and the no-fail SpaceX approach and apply it to our operations all over the world. Now, in terms of investor feedback, you know, we receive a lot of questions and feedback from investors and I've attempted to really answer many of them in my shareholder letter, the earnings presentation, and throughout our prepared remarks.

So for example, this quarter, you should find further explanation of our build/buy partner strategy to capitalize on what we believe to be a massive opportunity as software and payments converges to deliver a superior commerce experience. You should also find a breakdown of our M&A formula, including how we delete legacy parts, blow up the revenue model, enhance the value proposition, and pivot the revenue model towards payments plus SaaS. Taylor is also gonna provide further proof points at this point as he walks you through past acquisitions, including VenueNext and Focus POS. And as mentioned in prior quarters, there are many things we can control in our operations, but oftentimes the timing of enterprise go-lives is beyond our control.

As such, we have shared our contractual backlog of volume, the majority of which is expected to go live in Q3 and Q4, and we use this to sense-check our own projections. Last, we have provided the inorganic contribution to Q2 gross revenue less network fees, along with reiterating that the full year is the full year of 2024 should be well north of 25%.... In closing, for the 11th time in 17 quarters that we've been public, we have positively revised guidance. The guidance update this quarter accounts for the overall outperformance from the quarter, the legacy and synergy contributions from Revel and Vectron, as well as notable incremental investments to accelerate the pace of progress with internal systems, AI, international market expansion, and SkyTab product accelerants.

Now, in the face of some economic uncertainty, I'd like to think our guide demonstrates the strength of our diversified business model and our strategy. So consider this, despite the relentless comparisons, we do a lot more than just restaurants at Shift4. We do not offer capital or funding programs, and we generally target established businesses that have less failure risk. We have focused on an efficient and low-cost customer acquisition model by acquiring overlooked assets and cross-selling our products and services. As a result, we can grow through even the most challenging of economic times, and often without having to win a single new customer. And this is not a believe me story. We have been there before and grown through dotcom, the Great Recession, grown through the pandemic and pullback, and we're gonna continue to do so for years into the future.

We have the most enviable roster of clients and have consistently announced high caliber wins each and every quarter since we went public. We intentionally serve complex merchants in challenging card-present verticals where our platform, product, and software integrations provide an impressive moat. And as a result, we possess a differentiated right to win and have done a pretty good job identifying acquisitions that either extend our technology capabilities for purposes of entering new markets, or just add merchants and distribution capabilities at an attractive customer acquisition cost, alongside equally attractive payback periods. We have a unique playbook and formula that delivers successful results in sharp contrast to our peers. As a result, we are delivering consistently strong growth while expanding our operating margins and generating strong free cash flow.

We have a proven strategy centered around software-integrated payments, and we are well on our way to replicating our success in the USA all over the world. With that, I'm going to turn the call over to Taylor. Taylor?

Taylor Lauber (President)

Thanks, Jared. As in prior quarters, I'm going to spend a bit of time talking about the current operating environment, but I'd also like to talk about our backlog and provide detailed insight into a couple of recent acquisitions to demonstrate how we unlock value from M&A. Starting with the operating environment, we do our best during times of economic uncertainty, and now is no different. Merchant growth and same-store sales performance was generally within our expectations during Q2. It is important to note that despite the constant comparison to others in the industry, we are well diversified, and we've never relied on same-store sales for our growth. This diversification was a commitment we made at our IPO, and has increased our resiliency, even while growing our total volumes at a 75% CAGR in the four years since IPO.

Darrin Peller (Managing Director)

As many of you know, we have been cautious that the $100 steak would not last forever, and it appears that restaurants may be experiencing a mild slowdown. On the contrary, hotel travel, stadium attendance, and retail merchants are all doing reasonably well, and we continue to add lots of merchants. These conditions favor Shift4 as we grow by aggressively taking share across and cross-selling payments and software. This works quite well as our products are competitively priced and have low fixed cost of ownership, which is attractive to merchants. Our strong balance sheet and free cash flow also allow us the flexibility to grow when others are shrinking. We use these times to invest in our business, building, buying, and partnering at a time when many in our industry are urgently trying to prove they can even achieve a modest profit margin.

Jared provided a thorough rundown of the various drivers underpinning the step-up in growth for the back half, and I wanted to highlight our backlog, which is a metric we track internally and helped inform our guidance. Our current backlog is roughly $25 billion in volume. This represents volume that is already contracted but not yet implemented or at its expected run rate. While there can be slippage from time to time, these merchants are either already installed or have an installation that is scheduled in the near term. It is important to realize that this is one of many factors that contribute to our confidence in volume growth for the back half of the year. For example, we signed thousands of restaurants, hotels, and e-commerce customers, nonprofits, and others that will go live immediately.

When you see this number, you should think of sports stadiums and enterprise resorts that have signed contractual commitments, but for a variety of reasons, such as waiting for the season to start or the resort to open, they have not gone live yet. As Jared mentioned, we expect the majority of this volume to be realized this year. Given our recent acquisitions, I thought it would be helpful to provide some insight into two of our more seasoned acquisitions, VenueNext and Focus POS, in order to give you all a little better perspective on how the revenue model for these two companies evolved over time. In short, both companies experienced a dip in revenue shortly after acquisition. This is planned for and deliberate as we transition their models and bundle payment processing and SaaS.

For Focus POS, their legacy revenue model was very dependent on one-time revenue, with about two-thirds of their revenue being non-recurring in nature. As a result, in the first two months post-acquisition, their gross revenue, less network fees, declined about 54% as we executed on our typical strategy of blowing up the legacy model and pivoted to a bundled payment solution. Today, Focus POS' gross revenue, less network fees, is 95% recurring in nature and is 5x higher than their post-acquisition lows and 3x higher than pre-acquisition levels. Because we are bundling services that merchants traditionally use multiple vendors for, they're often saving money and getting a dramatically improved service level... it's a win-win. I'm sure you can see the similarities between Focus POS and Vectron.

Vectron is a business that will take some steps back in revenue and EBITDA for the remainder of the year, but in the spirit of delivering payments plus software value proposition, that should lead to very meaningful revenue, EBITDA, and free cash flow growth over the medium term. With VenueNext, we also took a step back in revenue contribution before taking many steps forward. Legacy VenueNext already had a recurring revenue model built on SaaS, although they did also rely on one-time hardware sales. We were able to complement VenueNext's superior technology with our distribution and offer this end market a bundled payment solution that was very novel at the time. Post-acquisition, VenueNext similarly witnessed a temporary dip in gross revenue less network fees as we transitioned away from one-time hardware sales and towards payments.

With VenueNext today generating gross revenue less network fees that is greater than 7x pre-acquisition levels, of which 90% is recurring in nature. It took some time to educate the markets on the benefits of this bundled solution, and today we are now reaping those benefits. Volume from stadium and entertainment clients was up over 50% year-over-year, with a considerable runway to capture additional share of wallet as we cross-sell ticketing to the installed base. We've put illustrations in our latest shareholder letter to help better visualize the trends mentioned here. In both of these examples, as with the majority of all other M&A, we don't settle our businesses with technical debt, layers of bureaucracy, unnecessary parts.

Focus POS and VenueNext integrated to our payment platform alongside of 500 other ISVs, go to market with a new SaaS plus embedded payments offering and win more in their respective markets as a result. While we talked about a small handful of examples, it's worth noting that the broader opportunity set is growing as well. Our pipeline of compelling opportunities is, quite frankly, larger than it's been at any point in recent history, and we're in the enviable position of being very picky about what we spend our time and capital on. Now, while we've spent a fair amount of time talking about M&A in this quarter, it's important to realize that we don't have to do deals, and we have conviction in our build, buy, and partner approach.

As Jared mentioned, we did not do a single acquisition in our first 15 years in business and grew quite quickly. What we are not content to do is sit back and wait for business to come to us when there is still so much opportunity to accelerate the convergence of software and payments. And with that, I will turn it over to Nancy to discuss our financial results. Thank you.

Nancy Disman (CFO)

Thanks, Taylor, and good morning, everyone. We delivered another quarter of consistent and solid results, outperforming our quarterly guidance and demonstrating, again, our ability to deliver top line growth while continuing to drive margin expansion and strong free cash flow conversion. Total Q2 volume of $40 billion grew 50% year-over-year. Gross revenue, less network fees, grew 41% to $321 million. Our adjusted EBITDA for the quarter was $162 million, up 48%, and adjusted EBITDA margins expanded 240 basis points to 51% versus the same quarter last year. Excluding the impact of the legacy Finaro and Appetize businesses, margins expanded more than 500 basis points.

Darrin Peller (Managing Director)

Our quarterly results were driven by the continued strength of our hospitality and restaurant verticals, momentum across our enterprise merchants, further monetization and conversion of gateway customers, and an increasingly larger contribution from stadiums and ticketing. We see the impact in both our payments-based revenue growth and the increased contribution from SaaS-based fees. Organic revenue for the quarter was 24%, and we are reiterating organic growth to be well north of 25% on a full year basis. The in-quarter contributions from Revel and Vectron were immaterial, given both acquisitions closed in mid-June. Blended spreads for the second quarter and the first half of the year was 62 basis points. Spreads across our core business of restaurant, hospitality, and specialty retail continue to remain stable.

Based on our year-to-date performance and the vertical mix and customer size driving our volume, we now expect full year spreads to average no less than 61 basis points for the full year, up from the 60 basis points floor we provided previously. Subscription and other revenue was $71 million in Q2, up 93% compared to the same period last year. The growth in SaaS and other related software revenue was driven by our success across SMB, SkyTab, and penetrating the sports and entertainment vertical. Growth in subscription and other revenue will not always be linear. This is a good opportunity to remind investors that, as Jared and Taylor discussed, we often blow up the legacy revenue model of our acquisitions and pivot them towards our signature Shift4 Payments field value proposition.

Our continued success in converting Appetize and other software-only clients to acquiring will cause subscription and other revenue to decline and offset some of the outsized growth we are achieving. Additionally, the timing of one-time revenue may cause some bumpiness quarter to quarter. In Q2, total general and administrative expenses increased 34% year-over-year to $110 million. Excluding the impact of the acquisitions, though, completed in Q4 last year, G&A expenses were flat year-over-year. We remain highly committed to a disciplined approach to cost management while continuing strategic investment for growth. As Jared mentioned, we are making incremental investments in areas we see further opportunity, but overall, our goal of keeping headcount flat while investing in talent upgrades remains in place.

We are quickly progressing on the overhaul of our operating model, which will further drive efficiency and scalability across our platform. Our second quarter adjusted EBITDA margins were 51%, representing 240 basis points of expansion compared to Q2 2023. As I mentioned, excluding the impact of acquisitions, margins expanded over 500 basis points. We have high conviction in the many opportunities to further improve our underlying margins that are still on the horizon, including the remaining M&A synergies to be realized from our ongoing integration efforts of recent M&A, utilization of AI technology, implementation of new internal systems, and ongoing streamlining efforts to enhance scalability throughout our business operations. Our adjusted free cash flow in the quarter was $76 million, up 18% compared to a year ago.

As a reminder, Q2 cash outflows include a semiannual interest payment of roughly $10.4 million, which can distort the quarter-to-quarter sequential comparison. Total adjusted free cash flow conversion for the first half of the year is 54%, in line with our expectations. In addition to the timing of interest payments, there will be fluctuations in our conversion rates on a quarterly basis due to the seasonality of our business, the deployment of capital to support growth, and normal working capital cycle changes period to period. Overall, the improvement in our unit economics and efficient operating model continue to give us great confidence in our, our ability to deliver annual year-over-year expansion and our adjusted free cash flow conversion rate in line with our previous guide of 60%+.

I will talk about the slight drag we expect from our recent acquisitions in just a moment with our updated guidance. With respect to capital transactions, in May, our board of directors authorized a new stock repurchase program, pursuant to which we are authorized to repurchase up to $500 million of common stock through December 31, 2025. During the second quarter, we repurchased approximately 230,000 shares for approximately $16 million, leaving approximately $484 million of capacity available as of June 30. To date, in Q3, we have repurchased an additional 300,000 shares for approximately $20 million, and we will continue to be opportunistic. You can find a complete reconciliation of our shares in the back of our earnings materials.

We have cumulatively deployed approximately $350 million on buybacks, repurchasing 6.5 million shares at an average price of $54 since our IPO. Of note, cumulative dilution from our stock-based compensation has been less than 2% per year on average. As employees, we are the largest shareholder of Shift4 and are very thoughtful about managing dilution. Net income for the second quarter was $54.5 million. Diluted earnings per Class A and Class C share was $0.58. Adjusted net income for the quarter was $89 million or $0.96 per A and C share on a diluted basis on 93 million average, fully diluted shares outstanding. Our balance sheet remains strong. Our sequential decline in liquidity is due to the cash purchases of Vectron and Revel.

Our total indebtedness has a weighted average cost of 1.35%, and we do not have any maturities until December 2025. Our net leverage at quarter end was approximately 2.7x. Excluding the impact of lower cash due to the acquisitions we just completed, net leverage dropped to 2.2x, our lowest level since January 2021. The deleveraging profile has been quite extraordinary. Our strong balance sheet, growing EBITDA, and expanding free cash flow conversion afford us many options to fund strategic priorities, opportunistically buy back stock, and satisfy year-end 2025 maturities without being punitive to our equity. Now turning to guidance. We are updating our full year guidance to include Q2 outperformance and the contribution from Revel and Vectron, which both closed on June 13.

As Taylor just elaborated, we expect to pivot the revenue model of both companies to payments as we cross-sell payment processing to the installed base of merchants. For the full year 2024, we are further tightening our guidance range for end-to-end volume and now expect a range of $167 billion-$172 billion, representing 53%-58% year-over-year growth. We are increasing our gross revenue less network fees range and now expect the range to be $1.35 billion-$1.38 billion, representing 44%-47% year-over-year growth. We are also increasing our Adjusted EBITDA range and now expect Adjusted EBITDA to be in the range of $662 million-$689 million.

The year-over-year margin expansion remains virtually unchanged from prior guidance, despite the incremental investments we are making in Europe. We are also resetting our adjusted free cash flow conversion expectation to 59% from 60% previously, to account for the drag from recent M&A. We estimate this yields $399 million of adjusted free cash flow for full year 2024 at the midpoint of our adjusted EBITDA guidance. We continue to expect organic growth of gross revenue less network fees to be well north of 25% at the midpoint of our full year guide, and are also updating our quarterly breakdown of our annual guidance to help investors better understand the impact of seasonality on our business, which can be found on page 22 of our shareholder letter. A couple of call-outs as it pertains to our guidance.

We continue to expect a stronger second half of 2024. A long list of low-hanging fruit, cross-sell payments, and SkyTab, including from our recent acquisition of Revel. Contracted annual volume, volume backlog of about $25 billion, that Taylor discussed, that is already contracted, contracted but not yet implemented or at its expected run rate. SkyTab system installs continue to accelerate each quarter, and we are way ahead of schedule on our 30,000 goal for 2024. Many of the wins featured each quarter, especially stadiums, ticketing opportunities, major enterprise resorts, are seasonally strongest in the back half of the year. Strong progress in Canada, including our signature win this quarter at Whistler Blackcomb and Nobu Toronto. This was previously an untouched market for Shift4. Real momentum in Europe, as demonstrated by the impressive list of hotel and restaurant wins we have shared over the last few quarters.

While it won't be a real driver of the balance of the year, we are really excited about the Vectron acquisition and what it brings. Our strategic e-commerce customer continues to add volume quickly, and we've been expanding organically into several new international markets with at least eight new countries set to go live in the back half of the year. The high end of our volume guide, which we have tightened in light of the delayed Vectron closing and control process, and clearly a consumer that is not at peak spending, would imply seasonal trends consistent with prior years. It is also worth highlighting that we would have raised the midpoint of our EBITDA guide further, if not for the anticipated drag from our European strategy. We have provided an EBITDA bridge on page 23 of our earnings.

For even further clarity, even without the recent acquisitions, we would have raised the midpoint of our guidance to account for Q2 outperformance. Before turning the call back to Jared, I want to reiterate that our balance sheet, cash generation, and profitable growth position us incredibly well for the current environment of macro uncertainty. With that, let me now turn the call back to Jared.

Jared Isaacman (CEO)

Thanks, Nancy. So, before we go to the line for questions, we are gonna take well, it's a multipart question from-- that was submitted over X. So, Tanner Triggs, you're, you've got the lucky pull here, and it's actually, like, four really awesome questions, so I'll try and hit it really quickly. You know, now that we've been playing the kind of the carrot-and-stick game on our gateway business for some time now, what does the future organic trajectory of the business look like? Well, first I'd say, like, the power in our gateway goes well beyond just the volume that's on it. It's those 550+ software integrations that allow us to pursue these verticals that few others can.

Darrin Peller (Managing Director)

So great examples this quarter would be like Toronto, or I'm sorry, Nobu Toronto, Nobu Chicago. They were never on our gateway at all, but they require those integrations. We had the better, better value prop versus the other two that could compete for that business, and we won. But you think about it, our, our whole stadium vertical right now, I mean, you know, we acquired the software, to pursue that, that vertical several years ago, but we bundled it with our payment offering, and we bundled it now with our ticketing, integrations. All of that is, is organic growth. So, you know, we're taking a lot of products and services like SkyTab, which was an organic initiative, and we're, we're growing really quickly in the U.S. with them, and now we're able to do it in Canada and Europe.

So, you know, from my perspective, like, the organic growth trajectory of the business is gonna be extraordinarily long after, you know, the gateway conversion story plays out. You had a couple other things about how easy it is to take our products and services that work in the U.S. into Europe, and that depends. So SkyTab has been in the U.K. and Ireland for some time right now. There's very little localization or fiscal compliance that's required there, versus, you know, it takes more time to localize SkyTab, say, in France, for example, you know, or Germany. But those are all efforts that are underway.

The software integrations that we have that power hotels, for example, say, Oracle or Agilysys, they work in, in Europe the same as they do in the U.S., and they work in Canada the same as they do in the U.S. Our VenueNext software for supporting stadiums is pretty plug and play in Europe. I think that goes to the last part of your question, which was specific to stadiums in Europe. Actually, you have a couple more parts to it, but yeah, we're making great progress. I think we posted on Twitter a cool video of our first stadium that went live in the U.K., and we're working on a pretty badass video for the FC Barcelona go live, which is underway as well.

So I don't think the actual go live process for stadiums in Europe take any longer than they do in the U.S. You just gotta wait for the season to end. And here's the last part, which I think is a good one, is that every now and then, we talk about wins that are kind of outside the core of restaurants and hotels and stadiums. You used examples like the UPS Stores or Fanatics or Self-storage, and kind of like, what's the trajectory like there? And the interesting thing is, these are just businesses that use the same integrations that we use to pursue, you know, hospitality customers. So think about it, big hotels and resorts have retail shops in it, like, I don't know, Caesars Forum Shops and such, and then other retailers use the same software.

So we have a lot of ski resorts. Whistler Blackcomb is a great example this quarter, but we also have a lot of, like, ski shops that use the same software that ski resorts would... and the same retail software that, say, customers in the forum shops use is what UPS Stores use. It might be the same software that Fanatics uses or merchandising shops. So it's actually, like, not really a new vertical for us. It leverages the same integrations that we use to pursue our hospitality line of business. And I appreciate those questions. We'll go to the analysts.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question. One moment while we poll for questions. Our first question is from Darren Peller with Wolfe Research. Please proceed.

Darrin Peller (Managing Director)

Hey, guys, thanks. Maybe we could just start off looking a little bit more at the acquisition contribution and then a little more on the strategy and roadmap of how to, you know, your plan to really monetize and make the most of those. And so I know you talked about, you know, some of the guide increase being $15 million or even about $35 million from revenue from acquisitions. Can you just explain the margin dynamics there first from Revel and Vectron? And then more strategically, Jared, can you just hone in a little more on the roadmap on how to really, what your expectation on milestones are to monetize those in terms of moving some of that software over and moving it over onto payments, and some more, maybe a little more color on the timeline of how you could monetize those deals. Thanks, guys.

Jared Isaacman (CEO)

Yeah. Hey, Darren, Jared here. Let me, let me kind of start out with some of the, the high-level points, and then I'll, I'll kick it over to Nancy to, to get into any of the specific, you know, margin drag dynamics. So, I mean, first of all, I, as we've kind of demonstrated in our earnings reports with the, with the Focus POS and, and the, VenueNext look back, we, we do take a very quick and, and deliberate approach to pivot the business model of the, of, of these type of acquisitions. So oftentimes it's forgoing hardware, software revenue. Even SaaS revenue, we'll, we'll throw away if it accelerates a, a migration.

Darrin Peller (Managing Director)

So keep that in mind, I'd say, especially with respect to, you know, to Vectron, which probably looks a little bit more like, you know, some of the deals that we have done in the past, where, you know, a heavy concentration of kind of more one-time revenue that can go away very, very quickly, when you pivot strategies. Now, let's start with Revel right now. So we said last quarter when we announced that deal, that we expect a $15 million contribution for the back half of the year. You should assume almost all of that's coming from cost synergies. You know, Revel was very much a, you know-

Okay.

Jared Isaacman (CEO)

a tech, tech startup, big, big cash burner. You know, we say that we go in very, very deliberately. We burn the ships so that we can focus on the future. The future is SkyTab in our world. So, you know, that isn't to say that we don't see a huge opportunity from the 18,000 customers that we're gonna cross-sell payments and eventually move to SkyTab. But these are bigger chain customers. That's gonna play out over some period of time. The immediate move is to say, "Look, we're not actively developing in Revel anymore," and that's some big cost synergies there. That's why I think some people had some questions, "Hey, you've got $15 million of EBITDA coming from this thing.

Darrin Peller (Managing Director)

Where's the volume associated with it?" Hey, we're not really baking that conversion process in right now.

Right.

Jared Isaacman (CEO)

It'll play out over a couple of years. Now, with respect to Vectron, this is where you're gonna definitely take a couple steps backwards as you pivot the model. This is gonna take, like, this isn't gonna play out over two years or something like maybe a Revel would. This is a story that's gonna play out over 10 years. You know, you have 65,000 customers that are, they're gonna be a shoo-in for payments in Europe. You're gonna have 300+ distribution partners that are gonna sell, you know, SkyTab all across Europe, but that, this is all gonna take some time to play out. We don't even have full control over this company based on just the, the delisting process.

Darrin Peller (Managing Director)

So hopefully, that gives you a little bit of sense of where the puts and takes are, where you get some drag from, from some of these businesses, you know, where it can even impact a little bit of free cash flow when you go negative on, on, say, like a Vectron, but where the opportunity will play out much, much greater over the years to come. And Nancy, I don't know if you want to add on the margins.

Nancy Disman (CFO)

Yeah, I think what I would add is to understand, we certainly spent a lot of time looking at this, and I would say the best proxy for consolidated gross margin for the year is Q2. I expect on an all-in basis for it to look very similar to what you're seeing in the quarter, with puts and takes of obviously new drag from Revel and Vectron, and we continue to synergize deals, you know, with Finaro and Appetize since last year. So think about the synergy process as that will sometimes take more than 12 months. So even though we're lapsing Finaro, we are certainly still doing lots of integration work there.

Darrin Peller (Managing Director)

So that's how I would think about it, is this thing is gonna get a little more complicated, obviously, with our acquisitions are kind of blowing up one model and getting them to convert over. So I think starting to give, like, a good proxy for what to expect the back half of the year, Darren, is probably looking at exactly what we achieved in Q2.

Okay. That's really helpful, guys. Very, very helpful clarification.

Jared Isaacman (CEO)

Sorry, Darren, I remember it's the first part of a longer question, so I wanna make sure we address it. Nancy, do you mind commenting on the, it, it was de minimis, and I think we said that, but just further clarification on revenue contribution from Revel and Vectron in Q2.

Nancy Disman (CFO)

Yeah, for sure. I think that's why we wanted to put out the 24% organic, because remember, we only had two weeks, and, we're talking about something completely immaterial for Q2, so I wouldn't even think of them-

Darrin Peller (Managing Director)

Right.

Nancy Disman (CFO)

- as a contributor for the quarter. And certainly, when you, when you look at the, at the guide raise, you know, we tried to contemplate, the benefits going into the back half of the year.

Darrin Peller (Managing Director)

Okay. That's really helpful. And very quickly, the backlog was really helpful to get, guys. Just considering that gives you a lot of idiosyncratic reasons to be confident on the second half. Just any macro conservatism built into the outlook at this point, or I mean, I know there's some in terms of same-store sales on certain verticals, but maybe just comment on that, and I'll turn it back to the queue. Thanks, guys.

Taylor Lauber (President)

... Yeah, sure.

Nancy Disman (CFO)

Yeah. You know, certainly when we built the original guide, and I think some of the pull down on volume when we tweaked it a little bit, we were thinking about that we knew the glory days were not coming. And, you know, we've been talking about, you know, the prices of the stake were gonna bust up at some point. So, the way I would think about it is, we pulled down the high end, knowing that we wouldn't have kind of any upside. We definitely considered that in the macro. And generally, when we put our low out to begin with, we had some conservatism there. But generally, coming out of Q2, you know, we had a really solid same-store sales.

Darrin Peller (Managing Director)

While we're seeing some softening maybe in early July, it's definitely offset from, like, really solid performance across the other verticals. Right now, I think we're just kind of holding, kind of holding steady for now, from a midpoint perspective.

All right. Great results, guys. Thank you.

Jared Isaacman (CEO)

Thanks.

Operator (participant)

Our next question is from Dan Dolev, with Mizuho Securities. Please proceed.

Speaker 8

Hey, guys. Hey, Jared and, Taylor. Really good results here. I have a quick question about the volume. Can you maybe clarify what drove the volume reduction to the full year guide? And maybe give us a little bit of your sense of confidence into the macro in the second half. That would be great. Thank you so much.

Jared Isaacman (CEO)

Yeah, I mean, I can start that one off. You know, Nancy, she kind of mentioned in her last remarks, but it really was driven in two parts. One of which is, when we put out our volume bridge last year, we put a big slug of restaurants and hotels in Europe in it. And for as much progress as we are making, we're announcing awesome wins every quarter. You know, we didn't have the 65,000 customer layup, you know, that we will eventually have control over in the balance of this year with Vectron. So I think just like, you know, there is some delays in getting to the thousands of restaurants and hotels that we were hoping for this year.

Darrin Peller (Managing Director)

The other part is, Nancy mentioned, is like, just the good times aren't rolling anymore. So when we initially set a volume guidance at the beginning of the year, you know, we said the upper end is that the, you know, the $100 steaks continues, though we're always cautious that that will have, like, real staying power. So I think that's just prudent to just to tighten that up. I will say, generally speaking, on the macro, look, we have grown, you know, double digits in volume and revenue our entire history of 25 years, and there's been a lot of downturns throughout that period. If you're growing volume at the pace that we are, it's not to say like, you know, 3% reduction or something in same-store sales and restaurants isn't a factor to consider. It certainly is.

And believe me, if there's a restaurant, I think it's all bets off. I, I mean, I'm sorry, if there's a recession, I'm sure it's all bets are off for everybody at that point. But from our perspective, like, how we're hitting our volume targets is doing smart things, you know, like, you know, Vectron and Revel, where I guarantee you it will be a hell of a lot easier for us to predict where our next 65,000 customers are coming from in Europe than it will be, say, for somebody else who's just beginning to enter into that market. And, and that's how we have, like, just greater control over the, the volume trajectory of the business versus, you know, trying to underwrite down to the, you know, the 100 basis points on a, on a same-store sales movement.

Speaker 8

Got it. A really good quarter. Thanks again, Jared.

Operator (participant)

Our next question is from Timothy Chiodo with UBS. Please proceed.

Timothy Chiodo (Managing Director)

Great. Thank you for taking the question. I wanna hit on the stadiums and ticketing wins. There was a really strong list of adds this quarter. Many of them you noted, are already starting with ticketing from day one, and you've mentioned also the ongoing cross-selling opportunity. I think a lot of that has to do with the integrations that you've made throughout the ticketing ecosystem with numerous platforms, I think basically all of the major ones. But the question really comes down to that rough TAM. I believe it's in the $100 billion or so range for the US. Maybe you could update or correct that number if I'm off.

Darrin Peller (Managing Director)

And give us a sense on what portion of that you're working with in some way, whether it's only on ticketing or only on concessions, but how much of that do you think you've already achieved as a part of that, again, let's call it roughly 100 billion TAM? And then, if you don't mind, after, I have a quick follow-up on mix.

Taylor Lauber (President)

Yeah, sure. So, good morning, Tim. This is Taylor. I'll cover that. I think very important to distinguish the two concepts, market share versus wallet share, especially in these, like, stadium environments, where the revenue centers are very fragmented in many regards. So, we feel really good about our market share, by... And these numbers can vary, but you know, whether it's two-thirds or 75% of the stadiums and theme parks in every league in the United States, we have a customer relationship in some way, shape, or form. It's a minority of those where we have kind of the holy grail, which is the entirety of the stadium plus ticketing, as you mentioned. But that is the most common of the offerings that we go to market with now.

Darrin Peller (Managing Director)

It's probably the most common of the offerings that's taken from, let's say, a hypothetical Appetize stadium, moving over to VenueNext. So we're really enthused, and quite frankly, our customers see a ton of value in giving us, you know, the bulk of the revenue center management and ticketing inside of that. I think the harder part is that the volume comes in reasonably choppy when you do that. At least it takes kind of a year, maybe two years, to fully season. And the example I would give is, you know, we acquired Appetize in the back, just before the last quarter of 2023, and we have been installing more stadiums in a month on VenueNext than we have in our busiest quarters in any other year.

So pace of installation has been incredible, but from a revenue and volume standpoint, you won't see that until the sports season starts up. And then in the case of ticketing, usually the bulk of ticketing happens after the season when they sell season tickets for the fall.

Jared Isaacman (CEO)

... We feel really good about our market, our market share. We feel really optimistic about the ultimate wallet share. I'd, I'd say the choppier part, and this has kind of led to, you know, a back half weighted, you know, volume expectation throughout, throughout our guides through the year, is just that, cadence of that.

Timothy Chiodo (Managing Director)

Excellent. Thank you for that. The brief follow-up is kind of a pie chart question. So in the shareholder letter, you mentioned that now you're at about a third of volume, 33% from hotels and resorts. If you wouldn't mind just updating what the rest of that pie chart might look like, meaning how much of that is restaurants, stadiums, et cetera, based on the existing base of end-to-end volume?

Jared Isaacman (CEO)

Yeah, sure. We love this. It's about a third, a third, a third, meaning that you've got restaurants, hotels, and then all other. All other would include stadiums, but it also includes specialty retail, things like Jared mentioned, our big strategic customer, et cetera. You know, as I mentioned in my scripted remarks, we made a deliberate commitment at the IPO to diversify the business, and that's, I think, paying some dividends today. We do see a modest amount of softness, as Nancy mentioned, very recently in restaurants, but we're seeing none of that in hotels, and we're seeing kind of, you know, continued spending across all these other verticals. We've got a handful of merchants that are growing really nicely inside of that all other bucket, which is great.

Darrin Peller (Managing Director)

It offsets kind of any expectation you'd have in the macro.

Timothy Chiodo (Managing Director)

Perfect. Thank you for taking both.

Operator (participant)

Our next question is from Will Nance with Goldman Sachs. Please proceed.

Will Nance (VP)

Hey, guys, appreciate you taking the question. I wanted to ask just on the gateway revenues. I know you guys had discussed kind of like a kind of non-standard gateway conversion towards the end of last year, and, you know, we saw the, you know, I guess, what we call the gateway revenues in the model, like, coming down over the last couple of quarters. I think we got to, like, $1 million or so this quarter. So just, could you update us on sort of where we are in that journey? And then just, like, clarifying, because those revenues appear relatively low now, relative to the large base of volume. I realize it's really low take rate, but just kind of making sure that we're understanding the kind of the economics as they exist today on the existing gateway volume.

Jared Isaacman (CEO)

Yeah. Hey, Will, I'm happy to take that. So there is a-- There is still a very large quantity of volume that is still there that we make very, very little off of. So, you know, these are some very big customers that, you know, go back to the First Data, JPM JVs, with very long contracts, with lots of price protection at very low rates, because during that JV, they chose to monetize the relationship upstream from the gateway. So we're still working through it. It's a lot of volume. There's certainly a lot of, like, low-hanging fruit in there still to get, smaller customers that contribute to our growth every single quarter. But there's a lot of big ones in there as well, and there has been for some time.

Darrin Peller (Managing Director)

And we are very incentivized to cut deals to get them over so we can start sunsetting connections that we don't wanna upkeep anymore. So I think, like, every quarter that goes by, we are more incentivized to wanna, you know, delete those old parts. Like, we maintain a lot of infrastructure to Heartland, GPN, Fiserv, Worldpay. But yeah, it's a lot of volume at, like, ridiculously low take rates in there. So that should represent some opportunity, 'cause literally any deal that we cut with them should have some, you know, some uplift, and obviously, it would almost be like 100% flow through because we're doing a lot of support for those customers.

Taylor Lauber (President)

And Dan, we also try to illustrate this in our shareholder letter. You'll see kind of tags next to a bunch of the different wins that were gateway conversions. As you know, that pulls down gateway revenue, but much to the benefit of end-to-end, you know, volume and revenue. So, you know, it's, it's been a very consistent funnel for us. I wouldn't try to imply in any way that a reduction in revenue there, you know, mitigates meaningfully our opportunity set.

Will Nance (VP)

Yes. No, that all makes, that all makes perfect sense. And then I guess the second question is just on SkyTab. It seems like the momentum there is really strong and obviously adding lots, lots of more opportunity with some of the acquisitions that you just did. So just any color, I guess, broad strokes, where you are seeing the traction and the deployments, whether that's through direct sales channels, through, you know, the existing indirect channels that you still have, as well as if there are any call-outs around some of the acquisitions you've done over the past couple of years. Where are you guys seeing the most success in deploying the SkyTab platforms?

Jared Isaacman (CEO)

Yeah, well, so happy to hit that. I mean, it's whether it's direct or indirect, it's entirely a factor of just that, where you're at in the country. So we already, back in 2022, summer of 2022, so more than two years ago, we already insourced all of our partners in the markets that we wanted to have a direct presence in. So you'd find... We haven't done any insourcing in two years, so we said those were markets that we were pretty committed to. A lot of production comes from there. And then more on the West Coast and Central U.S., more sparsely populated areas, that's where we have third-party distribution because it's just we'd rather have the variable cost in that case than the fixed cost.

Darrin Peller (Managing Director)

I'd say in the UK, for example, in Ireland, we have a small direct team. We also have a couple partners, and we're just kind of really learning the market there with them. But you can see the... I mean, you can see the results, you know, as we post them on Twitter and X. It's like, covers the gamut every day, from startups to, like, really beautiful restaurants. So we love the traction. There is no- you know, in terms of the legacy brands, you know, going back to 2017 that we acquired, like we deleted those parts. There is no future POS production or Harbortouch production or POSitouch production. Like, everything is SkyTab and has been essentially for two years now.

Will Nance (VP)

... Makes sense. If you don't mind a follow-up, I guess when you, when you think about those legacy brands and the ones that the customers that you've had on the platform for a really long time, I guess, what's sort of the mix of, like, back book conversions versus kind of net new sales?

Jared Isaacman (CEO)

Yeah, I mean, it's almost all net new. So, you know, I think we've said a couple of times over the quarters, we're enhancing our Lighthouse product, which is our business intelligence platform, to have a, I don't know, kind of like iPhone 15 upgrade path. You now qualify for SkyTab and kind of click here, and we transfer your database over. It just has to be done in a, in the most automated way possible, so it's not a lot of manual programming. So we have only by policy, been doing SkyTab upgrades to the existing base for retention purposes, which represents like a very, you know, a very small, very, very small percentage of production every single month. The reality is, like, we do.

Darrin Peller (Managing Director)

We do have, you know, tens of thousands of existing customers on our other products that we will migrate over the next couple of years. It'll just be done, like, thoughtfully over a couple of years through a, a relatively automated path.

Will Nance (VP)

Yeah, makes sense. Appreciate you taking the question, Jared.

Jared Isaacman (CEO)

Yeah.

Operator (participant)

Our final question is from Andrew Schmidt with Citi. Please proceed.

Speaker 8

Hey, Jared and team. Thanks for taking my questions. I was wondering if we just level set on the restaurant business for a minute. Maybe talk about just, you know, where you're positioned. Obviously, there's a lot of variation in terms of assets out there. But, you know, QSR versus table service, you know, post Revel, where are you guys positioned on a go-forward basis? Thanks a lot.

Jared Isaacman (CEO)

Yeah, it's a good question. I mean, we've always, you know, said for some time that people, I think, are, they actually think the restaurant TAM might be a little bit bigger, when in reality, there's like, very, there's three very distinct swim lanes in it, and they have their own kind of competitive set, so, or, you know, competitive landscape associated with it. So in terms of your cash and carry, that's your, you know, your coffee shops, your bakeries and such. That is, that is Clover and Square. And essentially, that is it. Then you have your fast food, which is Par, Xenial. Revel did play in that lane a little bit. And then you have table service, and that is really just Toast and Shift4.

Darrin Peller (Managing Director)

So I would say the Revel acquisition did give us some interesting capabilities where they have some retail functionality in it that we wouldn't have otherwise built. They have really solid fast food and enterprise capabilities. So we're just engineering that into SkyTab. So, I mean, we already said, like, the $15 million of EBITDA came from cost synergies. We're not building on that product anymore. There will never be another new feature that goes into Revel. We'll certainly upkeep it as we eventually migrate customers over to payments and SkyTab, but all our dev efforts have been steered towards SkyTab, including the Revel resources and talent that we've held on to. So we are building in those same type of Revel enterprise, quick service and some retail capabilities into SkyTab right now.

I think for the, you know, for the next year and change, like you would continue to expect Revel to or SkyTab to excel within the verticals that we focused on, which is table service. But I do expect a year from now, we are gonna be able to move into some of those, some of those other lanes.

Speaker 8

Got it. Thank you for that, Jared. And then maybe expand on the, just the internal systems work. You know, does that obviously, there's an efficiency component, but there's also an offense component in terms of being able to build faster, go to market faster. What does the internal systems work bring you in terms of tying everything together? Thanks a lot.

Jared Isaacman (CEO)

Oh, so much. I mean, this is... I, I love this because, like, so look, we're a 25-year-old company that started in my parents' basement. Our, our first CRM, which is- which was largely in use up until a year ago, was homegrown. Like, it, you know, it started in Access and SQL, I mean, and bolted together through so many years. And then, of course, we have done a handful of acquisitions, and some of them have a homegrown system or CR- or CRM. And you find your employees, just from an efficiency perspective, are touching like, eight different, eight different systems. It's not a great foundation to work on. It means you're carrying a lot of extra personnel to do all the things you need to do every day, as fast as you possibly can.

Darrin Peller (Managing Director)

So we kicked off almost like three years ago, we call Project Phoenix. It's like a full rip and replace of all of our internal systems. It's built on Salesforce and Palantir, and it's going well. Like, we constantly pump out new modules. Commercial team rolled out with it a long time ago, and now our new ticket system is all being generated from it. And I think it's important, and this is like the foundation for so much more. Now we can run AI solutions for, like, fast building POS menus. That saves efficiency, or that's time to install, like, time to revenue for getting the systems out in the field, but also unlocks a lot of efficiencies.

We're building our whole mission control system, so that's like our no-fail operations all over the world. So when you're having go-lives in Europe at the same time as the US, it's monitored in a very, like, proceduralized environment, just like I've seen in other industries. So this is an important foundation we must have, and I think a lot of this goes to the eventual margin expansion that Nancy talks about all the time, is like, people probably don't appreciate how much personnel we have. We have 3,500 employees that upkeep a lot of old things, whether it's old POS products, old internal systems, gateway connections to our competitors, that as time goes on, you know, we delete those parts and then can repurpose that talent to move even faster at new business.

So it's like this way that we can keep headcount flat while accelerating growth and improving margins. It's pretty cool. Want to add on that?

Speaker 8

I think you got it well. Thank you.

Jared Isaacman (CEO)

Cool. Appreciate that question. I'm pretty, pretty excited about those two projects. Well, look, hey, thanks, everyone, for dialing in. I know we'll catch up with some of the other analysts shortly on our next call. But yeah, thanks for dialing in and take care.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.