Shift4 Payments - Earnings Call - Q2 2025

Transcript

Speaker 4

Greetings. Welcome to Shift4 Payments' second quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to Thomas McCrohan, EVP Investor Relations. Thank you. You may now begin.

Speaker 0

Thank you, operator, and good morning everyone, and welcome to Shift4 Payments' second quarter 2025 earnings conference call. With me on the call today are Taylor Lauber, our CEO, 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.

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 Taylor.

Speaker 3

Good morning, everyone. Thanks for joining the call. While I will hit our strong Q2 financial performance in a minute, these past few months are illustrative of so much more than that. The Shift4 team has accomplished more since our last earnings call than we have in entire years prior. More importantly, they've done it well and without compromising the day-to-day. I'm truly humbled to get to call myself their colleague. Just to name a few of our accomplishments and wins this quarter, we successfully diversified our capital structure with a $3.3 billion capital raise in May, which provided both the funding for Global Blue and also retired nearer-term debt maturities. We are beginning to hit our stride in several European markets where we can now sell a broad suite of products, be that restaurants, hotels, sports and entertainment, unified commerce, etc.

We streamlined our onboarding systems, allowing us to board over a thousand new merchants per month in Europe alone. This is just the beginning. We signed a pending acquisition of SmartPay, which essentially lets us capitalize on our leading products in restaurants, hotels, sports, and entertainment by adding an incredible distribution network. Those who have followed previous acquisitions like Vectron know this playbook well. In Canada, we continue to expand our presence and win in the verticals we serve best. We are powering payments at the Canadian Tennis Open, which is currently underway in Toronto. Jared moved into the role of Executive Chairman and myself the CEO. This allows us to continue to execute on our mission with the benefit of our founder and largest shareholder remaining focused on the needle movers.

Make no mistake, this is a loss for our country and for humanity more broadly, but a win for Shift4. The Global Blue acquisition closed in early July, and we welcomed Ant International and Tencent as strategic shareholders. They each own a little less than 1% of our equity, but collaborate with our teams regularly on product capabilities in order to make payment complexity for our merchants and their consumers easier. All of this and much more was accomplished without taking our eye off the ball. Our financial results were in line with our expectations and marked by quarterly records across several of our KPIs. Some financial highlights for the quarter include 25% year-over-year growth in payment volumes to $50 billion. This is our first quarter generating over $50 billion in payment volumes. 29% year-over-year growth in gross revenue less network fees to $413 million.

26% year-over-year growth in adjusted EBITDA to $205 million, and 49.6% adjusted EBITDA margins. 37% year-over-year growth in subscription and other revenues to $97.7 million, also a Q2 record, and blended spreads of 62.6 basis points versus 61.5 in Q2 of 2024, ahead of our full-year guidance. How is all this possible? Our algorithm is much simpler than I think many understand. We believe we are still very early in the convergence of payments and software, especially when it comes to international markets. We seek out technologies that will make us highly differentiated to merchants and give us an edge in large industry verticals. When we have an idea, we build, buy, or partner quickly with conviction and with an intense focus on capital efficiency.

This playbook began well over 20 years ago, but has been refined constantly, and today we are number one in hotels, number one in sports and entertainment, and number two in restaurants. For emphasis, we recently won the Corner Collection of Hotels, the Golden Gate Hotel and Casino, Black Holmes Springs, Camelback, Capital Vacations, Ponte Vedra Beach Resorts, and many more. We had a record quarter of SkyTab systems installed in restaurants, supported in small part by the European success that I mentioned earlier. We are well on track to meeting our goal of 45,000 SkyTab systems installed globally in 2025. SkyTab continues to deliver for our customers in some of the most intense environments, including a futuristic diner and EV charging destination that recently opened in LA.

Our sports and entertainment business continues to put points on the board, adding food and beverage payments to the Cleveland Cavaliers in addition to ticketing. University of Kentucky, University of Arizona, the Glastonbury Festival, the Detroit Lions, and many more entertainment venues recently joined Shift4. Perhaps most exciting of all, SkyTab Venue is coming to Madison Square Garden, home of the New York Knicks and Rangers, as well as Radio City Music Hall and the Beacon Theater, a whole suite of New York institutions. We also quietly invest in capabilities for marquee customers that we think will have relevance in the future and set us up better to win. BYD is an example of a new partner that is introducing our services to its dealerships in Latin America. Those of you at our Investor Day will recall us previewing some of these new and emerging capabilities back then.

With the acquisition of Global Blue, we will accelerate our geographic expansion and dominance in these verticals. We will also gain scarce market-leading products in an entirely new vertical, which is luxury retail. I want to officially welcome the over 2,000 Global Blue colleagues located around the world to the Shift4 team. I cannot be more excited about this acquisition and the long-term implications for the combined company. Adding Global Blue's technology capabilities, the employee talent, and the strong reputation with global retailers will accelerate our global expansion plans. Combined, we will offer a truly differentiated right to win within the retail vertical. It's important to note that too often you've seen other companies first enter an adjacent vertical only to later determine they lack a unique go-to-market offering. As we have hopefully demonstrated time and time again, that is not our approach.

We first determine our unique differentiation before entering a new vertical, which helps us underwrite our success. Global Blue is very similar to our success in stadiums. I would argue not a single person on this call would have predicted our market position today in sports and entertainment four years ago when we announced the acquisition of Venue Next back in March of 2021. The acquisition of Global Blue is classic Shift4, just on a larger scale. We believe it is our responsibility to shareholders to continue delivering long-term value creation by executing on this algorithm even at a larger scale. Inclusive of the capital deployed to acquire Global Blue, we've invested about $5.4 billion of capital since our IPO back into the business across three major categories: customer acquisition, product investment, and acquisitions.

This $5.4 billion of capital has generated an associated annual EBITDA contribution of $890 million and free cash flow of $514 million. We are investing capital back into the business at returns below our current trading levels, or at roughly 6.1 times EBITDA multiple and a 10% free cash flow yield, which compares to our current trading levels of about 15 times EBITDA and a 6% free cash flow yield. Regarding the balance of the year, integrating Global Blue remains a key priority, as well as continuing our international expansion and continuing to execute. Obviously, none of this would be possible without a stable of products that merchants see value in, and we continue to invest meaningfully in SkyTab, SkyTab Venue, and our broader payment platform. We now have over 1,200 integrations, up from about 350 just five years ago, with European capabilities being a particular area of focus.

Of note, I have already personally entertained productive conversations with a number of key Global Blue customers, both at the executive level and in physical stores. The early feedback from these conversations has only served to reinforce my conviction that this combination has created something unique in the fintech industry. Having witnessed our success in other verticals, it's hard to temper my enthusiasm for this new journey we're on. Since hosting our Analyst Day back in February, it's also worth reminding everyone that we are now tracking towards the most likely medium-term guidance scenario.

As you recall, we provided three guidance scenarios at our Analyst Day: sit on our hands, the combination of Global Blue, and most likely, with that most likely scenario calling for 30%+ gross revenue less network fee growth and 30% EBITDA growth, all with the ultimate goal of exiting at a run rate $1 billion in free cash flow. With the acquisition of Global Blue now behind us and the recent tuck-in acquisition in Australia and New Zealand, we are clearly tracking to deliver on the most likely objectives established this past February. Before turning the call over to Nancy, I wanted to quickly provide an update on the May capital raise. Given the number of AKs we issued, it was likely very difficult to keep up with.

In short, the roughly $3.3 billion of capital raised in May was intentionally diversified across a combination of fixed and floating rate instruments, including our first euro-denominated debt offering to align with our growing European presence, and included preferred equity in the form of a $1 billion mandatory convertible instrument. On the mandatory converts, we issued 10 million shares of mandatory convertible notes at $100 a share. In essence, holders will receive approximately 10 million shares of Class A when the notes mature in May of 2028, and because they settle in shares, these notes are treated as equity and not as debt. We also hold cash on hand for our December maturity and have already paid off our 2026 maturity, giving us lots of flexibility for the years ahead. We expect net leverage at year-end to be approximately 3.5 times.

Nancy will review some of the modeling-related impacts to consider, such as quarterly interest expense and what share count to use for the purposes of calculated non-GAAP adjusted EPS in her remarks shortly. With that, I'll turn the call over to Nancy.

Speaker 1

Thank you, Taylor. We delivered another quarter of consistent and solid results in line with our expectations, setting new second-quarter records across several of our key performance indicators. Volume grew 25% year-over-year to $50 billion. Gross revenue less network fees grew 29% to $413 million, and adjusted EBITDA grew 26% to $205 million. Our Q2 adjusted EBITDA margins were 50%. Excluding the drag from recent acquisitions, adjusted EBITDA margins would have been 53%. We expect to benefit from higher levels of operating leverage as the year progresses, and we add incremental payment volumes from cross-selling and working through our existing backlog. Since Q2 2022, we have grown adjusted EBITDA over three times and expanded margins over 1,300 basis points, all while also deploying capital on acquisitions that were highly dilutive to the margin profile of the business.

Through continued execution on cross-sell synergies and deleting the parts, we've maintained best-in-class margins of 50%. We will continue to follow the Shift4 playbook, delete legacy parts, and continue to expand margins and repurpose resources towards future growth. Our Q2 blended net spreads were strong at 63 basis points, and we now expect full-year spreads to be stronger than the 60 basis points we previously communicated, given in part to our international success. Spreads remain stable across our core business of restaurant, hospitality, and specialty retail. Subscription and other revenue was $98 million in Q2, up 37% compared to the same period last year. The growth was once again driven by our success across SMB, SkyTab, and further penetration of the sports and entertainment vertical, as well as contribution from recently completed acquisitions.

Ongoing deprecation of legacy revenue from recent acquisitions will continue to influence year-over-year growth rates for the remainder of the year. Q2 organic gross revenue less network fee growth was in line with our expectations, and we are on track for 20% plus organic revenue growth for the full year. Our adjusted free cash flow in the quarter was $118 million, representing 57% adjusted free cash flow conversion. Included in the $118 million is $9 million in prepaid interest we received in May from the recent issuance of 2032 notes, which will be included in the August semiannual interest payment. This affects both Q2 and Q3 adjusted free cash flow, but nets to zero on a full-year basis. We remain on track to deliver 50%+ free cash flow conversion for the full year.

GAAP net income for the second quarter was $41 million, and GAAP diluted EPS was $0.32 per share. Non-GAAP adjusted net income for the quarter was $109 million, or $1.10 per share on a fully diluted basis. Of note, our non-GAAP share count now contains an additional 10 million shares related to the mandatory convertible preferred issued in the quarter, bringing our total share count for the quarter to 99.3 million shares. We had our most active quarter of financing activity since the IPO. In May, we raised $3.3 billion of total capital to fund the acquisition of Global Blue and to repurchase the outstanding 4.625% senior notes due in November 2026.

The $3.3 billion raise consisted of the following: $1.3 billion of senior notes, which was a combination of USD and euro-denominated notes, $1 billion of mandatory convertible preferred stock, and $1 billion of floating rate term loan B, which closed on July 3rd in conjunction with the Global Blue transaction. For adjusted free cash flow modeling purposes, you should now expect approximately $75 million of cash interest payments on debt in Q1 and Q3, and $40 million in Q2 and in Q4. Additionally, we upsized the capacity of our revolving credit facility from $450 million to $550 million. During the second quarter, we opportunistically repurchased $85 million of common stock at an average of $74 per share. As a reminder, the 2025 converts principal will be redeemed in Q4 with $690 million of cash on hand, with any premium to be settled with common stock.

We are well positioned to fuel our future growth, and as previously discussed at our Investor Day, we expect net leverage at year-end to be less than three and a half times. As indicated by our recent capital raise, which as Taylor mentioned, was diversified across a combination of debt and equity instruments, we continue to prioritize maintaining low leverage to ensure financial stability and flexibility. At the same time, we remain opportunistic in pursuing strategic M&A that aligns with our growth objectives and delivers long-term value. Now turning to guidance, we are updating 2025 financial guidance to include the contributions from Global Blue and introducing Q3 guidance. I want to step through the highlights of the guidance bridge as it pertains to our outlook for the rest of the year.

First, we continue to expect organic gross revenue less network fees for the full year to grow north of 20%. We are modestly raising our gross revenue less network fee guidance by $5 million to a range of $1.665 billion to $1.735 billion, representing 23% to 28% growth before considering the impact of Global Blue. On a standalone basis, we expect Global Blue's revenue in the back half of the year to be $334 million with adjusted EBITDA of $137 million. When translating these results to GAAP and Shift4's presentation of gross revenue less network fees, we expect Global Blue's contribution for the remainder of the year will be $300 million of gross revenue less network fees and $125 million of adjusted EBITDA. As a reminder, the revenue synergies we have previously highlighted will have no impact in 2025.

You can refer to page 18 of our shareholder letter for a complete bridge of Global Blue's expected contribution to Shift4. The resulting full-year consolidated guidance is a raise of gross revenue less network fees to a range of $1.965 billion and $2.035 billion, representing 45% to 50% growth, and a raise of adjusted EBITDA to a range of $965 million and $990 million, representing 42% to 46% growth. For the third quarter, we expect gross revenue less network fees of approximately $590 million and adjusted EBITDA of approximately $290 million. We expect the contribution from Global Blue to be split about 50/50 between Q3 and Q4. For clarity, this guidance does not include the impact of our previously announced acquisition of SmartPay. Before I hand the call back to Taylor, I appreciate the opportunity to share a few brief remarks.

It is with careful consideration that I made the difficult decision to retire from my role as CFO. It has been an extraordinary privilege to work alongside the Shift4 team during a remarkable period of growth and global expansion. To ensure a seamless transition to Chris, I will continue to serve as a Strategic Advisor through the end of the year. I'm also looking forward to rejoining the Board of Directors, where I will remain fully committed to supporting Shift4's long-term strategy, execution, and value creation for our shareholders. With that, let me now turn the call back to Taylor.

Speaker 3

Thank you, Nancy. It's been amazing to work alongside you. The team and I really appreciate your efforts these last few years and are excited to have you back on the board. Chris Cruz has joined us here on the call to have a chance to say hello, although many of you listening have already met him. Lastly, I'm sorry to end on a somber note, but I simply couldn't neglect to acknowledge the pain my former colleagues at Blackstone and everyone at 345 Park Avenue are dealing with. The completely senseless nature of what happened is something I'm still coming to grips with. All I can say is that it should serve as a reminder to cherish time with your loved ones and work harder to make this world better. Thank you.

Speaker 4

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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. Our first question comes from the line of Timothy Chiodo with UBS. Please proceed with your questions.

Great. Thank you for taking the question. I want to hit on two, if you don't mind. The first one is around international and Australia, and the second one, if you don't mind, I'll follow up. It's around the $200 to $220 billion in end-to-end volume guide. On the first one, so international, you've mentioned roughly 3,000 or more, 3,000 plus SkyTab installs internationally per quarter, and you made the acquisition of SmartPay to further enter the Australian market. That market has been of investor interest. It looks like Toast is also entering into Australia. Maybe you could just talk a little bit about the SmartPay acquisition and the Australian market and what is attractive about that that has both you and Toast entering it roughly at the same time. We'll come back on the end-to-end volumes, if you don't mind.

Speaker 3

Yeah, sure. Thanks, Tim. It's a great question. I would say it starts with a market that for a company like us, really any American company, is relatively easy to enter compared to some of the other more complex geographies, meaning language barriers are zero, fiscalization of product is much more minimal than some of the more complicated countries in Europe, for example. A product like SkyTab is pretty compatible out of the gates in a place like Australia. This is lesser known, but Global Blue had a really impressive and emerging payments capability in Australia. They supported a few hundred hotels, for example, with their own full-stack payment processing platform. While we've been looking at SmartPay for a number of years, Global Blue gave us the conviction that that plus SmartPay was a hell of a good idea.

In fact, we were debating in our board meeting how to prioritize these different things, and when you saw the two on the same page, it became obvious you had to kind of pursue both of them. What it gives us is an awesome distribution capability. The reason that we're having the kind of scaled success in Europe as quickly as we are is because we're taking products and know-how that we've matured in the United States over the past two decades, and we're applying them to markets that are ripe for that consolidation of software and payments with established sales forces. At the end of the day, we believe SmartPay will give us that established sales force, and we'll bring the products and capabilities to bear.

Excellent. Thank you, Taylor. That's really helpful. The item around the modeling or the $200 to $220 billion in end-to-end volume, I was hoping you could put some context around if any of the assumptions around implementation of the backlog might have changed at all implied in that $200 to $220. The other item being, we know that there was a small amount of acquiring volume that came over from Global Blue, and to what extent that volume is included in the $200 to $220 billion for the full year, and then obviously specifically in the second half.

Speaker 5

Hey, good morning, Tim. I'll jump in a little, and Taylor could always supplement. You know, as you said, they had a small acquiring business, which we have included. It's well sub $2 billion from that perspective. Please think about that in relation to our overall guide. We spent some time on the volume bridge, and you could see from a blended take-rate perspective this quarter, which came in very strong. That's always going to move based on mix. We've talked about that if we moved our guide, it would be based on timing of some of our large enterprise deals getting accelerated or delayed. Right.

Some of that, I think, is we would say this quarter is completely in line with our expectations, and we looked at the kind of breadth of the guide range and felt like even with the high end of that goalpost, we still felt comfortable that it was the right range to stick with, even with the small amount of Global Blue acquiring coming in for that Australia business. Really, feel still great about the backlog sitting pretty much where it was in Q1, just based on things coming in and out. It's really that timing of enterprise go-lives that we can't completely control that is causing us to kind of stick with the guide range that we had.

Thank you, Nancy.

Speaker 4

Thank you. The next question comes from the line of Will Nance with Goldman Sachs. Please proceed with your questions.

Hey, guys. I appreciate you taking the question. I'm wondering if you can talk about some of the European restaurant initiatives. You've continued to talk about the pace of SkyTab systems installs across the UK and Ireland, as well as some of the Vectron cross-sell. You just talked about some of the benefits of entering a place like Australia, where the localization is not as intense. Wondering if you could talk about kind of where you stand on the German market, and then separately just kind of what you're seeing out of the UK and Ireland from a net ads, and just remind us where you are on distribution in those markets.

Speaker 3

Yeah, sure. All going kind of well and as expected. Maybe one thing that we neglected to mention is that formal control of the Vectron business was completed in Q2. We're able to kind of pull some of the operational levers that we were not able to control. Production's ramping really nicely inside of that business, and with what I think were kind of a handful of quarters apologizing for the slower pace than we had initially expected when we announced the transaction well over a year ago. Vectron's going really nicely. Just to remind the audience, this is the idea of attaching payments to a really large basket of awesome established Vectron customers. Over time, we can go back and sell SkyTab into this population. It's a market that requires more fiscalization requirements, more customization of the software for the local German market, and we're able to do that.

Vectron also has a sales force that kind of extends beyond just Germany. That sales force is ramping up as well, introducing our payments product to their established customers and any new customers they come across. That's all going great, and I'm really thrilled that the acquisition, well over a year in the making, has kind of largely come to fruition at this point in time. Learned a ton through that process. In the UK and Ireland, it is a similar story, which is we have a large established group of salespeople now introducing the SkyTab product across a variety of merchants, and it's going incredibly well.

The one thing I would say to kind of moderate expectations is that, generally speaking, these European businesses are a little smaller, although we are seeing spreads that are better than we originally modeled because merchants are embracing this kind of software-integrated product en masse. The markets are contributing really nicely. We actually struggled early on to get our boarding capabilities ready to deal with the onslaught, but we are there now, and we're boarding, as I mentioned, well over 1,000 merchants a month across the market.

Awesome. No, that's great. You hit a little bit on some of the spreads outperforming in European markets. Is that the primary reason why you're sounding a bit more constructive on spreads, and just any other puts and takes across the business that are worth calling out as you think about pricing dynamics?

Yeah, sure. I think it's important to think about the evolution of our business, which is that at the time of our IPO, we had this really, really large gateway cross-sell opportunity, and every gateway customer was kind of meaningfully larger than the average customer in our book. We were also adding capabilities like stadiums, enterprise, etc. What that meant was higher volume per merchant kind of every single month and a moderation in spreads down to kind of the 60 basis point level, which if you go back to the early calls, that's about where we predicted it would land. As you start to expand internationally, you're boarding the same number of merchants you are globally, but you're also adding on merchants internationally that are a little bit smaller than that average cohort.

This is where volume moderates on a per merchant basis a little bit, but we underwrite every one of these transactions we do incredibly conservatively, and I think that's kind of showing itself in the spreads we're seeing from international customers, meaning they are willing to embrace a higher-cost product if you're delivering all this value of software plus payments plus hardware, all tightly integrated together. I think over time, this kind of volume per merchant will continue to evolve as we expand into new markets. The spreads embedded in a software plus payments product are strong. They've historically been very strong in the United States, and as we teach kind of the rest of the world the benefits you get from all this integration, I think they're willing to pay a little more than a traditional bank terminal.

Great. Thanks for taking the questions, guys. Congrats, Nancy. It's been great working with you.

Speaker 5

Thank you.

Speaker 4

Our next questions are from the line of Dominic Vaught with Rothschild & Co. Please proceed with your question.

Hello, Taylor, Tom, Nancy. Nancy, it's been a pleasure to work with you. Chris, very nice to meet you as well. Our question is, Shift4's been very good on execution on small acquisitions, rolling out SkyTab, consolidating systems, removing brands. Global Blue does seem like quite a different asset. It's a lot larger, consumer-facing, geographically distant. What is the sort of integration strategy evolving for this deal, and what safeguards have you implemented to avoid the sort of strategic missteps that we've seen from others in the industry when scaling into transformational M&A? Thank you.

Speaker 3

Yeah, it's actually probably the question, right, as we embark on this journey. It's 2,000 employees. They're all located outside the U.S. It's a large acquisition from a cultural perspective. I will say we learned a lot of lessons from our early international acquisitions, which is the pace of getting an acquisition closed always takes longer than you anticipate when you're dealing kind of cross-border in the regulatory environments there. Happy to report this deal closed kind of well within our expectations, or at least the expectations we set for the street, which is great. If I were to pull you into kind of the 80-pager we sent the board kind of rationalizing this transaction, the number one deal objective was keep the current momentum that the Global Blue business has had for the last five years and don't disrupt that as a result of your kind of cross-sell ambitions.

What does that mean? It means we are as quick as we always have been to integrate functions like finance and legal and HR, but a little bit slower to kind of disrupt the day-to-day business model that exists inside the business. Jacques, who's the CEO of Global Blue, is now President of Shift4 International. Our non-U.S. functions will report into him to make sure he's building a consistent organizational structure that we can operate from and that their TFS business, which is like really, really dominant, continues to win at the pace it's been winning at. Over time, we're going to take the conversations that Global Blue naturally has with their customers and introduce a much broader suite of payment products.

I think as we set kind of expectations around our Investor Day, we're going to take a little bit more time than we would in a smaller acquisition in the U.S., for example.

No, that makes sense, and it's a lot more sensible as well. When it comes to the $1 trillion in cross-sell, I believe $500 billion of that, let's say half, derives from Global Blue. Can we have a bit of a breakdown or cadence of where the rest comes from, and maybe how much of that do you sort of try and plan to migrate to Shift4 annually, or sort of what the target's there? Thank you.

Yeah, sure. Setting aside the $500 billion of Global Blue, which is comprised of global retailers, local boutiques, international department stores, etc., the remaining $500 billion is from a combination of different acquisitions that we've done, whether that be GiveX, which was a really large gift card franchise. Again, fulfilling a pretty small function of the overall payments value chain, but a critical and sticky one across really big merchants, the likes of a Nike, for example, who work with GiveX. Eigen was not a trivial gateway with about $30 billion of payment volume flowing through that. Then you've got still large contributors in the likes of a Revel and other things. We sort of view the strategic imperative to be to keep that cross-sell funnel as full as possible. They all are on different cylinders. Small customers move faster than big customers. Certain verticals move faster than others.

Everyone has their own kind of purchasing cycle. As long as we can keep that funnel really, really big, you've got an embedded base of customers to go talk to. I referenced in my scripted remarks, we had several Global Blue customers reach out to us proactively through their account management teams at Global Blue saying, "Everything Shift4 is saying about our payments stack and its complexity is correct. We would love to find ways to simplify this over time." Our products are awesome. We are a category leader in hotels and restaurants and stadiums and now in global retail. The product suite is incredibly strong. It's about introductions to customers, and those customers are so much more quick to answer the phone when you're already fulfilling a core function for them. That's what the acquisition side of the coin kind of helps supplement inside of the business.

Great. Thank you, Taylor.

Speaker 4

Our next questions are from the line of Darren Peller with Wolfe Research. Please proceed with your questions.

Hey, guys. Nancy, all the best with, and congrats on the announcement. Chris, congrats as well. I just want to touch base on the underlying trends in the business and maybe help us understand what you're seeing macro and consumer standpoint in the underlying subsegments. Even looking now into July and August, there's a little more color on that. Maybe as a sort of attached to that is what assumptions on the consumer and the underlying, I know same-store sales is only a minor contribution to your underlying growth, but just help us understand what you're embedding in the organic outlook of the business. Put Global Blue aside for a moment.

Speaker 3

Yeah, sure. I'll talk about the consumer for a little bit, and then I'll pass it over to Nancy. I think the trends are largely as we've seen for a long time now, and I mean like longer than a year, which is there's pressure undoubtedly, but it's very modest inside the restaurant vertical itself. I say this because restaurants have come off of really awesome years in the recovery of COVID, and a modest single-digit same-store sales compression I think we anticipated and quite frankly anticipated a year before it actually occurred. That's been a steady trend, no real meaningful difference from what we would have talked about in other earnings calls. It becomes more moderated as we look around the world because that trend does not exist everywhere, which is encouraging. Hotels are kind of flat, which again, these are off of pretty awesome travel years.

I think if your Instagram feed looks anything like mine, everyone seems to be traveling to Europe these days, which is encouraging for both our hotel business and for the Global Blue business. I would say consumer trends seem pretty stable. Our base of retail has grown quite a bit with the inclusion of Global Blue, so we'll start to get more insights into that over time, but nothing really surprising. Nancy, anything you want to add in?

Speaker 5

You know, pretty much I will sound more like a repeat, but just signs of overall stable consumer spending trends largely in line with what we saw exiting Q2 2024, I'm sorry, and in Q1. I would say really since mid-last year, we've seen it fairly stable. I know we've given out before kind of a flat to minus 2% on restaurants and a range on hotels of maybe a minus 2% to a plus 2%, and I feel like we're still within that corridor. Really not much changing, and you know I think we always comment that we're pretty resilient during uncertain times, but these really haven't, we haven't seen that uncertainty. Like we've kind of planned for that range of expectations, and that's what we're still seeing in the current market conditions.

Okay. That's great to hear. Thanks. Just one quick follow-up would be on, I know Global Blue, the question was someone asked, but I'm really trying to understand a little bit more of, you know, we understand the opportunity for merchants to utilize Global Blue under your ability to help them realize consumers are, for example, in need of a VAT tax reimbursement, something that I don't think they've effectively, they could do better. The opportunity to cross-sell seems pretty material from our perspective. I'm just curious, what kind of awareness campaigns do you anticipate getting out to the market? What kind of timeframe do you anticipate the merchant base understanding these opportunities and cross-sell taking hold?

Speaker 3

Yeah, it's a great question, and it's really important. I think whether it's kind of the acquisition of Shift4 Payments from many years ago all the way through to now, we've learned a ton of lessons in this regard. There are a few, what I would call, laws of physics in this strategy. The first is small merchants move a heck of a lot faster than large merchants. That's not just the complexity of the integration. It's that when you have an owner-operator single decision maker, that's a same-day decision and a same-week implementation versus an enterprise which is deciding over quarters and implementing over years. We kind of applied that methodology to our conversion strategy. That's a fine thing because you generally earn higher spreads on smaller merchants than you do on larger merchants. Again, the merchant is still very valuable.

The first product we intend to introduce is kind of a single all-in-one terminal that makes the life of that merchant a lot easier. It's consolidating five or six things on their countertop in that watch boutique or that perfume store in Paris into a single solution that does a lot of what the enterprises have already figured out with that, which is it's identifying at the point of payment that the consumer is eligible for this, and it's walking the sales representative through what can be a convoluted process in certain geographies. That's why when you go into the likes of a Louis Vuitton in Paris, it is an incredibly seamless experience, and when you go into another store, they might not even be aware that you're eligible for this and prompt you for it.

What Global Blue has had a ton of success at doing is increasing the rate within which refunds occur in merchants that were already eligible for a very long period of time, and the consumer experience is unparalleled. We intend to bring that enterprise-grade consumer experience and sales experience down to as small a merchant as we can inside the Global Blue ecosystem, and we are already underway on all the really tough stuff. The tough stuff is integrating to all the retail software that sits behind the counter in a large department store or in the likes of a Louis Vuitton, for example. Those sales will undoubtedly take more time both to occur and to implement, but you get a ton of volume when they come in.

That's exciting stuff. Great, thanks, Taylor.

Speaker 4

Thank you. Our next question is from the line of Darren Perlin with RBC Capital Markets. Please proceed with your question.

Sometimes we get more. It's Dan Perlin with RBC. Thanks everyone. Quick question on Global Blue here again. The $300 million of adjusted revenue contribution in the second half, I'm just trying to kind of reconcile that to an organic number for them. Like what the organic growth rate on that base would be. Really what the idea is, as that starts the anniversary and obviously four quarters from now, is it additive to that 20+% number or kind of helping support the duration of that growth?

Speaker 3

Yeah, sure. The contribution, quite frankly, is very consistent with the expectations that they had set for the street as a standalone public business. It is very consistent in that regard. I think they set mid-teens level expectations over the medium term. This is a continuation of that theme. There is a little bit of currency noise, and I think we have to do a better job of kind of educating you all on this. It is not your traditional European business whereby a depreciated dollar is net positive when you think about results. A depreciated dollar means less shopping in Europe, and then it's translated back into U.S. dollar results. There is a little work to kind of explain the currency dynamics inside the business. In general, the business is performing quite well.

They continue to win, and it's very consistent with the trends that they'd been expecting as a standalone business. In large part, we represent it that way because we don't intend to have meaningful synergies in the back half of the year across the business. This was one, and I think we set these expectations back in February that we said we want to take time to get the product solution right and get the conversations with customers in the right spot. Timing of the close was somewhat uncertain at the time, and our product teams and our go-to-market teams are heavy at work, and we hope to surprise you in that regard.

The reported contribution as described here, and we put a bridge in the materials to kind of help people get from what they would traditionally report as numbers to how they manifest themselves in our financials, is exactly what they had kind of set forth to the street as a standalone business.

Okay. No, that's super helpful. The bridge I think is super helpful as well. Just one other one quickly on Global Blue. Understanding the synergies are not to materialize in 2025, but obviously start in 2026. Just trying to understand the areas or the plan of attack first. I think you've talked in the past about maybe the DCC product being something that could be attached to a lot of the hotels here domestically, and that might be an area of kind of first attachment. Also thinking through the SMB book that they have and the opportunities around SkyTab and payments. Just anything to help us think about maybe the order of operation in terms of what you're going to attack first. Thank you.

Yeah, great question. It is worth segmenting into kind of the two populations, two large kind of cohorts of products within the Global Blue suite. The currency conversion product is already intensely underway from a technical integration standpoint, and that's the ability for us to introduce that product to our own customers where we traditionally have not offered that. That applies both in Europe and to the United States. It takes a little bit longer to implement in the United States. Once that's done, we expect the uptick of that product adoption to be near instantaneous. This is something that merchants generally just turn on. It's not a cost for them. In fact, it can be a revenue driver for them. Merchants accept this product.

It's not even really a sale as much as it is just turn it on and educate them on how it works so that when the consumer's prompted, they understand how to walk them through it. That will happen in a more binary sense, giving ourselves the time to get the technical implementation right, but it will be more binary, and then we'll introduce that product as part of our standard offering over time. The payments cross-sell has more complexity to it. The concept that smaller merchants generally adopt to the cross-sell faster because it's a single decision maker, we believe to play true. It's generally kind of a mid-2026 level where you've got a full suite of products in enough countries that you can sell on a reliable basis.

Keep in mind, there's payment, I don't want to overcomplicate the situation, but there's payment integrations that become more relevant for one market or another. There's really making sure that the software works incredibly well and that transition from payment to that experience is seamless. We want to get that right, and we don't want to disrupt their core business, which has been winning a lot. You'll notice a prudence in kind of the integration plan here that is somewhat atypical of acquisitions that we do at Shift4 Payments because we're not trying to break their go-to-market model immediately the way we have with other businesses.

Great, thank you so much.

Speaker 4

Our next questions are from the line of Dan Doliff with Mizuho. Please proceed with your questions.

Hey, guys. Great results here. Taylor, maybe a higher-level question about kind of how stablecoins fit into the merchant acquiring process. Our house view is that there's no disruption whatsoever, but interested in your views on how you see kind of stablecoin fitting into consumer commerce. That would be great. Thank you.

Speaker 3

Yeah, sure. I think it's important to kind of separate two views. Our view as a product supplier to our customers and then kind of the longer-term view of what do we think this thing is going to do to the overall economy. To the first point there, we are in the business of helping merchants accept whatever currencies they view as most valuable to them conducting commerce. It's in our earnings materials. We're helping Blue Origin accept cryptocurrency and stablecoins for space flights. They view that as valuable. We enable that, and we always want to be on the cutting edge of enabling merchants to accept what they think is most relevant.

With regard to the broader applicability of stablecoins, I think it has the most applicability in cross-border where consumers in certain countries that have a rapidly inflating currency might want to hold on to something that's not that currency, and stablecoins do provide a mechanism for them to do that in a somewhat efficient way. To the extent they're holding on to that stuff, merchants obviously around the world would like to take that. We are in the business of enabling it. I think in larger, more established markets like the U.S., I think the value that the traditional card brands offer is almost always misunderstood. There's a heck of a lot of value you get as a user of the Visa network or the American Express network or the MasterCard network that is embedded in some of those costs that you pay.

Consumers undoubtedly over time have reverted to those methodologies. A U.S. consumer using stablecoins in the U.S. doesn't get near the value from that transaction that they get in the form of fraud protection and chargeback insurance and rewards and all the other stuff that you get as a traditional card scheme member. Hopefully you get kind of the two sides of the brain there, which is I don't think it's going to disrupt the world in the U.S. I think it's got some applicability in other markets, and I think adoption from those other markets will always be under kind of some level of regulatory scrutiny, which will slow progress. That being said, if merchants see value in it and want to take it, we're going to enable them as quickly as possible, and I think we've done that.

Yeah, we agree. Thank you so much, and congrats again. Great quarter.

Speaker 4

Our next questions are from the line of Sanjay Saikarani with KBW. Please proceed with your questions.

Thank you. Good morning. Taylor, it seems like you guys are making a lot of progress on multiple fronts, from what I heard from your prepared remarks. I guess when we think about some of the organic growth opportunities over the next year and a half, where do you think you have the most potential for outperformance, and where are the biggest risks?

Speaker 3

SkyTab is undoubtedly hitting its stride. We see that nationally. The adoption is incredible. We also see it in the United States. I think you can even just go to Twitter and see the number of installs that we're doing or some portion of them every single day. The SkyTab product and our ability to kind of maintain and grow our position in the restaurant vertical is kind of top of the list from a product initiative standpoint inside the company. Once you step away from that, you've got a payments platform that needs to be able to support some of the most complex circumstances in the world, and we find tons of relevance for that every single day, whether it's kind of the enterprise customers that we're signing up or the ability to instantly turn on geographies for some of the customers that are expanding rapidly around the world.

That's kind of the two largest focuses of product investment. Obviously, our stadium product benefits from both of those things when we invest in that regard. Having kind of a world-class business supporting hotels, restaurants, and stadiums is going to have relevance all over the world. Again, we're like, I don't know, nine months into supporting Europe in even a trivial way, and we're adding kind of thousands of merchants very quickly as a result of that. That's the organic business doing its thing. What we try to do is supplement that with what we call a foot in the door or a shot on goal through acquisitions where we can inherit customers that have traditionally owned a larger and more complicated payment stack and want to work with fewer vendors, but the solution isn't otherwise available.

You'll see that manifest itself in us introducing our traditional payments products to Global Blue customers in a way that integrates what had been a complicated handoff for them in some cases in the past. Same thing with GiveX customers, same thing with Revel customers, et cetera. I know I said a lot there, but this is really about taking products that we know have market appetite organically and getting them in as many geographies as we can as quickly as possible. SmartPay is a great example of that. We anticipate the transactional close kind of inside of Q4. I don't want to get ahead of ourselves, but that SmartPay team is going to get an entirely new set of products as a result of being part of the Shift4 franchise.

What they offer to customers will look nothing like what they have done in the past, and that is kind of taking both sides of that coin that I mentioned and delivering them all at once.

Got it. Thank you. Sorry, I meant to say congratulations to Nancy and Chris, but maybe just a question on sort of the outlook. Taylor, you mentioned the most likely case seems in view now, and if you kind of do the math, it just seems like organic growth can get you there after this year. I'm just curious, if we think about the M&A pipeline and sort of what you would want to do over the next two years, should we expect that that's minimal because you're still integrating Global Blue? As we think about the organic growth potential of Global Blue, I think that was asked in many different ways. Is it equal, dilutive to sort of the core organic growth rate ex-Global Blue? I'm just trying to think through the algorithm as we think about the most likely case occurring. Thanks.

Yeah, sure. Global Blue will continue to, and we tried to lay this out in our Investor Day materials, the organic contribution to business without ever adding customers via M&A is quite strong, and that's what we think is something like mid-teens as we go out multiple years. Yes, we believe our ability to deliver our core products into new markets is quite strong, and our product positioning inside of these markets is very good. Global Blue adds on an entirely new market for us. We try to represent that in a somewhat, I think, conservative way, which is that we kind of let investors choose their own adventure, which is Global Blue continues to execute as is, or they slow down and we introduce cross-sell. Either way, you can get to the same spot. I think neither of those is the likely scenario.

I think they continue to execute and we introduce products, and I think they accelerate beyond what they've traditionally done and what we've laid out in the forecast. That's something that I think when you add their capabilities and talent to our product suite, I think you can get there reasonably easily. The whole point of the most likely scenario is we intend to reinvest our capital into ways to improve whether it's our market positioning or our go-to-market pipeline. I feel really strongly about this, and I know it's somewhat controversial. What the Vectron sales team gave us in Germany is a massive accelerant into that market versus going it alone. We believe the SmartPay team can do that for us as just another example in Australia, and that's like two countries in a really, really big world.

We hope that through thoughtful capital allocation, we can accelerate the introduction of our products in these markets, and we intend to do that. I would say after just a very, very short period of people thinking about Global Blue and Shift4 as a combined entity, and now in 50 more countries than we were before, that's manifesting itself. I mean, the number of opportunities we have to get established sales organizations and bring them in and empower them with product is enormous.

Thank you.

Speaker 4

Our next question comes from the line of Reina Kumar with Oppenheimer. Please proceed with your question.

Speaker 5

Good morning. Thanks for taking my question, and congratulations to Nancy and Chris. Could you give us an update on how travel trends are impacting Global Blue? The last monthly update we got from Global Blue showed a significant slowdown in sales and store growth. Has that recovered this summer, and what are you seeing so far in the third quarter?

Speaker 3

Yeah, sure. It has certainly moderated, and by that, I mean that slowdown is not pulling itself through all the summer months. What I think is important is there are currency pairs that matter a lot when you're thinking about that business. The two largest are the U.S. dollar versus the euro, and then secondarily, Chinese currency versus neighboring countries, whether that's the yen or the euro as well. All this to say, and I'm sorry to pull people back into those snooze fest 301 level courses in college, lower value of a shopper's home currency when they're traveling means that they spend less. When they travel, and we saw that, by the way, in the form of U.S. dollar and the Chinese currency being depreciated in the wake of tariffs. That has moderated, which is good.

You also picked up a busier travel season in general, and I think the fear of tariffs in the consumer has moderated as well as we've started to see the whole saga play out. All that's encouraging. There is the very simple manifestation of their reported results, which are pretty euro-denominated, being translated back into dollars, which we get a little bit of a tailwind with. All this to say, a lot of currency noise is somewhat ballasted inside the business, but we do pay attention to the U.S. shopper and the Chinese shopper and how much they're spending on a regular basis.

Speaker 5

Thanks, Taylor. That's very helpful. One thought follow-up. Agented commerce is thought to be a very hot topic right now in fintech. Given the use cases for travel bookings and hotels, are you actively investing in technology or partnerships to explore opportunities in agented commerce? Can you talk about what you think are the implications for the industry?

Speaker 3

Yeah, sure. I would say it's not dissimilar from the stablecoin question, which is we view it as a strategic imperative to pay attention to where things are going. We do think agented commerce has the ability to cause some leapfrogs in evolution, basically. A company that kind of creates the right solution will be far ahead of market incumbents as a result of the breakthroughs in technology. That being said, the travel industry has a lot of established rails that get relied on for this stuff, and we think we're a natural beneficiary of that. By the way, yes, we will invest in these technologies and spend a lot of time doing them. We will apply the same algorithm we always apply, which is do we build, do we buy, do we partner when we've seen a disruptive scenario in the marketplace. It's too early to tell for sure.

It's not something we're ignoring, and it's something obviously we're hearing as much of from everyone else. In general, your average hotel does not want to change its entire tech stack to take advantage of these, and they certainly don't want a separate deposit and a separate point of reconciliation. We'll have relevancy in that kind of regardless of the technologies that emerge.

Speaker 5

Thank you.

Speaker 4

Thank you. Our last question will come from the line of John Davis with Raymond James. Please proceed with your questions.

Hey, good morning, guys, and I'll add my congrats to Nancy and Chris. Chris, looking forward to working with you, and Nancy, we'll miss you for sure. I'll leave you with two, Nancy, here. First, gross margins. I think down about 150 basis points year to date. They were down last year. How much of that is driven by acquisitions, and how should we think about gross margins kind of in the balance of the year, especially once we add in Global Blue?

Speaker 5

Yeah, from a trending perspective, you should expect them to look similar to how they look now, plus or minus. I think using Q2 trends for the remainder of the year will kind of work from a modeling perspective. I would just say I know consensus a lot of times has gross margin calculated differently than we look at it internally because we take the EUL amortization against gross margin. I would highlight that there will be some purchase accounting implications and amortization into that line from Global Blue as well. I would just say if you consider those items and trend based on what we're seeing this quarter, that should get you close.

Okay, thanks. As we head into 2026, and I know you reiterated the 50% free cash flow conversion this year, now that Global Blue's closed, maybe help us think about the puts and takes to free cash flow conversion as we get to next year. I think you have higher cash taxes potentially. Just the puts and takes there would be helpful.

Yeah, so a couple of things, but I would say I would caveat this to say that when we come out for 2026 guide, I won't be here. I will make sure Chris takes care of you guys this way, that we'll have to give you some more guidance on cash flow because the free cash flow at Global Blue is very seasonal. You know what we'll see in the back half versus what we'll see the first two quarters next year, there definitely is some real seasonality trends in the way their cash moves. I don't want to get ahead of it right now, but I would just placehold that and probably go back to their prior public marks to just take a look at their seasonality. We'll think through how we'll guide that when we come back out for 2026.

You know they're a great cash flow generator, but they have more lumpiness to theirs than we do. Of course, I will point you guys back to my prepared remarks on cash interest just to make sure we pick that up from the recent debt raise and for sure on cash taxes, just consistent with what we've guided, you know those moving up slightly just from income generation, if nothing else. I know there's a lot of pieces there, and we'll make sure Tom and Paloma are armed to take you guys through it. Absolutely, we'll be back on that for 2026 guide.

Okay, thank you very much.

Speaker 4

Thank you. At this time, we've reached the end of our question and answer session. I'll hand the floor back to management for closing remarks.

Speaker 3

That's it. We got a long day of callbacks, so we look forward to speaking to you all then. Thanks very much for joining the call.

Speaker 4

This will conclude today's conference. We will disconnect your lines at this time. Thank you for your participation.