Shift4 Payments - Q4 2025

Transcript

Operator (participant)

Hello, and welcome to today's Shift4 Payments, Inc. Q4 2025 earnings conference call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press star one on your telephone keypad. We will be standing by should you need any assistance. It is now my pleasure to turn the meeting over to Thomas McCrohan, EVP, Investor Relations. Please go ahead.

Thomas McCrohan (Head of Investor Relations)

Thank you, operator. Good morning, everyone, welcome to Shift4's Q4 2025 earnings conference call. With me on the call today are Taylor Lauber, our CEO, and Christopher Cruz, 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, which can be accessed through our corporate X account, @Shift4. Our quarterly shareholder letter, quarterly financial results, other materials related to our quarterly results have all been posted to our IR website. Our call earnings materials today include forward-looking statements. These statements are not guarantees of future performance, our actual results could differ materially as a result of certain risks, uncertainties, many important factors.

Additional information concerning those factors can be found in our most recent reports on Forms 10-K and 10-Q, which can be found 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. Taylor?

Taylor Lauber (CEO)

Good morning. It's great to be speaking with you all. 2025 was yet another pivotal year for Shift4. We produced record results, executed on transformative M&A, grew nicely, and diversified the quality of our business. That's all while overcoming the occasional setback in more ways than one. We also fundamentally strengthened our global footprint, our technology capabilities, and organized our talent around our priorities that will continue to move the needle in 2026. As mentioned in my shareholder letter, the rapid expansion across multiple verticals has created confusion as to exactly why we win and who we compete with. This is understandable, but from our perspective, each vertical we serve is carefully selected based on the lessons we've learned over 28 years.

Contrary to popular belief, we are in these verticals because we view the competitive landscape as narrow, and as such, typically have one or fewer good competitors in each vertical. To simplify things for everyone, I will succinctly say that we power the experience economy. We enable businesses to deliver the moments that matter and can be found anywhere you shop, dine, stay, or play. These experiences demand high availability and often in-person engagement and come with high expectations from both the guest and the merchant. What as little as five years ago might have been Shift4 powering a night out at your local, at your favorite local restaurant, has evolved into us earning the responsibility to power some of the largest global resorts operating 24/7, championship matches, and so much more.

In a world of constant innovation, especially digitally, the skill set to power high-demand in-person experiences is increasingly valuable. To touch on some highlights for the quarter and the full year. We closed on the acquisition of Global Blue back in July, marking our entry into the luxury retail vertical. As a quick reminder, Global Blue is a market share leader of tax-free shopping capabilities to merchants selling luxury goods, with the number one market share globally and a 4x relative market share to their nearest competitor. Global Blue's business remained resilient despite the weakening U.S. dollar and rising tensions between China and Japan. While a weaker U.S. dollar translates into higher prices for those traveling to Europe, having a business overindexed to wealthy consumers remains a key benefit in this K-shaped economy.

The integration of Global Blue remains on track, including the timing of revenue synergies, to begin being realized this year as expected. As you can see from our materials, we continue to add many new merchants and can increasingly be seen anywhere you shop, dine, stay, or play, with many of these wins a direct result of us successfully cross-selling payments. We powered payments at the big game at Levi's Stadium in early February, congrats to all you Seahawk fans. We are constantly renewing key merchants and recently re-signed a five year renewal with Choice Hotels. Some other key milestones. In Europe, we continue to add many thousands of new SkyTab POS merchants across the UK, Ireland, and Germany, ending the year with over 80,000 merchants outside of the Americas, which is before cross-selling any Global Blue merchants.

Canada is also a focus, as we've only recently had full-stack capabilities in the region, but inherited many world-class customer relationships from both the Eigen and Givex acquisitions. We entered the Australian and New Zealand markets and now have a substantive sales force via the acquisition of SmartPay. This progress translated into solid financial performance, including nearly $2 billion of total Gross Revenue Less Network Fees, representing 46% year-over-year growth. When you exclude the contribution of Global Blue and SmartPay, we delivered roughly 23% year-over-year growth in Gross Revenue Less Network Fees during 2025. $970 million of Adjusted EBITDA, representing 49% Adjusted EBITDA margins, and $500 million of adjusted free cash flow. We are proud of both of our margins in light of ongoing investments we're making in both products and expansion....

We introduced an all-in-one payments, DCC, and tax-free shopping terminal last year that we began piloting in several European countries. We also invested heavily in making our restaurant, sports, and entertainment, and other products suitable for the global stage. I want to stress that our story is not a complicated one. We are experts in handling software, hardware, and payments in demanding verticals and in the most competitive market in the world, the United States. We've grown from an SMB restaurant oriented technology business to powering commerce across the experience economy, and our most meaningful growth has been as a public company for all to see. We are now taking those lessons learned and our industry-leading products out into the world. One only needs to study our evolution in the US to understand what we will be doing in less mature and often less competitive markets.

Unlike our history in the U.S., we are aided by excellent beachheads provided to us by acquisition and already have a presence in over 75 countries around the world. As we look to 2026, the macro environment remains dynamic, but we view the diversity of our end markets, our disciplined approach to customer acquisition, and healthy operating margins as affording us a degree of resiliency and optionality relative to many of our peers. In terms of priorities, I'm focused on the following. We only just begun delivering our all-in-one payment terminals throughout Europe. As mentioned previously, the Global Blue tax-free shopping product is unrivaled, and when combined with eligibility detection at the point of payment, adds meaningful utility to retailers of all sizes. We believe we can add many thousands of merchants as a result of this capability and are targeting 15 countries for launch in 2026.

Our go-to-market motion across these countries will allow us not just to win retail merchants, but also deliver our restaurant, hotel, and stadium products, and replicate the vertical success we've had in the U.S. While on the topic of the U.S., we still have plenty of market share to win across our key verticals, and enabling DCC across our merchant base will be particularly valuable in anticipation of the World Cup this year and the Summer Olympics in 2028. We continue to leverage our restaurant merchant estate to inform our roadmap for SkyTab, which has been growing nicely in both customer counts and volume per merchant. To better leverage the larger Shift4 brand and our presence in the broader experience economy, we will be rebranding SkyTab to Shift4Dine later in the year.

Asia and the Middle East are also increasingly becoming important strategic markets for us, in particular, Japan and the Kingdom of Saudi Arabia. These are large markets that align perfectly with our core competencies and yet only offer one of our products today. Lastly, our AI roadmap is extensive on both the operational and product fronts. We've partnered with xAI for broad-based adoption of Grok in virtually every area of our business. We've deployed AI assistants within our key products to help resolve inquiries more quickly and with less human intervention. These tools have recently been expanded to providing operational insights to our merchants as well. We are building predictive models that analyze merchant signals to prevent churn before it happens, while leveraging the vast trove of data we collect from customer interactions to identify and resolve customer pain points more rapidly than ever before.

On the productivity front, we've seen a doubling in our code production as a result of broader adoption of AI tools within our technology teams. Many of you know that Palantir has been powering our Mission Control platform for several years at this point, none of this should be a big surprise. Before I turn the call over to Chris, I wanna summarize the simplification transaction announced earlier this year. We've successfully collapsed all B and C shares previously held by our founder into Class A common. As a result, Shift4 is no longer a controlled company under the NYSE rules. Going forward, Jared will own approximately 27% of our outstanding Class A shares, with voting rights that are par and pursue all other shareholders.

Additionally, Jared has agreed to transfer all future benefits of his Tax Receivable Agreement to the company, permanently eliminating an estimated $440 million of future TRA payments. We believe these improvements to our governance and capital structure significantly broaden our appeal to the investment community. In summary, 2026 marks a new chapter defined by a simplified corporate structure, improved disclosure, and clear strategic focus. As we expand our footprint globally, we are laser focused on execution, ensuring we deliver our immediate financial goals without sacrificing the balance that comes between growth and margins. With that, I'll turn the call over to Chris.

Christopher Cruz (CFO)

Thanks, Taylor. 2025 was another record year for Shift4 across all financial metrics, underpinned by strong execution, integration, capital allocation, and continuing to achieve scaled diversification, both geographically and across multiple verticals in the experience economy. We delivered record results with full year gross revenue of $4.18 billion, above the high end of the range we provided last quarter. Volume of $209 billion, again, near the high end of last quarter's guided range. Blended spreads came in at 61 basis points, exceeding our guidance of above 60 basis points. Gross Revenue Less Network Fees, or GRLNF, of $1.98 billion, representing 46% growth year-over-year.

Adjusted EBITDA of $970 million, representing 43% growth year-over-year at a 49% margin, and adjusted free cash flow of $500 million, which exceeded our guided adjusted free cash flow conversion range by 150 basis points. Let's move on to our quarterly performance and then shift to 2026 guidance and close with our capital allocation framework. For Q4 results, gross revenue increased 34% year-over-year to $1.189 billion. Volumes grew 23% year-over-year to $59 billion, towards the higher end of guidance range. Q4 volume mix was influenced by a few enterprise go-lives with strong seasonal volumes. Blended spreads came in at 57 basis points, influenced by the aforementioned few enterprise go-lives with strong seasonal volumes, such as the Alterra Ikon Pass.

This enterprise volume outperformance has an inverse mix shift impact on our blended spreads. Our full year 2025 blended spreads delivered in line with our previously communicated guidance of greater than 60 basis points, and we anticipate blended spreads to continue above 60 basis points for the full year in 2026 as well. GRLNF grew 51% to $610 million, which was towards the lower end of our guidance range, as the aforementioned outperformance in enterprise did not offset the continuation of Q3's same-store sales trends, particularly amongst SMBs in the Americas region, which were further impacted by late Q4 weather events. Going forward, we will disaggregate our revenue into three categories. One, payments-based revenue reported on a gross basis, it's noteworthy to back out network fees to arrive at the relative contribution to GRLNF.

Two, tax-free shopping revenue. Three, subscription and other revenue. We have consciously chosen to report these three disaggregated revenue categories in order to let investors focus on our North Star growth in payments-based revenue, and clearly break out the tax-free shopping revenue for transparency as investors acclimate to the performance of this line of business. Adjusted EBITDA grew 48% to $304 million, delivering a 50% margin. non-GAAP EPS came in at $1.60. Our adjusted free cash flow in the quarter was a record $171 million, representing year-over-year growth of 28% and free cash flow conversion from Adjusted EBITDA of 56%. On a non-GAAP per share basis, this results in $1.76 of adjusted free cash flow per share.

As of year-end, our net leverage pro forma for the full year effect of Global Blue was 3.4 times and includes the effects of our November activity of repaying the 2025 convertible notes, issuing incremental EUR-denominated senior notes under our existing 2033 indenture, and repricing our term loan, generating 50 basis points of run rate savings. Our leverage guidance remains unchanged, with a view that the business should not exceed 3.75 net leverage on a sustained basis. Now, for full year 2026, we are introducing the following guidance ranges. Volume of $240 billion-$260 billion, representing 15%-24% year-over-year growth. We are anticipating stable spreads in 2026, remaining above 60 basis points for the full year.

GRLNF range of $2.5 billion-$2.6 billion, representing 26%-31% year-over-year growth. To help you model our trajectory to 2026, we are introducing a growth algorithm bridge, providing further transparency on the disaggregated GRLNF growth categories. As mentioned, we're reporting disaggregated revenue across three categories: payments-based revenue, tax-free shopping, and subscription and other. Within our payments-based revenue, less network fees, we think it noteworthy to appreciate the difference between our two geographic regions of, one, the Americas, and two, the worldwide region, excluding Americas. For the Americas market, this is our most mature region, where all of our market-leading experience economy commerce solutions are present, and is a market where in 2026, there will be minimal impact from prior year M&A annualization. In this region, we expect payments-based revenue, less network fees, to deliver mid-teens % growth.

We view this growth rate as being more than three times the baseline growth of the comparable market. The worldwide, excluding Americas market, is our faster-growing market, where multiple high-growth themes exist, such as, one, bringing our market-leading solutions proven in the competitive Americas market into the region. Two, disrupting a largely unintegrated, bank-distributed card present market with our proven bundled value proposition that we pioneered decades ago. Three, the region is benefiting from our excess capital allocation through the acquisitions of Global Blue and SmartPay, which provide both their attractive business attributes, but also serve as the infrastructure accelerant from which we will deploy our market-leading solutions into the region. In this region, we are expecting high 20s % growth. On tax-free shopping, we expect mid-single-digit pro forma growth.

We are cautious going into 2026 with a few headwinds that include a weakening outlook on the US dollar relative to the euro, albeit with diverging views across major banks, as well as cross-border travel tension in Asia. Additionally, it's noteworthy that the business delivered low double-digit growth last year on the high end of its medium-term outlook range, disclosed when Global Blue was an independent public company, and thus is growing over a strong comparable period. On subscription and other, we expect low single-digit growth, with quarterly fluctuation as we anticipate less impact from applying our carrots and sticks against acquisitions than in prior years, while continuing to prioritize growth in our core payments-based revenue....When you sum these parts, it builds to our guidance range of $2.5 billion-$2.6 billion in GRLNF.

We are guiding an Adjusted EBITDA range of $1.165 billion-$1.215 billion, representing 20%-25% year-over-year growth and representing margins of approximately 47%. We are introducing a non-GAAP EPS guidance range of $5.50-$5.70. Our EPS range assumes an effective tax rate of 26%. We are guiding adjusted free cash flow of $490 million-$510 million.

We anticipate free cash flow conversion to moderate in 2026 and average approximately 42% as a result of three factors: one, the annualization of interest expense, two, lower interest income due to relative cash balances, and three, Global Blue related impacts, such as integration investments and the impact of Global Blue's seasonality on our year-over-year results, given the timing of the close in the second half of 2025. If you isolate the incremental flow-through of adjusted free cash flow, the implied conversion is expected to be 59%. Overall, this guidance includes the close of Bambora because we expect it to take place in the next couple of days. Now for Q1 quarterly guidance.

For the upcoming Q1 of 2026, we are introducing guidance as follows: GRLNF of $548 million, Adjusted EBITDA of $233 million, and adjusted free cash flow of $70 million. Additionally, gross revenue for the quarter is expected to be $1.05 billion. Our shareholder letter materials provide a detailed bridge on these various components to our guidance to help you model these specific impacts. Consistent with our commentary in Q3 earnings, as we looked at our capital allocation options in Q4, we found the most attractive risk-adjusted return was repurchasing our own stock. Between Q4 and year-to-date Q1, we have repurchased 7.7 million shares and now have a remaining $500 million against the $1 billion share repurchase authorization recently announced.

In light of the current market environment and the continued opportunity it presents for share repurchases, we think it more appropriate to base the previously stated goal of $1 billion of exit rate Q4 2027 adjusted free cash flow to being viewed on a per share basis through the lens of a long-term owner of the business. Last, on capital allocation. As mentioned, we repurchased a total of 7.7 million shares, of which 4.3 million shares were repurchased during the Q4. The remaining 3.4 million shares were repurchased during Q1 of this year. We have $500 million remaining under our existing authorization. As a reminder, we allocate capital on a comparative assessment basis of our four priorities: customer acquisition, product investment, acquisitions, and share repurchases.

We've utilized buybacks recently due to the clear relative value, and while our valuation remains attractive, we are mindful of the associated relative value balance and net leverage ratios. Our focus in 2026 will be to continue employing our balanced approach to capital allocation using this relative framework. That said, this quarter, we wanted to provide investors with insight into our capital efficiency. In our view, the textbook financial formula for value creation is driving sustainable positive spread of return, of return on invested capital, or ROIC, greater than weighted average cost of capital, or WACC. A couple of key takeaways from this. One, we have a historical track record of value creation. Throughout 2023 and 2024, our ROIC averaged approximately 13%, consistently exceeding the midpoint of our WACC range by 300 to 400 basis points.

This demonstrates that our historical acquisition strategy has been accretive not just to top line, but to shareholder value. All of this while deepening our durable competitive advantages, scaling and diversifying the business as a whole. Second takeaway, we have been able to maintain this value creation spread across the investment cycle. Even in historical periods of invested capital expansion in our history, we have maintained a positive ROIC over WACC spread and expect this to continue. Our track record shows that we have been here before and experienced the integration phase of an investment with ROIC experiencing short-term dilution, followed by very high incremental returns. Before turning the call back to Taylor, I want to sincerely thank our fellow shareholders, the broader management team, and especially the finance organization for supporting a seamless transition. I'm energized by the momentum we've built and look forward to the year ahead.

With that, let me now turn the call back to Taylor.

Taylor Lauber (CEO)

Thanks, Chris. With that, operator, we're ready for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask a question. We'll pause for just a moment to allow callers to queue. Thank you. Our first question will come from Darrin Peller with Wolfe Research. Your line is open.

Darrin Peller (Managing Director and Senior Analyst)

Hey, thanks, guys. You know, let me just first start with a question on guidance, and then I'm gonna shift to a question on free cash, if that's okay, as a follow-up. Just on guidance, when we look at the, Chris, you probably tried to build in an element of safety and conservatism given the macro uncertainty. Maybe just touch on how you built it up, what the organic assumptions were embedded in it for overall organic revenue growth rates, and how we should think about the potential cross-sell integration in there for the year ahead of us?

Christopher Cruz (CFO)

... Yeah, thanks for that, Darrin. To kind of unpack the pieces, I think one of the things that we definitely wanted to provide some visibility into is the GRLNF growth algorithm to give a sense for how some of the parts in our pre-disaggregated revenue categories are expected to behave in the year, in the 2026 guide. To look at that piece within the bridge in the materials is probably a place I'll reference and cite everyone toward. Within that, you can see that you've got the payment-based revenue piece split out between kind of the new disaggregation of giving visibility into our two geographic regions of Americas versus the worldwide ex-Americas.

We give our tax-free shopping, which is obviously a new disaggregated revenue disclosure, that we'll be providing, and give that in on a pro forma basis, as expecting that to be on the mid-single digits, and then, of course, the seven other. Maybe the incremental piece that you're asking within what's inside of these guidance points might be a bit more related to some of the macro that you're asking about. Did I hear that within your question?

Darrin Peller (Managing Director and Senior Analyst)

Well, I'm trying to understand, really, if you think you've built in a layer of effectively conservatism around macro or even your own bottoms-up assumptions, just given, you know, the results last year have been a little challenging versus your prior guide. I'm curious to hear where you built that in. Again, I understand your subsegments, but as a company-wide, I think we're coming to about a low to mid-teens organic revenue growth rate. I'm curious if that's about right?

Christopher Cruz (CFO)

When I think about what is inside of the guide, obviously, you're right to point out that last year had a little bit of a volatile macro backdrop, and maybe more specifically within the world of same-store sales in the Americas, so inside of the payment-based revenue piece, and then within sales in store, which is kind of the equivalent of the volume metric in the tax-free shopping, both had exhibited volatility. The one that probably, you know, you're hinting at is the volatility that was the result of the Triple S, namely in the Americas, amongst SMBs, for example, within restaurants, lodging, and retail. Within that, I think what we're looking at in the start of the year is really a tale of kind of like two halves.

In the first half of the year, we're anticipating that there's a continuation of the kind of exit rate trends that we were seeing within the Triple S. That seems to be holding up, because even though we had what looked like a little bit of a continuation of softer trends in January, February was looking strong. You have to offset some of that with weather events. I think in total, you end up with a place that says that the first half of the year, you know, assume similar trends to what you were seeing coming out of the end of the year. Then in the back half, an assumption that there will be an anniversarying over some softer comps, and you see some positive rebound.

Overall, though, I think the outlook for the year is a fairly neutral view, which is admittedly a couple of points lower, like low single-digit points lower than what might have existed in years past as we were laying out kind of Triple S impact within an overall outlook for the year.

Darrin Peller (Managing Director and Senior Analyst)

Okay.

Christopher Cruz (CFO)

I'll take the other opportunity to just say that one of the other variables that we're sort of trying to get our heads around is the FX variable and how that impacts the tax-free shopping business. I think we allude to it a couple of times, that the outlook on a weakening USD relative to euro, although has maybe a benefit on financial translation, it has a more negative benefit on demand, and so within tax-free shopping. If there is a continued sort of weakening within USD relative to expectations against the euro, which right now there's a pretty divergent view, even amongst the major bank weakening looks like.

To the extent that that is a headwind, relative to expectations, then, you know, you could have some pressures there, but we're anticipating what's sort of in the consensus view.

Darrin Peller (Managing Director and Senior Analyst)

Okay, thanks. Just quick, a quick follow-up on free cash. If I understand it right, the interest expense, interest income changes, given the combination of buybacks and cash available for interest income, and the integration costs are causing free cash to be roughly flat. If you could help quantify those variables, and then anything on chip costs or memory costs potentially impacting the free cash guidance this year? Just want to make sure we're still on track for the exit rate of 2027 to be the billion-dollar range, you guys had indicated. Thanks again, guys.

Christopher Cruz (CFO)

Yes, thanks, Darren. Let me unpack three parts. First, the quantification around each of the components in the building blocks of the free cash flow variance. What we tried to do was provide people in the materials with a bridge page that gives a view on the kind of the year-over-year outlook and guidance around free cash flow. What you see on that bridge page is, or in the materials, is the effect of each of kind of the components, the largest of which you pointed out well, right? The annualization of the capital structure, the annualization of the interest expense, that's the largest component there. Then the second largest component is just a reduction in year-over-year interest income as our cash balance is on a year-over-year basis.

are because of the variance in the cash balance. As a reminder, like, for example, in Q2 ended, our cash balance was sort of artificially high at $3 billion as we were preparing for the close of the Global Blue transaction. Those are your two biggest components within the bridge, and then we highlight integration and investment expenses, et cetera, and other parts related to Global Blue. The one thing I would highlight within the bridge is that the incremental flow through of free cash flow is probably the place that absent those interest expense and integration investment type expenses, absent those things, the incremental flow through on adjusted free cash flow is still running at a high, at like a 59%, kind of 60% free cash flow conversion rate.

I point people to the bridge to just understand the sizing of that. The second part of your question, in the free cash flow was related to. Sorry, can you just repeat?

Darrin Peller (Managing Director and Senior Analyst)

It was just whether chips, higher memory costs are impacting.

Christopher Cruz (CFO)

Yeah.

Darrin Peller (Managing Director and Senior Analyst)

Hardware.

Christopher Cruz (CFO)

Sorry, yeah, thanks for that. From our perspective, even though we are seeing sort of the back end of inflation and maybe trade-related activity, start to kind of abate within some of these cost components, and there are still other factors separate and away from that might be impacting hardware costs, just mainly within the supply chain of how payment devices are manufactured and the landscape, the competitive landscape of that within, like, payment terminals and devices. For the most part, within our free cash flow, and within our P&L, we're not anticipating, like, a material change such that anything was noteworthy to call out as it relates to those types of costs.

a component that might be different than what you might hear from others is just that within, you know, how we manage inventory policy, how we flow that all through within our P&L, versus our cash flow, those variances and differences to others, that exist might be some of the explanation as to why we're not seeing it in the same way others are.

Darrin Peller (Managing Director and Senior Analyst)

Okay. Thanks, Chris.

Operator (participant)

Thank you. Our next question comes from Dan Dolev with Mizuho. Your line is open.

Dan Dolev (Managing Director and Senior Fintech Equity Research Analyst)

Hey, guys. Great job here. Thank you for taking my question. Really appreciate it. You know, Chris, I know you were asked before about the assumptions for 2026. Can you maybe just elaborate a little deeper on the exact macro assumptions and how you kind of frame the low end and the high end of the guide when it comes to your macro assumptions? I think that would be really helpful. Thanks again. Great job.

Christopher Cruz (CFO)

Yeah, sure. Thanks, thanks for that, Dan. Look, I'd say if I was to categorize the macro into three parts, there's probably one, thinking about the impact of Triple S within really more specifically our Americas and largely impacting SMBs. Think of that as kind of restaurant, lodging, retail. There's two, I would say it's the FX component that impacts the tax-free shopping disaggregated, like, revenue line. The third is sort of a also impacting tax-free, but it would be kind of just a geopolitical or we'll say, like, tensions that we're seeing in some of the markets. I'll just go back into each of the three and unpack.

On the Triple S, you know, what we were anticipating and what we already talked about was this idea that we have an assumption of a fairly neutral year on Triple S, which relative to years past, might be kind of low-single-digit points below what might have been what might have been the trends that we were seeing within the macro. That's definitely a point of difference. That variable certainly is one of the variables that impacts kind of the low to high within the range. I would say second, embedded within that, even though it's less about the macro effects of Triple S, we have seen some volatility in the weather, both in Q4, and most recently within Feb.

Those all kind of play into the same Triple S variable. Within FX, I already alluded to it, but it is worth a reminder because I think it is clarifying for some that even though the about, we'll call it a quarter of our revenues, the size that are non-US dollar denominated, and therefore there's a view that a weakening USD has a financial translation benefit, it actually has a greater headwind on because of its impact on the tax-free shopping demand. To the extent there is a weaker USD, relative to the euro, as a for example, on that cross, we are gonna have a lighter demand, or a negative on the demand side of tax-free shopping between those markets.

That's something that we're monitoring and we're watching in particular, because as I already said, if you go and look at bank forecasts, there's a pretty divergent view as to the extent of the USD EUR cross right now. The last thing I would just point out, and again, sort of touching more on the Asia segment within or the Asia market within tax-free shopping, we are seeing the effect of kind of tourism tension. As a for example, passenger seats are down at, like, almost 30% between China and Japan, and that will have an effect. That's just another of the macro variables we're watching.

Maybe the last thing I would just say, though, is that a variable that seems to be having less of an effect on the volatility of the P&L is probably the inflationary variable. That does seem like one that is a little more benign, and that's what we're anticipating.

Dan Dolev (Managing Director and Senior Fintech Equity Research Analyst)

Very helpful and great job again. Thanks.

Operator (participant)

Thank you. Our next question will come from Timothy Chiodo with UBS. Your line is open.

Timothy Chiodo (Managing Director and Lead Equity Research Analyst)

Great, thanks a lot. I wanna see if we could dig in a little bit to the fiscal 2026 guide around the spread staying relatively stable in that 60 basis points or potentially slightly higher range. I'm assuming that some of that is related to dynamic currency conversion, which I gather has been going well. I wanna see if you could talk a little bit about that assumption in terms of supporting the spread and maybe any of the contributions from either Smartpay or we already have, but the Global Blue acquiring business and those spreads. Maybe there's some mix shift factors as well, but really just any of the underlying drivers of the spread staying stable, at least on an overall fiscal year basis. Then a quick follow-up.

Taylor Lauber (CEO)

Yeah, sure, Tim. I'll hit the first part of that, and then Chris can layer on. You know, Q4 was slightly anomalous in terms of how its spread represented itself. If you recall, even back to our last call, we were relatively cautious on the same-store sales volatility we were seeing, particularly in SMB and particularly in restaurant. Those are our highest spread categories from a merchant perspective. Offsetting that was some really nice volume from some enterprise activation. Volume performing, you know, okay with spread a little lower than expected. That's somewhat anomalous, and especially as you hear how kinda Chris is forecasting the business, it's a kind of a muted view on the same-store sales progress in all those categories throughout the rest of the year.

That's one thing that, you know, Q4 is slightly anomalous, and the year ahead, I think, forecasting a more normalized trend, even off of kind of these lower same-store sales comps that we're seeing. That's one thing. Separately, you've heard us talk about this as well, but the real early success we're seeing in Global Blue and really just our international expansion more broadly, is in that SMB space where you do expect to earn, you know, towards the higher end of your spread averages. It's not to say we're forecasting, you know, a decline in enterprise or anything like that.

The reality is, though, when you enter these new markets, the quickest merchants to adopt your solution are at the lower end, and then the medium and large merchants come in over the course of the, you know, one to two years ahead. We tried to illustrate this in our materials. We have 80,000 merchants outside the U.S. The vast majority of those are SMBs, which generate a higher spread. I think the spread mix is gonna be somewhat predictable, largely because we're forecasting kind of the average quality of our merchants to be pretty predictable through the year ahead.

Christopher Cruz (CFO)

Yeah, I can just add on to probably the best way to think about starting from Q4 and looking at that 57 basis points blended spread figure. If you normalize out quite literally, three enterprise merchants, you actually end up in the greater than 60 blended spread territory. The activity there have are largely seasonal in nature, but one was actually the benefit of a somewhat unexpected large volume allocation away from a competitor. When you have those kind of timing, those kind of seasonal jumps coupled with the, you know, sort of an unexpected positive, you end up with that Q4 spread dynamic, which was a couple basis points below the 60.

When you forecast the business, though, across all of the different fronts, and you factor in the mix shift dynamics, slightly towards SMB, from a growth standpoint that Taylor alluded to, you get to the place that allows us to guide to the blended spreads remaining stable at north of 60.

Timothy Chiodo (Managing Director and Lead Equity Research Analyst)

Excellent. Thank you, Taylor and Chris. It sounds like DCC might not be too large of a component there, but a quick follow-up on DCC. Last quarter, you gave a really helpful disclosure in terms of the contribution to net payments revenue from DCC. Is it fair to assume that in Q4, that was directly in that same ballpark? I believe last quarter it was around $11.5 million.

Christopher Cruz (CFO)

I was just gonna, sorry, one thing I was gonna say, though, Tim, was that when we talk about the blended spread across the product, I don't want there to be a takeaway that it doesn't include a positive benefit from, you know, what, like, FX-based spread revenues, such as DCC or other types of products like DCC, that are also FX-based. There definitely is a benefit that comes through, and you're right to point it out as a positive. It's definitely been one of the nice components of having acquired a business like Global Blue, where we now have that capability and competency in-house, and are able to kind of bring that into the value proposition and the bundle-facing merchant. I just wanna clarify that.

Taylor Lauber (CEO)

Yeah

Christopher Cruz (CFO)

as a starting point.

Taylor Lauber (CEO)

Maybe just to illustrate how we're rolling out DCC, it's embedded in our offering internationally. You know, the blended spread of those merchants would include the benefit of a DCC product, but they're coming in as a net new merchant, so it's not really changing the spread of an existing customer meaningfully outside of the US. In the US, this is really no change to the expectations we've set as far back as announcing the transaction, we really want DCC Live as a product kind of broadly based in the US prior to the World Cup. That's where we see significant benefit. In the back half is where you could see spreads on existing customers increasing as a result of the benefit of DCC. I wanna be, you know, really specific. It's a new product.

Forecasting the relative adoption, gets kinda tricky. It's not widely used in the United States, although you can obviously be pretty optimistic about it when you think about a big international event like the World Cup, and we're focused on making sure it's live in our hotels and stadiums.

Timothy Chiodo (Managing Director and Lead Equity Research Analyst)

Great. Thank you. Yeah, that's what I was getting at partially in terms of the U.S. cross-sell. Sounds like a good opportunity. Thank you, Chris. Thank you, Taylor.

Christopher Cruz (CFO)

Thanks, Tim.

Operator (participant)

Thank you. Our next question will come from Will Nance of Goldman Sachs. Your line is open.

Will Nance (VP)

Hey, thanks for taking the question. I wanted to circle back on the free cash flow and come back to the bridge that you guys provided. I think we get most of the moving pieces around interest expense and cash balances. Could you speak to the $30 million of integration and investment spending? How long do you expect that spend to persist? If we think about the flow-through of free cash flow, kind of excluding some of these items being at 60%, like, is it possible we could be at north of 60% into 2027 as the integration spend winds down?

Taylor Lauber (CEO)

Yeah, I'll break down, you know, not necessarily in whole dollar terms, but, you know, a significant portion of that $30 is what I would consider, you know, in-year integration expense one time. There is a portion where we anticipate building sales teams. As you know, like, when we build sales teams in different geographies around the world, they don't pay for themselves in the first year. They take kinda one to two years to pay for themselves. I don't think a significant portion of that line would be recurring, but all of the line would be paying for itself, you know, to the extent we hit our sales objectives. This is something we challenge ourselves on pretty constantly.

Will, you know, probably better than most, that our preference is to deploy capital and buy small payments organizations that have a, you know, a proven track record of selling in one geography or another. We've executed against that pretty successfully in places like Germany and the U.K. We anticipate launching in 15 countries, you know, with our, with our all-in-one payment product, and it's just impractical to assume that you can find that many interesting M.&A. opportunities across those countries. The forecast skews a little bit more than we probably prefer. It takes a little longer, and it costs you know, to your point, this capital up front.

In the absence of kind of finding a great sales team locally that we can, partner with or we can buy, this is like the, we're not gonna ignore the opportunity simply because it requires a fixed cost.

Christopher Cruz (CFO)

Yeah, Will, maybe just to add, in terms of where you might see some of that line show up within the financials is actually in the form of probably the CAC and the EUL lines within cash flow statement, where you'll probably end up seeing some of that. The reason for that is that we probably expect that when we're newer in a market, we'd like to be more aggressive around some of the incentivization as you know, kind of quote-unquote, "prime the pump" in entering the market with a differentiated, totally new offering, and you wanna get the potential partners very excited to work with us and embrace the value proposition. That's just a little bit of extra color on that figure.

Will Nance (VP)

Helpful. Okay, sounds like, you know, a good portion of that should kind of run off into 2027. Just a follow-up, you know, you're talking about the kind of organic versus inorganic trade-off. How are you guys feeling about just capacity to do further M&A, particularly given the lower level of free cash flow this year? You know, thinking about half a billion of free cash flow against four and a half billion of debt, just what is sort of leverage capacity today, and, you know, is the thought to take a pause on M&A this year as you digest the, you know, the several large deals from last year? Thanks.

Taylor Lauber (CEO)

Yeah. Thanks for the question. I'll address kind of the strategic bent, then Chris can reiterate his comments on leverage ratios and everything else. You know, we have a team dedicated to looking at opportunities, so to say pause or any, it's not really how it works. We get introduced to opportunities, and we evaluate them, and we challenge ourselves as to whether those opportunities make sense. Then there is a relative balance of capital. Of course, we think about leverage ratios and how stretched we are. We think about buybacks on a relative basis with those opportunities in front of us.

We, we evaluate all those things constantly, and Chris can talk about, you know, where he has the hammer to say, "Stop." I will say, though, in a year like this, we are very focused on smaller, very strategically aligned M&A, so less likely to do something kind of far afield from what we do. If we can buy a small payment sales team in a particular country, we will do that. Why? Because you're traditionally paying a relatively low multiple, even inside of multiples we trade at today. You're acquiring a team that's got a proven track record of adding customers. You're emboldening that team with your own product, and inevitably, they're bringing some batch of customers with them that are a quick and easy cross-sell. We wanna reserve the right to do that.

I think if we did it, you'd find that the capital trade-offs are well worth it because it's an upfront and a lot of the timing associated with building is slower. Just by way of example, we did this in the UK, and within a couple of months, we're adding 1,000 merchants a month. That sounds impressive, but if you look at the quality of the organization we acquired, it was a very small organization, call it 15 people. Their sales prowess was proven, and we were able to invest in that confidently. We'll continue to look. I don't know that these would ever be things that hit the radar of kind of, an earnings call, but I'd love to buy a small, successful team in Spain or Italy or France, as opposed to building from scratch.

Christopher Cruz (CFO)

Yeah, the only thing I would probably add to that is that, well, I really like the line of questioning because it connects two concepts that I think people that have been constantly asking us about, which is how we allocate capital in order to drive or accelerate kind of these strategic in or, these strategic initiatives. Your first line of questioning, asking about the integration expenses and us talking about, you know, in many respects, growth CapEx, that's going to be inside of our free cash flow bridge. to then follow that up with the ask about how we might be allocating capital in order to maybe acquire distribution assets that further accelerate this international expansion and the launch of brand-new products that are completely differentiated. I mean, they're exactly in the, in the line of how we think.

The capital that we have to allocate at all points, do we view it as a scarce resource, regardless of whether we have ample leverage capacity, ample liquidity, ample excess cash flow generation. At all points in time, it all still has a cost and a relative ability to generate a return. I don't think that there is much of a change philosophically, regardless of where we are, because we value the capital so highly. But I do like the line of thinking because it really does underscore this core point, that we can allocate the capital dollars at initiatives like growth CapEx, or we can allocate the dollars at initiatives that acquire us and accelerate into, you know, capabilities like distribution in an emerging market.

Will Nance (VP)

Got it. Appreciate all the color, guys. Thank you.

Operator (participant)

Thank you. Our next question will come from Dominic Ball with Rothschild & Co Redburn, your line is open.

Dominic Ball (VP of Equity Research)

Thanks, guys. Hey, Taylor, Chris, Tom. Super clear on the guidance. Looking slightly beyond the quarter on the guidance, you know, many investors are trying to understand what integration success with Global Blue looks like from here. It's harder to see, obviously, from the outside, and Global Blue is such a critical part of the equity story of Shift4. Can you tell us a little bit more about internally, what it looks like, any key metrics, and when you think you'll start to approach Global Blue retail merchants for that cross-sell opportunity as well? Thank you.

Taylor Lauber (CEO)

Yeah, thank you for the great question. I'll start by saying it's already happened. We have live merchants in multiple countries, we're betaing and more. We've got, as I said, the ambition of having kind of being live, so to speak, in 15 countries. Those are countries that Global Blue is already in today, but we don't have a payments offering. To give you a sense for how we view success internally, it's the ability to add several thousand merchants a month towards, you know, the back half of this year. These are smaller merchants, admittedly, and I think the root of your question is an important one because traditionally, the investors look at volume as the key metric. We don't view that as the key metric internally on the cross-sell.

If you look across Global Blue's customer base, it ranges from the LVMHs of the world at the highest end, representing, you know, them and others representing, like, 80% of the volume, and then this really long tail of SMBs, you know, the hypothetical scarf boutique in Bellagio, Italy, representing 70,000 customers. Those customers are getting this highly differentiated product in our all-in-one terminal that delivers eligibility detection as if you were in, you know, the highest quality maisons in Paris. This is the product that's being released most quickly. This is the product that we're investing in local sales teams. I think, you know, it's no surprise. Just go to our job postings, and you'll see job postings basically everywhere throughout Europe, looking for sales reps around this product.

Quite frankly, it's where Global Blue as a standalone business was least equipped. They didn't have a sales force focused on this small, this really long tail of SMB. We're building out that sales force. Internally, we've got this kind of mantra that one, it's our dedicated Shift4 professionals that go into a local country, sit in a local Global Blue office, and help them build out this capability. Once they have, you know, 100 or so merchants under their belt, they pass it off to the regional manager. We're already seeing the early signs of that success in a handful of countries today, but we want to be doing it in 15 countries. We have this internal kind of merchant count focus, and we don't have a volume priority.

We just say, we know what great payments businesses throughout Europe can produce on a merchant-by-merchant basis. We see a lot of that data internally, and we know that several thousand merchants a month is a very reasonable outcome, and that's before you have a lead list like your 70,000 Global Blue customers. We're very pleased with the internal progress of that. Separate and distinct from that is this ability, and I mentioned it earlier, so I won't belabor it, to cross-sell DCC into our U.S. base of customers. In Europe specifically, it is an SMB-oriented sale. It's an all-in-one terminal that is displacing a bank terminal, but with a lot more feature and functionality, to drive higher TFS adoption. As you'd expect, when you walk into a merchant with this product, it adds a heck of a lot of value.

They adopt it quickly. We expect, by the way, equal proportion of kind of net new wins and cross-selling existing Global Blue customers as a result of that.

Dominic Ball (VP of Equity Research)

Yeah, that's great to hear. Just one more, if that's okay. I mean, the future growth of Shift4, as you mentioned, seems very much more international, but a good minority of your existing sort of stock, shall we say, are still in the U.S. and SMBs. A lot of your direct peers in the restaurant space are stepping up when it comes to their direct sales force. Seems like you're now, as you mentioned, rebranding SkyTab as well. Would you follow your peers in terms of a larger direct sales force, or more rely on the more traditional Shift4 route when it comes to gateway, M&A-driven growth, et cetera? Thank you.

Taylor Lauber (CEO)

It's a great question. We have been scaling our sales force, our direct sales force, but in a pretty deliberate and measured way. We have kind of a higher bar for capital allocation around the SMB space, especially in our more mature markets, than our peers. Like, the idea of chasing them, is not a good example. It was actually, you know, our head of marketing was challenging me around the SkyTab brand and what we could do to elevate it. I was, you know, very candid with him to say, if we look at what our peers spend on sales and marketing, we're not gonna come close to that.

The Shift4 brand is a much larger, much more powerful, much more visible one, and so why should we have two different products when we could leverage the Shift4 brand and our presence in the, you know, many tens of thousands of restaurants that we're already in? It's a, it's a relatively simplistic move, just simplify the product name, delete the part, but I think it'll have some meaningful value. It's just a sign that, you know, we have a very, very disciplined approach to customer acquisition costs. We spend far less than our peers. This will help us. It's a good step to gain incremental progress. We are adding direct salespeople to the tune that you mentioned, but with a capital discipline that I think really differentiates us.

Like, we will not chase the capital fervor around customer acquisition costs that we see some of our peers doing, and yet we'll still grow nice.

Dominic Ball (VP of Equity Research)

Yeah, great. Thanks, guys.

Operator (participant)

Thank you. Our next question will come from Dan Perlin with RBC Capital Markets. Your line is open.

Dan Perlin (Managing Director and Senior Equity Analyst)

Thanks. Good morning, everyone. I wanted to just touch on maybe the backlog for a second. I think you're implying, like, $32 billion embedded in the guide. That's down a bit from the $35 billion last quarter. The question really is just, have we reached a point now where, like, the burn rate is greater than maybe the net new signings? I know last quarter you installed $6 billion, and you signed $6 billion, just trying to kinda work through that framework a little bit.

Taylor Lauber (CEO)

You know, it's still a kind of a relatively new disclosure for us as we think about the backlog, and it's a relatively new form of measurement for us. I would say it shouldn't be that much of a surprise for a slight step down once you consider the other comments made by Chris, that we experienced more enterprise volume in the quarter than we necessarily expected. There are chunky enterprises, whether it be, you know, Alterra, Ikon Pass was a multi-billion dollar opportunity, you know, and a handful of others. We didn't view this as a change in kind of our relative progress. Keep in mind, most of our SMB opportunity never hits that backlog. We did see a little bit of, what I would call an enterprise volume that was faster than we anticipated it to be for.

Dan Perlin (Managing Director and Senior Equity Analyst)

Yeah, that totally fits. kind of staying on that same vein, if you think about the end-to-end volume guide, it's a pretty reasonable band that you guys put out for 15%-24%. It sounds like this year it's tilting more towards SMB versus maybe some of the enterprise that we've seen in the past. The question is really just, how does that impact the visibility that you might have in terms of forecasting that line item, or does that not really matter? Thank you.

Taylor Lauber (CEO)

Just to clarify that one, Dan, when you say you're referring to the Americas versus the worldwide, when you cite those two numbers?

Dan Perlin (Managing Director and Senior Equity Analyst)

I was really talking about total end-to-end volume, kind of total volume, that you guys are kind of calling out, $240 billion-$260 billion. Then it sounded like in the way you guys were describing maybe that book of business, as you're thinking about it sounds like it's tilting a little more towards SMB this year as opposed to more enterprise, maybe in the years past.

Taylor Lauber (CEO)

Yeah.

Dan Perlin (Managing Director and Senior Equity Analyst)

Is there more visibility that you have or less visibility because it's SMB and so it's trickier? I guess the point is, if you have a large implementation for enterprise clients, usually you have those in queue, you know exactly the timelines. SMB can be a little more spotty, so I'm just wondering if that-

Taylor Lauber (CEO)

Yeah.

Dan Perlin (Managing Director and Senior Equity Analyst)

-increases or makes it harder to forecast that line. Thanks.

Taylor Lauber (CEO)

Well, indulge me while we kind of travel around the world because there are nuances to this. In the Americas, our SMB forecasts are pretty reliable. I mean, again, this is a 28-year-old business. Our SMB presence has never dwindled. The change that you saw in the business over the last few years is that enterprise was entering the mix for the first time, and the relative contribution of enterprise has matured. Again, you know, talking about just kind of the Americas for a second, it's a relatively mature business. Our SMB progress is quite easy to predict, the enterprise, to your point, longer lead time, better visibility, and the mix of SMB to enterprise is more mature there. When you go outside of the U.S., the SKU is heavily skewed towards SMB. This isn't because we're strategically limited in any way.

This is the reality that SMBs make decisions quickly, same day. The higher you go up in the spectrum, the longer they take to make decisions. If you follow our shareholder letters over the course of the past couple of years, we only just began internationally a couple of years ago. A lot of SMB-oriented wins and sort of the green shoots of larger hotel groups and things like that. Those are just starting to play through in this year, but again, still heavily SMB skewed. If there's one area of guesswork, it is: how many SMB merchants can we add internationally over the course of the year? We are anticipating an acceleration there. To give you a sense for how we predict it, we have a pretty wide swath of data.

We act as a payment service provider for large PSPs, so we know what SMB production can look like in good, bad, and in different scenarios throughout Europe. We believe several thousand merchants a month is a very achievable result on top of kind of the 1,000-plus that we've been executing on relatively recently. I would say, yes, you're believing that we can execute against that cross-sell plan and that build-out of that sales force, the numbers that we have are quite grounded in, I think, a reasonable reality.

Dan Perlin (Managing Director and Senior Equity Analyst)

That's great. Thank you very much.

Operator (participant)

Thank you. This concludes our Q&A session and also brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect. Thank you.