Q1 2024 Earnings Summary
- The company's leadership believes that Shift4 is significantly undervalued compared to its high-growth peers, with the CEO stating that analyst valuations during the strategic review were "materially higher" than the current trading price, indicating potential upside.
- Strong organic growth is expected to continue, with the company reaffirming its 25% organic growth target for the full year and expecting acceleration in the second half, driven by new business wins, successful deployment of SkyTab installations, ticketing wins, and international expansion into Europe and Canada.
- The strategic acquisition of Revel is anticipated to unlock significant value through a massive payment cross-sell opportunity, integration of Revel's best capabilities into SkyTab, leveraging Revel's existing sales force and partnerships, and contributing approximately $15 million of EBITDA in the second half of the year, with further acceleration expected in 2025.
- Potential delays in implementing new customer wins may impact revenue growth projections. The company's growth guidance relies heavily on the timely installation and go-live of new customers, including significant deals in the stadium and hospitality sectors. However, management acknowledged that installations can be delayed, as seen with the BEI Hotel, which was featured 1.5 years ago but hasn't opened yet.
- Disruption of acquired companies' revenue models may temporarily impact financial performance. The company admits to intentionally disrupting the revenue models of acquired companies, sometimes offering services for free to pivot customers to their preferred products. This approach can make financial modeling challenging and may lead to short-term revenue setbacks.
- Underdeveloped European sales force might hinder international expansion plans. Management stated that their European sales force is "by no means at the scale we'd like it to be," which could limit the company's ability to capitalize on international growth opportunities in the near term.
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Back Half Revenue Guidance
Q: What's driving confidence in back half revenue ramp?
A: Management reaffirmed their expectation of 25% organic growth for the full year, with acceleration in the back half driven by new wins and implementations. They highlighted the growing backlog of go-lives, including stadiums, hotels, and ticketing wins, which provide greater visibility into future revenues. Seasonal factors like the football season and travel and leisure activities also contribute to the anticipated ramp. -
Revel Acquisition Rationale
Q: What's the strategic rationale for acquiring Revel?
A: The Revel acquisition aligns with Shift4's strategy of cross-selling payments to existing software customers. Revel had previously overlooked payments, offering a significant opportunity to monetize their customer base. Additionally, Shift4 plans to integrate Revel's best capabilities into SkyTab, eliminate duplicative products, and leverage Revel's sales team and distribution, including in Europe. The acquisition is expected to contribute $15 million of EBITDA in the back half of the year. -
SkyTab Revenue Potential
Q: How do you see SkyTab's revenue developing over time?
A: SkyTab focuses on net new customer wins, adding higher-spread payments and SaaS revenue. While SkyTab customers typically have lower volume than hotels or stadiums, they contribute higher revenue per dollar due to the SaaS component. Management noted that restaurant SaaS growth was 55%, with a high percentage coming from SkyTab. They offer competitive pricing, often providing the first year free, with potential for revenue ramp as they start charging for enhancements and modules. -
International Expansion Progress
Q: How is international expansion progressing in Europe and Canada?
A: Management is ahead of plans in Europe and Canada, securing impressive wins with hotels, operators, and brands like Pizza Hut in several countries. They've seen strong traction with EV operators and are investing to ramp up distribution in Europe, expecting increased activity in the back half of the year. -
Undermonetized Volume Funnel
Q: What's included in the $500 billion undermonetized volume funnel?
A: The $500 billion figure represents the total undermonetized end-to-end volume opportunity from past acquisitions and investments, including gateway volume and customers from Appetize and Focus POS. This does not include the Revel acquisition. Management is agnostic about capital allocation, focusing on opportunities that offer strong returns, whether through product development, M&A, or share buybacks. -
Gateway Conversion Impact
Q: What's the impact of gateway conversions on revenue and spreads?
A: The company is converting gateway customers to end-to-end payments, improving spreads from lower initial levels to higher rates typical of SMBs. The repapering process involves contracting directly with franchisees, providing more services, and is expected to contribute more revenue in the back half of the year as thousands of locations are converted. -
Sales Force Expansion
Q: Can you update on sales force size and distribution?
A: In the U.S., the direct sales team has increased by about 10% over the past two years, with additional authorized partners added, especially on the West Coast. In Europe, the sales force includes the former Finaro team and is smaller than desired, but there are plans to scale up significantly. The Revel acquisition will add an established sales team and partners, enhancing distribution capabilities. -
Valuation in Potential Sale
Q: How do you view valuation in a potential sale?
A: Management acknowledges a significant gap between the company's current valuation and that of high-growth peers. During the strategic review, analysts suggested various valuations, with higher ranges deemed more appropriate by management. They believe the company's value is well above the current market valuation, considering the underlying business dynamics and growth prospects.