Q3 2024 Earnings Summary
- Shift4 Payments has a significant contracted volume backlog of approximately $33 billion, up from $25 billion in Q2, which serves as a strong leading indicator for sustained volume growth in future quarters. The company converted $5 billion of this backlog into actuals in the past quarter, highlighting effective execution and providing confidence in continued growth despite potential consumer spending headwinds.
- The company's international expansion presents substantial growth opportunities, particularly in Europe where the convergence of software and payments is still in early stages compared to the U.S. Shift4 is leveraging its integrated software-plus-payments solution to penetrate these markets, offering a unique value proposition by bundling software, hardware, and payment services entirely in-house. This strategy positions Shift4 to capitalize on a largely untapped market and drive significant international growth.
- Strategic acquisitions like Givex, Revel, and Vectron have vastly expanded Shift4's cross-sell opportunities, adding almost $350 billion of annualized payment volume to its cross-sell funnel in 2024 alone. These acquisitions not only provide a massive customer base to convert to Shift4's payment processing but also bring in valuable talent and distribution channels. The proven playbook of cross-selling payments to these new customers is expected to unlock substantial revenue synergies and contribute to sustained organic growth.
- Shift4 is experiencing a notable same-store sales decline in restaurants since mid-summer, indicating that softer consumer spending may be impacting their core verticals. This decline has been "reasonably persistent" and has extended to "modest same-store sales declines across basically all of our verticals" in September.
- The company has acknowledged delays and execution challenges in their international expansion, particularly in Europe and Canada, which could impact future growth. They are falling short of their goal to have 10,000 international hotel and restaurant installations in 2024, with only "over 1,000 international card-present merchants" live and went live with only 4 out of a goal of 100 in October.
- Shift4 is managing multiple acquisitions and initiatives, which could lead to organizational complexity and execution risk. The CEO emphasized the need to focus on "deleting parts" and avoiding "lots of layers of management," highlighting potential challenges in integrating acquisitions and managing growth.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
End-to-End Volume | FY 2024 | $167B to $172B (53%–58% YoY growth) | $164B to $166B (50%–52% YoY growth) | lowered |
Gross Revenue Less Network Fees | FY 2024 | $1.35B to $1.38B (44%–47% YoY growth) | $1.35B to $1.36B (44%–45% YoY growth) | lowered |
Adjusted EBITDA | FY 2024 | $662M to $689M | $677M to $688M | raised |
Adjusted Free Cash Flow Conversion | FY 2024 | 59% (≈$399M) | 58% (over $390M) | lowered |
Organic Growth of Gross Revenue Less Network Fees | FY 2024 | Well north of 25% | Expected to exceed 25% | no change |
SkyTab System Installs | FY 2024 | No prior guidance | Exceed 35,000 installs | no prior guidance |
Contracted Annual Volume Backlog | FY 2024 | $25B | $33B | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Softness in same-store sales | Discussed in Q4 2023, Q1 2024, and Q2 2024, primarily affecting restaurants with occasional flat or slightly negative trends; hotels partially offset declines. | ~3% year-over-year decline in restaurants noted in Q3 2024, with slight softness also seen in other verticals around September. However, hotels rebounded to flat same-store sales by October. Sports/entertainment remained strong. | Remains cautious, continuing softness but varied by vertical. |
Large contracted backlog | Mentioned as $25B in Q2 2024 and a key growth driver in Q1 2024; not specifically noted for Q4 2023. | Emphasized again in Q3 2024, now $33B in backlog, offering confidence in future volume despite consumer spending softness. | Continues, backlog size increased from $25B to $33B. |
International expansion | Previously optimistic in Q4 2023, Q1 2024, and Q2 2024, citing moves into Europe, Canada, Africa, and APAC; challenges included local compliance and go-live timing. | In Q3 2024, behind target of 10,000 new hotel/restaurant installs internationally with execution timing issues, yet still optimistic about Europe leveraging Vectron acquisition and card-present capabilities. | Shift toward more caution, but still a major growth focus. |
Multiple strategic acquisitions | Q4 2023 to Q2 2024 calls highlighted Revel, Vectron, and Appetize deals; cross-sell efforts and synergy gains were regularly discussed to accelerate growth. | Q3 2024 remarks confirmed more acquisitions (e.g., Givex) driving nearly $350B in annual cross-sell potential, emphasizing an end-to-end approach for merchants. | Remains central, expanding cross-sell scope. |
Pivot in revenue models | Previously described as “blowing up” legacy revenue streams from acquisitions to emphasize payment-focused bundles in Q4 2023, Q1 2024, and Q2 2024. | Q3 2024 continued the strategy of transitioning acquired entities to integrated payments, acknowledging quarter-to-quarter bumpiness but aiming for long-term gains. | Ongoing strategy, no major change in messaging. |
Extended same-store sales beyond restaurants | Q2 2024 saw mild slowdown mostly limited to restaurants; other verticals (hotels, stadiums) were largely resilient. | Q3 2024 indicated declines extended to some other verticals in September, though hotels improved by October and overall declines were low single digits. | Broader mention of declines outside restaurants. |
Organizational complexity | Q4 2023 through Q2 2024 calls noted challenges in integrating acquisitions but highlighted a structured approach (PMO teams, synergy focus). | Q3 2024 reiterated the “Shift4way” for managing complexity, citing 2–3 major initiatives and elevating acquired talent while removing redundancies. | Consistent approach, continued focus on disciplined integration. |
Shift from optimism to caution on international expansion | No explicit cautious tone in Q2 2024 or earlier; prior calls remained upbeat on global rollout. | In Q3 2024, acknowledged delays toward 10,000-installs goal, citing technical and timing issues, while maintaining long-term optimism. | New note of caution, but still pursuing global growth. |
Significant synergy potential | Cited in Q1 2024 and Q2 2024 acquisitions (e.g., Revel, Vectron) for cross-selling payments and software. | Q3 2024 highlighted $350B in annualized cross-sell from new deals like Givex, surpassing past acquisitions combined. | Expanded synergy potential, larger than previous outlooks. |
Consumer spending headwinds | Acknowledged in Q4 2023, Q1 2024, and Q2 2024, with restaurants showing the most vulnerability, while hotels and stadiums helped offset. | Q3 2024 noted softening in consumer spending, primarily in restaurant same-store sales and a brief dip in other verticals in September; sports/entertainment remained robust. | Continuing concern, tempered by diversification and backlog. |
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Consumer Spending Trends
Q: Is consumer spending softening significantly?
A: Management noted notable same-store sales declines in restaurants since mid-summer. They see this as expected after strong performance in recent years and have diversified accordingly. Hotels had a strong summer but a slightly softer September, which rebounded in October. Sports and entertainment show zero signs of weakening. Overall, trends are mixed with no significant reason for high optimism or pessimism, and diversification has paid dividends. -
Q4 Volume Guidance
Q: Can we annualize Q4's $49B volume for next year?
A: Management agreed it's appropriate to consider $49 billion as a jumping-off point. Annualizing Q4 suggests they're in pretty good shape. They emphasized a $33 billion contracted volume backlog, with $5 billion rolled into actuals last quarter, representing signed deals. Details will be shared at Investor Day as they've beaten their last 3-year outlook. -
Acquisition Integration Challenges
Q: What's driving the pull-forward of Revel and Vectron?
A: Timing between incentives and volume ramp doesn't always align. The pivot is going as planned, but boarding thousands of accounts takes time. Challenges included debit card certifications needed in Canada and Germany. With issues resolved, they expect no mysteries where the next 65,000 restaurants from Vectron in Europe will come from. They also signed a very big international hotel operator. Despite minor stumbles, they're achieving over 50% volume growth. -
International Growth Strategy
Q: What differentiates you internationally for growth?
A: They're excited as software plus payments has yet to converge in Europe. They offer a bundled solution entirely in-house, unlike competitors who outsource components. Their complex card-present capabilities fill a gap in Europe. Giants like Adyen and Stripe focus on basic integrations; traditional players lack integrated payments. With focus on restaurants, hotels, stadiums, and global e-commerce geographic coverage, they position as a strong third choice. -
Gateway Conversion Opportunity
Q: Update on gateway conversion and any challenges?
A: Opportunity remains with over $100 billion annualized volume on the gateway. Conversion is programmatic, targeting enterprises and smaller locations. Revenue contribution is minimal, but the opportunity is enormous. Strategic focus is keeping the funnel full, aided by acquisitions like Givex. No significant challenges due to softening consumer spending were mentioned. -
Managing Complexity and Risk
Q: How do you manage complexity with many initiatives?
A: They focus on three needle-moving priorities, empowering small teams. A strong Project Management Office keeps talent aligned. The Shift4way culture emphasizes radical ownership, deleting parts, procedural discipline, and urgency. They maintain a flat structure to speed decision-making. Talent from acquisitions is elevated into key roles, enhancing the organization. -
SkyTab's Success and Outlook
Q: Any updates on SkyTab's success?
A: Pleased with SkyTab's progress, especially in Europe. Expect more wins in the UK and Ireland in Q4. Acquisitions add talent to SkyTab; for example, Revel's features are built into SkyTab. 65,000 Vectron systems will eventually be replaced with SkyTab. Velocity is increasing; they are #2 next to Toast in restaurants , with plans to close the gap and create more value.