Q4 2023 Earnings Summary
- Shift4 expects over 25% organic revenue growth in 2024, with high confidence as much of the growth is already booked or being integrated. This indicates strong organic growth prospects.
- The company's international expansion is progressing well, with the potential for international operations to represent a larger portion of growth over the next year. This could further boost overall revenue growth.
- Shift4 anticipates over 250 basis points of organic margin expansion in 2024 , indicating improving profitability.
- Delays in enterprise customer go-lives are impacting revenue growth, with some large customers electing to delay their go-live dates, which are outside of the company's control. This could lead to revenue uncertainty.
- Acquisitions of Finaro and Appetize are negatively impacting margins, causing a margin drag of over 250 basis points in the quarter. This may continue to affect profitability in the near term.
- The company is assuming weak same-store sales growth in their guidance, expecting no rebound and anticipating a potential pullback in consumer spending, indicating concerns about macroeconomic headwinds affecting growth prospects.
-
Revenue Guidance and Organic Growth
Q: Is organic revenue growth over 25% in guidance?
A: Yes, we expect organic revenue growth to be well over 25% in 2024 , alongside over 250 basis points of margin expansion. Much of this growth comes from customers already booked with implementation schedules, giving us high confidence. -
International Expansion and M&A Pipeline
Q: What's the focus of M&A and international strategies?
A: We have a significant M&A pipeline across various deal sizes , emphasizing international growth both organically and through acquisitions. Our U.S. strategies will be applied internationally, particularly in Europe and Canada, where we see rich opportunities and are carefully choosing markets and payment methods. -
Gateway Conversion Progress and Churn
Q: Any changes in gateway conversion strategy and churn?
A: We've had success converting gateway customers without significant churn. We're optimizing our approach using "carrots and sticks" and have $120 billion of low-spread volume left to convert. We're satisfied whether customers become acquiring clients immediately or through raised pricing on gateways. -
Resource Allocation for Implementations
Q: How are you handling resource needs for large implementations?
A: We're reallocating existing resources to meet demand without significantly increasing headcount. By repurposing teams from legacy software support to new installations like stadiums, we're maintaining efficiency. We uphold a high bar for adding new headcount, focusing on internal reassignments. -
Impact of Customer Go-Live Delays
Q: Are delays in customer go-lives affecting revenue?
A: Some large customers have delayed their go-live dates, impacting revenue timing. These are timing issues, not scope changes. Big projects take time, but contracts remain unchanged. -
SkyTab Expansion Plans
Q: What are your goals for SkyTab installations in 2024?
A: We aim to install 30,000 SkyTab systems domestically in restaurants and 10,000 systems internationally in restaurants and hotels, focusing on Canada and Europe. These are net new targets; we haven't begun upgrading existing customers to SkyTab yet. -
Free Cash Flow and Margins
Q: What are free cash flow and margin expectations for 2024?
A: We anticipate ongoing improvements in free cash flow conversion, aiming for over 58% in 2024. For margins, we expect over 250 basis points of organic margin expansion, aligning with our revenue growth. -
Pricing Opportunities for SkyTab
Q: Any plans to adjust SkyTab pricing?
A: We're aware that SkyTab has the lowest total cost of ownership. While we benefited from competitors' pricing tactics last year, we see future opportunities to reprice. However, we're cautious not to disrupt our advantageous position. -
Seasonality and Spreads
Q: How does seasonality affect volume and spreads?
A: We expect Q1 to be our lowest point for the year, with some sequential uptick from Q4. Applying 2023 seasonality to 2024 aligns with our expectations. We're approaching a floor in net spreads at 60 basis points for 2024, which should be used as a basis for modeling. -
SaaS Business Growth
Q: How will software revenue grow in 2024?
A: Subscription revenue is a growth area, with the SkyTab component growing almost 70% within SaaS. Other SaaS components are also growing nicely, contributing to healthy revenue growth.
Research analysts covering Shift4 Payments.