Shift4 Payments Inc (FOUR) Q2 2024 Earnings Call Highlights: Robust Growth Amid Strategic ...

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  • End-to-End Payment Volume Growth: 50% year-over-year increase.

  • Gross Profit Growth: 38% year-over-year increase.

  • Gross Revenue-Led Network Fees Growth: 41% year-over-year increase.

  • Adjusted EBITDA: $162 million, representing 48% year-over-year growth.

  • Adjusted EBITDA Margin: Expanded 240 basis points to 51%.

  • Adjusted Free Cash Flow: $76 million, up 18% year-over-year.

  • Blended Spreads: Approximately 62 basis points.

  • Total Q2 Volume: $40 billion, 50% year-over-year growth.

  • Gross Revenue Less Network Fees: $321 million, 41% year-over-year growth.

  • Subscription and Other Revenue: $71 million, up 93% year-over-year.

  • Net Income: $54.5 million.

  • Diluted Earnings Per Share: $0.58 per Class A and Class C share.

  • Adjusted Net Income: $89 million or $0.96 per share on a diluted basis.

  • Net Leverage: Approximately 2.7x, excluding acquisitions impact, 2.2x.

  • Full-Year 2024 Guidance for End-to-End Volume: $167 billion to $172 billion, 53% to 58% year-over-year growth.

  • Full-Year 2024 Guidance for Gross Revenue Less Network Fees: $1.35 billion to $1.38 billion, 44% to 47% year-over-year growth.

  • Full-Year 2024 Guidance for Adjusted EBITDA: $662 million to $689 million.

  • Adjusted Free Cash Flow Conversion Expectation: 59% for full-year 2024.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Shift4 Payments Inc (NYSE:FOUR) reported a 50% year-over-year growth in end-to-end payment volume for Q2 2024.

  • The company achieved a 41% growth in gross revenue-led network fees and a 38% increase in gross profit.

  • Shift4 Payments Inc (NYSE:FOUR) generated $162 million of adjusted EBITDA, representing a 48% year-over-year growth.

  • The company successfully closed two acquisitions, Revel and Vectron, which are expected to deliver meaningful synergies.

  • Shift4 Payments Inc (NYSE:FOUR) has a strong pipeline of major enterprise resorts and has signed several high-profile clients in various sectors, including hospitality, sports, and entertainment.

Negative Points

  • The acquisitions of Appetize and Finaro negatively impacted margins by approximately 250 basis points for the quarter.

  • There is a noted drag on margins and free cash flow due to recent acquisitions, particularly Vectron, which will take time to realize its full potential.

  • The company has observed a mild slowdown in restaurant sales, which could impact future growth.

  • Shift4 Payments Inc (NYSE:FOUR) faces challenges in converting legacy systems and integrating new acquisitions, which may temporarily affect revenue and EBITDA.

  • The company has adjusted its volume guidance due to delays in European market expansion and a cautious outlook on consumer spending.

Q & A Highlights

Q: Can you explain the margin dynamics and strategic roadmap for monetizing the recent acquisitions of Revel and Vectron? A: Jared Isaacman, CEO, explained that the $15 million EBITDA contribution expected from Revel in the back half of the year is primarily from cost synergies, as Revel was a cash-burning tech startup. The focus is on cross-selling payments and eventually migrating customers to SkyTab. Vectron, with its 65,000 customers, represents a longer-term opportunity, expected to play out over 10 years, with a focus on payments in Europe and distribution partners selling SkyTab across Europe. Nancy Disman, CFO, added that the acquisitions have a drag on margins, but the synergy process is ongoing, similar to past acquisitions like Finaro and Appetize.

Q: What drove the volume reduction in the full-year guide, and how confident are you in the macro environment for the second half? A: Jared Isaacman, CEO, stated that the volume reduction was due to delays in achieving the expected number of restaurant and hotel customers in Europe and the realization that the high consumer spending levels might not continue. Despite this, Shift4 has historically grown through economic downturns by making strategic acquisitions like Revel and Vectron, which provide a more predictable volume trajectory.

Q: Can you provide an update on the stadiums and ticketing wins, and what portion of the total addressable market (TAM) are you currently working with? A: Taylor Lauber, President & Chief Strategy Officer, explained that Shift4 has a significant market share, with relationships in two-thirds to 75% of stadiums and theme parks in the U.S. The focus is on increasing wallet share by offering bundled solutions that include ticketing. The TAM for stadiums and ticketing is roughly $100 billion, and Shift4 is optimistic about capturing more of this market.

Q: How is the SkyTab platform performing, and where are you seeing the most success in deployments? A: Jared Isaacman, CEO, noted that SkyTab is performing well, with strong traction in both direct and indirect sales channels. The platform is being deployed across various markets, with notable success in the U.S., UK, and Ireland. The focus is on new sales rather than converting existing customers, with plans to migrate tens of thousands of existing customers over the next few years.

Q: Can you clarify the current state of the gateway revenues and the economics of the existing gateway volume? A: Jared Isaacman, CEO, explained that there is still a large volume on the gateway with very low take rates due to long-term contracts with price protection. Shift4 is incentivized to convert these customers to end-to-end solutions, which would provide uplift and better economics. The reduction in gateway revenue is part of a consistent strategy to convert these customers to more profitable models.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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