Shift4 Payments Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 8, 2023

There are 14 speakers on the call.

Operator

Greetings. Welcome to Shift4 Third Quarter 2023 Earnings Conference Call. At this time, all participants Please note this conference is being recorded. I will now turn the conference over to Tom McCrone, SVP, Investor Relations. Thank you.

Operator

You may begin.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to Shift4's Q3 2023 earnings conference call. Are joined by the Board of Directors. With me on the call today are Jared Isaacman, Shift 4's Chief Executive Officer Taylor Lauber, our President and Chief Strategy Officer are in the line with our Chief Financial Officer. This call is being webcast on the Investor Relations section of our website, which can be found are at investors.

Speaker 1

Shift4.com. Today's call is also being simulcast on X, formerly known as Twitter, are in the range of $1,000,000 which can be accessed through our corporate Twitter account at Shift4. Our quarterly shareholder letter, quarterly financial results and other materials related to our quarterly have all been posted to our IR website. Our call and earnings materials today include forward looking statements. Are not guarantees of future performance, and our actual results could differ materially as a result of certain risks, uncertainties and many important factors.

Speaker 1

Are available in our most recent reports on Forms 10 ks and 10 Q, are in the SEC's website in 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 Jared. Jared?

Speaker 2

Are ready to begin.

Speaker 3

Thank you, Tom. I opened my shareholder letter with some thoughts on the conflicts, the suffering and the humanitarian crisis are taking place around the world. And I would be remiss not to mention again how saddened we are at Shift4 for the loss of innocent lives. We're a global company now. And while we are small, we will certainly play our part in trying to make this world a better and healthier place.

Speaker 3

Are With that, turning to the quarter, it's been busy. So once again, we've delivered reasonably strong quarterly results that represented records are closely related to our KPIs, including end to end volume, gross revenue, gross profit, gross revenue less network fees and adjusted EBITDA. Our margins and cash flow continue to improve as we benefited from spread stabilization and disciplined expense control. I'm especially pleased with Q3. We achieved these results without the help of all of our previously announced stadium and resorts that really didn't

Speaker 2

begin processing until essentially Q4, nor did

Speaker 3

we have any of the revenue are accessing until essentially Q4 nor did we have any of the revenue synergies that we've been accumulating over the last 20 months inside of Finaro. We still generated 36% growth in end to end payment volume, 23% growth in gross revenue, 34% growth in gross profit And 24% growth in gross revenue less network fees. We also generated $124,500,000 of adjusted EBITDA, are Representing 46% year over year growth as our margins expanded 780 basis points to 51.2% are versus the corresponding year ago quarter. Our adjusted free cash flow also improved to $75,500,000 are up 69% versus a year ago. Our blended spreads also stabilized at 64.5 basis points.

Speaker 3

Are To be incredibly clear, Q3 did not have any contribution from Fenero or Appetiz. This is unfortunate are As we've spent the last 20 months working closely with Finaro and some 1 third of their net revenue is generated from existing Shift4 customers. If you were to overlay an approximately $7,000,000 in achieved revenue synergies from Fonaro into Q3, Gross revenue less network fee growth would have been over 27% with a very strong Q4 ahead as our numerous enterprise accounts have begun processing as expected. Additionally, our Skytap POS installs are resulting in higher subscription and other fees in Q3, and that's a real positive trend that we're excited to build upon. Are Continuing on, as many of you know, we're thrilled to have received the final regulatory approval on our European acquisition of Finaro And the deal officially closed on October 26.

Speaker 3

As mentioned above, we've already unlocked material revenue synergies at Fanaro during the extended regulatory approval process. Are We are thrilled to finally move on to the next chapter of our international expansion plan, especially with so much of the integration work already having been completed over the last 20 months. Are Before going into some of the specifics and despite some

Speaker 4

of the

Speaker 3

unanticipated delays, we're obviously really pleased with the results this quarter. Are excited about the opportunities in front of us, which is why we made some positive revisions to our guidance with respect to EBITDA and free cash flow. And we've also provided a 2024 volume bridge alongside reaffirming the 3rd year of our midterm outlook. On that note, we are often asked how we are able to sustain growth rates well in excess of industry averages. It's our successful capital allocation strategy alongside bold execution.

Speaker 3

Keep in mind, this is not always an M and A story. We have grown revenue double digits year over year for 24 consecutive years even through several downturns. We had no outside include building our flagship POS product SkyTab or back in 2021 when asset prices were out of control, We elected to invest organically in new verticals that are now driving substantial growth in e commerce and travel and gaming and parts of the non profit vertical. We continue to make sound investments as we organically expand into Canada and other parts of the world. This is part of our IPO promise to try and always be where the puck is going.

Speaker 3

We are also quite good at M and A. And I understand there is some rightful skepticism around M and A. I don't think many of our peers have executed as well as we have and now there is a general distaste for acquisitions. That is a mistake we're not going to make at Shift 4. For starters, the convergence of software and payments into a broader, stickier, more valuable commerce enabling experience is still very much early days.

Speaker 3

There has only been one public scaled payments company to get there without M and A. And as recent events have shown, it does not guarantee limitless growth. 2nd, we're going to play to our strengths, and we have an excellent track record. We're very good at identifying differentiated technology assets, are in a position where we believe we have a unique ability to unlock an embedded payments opportunity. We can then confidently underwrite those cross sell synergies Ensure there is a path to leverage those assets to accelerate net new wins and be financially deleveraging inside of 24 months.

Speaker 3

The acquisition of Shift4 and the MerchantLink Gateways many years ago are great examples of this as well as our acquisition of Venue Next and Focus Paws. We remain highly disciplined in the prices we pay and sellers are increasingly viewing Shift4 as having unique skills The unique skill set to maximize payment related synergies. And I want to also be clear, we've never won a banker auction process. If you do your diligence, you won't find a banker that says Shift4 is at the top of the bid list. We have our own proprietary pipeline, our own process and oftentimes bankers are just as surprised by our announcements as The Street.

Speaker 3

The recent acquisition of Appetize in the sports and entertainment vertical It was really a case in point. Now there are some that believe we possess a degree of sorcery that enables us to compel a major competitor to sell their assets at an incredible discount just in time to fill a hypothetical quarterly hole. And if you believe that, Then you should be just as bullish on Shift 4 as you would be for the truth, which is we don't control the timing of when deals happen, but we do ensure the outcome is solid. In the case of Appetize, we already had the best mobile technology in Venue Next that sports teams and venues wanted, And we also demonstrated an ability to monetize the embedded payments opportunity within this vertical by bundling the software and payments. Our leading fan first mobile technology is the true point of difference that opens the door to provide payments throughout the entire venue, And we are unique in our ability to unlock ticketing volumes through our integrations with major providers such as Ticketmaster and SeatGeek.

Speaker 3

And similar to how we win in hotels, we own more links now in the sports and entertainment value chain than any other competitor. This provided more ways to profitably Differentiate and win, and ultimately, that's what compelled Appetize to seek out a deal. We are very excited now about the expect to pursue the significant embedded payments opportunity as we migrate 600 plus Appetize customers over to our Venue Next platform. As Taylor will go into shortly, we are taking Appetize, which is a business that has hemorrhaged cash since its inception, have overlooked payments and adjacent opportunities like ticketing and turn it EBITDA positive by the end of this year. And in fact, We expect to exit 2024 with $15,000,000 of run rate EBITDA on a $100,000,000 purchase price with a lot of room to grow from there.

Speaker 3

Our capital allocation strategy supplements our growth algorithm. Our growth algorithm is very straightforward. It comes down to 2 things, land and expand And add new merchants. Land and expand involves capturing the existing embedded payments opportunity that already exists in our installed base of merchants, Such as converting a gateway only merchant to End to End or capturing, say, the ticketing opportunity associated with 1 of our sports and entertainment clients. You can think about this as really just ARPU expansion as every merchant is using our software or a unique software integration.

Speaker 3

The strategy has been working very well for many years and it represents approximately 50% of our production each month. We have tens of thousands of software only customers and additionally over $150,000,000,000 of gateway volume to continue this land and expand approach. And you can be sure we're going to continue to find ways to keep this funnel topped off. Now as to the other half of our growth algorithm, which is adding net new merchants, That's simply it. Merchants that are attracted to both our library or software integrations and the various differentiated technology offerings we offer in the end markets we serve.

Speaker 3

So great examples, Venue Next software, Skytap software. The result is that we win net new merchants are every single day, which represents the other 50% of our production. And we're going to be spending a lot more time in the months ahead are educating investors on our growth algorithm and the sustainable growth rates. As mentioned above, we're very confident in our organic growth rate and reaffirm the 3rd year of our mid are But first, let's review highlights from our core business and new verticals. So starting with restaurants.

Speaker 3

We have been winning at restaurants for nearly 2 decades With strong double digit growth. Our product offerings have evolved from software we've built to those that we have purchased, and now we are in the midst of a very successful are in a position to be in

Speaker 2

a position to be in a

Speaker 3

position to be in a position to be in a position to be in a position to be in a position to be in a

Speaker 2

position to be in a

Speaker 3

position to be in a position to be in a position to be in a position to be in a position to be in a position to cost of ownership continues to resonate with restaurant operators coupled with our recent promotional activity. We've installed over 8,250 Sky are at POS systems during the Q3, which is not necessarily one for 1 with a location and over 23,000 total installations since we officially came out of beta with SkyTab are Just a year ago. If you search on Twitter or X, Shift 4 or Skytab, You're going to see pictures and posts of installs that are taking place every single day. We are now installing Skytap POS in restaurants located within stadiums, are including Amway Center, which is home of the Orlando Magic and Paycom Center, which is home of the Oklahoma City Thunder. We also signed an agreement with BetMGM to install Skytab Mobile, which is our mobile solution, and there are over 2 dozen sportsbook locations across the country, And we are installing SkyTab in the Paper Mill Pub, which is located inside Truist Arena, home of the Charlotte Knights Minor League Baseball Team.

Speaker 3

Other restaurant wins include Pinstripes, which is a fast growing chain that combines the experience of eating out with bowling are in play a game of bocce and Stone Fire Grill, which is a Southern California chain of family casual restaurants and several other restaurant chains such as the Great American Restaurants are in Hyde Park Prime Steakhouse. It is worth reemphasizing our cost advantages. As a reminder, for a restaurant processing $1,500,000 of annualized volume, our Skytap POS solution is less than a third the cost of our primary competitor, are Including 0 upfront costs. Restaurant operators are extremely focused on cost, especially in this environment, and we're also seeing benefit from our recent promotions that took advantage of the actions taken by one of our competitors over the summer months to push through an online ordering fee that caused a great deal of consternation among their restaurant clients. We also benefit from one of our competitors that experienced a very prolonged outage.

Speaker 3

As mentioned above, this past quarter, we added thousands of new restaurants. Our shareholder letter includes just a sampling of those restaurants that have selected Skytap POS, but I really encourage you to search on Twitter or X for many, many more examples. Let's turn to hotels. So we had a blowout quarter signing new hotels as well as extending relationships with existing clients. We renewed and dramatically expanded our relationship with Pebble Beach Resorts.

Speaker 3

We also renewed and expand our relationship with Sonesta Hotels, have agreed to make Skytap POS their preferred restaurant POS across all Sonesta managed locations. And we have partnered with SkyTouch Technology, which is a property management system company to promote Skytap POS to all the restaurant venues across their 7,000 hotel properties. We also signed a European inspired chain of boutique hotels, Ares, that is based primarily in Southern California and several hotels on Nantucket Island, are Including the historic White Elephant Harborside Hotel, the Wahgnit and Jared Coffin House. Other hospitality wins this quarter include the Ocean House Hotel in beautiful Watch Hill, Rhode Island, the Tiburon Golf Club and Resort in Naples, Florida, are the host of several PGA Tour events and Spinnaker Resorts, operator of a dozen separated hotels primarily in Hilton Head, South Carolina as well as other states. So as you can see from our shareholder letter, our success in hospitality is a combination of adding net new merchants And converting gateway only merchants over to our end to end platform.

Speaker 3

Our land and expand approach affords us the ability to grow our end to end volumes Without ever having to add a single new hospitality customer. Moving on to new verticals. In Sports and Entertainment, we're are very excited to announce the acquisition of Appetize, where we more than tripled our market share within professional sports. But before getting even into Appetize, I want to highlight some of the other progress we made in the verticals this quarter. So we expanded our relationship with the Orlando Magic NBA team, We're now installing Skytap throughout the arena.

Speaker 3

We're handling all their mobile ordering, their retail and kiosk sales as well. And we will begin processing primary ticket sales for the Orlando Magic through our recently completed integration with Ticketmaster. For the San Francisco 49ers, we also added primary ticket sales through Ticketmaster and expanded our relationship to add food and beverage payments as well. And for the Miami Dolphins, we will now begin processing primary ticket sales also through our integration with Ticketmaster. We have only just recently completed this Ticketmaster integration and we've already announced 3 ticketing wins this quarter, the Dolphins, the Orlando Magic and the San Francisco 49ers.

Speaker 3

Now in college sports, we added University of Georgia, who will be implementing our Venue Next technology solution for mobile ordering and point of sale. We also signed up Music Fest, a large annual music festival here in hometown Bethlehem, Pennsylvania, which takes place every summer and the Palm Springs Aerial Tramway, are to the world's largest rotating tram car that transports visitors along the desert cliffs of Chino Canyon, which is part of the San are Quasito Mountains located in Riverside County, California. Now with the acquisition of Appetize, We're adding some really awesome venues such as Fenway Park, Yankee Stadium, Madison Square Garden, Dodgers Stadium, Busch Stadium, Globe Life Field and Progressive Field. We will be transitioning legacy Appetize Venues onto the Venue Next platform and begin the process of unlocking the embedded payments opportunity are across their entire portfolio of customers. So this includes mobile payments, concessions, retail parking and as you could guess, especially ticketing.

Speaker 3

Legacy Appetizer's revenue model was highly dependent on selling hardware and software with very little payments revenue. We are pivoting that model immediately to payments and expect a material portion of their revenue to go away as we will no longer be selling hardware and any other payment referral revenue that they were generating will likely also go away as our competitors turn off those rev share programs. Despite that transition, it's a playbook we know really well And this is a very synergy rich deal, both from a cost and revenue perspective. We also had an integration to TicketReturn, This is a leading provider of minor league baseball ticketing in the United States and Canada. TicketReturn has a relationship with over 300 venues and facilitates more than 55,000,000 ticket sales annually.

Speaker 3

They also serve minor league hockey, minor league soccer, basketball and lacrosse. In the non profit vertical, our momentum continues to build. At the end of September, we announced a partnership with Give Lively, which powers donations for nearly 9,000 nonprofits and is our most important ISV integration in the sector to date. The Giving block remains the category king of noncash giving in the nonprofit sector. The focus of the Give Lively integration is to add Shift4 as a preferred are traditional credit card processor and we are able to win this deal because of our unique ability to offer other donation methods such as crypto and stock that other competitors, including Stripe, can offer.

Speaker 3

The Giving Block also secured integrations with Ministry Brands and Endowment, both of which are expected to go live in Q4 ahead of a very busy giving season. In addition to new platform integrations to Power Card, are Crypto and stock donations, the Giving Block continues to sign additional marquee clients such as Global Citizens, Habitat for Humanity International, Easter Seals and many more. We are successfully cross selling our card processing capabilities into the installed base of Giving Block customers. This quarter, we added Cuddles for clefts, pediatric cancer, are in the U. S.

Speaker 3

And the Purple Heart Foundation. The cross sell opportunity within the non profit vertical remains very large are in the range of our exciting land and expand opportunities going forward. And in retail, we also signed the Landmark Board's retail store in Philadelphia. As mentioned above, we did finally complete the long awaited Finaro acquisition. And this is a much better business, as we've said many are more than happy with the time of our announcement.

Speaker 3

With considerable card processing capabilities, broader geographic coverage in Eastern Europe And approximately 1 third of their net revenue coming from existing Shift4 customers. We've already unlocked considerable revenue synergies and now we're really just getting started. Are Nancy and Taylor will go into more specifics shortly, but we are enthusiastic about the potential to board 10,000 plus restaurants and hotels in Europe and Canada in the year ahead. This is really what we've been waiting for. Before handing it off, I want to reiterate that for more than 2 decades, we've consistently demonstrate an ability to gain share in the end markets we serve.

Speaker 3

Our initial guidance ranges for 2023 volumes were $100,000,000,000 to $109,000,000,000 This range contemplated everything from business as usual with same store sales growth on the high end are to a mild recession on the low end. We expect to finish this year in excess of the high end of our previous range are With minimal same store sales growth in our core verticals and 2 months benefited from our organic and inorganic international initiatives. The midpoint would imply 2023 full year volume growth of 52%. What was far more in our control was fighting for flat headcount, investing in automation and AI tools. And as a result, we've continued to beat expectations, especially on margin and free cash flow, are raising the midpoint even for Q4.

Speaker 3

We have further provided a very helpful table on Page 15 of our investor deck That shows how we as management think about a normalized Q4 growth taking into account the legacy contributions of Finaro and Apotyze and Focuspaz, The expected synergies that we anticipate we expect to realize and then normalized Q4 growth rates assuming a full quarter of Finaro. As mentioned, a large part of our success is our understanding of the ongoing Integrated Payments evolution, the competitive landscape And how that informs our capital allocation investments. It's also about identifying talent and creating a culture that ensures we have the most motivated athletes on the field are competing to win business every day, while also keeping our existing customers satisfied. Our employees embrace the Shift4 way, including radical ownership and accountability. And I believe this culture of ownership starts at the top of the house.

Speaker 3

Our entire executive team leads by this example and boldly forward. And with that, let me turn the call over to Taylor.

Speaker 5

Are open. Thank you, Jared, and good morning, everyone. I'd like to provide a brief update on the current operating environment, our thoughts regarding the upcoming Q4 And how we are thinking about our capital allocation priorities. Our 3rd quarter volumes trended in line with our expectations despite The later than expected closing of Fanaro. Through that lens, we are reasonably pleased with our results.

Speaker 5

Same store volumes were roughly flat across the portfolio, are but with variances among merchant groups, which is a benefit of the diversification we've pursued since IPO. Hotels continued to see modestly higher are same store volumes with restaurants flat and retail moderately negative. Jared mentioned this, but it is worth repeating. We did not receive any volume or revenue benefits from the bulk of our international expansion efforts until a few weeks ago when Fanaro closed. Are It is with this backdrop that we are very encouraged for Q4.

Speaker 5

Unlike many of others in our industry, we have are known projects and customers that will deliver volume and allow for growth in the face of any economic headwinds. Some examples of this are the numerous football stadiums, the MSG Sphere, Fontainebleau, Intown Suites and others that began processing during Q4. Are As we round out the 2nd year of our Gateway Sunset initiative, I thought it important to highlight all the puts and takes that are happening in any given quarter. Our preferred outcome and what happens the majority of the time is that Gateway customers migrate to our end to end offering. This represents roughly 50% of our production are in the range of $1,000,000 and volume growth in any given quarter.

Speaker 5

In this case, gateway revenue declines, but end to end revenue grows meaningfully and the customer gets a better experience an overall lower cost of service. The rest of gateway only volume will eventually be repriced over a multiyear period are To the point, we feel like we are receiving a proper share of the payment economics for the value we are providing. Or in some cases, the merchant can choose to move on. It is worth highlighting that under our watch there has been very little attrition to the gateway only population. And the few examples where we have experienced were very low revenue enterprise customers that made decisions before we own the platform.

Speaker 5

When we announced the acquisition of Fenero 20 months ago, we sized the business are at $30,000,000 of EBITDA. That would likely step backwards as we separated from certain customers. Presently, the run rate EBITDA for Fanaro is over 45,000,000 are more important than the financial performance is the underlying business, which is roughly 13% card present and growing quickly. This compares to 3% card present prior to our signing. Additionally, about 1 third of their revenue is derived from merchants of Shift4.

Speaker 5

Will provide a more detailed Fenero contribution for the full year 2024 when we provide year end results. But as you can see in the 2024 volume bridge we provided in our shareholder letter, we anticipate legacy Fenero to contribute $15,000,000,000 of total volume in 2024. Additionally, we anticipate roughly $9,000,000,000 in payment volume from international restaurant, hospitality and e commerce opportunities. In regards to Appetize, please keep in mind this was a business that has overlooked payments and burned cash extensively since inception. We fully expect to take a step backwards as competitors discontinue revenue share programs and we intentionally step away from legacy revenue streams like hardware sales.

Speaker 5

That stated, we are confident in our integration plan and have already had very productive conversations with Apotyzed customers who are eager to adopt the VenueNext platform and the numerous other benefits like ticketing integration. We also expect the margin drag associated with the transaction to be short lived are And to achieve a run rate EBITDA of $15,000,000 by 2024. The macro uncertainty we've been cautious about for over a year have not become any clearer. For investors thinking about the potential impact of various macro headwinds in 2024, I would like to offer the following two examples. Are 1st, annualizing our current adjusted EBITDA and the expected $15,000,000 contribution from Apatize, You will find us to be already within the vicinity of analyst consensus for 2024.

Speaker 5

2nd, if you annualize our Q3 adjusted non GAAP EPS of $0.82 a share, you're essentially in line with next year's consensus for non GAAP EPS. Keep in mind, this is with 0 growth are in the range of 2nd quarter despite our expectation to continue delivering best in class volume and revenue growth. Turning to the immediate future, We continue to expect a strong Q4 in light of many in year enterprise initiatives in stadiums and resorts that will come online in this quarter. In terms of capital allocation priorities, we are prioritizing smaller M and A that could act as an accelerant to our go to market strategy for restaurants, hotels and stadiums throughout Europe. The discipline we exhibited waiting for selling multiples to come back to earth has resulted in us currently being in a great position to deploy capital at attractive returns.

Speaker 5

Additionally, our own stock has been punished alongside of the broader FinTech market, although few peers have such strong financial performance. Are ready to take questions. As such, we remain committed to opportunistic buybacks of our stock with excess free cash flow. As Jared mentioned in his letter, are. Given our track record, we are not compelled to apologize for smart investments, be that Focus POS, Venue Next, Appetize or even our smaller investments and opportunities like SpaceX that have been both contrarian and deliver attractive returns for our shareholders.

Speaker 2

Are ready to begin.

Speaker 5

And with that, I'd like to turn the call over to our CFO, Nancy. Nancy?

Speaker 6

Thanks, Taylor, and good morning, everyone. Are in line with our expectations.

Speaker 2

We delivered another quarter

Speaker 6

of strong results, including quarterly records for volume and gross revenue less network fees. We continue to balance strong top line growth are with disciplined investments as evidenced by the strength of our adjusted EBITDA margin and our adjusted free cash flow conversion. 3rd quarter volume grew 36 are in line with the Q3 of 2019. Q3 gross revenue grew 23% to 675,000,000 and gross revenue less network fees grew 24% to $243,000,000 year over year consistent with our expectations. Our quarterly results were driven by the continued strength of our core momentum across our enterprise merchants, including new verticals, and capturing better economics from our gateway only customers.

Speaker 6

We also entered the year with improved unit economics with our restaurant channel are due to our strategic decision last year to in source a significant portion of our go to market distribution in connection with the launch of Skytap POS. 3rd quarter gross profit was up 34% year over year to $171,000,000 and our gross profit margin was strong at 70% for the quarter, are represented by the end of the quarter. The blended spread for the Q3 was are at 64.5 basis points. We continue to expect our blended spreads to average around 65 basis points are ready for the full year 2023 and anticipate Q4 blended spreads will benefit from higher spread international volume and ticketing. As a reminder, year to date spread compression versus a year ago is a function of rapid volume growth from new enterprise accounts.

Speaker 6

Blended spreads within our core, including restaurants and hotels, continue to remain stable. In Q3, Total general and administrative expenses increased 3% year over year to $76,300,000 We continue managing toward our goal of keeping headcount are well positioned to be flat while investing in talent upgrades, driving further efficiency across our operating model and demonstrating the scalability of our platform. For the quarter, we reported adjusted EBITDA of $124,000,000 which is up 46% over the same quarter last year. The resulting adjusted EBITDA margin for the quarter was 51%, representing over 7 80 basis points of year over year expansion. Are in the process of continuing to balance investments to support our growth.

Speaker 6

Are ready to take questions. Many opportunities to further improve margins are still on the horizon as we harness the productivity of AI tools, implement new internal systems and continue to take out the parts across the business to further enhance scalability. We are monitoring the Fed updates on the potential reduction of debit interchange, which would also be positive to our business and our overall margin profile. Our adjusted free cash flow in the quarter was $76,000,000 bringing year to date adjusted free cash flow to nearly 200,000,000 Q3 and year to date adjusted free cash flow conversion is 61%, well above our current full year guidance of 55% plus. Net income was $46,500,000 for the Q3.

Speaker 6

Basic earnings per Class A and Class C share was $0.56 are in the range of $1,500,000 or $0.85 Adjusted net income for the quarter was $69,500,000 or $0.82 are per A and C share on a diluted basis based on 85,100,000 average fully diluted shares outstanding. We are exiting the quarter with just over $690,000,000 of cash, dollars 1,750,000,000 of debt and are in line with the financial results and $100,000,000 undrawn on our credit facility. Our net leverage at quarter end was approximately 2.4 times. Our strong balance sheet and free cash flow profile will continue to allow us to invest in the business, pursue our strategic priorities and opportunistically repurchase shares. Our Board previously approved $250,000,000 of buyback capacity, of which are in the range of $150,000,000 of capacity is remaining.

Speaker 6

As a reminder, we raised capital when the market supported us to do so attractively. Our weighted average cost of debt is currently 1.35 percent and we do not have any maturities until December 2025. Are Turning to guidance, we are tightening the ranges for all of our KPIs and raising both the low end and high end of the range are in line with the results of the financial results of the financial results of the financial results. Our guidance for the upcoming Q4 includes end to end volumes of $32,000,000,000 are subject to $33,000,000,000 gross revenue of $741,000,000 to $766,000,000 gross revenue less network fees of are at $274,000,000 to $289,000,000 adjusted EBITDA of $132,000,000 to 140,000,000 and adjusted free cash flow conversion to be at least 57%, up 500 basis points from our initial guidance. Are in line with the Q3.

Speaker 6

It is important to note we remain cautious about the are in a macro environment and have reflected this in our guidance ranges. The closing of Fenero has removed a major uncertainty surrounding the timing are in the range of our international expansion efforts. After 20 months of working closely together, we will immediately realize the benefit of the synergies from Fenero in the quarter. In total, we anticipate that legacy M and A will contribute a total of $25,600,000 of gross revenue less network fees to the 4th quarter are in the range of $5,800,000 to adjusted EBITDA. A complete reconciliation can be found in our earnings materials.

Speaker 6

These acquisitions will cause a short term drag on adjusted EBITDA margins, but base margins remain strong at over 50% are in line with further room for expansion. As we discussed last quarter, the 4th quarter will benefit from higher SaaS revenue from the acceleration of SkyTab in POS installations, increased contribution from ticketing and the implementation of several large hospitality and stadium wins we announced previously that are scheduled to go live this quarter. As we are quickly approaching 2024, We thought it would also be helpful to provide a volume bridge to show the building blocks to get to our medium term guidance. We anticipate a material portion of our incremental volume to will be derived from annualizing merchants already boarded during 2023 as well as continued land and expand execution across all of our verticals. We have a total embedded payments opportunity of over $180,000,000,000 of which about 80% is represented by our gateway only merchants, and the balance is represented by converting Sorfa only restaurants and stadiums to our end to end platform.

Speaker 6

We also expect have approximately $15,000,000,000 of volume contribution from legacy Finaro. Before turning the call back to Jared, I want to reiterate that our balance sheet, and cash generation and profitable growth position us incredibly well for the current environment of macro uncertainty. With that, let me now turn the call back to Jared.

Speaker 4

Okay. Thank you. Thank you, Nancy. Before going to Q and A, and I know this is a long call, but we had a lot to talk about, we did want to take a question from are so from Krishna and Mohammed, Shift4 has grown volumes every year, including are in the range of 2,000, 2008. Given there are fears about potential global recession, What areas are management focused on to continue sustainable growth in uncertain economic conditions?

Speaker 4

So, Christian, thanks for the question. I mean, first, We're starting from a pretty good place. I don't know if everyone caught it in Taylor's remarks, but if you essentially annualize Our 2023 or if you essentially annualize Q4 2023, including our adds in 2023 and what we anticipate are you're already at consensus 2024 EBITDA estimates. Similarly, you could also just annualize Q3's Non GAAP adjusted EPS and you're also at 2024 analyst EPS estimate. So I guess what I'd say is like you're starting from a good place and essentially a no growth scenario from here that we can get there.

Speaker 4

Are Obviously, like we have grown through downturns many times throughout our history. I can't imagine any could be worse And what we encountered in 2020 when we were predominantly serving restaurants at that point in time and from like a regulatory perspective, you couldn't go out and eat. And we still grew payment volumes double digit in that environment. I just think people don't appreciate our advantages in that Yes, dollars 150,000,000,000 plus in gateway volume that's like we're already providing the commerce experience. We're just not getting paid for it.

Speaker 4

We also have Tens of thousands of restaurants using our software, not just in U. S, in Canada and parts of Europe that we're now able to pursue from an end to end perspective. So We have more than our foot in the door and a lot of opportunities. You have a massive cross sell with our non profit customers on the giving block. We have tons of ticketing opportunities, Stadium cross sells over appetizing.

Speaker 4

I just think that gives us the advantage that we can win in obviously great economic climates, but even in downturns as well. Thanks for the question. And with that, we'll go to general Q and A.

Operator

Thank you. And for participants choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Will Nance with Goldman Sachs. Please proceed.

Speaker 7

Hey, guys. Appreciate you taking the question and appreciate all the great detail in the release are today super helpful on the organic and inorganic stuff. On the volume bridge, I found that very helpful. Nice to see the confidence in sort of where Street and all participants are aligned on next year. I guess, when I'm looking at each of these buckets of volumes, you guys have had lots of commentary in the past talked about the move up market and the expansion into new verticals and now new geographies.

Speaker 7

And I think it's probably worth are talking a little bit about the take rates on some of these geographies. Obviously, very different from a core win versus like a hospitality win. But I When we put take rates across each of these buckets, you can get to some pretty exciting numbers, but just kind of curious how you would kind of contextualize some of the take rates are in these different verticals relative to kind of where the aggregate is and maybe help us think a little bit about what the flow through into our rent to revenue next year might be?

Speaker 4

Yes. Hey, Will, this is Jared. I'll start, and I think this is a question that Nancy and Taylor can also weigh in on if they like as well. First, I think we're starting from like a very, very stable place within our core vertical. Restaurants and hotels have continued to do what they've been doing for the last couple of years.

Speaker 4

So there's no pressure there, which I think just really speaks to the strength Of the value proposition, we wouldn't expect anything to change within those core verticals, which if you look at the volume bridge, is a pretty healthy chunk are of 2024. Now when you turn to some of the newer verticals, that's where you can have some real monsters from a volume perspective. And we've said this From the get go that you can't compare the take rates of like a hypothetical Dallas Cowboys or New York Yankees are doing massive volume to the Irish Pub on the corner. That said, we've got ticketing firing on all cylinders now. I mean, last quarter we were talking, we're saying, hey, we're almost there with our last major ticketing integration, which is Ticketmaster.

Speaker 4

This quarter we come out and we say we've got the Orlando Magic, are San Francisco 49ers and the Miami Dolphins all on the Ticketmaster integration. That's big because those take rates are just are Meaningfully north of what like a concession stand would be, which should have low take rates because there's like no risk in a concession stand purchase. So I think like you'll continue to have that dynamic as we move up markets in our new verticals. And now we guys like we got to talk about international. And that's where like our research, I'd say over the last more than years, we start to look at restaurants and hotels, is really starting to come into play.

Speaker 4

You do have a spectrum. Are Surprisingly, more in Central Europe. You actually have take rates in the restaurant environment there that can be upwards of 100 basis points, Which would be nice because that is somewhat in line with the smaller restaurant that we board here in the U. S. Hotels are certainly less, which is also in line with what we see here in the U.

Speaker 4

S. But I think in some markets, they are less when you see car price and take rates in Europe. And that's where you have to compensate with And that's fine. I mean, we're already getting pretty good at SaaS, if you look at the numbers this quarter from just our Skytap product. So Canada, for sure, you You got a lot of interact there, a lot of pin based debit, which is lower take rate.

Speaker 4

The SaaS pricing will be higher in that market. You get in different parts of Europe, it's going to be all over the place, and you're are And you're going to have to vary SaaS in order for that to make sense. I don't know if Taylor or Nancy wants to

Speaker 8

go into some more specifics.

Speaker 9

Yes. I just feel like giving a shout out to the strategy team because we've been looking at international for are 3 years now, Jared, beyond the year you mentioned. So we've gotten reasonably educated on the overall market. What I would say makes us most encouraged is not necessarily the take rate that you see existing in those markets today. It's the fact that The opportunity for value added services and software integrated payments is just immense all over the landscape.

Speaker 9

So to Jared's point, you may bundle things slightly differently as you enter those markets, but the reality is take rates are reasonable in our opinion and that's before all the value add that we intend to deliver are in the same store. So, we are immensely encouraged. I think we've mentioned this for the past are all systems go on deploying SkyFab in Europe and it's a major strategic priority for us. But I do think, Nancy, we probably owe Just kind of what the blend of all this means as we think about the next few months ahead.

Speaker 10

Yes, for sure. And obviously, we're being a little cautious are here, of course, they lead me to the last of the three comments because we're not looking to guide on really further than the volume bridge into are but I think you heard us talk about stabilization of the spreads. I think the takeaway from the commentary you just heard is Our mix and distribution of our business, 'twenty three was really the transition year where we really moved away from what was a traditionally are largely restaurant and lodging based high core growth kind of business. The blend and mix of our business now and kind of where the blend is sitting right now in spreads are in the range of 2020. Is more representative of what we will look like moving into 2024 with obviously continued move upmarket, but with that benefit Whether it's ticketing in the new verticals or those international higher spreads coming in.

Speaker 10

So I certainly think where we're sitting now are in a good place for you guys to use as kind of a stable spread launching into next year.

Speaker 7

Got it. Sounds like there's a lot more balance to are. And then just, look, I think it's I think we kind of understand what's going on, but maybe Baer is kind of double clicking or emphasizing a bit. I mean, the communication inorganic this quarter was great. And I think it strikes a nice balance of kind of saying here's what we bought and here's what we did with it.

Speaker 7

But just to kind of put a finer point on it, I think you originally said Fenero would add roughly $15,000,000,000 of volume. That's what you have in the volume bridge For legacy Finaro, it sounds like the legacy part of Finaro is only about 2 thirds of the business today. So it sounds like by your own doing, You've kind of contributed something $7,000,000,000 or something like that to the volume base, and that's kind of what we're seeing in the $9,000,000,000 Just wanted to kind of confirm that we're thinking about that the right way. And do you think you could use this as a blueprint for maybe future communications around inorganic growth?

Speaker 4

Yes. So Will, I guess I'll start with that one. And it's like I mean, clearly, in this climate, everybody wants The DoubleClick transparency on what the inorganic and organic contribution was from these deals, and we provided that quarter. And I think Should there be future transactions, we'll do the same. I think we're like we owed with are Growth revenue less network fee sensitivity to give you a picture of, hey, onethree of these represent existing customers.

Speaker 4

I don't think we're going to go down and break out volume, especially when some people can predict who those are and associated sensitivities with that. But yes, I think going forward, like you should expect similar to the table we provided that we would continue, especially if it's a one-sided new transaction to set appropriate expectations and contributions.

Speaker 7

Got it. Makes a lot of sense. Appreciate it and thanks for taking the questions guys. Nice job.

Operator

Are our next question is from Darrin Peller. Please proceed.

Speaker 11

Are Guys, nice results here. I think when adjusting out your just kind of following on to that point, when you adjust that in organic contribution in 4th quarter, it looks like organic growth net revenues is 28% in 4th quarter, up from the 23%, 24% range we just saw. So it's are Great to see. Maybe you could just help us understand what you're gaining momentum on sequentially, in especially in the backdrop of the macro and it's not often we're seeing that. And And also just the macro conservative assumptions you're implying or you're building into that outlook.

Speaker 9

Yes. I'll start and then I'm sure Jared and Nancy will Good morning, Darren. So a handful of things. Number 1, the framework for are our Q4 guidance is largely taking what we're seeing in the business today and pulling it through the quarter, which are in the range of $1,000,000,000. As you recall, we've now got Panera closed.

Speaker 9

We had advertised closed at the beginning of the quarter and we have have a lot more visibility into a lot of the big installations that we had expected throughout the year and new weren't going to happen until are So, it's really just the ability to visualize and see the start dates on a ton of initiatives that we've been working on for a very long time. You also are getting some incremental benefit from growth in SaaS, which I think is quite encouraging. That's a byproduct of are A handful of things, but not the least of which is our Skytap success. So it's I wouldn't say there's a lot of guesswork are inside of Q4. To Nancy's point, we give ranges for a deliberate reason and especially in times where the climate are is volatile.

Speaker 9

I would say, we've been calling out the $100 stakes probably longer than any of our peers and we're always cautious about that.

Speaker 2

Are

Speaker 9

Thank you. But the further you get into the year, the less cautious you have to be that there will be like a knee jerk reaction to anything, especially when Our guidance really ever since Nancy joined is increasingly hinged on known activities as opposed to a guess of what the macro is going to be. Nancy, are Yes.

Speaker 10

I think that's a fair point. And look, we've gotten a very good look at October at this point and we're seeing can see with what we saw in Q3. So that just gave us further confidence in what to expect for Q4. I think Taylor's point is the one I would double click on. A lot of things are coming together that we've been talking about all year.

Speaker 10

I think We've got a very good balance of discipline when it comes to managing kind of costs, right, and balancing that with investments that are really Almost all focus on margin expansion opportunities throughout the year. And so obviously, here in Q4, We're seeing a lot of benefit of even work just done earlier in this year that is coming to fruition. So when you look at Q4 and kind of tightening the ranges that we did, it's are because we've got a lot of line of sight and obviously, though still cautious around the macro, we're kind of listening to what everyone else is saying. But right now, we're not really seeing any kind of step change at this are joined.

Speaker 4

Hey, Darren, I'm just trying to pile on one point here. I mean, look, I don't think I mean, clearly, we didn't get the are right advice very early on in the Finaro process. Had we known, that would take 20 months. I mean, look, even the information we had At the time of Q2's earnings was not perfect. I mean, we did have a couple of different options to get there, which is why we included guidance.

Speaker 4

But I say all this because If we could rewrite history on this one, we would have worked out a revenue share during an extend and during such an extended regulatory approval process in doing so, like we would have been receiving volume and revenue in prior quarters. So the comparison of are Harrison of like 24% to 28% looking like a big leap. The reality is, is prior quarters have essentially been understated because a lot of effort that we've been putting into our global expansion was not reflected in our financials. Are

Speaker 11

That's a really fair point, Jared. I guess to add on to that and congrats on closing Finaro. But really more importantly, looking forward now, I mean, there's been exciting opportunities we've been talking about for a while on what Finaro can bring for you guys internationally. So Jared, just remind us what you see as I don't know Low hanging fruit is the right term because it's never easy, but what are the first opportunities you see beyond what you've already added, whether it's hotels are stadiums that you can leverage your relationships with and start moving internationally.

Speaker 4

Darren, it's all three of those things. Like I think We are less than like a couple of weeks away from announcing our 1st European stadium win. But I'm we're like very charged up on restaurants and hotels. I mean, we've been saying are really from the start that we have an awesome customer and we will follow them all over the world, but not with the aim of winning like the next Uber or Netflix. It's with the aim of taking the products and services that have worked for us in the U.

Speaker 4

S. Into those markets. And I'll tell you, like the amount of time we spent, and Taylor's point is right. We spent several years looking internationally. But like the last year, we've been very on-site in Europe a lot.

Speaker 4

And I can tell you like what I'm seeing in the restaurant and hotel space in Europe It's exactly what we saw in the U. S. In like the days of Mercury Payments. I mean, you still have most of the POS systems have a standalone nonintegrated bank terminal next to them, like an EVO terminal. And that's just as applicable in the hotels as well.

Speaker 4

So So it's like this is a total dust off the playbook of what we know we crushed it within 2017 here in the U. S. And bring it into Europe. So That's what we put out there. Like, we're going to get to 10,000 restaurants and hotels in Europe and Canada next year.

Speaker 4

We're going to light up a lot of international stadiums. Like, That is that was always supposed to be the next move once we moved into that market. It's what we're doing.

Speaker 11

Thanks a lot. Congrats.

Speaker 2

Are open.

Operator

Our next question is from Timothy Chiodo with UBS. Please proceed.

Speaker 2

Are open.

Speaker 12

Great. Thank you. One on gateway and then a quick numbers one as a follow-up. So firstly, also love the bridge on Slide 16 with the are Volume contribution is getting to the $175,000,000 I want to see if we could just recap or update on the gateway conversion. So when we look at the $17,000,000,000 that includes net are new and conversion, safe to assume that some portion of that is from the gateway conversions.

Speaker 12

Clearly, the absolute number converted would be higher because would roll in over the course of the year, but still really small in the context of the 180. Totally appreciate that earlier you mentioned that Some of these merchants will convert, some of them will be repriced and some of them will depart. But maybe just recap The go to market approach there, how much of that is being done by 3rd party resellers? Is it your internal teams that are reaching out to them? And really The progress being made there on gateway conversion and how hard you can push it this year?

Speaker 9

Yes, sure. I'll cover that one. The game plan continues to be refined, right? So we're 2 years into a really deliberate push, which we began sort of when we saw started to see the pandemic in are in the near, we started to see the health of our hospitality merchants be restored. And so, we said, all right, now is the time to are going to press on this effort more deliberately.

Speaker 9

The effort is going well and our tactics get refined modestly, but it's producing kind of are Something that we're happy with, which is a blend of production on end to end that results in about 50% being net new and 50% are being conversions from the gateway. I would say it's having incremental success with larger and larger merchants. I mean, this past year, we've talked about multibillion dollar gateway merchants converting over. So, that's really encouraging that there are there isn't a population inside the gateway that is not willing to have the conversation. And as I mentioned in my scripted remarks, Large enterprises take a long time to make decisions.

Speaker 9

So the fact that they're willing to make decisions at this point means our tenacity has paid off. In terms of our approach, we slice it a handful of different ways. We look at the segment, meaning hotel versus restaurant versus are We look at the software that person is using. We look at the acquirer they're connected to as a particular means for opportunity. So we approach it a bunch of different ways and all three of them kind of have are equal measures of success.

Speaker 9

I would say the majority of those efforts though are direct. And why you should care about that is because The vast majority of these conversions don't come with a residual share that would typically be involved in a 3rd party bringing us a merchant. Are

Speaker 12

open. That's really helpful. That seems like that's a little bit different than a few years ago. So that's really good to know. Are All right.

Speaker 12

Thank you, Taylor. The follow-up is on numbers. So when we take the Q4 volume guidance and also are appreciating that some of the legacy Fenero is not fully in there for the full quarter. If we just take that, I know the seasonality of the business has shifted a little bit with new verticals coming on, etcetera. Are Is it still fair to think about the Q1 volumes should be up quarter over quarter as they were last year?

Speaker 12

Is there anything else You would call out that would in terms of the changing seasonality. Clearly, the Finaro full quarter contribution helps, but beyond that.

Speaker 10

Yes. No, I don't think so. I think that's a good proxy to think about just the grower from having a full quarter of FINARO and then the seasonality have seen from a Q1 perspective, I'm just thinking we will have obviously the benefit of all the Q4 implementations coming in, so but nothing that would go the other way.

Speaker 13

Are Great.

Speaker 12

Thank you for taking those. Appreciate it.

Operator

Our next question is from Jason Kupferberg with Bank of America. Please proceed.

Speaker 8

Thanks, guys. I too wanted to compliment you on the volume bridge chart and just ask a little bit more on it. Specifically, of those pieces of the bridge, Which potentially have the most risk or the least visibility as you sit here today?

Speaker 9

Are So, I'll start and what I want to sort of maybe set tone relative to the volume bridge is, We wanted to show a commitment to a medium term outlook that we set out back in November of 2021 before have multiple wars and a lot of macro concerns across kind of global economies. We still feel like it's highly achievable and I think it's are looking at the same time, and it's important to set that framework in everyone's mind because we weren't reaching for full potential across any one of these verticals. We are simply saying what's an incredibly reasonable way are to slice up the remainder we have to go. I think international is one I'm personally most excited about. The momentum we've had with the Finero business since signing to get us a healthy portion of the way there, and I think Will kind of alluded to that.

Speaker 9

And then the annualization is obviously something we can rely on pretty comfortably. Obviously, you have You have to be cautious about macro, but just getting a full year of merchants that joined you the prior year and only contributed partial is something we can underwrite heavily. Jared, I mean, you've always got great insights onto the world ahead. Any comments you want to weigh in?

Speaker 4

Yes. I mean, look, the layups are obviously the annualization of 2023. I would also say like sports stadium and ticketing is going to be pretty easy. I mean that's a I mean, I hope people really dig into how awesome of a deal Appetize really was. I mean, we are ushering them right over are The Venue Next product, and the Venue Next product comes with payments, as does our restaurant products too for that matter.

Speaker 4

So We're going to move them over. We'll capture payments on that. And ticketing, we're having a lot of success in. So I feel really good there. In terms of like our core additions, which I think you were asking about previously, which is conversions and net new accounts, The actual population of like targeted like independent hotels and such is more than double what we've actually plugged in for are that we would consider like our prime targets for the year ahead.

Speaker 4

So that really comes back to Taylor's answer that Where would be the riskiest side is, well, you're going into a new continent, going after restaurants and hotels. I just say, like, we have a lot of confidence in it. We already have SkyCabs that are operational. We have our Opera and Oracle integrations already operational in Europe right now. So we feel really good about that.

Speaker 4

But that obviously, you got

Speaker 8

heard in the 2024 volume outlook. It sounds like based on the take rate commentary, we've got comfort with the 2024 targets on revenue as well. So maybe Nancy, just Turning to margins, just as we think about the moving pieces for 2024, can you just go a little bit deeper into some of the Areas of improvement, you touched on them briefly, because I know you're going to potentially have some drag from the recent M and A also, although maybe Cost synergies will be kicking in. Just trying to think how that nets out because I do think directionally you're expecting EBITDA margins to be up next year. Thanks.

Speaker 10

Yes. I'll start with like your first your last point first, which is, yes, I think the way that you are right. The synergy opportunity will be delivered pretty quickly, and that's why we put out the appetite EBITDA number, right? So are really just watching that turn from a drag to pretty quickly turning into an EBITDA opportunity, which is both sides of that equation that Jared talked about. It's across all opportunities, but then Of course, there's always expense synergies with any of these acquisitions that come together.

Speaker 10

I'd first say I guess, I first want to start with like, look, I think these on margins we're delivering are best in class. So I want to be cautious again on not putting up too much yet on where we'll be on a 'twenty four guide, But we absolutely think there is margin enhancement in the near term that you'll see when we do come out with that guide. The growth trajectory, it's just I would say I know I've been a little bit of a broken record about this. The union economic model right now that we're operating under, Every single dollar of revenue is coming through at a higher margin, and that is what has caused this sequential margin improvement quarter over quarter that you've seen all year. And so when I think if you look at where the margins are exiting, certainly that should be your starting point when you think about 'twenty four and beyond.

Speaker 10

The opportunity to continue to kind of manage a relatively flat SG and A base like you saw this quarter is really a reflection of every part of the operating model. I could kind of go through each one again, but it starts with things that are Like Anthony, where we're adding on ticketing, we're not adding in SG and A. When we're going upmarket, we have a much the idea that we've are consolidated under one SkyCare brand, right? That takes out just so much infrastructure and customer support. So it's just really every kind of aspect of the growth model right now is producing a higher margin than where we started the year, and that will continue going into 2024.

Speaker 10

Are So I would say best in class today with room for improvement that you'll see coming in with 24.5%.

Speaker 8

Well said. Thanks. Are

Speaker 2

ready to take questions.

Operator

And our final question will be from Jamie Friedman with Susquehanna. Please proceed.

Speaker 13

Hi. Thank you for the detailed results and commentary in this immaculate shareholder letter. I want to ask, So it looks to me like the math is that the implied blended spread for the 4th quarter are at 68 basis points is up, both sequentially and year over year, right? So 60 are 6 in the Q4 'twenty two, if I'm calculating that right. So, but more generally, maybe you could help unpack either Nancy or Jared or Taylor, how we should be thinking about why it is that the blended spreads would be rising again after they did fall in the Q3.

Speaker 9

Yes. I'll let Nancy kind of double click. I would just say, we didn't set an explicit spread expectation are We do expect our SaaS and other line to grow sequentially quarter over quarter. So I don't know that the pull through on 68 Is an explicitly good read. I also don't want to give one on applied.

Speaker 9

So Nancy, any more color you can give there?

Speaker 10

I would speak about Q4 as right now, our expectation going into the quarter, excluding the acquisitions, were certainly that Q4 would be a strong blended quarter. Q3 actually came in better than our initial expectations. So I expect Q4 to look are similarly to what you saw in Q3, the 65 basis points, you heard us call it out as kind of a stabilizing of the spreads. Unfortunately, Which ultimately ends up being a positive is as we bring on large enterprise merchants quarter to quarter, there will be some movement. But I think if You used $65,000,000 as kind of an exit rate into Q4, you'd be in a good spot.

Speaker 9

And the one thing I want to call out because we mentioned this are in passing, but it's an important consideration as we do have to pay attention to exchange rates now with Fenero being a part of the business. So the impact on dollar versus are going to be something that can play a role. And obviously, there can be some volatility associated with that. But we're not seeing Any meaningful spread changes on a customer by customer or vertical by vertical or even geography by geography basis. It's just another thing to keep in mind.

Speaker 13

Okay. And then for my follow-up, just to try and advance that conversation to 2024. So I realize we don't have the revenue. We've got the volume in the guidance. But in terms of maybe qualitatively how to think about the inputs for The blended spread for next year, because it sounds like you're boarding a lot of enterprise activity.

Speaker 13

I mean, Jared was are very enthusiastic about how much going on there. At the same time, Tayo, you're saying you got international, which I would assume has a higher blended spread. So anyway to think about the blended spread trends for next year will be helpful. Thank you.

Speaker 10

Yes. And we're really being careful to not go too far into are giving anything on 24 guide. We'll talk obviously the next time we're together about that in great detail. But I would just answer it similarly to the earlier question, which is are using 65 as kind of an exit rate right now from a modeling perspective. It's certainly reasonable.

Speaker 10

There will be puts and takes in exactly what you just summarized, which is are continuing going upmarket, obviously comes at lower spreads, but with all the international expansion, that will be coming in at higher spreads. We also love what we're seeing in our new verticals as we expand in S and E with ticketing, which also brings that are kind of vertical line up from a spread perspective. So I think the blend that we're at now, if we're putting a stake in the ground, but I would not take this as a guide point, I think $65,000,000 is a fairly stabilized blended spread right now for where the business is.

Speaker 13

Are Got it. Thank you. Thank you both.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Earnings Conference Call
Shift4 Payments Q3 2023
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