Earnings call transcript: Shift4 Q4 2024 earnings beat forecasts, stock drops

Shift4 Payments Inc . (NYSE: NYSE:FOUR) reported its fourth-quarter results for 2024, revealing stronger-than-expected earnings and revenue figures. The company posted an actual earnings per share (EPS) of $1.35, surpassing the forecast of $1.13. Revenue reached $887 million, significantly exceeding the anticipated $406.93 million. Despite these positive results, the stock experienced an 8.87% decline in aftermarket trading, closing at $114.51, down from the last close of $121.28. According to InvestingPro data, the company maintains a "GREAT" financial health score of 3.27 out of 5, with particularly strong momentum and growth metrics.

Key Takeaways

• Shift4’s EPS and revenue both significantly exceeded forecasts.
• Aftermarket trading saw a notable stock price decline of 8.87%.
• The company announced strategic initiatives, including international expansion and new product capabilities.
• Shift4’s acquisition of Global Blue is expected to generate significant revenue synergies by 2027.

Company Performance

Shift4 Payments showcased robust growth in the fourth quarter of 2024, with end-to-end tenant volumes increasing by 49% year-over-year to $47.9 billion. The company also reported a 50% rise in gross revenue less network fees, reaching $5 billion. Adjusted EBITDA rose by 51% to $205.9 million, and adjusted free cash flow saw a 78% increase to $134 million. These figures underscore Shift4’s strong market position and successful operational strategies. The company’s impressive 36% revenue CAGR over the past five years, as reported by InvestingPro, demonstrates consistent long-term growth momentum.

Financial Highlights

• Revenue: $887 million, significantly above forecasts.
• Earnings per share: $1.35, exceeding the forecast of $1.13.
• Gross revenue less network fees: $5 billion, up 50% YoY.
• Adjusted EBITDA: $205.9 million, up 51% YoY.
• Adjusted free cash flow: $134 million, up 78% YoY.

Earnings vs. Forecast

Shift4’s actual EPS of $1.35 outperformed the forecasted $1.13, marking a positive surprise of approximately 19.5%. Similarly, the actual revenue of $887 million was more than double the forecast of $406.93 million, highlighting the company’s strong financial performance and operational efficiency.

Market Reaction

Despite reporting better-than-expected earnings and revenue, Shift4’s stock fell by 8.87% in aftermarket trading. This decline contrasts with the company’s positive financial results and may reflect broader market trends or investor concerns about future growth sustainability. The stock’s current price of $114.51 is within its 52-week range, which has seen a high of $127.5 and a low of $55.87. InvestingPro analysis indicates the stock is currently trading at a P/E ratio of 66x and shows high price volatility. InvestingPro subscribers can access 12 additional key insights and a comprehensive Pro Research Report that provides deeper analysis of Shift4’s valuation metrics and growth potential.

Outlook & Guidance

Looking ahead, Shift4 projects a volume growth of 21-33% for 2025, with gross revenue expected to rise by 22-27%. The company aims for an adjusted EBITDA between $830 million and $855 million, representing a 23-26% increase. These projections exclude the impact of the Global Blue acquisition, which is anticipated to unlock $80 million in revenue synergies by 2027.

Executive Commentary

CEO Jared Isaacman emphasized Shift4’s leadership position in key markets, stating, "We are number one in hospitality, we are number one in sports and entertainment, we’re number two in restaurants." President Carolyn Lauber highlighted the strategic value of the Global Blue acquisition, describing it as a "market-leading payment platform with tens of thousands of luxury brands worldwide."

Risks and Challenges

• Market Volatility: Fluctuations in the broader market may impact investor sentiment and stock performance.
• Integration of Acquisitions: Successfully integrating Global Blue and realizing projected synergies could present challenges.
• International Expansion: Entering new markets involves regulatory and operational risks.
• Competitive Pressure: Maintaining leadership positions requires continuous innovation and adaptation.

Shift4’s strong financial performance in Q4 2024, coupled with its strategic initiatives, positions the company for continued growth. However, market reactions and future challenges will need careful navigation to sustain momentum. With a current ratio of 2.98 and strong liquidity metrics, the company appears well-positioned to execute its growth strategy. For detailed analysis of Shift4’s financial health and growth prospects, including exclusive Fair Value estimates and peer comparisons, visit InvestingPro.

Full transcript - Shift4 Payments Inc (FOUR) Q4 2024:

Tom McClellan, Moderator/IR Representative, Shift4: And welcome to the ShiftCore Fourth Quarter twenty twenty four Earnings Call. At this time, all participants are in

Operator: a listen only mode.

Tom McClellan, Moderator/IR Representative, Shift4: As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you Tom McClellan with Shift4. Thank you, Tom. You may begin. Thank you, operator.

Good morning, everyone, and welcome to Shift4’s first quarter twenty twenty four earnings conference call. Joining me on the call today are Jared Isaacman, Shift4’s Chief Executive Officer, Carolyn Lauber, President and Nancy Disman, our Chief Financial Officer. This call is being referenced on the Investor Relations section of our website, which can be found at investors.shift4.com. Today’s call is also being simulcast on x basis, formerly known as Twitter, which can be accessed through our corporate Twitter account shift4. Quarterly shareholder letter, quarterly financial results and other materials related to our quarterly results have all been posted to our IR website.

Our call and earnings materials today include some notable new statements. These statements are not guarantees of future performance and our actual results to differ materially

Operator: as a result

Tom McClellan, Moderator/IR Representative, Shift4: of certain risks, uncertainties and many important factors. Additional information concerning those factors is available in our most recent reports on Forms 10 K and 10 Q, which you can find on the SEC’s website in the Investor Relations section of our corporate website. For any non GAAP financial information discussed on this call and related GAAP measures, any reconciliations are available in today’s quarterly shareholder letter. We are hosting our Investor Day event today in Las Vegas. And as a result, we unfortunately do not have time to entertain any questions at the conclusion of our prepared remarks.

Operator: With that, let me turn

Tom McClellan, Moderator/IR Representative, Shift4: the call over to Jared. Jared?

Jared Isaacman, Chief Executive Officer, Shift4: Thanks, Tom. We clearly have a lot of exciting things to discuss today, and we have an afternoon Investor Day to go through it. So despite my past tendencies and this likely being my last earnings call, so I’m going to endeavor to keep this as brief as possible. So as such, we’re trying to cover summary of Q4 results, highlights from the quarter, our acquisition announcement of Global Blue and finally, expectations for 2025. So regarding Q4 results, we once again delivered reasonably strong results that represented records across all of our major KPIs, including end to end volumes, gross revenue less network fees, adjusted EBITDA and especially adjusted free cash flow.

Nancy Disman, Chief Financial Officer, Shift4: So with that, our end to

Jared Isaacman, Chief Executive Officer, Shift4: end tenant volumes increased 49% year over year to $47,900,000,000 our gross revenue less network fees increased 50% to $4.00 $5,000,000 our adjusted EBITDA increased 51% to $205,900,000 and our adjusted free cash flow increased 78% to $134,000,000 dollars So all these results represent quarterly records, as I mentioned before. And despite the doubters, we delivered on the promise of the back half ramp. The back half represented 27% of our full year gross revenue less network fees with the fourth quarter alone contributing 30% of full year gross revenue less network fees. We also delivered positive operating leverage for the year with adjusted EBITDA and adjusted free cash flow both growing faster than revenue growth. We accomplished all this while completing several acquisitions and deleveraging with year end net leverage of 2.5 times.

So when we zoom out and look at the multiyear picture, we ended the year surpassing our mid term our medium term guidance, which as you know, calls for fifty percent three year CAGR growth in volumes and a corresponding 30% CAGR growth to gross revenue less network fees. Our actual performance came in at 5236% respectively. We delivered these three year results despite a more challenging economic climate than the one we were operating in back in late twenty twenty one. Since then, we experienced both record inflation and record increases in interest rates, a combination of which most certainly caused stress to the average consumer. I’m not sure how many tech or fintechs established a multiyear outlook in November of twenty twenty one and actually delivered, including some passing expectations on the KPIs that really matter like free cash flow.

Personally, I felt this was an important step for the company and the team and would speak to the credibility of the organization, which is especially important going in today where we will establish our goals for the next three years. So let’s turn to some of the highlights for the quarter. The team did a great job delivering signature wins across hospitality, restaurants, sports and entertainment and what we’re now calling our unified commerce platform and across multiple international markets. So starting with Sky Cabin restaurants, we easily surpassed our initial 2024 goal of 30,000 plus Sky Cabin system installation. And while we are the second fastest growing player in the space, we do not like settling for second cast.

Over the past year, we signed signature wins such as Casa Cabiani, Mineta Tavern, Burns Steakhouse in Tampa and Alcazar. In The United States, we installed hundreds of international restaurants across Canada, The United Kingdom (TADAWUL:4280), Ireland and Central Europe And the broad launch of our payment led value proposition to Econ’s three hundred plus European dealer network in January was very well received with hundreds of deals already signed up in the month of January and a very successful UK Ireland sales conference in Q1

Tom McClellan, Moderator/IR Representative, Shift4: of this year. In short, we

Jared Isaacman, Chief Executive Officer, Shift4: are winning restaurants very quickly in USA, Canada, Ireland, UK, Central Europe and soon to be in Australia and New Zealand. Let’s turn to hospitality. So if you like skiing, you’re probably doing it as a Step four customer. So last quarter, we talked about kind of Cancal Resorts, Hotel Resorts. Well, this quarter, we are adding Alcarra Mountain Resorts, which is an operator of 19 ski resorts in The U.

S. And Canada, including well known ski resorts such as Mammoth Mountain in in California, Gir Valley Resort in Utah, Palisades Tahoe in California, King Boat in Colorado, Seblanc and Winter Park Resort in Colorado. We also now power the payments for the ICONIC ICONS pass. So the ICONIC key pass, which provides Sears access over 50 key resorts in North America as well as some of their international locations will be processed by ship for as well. Also in hospitality, we renewed our agreement with Tranquilift Lodge.

So they’re an operator of indoor water parks with multiple locations in The United States and Canada. And we signed many new hotels, including the Meritage (NYSE:MTH) collection of hotels, with an operator of several luxury hotels such as Hoss Hotel and Spa in Huntington Beach, California, Coa Cay Resort in Hawaii, Meritage Resort and Spa in Napa Valley and Hotel Viana in Austin, Texas. This is just a sampling of wins in hospitality this quarter. It was not long ago that bears were saying we were a one trick pony in hospitality hospitality, simply converting gateway customers and likely losing an enterprise. The reality and this has been demonstrated in our earnings deck over multiple quarters now is we are number one in the world winning far more net new enterprise resorts and across multiple geographies.

So let’s turn to quick entertainment. So Lindsay (NYSE:LNN) is coming here, we entered into an agreement to power payments for technical solutions locations across The U. S. And in sports, we process the ticket into New York Yankees and the Dallas Mavericks, the Pioneers of the PineFX, Portland Trail Blazers, University of Southern California. We were also honored to power payments for College Football National Championship.

And similar to hospitality when it comes to SME, we are also number one in the world. Now let’s talk about unified commerce. So we consolidated all of our Cardnot presenters into a new category called unified commerce. So over the past three years, we’ve quietly built a robust one platform, one integration capability that enables commerce all over the world. Our platform’s capabilities were informed by working alongside a strategic customer widely considered to be the most technologically advanced corporation in the world.

And then we added other enterprise merchants, so St. Jude, Allegiant Airlines, MGM, and really thousands more have started using the platform, while we simultaneously invested in technology capabilities such as in, 2,000, quarter transactions, version of record, payback capabilities, local to local functionality and a wide array of open equipment methods, intelligent bond monitoring tools and really a very unique set of geographic coverage. And we can do this in a card presence and card not present environment. So this platform is especially important in the context of the large acquisition announcement that we’re going to speak to more about today. And I just generally believe it was in line with in a line of business that we have not been given really that much credit for.

And we should because it’s a TAM that’s growing much faster than our base business and the competitive landscape, actually in less mature market is ready for new entrants. We know we’ll be growing here. JCBU is an exciting development. It’s really incremental to the Shift4 business that you were underwriting previously. So on that note, we continue to design nonprofit marquee names like University of Miami, Mercy Corps in Europe, Lucas Research Alliance, Alarm (NASDAQ:ALRM) University and Dunstan’s Moore.

As a result, we had a record quarter and a record year serving non profits on our new biconers platform. Q4 year over year volumes were up 350% and calendar year volumes were up 319% year over year. This growth is of course some of our large partners like Chip Lively have fully scaled up their integration, so we expect another year of very strong growth ahead. While it is a small portion of our business, we do see Crenco as an opportunity with material potential in light of the support of the new administration. So, in addition to offering card acquiring services to the crypto industry, we announced during Q4, we began equipping our merchants with the capability to accept crypto payments across all our products.

This month, we will wrap up our integration with Skytap to make this capability available across a very large existing installation base. We will be the first maker of hire to have natively integrated crypto acceptance at the point of sale. We’re going to showcase these technologies today at our Investor Day event. For gaming customers using our unified platform, we continue to enter new technology partnerships in support of both our landscape and online gaming customers. So with that MGM, we continue deploying our Skycat mobile devices for in person sports wagering throughout that MGM locations.

In all of these end markets, whether it’s non profit, gaming, crypto, retail and others, benefit from our unified commerce platform. So I can’t emphasize the importance of our unified commerce platform enough and how this fits into our global blue strategy that Joe is going to talk about in just a minute. Moving on to international, our strategy for some time now is to call our strategic customer all over the world and then bring the product, software integrations and services that have helped us keep those successful in The U. S. A.

Into those new international markets. This process is going so well that it’s driving restaurants, hotels, stadiums and unified commerce demand in new geographies that gives us the confidence to announce a deal like Global Blue to take full advantage of the capabilities we’ve been quietly building over the last few years. This past quarter, we launched several new countries and that has continued into the first quarter of twenty twenty five. We are now processing across LatAm and we successfully launched an additional four to six countries this quarter with Australia and New Zealand on the horizon for early twenty twenty five. We believe we’ve added sufficient global e commerce capabilities, both local to local, cross border, MOR and PayFac, and our solution is now a viable option for other global enterprise customers just like our strategic one.

So as my shareholder letter case, we’re going to spend this afternoon doing a deep dive on the business, the verticals we aim to conquer, the products that we have built, our go to market strategy and how deeply we are advantaged that we can predict outside growth for years into the future. We are number one in hospitality, we are number one in sports and entertainment, we’re number two in restaurants, we’ll be sixteen second, we have a great strategy with our unified commerce platform and we are the best capital allocators in the industry. We have proven this time and time again and we will continue to do so as we progress through our Investor Day to Day. Our strategy gives us the confidence to provide impressive 2025 guidance alongside a new mix and outlook that takes into account a number of cases from simply sitting on our hands, in which case results are excellent, to the follow-up form of case alongside our recently announced acquisition. And last, those would be the most likely case that further accelerate growth in line with what you’ve seen us achieve over the last three years.

In any of these cases, we are growing faster and more profitably than any of our peers. With this confidence, I can comfortably step aside and pursue this next chapter of my life knowing ShiftWar is on the correct course. And with that, I’m going to turn the call over to Keller to talk about the Repaire position.

Operator: Thanks, Gerry. As Gerry mentioned in his remarks, it’s been our strategy for some time now to build a one integration, one platform to power payments all over the world. Today, we’re announcing the acquisition of Global Blue for approximately $2,500,000,000 in an all cash transaction, which holds upon our capabilities in this area. Global Blue is a market leading payment platform with tens of thousands of luxury brands worldwide, including Louis Vuitton, Hermes, Valentino, Fendi, Prada (OTC:PRDSY), Burberry (LON:BRBY), Cartier, and many, many more. They operate a two sided network offering over 15,000,000 consumers with inefficient fast tax refunds when shopping abroad through one of their through a one of a kind mobile application and advanced demand of currency convergence capabilities.

Tom McClellan, Moderator/IR Representative, Shift4: To be clear, we

Operator: spent many years admiring this business. The combination of our latest capabilities, our growing geographic coverage, Global Blue’s existing scale and two sided network are all factors in helping us underwrite this transaction with a high level of confidence. Simply put, the business standalone is exceptional before revenue synergies, and yet we estimate over $80,000,000 of revenue synergies will be unlocked by the end of ’twenty seven due to the material embedded cross sell opportunity associated with the 400,000 plus merchants that are current business customers. We estimate these aggregate embedded payment opportunity to be over $500,000,000,000 As a reminder, our cumulative cross sell tunnel

Jared Isaacman, Chief Executive Officer, Shift4: is over $800,000,000,000

Operator: today and with this transaction, it increases our unique advantage across this customer base to over 1,400,000,000,000.0 The opportunity Global Blue affords us within unified commerce has also attracted two of the world’s largest fintech companies, Advanced International and Tencent (HK:0700). Advanced International and Tencent have historically collaborated with Global Blue to enable a seamless shopping and refund experience via their mobile applications of wallets. Both these valuable partners have committed to further collaborate with us on e commerce opportunities all over the world and also agreed to remain shareholders of the combined business. This is an all cash deal to be financed with existing cash on hand and proceeds from a $1,800,000,000 short term bridge financing that will be replaced with long term debt and convertible financing following the launch of an offering shortly. We expect to close the acquisition in the second half of twenty twenty five, subject to regulatory approvals.

And our pro form a net leverage is expected to be approximately 3.6 times on closing of the transaction, and we expect the G member to approximately 3.3 times by the end of the year. This transaction is the largest in our history, which speaks to the conviction we’re able to remain as we learn about the business. The site is scale and unique product offering, it leverages a playbook that we continue to refine over the last decade of shipboard. Whether it be Revel, FedEx (NYSE:FDX), Eigen or now GoldenBlue, we are passionate about identifying critical and often overlooked businesses that have incredible merchants who benefit immensely from a single comprehensive payment platform. We aim to deliver these merchants what they would have otherwise sourced from five or six different companies and in turn deliver more value and convenience.

With that, I’ll turn the call over to Nancy, who will outline our 2025 financial guidance and other key stats for the fourth quarter.

Nancy Disman, Chief Financial Officer, Shift4: Thank you, Taylor. Jared provided a summary review of the quarterly financial results, and I will just expand on a few additional items. Organic gross revenue was network fee growth for the full quarter 2024 to 26%. This reflects ongoing strength and momentum across all of our verticals and the monetization and conversion of fleetway and software only customers. Our Q4 blended net spreads

Operator: were 60

Nancy Disman, Chief Financial Officer, Shift4: basis points or 61 based on the average unit spreads for the full year, in line with

Jared Isaacman, Chief Executive Officer, Shift4: our

Nancy Disman, Chief Financial Officer, Shift4: guidance. Spreads across our core business remains stable. Our Q4 adjusted EBITDA margins were 5150% for the full year. Excluding a nearly two seventy basis points drag from recent acquisitions, full year adjusted EBITDA margin was 53% and we expect to synergize these acquisitions over the next twelve to eighteen months. Subscription and other revenue was $115,000,000 in Q4, ’1 hundred percent compared to the same period last year.

The growth was once again driven by our success across S and G, Skypad and further penetration of the sports and entertainment vertical as well as the contribution from acquisitions we did during the quarter. Our adjusted free cash flow in the quarter was $134,000,000 bringing full year adjusted free cash flow to $399,000,000 up 46% compared to a year ago. Before adjusted free cash flow conversion was 65% bringing full year to 59%. We are very pleased with our free cash flow generation as we are one of the two companies that are extremely expense disciplined and laser focused on efficiency gains, which allows us to generate exceptional cash flow without sacrificing growth. During the fourth quarter, we repurchased over 1,000,000 shares to 110,000,000, leaving approximately $350,000,000 of capacity available as of December 31 under our current program.

You can find a complete reconciliation of our shares on the back of our earnings materials. Net net income for the fourth quarter was $139,000,000 and GAAP diluted EPS was $1.44 Non GAAP adjusted net income for the quarter was $123,000,000 or $1.35 per share on a fully diluted basis. As a reminder, we have not historically added back acquired intangible amortization to non GAAP net income to EPS, we plan to do so starting next quarter in line with our industry peers. Our total indebtedness now has a weighted average cost of 3.4% and our net leverage at quarter end was approximately 2.5 times. As we have previously indicated, the $690,000,000 of convertible debt due in December 2025 was classified as current debt on our current 12/31/2024 balance sheet.

However, after the recent financing activity last quarter and the strong cash flow profile of our operations, we are well positioned to pay a churn at maturity. Turning to 2025 guidance. We are introducing this guidance excluding the Global Blue impact and follows: Volume between $200,000,000,000 and $220,000,000,000 representing 21 to 33% year over year growth. Gross revenue, like network fees, between $1,650,000,000 and $1,720,000,000 representing 22% to 27% growth. Adjusted EBITDA between $830,000,000 and $855,000,000 representing 23% to 26% growth.

And adjusted free cash flow conversion greater than 50%.

Operator: While we

Nancy Disman, Chief Financial Officer, Shift4: are not providing quarterly guidance today, Q1 is shaping up in line with our expectations for both volume and revenue. We anticipate adjusted EBITDA margins of approximately 45, which is also in line with historical trends as Q1 is a seasonal low cost per margin. We are also absorbing some drabs in lower margin M and A completed in 2024, but again anticipate this to be mitigated by year end. With that, let me now turn the call back to Jared.

Jared Isaacman, Chief Executive Officer, Shift4: Thank you. We will be taking questions until after our Investor Day. Since this was actually my last earnings call, please know I leave ShiftOne in the very capable hands of Taylor Lauber alongside a great leadership team, those who I have the utmost confidence in and who have been key architects in the firm’s growth strategy and overall success over the years. I can’t predict how the process will go. I hope to be able to offer input and color whenever it is requested and to the extent is permissible and intend to remain C4’s largest shareholder.

As the founder of C4, from my parents’ basement to the multibillion dollar public company it is today, I’m incredibly proud of the team and what we’ve accomplished over the last few years. I’m really thankful to my family, friends, the incredible team, our advisors and investors who believe in us and really this incredible nation that makes stories like this possible. I will always be grateful. Thank you.

Tom McClellan, Moderator/IR Representative, Shift4: Thank you. This does conclude today’s teleconference.

Operator: We thank you for your participation. You may disconnect your line.

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