Shift4 Payments, Inc. (FOUR) Earnings Call Transcript & Summary

Good morning, everyone. I'm Ashwin Shirvaikar, Citi's Global Head of FinTech Research. My team and I are delighted that you're attending Day 2 of Citi's 11th Annual Fintech Conference. It's off to a solid start. This conference is all about the content, and one name we've got a lot of interest on is Shift4. So next up is Shift4. From the company, we have Jared Isaacman, Founder and CEO; Taylor Lauber, CSO; and Brad Herring, CFO. Gentlemen, welcome. We appreciate you guys being part of our event.

Thank you.

One quick logistical note for investors. [Operator Instructions] with that, let's start.

So folks, good quarter recently with some really good announcements. I thought we should start with those perhaps. Maybe still relatively a new company from a public standpoint. So if you could take just a couple of minutes, brief overview of the company, how all the assets fit together. And if you could further talk about the announcements that you had. You had a few different ones with regards to expansion and so on and so forth at your Investor Day recently.

Yes. Happy to do it. So we've been in business for 22 years. It's a very cool basement -- family basement startup story. And throughout our history, we've always tried to pay attention to some of the changes that were happening in the marketplace, those that we can anticipate, get out in front of them in order to continue to differentiate and win in what is a pretty competitive space called payments. And one area we put a lot of attention to, going all the way back to 2006 is software, believing that connecting into commerce-enabling software is how we were going to be able to differentiate from others in the market, how we were going to be able to retain our customers longer, how we'd be able to deliver more value. Because when you can access information beyond just an approval or a decline, you can actually develop business intelligence systems. You can provide ordering and pay-at-table-type solutions and such. So this is a long way of saying that we took interest in integrated payments before integrated payments is a thing. Now initially, we focus specifically on one vertical and then, over time, came to such an appreciation on the power of connecting payments into software. We identified a couple of payment gateways that were originally designed to be payment agnostic, meaning they were happy to work with everyone. And they didn't possess just a handful of integrations like we had at the time, but hundreds, hundreds of software integrations across certain verticals that would essentially be impossible to replicate. So we acquired those and pivoted their business models towards an end-to-end model, meaning they didn't -- we were going to leverage our connectivity into all this software. And all of these merchants that were using that software and all of the volume that flowed across it, which you're talking somewhere in the neighborhood of about $200 billion in volume, and move that volume to an end-to-end solution where we no longer needed to depend on multiple different vendors in order to deliver a commerce experience. And in doing so, the customer themselves is actually happier because they don't need to have 7 different vendors on a call -- on a conference call, trying to figure out why things don't work in their commerce environment. They were able to get a lower effective cost of service. They're happier as a result. And then all of the software partners that support these customers and that are continuing to go out and win in the market, they're happier as well. Because now they can focus more on selling software and not managing an array of complicated commerce-related vendors. Those payment platforms put us square in the heart of restaurants, hotels and specialty retailers, basically, any environment where you need multiple different types of software to deliver a commerce experience. So if you think about hotels as maybe the best example, especially like, call it, like a Las Vegas area. You have restaurants. You have retailers. You have hotels. You have spas. You have golf courses. Maybe you have ticketing, right? All of that has to be networked together. All of it has to be secure. This is like a "no data breach ever" environment, which is PCI-validated, point-to-point encryption. You need to provide business intelligence without tapping into actual personally identifiable information. So use proprietary tokenization technology. And you deliver a very integrated and seamless experience for the customer. That's taken across restaurants, hotels, again, specialty retailers like UPS Store to be an example of a customer. Now these verticals that we call our high-growth, core market, it is very, very hard to encroach on our space. So when we IPO-ed the company in summer of 2020, the idea was always that we know we are in a very good place here in our core markets. This has been growing, call it, close to 50% payment volume -- end-to-end payment volume year-over-year for years prior to the IPO. Even though we're going through uncertain times in the pandemic, we do believe people will stay in hotels and eat in restaurants and shop at UPS Stores and such again. So recognizing that, that would be very defensible for a very long time and very hard to encroach upon, we went out and tried to take what makes us special as an integrated payments company and bring it into new verticals. That felt like the responsible thing to do: expand our TAM, target industries that also require multiple different types of software to deliver a commerce experience, the more complex end of the commerce spectrum, if you will, and bring the same power that made us successful in our core markets. So we entered in gaming, we entered in sports and entertainment, and we entered into e-commerce. And then since that point and coming to our latest Investor Day, we've expanded on that even further into airlines, which is an extension of travel and leisure; sexy tech, which is what I refer to our 5-year Starlink partnership because that's not a declaration that we're going to crush it in satellite-based global broadband because there is a winner take all there, and we're already partnered with them. It's a statement that we can compete on a global stage with some of the coolest new tech out there. And then also health care and nonprofits via our St. Jude partnership. So really strong core, lots of amazing vertical expansion since our IPO, dramatically expand our TAM, real right to win and ability to differentiate in all those verticals.

That's a great summary, Jared. I guess, if I can stick with the 3 new announced verticals, obviously, the TAM is very significant. Maybe I can leave Starlink aside because that's a direct contractual relationship with the leader in the space. On the others, do you need to do what you did a few years back, which is go maybe acquire a -- acquire another gateway that has more of a presence in these areas? Do you need to maybe acquire a software partner? How would you expand your capabilities and your reach beyond what are 2 really good clients, St. Jude and Allegiant. But how would you do that towards the process?

Yes, it's a good question. So I mean, we've been sitting on $1.3 billion in cash. And every quarter, people are like, when are you going to pull the trigger on some acquisitions? When are you going to do something big and transformational like you did in 2017? We're certainly not afraid of M&A. This is why we have this war chest. We're just pretty disciplined allocators of capital, and like we weren't going to -- we weren't prepared to deploy unless we felt we had substantial strategic rationale with a lot of synergies associated with it. And when you announce Starlink, St. Jude Children's Research Hospital and Allegiant, that is planting a flag in several really desirable verticals. It's a beachhead that you can expand upon and kind of gives us that additional rationale. So look, those wins in its own right are achieving us integrations that will allow us to expand organically within those verticals. But if there are accelerants, which we've always looked for historically, whether that's buying assets in Europe so that we can satisfy the demand for Starlink across the world -- that is a very global organization. So every day that we are not processing payments, let's say, in Europe or Latin America, is volume that's going to an Adyen or Stripe, we're going to want to take that very quick. If we can buy a factory that's already built over there to satisfy demand, we'll do that. In some of these new verticals, look, nonprofits have -- they are served by thousands of software companies. I mean this is why there's roll-ups out there like Community Brands, Ministry Brands. There are all these little weird, niche applications that are trying to drive incremental donations within the nonprofit space. If we think one of those assets specifically, we can leverage and harness with -- on the backs of a win like St. Jude in order to expand within the space, we're more than prepared to do that as well.

Yes. Yes. Makes sense. Makes sense. When I look at the cross-section of verticals, a lot of them are economically sensitive, right? Now that's the kind of -- it's hard to say they are economically sensitive, but it's also things people want to do. People want to go eat out, people want to go, travel, go to a restaurant and so on and so forth. That economic sensitivity and leverage to a recovery, can you explain -- you seem to be every time doubling down on that, the stadium staying and so on and so forth. Is that sort of part of the plan is to just be well aligned with the discretionary spending in the economy?

Well, I think we're looking at verticals that we can be big believers in for the long run, and they also have to have qualities that we know we found success in historically, which is a multi-software environment. Just for everyone tuned in here, when you're in a multi-software environment, you're never threatened by a Square or a PayPal or Clover. If you can't run the entire business on an application that you download on an iPhone or something, that's where we want to be. So restaurants require lots of software. Hotels require a lot of software. Stadiums require a lot of software. We also believe, in the long run, people are going to go out and eat. We're not all going to be doing Amazon restaurants. People are going to stay in hotels. People are going to go to stadiums and cheer on their fans. People are going to make bets on their phone. Unfortunately, people are going to go to hospitals. People are going to make donations, and people will always need access to internet, even in parts of the world that have no cable modems or DSL lines or something of that effect. So we're picking verticals that we think have a lot of opportunity for the long run. I think when people talk about like you're in a space that's benefiting a lot from reopening or whatnot, we have no international travel whatsoever, period. There are no business travelers really going across the U.S. There's no conferences right now. So I'd say, even a lot of the verticals we're in today, especially after Delta over the summer, are still operating at somewhat of a depressed level. Some stadiums are not even close to 100% capacity yet. So there's a lot of recovery that lives within our base, but there's also a lot of just natural growth as we go and win share.

Right. Right. Yes. Could we maybe dive into some of these verticals? Let's start with something that's very core to you: restaurant and hospitality. What are the trends that you've seen now? Obviously, it's been a little back and forth. That's understandable, recovering from a pandemic. It's not something that's easy to do. How have restaurants adapted? How has their buying behavior changed? How have consumers adapted that you can see from the usage of your technology?

I'd say, the whole country went to South Beach in March and April of this past year. We saw that. Miami became the #1 city from payment volume perspective and surpassed volume from every other city in Florida in one shot. That was interesting. And then for sure, Delta slowed things down when you start looking at August and September, no question. I mean there was a lot of exuberance in the market for sure, but parts of the country, we're opening up. California was opening up. New York was opening up a lot more. And then you definitely saw a little bit of a pullback. Obviously, that said, our quarterly volume was up 90% year-over-year, so we felt good at that. It would have just -- there's just no question it would've been higher with -- in terms of Delta. And then look, the reality is -- and I think you're seeing this across the whole payment landscape, all the legacy merchant acquirers. If you don't have a means to deliver a technology solution that adds value to your customers, they're going to leave. And when a merchant is leaving a current payment provider, they are moving to somebody who is adding value through technology. I want to be really clear right now. It is 100% impossible to grow payment volume double digits right now and provide a nonintegrated solution. It doesn't work that way. Business owners are generally not completely stupid. They're not leaving one bad solution for another. They're trying to get enhancements. And whether that's synthesizing multiple, different online ordering platforms into single solution so you don't have 10 iPads on the wall, if it's QR code-based ordering, QR code payments, a more intuitive interface that younger generations can just naturally adapt to and cut down on training costs or drive operational efficiencies. Businesses are gravitating towards that. Anyone who's growing volume right now is providing value through technology. Anyone who's not sharing volume right now as a KPI is losing it, so that would make it known.

Right. Yes. Do you -- I mean you guys provided -- prior to your earnings, you guys provided a sort of an October update, so to speak, or at least month to date. And my impression at least was that maybe a lot of folks might have forgotten how wonky last year was. Could you explain sort of how the comps work and how you're thinking of 4Q in terms of just how the numbers play out?

Yes, absolutely. I'll cover that. It's a great question because in a business that's growing as fast as ours, seasonality becomes difficult to predict, ignoring our end markets. But then layering in the end markets that we're in, obviously, seasonality become interesting to watch. Last year, we had a really strong October, stronger than we were anticipating. Now keep in mind, basically from June forward, we were lapping the previous year. So June of 2020 forward, we were doing payment volume that was in excess of the prior year, despite the pandemic. That's kind of the growth -- the organic growth the business was experiencing, October so much so that we were up 28% year-over-year, and we all know we are still sort of well within pandemic impact in October. November and December were kind of sharp contrast to that: Number one, you had the weather get markedly colder. Number two, you had significant increase in lockdowns for that second wave. November was up, I want to say, low teens year-over-year, and December actually shrank year-over-year. So when you think about starting at 28% in October, that deceleration was really pronounced. Most -- we're looking out the window at New York City, they banned indoor dining, right, as it got too cold to eat outside. California did the same. So we sort of entered the fourth quarter with the idea of, yes, October was a tough comp, but November and December were downright. draconian in 2020 when -- compared to what we expect to experience in '21. We obviously had far fewer restrictions across the country, but you also have -- while difficult to predict, some tailwinds with things like international travel to the U.S. That ban was lifted, I believe, last week. Now the other piece that I think is really notable is, we also have markedly more hotel volume inside of our book. And while were boarding reporting hotels at a large clip in the fourth quarter of last year, no one was really staying at them. We started to see some presence in the first quarter in the peak of the summer. 20% of our volume was hotels. So we think it's going to augment the seasonality profile of the business slightly in favor of travel months like November, like the back half of November and December, but it's a wait and see as we watch how this all play through.

Right. Great. This may sound like an odd question, but one of the things that seems to have hampered a smoother recovery in restaurants, hotels and so on, is the lack of availability of people, right: janitorial services, people who work in the back of the restaurant, so on and so forth. Are you seeing that abate first of all? Was that a problem? Did that impact numbers to some extent? Are you beginning to see that abate amongst your clients?

So it undoubtedly impacted all of our merchants. Capacity is sort of the point I think you're getting at. The capacity was not at 100% across any of our merchant base. I would challenge that restaurants have exerted pricing power, and so card spend data alone suggests that they were able to kind of have a slightly better year than their capacity suggested based on pricing power. Hotels are nowhere near it. I mean you can charge a few hundred a night for a Motel 6 or a Super 8, but you're still not going to fill it up because you can't clean all the rooms. I do think that, that subsided a little bit. Some of the publicly available hotel data would suggest that they're having an easier time mostly on bookings. We haven't seen sort of the payment volume roll through the sector yet, but we've definitely seen booking activity increase financially. And they wouldn't be making those bookings if they didn't anticipate that they could accommodate the room. So we do expect there's a lot more room to grow inside of the hotel base as they absorb that capacity and learn how to manage it. Restaurants, to a lesser extent, still some room to grow as well.

Got it. Got it. Okay. Okay. One topic that we also get a number of questions on is sort of the end-to-end conversion. During your Investor Field Day, you mentioned gateway volumes $170 billion. So it's kind of now back at the levels of the type you were talking about during your IPO. It has gone up and down. Could you kind of maybe walk through the puts and takes of -- because you've clearly been converting it as well. Some of the other puts and takes, given you're not actively selling gateway volume, how is that going up?

Well, I think there's a couple of things just to take away from that right from the start, right, is: One, it reinforces just how difficult it is to replicate all of the software integrations that we have right now. I mean we've been executing on the gateway end-to-end conversion story for over 4 years. I think we'll be about to close in on 5 years soon. And everyone who stands to lose from that -- and obviously are losing because our end-to-end volume is growing, is all the legacy acquirers. And they haven't found any other place to put that volume. And they certainly haven't been able to replicate it, and it really is impossible to replicate 425 software integrations in all the version history. The other thing, too, is the idea that it's all legacy software integrations. Again, merchants right now, in this climate -- for all the reasons you point out, too, whether it's labor or you have to figure out a way to drive more order efficiencies through technology integrations that exists in lodging and restaurants right now and certainly, in specialty retail, these customers didn't flee for some other product, right? So hopefully, this dispels the notion that all the software integrations that we connect to are from a different generation. Because if they were, I have to imagine that volume would have disappeared a lot quicker, and they would have been adopting some other solution or something that was outside of our ecosystem. Reality is, we have a lot of new software integrations, and those customers just upgrade into whatever the latest version is to unlock more efficiencies within their business and tap into more technology. That said, you have -- you definitely have an inflation factor in there as well. As Taylor just mentioned, Motel 6 was maybe $89 a night or something. It's probably $189 a night. That's part of the reason why volume actually continued to grow in it. But there's a lot of customers using those integrations, a lot of them that were offline over the summer. I mean even some of the hotels here in Manhattan and other major cities really didn't start to come back online until rather recently. And this is a good sign. Because we can't have a conversation on an end-to-end migration if the hotel is shut down and the IT department is furloughed. So this is why we're continuing to have production every month. About 50% of our production comes from existing gateway customers moving to our end-to-end platform. And then obviously, the other 50% is just winning share of the market.

I guess one follow-up, quick question to that, Jared, is have any of your acquisitions also affected the E-to-E payment volume? I know that that's not the only feeder into what you do. Obviously, some of them have affected the software line, but basically, you're -- it's a list of clients you call on to get more of the end-to-end work. But could you talk about, say, for example, how your VenueNext integration, how the Shift4Shop integration, the 3dcart acquisition have affected those numbers perhaps?

Yes. I mean I wanted to make like a very definitive station this quarter that there was no payment company that had faster end-to-end volume growth than us organically. And that's because we've never bought end-to-end volume, at least not in the last 8 years. So you buy a company that has amazing software for stadiums and theme parks like VenueNext, and you enhance their offering with an integrated payments value prop. You go to their existing software users and then you go to every one of the stadiums or theme parks they're competing for and you bundle payments in, and you deliver more value to the customer because you're able to discount things like hardware or software in order to capture it. Now some of the acquisitions, for sure, between what the revenue they already had and what we've been able to grow in the last 6 to 9 months since we acquired these businesses have absolutely contributed to pretty accelerated software revenue growth. They are contributing from an end-to-end volume perspective. But keep in mind, we just entered these verticals in really the last 6 to 9 months. So picking up maybe $1 billion or plus of annualized stadium volume from here forward or something isn't moving the needle over the last quarter. I think the same would be applicable for our entries into e-commerce and such. The answer is like, these are products people want. That's why the software revenue is growing, and we're just in the super early innings of monetizing payments through it, but it's working exactly as planned. I would look at entirely our end-to-end volume growth as purely organic because we've never bought any of it, but we are buying a great opportunity, leveraging technology and software to win it.

Yes. Yes. Down the road with SkyTab and some of your acquisition sets, would you want a sort of an even balance between software and payments? Is that what you're shooting for? Are you -- is there like a target percentage?

I don't think it should matter. And really, for every one of the investors here, the revenue retention is identical between the 2. I mean -- honestly, like if -- whether people are software heavy today and they're telling like the story of, hey, we're going to tap into a great payments opportunity or your payments opportunity. You're saying, we're going to tap into a software opportunity. When the business goes out of business, it goes out of business. Like no one is separating really software and payments anymore, right? I mean that's the whole point of PayFac models and everything else out there. So from our perspective, I don't care how we get to it. If we are 75% software and we're 25% payments or vice versa, it really doesn't matter. The quality of the revenue, in our opinion, is identical. And by the way, frankly, at a time where maybe inflation lasts a little bit longer, I think having a revenue stream that's derived from spread on volume is a good thing. It's very pro inflation.

Got it. Got it. Maybe one more question on this area and then we can move to a different one. Edgewater, right, or SkyTab, when I think of those, does the rollout of those -- I mean how does the rollout of those affect monetization, affect the revenue model, affect margins, affect cash flow?

Yes. We tried to put a pretty cool slide together on that. Dispel a couple of notions, one, that it's a winner-take-all environment with Toast. It's not true. We've been growing end-to-end payment volume in restaurants for years and years. I think the idea is, there's 2 winners in the market right now, 2 very clear winners and it's Toast and Shift4. And there is a lot of donors. I don't know if people recall, Global Payments bought Heartland for about $4 billion, I don't know, 8 years ago or so. Heartland was pretty much all restaurants, and they were all nonintegrated. They had a big partnership with the National Restaurant Association, but we're not just thinking about them. Really, every legacy acquirer, if you're using kind of a nonintegrated terminal or cash register, you're losing that volume. It's an eventuality. And a lot of that's going to Toast and Shift4. I think the difference is, Toast, for which -- makes a great product, they pulled every lever. I mean they've got a payroll offering. They've got a capital offering. They've been doing payments right from the start, and they have SaaS. Shift4, on the other hand, geez, of 125,000 restaurants that use some form of our payment technology, only 15% are we deriving any meaningful SaaS revenue from. So we got 85% that we can go out to and provide a better product than what they're probably using today in the form of our SkyTab POS. So we're going to retain our payment economics. We're going to have a big lift from SaaS revenue that we weren't previously getting, then we're going to roll out payroll and capital at the end of Q1. That's when SkyTab POS goes out of beta, if you will. So we're going to be able to tap into a marketplace revenue. Right now, the Grubhub, Uber Eats, DoorDash, call it, 50 marketplace partners, have a total free ride. They're in our marketplace today. Our customers and partners are using them. We don't charge them for that. I think Toast charge like 40% or 30% app store fee or something to that effect, right? So there's a lot of levers we haven't pulled. And then we have other advantages, which is we have thousands of distribution partners that understand integrated payments, and they understand restaurants. That's so important to move upmarket. I mean 6 years ago, when everyone was telling us that Square is putting everyone out of business. I mean it was like the same story then as we're hearing now about Toast. And it was always, how are you going to move upmarket if you have to download the app, manage it yourself and you have no local service and support. Hakkasan and Tao are never going to do that. Like they're always want some local service and support presence. So we have a ton of operating leverage from our distribution partners. They all want that next-gen product. They're out there selling it now. That's why there's 2,000 SkyTab merchant users today, and it's still in beta. And then you have that local service and support when something goes wrong. So we're super optimistic. You're going to get a ton of operational efficiencies, too, because right now, we are supporting a lot of different restaurant software. A lot of it's Windows-based. Windows-based software is very support-intense relative to cloud-based. So like as we get SkyTab more and more in our existing base of customers and win new customers as a result of it, it just unlocks a lot of revenue opportunities and a lot of internal efficiencies.

Got it. Yes. Yes. We got a question coming in with regards to -- as business travel returns, if we have more credit versus debit, does that affect sort of the network fees? Interchange line ticks up to pre-pandemic levels? And what's the impact of that on your numbers?

Yes. Ashwin, I'll take that. We have seen it creep up. Remember, we saw -- during COVID, those interchange fees dropped substantially with all the travel cards falling out of the system. But they have started coming back through Q2 and Q3. They've kind of gotten back just below normal levels. So they've got a little bit left to go. But once those come through, because of the way our pricing is structured, that passes right through for us, so it doesn't have a significant impact. But for those modeling out that line, it does have a little bit left to go to get back to normal, but not too far.

And just to layer on, that is a positive. Apologies if I misstated on that. The more international business travel is usually positive from a spread perspective. Those are usually higher-margin card types relative to like debit, for example. Actually, I think it -- wasn't it in Q1 last year where we saw like, right, as a result of stimulus timing for direct deposits, the amount of debit volume went way up and actually hurt some of our spreads?

That's exactly right. Debit volume doubled in a month.

Yes. International and business and corporate and purchasing cards are usually positive from a spread perspective.

Right. Okay. In terms of just margins and cash flow, you've got some good margin expansion year-to-date now, obviously, coming off easier comps in 2020. What should investors expect from here? And then the cash flow question really is, when we look at recent free cash flow, it's been negative. So when should we expect that to turn? Are there particular factors you would call out in the cash flow performance?

Yes, let me take those kind of one at a time. We did see really good margin expansion out of Q2 and Q3. And this is just the notion of reaching the scale, right? Remember in Q1, we did $7 billion of volume. In Q2, we did -- I'm sorry, Q3, we did mid-13s. So we've essentially doubled the size of the business in 2 quarters. And that feeds, like we've always talked about, the way this business is structured. That's going to feed margin expansion. Now going forward, there's an expectation around how that seasonality factors will play around. So Q2 and Q3 are always going to be our big margin quarters. We'll pull off a little bit in Q4 and Q1, but that's mostly driven due to the volume dynamics of Q1 and Q4. So I do think you're going to see continued expansion, especially when we get into Q2 and Q3 of next year. I'll caveat that with as we're making continued acquisitions, those can have potentially slight dilutive effects on margins. As we talked about, we buy companies that typically aren't at 40% margins, right? There's not a lot of 40% margin businesses out there. So you get some near-term dilution. We've tried to be pretty vocal and pretty transparent about the impact that, that's having on our quarterly results that we report. But if you left the base alone, right, we've seen high 30s now. That number is easy, a high 30s to low 40s number, but it's going to bounce around based on how these acquisitions will flow through. So that's kind of the margin question. If you go to cash flows, you've got a pretty interesting evolution of the year, right? If you go back into Q1, like I mentioned a minute ago, we're basically half the size that we are today. So I would encourage folks to look at our Q3 free cash flows, right? Q3 is going to be a good indicator and a good jumping off point going forward. There's still a couple of things in Q3 we want to make sure people are conscious at: One is that $25 million we paid out for TSYS. That's a onetime nonrecurring thing that will show up on the cash flow statement in the quarter that negatively affected by about $25 million. The other thing in Q3 that you'll see is, we did stock up on some equipment to the tune of about $6.5 million in Q3, just preemptively getting ahead of any potential supply chain issues on equipment. We're not seeing it. We haven't had a negative effect of it at all, but it was just being prudent to put some additional equipment in the warehouse just to make sure we can fund and supply the equipment out for the first -- at least for the first half of next year. So if you look at free cash flow for Q3, it's actually quite substantial, especially once you factor in that TSYS payment as a nonrecurring item and that additional equipment stock up. So I would focus on Q3, not necessarily really a full year-to-date number.

Yes. And Ashwin, if I could just layer on a bit more because I've seen a lot of these pop up, which is like super -- it's very fascinating, right? Because we have some portion of our investor base who really understands our unit economics and average customer lifetime value. They're like, why aren't you blowing out more cash in order to acquire these really sticky customers, which have like basically sub-12-month payback periods. And some investors are saying, you should Shopify up your Shift4Shop acquisition and hire 1,000 developers. And then some are like, I want to talk about your free cash flow conversion at this point. So it's sometimes a little bit confusing for us. But maybe a little bit of history, right? So we took on our equity sponsor in just mid-2016 in Searchlight Capital, right? We held a 5 to 6x leverage ratio. I mean every time we delevered half a turn, there was another dividend recap. So unless you believe like the rating agencies and some of our debt providers, who are just out of their mind, we've actually had very healthy free cash flows to sustain what was a substantially higher cost of capital throughout all of our life as a private company before dramatically deleveraging as a public company. You just got to look past some of the onetimers, right? We bought an e-commerce company. We did a Super Bowl ad at the beginning of the year. We get $25 million there. We had a TYSY service disruption that we gave $25 million to our customers so we can continue to focus on growing. And we bought a ton of equipment because we weren't going to be the payments company that's growing really fast and didn't have payment devices to deploy towards it, right? You average that out, we actually make a lot of cash right now, which is more than I can say for a lot of the competitors that we're often asked against. And the other thing I'd say, too, is as we continue to move upmarket, the amount of CapEx you have to deploy for payment devices and other hardware goes down. Starlink doesn't require payment devices. We're not giving them servers. There is no customer acquisition cost there. There's no devices that need to go to St. Jude Children's Research Hospital or Allegiant. Consumers using gaming applications on BetMGM, don't need devices either. So as we continue to move upmarket, we're growing volume. Free cash flow is going to improve. Look past some of those onetime events in the past and then recognize that the average customer acquisition cost is going to continue to go down. So everything is in our favor on this one. I'm just kind of surprised that some of these really came up of late, but hopefully, that helps.

No, no, that's incredibly helpful. We are out of time, actually, 4 minutes over. I really want to talk about the medium-term outlook, but that just means I'll have to get you next time on that one because that's -- those are some pretty spaced out numbers.

If you look at our historical growth rate in our core verticals, which would average between 40% to 50% end-to-end volume growth prior to the pandemic, normalized through the pandemic, what you have to believe in our midterm outlook is that we will be even marginally successful in any of the 7 new verticals we've done since the IPO. So it's not hard a bridge to get there.

Okay. Okay. That's a great note to end on. Thank you, gentlemen. Appreciate it.

Thank you.

Thanks. Bye.