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

So we're going to get started with our next session here. So for the next session, we're very excited to have Jared Isaacman, the CEO of Shift4; and Taylor Lauber, President and Chief Strategy Officer of Shift4. Sure all of you know, but Shift4 is one of the very exciting fintechs that we've initiated coverage on about a month ago. So we're very, very excited to have Jared and Taylor with us today. Thank you very much for joining us today, guys.

Thank you.

Excellent. So just a reminder, there's an opportunity to ask questions to Jared and Taylor. You can do that for those in person, just put them down in note cards and Terra can help take them to me and those who are joining us online, you can submit them in a little chat window, and I'll kind of pause later in the conversation. I'll check my little dashboard and see if there's any questions that came in, and we can funnel them here.

But to get started, Jared, I wanted to start with a kind of high-level question. So you amazingly been, I think, working in this business now for over almost 25 years. I think you started the company that become Shift4 almost 25 years ago, if I'm not mistaken. So from that long-term historical perspective, talk to us a little bit about today's environment in digital payments. What are the biggest opportunities that you see today in the overall market? And how does Shift4 positioned to take advantage of these opportunities?

Yes. Good question, and good morning, everyone. Welcome to another day in Paradise in fintech I think we're on the second floor here. So I started my career in payments in 1999, actually, so I was 16. And yes, it's pretty easy now looking back on what the real significant changes were. The first -- in 1999, I entered at the tail end of the golden years, which was just purely about enablement. Consumers want to spend with credit cards, just enable it. And those were pretty dumb nonintegrated terminals that just did an approval or decline and spit out a receipt. And then it's all software from there. And just more and more of it. So the idea that commerce was going to be more than just a binary approval or decline and you're going to deeply integrate that commerce experience into software and then you just keep layering more and more on top of it. I think we were incredibly early, probably one of the earliest, I think, to observe that shift so much so that today, nearly 100% of all transactions that we touch are integrated into software, encrypted, tokenized. That's a really, really important point. Most companies that started around our time today. Occasionally, we get compared to, we're part of massive consolidation of various mergers and it could be 80%, 90% of their transactions are still actually nonintegrated. That's important because that transition at some point or another will take place. But nearly 100% of all transactions we touch are integrated. And then over time, again, you just saw more and more software. So let me give you a great example of actually the vertical we began, and we're still quite dominant in today, which is in restaurants. So at first, it was just how does the small midsize business take advantage of the same operational efficiencies and capabilities that are driven through a point-of-sale system the same way the big Applebee's of the world are, like costs coming down to bundle hardware, software and payments together into a device, and that was good enough. That was like 2008 to 2012 and 2012 is what I wanted to do online ordering too. And then I wanted to do loyalty because the punch cards aren't great. Somebody can just punch them at home or something like that. And then I wanted to do gift cards. And then you have aggregators come along and they have all their various software, how Grubhub, Uber Eats, DoorDash does it. You went from an environment in a span of probably 5 years of maybe no software to like 8 or 9 different software applications that all need to work pretty seamlessly together in order to deliver a commerce experience or it becomes very labor intense for a small or midsized business operator that doesn't have a huge accounting or IT department. That kind of brings us -- so we've kind of really led into that very much in restaurants going from small like barn grill in the corner to very large restaurants, living inside hotels, to expanding into hospitality. We actually thrive in an environment where business has lots of different software to deliver a commerce experience. That's the best as far away from where you download a single application on an iPhone to deliver a payment experience like a Square or PayPal, we want to be in -- I mean, if you went skiing this past winter, you'd almost assuredly saw a Shift4 in a device like we've probably the lion share of the ski resort market out there. Golf courses, again, a multi-software environments are great for us. But that kind of brings us to, well, where is the opportunity now, like where are you going, knowing all this? Well, the rest of the world is not there. So we've had a desire to move internationally and try and create a more unified commerce experience across the world, pretty much my entire career. It's very hard to do that. Rest of the world is very different. Here in the U.S., 6, 7, 8 connections, you can do a lot in North America. You get into parts of Europe, parts of Germany, you might need like 300 connections. It takes a long time to build that organically. There's a lot of lessons learned never seem like the right thing to fully lean into. So rather recently, we look at our 5-year agreement with Starlink as kind of the rationale to enter multiple different markets and bring all your software integrations and your products into those markets because they're not doing integrated payments the way we are here. It's a very -- the rest of the world is very far behind in bringing software and payments together deliver commerce experience. Kind of last titbit on this is, I was just in London. And I went to like their M&M'S store and Times Square type deal. And they have a retail point-of-sale system there, just like you'd expect here. And when you ring it up, they go over to a nonintegrated terminal like that basic Verifone, Ingenico, they type in. You go to a hotel in Madrid, for example, like they're going to still retrieve a reservation that probably we tokenized, pull it out of the token vault, check in, and then they're going to a nonintegrated bank terminal. So like the rest of the world is kind of fueled with opportunity, we're pretty advantaged because we have all these integrations and products. And I think that's -- we're going to take the 20-some-odd years of lessons learned here in the U.S. and probably apply that to multiple new geographic areas.

Got it. Got it. Okay. Well, that's a great setup, and we'll hit some of these topics in more detail later in the conversation. So let's talk about the specific verticals that Shift4 is pursuing, and I think what you're calling the high-growth core. You mentioned restaurants as a vertical that you've been in for a long time, Jared. So maybe we'll start with that one. So in restaurants, talk to us a little bit about your competitive positioning, obviously, such a competitive space. And now we're hearing Toast, LightSpeed, Clover, Square, how do you guys continue competing and winning in this space?

Well, I'd start with we are continuing to compete and win in this space. We've been growing restaurant payment volume at double digits, pretty high double digits for, I don't know, 15 years or so. I mean, we were -- we had the Toast model long before there was a Toast probably going back to 2007. So it's not a winner-take-all environment. It's a pretty big market, and Toast is fantastic and so is Shift4. But I would say that I do consider it somewhat of like a 2-horse race. There's no LightSpeed in the U.S. market. And Square and Clover have been around for a long time, and they're fantastic products at the bottom end of the vertical. You won't see Square or Clover in a table service restaurant. You won't see it in a tower, a Hakkasan or something like that. That's -- those are Shift4 customers. Those are pretty demanding environments. So again, we thrive in environments that require multiple different types of software to deliver a commerce experience. That's where our 425 unique software integrations and all the version history behind them, puts us in a very advantaged position. So that's where you'll find us, and we'll continue to grow volume there. There'll be very stable spreads. This is why we put it out there because we know people ask the questions. I think the reality is, going back to your first question, there was a lot of nonintegrated business in this country. Heartland Payments, for example, used to have the lion's share of the restaurant market by virtue of their National Restaurant Association partnership. That was all essentially nonintegrated or very old Windows-based POS systems. The reality is like Toast can grow quite a bit with a good product, Shift4 can grow a lot and where it's likely coming from is not from each other. It's going to come from a lot of merchants leaving the old terminals and cash registers and moving to point-of-sale systems or older Windows-based systems, but it's very much Toast and Shift4. I mean you need distribution, a big installed base, brand awareness. You need some product differentiation, which is hard to do because there's not a lot of radical innovation going on with bringing up a cheeseburger. It's generally been figured out pretty well. So I'd say like Shift4 and toast are going to do just fine in that vertical. We kind of split a little bit in the middle where they go a little bit lower end of the market. You can generally tell based on sizzle features. So if you're building capital programs and payroll programs, that's going to appeal to a certain type of merchant that wants that benefit. Like Tower, Hakkasan is not going to take high APR money from us. They're not going to probably switch away from ADP or Paycom, so we have to develop different sizzle features that we think will have more of an appeal and get us a conversation for those higher-end customers. But generally, they're both going to do pretty well.

Got it. Talk quickly, maybe a little bit about SkyTab, your new system in the restaurant space. I think you're literally sort of launching it broadly this quarter. What's the key improvements in that system. And yes, what are you looking to do with it basically year.

Yes, sure. So important to contextualize that library of software integration is kind of the foundation for the markets we serve. In the restaurant space, there's probably a dozen different platforms in which Shift4 has gone to market. We own 4 brands in the restaurant vertical that cover about 90,000 restaurants. We also integrate to a handful of others, the micros's of the world. And SkyTab is really about delivering a single modern solution to as much of that stack as possible. So as Jared mentioned, a lot of the products that you find in the restaurant vertical are Windows-based. They're not as nimble on a hardware basis, pretty expensive to maintain, labor-intensive. And while we love these brands, and we've kind of nurtured them for a period of time, it is time for them to modernize where possible. And interestingly, of the 125,000-odd restaurants that we serve less than 15% actually pay SaaS. They bought the software license years ago. They bought the hardware years ago. They're giving us payment volume in many cases, and we're getting a spread on that volume, but we're not getting SaaS revenue from them. So it's an interesting opportunity to consolidate around a single brand and deliver this solution. We've got a really unique distribution network in how we go to market. We've typically gone to market through higher-end resellers that specialize on the software sale. And to Jared's point, it put us in a market segment that's got pretty thin air. Like Tao need someone there to fix a kitchen printer on a Friday night like at all costs. It's pretty intense and demanding environment. So using that distribution network, embedding this new product gives kind of us 2 different paths to growth. We can obviously continue to win sites. We add thousands of restaurants every quarter, but we can also go to sites that are looking for a refresh and deliver this product. They know the brand. They know the family, they know the reseller. So it's a really warm introduction, and we can earn incremental SaaS from the merchants. And they get, quite frankly, an easier product to manage over time, makes the company dramatically more efficient as well. So while we love go-to-market through different brands, it's not as efficient as you'd like to be right, when you're supporting 4 different brands that we own and a handful of others.

Yes, I can't emphasize that enough. I mean right now, we do a pretty good job supporting a lot of different windows based point-of-sale systems that you need -- I mean, if you've been out to restaurants recently and did a pay a table -- order table experience, you either saw a Toast Go or SkyTab handheld. And that kind of again kind of should point you the direction of the 2 most dominant players in the restaurant space. For us, we make that work on some older generation software. It's a lot of software on top of software to make it happen. When we can go after our existing base of customers, Taylor just pointed about the 4 that we own, but we support many other brands, well over like 100,000 restaurants, we can just call them. They're already customers. And offer them an upgrade path to an Android-based hybrid cloud system. It's new, the way you bring in Grubhub, Uber Eats, DoorDash to our marketplace, it's clean, it's simple. It's got like very s*** space age, looking hardware. It's very natural upgrade for them to do it. And then you just have tons of distribution that's going to go out and hit the market with it. But we gained so many operational efficiencies as we can narrow our focus to a single product instead of like 9 or so and that frees up a lot of resources.

It's operational gain there. Got it. Okay. Let's switch to lodging vertical. That's another part of your high-growth core. And I think the highest growth part of that piece, something like 160% CAGR over the last 4 years, I think the number you guys reported. So talk about that vertical, what's your differentiated proposition there? How is it different from restaurants? How do you win there?

Yes, sure. So again, we're going to keep coming back to this concept of multi-software environments and a hotel perfect example of that. You have online reservations, you have a front desk, you have multiple restaurants and bars, retail. And if you get to the more extreme cases of like a Caesars Palace who would be a Shift4 customer, you've got 3,000 different revenue centers, all of which have to be connected with a single commerce experience. Pretty eye-opening moment as we were serving a landscape for payment technology 5 years ago and found that there are only 4 platforms in the country that support hotels. Every single hotel is on them. And the reason for that is this library of software every hotel has to contend with. It is not -- there is not a Square for hotel that can serve all of those different use cases. So oftentimes, it's a bit of a web of different software types and lots of different versions. Seeing that in the landscape, we acquired 2 of the 4 platforms, seeing that library of integrations is immensely valuable, but the service model really fragmented. Those platforms are often doing all the heavy lifting, integrating all the software, providing the security, the tokenization, the analytics and the unified payment experience. And then the transactions were getting routed to a legacy merchant acquirer who is earning most of the spread. So in an acquisition strategy, we acquired the platforms and said we can go to market in a much different way. So through the acquisitions, we generally gained about a 40% market share of hotels in the country using this inefficient kind of gateway-only model and said, by consolidating end-to-end, you save money, you get a better experience. And on top of that, the economics for us as a business are much better as well. So you commented on the growth, I'd like to contextualize it slightly differently. We've added 5,600 hotels to our end-to-end payment platform since the pandemic began. That's about 10% market share in the U.S. And every one of those hotels is delivering us like a 10x revenue from what they were as a gateway only customer, but they're saving money and they're getting a better service experience. And so that library of integrations puts us in really, really thin air. The more software merchants using the fewer platforms that are even compatible with that environment. And we like to take those points -- take that like kind of framework that we're one of the few they can work with and really differentiate through the go-to-market and the service model around.

Yes. Just to highlight that point. So we said there were 4, we bought 2. So you've got 3 payment platforms, and that's it, and that's all there ever be that can deliver an integrated payment experience within like the hospitality landscape right now. The other one lives inside U.S. Bank. So you can get a sense right from there about how limited they're going to be in terms of just their agility or able to innovate, deliver technology to solve pain points, probably not a lot going on there. And then the other one is just a gateway. So it means they need like a minimum, like 2 or 3 other vendors to come together. So it's like 2 or 3 more mouths to feed in order to deliver a commerce experience. What happens there is a lot of finger-pointing and the moment you want to do something cool in a hotel like I want to make room service orders happen through the television set or something. Now you got to bring 2 more people in to talk it out. So it shouldn't be like a shock that that's the landscape. That's all it will ever be, and Shift4 has more links in the value chain than anyone else, and we can easily make trades, hey, don't pay for devices or gateway fees but move your end-to-end over, knowing you're saving money for them, you're delivering a better commerce experience, you're solving whatever the pain point they had, and it's a big lift for us in gross profit contribution. That's why merchants were gravitating through that when they had a lot of other things to be thinking about during the pandemic.

Yes. Yes. So it sounds like in hotels, this gateway to end-to-end transition is really the core of your strategy. So let's deep dive on that for a second. That's obviously an important piece that you guys highlighted and last week in the earnings announcement, you kind of reiterated or maybe intensified your push in that direction. Talk a little bit about that part of your growth strategy. What's in it for the merchant basically to transition to end-to-end? And how do you convince them to do it? And why would -- what are the main barriers, why wouldn't everybody transition?

Yes. No. I mean the answer is we think they will. So we -- Taylor pointed out, we -- there's, again, 2 payment platforms that we acquired of the 4 total that could pursue this vertical. The second -- the first one we bought was very strategic in 2017. It was called Shift4, we took their name. The second one was like a carbon copy of the platform that we acquired in the end of the fourth quarter of 2019, right? Like that was going to be the last one. We were going to tighten everything up. We had a great integration plan, and then we're going to go public. Now that plan, if you're looking at it now is saying like we're going to aggressively consolidate the platform in and make 2 platforms look like, one, accelerate the migration of the customers over to our intend platform. Then the pandemic happened. You can't necessarily take some of the same tactics that we contemplated in 2019 as part of that integration effort when like the end markets are going through pure hell. So it put off the plan for a while. But every quarter as a public company. We kept -- when investors came up, how is the progress in moving gateway volume, which was -- again, at that time, it's probably $200 billion or so in volume, it's a lot of commerce, right? That was about 40% share of the hotel market in this country. Hey, how is the progress of that migration? Pretty awesome, to Taylor's point, I mean we converted essentially like 10% share of the country's hospitality volume through a pandemic. So it's working fine. But we continue to remind investors every quarter, we don't have to be a gateway forever. We're accommodating right now. Toast is not a gateway. Square is not a gateway. Clover is not a gateway. That's a legacy model. Like at some point or another, we're going to go from pear, carrots carats to some combination of carrot and stick because we have a large portion of our workforce, maintaining all these connections to our competition. And that's not without upkeep. I mean every time a new device comes out, new EMV protocol, we have to certify it across all those various connections. We got to have encryption for all those various connections, a lot of work. And like a big philosophy that we embrace and we try and -- as part of our execution approach is taking out the parts. We have a lot of parts. So now that we're in better times, we're just like reigniting the same strategy we had at the time of it, which is there could be some sticks now. So for example, we've already notified one connection. This connection is like 30 years old. Keep in mind, you -- everyone in this room knows who like the 4 or 5 legacy acquirers are. Throughout their existence, it used to be like 25%. There's a lot of consolidation there. They all have pipes. So when we say like, hey, we have a global payments pipe. We probably have 15 global payments pipes NDC North, NDC West anyway. So we picked one that's got about 100-and-some-odd merchants on it. And it's just not economical for us to maintain it. It doesn't actually even support the latest encryption. So we've just notified all those customers. We're going to sunset this pipe, you got to move over to our end-to-end platform or you could go to FreedomPay relevant if you really want to. That's not a super easy migration and that we're going to start browning out connections in a couple of weeks. Of the 100 and some-odd customers on that platform, we have like 50 leads already. There's no question it's going to pull over what otherwise would have taken 7 years to move like 40% share of hotel market over into probably 3 years. The end result of that 100% population of gateway customers, if you ask us, is like 75% is they're going to move to end or they're going to pay us as if they were. That -- and for us, as we mentioned in our investor letter, it's like a very attractive trade that we're willing to make.

And maybe just a second on the economics because I think we've alluded to it, but just to be explicit. These customers are typically paying cents per transaction, call it, $0.03, $0.04, $0.05 a transaction for us to send that transaction to a merchant acquirer who's making 40 basis points, 50 basis points, 60 basis points. So the merchant acquirer is literally making 10x the money and providing no technical points of difference. They're doing nothing that any one of those 30 other connections couldn't do. So by pulling them to our end-to-end, we can eliminate the cents per transaction, we can charge consistent with what their merchant acquirer would have been charging and save them money and the experience is better, too. Like when you have 30 connections, it's not all seamless. These connections go down from time to time, owning it in a single loop creates a much better experience for the merchant as well.

I would emphasize, like I think this is going to have a material impact on the second half of the year. This is going to have a material impact on our entire trajectory because, one, it is pulling forward a lot of volume that I think a lot of people -- a lot of volume and revenue that probably forecasted over a multiyear period of time. But the other thing is just the amount of resources. We have nearly 2,000 employees. And I talk a lot about, hey, 50% of our resources are spent maintaining connections to our competitors in the past. Like the better question is what percentage of your resources today are working on SpaceX Starlink, or your St. Jude connection or building out your international road map, and it's like probably single-digit percentages. And that's where we have to shift this. This is why taking out the parts is so important because this kind of philosophy allows you to free yourself from some of the drag of the past to focus on building the organization you want to be for tomorrow. And it's not unique to us. I mean, as we were assembling the strategy and having a very thoughtful approach to it, it was what did the software industry do that used to sell software with perpetual licenses and maintain them indefinitely like Windows 98, Windows XP at some point or another, you say, we're sunsetting the support. That model doesn't work anymore. Here's Office 365. And that's what I think is like absolutely the right evolution for us, for the gateway.

Got it. Okay. Okay. Well, let's switch to our new verticals. So you mentioned them already a couple of times. But the list is pretty long. So there's gaming, sports sort of arenas, stadiums, e-commerce, nonprofits, sort of airlines, broadband. These are some of the new verticals that I think it sounds like on your list of pursuing it pretty seriously. So first, just a strategic question, how do you get conviction that you as a company have the bandwidth to successfully execute against so many different verticals like what's -- how is that possible? Why do you think it's possible?

Well, look, I mean, if you take a look at -- one organization we admire immensely is Adyen. They don't build a Facebook product, an Uber product, a Netflix product, like they're an integrated payments company. They power transactions across numerous different verticals, multiple different software types. We absolutely do the same. We integrate in hundreds of different software applications. These new verticals will take us into hundreds of additional software applications. At the time of the IPO, when we were having our virtual roadshow, we would only been talking about restaurants, restaurants and third-party distribution. Since that time, for sure. Now massive concentration in hospitality, moved into specialty retail, 5,500 UPS stores, a number of others in that arena, stadiums and such. What you'll find there is a common theme on all of them is that these are industries that require lots of software to do what they do, which means you are not in the crosshairs of a Square or a PayPal you are on the extreme complex end of the commerce spectrum and there's opportunity within them. And we size these spaces up before we put energy on it. We have one stadium at the time of our IPO, which was Raiders stadium. It taught us that stadiums actually look a lot like hotels and resorts. They have lots of different revenue centers. It's not just ticketing and concession stands, a lot going on. Now we have well over 100 stadiums that we power. And I think our product within that space is the category leader. We looked at -- nonprofits was kind of by accident. We weren't intending to do it, built a relationship with St. Jude, found out that they probably have 40 or 50 different software applications for donor management. There is software for everything in the nonprofit space, if you can raise money with it. And they're all kind of independent, not integrated together. So we're like this is what we do. And once we get into a vertical and it's anchored on like a marquee customer, then we build around it. So taking nonprofits, again, for example, you have the technical ability to address the vertical. We're an integrated payments company. It's what we do. We have a signature customer to introduce us in the space. What can we do to pull forward this $500 billion payment opportunity, let's get The Giving Block. It's not a bet anywhere in crypto other than that if people have it, they might want to do a nice thing and donate it from time to time. And if they do, that's not a well-understood process for nonprofits, affords you a conversation to go after what you really want, which is the traditional card payment volume. Airlines, travel and leisure, you're already doing the hotels, you're doing the restaurants inside of them. Is it that big of a reach to integrate in the travel management system so you can kind of own a little bit more of the space. So we are very thoughtful about it. We don't ever put ourselves in like what we would consider a highly competitive lane ever. We just know integrated payments, I think, better than most, and we're going to go after the areas that are being underserved, and that's what took us. I mean take gaming, for example, underserved, no one was doing it 3 years ago, it was illegal. So you had basically 3 companies that were going to stake a claim to the throne with different rationale. One says like I do it really well in Europe, so I should be able to do it really well here. Another one says, I do APMs really well in Europe, so I should do it here, even though APMs have never taken off in the U.S.. We say 40% of the casinos in the country are our customers, and a lot of stadiums are our customers, and people are going to probably gamble in stadium, so we could probably stitch something together that's pretty interesting from like a business intelligence perspective. And we'll wind up getting like a 1/3 share in there and probably the other 2 will get there share.

Got it. And so all of these big long-term bets to look at the near term for second, maybe over the next 12 months, which of these new verticals close as to making like a significant contribution to your volume revenue growth over the next 12 months?

Yes. I just wanted to hit one point there when you said like these kind of big long-term bets. We actually don't make big bets like -- I would hope, especially as like people have a chance to reconsider how things have played out the last couple of years and look at kind of Shift4's move. We're trying to be really disciplined. We don't ever let light money on fire. We don't ever like hire 500 people to drum up something that we think will be interesting 5 years ago. We make very small bets. Giving Block is a very small bet. VenueNext was a very small bet. Our entry into e-commerce was like an EBITDA multiple. We actually have like our whole investment strategy when we enter a new vertical is like we put 24 months on actually being like EBITDA accretive to the organization. But in any case, like where do we think the bulk of the volume is going to come from. It's -- I'm a big believer in Starlink. I think the world wants broadband connectivity, and that's our path into a lot of new geographies, but one particular kind of pathfinder merchant aside, nonprofits is massive. It's a huge vertical.

Got it. Great. Okay. Well, let's switch to international for a second. You already mentioned it right at the beginning as a huge opportunity in payments. You guys are still mostly U.S., but obviously, international is a big growth area related to Starlink, I know. So talk a little bit about, I would say, what the big opportunity internationally is? What limits you right now from capturing that opportunity? What capabilities you need? And what's your plan to acquire those capabilities?

Yes, sure. So we've been looking at solving the international equation for a very long time. I mean, Jared mentions it as kind of a company aspiration going back decades. We actually sat with all of the largest hotel chains in the world 4 years ago. And every one of them was saying at this conference, we need the solution that you deliver us in the U.S. in markets overseas because of all the nonintegrated devices that Jared mentioned earlier. So we've been trying to solve this for a while with the pretense that we've got kind of 2 of the 3 ingredients for success already. We've got global brands that work with us that have locations all throughout the world, and we've got the software integrations that those merchants use in those locations. What we didn't have are the local banking connections required to do business in those markets. And so the Finaro acquisition we announced on March 1 is really the first step at that. It is a cross-border platform that supports payments. So about 80% of their volume is cross-border. And it's the right building block because they accept all the payment modalities that these big brands and software integrations would expect inside of their local markets. Now timing can sometimes be your fortunate friend. I think we had actually looked at a bunch of international platforms a year prior and struggled with exactly how this is going to work. StarLink being this kind of anchor customer, where we say, wow, we've got an instant customer who's growing all over the world that we can layer against this platform as a synergy and help us underwrite it during some pretty uncertain times for those markets. Separately, we had acquired VenueNext, which was world-class stadium software. From the point of our acquisition, which was a little over a year ago to today, we're in over 100 stadiums. And stadiums all over the world want this technology. So it was definitely the right timing in that, we surveyed the landscape really understood the assets well, knew the platforms that we respected and finally had kind of merchant use cases that were instant volume delivers for a transaction. Now where do we take it from here, there's a lot of different directions. And so the optionality behind this acquisition really can't be overlooked. You've got these local markets where SMBs have a really fragmented payment experience that's mostly nonintegrated. And then you've got at the kind of multinational level, you've got really only a handful of platforms that do it well and serve these markets. So with Starlink guiding us on the multinational front and our software integrations at kind of the SME front, 2 really interesting paths, none of which are served well by a single payment provider today.

Yes. I mean just to layer on to this, right? I mean Adyen had to do the bold move. I mean they're really in a league of their own in terms of global commerce where they had a -- if you build it, they will come type approach and a lot of volume came and worked out really well for them. In our case, it's -- if you build it or buy it, you already have it, meaning all of our integrations right now are the same integrations that are going to work overseas. The same Oracle property management system software that's probably in a large portion of the hotels here in the U.S. It's same software powering nice resorts in Europe or Central and South America, same Agilisys software. The Microsoft 365 integration we have for UPS stores is software that Microsoft sells all over the world. So you're using -- StarLink was what tipped it over the edge to say, we need to do this now. So let's -- Finaro, we know it. We diligence it, let's buy that. Let's look at the Central and South America, build out this capability, try and get -- sprint towards an Adyen-like parity in terms of its coverage. And not only will you have Starlink as your justification for doing it, every one of your integrations that works and has been driving growth for decades here in the U.S. is now applicable in region. You immediately have a customer list to call upon, whether it's hotels or restaurants or otherwise or stadiums. So it's pretty important part of our long-term growth strategy.

Got it. Okay. Great. Great. Switching gears for a second. I actually got a question I was looking at my dashboard. On your distribution strategy. So you mentioned that maybe at the IPO roadshow is all about your unique kind of strategy of using partners for distribution. Talk about how that might have evolved since then? And then a question specifically, the question that came in is, how do you compete against bank-centered distribution models? Do you see it as a significant kind of competitive channel?

It's so funny because I just -- there was -- I think people know -- like in the third quarter or something of last year, there was rumors we were looking at EVO. And instantly, like you got 100 e-mails from investors. Like bank distribution is dead, don't you know that. It's funny, they've held up, I think, pretty well over the last 9 months, actually. Yes, I don't -- the banks -- I always found it interesting. I got in the industry, obviously, in 1999 about how uninterested banks were in general in payments. They outsourced all of it to everybody else, like they didn't care. You had to imagine like if like Wells Fargo or Bank of America or JPMorgan like we really cared about payments, why would a company like Shift4 exist? Why would there be a Square? Well, the answer is back to the first question, the observation. Look, it went from no software to all software. Banks are not software developers, there's not a lot of innovation or magic happening there. So look, the best the bank can do is when you open a checking account is to make a referral. But like I don't even need to go into this like nobody is talking about all the payment innovation at JPMorgan or something, like what are the names you talk about? You talked about Shopify and PayPal and Square and Clover and Toast, right? I mean there's nothing fantastic happening there with bank distribution. You make a good product that solves a lot of pain points, delivers a good commerce experience for their patrons or consumers. You're going to grow payment volume. And if you don't, you're going to shrink and decline and probably not report payment volume anymore. In terms of our distribution strategy, no question, time of the IPO would have been everything about third-party distribution, tons of operating leverage, great coverage, printer breaks on a Friday night, they can go solve it. I'd say like that's still very much part of the restaurant world. Literally, every other vertical we're in is direct. So stadiums are all direct. We know generally where all the stadiums are. Most of our hotel gateway conversion business because we can just call on this direct, airlines is direct, nonprofits is direct. So actually, I think that we're continuing to swing in that direction.

Got it. Great. Question on acquisitions because, obviously, you guys done a lot of acquisitions. And then, Jared, you talked about Adyen as a model that you guys admire. That's sort of a company that, I think, taken a different approach, right? They're very, very focused on. We're building a very seamless platform and not doing acquisitions. How do you manage to bring in tuck-in acquisitions and integrate them seamlessly into your platform? How do you manage that balance?

Yes. It's a great question. So generally, we focus on acquisitions that have an embedded base of customers and understand the payment experience well. And usually, it's a fragmented payment experience. So day 1, there's kind of an ideological understanding of what we do, how we fit in the value chain and what they do and how they fit in the chain. And there's a combined set of customers that we can go after with this new and improved value proposition. So whether it was the gateway acquisitions, whether it was our acquisition of 3dcart or VenueNext, and every one of them, they were kind of as little as $3 billion or $4 billion of payment opportunity inside of it and as much as $150 billion of payment opportunity. But we all knew day 1, what we were going after. And because kind of our bread and butter is integrating these software solutions and delivering a payment experience, it's -- this is what we do every day. So acquiring a company and integrating it in that pretense is not as challenging. I think being able to set that common business development goal at the start alleviates all the jitters that typically come with M&A, which is like who has my job over at the acquiring company and delivering growth like right out of the gates. Every one of these businesses understood the challenges of a fragmented payment experience understood the benefits of going to market with a single provider. VenueNext was actually fascinating. We won what was STAPLES Center now Crypto.com, in partnership with them because they saw how effective a single bundled offering to that customer was. And so it was obvious to them that they win more under our roof. We try to take that philosophy as much as possible. Jared commented on not liking to make bets. We think the world of a platform like Adyen. They built it with the expectations customers will join. We oftentimes, when we're looking at deploying capital, we want a sure thing. And in every case, we've been able to find these businesses that have enough combined customers looking for the combined solution that we can ensure success for both sides like right out of the gates.

Yes. I mean just to layer a little bit on this point because Taylor made some pretty strong ones there. One, we have never acquired a company that possessed our #1 KPI, which is end-to-end volume, ever. Like we look for great embedded opportunities, embedded payment opportunities or products that can help us win a lot of payment volume, and we pivot their revenue model in that direction, and that's what we've done throughout our entire history. So like all our end-to-end payment volume is organic. We generally make smaller bets, right? We -- I think that -- especially in the last year, I mean we raised a lot of capital at a good time, and we were very hesitant to deploy it last year. I think that there's some opportunity shifting there. In terms of like organizations that have the philosophies of like we don't buy, we build, that's fantastic if you can be one of them. I think that there is some vulnerabilities in the pure we integrate-only approach. Like let's go to the grandfather of integrated payments, it was a company called Mercury payments. And it was required by Vantiv and then Worldpay and FIS, like you can hardly find it anymore because it's not relevant anymore. And the weakness there was you don't control the software that's integrating into you. We end up buying 3 of their largest restaurant customers and pivoted all the volume, redirected it all over to Shift4. Now a good example like Adyen for as amazing as they are, will never get any stadium business from VenueNext. So when we take VenueNext into Europe and other parts of the world, we're going to own that. When we take our restaurant product and we bring it over to Europe, it will never -- Adyen will never have a crack at it. Now like we can -- we're hardly like minimizing their addressable market because it is pretty massive. But that is the weakness when you depend on all the other different products out there that want to work with you is that somebody else might come along with a payment strategy and say that doesn't -- that's not going addable with me.

Yes. Yes. Yes. Got it. Got it. Shifting to some of the maybe profitability operations, workings of your business, the decision to move away from TSYS as your partner or as a vendor basically for connecting to the networks. I'm just curious because there's different models, some folks going to -- some companies use vendors to connect. You chose not to. Talk quickly about why and kind of what it cost you guys and what are the benefits of that?

Yes. I mean you have 4, 5, call it backbones. Those are your big legacy acquirers. They have little to no incremental cost per transaction, so not surprising that they try and get in and fuel a lot of bulk volume. I mean I think it was right up until rather recently that Stripe was -- still had a lot of transactions on Pfizer. Nobody would have ever thunk it, but they were there. From our perspective, we've already done the hard part. So virtually 100% of our transactions come directly into our payment platform. The hard part is talking to individual merchants. So we already encrypt them, tokenize them, it's our keys. We're just outputting for bulk settlement to TSYS, but it has a variable cost per transaction. It shouldn't be that anyway anymore. So we are bringing that in-house. We call it Project Everest. It does -- it will be a little bit of a margin lift. I actually I think relative to a lot of the other things we kind of announced that we think are needle movers, it's kind of small compared to them. But it is important as we're processing and growing transactions as fast as we are.

Yes. Got it. Got it. Okay. And then maybe a little bit more broadly on your kind of profitability margin profile. So unlike many other high-growth fintech companies, Shift4 is profitable. First question, sort of what's the -- why, how do you guys achieve that? What's the secret sauce? And then second, what are the main levers of that? And then second, where are you going to be investing more? And what are the areas maybe where there's more savings?

I can tell you why we are because I started the company in my parent's basement, didn't take any outside capital until 2014, 15 years after the company started. So I think I've been through dot-com, Great Recession. I understand what the world looked like when there was no like availability of low-cost capital out there. I think we balanced it all. It's why we didn't -- yes, we raised well over $1 billion in cheap cash last year and did not deploy because valuations didn't make sense despite like a lot of pressure to do things that didn't make sense. I mean, Taylor and I were just talking yesterday morning is like as dramatic as times are in the market right now, this actually like makes sense to me, like I understand how to run a company during these times. Like what didn't make sense to me and or Taylor last year was why 50x revenue multiples would make sense. I didn't understand why pictures of mutant apes could cost a couple of hundred thousand dollars. Like this is like what we know -- we know exactly what to do in this scenarios like this. And I think like having our roots going back to where they were, Taylor especially too, with more than a decade at Blackstone, like we understand fundamentals. I think like we're in a pretty opportune time right now with an awful lot of cash. I mean even with buybacks going on, we still have over $1 billion in cash right now. We're profitable. We're going to make a lot of cash in the second half of the year. And organizations that weren't operating responsibly or we might be able to find some attractive assets out there. So -- but I'd say like even if none of this was underway right now, our trajectory was always going to be continued margin expansion while making smart investments in our new verticals while sustaining growth while making more cash, that was going to happen either way. Maybe it will happen even more so now just based on other initiatives. But at least what we're seeing kind of makes sense more, and I think we actually -- I think we do much better as a management team under these kind of circumstances.

Yes. Got it.. Okay. Well, we have a 5-minute warning flashing here. So just a couple of wrap-up questions. One, we're obviously living through volatile times, macroeconomic-wise in the markets, et cetera. Today, what keeps you guys opportunist the most as you kind of look over the next 12 months and beyond?

It's a good question. We feel really good about our points of difference in the market. We feel really good about the differentiation, the idea that every hotel is going to call us, given that library of integrations, you feel good about. I would say -- and this has come up as we talked about kind of the guidance we set for the year and not changing that despite some pretty lofty data points around a consumer's desire to travel, right? That should benefit us really, really nicely. What keeps us up is just the -- what you see on CNN, on CNBC, you see high gas prices. Is that going to influence the consumer's desire to spend the way they used to. I personally think the restaurant vertical, which we serve really well. It had an awesome growth year, last year. To expect further recovery from that is probably not something, and we would never have put that in our guide, for example, because you can't expect that, anyone who looked at a restaurant menu last summer probably blushed when they saw the prices on it. You can't expect that to continue. But you can expect some bright spots, especially around travel. You just want to be prudent. You want to think for what's the scenario where inflation will help a business like ours to a point, right? It's going to help us with high prices. We are in a spread, great. We're going to grow with prices. But at some point, the prices are too much and consumers just want to spend a little less. So by no means is it keeping me up at night would be a strong phrase because like restaurants and hotels tend to be the last categories the consumer pulls back on. But you want to be mindful of the market we're entering. Quite frankly, what we pay for an asset is probably causing more consternation now than the underlying health of the business. It's just you want to make sure you do really smart buys into the teeth of kind of a volatile market.

Yes. I mean just going back from memory, but I'm pretty sure you can find it in some of the charts. I remember like looking at Visa, MasterCard data in '08 and '09 and to Taylor's point, restaurants held up really well during the downturn. Hotels did okay. But that was like -- I mean, obviously, that was a really dramatic time, and you didn't have kind of record consumer savings like you have now. So that's good. You had no one like leaving to start new businesses or endeavors in '08 or '09, you had record new business creation. So like you have a lot of good going into this period of time right now. To Taylor's point, I think, at some point or another, a $90 stake is going to spook someone. My big concern is that there was a lot of like artificial wealth created and some super speculative assets. And I have, honestly, like no idea how much leverage was existing behind that. I just know a lot of people that shouldn't have been able to speculate on certain things. We're able to do so and then layer on top of that. So I just don't know what exists behind that and how much that has an impact on the segment of the consumer population. So yes, we're keeping an eye on some things like that. But I think like our core verticals, again, have a history of holding up well under what I think were more difficult times than what we have right now.

Yes. Yes. Great. Okay. Well, we talked through a lot of different initiatives and parts of your business over the past 50 minutes, give us your 30-second elevator pitch for investors today, why Shift4 is a good investment?

I would close it on just we have a lot of history. We have a lot of history of -- I mean we grew revenue for 23 consecutive years doing multiple downturns in the market right now. We are profitable. We are making cash. We were -- I think like we shouldn't be punished for being prudent during the first quarter of not raising guidance when there's -- even if we did, we would have gotten smashed. Maybe just that might be more intelligent to say, let's just see where we're at in the second quarter. But if things go the way they go, you probably be pretty happy with the direction we take. But I think mostly, we've been there. I mean there's a lot of people right now, a lot of investment professionals have never had a downturn in their career. Like we -- we absolutely know what to do during these times. I think the discipline we had last year is going to pay off this year and in the years ahead.

Got it. Okay. Well, thank you very much, guys. Appreciate it.

Thank you.

Thanks.