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

Good afternoon, everyone. I'm Tom McCrohan, Head of Investor Relations for Shift4. Thank you all for coming and joining us today for our SkyTab showcase and business update event, and thank you for all those that are participating virtually. So before I get started, I just want to flash up the disclosures, and these are all available online for everyone to read. And I'll just give you a second to look at them. And I'll introduce our Founder and CEO, Jared Isaacman.

I was kind of planning to start with that cover. Let's go back to that. Cool. I am curious how long it will take before I go way off script today. Try and stick to it for a little bit. So first, welcome. Jared Isaacman, Founder and CEO of Shift4. So I think we had a pretty reasonably strong quarter today. There's certainly a lot to discuss, maybe more than I anticipated, but that's fine. We'll go through it all. First, just to begin, very proud of the Shift4 team. So as mentioned at beginning of the year, Shift4 is a 20-plus year-old company. We've grown through absolutely the best and most challenging of economic times during periods of high and low interest rate. And we never took any outside capital for our first 15 years in business. So we self-funded our growth even through the -- great Recession, things like growth at all costs is not in our DNA so we've always had an eye towards fundamentals and responsible growth. And when we saw the direction the world was going earlier this year, we made a promise to kind of prioritize our resources towards really true needle movers to expand margins, to generate free cash flow and prepare for the uncertain road ahead. And I believe based on the results of this quarter that we have delivered on that promise. And yes, we obviously picked this because of the boring company. So if we all live in a world someday where we're traveling in boring tunnels, the payments are going to go through Shift4, which by the way, is not really much like -- that's not a joke at all Las Vegas. -- you'd be probably surprised amount of traffic to the boring tunnel, which is going through Shift4. Okay. I think a reasonably strong quarter, 53% year-over-year organic volume growth. I'll probably emphasize that a few times, predominantly driven by our high-growth core. But you can clearly obviously see some of the contributions from some of our new verticals and initiatives. Volume drove 33% year-over-year gross revenue less network fees of $197 million, $85.4 million of adjusted EBITDA, which also grew 53% year-over-year and a pretty material increase in LTM free cash flow, which we will go over shortly. So I think there's a couple of points just responding to some of the feedback that we received this morning. There's probably worth some clarification. So we did deploy capital in this quarter for sure. The majority of it went in back to in-sourcing distribution. So probably not overly clear, you'll see it in the Queue. It was a much smaller portion of the capital that went to our international PSP acquisition. In-sourcing distribution was really smart. So obviously, great use of capital right now, margin accretive. But if you believe in SkyTab POS and what its potential in the market and that we're uniquely advantaged to be in the landscape of 2, by in-sourcing distribution in our key markets, we took out an ongoing residual expense going forward, which dramatically reduces the payback period within our new economic model. Bottom line is really good, smart use of capital. The other capital we deployed in the period was for an international PSP. We talked about that on this morning's call. That brought us a lot of StrikeLike integration capabilities, recurring billing BI. These are things you need when you move outside of the card-present vertical, which is obviously the direction we're going with all our new verticals of which we do expect, because we're not bad allocators of capital, we're good that it's going to be a meaningful contributor in the years ahead, but those synergies are largely realized when we close on the Finaro deal. That's the back-end bank platform, coupled with PSP equals real power, not from this. So to say it differently, within this quarter, there was virtually no inorganic contribution to volume and net revenue. And with respect to 2022, you're talking about less than 1% to volume and net revenue. So really kind of want to underscore that point. Now the other thing that we've been getting some feedback on relates to our volume growth in the quarter, hey, these new verticals seem to be really pulling down spreads, right? So what I would tell you is, and I've been pretty consistent with this over the past year. For like 17 years of our history, we served one customer. The Iris pub in the corner. It's a 100 basis point take rate type customer, okay? As you move upmarket, inevitably, the pricing is going to go down. What I would say is our lowest-priced customer that's represented within our end-to-end volume from this quarter. And clearly, part of our new vertical initiative is priced at or above what they were paying Adyen when we moved them over. Okay? So just to be like very clear on that point in time, like the spreads are very healthy within new verticals. Now that said, we also made commentary in our prepared remarks that we expect new vertical spread to expand within the fourth quarter. Why? So these multinational, multibillion-dollar customers that we're not naming, but I think relatively obvious, if you've been following us for some period of time, the lowest take rate is going to be domestic U.S. You don't get the module benefits of like fraud screening; you don't get FX pickup. So when you look at like an Adyen like customer, you're going to find that the higher take rates are going to come from Europe. The higher take rates are going to come from ATMs. They're not generally going to be the U.S. volume. So that's saying something about, well, something we already have visibility into since it's November within the fourth quarter, that, that new volume contribution from those new verticals from that particular strategic customer will expand in the fourth quarter, not that we think anything related to the current volume growth or net revenue growth was not great in this quarter because it was... Okay. So let's go over the guidance raise. I think generally, all this is -- was pretty much expected, given the performance. Nancy will speak to guide again when we get through the bulk of the presentation today. I think just again reiterating in terms of the capital that we deployed this quarter, which I think was really intelligent use of the capital, especially since the majority was in-sourcing direct sales within critical markets for our SkyTab POS product. You're talking again, less than 1% contribution to net revenue and volume for the full year. So pretty minimal impact there. Next, in terms of free cash flow, again, this is also something that Nancy can speak to later today. So we believe we were historically understating free cash flow and basically not conforming to industry standards in terms of settlement dollars within our settlement account. So if you look at it purely on a like-for-like basis to what we communicated last quarter, we raised by more than $10 million in free cash flow for expected contribution this year, so like 110 plus. If you normalize for the settlement activity, you're talking $130 million plus. And obviously, a lot of this was created at a time when I think like some of the greatest sensitivity in this climate rightfully so, is towards free cash flow growth. And I think we expanded margins and free cash flow pretty considerably this quarter. We expect to continue to do so going forward. I think that's also worth a point of emphasis. Every new vertical that we've entered into is direct. So you don't have an ongoing residual expense associated with it. It's generally card-not-present or it has a minimum hardware burden associated with it. So your customer acquisition costs related to the new verticals that we're all growing into are considerably less. Your COGS associated with it or less because you don't have a third-party distribution associated with it. And also, generally speaking, like the amount of workforce we need to support lots of smaller restaurants is quite high. It's probably 1 or 2 employees that cover almost all of our new verticals. And obviously, that's a considerable amount of volume relative to like the hundreds that you need every time a customer wants to call in and change the price of Buffalo wings or something as it relates to POS system. Bottom line is literally every initiative that we've embarked upon since the beginning of the year, drives expanded margins and free cash flow growth. Okay. So let's get into the SkyTab POS showcase. It's only been a year since we've been together, but I think there's a lot of change. So excited to provide some updates. Let's go into the agenda here. So we'll start with a little bit of a refresher on Shift4. -- just in case some of you are new to the story. We won't spend too much time there. Then we'll do double clicks within high-growth core, what's kind of changed there. A component of high-growth core is really SkyTab POS. I think over time, people -- very critical "Hey, you own a lot of legacy point-of-sale system brands. That's a lot of brands to maintain. That's got to be a lot of tech debt. You're disadvantaged to maybe a new emerging player or something. We've consolidated brands into a single cloud-based product, and now we're very advantaged because we have 100,000 customers to cross-sell with plus awesome distribution, a huge addressable market, and we're growing international. So that's all good. So we'll talk about SkyTab POS. Then we're going to talk about new verticals because the new verticals really represented no contribution to the business at all a year ago when we met. I mean, we basically just announced entry into every new vertical and had a signature customer associated with it, and we were driving like really no processing volume at all with it. And that kind of diversification was one of our priorities coming out of an IPO. So we owe you some updates there. International expansion, we'll talk capital allocation outlook financials. And then before Q&A, Michael Isaac in is going to come up, our Chief Commercial Officer, just to give you a little bit of an overview on how the actual SkyTab POS demo is going to work when we kind of break out the session at the conclusion of Q&A. So that's our agenda. Okay. So for those not familiar with Shift4, let's see a little bit of a refresher on the story. Shift4 is not a startup. So as I mentioned, I think several times today, we've been around for a long time. This goes back to when I started the company in my parent's basement at 16. We have grown through a lot of interesting and challenging times. We've grown year-over-year every year without messing beat even during the great Recession, even during 2020 in the pandemic. I think sometimes people forget that, it kind of reinforces how advantaged we are as an organization. We grew payment volume double digit in 2020, serving just restaurants and hotels. So I think that's always an important thing to keep in mind with this business. We are an integrated payments company. So with nearly all of our revenue and $200 billion plus of our volume that goes across our various rails being derived from software, commerce-enabling software and for merchants that are in the United States. So our 500-plus technology integrations provide us with a unique right to win in hospitality, specialty retail, complex restaurants and other verticals we've recently entered into. And when you have as much share and you've accumulated as many of these integrations, it starts to kind of create a nice flywheel as you inevitably attract new software integrations from the companies that you've already integrated into and the new merchants that want to join your platform bring whatever new integrations are necessary for specific to that vertical. That's why we've grown the number of software integrations from the time of our IPO that support our high-growth core pretty substantially. If you look at all of our 3-year CAGRs, I think these are pretty impressive. In fact, I think there's plenty of people that could challenge me at this point. I don't think any fintech that reported this quarter delivered higher growth numbers in any of these KPIs. So I think big takeaway, we've been around for a long time. We're pretty scaled. We're profitable. We're diversifying we're continuing to grow. I like this slide a lot. Sentiments obviously changed the world around us changed. I think I remember quite a bit throughout 2021, the sentiment that Shift4 was a reopening play. We benefited from all the restaurants and hotels reopening plus all the stimulus induced demand, and that would be incredibly hard to comp off of 2021. And I think as you can see, we've accelerated our growth from the time we met last year during Analyst Day in all 3 of the KPIs that really move the needle here. So I think that this demonstrates one, the resiliency and opportunity that exists within our high-growth core I think well-timed investments to expand and diversify into new verticals. We really began that journey pretty much a year ago at the end of 2021. We started making some investments in these new verticals. And then a disciplined approach to balancing growth and profitability. So we're never just a reopening play. All right. So I think this is kind of a cool diagram a little bit. So as I mentioned before, Shift4 is an integrated payment company. So again, what does that really mean? It means 100% of the $200 billion in volume plus that's going across our rails is integrated into commerce-enabling software. So we are providing -- our platform is providing integration into that commerce-enabling software that the merchant is using. We are doing the encryption, the tokenization, we're providing the BI reporting. And then we're solving a number of other like technological pain points that they may have, whether that's like contactless payments, mobile payments, you've probably seen a lot of our handheld SkyTab devices out there. And when I describe the evolution of payments having been around for a fair amount of time, I tend to use a little bit of like a telco kind of analogy. I also have [ my Pang ] [indiscernible]analogy. You tell me which one you like better and I don't use it more often. So when I think about a telco analogy, you kind of have these legacy merchant acquirers of old, and they've basically consolidated for the most part, made up of a lot of copper land lines. And in the payments industry, we think of those land lines as kind of the brick Verifone terminals, if you will, if you can recall. And they just basically do an approval or a decline. -- ensure they may have invested in or purchased some modern assets. But for the most part, people are cord-cutting and they're getting rid of their land lines because they don't need them anymore. And as a result, there will be generally some sort of a leaky bucket. At Shift4, we saw the cord-cutting trend 17 years ago, essentially, which is when we began our Harbortouch Integrated Payments division. So we basically saw call it more than a decade before that happened. And we invested in integrated payments technology, connecting our platform to commerce enabling software. And when you integrate and bundle payments into commerce-enabling software, you're able to differentiate, you're able to win customers you otherwise want very high-quality customers with phenomenal revenue retention characteristics. And you're certainly able to differentiate from the legacy acquirers who are not adding value through software, and therefore, all they can do is essentially lower pricing and cut costs, which only goes so far before that eventually reveals itself. So as a result, we really don't have any land lines to perpetuate the analogy in our book of business. So instead, our platform integrates into 500-plus software integrations, driving commerce across, call it some 33% of restaurants in this country, about 40% of hotels and numerous specialty retailers like UPS store. Now obviously, we've expanded into new verticals, stadiums, nonprofits, gaming, airlines, even broadband satellite subscriptions. In every case, it's Shift4's platform, integrated into some commerce-enabling software solution, and that's why we're able to differentiate and grow. We add value beyond just an approval or a decline. It's why we retain those customers substantially longer. And it's very, very hard to replicate, which is a really, really nice moat with high walls that we've enjoyed for -- we recognize and enjoyed for some time. So very clear, we're not a legacy acquirer. We're very differentiated, and that's why we continue to grow quite quickly. Since is kind of your obligatory logo explosion, but all the most recognizable brands in commerce, you pick the verticals are pretty much a for customer, and we only add to these logos as we into new verticals. So as mentioned before, for 23 years, we've derived almost all of our volume and revenue in the United States. So we've grown every year our revenue and volume in the most competitive payment market possible in the world. And despite serving nearly 40% of the hotels and some capacity with our payment technology, we've never expanded our reach outside of the United States, which does reduce our TAM. It reduces the opportunity we have. So that was until our investor update last year, where we announced a very strategic merchant relationship that would serve as our yellow brick road to global expansion. And when we get there, we get into those new markets, we'll bring all the products and services that have made us successful in this very competitive environment in the U.S. into those markets. So bottom line, quite a bit of an opportunity when you expand internationally. This is how we looked at the time of the IPO. This is how we look today. So as a result of our European PSP tuck-in, we can now process payments in about 45 countries support 170-plus APMs in about 20 currencies. I will say that, as I mentioned before, this deal needs to really be looked at alongside Finaro to really unlock a lot of the synergies that we know that attracted us to this acquisition kind of again reinforces this quarter in 2022 being organic. The technical integration work, I would say, as it relates to this acquisition is largely complete. So transactions are already processing. This PSP brings us a lot of talent and strike like integration capabilities, but that's just the start. We fully plan on adding talent, growing our workforce, which we're absolutely going to need to in order to continue our international expansion acquisitions. So we did announce the Finaro acquisition in March of 2022, which does give us a lot of banking back-end platform capabilities for settlement, card issuing capabilities and it's a very scaled platform we can build on as we continue this international expansion endeavor. So we now are processing transactions on more than one continent, but it really is just the beginning. And as I mentioned before, it had virtually no contribution in quarter or year-end from a volume or net revenue perspective. So where are we going? We are incredibly fortunate to have a strategic merchant relationship that is bringing us all over the world. Help us enhance our capabilities and join the elite view of true global commerce payment companies. This is why we raised low-cost capital in 2021. It's why we're now deploying it at a responsible valuation to execute on our strategic game plan. It's worth noting that this strategy does include both inorganic and organic initiatives. So I think we'll talk about it a little bit later. Our expansion into Canada and the Caribbean is all organic in nature. But this is where we're going. And when we get there, again, it's not just about one merchant. That one merchant is very important to us. This is why we've given a little bit less specificity around our kind of new vertical and strategic customer volume and take rates. Anything that backs into the revenue of that customer is very sensitive as they're a private company. But once we get -- once we enter into these markets, and again, it's not just for the benefit of that one incredibly important customer, but everything that made our integrated payment strategy work here in the U.S. in the most probably competitive payments market in the world. We're going to bring that special flavor into those new markets as well. And with that, to take you through the next couple of slides, I'm going to hand it over to Taylor...

Thanks, Jared. Where do you want me on the mic? Good. Perfect. All right. So lots changing, lots changing inside the company, a lot is changing in the world around us. So in times like this, we always like to come back to what are the fundamentals we ask investors to believe at the time we took the company public. And I think what you're going to find is not a lot has changed, except that we've exceeded expectations on all but I think one of the objectives we set out in that S-1. So despite all the change around us, the ability to grow as a best-in-class among all of our peers to unlock value inside of our existing merchant base to expand in the new verticals, enhance the product portfolio and so on and so forth, we've been able to achieve all those. And I do, by the way, think that there's still a ton of potential within this data monetization model. It just hasn't been the top priority for the business. So we're immensely proud of what we've achieved at the IPO. What you find is it often manifests itself a little bit differently than what you might have expected back then. Just Jared covered this, I don't think we need to spend a ton of time on it. But to remind you all, we're going to walk through exactly what's going on in our high-growth core and then the contribution from these new verticals. Our high-growth core is the business that you invested in at the IPO. It was largely comprised of restaurants, 17 years of our history was operating primarily in the restaurant vertical. Over the last 5 years, we've expanded dramatically into hotels. I want to reemphasize, we weren't in a single hotel 5 years ago and 40% of the hotels in the U.S. use some form of our payments technology. And then specialty retail has been an increasingly growing portion of our business. Interestingly, though, it's fed by the genesis of the high-growth core, which is the software platform that has 500 integrations. So a lot of times, what you find is a software integration joins the Shift4 platform because they want to be inside of the hotel vertical and yet they have massive prevalence inside of things like specialty retail. the UPS stores, we've hit this time and time again, it's never a customer you'd expect out of a business like Shift4, except that the software they rely on is already integrated to our platform. They see how well it works for big enterprise customers. And when they think about where to go with their 5,000 locations, Shift4 towards the natural conclusion. And then the new verticals, again, we've emphasized these Jared double-click on them. So what's going on inside that high-growth core. It's been growing at a tremendous rate. It's accelerated. It grows far in excess of the networks, which I think you should expect, but also in excess of many of our peers. And I can't emphasize enough. This is not a time when you should expect a lot of growth out of restaurants and hotels. And what I mean by that is from 2018 through 2020. We saw a little bit of a recovery inside of restaurants last year. We've seen less recovery in restaurants, more recovery in hotels this year. But the ability to grow far in excess of not just the networks, the markets we're in, is a function of that captive base of customers we have through software integrations. And then again, because as we enter these new verticals, the effective spread on the business, which is, I think, the #1 thing that folks try to put into a model is really hard to predict. The spread in that high-growth core is not only incredibly constant. It's actually grown as we've implemented pricing power on the stickiness of the merchants that are using those solutions. So as you look at that high-growth core, know, not only has volume growth been really, really strong, but the spread has been stable inside of it. So as we look to new verticals, you should feel good about the fact that we're not giving up the farm, so to speak, to enter those new verticals and to invest in that growth. Added a lot of interesting merchants to the high-growth core. This is regular core stuff. There's a really big Shift4 an enterprise business or is it an SMB business confusion among our investor base. It's a lot of both, meaning that the majority of merchants that join us every day are a single location, single decision maker with increasingly growing volume, which is great to see, but enterprise decisions don't necessarily determine the fate of Shift4 despite a lot of the logos that Jared showed earlier. On our Gateway sunset initiative, we talked about a little bit of this on the earnings call, but for those that weren't able to dial into it, we'll talk about for just a moment or 2, what it means and how we've been acting on it. This is a strategy that's largely been affected inside of Q3. So while we've talked about it, I think earliest was teeing it up in our Q1 earnings call and then talking about it being underway in Q2, but the bulk of the actual effect started in Q3. And what are we doing? We're sunsetting legacy connections. These are connections where merchants are noneconomic. The benefit we get from them is not worth keeping the platform up really at any price. In some cases, we actually can't change the price to something we think is interesting. I like it as the first case because we literally don't care if the volume stays or goes, but when we act on it when we say we're no longer going to maintain this. The common reaction is, okay, tell me where to route my payment transactions, and we say you can actually join our end-to-end platform with no friction whatsoever, you're no longer on this legacy merchant acquirer, you get feature upgrade, you pay less money in aggregate, and you join our end-to-end and you're on a much more modern connection with a lot more state-of-the-art features. So I like it as an example because we can be the most aggressive in saying, we literally will not support you in this relationship. There's no amount you can pay us to do that. You got to join end-to-end, and the results have been pretty tremendous in that regard. We have also properly monetized relationships properly is probably not a good word. You always reevaluate the words you choose when you see them on the screen. I think Jared, you might agree with this. But we have begun to monetize the portions of the gateway population where we haven't been paid appropriately for the service we provide. As you recall at the time of the IPO, this was largely a $0.03 per transaction business. And yet those transactions were then routed from us to a merchant acquirer who is making 10x that amount in merchant acquiring spread and doing nothing in a differentiated way. So we've implemented price lifts on portions of the population where we can raise price. And I think in retrospect, it didn't create any phone calls. So while it created a nice benefit to the bottom line, and it did compel yet further merchants to join our end-to-end platform. It didn't create any consternation or attrition among the underlying bunch of ways. What that tells us is there's still a lot more to go inside of that population. And then we've had conversations with the large enterprises that have very bespoke agreements specific to when they joined the gateway, some of these date back a decade or more. And we talked to them about the appropriate way to use our platform going forward. In every one of those cases, they've agreed to pay either a higher per transaction cost, a higher monthly fee, in some cases, both. And through that effort, we have a stickier relationship who have eyes wide open have joined -- rejoined the platform, so to speak, at a spread that's really, really attractive from our standpoint, but also recognizes the value that we're providing inside of those customers. Jared, do you want to hit SkyTab?

Yes. Thank you. So this is a lot of what we're here to talk about today. So while this was a big quarter for SkyTab, it's important to know it's been a project that's been in work for years now. So again, I mentioned this before, but for a period of time, there is this general impression that Shift4 only drive payments from older legacy restaurant software integrations, and that would be an anchor that would hold us back compared to our competitors that have invested in new modern cloud POS software. So to those really we had that position, I would say, one, our approach within the restaurant POS vertical has been incredibly successful and profitable for 15 years. So we've grown our payment volume despite the flavor of the day competitor, which goes long before to mean Square was going to crush us. Revel, that was a big name for a while in CR Silver. We always protected spreads. We always grew our restaurant payment volume, and we also grew in a lot of other verticals because the Shift4 integrated payment story is about much more than just restaurants. Within the restaurant vertical, our unit economic model was always superior to the competition and it only continues to improve. We've always had a plan to consolidate our legacy POS brands around a next-generation POS platform. SkyTab has been in development for a long time. And we have now launched out of beta this past quarter, and I think the results already are pretty significant, but we'll double click on that for a little bit. So let's see Yes. Just to kind of reiterate again on touch about value proposition. So Shift4 owns the entire POS ecosystem. I think that's important relative to some of our competitors out there by owning the payment platform, owning a lot of the hardware strategy. A lot of the integrations, like, for example, one of the sizzle capabilities of SkyTab POS is that we don't charge for the marketplace, the online ordering or the loyalty platform. We have competitors that spend hundreds of millions of dollars buying loyalty companies. Loyalty is actually fundamentally rather easy when you build it out. It's either point based or dollar-based triggers or redemption, pretty simple rather than trying to monetize it through costly SaaS subscriptions. We look at that as a way to differentiate. It's an example of just pulling as much of the ecosystem in-house. We've got some very cool state-of-the-art hardware. You'll be able to see that during the demonstration. We continue to push out new functionality at a pretty rapid pace. So when you think about it, right, when you have 4 restaurant U.S. brands, which was working really well for us. That's 4 brands to build that development team split across 4 different products, essentially 4 different service and support desk. So Windows-based hardware, they tend to break more. There's a lot of things that are generally negative about it. We've been able to consolidate all of that into a single product. So the pace of development features rolling out with SkyTab, which essentially cloud-based is wicked-fast and that's what you'd expect to see from it. I do think we lost our video here. [Presentation]

So again, as we mentioned at the conclusion of Q&A, you're free to interact with SkyTab. We have a number of demos and a lot of great SkyTab team members here that can kind of show you how that works. We're featuring our glass hardware, which is pretty cool. It's our new tablet with integrated payments. The analytics of the demos you're going to see will be available for you to look at in our in-charge app. That's kind of our mobile managers application. And you can see kind of how our kitchen display system operates. What I'd say is when you think about some of the features that we talked about, right, -- like the sizzle features is what captures the attention of the restauranteur when you're trying to sell this. Like what are you using to try and differentiate. For the longest time, both Shift4 and I'd say Toast, it was really all about mobile. Like that, you show the handheld, that's cool, drives a ton of operational efficiencies, quick table turn, get people in out of the restaurants. You got to go beyond that now. I'd say some of our competitors have gone in a direction of like payroll and capital. And I would think those 2 Sizzle features very much skew to smaller merchants that either require capital or happy like bundling their payroll solution. You get up market. I mean even in our organization, really hard to change HR systems in payroll. We've tried it a couple of times. So we intend instead chose to prioritize our future development around things that we think upmarket merchants would want more. That's business intelligence-based products, that's, like I said, free online ordering, free marketplace and especially our free loyalty. Sorry. One other point I note I'd just say on this is SkyTab is obviously more than just PowerPoint. We have been in system now presently installed in well over 3,900 locations and growing by the day. And we'll go to be a little bit more of a production update on that shortly. So SkyTab POS, modern cloud-based POS systems, phase H hardware, we built SkyTab, really taking our experience from over 100,000 restaurants. Not to mention decades of talent that's been accumulated across what were the best POS brands for the last few decades and drove that into our products. So beyond price and the disruptive value proposition pretty much prioritized on some pretty exceptional sizzle features we talked about before. So let's talk about growing it. Restaurant technology, POS payments, it's a huge TAM. -- right? And with a new direct sales force balanced with our authorized SkyTab partner team in kind of the less partially populated areas, plus just a very clear intent to take this product all over the world. We think we're more than well positioned to win our fair share of new restaurants. But that said, I think what makes Shift4, very special is that we can grow without winning a single new customer. And we've done this throughout our history, be that gateway conversion strategy or how we grew payment volume double digits in 2020 despite serving predominantly depressed restaurants and hotels. So we got really 3 categories here. So we can just migrate our existing SaaS customers across 4 different products into SkyTab. And that unlocks a lot of internal operational efficiencies. That's a worthwhile thing to do. It allows us to build more of a brand out there, concentrate our customer service, technical support, development resources. That's a good win. But now let's move on to the more like highly impactful ones. We can upgrade legacy software-only customers. So we've got our software customers plus payment. So we've already got sticky customers. We're going to get the organizational efficiencies we mentioned before, increased brand awareness. Now we're going to get incremental SaaS revenue. 85% of the restaurant customers we serve today don't pay us any SaaS-related revenues. For 5 years, we wanted to move quick. We monetize predominantly through payments. We can capture SaaS revenues because they want to move away from Windows-based POS systems, and we naturally have more than a foot in the door. And then you can convert your software only and you gate with customers. So in that case, you have to stick your customers, organizational efficiencies, which is enormous in a company of our size, increased brand awareness, you get the incremental SaaS revenues from here on 85% plus you get payments revenue. These are all examples of how we can grow across tens of thousands of customers without ever winning the next new one. The reality is we do have a very large distribution for us. We increased headcount 15% in the last quarter, predominantly related to our SkyTab initiative. These are experienced business development professionals and local support professionals that are going to go out and distribute this product to new customers. And we also have a massive force of authorized SkyTab partners in more sparsely populated areas to continue to pursue net new customers as well. So bottom line, we're pretty advantaged, I would say, to grow both in the addressable market and grow revenues and payment volume just from within the existing customers that we have today. So as mentioned, SkyTab POS was in development for years. Now that it is ready for prime time, we've begun consolidating our brands around SkyTab. So this removes a lot of parts. It removes costs and allow us to focus our resources on our flagship cloud-based solution. Because we are leaving the world of Windows-based POS systems that are more maintenance intense, we can pivot our go-to-market strategy, as mentioned, from what was 100% third-party distribution at the end of the second quarter to now what is a much more balanced direct sales and third-party distribution. You can kind of see the blue dots represent areas of the market that we're very confident in. We have a good track record there. We believe we should take that in-house. And then some of the more sparsely populated areas. The reason you don't want to acquire these. They do a lot of other things, just given their limited market opportunity. They do alarm sales. They do drive through headsets, video monitoring, cash registers, a lot of things that are outside of kind of our wheelhouse and to acquire them would be taking on more parts and that's literally the exact opposite thing we're trying to do. So better to kind of supplement with third-party distribution that we know works. It's a variable cost for sure in these areas, but it makes sense. And then take in-house, yes, you're taking on some fixed OpEx associated with it, when you eliminate an ongoing residual expense. And if you believe like the future is any indication in the past, that is capital well deployed with very, very quick payback periods. And only -- I mean it brings our payback period in our unit economic model inside of 12 months, which is pretty awesome. And as I mentioned before, the in-sourcing efforts we did in these key markets did bring on in a very short period of time, like 370-some-odd employees, again, predominantly business development solution specialists as we refer to them as also technical support experts that really did well hitting the ground running coming out of the gate. So we do believe this provides a superior more standard customer experience along with, again, significantly enhancing our unit economic model. And as I mentioned earlier on the call, we have more work to do. Like this was always kind of a weak spot for us right now. So I think some people interpret it as like we're just -- it's going to be a continuation of these acquisitions. That's not the case. Like we're really happy with what we've done here, and we're very deliberate on what acquisitions we chose to make versus not. But we definitely have to address a little bit more on the West Coast and in Arizona in order to provide better coverage for a product that we know is going to win because it's never been a winner take all in virtually anything I've seen in technology or payments. So speaking a little bit about the unit economic model see. So you should see gross profit less about 112% per merchant. Now that's largely driven by eliminating the ongoing residual expense. Now the customer acquisition cost goes up a little bit because you traded a variable cost for fixed cost in terms of the overhead of that workforce. But this ultimately drives this, which is really important because I think if you were to compare pretty much our customer acquisition cost and payback periods to maybe somebody who took like, I would say, like a less creative way to solve distribution and basically has like a $10,000 per merchant, like digital marketing budget, this makes a lot more sense. And also based on our approach, you generally wind up getting established restaurants, which eliminate some of the new business failure risk, which can be pretty devastating to an expensive customer acquisition cost model. So I think big takeaway, we strategically insource production in key markets. We would not have done this without SkyTab. You need a cloud-based solution that you feel very confident that allows you to take -- centralized a lot of the service and support obligations to push more of your sales, push more of your local resources towards sales. And I think the results, again, spiriting economic model, greater customer experience and just a general lift to production. So as I mentioned before, SkyTab is not PowerPoint. So in the beta period, we signed up approximately 3,900 sites actually installed about 3,900 sites. In the less than 2 months since we've gone live, we've signed up over 1,000 locations. I think there's a few things to keep in mind here. We are just getting going. We did bring on 350-some-odd people in 2 months. Whatever you think of this number, which I think is pretty good, you're not 100% effectively mobilizing a brand-new workforce of that size in a span of like weeks, right? So this production only ramps from here, which I think is pretty awesome. And the other thing, too, I'd say and when you talk about stick count in terms of production, is like our average -- our average restaurant right now in terms of its volume contribution per year is 4x the highest category that Square reports on. Like you're talking about a very upmarket, high-quality restaurant. That's what our product is optimized for. It's why there's no capital offerings with it. We'll do that through marketplace. That's why there's no payroll offering related to it. So when we use stick count and these are generally real restaurants. I emphasize that because some of them I've seen in like the office marts and the vending machines now, which that's a pretty easy way to generate stick count is probably not a good return on investment. Okay. So moving off of SkyTab, -- let's talk a little bit about our new verticals. So as a reminder, we consider new verticals to be the diversification beyond our high-growth core, which is essentially what you invested in at the time of the IPO. So this includes sports and entertainment, gaming, nonprofits, travel leisure, sexy tech -- as a payments company that was focusing pretty much entirely on restaurants in some hotels that had a successful IPO in June of 2020. We felt we had an obligation to further diversify and come out of the pandemic stronger than we went into it. I will say that moving into new verticals takes time. Integrated payments is very, very hard. When we talk about new verticals, I know I emphasized this earlier, we're not talking about putting VeriFone terminals in nonprofits or like born company or some of these or time magazine. -- like you're talking about integrating your payment platform into software to deliver a very secure commerce experience. And that takes time. So I think despite our immense progress, even though it did take longer than expected, it should reinforce how difficult it is to enter into new verticals. So a year later, now that we have those integrations, we have the hunting license within those verticals. Growth is -- from these verticals is obviously becoming an increasingly larger contributor and it shows -- it signifies really how hard it would be for anyone else to kind of follow. So let's do double clicks on each of them. So sports and entertainment, -- we don't have it up here, but in 2020, we have one stadium. It was Allegiant Rader Stadium, and they weren't open because of the pandemic. So we had no volume. In 2021, we like -- we learned from that one stadium opportunity. We realized its characteristics of a modern-day stadium or actually a lot closer to a resort where we have a lot of expertise in. We win quite a bit in, which attracted us to the vertical. We completed an acquisition of VenueNext. VenueNext had no end-to-end volume whatsoever as a component of the organization. They did not have an integrated payments fuel value proposition, and they were winning a lot. And that's good because then we're saying, well, if we can monetize through payments and use that to make the offering even more attractive in a direction that virtually every stadium should go anyway because who's not going to want to order a burger and a beer from their seats we can have a lot of success. And the success is we had 77 stadiums using our payment solution and software in 2021. We now have over 120-plus stadiums, including many of the highest volume football ones, NFL, NCAA that's been really nice to see so far this fall in the third quarter as they start to make more of a contribution. We also have ticketing integration. So like when I think back to the underwriting case for the VenueNext acquisition, the base case is your mobile application plus some of the concession stands plus payments equals a win. And then bonus hour came from ticketing integrations and gaming. So SeatGeek is one of the 3 ticketing integrations we've completed. We expect to get some of that volume kicking in this quarter, more coming in the beginning of the year. That's actually -- it's a factor of like the team's existing contractual commitments for ticketing is kind of what slowed that down a little bit. But that's awesome because that is a huge lift in volume and at take rates that are like well north of what you would typically expect from like stadium concessions, I mean, that's pretty low risk volume. You should expect that's obviously not priced too high. Plus it's a lot of volume. We also now have gaming integrations alongside our stadium customers. That was another part of bonus hour to the VenueNext deal is our presence in stadiums going to give us more of a right to win within gaming. The answer is yes. Can you use it alongside each other? Can you make a wager in a stadium and then use the proceeds from that to maybe buy you a burger in a year in app or something. And we basically have 2 customers right now that are in early days of marrying that technology together, which is just interesting. So we'll see where that goes. Obviously, a lot of people are spending a ton of money to get consumers to want to wager through these applications. We'd like them spending that money so then we could eventually process the transactions across them, which is great. We also have taken the software into the leading theme parks in this country. I think at this point, it's all of them. We just can't disclose any of them, but I think it's all of them. So in terms of this quarter's performance, we always like to highlight some wins. So we have many signature wins. We have the Houston, Texas, which is awesome, University of Colorado, Chicago Symphony Orchestra, kind of shows the mobile applicant. I don't know how many people are ordering a burger here in Chicago Symphony Orchestra, but they could, I guess. Iowa State University, University of Cal Berkeley, Villanova, just some existing examples of it. And also, we do marry venue next with SkyTab POS. So we've taken our SkyTab POS solution and installed it alongside VenueNext in a number of stadiums. You can see that here, Wells Fargo Center and [ Otona Ohio State ]. And these are all obviously very, very real customers with the solutions in practice today if you were to kind of go to the venue. All right. Let's talk about nonprofits. That's another double click from where we were last year. So where were we last year? We had one customer. We had St. Jude Children's Research Hospital is kind of the anchor to move into the vertical, personally getting very close to St. Jude. I realized, again, it's kind of like how we learned from stadiums. It's like you find these industries that need lots of different software to deliver commerce experience. And if it's not talking to each other, I mean, that's what we do well. That's opportunity. That's what we do in hotel resorts. It's why 40% of the casinos use Shift4, that's why pretty much every ski resort uses Shift4 as a customer, we can kind of take that same magic, bring it into nonprofits. This is really hard. Again, moving into new verticals is very hard because software companies and enterprise merchants are not excited every day to do payment integrations. They're not. They literally want to do anything other than that. If they already have software integrations, it's probably fine. So you need to muscle a really big customer to kind of say, hey, you got to do the integration. You don't have a choice on that one. But if you can get more of a foot in the door, that's even better. That's where the giving block came in. So within 5, 6 months of announcing our entry into the nonprofit vertical, to $450 billion addressable market. We acquired the giving block. We really like that deal. First of all, their technology is kind of like a need of the moment right now, every nonprofit. They're going to take crypto donations. I mean they take donations from anything right now. I mean whatever it takes to get the mission done further nonprofit and the giving block is the best platform in that regard. Because it actually brings the donors. It's really interesting. So of the donation volume that goes across the giving block, approximately 80%. I don't know if that's changed in the last quarter or so comes from crypto donors who go to the marketplace to find the nonprofit they want to give them money to versus going directly to the website. Nonprofits value that an awful lot. So bottom line is you have about 2,200 or more. And you can see the stats as a giving block has continued to grow even during a very obvious crypto winner. -- gives us a foot in the door to every one of these nonprofits to say, we're glad you like the giving block service. And by the way, we're adding a credit card widget module to it. So every one of your customers who come to the site and want to donate crypto, -- they also next to would have an option for credit cards because that's good. But we could probably handle everything else too because now we have like a sales force integration that's coming on for Salesforce.org, Kind of give us an opportunity to help you similar to what we did with St. Jude. So it's beyond a foot in the door in my mind for what is a really attractive $450 billion addressable market. And like I think the -- where you want to see this go is 2, 3 years from now, we want to be talking to you having the same success within this vertical that you talk to us about within hotels. But it's just a given Shift4 lion's share of the market went in really kind of revolutionize how all the different various commerce enabling software within the nonprofit vertical and donor management software came together and now they'll continue to have a great right to win for years and years because they have all these integrations that no one else will be able to get. That's what the game plan this year. In the interim, while we're waiting for more donation volume to come on, we're growing SaaS revenues at a pretty attractive rate. So up 5.3x September '22 versus September 21. That tells you, I mean, nonprofits, even if maybe it isn't the greatest time in the world for crypto saying, but if somebody wants to donate it, I have to have the means to be able to take it, and I'm signing up as a subscriber. All right. Let's talk gaming. In 2021, we had one signature customer, which was BetMGM and gaming licenses. I'd like to think that the BetMGM relationship was actually one at the time because of our relationship with a number of casinos. We have a very strong in venue casino presence. In fact, it came as a referral from a stadium with VenueNext that kind of saw the same thing of the marriage between gaming and sports and entertainment products. So that's how we won BetMGM, 8 gaming licenses. In 2022, we now have 21 gaming licenses. Volume is up 3x quarter-over-quarter. We've added additional customers and integrations, along with identifying assets to expand our opportunity to support this vertical all over the world and say very specifically, international acquisitions. Finaro will be a great example, we close on that, only enhance our right to win within this particular vertical. Not to mention, they have existing gaming customers in Europe, they're using somebody else in the U.S. There's a very natural cross-sell there. All right, travel and leisure. So one customer in 2021, we announced Allegiant Airlines a year later, still not processing for them, although it might have been literally today or tomorrow. So that took a little bit longer than we expected. I kind of offered that up in earlier remarks to be like, hey, we did really good for volume in this one, which is pretty multibillion-dollar customer hasn't kicked in yet, so it's more coming in, it was like, see, I told you they can't win in new verticals. Anyway sorry. So in 2022, we now have 4 customers, 3 integrations, several other negotiations. Most of these are processing already. These are pretty interesting vertical. The more we add international capabilities, the more we're able to differentiate, hopefully take on more in the travel and leisure space. All right. In Sexy Tech, we'll work on another name for it. But in 2021, we had one very significant signature strategic customer, a customer that requires very sophisticated recurring billing capabilities all over the world. And I think as you guys noticed, we stopped referring to this private company by their name, as their volume contribution continues to grow and the need for confidentiality becomes that much more important as with respect to those KPIs. But as a reminder, the strategic customer gives us the primary rationale to expand all over the world through organic and inorganic means. So where are we in 2022? So our strategic customer integration took a little longer than expected, but that volume growth came. We kind of gave you a little bit of a taste of that at the end of the last quarter by showing like just where the exit rate was to the next month, I mean it was like July. It should have jumped out at you as well, that's pretty significant. You can probably guess I guess it's really all you can -- it's probably a pretty big contributor right now as well. We've also signed additional customers within the family. The Boring Company is a good example of that. It's probably the last time we'll refer to that, disclose that company name. We signed Fanatics. -- normally, you think, well, isn't fanatics just part of their sports and entertainment thing, it's not. Now Fanatics is huge. It's obviously it's a huge e-commerce and in-venue retailer for like sporting goods and merchandise. This is very much along the lines of Sexy Tech. This is a completely different integration than VenueNext. We announced it last quarter, and over 40 locations are up in processing now, like really fast. I mean we've added throughout the quarter, so you're not like, of course, seeing the full run rate of it, but really quick to light up all those customers. That was a nice competitive takeaway. And then we obviously signed time. They will certainly benefit from our PSP acquisition because recurring building is a pretty important priority for them. So we haven't gotten them up and running yet, but we will. This is again reinforced as time it takes a complete integration, get processing, but we generated a number of interesting RFPs. I mean, you're talking in the $10 billion-plus volume global customers. And really, I think we all at all to really one strategic customer. But the idea that they're just -- weren't a lot of choices. We refer to Adyen quite a bit. I mean, Adyen is like the best when it comes to global commerce capability. And SkyTab has some of those capabilities too, but it's more driven through kind of consumer applications versus like the big enterprises. So it's pretty rare air when you get there. And the fact that we're even moving generally in that direction, we now have 2 continents. We intend to get more as a result of our organic and inorganic initiatives. It's attracting some pretty awesome RFPs. -- price worth reinforcing like a $50 billion a year, like gaming economy application is probably not priced at 76 basis points just to calibrate everyone's expectations there, but would be a pretty awesome win, and those are the type of RFPs we're getting now, which is awesome. So we keep building around this vertical, but I think a key like critical step here is we've got to continue to expand our rails across the world. We obviously announced one acquisition in Finaro. We hope to close that as soon as possible. I think realistically, it's in the first quarter now. But we did do one tuck international PSP, brought us a lot of very important front-end integration capabilities. I think to give a little bit more specific to actually do a little bit of a demo on that. And with that, I will turn it over to Taylor.

Thanks. If most of the room or anything like me, -- what are these large fast-growing e-commerce merchants need was like a total loss. We've been in card-present commerce with enterprise. And the e-commerce experience is fundamentally different. So we wanted to ground you all and what's important to these massively fast-growing e-commerce businesses that are just trying to accept revenue in as many corners of the world as possible. And the first is I want to accept payments in as many different methods as my consumers are going to approach me. And I don't necessarily know as I expand to Europe or I expand to South America, what those payments are going to be. So knowing they work out of the box is something that's critically important to me and that the payment experience is as frictionless as possible for someone using PICCs in Brazil as it is using a Visa, MasterCard or Apple Pay inside the United States. This is critical technology. And then from the standpoint of the software integrator of the merchant themselves, they want to make sure that they're accepting that revenue on a basis with minimal fraud as they enter different geographies around the world and that it's really easy to integrate to this thing and get access and unlock countries around the world that your business model moves. So we'll show you a real quick demo. It's not nearly as polished as the SkyTab demo because we acquired this business, I don't know, 40 days or so ago. But to give you a sense of a business operator that's suddenly expanding into a lot of geographies around the world, opening an application and navigating their business and their revenue. Keep in mind, this is all compatible today. So the thing we're most proud of with regard to this acquisition is it was acquired in the last 2 days of the third quarter. It is integrated to Shift4. This all works today, and you can go try it at dev.Shift4.com. Do you want me to leave it on this slide? Perfect. [Presentation]

All right. So in summation, we've added a heck of a lot of capabilities to support all of these different verticals. Hopefully, you have a little bit more color on what those capabilities mean to the merchants seeking out a payments provider. But you've also seen significant ramp in the contribution of these. I think with the some admitted delays in merchants that we fully expect to continue to contribute -- to begin to contribute to having yet. What does this mean for Shift4? We showed you this a year ago. This is the expansion of the TAM. The point of a year ago was that we've got a signature customer Inc. in every single one of these verticals and the volume contribution hasn't yet begun. Well, now you've seen the volume contributions just begun, and here's our penetration of that team. Still a long way to go. Jared, do you want to hit kind of the grander vision with international expansion.

Yes. So as I mentioned, I mean, we've been looking to expand internationally for over a decade. That's kind of -- I mean, really it was a dream going back to the basement days is can you be a global payments company. Certainly, never imagine the evolution that we take it to today. But with numerous international hotel operators as customers, we've always looked to move in this direction. I think landing a very important strategic merchant relationship, we announced last year was really the catalyst to embark on this endeavor. So what have we really done in that year? So obviously, starting point, nearly 100% of revenue and volume drive in U.S.A. still the case today. The year will still end that way. Also I think for being clear, we don't think Finaro's going to close in the fourth quarter. That's not obviously in our guide. So in March 2022, we announced Finaro. We thought it was set to close in the fourth quarter, more likely going to be in the first quarter. Great European payment platform and men's back end. This is the platform we're going to build on for all of our international expansion. Obviously, it brings a lot of synergies when you start connecting it with a PSP like the one we've already acquired, opportunity to build upon the R&D and development teams, which is going to be necessary as you move into, obviously, new markets, there's an awesome cross-sell opportunity. I mean a lot of the customers that are in Europe are also in the U.S. right now, and they're not using us. They're using competitors. Now through arm's-length partnership agreements, we've already referred a bunch of volume again to each other and Kiwi.com is a good example of that. Walt has got a very interesting parent company. It's cool opportunities always very good opportunities. So a good starting place. Obviously, we can't wait for the regulatory approval to go through, which we expect soon to close on that. Over the summer, especially as we started to see the volume really, really ramp from some of our new vertical customers, obviously, one in particular and get a sense of which markets for them are really strong and kicked off some organic initiatives, Canada for one, Caribbean for another. Now what's really cool about this, right? These are 2 markets. We have a lot of gateway volume. I mean there's billions in gateway volume in Canada alone. And we just had really never even attempted a cross-sell associated with it all. So when you add the capabilities to support your big customer in Canada, you've got, I would say, somewhere north of like 1,000 POS customers that are in the region that you're really generating almost no revenues associated with and then you have a lot of gateway volume you can cross-sell. The same is applicable to Caribbean, although I'd say it's like considerably smaller cross-sell opportunities, a lot of hotels there that are on Shift4. But again, once you move in that region to support your big customer, all your other opportunities become available. That's going to be a theme as we expand all over the world. And then in this quarter, we signed and closed a European PSP. As I mentioned earlier, in case I forgot that actually represent a very small portion of the capital that was deployed this quarter and it added a lot of interesting capabilities that we think we absolutely need, but there will be -- I think we do think -- we do believe we're pretty good at allocating capital and pretty disciplined, so we do expect to unlock some pretty immediate synergies with it upon the closing of Finaro. And then obviously, lots of various cross-sells in a number of directions, which we expect to be consistent throughout our international expansion effort. So I think points of reinforcement here is like we are going to profitably follow our signature customers all over the world. These are not like a [ loss leader endeavor ] or seeing our customers like, as I mentioned, their pricing to us is comparable or greater than what they were paying basically in Adyen. We'll bring capabilities that made us successful in the U.S. in new markets and we'll cross-sell like crazy. And then Taylor, I'll get back to you for capital allocations.

We'll see what the most common question is this quarter, but this is definitely one of the most common questions last quarter. How do you think about capital allocation? How are you prioritizing the powder you have? We're in an enviable position, in my opinion, with regard to the amount of cash we have on the balance sheet, the amount of cost us to borrow is despite our peer -- or vis-a-vis our peers is really quite attractive. So what have we done with this capital? This slide, I think, sums it up in the most simplistic way we could think through, which is that we've deployed $720 million towards M&A and growth. $190 million of that was issued in equity. That was at times where we didn't necessarily like giving out our stock based on the valuation of the stock, but we thought the alignment in these transactions was critically important. $529 million was cash. At the same time, when we could and when we thought it made sense and when the stock was laughably cheap, we deployed about $200 million towards repurchases, effectively negating any dilution that those transactions had. At the same time, because we've been challenged on this, are we a software company? Are we a payments company? Are we capital allocators. We think we're all of those things. We 4.6x the amount we spent in R&D on an annualized basis, all while expanding free cash flow. So you can back into a pretty interesting multiple here. I think the punchline is we're 2.7x more profitable than we were at the IPO at the tune of about $1 billion worth of capital deployed.

Okay. So similar to last year, and I guess, probably have even more reason to complain about valuation now than I did at the start of the day. I asked Tom and our Investor Relations department to put together some slides that I thought were rather interesting. So from the 2021 Analyst Day a year ago, estimates were revised down in virtually every competitor from a revenue perspective with the exception of Square4 and Toast. So we revised up 16%. In terms of adjusted EBITDA versus our peer group, again from Analyst Day, virtually everyone with the exception of 4 was downwardly revised pretty significantly, I would say, on average, downwardly revised 32%, up 14% for us. From a free cash flow perspective, we're the only ones that provides upward to 24% compared to negative 36% for the peer group. And then as probably you could guess where the punch line was going on this one. The price targets for Shift4 went down comparable to our peer set despite your upwards revisions on virtually everything else. And with that, I will hand it to Nancy to review our guidance.

All right. So I only have 2 quick slides, and I know Jared already has gone through this, but I guess as kind of being up here for the first time as new CFO, maybe tending to be a little more conservative with this head on. I guess I wanted to take the opportunity to just point out again that we've upped our guide for the year on all of our key indicators, and we are very confident that we will achieve this new guide. And it's really based on 4 points that I think should be clear after today. One is outperformance of third quarter results. Obviously, sitting here beginning of November, we've got a very good first look. We're 1 month into Q4 and feel good about that. And then really, just the continuing strength of our high-growth core and I would say a quick start and just really great momentum on all our strategic initiatives that we've been talking about today. So again, I would be short and sweet and just reiterate, we feel very good and very confident in this full year guide. So now for the midterm guide. Obviously, we set this guide at the end of '21. And kind of a similar theme, we're 1 year in, to the midterm guide, and we're feeling great, right? We're outperforming expectations of that first year. And so really just reaffirming the guide that we set a year ago. And with that, I will hand it back to Taylor. I think, Taylor, right?

As the company is growing as fast as it is, we mentioned a lot of hiring. That's adding talent in all of the new verticals where we need outside talent. It's also in-sourcing our distribution partners. We found that social is probably the best way to embed a common culture across what is a company that's substantially larger on an employee basis than where we started and even more so at the time of the IPO. So this gives you a sense as to kind of what Shift4 employees are doing on a collective basis when we're not growing the business has meaningful impact inside of our local markets. That's me reading to a kindergarten class. My wife wasn't lost on her that I don't read to my own kindergartners class. -- as often as I should. So I got some heat for that one. But this is really important. It's not just important from the external optics point of view. It's important because this is how you get a bunch of different people who started their careers doing very different things with a very different mission, all on the same page about what drives Shift4 and what drives Shift4's merchants.

So again, this is kind of in the world is changing type moment, right, and you respond to your investors and what questions they're asking that they didn't answer before and then kind of share for the benefit of others. I thought this was an interesting one, just based on how we've issued stock over -- since the time of the IPO. And actually, one that was kind of a little bit -- always rather sensitive to, I would say. The reason being is the largest shareholder in the organization, and I don't believe like irresponsibly issuing stock. So this to me, by the way, is something that should count and should matter during the best of economic times, but no one really pay too much attention to this and especially so in the more challenging ones. So give a sense, 78 million shares at the time of the IPO, 2.25 years later, $84.5 million, so 8% dilution. I think Taylor walked through how we created a lot of value as a result of that. But let's go into a little bit of the walk. We bought back 5.2% of the shares, primary issuance, which was, I think, only one we ever did, which was alongside a search light secondary sale was 2.6%, acquisitions, 1.9%. The 4-share program -- this is my initiative during when like the labor market was ridiculous. So I funded half of this program basically to offer more shares to every level within the organization to be able to like differentiate and attract talent during a time when you couldn't. And I think in doing so, it's actually like it was able to allow us to attract the right talent to retain them without like going way overboard, like you're seeing a lot of other tech companies have to correct for. In our case, like we're actually keep hiring in order to sustain growth versus taking big cuts. And then we had a onetime employee recognition, which is where I think some people get a little bit lost when they look at like our historical stock-based compensation and incorrectly mixes. This is as a onetime -- basically thank you for people we 20-some-odd years in the company was done at the time of the IPO. So what is actually like normalized ongoing comp? It's 2.4%, but that's over a 2-year period. So actually, when you look at an annualized basis, you see at the bottom of the screen, it's 1.2%. This is just I think management, especially the Board, the comp committee, especially myself being very realistic over the last 2.5 years about maybe the climate that we were in prior to that was not like very rational and that we should be responsible throughout good and bad times. And hopefully, this walk for those maybe not -- didn't look at it quite as much gives you a little bit more comfort in kind of how we look at something that has become, again, much more talked about today. And again, just before we go into Q&A, I want to give the floor just for a second to Michael to come up and just kind of set the stage on a little bit of the SkyTab demo that is -- I know we've talked about a lot of things other than SkyTab, but you're here, you should check it out while you're here. Okay. Michael.

Thanks, Jared. So I think Jared covered it pretty well before. We really want to immerse everybody in the SkyTab POS ecosystem. So when you do exit after Q&A, we're going to have SkyTab at the bar. We're going to have SkyTab -- we're going to have people walking around with SkyTab Glass. We'll have SkyTab Mobile. So it should feel like you're at a restaurant or a lounge and we can take drink orders. We'll bring the drinks over to you. We also have T-shirts in various sizes, so we can place orders for those T-shirts and then somebody will bring them, they can put them in a cool back a there your chairs right now. So please take the time to get to know a SkyTab. You're going to see it in a ton of places, especially over the next few years. And you'll also see the back office side of it because we do have a kitchen display system set up right behind the bar. So as your orders are being placed, you'll see them showing up in the bar. The bar tender will use those to make the drinks. And then we're going to have a laptop set up with the in-charge app and the in-charge app is the engine that kind of runs the business if you're a restaurateur. So you can actually go on to the Apple Store or the Google store, Android store and download that application. You tap it, I think, 6 times and it goes into demo mode, but we'll have one that's actually running the Shift4 cafe that's set up today to serve everybody drinks and T-shirts, and you can see it working in real time. So thank you, and I will see you out on the floor.

So I think it's going to be a Q&A. I think just one takeaway I'd have as we do migrate out of here and kind of go through some of the SkyTab demo. It's like, it's going to be a winning product. Like if we won for the better part of 15 years between Harbortouch, Future, PASI, Restaurant Manager, micros, basically legacy point-of-sale brands that we've grown volume in, we've been able to modernize with our resources and technology never was meant to handle aggregated online ordering or pay at the table or any things and we've been able to find success with it. Imagine what we're able to do when we can concentrate that energy to a lot of energy and a lot of resources on a single product that our existing customers and new customers want to have. So -- and obviously, it's a pretty big market and even more so when you think about it outside of the U.S. So hopefully, enjoy your interaction with it, and we've got a great team here to answer questions.

We've got 2 mics work in the room, myself and Chief Marketing Officer, Nate Hirshberg. So Jared, it would be helpful, you just point who you want the mic to get to.

David, you want to -- he's right in front of me. So it's very easy to see.

David Togut with Evercore ISI. A question about the European expansion strategy. Historically, integrated payments have been relatively small in Europe, you're making a big push in Europe with Panera and with your MPS acquisition. You've also increased headcount 15% in the quarter, mostly tied to the SkyTab rollup. What are the key drivers in Europe, a, to get significant uptake of integrated payments where it hasn't existed much before? And be what's the distribution strategy, if you go to market through bank alliances like some of your competitors have? Is it partnerships? Or if you build out your own direct sales force well...

Yes. It's a really good question. I mean, the critical component I think you, obviously, #1 is you want to take care of that strategic customer. That's the reason you're moving into that marketplace first. And then number two, you want to connect the plumbing between Shift4 in the U.S. and that overseas entity, so you can take advantage of the products and integrations that already work here and bring it into those markets. And if you can do that, you already have a distribution force via the ISVs themselves. So if you think about like those 500 software integrations we have, who's in there. You got Oracle that's in there, Allegiant is in there, Springer millers in there. Microsoft is in there. But if you go through the list, they have this problem. There is no integrated payments really over there. And I'm like, just saying like actually every time I go to Europe and stay in a hotel, for sure, they pull the reservation from a property management system and then they key it into a bank terminal. And they certainly aren't integrating like the restaurant into it. Those handheld devices they bring to the table, I don't be full. That's just a mobile credit card reader. It's not talking to anything they're manually reconciling that later. So like the demand is there. They're going to want integrated payments no different in the U.S. because it gives you greater insights into the consumer, that's what drives loyalty operations. It's like -- it's just a natural evolution for sure. So the demand is there. We already have the products and integrations that we know work in this climate. So you got to connect the plumbing. And the nice thing is, if you look at the Finaro deal, the whole earn-out portion of that transaction was structured around technical integrations to Shift4 that at the time you close, you can kind of hit the ground running. So like I think like in terms of priorities, number one for sure is take care of the good customer, which is why you're doing this in the first place. 2 is make sure all the plumbing works, don't operate like 2, 3, 4 different companies like have a lot of centralized approach to your integration strategy, be able to obviously serve more than one just card-present integration. That's where their PSP came into it. And that's how you can bring your products and services into those markets. And then the third element I'd say to it is use cross-selling the volume. Like that's actually the low-hanging fruit in every one of these is a Finaro hypothetically has $10 billion of volume, and we do an acquisition, maybe like another continent, and they have $10 billion of volume. Well, believe me, all those customers that drive that $10 billion of volume in those economic commerce probably do equal or maybe more in the U.S. market. So that cross-sell is very important. It's the same as it is bringing our hotel customers that are probably using a multitude of different bank or nonintegrated providers overseas and making it easy for them to take that volume through their existing integration. That's all the low-hanging fruit of it.

And just as a quick second question, and Mic on this time. So David Togut with Evercore ISI. In the stadium business, which seems to be ramping pretty quickly, you're mostly focused on concessions at this point. how big is the ticketing opportunity in those stadiums? And what do you have to do to capture that ticketing revenue opportunity?

Yes. So just to be clear, it's actually mostly mobile and concessions. It's basically everything that's happening in the venue, including retail merchandise too. The ticketing integrations, we now have, we have 3, which is -- there's not that many of them. So that's good. SeatGeek is probably one of the biggest ones. Now it's -- you have to wait for some of these agreements to run off. The teams have like MLB had a like 5-year agreement. It rolls off this year, which is good. That's why they actually even bothered doing the integration to us. But that was something you had to learn after the fact is that you need a technical integration into the platform to even process the ticketing transactions. But then the customers themselves, we didn't realize we're already previously involved in various mid-, long-term type agreements, and they're all starting to run off. I don't know, do you want to speak to the volume opportunity?

Yes, sure. So ticketing typically represents about, I don't know, 4 to 6x what the concession spend is -- it's also quite attractive spreads. So it's a substantial opportunity. And what teams are increasingly looking for, and again, this is a -- should be a common thread as we leave it through, right? It's a single merchant that's trying to understand the totality of the revenue from the consumer regardless of how that revenue is coming in. So the idea that you want to fold this into one spot is quite logical. Stadiums didn't have that benefit before. They had their ticketing provider. They had a myriad of different providers for all the solutions inside the stadium. So it started with the idea of consolidating around a great piece of technology that stadiums wanted, expanding into we can deliver similar functionality across all the different end points of parking and retail, like Jared mentioned. And lastly, what's the big source of revenue. It's -- outside the sponsorships, it's ticketing.

All right. Tim Chiodo to Credit Suisse. Okay. So I wanted to talk about the distribution. So you gave some good numbers today, Jared. I want to say you said 350 people roughly came in, in the last few months. Just for context, so in Toast-1, they said it was about 1.5 years ago, right? But they said they had about 734 people in their sales and marketing organization. So this 350, and it seems like it's a number that's going to ramp. I think what investors would like to know is how many people, whether they're internal, external, eventually will be out there selling SkyTab POS to restaurants relative to the Toast number, which is probably larger than it was at the time of the S1.

Yes. That's a really interesting question. So I don't think the actual headcount, like as it relates to our direct initiative is going to grow that much -- like there are some markets like Arizona and California, you just look at the map, and it's like you got to probably do something here. But I think that it doesn't move the needle at all. What I think you have to think about, and this is the advantage, I think, relative to Toast a lot of salespeople, a lot of marketing dollars. It translates into a very high customer acquisition cost. And that's -- and that's on average because I'm guessing in certain major markets, it's substantially less. And then there's other markets where it's like, why do you have all this fixed cost for what is a very small opportunity of restaurant customers. So that's why the balanced approach was important to us. There are markets we know are going to be winners for us. We have too many existing customers there. The opportunity is too large that you're going to want to bring in your best partners there, and the math is extraordinary, really is and why you should be doing that. And then you're going to have all these other authorized distribution partners covering out disposal populated areas. My guess is if you add the headcount between the 2, we might even be higher. -- in terms of our coverage relative to Toast on that. Like there's still a lot of gray dots that were up on that slide that are representing the Midwest and markets where, again, it just doesn't necessarily make sense to have a direct sales presence. So I think the key thing is like we have awesome coverage right now. I think it's -- the landscape will be very clear, Toast and Shift4 competing for restaurant business, which is -- there's a lot to take from others along that journey and that we can do it in like kind of a responsible balanced way. And there should be no one to be interpreting that like, hey, next quarter, we now have like 700 and we're doubling the size. Don't read into that at all. It's not the case. Like we got to a really good spot now to support a launch of the product in September.

Just one more thing I'd like to layer on to that. When you think about a strategy like this insourcing and existing distribution force as opposed to building a direct sales force, there's some fundamental things that I think are overlooked in the Toast versus Shift4 comparison. Number one, every one of these partners has been proven to be successful with us. They have an established book of business, and they've been doing this for 10, 20, 30 years. So the restaurants they're going after are established, the Rolodex is already built out. Their credibility is already established. Building a direct sales force with -- I don't know where we put ads these days for new employees, but that wasn't going to work for us because it's too much of a gamble that they're going to, number one, be successful in the first part. But number two, bring you restaurants that have first year survival bias that is like really skewed towards the negative, and we don't want necessarily as customers. So that's really important. And then the last piece to be able to hire at that scale in the way that we did. These people need to know that they're going to be successful inside of our ecosystem. They're not just going to take the gig assuming that it's all going to work out great. It's a risk for them as individuals, and they had to get their hands on the product, really understand the go-to market, understand what direct versus indirect meant, and they joined us kind of in scale. So we're really excited about it.

Perfect, Taylor. And Jared, you kind of alluded to it earlier, but it sounds like the average restaurant is in the -- using SkyTab POS is in the $2 million range because you said the 4x the highest bucket for Square.

Yes. I mean, yes, I'd say like between like Yes, that's a good answer. I hear very much in the ballpark. It does... We keep moving up market every quarter, so I don't want to like understand anything.

Okay. Great. That wasn't really my following up though. So let me just hit it real quick, which is the original 7,000 resellers, VARs, right? So it sounds like now there's only a few hundred that are indirect distributing salespeople essentially for SkyTab POS. How much runway is there if you want to build out the indirect? How further -- how much further can you go into that 7,000 number, appreciating that some of them are maybe focused on other verticals, et cetera.

Yes. I think it's really important to emphasize. I don't know somebody got that rather wrong recently, it was like, "Oh, save 7,000 partners, but we don't think that's representative of the restaurant distribution for us. The answer is we're in a lot of verticals. Like Microsoft has, I don't know, a few hundred value-added resellers across the country. That's how you got UPS stores. That's how we've gotten other specialty retailers as well. So I think we got to be careful. Like so in the past, we would have just put a product out to everybody and see what happens. And we were much more deliberate with this in-sourcing initiative not to create channel conflict. That's why, to Taylor's point, like you can put out an ad and hire like a ton of people, and they wouldn't really know what they're doing. And what it would have done is irritate the hell out of our existing partners, and then you lose on both accounts because you got inexperienced people here annoying you're really good partners, they want up going in a different direction. So I think the idea was like, let's make good bets within markets that we think will be real winners. That's what we did with the in-sourcing, and we will fill in the rest with authorized partners that have the past certification courses that we feel confident will deliver a good customer experience for us. Now there's a lot of gray that you can fill in there for sure. Obviously, it's not up on the board. And like the West Coast is an example of it. And we'll just be really smart about where we choose to hire or if we have a partner, and they're just really good in retail, they're really good in hotels. Maybe I can tell you like probably like 4 at least of our property management system, ISVs have taken on SkyTab as a product to bundle with their hotel software. So that's awesome. And we'll look for other examples of that, too.

It's Darrin Peller from Wolfe. Guys, just a quick question is first on the strategic nature. When you think about what you're doing in restaurants, it really does seem like you're going more individual into your medium-sized type restaurants that you either have as existing customers or potentially new small customers. Your strategy has always been around going after very complex verticals that have a lot of ISV integrations necessary and differentiating yourselves, whether it's good tech or just good execution, it didn't really matter. You guys would win. But this seems a little bit more like you're going with a POS solutions approach. And I'm curious, I mean, it seems a little bit of a pivot to what I've known you for, right? But maybe it dovetails. And then just touch a little more on the balance between -- you have so much going on. I mean there's all those verticals you laid out, whether it's charity or it's stadiums or the Europe communications build-out, and this seems like a pretty big effort. And so I'm curious how you think about balancing the effort.

Yes. I actually think like we're staying pretty true within the restaurant vertical of being mid- to upper end of the market. I don't expect you'll see SkyTab displace Square or Clover and kind of your smaller coffee shops or Teslik. -- frankly, we've built in way too many features into the software to make it download on an iPad type thing. So I think we're staying pretty true staying in the more complex or upmarket end of the restaurant space. We built out property management system interfaces, built out a lot of enterprise capabilities. And you'll see a lot of these things. I just think it would have been an outright irresponsible for us being as strong as we have been for so long within the restaurant vertical with really smart distribution and a lot of existing customers that you can further monetize through SaaS for us not to have made a good bet on the space. And I think we're able to do it really intelligently because we get to shed a lot of the old to concentrate on the new. So we're not brand building 4 brands anymore. We're not going to have 4 technical customer service departments supporting these 4 brands anymore. So it's like -- I don't think it's a departure at all. I think it's just actually just a very logical evolution of what made us successful going all the way back to the harbor touch days which was like the toast in 2006 and '07, well before there was a Toast, that's driven a lot of success. So there's just no reason when you're like a clear top 2 within a vertical to give up on it. Like we're just going to have a lot of good success there. And then in terms of juggling everything that's going on, I think you got to just remember at its core, we're an integrated payments company where software connects into our commerce-enabling software connects into our platform. Adyen does not build Facebook software or Uber software or Netflix software, they build a really awesome platform that works for a lot of different verticals, and they attract these type of customers because their rails are everywhere and they make it really easy, really easy to kind of integrate and add and drop geographies as you go. So like in the end of the day, like when you're moving into the nonprofit vertical, for example, you're integrating software into a platform, the same as you integrate restaurant and hotel software. Now the difference is, is the restaurant, hotel software ISVs are far more inclined to drop what they're doing to integrate with you because you weld so much more influence in that vertical versus nonprofit where it takes a signature customer to say you got to get in gear. And the same existing gaming. It takes a bet MGM to say you got to get a gear or an Allegion or something like that. So at the end of the day, the platform is fundamentally the same. We're not building out vertical specific technology in the platform. In fact, really, the broader payment platform strategy is just connecting rails all over the world and making it a nice Adyen experience for that customer. In the end, it should be worked really great for nonprofit, should work really great for airlines and certainly restaurants, hotels.

Okay. That's really helpful. One quick follow-up on the financial side. There were some moving parts on some of the numbers this quarter that we're getting questions on. But I guess, when it comes down to it, your EBITDA margins were very strong. And I think we're still getting questions on how much is that due to residuals coming -- helping out or the financial operating leverage of the business. I guess the best question to ask is regardless of whether it's gross margins or EBITDA or your EBITDA margins at these levels sustainable in your opinion? And potential have potential upside.

Yes, we... So I would say, I would start with we think they are, but certainly acknowledge what you just said, that we will invest responsibly for growth to support the growth and kind of the pace of the business. But with the trajectory as it stands today, we could expand -- we could see margins and free cash flow still expanding. -- but certainly are taking opportunities I think the thing that impressed me the most when I got here is just there is a level of this extreme ownership, a lot of account owner accountability, investing a lot in what I would call kind of the PMO type of functions and really how are we going to be a best-in-class integrator, right, to make all of these puzzle pieces work, and that will come with some investments.

Yes. I think even just to expand upon that a little bit. And I said it before in kind of the opening remarks. And I actually said the same thing at the beginning of the year too. Literally, everything we are working on right now, everything that we are working on right now expands margins and generates more free cash flow. Every new vertical we've gone into, again, like from an OpEx perspective, you could take on like $20 billion in additional volume from our new verticals and like the amount of head count you're hiring to support that would be like $2 trillion worth of volume from like restaurant customers. I mean you can get so much -- or maybe I had that in reverse. Sorry, yes, be tax obvious it would be like $200 million of volume. So the point being is you need very little kind of fixed overhead to meet the needs of these really amazing enterprise customers. I think that's evident by the way, when you look inside Adyen's numbers, like really high free cash flow conversion ratios, they don't have like there's probably one person managing Facebook and one person managing Netflix and Uber on that. So moving into new verticals, moving upmarket, having a direct approach where you don't have residual expense, card-not-present, where you don't have the hardware from a customer acquisition cost perspective. Literally, every direction we're going into, even with SkyTab right now, it's Android-based hardware. It costs less than with those face hardware even in the one vertical that probably has the highest customer acquisition cost, which is still a sub 12-month payback period of time, like it's still driving costs down within those new verticals just by virtue of the Android-based hardware. So I feel very good that everything we are doing organically will continue to trend in the right direction in terms of EBITDA expansion and generate more free cash flow. Now where I think like internally where we would hesitate right, would be an example like another merchant link. So when we bought Merchant Link right now, it was negative $6 million of EBITDA and trending down, right? It probably represents more than $1 billion of our market cap today. Like we 180-degree pivoted that thing and made it like a much more value loss. I mean it was intentionally being mismanaged under its prior ownership. You want us to find another one like that. You want us to find 10 more like that. And the reality is, as we look globally, we are going to find them. And if along the way, it helps enable our strategic customer to get into a new continent that's important and allows us to bring all these other integrations, and we find along the way that we can take something that wasn't like 50% EBITDA margins, but with something well south of that. But we believe in like within 12 months, we can totally 180, you want to see those every time. And our track record should totally supports us doing those type actions...

This is Harold Goetsch from Loop Capital. I've got a quick question on your intermediate-term guidance of like $160 billion in end-to-end. Just a person perspective, you went through about $53 billion and volume sometime in the first quarter on a trailing 12-month basis. So you have to kind of put on like 2 segments of volume, which you've done, look at maybe 15, 20 years to get to. So help us walk through what you bridge some of that. For example, if you give any color on how much Finaro plus the acquisition, the PSP might add an end-to-end volume to get to your goals in a few years' time?

Yes. I think as we -- when we set the midterm outlook last year, I mean, like I just look at premise in another way of saying like how much of this is going to be organic versus inorganic. And I think the answer is like we have a lot of demand right now. And the demand is going to cause us to pick up assets in different parts of the world in order to meet the demand. And we're probably going to get some volume, some EBITDA, some net revenue alongside of that. And that's -- and now you're in bonus our type territory. And if we do our job right consistent in the past, we'll probably unlock a lot of other synergies. It will be organic in nature, and everybody will kind of celebrate that. Now so how do you get there inorganically? It's -- well, you move from 3 verticals into a lot more that all have huge TAMs and that you all have like a -- you have a serious right to win in, like more than a foot in the door with either a signature customer or some other product means of differentiation and then you take it globally. So I think again, to maybe reinforce a key point from earlier, is it was like very clearly, hey, margins are within our new verticals, believe me, margins are going to expand in the fourth quarter. And that's because we didn't have the means in the third quarter to board international volume that comes in at higher take rates. We -- but it was just waiting, like we had the customer, we had the commitment. We needed to enable the capability. We were able to achieve that in the trailing portion of the third quarter. Now we'll be able to capture volume that we could have had before and no come in at better take rates. I think that's like really important to hone in on. I'm not saying that throughout our 20-some-odd year history, we've grown volume at 50% every single year. But we've been growing really healthy for a very long time. We were growing 50% end-to-end volume prior to the pandemic. I think normalized for the pandemic, we're generally in that ZIP code. And we just got a lot of list to kind of burn down that kind of feed that growth. lot of gateway business, a lot of existing customers, and most importantly, taking what worked for us here and bringing it into international markets. We never had the means to do that up until now. I mean I think there's analyst reports just on our one strategic customer that forecast like, hey, this could be $50 billion plus in revenue in some period of time. I am not by any means saying like, that's how you can count on it as a slam dunk. But I think that significant customer plus gateway conversion plus everything else that's worked for us, but it's not hard to arrive at it. And we're -- fortunately, we're a year 1 down of 3.

Yes. Just to maybe take a different perspective to the same question. A year ago, when we set that guide, it was under the pretense we actually don't need to win a single new customer to have that much end-to-end volume. We've got more than that on our gateway today. We've got all these software-only customers that we can convert. What's happened a year later? Well, the geopolitical and macro picture has gotten a hell of a lot more care than at the time that we set that guide. But we've been able to execute really successfully on a handful of new verticals that we talked about a year ago. We've been able to get the inroads internationally that we want. And we've been able to grow organically in addition to all of these things. So to answer the question, maybe a year later, it's -- we're 1/3 of the way there. So maybe 1/3 of the skepticism should diminish. And we did it through everything that we said we were going to do, and we still can achieve that guide with all of the customers we have today, we don't need to find a number.

If I could ask one follow-up. There's a lot of business momentum at toast at Clover at Carat with Shift4 payments. Can you help describe like what is the rivalry out there in the industry to the extent of like how much of this business is still moving to integrated for maybe a cash register -- next to a downturn and like how much of that is still left to go?

Yes. So all right. So I tried to telco one earlier. I'm going to go to Finaro this time. Yes. So I mean, just again, across my 23-plus years in the payments industry, I looked at the payment landscape is just this one giant supercontinent -- and basically, everybody could do everything and there was just so much demand, nobody had to be really specialist and it was all nonintegrated terminals anyway. And even if it was basic integration like e-commerce from early days, well, you just use authorized net and like everybody play nice together. And then I think this payments like 2.0, 3.0 evolution happen. You started to have these really tech-enabled platforms that added so much more value than just an approval or decline. And that's when like the tectonic plate started shifting, and you had all these continents kind of break away. And once they did, it's no longer everybody gets to play nice, like it is really hard to get that business, right? Square is a great example of that, right? You have a ton of legacy merchant acquirers that consolidated a bunch thinking it was all going to be copper phone lines forever and like there's nothing that's going to stop that's going to prevent those customers from going somewhere else. They are. They're going to go to Square. They're going to go to Shopify. That's another land mass that broke away. They're going to go to toast. They're going to go to Shift4 And they're going to go to Stripe, and they're going to go to Adyen. Now these organizations have done something to try and stop the bleeding. The best one hands down been very, very consistent on this one is Fiserv with Clover. Clover is a great product. Clover fits a portion of like kind of your general retail baby F&B type thing, and it works and it wins. And it's a great product there. You still have everything else that they really have no kind of right to win on any more other than like, we'll just cut price associated with it. And then you have others that acquired various software companies and such. So I'd say like we don't -- our sales team doesn't wake up like every single day within one vertical that we play in the restaurants to say like, let's go out there and be toast. It's like there's Heartland business, there's terminals, there's ECR, there's old NCR, there's old micros. There's a ton of old that we can win from. And I would almost be willing about that like Toast would say the same thing, that there is like a lot out there. I actually think recently, it was like somebody put out a report. It's probably one of you guys in this room that like a lot of the most common upgrades to Toast is coming from Square. I found that super interesting. That's definitely not the case for us. So I think like you have these integrated tech-enabled plays that are out there taking this inevitable migration of nonintegrated to some sort of a tech-enabled integrated solution. Shift4 is a huge beneficiary in that. Everything we do is integrated across multiple verticals. And others like toast and Shopify and Stripe and Square they're all going to keep winning. And again, there's nothing a lot of legacy guys can do to really prevent that.

To use the other example and just bring it back to our gateway, we send well over $100 billion in volume to these legacy players. There's nothing they can do technically to service that volume. They have to rely on the gateways that we're Shift4 that we're merchant like to get it there. So when you think about technical differentiation, it's not that the merchant experience is necessarily that much different in some of these cases. But the role that the legacy acquirer has in fulfilling that is just so diminished. And as feature sets expand, they're expanding at our layer, they're not expanding in the merchant acquirer performing settlement activities.

Eugene Simuni from of MoffettNathanson. One follow-up question on SkyTab. So you broke it down into a couple of buckets in terms of there is transitioning your legacy customers to SkyTab of various kinds, then there's also, I'm sure, selling to new customers. Can you give us a little bit of a view of kind of as we -- next couple of years, the mix of SkyTab growth, whatever, thousands of locations added, what's the mix between those buckets?

Yes. I mean I can tell you internally, we would very much wish it to be balanced because as long as you still have tens of thousands of customers on the older software, it means you need some development resources to support it, some customer service, tech support resources. But the reality is like salespeople OEs are going to go out and try and kind of slightly next well. We've seen that now in a number of verticals where we have upsell, cross-sell opportunities that all like work really well and demonstrated in our history, but it always skews more towards net new. So I think like we have to find the right balance of incentives to continue to go out and win because the addressable market is awesome as well as like find a way to upgrade. And I think the answer is we're going to just do the upgrades at like a steady pace through our own kind of portal similar to an iPhone of you now qualify for an upgrade. And we'll do that at kind of the right timing and handle that with kind of operational resources, and that should free up the majority of our direct team and our authorized partners just focus on net new. And I think the answer is like we're going to just continue to take share, and it will be -- the majority for sure will come from net new, like we feel pretty good on that...

Got it. Just a clarification. Are you still selling the legacy systems to new customers and the...

It's like policy exception. It's -- if you have an additional location or need an additional workstation or are there some like really unique reason why -- I mean it doesn't cost us anything we have like unlimited licenses, if you will. But yes, it's like by exception only almost all our restaurant production now is pretty much SkyTab.

Got it. Makes sense. And then a high-level question. So you provided some interesting talks on how you allocated capital over the last couple of years. Can you speak a little bit to the going forward? What's your capital allocation philosophy over the next couple of years?

Yes. I think I'll let these guys jump in, but 2 primary priorities: one, invest for internal organic growth of the business; and second, strategic M&A initiatives. It really comes down to the core, too. Invest in the high core growth and all the strategic initiatives in M&A, we've been talking about for global expansion, especially in support of our marquee customer.

Yes. And I'd just say the only thing I'd add is in the latter, it's laser-focused on international expansion on the back of that strategic customer that Jared mentioned. So in the past, we've had probably 3 pillars around our M&A that would kind of bring a deal into the funnel. Now it's -- if it doesn't open up a geography in a profitable way out of the gates, we're going to struggle with why we're allocating time on it when we've got this mega fast-growing customer that's agreed to give us payment volume in any geography we can line up for them. Thank you.

Darren Baker with PRIMECAP. I'm a little newer to your story. So I hope this question makes sense. It touches a little bit on kind of the macro environment as well as your 2024 guidance with respect to the high-growth core kind of segment specifically. I mean I think we've heard very consistently from companies in the travel and hospitality industry that this has been an extremely strong year, right? I'm sure most of us have experienced that firsthand in terms of pipe prices and things like that. And I just want myself wondering against the backdrop of that really strong year and, of course, a lot of unknowns about how the economy develops and how those spending trends kind of go over the next year I can kind of imagine that on the one hand, this would have been an ideal year for you guys to go through these motions of gateway conversion and new customer acquisition and SaaS upsell and things like that because your customers are arguably doing so well. I could also imagine kind of the other direction of like they're so busy fulfilling all this heavy demand that they don't have the time or the resources so they don't want to take the operational risk to actually kind of take those steps right now, and they might actually be more inclined in a slower period to kind of go through that process with you. And so I just wondered if you could kind of comment on what you're seeing in terms of that customer behavior and how you would maybe expect the trend to kind of vary if we do see just a normalization of demand or even a deeper slowdown in that high-growth core of the industries that you're serving next year or 2?

Yes, sure. So I'm going to hit first of all, our view on the macro and how it informs kind of the actions that we take. We've never been of the mind that the verticals we serve in our high-growth core are inherently high growth. We've served restaurants for 17 years. We've served hotels for 5, but we've stayed in them longer. These aren't verticals that we hopped into because they were e-commerce in 2019 or something like that. These are verticals that have presented us with extreme rights to win and our market share is relatively low. And our wallet share within that market share is that much lower. That's why we pursue them. Our view, I think, has been prudently cautious on the macro picture. But I need to always reset when I make that statement. Our view is nothing compared to what we experienced as a business in March and April of 2020. So if we think that spending might pull back at the consumer level, it's not going to be down 80% and 90%, and we grew through that time frame. So we are not sky is falling inside of our verticals. To contrast that, we think about the best competitor we have in every one of our verticals, and we say, how does this operating environment change the way they need to do business. And in the majority of cases, they're cash burning fintechs that have never had to be profitable. And suddenly, they're getting screened out to be profitable, and we say, well, what are we going to do in that circumstance. We are going to lean in. We're not going to lean in a responsible way. We're going to lean in, in a way where we can still expand profitability, but now is the time to continue to win share. And the reason that merchants are attracted to our solutions is because not only do they provide a lot of technical innovation, but at the end of the day, they save the money and they create a lot of efficiency inside of it. So we've struggled with the question in the way you asked it quite a bit internally. When merchants were joining us in a very steady way both pre and in the darkest steps of the pandemic, we said, is ours a cost-based solution? Do merchants come to save money, they come to add value. The truth is they do both and they do it in a pretty durable way. And then the last thing I'd say is we've got a huge, big, diverse basket of merchants. So the circumstances compelling a merchant to join at any one time isn't necessarily the same thing that's going to compel that gateway hotel conversion that I mentioned earlier. So there's a lot of different circumstances, but our view is -- the climate is going to be challenging. That's going to make our operating environment vis-a-vis competitors that much stronger, and there's no reason that our solutions shouldn't resonate in a challenged environment.

Yes, I would just add, I think it's important that especially Taylor has been cautious all year about the macro, right? We've been waiting kind of for a step function drop in that macro. And so I think things -- I know you said you're new to the story, but when Jared talks about the Shift4 way, I think this idea of taking part out and really trying whether it's 2 core verticals or 6 new verticals, really making our operating model as efficient as possible and kind of keeping our eye on that macro throughout all of this investment and kind of really running facet strategic growth.

That's Nancy subtle way of saying we can't spend as much on these events going forward. I mean look, from my perspective, right, the macro is very hard. We thought we were being cautious earlier in the year on it. You don't have a lot of data to suggest anything has changed yet other than it's just it has to. But I think the idea is like our value proposition that allows us to win customers within the vertical, like we can't make people come in and buy pizza. That value proposition works in the best and worst of economic times, and the proof point is throughout history. We're not new, like we've done this through really tough times and have grown through them every year throughout our existence. The right thing to do -- if you believe that like the world can change and you want to be able to keep growing and kind of leverage your strength in order to do so, it's to diversify in other verticals that share characteristics of what made you successful in your core. And that's where we started towards the end of last year. And that's largely what this update about is about is like everything that we've ever done to be successful within our high-growth core, we've made better. And we've moved into new verticals that we all think we have a right to win in. And now a year later, we've made substantial progress. And if all those things continue to hold true, they should be even more impactful when you can apply them across the entire world. And I think that's just the best we can do kind of regardless of what happens with kind of consumer sentiment over the months and year ahead.

It's Jamie at Susquehanna. I wanted to ask about the gaming update. So I know you showed in the slide deck this morning, you tripled the volume just sequentially, I think. So 2 questions here. Is there a -- I'm sorry, I don't know this. Is there an online narrative to your gaming solution as well as face-to-face. And then is the licensing different, like you say, you have 21 state and tribal licenses, but is the licensing different between the online component versus the card present?

So I'll get the last question. No, it's not different, generally speaking. They've increased their licensing scrutiny with regard to being omnichannel in gaming on a state-by-state level, but there's no difference when you get a license. Our answer to your first question, which is are we in venue or are we digital we're both. And so when you think about a customer we announced a year ago like BetMGM, the relevancy of adding states is that every time you add a state, they turn on some volume to that state, and you grow with that national customer. We have a unique relevancy inside of physical casinos because prior to the digitization of gaming, we were everywhere but the floor where you could spend your dollars. And now as gaming is becoming more digital, we can solve that for them, too. So if we're having this conversation maybe 1.5 years ago, it would have been -- why are we getting calls from gaming operators? Well, we're getting calls because the online ones want to be in the physicals and the physical want to be more omnichannel online. So that's kind of our unique right to win and the relevancy of the states is that the more states you can enable, the more volume you get from those big national customers.

I think it is worth just a clarification, though, that, for example, when we showed our slides and talked about the gaming specific update, that's all mobile wagering. That's all BetMGM type wagering. When we show a slide that says we won the world's largest dry ball casino, that we just -- that's high growth quarter, that's hospitality. So just wanted to be really, really clear, like mobile gaming or whatever they're calling it these days, like that is a very new vertical for everyone because it wasn't legal until rather recently. And that's where we're giving you kind of those growth stats. But probably 40% where our payment technology is in existing casinos around the country and obviously adding to it. That's very much part of high-growth core.

And then I just want to flip to the travel and leisure update. How are you dealing with the like charge-back issues in that? Because my understanding is like some companies like Adyen, they don't like to own the risk. So is that something you have a view on or a strategy about?

Oh, yes, very much have a view on it. I mean, but in payments are a very long time. So one thing -- here's a couple of things I would say is like throughout my more than 2 decades in payments is what was once viewed as like high risk and undesirable sometimes becomes like the most desirable customer as possible. For example, e-commerce was hated for a very long period of time. Mobile gaming was hated for a very long period of time. These are some of like the sexier verticals to be in. Reality, I think, from my perspective, and I have a little bit more than just payments to offer to this with a little bit of an aviation background. I think there's been a lot of good consolidation within the airline industry that has increased their stability substantially. So like I wouldn't want to start with like, I don't know, like a Skybus $29 fare thing. You have a lot of chargeback exposure during that eventual bankruptcy. But if you've got in like an established airline publicly traded, decent balance sheet. You can underwrite based on like the time from ticket booking to when it's fulfilled, what kind of oversight they have from like a regulatory perspective in terms of escrows, you can get really comfortable with the risk. And I think airlines have totally pivoted in the other direction where if you -- one you're dealing with like the major established ones, like those are verticals you want to be in. I mean just factually right now, U.S. Bank hands down the largest payment processor for airlines inside Elavon for sure. So it's -- I think the view of -- is that a good industry to be in. I think it's changed quite a bit.

We have time for like one more question.

Sandy Beatty from Morgan Stanley. Just on the '22 outlook for volumes, can you just talk about what you're expecting into the fourth quarter, what you're seeing so far? And I'll just loop in my follow-on as well, seasonality, how the business has changed since the IPO? Anything different on a quarterly basis that we should think about?

Yes. I think for starting your looks like I'm trying to figure out what is like a normal seasonal behavior because the last couple of years have been a little unusual. For example, the last 2 December, Januarys were horrible from Omicron and Delta in terms of its impact on things related to travel and hospitality. So I'd say like, at least from my perspective, and to open up like we're observing the normal kind of seasonal behavior that get all that excitement out of the way over the summer and back-to-school. We dial back, how many times we go out to eat and travel to Vegas. And I'd say it's being more than offset by design from our new vertical contributions, like gaming, sports stadiums and gaming, like football is a huge deal. Like we've been in stadiums now for a couple of years. This is the first season where you're getting Ohio State, Notre Dame, a lot of NFL states kicking in. That's huge volume drivers for us, which is great. Obviously, we have a strategic customer that's not increasingly playing a bigger role, like we don't expect that to slow down anytime soon at all. So I'd say like high growth core is doing pretty much exactly what you expect. UPS store is a very big customer of ours. They always tick up in December. And then I'd say the big kind of question mark that we're all playing wait and see on is nonprofits. It's not even like the fourth quarter, it's December, is the whole year. So we're kind of flying wait and see a little bit on how much we should expect to see from our nonprofit vertical. I'd say that in terms of like our own guide into the fourth quarter, we took like a hyper conservative view over what that vertical could potentially generate as did probably most of the fourth quarter guide.

Yes. Not much to add on that, except to say that outside of the nonprofit that Jared mentioned, there isn't an extremely strong seasonal profile to these new verticals that we're adding, right? So sports entertainment, we're in every league. So you get different benefits all the time. We had not been in football in a consequential way so that feels good, balancing some of the slowdown that you get in travel for seasonal reasons into -- as you enter fall. So we feel like the diversification has not presented any unique seasonal attributes except potentially a nonprofit where we've been deliberately conservative. And again, getting the benefit of having this conversation kind of 1 month to 1.5 months in the year, we can feel really good about our guidance.

Great. With that, I guess we'll go to any closing comments. And again, everyone, feel free to stick around to interact with SkyTab. And some of the Shift4 SkyTab employees out in the lobby area after the concluding remarks.

Yes. I think that's pretty much like what for us. We appreciate you taking the time to come here. Definitely, please interact with the hardware, meet some of the broader SkyTab team. You get a lot of face time with Taylor and I, but we've got a great organization here that's coming out to support the product. And we're happy if any questions come up, feel free to come up with to us. So thank you.