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

Good afternoon, everyone. I'm Rayna Kumar, and I lead U.S. payment processors and IT services equity research at UBS. Today, I am lucky to be joined by the entire Shift4 management team. Starting with CEO, Jared Isaacman; CFO, Nancy Disman; and Chief Strategy Officer, Taylor Lauber. Thanks for joining, guys.

Thank you.

So Jared, you started Shift4 23 years ago in your parent's basement. What are you most proud of since Shift4's inception? And conversely, are there any opportunities you think you've missed?

Great question. So -- well, let's just go with the [indiscernible]. Having started the company in 1999, not in Silicon Valley, in a basement in New Jersey, like there was never really any access to capital. In fact, we really didn't take on any external capital until 2014. So in 2005, we were going through like this super-explosive growth. It was pretty nuts. Like you actually sold some assets. I like what I -- we were just getting our growth at that point in time. And like I will always remember that it's just a horrific regret. I feel like we shed like 2 or 3 years off our trajectory making that mistake at that point in time. In terms of like what I'm most proud of, it's 2020, hands down. You're talking about an organization at that point that was 21 years old, that like it was aspiring to play in the big leagues. Ring the bell at the New York Stock Exchange. Had our Analyst Day, which was just like February 2020, did all our testing the waters. You're literally getting ready to start your roadshow in mid-March of 2020, and then you got to tell all your employees to go home. And you're predominantly serving like 1/3 of the restaurant, and just from a regulatory perspective, told like, "Nobody can go out and eat here or you're going to die." So payment volume drops like 80%, right? And you watch this whole, like what a swing, right? Like you're ready to ring the bell, and then you watch this completely empty office and you're like, "I don't know like what this is going to look like again. We've spent all this time building it." And then you kind of rally the troops, and May of 2020, we had year-over-year volume growth serving predominantly restaurants. June 5, we ring the bell at the New York Stock Exchange. First company back in person in order to do that. And we end the year, double-digit revenue growth, double-digit volume growth with most of our employees now spread out working at home, all faced with their own personal challenges that we all know, we all had to go through at that point in time. Absolutely, hands down, like you're always proud of some of like the most difficult moments, of what people can persevere, overcome and still achieve. And 2020 was absolutely the best year for that.

You guys had a very busy third quarter in-sourcing distribution, which resulted in you raising your 2023 outlook. Consensus estimates also increased after the quarter. Can you summarize for everyone what happened during the third quarter that investors need to understand? How your initiatives, like in-sourcing 50% of your distribution, better positions you for going forward?

You're right. All the estimates went up and all the price targets went down. So we blew out all the numbers. Well, first, I want to say like the third quarter was an incredible quarter, and it had a lot -- there was a lot more factors that went into it than just in-sourcing distribution. We do have volume. In-person distribution didn't buy us any volume. That's our like #1 KPI, and we didn't do it at all. But also didn't really buy us any net revenue growth either. Like you took out COGS in that whole thing, for sure, so that was beneficial. But 2 of our 3 KPIs moved up, would have resulted in a guidance lift and had nothing to do with in-sourcing distribution. I think what the third quarter represents in my mind was us, as a management team, looking at the beginning of the year, and saying like, "This world has changed." You have a major humanitarian crisis/conflict. Your inflation is getting out of control. Interest rates are rising. Like -- and people who have lived their entire professional careers have not seen a non-zero interest rate environment. Like we got to bunker down. April 1, in our strategy offsite. We said, "There's a couple of initiatives here we are going to prioritize our resources towards, knowing that there was uncertain road ahead." We're going to act on our gateway sunset strategy. That's kind of pull forward gateway volumes, switch to our end-to-end platform, or at least begin the journey of properly being rewarded for the services we provide on our gateway platform. We're going to launch SkyTab POS, knowing we're advantaged in the restaurant vertical. We're going to in-source distribution in our best markets because we have the data to support it. And we're going to sprint at our new verticals that we're looking able to be in right now. And you saw all 3 of those develop quite clearly in the third quarter. It was reflected in volume, it was reflected in net revenue, expanded margins, free cash flow and EBITDA. And that's exactly what you should be doing in challenging times, and we know that because we've been there. We've been there during dot-com. We've been there in '08 and '09. We know how to do it in the climate that's likely ahead of us as well.

Now that we're past Black Friday, what have you seen in terms of growth in your core business, restaurants and hotels? I know 4Q tends to be lighter -- a lighter quarter for these verticals, but how would you characterize as your ramping up?

Yes. I mean, well, first, I think the fourth quarter is going to be pretty incredible. And it's going to have little to do with kind of our high-growth core, which is restaurants and hotels, because this should be a seasonal well. This quarters going to be awesome because of all the new verticals that we've invested from 1.5 years ago. I mean, our end-to-end volumes are up nearly 60% year-over-year in Black Friday. And that is totally in fact the new verticals. Now that said, like actually, hotel volume on a same-store sales basis was still, at least kind of quarter to date. And I think that's probably a factor of you're unlocking some business travel that didn't exist last year at this time. We also thought like work from home and Zoom was going to work out, and here we are, right? We're all together again. I think that's going to still play out in hotels. We should expect to see like a seasonal slowdown, at least on the restaurant side. Travel can pick up a little bit during the holidays again as well. But it's really -- it's kind of the new verticals. This is important, right? I mean, that is how we grew volume double digit in 2020, is like you don't just sit still with what you're good at today. Like you look for opportunities, and extend to new verticals, diversify, establish like a significant right to win and then sprint at it. And that's what we've done now from 3 verticals essentially time of the IPO, to nearly 7 today, along with the new international markets. So there is like a slowdown in the road ahead, which if consumers are polarized from a recessionary environment, if we do see higher unemployment, like whether it's restaurants, but at the least, it's going to see a pullback. The way we counter that is taking share, and that's what we've done [ every year ].

Recently, you highlighted some slowdown in customers making decisions on converting from your gateway to full end-to-end suite. Have you seen any improvement in 4Q? And how confident are you in hitting your $160 billion E2E volume target in 2024?

Yes. We never commented there was any slowdown in our gateway and end-to-end conversion. That's been super consistent. So maybe there was an misunderstanding there. Like that's where the volume was coming from. Were immensely advantaged that we can flip the switch and cut volume over like that rather easily. So no slowdown in gateway and end-to-end conversions. I do want -- Taylor is the [ executive in charge of the ] sunset, so I do want him to chime in. But what I would say in terms of midterm outlook and that $160 billion goal. We established our 3-year midterm outlook in November of 2021. We weren't faced with any of the challenges we are in the world today on that one. We do know there was going to be Omicron in fourth quarter or first quarter of the year. We didn't know if there was going to be a war. We didn't know that interest rates were going to get hiked to the extent are at risk of global slowdown. We didn't have any of the software integrations necessary to achieve the new verticals. We had signature wins. We have great customers who said welcome to nonprofits and gaming. We didn't have the integrations yet for them, really. We didn't have an ability to process the singles transaction really outside the United States. Like in terms of what was going to be the hardest year to hit your midterm outlook is this year, and we're going to [ force the concept ], despite like those things that we didn't know at the time when we established it. Now we have the integrations in those verticals. Now like Allegiant Airlines full bore. You have way more gaming volume now than before. You have nonprofit volume that you didn't have before. And you have international volume and you've got a mega customer kind of leading way. So like, honestly, I think of the 3-year midterm outlook, the second year is the easiest one to achieve. It's why we reaffirmed it despite the whatever macro headwinds are ahead. Do you want to comment, gateway...

Yes. The only thing I'd add is, when we set that medium-term guide, we did it with, as Jared mentioned, kind of anchor tenants in these 6 new verticals. But that was largely it. And it was the idea that there should be something behind these anchors. But we can actually hit the medium-term guide just with the volume that's on our gateway today. So we feel like it's highly achievable. As Jared mentioned, we're 1/3 of the way there in terms of the timing, and we are reiterating that, despite a lot of macro headwinds, that I think we're one of the first companies to acknowledge or likely to present themselves over the coming years. So the important tenet to understand is, like if we position a business, it is always the idea that we want to grow without finding a single new customer. And that's what the gateway affords us. The gateway affords us $150-odd billion of volume that can move over to end-to-end and can drive rapid revenue expansion without ever finding a new customer. And so in a somewhat perverse way, the more choppy the macro gets, the more confidence we have in our existing book of customers being able to fuel our growth through any of that turmoil. The thing I think that bolsters our confidence even further is this contribution from new verticals. Because while we had these anchor tenants a year ago, we didn't have the work completed. And what the third quarter showed in the performance of our business was just how impactful these new verticals can be when the work is done. And we're seeing volume in basically all of those, especially with a big airline contributor coming in, in the fourth quarter.

Yes. I think what I would add is the bricks that we laid in Q3 with all of these moves really also changed the scale and operating model of the business. What it takes us to service these marquee vertical clients, it's white glove service, but way streamlined in comparison to kind of your midsize enterprises restaurant and what that looks like from a service model. And so our commitment is kind of reaffirmed on margin expansion and free cash flow expansion, for sure.

Just to reconfirm. In the fourth quarter, you're not really seeing any delays in decisions from customers, just given the volatility in macro?

No, nothing seasonally. Well, let me clarify. Seasonally, merchants do make fewer decisions around the holidays than they make at other points in the year. But no, nothing in an exacerbated cash as a result of macro. You have to -- this is -- I'm glad Jared started the conversation where you did because we never stopped adding customers through the pandemic. That's how we were able to add the volume that we did despite our end markets being impacted. So our value proposition resonates with just as many customers, who are worried about the times ahead, as it does with customers trying to grow and trying to expand. So by and large, hotels aren't looking to change their payment provider in the middle of a pandemic, and yet can offer them things like streamlined service cost savings, one vendor to work with, they're inclined to take that value proposition. So going back to kind of what I said a little bit earlier. The deteriorating macro that we're seeing, we don't see it kind of in the business today. But we predicted it could happen, like it only emboldens us in terms of share gain.

Moving on to your newer verticals. You've already made some great traction with the stadium space and nonprofit. What do you think will be the needle-mover in 2023?

International for sure. I mean, we've grown revenue every year and year-over-year for 23 consecutive years, through the downturn, through '08-'09. We're in the most competitive payments market in the world. And we're competing for the last 15 years against a lot of competitors. The 0 interest rate environment encouraged them to light money on fire. I mean, imagine we're able to take those products and services that work reasonably well for us here in the U.S. over that time period into new market. And we can expand into those markets profitably following an amazing customer. I mean, it's a massive TAM expansion. It's incredibly exciting. So I mean, I think really like the international expansion, for sure, is the big needle-mover. In 23 years -- in just the U.S. We now in the fourth quarter have plenty of transaction volume in Europe. The plumbing between North America and Europe is in really good shape with our product perspective. We're going to add new markets to it. So I think you'll continue to see new verticals, like your -- third quarter, you got a taste of it. You'll see it in the fourth quarter for sure. Like your new verticals will still be great contributors, and as will high-growth core. But I think, like what really is the needle-mover is that you can take all that and extend its reach into new geographic markets.

Anyone has any questions for the Shift4 management team? Feel free to put them in your app, and I will read them out loud as they come in. So just diving in a little bit deeper into international. When do you expect Finaro to close? And do you anticipate any roadblocks in extending it to other countries?

So we expect the transaction to close in Q1. We had originally anticipated Q4. This is a regulatory approval process that is going along well, but a little bit delayed from what we expected. I need to reiterate that we've never included it in our guidance, so you shouldn't look to this slippage having much of an impact at all. In terms of kind of how it influences our international expansion. It's taught us a lot. So we're allowed to work with arms-length partners today. This is Jared's comment. Like we process U.S. volume for a portion of their customers, as do they process European volume for a portion of ours. So we're actually getting a ton of work done during this process and working together as partners. If there's one thing that I think we've learned throughout this process is, rewind to a year ago, when we were talking about international expansion in a very aspirational way, we were unequivocal that like M&A was what was going to get us there. As we've kind of ended the year with this asset, working together on partnerships, we're actually much more optimistic that there are regions that we can grow organically. We're looking at places like Canada and the Caribbean, and it's like we can actually do that work ourselves. M&A won't preclude us from accessing those markets, nor do we require it. So I think we're going to be a lot more disciplined. We're always disciplined, but I think even more so about how we access particular markets, now that we have kind of this regional knowhow.

So Finaro is not included in that medium term $160 billion?

No. Yes, that's correct.

And then when you give 2023 guidance, you will or will not include it?

Presumably, we'll have to because I would hope that by the time we're setting '23 guidance, we do either own the asset or have a very, very clear time line to when we'll own the asset. But I think the general -- and Nancy should chime in because she's the boss on all this at this point. But we want to own the asset and have certainty around that before we talk about its second half contribution.

That's right. What he said.

Yes. I mean, we've already reformed midterm outlook not owning that asset and specifically stating it was excluded from our calculus there. So I think the -- where you'll be when we do give '23 guidance is, presumably, by that point in time, it will have closed. And you also have like a better sense of just what the macro picture looks like. But obviously feeling very confident right now.

And I guess this one's for Nancy. Do you anticipate providing any additional disclosures since you're the new CFO of Shift4?

We definitely -- Q3 was certainly a lesson learned. I think we had a lot of moving pieces and got a lot of feedback about maybe the complexity of some of our messaging. So I think currently looking at streamline, I would say, preferably to minimize adjustments. Kind of get us close to GAAP with kind of some of our indicators. But at this point, really where we are with the indicators that are public are really the right ones for the business. I know we've started to add in some guide on free cash flow. So I would expect that we'll continue to at least give some measurement on that for the foreseeable future.

In the last several years, we've seen payments shift towards an enabler and integrator of software without the need of software ownership in many cases. What do you see as the right balance here?

Yes, it's a great question. It's got to be by vertical. I mean, Shift4, we've -- I mean, we saw that coming a long time ago. I mean, 2005, I think, is when we created the Harbortouch brand. And we bundled U.S. software, hardware with payments, put a SaaS bow on it, really empowered our distribution partners. It fueled a lot of growth. Ultimately, it informed our subsequent M&A strategy in 2017. So that is the 2.0 evolution. No question of you can throw out like the Verifone and ingenico bricks that just do an approval or decline. Like integrating payments to do a commerce-enabling platform, software itself or owning the platform, like what a Toast or a Shopify or the enablers would be like your Stripe or Adyen. There were -- it like there can't be like a one size fits all. You have to approach it, though, by vertical or you can get yourself in trouble. Like Mercury payments can be compared, like the grandfather of integrated payments, but like really been on and off a lot, they just connected a lot of vendors together. And then what happens? Like Shift4 buys 3 of their largest [ size ] and squeezes every bit of payment volume away from them, right? As it did to a lot of others, right? Like [ we run entirely sponsor ] situation. Like that will be -- in verticals where you can roll up software, you're vulnerable if you're purely an integration partner. So in restaurants, we absolutely said you don't own the software. They deliver better [ commerce revenues. ] And hotels is a different game. You don't want to bet on product displacing others because the property management system software in the hotel is like the elevator, it's not coming out, so better to play nice with all of them. And then like a pure integration strategy. Sports and entertainment, there's only 4 software companies in that vertical. Like we bet on 1 horse and it can become the category leader, which is why we did the VenueNext acquisition. So I think you want to be like just kind of have a really good pulse with what's going on in commerce, pick the verticals very carefully. And then at least with -- from a Shift4 perspective, you have to consider buy, build and partner in every one of the verticals, or which ones do you want to just add entirely.

We often talk about Adyen as the gold standard in the industry. What are some components you think Shift4 could invest in to come closer to that gold standard?

Yes. So I'd tell you already, like for one thing, which is kind of exciting because I do see they're best out there. In terms of the 3.0 evolution of this industry, which is really kind of a unified go-to commerce capability, they're in a league of they're own. And like pretty excited now that, even though we're just North America and Europe, like we're already adding countries that are -- that they do not have local settlement capabilities. There are Eastern European countries that they don't have customers very interested in. And that's awesome. Like I'd love to get to the point where like when you really hardly call it out, that there is some genuine differences between what we can do and them. Now aside from just geographic coverage, there is definitely clear differences between our world. They started their journey from a card-not-present perspective. That is easier to do global commerce in. It's way harder to do it in card-present, in the different E&D protocols and encryption keys and weird local debit networks. If you don't do that, you can't sell the coffee shop. So it's harder. Like we bring a lot of expertise to card-present. And I think at the end of the day, like you want to be able to enable customers to expand globally, and whether it's cross-border or local settlement, provide that to them. And those that may require a little bit more in-venue type capabilities will hopefully gravitate more towards Shift4. And those that are looking maybe more for the card-not-present capability will continue to gravitate towards a great player in there. There's Adyen, but certainly, the market can support more than one.

A the start of Shift4, you ran it as a private company. Would you consider taking it private again? Particularly if you do not get the valuation you believe it to have from the public market and despite your growth past [indiscernible].

Absolutely. And it's like the company is ready to keep right now. And I mean I'm a buyer. If it makes it too easy. And I think like it actually is becoming easier and easier. We just take a look at the third quarter's results. We created an additional $100 million a year of free cash flow on top of what we had before and deployed very little capital in order to do so. I think management essentially controls like 41% of the economic interest in the business from like a vote perspective, considerably higher than that. Yes, I think like we're incredibly frustrated. I think the stock is very much underappreciated. You think now -- like I get it was very hard in 2021 to figure out who is making good moves versus bad, like when we did everything right, we should pass all the expectations, we set at the Analyst Day and testing waters by far, execute on our game plan, which we briefed at the Investor Days. In blind side, anybody by like just processing like a ton of crypto behind your racker and -- or buying a bunch of assets that are payment volumes squeezed out of them like you made good use of intelligent moves and certainly not being rewarded for it. Now like where is the frustration and I just think we're trying to execute on a game plan it. And I don't want to -- you're trying to create economic alignment with entities you're buying in another hemisphere. The way to do that is with the equity alignment. You want to be issuing that at some 10x next year is EBITDA. It doesn't make any sense. And then, Mike, I think we try and -- we had to pull back a little bit in the third quarter last year about the degree of transparency we can have like we can't give direct insight into revenue, our pricing of some of our critical customers. But like the transparency around our gateway [ sense ] and strategy and other things comes with the cost like we share -- like the competitors have the same meetings with you guys, too. And like if people go back and say, like, Shift4 said, they were going to do this to you and your volume, like they're generally not going to sit on their hands. We're making it harder on ourselves. So, I 100% love the challenge of executing at a public company level. Like this is like where every company should aspire to be, and we're very lucky to be able to do so much during challenging times during the pandemic, but we'll look at share price the same as anyone else, if it gets too odd, then we'll see what we can do.

And Taylor, I'm curious about your views on this too since you've been with Jared for years.

Yes. It's the opportunity cost. So try to have a balanced view. I think we were able to raise a lot of strategic capital at low cost when the markets were good. Now it's the time to deploy them. It's that opportunity cost that Jared mentioned. And it's not the traditional cost of [indiscernible], it's the cost of executing aggressively inside of a bunch of new verticals in a public way. And I think I can be a little bit dismissive of near-term valuations. What I can't be dismissive of is the idea that competition has a lens that there is no way they would have if we're a private company.

Got it. So let's have a question from the audience. You mentioned strong growth in new verticals. What are some of the pain points are solving for merchants in these verticals that your competitors are not solving for right now.

Really interesting. So I feel like you just got to pick the vertical, right? In the case of nonprofits, no one's really stitching together all the different softwares. So you mostly probably familiar [indiscernible] like a hotel or resort environment, they're using 10, 20, 30 different types of software, and it all has to talk to each other, even though Microsoft makes this and Oracle makes that. If you're going to charge back to your room, or going to have analytics, just like a customer patron navigates a casino environment, all has to talk to each other, all has to be secure with good BI authorization selling the capabilities to it. Nonprofits not like that at all. So you have like your donor management, CRM and that's like Blackbaud or a sales force and then you have 20 other different pieces of software because you want to be able to take donations from everywhere. That's what nonprofit is like. They want to raise money and do really well with it. They don't really make their lives as easier as they could or as affordable. And that was a discovery by surprise. It's kind of the same way we realized there was good opportunity in sports and entertainment along the same time. So that leverages a lot of our expertise and complex commerce that we're doing with nonprofits. I think gaming was really just was illegal. And there were 3 companies that really started sprinting towards it [indiscernible]. We all brought different strengths for a right to win in that case, and we have 40% of win-venue casinos. So we have a lot of data there, and that's probably useful. We also have a lot stadiums. So I think it varies by vertical. In the case of like one big international expansion, we're just very fortunate and lucky, right? Our customer should be it wasn't [indiscernible] it became a great partnership where things that, you know they are educating us on countries that may require local settlement that almost no other companies would, think about it from like a utility or [ life-saving ] perspective. So a good reason to go into those markets that an [ agent ] would not be able to solve. And then also like competition is good for driving innovation. So having somebody else out there like we can learn now, what things were really great about a product or what things could be improved upon and taking that acquisition on the benefit of some of our strategic customers, but ideally others that will eventually come to follow. So it all depends by vertical. But one thing I'd say for everyone [indiscernible] trying to get as deep into the weeds as we have to be operating the business. But no one really -- at this level, in this stage of the game, no one is switching payment providers over 5 basis points or $0.05 anymore like those days are done. Like you have to be helping a merchant provide like superior commerce experience for customers hands down, like you're not going to give up awesome loyalty tools that you are convinced brings in 5% more revenue to save $0.03 with like a legacy or someone acquired it like, every vertical we're in, we have to add value so much more than just an [indiscernible] decline. Those are the only payment companies growing right now, are doing.

Five years from now, what do you think is the right vertical mix for Shift4?

It's -- it's probably the hardest question and answer because 5 years ago, we didn't have a single hotel. We've got 40% of the hotels in the country. We didn't have a single stadium. We've got over 100. And we have won't in any of these new verticals that we talked about. What I think is the right trend to follow is looking on a vertical basis, you can scratch your head and say, why Shift4 here, why they announced non-profit, why they announced gaming. But when you look at the commonality among the merchant, these are large merchants accepting revenue through a lot of different revenue centers and they have complexity, and they need to manage that. And so I think we will increasingly be marching up market. The average size of our customer has grown exponentially from even just a few years ago. It will continue to grow as we bolt on customers like some of the ones Jared mentioned. The one thing I would say is probably the most kind of true white space for us is that integrated payments really doesn't exist or outside of the U.S. in a substantive way. So if you think we kind of help pioneer integrated payments with the brands that are founded in Harbortouch. We helped bring a bunch of software assets into the game through our restaurant ISP acquisitions. We helped radically simplify how complex merchants go to market in the hotel vertical, like there's still many other continents that, that hasn't happened on. So I think the mix will be increasingly both larger merchants and the geographic mix would be substantial because the air is just really thin from a competitive standpoint. There aren't many to compete with. And that's what makes us so excited, whether it's large merchants in the U.S. where we're competing with one in that. Maybe 2 other competitors internationally, we'll have probably one or less in a lot of the verticals we're trying to serve.

I think you want to be in the industries that are still going to be here 50 years from now like I'm pretty sure people will still have to eat in the future. So like we're going to stay in restaurants. Like people are going to travel. There will be conferences, you go to Disneyland, like you're going to -- you'll probably stay in hotels, stadiums, people are going to go out and cheer for the teams. If you're in a part of the world where broadband Internet sucks you're going to pay for your internet subscription. I feel good about that, too. So I think we're going to avoid getting -- just as we did in [ '21 ], like not getting caught up in any of the momentary hype and focus on verticals that are going to continue to grow for a long time in the future.

Nancy, can you talk about your capital allocation priorities and then for the whole team, would acquisitions in your new verticals make sense at this time?

For sure. Our priorities are really to support that growth trajectory, right? So #1, and really 1, 2 and 3 is global expansion, right? So really just supporting ability to grow. That is kind of financial flexibility, we'll maintain obviously incredible importance for us. But right now, we're so overweighted towards supporting kind of this growth plan. And following this marquee customer around the globe that opportunity could probably only comes once in a company's lifetime. And so you'll continue to see us there. And certainly, well I think you've kind of heard us today talk about that we're really also feeling optimistic and bullish on our ability to grow organically and kind of build out. I think we've got certainly a very active M&A pipeline that we're always keeping an eye on, especially as valuations are coming down in the market. We got a very strong balance sheet right now, and we'll continue to look to deploy that in a really smart intuitive way for growth.

You're an inspirational person Jared, you have many hobbies, SpaceX astronaut, reviving Jurassic Park. How do you balance your time with these initiatives and running Shift4?

I was so shocked then the dinosaur actually made articles, like I was joking. Although I do think the world would be more interesting if you had to worry about getting eaten by a T-Rex on your way to your office. Look, I'm super lucky, very lucky. I never would have imagined, at 16 we started this business in basement, like that I could be as philanthropic as I am today that I have been able to go on all these adventures and experiences in life and hard work making more good decisions than bad and then luck, along the way has all made it possible. And I think the way I think about it is, is that if you want to be able to keep being able to do these important and exciting things in life whether it's supporting SpaceX or supporting St. Jude, it comes back to where it all began, which is you know I worked really hard. And like that should be the primary focus, and that's what it is with Shift4 every single day. So if I want to walk on Mars someday then we have to really get the stock price up means we have to deliver pretty like pretty good earnings, spending more to get free cash flow and conquer payments all over the world. So I'll keep that at the top of my cross-check.

Taylor, okay. We only have a few minutes left. So I'm just curious from all three of you, what do you think or what you are most excited about going into 2023? Conversely, what keeps you up at night?

So I'll start. I think we're structurally really well positioned for financial performance in '23, like the way we always start planning for the year is looking at the annualization of the merchants that have joined us in the prior year. And that always is like a really nice baseline. We gave it major portion of our bridge for '22. When you think about the contribution of all the new verticals and when it started to happen throughout the year, you can feel really good about '23 as well as things like in-sourcing or distribution, how well that positions us vis-a-vis the competition. Some of the companies we admire the most inside of Q3 laid off thousands. At the same time, we were hiring hundreds of while expanding margin free cash flow. So 2023 is largely nicely set up to Jared's point, we focus on the macro. We don't think any of our merchants are going to be immune, but we know we've got this captive base of merchants to go in and cross-sell, we know we've got this place in merchants that we're going to annualize into, and we known that the underlying financial profile sets us up really nicely vis-a-vis competition.

So if I was going to go next. I am really excited, I've been in payments for way too long at this point where a lot of maybe more legacy companies and some a little bit more fast moving in between. But this company is just poised for kind of just tons of success, I mean, so besides that you're working with the team that has reflected right of ownership and have been at the bottom building this up for so long. It's a really gritty company that is everyone is pulling in the same direction. Very, very clear strategic focus. So it's just obviously being a new person on this leadership team. It's really exciting to be a part of it. And I can't wait to look back and know that kind of what I brought to this team, like it's exciting to look at opportunity. It's just around people, process, technology platform and the process. There's just this extreme ownership and discipline that I really can't wait to execute on for as a partner to the team. And kind of -- for me, there's nothing about the business model that keeps me up at night. For me, it's just kind of how quickly I can catch up to where these guys are and tell the story and be as ingrained in the details as they are.

Yes. I think for me, just adding some awesome in talent into the organization. I mean -- and to me, that doesn't mean we're going on a hiring spree. In fact, like I think we actually saying conference last week that like our goal [indiscernible] like try and keep expenses flat year-over-year. And I think we can do that with our growth trajectory. But along the way, like I'd love to upgrade some talent. I mean we grew a lot during the pandemic. And I don't [ know ] Shift4 was necessarily like when people are work from home, I don't think like one of the first stop is necessarily go with your payments expert, you want to change the world, like you're probably starting, I don't know either a crypto project or you're working at PayPal or Dollars Square and -- like I think the markets have changed a lot. And I think like there's awesome talent that's been there before. I don't want to take 2 years to learn a lesson in Central and South America that another company has cracked the code on and then they just let go a 1,000 people like I want to figure out who the best people were in that 1,000 and bring them in the Shift4 and help ensure we don't repeat the same mistakes. So we can get there faster and better. So like I've challenged everyone like in leadership team like this is -- and I have told all our employees on the town hall, like I think we're not going to try and grow headcount this year, but we're going to try and upgrade talent. We want everybody at 110%. So I think there's organizations, [indiscernible], PayPal. They've all announced some sort of cuts out there. And I think we can bring some really cool talent into the organization on that. So that's especially exciting considering the new verticals in the international expansion. And what keeps you up at night and that -- you know like not moving fast enough. There's a lot of things that we want to do and in every day that we're not a little bit closer as like if you're in -- jump up down and figure out a way to get there faster. That's [indiscernible] I wouldn't think the only frustration. Like this year was a great example. We now have all these awesome verticals, and they came in probably 4 or 5 months later than expected. Like we want to do that like we want to grow even faster.

Great. Thanks Jared, Taylor, Nancy and Tom and the audience who participated today. Great having all of you. Thank you.

Thanks very much.