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

This is day #2 of the Day 2 of the Wolfe FinTech Forum. And we're obviously thrilled to have the team from Shift4 here with us. This is a team that we did the IPO for -- it's been a little while now. Wow, I think it's been early 2020. I can't believe it's been that long at this point. But regardless, it's one of the names that I know we spend most -- more of our time on than most of the names we cover because there are so many exciting things happening across the business. It's a lot of fun to do research on it. So we're really happy to have you guys here with us. It's a name we've been recommending pretty much throughout our coverage of the story given we still think Shift4 is one of these names that folks don't appreciate in some ways, how it operates and how it executes on very complex verticals better than anyone else we've seen. We're thrilled to have the entire team here. We have Jared, the CEO and founder, one of the founders of the company. We have Taylor, who's the President and Head Chief Strategy Officer; and Nancy, who is the CFO. So maybe just start off with a quick backdrop, Jared, on the business, if you don't mind, for anyone that may be a little less familiar with for -- what the differentiation is on the business, and we'll go from there.

Yes. I think right from the start, Shift4 is an integrated payments company before anyone knew what to call an integrated payments company. So we've been around this is our 24th year in business. And for the first couple of years, we're very much just general practitioners payments. I mean that was like the acceptance phase of the golden age, just enabling businesses to accept credit cards. We're very quick to see that that's not going to end well because at some point, you're only going to be able to differentiate on price. So early 2000s, we started to build our own software, our own hardware, bundle it together with SaaS and payments, try to take multiple parallel industries and smash them together to help our distribution partners differentiate to win really premium customers and then retain them an awful lot longer. And you roll that forward to today, like 99.9% of our transactions are integrated. That's unheard of. So that means our payment platform directly connecting into commerce-enabling software. So we began our journey in integrated payments, predominantly focusing on restaurants, kind of moving from the Irish pub in the corner to now, I mean, Irish pub in the corner all the way up to the Cheesecake Factory. We actually tend to skew much more in the more complex end of the restaurant vertical. So if customers like Tao, Hakkasan would be examples of our customers. And then we moved into hospitality. And I guess, throughout our journey in integrated payments, getting into it very early on, recognizing the importance of it, we've been able to balance by vertical kind of this build-by or partner strategy because in some verticals like hospitality, where we have like close to 40% share using our payment rails, you have to integrate into hundreds of different software applications. There is no dominant hotel property management system. There's no like toasting going on there where customers are switching out property management system software. Those are like elevators, inside hotels. They never kind of change. So you have to play nice there. But within the restaurant vertical where we've had a lot of success. We said this is a vertical that we're going to bet on, we'll have our own products within -- so we went into the -- just referencing the IPO. We went into June 2020, in the heart of the pandemic with a big concentration on restaurants and hotels. We actually grew our end-to-end volume, our #1 KPI double digits on that, grew revenue double digits, and it was predominantly from just taking share. We came out of the IPO saying that we'd want to be a bigger, healthier, stronger company. So we diversified into less pandemic susceptible industries like stadiums, travel, leisure, nonprofit gaming. But what you'll find across all the verticals we're in within the integrated payments universe is, they're all complicated. You cannot download a software application on an iPhone or an iPad in power ski resort or a major restaurant like Tao or retail store like UPS stores or certainly like a major airline and such. So we tend to be on the most complex demanding end of the commerce spectrum. And now we've embarked on a really awesome journey after 24 years of driving almost all of our revenue and volume here in the U.S. On a global expansion initiative, we are following a very signature customer who is already operating all over the world, and we're quickly trying to catch up, which is nice. And then we're bringing all of the kind of product, services and integrations that made us successful here in the U.S. into those markets.

I mean, to be clear, you guys were always known for -- just for everyone in the audience, you're always known for restaurants and hotels. That was probably what you were most well-known for a long time. But in the few years since you've been public, we are now in stadiums, we're now in charity. We're now -- I mean, there's so many more verticals that have been expanded upon beyond the 2 original core. It's really a very different company than it was 3 years ago, right? I think that's very easy to say. And now as you mentioned, you're going internationally. So a lot has changed. Before we go further, I just want to get this one out of the way, SVB, a lot of noise in the market with banks, obviously, I think you guys said it was very -- what was it, $45,000 of deposits or something immaterial, effectively or...

Yes. Effectively nothing. One small account related to an acquisition that...

So this has serial impact on your business?

Yes. And interestingly, the analysis we do in circumstances like that is we actually go look at our merchant base and say, are merchants impacted by that? And even there, there was no exposure whatsoever. I think it's probably a little bit to do with the fact that we've never been Silicon Valley darling. So even our merchants don't bank there. So no...

I was really shocked when we rendered report on Friday evening, against all the ABA numbers that we settle funds into and we touched a lot of commerce. We didn't have a single customer of the bank that -- which was really, really surprising.

Good. Okay. Going back to the business. Before we go to recent trends, Jared, what are the top priorities for this year for you guys? I mean there's, again, a lot of moving parts, but maybe just give us a sense of where you're spending most of your time?

Yes. So we love the verticals we're in right now. So the idea is, number one, again, follow our signature customer that's literally all over the world right now. That's a real special relationship where they're helping us evolve a product that we have that was up until the last year or so, we were almost like 100% card-present transaction processing. So evolving that product to meet the needs of a multibillion dollar, multinational eCommerce customer. So helping us evolve our product, catch up to them in all the markets they're in, bring the products and services we have into those markets. So there's a lot that goes into that, right? I mean, if you think about a restaurant product that's very successful in the U.S., you have to localize it in the various markets you're going into. There's fiscal compliance in that. So #1 priority is exactly what I said, follow the signature customer all over the world, a lot goes into that, bring other products and services. And then #2 is, what accelerants do we have with that we already have some unique right to win in. So I think those kind of may be familiar with the story is a little bit of unique element for Shift4, where we have a gateway platform [indiscernible]about $150 billion or so of gateway volume. So basically, we are driving the commerce experience for these customers. It's our platform that's talking to their software solution. It's our tokenization, our encryption, oftentimes our devices. We make very little when their gateway customer. We put a lot of various incentives out there, a combination of sticks and carats to migrate commerce, what we refer to as our end-to-end solution. So you eliminate about 4 or 5 different parties that are involved, ultimately deliver a lower cost to service for the customer, but it has a very material uplift in gross profit contribution for us, and that's like literally flipping a switch. So that's about 50% of our customer adds in any given year. So in terms of priorities, capital allocation, like that's the lowest hang fruit you can get in this industry where you can literally grow substantially without winning a new customer. So that's like -- that would be the second most important priority for us is continuing our various gateway sunset programs to pull forward that gateway volume to our end-to-end solutions. That's about it. Like we like our verticals we're in right now. There's a lot to conquer in this kind of integrated payments 3.0 evolution which is a connecting in the commerce enabling software, but now doing it all over the world. And that's a universe right now limited to kind of your Stripe and Adyens. And it's really important from our perspective to kind of quickly get to that stage.

When you think about -- just taking it a step back to the recent trends, you obviously had very strong results that came out last quarter, not too long ago, a couple of weeks ago. And so maybe you could just take a step back and remind the audience some of the recent trends. And really what flowed through into this year that informed your outlook for '23 as well?

Yes. I could definitely start. I think some of the things Jared mentioned, right, when you think about each of those priorities, we had a nice margin uplift '22 over '21. I think just first half of the year before we got to kind of some of the strategy plays that really played out in the back half of the year, we were up about 400 basis points first half of '22 to '21. And I think heading into the back half of the year, we really laid the groundwork for each of these initiatives, right? The gateway sunset, it has incredible flow through from a margin perspective with both the [ carrots and the sticks ] and the conversions, right, with most of the growth coming from high-growth core. Then you think about kind of this launch of SkyTab, right, our single brand into the market, cloud-based gave us the opportunity to really look at that in-source distribution for the first time. And with that, it really combines now better unit economics, just better flow-through of operating leverage. And most of the new verticals that we're talking about are coming through in a direct model. I don't think people realize that our partner model was really more of where kind of IPO timing are high-growth core, but all these new verticals we're going direct. So unit economics improved eliminating that partner share flow-through for the rest of the year. Certainly informed the guide as we looked for greater margin expansion, greater free cash flow conversion. I think -- every one of the kind of levers that we're playing with right now just has better flow-through on a margin and a free cash flow basis.

But if you could just remind us again on the guide, so the data points for top line for volume growth, I mean, it's -- I think it's underappreciated still by some in the magnitude and then profitability.

Yes, sure. So we contemplated a number of scenarios, as I think is prudent as we are constructing the guide. But we really, at the low end, came through scenarios of about 40% volume growth and at the high end, above 50%. Now what informs that is like one of the nice benefits to our business model is that the annualization of the customers who joined you the prior year delivers you the majority of your growth in any given year. And if you think about the year we had in '22, you mentioned all the new verticals, not a single one of them contributed in substance until the back half and sometimes even the fourth quarter of '22. We mentioned one of our largest merchants went live in November. So the annualization of that really drives a healthy portion of that volume growth over the course of the year. We do expect to continue to add merchants at the clip we have, which is really nice. The traction in these new verticals tends to be a flywheel. So we expect to gain more on that front. The one area where we're just a little bit, I would say, trepidacious is in '22, we anticipated some recovery in travel that we benefit from. And I think we just wanted a little bit of prudence around this -- the current climate, the merchant base. So it's nice to be able to put forth a guide like that, that doesn't include a robust same-store recovery, but we think it's prudent to kind of think that, that might not be the case this coming summer. And if it is, that's great.

Yes. I mean our -- the guide that we assembled really, I mean, if you're looking at somewhere on the conservative scale relative to '22, where we've beat and raised most of the year, this is pretty hyper conservative. I mean you look at a Q4 annualized, like you exit rate from Q4 and annualize it. And you've got pretty line of sight to our bottom end of the guide, which is the mild recession case. We went into '22, where we had commitments from major customers in nonprofits in the form of St. Jude, major travel and leisure airline, an eCommerce customer that required international capabilities. We knew we were going to go after ticketing in our Sports and Entertainment vertical. But in all these cases, we didn't have a single software integration. So getting -- integrated payments is really hard because you have to convince a software customer or a merchant to do something they don't want to do, which is integrated with another payments company. They'd rather do anything else. So going into '22, we had a plug in a bridge of like $3 billion contribution from new verticals and major customers. First 2 quarters of a year, we were way behind schedule on that, and we wanted to get it done in the third and fourth quarter, which is why there was such a significant contribution then. Like you went into that guide knowing you had to get things done. That was very hard. We go into this year with all of those integrations complete and now a lot of stuff just layers on very easily. So like ticketing, once you have that [indiscernible] integration done, then it's just a matter of each sports team deciding that they're ready to throw the switch. So we actually had a record weekend with our venue next sports entertainment product. It shouldn't be that way right now, and we actually had to look into it, why because football season should be the strongest and it was advanced ticket sales that started rolling in. And that was the first time we've seen that. So I do think we set up this year pretty well in light of what could be...

So it sounds like trends to date are definitely giving you conviction around the guide at least, which is what we obviously want to see. When we think about the other part of that, which Nancy you touched on was the profitability side, I mean, again, I think a lot of folks were kind of confused at first when you bought in the residuals and you shifted to more direct, which you were talking about in terms of sales, but it obviously had a very big impact on your margins and profitability. And so thinking about that now, I mean, it seems like it was the right choice, obviously. But is that -- are we done with that? Or is there more to go on changing the sales strategy?

I think we laid this out at our Investor Day, right? That was a very strategic insourcing, right? We went for our best partners that were probably -- probably about 50% of the partners but they were doing about 80% of the production. And I think what was a little bit lost in the story there is we actually in-source, but we bought the whole company in many cases of our best partners, right? So that means we took on their sales offices. There's a little bit of an exchange there for kind of gross margin, but we took on SG&A, right? I think that's a little bit lost in terms of the strategy. But it gave us the opportunity to kind of have in-field servicing, right? Now our partners can service locally. We took on over 350 people with that in-source. It was really a model change, but it was the right thing to do now that we were kind of uniting under a single brand. And so I think when you think of, again, the margin profile, it's certainly one element, right, that gives us now the better unit economics going forward. But I think you have to layer on kind of every one of these kind of initiatives that we're doing, right? Every one of them is kind of improving unit economics for us. And I think the other half of that from a margin perspective. So just to reiterate, I think as Jared just touched on ticketing as a great example. When we bolt on ticketing to our CDM customers, there's no incremental expense to do that, right? No incremental infrastructure for us. So there's a lot of direct flow-through from these new initiatives, and these kind of cross-sell opportunities. And I think another point to make is like as we move upmarket, we are getting scale that we've never had before. Like right, what it takes us to service kind of these upsized and kind of marquee enterprise lines is just not the same of what it takes us to support.

Incremental margins...

100%. And I think the piece that we haven't touched on is obviously then on top of that, we layer in just great cost management, right? I think we're kind of laser-focused in places that we haven't been before.

But if you back out the residual benefit, I think you're only guiding for about 100 basis points of margin expansion. So wouldn't there be more than that, given the operating leverage of the business?

I would say it's -- I don't think -- I think I gave you that math at one point on the fly. And I would say it's a little bit more balanced than that. I would say the unit economic improvement, I would probably equate to about 50-odd percent of kind of the flow-through in kind of all these other initiatives. Remember, gateway, you go in with a [ carrot or stick ], that flows right through. So if you look at every single one of our growth levers, they are all kind of contributing to the margin. But yes, look, it's a beat and raise mentality, and we feel very good about the margin guidance...

So it wasn't just the -- so the magnitude of the margin wasn't just on the residual side. It was a little bit more spread out?

It's really...

More or less, it sounds like there's conservatism in the margin as well from the way you operate.

For sure. I mean, Jared likes to say that I hedge him a little bit.

Yes. If you believe what we're saying in the calls, we have 2,300 employees and we're going to maintain flat headcount, upgrade talent. You look at the margin coming off of Q4, which is not seasonally one of our strongest quarters, you're 47%. So...

Right. There's definitely some room. When we think about guidance, one last point on this is that this did not incorporate, I guess, an [ RO ] either, right, the closing of that deal, which just a quick word on it. I mean it's still scheduled for some time in the next couple of months, a couple of -- I think in the middle of the year, by the middle of the year.

Yes. scheduled is not determined because we're basically waiting for approval from the regulators, and that's always got some ambiguity to it. But we expect it to close within the next, I don't know, 90 days feels reasonably comfortable. It is uncertain because we wait for the regulators to tell us that our application submitted is being worked on. But I think regardless, because we've all had these partner models of integrating to each other, we've been able to get a lot of technical work done which has been immensely helpful. Like their team understands sort of our go-to-market, our product priorities, et cetera. We've shared customers, meaning that we've got a customer in the U.S. that's processing locally on their rails with a single integration to us and vice versa. So that's really powerful. We've activated restaurants on SkyTab in Europe. We've activated restaurant -- I'm sorry, venues on VenueNext as well. So technically, it's largely mission accomplished, but we have to wait for the regulatory approval to formally come...

Okay. But even beyond the inorganic element of bringing on the phenomenal revenues itself, I think more importantly, this bring you internationally, including that signature customer that is notable in size, and I believe it could be billions of dollars of volume, right? -- that could be pretty quick. -- once you close?

Yes. Yes, the plumbing is already there. So we've been running transactions across the pond between Finaro and Shift4 for 6 months or so, at least now. So we're able to, during this staggered period between signing and closing, operate under various commercial agreements. So to Taylor's point, you can hit the ground running as soon as you close, there should be a lot more synergies now, especially with other work we've done, while, basically over the last year period of time than we had at the time we announced the deal. I think what's really important is like we put out a guide that basically is telling you like we can surpass our second year of our midterm outlook without international capabilities. And that was certainly at the time that we established a midterm outlook of 50% volume growth, 30% net revenue growth, which International was part of the story. So we're saying we got to -- we're going to get through the first 2 years of it reasonably comfortably without that authorization and settlement capability in Europe.

And when we think about the international opportunity, taking a step further, this big signature is one, but you have customers that are obviously global customers, and you haven't done much with them outside the U.S. So what kind of opportunity is that? And how fast can you move that?

I mean what I put in our prepared remarks is like we will have restaurants, hotels, stadiums, and our eCommerce customers processing across North America and Europe in 2023. No doubt. Yes, you have a very big customer that we can follow all over the world, and it's a great kind of validation of the service. It sends a message to the rest of that kind of the sexy tech world that -- there's more than 2 choices to consider, which is pretty important. We're getting RFPs now that we never would have seen before from some of those awesome logos that people would be familiar with. But we don't need to win those as an extension of this strategy. We touch, again, 40% of the hotels in this country. The decision makers for those properties in Europe are based in the U.S. You give somebody a single portal, common tokens across all their platforms, great business intelligence and insights into their customers, makes people's lives easier. So they already made their choice of us in the U.S., we can make it a lot easier for them in some other international markets.

And the plumbing is done in terms of Europe, Eastern Europe as well, other markets?

Yes. So that's another nice thing is we -- I mean, it's -- our international expansion is not all inorganic. So organically expanding Canada, Caribbean here in the U.S. through our partnership with Finaro prior to closing. They've expanded into a number of Eastern European countries already specifically to meet the need of our one big customer, which is great. And then we're obviously looking at other continents as well, which is very important. I mean that's kind of the exciting thing, it's like they're already there. They're already in almost every market in the world, except like North Korea and China and Iran. So like to us it is just a matter of catching up and we get a lot of good insights on how much volume is already there, what product feature modifications we need to make. And then when -- whatever we need to do to at the end that market has happened, the faucet gets turned off and volume...

To be clear, it's obviously great for a customer to have one integration with one partner, one vendor. But at the end of the day, there's something else that's going on. I mean Shift4 has obviously won a lot of business in the U.S. with hotels and restaurants. Just take it a step back, Jared, explain the integrations you have with the -- all the ISVs that are necessary to execute, why it's really only a few companies in the world that can do that?

Yes. So I mean, as I said before, where you won't find Shift4 is where you can download an application on an iPhone or an iPad and run the business. So you look at like the bookends of the commerce spectrum and you have like every new square, super simple, it's designed to be that way. It's very visible when you go to a coffee shop or bakery or something. Then you have the complete opposite end of the spectrum where you have resort like Caesars that uses 40 different pieces of software probably made from 12 or so different software companies on like 20 years of version history, and it all has to talk to each other. You go to a retail shop, inform shops and you want to charge back to your room. It's all common encryption, tokenization, business intelligence. You have to accumulate a lot of integrations in order to be able to respond to an RFP like that. As you probably recall, our Analyst Day before the pandemic in Pebble Beach, we gave you guys the treasure map. Go look at the 12 different restaurants, 10 different retail stores, 3 different hotels, 3 different golf courses, 3 different salon and spas. It's all different software, it all talks to each other. So there's only a handful of gateways in the world that have, in our case, over 500 different software integrations across, again, like 20-plus years of version history that allow you to respond to those customers. And that's what gives us a strong right to one within our -- what we call our high-growth core and it's the confidence there to be able to continue delivering growth. I mean the 50% year-over-year volume growth was happening well prior to the pandemic. And you normalized for the year-over-year growth during the pandemic, you're right there, and we've continued to do it now emerging from it. That's confidence from high-growth core. It's what allows you to be able to invest in the new verticals that are now obviously yielding quite well.

Right. So that -- you could take that internationally as well. SkyTab is another area that I think we're excited about for this year. You guys did a great demonstration of that, I think, about 3, 4 months ago in New York that we were at. And so when we think about what that is, I mean, it looks a lot like other big like Toast, obviously, right? It looks a lot like other great restaurant software payback type models. Talk about it a little bit. You had 10,000 locations, if I remember correctly, last quarter already in a very short amount of time.

Yes. I mean, keep in mind also, like we do touch about 1/3 of the restaurants in this country right now. And that 10,000 number is not actually from upgrading existing ones. It's really just in a very short period of time, net new demand out there. It's -- like obviously, we have a lot of expertise in restaurants. We've been growing in this space since 2005. That was our first entry into integrated payments. And like reality right now is there's 2 really great companies that are going to win -- continue to win a lot of share in restaurants. I think people underappreciate how many merchants are using legacy solutions, older windows-based systems, that are very costly. They don't talk to GrubHub or Uber Eats or DoorDash very well or drive loyalty and such. So right now, if you have a good product as Toast in Shift4 has and you have good distribution coverage, then it's just like -- it's just a matter of time before you're walking into a restaurant who's pissed off in the moment, which is very easy to do because the previous generation of payments companies that had a lot of share of restaurants have been like abusing the hell out of them from like a fee growth perspective. So reality is like a lot of merchants are migrating to a more cloud-based solution. The truth of it all is when they do migrate like it all generally does the same thing. There isn't anything earth shattering happening with how you ring up a cheese burger. They all generally do the same thing in that regard. It's kind of how you choose to differentiate with your sizzle features, capital offerings, payroll, kind of appeal to new generally new merchants. We try and go from -- our software, for example, SkyTab is not module-based like you get free online ordering free marketplace, free royalty and we try and target a little bit more upmarket. But in general, I think between us and Toast like at the end of the year, we're both going to continue to add a lot of customers. And I think where we try and have a little bit of an advantage is a little bit of a much lower customer acquisition cost because we can leverage a huge network of existing customers to create referrals versus like just a lot of digital marketing and such.

The -- there's not -- there's so much has augmented, not enough time. So I'll be -- I'll start to move a little more quickly now. The gateway conversion, I think you still have $150 billion plus of volume that you're not really full stack on. But you have a captive audience here from the -- back from the acquisition you made a few years ago, right? And so thinking about that volume conversion, there's been pricing strategies around it now. And you've always talked about converting around. We always thought around 5% to 7% a year, but talk about that, talk about the conversion versus the pricing strategy now and what you anticipate for the year ahead of us?

Yes, sure. So the objective is really compelling the conversation. So as much as we'd love to say that this is the first priority of every hotelier and restauranter, waking up every morning their payments company isn't necessarily -- especially if it's working well. So we had a tough time during the pandemic. I think that's lost on a lot of investors. We grew payment volume really nicely in hotels and in restaurants during the pandemic, but it was not easy to compel people to have these types of conversations. And so as we kind of exited the pandemic, we said we were going to prioritize a bunch of ways to, as Jared likes to say, make the phone ring. We're going to implement pricing strategy. We were going to look at connections that were noneconomic and say, we're just shutting this off. This doesn't make good sense. And it's perpetuated a wave of customers that pick up the phone and want to have that conversation. I'd say it's increasingly effective as well with the enterprises that now truly understand our priorities, there's no ambiguity about the fact that we don't want to be a gateway on these economic terms for these customers and that our end-to-end solution is a much better option. So it compels kind of a really steady number of customers to reach out to us and to accept our call in any given month or quarter that sustains growth, it tops off the funnel, as Jared likes to say. And then you do get a little bit of lumpiness as these enterprises start to engage in the dialogue, but that's a good thing.

And in terms of timing on that, I mean we used to think again about 5%, 6% of the gateway conversion per year. Is that -- should we think about that differently now, given the approach?

So I wouldn't say that we target a percentage like that. We target a portion of the customers that we want to interact with at a given time. One thing that we've been more adamant about and to contrast it to the IPO, I think is a good way to do it. We're simply saying the economics are going to be fair for the services we're providing, and we're going to implement that in reasonable increments over the next several years. It should compel the conversation more quickly. It should accelerate end-to-end conversions, which is all great. But we're content with a customer that says, "I'm willing to pay you more for the service in the short term."

Okay. Speaking of Gateway, I mean, you talked about a big hospitality win that you had that can add billions of dollars. I don't know if that was a gateway customer or not already. But either way, I mean, maybe you could touch on why you won that and what the opportunity there is?

It's usually the -- I mean our offering is actually quite standard. So we're trying to keep things simple and take the parts out. We provide free devices for hotels. We provide like lifetime swaps and replacements. If the PCI council were to determine that this version of Ingenico device is no longer compatible, we'll swap them all out. We eliminated our gateway fees because now we're monetizing entirely through spread on processing services. We'll cut good deals like with our restaurant products. Most hotels have some restaurant or lobby bar in it. It's generally a very standard offering. The idea being prior to us acquiring these gateways, which was actually more than 5 years now and almost will be 6 years since we bought [ Shift4 ]. The hotel industry just worked with 5 vendors. This is my gateway provider. This is my processor, this is the acquirer. I'm buying devices here, and this is the company that's going to do the encryption and installation. It's just a lot of hands and flies. It's a lot of finger pointing. You don't have that one throat to choke and it costs more. So this customer is just a matter of getting around to it. As Taylor mentioned, hotels went from having like their worst years like in modern history to some of the best years. And your payments provider who maybe can help improve things like on the order of, like, I don't know, 30, 40 basis points isn't the highest priority when you're getting like these astronomical room rates. So people always ask, well, you start with $200 billion at Gateway volume that lies in it all there? And it's like, well, first of all, it's a lot of commerce, and they have a lot of things to do other than talk to a payments company. So the fact that about 50% of our production over the last 5 years has come from gateway customers migrating over to steady pace. It's always been just good and fine. But sometimes, with the larger hospitality operators especially either their staff is furloughed in '21 or in 2022, they were busy as hell. So actually, a lot of the bigger enterprise customers, you're literally just getting around to having those conversations that you've been trying to have for years. And you've broken a lot of nice [ winds ] from it.

We don't have that much more time. I'll try to put it all. So if we could just do a quick overview of the other verticals that you're excited about, maybe the priorities and what you see having the most -- so whether it's stadiums, gaming, nonprofit, sexy tech, there's a lot that you guys are doing. A quick roundup.

The thing I'd say is like the investments into new verticals began in 2021. And that was all part of, okay, we're public now. We got to do more than restaurants and hotels. We did a lot of it organically, and then the results really started to show in the second half of '22. So I guess the message is the table is really nicely set now. So as Nancy pointed out, when BetMGM adds 4 more states because now they've got regulatory approval, we don't have to hire more people to support those states for BetMGM. We just throw the switch. We're certainly the category leader in sports entertainment. A lot of -- all the best NFL teams are in Shift4. When they decide to add ticketing, you don't have to go do an install off the stadium. You don't need to hire more people in overhead. Now you just get -- potentially double the volume from that same customer. So they're all starting to scale really nicely. eCommerce, great example, big customer, decides to go in some new states or they just recently raised the cost of satellite subscription service by 20%. You get a lot of nice benefits from that if you're processing those payments. So I think like sports entertainment will still be in terms of really awesome logos in our earnings deck and very visible if you go to stadiums is probably going to have the most momentum, I think, going this year. But still international expansion to support our eCommerce customers is pretty high priority for us.

Great. Great. Well, we're almost out of time. Guys, any questions you want to ask?

With SkyTab, we think about the go-to-market strategy. Can you share with us how [Technical Difficulty] cross-selling [Technical Difficulty]

Repeat the question.

Yes. So the question was how are we prioritizing upgrading kind of our legacy restaurant customers versus net new wins with SkyTab, and the answer is it's been almost all net new wins. So recognizing the climate we're in, a lot of rightful attention towards margin, free cash flow. If we're upgrading existing customers, you're going to know it. Because CapEx can go up because you're deploying a lot of hardware and you're not getting any associated revenue lift because you already had the payments. So when we take 10,000 home and they went for [indiscernible] it's almost all net new customers. We will for retention purposes, for sure. If somebody is not an older Windows-based POS system, and they're thinking about leaving, like we'll put them at the top list for SkyTab. Our goal because it does unlock a lot of efficiencies. We have 2,300 employees, a lot of them are -- most labor-intense customers, a small restaurant who calls in for a lot of things. So it is in our interest over a multiyear period of time to consolidate our restaurant customer base on SkyTab. But it has to be done in an orderly way. We got to budget it out because it's not as easy to like immediately quantify the cost savings from doing it. So for now, almost everything is just net new customers.

Any other questions? Let me just quickly wrap up with one last one on M&A. I mean, you obviously have done a handful of really good deals. What's on the horizon?

So Jared emphasized, the #1 priority is international expansion. That's where we're spending the bulk of our time. We do keep a team dedicated to looking at M&A. So at any given time, regardless of the cycle, we've got kind of 70-odd things that we think are potentially interesting. And I'd say the climate looks really good right now, like the number of parties willing to have a good conversation are as high as they've ever been. It's always hard to handicap getting something done, especially in volatile climates like this. But I'd say it's an incredibly constructive environment for M&A.

Excellent. Guys, thank you very much. It's great to have you with us.