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

All right. Up next is Shift4. We've got the whole team here today, Jared, Taylor, and Nancy, thank you all for being here. Really excited.

Thank you.

Maybe can we kick it off, Jared, with a look back on 4's performance since the IPO. What's happened since then? And how has the company evolved?

Thank you. Another beautiful day in payments paradise. It's been an awesome journey since our IPO. I mean, at the time of the IPO, I mean, the overwhelming majority of our customers who were restaurants, which if you recall, like in March, April of 2020 wasn't a great time to be a restaurant. And from a regulatory perspective, you weren't allowed to go out and eat. But ultimately, we wound up growing payments volume double digits in 2020, which was obviously much more a factor of taking share, which has largely been the Shift4 story for more than 24 years. We've always grown revenue every year for 24 consecutive years, more than double digits, and we did that even during the pandemic. But we did say to ourselves, if we are lucky enough to pull off an IPO, which at the time we were the first back -- to be allowed back in New York Stock Exchange even ring the bell, we were going to diversify become -- kind of exit this crazy time in the world, better and stronger organization. So diversifying the more pandemic-resilient industries like hotels, which has been one of the fastest-growing verticals for us since I think we touch about 40% of the hotels in the country right now is probably something around like from like an end-to-end processing perspective, sub 5% at the time of our IPO. We moved also into stadiums and other pandemic immune vertical. But we went from 1 stadium at the time of our IPO to now like well in excess of 150 and that will continue to play out. I think we are the hands-down category leader in that vertical. It is cool dynamic because what we're -- the pain point we're solving within the stadium environment is like the whole mobile experience. So not having to wait online at halftime to get a burger and beer, but be able to order it from your seat. And when you win that, you also win the concession, you also win the VIP suites, you win the parking, the merchandise and retail and then eventually ticketing, which is the awesome -- because that volume is well in excess of actually the transaction volume that happens at the stadium itself. But here's the cool part is that when you have nice rivalries in 1 stadium like if the Baltimore Ravens can do the mobile fan experience, but the opponents they're playing cannot, then they come home from the game and they're like they want the same thing, too. And that's why for several years now, you continue to see us pepper our earnings reports with various stadiums. So the story has been awesome. We've been growing really effectively since the IPO in the U.S. I mean, pretty extraordinary rate over 50%. But also we're now on the cusp of expanding for the first time in our 24-year history, outside the United States with like an imminent closing on our Finaro acquisition, and now we can bring everything that's made us successful here in the U.S. over this time period into new geographic markets. So pretty awesome.

Awesome. Well, in 2021, you set a modest goal of growing the business at a 50% CAGR for the next 3 years and we've been holding you to that since then. Can you talk about how we get to that level of growth? What are the building blocks? And what's the composition like?

Yes. I mean, I think for late 2021 of setting a midterm outlook that had 50% volume growth, 30% net revenue growth. I got to imagine like we're the only company actually delivered on it. We delivered on it in 2022. We've been delivering on it through this year. You look at where our guide takes us out, we're very confident in our year 2 ability to achieve. And I want to point out like those are like some of the hardest years. Like year 1, I mean the time we set out our midterm outlook with 50% volume growth, we were predominantly just serving restaurants and hotels. We said we're going to move into airlines. We're going to move into nonprofits. We're going to move into eCommerce with this global eCommerce merchant that we didn't deserve to win, but we have it, and we're going to follow them all over the world. We're going to have to expand internationally, but we had no international payment assets like -- when we set our midterm outlook, there was a lot of like, what do you have to believe in order to deliver on it. And we have delivered on all of them. We've achieved all those integrations. We're actually monetizing our customer relationships within those verticals. And again, we've been able to do even without international expansion, which was obviously a key component to our strategy, but that box is about to be checked. So like I think like in terms of achievability of what was, I think, a pretty bold midterm outlook back at the time, the hardest years are probably in the rearview mirror. So yes, feeling pretty good about it.

And then how do you think about macro? I mean you've been cautious on the outlook. You've been talking about $50 stakes for a while. Is there anything to call out in terms of what you're seeing in the near term, any verticals outperforming, underperforming?

Yes. And I do also just want to hit that as much as like holding us to the 50%. If you actually looked at the prior 3 years of our business, we're probably -- on a normalized level, we're probably growing at that point as well. We certainly were prior to the pandemic right at that 50% to 55%. I think January of 2020 was a 55% year-over-year volume growth month. So that was kind of like a very long-term growth trajectory of the business even like when you're growing like double digits in 2020 that on a heavily depressed year, it probably would have shaken out like that. So like past has been generally pretty indicative of what the future performance will look like. And in terms of the macro, like we've been -- Taylor and Nancy have been raising the flag for some time now that the $90 stakes can't last for so long. And I'd say like, actually, they just -- instead of like we're retreating, they just leveled out. Restaurants are essentially flat. They're holding the line on those $90 stakes, which is pretty incredible and somehow hotels are still experiencing same-store sales growth, which is pretty mind-boggling considering how much they took up room rates over the last couple of years. So there's definitely probably parts of the country that are not travel destinations where they are not having like a boom time anymore. And then there are certainly parts of the country like Florida, Vegas that are -- there's still some exuberance being displayed.

So it sounds like things are broadly holding in well. I mean, anything to call out in terms of what the guidance scenarios contemplate relative to some of the recent trends?

Yes. I think if you look at guide certainly for the rest of the year, we're really just expecting macro to run out as we're seeing it today. So there's no concern about a downturn really beyond what we're seeing. And certainly, we don't have any baked in upside assumed for the rest of the year. So if we see some resilience, that will all be kind of upside to what we've got out there right now.

Understood. So maybe we switch gears, talk to some of the components of the business. You've talked about the high-growth core, the core in the business and restaurants. The growth has been very strong, and you've called out on the last few earnings calls, a combination of signature net new wins, accelerating gateway conversions, more recently, the next-gen POS platform, SkyTab. Maybe starting with SkyTab, you've seen some pretty robust growth out of the gate with that platform. Is the product resonating like you expected?

Yes. I mean, let's touch on a couple of things just like how you build up the various growth drivers of the business. We are incredibly advantaged in that we touch so many customers that only use a portion of our services. And some -- like sometimes that can be like misconstrued in other ways, like the gateway conversion strategy, like it's too easy for them to win. So it's somehow like a lower-quality W. In reality, it's all just a giant ARPU expansion story like we have $150 billion worth of payment volume that's on our gateway that gives us $1,000 a year and is paying way too many customers for like a suboptimal experience that move over to -- end platform. We have a 4x or 5x uplift in gross profit. The customer is happier, they have 1 throat to choke, like that is half of our growth. That's happening across predominantly hotels and restaurants at any given time. Then you also have a large population of just software customers that are using our restaurant product, but actually, were never on our gateway or end-to-end product, which is like we just have this natural foot in the door to move them over to our end-to-end platform. And these are all, again, just a broader like ARPU expansion story that's embedded within the Shift4 universe, which is great because we can achieve very high growth targets without actually having to go in and win net new customers. But we also do that, which represents the other, call it, 50% of our production every -- in any given month. Now we've been winning in restaurants for a really long time. We have awesome distribution coverage that can be there locally to identify pain points for restaurants in a world where it's getting immensely more complicated for restaurants. Like even the smallest restaurant like on the corner has got probably a dozen different software applications now. If you think about all the interfaces, Grubhub, Blueberry, Doordash. These are all pain points, take somebody kind of local in the field to bring that all together in a new and better experience for them and probably save some money along the way. SkyTab is our cloud-based product that's doing that. You have this natural migration of customers on legacy-based point-of-sale systems, older window solutions or terminal merchants that are going to move to SkyTab. And then you have our own customers that are naturally going to migrate towards that product, which unlocks a lot of operational efficiencies. And I'd say the landscape is super nice in that because it's really just Toast and us. And it's just a big TAM and they're going to make their way to both of us at some point or another.

So you mentioned Toast and some of the competitive dynamics. I think specifically in the gateway, there's some interesting competitive dynamics there with you and FreedomPay, maybe 1 or 2 others. What are the competitive dynamics there like? And how should investors think about some of the recent announcements from Toast getting into the hospitality space?

I mean I mean, first of all, like we only put out announcements that directly drive our #1 KPI, which is payment volume, which I believe makes up a pretty large portion of the revenue of Toast as well. So like it's a big announcement for a customer that they can't win payments on. They had to like immediately clarify that actually belongs to Chase, which plays really nicely into our value proposition. I mean we've been winning for a very long time based on the idea that we could provide. We own more links in the payments value chain. So therefore, you get that kind of 1 throat to choke, 1 hand to shake, at a lower overall cost because you have just essentially less mouths to feed, and it's still very reasonable margins for us. That's how we win in hotels all the time is that a customer is migrating away from a separate gateway, separate processor, separate acquirer, like separate equipment vendor, Shift4 does all of that. You have a lower overall cost of ownership and a better overall experience. So they literally outlined in the press release how it requires Toast plus FreedomPay plus JPMorgan plus equipment vendor to deliver that experience, which essentially is just a hunting license without a contribution from like one of their -- I think their largest revenue contributor, which is payments. So from our perspective, like it's kind of relatively an empty press release, like we don't put out press releases on our software-only customers, and they're pretty awesome names, even though eventually like we would expect them to move to payments at some point. So in any case, like we don't think it changes any of the dynamics within the hotel vertical, which we are continuing to win at a pretty accelerated pace. And then in terms of just like main street winning restaurants, it's awesome having 1 really great competitor in Toast. And I think the way that we've been competing of late has actually put more distance between us and those that were in like kind of third and fourth place because it like -- it just makes it harder for them to compete with the 2 of us. And it's just a big TAM, and we'll both take our products into Europe and other markets, which are 10, 15 years behind the restaurant technology environment that exists in the U.S., which is a lot of opportunity.

So you've talked about taking out a lot of the middlemen in the restaurant space with the SkyTab offering. Last year, you did a series of deals that kind of took out a lot of your indirect distribution, brought a lot of it in-house. Could you maybe talk a postmortem on that deal, roughly $300 -- $300 million for a 10-point uplift in gross margins. Has the deal worked in the way that you envisioned when you set out?

Yes. I mean 100%. I mean this is like if you get really familiar with the Shift4 story, we had a very I think we had a very atypical journey to being a multibillion-dollar public company. Like it was a basement startup. We never had a Series A, B or C. We never had any outside capital for the first 14 years in the company's history, like all of the growth came from our own cash flows. The only time we actually even took outside capital was just we saw the convergence of software and payments across multiple verticals, and we wanted to just seize the opportunity on that and that required bringing in a PE partner. In doing so, I say all that is like we're incredibly disciplined, and we've had to be over our years in order to continue to drive strong growth throughout our years. And like part of that is like how we choose to allocate capital for lower customer acquisition costs or improving our unit economic model. Like these are things that have been part of our existence for like 24 years that almost any one of our peers never even had to think about until like the 0 interest rate environment disappeared. So I look at it like in a time period in 2022, when like we all thought the world was going to fall apart and say, "Hey, we're migrating from like an on-premise solution, which required more labor to a cloud-based solution." This lets us take out an awful lot of parts, become more efficient. And we have 15 years of data to know which markets we're going to be successful at within our product. Why don't we in-source these partners that we've -- basically been the second largest expense of the company, which reduces our payback period from a customer acquisition cost perspective, it's a massive unit economic enhancement. Why wouldn't we put capital to work in that environment when there's like uncertainty in the world. And as a result, massive lift up in the financial profile business, huge margin enhancement, huge reach, cash flow enhancement. But strategically, super valuable because now every new customer we're signing up for SkyTab no longer has that ongoing third-party revenue share expense and you were able to like justify all of this because of the migration from an on-premise to a cloud-based solution. So yes, it's been working out incredibly well. And our production for SkyTab now has only accelerated every quarter. So like I think in Q3, that will essentially be 1 year from when SkyTab came out of beta. Like we'll give you a nice chart of like what that installed trajectory has looked like over the last year with that product. And it's being driven by an in-house sales force now versus a third-party distribution force that was a year ago.

Got it. I mean a lot of your comments today are focused on ARPU expansion opportunities within the business, whether that's software-only customers, whether it's distribution, whether it's the gateway, the gateway is obviously a very large one, roughly $150 billion of volume that's still not running over your rails. So maybe can you remind us of a few of the strategies that are in place to convert that volume? And how do you think about the cadence over the next couple of years?

Yes, sure. So what I think is important to understand is that every customer on our gateway is using a third party for payment processing and merchant acquiring. So when we talk about this cross-sell opportunity, it's not an incremental service that you're trying to compel the merchant to use. It's compelling them to consolidate services under a single vendor. And the gateway is the critical component of the technology inside of their footprint. It is what connects every piece of software in their merchant environment to common security, common tokenization, common analytics and the common, quite frankly, consumer experience as they're navigating their way through a large hotel like this, for example. So they're critically reliant on the technology. It's just that given the way the evolution of the industry work, they would typically route these transactions to a bank. We saw this opportunity and said, "Hey, we can deliver a much better experience by compelling these merchants to keep all their transactions with us as the merchant acquirer, as a merchant processor and as the gateway." So the merchant gets a phenomenally better experience. This is not an insignificant component of how we could grow during incredibly challenged years. It's because we had this large embedded base of customers. Now what's the challenge to the value proposition, the challenge is if you're a hotelier that's selling out all your rooms at triple the room rate, changing your merchant processor is nowhere near your priority list of your problems to solve. So we've got a variety of ways that we tackle this problem. Interestingly, throughout the pandemic, it was always Carats because these are merchants that were under a significant amount of industry duress and you needed to give them really compelling reasons to help them do more business. We've started to implement some price increases, just to realize the value of the service that we're providing to say, "Hey, this is the critical component of technology. We expect to be paid for it, whether or not you want to route your transactions to a third party." And then inevitably, throughout the cycle of that business, there are circumstances that compel them to want to embrace this change, whether that's a software upgrade that they're going through anyway, whether that's the cost savings value proposition that exists the whole time, et cetera. We just converted a really large number of hotels on the island of Nantucket, because this was their time to get around to a technology discussion as they approach their off-season. And that's very typical of how this program has worked. Now what has changed is there are a lot of enterprises on the gateway. And increasingly, enterprises are willing to have this conversation. I think as every business starts to think about their cost structure in a more -- with a more critical eye as -- thinks about what normalization after the pandemic means for them as a business, this is an obvious win for them where they can save costs, get better service and simplify their lives. And so we've seen an acceleration, actually, even at the highest end of enterprise, multibillion-dollar customers saying now is the time to do this.

Yes. Maybe if I can, because I think it is such an important part of understanding the Shift4 story. The gateway is obviously a large portion of it because it's $150 billion worth of volume that we can move over. And it's dramatically over time -- we'll continue to change the financial profile of the business. But look, if you indulge me on this analogy a little bit, winning customers in almost any line, it's a battle, right? It is very hard to do it. And who's winning? Like the winning is like you're growing payment volume and you're actually talking about your payment volume growth. And if you're losing that battle, you're not even talking about payment volume at all anymore, it should be scary for a payments company, but how you fight that battle matters too? Like -- and there are some people that think it's more glorious to like line up shoulder to shoulder and just get like blown away, which is -- which to me is like the equivalent of just spending like hundreds of millions of dollars on like Google AdWords to build brand and maybe win customers that your product can't fix if they're pizza sucks, right? Or that you could do it with a more ambush-based approach, which to me is like what we do, which is like acquisitions like our gateways over time, which Merchant Link, for example, which probably represented over $100 billion of gateway volume and narrowed the competitive landscape within the hotel environment to like 2 or 3 competitors. There's a $60 million acquisition to have your foot in the door of essentially like a captive $100 billion volume base, which now, probably 4 years since that acquisition, like fully synergize that down, probably represents like quarter a turn of EBITDA right? Like -- so I mean it's glorious to line up shoulder to shoulder to spend a lot of money in a 0 interest rate environment. But where we're at today right now, like you want organizations that can be creative, whether it's in our restaurant vertical or hotel vertical to identify more attractive uses of capital, lower customer acquisition costs. Focus POS is another great example of that. It was a $40 million acquisition we announced like 2 quarters ago, represented 10,000-plus accounts, maybe $15 billion in annual payment volume for $40 million. That will be inside of a year, probably synergized down to sub 1 turn.

Super helpful. And I'm sure we could spend all day talking about SkyTab in the high-growth core, but I want to maybe pivot to stadiums where you guys have also had a lot of new wins, I think in the most recent quarter, you talked about Carolina Panthers, Texas Rangers, Charlotte Hornets, a large park operator. And a lot of these are coming from the VenueNext acquisition, which I think you bought for $72 million in 2021. So what are you doing differently that's allowing you to win all of this net new business?

It's a variety of different things. First, it is a critical understanding what the merchant experience is like in that environment. You've heard every payments company talk about buying software, building software, partnering with software and no one talks about doing all 3 depending on the environment you're serving. We looked at the stadium environment and said, this is ripe for Shift4. It's a merchant using tons of different software. It doesn't feel very different than walking into a large hotel where you have concession stands, you have suites, you have ticketing, you have retail, you have night clubs and restaurants in some of these. So the merchant has to find a way to stitch all this together and have a common fan experience and drive more commerce in very small windows of time. And who's helping them do this and where they most likely to partner up and VenueNext was a business we saw doing this exceptionally well. They were enabling mobile ordering at a time where stadiums are worried about how much -- how many millions they're going to have to spend on new hardware and they would go in and say, "Hey, your fans are going to bring in better hardware than you can ever afford. I can give them a great experience, they'll never wait in a line, et cetera." So we saw that opportunity. We saw the opportunity within their existing customer base and the fact that we were uniquely positioned to not only deliver that software to merchants, but also cooperate with all the other software they need to collect revenue and deliver what you'd experience in a hotel from Shift4 in an entirely new vertical. So we acquired that business and quickly said, your value proposition is no longer mobile ordering. It's mobile ordering plus everything else and that was highly unique in the environment. So I think Jared mentioned this, we had 1 stadium at the time of our IPO. It was a little bit of a thought experiment with a software partner. Now we have over 150 and it's one of the fastest-growing verticals simply because they're so little technical competition inside of the vertical. I'd say the kind of really interesting spot is we hadn't always contemplated ticketing which had largely lived in entirely outside of the ecosystem of a stadium. Fans bought the ticket on Ticketmaster, SeatGeek, et cetera, and showed up at the game. And as we started to have these conversations with teams and venues, they said, this is a major component of my revenue that I want under the same roof and under the same analytics package and under the same platform as Shift4. And so we've been able to complete integrations to now all the major ticketing providers and can deliver exactly what you'd see in a hotel operator. You see the entirety of your revenue experience. Common tokenization analytics, you can follow your fan through the entire experience. And any way the team wants to sort of engage in commerce with their fans is something that we can enable for them really, really quickly. So totally underserved market, really interesting and underappreciated asset that was delivering more value than just about anyone else in the value chain that we identified, paid a very reasonable price for it and bundled it all together in a way that these purchasers of these services have never seen before. And obviously, that leads to a really interesting growth.

Makes sense. Can you talk about the process of getting that ticketing volume now that you have all 3 of the ticketing vendors? What does that upsell look like? And where does the conversation go?

Yes. So again, I'm hesitant to use the word upsell because every one of these teams is using a ticketing provider. So this is more about consolidation and delivering a better experience than it is about convincing them to do something they haven't done before. But it's really just what we do every day, which is you have to integrate to the software platforms those teams are using to sell their tickets. So this is like a little bit of an awkward experience as fans as we think about buying a ticket, but the team or singer that you're buying a ticket to their event, they choose the ticketing platform they want to use, and there's a payment provider on the other side of that. We have been negotiating with every single sports and entertainment company that we've engaged with over the course of the last 18 months and said, "If we can technically facilitate your ticketing payments, will you give us that business?" And overwhelmingly, the answer has been yes. So we've had this incredible pipeline of like signed wins, we hadn't always had the technical means of fulfilling that because you've got to do work with SeatGeek, you got to do work with Ticketmaster. We're now at the phase where we've completed integrations to SeatGeek and Paciolan, which are 2 of the largest and then the largest in Ticketmaster is being completed imminently. So we've got a really nice pipeline of wins that go live. The second technical work is done. We've seen a handful of ticketing volume throughout this year. But -- when you unlock the technical means of working with the largest ticketing platform, your TAM has now expanded really, really nicely. Any sports and entertainment franchise using Ticketmaster is an opportunity for us when this technical work is done, that wasn't an opportunity even just months ago.

Maybe just to put some at this point, like the reason ticketing is so important. I mean, you're talking like several times the payment volume of the stadium itself, and there's no relationship, like the stadium doesn't know who's behind Ticketmaster or StubHub or like SeatGeek or Paciolan. Like those vendors have separately chosen whether it's Braintree or Chase or somebody else to that effect. So -- but we are deeply embedded in that stadium environment. Like it doesn't -- when you're the fan ordering that burger and a beer from your seat, it doesn't say Shift4 and VenueNext. It says like the Orlando Magic app or whatever the Baltimore Ravens app. So it's our people that are physically on site, especially now as the season is opening, like we have our people in like whatever -- 12 different stadiums a weekend right now. So like we're -- it actually becomes like a very -- it's an easy ask and it's an easy give. One, it's been a default in our contract for more than a year that you'll just give it to us. So it's not even like a negotiated point. But other than that went like, "Hey, we need new hardware." They always like we will give that as like an in-kind sponsorship, but we also want the ticketing just not a -- it's not like a challenge because they don't even know or have any relationship with whoever is ultimately fulfilling it today anyway. And the ticketing provider doesn't care, like whether that's SeatGeek or Ticketmaster.

I wanted to hit on international expansion. I think -- I'm sure a lot of people in the room would like to hear an update on the Finaro timeline, but would also like hear once that deal does close, what sort of goes into motion that you guys haven't been able to do up until now?

I think everyone is going to be really pleasantly surprised when we actually set the full expectations, which clearly we didn't do this past quarter, then we were telling you like, "Hey, it's going to happen pretty -- it's imminent," like we are on the shot clock. So like when you are considered application complete, they have to decision it within a certain period of time. So like we have been on that timeline. So that's why we think it's like I think -- we think that this is going to close before we would have had an opportunity to get in front of you again, which would have been like our November earnings. So that's progressing well. And then I think -- I know we've said it a bunch of times, but like this prolonged engagement period prior to getting married, has afforded a lot of benefits. Finaro is a way better company now than we signed that. Way better. Like it would have been 0% card-present, 100% eComm. There were customers that we had to get rid of like now, it's going to have like a very meaningful percentage of card-present business when it closes. The number of customers that are going to be contributing to the volume and revenue versus like what was stand-alone Finaro at the time we signed the deal versus now based on like our pre-existing customers we've contributed to it is pretty material. It is material. So like I think like when we actually like get together in, I guess, in November and set some expectations associated with it, I think people are going to be like, wow, it's like a much, much better business now. Now what will it allow us to do, it will allow us to go after restaurants and hotels in Europe. That's right now our biggest focus with respect to Europe. Like we have -- we said it during this last earnings. Our focus now is solving our distribution strategy for going out and winning like 10,000 restaurants in Europe next year and a bunch of hotels. And we've got live locations now on it, like we've been, again, making good use of this prolonged engagement period. So yes, we're really excited. So much so like it's now looking at what's the next geographic area. We've got our wait list live on our website for Europe and Canada for restaurants and hotels, for new partners that are looking to sign up. It's -- it feels good. We've been waiting a couple of decades to go into Europe. So...

A lot of other questions I could ask. But maybe in the interest of time here, Jared, you always have a good perspective on the industry. And there's been a lot of conversation recently around the competitive dynamics in eCommerce, particularly in North America, realizing you're not a big North American e-commerce player, but what do you think is happening in the industry? How does it affect Shift4?

I think we go through like a roller coaster cycle, like every 4 or 5 years where the same panic surfaces and then diminishes and -- like it's a great industry. Like right now, I mean, it's like, again, every 4, 5 years, you've got like Bloomberg and Wall Street Journal that will come out about how evil Visa and Mastercard are from a fee perspective and then that will go away for 4 or 5 years and such. Look, I think that this was not a surprise to us at all. But we only obviously have won what we would call Adyen-like customers. So like we already did know that the U.S. was hands-down the most competitive global eCommerce market for a long time. Now there's no FX in the U.S. There's no 3D secure, like nobody is using that. So like basically, everyone can do card-not-present eCommerce in the U.S. without requiring a lot of the bells and whistles. And as a result, the pricing is very low in the U.S., like Adyen's advantages -- immense advantages is its ability to deliver that single platform experience in markets all over the world. And the U.S. is like the easiest one. So you should expect that like the take rates would be under the most pressure here. But like I don't think this changes anything that all of a sudden like this is just a commoditized industry, like I think the mega consolidations of 2018, '19 prove that, that's not the case because those guys are largely losing share with their scale advantages to much smaller players like what they would call it like Coast Square or Shopify or whatnot. So I still believe that the -- like there is a big share-taking event that's going on that is not under take rate pressure the way you would think for those that add value beyond an approval or a decline that are providing a broader commerce-enabling experience and merchants are migrating there very, very quickly. And those that are still in that approval or decline category are losing share, and that is certainly not where Adyen is.

Super helpful. And maybe on that note, I'll ask a myopic question on spreads. Nancy, you've been pretty transparent about the expectation of spreads moving lower over time. Could you talk about some of the near-term take rate dynamics? And any updated thoughts on what that might look like?

Yes. I'm very comfortable with what we've already put out there, expecting about 65 basis points on a blended basis for the year. Obviously, first half was a little bit higher. Some of this can -- I think we've been really open to say there's some choppiness based on when some of the big wins start ramping. So quarter-to-quarter, you'll see some movement. I think -- spent some time making sure the guide we've given is clear certainly for the rest of the year. And I would point out that kind of Q3 will look similar sequentially over Q2 than it did last year. So expect some kind of pull down and then back increasing kind of into Q4, but I would use the 65 as a general measure for this year. And I think looking ahead, you've got 2 dynamics at play. You've got hopefully, continued upmarket wins. Ticketing actually helps us just based on where those spreads come in. And obviously, international expansion comes largely with higher take rates. So we'll be super transparent. I think we learned our lesson early in the year about not trying what we thought was kind of giving you historical spread rates. I think now we've got a new normal, right? Like I think as we head into '24, I think '23 sets the base for a new normal of what the blended business is. And the business is just so much more diversified, both based vertically and on size of merchant that this is a good kind of launching pad. But with Finaro coming in and just obviously some of the big wins that we've announced and some of the ones we know are on the horizon, we'll continue to be transparent. But 65 basis points for the year feels like the right jump-off point as we go into '24 as well.

Got it. Very clear. Maybe just end on capital allocation. Jared, I think you've recently been talking about capital, obviously, acquisitions have been top of mind for you guys and kind of the #1 priority. But you were speaking more specifically around distribution deals related to SkyTab in Europe. Could you maybe flesh that out, of what that might look like?

Yes. I think that there's obviously a lot that -- there's a lot you need in order to be able to go and pursue certainly restaurants, for sure, in Europe, a little bit less so with hotels because you can rely on your third-party integrations. But you got hardware to provision, deploy, install, you've got to be able to provide support in a number of different languages. And then coverage like it's a big continent. You're going to want people in a lot of markets that are able to identify older generation or non-integrated systems in order to replace for SkyTab. So are there easy buttons that we can pursue to do that, that we know draws upon a playbook that's worked perfectly here in the U.S. over the last 15 years. And that's pretty important because Europe is totally where the U.S. market was from an integrated payments perspective, 15 years ago. So it gives us a lot of confidence in the playbook. But I'd say in Europe, we have a great authorization and settlement platform in Finaro. We've got a great product in SkyTab that will have a lot of demand. So what's just the right way to approach distribution within the European market is one of the priorities we're looking at. As is just continued geographic expansion. The integrated payments 3.0 world we're in right now is about a commerce experience and making it easy across multiple geographic regions. So North America and Europe is awesome, and we're doing some great organic expansion alongside of that, but there's certainly other geographic areas that are of interest to us as well.

Great. Well, guys, I really appreciate you being here today. Really enjoyed the conversation.

Thanks for having us.

Thank you.

Thank you.