Shift4 Payments, Inc. (FOUR) Q2 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary reveals strong financial performance with raised guidance for 2025, significant international expansion, and promising product developments. The Q&A section highlights strategic acquisitions and stable consumer trends, although there are some concerns about integration complexities and vague responses. However, the overall sentiment is positive due to the optimistic guidance, international growth, and cross-sell opportunities. Given the market cap of $4.67 billion, these factors are likely to result in a positive stock price movement of 2% to 8% over the next two weeks.

Key Financial Performance

Payment Volumes $50 billion, a 25% year-over-year growth. This is the first quarter generating over $50 billion in payment volumes.

Gross Revenue Less Network Fees $413 million, a 29% year-over-year growth. Growth attributed to strong performance across SMB, SkyTab, and sports and entertainment verticals.

Adjusted EBITDA $205 million, a 26% year-over-year growth. Adjusted EBITDA margins were 49.6%, with a drag from recent acquisitions. Excluding this drag, margins would have been 53%.

Subscription and Other Revenues $97.7 million, a 37% year-over-year growth. Growth driven by SMB success, SkyTab, and penetration in sports and entertainment verticals.

Blended Spreads 62.6 basis points, compared to 61.5 basis points in Q2 2014. Improvement attributed to international success.

Adjusted Free Cash Flow $118 million, representing 57% adjusted free cash flow conversion. Includes $9 million in prepaid interest from recent issuance of 2032 notes.

GAAP Net Income $41 million, with GAAP diluted EPS of $0.32 per share.

Non-GAAP Adjusted Net Income $109 million, or $1.10 per share on a fully diluted basis.

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Operating Highlights

SkyTab systems: Record quarter of installations in restaurants, with a goal of 45,000 systems globally in 2025. SkyTab Venue is being introduced to Madison Square Garden and other New York institutions.

Global Blue acquisition: Acquisition completed, adding luxury retail as a new vertical and accelerating geographic expansion.

European market expansion: Selling a broad suite of products in Europe, onboarding over 1,000 new merchants per month.

Canadian market growth: Expanded presence, powering payments at the Canadian tennis open.

Capital structure diversification: Raised $3.3 billion in May to fund Global Blue acquisition and retire near-term debt maturities.

Operational efficiencies: Streamlined onboarding systems, enabling faster merchant onboarding in Europe.

Strategic partnerships: Welcomed Ant International and Tencent as strategic shareholders, collaborating on product capabilities.

Focus on international markets: Accelerating global expansion with the Global Blue acquisition and targeting luxury retail.

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Risk or Challenges

Capital Structure Diversification: The company raised $3.3 billion in May to fund acquisitions and retire near-term debt maturities. However, this includes a mix of fixed and floating rate instruments, which could expose the company to interest rate fluctuations and currency risks, especially with the euro-denominated debt.

European Market Expansion: While the company is onboarding over 1,000 new merchants per month in Europe, the expansion into new markets could face challenges such as regulatory compliance, cultural differences, and competitive pressures.

Acquisition of Global Blue: The integration of Global Blue is a key priority, but it poses risks such as operational disruptions, cultural integration issues, and the challenge of realizing anticipated synergies.

Debt Leverage: The company expects net leverage to be approximately 3.5x by year-end. High leverage could limit financial flexibility and increase vulnerability to economic downturns.

Product and Market Diversification: The company is expanding into new verticals like luxury retail and international markets. However, entering new verticals without a proven go-to-market strategy could lead to underperformance.

Interest Expense and Financial Modeling: The company has significant interest expenses, with $75 million expected in Q1 and Q3 and $40 million in Q2 and Q4. This could impact free cash flow and financial stability.

Leadership Transition: The CFO's retirement and transition to a strategic adviser role could lead to temporary disruptions in financial management and strategic execution.

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Guidance & Outlook

Medium-term guidance scenario: Tracking towards the most likely medium-term guidance scenario, which includes 30%+ gross revenue less network fee growth and 30% EBITDA growth, with the goal of exiting at a run rate of $1 billion in free cash flow.

Global Blue acquisition: The acquisition is expected to accelerate geographic expansion and dominance in verticals, particularly luxury retail. Global Blue's contribution for the remainder of 2025 is expected to be $300 million in gross revenue less network fees and $125 million in adjusted EBITDA.

2025 Financial Guidance: Gross revenue less network fees is raised to a range of $1.965 billion to $2.035 billion, representing 45% to 50% growth. Adjusted EBITDA is raised to a range of $965 million to $990 million, representing 42% to 46% growth.

Q3 2025 Guidance: Gross revenue less network fees is expected to be approximately $590 million, and adjusted EBITDA is expected to be approximately $290 million.

SkyTab Systems: On track to meet the goal of 45,000 SkyTab systems installed globally in 2025.

International Expansion: Continued focus on expanding European capabilities and integrating Global Blue to enhance international presence.

Capital Structure: Net leverage at year-end is expected to be approximately 3.5x, with diversified capital raised to support growth and acquisitions.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What is the rationale behind the Smartpay acquisition and entering the Australian market?

A:The Australian market is relatively easy to enter for American companies due to minimal language barriers and fiscalization of products. The Smartpay acquisition, combined with Global Blue's emerging payments capability in Australia, provides an excellent distribution capability. This allows the company to leverage its matured products and know-how from the U.S. into a market ripe for consolidation of software and payments with established sales forces.

Q:What are the assumptions behind the $200 billion to $220 billion end-to-end volume guide?

A:The guide includes a small acquiring business from Global Blue, which is well below $2 billion. The blended take rate this quarter was strong, and the guide range accounts for timing of large enterprise deals, which can be accelerated or delayed. The backlog remains stable, and the guide range is considered appropriate even with the small contribution from Global Blue's acquiring business.

Q:What is the progress in European restaurant initiatives, particularly in Germany, the U.K., and Ireland?

A:In Germany, the Vectron business is ramping up production and introducing payments to its established customers. The U.K. and Ireland are seeing strong adoption of the SkyTab product, with over 1,000 merchants being boarded monthly. European businesses are generally smaller, but spreads are better than initially modeled due to merchants embracing integrated software and payments products.

Q:What is the integration strategy for the Global Blue acquisition?

A:The strategy focuses on maintaining Global Blue's current momentum while integrating functions like finance, legal, and HR. Jacques, the CEO of Global Blue, is now President of Shift4 International, ensuring a consistent organizational structure. The company plans to introduce a broader suite of payment products over time but will take a measured approach to avoid disrupting Global Blue's existing business model.

Q:What is the breakdown of the $1 trillion cross-sell opportunity?

A:Half of the $1 trillion comes from Global Blue, including global retailers, local boutiques, and international department stores. The remaining $500 billion comes from acquisitions like Givex, which serves large merchants like Nike, and other contributors like Revel. The strategy is to keep the cross-sell funnel full and leverage existing customer relationships to introduce a broader suite of products.

Q:What are the underlying consumer trends in the restaurant and hotel verticals?

A:Consumer trends are stable, with modest single-digit same-store sales compression in restaurants and flat performance in hotels. These trends are consistent with expectations and show resilience despite economic pressures. Travel trends, particularly in Europe, remain strong, benefiting both the hotel business and Global Blue.

Q:What is the potential impact of stablecoins on the merchant acquiring process?

A:Stablecoins are seen as having applicability in cross-border transactions, particularly in countries with rapidly inflating currencies. However, in established markets like the U.S., traditional card networks offer significant value, such as fraud protection and rewards, making stablecoins less disruptive. The company enables merchants to accept stablecoins if they see value in it.

Q:What are the growth opportunities and risks for the next 1.5 years?

A:SkyTab is a key growth driver, with strong adoption in the U.S. and internationally. The company is also focused on expanding its payments platform to support complex scenarios and entering new markets through acquisitions like Smartpay. Risks include the complexity of integrating new acquisitions and maintaining momentum in existing markets.

Q:What is the outlook for gross margins and free cash flow conversion?

A:Gross margins are expected to remain similar to Q2 trends, with some impact from purchase accounting and amortization related to Global Blue. Free cash flow conversion will be influenced by the seasonality of Global Blue's cash flow, higher cash taxes, and increased cash interest from recent debt raises. Detailed guidance will be provided in the 2026 outlook.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the organic growth rate of Global Blue and its impact on the overall growth algorithm. They also used vague language when discussing the timeline and specifics of synergies from the Global Blue acquisition, as well as the exact impact of stablecoins and Agentic commerce on the business.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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