Shift4 Payments, Inc. (FOUR) Q3 2025 Earnings Call Transcript

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

Overview

The earnings call summary and Q&A highlight strong financial performance, strategic acquisitions, and positive guidance. The company is expanding internationally and focusing on high-growth opportunities, such as the $90 billion Bambora gateway. Despite some caution due to market volatility, the overall sentiment is positive with strong growth prospects and a shareholder-friendly approach with share buybacks. The market cap suggests moderate sensitivity, aligning with a positive stock price movement prediction.

Key Financial Performance

Gross revenue less network fees $589 million, up 61% year-over-year. Excluding the impact of Global Blue, it grew 19% year-over-year. The increase is attributed to organic growth and recent M&A activities.

Adjusted EBITDA $292 million, up 56% year-over-year. Growth driven by operational efficiencies and business expansion.

Volumes $55 billion, up 26% year-over-year. Growth attributed to increased customer acquisition and market expansion.

Blended spreads on payment volume Stable at 62 basis points. Stability expected to continue through the end of the year.

Sales in Store (Asia) Negative 11% year-over-year due to a weak Japanese yen last summer. However, sales recovered throughout the quarter and were positive in October.

Sales in Store (Europe) Up 13% year-over-year, driven by strong performance in the region.

Subscription and other revenue $119 million, up 16% year-over-year. Growth driven by market-leading vertical software solutions.

Adjusted free cash flow $141 million, with a conversion rate of 48%. Growth attributed to operational efficiencies and disciplined capital allocation.

GAAP net income $33 million, resulting in diluted EPS of $0.17 per share.

Non-GAAP net income $148 million, resulting in non-GAAP EPS of $1.47 per share.

Global Blue contribution $156 million to gross revenue less network fees and $68 million to EBITDA. Performance impacted by headwinds in the Asia Pacific market.

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Operating Highlights

3-in-1 payment terminal: A new product for payments, currency conversion, and VAT refund eligibility detection is in beta testing.

Australian hotel wins: Signed deals with Accor, the largest hotel operator in Australia and New Zealand, as part of a strategy to expand into new geographies.

Restaurant expansion: Signed thousands of restaurants across Canada, the U.K., Ireland, and Germany, with over 1,300 merchants signed monthly.

Hospitality expansion: Won contracts with Hyatt Vacation Club for over 20 resort properties globally.

Sports and Entertainment: Signed deals with Cincinnati Bengals, Clemson University, North Carolina State, Rutgers University, and Syracuse University.

Nonprofit and crypto services: Expanded presence in nonprofits and added on/off-ramp services for crypto and Stablecoin platforms.

Operational streamlining: Divested non-core business lines like acardo for $34 million to focus on revenue synergies.

AI applications: Exploring AI to enhance operating leverage, product development, and decision-making.

Global Blue acquisition: Completed acquisition of Global Blue, adding luxury retail capabilities and synergies for payments.

SmartPay acquisition: Acquired SmartPay to expand in Australia and New Zealand with proven distribution channels.

Bambora acquisition: Agreed to acquire Bambora (Worldline North America) to leverage a $90 billion payment gateway, expected to close in Q1 2026.

Stock repurchase program: Authorized a $1 billion stock repurchase program, the largest in company history, to enhance shareholder value.

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Risk or Challenges

Same-store sales volatility: The last two weeks of September and subsequent weeks of October showed more same-store sales volatility than prior periods, with sales ranging from positive 1% to negative 4% and significant week-to-week fluctuations. This could indicate potential challenges in maintaining consistent revenue streams.

Economic uncertainty: The company acknowledges that it is not immune to broader economic conditions, which could impact its operations and financial performance, especially during times of economic uncertainty.

Currency fluctuations: Tax-free shopping in Asia faced challenges due to a weak Japanese yen, leading to negative sales growth of 11% in the region during Q3. Currency fluctuations could continue to impact international operations.

Competitive pressures: The competitive landscape remains a concern, particularly in the U.S. restaurant sector where the company is the #2 player. Maintaining market share and differentiation in a competitive environment is critical.

Integration risks: The integration of Global Blue and other acquisitions, such as SmartPay and Bambora, presents operational challenges. Ensuring smooth integration and realizing synergies are key to achieving projected growth.

Macroeconomic and industry conditions: The company has observed uncertainty in macroeconomic and industry conditions, which could affect its financial performance and growth projections.

Leverage and financial risks: The company’s net leverage is at 3.2x, and while it is within guidance, maintaining this level while pursuing acquisitions and share repurchases could pose financial risks.

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Guidance & Outlook

Medium-term guidance: The company expects 30%-plus gross revenue less network fee growth over the medium term, supported by attractive capital allocation opportunities.

Adjusted free cash flow target: The company is ahead of pace for its $1 billion target by 2027.

Blended spreads on payment volume: Expected to remain stable at 62 basis points through the end of the year.

Full year 2025 guidance: Volume is expected to range from $207 billion to $210 billion, representing 26% to 27% year-over-year growth. Gross revenue less network fees is expected to range from $1.98 billion to $2.02 billion, representing 46% to 49% year-over-year growth. Adjusted EBITDA is expected to range from $970 million to $985 million, representing 43% to 45% year-over-year growth. Adjusted free cash flow conversion is expected to exceed 50%.

Global Blue contribution: The contribution from Global Blue remains unchanged, with a seasonally higher calendar third quarter versus its fourth quarter.

Gross revenue projection: Expected to range from $4.09 billion to $4.15 billion for the full year 2025.

Acquisition of Bambora: The transaction is expected to close in Q1 of 2026, presenting opportunities for gateway conversions and synergies.

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Shareholder Return Plan

Stock Repurchase Program: The Board has authorized a new $1 billion stock repurchase program, the largest in the company's history. This program is set to run through year-end 2026. The company plans to implement the repurchase plan immediately, citing the current valuation of its equity as highly attractive. The repurchase program is part of the company's broader capital allocation framework, which evaluates opportunities across customer acquisition, product investment, acquisitions, and share repurchases.

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Key Q&A

Q:Where is the company's primary focus right now? Are you focused on integrating and cross-selling into the $1 trillion acquisition funnel, or are you simultaneously investing heavily in net new product development?

A:The company is focused on both integrating and cross-selling into the $1 trillion acquisition funnel and investing in net new product development. They aim to take their category-leading products to as many customers as possible in a capital-efficient way, leveraging capabilities like SmartPay in Australia and Vectron in Germany to expand into new geographies.

Q:What are the implications of Jared getting nominated to NASA?

A:Jared's nomination to NASA is seen as a positive for the country and will simplify the company's structure. He is not required to divest his stock but will relinquish the super votes associated with his shares, likely collapsing the share structure into a single class. Jared intends to remain the largest shareholder of the business.

Q:Can you provide more context around the $90 billion gateway opportunity with Bambora?

A:The $90 billion gateway opportunity with Bambora is a textbook example of Shift4's strategy. Bambora has a captive base of sticky customers, many of whom have been with the platform for over 20 years. The company plans to consolidate payment solutions and enact revenue synergies. Bambora also brings capabilities like being one of the larger ACH providers in the country.

Q:What is the implied Q4 end-to-end volume, and is it a reasonable jumping-off point for modeling 2026 expectations?

A:The implied Q4 end-to-end volume is roughly $57 billion to $60 billion. This is considered a reasonable jumping-off point for modeling 2026 expectations, though minor nuances and seasonality should be considered.

Q:Can you clarify the Q3 organic growth and provide a view on Q4 organic top-line growth?

A:Q3 organic growth was 18%, consistent with the medium-term Investor Day target. The company is cautious about Q4 organic top-line growth due to volatility in same-store sales and other factors, but it remains within the guidance range.

Q:How has Global Blue performed in Q3, and what are the expectations for Q4?

A:Global Blue's volumes were up 5% in Q3, with year-over-year revenue growth of 19%. The company is content with this performance despite headwinds in Asia. For Q4, the company expects continued strong performance but acknowledges challenges like currency depreciation.

Q:What made up for the shortfall in Q3 despite headwinds, and what is the guidance philosophy going forward?

A:Customer adds, particularly in international markets, helped offset Q3 headwinds. The guidance philosophy remains consistent, focusing on data-driven decisions and balancing caution with optimism.

Q:What is the pace of processing conversion in Global Blue, and how does the company view its competitive position?

A:The company sees opportunities across SMBs and enterprises. SMBs are expected to convert quickly due to low friction, while enterprises will take longer. The company aims to provide a revolutionary product that integrates currency conversion and tax-free shopping.

Q:Can the growth in software revenue accelerate, and how does it relate to Global Blue volume conversion?

A:The company prioritizes payment volume as the primary source of monetization and is deprecating legacy software revenue streams. Growth in software revenue is not a primary focus, as the company emphasizes payments revenue growth.

Q:What is the company's approach to the share buyback program?

A:The company views the share buyback program as an obvious opportunity given the current valuation. They aim to buy as much equity as permitted within reasonable price ranges, leveraging their strong cash flow and liquidity.

Q:What trends have been observed in the Restaurant and Hotel verticals, and how do they impact the outlook?

A:The Restaurant vertical has shown volatility, with trends stabilizing and then softening again. The Hotel vertical benefits from diversification, offsetting some of the challenges in Restaurants. The company remains cautious but optimistic.

Q:How does the company view the competitive landscape in the U.S. and the Oracle Payments development?

A:Competition in the U.S. remains relatively unchanged, with Toast being a key competitor in table service Restaurants. The company partners with Oracle in the Hotel vertical and sees opportunities to support their customers.

Q:What is the progress on merchant conversion from prior acquisitions?

A:Merchant conversion is progressing well, with customer adds in Germany, the U.K., and Canada fueled by M&A assets. The company integrates acquired customers into its sales funnel, driving consistent progress.

Q:What are the puts and takes for volume growth into 2026?

A:Same-store sales volatility presents a challenge, while Global Blue offers significant untapped potential. The company expects early success with SMBs and longer-term growth from enterprise customers.

Q:How does the company plan to evolve the go-to-market strategy for Global Blue?

A:The company aims to efficiently serve SMBs across Europe while leveraging Global Blue's strength in serving large enterprises. They focus on cross-selling services to improve unit economics and provide high-quality service.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific pace and timeline of processing conversion for Global Blue's enterprise customers, as well as the exact impact of Jared's nomination on the company's operations beyond structural simplifications.

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Earnings Word Cloud

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

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