Shift4 Payments Inc

NYSE:FOUR

Greetings. Welcome to the Shift4 First Quarter 2025 Earnings Conference Call. [Operator Instructions] as reminder, this conference is being recorded. It is now my pleasure to introduce Tom McCrohan. Thank you, Tom. You may now begin your presentation.

Thank you, operator, and good morning, everyone. Welcome to Shift4's First Quarter 2025 Earnings Conference Call. With me on the call today are Taylor Lauber, our President and incoming CEO; and Nancy Disman, our Chief Financial Officer. This call is being webcast on the Investor Relations section of our website, which can be found at investors.shift4.com. Today's call is also being simulcast on X Spacers, formerly known as Twitter, which can be accessed through our corporate Twitter account at Shift4, our quarterly shareholder letter, quarterly financial results and other materials related to our quarterly results have all been posted to our IR website.

Our call and earnings materials today include forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of certain risks, uncertainties and many important factors. Additional information concerning those factors can be found in our most recent report on Forms 10-K and 10-Q, which you can find on the SEC's website in the Investor Relations section of our corporate website. For any non-GAAP financial information discussed on this call, the related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me turn the call over to Taylor.

Thanks, Tom, and good morning, everyone. We had another busy quarter, and it was great to see many of you at our recent Investor Day event in February. This morning, I'll provide thoughts on our first quarter results, key priorities that give us confidence in the years ahead and an update on our recently announced acquisition of Global Blue. I will then turn the call over to Nancy for a detailed review of our quarterly results and our upcoming guidance. Before providing the financial metrics, I wanted to provide some grounding on the growth drivers within the business, which are especially important during times of economic uncertainty.

We have strong product offerings across several large markets and are generally on a with the exception of restaurants where we are strong #2. We had world-class customers in each of these verticals, such as Aspen Hospitality, the Setai Hotels, Pittsburgh Pirates, Colorado Rockies, Formula One Miami Grand Prix and the PGA Tour. We also refused to leave our success to chance. As such, our M&A strategy has afforded us a massive collection of customers, whereby we can cross-sell our services. The Boston Red Sox, Herbert -- bakeries, and the AC Hotel Toronto are just 3 examples of this strategy in action, although there are many more, and we've highlighted a few of them in our materials, which you can find on our website.

Interestingly, though, these recent wins will matter more in the years ahead as the largest contributor to our current performance is generally the wins of last year fully seasoning. Those of you who can recall Jared reading what seemed like a yellow pages worth of wins from last year's earnings calls are now seeing the fruits of that in our results. As such, we posted strong Q1 results that were largely in line with our expectations and are raising our full year 2025 guidance to reflect our confidence in our ability to execute. Some highlights. Our volumes increased 35% year-over-year to $45 billion. Quarterly volumes were in line with our expectations with year-over-year growth modestly impacted by the timing of leap year in the Easter holiday.

We witnessed stable volume trends across all of our end markets and continue to monitor trends closely in light of the recently implemented trade policies. It should come as no surprise that we never count on an improving economy to drive our success. Gross revenue less network fees increased 40% to $369 million, a combination of stable spreads and subscription and other revenue resulted in our net revenue growing faster than our volumes. We are unlocking significant value from our recent acquisitions, and I will provide some additional details on topic in a few minutes. Adjusted EBITDA increased 38% to $169 million. We delivered 46% adjusted EBITDA margins, which were modestly above our guidance of 45%. Nancy will comment on our forward margin profile a bit later during the call.

And lastly, we delivered adjusted EPS of $1.07 per share. We are pleased with these results and are very excited to execute on our priorities for the balance of the year. I think it's important to note that these priorities are not new, but rather a continuation of what has made us successful for the past 26 years. Our first priority is to keep doing what's made us so successful in the first place. In the U.S., we are focused on adding new merchants while simultaneously expanding our share of wallet. In restaurants, we continue signing up new merchants onto our SkyTab offering and also introduce SkyTab Air, our latest handheld device that's going to be launching in the next few weeks.

It's something we're quite proud of, and I'd encourage you all to take a look at our shareholder letter for some details on it. I gave a few examples of wins earlier, but the product is scaling nicely across a variety of environments. For example, we signed all U.S. locations of Nandos, a fast-growing quick-service chicken chain that is expanding quickly in North America with plans to reach over 500 U.S. locations over time. This is replicating its enormous success already in the United Kingdom and elsewhere. In hospitality, we continue to add net new hotels and resorts, while simultaneously cross-selling our payments to hotels operating on our gateway. I mentioned Aspen Hospitality in the Setai Hotels earlier, but there are dozens of examples ranging from boutiques like the Nantucket Hotel, the large resorts, such as the Cooper in Charleston, South Carolina.

In stadiums, we are keeping our eye on the ball, puck, et cetera, across all major professional leagues and are partnering with organizations beyond the 4 major sports leagues. To that end, and I mentioned this earlier, we've signed the Formula One Miami Grand Prix and the PGA Tour, but also the Red Rocks amphitheater. Our second priority is unlocking synergies from acquisitions such as Revel, Givex and Eigen. We are already making progress across all of our recent deals with each effectively following the ship for playbook to a T. Across just these 3 most recent acquisitions, we have already achieved more than $20 million in EBITDA synergies in the first quarter.

Deals from many years ago also to continue to bear fruit, as I cited in some of the cross-sells that I mentioned earlier. As a reminder, our playbook is focused on identifying a unique capability critical to the commerce experience which we then bundle with our payment processing expertise. We are not buying a company simply to do the same thing as us and then drive cost synergies by removing overlaps. Instead, we unlocked meaningful recurring payment revenue by bundling our own payment capabilities with the unique and scarce technology capability we now own. Once we own this new capability and the talent involved in building it, we are inherently more competitive and win more new business in addition to the embedded cross-sell.

Some examples of this in action are Revel, which we acquired in June of last year. Revel already had a robust payments cross-sell funnel with over 7,000 locations going live on ship payments as of the Q1 close. Of note, many of these are chains, which was a segment of the restaurant market that was a unique strength of Revel. We have already incorporated many of these Revel capabilities into SkyTab, which make it naturally more competitive in enterprise. We have also integrated the product teams from Eigen to ship for. As a reminder, Eigen is a payment gateway we acquired in November of last year with a presence in Canada and the United States. We have already cross-sold payments to approximately 100 large Eigen gateway-only customers and are making significant progress in combining the gateways into a single 1 and deleting the Eigen part. The talent that -- Eigen now helps us execute on our platform road map much more quickly.

It should come as no surprise that the gift and loyalty capabilities from Givex are in the process of being fully integrated into SkyTab as our default offering. And we have cross-sold payments to approximately 100 Givex merchants since we've officially launched our cross-sell efforts just in February. We will also believe part as give gift and loyalty capabilities were far superior to our native offerings. As a reminder, we acquired Givex just a few months ago in November of last year. Last but not least, is executing on our near-term strategy while also thinking about the future. By taking what has made us successful for 26 years and replicating it all over the world, we can set ourselves up for success for decades to come.

As we shared at our recent Investor Day, we are currently operating in 6 continents, up from only 1 less than 2 years ago. We recently unlocked Latin America and are already in the process of signing marquee enterprise clients in that region. In Europe, where tightly bundled software plus payment solutions are less common, we are making tremendous progress signing up restaurants, particularly in the U.K., Ireland and Germany. Our momentum has picked up significantly this year, and we're now signing up over 1,000 restaurants a month internationally. These are the priorities that I believe will ultimately enable us to deliver on our financial commitments we may see you all and to drive meaningful, profitable growth over the medium term. Before turning the call over to Nancy, I thought I'd provide a quick update on Global Blue.

For those of you that possibly missed our February announcement, Global Blue is a market-leading payment platform, supporting tens of thousands of luxury brands worldwide, including Louis Vuitton, Erez, Valentino, Fendi product, Burberry, Cardi and many, many more. Global Blue operates a 2-sided payment network with over 15 million consumers utilizing Global Blue's quick and seamless mobile app when purchasing luxury goods at over 400,000 retail stores around the world. When shopping abroad consumers purchasing these luxury items are eligible for a VAT tax refund, which is facilitated by Global Blue. Global Blue also facilitates the option to convert purchases into the cardholders home currency, which is something known as Dynamic Currency Conversion.

The Global Blue business is an exceptional stand-alone business. The luxury VAT tax refund industry has proven to be highly resilient as affluent consumers wheel substantial economic spending power account for half of all consumer spending and hold an estimated $1.3 trillion in excess savings. We have high confidence in unlocking $80 million of revenue synergies from this transaction by the end of 2027, primarily to -- embedded payment solution with Global Blue's VAT tax refund and dynamic currency conversion capabilities.

We estimate the embedded payment cross-sell opportunity alone to be over $500 billion in volume. In addition, we continue to expect 2 of the world's largest fintech companies and financial and Tencent to remain shareholders in the combined business, and both of these wallet providers have committed to collaborate with us on e-commerce opportunities around the world. We are on track for an early Q3 close, subject to regulatory approvals. As I mentioned in my shareholder letter, we have a track record of growing volumes during the most challenging of economic times. Since the company was founded, we have successfully grown our payment volumes every year, including during COVID and the great financial crisis of 2008 and 2009.

We have experienced 5 recessions in the past 26 years, and we have grown our payment volumes in every single 1 of them. I hope that by understanding our strategies that I just highlighted, it becomes obvious to you all that in many ways, we welcome uncertainty. We thrive in times of uncertainty and because it's our operating model, product lines, unit economics and enormous cross-sell funnel all become more valuable when the future is uncertain. That's not to say we operate with rose-colored glasses. And in fact, it's exactly the opposite. We operate out of an abundance of caution and a mindset of paranoia. We are never complacent and constantly finding ways to evolve. With that, I'll turn the call over to Nancy, who will outline our 2025 financial guidance and key other stats for the quarter. Nancy?

Thank you, Taylor. We delivered another quarter of consistent and solid results in line with our expectations, setting new first quarter records across all of our key performance indicators. Volume grew 35% year-over-year to $45 billion. Gross revenue less network fees grew 40% to $369 million, and adjusted EBITDA grew 38% to $169 billion. Our Q1 adjusted EBITDA margins were 46%. We expect our margins to march higher as the year unfolds, and we unlock synergies from last year's acquisitions. Excluding the drag from these recent acquisitions, adjusted EBITDA margins would have been 50%. We will also benefit from higher levels of operating leverage as the year progresses and we add incremental payment volumes from cross-selling and working through our existing backlog.

Our Q1 blended net spreads were 61 basis points, in line with our guidance for spreads to remain stable with 2024s exit rate. Importantly, spreads across our core business also remained stable, and we still expect full year 2025 spreads of approximately 60 basis points. Subscription and other revenue was $93 million in Q1, up 77% compared to the same period last year. The growth was once again driven by our success across SMB, SkyTab and further penetration of the sports and entertainment vertical as well as contribution from recently completed acquisitions. The sequential moderation from Q4 levels was as expected and due to ongoing depreciation of legacy revenue from recent acquisitions.

Q1 organic growth revenue less network fee growth was in line with our expectations, and we are on track for 20% plus organic revenue growth for the full year. Our adjusted free cash flow in the quarter was $71 million, representing 42% adjusted free cash flow conversion. As a reminder, during Q1, we made our first cash interest payment of [ $37 million ] on the debt we issued last August. These cash interest payments will occur semiannually in Q1 and Q3. For illustrative purposes, excluding this incremental interest payment, our adjusted free cash flow conversion rate for the quarter would have been 64%. We are on track to deliver over 50% adjusted FCF conversion for the full year.

During the first quarter, we repurchased approximately 686,000 shares for $63 million and month-to-date in April, we have deployed an additional $85 million of capital to repurchase approximately 1.1 million shares against our remaining available capacity. You can find a complete reconciliation of our share in the back of our earnings materials. GAAP net income for the first quarter was $20 million and GAAP diluted EPS was $0.20 per share. Non-GAAP adjusted net income for the quarter was $99 million or $1.07 per share on a fully diluted basis.

Beginning this quarter, we are now adding back acquired intangible amortization to non-GAAP net income and EPS in line with our industry peers. Our total indebtedness now has a weighted average cost of 3.4%, and our net leverage at quarter end was approximately 2.4x. We have a strong cash position with $1.2 billion of cash and cash equivalents as of March 31, and we remain well positioned to pay down the $690 million of convertible debt maturing in December this year. Now turning to 2025 guidance. We are updating full year financial guidance and introducing Q2 guidance as follows.

For the full year, we are raising gross revenue less network fees to between $1.66 billion and $1.73 billion, representing 23% to 28% growth. We are raising adjusted EBITDA between $840 million and $865 million, representing 24% to 28% growth. For the second quarter, we expect gross revenue less network fees between $405 million and $415 million with adjusted EBITDA margins of approximately 50%. A few items to highlight, as it pertains to our outlook for the rest of the year. As Taylor mentioned, we continue to see signs of stable consumer. Spending trends in Q1 were largely in line with what we saw exiting 2024 with a slight deceleration largely attributable to leap year and other seasonal factors.

Since mid-last year, we have seen fairly stable trends in same-store sales with some choppiness month-to-month within a very narrow band. We remain cautiously optimistic on the health of the consumer, but our guidance and outlook does not rely on any improvement or recovery from current market conditions. Reiterating what Taylor outlined, Shift4 has a proven track record of resiliency in uncertain times, and we are better equipped than ever to deliver strong results. With that, let me now turn the call back to Taylor. Taylor?

Thanks, Nancy. Before turning it over to the operator for Q&A, I thought I'd provide a few thoughts regarding the forthcoming CEO transition. We are eagerly awaiting the U.S. Senate to officially vote on Jared's nomination to head NASA. And assuming approval, the Board will execute a CEO transition plan where Jared will step down as CEO and from the Board and the Board will vote on my appointment.

You should all be aware that the Senate Ethics Committee did not require Jared to divest any of his Shift4 shares. Jared will remain the largest shareholder of Shift4, which was something we're really excited about. Once the Senate votes on Jared's NASA appointment, he will convert all of his B and C shares into Class A, relinquishing his super votes and owning approximately 25% of the outstanding Class A shares. Going forward, we'll have the same 1 share 1 vote privileges to all the other shareholders. And with that, I'll turn it over to the operator for Q&A.

[Operator Instructions] Our first question is from the line of Rayna Kumar with Oppenheimer.

And the results here. How would you describe the competitive environment in international markets that you're targeting? It seems like there's a lot of U.S.-based payment companies that are focused on the same thing. What do you think gives Shift4 an edge here?

Yes. Thanks, Rayna. And it's a great question. I'll be honest, the international opportunity is something we identified as far back as kind of, I don't know, 8 years ago. The phenomenon we experienced internationally is that it looks like the U.S. did, call it, 15, 20 years ago. And what I mean by that is you've got kind of 3 different industries, all evolving in parallel to one another without much convergence.

And what I mean by that is you have software companies, building software to support merchant environments, you have hardware companies to help create the fulfillment experience and then you've got like largely traditional banks fulfilling the payment experience. And none of them have done a lot to help these 3 things converge for the benefit of the merchant. Now why we saw the opportunity is because it's exactly the opportunity that Jared and the team identified 20 years ago in the United States, that's when they created the Harbortouch brand that bundled all these solutions together to make life easier for the merchant and eliminate multiple vendors.

So I could give you a long history on some of the technical reasons it's taken us long to get here, but they really -- there's no excuse for them existing today. So it's not a surprise to us that if you have the right localized solutions, and that means like local settlement, accepting local payment methods paired with good software, merchants are kind of clamoring for it. I think we gave the stat that about 1 in 4 of the merchants joining Shift4 today are coming from outside the U.S. And it's simply riding a wave that we saw 20 years ago in the United States. And to be frank, that's like only a handful of markets that we're actually addressing at the moment. The rest of the world, there's a long way to go in this regard.

The next question is from the line of Darrin Peller with Wolfe Research.

Nice results here. Can we just touch a little further on what you're seeing in the market more broadly into April, what you're seeing and what you're including in the assumptions for guidance given the conviction you had around your guide here, just really passing through the beat. And then just remind us, I mean, same-store sales, generally, I know you don't typically incorporate much in the way of same-store sales as part of your outlook for volume. But maybe just remind us, if you don't mind, the building blocks that give you the conviction in the outlook still despite what's pretty uncertain macro times.

Yes, sure. I'll start with kind of the themes that we're seeing and then Nancy can talk to how that gets incorporated into our forward-looking views. But I think it's going to be relatively undramatic, which is that what we're seeing is more of the same. And by more of the same, I don't just mean kind of the beginning of this year continuing through. I mean, like the last kind of 12 to 18 months have looked very consistent across our merchant segment.

And that is to say you've had restaurants with very modest same-store sales compression. And I mean like 1%, and it's usually bouncing between 1% and 0 over a year now. You've got hotels that are generally bouncing somewhere between minus 1 and positive 1 or 2. And then you've got retail, which for us is a smaller segment of the business, but that varies a little bit all within that same bound. So the fact that even with recent sort of a lot of political rhetoric going on recently. We're not seeing meaningful change in consumer behavior suggests that it stayed the course from our perspective. But you alluded to this, we generally don't spend a lot of time looking at same-store sales.

We put some kind of information in our earnings materials because I think the capital markets get a little bit ahead of themselves in terms of trying to predict things like consumer spending, when in fact, it's immensely varied across categories. Even within restaurants, consumers tend to typically go out even in difficult times, they just spend a little less on doing so. So we put some data points in the resiliency we've traditionally seen in the business, which is that sign-ups generally grow during tough times, even if consumer spending is a little bit modest. But we're not really seeing that. Nancy, if you want to kind of elaborate on how we kind of build the go-forward forecast with the current outlook?

Yes. And I think Taylor captured it well, and I picked it up in my prepared remarks. But the 1 point I would emphasize is the volume bridge that we've shared with you all at Investor Day, very little impact in any given year is from what we signed a year, right? So we're not dependent on kind of new grabs in the market and a win rate. So I think that's like supplements what Taylor said, like the in-year achievement of anything we find this year is the smallest component of any revenue bridge that we do and so much of our embedded volume, and the annualization of what we already signed is going to achieve and really inform the forecast for the rest of the year. So again movement, plus or minus 1% is really going to have almost an impact on our forecast going forward.

And that's really helpful, guys. Just a quick follow-up with just where we are on the -- I mean, it was good to see the synergy update you guys provided, but to us, it's still more of a cross-sell revenue opportunity that really drives your idiosyncratic ability to grow so well in various macros. So where are you on, whether it's Vectron or it's Revel or others. Just give us a quick update, if you don't mind, on what you're seeing the most momentum with in terms of obviously turning into revenue from what you obviously bought over the past years.

Yes, sure. It's like choosing which child is my favorite or something. I'm not going to do it. But I will tell you that we are at varying degrees of kind of success in pulling the levers across each 1 largely because of when we started to work with the assets. Revel, we mentioned this in the prepared remarks, really, really nice cross-sell payments into that existing software base. Phase 2 of that plan is that those merchants over time migrate to SkyTab, but it's been going really, really nicely.

And the Revel team has been able to contribute meaningfully to our SkyTab development pipeline. As you can imagine, with kind of the number of customers we're winning, the number of geographies we're trying to tackle and simply the sheer breadth of customers are trying to serve within restaurants, the talent is incredibly important to us. And it's not to be overlooked. I think too often in our industry, people think about M&A as a talent reduction strategy. That is not how we approach M&A. We approach M&A with the purpose of kind of attracting good talent towards problems we were struggling to solve before the transaction began. So Revel is doing really nicely in that regard.

Vectron, I think you're probably seeing kind of the green shoots of this inside of our international growth statistics that we've shared. It took quite a while to kind of get that business where we wanted to be for some procedural reasons. We actually don't control the business today. We expect to very, very shortly. But it's contributing nicely to production today. And then Eigen, it's a playbook we knew extremely well, right, a $30 billion-plus hospitality-oriented gateway, but we really didn't close on it until November.

So all of them are kind of at like the right stage of their evolution with maybe a modest concession being international has always taken longer than we expected, and we're very mindful of that when we try to set go-forward expectations. And it's not that the playbook is misunderstood. It's not that execution is challenged. It just takes longer to kind of get operational control and to affect the change we want to affect.

Our next question is from the line of Adam Frisch with Evercore ISI.

Quick question for you, Taylor. On the 40% -- growth in the quarter, what was organic and inorganic the way you guys define it? And then I have 1 quick follow-up.

Yes, sure. And so I think Nancy alluded to this, we generally don't provide quarter-to-quarter mainly because acquisitions provide a lot of noise. There's acquired revenue we're parting ways with. There's synergized revenue coming in very quickly. I will say we set the expectation that for the year, organic revenue growth would be -- would be north of 20%. We are exactly on track with regard to that full year metric.

Okay. Cool. And just 1 follow-up. Good to see some nice wins here in hotels and stadiums. I wanted to dig in a bit to the conversion figures on Page 16 of the deck. New wins are on the right side of the page and some relatively low but very early initial conversion numbers are in the middle. Does that imply that you're still selling under different brands while also consolidating the underlying back book?

Generally, we don't sell under multiple brands. And I think I'd encourage folks to go back to -- Luke gave a really good kind of M&A walk through in our Investor Day to highlight the brands we acquired versus the brands we go to market with. So generally speaking, no, we don't go to market over multiple brands. In certain cases where the product is well entrenched. And we don't have those capabilities, like a Vectron in Germany. We are not selling SkyTab in Germany today. We're selling the Vectron product and hope to be able to introduce SkyTab over time. So no, generally speaking, it's our payments bundled with -- it's either SkyTab, it's either our payments platform or it's our stadium software that any of acquired merchants are being converted into when we buy the business.

And I wouldn't sort of look at each 1 of those numbers as homogeneous, right? So whether it's a Revel customer being converted over or a Givex customer or an Eigen customers. They're all very different in terms of size of merchant and the number of dollars and effective spread you get on all of them. So we're very pleased with the pace of progress we made across all of them. I don't want to set the tone that we think this is kind of too slow or too fast. It feels all very adequate to us.

Okay. Yes, that's why I was asking because the presentation at the Analyst Day was 1 thing and then I saw all these marquee wins on the right, which was a little bit -- I just wanted to square that. So it seems like initially, you're still selling under those brands, but the goal longer term is to consolidate everything, so you don't have to do that, and then it makes the conversion easier. Is that the right playbook to think about?

So in most cases, it's actually -- go after the existing customer base. So it's not even a selling against a brand, it's bundling payment processing within the customer base that's been acquired. When those sales teams are going and finding new customers, they introduce exclusively Shift4 products. But again, it's not lost on us the quickest and most immediate opportunity inside of an acquired business is generally tens or hundreds of thousands of customers that are using just 1 piece of the payment solution and we can offer the.

The next question is coming from the line of Timothy Chiodo with UBS.

I wanted to touch on the backlog disclosure of the $35 billion. That's up from the Q3 earnings that was a $33 billion number. I want to talk a little bit about what's implied in the guidance in terms of the in-year volumes that will come out of that. So I just wanted to see if our logic was accurate. We think about that $35 billion as most of it led to be implemented this year, maybe not all because some of it requires waiting for a current contract to expire, maybe more on the ticketing side. But if you were roughly able to take maybe $25 billion to $30 billion of that and have it implemented this year and you think about a midyear convention, you can pretty quickly get to sort of a low to mid-teens, billions of volume contribution for the in-year fiscal year 2025. Is that a rough way to think about it? Or is there anything that you would guide us to maybe higher or lower any other nuance to call out?

Yes. No, I think that's the right way to think about it. Generally speaking, if you're in our backlog, you either have been installed, and we're waiting for the annualization impact or you are highly likely to be installed over the course of the next 12 months. It's the rare exception, although we've had some success in this regard of the multibillion-dollar enterprise that takes kind of longer than, I call it, 9-ish months to fully implement, although we have named a few of those in the last few quarters.

But yes, I think that number is a number we have confidence coming in largely throughout the year, although keep in mind, those customers still have yet to annualize the next year, right? So we still expect kind of the lion's share of an implementation this year to annualize in the following year, if that makes sense.

Yes, it makes a ton of sense. And the minor follow-up is, is it fair to assume that ticketing is a meaningful portion of that $35 billion? Or if you could just put some context around some of the categories in there?

I don't think it's a disproportionate portion by any stretch of the imagination. I think if you look at the past kind of handful of quarters worth of enterprise wins. You've got more than a few that are multibillion dollars just themselves. We obviously have on ticketing. This will be a big year for seasonalizing ticketing. That's for sure because we've activated a lot of ticketing customers in the last year. We had the contribution of appetite customers. And those customers are seasoning and will give us a full year in '25. But I wouldn't say it's a disproportionate amount of the backlog.

The next question is from the line of Jason Kupferberg with Bank of America.

This is Mosten on for Jason. I wanted to ask about international as well. I know it's still kind of early days, but can you provide any color on the current revenue split between U.S. and international and where you see that mix evolving by the end of the year? And also just given the number of countries you're in now, which market outside of the U.S. is your largest in terms of revenue contribution?

Yes, sure. I'll -- I know we have some disclosures around international revenue contribution, which is largely the -- largely comes in the form of e-commerce business that has seasoned for a little bit plus all these sites were adding. I'll say -- and I made this comment in my prepared remarks, the contribution of merchants added in year tends to be less significant because they give you, by definition, on average, about half a year's worth of revenue.

So we're not expecting a meaningful contribution. Although we do think this is a meaningful priority for the business so that 3 to 5 years from now, we have sufficiently kind of planted the flag to capitalize on the software plus payments convergence that's going on in the rest of the world. There's kind of 2 flavors that's taking on at the moment. There's enterprise customers that we're enabling in lots of different geographies. I mentioned this that recently, but I'd love to repeat it because I think it just speaks to the speed within which we can operate when we have conviction that Shift4. We were in 1 country like 18 to 20 months ago, and now we're facilitating payments in over 50 for certain customers. That's 1 element, enterprise customer enablement all over the world.

And then the other is SMB product plus software plus payments bundling that we're delivering in a handful of markets that we think are really ripe for that and expanding the markets much more methodically. We have a joke called beer drinking countries before wine drinking, but I think it helps allude to the markets we're operating in, in kind of an elegant way, which is like U.K., Ireland and Germany are all really strong for us at the moment. And then we expect to expand into those wine drinking countries, Italy, Spain, France, when products are better localized for them.

Our next question is from the line of Andrew Harte with BTIG.

Taylor, I try to hear how consumer spending is holding up okay. I guess can you talk to us a bit about how growth is balanced between net new and cross-sell. But then I guess if we think about a scenario where macro does become a bit more challenged, how much harder can you press on the cross-sell funnel, thinking about kind of a stick versus card approach here?

Yes, sure. I'd love to tell you that there's like a scale we have in the back office and that we weighted according to net new wins or cross-sell when it's most important for us. The reality is, it just simply doesn't work that way. M&A tends to give us of very quick access to lots of customers that, in all honesty, would likely not answer the phone. If a payments company or a software company, we're calling them with a solution, they'd likely just say, "Hey, we're content and there's no reason to look at this right now." So M&A gives us access to a wide swath of customers that is incredibly valuable at all times.

It also gives us capabilities that when bundled tightly, and we get to delete all these parts and deliver a single cohesive solution makes us more competitive on a net new basis. I would say in the most in the most normal of times, meaning modest economic growth, not a ton of uncertainty, you tend to have a mix of about half and half, where lots of customers are joining us off the street, but there's also this cross-sell. When times get tough, people answer the phone far less frequently. And we tried to give evidence to this on a resiliency page we put in our earnings materials and the cross-sell becomes invaluable.

These customers are only going to listen to the vendors they're already working with. They're actively looking for ways to consolidate make life simpler, save money, et cetera. So again, I want to be very specific. We are not predicting the economic environment ahead. We feel quite content with our ability to operate in a variety of economic environments, including those that are less rosy from a consumer spending standpoint. It's that cross-sell funnel that, to your point, does become more valuable when times get tough. But it contributes as do net new wins, very consistently when times are less tough.

That's helpful. And then nice to hear the commentary on spreads expected to be consistent around 60 basis points for the year. I guess if you look at the chart on Page 6, it looks like there's actually some expansion in the restaurant vertical. I guess, is that related to SkyTab success or any details you can share there?

Yes. I think it's a little bit of everything. We've got SkyTab success. We've got just the mix based on size of merchants, which will always lend into that spread, really a lot of stability around that legacy base that we keep talking about. So I think it's really the combination of all 3 that has allowed us to kind of maintain and inch up spreads in that category.

Our next question is from the line of Andrew Jeffrey with William Blair.

I appreciate you taking the question today. Taylor, I wanted to see if you could drill down a little bit on Global Blue recognizing that the deal hasn't closed. I guess a couple of questions. One, one of the things we've heard from investors is just for questions around sort of the goodness of fit the existing business as well as your confidence in the ability to cross-sell into that big $500-plus billion or captive volume base. And more pointedly, perhaps the $80 million in synergies by $27 million feels like it's related to -- or assumes a relatively low proportion or percentage of that addressable volume is monetized. Could you talk to both of those things?

Yes, sure. And I can understand kind of the juxtaposition there and the questions it raises among investors. Maybe just to help clarify, the set of capabilities that Global Blue possesses are extremely rare for the merchant verticals they serve, and they're very valuable. And so we see a tremendous opportunity in owning that set of capabilities and again, having just a much wider offering with a lot of components that very few people possess being able to deliver it into merchant categories.

With that being said, it is a phenomenal stand-alone business, and we actually don't need to count on much in the way of revenue synergies for it to be an incredible pro forma contributor to Shift4. So what we delivered to the Street in terms of expectations are, you can actually -- you can forecast a modest degree of decellerization in their core business and replace that with incredibly modest cross-sell synergies and still feel really good about the combined business. So that's the -- those are kind of the facts, right? You can feel good about our ability to execute against this business and that the capabilities are exceptionally rare. And the merchants they serve would highly unlikely ever answer the phone, if someone called them to try to approach them with a net new solution.

And now we have this incredible foot in the door. That's really, really valuable. It also underpins all of our international expansion. I would think maybe the subtext to all of this is we wouldn't deploy the kind of capital we did, which is the largest transaction in our history without having incredibly high conviction that we can do better than that set of circumstances that I laid out. So I think you should look at the dollars we deployed as kind of our conviction in the theme, and you should look at the expectations we set financially as even a really modest to poor execution against our game plan yields a pretty damn good result.

Okay. And just specifically on the revenue synergies any implications for sort of the percent of global blue volume that you're converting? Or how do you come to that number, I guess, might be the...

Yes, sure. So we segmented their customer base, and we basically took the largest customers and said, assume we win less than 10% across that merchant population. And in some cases, less than 4% or 3%. In other cases, we said like their SMB population, we think we can, I don't know, 1/3 very, very comfortably and that's still honest expectations. So hopefully, you're calibrating, we've traditionally done a really good job of cross-selling into these businesses. We're not trying to set an expectation for ourselves inside of this.

We're simply saying below average execution against the shift for playbook against this world-class base of customers yields a result like $80 million. And that could even account for some softness in luxury retail, which we have no reason to believe we just like to be conservative in that regard. So again, very modest conversion expectations across that base set to the Street. But I think the dollars deployed means that we think we can do better than that.

Our next question is from the line of Andrew Bauch with Wells Fargo.

Nice set of results here. I just wanted to double click on the software and other renew line. It downticked slightly in the first quarter relative to the fourth quarter. I'd assume some of that is attributable to deleting the parts. But if you can give us a sense on where that line kind of trends through the remainder of this year would be super helpful.

Sure. And you really hit on it in your question. When you look at kind of that decel, it is from blowing up the legacy models. And from a guidance perspective, to give you some idea, we will still see growth as the year goes on, but it will be decelerating if our plans kind of hold with slowing up the legacy models. We're definitely going in on some of these new deals with a little bit more of the stick approach than it took us on the gateway. So I would say that's what you should expect over the course of this year, if everything trends the way that we anticipate.

Got it. And then just my follow-up would be on the EBITDA side. Getting some questions this morning is that the right idea to tick up the guidance amid the macro, albeit your ability to navigate the macro is obviously better than most. But maybe if you can just give us a sense on like what manifested in the quarter to kind of give you that added confidence?

Yes, sure. I would say the quarter played out largely within our own expectations. And despite kind of the ton of noise we're hearing on a macroeconomic basis, we're seeing very little impact to consumer spending. So it would seem imprudent not to kind of continue to forecast the business on the pace that we have. And then that's not to say we haven't kind of thought through the impact of tariffs, and we haven't thought through the impact of kind of tariffs within our merchant base, on a merchant-by-merchant analytical point of view.

We spent a lot of time on this. We're just not seeing it in the data. And I understand that, that can be confusing because there's lots of different data points that we see out there. But generally speaking, day-to-day spending across our merchant population and throughout kind of spring break and everything else looks exactly as we would have expected it.

Yes. And I would just add that we continue to be incredibly focused on expense management. So our state flat kind of culture within the company is still going very strong. And we have a really detailed line of sight to the synergies that are left to be realized within the acquisitions we completed last year. So that certainly informs EBITDA as we look ahead for the rest of the year.

Our next question is from the line of Dominic Ball with Redburn Landing.

Taylor, Nancy, Tom. So Shift4 expands internationally, is there any material difference in take rate versus U.S. merchants? I was just trying to understand the path is all reaching your 60 bps net take rate or lender spread target by year-end. As you also expanded to U.S. enterprise merchants with a little bit lower take rate? And then just a quick second 1 there for international growth, has there been any challenges in terms of like educating the local sales partners in the international markets that maybe are not used to selling integrated software payments?

Yes, it's a great question. And I'll say spreads vary sort of very much country by country. So we would expect in international markets, and this will kind of allude to the second part of your question that you're kind of -- you have to ascribe value to multiple pieces of the chain all at once because merchants have traditionally had to buy each 1 of these things individually. Said differently, you might have a little bit more on software, a little bit less on payment volume. The reality is you're selling a bundled products, you're not -- you don't care as the delivery of that product, but merchants are kind of more attuned to look at 1 line versus another.

And so to your point, yes, you have to educate the market. You have to educate the market on -- at the enterprise level, by the way, we were first doing this in hotels 6 years ago. It was -- this isn't just a conversation with the CFO about Payments read. It's also a conversation with the CTO about the gateway and the implementation costs of connecting all of this software in your environment and the hardware implementation, et cetera. So there's certainly education that has to be done. Although the value prop is screaming very loudly to these salespeople that they can win a heck of a lot more when they're delivering these types of solutions. So this is a little bit for both your and my time with Shift4.

But 20 years ago, Jared was introducing the payments ISO community to the software called Harbortouch and explaining that, "We'll take care of the technical aspects of the sale. But if you can introduce this product to a merchant, you're going to attract higher-quality merchants." They're going to stick around with you longer. They're going to ascribe a heck of a lot more value to it than they would have payment terminal alone. So education is a part of it, but I think the early kind of green shoots of that are 1,000-plus merchants a month, in particular geographies very, very quickly. So it's something that we're used to, and it's something that we predicted the markets would embrace.

That's great to hear. And if I can maybe just ask a quick 1 on the SkyTab, which own super interest central restaurants. I mean how do you guys see this positioned versus maybe other major competitors out there? And do you see this as a material sort of driver in terms of new restaurant wins? Will it help in maybe less churn? And is it going to be charged directly or bundled within payments?

Yes, sure. So we consider this an extension or kind of the next evolution of everything we've been doing in restaurants for a very long time. Keep in mind, these Harbortouch examples I've cited a few times on this call. They go back to the mid-2000s, and that's really when our presence in restaurant technology began. So we're very proud of SkyTab. We think restaurant operators are going to love it. It is by no means the first wireless handheld we've introduced into the restaurant environment. It's a new form factor. It's sleeker. It's easier. It's battery lasts longer. It charges faster. It's got more POS functionality inside of the device than previous versions. It's got a lot more cellular redundancy than previous versions.

So we're incredibly excited about it. We think it will keep us winning at the pace that we're winning at. I will say, though, international markets tend to favor the handheld, more so than the workstation. It's just the nature of it. It will traditionally be priced as per software device per month, and it does cost less than the workstation generally speaking. So we expected to have a lot of receptivity. But international is probably my guess would be the international restaurants picking more wireless and fewer workstations in their implementation than in the U.S.

Our next question comes from the line of Matt O'Neill with FT Partners.

Just curious, I recognize the Global Blue deal is by no means closed yet or contemplated in the guide. But given some of the changes or eliminations of guidance from airlines and some other macro dynamics. Wondering if you could just give us a view on kind of how the Global Blue business is faring in Q1 and maybe into April?

Yes, sure. So keep in mind, it is a business dependent on international travel, but it's pretty well diversified inside of that, meaning that when 1 country -- when travel from 1 country weekends, it tends to favor another country that fills the gap. So not huge changes in the way they're thinking about the business inside of Global Blue. And I think there's some international travel trends that look reasonably promising through the summer.

I will say FX rates play a quicker impact on their business, meaning that if one FX rate pair changes meaningfully, it does change the way the consumer in the store thinks about how much they're willing to spend, typically to the benefit of another FX pair somewhere inside the business. And then there's some offsetting effects given the fact that they've got their own dynamic currency conversion product that operates somewhat differently vis-a-vis those. So this is evidenced by the way, by the fact that they've had kind of a multi year history of some reasonably large shocks to the business, whether it was the U.K. leaving, whether it was the Russian traveler kind of sidelined or whether it was the Chinese traveler not spending as much as they would in his periods. Global Blue kind of grew throughout all of that.

So we feel good about the business, but these are certainly trends we're trying to get our arms around as we prepare to take ownership of the business. It will largely manifest itself in, will the U.S. traveler spend less time traveling abroad and therefore, more time traveling domestic and how does that play through and/or will the Asian traveler kind of fill that gap or not? These are kind of the questions we're asking ourselves. But Jack and the team have run that business exceptionally well through much bigger shocks than what we're seeing today. And so we feel really good about it.

And maybe a quick follow-up for Nancy. I believe you had alluded to this at recent conferences, but the timing of interest expense on the $1 billion plus new notes. So we saw that in Q1 here, and I believe that's a semiannual so now it's a 1Q, 3Q dynamic. Is that right, Nancy?

Yes, that's exactly right.

Our next question is from the line of Jamie Friedman with Susquehanna International.

And you look smart in retrospect the way you structured the guidance. I think that needs to be set. So I had 2 questions. I'll just ask some upfront. Taylor, I realize you said in your earlier response that you don't have a scale in the back room to weigh the contribution of the funnel. Looking at Page 15, though, when you look at the $900 billion between the $1.4 trillion of total funnel and the $500 billion of cross-sell, I'm just wondering, can you help share how you think about that layering into the 3-year guide. Was there anything contemplated about the conversion funnel in the 3 years? And then my second 1 just dive upfront. Any callouts about Canada because a couple of your competitors and peers are discussing Canada macro?

Yes, sure. Canada seems to be a controversial place these days, although I'm not sure why. It's been a solid contributor for us. Keep in mind, us first developing our payments capabilities in Canada at the beginning of last year, and then we acquired Givex, Eigen both with meaningful merchant populations up there. So it's been a good contributor for us. Obviously, the contribution of Canada is accelerating. But I think that's a byproduct of us not really being in the market. So we don't spend any time thinking about kind of average merchant locations spend or spreads or anything else.

We're simply trying to sign up the customers that are trying to give us the business. In terms of thinking about the contribution, the $80 million of revenue synergies that we called out at the announcement of Global Blue, that is explicitly within our 3-year expectations. Although it also contemplates and not because we're smart about this, we just think it's prudent. It contemplates some slowdown in their stand-alone business. As a result of us not being good enough to predict it. So yes, we contemplate the $80 million of revenue synergies from the business.

I will say, I think that's conservative, although I think it also assumes some volatility in their end markets, which is just prudent. We're a new steward of this business. And so I think it's important to set that expectation. In terms of the rest, I mean this very sincerely, we don't think about them on an individual basis. What we do when we acquire 1 of these businesses now is we simply say, restaurant. Okay, what is the value proposition we can deliver to a restaurant. And I don't really care whether that restaurant came from Eigen or Givex or Revel, et cetera. Similarly, with hotels, now with luxury retail and e-commerce.

I think the investment community quite frankly, just gets itself too wrapped up in predicting an individual success rate against every single deal versus looking at the big picture and saying, wow, even something like Shift4 that they acquired back in 2017 is still contributing gateway wins. That means the strategy works. And the obsession over, was this a net new or was this a gateway win, I think it's a little just overdone given the fact that our cross-sell funnel is so big that if there were never a net new win, we do just fine and vice versa, there were nothing but net new wins, we would be doing just fine.

Our next question is from the line of Jeff Cantwell with Seaport Research.

A couple of follow-ups. First quick question on your guidance for gross revenue less network fees using the midpoint. You raised the full year to 25% to 26%. So my question is, what's changed in terms of how you guys are thinking about growth for the full year by vertical amongst restaurants, hotels and entertainment, et cetera because the guidance raise for the full year implies you're staying confident despite the macro sharing there here. So wanted to get a sense of where you're seeing more strength amongst the different verticals I should think about how you see your revenue playing out over the course of the year. I was hoping you could maybe underline that for us.

Yes, sure. I'll hit this. We're not predicting any real change in the economic health of our sub verticals that we serve. We obviously have increasing confidence on the international contribution of the business. We're just signing up lots of customers there. I will say where I think kind of the Street has it wrong is like a disruption to international travel or international travel becoming more expensive, is not bad thing for the Shift4 business.

We saw this, by the way, in the pandemic, where international travel was basically prohibited. And what happens, everyone traveled more domestically. And so the imbalance of foreign travelers coming in was ballasted by domestic travelers not leaving the country. So I think it's certainly too early to tell what the medium and long-term impacts of some of the tariff commentary and implementation is going to be, but we don't see any immediate trends across our business that we haven't seen over the past 18 months. And there's no 1 vertical that's like incredibly robust and/or impacted by what's been going on.

Got it. Got it. And another follow-up just on Global Blue on Matt's question. Maybe could you elaborate a little bit about the level of companies you have in terms of the outlook for Global Blue related revenue, just given all the macro uncertainty, is there anything about Global Blue more cautious on? And maybe on the flip side, yourselves becoming more positive about versus back when you gave us your initial thoughts on Global Blue back to the Investor Day. Thinking about certain corridors for travel like China into Europe, even maybe inbound into China. There could be potential upside there. Just curious if you can walk us through how you view Global Blue? And the puts and ticks there given obviously much change with respect to macro since you last spoke with us.

Yes. The more time we spend with the team, there's like a ton of cultural alignment between how the team at Global Blue thinks about running their business and how we've traditionally run ship for, which is there are things within their control and there are things outside of their control. We can't control how many diners visit a restaurant. We can certainly control how many restaurants we sign up. And they feel, by the way, the same way about international travel versus enhancing the product experience.

So the emphasis on their business over the past kind of 5 years has been an incredible focus on digitizing the consumer experience so that more refunds happen because it's easier to affect a refund. And the results of that strategic approach has been that the business has ballasted some of the largest shocks you could contemplate whether it was the U.K. leaving the VAT or the Russian travelers being sidelined or the Chinese travelers spending less and traveling less that I mentioned earlier. So very much like ourselves, Global Blue is really, really good at knowing what they control and focusing exclusively on that.

And the results of that are that in really tough times. They do a heck of a lot better than expected. I think we tried to give evidence in our earnings materials here that in really tough times, we thrive because signing up merchants is something we do really well, predicting the day in, day out volume and emergence, not something we actually spend a lot of time on in that respect. So culturally, I think they're very aligned to kind of how we think about winning. You're going to win on customer sign-ups and product competitiveness. And I will say -- and this is kind of what compelled us to pursue acquiring the business very recently is that there's a heck of a lot more ballast inside of the business than anyone would guess looking from the outside in.

Evidenced by their performance through some of these idiosyncratic shocks that they tend to just plow through and do a good job and produce a good financial result despite that. So we're incredibly excited. We hope that in early Q3, we will have a closing, and we can march towards like a combined offering and a combined team, but we've got to let the regulators do their thing.

Our final question is from the line of Andrew Schmidt with Citi.

Sorry if you've already been asked. But just first 1 just on pricing. Maybe just give us an update in terms of just the pricing environment, what you're seeing across the segments? And then the corollary to that question is if we do see -- obviously, there's more kind of like uncertainty out there, what's your expectation on the enterprise side? Sometimes you see some belt tightening when these contracts come up for renewal and things like that. I'm just curious to get your thoughts on that front?

Yes, sure. I'll put enterprise aside because I think they're very consistent in how they operate. They demand a heck of a lot of value for the -- from their vendors, and we endeavor to deliver that. So when we engage with an enterprise merchant, it's typically on a new basis, it's like, no, don't look at your payments invoice, look at like the 6 or 7 other invoices. They're involved in facilitating the experience, and that will all come to you in the form of a take rate we think is attractive and 1 throat to choke via our delivery model, and you're going to eliminate a heck of a lot of administration and expense as a result of that. So putting enterprise side where I think we're priced competitively for what we're delivering, but we're delivering something that is of more value than most of our peers.

In the SMB segment of the marketplace, keep in mind, we do try to have a more variable cost model for our merchants than a fixed cost model. Our SaaS is very, very low compared to others in the industry. Our spreads are generally the same, if not a little bit above that. And that's the trend we've lived with for 20 years. So there's nothing new with regard to how we're approaching the environment. I will say, and I think some competitors of ours made headlines a year or 2 ago with their pricing moves that when times get tough, pricing is something merchants focus on a lot. And our model, I think, serves us well in that regard. I won't say that merchants are paying -- merchants are focused on price in a prudent way that they have been for the last few years, but I wouldn't say it's been an overwhelming portion of any of our discussions with merchants.

Got it. Super helpful. And then maybe just the question on capital allocation, Taylor. Coming to the sea, obviously, you worked Jared for some time. I've had a pretty successful M&A strategy. But any tweaks to that in terms of cadence, intensity? Just curious how you think about just balancing capital allocation here?

Yes. No. So Nancy alluded to buybacks, I think we couldn't ignore the price of our equity in the past few months. So buybacks became a larger portion of how we think about capital allocation. Ideally, we love to deploy capital into R&D and into M&A targets that give us both the capabilities that would otherwise take R&D and/or customers to cross-sell into and sometimes geographies. Global Blue is a large transaction. So we're focused on getting that 1 done. That's not to say we've taken our eye off the ball on opportunities.

And I think everyone should expect that when you have something like Global Blue, suddenly, it gives you a couple of dozen more countries within which to think about M&A inside of, but we're focused on getting Global Blue done and outside of that, no meaningful changes to our capital allocation strategy.

At this time, I'd like to turn the floor back to Taylor Lauber for closing remarks.

Thank you all for joining the call. Look forward to catching up with you all in the coming days and weeks to go into the details of our quarter, which we're very happy with. Bye.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.