SHIFT4 PAYMENTS, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the information presented in
unaudited condensed consolidated financial statements and the related notes and
other financial data and other financial data included elsewhere in this
Quarterly Report on Form 10-Q, as well as our audited consolidated financial
statements and related notes as disclosed in our Annual Report on Form 10-K
("Form 10-K") for the fiscal year ended December 31, 2021 , filed with the U.S.
Securities and Exchange Commission ("SEC") on March 1, 2022 (the "2021 Form
10-K"). In addition to historical information, the following discussion contains
forward-looking statements, such as statements regarding our expectation for
future performance, liquidity and capital resources, that involve risks,
uncertainties and assumptions that could cause actual results to differ
materially from our expectations. Our actual results may differ materially from
those contained in or implied by any forward-looking statements. Factors that
could cause such differences include those identified below and those described
in "Cautionary Note Regarding Forward-Looking Statements," and "Risk Factors" in
Part I, Item 1A. of our 2021 Form 10-K. We assume no obligation to update any of
these forward-looking statements.
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to:
•"we," "us," "our," the "Company," "Shift4" and similar references refer to
•"Continuing Equity Owners" refers collectively to Searchlight, our Founder and their respective permitted transferees who may redeem at each of their options, in whole or in part from time to time, their LLC Interests for, at our election, cash or newly-issued shares ofShift4 Payments, Inc.'s Class A common stock.
•"LLC Interests" refers to the common units of
•"Founder" refers toJared Isaacman , our Chief Executive Officer and the sole stockholder ofRook Holdings Inc. Our Founder is a Continuing Equity Owner and an owner of Class C common stock.
•"Rook" refers to
•"Searchlight" refers toSearchlight Capital Partners, L.P. , aDelaware limited partnership, and certain funds affiliated with Searchlight. Searchlight is a Continuing Equity Owner and an owner of Class C common stock.
Overview
We are a leading independent provider of payment acceptance and payment processing and technology solutions inthe United States based on total volume of payments processed. We have achieved our leadership position through decades of solving business and operational challenges facing our customers overall commerce needs. We distribute our services through our network of software partners ("ISVs") and value-added resellers ("VARs"). For our software partners, we offer a single integration to an end-to-end payments offering, a proprietary gateway and a robust suite of technology solutions to enhance the value of their software and simplify payment acceptance. For our merchants, we provide a seamless, unified consumer experience as an alternative to relying on multiple providers to accept card-based payments, while providing the digital tools necessary to provide their end-customers a seamless commerce experience. At the heart of our business is our payments platform. Our payments platform is a full suite of integrated payment products and services that can be used across multiple channels (in-store, online, mobile and tablet-based) and industry verticals, including:
•end-to-end payment processing for a broad range of payment types;
•merchant acquiring;
•proprietary omni-channel gateway capable of multiple methods of mobile, contactless and QR code-based payments;
•complementary software integrations;
•full eCommerce capabilities, including web-store design, hosting, shopping cart management and fulfillment integrations;
•integrated and mobile POS solutions;
•security and risk management solutions; and
•reporting and analytical tools.
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In addition, we offer innovative technology solutions that go beyond payment processing. Some of our solutions are developed in-house, such as business intelligence and POS software, while others are powered by our network of complementary third-party applications. Our focus on innovation combined with our product-driven culture enables us to create scalable technology solutions that benefit from an extensive library of intellectual property. We have a partner-centric distribution approach. We market and sell our solutions through a diversified network of over 7,000 software partners, which consists of ISVs and VARs. ISVs are technology providers that develop commerce-enabling software suites with which they can bundle our payments platform. VARs are organizations that provide distribution support for ISVs and act as trusted and localized service providers to merchants by providing them with software and services. Together, our ISVs and VARs provide us immense distribution scale and provide our merchants with front-line service and support. Our end-to-end payments offering combines our payments platform, including our proprietary gateway and breadth of software integrations, and our suite of technology solutions to create a compelling value proposition for our merchants. Our end-to-end payment volume was$13.4 billion and$8.0 billion for the three months endedMarch 31, 2022 and 2021, respectively. This end-to-end payment volume contributed approximately 69% and 61% of gross revenue less network fees for the three months endedMarch 31, 2022 and 2021, respectively.
Our merchants range from small to medium sized businesses ("SMBs") to large enterprises across numerous verticals including food and beverage, hospitality, stadiums and arenas, gaming, specialty retail, non-profits and eCommerce.
Recent developments
Caring with Crypto
InMarch 2022 , we announced the launch of the "Caring with Crypto" campaign to raise over$20.0 million for nonprofit organizations onThe Giving Block, Inc.'s ("The Giving Block") cryptocurrency ("crypto") fundraising platform. Our Founder will personally match up to$10.0 million in crypto donations by existing and new non-profit customers of The Giving Block.
Stock Repurchases
In the three months endedMarch 31, 2022 , we repurchased 301,510 shares of Common stock for$17.2 million , including commissions paid, at an average price paid of$56.78 per share, which is recorded as "Treasury stock" in the accompanying unaudited Condensed Consolidated Balance Sheets. As ofMarch 31, 2022 , approximately$61.8 million remained available for future purchases under the program. InApril 2022 , we repurchased 1,126,277 shares of Common stock for$61.3 million , including commissions paid, at an average price paid of$54.39 per share. See Note 17 to the accompanying unaudited condensed consolidated financial statements for more information and Part II, Item 2. "Unregistered Sales ofEquity Securities and Use of Proceeds."
Acquisition
The Giving Block
OnFebruary 28, 2022 , we acquired The Giving Block for$106.9 million of total purchase consideration, net of cash acquired. The Giving Block is a cryptocurrency donation marketplace that the Company expects to accelerate its growth in the non-profit sector with significant cross-sell potential. See Note 2 to the accompanying unaudited condensed consolidated financial statements for more information. Pending Acquisition Finaro OnMarch 1, 2022 , we entered into a definitive agreement to acquireCredorax, Inc. d/b/a Finaro ("Finaro") for approximately$200.0 million in cash on hand,$325.0 million in shares of our Class A common stock and a performance-based earnout of up to$50.0 million in shares of our Class A common stock. Consummation of the merger is subject to regulatory approvals, which we expect to receive in the fourth quarter of 2022. Finaro is a cross-border eCommerce platform and bank specializing in solving complex payment problems for multi-national merchants that we believe will accelerate our growth in international markets. 30
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COVID-19 Pandemic Update
While great progress has been made in the fight against the COVID-19 pandemic, the pandemic remains a global challenge and continues to impact international travel and corporate travel patterns, both of which remain below pre-pandemic levels. The Omicron variant began to adversely impact our processing volumes inDecember 2021 , but by full-monthMarch 2022 , end-to-end volumes had recovered and exceeded volumes in the prior year period. However, our financial performance could be adversely impacted by any local or government-imposed pandemic restrictions, although we are currently unable to predict the extent to which the COVID-19 pandemic may adversely impact our future business operations, financial performance and results of operations. For a further discussion of the risks, uncertainties and actions taken in response to COVID-19, see the sections entitled "Risk Factors" in Part I, Item 1A. and "Human Capital" in Part I, Item 1. in our 2021 Form 10-K.
Factors impacting our business and results of operations
In general, our results of operations are impacted by factors such as adoption of software solutions that are integrated with our payment solutions, continued investment in our core capabilities, on-going pursuit of strategic acquisitions, and macro-level economic trends. Increased adoption of software-integrated payments. We primarily generate revenue through fees assessed on end-to-end payment volume initiated through our integrated software partners. These fees include volume-based payments, transaction fees and subscription fees for software and technology solutions. We expect to grow this volume by attracting new integrated software partners through our market-leading and innovative solutions. These integrated software partners have proven to be an effective and efficient way of acquiring new merchants and servicing these relationships. Continued focus on converting our gateway-only customers to our end-to-end payments offering. Currently, a large percentage of our merchant base relies only on our proprietary gateway technology solution to process card-based payments. However, as more of these gateway-only merchants choose to also adopt our end-to-end payment solutions, our revenue per merchant and merchant retention are expected to increase given the fees we generate on end-to-end payment processing services are significantly higher than the per transaction fees we earn on gateway-only services. Mix of our merchant base. We continue to experience a shift to higher average revenue and higher average volume per merchant. The revenue and volume contribution of each merchant within our portfolio is affected by several factors, including the amount of payment volume processed per merchant, the industry vertical in which the merchant operates, and the number of solutions implemented by the merchant. The size and sophistication of our average merchant continues to increase and we may experience shifts in the average revenue per merchant and the weighted average pricing of the portfolio. Ability to attract and retain software partners. A key pillar of ourShift4 Model is our partner-centric distribution approach. We work with our software partners who rely on our suite of payment-related technology solutions to simplify the commerce needs of their end clients. Our ability to attract and retain our software partners is essential for our future growth and our ability to service our existing base of merchants. To this end, it is critical we maintain our product leadership through continued investment in innovative technology solutions as a means to ensure we retain our current software partners while attracting new software partners. Investment in product, distribution and operations. We make significant investments in both new product development and existing product enhancements, such as mobile point-of-sale, cloud enablement for our software partners' existing systems, and contactless payments, including QR code based mobile payment technologies. New product features and functionality are brought to market through varied distribution and promotional activities including collaborative efforts with industry leading software providers, trade shows, and customer conferences. Further, we will continue to invest in operational support in order to maintain service levels expected by our merchant customers. We believe these investments in product development and software integrations will lead to long-term growth and profitability. Pursuit of strategic acquisitions. From time to time, we may pursue acquisitions as part of our ongoing growth strategy that includes adding complementary technology capabilities to service our base of customer and adding critical sales and support capabilities within a specific industry vertical or geography. While these acquisitions are intended to add long-term value, in the short term they may add redundant operating expenses or additional carrying costs until the underlying value is unlocked. Economic conditions and resulting consumer spending trends. Changes in macro-level consumer spending trends, including as a result of the COVID-19 pandemic, could affect the amount of volumes processed on our platform, thus resulting in fluctuations in our quarterly reported revenue. Our quarterly revenue is also impacted by seasonal, consumer spending habit patterns, which historically have resulted in higher volumes and revenue being reported in our second and third fiscal quarters. 31
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Key financial definitions
The following briefly describes the components of revenue and expenses as presented in the accompanying unaudited Condensed Consolidated Statements of Operations.
Gross revenue consists primarily of payments-based revenue and subscription and other revenues:
Payments-based revenue includes fees for payment processing services and gateway services. Payment processing fees are primarily driven as a percentage of end-to-end payment volume. They may also have a fixed fee, a minimum monthly usage fee and a fee based on transactions.Gateway services, data encryption and tokenization fees are primarily driven by per transaction fees as well as monthly usage fees. Subscription and other revenues include software as a service ("SaaS") fees for point-of-sale systems and terminals provided to merchants and our Shift4Shop eCommerce platform. Point-of-sale and terminal SaaS fees are assessed based on the type and quantity of equipment deployed to the merchant. Shift4Shop SaaS fees are based on the eCommerce platform chosen by the merchant. SaaS fees also include statement fees, fees for our proprietary business intelligence software, annual fees, regulatory compliance fees and other miscellaneous services such as help desk support and warranties on equipment. Subscription and other revenues also includes revenue derived from software license sales, hardware sales, third party residuals and fees charged for technology support.
Cost of sales consists of interchange and processing fees, residual commissions, equipment and other costs of sales:
Interchange and processing fees represent payments to card issuing banks and assessments paid to card associations based on transaction processing volume. These also include fees incurred by third-parties for data transmission and settlement of funds, such as processors and sponsor banks.
Residual commissions represent monthly payments to third-party resellers, including ISVs. These costs are typically based on a percentage of payment-based revenue.
Equipment represents our costs of devices that are purchased by the merchant.
Other costs of sales includes amortization of capitalized software development costs, capitalized software, acquired technology and capitalized customer acquisition costs. It also includes incentives and shipping and handling costs related to the delivery of devices. Capitalized software development costs are amortized using the straight-line method on a product-by-product basis over the estimated useful life of the software. Capitalized software, acquired technology and capitalized acquisition costs are amortized on a straight-line basis in accordance with our accounting policies.
General and administrative expenses consist primarily of compensation, benefits and other expenses associated with corporate management, finance, human resources, shared services, information technology and other activities.
Depreciation and amortization expense consists of depreciation and amortization expenses related to merchant relationships, trademarks and trade names, residual commission buyouts, equipment, leasehold improvements, and other intangible assets and property, plant and equipment. We depreciate and amortize our assets on a straight-line basis in accordance with our accounting policies. Leasehold improvements are depreciated over the lesser of the estimated life of the leasehold improvement or the remaining lease term. Maintenance and repairs, which do not extend the useful life of the respective assets, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from two years to twenty years.
Professional fees consists of costs incurred for accounting, tax, legal, and consulting services.
Advertising and marketing expenses relate to costs incurred to participate in industry tradeshows and dealer conferences, advertising initiatives to build brand awareness, and expenses to fulfill loyalty program rewards earned by software partners. Restructuring expenses relate to strategic initiatives we have taken that include, but are not limited to, severance or separation costs and other exit and disposal costs. These expenses are typically not reflective of our ongoing operations.
Transaction-related expenses relate to debt issuance or modification costs that are not capitalizable. These expenses are typically not reflective of our ongoing operations.
Loss on extinguishment of debt represents losses recorded for unamortized capitalized financing costs associated with debt prepayments.
Other income, net primarily consists of other non-operating items.
Interest expense consists of interest costs incurred on our borrowings and amortization of capitalized financing costs.
Income tax benefit (provision) represents federal, state and local taxes based on income in multiple domestic jurisdictions.
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Net loss attributable to noncontrolling interests arises from net loss from the non-owned portion of businesses where we have a controlling interest but less than 100% ownership. This represents the noncontrolling interests inShift4 Payments, LLC and its consolidated subsidiaries, which is comprised of the loss allocated to Continuing Equity Owners as a result of their proportional ownership of LLC Interests.
Comparison of results for the three months ended
The following table sets forth the consolidated statements of operations for the
periods presented.
Three Months Ended
March 31,
(in millions) 2022 2021 $ change % change
Payments-based revenue $ 371.5 $ 215.9 $ 155.6 72.1 %
Subscription and other revenues 30.4 23.4 7.0 29.9 %
Total gross revenue 401.9 239.3 162.6 67.9 %
Less: network fees 253.1 141.8 111.3 78.5 %
Less: Other costs of sales 64.2 45.7 18.5 40.5 %
Gross profit 84.6 51.8 32.8 63.3 %
General and administrative expenses 66.2 53.5 12.7 23.7 %
Depreciation and amortization expense 17.3 15.4 1.9 12.3 %
Professional fees 8.7 6.2 2.5 40.3 %
Advertising and marketing expenses 2.7 20.1 (17.4) (86.6) %
Restructuring expenses - 0.1 (0.1) NM
Transaction-related expenses 1.4 - 1.4 NM
Total operating expenses 96.3 95.3 1.0 1.0 %
Loss from operations (11.7) (43.5) 31.8 (73.1) %
Loss on extinguishment of debt - (0.2) 0.2 NM
Other income, net 0.2 - 0.2 NM
Interest expense (7.9) (6.5) (1.4) 21.5 %
Loss before income taxes (19.4) (50.2) 30.8 (61.4) %
Income tax benefit (provision) 6.2 (0.8) 7.0 NM
Net loss (13.2) (51.0) 37.8 (74.1) %
Net loss attributable to noncontrolling
interests (5.7) (18.2) 12.5 (68.7) %
Net loss attributable to Shift4 Payments,
Inc. $ (7.5) $ (32.8) $ 25.3 (77.1) %
Gross revenue
Gross revenue was
Payments-based revenue was$371.5 million for the three months endedMarch 31, 2022 , compared to$215.9 million for the three months endedMarch 31, 2021 , an increase of$155.6 million or 72.1%. The increase in payments-based revenue was primarily driven by the increase in end-to-end payment volume of$5.4 billion , or 68%, for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . Subscription and other revenues were$30.4 million for the three months endedMarch 31, 2022 , compared to$23.4 million for the three months endedMarch 31, 2021 , an increase of$7.0 million or 29.9%. The increase in subscription and other revenues is driven primarily by the VenueNext,Postec and The Giving Block acquisitions, which collectively contributed$6.0 million more to subscription and other revenues in the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . In addition, software license sales increased$0.7 million for the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . 33
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Network fees
Network fees were
Gross revenue less network fees was$148.8 million for the three months endedMarch 31, 2022 , compared to$97.5 million for the three months endedMarch 31, 2021 , an increase of$51.3 million or 52.6%. The increase in gross revenue less network fees was largely correlated with the increase in end-to-end payment volume. See "-Key performance indicators and non-GAAP measures" for a reconciliation of gross profit to gross revenue less network fees.
Other costs of sales
Other costs of sales was
•higher residual commissions, which increased other costs of sales
•higher variable costs associated with processing fees of
•the VenueNext,Postec and The Giving Block acquisitions which collectively increased other cost of sales$1.8 million in the three months endedMarch 31, 2022 ; •higher capitalized acquisition cost amortization, which increased other costs of sales$1.2 million , related to deal bonuses paid to VARs to obtain processing contracts;
•higher equipment sales, which increased other costs of sales
•higher capitalized software development amortization, which increased other
costs of sales
•higher than normal chargeback losses during the three months ended
Operating expenses
General and administrative expenses. General and administrative expenses were$66.2 million for the three months endedMarch 31, 2022 , compared to$53.5 million for the three months endedMarch 31, 2021 , an increase of$12.7 million or 23.7%. The increase was primarily due to higher employee-related expenses of$6.4 million in the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 , as a result of our continued growth and expansion, as well as higher equity-based compensation expense of$2.2 million in the three months endedMarch 31, 2022 . In addition, the acquisitions of VenueNext,Postec and The Giving Block collectively increased general and administrative expenses$3.3 million in the three months endedMarch 31, 2022 . Depreciation and amortization expense. Depreciation and amortization expense was$17.3 million for the three months endedMarch 31, 2022 , compared to$15.4 million for the three months endedMarch 31, 2021 , an increase of$1.9 million or 12.3%. The increase was primarily due to higher deprecation for equipment under lease of$2.5 million in the three months endedMarch 31, 2022 , compared to the three months endedMarch 31, 2021 . Professional fees. Professional fees were$8.7 million for the three months endedMarch 31, 2022 , compared to$6.2 million for the three months endedMarch 31, 2021 , an increase of$2.5 million or 40.3%. The increase was due to higher acquisition-related costs. Advertising and marketing expenses. Advertising and marketing expenses were$2.7 million for the three months endedMarch 31, 2022 , compared to$20.1 million for the three months endedMarch 31, 2021 , a decrease of$17.4 million or 86.6%. The decrease was primarily due to expenses in the three months endedMarch 31, 2021 related to the integration of 3dcart and its rebranding as Shift4Shop that were nonrecurring in nature. This was partially offset by the VenueNext,Postec and The Giving Block acquisitions, which collectively increased advertising and marketing expenses$0.5 million in the three months endedMarch 31, 2022 . Transaction-related expenses. Transaction-related expenses were$1.4 million for the three months endedMarch 31, 2022 . These expenses are associated with a consent solicitation for the 2026 Senior Notes inMarch 2022 . See Note 10 in the notes to the accompanying unaudited condensed consolidated financial statements for more information. 34
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Interest expense
Interest expense was$7.9 million for the three months endedMarch 31, 2022 , compared to$6.5 million for the three months endedMarch 31, 2021 , an increase of$1.4 million or 21.5%. The increase in interest expense was primarily due to the issuance of the Convertible Senior Notes due 2027 ("2027 Convertible Notes") inJuly 2021 .
Income tax benefit (provision)
The effective tax rate for the three months endedMarch 31, 2022 was (32.0)%, compared to the effective tax rate for the three months endedMarch 31, 2021 of 1.6%. The effective tax rate for the three months endedMarch 31, 2022 was different than theU.S. federal statutory income tax rate of 21% primarily due to the loss allocated to the noncontrolling interest, the full valuation allowance onShift4 Payments, Inc. andVenueNext, Inc. inthe United States , and a$6.4 million income tax benefit related to the valuation allowance release due to acquired deferred tax liabilities from The Giving Block. The effective tax rate for the three months endedMarch 31, 2021 was different than theU.S. federal statutory income tax rate of 21% primarily due to the loss allocated to the noncontrolling interest and the full valuation allowance onShift4 Payments, Inc. andVenueNext, Inc. inthe United States .
Net loss attributable to noncontrolling interests
Net loss attributable to noncontrolling interests ofShift4 Payments, LLC was a loss of$5.7 million for the three months endedMarch 31, 2022 , compared to a loss of$18.2 million for the three months endedMarch 31, 2021 .
Key performance indicators and non-GAAP measures
The following table sets forth our key performance indicators and non-GAAP measures for the periods presented.
Three Months Ended March 31,
(in millions) 2022 2021
End-to-end payment volume $ 13,420.9 $ 7,986.8
Gross revenue less network fees 148.8 97.5
EBITDA 17.6 (18.4)
Adjusted EBITDA 44.3 22.2
End-to-end payment volume
End-to-end payment volume is defined as the total dollar amount of card payments
that we authorize and settle on behalf of our merchants plus total
cryptocurrency amounts transacted, translated at the spot price to U.S. dollars.
This volume does not include volume processed through our gateway-only
merchants.
Gross revenue less network fees, EBITDA and Adjusted EBITDA
We use supplemental measures of our performance which are derived from our
consolidated financial information but which are not presented in our
consolidated financial statements prepared in accordance with GAAP. These
non-GAAP financial measures include: gross revenue less network fees, which
includes interchange and assessment fees; earnings before interest expense,
income taxes, depreciation, and amortization ("EBITDA"); and Adjusted EBITDA.
Gross revenue less network fees represents a key performance metric that
management uses to measure changes in the mix and value derived from our
customer base as we continue to execute our strategy to expand our reach to
serve larger, complex merchants. Adjusted EBITDA is the primary financial
performance measure used by management to evaluate its business and monitor
results of operations. Adjusted EBITDA represents EBITDA further adjusted for
certain non-cash and other nonrecurring items that management believes are not
indicative of ongoing operations. These adjustments include acquisition,
restructuring and integration costs, equity-based compensation expense and other
nonrecurring items. The financial impact of certain elements of these activities
is often large relative to the Company's overall financial performance and can
adversely affect the comparability of our operating results and investors'
ability to analyze the business from period to period.
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We use non-GAAP financial measures to supplement financial information presented on a GAAP basis. We believe that excluding certain items from our GAAP results allows management to better understand our consolidated financial performance from period to period and better project our future consolidated financial performance as forecasts are developed at a level of detail different from that used to prepare GAAP-based financial measures. Moreover, we believe these non-GAAP financial measures provide our stakeholders with useful information to help them evaluate our operating results by facilitating an enhanced understanding of our operating performance and enabling them to make more meaningful period to period comparisons. There are limitations to the use of the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q. Our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes. The non-GAAP financial measures are not meant to be considered as indicators of performance in isolation from or as a substitute for net income (loss) prepared in accordance with GAAP, and should be read only in conjunction with financial information presented on a GAAP basis. Reconciliations of gross revenue less network fees, EBITDA and Adjusted EBITDA to its most directly comparable GAAP financial measure are presented below. We encourage you to review the reconciliations in conjunction with the presentation of the non-GAAP financial measures for each of the periods presented. In future fiscal periods, we may exclude such items and may incur income and expenses similar to these excluded items.
Reconciliations of gross revenue less network fees, EBITDA and Adjusted EBITDA
The tables below provide reconciliations of gross profit to gross revenue less network fees and net loss on a consolidated basis for the periods presented to EBITDA and Adjusted EBITDA.
Gross revenue less network fees:
Three Months Ended March 31,
(in millions) 2022 2021
Gross profit $ 84.6 $ 51.8
Add back: Other costs of sales 64.2 45.7
Gross revenue less network fees $ 148.8$ 97.5 EBITDA and Adjusted EBITDA: Three Months Ended March 31, (in millions) 2022 2021 Net loss$ (13.2) $ (51.0) Interest expense 7.9 6.5 Income tax (benefit) provision (6.2) 0.8 Depreciation and amortization expense 29.1 25.3 EBITDA 17.6 (18.4) Acquisition, restructuring and integration costs (a) 7.8 25.8 Equity-based compensation (b) 17.1 14.1 Other nonrecurring items (c) 1.8 0.7 Adjusted EBITDA $
44.3
(a) For the three months endedMarch 31, 2022 , primarily consisted of$6.3 million of acquisition-related costs and$1.4 million of transaction-related expenses associated with a consent solicitation for the 2026 Senior Notes inMarch 2022 . For the three months endedMarch 31, 2021 , consists primarily of expenses related to the integration of 3dcart and its rebranding as Shift4Shop of$19.0 million ,$2.1 million of expense for the Inspiration4 seat and the acquisition of VenueNext of$1.0 million . (b) Represents equity-based compensation expense for RSUs, including employer taxes for vested RSUs. See Note 19 in the notes to the accompanying unaudited condensed consolidated financial statements for more information on equity-based compensation. (c) For the three months endedMarch 31, 2022 , consists primarily of$1.2 million of costs associated with an internal processing system disruption that required technical remediation and$0.4 million of costs associated with an early retirement initiative completed in the first quarter of 2022. 36
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Liquidity and capital resources
Overview
We have historically sourced our liquidity requirements primarily with cash flow from operations and, when needed, with borrowings under our Credit Facilities or equity transactions. The principal uses for liquidity have been debt service, capital expenditures (including research and development) and funds required to finance acquisitions. Given the impact the COVID-19 pandemic has had on the restaurant and hospitality industries, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure we can continue to operate during these uncertain times. We do not intend to pay cash dividends on our Class A common stock in the foreseeable future.Shift4 Payments, Inc. is a holding company that does not conduct any business operations of its own. As a result,Shift4 Payments, Inc.'s ability to pay cash dividends on its common stock, if any, is dependent upon cash dividends and distributions and other transfers fromShift4 Payments, LLC . The amounts available toShift4 Payments, Inc. to pay cash dividends are subject to the covenants and distribution restrictions in its subsidiaries' agreements governing its indebtedness, including covenants in such agreements providing that the payments of dividends or other distributions are subject to annual limitations based on our market capitalization. The following table sets forth summary cash flow information for the periods presented. Three Months Ended March 31, (in millions) 2022 2021 Net cash provided by (used in) operating activities $ 37.1$ (1.7) Net cash used in investing activities (43.9) (77.5) Net cash used in financing activities (35.7) (3.7) Total$ (42.5) $ (82.9) Operating activities
Net cash provided by (used in) operating activities consists of net loss adjusted for certain non-cash items and changes in other assets and liabilities.
For the three months ended
•net loss of$13.2 million , which is adjusted for non-cash expenses, including depreciation and amortization of$29.1 million , equity-based compensation of$16.9 million , deferred income taxes of$(6.3) million and provision for bad debts of$3.0 million ; plus,
•changes in operating assets and liabilities of
For the three months ended
•net loss of
•changes in operating assets and liabilities of$1.5 million , which is primarily a result of$8.8 million of funds deposited in our sponsor bank merchant settlement account to facilitate gross card transaction deposits for those customers we bill on a monthly, versus a daily basis, partially offset by higher deferred revenue of$6.6 million primarily due to the timing of annual compliance fees billed to our merchants. 37
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Investing activities
Net cash used in investing activities includes cash paid for acquisitions, purchases of future commission streams of our software partners, purchases of property, plant and equipment, purchases of equipment to be leased, capitalized software development costs, upfront processing bonuses provided to software partners and investments in non-marketable securities. Net cash used in investing activities was$43.9 million for the three months endedMarch 31, 2022 , an increase of$33.6 million compared to net cash used in investing activities of$77.5 million for the three months endedMarch 31, 2021 . This increase was primarily the result of:
•the acquisition of The Giving Block in
•higher capitalized software development costs of
•higher residual commission buyouts of
•the acquisition of VenueNext inMarch 2021 for$68.5 million in aggregate purchase consideration, including$40.6 million in cash, net of cash acquired of$1.6 million ; and
•the investment in
Financing activities Net cash used in financing activities was$35.7 million for the three months endedMarch 31, 2022 , an increase of$32.0 million , compared to net cash used in financing activities of$3.7 million for the three months endedMarch 31, 2021 . This increase was primarily the result of:
•payments for the repurchase of common stock of
•higher employee taxes paid on vested RSUs of
•payments associated with solicitation for the 2026 Senior Notes in
Convertible Notes, Senior Notes and Credit Facilities
As of
OnMarch 17, 2022 , we announced the expiration of our Consent Solicitation Statement (the "Consent Solicitation Statement"), dated as ofMarch 11, 2022 , to amend the indenture related to the 2026 Senior Notes. In connection with the results of the Consent Solicitation Statement, we received the requisite consents to amend the indenture governing the 2026 Senior Notes and entered into a supplemental indenture to allow for the repurchase of capital stock as part of the Market Capitalization exception under the original indenture.
Revolving Credit Facility
The Revolving Credit Facility has a borrowing capacity of$99.5 million , net of a$0.5 million letter of credit. As ofMarch 31, 2022 , we had no outstanding borrowings under the Revolving Credit Facility.
Stock repurchases
OnDecember 16, 2021 , our Board of Directors authorized the commencement of a stock repurchase program. The stock repurchase program authorizes us to repurchase up to$100.0 million of our Class A common stock, par value$0.0001 ("Common Stock") and will expire onDecember 31, 2022 . In the first quarter of 2022, we repurchased 301,510 shares of Common stock for$17.2 million , including commissions paid, at an average price paid of$56.78 per share, which is recorded as "Treasury stock" on our unaudited Condensed Consolidated Balance Sheets. As ofMarch 31, 2022 , approximately$61.8 million remained available for future purchases under the program. 38
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Cash requirements
Our material cash requirements include the following contractual obligations.
Debt
As ofMarch 31, 2022 , we had$1,772.5 million of fixed rate debt outstanding with maturities beginning in 2025. Future interest payments associated with the outstanding debt total$121.5 million with$24.0 million payable within twelve months. Leases As ofMarch 31, 2022 , we are obligated under non-cancellable operating leases for our premises, which expire throughNovember 2030 . Rent expense incurred under operating leases, which totaled$1.4 million for the three months endedMarch 31, 2022 , is included in "General and administrative expenses" in our accompanying unaudited condensed consolidated statements of operations.
Critical accounting estimates
Our discussion and analysis of our historical financial condition and results of operations for the periods described is based on our audited consolidated financial statements, and our accompanying unaudited condensed consolidated financial statements, each of which have been prepared in accordance withU.S. GAAP. The preparation of these historical financial statements in conformity withU.S. GAAP requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Additionally, the full impact of the COVID-19 pandemic is unknown and cannot be reasonably estimated. However, we have made accounting estimates for our allowance for doubtful accounts, valuation of our contingent liabilities, other intangible assets and goodwill based on the facts and circumstances available as of the reporting date. Actual results may differ from these estimates under different assumptions or conditions. We have provided a summary of our significant accounting policies in Note 1 in the notes to the accompanying unaudited condensed consolidated financial statements. The following critical accounting discussion pertains to accounting policies management believes are most critical to the portrayal of our historical financial condition and results of operations and that require significant, difficult, subjective or complex judgments. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our financial condition, results of operations and cash flows to those of other companies.
New accounting pronouncements
For information regarding new accounting pronouncements, and the impact of these pronouncements on our unaudited condensed consolidated financial statements, if any, refer to Note 1 in the notes to the accompanying unaudited condensed consolidated financial statements.
JOBS Act
Prior toDecember 31, 2021 , we were an emerging growth company ("EGC") as defined by the JOBS Act. The JOBS Act provides that an EGC can take advantage of the extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We had elected to avail ourselves of this exemption prior toDecember 31, 2021 , when we were an EGC, and as a result, our financial statements prior to that date may not have been comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. As ofDecember 31, 2021 , we are no longer an EGC. 39
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Subject to certain conditions, as an EGC we also were able to rely on certain of the exemptions and reduced reporting requirements of the JOBS Act, including without limitation, from providing an auditor's attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and from complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. Because we no longer qualify as an EGC, we are no longer able to take advantage of the extended transition period for the adoption of certain accounting standards or of the reduced disclosure and other benefits available to EGCs, including our exemption from providing our auditor's attestation on our system of internal control over financial reporting.
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