Wednesday , September 30, 2020

As It Recovers From Covid-19 Shock, Shift4 Looks to Grow Its End-to-End Processing Business

The Covid-19 pandemic has taken a fearful toll on payments processing, and on Thursday, in its first earnings call as a publicly held company, Shift4 Payments Inc. proved it’s no exception. Stay-at-home orders and business shutdowns, with tentative reopenings, clipped the company’s full-service, lucrative end-to-end payment volume in the June quarter 23% year-over-year to $4.2 billion.

Things started looking up in June and July, however, with total payment volumes in July coming in as the second-highest number in the company’s 21-year history, chief strategy officer Taylor Lauber told equity analysts on the call. And the pipeline is filling up.  “Our boarding of new merchants never really slowed during the quarter,” Lauber said. Shift4 began trading publicly June 5. Its share price late Thursday morning was up 10%, to the low $40s per share, from Wednesday’s close.

The end-to-end processing portion of Allentown, Pa.-based Shift4’s business accounts for a relatively small part of total payments volume, with the gateway operation providing about 89%, executives said. But they made it clear they’re set on a strategy to expand that number quickly. That’s because the company can make as much as eight times more gross profit from the full-service end-to-end business than from merchants that simply use Shift4 as a gateway to other processors.

Isaacman: “We love food trucks, but serving food trucks is not what makes Shift4 special.”

Typical gateway merchants fall into sectors Shift4 has historically served, including restaurant brands, hotels and resorts, casinos, and golf courses. These are merchants with complex payment needs. “We love food trucks, but serving food trucks is not what makes Shift4 special,” said chief executive Jared Isaacman, who as a teenager founded the company in his parents’ basement. He noted that conversions of gateway clients can be done in 24 hours or less. “All the connections are already there,” he said. “It can be very, very simple.”

With the emphasis on converting gateway to end-to-end business, the company projects its volume in that sector will not only recover but grow to between $6.2 billion and $6.5 billion in the third quarter, and to between $6.5 billion and $6.9 billion in the fourth.

In the face of the exigencies forced on payments markets by the pandemic, Shift4 found its card-not-present volume shifting from 15% of total volume in February to 40% in April as the company moved clients to online ordering. That ratio has since declined to 80%/20%, Lauber said, though the company’s introduction of Quick Response (QR) codes for contactless payments is helping to buoy the card-not-present business. “When it comes to payments, implementing a QR code solution is challenging,” Lauber said. Merchants appreciated the fact “we were able to push it out,” he added.

Another burgeoning market, executives added, is sports stadiums. The company got a big start in that category last month when the Las Vegas Raiders National Football League team named Shift4 its official credit card processing company. “Sports and entertainment is becoming an important market for us,” Isaacman noted.

For the quarter, Shift4 logged gross revenue, less network fees, of $67.4 million, down 10% year-over-year. Gross profit came to $32.3 million, down 26%. The adjusted net loss totaled $14.4 million, compared to $4.4 million in the same quarter in 2019.

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