Shift4 Payments(FOUR) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Shift4 Payments, Inc.'s unaudited condensed consolidated financial statements are presented, showing increased assets and liabilities, net losses, and substantial cash from financing activities Condensed Consolidated Balance Sheets This section presents Shift4 Payments, Inc.'s condensed consolidated balance sheets as of September 30, 2021, and December 31, 2020 | Metric | September 30, 2021 (in millions) | December 31, 2020 (in millions) | | :--------------------------------- | :------------------------------- | :------------------------------- | | Total assets | $2,355.1 | $1,779.3 | | Total liabilities | $1,919.7 | $1,109.3 | | Total stockholders' equity | $435.4 | $670.0 | - Total assets increased by $575.8 million (32.4%) from December 31, 2020, to September 30, 2021, primarily due to higher cash and cash equivalents and goodwill from acquisitions[15] - Total liabilities increased by $810.4 million (73.1%) over the same period, largely driven by a significant increase in long-term debt[15] Condensed Consolidated Statements of Operations This section presents Shift4 Payments, Inc.'s condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 | Metric (in millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Gross revenue | $377.8 | $214.8 | $968.1 | $556.0 | | Gross profit | $64.4 | $51.5 | $194.3 | $126.5 | | Loss from operations | $(5.6) | $(3.9) | $(44.2) | $(52.1) | | Net loss | $(13.8) | $(9.8) | $(60.3) | $(89.7) | | Net loss attributable to Shift4 Payments, Inc. | $(9.2) | $(5.0) | $(38.8) | $(6.0) | | Class A net loss per share - basic and diluted | $(0.17) | $(0.12) | $(0.72) | $(0.15) | - Gross revenue increased significantly YoY for both the three-month (75.9%) and nine-month (74.1%) periods, despite a $22.4 million reduction due to TSYS outage payments to merchants in Q3 2021[16][235][236] - Net loss attributable to Shift4 Payments, Inc. worsened for the three-month period (from $(5.0) million to $(9.2) million) and the nine-month period (from $(6.0) million to $(38.8) million) YoY[16] Condensed Consolidated Statements of Changes in Redeemable Preferred Units and Stockholders' Equity/Members' (Deficit) This section presents Shift4 Payments, Inc.'s condensed consolidated statements of changes in redeemable preferred units and stockholders' equity/members' (deficit) | Metric (in millions) | December 31, 2020 | September 30, 2021 | | :------------------- | :---------------- | :----------------- | | Total equity | $670.0 | $435.4 | | Retained Deficit | $(278.7) | $(315.9) | | Additional paid-in capital | $738.3 | $614.3 | - Total equity decreased from $670.0 million at December 31, 2020, to $435.4 million at September 30, 2021, primarily due to net losses and the cumulative effect of ASU 2020-06 adoption[22] - The adoption of ASU 2020-06 resulted in a $111.5 million decrease to additional paid-in capital and a $1.6 million decrease to retained deficit[22] Condensed Consolidated Statements of Cash Flows This section presents Shift4 Payments, Inc.'s condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 | Metric (in millions) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $25.6 | $17.0 | | Net cash used in investing activities | $(162.0) | $(31.9) | | Net cash provided by financing activities | $496.7 | $340.1 | | Change in cash and cash equivalents | $360.3 | $325.2 | | Cash and cash equivalents, end of period | $1,288.1 | $328.9 | - Net cash provided by operating activities increased by $8.6 million (50.6%) YoY, driven by adjustments for non-cash expenses despite a net loss[25][286] - Net cash used in investing activities significantly increased by $130.1 million (407.8%) YoY, primarily due to acquisitions (VenueNext, Postec), investments in securities (SpaceX), and higher purchases of equipment for lease[25][289] - Net cash provided by financing activities increased by $156.6 million (46.0%) YoY, mainly from the issuance of 2027 Convertible Notes, partially offset by payments for withholding tax related to vested restricted stock units[25][289] Notes to Condensed Consolidated Financial Statements This section provides detailed explanatory notes to the condensed consolidated financial statements, covering accounting policies, acquisitions, revenue recognition, debt, and other financial components Note 1. Organization, Basis of Presentation and Significant Accounting Policies This note details Shift4 Payments, Inc.'s business, IPO, COVID-19 impact, and significant accounting policies, including recent ASU adoptions and future filer status changes - Shift4 Payments, Inc. is a leading provider of integrated payment processing and technology solutions, offering an end-to-end payments platform and robust technology solutions across various verticals like lodging, leisure, stadiums, and food and beverage[27] - The Company completed its IPO in June 2020, raising approximately $362.6 million, and a concurrent private placement of $100.0 million, with proceeds used to purchase LLC Interests and repay existing indebtedness[28] - The COVID-19 pandemic significantly impacted the restaurant and hospitality industries, leading to a 70% decline in end-to-end payment volumes in March 2020, but volumes have since recovered, exceeding pre-pandemic levels by Q3 2021[35][212] - The Company adopted ASU 2021-08 in Q3 2021, retrospectively increasing deferred revenue by $5.7 million, and ASU 2020-06 on January 1, 2021, which decreased additional paid-in capital by $111.5 million and increased long-term debt by $109.9 million by accounting for convertible debt as a single liability[49][50] - The Company expects to become a large accelerated filer effective December 31, 2021, which will change its timeline for adopting new accounting pronouncements to align with public company standards[48][53][54][57] Note 2. Acquisitions This note details the acquisitions of Postec, VenueNext, and 3dcart, outlining their strategic rationale and the resulting goodwill recognized - Shift4 Payments completed the acquisition of Postec, Inc. on September 1, 2021, for $14.0 million in cash, enhancing its end-to-end acquiring solution and distribution capabilities[62] - The Company acquired VenueNext Inc. on March 3, 2021, for $66.9 million (net of cash acquired), expanding its presence in stadiums, arenas, entertainment, and other large verticals[69] - The acquisition of 3dcart (rebranded as Shift4Shop) on November 5, 2020, for $39.9 million in cash and $19.2 million in Class A common stock, expanded the Company's omni-channel transaction capabilities and eCommerce offerings[76] - Goodwill from the VenueNext acquisition was $52.7 million, and from Postec was $10.3 million, primarily representing revenue synergies, cross-selling opportunities, and new technology capabilities[65][72][74] Note 3. Revenue This note details revenue recognition, including the impact of the TSYS platform outage and the breakdown of payments-based and subscription revenues - In Q3 2021, a TSYS platform outage led to a $22.4 million reduction in 'Gross revenue' (contra revenue) for payments to merchants and a $2.3 million increase in 'Cost of sales' for payments to partners[80][81][82] | Revenue Type (in millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Payments-based revenue | $346.9 | $196.8 | $887.6 | $494.4 | | Subscription and other revenues | $30.9 | $18.0 | $80.5 | $61.6 | | Total gross revenue | $377.8 | $214.8 | $968.1 | $556.0 | - Payments-based revenue increased by 76.3% for the three months and 79.5% for the nine months ended September 30, 2021, driven by increased end-to-end payment volume[83][237][254] - Subscription and other revenues increased by 71.7% for the three months and 30.7% for the nine months ended September 30, 2021, largely due to recent acquisitions[83][238][256] Note 4. Restructuring This note details the restructuring accrual, showing changes due to severance payments and interest accretion | Metric (in millions) | December 31, 2020 | September 30, 2021 | | :------------------- | :---------------- | :----------------- | | Balance at beginning of period | $2.9 | $2.9 | | Severance payments | — | $(1.2) | | Accretion of interest | — | $0.2 | | Balance at end of period | — | $1.9 | - Restructuring accrual decreased from $2.9 million at December 31, 2020, to $1.9 million at September 30, 2021, primarily due to severance payments[90] Note 5. Goodwill This note details the increase in goodwill, primarily attributed to the VenueNext and Postec acquisitions | Metric (in millions) | December 31, 2020 | September 30, 2021 | | :------------------- | :---------------- | :----------------- | | Balance at beginning of period | $477.0 | $477.0 | | VenueNext acquisition | — | $52.7 |\ | Postec acquisition | — | $10.3 | | Hospitality Technology Vendor measurement period adjustments | — | $(2.4) | | Balance at end of period | $477.0 | $537.6 | - Goodwill increased by $60.6 million to $537.6 million at September 30, 2021, primarily due to the VenueNext ($52.7 million) and Postec ($10.3 million) acquisitions[94] Note 6. Other Intangible Assets, Net This note details the net carrying value of other intangible assets, including merchant relationships, acquired technology, and capitalized software | Intangible Asset (in millions) | September 30, 2021 Net Carrying Value | December 31, 2020 Net Carrying Value | | :----------------------------- | :------------------------------------ | :------------------------------------ | | Merchant relationships | $73.4 | $79.3 | | Acquired technology | $61.5 | $62.9 | | Trademarks and trade names | $16.9 | $18.3 | | Capitalized software development costs | $28.3 | $19.3 | | Residual commission buyouts | $8.2 | $6.5 | | Total intangible assets | $188.3 | $186.3 | - Total net intangible assets increased slightly to $188.3 million at September 30, 2021, with estimated remaining amortization expense of $14.1 million for the rest of 2021 and $43.6 million for 2022[95][97] Note 7. Capitalized Acquisition Costs, Net This note details the net capitalized acquisition costs and their associated amortization expense | Metric (in millions) | September 30, 2021 | December 31, 2020 | | :------------------- | :----------------- | :---------------- | | Capitalized acquisition costs, net | $34.3 | $30.2 | - Capitalized acquisition costs, net, increased to $34.3 million at September 30, 2021, with amortization expense of $15.5 million for the nine months ended September 30, 2021[98][99] Note 8. Equipment for Lease, Net This note details the net equipment held for lease, its depreciation, and the accounting treatment for hardware under SaaS agreements | Metric (in millions) | September 30, 2021 | December 31, 2020 | | :------------------- | :----------------- | :---------------- | | Total equipment for lease, net | $56.3 | $36.6 | - Net equipment for lease increased to $56.3 million at September 30, 2021, with depreciation expense of $15.4 million for the nine months ended September 30, 2021[101][103] - Effective June 30, 2020, hardware provided under SaaS agreements is accounted for as operating leases, impacting depreciation and revenue recognition[103] Note 9. Property, Plant and Equipment, Net This note details the net property, plant, and equipment, along with its depreciation expense | Metric (in millions) | September 30, 2021 | December 31, 2020 | | :------------------- | :----------------- | :---------------- | | Total property, plant and equipment, net | $17.8 | $15.1 | - Net property, plant and equipment increased to $17.8 million at September 30, 2021, with depreciation expense of $4.1 million for the nine months ended September 30, 2021[104] Note 10. Debt This note details the Company's debt structure, including Convertible Notes, Senior Notes, and the Revolving Credit Facility, highlighting new issuances and refinancing activities | Debt Type (in millions) | September 30, 2021 | December 31, 2020 | | :---------------------- | :----------------- | :---------------- | | Convertible Notes due 2025 | $690.0 | $577.5 | | Convertible Notes due 2027 | $632.5 | — | | Senior Notes due 2026 | $450.0 | $450.0 | | Total borrowings | $1,772.5 | $1,028.4 | | Total long-term debt | $1,736.8 | $1,005.4 | - Total borrowings increased significantly to $1,772.5 million at September 30, 2021, primarily due to the issuance of $632.5 million in 2027 Convertible Notes in July 2021[106][114] - The 2025 Convertible Notes (principal $690.0 million) do not bear regular interest and mature on December 15, 2025, with an initial conversion price of $80.48 per share[107] - The 2027 Convertible Notes (principal $632.5 million) bear 0.50% interest, mature on August 1, 2027, and have an initial conversion price of $122.66 per share[114][116] - The Company's subsidiaries issued $450.0 million of 4.625% Senior Notes due 2026 in October 2020, using proceeds to repay the First Lien Term Loan Facility[120] - The Revolving Credit Facility was amended in January 2021, increasing borrowing capacity to $100.0 million and maturing on January 29, 2026, with no outstanding borrowings as of September 30, 2021[129][297] Note 11. Other Consolidated Balance Sheet Components This note details other balance sheet components, including prepaid expenses, other current assets, accrued expenses, and other current liabilities | Metric (in millions) | September 30, 2021 | December 31, 2020 | | :------------------- | :----------------- | :---------------- | | Total prepaid expenses and other current assets | $13.2 | $11.5 | | Total accrued expenses and other current liabilities | $37.4 | $30.1 | - Prepaid expenses and other current assets increased to $13.2 million, including prepaid merchant signing bonuses of $1.4 million[139] - Accrued expenses and other current liabilities increased to $37.4 million, with residuals payable ($12.1 million) and accrued interest ($9.2 million) being the largest components[142] Note 12. Fair Value Measurement This note details the Company's fair value measurements for contingent liabilities and debt, using Level 3 unobservable inputs - The Company makes recurring fair value measurements of contingent liabilities from acquisitions using Level 3 unobservable inputs, such as earnout payments and change of control provisions[144] - Contingent liabilities related to earnout payments were fully paid by March 31, 2021, and the change of control liability was settled with Class A common stock in conjunction with the IPO[145][146] | Debt (in millions) | September 30, 2021 Carrying Value | September 30, 2021 Fair Value | December 31, 2020 Carrying Value | December 31, 2020 Fair Value | | :----------------- | :-------------------------------- | :---------------------------- | :------------------------------- | :--------------------------- | | 2025 Convertible Notes | $690.0 | $835.4 | $690.0 | $843.9 | | 2026 Senior Notes | $450.0 | $470.8 | $450.0 | $468.0 | | 2027 Convertible Notes | $632.5 | $647.5 | — | — | | Total | $1,772.5 | $1,953.7 | $1,140.0 | $1,311.9 | Note 13. Income Taxes This note details the effective tax rates and their reconciliation to the U.S. federal statutory rate, including the impact of noncontrolling interests and valuation allowances | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Effective tax rate | 7.8% | (6.7)% | (6.4)% | (1.1)% | - The effective tax rate for Q3 2021 was 7.8% (vs. -6.7% in Q3 2020) and for the nine months ended September 30, 2021, was -6.4% (vs. -1.1% in 2020), primarily differing from the 21% U.S. federal statutory rate due to loss allocation to noncontrolling interests and changes in valuation allowances[152] - The Company has not recognized any liability under the Tax Receivable Agreement (TRA) as it was not probable that such payments would be made based on estimates of future taxable income[155] Note 14. Operating Lease Agreements This note details future minimum rental payments under operating lease agreements and total rent expense | Year | Future Minimum Rental Payments (in millions) | | :--- | :----------------------------------------- | | 2021 (remaining three months) | $1.6 | | 2022 | $4.9 | | 2023 | $4.0 | | 2024 | $3.9 | | 2025 | $3.4 | | Thereafter | $6.9 | | Total | $24.7 | - Total rent expense for the nine months ended September 30, 2021, was $4.4 million, slightly lower than $4.7 million in the prior year[157] Note 15. Related Party Transactions This note details transactions with related parties, including service agreement expenses with the Founder and the Inspiration4 space mission contribution - The Company incurred $0.7 million in service agreement expenses with its Founder for the nine months ended September 30, 2021[160] - In February 2021, the Founder transferred the right to select a participant for the Inspiration4 space mission to the Company, recorded as a $2.1 million non-cash contribution to 'Additional paid-in capital' and expensed in 'Advertising and marketing'[163] - The Founder, through a special purpose vehicle (SPV), entered into variable prepaid forward contracts (VPF Contracts) in March and September 2021, covering approximately 6.44 million shares of Class A common stock, secured by pledged Class B common stock and LLC units[167][168] Note 16. Commitments and Contingencies This note details the Company's involvement in legal proceedings and the impact of the TSYS platform outage, including efforts to seek compensation - The Company is involved in various lawsuits and legal proceedings in the ordinary course of business but does not believe any existing claims will have a material adverse effect[170] - In August 2021, a significant platform outage by TSYS, a key vendor, disrupted payment processing for the Company's merchants, leading to payments to merchants and partners, and the Company is seeking compensation[170] Note 17. Redeemable Preferred Units This note details the historical treatment of redeemable preferred units, which earned preferred dividends before conversion into LLC Interests - Prior to the Reorganization Transactions, redeemable preferred units earned a 10.50% annual preferred dividend, which was converted into LLC Interests[171] Note 18. Stockholders' Equity/Members' Deficit This note details the Company's capital structure, including authorized stock classes, voting rights, and conversion features - The Company's certificate of incorporation was amended to authorize Class A, Class B, Class C common stock, and preferred stock[173] - Class A common stock holders have one vote per share, while Class B and Class C common stock holders have ten votes per share[174] - Class C common stock converts to Class A common stock on a one-to-one basis if transferred to non-permitted transferees[174] Note 19. Noncontrolling Interests This note details the noncontrolling interest representing Continuing Equity Owners' economic stake in Shift4 Payments, LLC and their redemption rights | Ownership | December 31, 2020 | September 30, 2021 | | :-------- | :---------------- | :----------------- | | Shift4 Payments, Inc. | 62.0% | 68.3% | | Continuing Equity Owners | 38.0% | 31.7% | - The noncontrolling interest, representing the economic interest of Continuing Equity Owners in Shift4 Payments, LLC, decreased from 38.0% to 31.7% from December 31, 2020, to September 30, 2021[176] - Continuing Equity Owners can redeem their LLC Interests for Class A common stock or cash, at the Company's option[176] Note 20. Equity-based Compensation This note details equity-based compensation expense and the activity of restricted stock units (RSUs) | RSU Activity | Nine Months Ended Sep 30, 2021 | | :------------- | :----------------------------- | | Unvested balance at beginning of period | 4,840,508 | | Granted | 165,751 | | Vested | (3,262,321) | | Forfeited or cancelled | (18,206) | | Unvested balance at end of period | 1,725,732 | - Equity-based compensation expense was $26.9 million for the nine months ended September 30, 2021, with $39.2 million unrecognized expense remaining[180] Note 21. Basic and Diluted Net Loss per Share This note details the basic and diluted net loss per share for Class A and Class C common stock, and the exclusion of anti-dilutive securities | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | June 5, 2020 through Sep 30, 2020 | | :----- | :------------------------------ | :------------------------------ | :----------------------------- | :-------------------------------- | | Class A net loss per share - basic and diluted | $(0.17) | $(0.12) | $(0.72) | $(0.15) | | Class C net loss per share - basic and diluted | $(0.17) | $(0.12) | $(0.72) | $(0.15) | - Basic and diluted net loss per share for both Class A and Class C common stock increased for the three-month period (from $(0.12) to $(0.17)) and the nine-month period (from $(0.15) to $(0.72)) YoY[185] - Potentially dilutive securities, including LLC Interests, RSUs, and Convertible Notes, were excluded from diluted EPS calculation due to their anti-dilutive effect[186] Note 22. Supplemental Cash Flows Information This note details non-cash investing and financing activities, including shares issued for acquisitions and the Inspiration4 seat right | Noncash Investing Activities (in millions) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Shares and equity-based compensation awards issued in connection with VenueNext acquisition | $26.3 | — | | Equipment for lease | $4.6 | — | | Capitalized software development costs | $1.6 | — | | Capitalized acquisition costs | $0.4 | — | | Noncash Financing Activities (in millions) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------------------- | :----------------------------- | :----------------------------- | | Right associated with Inspiration4 seat | $2.1 | — | | Contingent consideration settled with Class A common stock | — | $21.1 | Note 23. Segments This note confirms the Company operates as one reportable segment and provides a breakdown of revenue types - The Company operates as one operating segment and one reportable segment, as the Chief Operating Decision Maker reviews financial information on a consolidated level[188] | Revenue Type (in millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Payments-based revenue | $346.9 | $196.8 | $887.6 | $494.4 | | Subscription and other revenues | $30.9 | $18.0 | $80.5 | $61.6 | | Total gross revenue | $377.8 | $214.8 | $968.1 | $556.0 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Shift4 Payments, Inc.'s financial condition and operational results for the three and nine months ended September 30, 2021, covering business overview, recent developments, COVID-19 impact, and key financial metrics Overview This section provides an overview of Shift4 Payments, Inc.'s business as a leading payment processing and technology solutions provider - Shift4 Payments is a leading independent provider of payment processing and technology solutions in the U.S., offering an end-to-end payments platform and technology solutions through a partner-centric distribution approach[193][195][196] - End-to-end payment volume was $13.5 billion for the three months and $33.3 billion for the nine months ended September 30, 2021, contributing approximately 67% and 66% of gross revenue less network fees, respectively[197] Revision of Previously Issued Financial Statements This section addresses revisions made to previously reported consolidated financial statements for the three and nine months ended September 30, 2020 - The Management's Discussion and Analysis reflects revisions to previously reported consolidated financial statements for the three and nine months ended September 30, 2020, as detailed in Note 1[199] Recent developments This section highlights recent significant events, including a major platform outage and strategic acquisitions - A significant TSYS platform outage on August 21, 2021, disrupted payment processing, leading to $22.4 million in payments to merchants (contra revenue) and $2.3 million to partners (cost of sales) to mitigate impact[200][201][203] - The Company acquired Postec, Inc. on September 1, 2021, for approximately $14.0 million in cash, enhancing its end-to-end acquiring solution and distribution capabilities[205] Reorganization Transactions This section describes the Reorganization Transactions that established Shift4 Payments, Inc. as the managing member of Shift4 Payments, LLC - The Reorganization Transactions in June 2020 made Shift4 Payments, Inc. the sole managing member of Shift4 Payments, LLC, leading to consolidation of financial results and reporting of noncontrolling interests[206][207] - Post-IPO, Shift4 Payments, Inc. became subject to U.S. federal, state, and local income taxes and incurs public company expenses, with Shift4 Payments, LLC making distributions to cover these obligations[208] Initial public offering and concurrent private placement This section details the Company's Initial Public Offering and concurrent private placement in June 2020 - The IPO in June 2020 generated approximately $362.6 million in net proceeds, and a concurrent private placement added $100.0 million, totaling $462.6 million used to purchase LLC Interests and repay debt[209] Impact of the COVID-19 Pandemic This section discusses the effects of the COVID-19 pandemic on the Company's business and payment volumes - COVID-19 significantly impacted the restaurant and hospitality industries, causing a 70% decline in end-to-end payment volumes in March 2020[211][212] - End-to-end payment volumes in Q3 2021 were approximately 90% higher than Q3 2020 and 14% higher than Q2 2021, indicating a significant recovery due to merchant reopenings and new onboarding[212] - The Company believes it has sufficient liquidity for at least the next twelve months but continues to monitor and adapt to potential COVID-19 impacts[213] Factors impacting our business and results of operations This section outlines the key factors influencing the Company's business performance and financial results - Key factors include increased adoption of software-integrated payments, focus on end-to-end payment offerings, mix of merchant base, ability to attract and retain software partners, investment in product/distribution/operations, strategic acquisitions, and economic conditions/consumer spending trends[214][215][216][217][218][219][220][221] Key financial definitions This section defines the key financial terms used in the Company's financial statements and analysis - Gross revenue comprises payments-based revenue (fees for processing and gateway services) and subscription and other revenues (SaaS fees, software/hardware sales, support)[223][224] - Cost of sales includes interchange and processing fees, residual commissions, equipment costs, and amortization of capitalized software development, acquired technology, and customer acquisition costs[225][226][227] - Operating expenses include general and administrative, depreciation and amortization, professional fees, advertising and marketing, restructuring, and other operating income/expense[228][229][230][231][232] Comparison of results for the three months ended September 30, 2021 and 2020 This section compares the Company's financial results for the three months ended September 30, 2021, against the same period in 2020 | Metric (in millions) | 2021 | 2020 | $ Change | % Change | | :------------------- | :--- | :--- | :------- | :------- | | Gross Revenue | $377.8 | $214.8 | $163.0 | 75.9% | | Gross Profit | $64.4 | $51.5 | $12.9 | 25.0% | | Loss from Operations | $(5.6) | $(3.9) | $(1.7) | 43.6% | | Net Loss | $(13.8)| $(9.8) | $(4.0) | 40.8% | - Payments-based revenue increased by $150.1 million (76.3%) due to a 90% increase in end-to-end payment volume, partially offset by $22.4 million in TSYS outage payments[237] - Subscription and other revenues increased by $12.9 million (71.7%), primarily from the 3dcart, VenueNext, hospitality technology vendor, and Postec acquisitions[238] - Other costs of sales increased by $25.3 million (69.9%), driven by higher residual commissions, acquisition-related costs, and TSYS outage payments to partners[241] - General and administrative expenses increased by $12.7 million (35.9%) due to higher employee-related expenses and recent acquisitions[241] - Advertising and marketing expenses increased by $2.7 million, partly due to Inspiration4 seat costs and higher trade show expenses[244] Comparison of results for the nine months ended September 30, 2021 and 2020 This section compares the Company's financial results for the nine months ended September 30, 2021, against the same period in 2020 | Metric (in millions) | 2021 | 2020 | $ Change | % Change | | :------------------- | :--- | :--- | :------- | :------- | | Gross Revenue | $968.1 | $556.0 | $412.1 | 74.1% | | Gross Profit | $194.3 | $126.5 | $67.8 | 53.6% | | Loss from Operations | $(44.2)| $(52.1)| $7.9 | (15.2)% | | Net Loss | $(60.3)| $(89.7)| $29.4 | (32.8)% | - Payments-based revenue increased by $393.2 million (79.5%) due to a 90% increase in end-to-end payment volume, partially offset by TSYS outage payments[254][255] - Subscription and other revenues increased by $18.9 million (30.7%), primarily from acquisitions, offset by a decrease in hardware revenue due to accounting changes for operating leases[256] - Other costs of sales increased by $57.7 million (53.6%), driven by higher residual commissions, acquisition costs, chargeback losses from a merchant failure ($5.5 million), and TSYS outage payments, partially offset by lease modification impacts[259] - General and administrative expenses increased by $8.5 million (5.9%), mainly due to higher employee-related expenses and acquisitions, offset by lower equity-based compensation[260] - Advertising and marketing expenses increased by $23.2 million, largely due to 3dcart integration/rebranding and Inspiration4 costs[263] - Interest expense decreased by $11.9 million (37.1%) due to debt prepayments and refinancing, partially offset by new 2027 Convertible Notes[267] Key performance indicators and non-GAAP measures This section presents key performance indicators and non-GAAP financial measures, including end-to-end payment volume and Adjusted EBITDA | Metric (in millions) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | End-to-end payment volume | $13,457.2 | $7,090.7 | $33,277.9 | $17,476.8 | | Gross revenue less network fees | $148.3 | $87.7 | $382.1 | $234.2 | | EBITDA | $20.4 | $20.8 | $32.6 | $1.1 | | Adjusted EBITDA | $55.8 | $28.7 | $123.2 | $61.0 | - End-to-end payment volume increased by approximately 90% for both the three and nine months ended September 30, 2021, compared to the prior year[272][273] - Adjusted EBITDA increased by 94.4% for the three months and 101.9% for the nine months ended September 30, 2021, reflecting adjustments for non-cash and nonrecurring items like the TSYS outage and acquisition costs[272][274] Liquidity and capital resources This section discusses the Company's liquidity sources, capital resources, and principal uses of cash - The Company primarily sources liquidity from cash flow from operations and borrowings, with principal uses for debt service, capital expenditures, and acquisitions[282] | Cash Flow (in millions) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $25.6 | $17.0 | | Net cash used in investing activities | $(162.0) | $(31.9) | | Net cash provided by financing activities | $496.7 | $340.1 | - Net cash used in investing activities increased by $130.1 million, driven by acquisitions (VenueNext, Postec), investments in securities (SpaceX), and higher equipment purchases for lease[289] - Net cash provided by financing activities increased by $156.6 million, primarily from $617.7 million in net proceeds from the 2027 Convertible Notes, partially offset by $119.7 million in employee taxes paid on vested RSUs[289] - As of September 30, 2021, total principal amount of debt outstanding was $1,772.5 million, including 2025 Convertible Notes ($690.0 million), 2027 Convertible Notes ($632.5 million), and 2026 Senior Notes ($450.0 million)[290] Contractual obligations This section outlines the Company's significant contractual obligations, including long-term debt and associated interest payments | Obligation (in millions) | Total | 2021 (remaining three months) | 2022 and 2023 | 2024 and 2025 | 2026 and beyond | | :----------------------- | :---- | :---------------------------- | :------------ | :------------ | :-------------- | | Long-term debt | $1,772.5 | — | — | $690.0 | $1,082.5 | | Interest on long-term debt | $133.5 | $10.4 | $48.0 | $48.0 | $27.1 | | Total | $1,906.0 | $10.4 | $48.0 | $738.0 | $1,109.6 | Off-balance sheet arrangements This section confirms the absence of any off-balance sheet financing activities during the reporting periods - The Company did not engage in any off-balance sheet financing activities during the periods presented[300] Critical accounting policies This section discusses the critical accounting policies that require significant management estimates and judgments - The preparation of financial statements requires management to make significant estimates and judgments, particularly regarding fair value of acquired assets/liabilities, contingent liabilities, intangible assets, and goodwill[301] - The full impact of the COVID-19 pandemic remains uncertain, but accounting estimates have been made based on available facts and circumstances[301] New accounting pronouncements This section refers to detailed information on new accounting pronouncements and their impact, as provided in the financial statements notes - Information regarding new accounting pronouncements and their impact is detailed in Note 1 to the condensed consolidated financial statements[303] JOBS Act This section explains the Company's status as an Emerging Growth Company under the JOBS Act and its implications for accounting standards adoption - As an Emerging Growth Company (EGC), Shift4 Payments has elected to delay the adoption of new or revised accounting standards, which may affect comparability with non-EGCs[304][305] - The Company expects to cease being an EGC as of December 31, 2021, due to its market value exceeding $700.0 million[306] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses Shift4 Payments, Inc.'s exposure to market risks, primarily related to interest rates - As of September 30, 2021, the Company had $1,772.5 million in fixed-rate debt (Notes) with a fair value of $1,953.7 million, which does not pose interest rate risk to financial statements but affects fair value[308] - The Revolving Credit Facility, with a borrowing capacity of $99.5 million, bears interest at floating rates, exposing the Company to interest rate fluctuation risk if borrowings are outstanding[309][297] - As of September 30, 2021, there were no outstanding borrowings under the Revolving Credit Facility, mitigating immediate floating rate risk[309][297] Item 4. Controls and Procedures This section outlines Shift4 Payments, Inc.'s disclosure controls and procedures, acknowledging their inherent limitations - Management acknowledges that controls and procedures provide only reasonable assurance and require judgment in balancing benefits against costs[310] - As of September 30, 2021, the Company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level by the principal executive and financial officers[311] - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2021[313] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that Shift4 Payments, Inc. is involved in various legal claims and proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial condition or operations from these matters - The Company is party to various claims and legal proceedings arising in the ordinary course of business[315] - Management does not believe any existing claims or proceedings will have a material effect on the Company's business, consolidated financial condition, or results of operations[315] Item 1A. Risk Factors This section advises investors to carefully consider the risks associated with investing in Shift4 Payments, Inc.'s Class A common stock, referring to the detailed risk factors outlined in the Company's 2020 Form 10-K - Investing in Class A common stock involves a high degree of risk, and investors should review risk factors in the 2020 Form 10-K and other public filings[316] - There have been no material changes to the Company's risk factors since the 2020 Form 10-K[316] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the issuance of Class A common stock in connection with the VenueNext acquisition - In the three months ended September 30, 2021, 16,797 shares of Class A common stock were issued to former VenueNext owners as part of the acquisition, under a Section 4(a)(2) exemption[317] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[318] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[319] Item 5. Other Information This section states that there is no other information to report - No other information is reported in this section[320] Item 6. Exhibits This section provides a comprehensive list of exhibits filed as part of this Quarterly Report on Form 10-Q, including organizational documents, debt indentures, and certifications required by the Sarbanes-Oxley Act - The report includes exhibits such as the Amended and Restated Certificate of Incorporation and Bylaws, Specimen Stock Certificate, Indenture for 2027 Convertible Notes, and certifications by the CEO and CFO[322][323] Signatures This section contains the official signatures of Shift4 Payments, Inc.'s Chief Executive Officer and Chief Financial Officer, certifying the filing of the report - The report is signed by Jared Isaacman, Chief Executive Officer, and Bradley Herring, Chief Financial Officer, on November 12, 2021[327]