Shift4 Payments(FOUR) - 2022 Q2 - Quarterly Report

FORM 10-Q General Information Registrant Information This section provides official details of Shift4 Payments, Inc., including its state of incorporation, principal executive offices, and telephone number - Shift4 Payments, Inc. is incorporated in Delaware, with its principal executive offices located at 2202 N. Irving Street, Allentown, Pennsylvania 18109[3] Securities Information Details regarding the Company's registered securities are provided, specifically its Class A Common Stock | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------ | :---------------- | :---------------------------------------- | | Class A Common Stock, $0.0001 par value per share | FOUR | The New York Stock Exchange | Filer Status The Company's filing status under the Securities Exchange Act of 1934 is identified - The registrant is classified as a 'Large accelerated filer'[8] Outstanding Shares This section reports the number of outstanding shares for each class of common stock as of a specific date | Class of Common Stock | Shares Outstanding (as of July 29, 2022) | | :-------------------- | :--------------------------------------- | | Class A Common Stock | 51,092,250 | | Class B Common Stock | 25,829,016 | | Class C Common Stock | 3,650,380 | Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This section highlights that the report contains forward-looking statements covered by safe harbor provisions, emphasizing that actual results may differ materially due to known and unknown risks - Forward-looking statements are subject to known and unknown risks, including the adverse effects of the COVID-19 pandemic, intense competition, reliance on third-party vendors, acquisition risks, and the significant influence of the Company's Founder[12][13][14] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements and their accompanying notes for the periods ended June 30, 2022 and 2021 Condensed Consolidated Balance Sheets Total assets decreased from $2,342.6 million to $2,299.6 million, while total liabilities increased and stockholders' equity significantly decreased | Metric (in millions) | June 30, 2022 | December 31, 2021 | | :------------------------- | :------------ | :---------------- | | Total Assets | $2,299.6 | $2,342.6 | | Total Liabilities | $2,032.2 | $1,942.9 | | Total Stockholders' Equity | $267.4 | $399.7 | | Cash and cash equivalents | $1,018.2 | $1,231.5 | | Goodwill | $627.1 | $537.7 | Condensed Consolidated Statements of Operations For the three months ended June 30, 2022, the company reported significant growth in gross revenue and net income, and for the six months, it turned a net loss into a net income | Metric (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross revenue | $506.7 | $351.0 | $908.6 | $590.3 | | Gross profit | $105.8 | $78.1 | $190.4 | $129.9 | | Income (loss) from operations | $22.9 | $4.9 | $11.2 | $(38.6) | | Net income (loss) | $15.0 | $4.5 | $1.8 | $(46.5) | | Net income (loss) attributable to Shift4 Payments, Inc. | $10.3 | $3.2 | $2.8 | $(29.6) | | Class A net income (loss) per share - basic | $0.19 | $0.06 | $0.05 | $(0.56) | Condensed Consolidated Statements of Comprehensive Income (Loss) For the three months ended June 30, 2022, comprehensive income was $14.4 million, up from $4.5 million in the prior year, showing significant improvement for the six-month period | Metric (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $15.0 | $4.5 | $1.8 | $(46.5) | | Unrealized income (loss) on foreign currency translation adjustment, net of tax | $(0.6) | — | $(0.6) | — | | Total other comprehensive income (loss) | $(0.6) | — | $(0.6) | — | | Comprehensive income (loss) | $14.4 | $4.5 | $1.2 | $(46.5) | Condensed Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased from $399.7 million at December 31, 2021, to $267.4 million at June 30, 2022, influenced by net income, stock issuance, repurchases, and noncontrolling interests | Metric (in millions, except shares) | December 31, 2021 | June 30, 2022 | | :---------------------------------- | :---------------- | :------------ | | Total Stockholders' Equity | $399.7 | $267.4 | | Additional paid-in capital | $619.2 | $635.5 | | Treasury stock, at cost | $(21.1) | $(28.8) | | Retained deficit | $(325.3) | $(422.8) | | Noncontrolling interests | $126.9 | $83.9 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities significantly increased to $85.0 million, while net cash used in financing activities rose due to stock repurchases | Metric (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $85.0 | $5.0 | | Net cash used in investing activities | $(87.1) | $(115.5) | | Net cash used in financing activities | $(211.0) | $(117.6) | | Change in cash and cash equivalents | $(213.3) | $(228.1) | | Cash and cash equivalents, End of period | $1,018.2 | $699.7 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the figures presented in the condensed consolidated financial statements, covering organization, accounting policies, acquisitions, revenue, debt, equity, and other financial components 1. Organization, Basis of Presentation and Significant Accounting Policies This note details the Company's organizational structure, financial statement preparation basis, liquidity plans, accounting policies, and the impact of recently adopted accounting pronouncements - Shift4 Payments, Inc. is a leading provider of integrated payment processing and technology solutions, serving diverse verticals including food and beverage, hospitality, stadiums, gaming, retail, non-profits, and eCommerce[27] - The Company consolidates the financial results of Shift4 Payments, LLC, where Shift4 Payments, Inc. acts as the primary beneficiary and sole managing member[30] - As of June 30, 2022, the Company had $1,772.5 million in total debt outstanding and expects to remain compliant with financial covenants for at least 12 months[34] - The Company adopted several accounting pronouncements, including ASC 842 (Leases), ASU 2016-13 (Credit Losses), ASU 2021-08 (Business Combinations), ASU 2021-05 (Lessors), and SAB 121 (Crypto-assets)[38][39] - The adoption of SAB 121 resulted in the recognition of $1.2 million in crypto settlement assets and liabilities on the balance sheet as of June 30, 2022[42] 2. Acquisitions This note details the Company's recent acquisition of The Giving Block and the pending acquisition of Finaro, outlining the purchase considerations and strategic rationales for each - The Company acquired The Giving Block on February 28, 2022, for $106.9 million (net of cash acquired), aiming to accelerate growth in the non-profit sector with significant cross-sell potential[45] - A definitive agreement was entered into on March 1, 2022, to acquire Finaro for $200.0 million in cash, 6,439,316 shares of Class A common stock (valued at approximately $325.0 million), and a performance-based earnout of up to $50.0 million in Class A common stock, expected to accelerate growth in international eCommerce markets[55] | Acquisition | Date of Acquisition/Agreement | Total Purchase Consideration (net of cash acquired) | | :--------------- | :---------------------------- | :------------------------------------------------ | | The Giving Block | February 28, 2022 | $106.9 million | | Finaro (Pending) | March 1, 2022 | $200.0 million cash + $325.0 million stock + up to $50.0 million earnout | 3. Revenue This note disaggregates the Company's gross revenue into payments-based revenue and subscription and other revenues, and provides details on contract assets and liabilities | Revenue Type (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Payments-based revenue | $473.9 | $324.8 | $845.4 | $540.7 | | Subscription and other revenues | $32.8 | $26.2 | $63.2 | $49.6 | | Total Gross Revenue | $506.7 | $351.0 | $908.6 | $590.3 | - Deferred revenue increased to $20.6 million as of June 30, 2022, from $17.4 million at December 31, 2021, primarily due to timing differences between customer payments and satisfaction of performance obligations[59] 4. Goodwill This note outlines the changes in the carrying amount of goodwill, primarily driven by recent acquisitions | Metric (in millions) | December 31, 2021 | June 30, 2022 | | :------------------------- | :---------------- | :------------ | | Balance at beginning of period | $537.7 | $537.7 | | The Giving Block Acquisition | — | $89.4 | | Balance at end of period | $537.7 | $627.1 | - Goodwill increased by $89.4 million to $627.1 million at June 30, 2022, primarily due to The Giving Block acquisition[62] 5. Other Intangible Assets, Net This note provides a breakdown of other intangible assets, their net carrying values, and estimated future amortization expenses | Intangible Asset (in millions) | December 31, 2021 Net Carrying Value | June 30, 2022 Net Carrying Value | | :------------------------------------- | :----------------------------------- | :--------------------------------- | | Merchant relationships | $66.4 | $67.8 | | Acquired technology | $58.3 | $54.7 | | Trademarks and trade names | $16.5 | $24.7 | | Capitalized software development costs | $33.5 | $49.2 | | Residual commission buyouts | $13.8 | $22.6 | | Total other intangible assets, net | $188.5 | $219.0 | - Estimated amortization expense for other intangible assets for the remaining six months of 2022 is $27.4 million, with a total of $219.0 million expected over future periods[64] 6. Capitalized Acquisition Costs, Net This note details the Company's capitalized acquisition costs, net, and their associated amortization expenses and future amortization schedule | Metric (in millions) | December 31, 2021 | June 30, 2022 | | :------------------------------- | :---------------- | :------------ | | Capitalized acquisition costs, net | $35.1 | $36.6 | - Amortization expense for capitalized acquisition costs was $12.7 million for the six months ended June 30, 2022[66] - The estimated future amortization expense for capitalized acquisition costs for the remaining six months of 2022 is $11.1 million, with a total of $36.6 million expected through 2025[67] 7. Equipment for Lease, Net This note provides information on the Company's equipment held for and under lease, including their net carrying values and depreciation expenses | Metric (in millions) | December 31, 2021 | June 30, 2022 | | :----------------------------- | :---------------- | :------------ | | Total equipment for lease, net | $58.4 | $65.2 | - Depreciation expense for equipment under lease was $14.4 million for the six months ended June 30, 2022[69] 8. Property, Plant and Equipment, Net This note details the components of property, plant and equipment, net, and their associated depreciation expenses | Metric (in millions) | December 31, 2021 | June 30, 2022 | | :--------------------------------------- | :---------------- | :------------ | | Total property, plant and equipment, net | $18.4 | $17.7 | - Total depreciation expense for property, plant and equipment was $2.5 million for the six months ended June 30, 2022[70] 9. Debt This note provides a breakdown of the Company's outstanding debt, including convertible notes and senior notes, their maturity dates, and interest rates, along with details on a recent consent solicitation and the revolving credit facility | Debt Type (in millions) | Maturity Date | Effective Interest Rate | June 30, 2022 Principal | | :---------------------- | :------------ | :---------------------- | :---------------------- | | 2025 Convertible Notes | Dec 15, 2025 | 0.49% | $690.0 | | 2027 Convertible Notes | Aug 1, 2027 | 0.90% | $632.5 | | 2026 Senior Notes | Nov 1, 2026 | 5.13% | $450.0 | | Total Borrowings | | | $1,772.5 | - In March 2022, the Company completed a consent solicitation to amend the indenture governing the 2026 Senior Notes, incurring $4.5 million in consent payments and $1.4 million in transaction-related expenses[75] - The Revolving Credit Facility had a borrowing capacity of $99.5 million as of June 30, 2022, with no outstanding borrowings[76] 10. Other Consolidated Balance Sheet Components This note provides a detailed breakdown of prepaid expenses and other current assets, as well as accrued expenses and other current liabilities, highlighting significant changes such as the contingent liability earnout for The Giving Block | Metric (in millions) | December 31, 2021 | June 30, 2022 | | :-------------------------------------------- | :---------------- | :------------ | | Prepaid expenses and other current assets | $12.7 | $12.1 | | Accrued expenses and other current liabilities | $42.9 | $97.3 | | Contingent liability earnout - The Giving Block | — | $58.9 | | Crypto settlement assets | — | $1.2 | | Crypto settlement liabilities | — | $1.2 | 11. Fair Value Measurement This note describes the Company's fair value measurements, including the hierarchy of inputs used and the valuation of contingent liabilities and outstanding debt - Contingent liabilities from acquisitions, such as The Giving Block earnout, are measured using Level 3 unobservable inputs, with an estimated fair value of $57.5 million as of June 30, 2022[84][85] | Debt Type (in millions) | June 30, 2022 Carrying Value | June 30, 2022 Fair Value | December 31, 2021 Carrying Value | December 31, 2021 Fair Value | | :---------------------- | :--------------------------- | :----------------------- | :------------------------------- | :--------------------------- | | 2025 Convertible Notes | $678.7 | $560.4 | $677.0 | $735.4 | | 2027 Convertible Notes | $619.7 | $448.7 | $618.7 | $556.5 | | 2026 Senior Notes | $440.4 | $402.1 | $443.9 | $465.7 | | Total | $1,738.8 | $1,411.2 | $1,739.6 | $1,757.6 | 12. Income Taxes This note explains the Company's income tax structure, effective tax rates, and the accounting for the Tax Receivable Agreement (TRA) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :----------------- | :------------------------------- | :----------------------------- | | Effective Tax Rate | 6.3% | (152.9)% | - The effective tax rate differs from the U.S. federal statutory rate primarily due to the loss allocated to noncontrolling interests and full valuation allowances on deferred tax assets[91] - A $248.3 million liability under the Tax Receivable Agreement (TRA) has not been recognized, as it was not probable that such payments would be made based on estimates of future taxable income[94] 13. Lease Agreements This note provides details on the Company's operating leases as both a lessee (primarily for office space and equipment) and a lessor (providing hardware to merchants) | Metric (in millions) | June 30, 2022 | December 31, 2021 | | :------------------------ | :------------ | :---------------- | | Right-of-use assets | $16.2 | $18.5 | | Current lease liabilities | $4.1 | $4.8 | | Noncurrent lease liabilities | $16.0 | $17.9 | | Total lease liabilities | $20.1 | $22.7 | - Total lease income as a lessor was $8.7 million for the six months ended June 30, 2022, from providing hardware to merchants under operating leases[101] 14. Related Party Transactions This note describes transactions and relationships with related parties, including a service agreement with the Founder, the change in Searchlight's status as a related party, and the Founder's variable prepaid forward contracts - The Company incurred $0.5 million in expenses for the six months ended June 30, 2022, under a service agreement with its Founder, Jared Isaacman[103] - Searchlight is no longer considered a Continuing Equity Owner or a related party as of May 24, 2022, following the redemption of all its LLC Interests[104] - The Founder, through a wholly-owned special purpose vehicle, entered into variable prepaid forward contracts (VPF Contracts) covering approximately 4.44 million shares of the Company's Class A common stock, with settlement dates in 2023 and 2024[107][108] 15. Commitments and Contingencies This note addresses the Company's involvement in legal proceedings and claims, and its efforts to seek compensation for a significant vendor platform outage - The Company is not aware of any legal proceedings or claims that are expected to have a material adverse effect on its business, financial condition, or operating results[112] - The Company is seeking compensation through various channels for a significant payment processing service disruption caused by a TSYS platform outage in August 2021[111] 16. Stockholders' Equity/Members' Deficit This note details the Company's stock repurchase programs and the related activities during the reporting period - The Board authorized three stock repurchase programs (December 2021, May 2022, and June 2022) totaling $250.0 million for Class A common stock through December 31, 2022[113] | Metric | Six Months Ended June 30, 2022 | | :-------------------------------------- | :----------------------------- | | Shares of Class A common stock repurchased | 3,887,191 | | Cost of repurchases (including commissions) | $184.4 million | | Average price paid per share | $47.40 | | Amount remaining available for future purchases | $44.5 million | 17. Noncontrolling Interests This note explains the noncontrolling interests in Shift4 Payments, LLC and the changes in ownership percentages | LLC Interests Ownership | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Shift4 Payments, Inc. | 67.8% | 68.2% | | Continuing Equity Owners | 32.2% | 31.8% | | Total | 100.0% | 100.0% | - Searchlight ceased to be a Continuing Equity Owner as of May 24, 2022, after redeeming all its outstanding LLC Interests[119] 18. Equity-based Compensation This note describes the Company's 2020 Incentive Award Plan, including recent amendments, and the recognized and unrecognized equity-based compensation expenses - The 2020 Incentive Award Plan was amended to increase the number of Class A common shares available for issuance to 7.5 million and the annual 'evergreen' increase to 2% of outstanding shares[121] | Metric (in millions) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :-------------------------------- | :------------------------------- | :----------------------------- | | Equity-based compensation expense | $9.3 | $26.2 | - Total unrecognized equity-based compensation expense related to outstanding RSUs and PRSUs was $92.9 million at June 30, 2022, expected to be recognized over a weighted-average period of 3.33 years[124] 19. Basic and Diluted Net Income (Loss) per Share This note presents the calculation of basic and diluted net income (loss) per share for Class A and Class C common stock, and identifies securities excluded from diluted EPS calculations | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Class A net income (loss) per share - basic | $0.19 | $0.05 | | Class C net income (loss) per share - basic | $0.19 | $0.05 | | Class A net income (loss) per share - diluted | $0.18 | $0.02 | | Class C net income (loss) per share - diluted | $0.18 | $0.02 | - Certain LLC Interests, RSUs, and Convertible Notes were excluded from the calculation of diluted net income (loss) per share due to their anti-dilutive effect or not meeting conversion price conditions[128][129] 20. Supplemental Cash Flows Information This note provides supplemental cash flow disclosures, including cash paid for interest and income taxes, and details on noncash investing and financing activities | Metric (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for interest | $12.4 | $10.5 | | Cash paid for income taxes, net of refunds | $0.1 | $0.3 | | Noncash investing activities (The Giving Block acquisition shares and equity-based compensation awards) | $36.5 | — | 21. Segments This note clarifies that the Company operates as a single operating and reportable segment and provides a summary of gross revenue by revenue type - The Company's operations constitute one operating segment and one reportable segment, as the Chief Operating Decision Maker (CODM) reviews financial information on a consolidated level[133] | Revenue Type (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Payments-based revenue | $473.9 | $324.8 | $845.4 | $540.7 | | Subscription and other revenues | $32.8 | $26.2 | $63.2 | $49.6 | | Gross revenue | $506.7 | $351.0 | $908.6 | $590.3 | 22. Subsequent Events This note discloses significant events that occurred after June 30, 2022, including additional acquisitions, changes in executive leadership, and board realignment - Subsequent to June 30, 2022, the Company acquired three technology vendors for approximately $56.8 million and committed approximately $120.0 million to acquire ongoing merchant relationships and secure non-solicitation rights[135][136] - Bradley Herring resigned as Chief Financial Officer, effective August 5, 2022, and Nancy Disman was appointed as the new Chief Financial Officer and principal financial officer, effective the same date[137][139] - The Board of Directors realigned its classification to achieve an equal balance of membership among the classes of directors, effective August 5, 2022[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive discussion and analysis of the Company's financial condition, results of operations, and cash flows, including an overview of its business, recent developments, factors impacting performance, key financial definitions, and comparisons of financial results for the reported periods Overview Shift4 is a leading independent provider of payment acceptance and processing solutions in the U.S., offering an end-to-end payments platform and technology solutions through a partner-centric distribution network of over 7,000 ISVs and VARs - Shift4 is a leading independent provider of payment acceptance and processing and technology solutions in the United States, distributing services through internal teams and a network of over 7,000 independent software vendors (ISVs) and value-added resellers (VARs)[143][146] | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | End-to-end payment volume | $16.9 billion | $11.8 billion | $30.3 billion | $19.8 billion | | Contribution to gross revenue less network fees | 72% | 68% | 70% | 65% | Recent Developments The Company authorized stock repurchase programs totaling $250.0 million through December 31, 2022, repurchasing $184.4 million of Class A common stock in the first six months of 2022, and completed or has pending significant acquisitions - The Board authorized stock repurchase programs totaling $250.0 million through December 31, 2022, under which 3,887,191 shares of Class A common stock were repurchased for $184.4 million during the six months ended June 30, 2022[149][150] - The Company acquired The Giving Block for $106.9 million (net of cash acquired) on February 28, 2022, and has a pending acquisition of Finaro for $200.0 million in cash, 6,439,316 shares of Class A common stock (approximately $325.0 million), and a performance-based earnout of up to $50.0 million[151][152] Factors Impacting Our Business and Results of Operations Key factors influencing the business include increased adoption of software-integrated payments, conversion of gateway-only customers, merchant base mix, ability to attract and retain software partners, continuous investment in product and operations, strategic acquisitions, and macroeconomic conditions - Business growth is significantly impacted by the increased adoption of software-integrated payments and the conversion of gateway-only customers to end-to-end payment offerings[154][155] - The ability to attract and retain software partners, continuous investment in product development and enhancements, and the pursuit of strategic acquisitions are critical for future growth and profitability[157][158][159] - Macro-level consumer spending trends and economic conditions, including seasonal patterns, can cause fluctuations in quarterly revenue[161] Key Financial Definitions This section defines the key components of the Company's revenue and expenses as presented in the Condensed Consolidated Statements of Operations - Gross revenue consists of payments-based revenue (fees for processing and gateway services) and subscription and other revenues (SaaS fees, hardware sales, support, and other miscellaneous services)[162][163] - Cost of sales includes interchange and processing fees, residual commissions, equipment costs, and amortization of capitalized software development, acquired technology, and customer acquisition costs[164][165][166] - Operating expenses encompass general and administrative, depreciation and amortization, professional fees, advertising and marketing, restructuring, and transaction-related expenses[167][168][169][170] Comparison of Results for the Three Months Ended June 30, 2022 and 2021 For Q2 2022, gross revenue increased 44.4% to $506.7 million, driven by a 45.9% rise in payments-based revenue due to a 43% increase in end-to-end payment volume, leading to a 221.9% surge in net income attributable to Shift4 Payments, Inc | Metric (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | $ Change | % Change | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Gross revenue | $506.7 | $351.0 | $155.7 | 44.4% | | Payments-based revenue | $473.9 | $324.8 | $149.1 | 45.9% | | Subscription and other revenues | $32.8 | $26.2 | $6.6 | 25.2% | | Gross profit | $105.8 | $78.1 | $27.7 | 35.5% | | Income from operations | $22.9 | $4.9 | $18.0 | NM | | Net income attributable to Shift4 Payments, Inc. | $10.3 | $3.2 | $7.1 | 221.9% | - The increase in payments-based revenue was primarily driven by a $5.0 billion, or 43%, increase in end-to-end payment volume for the three months ended June 30, 2022, compared to the prior year[176] Comparison of Results for the Six Months Ended June 30, 2022 and 2021 For H1 2022, gross revenue increased 53.9% to $908.6 million, with payments-based revenue up 56.4% due to a 52.8% increase in end-to-end payment volume, leading to a significant improvement from a net loss to a net income attributable to Shift4 Payments, Inc | Metric (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | $ Change | % Change | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Gross revenue | $908.6 | $590.3 | $318.3 | 53.9% | | Payments-based revenue | $845.4 | $540.7 | $304.7 | 56.4% | | Subscription and other revenues | $63.2 | $49.6 | $13.6 | 27.4% | | Gross profit | $190.4 | $129.9 | $60.5 | 46.6% | | Income (loss) from operations | $11.2 | $(38.6) | $49.8 | (129.0)% | | Net income (loss) attributable to Shift4 Payments, Inc. | $2.8 | $(29.6) | $32.4 | NM | - The increase in payments-based revenue was primarily driven by a $10.5 billion, or 52.8%, increase in end-to-end payment volume for the six months ended June 30, 2022, compared to the prior year[191] Key Performance Indicators and Non-GAAP Measures This section presents key performance indicators and non-GAAP financial measures, including end-to-end payment volume, gross revenue less network fees, EBITDA, and Adjusted EBITDA, along with their reconciliations to GAAP measures | Metric (in millions) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | End-to-end payment volume | $16,873.1 | $11,833.9 | $30,294.0 | $19,820.7 | | Gross revenue less network fees | $182.6 | $136.3 | $331.4 | $233.8 | | EBITDA | $52.9 | $30.6 | $70.5 | $12.2 | | Adjusted EBITDA | $65.6 | $45.2 | $109.9 | $67.4 | - Adjusted EBITDA is the primary financial performance measure used by management to evaluate the business and monitor results of operations, as it excludes certain non-cash and other nonrecurring items not indicative of ongoing operations[208] Liquidity and Capital Resources This section discusses the Company's sources and uses of liquidity, including cash flow from operations, debt borrowings, and equity transactions, and outlines its material cash requirements - The Company's liquidity requirements are primarily sourced from cash flow from operations and, when needed, with debt borrowings or equity transactions, with principal uses including debt service, capital expenditures, and acquisitions[216] | Cash Flow Activity (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $85.0 | $5.0 | | Net cash used in investing activities | $(87.1) | $(115.5) | | Net cash used in financing activities | $(211.0) | $(117.6) | - As of June 30, 2022, the Company had $1,772.5 million in fixed rate debt outstanding and a Revolving Credit Facility with a borrowing capacity of $99.5 million, with no outstanding borrowings[223][225] - Net cash used in financing activities increased primarily due to $185.9 million in payments for the repurchase of common stock during the six months ended June 30, 2022[223] Critical Accounting Estimates This section highlights the accounting policies that require significant management judgment and estimation, which are critical to the portrayal of the Company's financial condition and results of operations - Critical accounting estimates include the allowance for doubtful accounts, valuation of contingent liabilities, other intangible assets, and goodwill, with the full impact of the COVID-19 pandemic remaining unknown[230] New accounting pronouncements This section directs readers to Note 1 for information regarding new accounting pronouncements and their impact on the Company's financial statements - For information regarding new accounting pronouncements and their impact, refer to Note 1 in the notes to the accompanying unaudited condensed consolidated financial statements[232] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily related to interest rates, affecting its financial instruments - The Company is exposed to interest rate risk primarily from its $1,772.5 million of fixed-rate debt outstanding, which is not subject to an interest rate hedge, causing fair value fluctuations with changes in interest rates[234] - The Revolving Credit Facility, with a borrowing capacity of $99.5 million, bears floating interest rates, but no amounts were outstanding as of June 30, 2022[235] Item 4. Controls and Procedures This section reports on the effectiveness of the Company's disclosure controls and procedures and any changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[267] - There were no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2022[268] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section provides an overview of the Company's involvement in legal claims and proceedings - The Company is party to various claims and legal proceedings arising in the ordinary course of business but does not believe any existing claims will have a material adverse effect on its business, consolidated financial condition, or results of operations[237] Item 1A. Risk Factors This section outlines the significant risks associated with investing in the Company's Class A common stock, including business-specific risks related to regulation and cryptocurrency, and general risks such as geopolitical conflicts and inflation - Investing in the Company's Class A common stock involves a high degree of risk, and investors should carefully consider the risks described[238] - Key risks include governmental regulation related to privacy, data protection, information security, and cryptocurrency, as well as general risks such as the ongoing military action between Russia and Ukraine and exposure to fluctuations in inflation[239][251][255] Business risks The Company faces significant regulatory and legal obligations concerning privacy, data protection, information security, and cryptocurrency across its operating markets, with non-compliance risking enforcement actions, fines, litigation, and reputational harm - The Company is subject to various privacy, data protection, information security, and consumer protection laws (e.g., GLBA, GDPR, CCPA, CPRA) across different markets, with non-compliance risking enforcement actions, fines, litigation, and reputational damage[239][241][242] - Current and planned cryptocurrency offerings could subject the Company to additional regulations, licensing requirements, and financial/third-party risks such as theft or custodian failure, potentially harming financial performance[249][250] General Risk Factors The ongoing military action between Russia and Ukraine could adversely affect the Company's business, financial condition, and results of operations through market disruptions, financial instability, and supply chain issues, while inflation fluctuations could increase expenses and potentially reduce sales - The ongoing military action between Russia and Ukraine could adversely affect the Company's business, financial condition, and results of operations due to market disruptions, financial instability, supply chain interruptions, and increased cyberattacks[251][253][254] - The Company is exposed to fluctuations in inflation, which could negatively affect expenses (e.g., employee compensation, supplies) and potentially lead to reduced sales or customer dissatisfaction if price increases are implemented to maintain margins[255] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's purchases of Class A common stock under its authorized repurchase programs during the three months ended June 30, 2022 | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares that May Yet Be Purchased under the Programs (in millions) | | :--------------- | :------------------------------- | :--------------------------- | :---------------------------------------------------------------------------------------- | | April 1-30, 2022 | 1,126,277 | $54.39 | $0 | | May 1-31, 2022 | 1,793,954 | $44.58 | $20.4 | | June 1-30, 2022 | 665,450 | $38.92 | $44.5 | | Total | 3,585,681 | | | - As of June 30, 2022, approximately $44.5 million remained available for future purchases under the stock repurchase programs[258] Item 3. Defaults Upon Senior Securities This section reports whether there have been any defaults upon senior securities - No defaults upon senior securities were reported[259] Item 4. Mine Safety Disclosures This section indicates the applicability of mine safety disclosures to the Company - This item is not applicable to the Company[260] Item 5. Other Information This section reports any other information not covered in previous items - No other information was reported[261] Item 6. Exhibits This section provides a list of all exhibits filed as part of the Quarterly Report on Form 10-Q, including various corporate documents and certifications - The report includes various exhibits such as the Amended and Restated Certificate of Incorporation, By-Laws, Indentures for Convertible and Senior Notes, the Amended and Restated 2020 Incentive Award Plan, and certifications required by the Sarbanes-Oxley Act[263][264] SIGNATURES Signatures This section contains the official signatures of the Company's principal executive officer and principal financial officer, certifying the report - The report was duly signed on August 5, 2022, by Jared Isaacman, Chief Executive Officer, and Bradley Herring, Chief Financial Officer[272]