Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information included elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read the entire prospectus carefully, including the “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Some of the statements in this prospectus constitute forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements.”Overview
We are a leading independent provider of integrated payment processing and technology solutions in the United States based on total volume of payments processed. We have achieved our leadership position through decades of solving complex business and operational challenges facing our customers: software partners and merchants. 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 payments and utilize technology in their businesses.
Merchants are increasingly adopting disparate software solutions to operate their businesses more effectively. The complexity of integrating a seamless payment solution across these software suites has grown exponentially. For example, a restaurant in the United States may use over a dozen disparate software systems to operate its business, manage interactions with its customers and accept payments. A large resort may operate an even greater number of software systems to enable online reservations, check-ins, restaurants, salon and spa, golf, parking and more. The scale and complexity of managing these software systems that are sourced from different providers while seamlessly accepting payments is challenging for merchants of any size.
Software partners are increasingly required to ensure that their solutions are integrated with a variety of applications to service merchants. For example, any software partner seeking to be adopted in a resort, such as an online reservation system or restaurant point-of-sale, or POS, must be able to integrate into that resort’s property management systems. These software integrations need to enable secure payment acceptance and also support additional services to manage the guest’s experience. Facilitating these integrations is both costly and time-consuming for software partners.
We integrate disparate software systems through a single point of connectivity. By partnering with us, every software provider receives the benefit of both a state-of-the-art payments platform and our library of over 350 established integrations with market-leading software suites. In turn, our merchants are able to simplify payment acceptance and streamline their business operations by reducing the number of vendors on which they rely.
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). We also offer innovative technology solutions that go beyond payment processing—some of which are developed in-house, such as business intelligence and POS software, while others are powered by our network of complementary third-party applications.
We employ a partner-centric distribution approach in which we market and sell our solutions through a diversified network of over 7,000 software partners, which consist of independent software vendors, or ISVs, and value-added resellers, or 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. As of December 31, 2019, we served over 64,000 merchants who subscribe to our end-to-end payments offering, representing over $22.0 billion in end-to-end payment volume for the year ended December 31, 2019. As of March 31, 2020, we served over 66,000 merchants who subscribe to our end-to-end payments offering, representing over $6.0 billion in end-to-end payment volume for the three months ended March 31, 2020. This end-to-end payment volume contributed approximately 57% and 56% of net revenue for the year ended December 31, 2019 and the three months ended March 31, 2020, respectively. Additionally, in 2019 we served over 66,000 merchants representing over $185.0 billion in payment volume that relied on Shift4’s gateway or technology solutions but did not utilize our end-to-end payments offering.
Our merchants range from small-to-medium-sized businesses, or SMBs, to large enterprises across numerous verticals in which we have deep industry expertise, including food and beverage, lodging and leisure (which we collectively refer to as hospitality). In addition, our merchant base is highly diversified with no single merchant representing more than 1% of end-to-end payment volume for the year ended December 31, 2019 or the three months ended March 31, 2020.
We derive the majority of our revenue from fees paid by our merchants, which principally include a processing fee that is charged as a percentage of end-to-end payment volume. In cases where merchants subscribe only to our gateway, we generate revenue from transaction fees charged in the form of a fixed fee per transaction. We also generate subscription revenue from licensing subscriptions to our POS software, business intelligence tools, payment device management and other technology solutions, for which we typically charge flat subscription fees on a monthly basis. Our revenue is recurring in nature because of the mission-critical and embedded nature of the solutions we provide, the high switching costs associated with these solutions and the multi-year contracts we have with our customers. We also benefit from a high degree of operating leverage given the combination of our highly scalable payments platform and strong customer unit economics.
Our total revenue increased to $731.4 million for fiscal year ended December 31, 2019 from $560.6 million for fiscal year ended December 31, 2018. We generated net loss of $58.1 million for fiscal year ended December 31, 2019 and net loss of $49.9 million for fiscal year ended December 31, 2018. Our net revenue increased to $305.5 million for fiscal year ended December 31, 2019 from $252.7 million for fiscal year ended December 31, 2018, representing year-over-year growth of 20.9%. Our adjusted EBITDA increased to $103.8 million for fiscal year ended December 31, 2019 from $89.9 million for fiscal year ended December 31, 2018, representing year-over-year growth of 15.5%. The percentage of our total net revenue derived from volume-based payments, subscription agreements and transaction fees was 56.7%, 26.5% and 14.6% for the fiscal year ended December 31, 2019, respectively, and 56.2%, 26.9% and 14.0% for the fiscal year ended December 31, 2018, respectively. See “—Summary Historical and Pro Forma Condensed Consolidated Financial and Other Data” for a reconciliation of our non-GAAP measures to the most directly comparable financial measure calculated and presented in accordance with GAAP.
Our Shift4 Model
Our mission is to power the convergence of integrated payments and commerce-enabling software. Solving the complexity inherent to our software partners and merchants requires a specialized approach that combines a seamless customer experience with a secure, reliable and robust suite of payments and technology offerings.
To achieve this mission, we strategically built our Shift4 Model on a three pillar foundation: (i) payments platform; (ii) technology solutions; and (iii) partner-centric distribution.
Payments Platform
Our payments platform provides omni-channel card acceptance and processing solutions, including:
For the year ended December 31, 2019, we processed over 3.5 billion transactions representing over $200.0 billion in payment volume across multiple payment types, including credit, debit, contactless card, EMV, mobile wallets and alternative payment methods. We continue to innovate and evolve our payments offering as new technology and payment methods are adopted by consumers.
Through our proprietary gateway, our payments platform is integrated with over 350 software suites including some of the largest and most recognized software providers in the world. In addition, we enable connectivity with the largest payment processors, alternative payment rails and over 100 payment devices. Our payments platform includes market-leading security features that help prevent consumer card data from entering the merchant’s environment.
Our merchants have the flexibility to subscribe to our payments platform in one of two ways: end-to-end payments or gateway. End-to-end payments merchants benefit from a single vendor solution for payment acceptance (including our proprietary gateway), devices, POS software solutions and a full suite of business intelligence tools. By consolidating these functions through a single, unified vendor solution, these merchants are able to reduce total spend on payment acceptance solutions and access gateway and technology solutions as value-added features. Gateway merchants benefit from interoperability with third-party payment processors. The flexibility in our model helps us attract software partners and merchants.
Technology Solutions
Our suite of technology solutions is designed to streamline our customers’ business operations, drive growth through strong consumer engagement and improve their business using rich transaction-level data.
Partner-Centric Distribution
Our payments platform and technology solutions are delivered to our merchants through our partner-centric distribution network. Today, our network includes over 7,000 software partners, providing full coverage across the United States.
Our partner-centric distribution approach is designed to leverage the domain expertise and local relationships that our software partners have built with our merchants over years of doing business together. Our software partners are entrusted by merchants to guide software purchasing decisions and provide service and support. In turn, our software partners entrust us to provide innovative payment and technology solutions to help them continue to grow.
Our Key Differentiators
We believe that our Shift4 Model provides us with a competitive advantage and differentiated position in the market.
Our Growth Strategy
Our growth strategy will continue to be driven by our ability to leverage our Shift4 Model to solve the most complex business challenges facing our customers. The key elements of this strategy include:
identifying emerging trends in adjacent areas and verticals that could result in attractive investment opportunities, such as specialty retail.
Our Market and Trends Impacting the Industry
The convergence of payments and software is transforming global commerce. Our software partners and merchants are seeking a bundled integrated payment and software solution to introduce operating efficiencies and enhance consumer experiences. The market opportunity is large and growing. According to the January 2019 issue of The Nilson Report, purchase volume on cards in the United States is expected to reach $10.4 trillion by 2027 from $5.5 trillion in 2017, representing a compound annual growth rate, or CAGR, of approximately 7%. We leverage our Shift4 Model to capture a larger share of this market opportunity and to capitalize on the following trends defining our markets:
Trends Impacting Merchants
Trends Impacting ISVs
Searchlight Capital
Searchlight is a global private investment firm with over $7 billion in assets under management and offices in New York, London and Toronto. The firm manages capital through varied investment funds and special purpose partnerships. For additional information regarding Searchlight’s ownership in us after this offering, see “—Summary of the Transactions” and “Principal Stockholders.”