UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from       to       .

Commission file number 001-39313

 

 

SHIFT4 PAYMENTS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

 

84-3676340

(State or other jurisdiction of

incorporation or organization)

 

 

(I.R.S. Employer

Identification No.)

2202 N. Irving Street

Allentown, Pennsylvania

  

  

18109

(Address of principal executive offices)

 

 

(Zip Code)

(Registrant’s telephone number, including area code): (888) 276-2108

 

N/A

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes No

As of November 3, 2020, there were 30,023,096 shares of the registrant’s Class A common stock, $0.0001 par value per share, outstanding, 34,885,457 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding and 15,129,252 shares of the registrant’s Class C common stock, $0.0001 par value per share, outstanding.

 

 

 

 


 

 

SHIFT4 PAYMENTS, INC.

TABLE OF CONTENTS

 

 

 

PART I. FINANCIAL INFORMATION

 

Page

Number

 

Item 1

Financial Statements (unaudited)

5

 

 

Condensed Consolidated Balance Sheets

5

 

 

Condensed Consolidated Statements of Operations

6

 

 

Condensed Consolidated Statements of Changes in Redeemable Preferred Units and Stockholders’ Equity/Members’ (Deficit)

7

 

 

Condensed Consolidated Statements of Cash Flows

9

 

 

Notes to Condensed Consolidated Financial Statements

10

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

49

 

Item 4.

Controls and Procedures

49

 

 

PART II. OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

50

 

Item 1A.

Risk Factors

50

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

76

 

Item 3.

Defaults Upon Senior Securities

76

 

Item 4.

Mine Safety Disclosures

76

 

Item 5.

Other Information

76

 

Item 6.

Exhibits

76

Signatures

 

78

 

 

2


Table of Contents

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report, including statements relating to our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding expected growth, future capital expenditures and debt service obligations, and the anticipated impact of the novel coronavirus, or COVID-19, on our business, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential”, or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the factors described under the sections in this Quarterly Report titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

 

 

 

3


Table of Contents

 

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our ordinary shares. The principal risks and uncertainties affecting our business include the following:

 

the recent novel coronavirus, or COVID-19, global pandemic has had and is expected to continue to have a material adverse effect on our business and results of operations;

 

substantial and increasingly intense competition worldwide in the financial services, payments and payment technology industries may adversely affect our overall business and operations;

 

potential changes in the competitive landscape, including disintermediation from other participants in the payments chain, could harm our business;

 

our ability to anticipate and respond to changing industry trends and the needs and preferences of our merchants and consumers may adversely affect our competitiveness or the demand for our products and services;

 

because we rely on third-party vendors to provide products and services, we could be adversely impacted if they fail to fulfill their obligations;

 

acquisitions create certain risks and may adversely affect our business, financial condition or results of operations;

 

we may not be able to continue to expand our share of the existing payment processing markets or expand into new markets which would inhibit our ability to grow and increase our profitability; and

 

our Founder and Searchlight will continue to have significant influence over us. including control over decisions that require the approval of stockholders.

 

 

4


Table of Contents

 

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements (unaudited)

SHIFT4 PAYMENTS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) (in millions, except share and per share amounts)

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

328.9

 

 

$

3.7

 

Accounts receivable, net of allowance for doubtful accounts of $5.9 in 2020 (2019 - $2.5)

 

 

91.3

 

 

 

78.6

 

Contract assets, net of allowance for doubtful accounts of $0 in 2020 (2019 - $2.9) (Note 3)

 

 

 

 

 

6.8

 

Inventory (Note 5)

 

 

1.2

 

 

 

8.5

 

Prepaid expenses and other current assets (Note 12)

 

 

12.3

 

 

 

8.8

 

Total current assets

 

 

433.7

 

 

 

106.4

 

Noncurrent assets

 

 

 

 

 

 

 

 

Goodwill (Note 6)

 

 

422.0

 

 

 

421.3

 

Other intangible assets, net (Note 7)

 

 

183.0

 

 

 

213.2

 

Capitalized acquisition costs, net (Note 8)

 

 

29.7

 

 

 

26.4

 

Equipment for lease, net (Note 9)

 

 

32.7

 

 

 

 

Property, plant and equipment, net (Note 10)

 

 

14.0

 

 

 

15.4

 

Contract assets, net of allowance for doubtful accounts of $0 in 2020 (2019 - $1.7) (Note 3)

 

 

 

 

 

3.9

 

Other noncurrent assets

 

 

0.5

 

 

 

1.4

 

Total noncurrent assets

 

 

681.9

 

 

 

681.6

 

Total assets

 

$

1,115.6

 

 

$

788.0

 

Liabilities and Stockholders' Equity/Members' (Deficit)

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of debt (Note 11)

 

$

1.8

 

 

$

5.3

 

Accounts payable

 

 

76.7

 

 

 

58.1

 

Accrued expenses and other current liabilities (Note 12)

 

 

26.5

 

 

 

60.9

 

Deferred revenue (Note 3)

 

 

8.1

 

 

 

5.6

 

Total current liabilities

 

 

113.1

 

 

 

129.9

 

Noncurrent liabilities

 

 

 

 

 

 

 

 

Long-term debt (Note 11)

 

 

437.7

 

 

 

635.1

 

Deferred tax liability (Note 14)

 

 

5.2

 

 

 

4.1

 

Other noncurrent liabilities (Note 4)

 

 

2.1

 

 

 

4.8

 

Total noncurrent liabilities

 

 

445.0

 

 

 

644.0

 

Total liabilities

 

 

558.1

 

 

 

773.9

 

Commitments and contingencies (Note 17)

 

 

 

 

 

 

 

 

Redeemable preferred units, $100,000 par value; 430 shares authorized, issued and outstanding at December 31, 2019 (Note 18)

 

 

 

 

 

43.0

 

Members' deficit - Shift4 Payments, LLC (Note 19)

 

 

 

 

 

 

 

 

Class A Common units, $0 par value; 100,000 shares authorized, issued and outstanding at December 31, 2019

 

 

 

 

 

 

Class B Common units, $323 par value; 1,010 shares authorized, issued and outstanding at December 31, 2019

 

 

 

 

 

0.3

 

Members' equity

 

 

 

 

 

149.2

 

Stockholders' equity - Shift4 Payments, Inc. (Note 19)

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 20,000,000 shares authorized at September 30, 2020, none issued and outstanding

 

 

 

 

 

 

Class A common stock, $0.0001 par value per share, 300,000,000 shares authorized, 28,550,026 shares issued and outstanding at September 30, 2020

 

 

 

 

 

 

Class B common stock, $0.0001 par value per share, 100,000,000 shares authorized, 35,567,488 shares issued and outstanding at September 30, 2020

 

 

 

 

 

 

Class C common stock, $0.0001 par value per share, 100,000,000 shares authorized, 15,920,291 shares issued and outstanding at September 30, 2020

 

 

 

 

 

 

Additional paid-in capital

 

 

572.6

 

 

 

 

Retained deficit

 

 

(262.6

)

 

 

(178.4

)

Total stockholders' equity attributable to Shift4 Payments, Inc./members' (deficit)

 

 

310.0

 

 

 

(28.9

)

Noncontrolling interests

 

 

247.5

 

 

 

 

Total stockholders' equity/members' (deficit)

 

 

557.5

 

 

 

(28.9

)

Total liabilities and stockholders' equity/members' deficit

 

$

1,115.6

 

 

$

788.0

 

See accompanying notes to unaudited condensed consolidated financial statements.

5


Table of Contents

 

SHIFT4 PAYMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited) (in millions, except share and per share amounts)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Gross revenue

 

$

214.8

 

 

$

193.8

 

 

$

556.0

 

 

$

529.3

 

Cost of sales

 

 

163.3

 

 

 

147.2

 

 

 

427.7

 

 

 

400.5

 

Gross profit

 

 

51.5

 

 

 

46.6

 

 

 

128.3

 

 

 

128.8

 

General and administrative expenses

 

 

35.5

 

 

 

37.5

 

 

 

147.0

 

 

 

90.1

 

Depreciation and amortization expense

 

 

16.2

 

 

 

10.1

 

 

 

37.1

 

 

 

29.7

 

Professional fees

 

 

2.9

 

 

 

3.3

 

 

 

5.8

 

 

 

7.1

 

Advertising and marketing expenses

 

 

0.8

 

 

 

1.6

 

 

 

2.9

 

 

 

4.4

 

Restructuring expenses (Note 4)

 

 

0.1

 

 

 

3.4

 

 

 

0.4

 

 

 

3.7

 

Other operating (income) expense, net (Note 3)

 

 

 

 

 

 

 

 

(12.4

)

 

 

 

Total operating expenses

 

 

55.5

 

 

 

55.9

 

 

 

180.8

 

 

 

135.0

 

Loss from operations

 

 

(4.0

)

 

 

(9.3

)

 

 

(52.5

)

 

 

(6.2

)

Loss on extinguishment of debt (Note 11)

 

 

 

 

 

 

 

 

(7.1

)

 

 

 

Other income, net

 

 

0.5

 

 

 

0.1

 

 

 

0.6

 

 

 

1.0

 

Interest expense

 

 

(7.1

)

 

 

(12.9

)

 

 

(32.1

)

 

 

(38.1

)

Loss before income taxes

 

 

(10.6

)

 

 

(22.1

)

 

 

(91.1

)

 

 

(43.3

)

Income tax benefit (provision) (Note 14)

 

 

0.7

 

 

 

(0.5

)

 

 

1.0

 

 

 

(1.0

)

Net loss (1)

 

 

(9.9

)

 

$

(22.6

)

 

 

(90.1

)

 

$

(44.3

)

Net loss attributable to noncontrolling interests (2)

 

 

(4.9

)

 

 

 

 

 

 

(5.9

)

 

 

 

 

Net loss attributable to Shift4 Payments, Inc. (3)

 

$

(5.0

)

 

 

 

 

 

$

(84.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Class A net loss per share

 

$

(0.12

)

 

 

 

 

 

$

(0.15

)

 

 

 

 

Weighted average common stock outstanding

 

 

23,309,247

 

 

 

 

 

 

 

22,363,399

 

 

 

 

 

Class C net loss per share

 

$

(0.12

)

 

 

 

 

 

$

(0.15

)

 

 

 

 

Weighted average common stock outstanding

 

 

19,222,017

 

 

 

 

 

 

 

19,424,100

 

 

 

 

 

 

(1)

Net loss is equal to comprehensive loss.

(2)

Net loss attributable to noncontrolling interests is equal to comprehensive loss attributable to noncontrolling interests.

(3)

Net loss attributable Shift4 Payments, Inc.is equal to comprehensive loss attributable to Shift4 Payments, Inc.

(4)

The amounts for the nine months ended September 30, 2020 represent basic and diluted loss per share of Class A and Class C common stock and weighted average shares of Class A and Class C common stock outstanding for the period from June 5, 2020 through September 30, 2020, the period following the Reorganization Transactions and Shift4 Payments, Inc.'s initial public offering described in Note 1. See Note 23 for additional information on basic and diluted net loss per share.

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

6


Table of Contents

 

SHIFT4 PAYMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED UNITS AND STOCKHOLDERS’ EQUITY/ MEMBERS’ (DEFICIT)

(Unaudited) (in millions, except units and shares)

 

 

Redeemable

Preferred Units

 

 

 

Class A

Common Units

 

Class B

Common Units

 

Class A

Common Stock

 

Class B

Common Stock

 

Class C

Common Stock

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

Units

 

Amount

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

paid-in

capital

 

Members'

Equity

 

Retained

Deficit

 

Noncontrolling

Interests

 

equity

(deficit)

 

Balances at December 31, 2019

 

430

 

$

43.0

 

 

 

 

100,000

 

$

 

 

1,010

 

$

0.3

 

 

 

$

 

 

 

$

 

 

-

 

$

 

$

 

$

149.2

 

$

(178.4

)

$

 

$

(28.9

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5.2

)

 

 

 

(5.2

)

Capital distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

 

 

(0.1

)

Preferred return on redeemable preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.2

)

 

 

 

 

 

(1.2

)

Balances at March 31, 2020

 

430

 

 

43.0

 

 

 

 

100,000

 

 

 

 

1,010

 

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

147.9

 

 

(183.6

)

 

 

 

(35.4

)

Net loss prior to Reorganization Transactions, IPO and concurrent private placement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(72.9

)

 

 

 

(72.9

)

Capital distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4

)

 

 

 

 

 

(0.4

)

Preferred return on redeemable preferred units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.9

)

 

 

 

 

 

(0.9

)

Balances at June 4, 2020 prior to Reorganization Transactions, IPO and concurrent private placement

 

430

 

 

43.0

 

 

 

 

100,000

 

 

 

 

1,010

 

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

146.6

 

 

(256.5

)

 

 

 

(109.6

)

Reorganization transactions

 

(430

)

 

(43.0

)

 

 

 

(100,000

)

 

 

 

(1,010

)

 

(0.3

)

 

528,150

 

 

 

 

39,204,989

 

 

 

 

15,513,817

 

 

 

 

189.9

 

 

(146.6

)

 

 

 

 

 

43.0

 

Preferred dividends settled with LLC interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.3

 

 

 

 

 

 

 

 

2.3

 

Issuance of common stock in IPO and concurrent private placement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,250,000

 

 

 

 

 

 

 

 

4,625,346

 

 

 

 

463.8

 

 

 

 

 

 

 

 

463.8

 

Allocation of equity to noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(211.5

)

 

 

 

 

 

211.5

 

 

 

Issuance of common stock for change of control contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

915,503

 

 

 

 

 

 

 

 

 

 

 

 

21.1

 

 

 

 

 

 

 

 

21.1

 

Issuance of restricted stock units for change of control contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2.1

 

 

 

 

 

 

 

 

2.1

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50.0

 

 

 

 

 

 

 

 

50.0

 

Net loss subsequent to Reorganization Transactions, IPO and concurrent private placement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.1

)

 

(1.0

)

 

(2.1

)

Balances at June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18,693,653

 

 

 

 

39,204,989

 

 

 

 

20,139,163

 

 

 

 

517.7

 

 

 

 

(257.6

)

 

210.5

 

 

470.6

 

Issuance of Class A common stock in connection with Follow-on Offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000,000

 

 

 

 

 

 

 

 

 

 

 

 

91.8

 

 

 

 

 

 

 

 

91.8

 

Allocation of equity to noncontrolling interests from Follow-on offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45.7

)

 

 

 

 

 

45.7

 

 

 

Exchange of shares held by Searchlight

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,856,373

 

 

-

 

 

(3,637,501

)

 

 

 

(4,218,872

)

 

 

 

3.8

 

 

 

 

 

 

(3.8

)

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.2

)

 

 

 

 

 

 

 

(1.2

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.2

 

 

 

 

 

 

 

 

6.2

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5.0

)

 

(4.9

)

 

(9.9

)

Balances at September 30, 2020

 

 

$

 

 

 

 

 

$

 

 

 

$

 

 

28,550,026

 

$

 

 

35,567,488

 

$

 

 

15,920,291

 

$

 

$

572.6

 

$

 

$

(262.6

)

$

247.5

 

$

557.5

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7


Table of Contents

 

SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN REDEEMABLE PREFERRED UNITS AND STOCKHOLDERS’ EQUITY/ MEMBERS’ (DEFICIT) (continued)

(Unaudited) (in millions, except units and shares)

 

 

Redeemable Preferred Units

 

 

 

 

 

Class A Common Units

 

Class B Common Units

 

Members'

 

Retained

 

 

 

 

 

Units

 

Amount

 

 

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Equity

 

Deficit

 

Total

 

Balances at December 31, 2018

 

430

 

$

43.0

 

 

 

 

 

 

100,000

 

$

 

 

1,010

 

$

0.3

 

$

154.4

 

$

(113.3

)

$

41.4

 

Net loss