four-10q_20200930.htm

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

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.

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).

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.

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 anticip ated 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.

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:

	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.

	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

See accompanying notes to unaudited condensed consolidated financial statements.

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

	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.

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

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)

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

		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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
Emerging growth company	☒

	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		—		—