four-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

__________________________________________________


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

For the quarterly period ended September 30, 2021


o			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 x No o

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 x No o

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	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
Emerging growth company	x

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 x

As of November 8, 2021, there were 51,522,201 shares of the registrant’s Class A common stock, $0.0001 par value per share, outstanding, 26,272,654 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding and 5,139,890 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
Item 1	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Changes in Redeemable Preferred Units and Stockholders’ Equity/Members’ (Deficit)	6
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4	Controls and Procedures	54

	PART II. OTHER INFORMATION
Item 1	Legal Proceedings	56
Item 1A	Risk Factors	56
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 3	Defaults Upon Senior Securities	56
Item 4	Mine Safety Disclosures	56
Item 5	Other Information	56
Item 6	Exhibits	57
Signatures		58

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 (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (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, the anticipated impact of the COVID-19 pandemic (and any variants of the virus) on our business, and our expectations regarding our filer status as of December 31, 2021 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, but not limited to the following:

•the ongoing impact of the COVID-19 global pandemic on our business and results of operations;

•substantial and increasingly intense competition worldwide in the financial services, payments and payment technology industries;

•potential changes in the competitive landscape, including disintermediation from other participants in the payments chain;

•our ability to anticipate and respond to changing industry trends and the needs and preferences of our merchants and consumers;

•our reliance on third-party vendors to provide products and services;

•risks associated with acquisitions;

•our expansion of our share of the existing payment processing markets or into new markets;

•integration and interoperability of our services and products with a variety of operating systems, software, device and web browsers;

•dependence on our merchant and software partner relationships and strategic partnerships with various institutions to operate and grow our business;

•impairment of significant amounts of goodwill and intangible assets on our balance sheet;

•failure to comply with the U.S. Foreign Corrupt Practices Act, anti-money laundering, economic and trade sanctions regulations, and similar laws;

•our dependence on our interest in Shift4 Payments, LLC to pay our taxes and expenses, including payments under the Tax Receivable Agreement (“TRA”);

•Shift4 Payments, LLC’s ability to make such distributions may be subject to various limitations and restrictions;

•our Founder and Searchlight (each as defined herein) have significant influence over us, including control over decisions that require the approval of stockholders; and

•those factors described in the sections titled “Risk Factors and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020 and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.

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.

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, 2021		December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	1,288.1	$	927.8
Accounts receivable, net of allowance for doubtful accounts of $13.4 in 2021 ($5.7 in 2020) (Note 3)	184.4		92.7
Inventory	2.0		1.5
Prepaid expenses and other current assets (Note 11)	13.2		11.5
Total current assets	1,487.7		1,033.5
Noncurrent assets
Goodwill (Note 5)	537.6		477.0
Other intangible assets, net (Note 6)	188.3		186.3
Capitalized acquisition costs, net (Note 7)	34.3		30.2
Equipment for lease, net (Note 8)	56.3		36.6
Property, plant and equipment, net (Note 9)	17.8		15.1
Investments in securities (Note 1)	29.5		—
Deferred tax asset (Note 13)	1.5		—
Other noncurrent assets	2.1		0.6
Total noncurrent assets	867.4		745.8
Total assets	$	2,355.1	$	1,779.3
Liabilities and Stockholders' Equity
Current liabilities
Current portion of debt (Note 10)	$	—	$	0.9
Accounts payable	125.8		60.6
Accrued expenses and other current liabilities (Note 11)	37.4		30.1
Deferred revenue (Note 3)	16.8		7.8
Total current liabilities	180.0		99.4
Noncurrent liabilities
Long-term debt (Note 10)	1,736.8		1,005.4
Deferred tax liability (Note 13)	—		2.8
Other noncurrent liabilities	2.9		1.7
Total noncurrent liabilities	1,739.7		1,009.9
Total liabilities	1,919.7		1,109.3
Commitments and contingencies (Note 16)
Stockholders' equity (Note 18)
Preferred stock, $0.0001 par value, 20,000,000 shares authorized at September 30, 2021 and December 31, 2020, none issued and outstanding	—		—
Class A common stock, $0.0001 par value per share, 300,000,000 shares authorized, 51,508,608 and 39,737,950 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		—
Class B common stock, $0.0001 par value per share, 100,000,000 shares authorized, 26,272,654 and 30,625,857 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		—
Class C common stock, $0.0001 par value per share, 100,000,000 shares authorized, 5,139,890 and 10,188,852 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	—		—
Additional paid-in capital	614.3		738.3
Retained deficit	(315.9)		(278.7)
Total stockholders' equity attributable to Shift4 Payments, Inc.	298.4		459.6
Noncontrolling interests (Note 19)	137.0		210.4
Total stockholders' equity	435.4		670.0
Total liabilities and stockholders' equity	$	2,355.1	$	1,779.3

See accompanying notes to unaudited condensed consolidated financial statements.

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,
	2021		2020		2021		2020
Gross revenue (a)	$	377.8	$	214.8	$	968.1	$	556.0
Cost of sales (b)	313.4		163.3		773.8		429.5
Gross profit	64.4		51.5		194.3		126.5
General and administrative expenses	48.1		35.4		153.3		144.8
Depreciation and amortization expense	15.0		16.2		45.9		37.1
Professional fees	3.3		2.9		13.0		5.8
Advertising and marketing expenses	3.5		0.8		26.1		2.9
Restructuring expenses (Note 4)	0.1		0.1		0.2		0.4
Other operating (income) expense, net (Note 3)	—		—		—		(12.4)
Total operating expenses	70.0		55.4		238.5		178.6
Loss from operations	(5.6)		(3.9)		(44.2)		(52.1)
Loss on extinguishment of debt (Note 10)	—		—		(0.2)		(7.1)
Other income, net	0.2		0.5		0.2		0.6
Interest expense	(7.4)		(7.1)		(20.2)		(32.1)
Loss before income taxes	(12.8)		(10.5)		(64.4)		(90.7)
Income tax (expense) benefit (Note 13)	(1.0)		0.7		4.1		1.0
Net loss (c)	(13.8)		(9.8)		(60.3)		(89.7)
Net loss attributable to noncontrolling interests (d)	(4.6)		(4.8)		(21.5)		(83.7)
Net loss attributable to Shift4 Payments, Inc. (e)	$	(9.2)	$	(5.0)	$	(38.8)	$	(6.0)
Basic and diluted net loss per share: (f)
Class A net loss per share - basic and diluted	$	(0.17)	$	(0.12)	$	(0.72)	$	(0.15)
Class A weighted average common stock outstanding - basic and diluted	49,692,599		23,309,247		46,251,576		22,363,399

Class C net loss per share - basic and diluted	$	(0.17)	$	(0.12)	$	(0.72)	$	(0.15)
Class C weighted average common stock outstanding - basic and diluted	6,117,997		19,222,017		8,078,943		19,424,100

(a)For the three and nine months ended September 30, 2021, includes $22.4 million of payments to merchants associated with the TSYS outage, which are recorded as contra revenue and reflected as a reduction of "Gross revenue." See Note 3 for more information.

(b)For the three and nine months ended September 30, 2021, includes $2.3 million of payments to partners associated with the TSYS outage. See Note 3 for more information.

(c)Net loss is equal to comprehensive loss.

(d)Net loss attributable to noncontrolling interests is equal to comprehensive loss attributable to noncontrolling interests, including the net loss for the period January 1, 2020 through June 4, 2020, the date the SEC declared effective the Company’s Registration Statement on Form S-1 filed in connection with its IPO. See Note 1 for more information.

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

(f)For the nine months ended September 30, 2020, represents basic and diluted net 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 21 for additional information on basic and diluted net loss per share.

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)

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


	Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional paid-in capital		Retained Deficit		Noncontrolling Interests		Total equity
	Shares	Amount		Shares	Amount		Shares	Amount
Balances at December 31, 2020	39,737,950	$	—	30,625,857	$	—	10,188,852	$	—	$	738.3	$	(278.7)	$	210.4	$	670.0
Net loss	—	—		—	—		—	—		—		(32.8)		(18.2)		(51.0)
Cumulative effect of ASU 2020-06 adoption	—	—		—	—		—	—		(111.5)		1.6		—		(109.9)
Issuance of Class A common stock and fair value of equity-based compensation awards assumed in connection with VenueNext acquisition	325,127	—		—	—		—	—		13.5		—		12.8		26.3
Transfer from Founder of right associated with Inspiration4 seat	—	—		—	—		—	—		1.3		—		0.8		2.1
Exchange of shares held by Searchlight	2,000,000	—		(926,000)	—		(1,074,000)	—		6.3		—		(6.3)		—
Equity-based compensation	—	—		—	—		—	—		14.0		—		—		14.0
Vesting of restricted stock units, net of tax withholding	46,503	—		—	—		—	—		(1.4)		—		(1.0)		(2.4)
Balances at March 31, 2021	42,109,580	$	—	29,699,857	$	—	9,114,852	$	—	$	660.5	$	(309.9)	$	198.5	$	549.1
Net income	—	—		—	—		—	—		—		3.2		1.3		4.5
Exchange of shares held by Searchlight	3,152,165	—		(1,459,453)	—		(1,692,712)	—		7.9		—		(7.9)		—
Equity-based compensation	—	—		—	—		—	—		6.6		—		—		6.6
Vesting of restricted stock units, net of tax withholding	1,953,859	—		—	—		—	—		(73.7)		—		(40.3)		(114.0)
Balances at June 30, 2021	47,215,604	$	—	28,240,404	$	—	7,422,140	$	—	$	601.3	$	(306.7)	$	151.6	$	446.2
Net loss	—	—		—	—		—	—		—		(9.2)		(4.6)		(13.8)
Issuance of Class A common stock and fair value of equity-based compensation awards assumed in connection with VenueNext acquisition	16,797	—		—	—		—	—		—		—		—		—
Exchange of shares held by Searchlight	4,250,000	—		(1,967,750)	—		(2,282,250)	—		9.0		—		(9.0)		—
Equity-based compensation	—	—		—	—		—	—		6.4		—		—		6.4
Vesting of restricted stock units, net of tax withholding	26,207	—		—	—		—	—		(2.4)		—		(1.0)		(3.4)

Balances at September 30, 2021	51,508,608	$	—	26,272,654	$	—	5,139,890	$	—	$	614.3	$	(315.9)	$	137.0	$	435.4

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			Class A Common Stock			Class B Common Stock			Class C Common Stock			Additional paid-in capital		Members' Equity		Retained Deficit		Noncontrolling Interests		Total equity (deficit)
	Units	Amount		Units	Amount		Units	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Balances at December 31, 2019	430	$	43.0	100,000	$	—	1,010	$	0.3	—	$	—	—	$	—	—	$	—	$	—	$	149.2	$	(182.4)	$	—	$	(32.9)
Net loss prior to Reorganization Transactions, IPO and concurrent private placement	—	—		—	—		—	—		—	—		—	—		—	—		—		—		(5.1)		—		(5.1)
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	$	(187.5)	$	—	$	(39.3)
Net loss prior to Reorganization Transactions, IPO and concurrent private placement	—	—		—	—		—	—		—	—		—	—		—	—		—		—		(72.8)		—		(72.8)
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	$	(260.3)	$	—	$	(113.4)
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	—	—		—	—		—	—		—	—		—	—		—	—		—		—		(1.0)		(1.0)		(2.0)
Balances at June 30, 2020	—	$	—	—	$	—	—	$	—	18,693,653	$	—	39,204,989	$	—	20,139,163	$	—	$	517.7	$	—	$	(261.3)	$	210.5	$	466.9
Issuance of Class A common stock in connection with Follow-on offering	—	—		—	—		—	—		2,000,000	—		—	—		—	—		91.8		—		—		—		91.8
Allocation of equity to noncontrolling interest 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)		(4.8)		(9.8)
Balances at September 30, 2020	—	$	—	—	$	—	—	$	—	28,550,026	$	—	35,567,488	$	—	15,920,291	$	—	$	572.6	$	—	$	(266.3)	$	247.6	$	553.9

See accompanying notes to unaudited condensed consolidated financial statements.

SHIFT4 PAYMENTS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (in millions)


	Nine Months Ended September 30,
	2021		2020
Operating activities
Net loss	$	(60.3)	$	(89.7)
Adjustment to reconcile net loss to net cash provided by operating activities
Depreciation and amortization	76.8		59.7
Amortization of capitalized financing costs	4.1		2.9
Loss on extinguishment of debt	0.2		7.1
Deferred income taxes	(4.3)		1.1
Provision for bad debts	10.3		6.9
Revaluation of contingent liabilities	0.2		(5.9)
Impairment of intangible assets	—		0.4
Equity-based compensation expense	26.9		56.2
Other noncash items	1.0		(0.3)
Impact of lease modifications	—		(12.4)
Change in operating assets and liabilities
Accounts receivable	(98.0)		(19.3)
Contract assets	—		(0.6)
Prepaid expenses and other assets	(1.4)		(2.9)
Inventory	2.9		0.1
Accounts payable	59.1