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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 June 30, 2022
OR
| | | | | |
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) |
(888) 276-2108
(Registrant’s telephone number, including area code)
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 | x | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
Emerging growth company | o | | |
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 o No x
As of July 29, 2022, there were 51,092,250 shares of the registrant’s Class A common stock, $0.0001 par value per share, outstanding, 25,829,016 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding and 3,650,380 shares of the registrant’s Class C common stock, $0.0001 par value per share, outstanding.
SHIFT4 PAYMENTS, INC.
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 (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 on Form 10-Q, including, without limitation, 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 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 though not all forward-looking statements can be identified by such terms or expressions. The forward-looking statements in this Quarterly Report on Form 10-Q 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 on Form 10-Q 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 COVID-19 global pandemic has had and may continue to have an 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;
•our services and products must integrate with a variety of operating systems, software, device and web browsers, and our business may be materially and adversely affected if we are unable to ensure that our services interoperate with such operating systems, device, software and web browsers;
•we depend, in part, on our merchant and software partner relationships and strategic partnerships with various institutions to operate and grow our business. If we are unable to maintain these relationships and partnerships, our business may be adversely affected;
•our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of these assets would negatively affect our business, financial condition or results of operations;
•failure to comply with the U.S. Foreign Corrupt Practices Act (“FCPA”) anti-money laundering, economic and trade sanctions regulations, and similar laws could subject us to penalties and other adverse consequences;
•our principal asset is our interest in Shift4 Payments, LLC, and, as a result, we depend on distributions from 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 (as defined herein) has significant influence over us, including control over decisions that require the approval of stockholders;
•the ongoing military action between Russia and Ukraine could adversely affect our business, financial condition and results of operations; 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 fiscal year ended December 31, 2021 (the “2021 Form 10-K”) 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 on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q 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) | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 1,018.2 | | | $ | 1,231.5 | |
Accounts receivable, net of allowance for doubtful accounts of $10.8 in 2022 ($8.0 in 2021) | 251.3 | | | 205.9 | |
Inventory | 2.3 | | | 3.5 | |
| | | |
Prepaid expenses and other current assets (Note 10) | 12.1 | | | 12.7 | |
Total current assets | 1,283.9 | | | 1,453.6 | |
Noncurrent assets | | | |
Goodwill (Note 4) | 627.1 | | | 537.7 | |
Other intangible assets, net (Note 5) | 219.0 | | | 188.5 | |
Capitalized acquisition costs, net (Note 6) | 36.6 | | | 35.1 | |
Equipment for lease, net (Note 7) | 65.2 | | | 58.4 | |
Property, plant and equipment, net (Note 8) | 17.7 | | | 18.4 | |
Right-of-use assets (Note 13) | 16.2 | | | 18.5 | |
Investments in securities | 32.0 | | | 30.5 | |
| | | |
Other noncurrent assets | 1.9 | | | 1.9 | |
Total noncurrent assets | 1,015.7 | | | 889.0 | |
Total assets | $ | 2,299.6 | | | $ | 2,342.6 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 155.2 | | | $ | 121.1 | |
Accrued expenses and other current liabilities (Note 10) | 97.3 | | | 42.9 | |
Deferred revenue (Note 3) | 18.7 | | | 15.0 | |
Current lease liabilities (Note 13) | 4.1 | | | 4.8 | |
Total current liabilities | 275.3 | | | 183.8 | |
Noncurrent liabilities | | | |
Long-term debt (Note 9) | 1,737.8 | | | 1,738.5 | |
Deferred tax liability (Note 12) | 1.2 | | | 0.3 | |
Noncurrent lease liabilities (Note 13) | 16.0 | | | 17.9 | |
Other noncurrent liabilities | 1.9 | | | 2.4 | |
Total noncurrent liabilities | 1,756.9 | | | 1,759.1 | |
Total liabilities | 2,032.2 | | | 1,942.9 | |
Commitments and contingencies (Note 15) | | | |
Stockholders' equity (Note 16) | | | |
Preferred stock, $0.0001 par value, 20,000,000 shares authorized at June 30, 2022 and December 31, 2021, none issued and outstanding | — | | | — | |
Class A common stock, $0.0001 par value per share, 300,000,000 shares authorized, 51,458,312 and 51,793,127 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | — | | | — | |
Class B common stock, $0.0001 par value per share, 100,000,000 shares authorized, 25,829,016 and 26,272,654 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | — | | | — | |
Class C common stock, $0.0001 par value per share, 100,000,000 shares authorized, 3,650,380 and 5,035,181 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | — | | | — | |
Additional paid-in capital | 635.5 | | | 619.2 | |
Treasury stock, at cost; 726,650 shares and 378,475 shares at June 30, 2022 and December 31, 2021, respectively | (28.8) | | | (21.1) | |
Accumulated other comprehensive loss | (0.4) | | | — | |
Retained deficit | (422.8) | | | (325.3) | |
Total stockholders' equity attributable to Shift4 Payments, Inc. | 183.5 | | | 272.8 | |
Noncontrolling interests (Note 17) | 83.9 | | | 126.9 | |
Total stockholders' equity | 267.4 | | | 399.7 | |
Total liabilities and stockholders' equity | $ | 2,299.6 | | | $ | 2,342.6 | |
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 June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Gross revenue | $ | 506.7 | | | $ | 351.0 | | | $ | 908.6 | | | $ | 590.3 | |
Cost of sales | 400.9 | | | 272.9 | | | 718.2 | | | 460.4 | |
Gross profit | 105.8 | | | 78.1 | | | 190.4 | | | 129.9 | |
General and administrative expenses | 58.0 | | | 51.7 | | | 124.2 | | | 105.2 | |
Depreciation and amortization expense | 16.7 | | | 15.5 | | | 34.0 | | | 30.9 | |
Professional fees | 5.2 | | | 3.5 | | | 13.9 | | | 9.7 | |
Advertising and marketing expenses | 2.9 | | | 2.5 | | | 5.6 | | | 22.6 | |
Restructuring expenses (Note 10) | 0.1 | | | — | | | 0.1 | | | 0.1 | |
Transaction-related expenses (Note 9) | — | | | — | | | 1.4 | | | — | |
Total operating expenses | 82.9 | | | 73.2 | | | 179.2 | | | 168.5 | |
Income (loss) from operations | 22.9 | | | 4.9 | | | 11.2 | | | (38.6) | |
Loss on extinguishment of debt | — | | | — | | | — | | | (0.2) | |
Interest income | 1.4 | | | — | | | 1.4 | | | — | |
Other income, net | 0.1 | | | — | | | 0.3 | | | — | |
Interest expense | (8.4) | | | (6.3) | | | (16.3) | | | (12.8) | |
Income (loss) before income taxes | 16.0 | | | (1.4) | | | (3.4) | | | (51.6) | |
Income tax benefit (provision) (Note 12) | (1.0) | | | 5.9 | | | 5.2 | | | 5.1 | |
Net income (loss) | 15.0 | | | 4.5 | | | 1.8 | | | (46.5) | |
Net income (loss) attributable to noncontrolling interests | 4.7 | | | 1.3 | | | (1.0) | | | (16.9) | |
Net income (loss) attributable to Shift4 Payments, Inc. | $ | 10.3 | | | $ | 3.2 | | | $ | 2.8 | | | $ | (29.6) | |
| | | | | | | |
Basic net income (loss) per share: | | | | | | | |
Class A net income (loss) per share - basic | $ | 0.19 | | | $ | 0.06 | | | $ | 0.05 | | | $ | (0.56) | |
Class A weighted average common stock outstanding - basic | 51,790,403 | | | 46,297,553 | | | 51,958,494 | | | 44,492,680 | |
Class C net income (loss) per share - basic | $ | 0.19 | | | $ | 0.06 | | | $ | 0.05 | | | $ | (0.56) | |
Class C weighted average common stock outstanding - basic | 4,006,159 | | | 8,151,747 | | | 4,283,096 | | | 9,075,667 | |
| | | | | | | |
Diluted net income (loss) per share: | | | | | | | |
Class A net income (loss) per share - diluted | $ | 0.18 | | | $ | 0.05 | | | $ | 0.02 | | | $ | (0.56) | |
Class A weighted average common stock outstanding - diluted | 78,514,880 | | | 76,995,332 | | | 78,823,068 | | | 44,492,680 | |
Class C net income (loss) per share - diluted | $ | 0.18 | | | $ | 0.05 | | | $ | 0.02 | | | $ | (0.56) | |
Class C weighted average common stock outstanding - diluted | 4,006,159 | | | 8,151,747 | | | 4,283,096 | | | 9,075,667 | |
See accompanying notes to unaudited condensed consolidated financial statements. |
SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited) (in millions)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) | $ | 15.0 | | | $ | 4.5 | | | $ | 1.8 | | | $ | (46.5) | |
Other comprehensive income (loss) | | | | | | | |
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) | |
Comprehensive income (loss) attributable to noncontrolling interests | 4.5 | | | 1.3 | | | (1.2) | | | (16.9) | |
Comprehensive income (loss) attributable to Shift4 Payments, Inc. | $ | 9.9 | | | $ | 3.2 | | | $ | 2.4 | | | $ | (29.6) | |
See accompanying notes to unaudited condensed consolidated financial statements. |
SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited) (in millions, except shares)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Retained Deficit | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | | | |
Balances at December 31, 2021 | 51,793,127 | | | $ | — | | | 26,272,654 | | | $ | — | | | 5,035,181 | | | $ | — | | | $ | 619.2 | | | (378,475) | | | $ | (21.1) | | | $ | (325.3) | | | $ | — | | | $ | 126.9 | | | $ | 399.7 | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (7.5) | | | — | | | (5.7) | | | (13.2) | |
Issuance of Class A common stock and fair value of equity-based compensation awards assumed in connection with The Giving Block acquisition | 785,969 | | | — | | | — | | | — | | | — | | | — | | | 24.7 | | | — | | | — | | | — | | | — | | | 11.8 | | | 36.5 | |
Repurchases of Class A common stock to treasury stock | — | | | — | | | — | | | — | | | — | | | — | | | 4.5 | | | (301,510) | | | (17.2) | | | — | | | — | | | (4.5) | | | (17.2) | |
Exchange of shares held by Continuing Equity Owners | 732,524 | | | — | | | — | | | — | | | (732,524) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 15.8 | | | — | | | — | | | — | | | — | | | — | | | 15.8 | |
Vesting of restricted stock units, net of tax withholding | 306,953 | | | — | | | — | | | — | | | — | | | — | | | (4.6) | | | — | | | — | | | — | | | — | | | 1.2 | | | (3.4) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at March 31, 2022 | 53,618,573 | | | — | | | 26,272,654 | | | — | | | 4,302,657 | | | — | | | 659.6 | | | (679,985) | | | (38.3) | | | (332.8) | | | — | | | 129.7 | | | 418.2 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 10.3 | | | — | | | 4.7 | | | 15.0 | |
Issuance of Class A common stock | 17,287 | | | — | | | — | | | — | | | — | | | — | | | 0.4 | | | — | | | — | | | — | | | — | | | 0.2 | | | 0.6 | |
Repurchases of Class A common stock to treasury stock | — | | | — | | | — | | | — | | | — | | | — | | | 46.8 | | | (3,585,681) | | | (167.2) | | | — | | | — | | | (46.8) | | | (167.2) | |
Retirement of treasury stock | (3,539,016) | | | — | | | — | | | — | | | — | | | — | | | (76.4) | | | 3,539,016 | | | 176.7 | | | (100.3) | | | — | | | — | | | — | |
Exchange of shares held by Continuing Equity Owners | 1,095,915 | | | — | | | (443,638) | | | — | | | (652,277) | | | — | | | 1.6 | | | — | | | — | | | — | | | — | | | (1.6) | | | — | |
Equity-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 9.3 | | | — | | | — | | | — | | | — | | | — | | | 9.3 | |
Vesting of restricted stock units, net of tax withholding | 265,553 | | | — | | | — | | | — | | | — | | | — | | | (5.8) | | | — | | | — | | | — | | | — | | | (2.1) | | | (7.9) | |
Cumulative translation adjustment | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (0.4) | | | (0.2) | | | (0.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Balances at June 30, 2022 | 51,458,312 | | | — | | | 25,829,016 | | | — | | | 3,650,380 | | | — | | | $ | 635.5 | | | (726,650) | | | $ | (28.8) | | | $ | (422.8) | | | $ | (0.4) | | | $ | 83.9 | | | $ | 267.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
See accompanying notes to unaudited condensed consolidated financial statements. |
SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in millions)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
Operating activities | | | |
Net income (loss) | $ | 1.8 | | | $ | (46.5) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | |
Depreciation and amortization | 59.0 | | | 51.0 | |
Amortization of capitalized financing costs | 3.9 | | | 2.4 | |
Loss on extinguishment of debt | — | | | 0.2 | |
Deferred income taxes | (5.5) | | | (2.3) | |
Provision for bad debts | 4.3 | | | 8.1 | |
Revaluation of contingent liabilities | (0.3) | | | 0.2 | |
Impairment of intangible assets | — | | | 0.1 | |
Equity-based compensation expense | 26.2 | | | 20.6 | |
Other noncash items | 0.7 | | | 0.5 | |
Change in operating assets and liabilities | | | |
Accounts receivable | (49.5) | | | (92.0) | |
| | | |
Prepaid expenses and other assets | 1.7 | | | (1.6) | |
Inventory | 2.9 | | | 3.0 | |
Accounts payable | 35.8 | | | 50.8 | |
Accrued expenses and other current liabilities | 3.1 | | | 5.2 | |
Right-of-use assets and lease liabilities, net | (0.3) | | | — | |
Deferred revenue | 1.2 | | | 5.3 | |
Net cash provided by operating activities | 85.0 | | | 5.0 | |
Investing activities | | | |
Acquisitions, net of cash acquired | (12.6) | | | (40.2) | |
Acquisition of equipment to be leased | (24.9) | | | (18.9) | |
Capitalized software development costs | (20.3) | | | (8.3) | |
Customer acquisition costs | (14.2) | | | (12.7) | |
Residual commission buyouts | (11.8) | | | (0.9) | |
Investments in securities | (1.5) | | | (29.5) | |
Acquisition of property, plant and equipment | (1.8) | | | (5.0) | |
Net cash used in investing activities | (87.1) | | | (115.5) | |
Financing activities | | | |
Repurchases of Class A common stock to treasury stock | (185.9) | | | — | |
Payments for withholding tax related to vesting of restricted stock units | (20.2) | | | (116.3) | |
Deferred financing costs | (4.9) | | | (0.4) | |
Repayment of debt | — | | | (0.9) | |
Net cash used in financing activities | (211.0) | | | (117.6) | |
Effect of exchange rate changes on cash and cash equivalents | (0.2) | | | — | |
Change in cash and cash equivalents | (213.3) | | | (228.1) | |
Cash and cash equivalents | | | |
Beginning of period | 1,231.5 | | | 927.8 | |
End of period | $ | 1,018.2 | | | $ | 699.7 | |
Supplemental cash flows information and noncash activities are further described in Note 20. |
See accompanying notes to unaudited condensed consolidated financial statements. |
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
1.Organization, Basis of Presentation and Significant Accounting Policies
Organization
Shift4 Payments, Inc., (“Shift4 Payments”) (“the Company”), was incorporated in Delaware on November 5, 2019 in order to carry on the business of Shift4 Payments, LLC and its consolidated subsidiaries. The Company is a leading provider of integrated payment processing and technology solutions. Through the Shift4 Model, the Company offers software providers a single integration to an end-to-end payments offering, a powerful gateway and a robust suite of technology solutions (including cloud enablement, business intelligence, analytics, and mobile) to enhance the value of their software suites and simplify payment acceptance. The Company provides for its merchants a seamless customer experience at scale, rather than simply acting as one of multiple providers they rely on to operate their businesses. The Shift4 Model is built to serve a range of merchants from small-to-medium-sized businesses to large and complex enterprises across numerous verticals, including food and beverage, hospitality, stadiums and arenas, gaming, specialty retail, non-profits, eCommerce, and exciting technology companies. This includes the Company’s point of sale (“POS”) software offerings, as well as over 425 additional software integrations in virtually every industry.
Basis of Presentation
The accompanying interim condensed consolidated financial statements of the Company are unaudited. These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) and the applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. As such, these financial statements do not include all information and footnotes required by U.S. GAAP for complete financial statements. The December 31, 2021 Condensed Consolidated Balance Sheet was derived from audited financial statements as of that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments consisting only of normal recurring adjustments necessary to state fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods. The results of operations for the interim periods presented are not necessarily indicative of results for the full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto as of and for the fiscal year ended December 31, 2021, as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”).
The unaudited condensed consolidated financial statements include the accounts of Shift4 Payments, Inc. and its wholly-owned subsidiaries. Shift4 Payments, Inc. consolidates the financial results of Shift4 Payments, LLC, which is considered a variable interest entity (“VIE”). Shift4 Payments, Inc. is the primary beneficiary and sole managing member of Shift4 Payments, LLC and has decision making authority that significantly affects the economic performance of the entity. As a result, the Company consolidates Shift4 Payments, LLC and reports a noncontrolling interest representing the economic interest in Shift4 Payments, LLC held by Rook Holdings Inc. (“Rook”). Prior to May 24, 2022, the noncontrolling interest also included the economic interest in Shift4 Payments, LLC held by certain affiliates of Searchlight Capital Partners (“Searchlight”) (together with Rook, the “Continuing Equity Owners”).
All intercompany balances and transactions have been eliminated in consolidation.
The assets and liabilities of Shift4 Payments, LLC represent substantially all of the consolidated assets and liabilities of Shift4 Payments, Inc. with the exception of certain cash balances, contingent consideration for earnout liabilities for The Giving Block, Inc. (“The Giving Block”), and the aggregate principal amount of $690.0 million of 2025 Convertible Notes and $632.5 million of 2027 Convertible Notes that are held by Shift4 Payments, Inc. directly. As of both June 30, 2022 and December 31, 2021, $9.8 million of cash was held by Shift4 Payments, Inc. As of June 30, 2022, the earnout liabilities for The Giving Block were $58.9 million. Shift4 Payments, Inc., which was established November 5, 2019, has not had any material operations on a standalone basis since its inception, and all of the operations of the Company are carried out by Shift4 Payments, LLC and its subsidiaries.
Certain prior year balances have been adjusted to present contract assets within the line item “Prepaid expenses and other current assets” rather than in its own line item on the Company’s unaudited Condensed Consolidated Balance Sheets.
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
Liquidity and Management’s Plan
As of June 30, 2022, the Company had $1,772.5 million total principal amount of debt outstanding and was in compliance with the financial covenants under its debt agreements. The Company expects to be in compliance for at least 12 months following issuance of these unaudited condensed consolidated financial statements. See Note 9 for further information on the Company’s debt obligations.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include estimates of fair value of acquired assets and liabilities through business combinations, fair value of contingent liabilities related to earnout payments, fair value of debt instruments, allowance for doubtful accounts, income taxes, investments in securities and noncontrolling interests. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.
Significant Accounting Policies
The Company’s significant accounting policies are discussed in Note 2 to Shift4 Payments, Inc.’s consolidated financial statements as of and for the year ended December 31, 2021 in the 2021 Form 10-K. There have been no significant changes to these policies which have had a material impact on the Company’s unaudited condensed consolidated financial statements and related notes during the six months ended June 30, 2022 except for the below.
Crypto Settlement Assets and Liabilities
The Company recognizes a liability accompanied by an asset of the same value to reflect its obligation to safeguard the crypto settlement assets it holds on behalf of users of The Giving Block’s platform. These crypto settlement assets are comprised of numerous cryptocurrencies that are traded on numerous cryptocurrency exchanges. The liability and asset are remeasured at each reporting date at the fair value of the crypto settlement assets, which is determined using quoted prices from cryptocurrency exchanges. The Company’s agent, which acts as a cryptocurrency exchange and custodian, holds the cryptographic key information of the crypto settlement assets and is primarily obligated to secure the assets and protect them from loss or theft. The Company maintains the internal recordkeeping of the assets.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”) with amendments in 2018 and 2019. This accounting guidance requires a lessee to record assets and liabilities on the balance sheet for the rights and obligations arising from leases with terms of more than 12 months. On January 1, 2021, the Company adopted ASC 842 using the modified retrospective method, reflecting the adoption in the Company’s annual results for the period ended December 31, 2021. Prior period amounts were not adjusted and continue to be reported in accordance with historic accounting under previous lease guidance, ASC 840, Leases (“ASC 840”). The Company elected to use the package of practical expedients permitted under the transition guidance. The Company did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases. For lease agreements where the Company is a lessee that include lease and non-lease components, the Company elected to use the practical expedient on all leases entered into or modified after January 1, 2021 to combine lease and non-lease components for all classes of assets. Additionally, the Company elected to not record leases with a term of twelve months or less on the balance sheet. Upon adoption, the Company recorded right-of-use assets of $21.4 million and lease liabilities of $25.7 million. The adoption of ASC 842 did not result in a material impact to the unaudited Condensed Consolidated Statements of Operations or unaudited Condensed Consolidated Statements of Cash Flows. See Note 13 for ASC 842-related disclosures.
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326), which changes the impairment model for most financial assets, including accounts receivable, and replaces the existing incurred loss impairment model with a current expected credit loss (“CECL”) methodology, which will result in more timely recognition of credit losses. The Company adopted ASU 2016-13 on a modified retrospective basis on December 31, 2021, reflecting the adoption as of January 1, 2021 in the Company's annual results for the period ended December 31, 2021 and interim periods beginning January 1, 2022. The adoption of ASU 2016-13 did not result in a material impact on the Company’s unaudited condensed consolidated financial statements and disclosures.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This ASU requires an acquirer to account for revenue contracts acquired in a business combination in accordance with ASC 606, as if it had originated the contracts. Prior to ASU 2021-08, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts, at fair value on the acquisition date. The Company adopted ASU 2021-08 in the third quarter of 2021 and retrospectively applied the ASU to its acquisitions that occurred in 2021. The adoption of ASU 2021-08 resulted in an increase to “Deferred revenue” of $5.7 million, of which $1.8 million was recognized as an increase to “Gross revenue” for the fiscal year ended December 31, 2021.
In July 2021, the FASB issued ASU 2021-05, Lessors—Certain Leases with Variable Lease Payments, to amend lessor accounting for certain leases with variable lease payments that do not depend on a reference index or a rate and would have resulted in the recognition of a loss at lease commencement if classified as a sales-type or a direct financing lease. ASU 2021-05 amends the classification requirements of such leases for lessors to require operating lease classification. The Company adopted ASU 2021-05 on a retrospective basis effective January 1, 2022. The adoption did not have a significant impact on the Company’s unaudited condensed consolidated financial statements.
In March 2022, the SEC issued Staff Accounting Bulletin No. 121 (“SAB 121”), which provided interpretive guidance regarding the accounting for obligations to safeguard crypto-assets an entity holds for users of its crypto platform. This guidance requires entities that hold crypto-assets on behalf of platform users to recognize a liability accompanied by an asset of the same value on its balance sheet to reflect the entity’s obligation to safeguard the crypto-assets held for its platform users. The liability and asset should be measured at initial recognition and each reporting date at the fair value of the crypto-assets that the entity is responsible for holding for its platform users. The entity should also describe in the footnotes to the financial statements the nature and amount of crypto-assets the entity is responsible for safeguarding for its platform users and how the fair value is determined, and should also consider including information regarding who (e.g. the entity, its agent, or another third party) holds the cryptographic key information, maintains the internal recordkeeping of those assets, and is obligated to secure the assets and protect them from loss or theft. This guidance is effective from the first interim period after June 15, 2022 and should be applied retrospectively. The Company adopted SAB 121 on a retrospective basis effective June 30, 2022, resulting in the recognition of $1.2 million of crypto settlement assets within “Prepaid expenses and other current assets” and $1.2 million of crypto settlement liabilities within “Accrued expenses and other current liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 associated with The Giving Block. The adoption of this guidance had no impact on the Company’s unaudited Condensed Consolidated Statements of Operations and unaudited Condensed Consolidated Statements of Cash Flows.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference the London Interbank Offered Rate (“LIBOR”), or another reference rate that is expected to be discontinued. Companies may elect to apply these amendments through December 31, 2022. The Company is currently evaluating whether we will elect the optional expedients, as well as evaluating the impact of ASU 2020-04 on the Company’s unaudited condensed consolidated financial statements.
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
2.Acquisitions
Each of the following acquisitions was accounted for as a business combination using the acquisition method of accounting. The respective purchase prices were allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill and represents the future economic benefits arising from other assets acquired, which cannot be individually identified or separately recognized. Under the acquisition method of accounting for business combinations, if there are changes to acquired deferred tax balances, valuation allowances or liabilities related to uncertain tax positions during the measurement period, and they are related to new information obtained about facts and circumstances that existed as of the acquisition date, those changes are considered a measurement-period adjustment, with the offset recorded to goodwill.
The Giving Block
On February 28, 2022, the Company acquired The Giving Block by acquiring 100% of its common stock for $106.9 million of estimated total purchase consideration, net of cash acquired. The Giving Block is a cryptocurrency donation marketplace that the Company expects to accelerate its growth in the non-profit sector with significant cross-sell potential. Total purchase consideration was as follows:
| | | | | |
Cash | $ | 16.8 | |
Shares of Class A common stock (a) | 36.4 | |
RSUs granted for fair value of equity-based compensation awards (b) | 0.1 | |
Contingent consideration (c) | 57.8 | |
Total purchase consideration | 111.1 | |
Less: cash acquired | (4.2) | |
Total purchase consideration, net of cash acquired | $ | 106.9 | |
| |
(a) Total purchase consideration includes 785,969 shares of common stock. |
(b) The Company assumed all equity awards held by continuing employees. The portion of the fair value of the equity-based compensation awards associated with prior service of The Giving Block employees represents a component of the total consideration as presented above and was valued based on the fair value of The Giving Block awards on February 28, 2022, the acquisition date. |
(c) The Company agreed to an earnout due to the former shareholders of The Giving Block in April 2023, calculated as a multiple of revenue earned by The Giving Block from March 1, 2022 to February 28, 2023, not to exceed $246.0 million. The earnout will be paid 75% in a combination of RSUs and shares of the Company’s Class A common stock and 25% in cash. The fair value of the earnout was included in the initial purchase consideration and will be revalued quarterly until the end of the earnout period as a fair value adjustment within “General and administrative expenses” in the Company’s unaudited Condensed Consolidated Statements of Operations. As of June 30, 2022, the fair value of the earnout included in the purchase consideration was $57.5 million, which is recognized in “Accrued expenses and other current liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets. In addition, a portion of the earnout due in April 2023 is considered post-acquisition compensation expense and will be accrued throughout the earnout period within “General and administrative expenses” on the Company’s unaudited Condensed Consolidated Statements of Operations. As of June 30, 2022, $1.4 million is included in “Accrued expenses and other current liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets. |
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
The following table summarizes the fair value assigned to the assets acquired and liabilities assumed at the acquisition date. These amounts reflect various preliminary fair value estimates and assumptions, and are subject to change within the measurement period as valuations are finalized. The primary areas of preliminary purchase price allocation subject to change relate to the valuation of contingent consideration, accrued expenses and other current liabilities assumed, and residual goodwill.
| | | | | |
| |
Prepaid expenses and other current assets (a) | $ | 4.8 | |
Other intangible assets | 26.0 | |
Goodwill (b) | 89.4 | |
Accrued expenses and other current liabilities (a) | (4.9) | |
Deferred revenue | (2.0) | |
Deferred tax liability | (6.4) | |
Net assets acquired | $ | 106.9 | |
| |
(a) Includes $4.8 million of crypto settlement assets and liabilities. See the disclosure under “Accounting Pronouncements Adopted” in Note 1 for further information. |
(b) Goodwill is not deductible for tax purposes. |
|
In the six months ended June 30, 2022, the Company incurred expenses in connection with The Giving Block acquisition of $2.2 million. These expenses are included in “Professional fees” in the Company’s unaudited Condensed Consolidated Statements of Operations.
The fair values of intangible assets were estimated using inputs classified as Level 3 under the income approach using either the relief-from-royalty method (developed technology and trade name), the with or without method (donor relationships) or the multi-period excess earnings method (customer relationships). The contingent liability arising from the expected earnout payment included in purchase consideration was measured on the acquisition date using a Monte Carlo simulation in a risk-neutral framework, calibrated to Management’s revenue forecasts. The transaction was not taxable for income tax purposes. The weighted average life of developed technology, the trade name, donor relationships and customer relationships is 8 years, 15 years, 5 years and 15 years, respectively. The goodwill arising from the acquisition largely consisted of revenue synergies associated with a larger total addressable market and the ability to cross-sell existing customers, new customers and technology capabilities.
The Giving Block acquisition did not have a material impact on the Company’s unaudited condensed consolidated financial statements. Accordingly, revenue and expenses related to the acquisition and pro forma financial information have not been presented.
Postec
On September 1, 2021, the Company acquired Postec, Inc. (“Postec”) by acquiring 100% of its membership interests for $14.3 million in cash, net of cash acquired. The purchase was funded with cash on hand. This acquisition enables the boarding of the vendor’s customers on the Company’s end-to-end acquiring solution and empowers the Company’s distribution partners to sign the vendor’s customer accounts and leverage the combined expertise to handle all aspects of installation, service, and support, similar to the hospitality technology vendor acquired in October 2020.
Pending Finaro Acquisition
On March 1, 2022, the Company entered into a definitive agreement to acquire Credorax, Inc. d/b/a Finaro (“Finaro”) for $200.0 million in cash on hand, 6,439,316 shares of the Company’s Class A common stock with a value of approximately $325.0 million as of March 1, 2022, determined by the volume weighted average price for the thirty trading days preceding the date of the agreement, and a performance-based earnout of up to $50.0 million in the Company’s Class A common stock. Consummation of the merger is subject to regulatory approvals, which the Company expects to receive in the fourth quarter of 2022. Finaro is a cross-border eCommerce platform and bank specializing in solving complex payment problems for multi-national merchants that the Company believes will accelerate its growth in international markets. In the three and six months ended June 30, 2022, the Company incurred expenses in connection with the Finaro acquisition of $1.1 million and $4.7 million, respectively. These expenses are included in “Professional fees” in the Company’s unaudited Condensed Consolidated Statements of Operations.
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
3.Revenue
ASC 606, Revenue from Contracts with Customers (“ASC 606”)
Under ASC 606, the Company has three separate performance obligations under its recurring software as a service agreements (“SaaS”) arrangements for point-of-sale systems provided to merchants: (1) point-of-sale software, (2) lease of hardware and (3) other support services.
Disaggregated Revenue
Based on similar operational characteristics, the Company’s revenue from contracts with customers is disaggregated as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 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 | $ | 506.7 | | | $ | 351.0 | | | $ | 908.6 | | | $ | 590.3 | |
Based on similar economic characteristics, the Company’s revenue from contracts with customers is disaggregated as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Over-time revenue | $ | 495.0 | | | $ | 341.1 | | | $ | 887.0 | | | $ | 571.3 | |
Point-in-time revenue | 11.7 | | | 9.9 | | | 21.6 | | | 19.0 | |
Total | $ | 506.7 | | | $ | 351.0 | | | $ | 908.6 | | | $ | 590.3 | |
Contract Assets
Contract assets of $0.2 million and $0.3 million as of June 30, 2022 and December 31, 2021, respectively, are included within “Prepaid expenses and other current assets” on the Company’s unaudited Condensed Consolidated Balance Sheets. There was no allowance for contract assets as of June 30, 2022 and December 31, 2021.
Contract Liabilities
The Company charges merchants for various post-contract license support/service fees and annual regulatory compliance fees. These fees typically relate to a period of one year. The Company recognizes the revenue on a straight-line basis over its respective period. As of June 30, 2022 and December 31, 2021, the Company had deferred revenue of $20.6 million and $17.4 million, respectively. The change in the contract liabilities was primarily the result of a timing difference between payment from the customer and the Company’s satisfaction of each performance obligation.
The following reflects the amounts the Company recognized as annual service fees and regulatory compliance fees within “Gross revenue” in the Company’s unaudited Condensed Consolidated Statements of Operations and the amount of such fees that was included in deferred revenue at the beginning of the respective period:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Annual service fees and regulatory compliance fees | $ | 10.0 | | | $ | 5.7 | | | $ | 19.6 | | | $ | 10.1 | |
Amount of these fees included in deferred revenue at beginning of period | 8.5 | | | 4.6 | | | 8.8 | | | 4.0 | |
SHIFT4 PAYMENTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (in millions, except share, unit and per unit amounts)
Accounts Receivable
The change in the Company’s allowance for doubtful accounts was as follows: