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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 March 31, 2023
OR
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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)
__________________________________
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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.
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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 May 4, 2023, there were 57,271,931 shares of the registrant’s Class A common stock, $0.0001 par value per share, outstanding, 23,831,883 shares of the registrant’s Class B common stock, $0.0001 par value per share, outstanding and 2,090,706 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 (“Quarterly Report”) 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 fact contained in this Quarterly Report, including, without limitation, statements relating to our position as a leader within our industry, our future results of operations and financial position, business strategy and plans, objectives of management for future operations, including, among others, statements regarding expected growth and future capital expenditures and debt covenant compliance and service obligations, 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 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:
•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;
•global economic, political and other conditions may adversely affect trends in consumer, business and government spending, which may adversely impact the demand for our services and our revenue and profitability;
•we are exposed to inflation, which could negatively affect our business, financial condition and results of operations;
•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;
•our inability to protect our systems and data from continually evolving cybersecurity risks, security breaches or other technological risks could affect our reputation among our merchants and consumers and may expose us to liability;
•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, devices, 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, software, devices, 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 Founder (as defined herein) has 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 fiscal year ended December 31, 2022, filed on March 1, 2023 (the “2022 Form 10-K”) and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report.
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 herein 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) | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 743.9 | | | $ | 702.5 | |
Restricted cash | 74.0 | | | 74.0 | |
Accounts receivable, net | 209.3 | | | 195.0 | |
Inventory | 4.3 | | | 4.8 | |
| | | |
Prepaid expenses and other current assets (Note 12) | 17.5 | | | 15.4 | |
Total current assets | 1,049.0 | | | 991.7 | |
Noncurrent assets | | | |
Goodwill (Note 4) | 737.0 | | | 735.0 | |
Residual commission buyouts, net (Note 6) | 283.0 | | | 303.9 | |
Other intangible assets, net (Note 7) | 306.0 | | | 306.8 | |
Capitalized customer acquisition costs, net (Note 8) | 39.6 | | | 36.1 | |
Equipment for lease, net (Note 9) | 89.6 | | | 80.7 | |
Property, plant and equipment, net (Note 10) | 23.7 | | | 22.3 | |
Right-of-use assets (Note 15) | 20.6 | | | 19.5 | |
Investments in securities | 56.0 | | | 47.1 | |
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Other noncurrent assets | 10.4 | | | 10.9 | |
Total noncurrent assets | 1,565.9 | | | 1,562.3 | |
Total assets | $ | 2,614.9 | | | $ | 2,554.0 | |
Liabilities and Stockholders' Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 173.8 | | | $ | 166.7 | |
Accrued expenses and other current liabilities (Note 12) | 82.5 | | | 80.0 | |
Deferred revenue (Note 3) | 21.0 | | | 16.3 | |
Current lease liabilities (Note 15) | 5.8 | | | 5.3 | |
Total current liabilities | 283.1 | | | 268.3 | |
Noncurrent liabilities | | | |
Long-term debt (Note 11) | 1,744.0 | | | 1,741.9 | |
Deferred tax liability (Note 14) | 13.1 | | | 18.6 | |
Noncurrent lease liabilities (Note 15) | 18.8 | | | 18.1 | |
Other noncurrent liabilities (Note 12) | 29.5 | | | 26.5 | |
Total noncurrent liabilities | 1,805.4 | | | 1,805.1 | |
Total liabilities | 2,088.5 | | | 2,073.4 | |
Commitments and contingencies (Note 17) | | | |
Stockholders' equity (Note 18) | | | |
Preferred stock, $0.0001 par value, 20,000,000 shares authorized at March 31, 2023 and December 31, 2022, none issued and outstanding | — | | | — | |
Class A common stock, $0.0001 par value per share, 300,000,000 shares authorized, 56,770,614 and 54,153,218 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | — | | | — | |
Class B common stock, $0.0001 par value per share, 100,000,000 shares authorized, 24,162,351 and 25,829,016 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | — | | | — | |
Class C common stock, $0.0001 par value per share, 100,000,000 shares authorized, 2,090,706 and 2,889,811 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | — | | | — | |
Additional paid-in capital | 730.2 | | | 702.6 | |
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Accumulated other comprehensive income | 10.4 | | | 8.3 | |
Retained deficit | (348.8) | | | (363.6) | |
Total stockholders' equity attributable to Shift4 Payments, Inc. | 391.8 | | | 347.3 | |
Noncontrolling interests (Note 19) | 134.6 | | | 133.3 | |
Total stockholders' equity | 526.4 | | | 480.6 | |
Total liabilities and stockholders' equity | $ | 2,614.9 | | | $ | 2,554.0 | |
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 March 31, | | |
| 2023 | | 2022 | | | | |
Gross revenue | $ | 547.0 | | | $ | 401.9 | | | | | |
Cost of sales (exclusive of certain depreciation and amortization expense shown separately below) | (401.6) | | | (317.3) | | | | | |
General and administrative expenses | (85.7) | | | (66.2) | | | | | |
Revaluation of contingent liabilities (Note 13) | (7.0) | | | — | | | | | |
Depreciation and amortization expense (Note 5) (a) | (35.3) | | | (17.3) | | | | | |
Professional fees | (6.1) | | | (10.1) | | | | | |
Advertising and marketing expenses | (2.5) | | | (2.7) | | | | | |
Income (loss) from operations | 8.8 | | | (11.7) | | | | | |
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Interest income | 7.6 | | | — | | | | | |
Other income, net | 0.1 | | | 0.2 | | | | | |
Unrealized gain on investments in securities (Note 13) | 8.9 | | | — | | | | | |
Change in TRA liability (Note 14) | (0.5) | | | — | | | | | |
Interest expense | (8.1) | | | (7.9) | | | | | |
Income (loss) before income taxes | 16.8 | | | (19.4) | | | | | |
Income tax benefit (Note 14) | 3.6 | | | 6.2 | | | | | |
Net income (loss) | 20.4 | | | (13.2) | | | | | |
Net income (loss) attributable to noncontrolling interests | 5.6 | | | (5.7) | | | | | |
Net income (loss) attributable to Shift4 Payments, Inc. | $ | 14.8 | | | $ | (7.5) | | | | | |
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Basic net income (loss) per share (Note 21) | | | | | | | |
Class A net income (loss) per share - basic | $ | 0.26 | | | $ | (0.13) | | | | | |
Class A weighted average common stock outstanding - basic | 55,236,204 | | | 52,119,378 | | | | | |
Class C net income (loss) per share - basic | $ | 0.26 | | | $ | (0.13) | | | | | |
Class C weighted average common stock outstanding - basic | 2,241,648 | | | 4,573,372 | | | | | |
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Diluted net income (loss) per share (Note 21) | | | | | | | |
Class A net income (loss) per share - diluted | $ | 0.24 | | | $ | (0.13) | | | | | |
Class A weighted average common stock outstanding - diluted | 82,238,704 | | | 52,119,378 | | | | | |
Class C net income (loss) per share - diluted | $ | 0.24 | | | $ | (0.13) | | | | | |
Class C weighted average common stock outstanding - diluted | 2,241,648 | | | 4,573,372 | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements. |
(a)Depreciation and amortization expense includes depreciation of equipment under lease of $7.2 million and $7.0 million for the three months ended March 31, 2023 and 2022, respectively.
SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited) (in millions)
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| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Net income (loss) | $ | 20.4 | | | $ | (13.2) | | | | | |
Other comprehensive income | | | | | | | |
Unrealized gain on foreign currency translation adjustment, net of tax | 3.0 | | | — | | | | | |
Total other comprehensive income | 3.0 | | | — | | | | | |
Comprehensive income (loss) | 23.4 | | | (13.2) | | | | | |
Comprehensive income (loss) attributable to noncontrolling interests | 6.5 | | | (5.7) | | | | | |
Comprehensive income (loss) attributable to Shift4 Payments, Inc. | $ | 16.9 | | | $ | (7.5) | | | | | |
See accompanying notes to unaudited condensed consolidated financial statements. |
SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited) (in millions, except share amounts)
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| Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-In Capital | | | | Retained Deficit | | Accumulated Other Comprehensive Income | | Noncontrolling Interests | | Total Equity |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | | | | | | | | |
Balances at December 31, 2022 | 54,153,218 | | | $ | — | | | 25,829,016 | | | $ | — | | | 2,889,811 | | | $ | — | | | $ | 702.6 | | | | | | | $ | (363.6) | | | $ | 8.3 | | | $ | 133.3 | | | $ | 480.6 | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | 14.8 | | | — | | | 5.6 | | | 20.4 | |
Issuance of Class A common stock in connection with acquisitions and residual commission buyouts | 27,780 | | | — | | | — | | | — | | | — | | | — | | | 5.5 | | | | | | | — | | | — | | | 2.1 | | | 7.6 | |
Exchange of shares held by Rook | 2,465,770 | | | — | | | (1,666,665) | | | — | | | (799,105) | | | — | | | 4.9 | | | | | | | — | | | — | | | (4.9) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | | | — | | | (1.8) | | | (1.8) | |
Equity-based compensation | — | | | — | | | — | | | — | | | — | | | — | | | 21.9 | | | | | | | — | | | — | | | — | | | 21.9 | |
Vesting of restricted stock units, net of tax withholding | 123,846 | | | — | | | — | | | — | | | — | | | — | | | (4.7) | | | | | | | — | | | — | | | (0.6) | | | (5.3) | |
Other comprehensive income | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | | | — | | | 2.1 | | | 0.9 | | | 3.0 | |
Balances at March 31, 2023 | 56,770,614 | | | $ | — | | | 24,162,351 | | | $ | — | | | 2,090,706 | | | $ | — | | | $ | 730.2 | | | | | | | $ | (348.8) | | | $ | 10.4 | | | $ | 134.6 | | | $ | 526.4 | |
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| Class A Common Stock | | Class B Common Stock | | Class C Common Stock | | Additional Paid-In Capital | | Treasury Stock | | Retained Deficit | | 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 | |
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See accompanying notes to unaudited condensed consolidated financial statements. |
SHIFT4 PAYMENTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in millions)
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| Three Months Ended March 31, |
| 2023 | | 2022 |
Operating activities | | | |
Net income (loss) | $ | 20.4 | | | $ | (13.2) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | |
Depreciation and amortization | 47.6 | | | 29.1 | |
Amortization of capitalized financing costs | 2.1 | | | 1.9 | |
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Deferred income taxes | (5.6) | | | (6.3) | |
Provision for bad debts | 3.2 | | | 3.0 | |
Revaluation of contingent liabilities | 7.0 | | | — | |
Unrealized gain on investments in securities | (8.9) | | | — | |
Change in TRA liability | 0.5 | | | — | |
Equity-based compensation expense | 20.9 | | | 16.9 | |
Other noncash items | 0.3 | | | 0.3 | |
Change in operating assets and liabilities | | | |
Accounts receivable | (17.1) | | | (20.0) | |
Prepaid expenses and other assets | 0.1 | | | 0.6 | |
Inventory | 0.7 | | | 1.7 | |
Capitalized customer acquisition costs | (7.3) | | | (6.3) | |
Accounts payable | 5.3 | | | 15.4 | |
Accrued expenses and other current liabilities | 5.9 | | | 3.1 | |
Right-of-use assets and lease liabilities, net | 0.1 | | | (0.1) | |
Deferred revenue | 4.2 | | | 4.7 | |
Net cash provided by operating activities | 79.4 | | | 30.8 | |
Investing activities | | | |
Residual commission buyouts | (2.1) | | | (4.6) | |
Acquisitions, net of cash acquired | (1.2) | | | (12.6) | |
Acquisition of equipment to be leased | (14.7) | | | (9.9) | |
Capitalized software development costs | (10.7) | | | (8.0) | |
Acquisition of property, plant and equipment | (2.7) | | | (1.0) | |
Investments in securities | — | | | (1.5) | |
Net cash used in investing activities | (31.4) | | | (37.6) | |
Financing activities | | | |
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Repurchases of Class A common stock to treasury stock | — | | | (18.7) | |
Payments for withholding tax related to vesting of restricted stock units | (5.3) | | | (12.2) | |
Deferred financing costs | — | | | (4.8) | |
Distributions to noncontrolling interests | (1.4) | | | — | |
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Payments on contingent liabilities | (0.3) | | | — | |
Net cash used in financing activities | (7.0) | | | (35.7) | |
Effect of exchange rate changes on cash and cash equivalents and restricted cash | 0.4 | | | — | |
Change in cash and cash equivalents and restricted cash | 41.4 | | | (42.5) | |
Cash and cash equivalents and restricted cash | | | |
Beginning of period | 776.5 | | | 1,231.5 | |
End of period | $ | 817.9 | | | $ | 1,189.0 | |
Supplemental cash flows information and noncash activities are further described in Note 22. |
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” or “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 independent provider of software and payment processing solutions in the United States (“U.S.”) based on total volume of payments processed. The Company has achieved its leadership position through decades of solving business and operational challenges facing its customers’ overall commerce needs. The Company’s merchants range in size from small owner-operated local businesses to multinational enterprises conducting commerce throughout the world. The Company distributes its services through a scaled network of seasoned internal sales and support teams, as well as through its network of software partners. For its software partners, the Company offers a single integration to a global end-to-end payment offering, a proprietary gateway and a robust suite of technology solutions (including cloud enablement, business intelligence, analytics, and mobile) to enhance the value of their software and simplify payment acceptance. For its merchants, the Company provides a seamless, unified consumer experience and fulfills business needs that would otherwise require multiple software, hardware and payment vendors. The Shift4 Model is built to serve a range of merchants from small owner-operated local businesses to multinational enterprises conducting commerce throughout the world, 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 500 software integrations across virtually every industry vertical.
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 U.S. (“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, 2022 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, 2022, as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 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. 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”). 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”), amounts payable under the Tax Receivable Agreement (“TRA”), and the aggregate principal amount of $690.0 million of 2025 Convertible Notes and $632.5 million of 2027 Convertible Notes (together, the “Convertible Notes”) that are held by Shift4 Payments, Inc. directly. As of March 31, 2023 and December 31, 2022, $12.3 million and $9.8 million of cash, respectively, was directly held by Shift4 Payments, Inc. As of March 31, 2023 and December 31, 2022, the earnout liability for The Giving Block was $2.9 million and $10.9 million, respectively. The $2.9 million liability as of March 31, 2023 represents the cash portion of the earnout, which is expected to be paid in the second quarter of 2023. As of March 31, 2023 and December 31, 2022, the TRA liability was $2.2 million and $1.7 million, respectively. In connection with the issuance of the Convertible Notes, Shift4 Payments, Inc. entered into Intercompany Convertible Notes with Shift4 Payments, LLC, whereby Shift4 Payments, Inc. provided the net proceeds from the issuance of the Convertible Notes to Shift4 Payments, LLC in the amount of $1,322.5 million. Shift4 Payments, Inc., which was incorporated on 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. Shift4 Payments, Inc. recognized fair value adjustments to the contingent liability for The Giving Block of $(0.5) million for the three months ended March 31, 2023 due to the final measurement of the earnout payment.
Change in Presentation of Unaudited Condensed Consolidated Balance Sheets
Certain prior year balances have been adjusted to present “Restricted cash” on its own line item rather than within “Cash and cash equivalents” on the Company’s unaudited Condensed Consolidated Balance Sheets to conform to the current period presentation.
Change in Presentation of Unaudited Condensed Consolidated Statements of Operations
Certain prior year balances have been adjusted to present “Transaction-related expenses” within “Professional fees” rather than its own line item on the Company’s unaudited Condensed Consolidated Statements of Operations.
Liquidity and Management’s Plan
As of March 31, 2023, 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 with such financial covenants for at least 12 months following the issuance of these unaudited condensed consolidated financial statements. See Note 11 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 Company’s 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, deferred income tax valuation allowances, amounts associated with the Company’s tax receivable agreement with Rook and certain affiliates of Searchlight Capital Partners (together, the “Continuing Equity Owners”), 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, 2022 in the 2022 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 three months ended March 31, 2023, except for the below.
Cash and Cash Equivalents and Restricted Cash
Highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents and are stated at cost, which approximates fair value. The Company’s cash equivalents consist of highly liquid investments in money market funds, which amounted to $672.2 million and $652.8 million as of March 31, 2023 and December 31, 2022, respectively.
The Company classifies as restricted certain cash that is not available for use in its operations. Prior to December 2022, the Company had funds deposited in a sponsor bank merchant settlement account (“Settlement Funds”) to facilitate gross card transaction deposits for those customers the Company bills on a monthly, versus a daily basis. This amount fluctuates based upon end-to-end payment volumes and timing of billing cycles. The funds deposited at the sponsor bank were included within “Accounts receivable, net” prior to December 2022. In December 2022 and March 2023, pursuant to amendments to its agreement, the Company received in cash its Settlement Funds of $74.0 million, which was restricted as to withdrawal by the sponsor bank. In January 2023 and April 2023, the Company, as required by the amendments, deposited $74.0 million to its sponsor bank merchant settlement account. See Note 24 for more information on the April 2023 amendment to the sponsor bank agreement. As of both March 31, 2023 and December 31, 2022, Restricted cash was $74.0 million, representing the Company’s Settlement Funds.
The Company maintains its cash with what are widely considered to be high credit quality financial institutions. The total cash balances insured by the Federal Deposit Insurance Corporation are up to $250 thousand per bank.
Recent Accounting Pronouncements
Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. ASU 2020-04 was subsequently amended by ASU 2022-06, Reference Rate Reform, which extends the date through which entities can elect these optional expedients and exceptions. Companies may elect to apply these amendments as of March 12, 2020 through December 31, 2024. The Company is currently evaluating whether it will elect the optional expedients, as well as evaluating the impact of ASU 2020-04 on the Company’s unaudited condensed consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring the fair value of the equity security. ASU 2022-03 also clarifies that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account. The amendments in ASU 2022-03 may be early adopted and are effective on a prospective basis for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company currently considers sale restrictions in measuring the fair value of shares of its Class A common stock equity securities issued in conjunction with acquisitions. The Company is currently evaluating whether it will early adopt the amendments in ASU 2022-03 and is evaluating the impact of the amendments on the Company’s unaudited condensed consolidated financial statements.
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.
Online Payments Group
On September 29, 2022, the Company completed the acquisition of Online Payments Group AG (“Online Payments Group”) by acquiring 100% of its common stock for $125.9 million of estimated total purchase consideration, net of cash acquired. Online Payments Group is a European payment service provider with a world-class developer portal and checkout experience that management believes will accelerate the Company’s global eCommerce growth. Total purchase consideration was as follows:
| | | | | |
Cash | $ | 74.1 | |
Shares of Class A common stock (a) | 38.6 | |
Contingent consideration (b) | 22.0 | |
Shareholder loans transfer | 2.5 | |
Total purchase consideration | 137.2 | |
Less: cash acquired | (11.3) | |
Total purchase consideration, net of cash acquired | $ | 125.9 | |
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(a) Total purchase consideration includes 971,371 shares of common stock. |
(b) The Company agreed to an earnout due to the former shareholders of Online Payments Group, not to exceed $60.0 million. $30.0 million of the earnout is payable in September 2023 if key customers of Online Payments Group contribute a specified amount of revenue from September 29, 2022 to September 28, 2023 and the remaining $30.0 million of the earnout is payable in September 2024 if key customers contribute a specified amount of revenue from September 29, 2022 to September 28, 2024. Each portion of the earnout will be paid 50% in shares of the Company’s Class A common stock and 50% in cash. The fair value of the earnout was included in the initial purchase consideration and will be revalued and recorded quarterly until the end of the earnout period as a fair value adjustment within “Revaluation of contingent liabilities” in the Company’s unaudited Condensed Consolidated Statements of Operations. As of March 31, 2023, the fair value of the earnout was $40.2 million, of which $28.0 million is recognized in “Accrued expenses and other current liabilities” and $12.2 million is recognized in “Other noncurrent liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets. |
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, accounts receivable, accrued expenses and other current liabilities assumed, and residual goodwill.
| | | | | |
Accounts receivable | $ | 2.2 | |
Shareholder loans receivable (a) | 2.5 | |
Goodwill (b) | 49.9 | |
Other intangible assets | 84.0 | |
Indemnification asset (c) | 7.5 | |
Accounts payable | (0.4) | |
Accrued expenses and other current liabilities | (1.4) | |
Uncertain tax position (d) | (6.7) | |
Deferred tax liability | (9.9) | |
Other noncurrent liabilities | (1.8) | |
Net assets acquired | $ | 125.9 | |
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(a) Amount is eliminated in consolidation and therefore has no impact to the Company’s unaudited Condensed Consolidated Balance Sheets. |
(b) Goodwill is not deductible for tax purposes. |
(c) Included within “Other noncurrent assets” in the Company’s unaudited Condensed Consolidated Balance Sheets. |
(d) Included within “Other noncurrent liabilities” in the Company’s unaudited Condensed Consolidated Balance Sheets. |
Upon acquisition, the Company assessed the probability Online Payments Group would be required to pay certain tax liabilities and recorded to “Other noncurrent liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets $6.7 million for income taxes related to unrecognized tax benefits determined in accordance with the provisions of ASC 740, “Accounting for income taxes” and $1.8 million for non-income taxes determined in accordance with the provisions of ASC 450, “Contingencies.” Online Payments Group has agreed to indemnify the Company for tax liabilities related to periods prior to the acquisition and an indemnification asset was established for $7.5 million in the purchase price allocation, which is recorded to “Other noncurrent assets” on the Company’s unaudited Condensed Consolidated Balance Sheets.
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. Other intangible assets consists of definite-lived intangible assets, which includes customer relationships and developed technology. The fair values of these intangible assets were estimated using inputs classified as Level 3 under the income approach using the relief-from-royalty method (developed technology) or the multi-period excess earnings method (customer relationships). Management’s estimates of fair value are based upon assumptions related to projected revenues, earnings before interest expense and income tax (“EBIT”) margins, customer attrition rates, and discount rates. The transaction was not taxable for income tax purposes. The weighted average life of developed technology and customer relationships is 8 years and 13 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 acquisition of Online Payments Group 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.
Restaurant Technology Partners
During the year ended December 31, 2022, the Company completed the acquisitions of Pinnacle Hospitality Systems LLC (“Pinnacle”), FPOS Group, Inc. (“FPOS”), Retail Control Solutions, Inc. (“RCS”), and three other restaurant technology partners in separate transactions for $80.3 million of total purchase consideration, net of cash acquired. In addition, on January 20, 2023, the Company completed the acquisition of one restaurant technology partner for $1.5 million, net of cash acquired. The Company acquired 100% of each entity’s ownership interests. These acquisitions enable the boarding of the restaurant technology partners’ customers on the Company’s end-to-end acquiring solution and empower the Company’s distribution partners to sign the restaurant technology partners’ customer accounts and leverage the combined expertise to handle all aspects of installation, service, and support. Total purchase consideration was as follows:
| | | | | |
Cash | $ | 65.1 | |
Shares of Class A common stock (a) | 20.7 | |
Contingent consideration (b)(c) | 2.5 | |
Settlement of preexisting relationship | (2.5) | |
Total purchase consideration | 85.8 | |
Less: cash acquired | (4.0) | |
Total purchase consideration, net of cash acquired | $ | 81.8 | |
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(a) Total purchase consideration includes 598,759 shares of common stock. |
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(b) The Company agreed to earnouts due to certain former shareholders of the restaurant technology partners acquired in 2022, calculated as a multiple of the number of each partners’ merchants that are converted to the Company’s end-to-end payments platform during the 18 months following each respective acquisition date, not to exceed $4.0 million in total. The earnouts are expected to be paid in a combination of cash and shares of the Company’s Class A common stock. The fair value of the earnouts was included in the initial purchase consideration and will be revalued and recorded quarterly until the end of the earnout period as a fair value adjustment within “Revaluation of contingent liabilities” in the Company’s unaudited Condensed Consolidated Statements of Operations. As of March 31, 2023, the fair value of the earnouts was $1.8 million, of which $0.5 million is recognized in “Accrued expenses and other current liabilities” and $1.3 million is recognized in “Other noncurrent liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets. |
(c) The Company agreed to an earnout due to certain former shareholders of the restaurant technology partner acquired in 2023, calculated as a multiple of the number of the restaurant technology partner’s merchants that are converted to the Company’s end-to-end payments platform during the 24 months following September 1, 2022, not to exceed $2.5 million in total. The earnout is expected to be paid in cash. The fair value of the earnout was included in the initial purchase consideration and will be revalued and recorded quarterly until the end of the earnout period as a fair value adjustment within “Revaluation of contingent liabilities” in the Company’s unaudited Condensed Consolidated Statements of Operations. As of March 31, 2023, the fair value of the earnout was $0.3 million, which is recognized in “Other noncurrent liabilities” on the Company’s unaudited Condensed Consolidated Balance Sheets. |
The following table summarizes the fair value assigned to the assets acquired and liabilities assumed at the acquisition dates. 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, other intangible assets, and residual goodwill.
| | | | | |
Accounts receivable | $ | 1.2 | |
Inventory | 1.2 | |
Prepaid expenses and other current assets | 0.3 | |
Goodwill (a) | 54.3 | |
Residual commission buyouts | 12.7 | |
Other intangible assets | 20.8 | |
Property, plant and equipment | 0.2 | |
Right-of-use assets | 1.3 | |
Accounts payable | (2.7) | |
Accrued expenses and other current liabilities | (0.8) | |
Deferred revenue | (1.9) | |
Current lease liabilities | (0.5) | |
Deferred tax liability | (3.5) | |
Noncurrent lease liabilities | (0.8) | |
Net assets acquired | $ | 81.8 | |
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(a) $27.7 million of goodwill is deductible for tax purposes and $26.6 million of goodwill is not deductible for tax purposes. |
The fair values of intangible assets were estimated using inputs classified as Level 3 under the income approach using the multi-period excess earnings method (customer relationships). Four of the transactions were taxable for income tax purposes and three of the transactions were not taxable for income tax purposes. The weighted average lives of customer relationships range from 6 years to 14 years. The weighted average lives of residual commission buyouts range from 5 years to 9 years. The goodwill arising from the acquisitions largely consisted of revenue synergies associated with a larger total addressable market and the ability to cross-sell existing and new customers.
The acquisitions of the restaurant technology partners 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.
The Giving Block
On February 28, 2022, the Company completed the acquisition of The Giving Block by acquiring 100% of its common stock for $106.9 million of 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 | |
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(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, 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. Approximately 75% of the earnout was comprised of a combination of RSUs and shares of the Company’s Class A common stock and approximately 25% of the earnout was comprised of cash. The cash portion of the earnout, valued at $2.9 million as of March 31, 2023, is included within “Accounts payable” on the Company’s unaudited Condensed Consolidated Balance Sheets. The stock portion of the earnout, valued at $7.3 million as of March 31, 2023, is included within “Additional paid-in-capital” on the Company’s unaudited Condensed Consolidated Balance Sheets. The fair value of the earnout was included in the initial purchase consideration and was revalued quarterly through the end of the earnout period as a fair value adjustment within “Revaluation of contingent liabilities” in the Company’s unaudited Condensed Consolidated Statements of Operations. |
The following table summarizes the fair value assigned to the assets acquired and liabilities assumed at the acquisition date:
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Prepaid expenses and other current assets (a) | $ | 4.8 | |
Goodwill (b) | 89.4 | |
Other intangible assets | 26.0 | |
Accrued expenses and other current liabilities (a) | (4.9) | |
Deferred revenue | (2.0) | |
Deferred tax liability | (6.4) | |
Net assets acquired | $ | 106.9 | |
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(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. |
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 acquisition of The Giving Block 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.
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:
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| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Payments-based revenue | $ | 511.0 | | | $ | 371.5 | | | | | |
Subscription and other revenues | 36.0 | | | 30.4 | | | | | |
Total | $ | 547.0 | | | $ | 401.9 | | | | | |
Based on similar economic characteristics, the Company’s revenue from contracts with customers is disaggregated as follows:
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| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Over-time revenue | $ | 538.2 | | | $ | 392.0 | | | | | |
Point-in-time revenue | 8.8 | | | 9.9 | | | | | |
Total | $ | 547.0 | | | $ | 401.9 | | | | | |
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 March 31, 2023 and December 31, 2022, the Company had deferred revenue of $23.3 million and $19.1 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 were included in deferred revenue at the beginning of each respective period:
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| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
Annual service fees and regulatory compliance fees | $ | 10.8 | | | $ | 9.6 | | | | | |
Amount of these fees included in deferred revenue at beginning of period | 6.4 | | | 4.9 | | | | | |
Allowance for Doubtful Accounts
The change in the Company’s allowance for doubtful accounts was as follows:
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| Three Months Ended March 31, |
| 2023 | | 2022 |
Beginning balance | $ | 18.1 | | | $ | 8.0 | |
Additions to expense | 3.2 | | | 3.0 | |
Write-offs, net of recoveries and other adjustments | (1.1) | | | (1.5) | |
Ending balance | $ | 20.2 | | | $ | 9.5 | |
4.Goodwill
The changes in the carrying amount of goodwill were as follows:
| | | | | |
Balance at December 31, 2022 | $ | 735.0 | |
Restaurant technology partner acquisition (Note 2) | 1.1 | |
Purchase price adjustments related to prior period acquisitions | (0.2) | |
Effect of foreign currency translation | 1.1 | |
Balance at March 31, 2023 | $ | 737.0 | |
5.Depreciation and Amortization
Amounts charged to expense in the Company’s unaudited Condensed Consolidated Statements of Operations for depreciation and amortization were as follows:
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| | Amortization | | Depreciation | | |
| | Residual Commission Buyouts (Note 6) | | Other Intangible Assets (Note 7) | | Capitalized Customer Acquisition Costs (Note 8) | | Equipment Under Lease (Note 9) | | Property, Plant and Equipment (Note 10) | | Total |
Three Months Ended March 31, 2023 | | | | | | |
Depreciation and amortization expense | | $ | 21.6 | | | $ | 5.2 | | | $ | — | | | $ | 7.2 | | | $ | 1.3 | | | $ | 35.3 | |
Cost of sales | | — | | | 8.3 | | | 3.8 | | | — | | | 0.2 | | | 12.3 | |
Total depreciation and amortization (a) | | $ | 21.6 | | | $ | 13.5 | | | $ | 3.8 | | | $ | 7.2 | | | $ | 1.5 | | | $ | 47.6 | |
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Three Months Ended March 31, 2022 | | | | | | |
Depreciation and amortization expense | | $ | 1.9 | | | $ | 7.4 | | | $ | — | | | $ | 7.0 | | | $ | 1.0 | | | $ | 17.3 | |
Cost of sales | | — | | | 5.4 | | | 6.1 | | | — | | | 0.3 | | | 11.8 | |
Total depreciation and amortization (b) | | $ | 1.9 | | | $ | 12.8 | | | $ | 6.1 | | | $ | 7.0 | | | $ | 1.3 | | | $ | 29.1 | |
(a) Total amortization of $38.9 million consisted of amortization of acquired intangibles of $30.0 million and amortization of non-acquired intangibles of $8.9 million.
(b) Total amortization of $20.8 million consisted of amortization of acquired intangibles of $12.5 million and amortization of non-acquired intangibles of $8.3 million.
As of March 31, 2023, the estimated amortization expense for each of the five succeeding years and thereafter is as follows:
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| Residual Commission Buyouts | | Other Intangible Assets | | Capitalized Customer Acquisition Costs | | Total Amortization |
2023 (remaining nine months) | $ | 63.0 | | | $ | 47.0 | | | $ | 11.5 | | | $ | 121.5 | |
2024 | 83.8 | | | 59.5 | | | 14.0 | | | 157.3 | |
2025 | 81.9 | | | 51.1 | | | 10.0 | | | 143.0 | |
2026 | 48.3 | | | 30.3 | | | 3.9 | | | 82.5 | |
2027 | 1.6 | | | 22.6 | | | 0.2 | | | 24.4 | |
Thereafter | 4.4 | | | 95.5 | | | — | | | 99.9 | |
Total | $ | 283.0 | | | $ | 306.0 | | | $ | 39.6 | | | $ | 628.6 | |
6.Residual Commission Buyouts
Residual commission buyouts, net consisted of the following:
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| | Weighted Average Amortization Period (in years) | | March 31, 2023 |
| | Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Residual commission buyouts from asset acquisitions | | 4 | | |