Shift4 Payments, Inc. 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter filing; quarterly information is included only where disclosed. Shift4 provides integrated payment processing, merchant acquiring, gateway, point-of-sale, eCommerce, analytics and related technology services through more than 7,000 software partners and over 425 integrations. Its end-to-end payment volume is concentrated in the United States and spans hospitality, food and beverage, gaming, stadiums, specialty retail, nonprofits and eCommerce.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Gross revenue | $1,367.5 million | $766.9 million | +78.3% |
| Payments-based revenue | $1,258.0 million | $684.2 million | +83.9% |
| Subscription and other revenue | $109.5 million | $82.7 million | +32.4% |
| End-to-end payment volume | $46.7 billion | $24.3 billion | +92.1% |
| Gross profit | $278.4 million | $177.8 million | +56.6% |
| Gross margin | 20.4% | 23.2% | Down approximately 2.8 percentage points |
| Loss from operations | $(49.2) million | $(57.6) million | Improved by $8.4 million |
| Net loss | $(74.0) million | $(111.4) million | Improved by $37.4 million |
| Net loss attributable to Shift4 Payments, Inc. | $(48.2) million | $(18.4) million | Loss increased by $29.8 million |
| Adjusted EBITDA | $167.2 million | $87.7 million | +90.6% |
| Net cash provided by operating activities | $29.2 million | $23.4 million | +$5.8 million |
| Net cash used in investing activities | $(196.7) million | $(102.1) million | Use increased by $94.6 million |
| Cash and cash equivalents at year-end | $1,231.5 million | $927.8 million | +$303.7 million |
Gross revenue less network fees, a non-GAAP metric, was $529.0 million, up 63.8% from $323.0 million. EBITDA was $55.3 million versus $10.6 million in 2020. Adjusted EBITDA included $47.3 million of equity-based compensation, $36.9 million of acquisition, restructuring and integration costs, and $26.3 million of TSYS outage payments and related costs.
Debt and liquidity
- Total principal debt was $1,772.5 million at December 31, 2021, consisting of $690.0 million of 0.00% convertible notes due 2025, $632.5 million of 0.50% convertible notes due 2027 and $450.0 million of 4.625% senior notes due 2026.
- Debt was fixed-rate and not subject to interest-rate hedges. Reported debt fair value was $1,757.6 million.
- The amended revolving credit facility had $99.5 million of available capacity, net of a $0.5 million letter of credit, with no borrowings outstanding at year-end.
- Future interest payments on the notes totaled $123.1 million, including $24.0 million payable within twelve months. Management stated that the company was in compliance with debt covenants and expected to remain compliant for at least twelve months after issuance of the financial statements.
- Operating cash flow remained modest relative to reported Adjusted EBITDA, while investing uses included acquisitions, leased equipment, software development, customer acquisition costs and investments in securities.
Material changes versus the prior comparable period
- Payment volume more than doubled, principally reflecting recovery from COVID-19-related disruption and growth in integrated payments. Payment-based revenue increased 83.9%.
- Gross profit increased, but gross margin declined because network fees and other costs of sales grew faster than gross revenue.
- GAAP net loss narrowed, but the loss attributable to Shift4 Payments, Inc. increased because of changes in the allocation of losses to noncontrolling interests and the post-IPO ownership structure.
- Interest expense declined 30.3% following the repayment and refinancing of prior term loans and the revolving facility, partially offset by interest on the 2027 Convertible Notes.
- General and administrative expense increased 21.9%, and advertising and marketing expense increased to $28.9 million from $4.0 million. The latter included $20.8 million related to integrating and rebranding 3dcart as Shift4Shop and $3.7 million associated with the Inspiration4 seat; management characterized these costs as largely nonrecurring.
- The company adopted ASC 842, ASC 2020-06 and other accounting standards in 2021. Adoption of ASC 2020-06 increased reported long-term debt by $109.9 million and reduced additional paid-in capital by $111.5 million.
- VenueNext was acquired for $66.9 million of net purchase consideration, and Postec was acquired for $14.3 million in cash. Goodwill increased to $537.7 million from $477.0 million.
- On December 16, 2021, the company authorized a $100.0 million stock repurchase program. It repurchased 378,475 shares for $21.1 million during 2021, with approximately $78.9 million remaining authorized at year-end.
Unusual items, outlook and risks
- TSYS outage: An August 2021 outage disrupted payment processing. Shift4 paid merchants $23.1 million and partners $2.8 million, plus $0.4 million of associated costs. The filing states that the company is seeking compensation through various channels, but does not provide a clear estimate of any recovery.
- COVID-19: Management reported strong year-over-year recovery but noted that payment volumes tied to international and corporate travel remained below pre-pandemic levels. Additional variants, restrictions, merchant closures and changes in consumer behavior could reduce volume and increase chargeback losses.
- Growth strategy: Management emphasized expanding integrated payments, converting gateway-only merchants to end-to-end processing, increasing software and partner distribution, investing in products and operations, and pursuing acquisitions. The filing does not provide a clear quantified 2022 revenue or Adjusted EBITDA guidance.
- Subsequent acquisitions: In February 2022, Shift4 acquired The Giving Block for approximately $13.5 million in cash and $40.5 million in Class A stock, with additional earnout consideration. In March 2022, it agreed to acquire Finaro for approximately $200.0 million in cash, $325.0 million in Class A stock and up to $50.0 million of stock-based earnout consideration, subject to regulatory approvals.
- Tax Receivable Agreement: The company is generally required to pay 85% of realized or deemed tax benefits to certain continuing equity owners and blocker shareholders. No TRA liability was recorded at year-end because management concluded payment was not probable, but the filing estimates a $248.3 million liability that could be recognized if the valuation allowance is released.
- Concentration and execution risks: The company relies on third-party processors, sponsor banks, payment networks and technology suppliers. Cybersecurity, system outages, chargebacks, merchant failures, regulatory changes, competition, acquisition integration and goodwill impairment are significant risks.
- Ownership and governance: Founder Jared Isaacman controlled approximately 83.3% of voting power at December 31, 2021. The company is a controlled company under NYSE rules and relies on related governance exemptions.
Important facts for investors to verify
- Reconcile GAAP gross profit and net loss with non-GAAP Gross Revenue Less Network Fees, EBITDA and Adjusted EBITDA, particularly the treatment of the TSYS outage and other excluded items.
- Assess whether operating cash flow can scale with Adjusted EBITDA after accounting for working-capital requirements, leased equipment, acquisitions and customer acquisition spending.
- Review maturity, conversion and potential cash-settlement requirements for the $690.0 million 2025 Convertible Notes and $632.5 million 2027 Convertible Notes.
- Monitor the effect of Finaro and The Giving Block on leverage, dilution, liquidity, international regulatory exposure and integration costs.
- Evaluate the potential timing and magnitude of Tax Receivable Agreement payments, including the possibility of accelerated obligations following a change of control or early termination.
- Track payment volume exposure to hospitality, restaurants, travel and other COVID-sensitive categories, along with chargeback trends and merchant concentration.
- Confirm the status of any claims or recovery related to the TSYS outage and assess whether additional outages or vendor concentration could create comparable liabilities.
- Review goodwill and intangible-asset valuation assumptions, especially following VenueNext, Postec and other acquisitions.