Shift4 Looks to Close on a European Processor As It Enters 2023 With Momentum

If any doubt remains that payment processors are rebounding strongly from the pandemic and all the restrictions it brought with it, Shift4 Payments Inc. likely dispelled it with the final-quarter 2022 results it posted early Tuesday. And if there’s a cloud on its horizon, it’s the waiting time the company has had to contend with in closing on one of its biggest acquisitions—the $525-million deal for Finaro, a 15-year-old Israel-based e-commerce acquirer Shift4 is counting on for global expansion.

“We expect to receive regulatory approval on Finaro shortly,” said chief executive Jared Isaacman, who in November indicated the deal would likely close by March 31. Isaacman spoke Tuesday during a conference call to discuss Shift4’s fourth-quarter results. On the call, president and chief strategy officer Taylor Lauber added the company now expects to close in the second quarter. “We need to close on Finaro as soon as we’re allowed to,” he told equity analysts on the call.

The urgency to close the deal stems from Finaro’s extensive reach. The company processes transactions in the United Kingdom, Europe, Hong Kong, and Japan, and supports more than 170 alternative payment methods, a portfolio that will vastly expand Shift4’s currency capabilities in addition to extending the company into overseas markets in a major thrust. Still, despite the lengthy regulatory process, the delay “is no more than mildly frustrating,” Lauber said.

Domestically, Allentown, Pa.-based Shift4 saw its end-to-end payment volume climb a record 55% year-over-year to $20.7 billion for 2022’s final quarter. The growth was partly a result of a years-long effort by the company to shift clients to end-to-end processing from its less profitable gateway service. “Our gateway sunset is a multi-year initiative,” said Isaacman. “It’s in the early innings.”

On the end-to-end processing front, Shift4 also reported some 10,000 integrations for one of its most ambitious point-of-sale technologies, SkyTab POS, which it launched officially in September. The system, which is aimed at restaurants and sports stadiums, has helped move more of the company’s volume to “higher-end” merchants, Isaacman reported. Another initiative with the same potential is a deal with PayPal to enable PayPal Checkout with Venmo and PayPal Pay Later, PayPal’s buy now, pay later technology, which is aimed at larger merchants.

The advantage of large enterprise deals on the end-to-end platform is profitability, Shift4’s top management stressed during the call. “It’s more labor to support a gateway customer than an end-to-end merchant,” said Isaacman, who added venues like sports stadium magnify that profitability. While gateway service is labor intensive, “a single stadium can be covered by the same person,” he said. With the gateway service, Shift4 passes on transactions to other processors for settlement, cutting into the profitability of each transaction.

For the quarter, Shift4 reported $537.7 million in gross revenue, up 35% year-over-year. Revenue for all of 2022 totaled $1.99 billion, a 46% increase over 2021. The company swung from a loss of $74 million in 2021 to net income of $86.7 million last year. Net income for the quarter came to $38.5 million, compared to a loss of $13.7 million in the same period in 2021.

The company made it plain it intends to expand profitability markedly in 2023, in part through growth. End-to-end payment volume, it projects, will fall into a range of $100 to $109 billion, helping to yield gross revenue of $2.5 billion to $2.7 billion. Adjusted EBITDA—earnings before interest, taxes, depreciation, and amortization—will fall between $410 million and $435 million, the company forecasts—up dramatically from $86.7 million in 2022.

This is a number Isaacman is watching closely. He’s aiming at a goal of $1 billion in EBITDA, he said Tuesday. “That’s the journey we’re on right now,” he said.