Shift4 Payments, Inc. (FOUR) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Shift4 Payments Third Quarter 2020 Earnings Conference Call. [Operator instructions] I would now like to turn the call over to your speaker today, Sloan Bohlen, Investor Relations. Please go ahead.

Thank you, operator. I'd like to welcome everyone to Shift4's Third Quarter 2020 Earnings Conference Call. Before we begin, I'd like to remind everyone that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals and objectives; the potential annualized gross profit related to conversion of gateway-only merchants; our acquisitions and their ability to bring us into a high-growth vertical; the expected impact of COVID-19 on our business and industry; and anticipated financial performance, including our financial outlook for the fourth quarter of 2020. These statements are neither promises nor guarantees, but 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. Factors discussed in the Risk Factors section of our quarterly report on Form 10-Q for the quarter ended September 30, 2020, and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call. Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP measures on this call, which are reconciled to the nearest GAAP measure in the Company's earnings release, which can be found on our Investor Relations website at investors.shift4.com. And with that, let me turn the call over to the Chief Executive Officer, Jared Isaacman.

Good morning and thank you all for joining us today. We're pleased to report that Shift4 had a reasonably strong quarter despite a market backdrop that remains challenging. COVID-19, along with other factors, continues to pressure the economy and consumer spend at large. Year-to-date, consumer credit card spend, as tracked by Visa, is down 7%. Including debit, the overall spend trend is still at a modest 4% increase from the prior year. While this marks improvement from the depths earlier in the year, the shape of the recovery remains uncertain. It's against that backdrop that our results stand out and, in our view, serves as a proof point that Shift4 provides a meaningfully differentiated solution, which ultimately creates demand for our services. In the third quarter, we grew end-to-end volume by just over 20%. In fact, every month this year, we've grown end-to-end volume year-over-year, except for April and May at the onset of the COVID-19 crisis. In the spirit of transparency and in line with the periodic Shift4Cares.com updates we have been releasing, it's worth highlighting that October was our highest month ever with end-to-end volume up 28% year-over-year. This performance is entirely attributable to the growth of our end-to-end merchant count from both gateway conversions and net new wins. Year-to-date, we've boarded 18% more merchants than the same period in 2019. Our passion for constant innovation drives this growth, whether that be via new technologies, bolt-on capabilities or disruptive go-to-market strategies. We don't sit still and are laser-focused on solving the pain points of the world's best merchants. With that grounding, let's turn our attention to the results for this quarter. As detailed in our release this morning, Shift4's third quarter results were reasonably strong, highlighted by our end-to-end payment volumes of $7.1 billion, which was up over 20% from last year, as I mentioned before. Our increased volumes drove 10% growth in gross revenues less network fees and resulted in an adjusted EBITDA of $28.7 million and an EBITDA margin of 32.7% for the quarter. We spent quite a bit of time during the quarter speaking with investors, and I would like to now address a few questions or misperceptions that we have encountered in our discussions. The first misperception is that Shift4's growth story is only about converting gateway-only merchants to our end-to-end solution. To be clear, that is a big part of our strategy, and we see huge opportunity in those conversions and believe, in aggregate, the opportunity could deliver as much as $500 million in annualized incremental gross profit. That said, we think it's equally important to recognize that Shift4's solution set is highly competitive and is winning us new merchants and payment market share as well. Solving pain points for merchants also means solving pain points for our software partners, and they, in turn, bring us more merchants. In a way, these new merchant wins says a lot about the other 2 main misperceptions we run into with our investors. One is that Shift4 is really just about the restaurant and hospitality space. The second is that Shift4 and our merchants operate on legacy technologies. To this, we first note that 40% -- or nearly 40% of our overall end-to-end volume is for merchants that fall outside of the restaurant and hospitality space. As we've discussed previously, the incredibly important and complex software integrations that make Shift4 so special in the hospitality market are used in a multitude of adjacent and entirely uncoupled verticals. For example, our customers can be found inside health care, education institutions, specialty retailers, golf courses, entertainment venues and more. To be clear, we love the advantaged position we have worked hard to build in the restaurant and hospitality verticals, but that is clearly not the limit of our capabilities. In fact, we are expanding our reach into many new domains, and we're going to talk about that in just a minute. Second, it's probably worth pointing out that there is innovation and disruption happening across the spectrum of commerce. The technological approach some of our peers are taking to simplify commerce for the most basic merchants is not necessarily transferable or applicable to the more complex merchants we serve. The vast majority of Shift4 customers depend on multiple software suites, ranging from emerging cloud solutions to enterprise on-premise servers. Our technology allows merchants to operate a diverse array of commerce-enabling software and take advantage of best-in-class payment solutions such as our contactless and ordering products like SkyTab or QR Pay. We've also developed enterprise-grade business intelligence and analytic products. These are examples of merchant pain points that our technology is solving, which is very much different than, say, crypto enablement and peer-to-peer payments that a different category of merchants may require. On our second quarter earnings call, we provided a detailed overview of how Shift4 is differentiated and why our model has so much success with a growing set of merchants. Instead of repeating that story, I'd encourage those that are new to the Shift4 story to listen to the second quarter earnings remarks. What I thought would be far more valuable today is to talk about where Shift4 is going, and this morning's M&A announcement is just one more step on that journey. In my IPO founder letter, I explained a lot about our history and our organizational philosophy towards seeking out problems and complexity and pain points and, ultimately, opportunities in order to further our grand payments ambitions. What began 2 decades ago with basic process improvements has, over the years, led to major pivots in technology and go-to-market strategy, and we've grown larger and more profitable each year as a result. For example, just 3 years ago, we operated largely as a payment provider for a single software brand and didn't work with a single hotel. During the last quarter, we powered payments for dozens of software brands and roughly 1/3 of the hotels in the U.S. We didn't have a single Major League stadium prior to our Raiders announcement last quarter and now are in discussions with many venues around the country. Our performance is sometimes incorrectly measured solely on gateway conversions, as I touched on before, but 3 years ago, we didn't own any gateways. Seeking out opportunities and taking big evolutionary steps is core to the Shift4 DNA. And we're pleased to announce the next milestone in our mission to deliver a unified commerce experience on a global level. Our acquisition of 3dcart is incredibly exciting as it brings us yet another high-growth vertical. For those not familiar, 3dcart is an e-commerce platform powering over 14,000 web stores across the globe. It's a textbook Shift4 acquisition and that it's a highly capable platform with a strong brand and attractive economics with a revenue model that's easily portable to payments. I wanted to highlight some high-level points that I think will be worthwhile to understand. First, the incumbents, like Shopify, BigCommerce, Wix and Square, have really been doing an outstanding job. But this is a $2 trillion addressable market, and there's no such thing as a winner-take-all in business. Second, we spend a lot of time researching the landscape and believe the competitors' revenue models that penalize business owners with escalating SaaS fees and multiple premium plans and add-on services are exhausting and really unnecessary. We believe we can approach this enormous TAM with a more disruptive and, frankly, customer-friendly model, choosing to forego SaaS and premium services and other setup fees and instead monetize our relationship with our customers the same way we have for the last 2 decades, which is through an aligned payment relationship. And so when our merchants do well, so does Shift4. Beyond the above foundational points, I'm confident you will find this acquisition to be highly synergistic with an opportunity to move the needle materially. And with that, let me turn this call over to Taylor to provide more details on the quarter and the latest member of the Shift4 family, 3dcart.

Thanks, Jared, and good morning, everyone. We are very pleased to report that the third quarter was another strong quarter for every stat we focus on. Of our current end-to-end volume, 36% has come from new merchants. It's worth repeating because, as Jared noted, these wins validate the power of the Shift4 offering in a competitive payments market. And best of all, to Jared's last point about new markets, despite our continued growth in food and beverage and hospitality, we're adding lots of other merchant types as well. Another exciting trend in our merchant board is the continued lift in annual gross payment volume per merchant. Our average volume per merchant was up 11% year-over-year during Q3, and this includes the drag created as a result of the pandemic. What it tells you is that our average new win is substantially larger than our book. To put a finer point on it, a merchant joining Shift4 in 2020 is over 70% larger than a merchant who joined just 3 years ago. Again, that's in the middle of a global pandemic. Put very simply, our compelling offering, paired with an expanding ability to go to new market verticals and attract merchants, represents a huge amount of leverage and growth beyond the gateway conversion opportunity that we have within our current base. Merchants and partners come to Shift4 for a variety of reasons, but the common threads are needs for secure payment connectivity, some of the most desirable software integrations, constant feature enhancement to solve pain points and an overall lower cost of ownership. We expect that trend to continue and accelerate as we further expand our e-commerce capabilities with the acquisition of 3dcart. Jared mentioned 3dcart as being textbook Shift4, but I'd like to explain that in more detail. 3dcart has been operating successfully in a very competitive market. Their platform has been built to handle dozens of industry use cases and supports web stores of basically every variety. Once you scroll past the Google ads, you'll find them objectively ranked among the best web store and e-commerce platforms in the industry. The ability to deliver this solution to our merchant base as part of our end-to-end offering is quite compelling and offers obvious revenue synergies. These synergies apply to 3dcart merchants who have been sending their payment volumes to multiple gateways and paying each vendor along the way. This is, of course, just scratching the surface of synergies that we have further highlighted on Slide 11 of the presentation. Over time, we see the possibility to take what is already great omnichannel offering and add our deep vertical expertise in addition to other investments and deliver a category-leading capability. You've seen this playbook from us before. We can take a highly valuable product and disrupt the model for that industry by bundling in the payment processing these merchants are already using multiple vendors for. The fact that many industry incumbents are only just catching up to payments gives us an opportunity and distinct advantage. With that, let me turn it over to Brad to review our financials for the quarter.

Thanks, Taylor. Similar to last quarter, I'll be referencing slides in the tail end of our earnings material that will highlight many of the metrics I'm going to speak to. As mentioned in our release, we generated $87.7 million in gross revenue less network fees in the quarter. This represents a 10% increase over the prior year and a 30% increase over Q2. The year-over-year variance was driven by a 25% increase in net processing revenues, driven by continued share wins and gateway conversions. Net processing revenue now makes up 65% of our growth revenue less network fees, up from 57% for full year 2019. Growth in net processing revenue was offset by modest declines in gateway and other revenue streams due to the impact of COVID-19 on our hospitality merchants and the continued execution of our strategy to convert gateway and onetime hardware and license sales to our recurring end-to-end solutions. As anticipated in the Q2 earnings call, net spreads returned to more normal levels and finished the quarter at approximately 80 basis points. We reported $28.7 million of adjusted EBITDA for the third quarter, an increase of 17% from the prior year. Recall that we changed the accounting treatment of our equipment leases at the beginning of Q3 of 2020. If we had applied our current accounting treatment related to equipment leases to the third quarter of 2019, adjusted EBITDA would have been relatively flat year-over-year. Similarly, if we'd applied our current accounting treatment regarding equipment to the previous quarter, adjusted EBITDA would have increased just over 50% from Q2. Our third quarter results represented adjusted EBITDA margin of 32.7% against gross revenue less network fees. On a consistent accounting basis, this represents a 300 basis point decline from prior year as we continue to make investments in top line growth initiatives. Compared to the prior quarter and, again, using the same consistent accounting basis, adjusted EBITDA margins expanded by 470 basis points due to the benefit of the cost actions that were implemented in May of 2020 and increased scale from higher volumes. Next, let me give you an update on our capitalization and liquidity. First, as we completed a successful secondary equity offering in September of this year, raising $91.8 million in net proceeds, which increased both our liquidity position as well as our ability to pursue capital investment in various growth vectors. Second, on October 29, we completed a successful $450 million offering of senior notes that are due 2026. These notes carry a coupon rate of 4.625% and were issued at par. The proceeds of the offering were used to pay off the entirety of our previous term loan facility of that same amount and for general corporate purposes. In addition to saving Shift4 approximately $4 million in annual interest expense, the newly issued notes established Shift4's presence in the public debt markets and provide optionality for future capital raises. As a result of both actions, our liquidity position today is very strong, and Shift4 is positioned well to pursue a number of organic and inorganic growth opportunities. At quarter end, Shift4 had $328.9 million in cash and $89.5 million of capacity on our revolving credit facility. Finally, I'd like to discuss our outlook for the upcoming quarter. As we mentioned in our Q2 earnings call, we typically experience a seasonal downturn in Q4 coming out of Q3. While the COVID-19 impact on 2020 has distorted many of the normal industry pattern, we still anticipate a seasonal slowdown in same-store sales as we move into Q4 and summer travel comes to an end and students return back to school. Further, we are including in this outlook the impact of our recently discussed acquisition. That said, our revised guidance for Q4 is as follows. In terms of end-to-end volume, we now expect the fourth quarter to range between $7.2 billion and $7.6 billion. This revised guidance is up approximately 10% from our previously provided range of $6.5 billion to $6.9 billion. Consistent with Q3 results, this represents approximately 20% increase over prior year with no significant volume attributed to inorganic sources. Turning to gross revenue less network fees, we now expect the fourth quarter to range from $88 million to $92 million, which is approximately 17% higher than the previous range of $75 million to $79 million, and reflects higher volumes mentioned previously and modest revenues related to the acquisitions. Lastly, we now expect Q4 adjusted EBITDA to be between $27 million and $30 million, which represents an increase of approximately 30% from our previous guidance of $20 million to $23 million. As we're all aware, there's still a great deal of uncertainty, especially as it relates to the current pandemic. The guidance we are providing is predicated on volumes and spreads continuing to perform as they did at the end of Q3 and does not contemplate unforeseen events, including, but not limited to, additional increases in COVID-19 cases or additional restrictions on dining, commerce or travel that could be imposed by state governments or local municipalities. With that said, let me turn the conversation back over to Jared.

Thanks, Brad. Before we get to Q&A, I just want to make a few more closing comments, and some colors don't really stick around for that part after Q&A. So as to our results, I want to reiterate that our customers are not immune to the real-world realities. Our performance may be up year-over-year, but we all know, on a merchant-by-merchant basis, it's not an easy time to conduct business. Our customers are overcoming unprecedented levels of adversity long after government stimulus programs have expired, and they're finding ways to persevere. And it's really quite impressive. I also want to acknowledge all of the Shift4 employees and partners that work tirelessly to deliver the best service and capabilities possible. I'm really fortunate to work with a team that really cares about our small but important contribution to commerce. We took extra time today to talk about not just where Shift4 is finding success in the present, but where we're going in the future. Shift4 shareholders should enjoy that we built a business with high walls and a nice growth engine, but we're not going to sit on our hands and just let the machine do its thing. Our ambitions have no geographic borders or industry-specific boundaries, and the acquisition of 3dcart is just one piece of that puzzle. We're excited to share more details and already have big plans for our Investor Day in early 2021. And with that, I'd like to turn it over to the operator for the Q&A portion of this session.

[Operator Instructions] Your first question comes from the line of David Togut with Evercore ISI.

Good to see the increase in the fourth quarter guidance. Could you just talk through how much of the increase is driven by the inclusion of 3dcart versus the underlying growth of the business?

Yes. Hey, David, it's Brad. When we put out our guidance, and I mentioned in the statement, there's little to no volume attributable to 3dcart in Q4. So volume is insignificant. When we think about revenue, we did include that in the guidance. It's nominal. It's mid to low single digits, so it's not significant.

Got it. And just as a quick follow-up, when we look at the 18% growth in end-to-end merchant boards in the third quarter, can you dimension for us how much volume you might have gotten from those boards in the third quarter versus what's to come in Q4 and 2021?

Yes, sure. This is Taylor. What I think you should expect any time we board a customer is that you tend to get basically double the contribution of a merchant that boards in one quarter in the following quarter. Now that's rough math. That's sort of an average, but there is a real seasonality effect. So if you just assume that all our merchants boarded us in the middle of a quarter, you get half the benefit, maybe even a little less when you think about the time to ramp and install. So usually, we expect a doubling. And I think maybe just to bring it back to our comments around the second quarter, right, we talked about June merchants that have joined in the quarter, contributing about 3% of volume in June and then about 7% just the following month in July. So hopefully, that's helpful.

Your next question comes from the line of Timothy Chiodo with Crédit Suisse.

Wanted to touch on -- so last quarter and throughout the quarter, we talked a little bit about how -- when asked about capital allocation, the most attractive use of that is really doubling down on your own customer acquisition, given the very, very attractive payback period. I believe you mentioned it could be sort of 8 months or at times even less. You talked about potentially extending that a little bit via the FAR bonuses or better software, more software, hardware, et cetera. Maybe you could just expand upon that strategy to the extent that it's either been implemented or could be implemented over the future and how that could potentially drive growth.

Yes, sure, Timothy. Jared Isaacman here. Thanks for the good question. So I think we've been rather consistent whenever we really discuss our capital allocation strategy that there's definitely more room to go in terms of customer acquisition costs, just given the powerful unit economics. But then we also look at things like investing in research and development to make available additional capabilities to our customer, similar to what we've done with QR Pay and providing those solutions at little or no cost in order to drive end-to-end volume growth. And then third, to look towards inorganic opportunities. And I think what you'd find is right now, we have all 3 of those strategies really in works and that the acquisition of 3dcart could very well be in line with that because, as we mentioned during our prepared remarks, we might approach 3dcart similar to how we did our QR code strategy in which we might make available a capability set that's entirely comparable to some of the biggest and most well-known e-commerce players in the space at no cost in order to drive payment volume. So, I think it's not -- and I know I might have used it as just a simple example on prior calls that we could write a check to every customer to move to our end-to-end platform. But that was an oversimplification. The idea is really allocating capital across the spectrum in order to drive end-to-end volume growth. And some of that is in the form of increased bonuses to our partners, which has been responding very well. We've definitely seen a production lift associated with it, but it's also in those inorganic strategies like 3dcart where we can use kind of the same disruptive go-to-market strategies in the past in order to drive end-to-end volume growth. And that's probably the single biggest highlight, I'd say, from the presentation today.

Great. That really helps. And the somewhat related follow-up is just a quick one on attrition. So earlier in the year, I think you had some pretty conservative attrition assumptions just given the environment, which made sense at the time. Maybe you could just talk briefly about how things might have played out relative to those in terms of the resiliency of your underlying merchant base and perhaps how that attrition might have turned out a little bit better than had been expected at the time?

Yes, sure. So as you'd recall, even prior to our IPO, any discussions around the attrition profile of the business, a forecast of those were pretty draconian only because it was late May and you had no clue what to expect. I would say we've been incredibly pleased, as Jared sort of mentioned on the call, with the resiliency of our margin base. Just to put sort of a finer point on that, it can be difficult to disaggregate because we've got more merchants transacting with us in any given week now than we ever had in our history. But if you took a static pool, right, if you look at the basket of merchants that are interacting with you or transacting with us during a given week in February prior to the pandemic, and then you look at that exact same pool of merchants today, you'd see about 5% are inactive. And I think it remains to be seen what happens to that 5%. It's probably a little bit soon to pass judgment on it to the positive because we've got lots of things like hotels and restaurants in urban areas that are slow to open if they're highly dependent on business travel, for example. And to the negative, you've got issues like stimulus funding that would make you want to keep an eye on that 5%. But 5% is what we've seen at its peak. And again, we've sort of more than eclipsed that through our growth.

Your next question comes from the line of Darrin Peller with Wolfe Research.

So when we look at the fourth quarter guide for volume, it obviously shows really, really good trends you had into October. And then it shows, I think, 22% guide, which implies decel for November, December, which we assume is just macro uncertainty more than anything else. But first of all, just making sure, was there anything sort of onetime in the October trends that we should keep in mind or seasonality or year-over-year comps? And then more importantly, I think you guys are showing -- you mentioned 60% of your volume is restaurants and hospitality. I'd be curious to hear just how this compares to the past percentages that were outside of those 2 core areas and where you expect that to go. I know that's a question that we've talked about before with you guys, but you had some really good success moving beyond your traditional verticals.

Yes, sure. Thanks. This is Taylor. I'll address those. I think you're just going to find a continued theme that we're cautiously optimistic in the guidance that we provide. October, if you just look like on a seasonal basis, you'd expect it to trend down from September, even in a high-growth environment like we would have seen in 2019, for example. November is typically not much better. But October turned out really well for us at not just up year-over-year, but also higher than any of the other months that we've had so far this year and in the Company's history. So I feel like we're going to be defending our guidance much in the same way we did in -- on the Q2 call to say that we've got decent data points. But all the news around us gives us pause in trying to get too euphoric about the very positive trends we see every day. And then in terms of your question on mix shift, it's shifting somewhat meaningfully, I would say. You'd probably see about a 10% decline in the contribution from hotels and restaurants now as compared to, I don't know, 2018 or 2019. Some of that is a little bit depressed because you've got hotels doing less volume, although hotels have been a very fast-growing vertical for us as well. I think the key point to the message is that we have got almost as many software brands that were their bread-and-butter merchants outside of a hotel and -- or a restaurant but they happen to want to sell into that market, and so they partner up with us and then they bring us into main street, and it's working well. So we just thought it's important to highlight that because I think we've seen pretty consistent themes in questioning, and it's just worth giving more clarity into our merchant base.

Yes. All right. That's helpful data. Just my quick follow-up is around 3dcart. I mean it seems like you'd be focused more on the pretty small side of the SMB, although please correct me if I'm wrong on that, I mean, maybe if it's medium-sized or whatnot. And I'd be curious, strategically, you guys have always talked about moving more and more into larger enterprise, and we should keep that in mind with yield and whatnot. But is this a little bit of a pivot from that? Or does this really address both all ranges and sizes of merchants?

Yes, it's a great question. So Jared Isaacman here again. So we've been doing a lot of research for probably a longer period of time than most would think in terms of entering into the e-commerce market and really, actually, just taking a big evolutionary step for the business in general towards a more -- a view more towards a unified global commerce platform. But just back to the e-commerce topic, specifically in the research we were doing there, we did a competitive matrix really across the top 5 dominant web store platforms. And I think what you'd find is 3dcart scores on the upper end in almost every respect. And that includes even like B2B capabilities, which would be more in line with, say, like the Shopify Plus platform and what you wouldn't find like on a Square Weebly platform or some of the other providers. So I wouldn't judge too much based on how the website is today and where they've kind of go-to-market and found success historically because the capability set is totally competitive across the spectrum from like really the small SMBs that really need just a simple way to get going and selling things online all the way up to, like I said, B2B capabilities, which is pretty unique within the e-commerce platform landscape.

Your next question comes from the line of Dan Perlin with RBC Capital Markets.

I also had a question around the acquisition. You talked about, I think, additional opportunities maybe from a geographic perspective. And I'm just wondering kind of where your head is there in terms of taking on more opportunities through this kind of funnel acquisition to get you into different geographies and, specifically, maybe where those geographies might be at this point.

Yes. So Jared Isaacman again here on this. So we shared an awful lot in our prepared remarks earlier. But if you go in there and kind of read between some of the lines, one of the statements I made was that 3dcart is one piece of the puzzle. So there's no question that if you look at the current customer base of 3dcart, you'd find a pretty diverse array of merchants all over the globe where there's already some international optimization to the platform. There is some cross-border payment capability. But again, it is just really one piece of the puzzle. So nothing has changed in terms of our ambition to have a global commerce platform. If you look at who our customers are, whether they're the hotels, the restaurants, the specialty retailers, those brands have planted their flags all over the world, and we have an obligation to follow them and deliver the same capabilities as we do currently in the U.S. But I'd look at 3dcart again as a key piece in that puzzle, but it's not the entirety of the story. You guys will have to kind of stay tuned in terms of the direction we're going in order to kind of solve that broader opportunity set.

Understood. If I could just ask a follow-up on the average volume per merchant, I think you said 11% year-on-year. And then the following statistic there was that merchants are joining today, I think you said 70% larger than a year ago. In keeping with this conversation around your mix shift that's changing, I mean, what are these merchants? Are these typically large-scale resorts that have multiple opportunities? Are these a play into some of the software aspects that you alluded to earlier? I just want to try and get a better sense of where that's coming from and just the sheer magnitude that size difference is pretty meaningful.

Yes, sure. This is Taylor. I'll address that. Just to actually clarify the 2 statistics. The 11% is that if you look at an average merchant in our book today, simply quarterly volume over merchants transacting, what you'd find is that the average merchant does 11% more in a year than you would have found a year ago in Q3. The 70% larger is actually just a different measurement period. It's looking over a 3-year period. And this is the story of Shift4's constant evolution, right? Back in 2017, we had one software company delivering us merchants. It was the brand that we founded. And fast forward to today, and you have dozens, in any given month or quarter, we're bringing us merchants. And typically, those merchants are adopting more sophisticated software and by definition, therefore, are more sophisticated merchants that do more volume. If you look at a hotel, it gets interesting because we capture every single revenue center in that hotel. It might be an independent restaurant operating in the lobby. It might be a golf course operating next to it. In any case, those merchants are -- each of those revenue centers is 70% bigger than the average merchant we would have had from three years ago.

Your next question comes from the line of Ashwin Shirvaikar with Citi.

Jared, Taylor, Brad, good solid quarter again. Congratulations. I wanted to ask about the conversions. Has the pace of conversion sort of picked up here even more than you might have assumed before? And when you kind of look at that pace of conversions, does that have a seasonal pattern on it as well? I'm asking because do your clients, perhaps, not want to convert heading into year-end, so they're kind of pulling stuff forward? Might we see some kind of a lumpiness in that conversion? Or is that base still very, very underpenetrated, so you can continue to pull?

Yes. Ashwin, great question. So Jared Isaacman here. So first, while we continue to try and make the generic statement that in any given month, 50% of our production comes from just net new wins share taking and 50% are conversions, there's no question that throughout the pandemic, we probably skewed more towards conversions. And I think that just speaks to like a significant incumbency advantage we have at Shift4 because once you're powered up on our gateway, it's like a utility in the business. All of the wires have been run. All of the devices have been established. So when a customer wants to continue -- consider the power of our end-to-end value proposition, it can be as simple as changing a merchant number and we capture that business. So as you can imagine, when restaurants and hotels were giving consideration to contactless payments or QR codes, if we're able to hit a button and push that out, that's going to be the natural choice, certainly the path of least resistance relative to what we call as a rip and replace, where somebody has to physically come out on site, which is not -- this isn't the environment that's super conducive to that, and rip out what's already been established at the business and install a new platform with new devices and bringing a multitude of other third parties to complete an experience like QR Pay or SkyTab or other contactless products. It's just not an attractive environment to do that. So without a doubt, the gateway conversions and even the software-only portion of our business, we benefited from pretty considerably just because it's already operational in there, and that's a pretty distinct advantage. Separate from that, you shouldn't be reading anything into like October's performance and customers kind of pull forward some of their gateway migration considerations or other new net win considerations and that contributed to recent performance. Customers continue to make these migrations throughout the year. I mean, of course, we completed Merchant Link in Q4 last year, but Q4 was an incredibly strong quarter when it came to conversions, really right up through and into December. And I don't think we're anticipating anything to change about that in the months ahead.

Got it. Got it. And to just kind of put a final point on the specific modeling of it as we peak at the quarters ahead. I'm not asking for '21 outlook or anything like that. But since you're a newly public company or relatively newly public company, can you talk a little bit about 4Q to 1Q seasonality and remind us of the sizing drop in March and the impact of Merchant Link? There were a lot of moving parts last year's 4Q and this year's 1Q. So I just want to get the modeling correct.

Yes. Hey, Ashwin, it's Brad. And you're exactly right, there are a number of moving parts. So let's kind of get ahead of Merchant Link first because, as you know, we did bring in Merchant Link for a full quarter in '19. So that will be a comp of a full quarter. But remember, that business has changed pretty substantially in terms of a couple of things. One is we did already monetize, like we've talked about, a lot of the cost synergies from that. So the cost synergies -- or the costs associated with Merchant Link going forward, obviously, are going to look very different than they did in Q4 of last year. The other component of that is we've kind of intentionally worked on that revenue stream in Merchant Link as we've converted it. So you're obviously going to see the gateway trends continue to decline over time as we convert those to end-to-end. But another thing to consider is when we talked about this, the hospitality side, I mentioned in my earlier statements that hospitality has been hit a little bit harder than some of the food and bev with respect to the gateway revenue stream. So as you're thinking about modeling into Q4 of this year and even in the first quarter of next year, that's something also to consider. With respect to seasonality, just kind of generally speaking in volume, we do typically see, as Taylor mentioned, a bit of a fall-off as you move into Q4 as weather changes and some other dynamics. There's always historically been a little bit of a spike in the holiday season. This year, I'm as open to anybody as to how that seasonality spike takes place, and that was the driver of how we provided our guidance for Q4. That volume decline typically continues a bit into Q1 as weather continues to kind of obviously influence people's abilities and merchants' abilities for people to get out. But by Q2 and Q3, you'll see that seasonality kick back in again, and that's a normal pattern of the business. I mentioned in my early statement that a lot of normal patterns are being tested right now. But I do still see kind of a normal Q4, Q1, lower states, Q3, Q4, higher state pattern to continue going forward. It just might have some little different nuances going forward.

Your next question comes from the line of Mike Colonies with Bank of America.

I know last quarter, you mentioned that the sports and entertainment vertical has become more of a focus for you. And you announced a nice win with the Raiders last quarter. Can you share any additional wins that you've made this quarter and what the pipeline currently looks like? And then as a follow-up to that, what are some of the key competitors in this space? And are you generally able to capture better spreads in this vertical relative to others?

Sure. So Jared Isaacman here. Thanks for the question. So I'd say the pipeline is really healthy. I don't think we're really authorized to release any names of additional wins, but there had been some. Interesting on the competitor landscape question. It really plays right into the strength of Shift4's value proposition, which is really all about eliminating multiple layers of vendor complexity to deliver a lower effective cost of service. Because when we look at the competitive landscape, we could tell you who the 2 or 3 most predominant players are on software, 2 or 3 most predominant players are with contactless and handheld solutions, the top player on the gateway side, the top 3 players on the merchant acquiring side, and that's like 4 or 5 vendor layers, and they're all mouths to feed. And that contributes to a greater degree of cost and an endless number of conference calls where there's 6 vendors on the line pointing fingers to each other. So Shift4's value proposition of bundling multiple solutions together to give that one throat to choke, one hand to shake is pretty well received in the market. In terms of where the spreads shake out, it's across the spectrum. I'd say that they're probably in line with what we see on more of the enterprise hospitality customers, those that have a fair amount of volume, multiple different revenue centers. So there's certainly, definitely, profitable relationships, which is why the market -- we've taken such interest in the market. Yes. So hopefully, that was helpful.

Your next question comes from the line of John Davis with Raymond James.

Jared, just wanted to hit on M&A a little bit. I think this is the first call, there's been more focus internationally, obviously, with the 3dcart acquisition. Going forward, should we expect more international M&A? Is it more opportunistic? Is there something in the U.S. that makes sense that you would do that? Or are you shifting focus outside the U.S.? And then are there any capabilities that you want or you think you need to help you expand outside the U.S.?

Yes, sure. Good question. Well, I'd say first, in general, you should expect us to be active with M&A. That's been how we delivered a lot of value over the last 5 years. 2017 was a very big year for us. If you go back to some of the comments we had in our prepared remarks, 3 years ago, we integrated to one piece of software. And that was the extent of our integrated payment strategy, and it was in the restaurant space. And now we integrate to 350 different software applications, and we pursue across food and bev, hospitality, specialty retail and a number of other adjacencies, including now our entry into a new domain entirely, which is with an e-commerce web store platform. So in every case that we've done these transactions on a synergized basis, I mean, they've been like deleveraging, highly accretive. And you should expect us to continue to do that because I think as an organization, we're pretty good at it. In terms of where we're setting our sites, we're really looking at a number of opportunities. It's a very healthy pipeline. International capabilities could certainly be there. There's certainly areas that we could double down or triple down within our current verticals in order to accelerate the migration of gateway customers to end-to-end because that is a layup, as most of you have modeled. So I wouldn't target anything in one -- any one thing specifically, other than we're very active in this. And we're actually probably, I'd say, as excited as we've been in a long time in terms of the opportunities there in front of us.

Okay. And then just on gateway conversions. I think last quarter, you guys gave a number or percentage of volume that came from conversions in the quarter. Any update there? Any other stat you can give us to just kind of track your progress, kind of where you stand today versus where you thought you were going to be at the beginning of the year from a conversion standpoint or from a volume or merchant count mix? I'm assuming volume is probably maybe not quite where you thought, and merchant count may be ahead. Just any commentary would be helpful.

So this is Taylor. I'll address that. We didn't update that stat only because I think it was misinterpreted during the last call. And just to reiterate what we gave at the time is that 17% of our total end-to-end volume was coming from gateway migrations, but we didn't put a time frame on that. That wasn't migrations in the quarter. That was migrations all time. It's a powerful stat when you think about the fact that Jared mentioned, which is that three years ago, we didn't have a gateway at all. So you would expect that number to be higher in this quarter because we have had a healthy number of daily migrations. And on average, those merchants contribute more volume per site than sort of a non-gateway conversion, so to speak, or a net new win. But we haven't updated that. But what I would say is you're somewhat correct in your thesis that gateway migrations contribute healthier to our mid-count at a time like now than they do to our volume only because we've had a ton of success with things like hotels, where the volume contribution just isn't at the level you would normally expect the gateway migration to contribute given the pandemic.

Yes. And hey, Jared here, just to layer on a bit with a bit more specificity. One of the challenges we have, and I'm sure I mentioned this previously, if not on the Q2 call, but maybe on some of the non-deal road shows, is being able to accurately really score gateway conversions from net new wins. The UPS Store was a great example. That was a net new win at the time they signed the contract. Then we acquired Merchant Link, which means they became a gateway conversion from our existing population of customers, and then they added several thousand e-commerce MIDs, which were net new wins because they were never on the gateway. You can imagine, especially when you're talking about thousands of customers and the volume associated with it, that can really like throw around a lot of the calculations. What I would say is like, for anyone who has any question marks about where the volume is coming from, look, if we're up 28% year-over-year in end-to-end volume in October, where we've already said a little bit better than 60% of our volume comes from restaurants and hotels, which are highly impacted from the pandemic, it means on like a normalized basis, we're talking 50%-plus end-to-end volume growth from a company that's been doing payments for nearly 21 years. Now winning share in the market is certainly a component of that. We think we have a pretty compelling value proposition, but you should definitely look towards the gateway conversions as being a major contributor just considering that incumbency factor I referenced previously. So I would say there is nothing we could ever say that would potentially signal that we are disappointed with the progress of our gateway conversions or the effectiveness of that strategy, all things considering when you look at the volumes.

Your next question comes from the line of Matthew O'Neill with Goldman Sachs.

I don't mean to belabor some of the consistent themes that people have been asking about, but I was just hoping on the 3dcart acquisition. Makes a lot of sense to us. You're getting a mix of faster growth e-com as well as card-not-present volumes. As far as some just details around the opportunity that lies ahead, is it safe to assume that the volume today is being processed by other sort of suppliers in the industry and, hence, this represents more or less an incremental kind of gateway to end-to-end opportunity for Shift4 as you guys take over and presumably kind of convert those payments onto your own full stack platform?

Yes. Hey, sure. So Jared Isaacman here. Happy to take this because, I mean, we're all really excited about 3dcart, but I'm especially excited. If you -- we actually included, I think, a graphic in our presentation which shows all of the various growth trajectories and synergies that we see from the 3dcart acquisition. I'd encourage you to take a look at it. No question, there is a ton of volume that's on that platform, measured in the billions, that is not hitting Shift4 today, which isn't surprising because up until this acquisition, nobody would have ever tried to stake a claim that we're a strong ecommerce web store payment provider. We certainly are now with this acquisition. So there's billions in volume there just within the existing base that we're going to certainly migrate over to Shift4. And you should absolutely think about that in the same respect as you would our other gateway to end-to-end migration. But really, the opportunity is all the net new business. So 3dcart, from a capability set perspective, and we diligenced this really well, is totally on par with some of the biggest players in this space. But we're definitely an underdog here. I mean 15,000 -- or a little under 15,000 customers relative to 1 million-plus sites that you'd expect from some of the bigger players, I mean, we've got a lot to gain on this one. And I think approaching it with the disruptive pricing strategy, as we talked about previously, I mean every one of these web store providers has these escalating SaaS fees. Basically, as the business grows, they get punished even more for that growth, and they have to pay fees to unlock premium add-ons and other capabilities. Like we're looking at this right from the start saying we're an underdog in this, and we can monetize that relationship entirely through payments, and we might choose to forego all of those type of costs in order to attract customers away from other platforms, not to mention just the general tailwinds of businesses establishing an e-commerce presence in order to sell their goods, especially in the current climate. So I mean the potential for this is really extraordinary. The migration of the existing customers over to our payment platform is meaningful, but it's just kind of one part of what is a pretty exciting acquisition opportunity.

That's really helpful. I guess my follow-up would just be around -- I understand a lot of the complexities in sort of quantifying and discussing the existing opportunity of gateway to end-to-end conversions. You gave the example of The UPS Store and just kind of how multifaceted that whole relationship was. So absent kind of any numbers, I was just hoping you can -- and absent any names, I guess, of any hospitality merchants or otherwise, maybe you could just share a couple of anecdotes around the pace of those conversions. Are they kind of voluntary? Are the merchants coming to you? Are you reaching out to them more aggressively? And maybe what are the top kind of 1, 2 and 3 kind of reasons, from their perspective, that they're so eager to do these conversions, presumably around cost and vendor simplification? But any comments there would be great.

Yes, sure. This is Lauber. I'll address that. I think in terms of like the cost savings and the benefits for vendor consolidation, that is a very constant drumbeat from Shift4 out to our gateway population. I think it resonates differently at different times for different merchants. So what it does is it creates, at least how we've analyzed the conversions as they happen, it creates a pretty constant sort of lead flow into our organization with I've reacted to this idea that I can save money and tell me what that means. It means that in a very passive way, automated e-mails, for example, you can sort of keep that thing going, and it's going to resonate, as I mentioned, at different times. You can imagine in a population like the hotel base, that would obviously resonate really well in the middle of the pandemic. But if their staff is furloughed, they might not be getting those e-mails, and they start to get them when they come back and react to them. So I would say that is just an underlying current that -- and the reason it's an underlying current is it applies to every single merchant on our platform. Where we've spent a lot of time post-IPO is analyzing more specific nuances, whether it's a population of merchants, be that a large hotel chain or a REIT that owns a lot of hotels, for example, or a particular software version that we believe a lot of merchants would be compelled to benefit from an upgrade but don't want to pay the costs associated with it. We'll tackle those individually. And then separately, we'll tackle software relationships. We're having really, really strong success, as Jared mentioned, in the sports and entertainment space. A lot of interesting venues are already on our gateway when you think about where that software might sit. And that software company is seeing the success they're having partnering with us and bringing us back into gateway opportunity. So it happens a bunch of different ways. I don't want to say that there's any one theme that compels a pocket to move radically. I'd say they happen all the time. QR code is just another example, right? We talked about it in Q2. That's a feature set you push out that compels a bunch of different merchants to see the benefit to migrate at that point in time. Matthew Casey O'Neill - Goldman Sachs Group, Inc., Research Division - Research Analyst Got it. Really helpful. And if you don't mind, I'd just squeeze one follow-up in there on Darrin's question earlier just around the implied growth for November and December. Were there any explicit sort of monthly comps to call out? Or nothing particularly material on a monthly basis?

No. What I think you'd find seasonally is you'd find that Q4 is seasonally slower, and that's typically marked by a meaningfully lower October and November with a higher December. And so in the guidance that we provided, I think we just sort of ignored the fact that October was a great month because there's increased uncertainty, especially around something like December. I think there's a lot of compelling reasons why you'd expect spending to be up, but it's probably too soon to telegraph that. So very consistent with the guidance we've provided really since being public. We're basically telling you all, we're confident in our growth machine, we're confident in merchant boards, we're uncertain in the macro environment, and so we're telling you there's going to be growth there off of Q2, but we're muted in how much any recovery would ever contribute to that.

Yes. And just Jared here. I mean if you go back to Q2 when we actually first provided guidance for Q3 and Q4, you could have probably read a lot into that based on the results we were hearing, especially, I think we gave 1 month in -- of Q3 at the time. And the answer is really the same is we're a new management team as a new public company -- or new management team operating as a new public company, and we're just going to be pretty conservative as we approach these things, while still trying to give you as much information as possible as to our confidence around the business.

Your next question comes from the line of James Faucette with Morgan Stanley.

This is Priscilla on for James. Just wanted to touch base on the take rate. I believe you called out that it was around 80 bps this quarter. How much of that was there -- how much of that was uplifted by card-not-present trends or anything like that? And how much should we be expecting that to normalize over the next couple of quarters?

Hey, this is Brad, Priscilla. I'll take that. There wasn't a significant shift over previous quarter from -- between present and not present. So that 80 basis points is kind of stabilized coming out of Q2. We've always talked about as this merchant size -- the average merchant size increases, like Taylor kind of walked us through a minute ago, as that happens, we're certainly going to see spreads start to come down to some degree. But it's certainly not going to fall off a cliff per se. So what we think is the 80 basis point number where we came out of Q3, when we look going forward, that number will continue to drop in our expectations by maybe 1 to 2 basis points a quarter until it starts to stabilize. But that stabilization is not going to be likely until the -- well into '21, even into '22 as these conversions take place and as we continue to move forward the new merchants that are coming on at lower rates.

Perfect. And then just wanted to touch base again on the capital allocation plan. Very clear on how you're dealing with inorganic and organic growth. But on the debt repayment side, has your strategy regarding the rate and the pace of your debt repayment changed at all since you've gone public?

Hey, this is Brad. I'll answer that one again. I would say no. We're certainly looking at options to deploy capital. We've obviously reduced our debt cost now, like I mentioned, in the mid-4s in terms of an interest rate. When we play out what to do with our cash, if paying down 4.5% debt makes sense for us, we will certainly do so. I don't know that I see that in the foreseeable future. So the debt repayment plans are likely not changed from what we talked about from the IPO ratios.

Your next question comes from the line of Andrew Jeffrey with Truist.

Jared, color on new merchant adds is really helpful. I wonder if you can get even a little bit more granular and break down the growth between the net new and the gateway conversions as well as those merchants that are operating on -- or I'm sorry, those merchants you're signing through, our partners, and maybe those that are operating on more legacy point-of-sale where Shift4 is providing the technology enhancement?

Yes. So thanks. Jared here. I'm just trying to think that through. So the question -- and just to make sure I understand it, you asked for a breakdown in terms of new adds between gateway conversions and net new adds. And then from there, how many of them are using a legacy point-of-sale system versus that's complemented by Shift4 technology. You wouldn't mind just clarifying on that?

Yes, Jared, exactly. I just -- I'm trying to get a sense of as you add -- maybe the easier way to think about it is outside of gateway convergence, if you split apart the other 50% of your merchant growth, how much of that is merchants running on more traditional point-of-sale systems or versus more legacy POS, I guess, the simplest way to think about it.

Well, I mean, I'd say right from the start, just -- and this might not be totally where your question is going, but I think it's a real healthy statement for everyone to understand. Like there is nothing about Shift4's story that screams like nonintegrated Verifone or Ingenico terminals. So everything that we're boarding onto our platform is connecting into some piece of software. I mean, by and large, that's like a 99% statement. So whether we're adding new customers on the gateway, which absolutely -- I mean -- or I'm sorry, migrating customers from the gateway to end-to-end, 100%, those are integrated customers to some sort of software. Now that could be point-of-sale systems in a restaurant or it could be property management systems within a hotel or it could be an ERP system, no question, that's talking to us. That's our platform connecting the software. And that story is not really that different when it comes to net new adds, which is almost assuredly going to be some sort of software. The sale could be in partnership with the ISV who created the software or could be in conjunction with the value-added reseller who implemented and installed the software. This story is entirely about software-driven payments without question. Now how many -- how much was our technology like SkyTab or QR Pay or contactless or online ordering or our business intelligence product, like giving those away at no cost or -- and including it as part of the sales process, how much of that influenced the payments decision from the customer? I'd say it's nearly 100%. So, we're always solving some pain points for our partners and merchants in every example when a customer boards our end-to-end platform. I mean that is consistent in every transaction. So I mean even like Raiders stadium or a Hard Rock or a Virgin, any of the recent wins we've announced, there was some form of Shift4 technology that would have otherwise been provided by a multitude of other vendors at additional costs that we were able to bundle and include at little or no cost in order to be a payments customer. That's consistent in almost every deal. What varies -- what matters to a restaurant with QR code-based payments might be entirely different than like a Raiders stadium that may not have sit-down dining, but cares a lot about handheld and mobile connectivity for selling goods and fees or something of that nature. But it's -- we're almost always bundling some form of our technology with the integrated payment sale.

Okay. That's helpful. And is it safe to assume that sort of the mix of those new merchants, whether they be on sort of next-gen solutions, cloud-based solutions versus legacy software is staying relatively constant? Have you've seen that shift as well?

So, that's a great question. This is Taylor. I think the way to contextualize it is the gateway population has every flavor, right? It's got merchants that were reluctant to upgrade software over the years. It's also got brand-new integrations for the latest versions of those same software suites. So you have a wide variety of it. If you look at a moment in time, like, let's call it, Q3 of 2020, you'd see a little bit less adoption of a brand-new software suite just because like this isn't a rip-and-replace type environment in the middle of a pandemic. And therefore, you'd see more gateway migration, as Jared talked about, where a merchant wants to take advantage of a feature set and doesn't have to touch their software. One thing to keep in mind is we've got, by nature of sort of how this circle works, very tight relationships with every one of these ISVs. So that merchant who migrates from gateway to end-to-end to take advantage of a feature set that Shift4 provides will very often get an incentive or a benefit to upgrade to the later version of the software they're using at some point in time. So I don't want you to get too hung up on the concept of legacy versus next-gen. If you're a merchant in our environment, you're probably operating more than one piece of software. Some of it might be an older piece of software that you're more reluctant to upgrade because of the headache involved with that, and some of it might be brand-new. Even in a case of something like a stadium, you'll typically see a POS that is a little bit older next to something like VenueNext, which is a really great next-gen suite management software. So you'll see every flavor of it. I think in the current environment, meaning like this quarter, you see a little bit less appetite to move to a completely new software suite, and that helps accelerate gateway migrations because we can take that suite of software thereon and give it a bunch more features.

Your next question comes from the line of Michael Del Grosso with Compass Point.

I have a question about kind of the overall volume level and merchants' kind of health as it relates to pre-COVID levels. If I look on your website, and by the way, it's great disclosure that you give, obviously, transaction counts are lower than where they were pre-COVID. How much of that is due to just overall lower spending versus potential attrition in the merchant base? And then the follow-up is on merchant reserves. Have you taken any action there? Or how does that compare to pre-COVID levels?

Great questions. So with regard to sort of same-store merchants and health, I'll address that and then maybe Brad can talk about the reserve concept, we disclosed in second quarter that our average same-store merchant was doing about 75% of normal during Q2. I think if you look at Q3, you'd see a little bit of an improvement there. You'd probably see around 80% of normal. So nothing sort of marked in the recovery, but I think merchants are operating at a level that we think is somewhat sustainable or very sustainable for the short term. And we're optimistic about what our end-to-end volume looks like when that returns to normal levels for the merchant. If you want to put sort of another lens to it, you can take that statistic I gave, which is that we've seen about a 5% attrition rate, if you want to call it that, of the merchants that we would have expected to be transacting in February, not transacting in a quarter like Q3. I think that's probably as bad as it's going to get. I think there's room for improvement in that as things like hotels come back online. So I don't think that that's necessarily a stat that's going to remain at 5%. But when you look at our growth in a month like October of up, call it, 28%, you really see the benefit of the machine that we've created here, which is that even though merchants are down about 20% on average, in our verticals across our book, we're operating at close to up 30%. And that entire differential is the merchants that have joined. And even those merchants are not operating at their full health. So it gives you a sense to how to build to that picture of what we would expect a month like October to be consistent with what we were seeing in February. If there weren't a pandemic, you'd expect to see October as a plus 55% or more end-to-end volume growth if all of our merchants were punching at their weight class. And Brad, do you want to talk about the reserves?

Yes. Hey, Michael, just on reserves real quick. There's always 2 areas of reserves that I look at: one is reserves around our ability to collect fees; and two is reserves around exposure and charge backs, et cetera. So as we got into Q2, we obviously paid a lot of attention to those. But by the time we got through mid-quarter for Q3, those had normalized back to, I'll call them, pre-COVID levels. So keep in mind also, we have really limited exposure from a prepaid perspective. So those have returned back to, I would call it, significant levels.

Yes. And hey, Jared here, just to kind of [fix] on the point that Brad just made. We've been kind of fortunate to live in a space that is like relatively immune to chargeback risk and even credit exposure to our customers. There was a period, as Brad mentioned, like the end of March, April, May, where you had a lot of hotels running refunds, consumers obviously canceling their trips, and then that was a point where it was possible that if there was a lot of insolvency among hotels, that we could incur some chargeback risk. And then Brad, of course, made appropriate reserves as a result. Those windows passed long ago. I mean you're back into like the totally normal realm that we live in of virtually nonexisting credit or chargeback-related losses.

Okay. That's helpful color. And then if I just could ask one follow-up on the acquisition and related impacts there. Have you clarified or provided any of the expectations around revenue accretion or anticipated cost impacts in Q4 from that?

Yes. So Jared here. I mean, Brad, I think you touched on that previously that embedded within our Q4 guidance, we've taken in consideration the cost and revenue associated with the 3dcart acquisition. What I'd say, which is actually pretty atypical among e-commerce payment platforms, is that this is a profitable business that we acquired. I mean on an LTM basis, it actually is very accretive from an EBITDA perspective. I think what we're looking at now, and it kind of is in line with the statement we made before about maybe taking a little bit more of a disruptive go-to-market approach and foregoing some SaaS fees in order to capture payments, is how much of the profits of the business we're willing to reinvest in Q4 to drive growth. So I think we've taken some very conservative, I mean, very conservative assumptions in terms of what we've embedded in Q4 as it relates to this acquisition. Yes. I don't know, Brad, if there's anything else you want to add?

No, I think that's got it.

This concludes our question-and-answer session. I will now turn the call back over to Jared Isaacman for closing remarks.

Yes, thank you. I appreciate everyone joining the call today. I know there's a lot going on in the world. So thanks for giving us some of your time and your continued interest in Shift4. And by emphasizing again that while the backdrop does remain quite challenging, Shift4 has many drivers of growth, both organic and across new market verticals. We've never really been more excited about how the Company is positioned right now to execute against those opportunities, and we look forward to sharing more in the very near future. There's a lot going on. So thank you. I wish you all well, stay healthy, and have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.