$FOUR: Shift4 at 6.5x EBITDA. Is the organic growth real? | Emeth Value Capital

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0:31you're about to listen to the yet another value podcast with your host me andrew walker today we've got a really great one for you why because there are two andrews on the podcast my friend andrew carry on is on the podcast for the first time in a long time he is talking about shift 4 the ticker there is 4 i'm gonna include i mean he did his q2 letter has i've had value investor friends pitching shift 4 to me for years i've looked at you for the years his q2 letter has a 25-page just masterpiece of background work valuation, all this sort of stuff on Shifor. I'm going to include a link to it in the show notes, but we're going to dive into everything he talks about.

1:05Really interesting, fascinating company, interesting setup. I mean, look, pick your poison. It is a cheap company. There's share buybacks. There's some questions about management because they've pulled targets. They've done some acquisitions that I think I had one person when I was prepping for this podcast said, self-inflicted wounds, some of the acquisitions they've done, but they've got a great history of acquisitions, cheap company allocation, payment sector is destroyed, just all sorts of interesting stuff. So we're going to get there in one second, but first over from our sponsors and I'll just hop into that read.

1:33The sponsor today is Trata, T-R-A-T-A.com. If you've been listening to this podcast for a while, you know, I love Trata. If you like this podcast, you will love Trata too. Trata is two buy side investors who are hopping on an anonymous call and they just talk about stocks that they own or stocks they follow, whether they're bulls, bears, whatever. And they talk about the underlying issues that they're seeing in the company. And I think you're going to love it if you like this podcast. If you don't believe me, go to trotta.com slash four F O U R. And you can see a sample transcript that I use to prep for this podcast of people talking about the real issues that they're looking at when they're thinking about shift four.

2:09So if you'd like this podcast, and I mean that both in the general yet another value podcast way, and I mean that in the shift four ways, go check out trotta.com slash four. That's T-R-A-T-A dot com slash four to see it for yourself. All right. Hello and welcome to Yet Another Value Podcast. I'm your host, Andrew Walker. With me today, I'm excited to have on for, I believe it's the third time. It's the first time in a long time. My friend, my fellow New Orleans native, Andrew Carrion. Andrew, how's it going? I'm doing great, Andrew. Thanks for having me on. Yeah, the last two were energy pitches.

2:40So I'm coming back to firmly establish that I'm not an energy only analyst. Well, those were a while ago, and this is about as hairy. This now is about as hairy as energy, I guess, in 2018 would have been. But we'll get there in one second. First disclaimer, remind everyone nothing on this podcast is investing advice. There's a disclaimer in the show notes. There's a disclaimer at the end of the podcast, so you can see those if you're interested. All right. Andrew, the company we're going to talk about today is Shift4. Ticker there is four, F-O-U-R. This is a company that I'm going to let you explain, but it's attracted a lot of value investors and your write-up, which your Q2 letter had, I think the best write-up I've seen on it.

3:22Actually, when I put it into ChatGPT and put some other notes and stuff, it was like, oh, this is so far and away the best write-up on it. So ChatGPT is a big fan of your write-up, but you had a great write-up. Again, I'll include a link in the show notes for people to go check that out. But I'm really excited to talk about it today. So I'll just toss it over to you. What is Shift4? Why are they so interesting? And we can kind of go from there. Yeah. Yeah. Thanks. Thanks for all that, Andrew. And yeah, I mean, like you mentioned, this is definitely probably unlike the two companies we talked about before.

3:52This is a company that I think a lot of people will probably be familiar with. But for those that aren't, Shift4 is a vertically integrated payment processor. And specifically, they have a couple of very strong verticals, one being restaurants where in the U.S., they're the number two restaurant POS behind Toast. And I'm sure we'll get into that because unlike Toast, who has kind of one core product, Shift4 is really kind of a Frankenstein and a lot of different stuff. And I think that's like a theme that will be repeated really across all of their verticals. And I think it's a reason why there is so much controversy and two sides to a lot of the debate for Shift4.

4:40But they're a vertically integrated payment processor. They have a couple of very strong verticals. Restaurants is one. hotels is another uh where they have one piece of software another touching 40 percent of hotels in the united states uh stadiums and event venues is another where they are the payment processor for 75 percent of professional sporting venues um and then more recently they have a vertical in luxury retail which seems kind of like an odd niche and we can get into kind of what led them into that category. But unlike a global payments or a Pfizer or some of your other like, add in really big payment processors, Shift4 is a little bit different than that, you know, certainly compared to those at at 250 billion of payment volume, they're much smaller.

5:34And they really have some deep exposure into a couple of very specific verticals. And we can kind of take those one by one or, you know, start however you want. Well, you know, I'd actually like to start here. So again, shift for, and we'll talk valuation. We'll talk all verticals. We can talk anything you want. And again, I'd encourage people to read the letter. You've got this really deep history dating back to when, you know, the founder and CEO was a teenager and starts this business and you've got all their, you know, all their history, all their verticals and everything, but we'll talk that.

6:03I guess I want to start here. You know, payments in general has been a value investors, a lot of value investors have been focused on it for the past year. And it's been a value investor graveyard for a lot of investors for the past year. And it's not just for investors. You know, I was prepping for this. The CFO here was at the Goldman conference, I guess a week ago. And right at the end, he's talking about, Hey, our capital allocation, like our shares, we think our share price is a gift, but then he kind of broadens out and he says payments in general has just been crushed despite, you know, recurring revenue and stickiness and all this sort of stuff.

6:38So I just want to start high level. Payments have been crushed. Shift four has been crushed. Is your thesis shift four more shift four specific or is it more payments in general specific with shift four the way you played? And I realized that's like a little bit of both, but how much is this just payments is crushing? You were a value investor looking versus, Hey, shift four in particular is the super unique opportunity. Yeah. It's a great question. I think that for Shift4 specifically, the whole payments overlay and payments getting absolutely annihilated was just kind of one layer of the cake of this thing going from 120 a share, you know, literally 18 months ago to now one third of that price.

7:23And so I guess like zooming back because it is, you know, what they say, right? Like nothing influences sentiment quite like price. And of course, vice versa. But it's easy to be where we are today in 2026 and be like, payments is awful. But it's not that long ago that you, you know, zoom back out. And all of these companies were, you know, maybe not darlings is the right word, but certainly fairly priced and had reasonably high expectations. And I think that there's been some very industry specific situations that have cast a shadow over the whole payment space, you know, the debacle with Pfizer and, you know, a lot of issues with kind of, you know, it's not all public info where they're being sued over a lot of issues about transparency reporting and some issues there.

8:28And, you know, I think specifically for Shift4, I think it, you know, carried over for the whole payment space for some reason. I understand it more for Shift4 than the others, but, you know, layering the SaaSpocalypse on top of an already kind of wounded payment space just sent, you know, the whole space down even further. And it's really kind of perplexing because in my view, if you're talking about something that is, you know, certainly there's a lot of software, this whole notion of integrated payments, right? It is all software originated payment volumes for Shift4. That's not true for some of the legacy payment processors.

9:08But in my view, being a integrated payments processor as a call it like go to market software offering is one of the most defensible, easily like understandable defensible positions versus, you know, something that might truly be able to be bi-coded. And so, you know, those, those, those tensions I think have kind of eased off, but as far as my interest, I think it has more to do with the nuts and bolts of the specific verticals that they're in. And then that's what I'm sure we'll talk about, just the execution of this team, if you really go back and understand the full history of the business with where we're at today.

9:54That's perfect. I'd like to go to the team now, if that's okay. So, you know, I think for years, I mentioned Jarek Isaacman, who is now, I believe he's the head of NASA, is his role. It might not be exactly what he's called, but the head of NASA is what he is. he leaves the company in 2025 to go be the head of NASA. And his team basically takes over, right? Like his brother's co-founder, I think it is, is now the CEO and chair. Like his team takes over. So it's the same team, but kind of the visionary who again, started this company when he's 16, grows it to a multi-billion dollar company. He is gone.

10:27And I just want to ask, because this is a company that was, as your letter details, it was built through acquisitions. And they just did their largest acquisition ever, I believe global blue in 2025. And you know, you do worry, Hey, when the guy who built this company, when the founder who owned basically half the company, he still owns about a third of the company. I think it's 28.6 % is the exact metric when he is gone, but the team is still in place and they're running his playbook is some of the magic on, you know, the bulls without Jordan were still very good. They might've won in 1994 or 95 if Scotty pick it Pippen hadn't got a migraine, but they were not the bulls who went six and O in the finals.

11:02And if he's gone to some of the magic on, and do you just kind of start drifting? So how do you feel about the team kind of post-Jarrod? Yeah, I mean, that is a very fair question. I think my comfort with some of this comes from like what Jared himself said when he kind of signed his farewell at the Investor Day in 2025, when he said, you know, Taylor's going to be coming in as the CEO and I'm, you know, I am stepping off as a CEO, but Taylor knows he's losing a boss and getting a very activist shareholder. And so I have a lot of comfort and from the understanding that, you know, Jared is not not invested here.

11:52It is a extremely large personal holding of his and he's still, you know, he's adding actively earlier this year when prices got down. Um, but I think stepping back, you know, again, kind of back to what I said, you know, nothing changes the sentiment quite like price. And if you look at the actual execution, you know, that the company has put up since, uh, you know, it's not been nearly enough time. but you know since early 2025 there's not been any really obvious stumblings besides what I would say is stuff carried over from when Jared was still there which was they had a kind of a succession of things I think if you were to try to like piece back what led us to this you know really rough you know share price that we're at I think a lot of it started at the guidance that they gave at the 2025 investor day that was, you know, a billion of free cashflow exiting 2027.

12:59And, you know, again, right before the global blue acquisition, I mean, they were trading at, you know, over a hundred dollars a share, putting out this really lofty guidance, having to ultimately walk that back, you know, running into broad payments, you know, a really rough payments, broad landscape, and then SaaSpocalypse. It's kind of just been an endless stream of bad things from a sentiment perspective. But if you look at how the business has actually performed, I think that it's done quite well. Let's go to the business itself, right? Now, they've got lots of different verticals and lots of different things.

13:41I mean, I think a major one is they, they, if you go to a stadium, like one of the ways I see them, I think I was at the Met stadium the other day. And I think all the terminals were shipped for, you know, and these guys par sometimes toast when I see them like, Oh, that's a publicly traded company. I always laugh when I see them there, but you know, one of the things, this is just me personally, and maybe this is cause I'm getting old and all my mind is just getting outsourced chat GPT. But when I see a payments company, I always read the 10 K and I nod along and I say, okay, I get what they do.

14:10and then if you were like, Andrew, tell me the difference between PAR, Fiserv, GPN, and Shift4, what do they do? Where specifically in the payments? They were like, I don't know if I could tell you. So kind of what is Shift4 doing? Maybe I don't want to go into their differentiation versus every single company, but if I was looking at, you know, Shift4 versus Visa versus Fiserv, what is the differences and what is Shift4 specifically doing? Yeah, yeah. I mean, I try to draw some of this out in the letter, but I think that for ones that people will be broadly most familiar with and probably like the gold standards, but I would say are definitively like the gold standards of the industry.

14:48I mean, one of the easiest points of differentiation to think about what is shift four versus what are some of the other payment processors? One kind of spectrum would be card present versus card not present. And so you have your stripes and your add-ins of the world who, again, I would say are probably the gold standards of the industry. Perfect. Yeah. Undeniably fabulous businesses. And really the genesis of those payment processors are, hey, roll back to how the world really works, still works in a lot of places, but how it definitively worked when e-commerce became a thing was you had your traditional payment processing, that was a bank acquiring process.

15:38And what used to be just accepting a card with a physical terminal, now that you have an e-commerce website, there is no physical terminal. So how do we accept cards as a online e-commerce business? That's when you have this creation of the virtual payment gateway. And so you had this situation where over time, people like Stripe and people like Adyen said, why does it make sense that there's a gateway and that there's a payment processor? These should just be the same thing. Why do I have to get a gateway and then get a payment processor? Can't I just get one solution? And so to really dramatically, vastly oversimplify Stripe and Adyen, that's kind of the crux of like, they took what was two separate things that were both pretty outdated in a e-commerce world where, you know, Amazon is eating the world and said, hey, here's payments in the form of a acquire and gateway and one, and this is your solution.

16:44But again, their genesis is card not present. E-commerce, you're putting your card details in. And they are fabulous for that. Shift four, if you look across almost all of the verticals, it is card present. You're eating at a restaurant, you're going to a stadium, you're shopping in a Hermes store, you're physically tapping your card. And there are certain important differences there. And then the other vertical I would say is really important is just what is a very overused term, but integrated payments versus non-integrated payments. And so I'm sure you've been to pick your restaurant where they take your order and then at the end of the day, they get a little handheld and then they key in what your sales price is and then hand it to you to tap.

17:39Well, that physical dumb payment terminal is not integrated with anything in your system. It's very easy to get something wrong. The data doesn't necessarily flow through to all your accounting back office software. It's not integrated with anything. And so as opposed to like a Fiserv or a global payments where they are very frequently non-integrated payments, shift for literally everything that they do is software integrated payments. So if I was thinking about this, if you're at the coffee shop and you order a large coffee and the guy taps it in and he had your shot of whatever you wanted and then he just turns the terminal to you and you tap your card, that would be integrated if I'm kind of thinking about it.

18:27That's right. Can I just ask you one quick question? You mentioned Stripe as non-card present, right? And the way I know Stripe as a dumb, dumb consumer is, you know, when I go to a food truck or something and the guy has the little white square that he plugs into the top of his phone and then he swipes. And like, that's card present. Is that just, so that's just how I know them. And obviously I know they're bigger, but if somebody was listening to it and they're like, oh, well, that's Stripe, that's card present. Like how does that compare to Shift 4? Yeah. So Square, you might be thinking of Square.

18:57Oh, that's Square. Okay. Yeah. I just said it off the top of my head. Yep. That makes sense. Yeah, but Square, absolutely. Yeah, Square is absolutely heavily card present and also a bit different in that they obviously have a very, very big cash app, you know, consumer. And they've got that old title acquisition. Maybe they'll dominate the music business at some point. But I think all of this kind of points to like payments is really complicated. And one of the things that I think is very attractive about Shift4 is that unlike a global or unlike a Pfizer, you can take this very, very, you know, challenging to understand landscape and kind of boil it down to like, I understand why we win in these specific verticals.

19:46And if we continue to do well in these specific verticals, this is very, very undervalued. And so I think that's part of the attraction here. The verticals that I probably know and think about them best in are restaurants, in part because of your write-up and in part because I've looked at PAR before and I've done a little bit on TOSO. Restaurants and then a little bit stadiums, I would say. So maybe we could just break down what Shift4 does. Let's do restaurants because that's the broadest and people are most familiar with what Shift4 does, why they have a right to win, all that sort of stuff.

20:16And I think people can kind of figure out the rest of those verticals from there. For sure. Yeah. Restaurants is a really important vertical. If you look at the business today, as they kind of define the important revenue metric across all of the business today, call it two and a half billion of gross revenue, less network fees, roughly. The restaurant vertical is roughly a billion of that 2.5. But it is a very, very profitable, you know, you know, my numbers are somewhere in the 450 million EBITDA from the restaurants vertical. And this really the restaurants vertical really is like when they came public in 2020 in the heart of COVID.

21:05it was a 80 % plus restaurants by payment volume business. And, you know, going back to how this, how this company was assembled over time, they bought, you know, if you, if you, you mentioned par, there's a, you know, Lightspeed out there, obviously, you know, Lightspeed being another public company, you know, spot on toast. Toast, obviously, there's a lot of different restaurant POS systems. And how Shift4 really established itself in the restaurant space is that they acquired, you know, in 2017, three very large on-prem restaurant POS systems. So obviously, when you think about Toast, When you think about SkyTab today, it is a, you know, usually working off an Android device that is software from the cloud.

22:05So you're not, you know, you don't have a server in your back office next to where you're making pizza or whatever. It's a cloud enabled piece of software that runs on an Android device. and same with your handhelds and whatever devices that you might use from a player like Spot on Toast, SkyTab, etc. SkyTab being Shift or Dine is what it's now called. And so there were a handful of groups that just failed to make this jump from being an on-prem POS to jumping to a cloud product. And as a result, were really, really suffering. And not only did they fail to make that jump, you know, this is right at the same time where Square came in and they really, you know, Square was really the first group to make, you know, software plus payments, a real business model.

22:56And this is before Toast existed. And so these groups, you know, restaurant manager, future POS and Positouch, you know, these first three POS systems brought them, you know, really big chunk of merchants, call it like 80 ,000 or so restaurant locations. And the whole playbook was basically, how do we take these restaurant locations that are running a POS software and attach payments to it? And really, really attractive because when you can attach payments to what was a on-prem POS software where the bulk of your revenue was from that initial sale and your maintenance fee is pretty low. The revenue uplift you get when you attach payments, I call it like a 50 to 80 bit spread.

23:56It's like a 10xing of your revenue. Well, not of your revenue, right? It's a 10xing of your kind of profits, right? Because the revenue might be small, but it's super high gross margin. Yeah, both, both in essence, because the revenue is extremely high flow through. But all that to say is that they were acquiring shots on gold and that restaurant corpus still exists. And so this became a playbook where, you know, there's three original POS systems and software in restaurants they bought in 2017. They bought Focus POS in 2023. They bought Revolent in 2024. And then now they're kind of replicating that playbook internationally.

24:38But really the most important thing within restaurants was, and I'm sure we'll dive into more of this, is that in 2021, they really came out with their first in-house POS product. And that's what's now Shift4Dime. And I think that one of the realizations that I had as I was really, really ramping my work up here is just how quickly that product is getting adopted and how that is being missed by a lot of people. And it's partially because they don't necessarily give their segment by segment breakdowns to you, uh, you know, spoon fed. But if you look at shift force balance sheet, the easiest way to break this apart is you go to, they have a line item that is gross equipment, gross equipment under lease.

25:31And the net, the net figure is on the balance sheet, but you can actually get the gross figure just by going into the, you know, the balance of footnotes. And it's very, you know, it's, it's fairly clean. Like before, before shift for dime POS started in 2021, there was call it like a nominal $40 million line item from their original HarborTouch POS systems. But to kind of walk you through the year to year, 2021, you know, like I mentioned, like 70 million, 2022, 110 million, 2023, 180, 2024, 250, 2025, 340. Now we're at a run rate of 400 mid-2026. and you can walk through, okay, well, I know roughly speaking, each of these shift for Dyn POS systems cost shift for 2000 per unit.

26:28I know that roughly each workstation is pick your number at 300 to 350 K AUV per, you know, per workstation, pick your spread number. I use 80 VIPS and then$29 a month per workstation. And I'll leave it to the listeners to kind of do the math on that. But this progression from, you know, in 2021 at launch of 70 million to now on a run rate of 400 million, you know, of 4Xing over that pretty short timeframe is driving a lot of incremental economics. And I think people aren't really appreciating that, like, for the first time in a while, Shift4 has a really powerful, you know, organic homegrown product here.

27:19And it's not just about buying old PLS systems and hoping to attach payments anymore. This is a true organic growth story. Let me ask two questions on that. So when you lay this out, it sounds great. But, you know, again, I did podcasts on parts technology and I looked at them multiple times. And it's slightly different. I mean, that was much more about, hey, we're going to, you know, it wasn't about the internal growth from the existing customers so much as it was, we're going to win McDonald's. You know, like, but they want a lot of things. And when I look at toast, toast has probably been a disappointment in the stock market.

27:53I don't follow that as closely. But, you know, I'm just looking at the past year. It's 40 a year ago. It's 15 today. And I don't know where it IPO is, but I'm sure it's way down since IPO. I think it IPO is at about 80 or something in 2021. Oh, no, sorry. That's part of stocks, right? I'm like, I should need to be better prepared. But anyway, I don't think Toast has done that well either. But for both of those, like the pitch you're laying out sounds very familiar to me from them. And I guess the two things I'd push it back is number one, hey, I've heard this pitch before and it sounds great and it just hasn't really worked.

28:23And that could be, hey, you know, all these guys, again, par starting at a much higher multiple and they're growing into it. Could be that. Or it could be, hey, we're running into the Sasspocalypse at the back end. But I'll say like, hey, it does seem there's a lot of competition here. And like in your letter, you detail how someone who's running Toast, if they switch to Shift4, they could save like$40 ,000 over five years, I think is what the economics should lay out. And I say, that's awesome. But at some point, doesn't that invite a competitive response where Toast is protecting their customers?

28:51And do you run into a growth wall because everybody's price cutting? So I threw a lot out to you, but it just seems like this is a competitive industry and I've heard it before. And it feels like the competition always comes and these stories just haven't worked out. Yeah, that's fair. I do think that there's a lot of differences between PAR specifically and Shift4. And so, again, I have not, there's a lot of very smart investors who own PAR. So I want to say that I am very open to being corrected and I'm sure I will be. So let me just preface all that I will say with that. But I think one of the issues fundamentally with PAR is that, you know, they are trying to go after these enterprise accounts.

29:34And that is great. But, you know, my par also doesn't really monetize through payments. You know, my understanding of par that they do have some sliver of monetization of payments, but it's effectively a gateway. You know, when you sign up a Wendy's or you sign up or wherever, you know, part of the issue with having clients like that is that if you do, you know, A, they're just not going to sign into a restaurant POS where they don't have complete flexibility to change their payment processor. because of their scale, they're going to negotiate that payment spread down to such a low rate that they want a gateway that is a Switzerland neutral, allows them to go to Chase Payment Tech, allows them to go to Pfizer, allows them to go to Global and just say, give me the lowest rate.

30:22And so when you're a par and you're trying to get those kinds of customers or when you're a Q who's doing phenomenally well, and I would say that actually par's main issue is Q because they're really good, both going after those enterprise scale customers, you can't really monetize payments. So that's issue number one. And I would say that, you know, par is just not really comparable. Toast is doing phenomenally well. I would say like it's expensive for my blood, but I think that it's a phenomenal company. I think they're doing really, really well. You know, they're adding a lot of net merchants every single quarter.

31:02and it is a very sticky product. So it's hard to argue with their actual fundamental APIs that they're hitting. What I would say is that if I think about Shift4 Dime POS, the real players that I think that are worth worrying about are Square for sure. And they would play on the lower end of the spectrum and then Toast. and I would say if you took SkyTab or Shift4Dine POS, Square and Toast, I would say that all three of those groups are winning quite a bit right now. And the question is like, where is that coming from? And I think what people are failing to understand is that like right now Shift4Dine POS is call it 50 ,000 locations.

31:54Toast is much bigger at 160 ,000 locations. I kind of back into to a similar 50 ,000 US restaurant locations per square. And that all together gets you to 260 ,000, but there's 800 ,000 US restaurant locations. A ton of those locations are still using an old Oracle Res 3700 POS system. A ton of those groups are still using an old NCR system. A ton of those groups are using a touch bistro or, you know, Hunger Rush or there's there is it is a part of the reason why their M &A playbook has worked so well in restaurants is because it is a really, really fragmented world out there. I know you're in New Orleans and I'm from New Orleans.

32:46I whenever I think about these things, I think about, you know, when I go into a local or a newer restaurant chain or something or someplace in New York, it's always got, you know, tapped, paid, done. But when I start going to some of the good New Orleans spots, you know, a lot of times you walk in and your your report had the image of the processors with the little the paper on top to print the receipts out. And, you know, they've got the old ones and you're like, oh, this has to dial up to get the card. And those are still out there. And like, that's where I was going from. Yeah, that that. And then also let me just think about, again, U.S.

33:16specific. And this creates its own challenges and opportunities. but uh 800 ,000 restaurant locations there's 50 ,000 new openings per year and so every single year you got a cohort of 50 ,000 that where that's up for grabs and kind of a problem too because obviously that 800 yeah there's death there's death of restaurants and and that that's an issue too let me let me ask you just a small one uh this is so far afield but i i have to ask i'm curious You know, I get furious whenever I go to a restaurant and all the restaurants have the 3.5 % charge if you use a credit card, right? So they're trying to pass it on.

33:57And that's really stepped up in the past three years, I would say. I'm not going to say that's going to make or break a thesis here, but look, this is a business that gets paid in part on payment volumes. And if everybody's pushing you towards cash, I think wrongly because I think restaurants over underestimate the cost of just the carry and the security and all that. But if everybody's pushing you to cash and like, you know, Visa and MasterCard are always kind of flexing their duopoly power and taking pricing, like, is that a risk on the long term? Or how does that even impact the thesis here?

34:28Oh, that's a great question. You know, I didn't, I had to like cut myself off on the letter. But this is actually, I think, a material positive for Shift4. Interesting. And one of the reasons I would say that is because this, what you're calling credit card surcharging. it is a very very common it's becoming much much more common when you're chateau cafe here in new orleans oh my gosh you just said my mom's here restaurant and andrew can i tell you a secret i hate chateau cafe le petit cafe is two blocks down the down the and it is so much better i hate chateau cafe well you know what they use a shift for a dime to do that so i go there um and uh when you go to Shattuck Cafe and they are using credit cards, they're saying, why are we paying this 3 % credit card fee?

35:19Let's just pass it on. And that trend that you're talking about is really, really ramping up. And what people like Shift4 have done to take advantage of this is they are now through their distribution channel and internal sales reps, basically positioning or advertising Shift4Dyne as a 0 % payment processing fee solution, where they say you can pay 0 % payment processing because with our solution, we will set up your credit card surcharging so that it just gets automatically passed on. Oh, and by the way, for our hardware, we don't charge for it either. You just get it. And so do you want to pay$5 ,000 for toast and not have credit card or do you want us to set this up for you?

36:09And with toast, you can, you can obviously do the credit card pass through as well. But there are many different bottoms out there that still do not have that set up as a base feature yet. And so for the reason I say that, I think it's a material positive is because now you kind of have like the friendly middleman dynamic, right? Where if you're Chateau Cafe and a year ago, you instituted this credit card surcharging process and Andrew Walker's mom is still coming every day for her coffee. And you can see in your numbers that you have not lost customers. What incentive do you have to push back on shift four about your payment processing spread?

36:49You basically have no incentive. And what incentive do you have if Square comes to you and says, I can save you 10 basis points on payment processing? Well, what's the point? I'm already passing the whole thing through. And so I actually think that this credit card surcharging pass-through is a very material positive. Something that's maybe worth pointing out, though, is that this is not legal in every country. And so Shift4Dine is now in the process of, you know, they just launched in Spain and Australia. They've been in the UK and Germany now for a little bit. This is part of the other reason when you mentioned it's a very competitive field, all these systems that we all know of.

37:31part of the thing that gives me comfort here too is that the numbers that I laid out for the gross deployed assets for shift 4.9 POS those are all largely U.S. deployments and they're you know pick your numbers for what you want to assume for international but they're just they're just getting going there and so I do think that the credit card surcharging is a is a positive let me quickly ask you on international I don't want to dive too much into international it's been 40 minutes I've got so much I still want to ask you but just international, you know, whenever you've got a business and I've pushed back on so many businesses where if you're a financial, like part of the thing is the local regulatory burden, right?

38:08It is pretty extreme. And when I think about shift for like, Hey, all these restaurants you're selling to, it requires a local sales force. And there's local specializations, as you point out, like, can you press credit card through or not taxes, all this sort of stuff. And there's already people in foreign markets who have it. So you're going to go, you have to hire Salesforce and you kind of have to engage in that turf war to take accounts and understand everyone wants to grow and there is some there is some leveraging of uh tech spend and all that sort of stuff but i i guess just my question on international because i don't think you're you're saying like hey if international doesn't work this thesis is up in shambles but i hear people talking about international like a free call option obviously they just did the global blue acquisition they're spending time on this and i kind of look at international like i don't know why we have a right to win here it seems it seems like more I don't say empire building but I'd rather they just focus on the core market so I'd just love to ask you those questions on international yeah it's very fair um and this will get into like the different flavors of shipboard's M &A as well because uh part of what they said is like okay well there are plenty of businesses who have tried to do the international thing and it has not worked out and if you look at how we're doing international it is quite a bit different.

39:23And so Shift4's history, if you go up until being founded in 1999, all the way to when they IPO'd in 2020, when they IPO'd in 2020, the business was almost 100 % external sales force. They worked through 7 ,000 different external channel partners, all of these very small ISO VARs that serve, you know, exactly the Chateau Cafe types where they have a local, you know, that local portfolio of 40 different customers that they help with IT. And that's how, that's how Harbor Touch and that's how, you know, all of these other products for Shifor originally came to market. And I'm sure we'll talk about when they insource some of that later on.

40:14But all that to say is that when they've gone to the UK, when they've gone to Germany, when they've gone to some of these other countries, they have intentionally gone with that same exact approach, a variable OpEx sales force using a local distribution partner, a local ISO, a local bar, because until you get the density, it does not make sense to stand up your own internal sales force in a specific country until you really have, you know, the volumes picked up. Contrast that with like Australia, where what they did instead in Australia is they bought SmartPay and SmartPay, like one of the things that they said they definitely didn't want to do either.

41:03Basically, when you when you get down to it, what they said is what hasn't worked for people trying to branch internationally and failing is building your own sales team from the ground up and thinking that that's going to like work in any kind of reasonable timeframe. So what we'll do is we'll work through VARs where our OpEx is variable, or we're going to buy a sales team that already works and basically just plug in our own products. And so when they bought Vectron and when they bought SmartPay, those acquisitions, yes, they came with their own EBITDA and revenue, but principally, they were to buy a local sales team who already knew how to sell in Australia, already were productive, already were proven, and then just giving them a better product and saying, go sell.

42:00Let me hard shift. So again, I've looked at this company in the past several times. I know a lot of friends who are along this. I know a lot of friends who have passed on this. So I kind of pinged some friends coming in on, hey, when we were talking about Shift 4, like why did you pass and stuff? And here are, and there were some great Trotta calls I should mention that also had really interesting discussions. They're sponsoring this episode. So there'll be a show note there too, just to get a sponsor plug. But let me hit you with the three most interesting kind of other people pushbacks I got.

42:28Because I think these are really interesting. I think they'll be, thing. The most frequent pushback I got from people is, hey, you know, you and I've talked, we haven't really hit valuation discussion, but this is trading quite cheaply. You know, you can tell me if you feel like I'm saying anything here, but maybe six to seven times EBITDA for a company that says their organic growth is about 11 % right now, right? And I think they think they can sustain that. And tell me if you feel wrong. The most frequent pushback I got from bears is, Hey, the easy market share gains that they're going to get the ones that you've talked about, you know, the picking off the middle-sized restaurant groups that are on just like super legacy on-premises, those are gone.

43:08So they're saying, Hey, the organic growth rates are going to come down really quickly. And once you do that, you get into that churn battle you're talking about. So all of a sudden you're getting into this two to 3 % organic growth. And I think a lot of the people who are avoiding this saying, I just don't want to be there when the organic growth rate really starts to decline because they think there's a wall on their organic growth rate. So I'd love to get it. And you mentioned like, hey, the big three, Square, Toast, and these guys have, I think it was 250 ,000 of the 800 ,000 restaurants. That's a long runway to grow.

43:39But once you start doing the churn math, you are starting to talk about slowing down pretty quickly there. Yeah, those are all fair questions. So what I would say is specifically, I think you framed it correctly, like six and a half times EBITDA, a company says 11%, let's say 10 to 11 % organic growth. I think part of the reason why some people feel pretty wrong here is that I think that they claimed higher maybe in the past. And so we can get into that later. But what I would say is that I think that there is some misunderstanding here about how these old POS deals work. Because one of the things that I think is surprising to people is that, you know, you can ask the company, but you can get at it your own ways too, is that the vast majority, call it 80 % plus of Shift4 Dine POS installs are 100 % net new merchants to Shift4.

44:40They are not transitions from old POS systems. And I think people don't quite understand that. Part of the reason for that is that you go talk to again a Chateau Cafe or that would be a good example but you go talk to uh one some of these old merchants that are on a posit touch that are on a uh future POS and you go behind the counter and you see this like effectively just you know 20 year old piece of software and you're like what are you doing with this thing uh but you see a shift for logo for the payments processing For almost all of these, the goal has been take a software only customer and attach payments.

45:22Don't move them on to shift or dine POS. If they want to upgrade, that's fine. But your goal is not to transition them because then you have a whole piece of hardware spend that you didn't have to have. Really what you want is attaching payments. And if you talk to a lot of these groups that are still, you know, to be clear, 60 ,000 restaurant locations still using all the legacy systems that Shift4 owns. And they would say, you know, I'm summarizing between a lot of different calls. Why on earth would I move to Toast? Why on earth would I move to Shift4 Dime POS? I pay$0 per month for my software.

46:01I bought this license in, you know, whatever. $19.99. We're still voting. And I have the computer literally right here and it works. And occasionally it breaks and my ISO guy comes, you know, turns a button on and it works again. And so why on earth would I sign up to pay whatever it is per month when my system works completely fine? And what Shift4 has done is basically takes those groups and say, that's totally fine. but attach our payments to it because you're using Fiserv or you were using Fiserv and they're charging you 70 bits. We'll charge you 50 bits. And they can do that because they have these 7 ,000 ISO relationships where they just incentivize them to attach payments to all these shots on goal.

46:51And so anyways, long-term way of saying is that when people say like, oh, there's this narrative that A, they need to re-top up the funnel of these POSs because without these transitions from old POS to SkyTab, the growth rates, lows, or whatnot, the vast majority of people coming into SkyTab slash Shift4Dyne POS are 100 % new to Shift4. They are not coming from an old POS acquisition. So that's the most critical point. And then, you know, probably not an answer people want to hear, but like being at$42 a share solves a lot of issues. And when you're at$90 a share or$100 a share, and you really need to figure out, you know, like the most common thing that I hear is, well, what's organic growth?

47:42And yeah, and it's like, I don't know if organic growth is 5 % or 10%, could be 12%. And I can get into, you know, vertical by vertical, why I think it's actually double digits. You're paying for zero or less in my view right now. life. And so it's not that. I can tell you that for sure. Let me jump off that because I think that actually really brings me nicely to my next question. This is actually probably the question I got most. I mean, organic growth just jumps in my head. But you said, I don't know if organic growth is five or 10. It could be 12, right? The company lays out 11 % organic growth in Q2.

48:19Now, that doesn't mean it's LTM or Ford, but that's what they do. When I talk to people and I have it, and I think people will hear you have too. I heard a lot of people who are just distrustful of management here. I heard a lot of people said Global Blue was a self-inflicted mistake. The company, as you said, they laid out kind of medium-term cashflow guidance, and then they took those out. And I just hear basically a lot of distrust of management and a lot of Q2, right? They're buying back shares. And then in Q2, they way take down the share buyback. And then as I said earlier, the CFO a week ago says, our stock price isn't attractive.

48:57Like this is a gift. We're going to buy back shares. We couldn't buy in Q2 because we had all these temporary cashflow headwinds and we want to stay within our leverage targets. But I just, I get a general distrust of management. And it is a little bit scary when you've got a company who, Hey, the organic growth is kind of in the eyes of the beholder. And I don't quite trust management. And there's all these integrations going on at once. Like that is a little bit of a scary place. So again, I threw a lot at you and it's hard to say, do you trust management? But I feel like that's the most frequent bear case people are coming to.

49:28No, that's fair. I guess maybe to address one point head on, I do think that there's, it's undeniable that I think, will Global Blue map out to the same kind of economics that they've had in other past acquisitions? It seems almost impossible. But they've had some, as you detail, they've had some acquisitions that they bought for like less than one times post-Synergy EBITDA. So if that's the bar, it's like, yeah, you can't always do that. Right. And they, you know, they, they paid a pretty optically expensive multiple for global blue. They paid like 13, 12, 13 times, depending on how you want to look at it.

50:02Uh, but my view is that, uh, they've, you know, what they've laid out is very much like in play. There's nothing that's been disproven about the 80 million of synergies that they're expecting to get next year on top of the Global Blue numbers. Those are all predicated on a similar kind of like shift or playbook of cross-selling payments, right? Global Blue, for people who aren't familiar, it's a tax-free shopping, the largest provider of tax-free shopping. So when you go to Paris, buy a handbag, there's a VAT tax, a 20 % VAT tax. If you're coming from the US or a country outside of Paris, you can reclaim that VAT tax when you leave the country.

50:50Local Blue is a 70 % market share in tax-free shopping. And it is a very, very, very sticky product because you're integrating with customs authorities, tax authorities, and you have these customers like Hermes and Gucci who are very, very sensitive about how their end clients are treated. And so what Shift4, the basic thought behind buying that was buy Global Blue and you have this kind of killer application that has a lot of market share. How can we go to all those merchants and effectively attach payments onto that killer piece of software? And that playbook, I think, you know, I think we'll have a better way to assess that in 12 to 18 months than we do now.

51:41But it's very much in play. Back to your point about do I trust management? Yes, is the answer to that. And I think, you know, again, there's no, I'm going to repeat this again, but like, there's, there's nothing that, you know, informs sentiment quite like price of the stock is what I'm saying. You know, it's easy to have a really bad narrative when the stock price is going down and vice versa. And, you know, I think that the reality is here is that some of this was maybe the current management's fault. Some of it, I think you could probably pin on Jared or just a result of over optimism. But I really do think a lot of it came from this billion dollar free cash flow exit guidance, having to walk that back.

52:33You know, if you go prior to that, they really had never missed guidance ever. And that was kind of a blunder. And then now you have a situation where everybody who was once skeptical of Global Blue, you now have the Iran war causing some headwinds and saying, see, told you so. Like that was a mistake of an acquisition. And so my view at a very, very high level is you would be absolutely crazy. and again, I guess maybe this is a bit strong to say, but you'd be absolutely crazy to go through their track record since inception and say, hey, these guys have increased EBITDA 15X since they IPO'd in 2020.

53:15On a per share basis, it's 12X. They've increased EBITDA per share 12X over a seven-year timeframe or a six-year timeframe. Are they owed the benefit of the doubt? Well, my answer to that would unequivocally be absolutely. And by the way, like buying back stock, you know, they bought back 10 % of the shares in the last three quarters. I like that. I think that's a great idea. And, you know, you had this more recent situation where people are wondering why they didn't disclose what the exact acquisition is that they bought or that they signed up for in Q2 and wondering if they're hiding the ball, et cetera.

53:55like, and people come up with all kinds of crazy stuff, but you know, I hear you, but that is always a scary place to be. You know, whenever you're starting to question, you're just like, Oh, let me go to. So we've said Sasspocalypse a few times, right? And the Sasspocalypse, I think it probably peaks in March and the IGV is down like 50 % and it's bounced quite a bit since then. And payments is getting hit like crazy over the same timeframe. The only difference between the Sasspocalypse and payments, you know, they're thrown together. Software has bounced back a ton and payments hasn't really.

54:28And now this is payments broadly in general, but that's a little surprising to me. You know, I was doing a lot of work on software at the time and you said nothing drives narrative like price. And I think the price was getting in a lot of people, people's heads with, Hey, all of these software companies are terminal about terminal zeros, but you know, payments, as you mentioned, it's harder for me to see like AI displacing payments just because it's a lot of local restaurants. Are you telling me the local restaurant guy who, as you said, is still running a computer on 1999, all of a sudden he's going to have AI run all his payments.

55:00Like it seems pretty crazy. There's a lot of legal tax liability, all that sort of stuff. What is the AI bear case for payments or just what is the payments doom case that is creating so much bearishness among all of these? It's a very good question. You're right that they certainly have not bounced back as much. My, I think it's very overly simplistic view of this is that there are some like a Fiserv that have idiosyncratic issues that maybe are keeping them from going through this whole investor day and laying out all the points and having the CEO literally leave the business like mid-flight the next month.

55:39I did a Pfizer podcast and I remember one, a few people were like, is the CEO a psychopath? Like, oh, I think that was related to, we're not going to do acquisitions and then did an acquisition, but people were wondering if it was a psychopath and that's always a fun place to be in. So I think there are within payments, some idiosyncratic reasons why things have not, you know, bounced with software. But I think at a high level too, it's just for payments in general tend to be a little bit more like business cycle sensitive and people looking at rates going up now and, you know, oil at$106 and saying, oh my gosh, like all of, you know, all of these payments are levered, are levered consumption plays, levered consumer spending.

56:26Why would I own that? And I think that that's maybe the simple take. And my view would be you own it because even though, you know, restaurant same store sales might be plus or minus two, whatever it might be, when you do 50 ,000 new installs, that dwarfs anything about what the same store sales of those restaurants are. It's like an irrelevant factor. um and so yeah that matters if your global payments or your fiserv and you're living and dying i'm like is it going to be two percent growth or is it going to be negative uh because of spending but when you're toast or when you're shift four and you have that many new installs it's kind of irrelevant um and then you know adjun has bounced a decent bit but like again it's hard to square that too because that's such a phenomenal business and it's hard to it's hard to square what's going on there too.

57:22But yeah, that would be my view is I think it's more just people looking at payments broadly and saying payments, levered consumer spending, rates going up, bad, don't own. Let me shift again. I think it's more on the management side, but I'll do this and then we can kind of wrap this up because you've been generous with your time. It's been almost a full hour at this point, but the M &A history here. So in late 2024 or late 2023, they say they're running a process. There's lots of reporting that a lot of different strategic parties are looking. I think in early 2024, Bloomberg reports that Jared, who's still CEO at the time, says, hey, we just don't think any of the bids fairly value us and we're going to turn them all down and go standalone.

58:07Q1 2024, they go on a call and they say, look, we've got a high view of the business there. You can look at analyst targets. We agree with the higher end of the analyst targets. I think that would have applied$120,$140 sell price. Nobody hit it, so we're staying standalone. And then in 2025, they go the other way and they actually buy Global Blue for a pretty hefty multiple pre-synergies, right? I guess with that history and then, oh, the one other thing I'll lay in, we talked about the share buybacks. Jarrett has bought some stock. He bought about$16 million worth of stock when the stock's in the 80s, and he buys another$20 million or so when the stock's in the 40s earlier this year.

58:45How do you think the company is kind of thinking about their fundamental value, their strategic value, their go forward path when I just lay all of that out for you? Yeah. Yeah. Yeah. Maybe like a little bit different of a, of like a founder owner in Jared. And that I think he has explicitly said, you know, when I think about like the future of my kids, I don't think about them running Shifor. I don't think that's going to be. Well, he's not running Chip4 anymore. So he's going to run the activist campaign and reinstall himself. Right. And so this is not like we'll be forever in my family legacy, like founder business type of thing.

59:27I think that he is very commercial about how he thinks about the business. And to some extent, that gives me some optimism because at$40, you know,$42 a share here right now with Jared owning 28%, them buying back a bunch of stock him, you know, I think he bought 36 million earlier this year in the forties. And, you know, I, I think that, I think that, you know, his point about being an activist shareholder is absolutely, you know, in play. If, if we're sitting here at 42 in a year's time or in 18 months, I think that you could absolutely have him come to the board and say, listen, guys, time to make something happen here.

1:00:09time to like fix this price and, you know, go back through the history of when he, you know, every quarterly transfer call that he's been on since, you know, since they came public and like, he is not one to shy away from getting his opinion on if the company is fairly priced or not. And he's also a pretty aggressive guy. So I think that that's kind of more of a back pocket call option, But I think that getting acquired or forcing a process here again, if things don't fix themselves, is absolutely possible. It's funny because I don't quite know how the head of NASA works, but I would guess in 2028, if there is a change of, well, there will be a change of administration because unless we get a third term president, there's no third term.

1:00:55I would guess he's out as head of NASA. And I was kind of wondering, hey, is there a 2029 catalyst where he's out of head of NASA, maybe he owns 35 % of the company through buybacks and stuff. And, you know, two months after he's out, you get a 13 DA that says, hey, I've partnered with pick private equity firm, and we want to take this company private. I have been kind of thinking about that in the back of my mind. That's right. I mean, you know, Starlink, they do they do that this would be an easy uh starlink acquisition uh starlink and spacex with that valuation could acquire just about anything right um look this has been great andrew i mean again i can't tell you i learned so much from the the write-up just in terms of we we're not going to get to isos but in turn you know there's the conflict of interest where they roll out a superior product that's cheaper and the isos are like well we'll get paid less on this there's so much interesting detail i'll include a link to share in it but anything you think we should have hit that we didn't quite get to?

1:01:50Yeah, maybe just like as a very broad point on the organic growth point, because I think it is important to people, is that one of the things that I would say for people that are wanting to go down that rabbit hole is that today, more than ever, probably in the history of the business, you have as much transparency as you've ever had on wanting to build your own organic growth number, right? And so take the like 1.1 billion of EBITDA of the business. Well, Global Blue, before they acquired it, was a completely standalone business. It was a public standalone business. So you can go look through as much data as you want on Global Blue and come to your own assumptions about what you think a fair or not fair organic growth rate is for that piece of the business.

1:02:40The management team would tell you and the history of Global Blue would tell you like somewhere in the neighborhood of high single digits to low double digits EBITDA per growth per year. Finaro was a very big acquisition that they acquired, which it basically gave them the European rails to run their payments business internationally. What a lot of people don't know is that Finaro still publishes their own standalone financials. And so that accounts for about 30 billion of the 250 billion payment volume. And you can see for that specific segment, the exact growth. And so I'm happy to point people in the direction there, but you can see, and it's growing very quickly.

1:03:20Um, and so you can get the organic growth rate on Penaro, um, you know, go by vertical. And usually there is a way to get to the organic growth, uh, using the kind of like, Oh, they do MNA and that must be feeling the organic growth is kind of a lazy way to kind of cast off what I think is truly a very, very high quality business here. That's great. Let's see. Okay. I think we hit everything. You know, I will just ask one more question, as long as I've got you might as well. There's a pretty high short interest here. I don't want to say it's crazy. And they do have the converts, which I haven't looked at them.

1:04:02I think they're way out of the money. So I doubt anybody's like really hedging this with converts, but it's like 25 % of the float is short. Yeah. Look, I think I've gone through all the things, you know, the distrust of management, the questions that are going to occur, the AI fears. Is there anything you've, I mean, again, you've got, I'm going to include a link to show it. You've got this great public right up there. Is there anything that shorts have pressed you on that like kind of explains why the short interest is so high? So I do think that, so when they, when they bought Global Blue, Global Blue is a$2.6 billion acquisition.

1:04:32They have a$1 billion convert that converts to between 9.8 million and 12.2 million shares in, in 2028. So, uh, you can actually see that step up in 2025 when they issued that convert. Um, and, you know, pick your number, but my number is like, it's probably 6 million, 6 to 7 million of the, of there is a capped range between 80 and 106. And as you go down, as you fall below the$80 threshold, it means you're issuing 12.2 million shares. And as you go up past$100, then it gets to the 9.8. And so as you actually fall down, you have to actually hedge more on that convert. And so So it's not perfectly knowable what that number is.

1:05:29But I think that in reality, whether it's 8 million of shares actually short or 7 million, it's hard to know. It's not 25%, that's for sure. But I've not heard a really great short thesis or pushback. I certainly haven't had anybody come up. I think it's a lot of the questions that you ask of, I don't know, what's the actual organic growth rate or people worrying about Global Blue not being the same type of acquisition as historical. But I think a lot of those are really solved by the valuation at this point. That makes total sense. Again, I was just looking at the 2027 convert, which I believe is quite out of the money.

1:06:16And, you know, it's a 122. And I was like, oh, the stock's at 40. you see his high short interest with the convert sometimes it's the convert but i'm like ain't nobody can hedging out of 122 convert 40 but i didn't know that about the global blue piece yeah there's a billion dollar mandatory convertible 2028 for global and that explains some of the questions that my uh my chat gpt was having when i was prepping for this podcast where i was like convert convert convert i was like or preferred preferred i was like okay whatever cool well andrew karen again link to the right up in the show notes has been great i mean you're just such great deep dive work on all these names.

1:06:50I really appreciate you coming on. Please don't go to Chateau Cafe anymore. Le Petit Cafe is where it's at, but looking forward to having you on back on again. Talk to you soon, buddy. Thank you so much. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.