Melissa Chen: Okay, cool. And then I have a follow-up. In your shareholder letter and prepared remarks, you mentioned an attractive pipeline of M&A targets. Can you give us an update on the size of the deals you might be targeting? And is the focus of the M&A opportunity still on international expansion?
Taylor Lauber: Yes, sure. So I’ll cover that. The range is quite significant in terms of size of targets. And the only thing I could point you to is the historic M&A that the company has done. We are very, very comfortable with small transactions that we think are really attractive customer acquisition cost or give us a capability enhancement, so we view as valuable, all the way up to sort of the Finaro size transaction that adds a continent to us. So I wouldn’t want to dimensionalize too much on size, except for that every size level, our M&A pipeline has gotten more attractive. There are more conversations at more reasonable prices that we think have really interesting synergies associated with them. We have an emphasis on international, not just on an M&A basis, but on an organic basis as well.
We’re focused on international as a major priority for the business. So you could imagine we’re spending a lot of time looking at M&A through that lens. But I wouldn’t say that the pipeline skews towards international. We challenge ourselves to think about it interesting opportunities kind of regardless of the strategic direction of the company. And at every level of the pipeline, it’s quite interesting.
Melissa Chen: Okay, cool. Thanks for taking my question.
Operator: Thank you. Our next questions come from the line of Dan Perlin with RBC Capital Markets. Please proceed with your questions.
Dan Perlin: Thanks. My question really revolves around like resource allocation and capabilities. So it does kind of, I guess, dovetail into implementation requirements. So you’ve had a lot of success in signing up a lot of large enterprise stadiums and venues. These are, I’m sure, pretty significant undertaking. So I’m just wondering, as you think about building out your capabilities and this kind of forecast you put in place for next year, like how like compressed are some of the inpatient teams in order to get that done? Or is there kind of a gap that you’re giving yourself some leeway?
Jared Isaacman: Well, I would say that as we look to 2024, first, there’s probably more budgeted in terms of resources than what we hope to actually do if we’re staying in line with pounding the table on relatively flat headcount. I think like any of the people that are — like any of the bears on Shift4 forward would say like there was legacy software companies. These guys acquired. They had two gateways. And I always go back to that when being asked questions about how do you expand margins, maintain flat headcount and meet the demand. It’s because you take out those parts and reallocate those resources to kind of meet the needs of today and tomorrow. So I said this at the time of the Appetize acquisition. You’ve got a bunch of your team is like, look, we need more people to install stadiums, if we — especially if we want to get it done before the MLB season, it’s like — then we have a pretty big install team that supported Micros and POSitouch and a lot of enterprise restaurant software that had 100 — some of these had 100s, maybe 1,000s of locations, why can’t we use a resources and trade them on stadiums.
It’s exactly what we’ve done. So I’ll tell you there’s a pretty high bar inside the organization when you want more headcount. As much as we encourage talent upgrades, we are able to demonstrate that you’ve taken out parts and reassigned resources we already had, before we’ll approve like kind of net new heads. And that’s exactly how we’re approaching the demand with major resorts, which we still have a lot of those that we have to turn live in the year ahead. We — especially some — quite a significant one. And then, of course, we have hundreds of stadiums that we have to move over. So I think it’s all about just following our philosophies, the leading parts where we can and reallocating resources for the needs of today instead of maintaining the past.
Dan Perlin: Yes. That’s great. Just a quick follow-up on SkyTab. I think you said you installed over 25,000 POS locations this year. I also thought I heard you say the goal for ’24 was to 30,000 SkyTabs, and I think you said something like 10,000 new hotels and stadiums. Is that all in Europe, I think, I heard you say? Or is that more like inclusive of both back book and then kind of where you see kind of the implementation cycle? Thank you.
Jared Isaacman: Thanks, Dan. Well, first, I really want to emphasize this, like we are — we have not begun any active upgrade cycle from our existing customers to SkyTab. Like we don’t count those as wins. Like those are — I mean, there’s — it’s at some point, absolutely the right thing to do for the business because it unlocks a lot of operational efficiencies, but that’s like a lot of capital for hardware to deploy and not a lot of incremental revenue. So I know I’ve said it before, if we were doing that, you would know it. So really, these are net new targets that were out there establishing, and I want to be really clear on them. So the 30,000 systems that we want to install for SkyTab is domestic. That is our 2024 domestic restaurant goal. The 10,000 is our goal for restaurants and hotels internationally. So that’s specific to Canada and Europe. So those are like the 2 big goals that we’ve established internally for the year ahead.
Dan Perlin: Got it. Excellent. Thank you.
Operator: Thank you. Our next question has come from the line of Andrew Bauch with Wells Fargo. Please proceed with your questions.
Andrew Bauch: Hey, good morning all. Thanks for taking the question. Just wanted to go back to the volume bridge provided last quarter. I mean they had some meaningful components from $15 billion of Finaro volume, you had $9 billion of international synergies. So maybe if you could just give us an update on what pieces of that bridge you feel more or less confident on as we head into 2024, understanding that the midpoint is largely unchanged.
Taylor Lauber: Yes. I would say our confidence level is largely unchanged in kind of the bucketing each of those outcomes. It’s early in the year. And I mentioned this in my scripted remarks, we generally, in the hospitality industry, see a quiet level of spending. And I think there’s a lot of speculation around is the consumer healthy or not. Right now is not an adequate time to measure the health of the consumer. So we would start to see that in March when people travel again, the weather gets warmer, et cetera. So I would say there hasn’t been a meaningful change in our confidence level across each of those segmentations, except international continues to go well. We’re really excited by the appetite for the offering. And so I hope, and it’s a hope at this point as opposed to a conviction, that international represents a larger portion of the growth over the next year that is represented by that bridge.
But it’s just too early to predict the component pieces of those bridges, especially with a slow season for hospitality given the timing of the year.
Andrew Bauch: Got it. And then just a follow-up on the SaaS side of the business. I just want to confirm that the fourth quarter included, I believe, the nine from Appetize. I just want to make sure that that’s the right number. And then as we look at 2024, how should we be thinking about the software growth rates for the full-year embedded in the guide?
Nancy Disman: Yes. We didn’t give a breakdown of kind of where Appetize would show up, but certainly it’s impacting the SaaS. But I think what’s most important here, as you think about subscription now going into ‘24 is that is definitely a growth item for us as we look out. We’ve got a couple of components in there that are super important that we mentioned in the prepared remarks. You’ve got the restaurant SkyTab component growing almost 70% within that SaaS number. And you also have a piece of our business that has a SaaS component that’s growing really nicely within that portion of the P&L. So I would just expect some continued growth in a really healthy, nice way aligned with the revenue growth that we talked about today.
Andrew Bauch: Great. Thanks for taking my questions.
Operator: Thank you. Our next questions come from the line of Darrin Peller with Wolfe Research. Please proceed with your questions.
Darrin Peller: Hey, guys. Thanks. Let me just double check, though. First on the organic versus inorganic side. I mean when we think about guidance, I think we’re calculating the high revenue growth rate backing out things like the — just the pure inorganic contribution from Finaro and Appetize. Are we about right in that calculation? And then just as part of that guidance discussion, I remember you didn’t include same-store sales growth in your bridge. And so I guess I’m just trying to figure out other sources of conservatism given the macro backdrop that might be in that outlook, even how much has already been booked? How much of your customer wins are already in that — for that bridge, along with it just anniversary-ing stuff from this year as well as into ’24.
Jared Isaacman: Yes. Darrin, Jared here. I’ll take the first-half of that question on just the organic course inorganic trajectory, and then kick it over to Nancy on some of the same-store sales assumptions that we make. I’d say, look, with respect to 2024, the organic portion of our revenue growth is going to be well north of 25%. I think it’s always hard when you look to the fourth quarter, where you closed two acquisitions and our game plan is to break glass like day one, I mean, we go in and intentionally try and pulverize existing revenue models. So it’s very hard to like look at it in a quarter like that and try and really dissect it. But I would tell you in terms of our 2024 forecasting, you’re well north of 25% on the organic side. And then, Nancy?
Nancy Disman: Yes. I think, Darrin, just to kind of color that in a little bit. In addition, I think when you think of that kind of guide of on the revenue side, that will come with over kind of 250 basis points of margin expansion. And I feel really, really good about the organic growth going into ’24 for exactly the reason that you mentioned. So much of how we build our guide and how we look ahead is we know what the pipeline looks like. So we’re not just taking a percentage of a really big book and then applying that to this guide. Most of this growth is stuff that we already have our eyes on. It’s either booked. It’s being integrated. It has an implementation schedule. So super high confidence. And then on the macro side with the same store, I think you said it in your question, we’re going really modestly.
So we’re actually slightly under in our assumption in terms of what we saw in ’23, so certainly not expecting any kind of rebound here. And if you go back to the prepared remarks, I think low to be some kind of further pullback and mid to high is really BAU kind of what we saw in 2023 and what we’re exiting at.
Darrin Peller: That’s really helpful, guys. And then just quickly on the international side. Again, it was great to hear some of the color on the international progress you’re making. But when we think about the more specifics on verticals, if you can give us a little more idea as to any conversations with multinational hotel chains in Europe, maybe that you work within the U.S. or, again, a little bit further discussion on the opportunities for the restaurant space. What kind of momentum would we expect to see throughout this year?
Taylor Lauber: Yes, sure. So it’s every element you’ve seen of our strategy we intend to implement in Europe. And I think — and it’s really just a handful of days in December that this played out that you can evidence this, right, which is Jared mentioned, an ISV that’s integrated to us bringing us a retailer in Europe. We mentioned hotels signing up in Canada on existing integrations that were compatible with Shift4 and now we can process for them. And then in the U.K., specifically SkyTab. So there’s always the potential for M&A across Europe as well. So I think you should expect every element of our strategy in the United States is applicable throughout Europe. We’re going to be choosy about the countries we operate in first.
We’re going to be choosy about the payment methods. There are certainly some software compatibility things will work out with SkyTab. But generally speaking, the software that you’ve known to be integrated to Shift4 is installed all over the world. That’s why the international expansion effort was such a key strategic priority for us. We already have customers and we already have distribution partners throughout the entire globe, not just Europe. And Europe is our first kind of major continent within which we have the right to operate as a payment partner. So you’ll see every element of those strategies. It is early to predict which one will move faster than others, but we see the opportunity is really, really rich, and we’re not going to be biased towards one or the other.
Jared Isaacman: Yes, maybe just to layer on, like we are throttling demand in Canada and Europe. Right now based on the software integration, the hardware it requires and SkyTabs like fiscal compliance. So it is kind of interesting. We never would have set out when we went into Europe and said like, let’s leverage one of our retail integrations, because honestly, it’s not like — most people wouldn’t think of Shift4 specialty retail as kind of a top vertical. But when you start putting out like awareness, you’re testing ISVs that you’re moving into a new market, there’s always a list of — especially in Europe and Canada, like what about these accounts in markets that largely aren’t very integrated right now and have been waiting a long time for it.
We’re throttling demand in Canada. The next 50 locations are going to use certain software and hardware that we have there. So like we talk a lot about international and bringing like our capabilities that work for us in the U.S. into those markets because we’re seeing the demand.
Darrin Peller: Got it. Great, thanks guys.
Operator: Thank you. Our next question has come from the line of John Davis with Raymond James.
John Davis: Nancy, I just want to touch on free cash flow, very strong in the fourth quarter. I think you ended the year in ’23 about 60% free cash flow conversion. So just a little curious what the drags and why it would be down a little bit. I appreciate it’s 58 plus for ’24, but any comments on kind of headwinds or puts and takes on free cash flow as we look at ’24.
Nancy Disman: Yes, for sure. Look, there’s always going to be some movement here in between. Obviously, we have two quarters, Q2 and Q4, where we have interest payments. So those will always be lower quarters. And that’s I’m always super sensitive to kind of talk about this on a full year basis versus quarter-to-quarter. Just as we negotiate, we have a massive focus right now on continuing to improve. Obviously, what has been a great trajectory on free cash flow conversion. And so there’s lots of puts and takes with vendors and decisions we make on improving our just AR and AP turns, as you can imagine. So nothing in particular. And so I would really just think about it on a full-year basis and look at the guide and know that we’re super confident that there’s lots of room here to continue to improve that conversion going into ’24.
John Davis: Okay. Great. And then just a quick follow-up on margins. I think the midpoint of the guide is for 60 basis points of expansion, Nancy, you called out Finaro and Appetize as being margin headwinds. Just curious if you can kind of quantify that or give us any sort of color of what the kind of underlying core margin expansion is embedded in the ’24 guide?
Nancy Disman: Yes, for sure. I think Jared mentioned that as we think about the guide, we’re looking at well north of 25% organic revenue growth. And I would think aligning with that comment is organic margins of probably about 250 basis point plus of opportunity to expand into 2024 to match up with that guide.
John Davis: Okay, great. Appreciate it.
Operator: Thank you. Our final question will come from the line of [Joel Rikers] (ph) with Truist. Please proceed with your questions.
Unidentified Analyst: Hi, this is Joel on for Andrew Jeffrey. I hope everybody’s doing well. As we think about SkyTab in the context of accelerating end-to-end volume conversion, do you think SkyTab can be positioned as a viable migration path for enterprise? In other words, as enterprise customers think about ripping and releasing micros, do you think SkyTab can kind of step in?
Taylor Lauber: Yes, absolutely. So if you think about — let’s just use Micro as an example, because that’s one you gave. Our Chief Technology Officer comes from Micro. Our Chief Product Officer comes from Micro. So we own two of the largest Micro resellers that existed across the country. So our knowledge about that product suite, in particular, is immense, and SkyTab has the ability to compete in that swim lane as it does with many others. So if you think about the acquisitions we’ve done in our history, we own five different restaurant point-of-sale brands, most of the talent from those brands still works at Shift4. All of that informs and is focused on the go-forward development of the product. I think live is a good example of complexity because it’s very visible for us, and by that I mean the entertainment venues.
