FOUR - NYSE

Hello, and welcome to today's Shift4 Payments, Inc. Q4 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the meeting over to Thomas McCrohan, EVP, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to Shift4's Fourth Quarter 2025 Earnings Conference Call. With me on the call today are Taylor Lauber, our CEO; and Christopher Cruz, our Chief Financial Officer. This call is being webcast on the Investor Relations section of our website, which can be found at investors.shift4.com. Today's call is also being simulcast on X Spaces, which can be accessed through our corporate X account @Shift4. Our quarterly shareholder letter, quarterly financial results and other materials related to our quarterly results have all been posted to our IR website. Our call and earnings materials today include forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of certain risks, uncertainties and many important factors. Additional information concerning those factors can be found in our most recent reports on Forms 10-K and 10-Q, which can be found on the SEC's website and the Investor Relations section of our corporate website. For any non-GAAP financial information discussed on this call, the related GAAP measures and reconciliations are available in today's quarterly shareholder letter. With that, let me call -- turn the call over to Taylor. Taylor?

Good morning. It's great to be speaking with you all. 2025 was yet another pivotal year for Shift4. We produced record results executed on transformative M&A, grew nicely and diversified the quality of our business. That's all while overcoming the occasional setback in more ways than one. We also fundamentally strengthened our global footprint, our technology capabilities, and organized our talent around our priorities that will continue to move the needle in 2026. As mentioned in my shareholder letter, the rapid expansion across multiple verticals has created confusion as to exactly why we win and who we compete with. This is understandable, but from our perspective, each vertical we serve is carefully selected based on the lessons we've learned over 28 years. Contrary to popular belief, we are in these verticals because we view the competitive landscape as narrow and as such, typically have fewer -- one or fewer good competitors in each vertical. To simplify things for everyone, I will succinctly say that we power the experience economy. We enable businesses to deliver the moments that matter and can be found anywhere you shop, dine, stay or play. These experiences demand high availability and often in-person engagement and come with high expectations from both the guests and the merchant. What as little as 5 years ago, might have been Shift4 powering a night out at your local -- at your favorite local restaurant has evolved into us earning the responsibility to power some of the largest global resorts operating 24/7, championship matches and so much more. In a world of constant innovation, especially digitally, the skill sets to power high-demand person experiences is increasingly valued. Now to touch on some highlights for the quarter and the full year. We closed on the acquisition of Global Blue back in July, marking our entry into the luxury retail vertical. As a quick reminder, Global Blue is a market share leader of tax-free shopping capabilities to merchants selling luxury goods with the #1 market share globally and a 4x relative market share to their nearest competitor. Global Blue's business remained resilient despite the weakening U.S. dollar and rising tensions between China and Japan. While a weaker U.S. dollar translates into higher prices for those traveling to Europe, having the business over-indexed to wealthy consumers remain the key benefit in this K-shaped economy. The integration of Global Blue remains on track, including the timing of revenue synergies to begin being realized this year as expected. As you can see from our materials, we continue to add many new merchants and can increasingly be seen anywhere you shop, dine, stay or play with many of these wins a direct result of us successfully cross-selling payments. We powered payments at the big game at Levi's Stadium in early February. So congrats to all you Seahawks Fans. And we are constantly renewing key merchants and recently signed a 5-year renewal with Choice Hotels. Some other key milestones. In Europe, we continue to add many thousands of new SkyTab POS merchants across the U.K., Ireland and Germany, ending the year with over 80,000 merchants outside of the Americas, which is before cross-selling any Global Blue merchants. Canada is also a focus as we've only recently had full stack capabilities in the region, but inherited many world-class customer relationships from both the Eigen and Givex acquisitions. We entered the Australia and New

Thanks, Taylor. 2025 was another record year for Shift4 across all financial metrics underpinned by strong execution, integration, capital allocation and continuing to achieve scale diversification, both geographically and across multiple verticals in the experience economy. We delivered record results with full year gross revenue of $4.18 billion, above the high end of the range we provided last quarter, volume of $209 billion, again, near the high end of last quarter's guided range. Blended spreads came in at 61 basis points, exceeding our guidance of above 60 basis points. Gross revenue less network fees or GRLNF of $1.98 billion, representing 46% growth year-over-year. Adjusted EBITDA of $970 million, representing 43% growth year-over-year at a 49% margin and adjusted free cash flow of $500 million, which exceeded our guided adjusted free cash flow conversion range by 150 basis points. Now let's move on to our quarterly performance and then shift to 2026 guidance and close with our capital allocation framework. For fourth quarter results, gross revenue increased 34% year-over-year to $1.189 billion. Volumes grew 23% year-over-year to $59 billion towards the higher end of guidance range. Q4 volume mix was influenced by a few enterprise go-lives with strong seasonal volumes. Blended spreads came in at 57 basis points, influenced by the aforementioned few enterprise go-lives with strong seasonal volumes such as the Alterra, Ikon Pass. This enterprise volume outperformance has an inverse mix shift impact on our blended spreads. That said, our full year 2025 blended spreads delivered in line with our previously communicated guidance of greater than 60 basis points, and we anticipate blended spreads to continue above 60 basis points for the full year in 2026 as well. GRLNF grew 51% to $610 million, which was towards the lower end of our guidance range as the aforementioned outperformance in enterprise did not offset the continuation of Q3's same-store sales trends, particularly amongst SMBs in the Americas region, which were further impacted by late Q4 weather events. Going forward, we will disaggregate our revenue into three categories: one, payments base revenue reported on a gross basis. So it's noteworthy to back out [ network ] to arrive at the relative contribution to GRLNF; two, tax-free shopping revenue; and three, subscription and other revenue. We have consciously chosen to report these three disaggregated revenue categories in order to let investors focus on our North Star growth in payments in -- growth in payments-based revenue and clearly break out the tax-free shopping revenue for transparency as investors acclimate to the performance of this line of business. Adjusted EBITDA grew 48% to $304 million, delivering a 50% margin. Non-GAAP EPS came in at $1.60. Our adjusted free cash flow in the quarter was a record $171 million, representing year-over-year growth of 28% and free cash flow conversion from adjusted EBITDA of 56%. On a non-GAAP per share basis, this results in $1.76 of adjusted free cash flow per share. As of year-end, our net leverage pro forma for the full year effect of Global Blue was 3.4x and includes the effects of our November activity of repaying the 2025 convertible notes, issuing incremental euro-denominated senior notes under our existing 2033 indenture and repricing our term loan generating 50 basis points of run rate savings. Our leverage guidance remains unchanged with a view that the business should not exceed [ $3 to $3.25 ] net leverage on a sustained basis. Now, for full year 2026, we are introducing the following guidance ranges. Volume of $240 billion to $260 billion, representing 15% to 24% year-over-year growth. We are anticipating stable spreads in 2026, remaining above 60 basis points for the full year. GRLNF range of $2.5 billion to $2.6 billion, representing 26% to 31% year-over-year growth. And to help you model our trajectory to 2026, we are introducing a growth algorithm bridge, providing further transparency on the disaggregated GRLNF growth categories. As mentioned, we're reporting disaggregated revenue across three categories: payments-based revenue, tax-free shopping, and subscription and other. Within our payments-based revenue less network fees, we think it noteworthy to appreciate the difference between our two geographic regions. Of one the Americas and two, the worldwide region, excluding Americas. For the Americas market, this is our most mature region where all of our market-leading experience economy commerce solutions are present. And is a market wherein 2026, there will be minimal impact from prior year M&A annualization. In this region, we expect payments-based revenue less network fees to deliver mid-teens percentage growth. We view this growth rate as being more than 3x the baseline growth of the comparable market. The worldwide, excluding Americas REIT market, is our faster-growing market where multiple high-growth themes exist. Such as: one, bringing our market-leading solutions, proven in the competitive Americas market into the region; two, disrupting a largely unintegrated bank-distributed card present market with our proven bundled value proposition that we pioneered decades ago; and three, the region is benefiting from our excess capital allocation through the acquisition of Global Blue and Smartpay, which provide both their attractive business attributes, but also serve as the infrastructure accelerant from which we will deploy our market-leading solutions into the region. In this region, we are expecting high 20 percentage growth. On tax-free shopping, we expect mid-single-digit pro forma growth. We are cautious going into 2026 with a few headwinds that include a weakening outlook on the U.S. dollar relative to the euro, albeit with diverging views across major banks as well as cross-border travel tension in Asia. Additionally, it's noteworthy that the business delivered low double-digit growth last year on the high end of its medium-term outlook range disclosed when Global Blue was an independent public company. And thus is growing over a strong comparable period. On subscription and other, we expect low single-digit growth with quarterly fluctuation as we anticipate less impact from applying our carrots and sticks against acquisitions than in prior years, while continuing to prioritize growth in our core payments based revenue. When you sum these parts, it builds to our guidance range of $2.5 billion to $2.6 billion in GRLNF. We are guiding an adjusted EBITDA range of $1.165 billion to $1.215 billion, representing 20% to 25% year-over-year growth and representing margins of approximately 47%. We are introducing a non-GAAP EPS guidance range of $5.50 to $5.70. Our EPS range assumes an effective tax rate of 26%. We are guiding adjusted free cash flow of $490 million to $510 million. We anticipate free cash flow conversion to moderate in 2026, and average approximately 42% as a result of three factors: one, the annualization of interest expense; two, lower interest income due to relative cash balances; and three, Global Blue related impacts, such as integration investments and the impact of Global Blue seasonality are our year-over-year results, given the timing of the close in the second half of '25. If you isolate the incremental flow-through of adjusted free cash flow, the implied conversion is expected to be 59%. And overall, this guidance includes the close of Bambora because we expect it to take place in the next couple of days. And now for Q1 quarterly guidance. For the upcoming first quarter of 2026, we are introducing guidance as follows: GRLNF of $548 million, adjusted EBITDA of $233 million and adjusted free cash flow of $70 million. Additionally, gross revenue for the quarter is expected to be $1.05 billion. Our shareholder letter materials provide a detailed bridge on these various components to our guidance to help you model these specific impacts. Consistent with our commentary in Q3 earnings, as we looked at our capital allocation options in Q4, we found the most attractive risk-adjusted return was repurchasing our own stock. Between Q4 and year-to-date Q1, we have repurchased 7.7 million shares and now have a remaining $500 million against the $1 billion share repurchase authorization recently announced. In light of the current market environment and the continued opportunity it presents for share repurchases, we think it more appropriate to base the previously stated goal of $1 billion of exit rate Q4 2027 adjusted free cash flow to being viewed on a per share basis through the lens of a long-term owner of the business. Last, on capital allocation. As mentioned, we repurchased a total of 7.7 million shares, of which 4.3 million shares were repurchased during the fourth quarter and the remaining 3.4 million shares were repurchased during Q1 of this year. We have $500 million remaining under our existing authorization. As a reminder, we allocate capital on a comparative assessment basis of our four priorities: customer acquisition, product investment, acquisitions and share repurchases. We've utilized buybacks recently due to the clear relative value. And while our valuation remains attractive, we are mindful of the associated relative value balance and net leverage ratios. Our focus in 2026 will be to continue employing our balanced approach to capital allocation using this relative framework. That said, this quarter, we want to provide investors with insight into our capital efficiency. In our view, the textbook financial formula for value creation is driving sustainable positive spread of return on invested capital or ROIC greater than weighted average cost of capital, or WACC. A couple of key takeaways from this. One, we have a historical track record of value creation. Throughout 2023 and 2024, our ROIC averaged approximately 13%, consistently exceeding the midpoint of our WACC range by 300 to 400 basis points. This demonstrates that our historical acquisition strategy has been accretive not just to top line but to shareholder value. All of this while deepening our durable competitive advantages, scaling and diversifying the business as a whole. Second takeaway. We have been able to maintain this value creation spread across the investment cycle. Even in historical periods of invested capital expansions in our history, we have maintained a positive ROIC over WACC spread, and expect this to continue. Our track record shows that we have been here before and experienced the integration phase of an investment with ROIC experiencing short-term dilution followed by very high incremental returns. Now before turning the call back to Taylor, I want to sincerely thank our fellow shareholders, the broader management team and especially the finance organization for supporting a seamless transition. I'm energized by the momentum we've built and look forward to the year ahead. And with that, let me now turn the call back to Taylor.

Thanks, Chris. And with that, operator, we're ready for questions.

[Operator Instructions] Our first question will come from Darrin Peller with Wolfe Research.

Let me just first start with a question on guidance, and then I'm going to shift to a question on free cash, if that's okay, as a follow-up. But just on guidance. When we look at the outlook you're giving now, and I understand, Chris, you probably tried to build an element of safety and conservatism given the macro uncertainty. So maybe just touch on how you built it up? What the organic assumptions were embedded in it for overall organic revenue growth rates? And how we should think about the potential cross-sell integration in there for the year ahead of us?

Yes. Thanks for that, Darrin. So to kind of unpack the pieces, I think one of the things that we definitely wanted to provide some visibility into is the GRLNF growth algorithm. To give a sense for how some of the parts in our three disaggregated revenue categories are expected to behave in the year -- in the 2026 guide. And so to look at that piece within the bridge in the materials is probably a place I'll reference and cite everyone toward. And within that, you can see that you've got the payments-based revenue piece, split out between kind of the new disaggregation of giving visibility into our two geographic regions of Americas versus the worldwide ex Americas. Then we give our tax-free shopping, which is obviously a new disaggregated revenue disclosure that we'll be providing and give that in -- on a pro forma basis, is expecting that to be on the mid-single digit and then, of course, sub and other. But maybe the incremental piece that you're asking within what's inside of these guidance points might be a bit more related to some of the macro that you're asking about. Did I hear that within your question?

Well, I'm trying to understand really, if you think you've built in a layer of effectively conservatism around macro or even your own bottoms-up assumptions, just given the results last year have been a little challenging versus your prior guide. And so, I'm curious to hear where you build that in? And then again, I understand your subsegments, but as a company-wide, I think we're coming to about a low to mid-teens organic revenue growth rate. I'm curious if that's about right?

Yes. So let me -- so when I think about what is inside of the guide, obviously, you're right to point out that last year had a little bit of a volatile macro backdrop and maybe more specifically within the world of same-store sales in the Americas, so inside of the payments-based revenue piece. And then within sales in store, which is kind of the equivalent of the volume metric in the tax-free shopping, both had exhibited volatility. But the one that probably you're hinting at is the volatility that was the result of the Triple S, mainly in the Americas, amongst SMBs, for example, within restaurants, lodging and retail. Within that, I think what we're looking at in the start of the year is really a tale of kind of like two halves. In the first half of the year, we're anticipating that there's a continuation of the kind of exit rate trends that we were seeing within the Triple S. And that seems to be holding up, because even though we had what looks like a little bit of a continuation of softer trends in January, February was looking strong, but you have to offset some of that with weather events. But I think in total, you end up with a place that says, that's the first half of the year, assume similar trends to what you were seeing coming out of the end of the year. And then in the back half, an assumption that there will be an anniversary over some softer comps, and you see some positive rebound. Overall, though, I think the outlook for the year is a fairly neutral view, which is admittedly a couple of points lower, like low single-digit points lower than what might have existed in years past as we were laying out kind of Triple S impact within an overall outlook for the year. Then I'll take the other opportunity to just say that one of the other variables that we're sort of trying to get our heads around is the concept, is the FX variable and how that impacts the tax-free shopping business. I think we alluded to it a couple of times that the outlook on a weakening USD relative to euro, although has maybe a benefit on financial translation, it has a more negative benefit on demand. And so -- within tax-free shopping. So if there is a continued sort of weakening within USD relative to expectations against the euro, which right now, there's a pretty divergent view even amongst the major banks as to what that weakening looks like. To the extent that, that is a headwind relative to expectations and you could have -- you could have some pressures there, but we're anticipating what sort of in the consensus.

Okay. Just a quick follow-up on free cash. If I understand it right, the interest expense, interest income changes given the combination of buybacks and cash available for interest income and the integration costs are causing free cash to be roughly flat. Was there -- if you could help quantify those variables? And then anything on chip costs or memory costs potentially impacting the free cash guidance this year? I just want to make sure we're still on track for the exit rate of '27 to be the $1 billion range you guys have indicated?

Yes. Thanks, Darrin. So let me unpack three parts. So first, the quantification around each of the components in the building blocks of the free cash flow variance. What we tried to do was provide people in the materials with a bridge page that gives a view on the kind of the year-over-year outlook and guidance around free cash flow. And what you see on that bridge page is -- or in material is the effect of each of kind of the components, the largest of which you pointed out well, right, the annualization of the capital structure, the annualization of the interest expense, that's the largest component there. And then the second largest component is just a reduction in year-over-year interest income as our cash balances on a year-over-year basis are -- because of the variance in the cash balance. As a reminder, like, for example, in Q2 ended our cash balance was sort of artificially high at $3 billion as we are preparing for the close of the Global Blue transaction. So those are your two biggest components within the bridge, and then we highlight integration and investment expenses, et cetera, and other parts related to Global Blue. But the one thing I would highlight within the bridge is that the incremental flow-through of free cash flow is probably the place that absent those interest expense and integration investment type expenses, absent those things, the incremental flow-through on adjusted free cash flow is still running at a high -- like a 59% kind of 60% free cash flow conversion rate. And so I point people to the bridge to just understand the sizing of that. And then the second part of your question in the free cash flow was related to -- sorry, can you just repeat?

It was just whether chips, higher memory costs are impacting...

Yes, thanks for that. So from our perspective, even though we are seeing sort of the back end of inflation and maybe trade-related activity start to kind of abate within some of these cost components, and there are still other factors separate and away from that, that might be impacting hardware costs. Just namely within the supply chain of how payment devices are manufactured and the landscape, the competitive landscape of that within like payment terminals and devices. But for the most part, within our free cash flow, and within our P&L, we're not anticipating like a material change such that anything was noteworthy to call out as it relates to those types of costs. A component that might be different than what you might hear from others, it's just that within how we manage inventory policy, how we flow that all through within our P&L versus our cash flow, those variances and differences to others that exist, might be some of the explanation as to why we're not seeing it in the same way others are.

Our next question comes from Dan Dolev with Mizuho.

Great job here. Really appreciate it. Chris, I know you were asked before about the assumptions for 2026. But can you maybe just elaborate a little deeper on the exact macro assumptions and how you kind of frame the low end and the high end of the guide when it comes to your macro assumptions, I think that would be really helpful. And great job.

Yes, sure. Thanks for that, Dan. So look, I'd say if I was to break out -- if I were to categorize the macro into three parts, there's probably one thinking about the impact of Triple S within really more specifically our Americas and largely impacting SMBs. So think of that as kind of restaurant, lodging, retail. Then there's two, I would say, it's the FX component that impacts the tax-free shopping disaggregated revenue line. And then the third is sort of also impacting tax-free, but it would be kind of just a geopolitical or we'll say, like tensions that we're seeing in some of the markets. So I'll just go back into each of the three and unpack. So on the Triple S, what we were anticipating and what we already talked about was this idea that we have an assumption of a fairly neutral year on Triple S, which relative to years past, might be kind of low single-digit points below, what might have been the trends that we were seeing within the macro. And so that's definitely a point of difference. And that variable certainly is one of the variables that impacts kind of the low to high within the range. I would say, second, embedded within that, even though it's less about the macro effects of Triple S, we have seen some volatility in the weather both in Q4 and most recently within Feb. But those all kind of play into the same Triple S variable. Within FX, I already alluded to it, but it is worth a reminder because I think it is clarifying for some that even though -- about, we'll call it, 1/4 of our revenue to size it are non-U.S. dollar denominated. And therefore, there's a view that a weakening USD has a financial translation benefit. It actually has a greater headwind because of its impact on the tax-free shopping demand. So to the extent there is a weaker USD relative to the euro as for example, on that cross, we are going to have a lighter demand or a negative on the demand side of tax-free shopping between those markets. And so that's something that we're monitoring and we're watching, in particular, because, as I already said, if you go and look at bank forecast, there's a pretty divergent view as to the extent of the USD-euro cross right now. And then the last thing I would just point out, and again, sort of touching more on the Asia segment within -- or the Asian market within tax-free shopping, we are seeing the effect of kind of tourism tension. As for example, passenger seats are down at like almost 30% between China and Japan, and that will have an effect. And so that's just another of the macro variables we're watching. Maybe the last thing I would just say, though, is that a variable that seems to be having less of an effect on the volatility of the P&L is probably the inflationary variable. That does seem like one that is a little more benign, and that's what we're anticipating.

Our next question will come from Timothy Chiodo with UBS.

I want to see if we could dig in a little bit to the fiscal 2026 guide around the spread staying relatively stable and that 60 bps or potentially slightly higher range. I'm assuming that some of that is related to dynamic currency conversion, which I gather has been going well. And I want to see if you could talk a little bit about that assumption in terms of supporting the spread and maybe any of the contributions from either Smartpay or we already have with the Global Blue acquiring business and those spreads. Maybe there's some mix shift factors as well, but really just any of the underlying drivers of the spread staying stable, at least on an overall fiscal year basis? And then a quick follow-up.

Yes, sure, Tim. I'll hit the first part of that and then Chris can layer on. Q4 was slightly anomalous in terms of how it spreads represented itself. So if you recall even back to our last call, we were relatively cautious on the same-store sales volatility we were seeing, particularly in SMB and particularly in restaurants. Those are our highest spread categories from a merchant perspective. Offsetting that was some really nice volume from the enterprise activation. So volume performing okay with spread a little lower than expected. That's somewhat anomalous. And especially as you hear how kind Chris is forecasting the business, it's kind of a muted view on the same-store sales, progress in all those categories throughout the rest of the year. That's one thing that Q4 is slightly anomalous. At the year ahead, I think forecasting a more normalized trend even on kind of these lower same-store sales comps that we're seeing. So that's one thing. Separately, you've heard us talk about this as well, but the real early success we're seeing in Global Blue and really just our international expansion more broadly is in that SMB space where you do expect to earn towards the higher end of your spread averages. So it's not to say we're forecasting a decline in enterprise or anything like that. The reality is, though, when you enter these new markets, the quickest merchants to adopt your solution are at the lower end and that the medium and large merchants come in over the course of the year to 2 years ahead. We tried to illustrate this in our materials. We have 80,000 merchants outside the U.S. The vast majority of those are SMBs, which generate a higher spread. So I think the spread mix is going to be somewhat predictable largely because we're forecasting kind of the average quality of our merchants to be pretty predictable through the...

Yes, I can just add on to. Probably the best way to think about starting from Q4 and looking at that 57 basis points blended spread figure, if you normalize out quite literally three enterprise merchants, you actually end up in the greater than 60 blended spread territory. And the activity there have -- are largely seasonal in nature, but one was actually the benefit of a somewhat unexpected large volume allocation away from a competitor. And so when you have those kind of timing -- those kind of seasonal jumps coupled with the sort of an unexpected positive, you end up with that Q4 spread dynamic, which was a couple of basis points below the 60. When you forecast the business though across all of the different fronts and you factor in the mix shift dynamics slightly towards SMB from a growth standpoint that Taylor alluded to, you get to the place that allows us to guide to the blended spreads remaining stable at north of 60.

Excellent. So it sounds like DCC might not be too large of a component there, but a quick follow-up on DCC. Last quarter you gave a really helpful disclosure in terms of the contribution to net payments revenue from DCC. Is it fair to assume that in Q4 there was directionally in that same ballpark, I believe last quarter, it was around $11.5 million.

I was just going to -- sorry, one thing I was going to say though, Tim, was that, when we talk about the blended spreads across the product, I don't want there to be a takeaway that it doesn't include a positive benefit from -- like FX-based -- FX-based spread revenues such as DCC or other types of products like DCC that are also FX-based. There definitely is a benefit that comes through. And so you're right to point it out as a positive. It's definitely been one of the nice components of having acquired a business like Global Blue, where we now have that capability and competency in-house and are able to kind of bring that into the value proposition and the bundle facing merchants. So I just want to clarify that as a starting point.

Maybe just to illustrate how we're rolling out DCC and it's embedded in our offering internationally. So the blended spread of those merchants would include the benefit of a DCC product, but they're coming in as a net new merchant. So it's not really changing the spread of an existing customer meaningfully outside of the U.S. In the U.S., and this is really no change to the expectations we've set as far back as announcing the transaction. We really want DCC live as product kind of broadly based in the U.S. prior to the World Cup, that's where we see significant benefit. So in the back half is where you could see spreads on existing customers increasing as a result of the benefit of DCC, but I want to be really specific, it's a new product forecasting the relative adoption kind of tricky. It's not widely used in the United States, although you can obviously be pretty optimistic about it when you think about a big international event like the World Cup, and we're focused on making sure, it's live in our hotels and stadiums.

Yes, that's what I was getting at, partially in terms of the U.S. cross sell. So it sounds like a good opportunity.

Our next question will come from Will Nance of Goldman Sachs.

I wanted to circle back on the free cash flow and come back to the bridge that you guys provided. So I think we get most of the moving pieces around interest expense and cash balances. Could you speak to the $30 million of integration and investment spending? How long do you expect that spend to persist? And if we think about the flow-through of free cash flow kind of excluding some of these items, being at 60%, like is it possible we could be north of 60% into 2027 as the integration spend winds down?

Yes. I'll break down, not necessarily in whole dollar terms, but a significant portion of that $30 million is what I would consider in-year integration expense one time. There is a portion where we anticipate building sales teams. And as you know, like when we build sales teams in different geographies around the world, they don't pay for themselves in the first year, they take kind of 1 to 2 years to pay for themselves. So I don't think a significant portion of that line would be recurring, but all of the line would be paying for itself to the extent we hit our sales objectives. This is something we challenge ourselves on pretty constantly. Will, you know probably better than most that our preference is to deploy capital and buy small payments organizations that have a proven track record of selling in one geography or another, and we've executed against that pretty successfully in places like Germany. At the U.K., we anticipate launching in 15 countries with our all-in-one payment product, and it's just impractical to assume that you can find that many interesting M&A opportunities across those countries. So the forecast skews a little bit more towards an organic build than we probably prefer, it takes a little longer, and it costs you to your point, this capital upfront. But in the absence of kind of finding a great sales team locally that we can partner with or we can buy, this is like -- we're not going to ignore the opportunity simply because it requires some fixed cost.

Yes. And Will, maybe just to add, in terms of where you might see some of that line show up within the financials is actually in the form of probably the CAC and the EUL lines within cash flow statement or you'll probably end up seeing some of that. And the reason for that is that we probably expect that when we're newer in a market we'd like to be more aggressive around some of the incentification as you kind of "prime the pump" in entering the market with a differentiated totally new offering and you want to get the potential partners very excited to work with us and embrace the value proposition. So that's just a little bit of extra color on that.

Helpful. Okay. So it sounds like a good portion of that should kind of run off into 2027. And then just a follow-up. You're talking about the kind of organic versus inorganic trade-off. How are you guys feeling about just capacity to do further M&A, particularly given the lower level of free cash flow this year? You thinking about $0.5 billion of free cash flow against $4.5 billion of debt. Just what is sort of leverage capacity today? And is the thought to take a pause on M&A this year as you digest the several large deals from last year?

Yes. Thanks for the question. I'll address kind of the strategic bench, and then Chris can reiterate his comments on leverage ratios and everything else. We have a team dedicated to looking at opportunities. So to say pause or any, it's not really how it works. We get introduced the opportunities, and we evaluate them and we challenge ourselves as to whether those opportunities make sense. And then there is a relative balance of capital. Of course, we think about leverage ratios and how stretched we are, we think about buybacks on a relative basis with those opportunities in front of us. So we evaluate all those things constantly. And Chris can talk about where he is the hammer to say stop. I will say though, in a year like this, we are very focused on smaller, very strategically aligned M&A. So less likely to do something kind of far afield from what we do. But if we can buy a small payment sales team in a particular country, we will do that. Why? Because you're traditionally paying a relatively low multiple, even inside of multiples we trade at today. You're acquiring a team that's got a proven track record of adding customers. You're emboldening that team with your own product and inevitably, they're bringing some batch of customers with them that are quick and easy cross-sell. So we want to reserve the right to do that. I think if we did it, you find that the capital trade-offs are well worth it because it's an upfront and a lot of the timing associated with building is slower. Just by way of example, we did this in the U.K. and within a couple of months, we're adding 1,000 merchants a month. Now that sounds impressive. But if you look at the quality of the organization we acquired, that was a very small organization, call it, 50 people. Their sales prowess was proven. We were able to invest in that confidently. So we'll continue to look. I don't know that these would never be things that hit the radar of kind of an earnings call, but I'd love to buy a small successful team in Spain or Italy or France as opposed to building from scratch.

Yes. The only thing I would probably add to that is that, well, I really like the line of questioning because it connects to concept that I think people have been able that -- have been constantly asking us about, which is how we allocate capital in order to drive or accelerate kind of the strategic initiatives. Your first line of question asking about the integration expenses and us talking about in many respects, growth CapEx, that's going to be inside of our free cash flow bridge. To then follow that up with the ask about how we might be allocating capital in order to maybe acquire distribution assets that further accelerate this international expansion and the launch of brand-new products that are completely differentiated, I mean they're exactly in the line of how we think. The capital that we have to allocate at all points do we view it as a scarce resource regardless of whether we have ample leverage capacity, ample liquidity, ample excess cash flow generation. At all points in time, it all still has a cost, and a relative ability to generate a return. So I don't think that there is much of a change philosophically regardless of where we are because we value the capital so highly. And -- but I do like line of thinking because it really does underscore this core point that we can allocate the capital dollars at initiatives like growth CapEx or we can allocate the dollars at initiatives that acquire us and accelerate into capabilities like distribution in an emerging market.

Our next question will come from Dominic Ball with Rothschild & Co Redburn.

Super clear on the guidance. So looking slightly beyond the quarter and the guidance, many investors are trying to understand what integration success with Global Blue looks like from here. It's harder to see, obviously, from the outside. So -- and Global Blue is such a critical part of the equity story of Shift4. So can you tell us a little bit more about internally what it looks like, any key metrics and when you think you'll start to approach Global Blue retail merchants for that cross-sell opportunity as well?

Yes. Thank you for the great question. I'll start by saying it's already happening. So we have line merchants in multiple countries. We're betting in more. We've got, as I said, the ambition of having kind of being live, so to speak, in 15 countries. Those are companies that Global Blue is already in today, but we don't have a payments offering. To give you a sense of how we view success internally, it's the ability to add several thousand merchants upon towards the back half of this year. Now these are smaller merchants admittedly. And I think the root of your question is important one because traditionally the investors look at volume as the key metric. We don't view that as the key metric internally on the cross-sell. If you look across Global Blue's customer base, it ranges from the LVMHs of the world at the highest end representing -- them and others representing like 80% of the volume. And then there's a really long tail of SMBs, the hypothetical [ Scarlet ] Boutique in Bellagio, Italy, representing 70,000 customers. Those customers are getting this highly differentiated product in our all-in-one terminal that delivers eligibility detection as if you were in the highest quality you may saw in Paris. And so this is the product that's being released most quickly. This is the product that we're investing in local sales teams. And I think it's no surprise, just go to our job postings, and you'll see job postings basically everywhere throughout Europe, looking for sales reps around this product. And quite frankly, it's where Global Blue is a stand-alone business was least equipped. They didn't have a sales force focused on this small -- this really long tail of SMB. So we're building out that sales force. Internally, we've got this kind of mantra that one -- it's our dedicated Shift4 professionals that go into a local country sit in a local Global Blue office and help them build out this capability. And once they have 100 or so merchants under their belt, they pass it off to the regional manager. So we're already seeing the early signs of that success in a handful of countries today, but we want to be doing it in 15 countries. And so we have this internal kind of merchant count focus. And we don't have a volume priority. We just say we know what great payments businesses throughout Europe can produce on a merchant-by-merchant basis, we see a lot of that data internally, and we know that several thousand merchants a month is very reasonable outcome, and that's before you have a lead list like your 70,000 Global Blue customers. So we're very pleased with the internal progress of that. And then separate and distinct from that is visibility, and I mentioned it earlier, so I won't belabor it, to cross-sell DCC into our U.S. base of customers. But in Europe specifically, it is an SMB-oriented sale. It's an all-in-one terminal that is displacing a bank terminal, but with a lot more feature and functionality and to drive higher TFS adoption. As you'd expect, when you walk into a merchant with this product, it adds a heck of a lot of value they adopt it quickly. And we expect, by the way, equal proportion of kind of net new wins and cross-selling existing global good customers as a result of that.

Yes, that's great to hear. And just one more, if that's okay. I mean the future growth of Shift4, as you mentioned, seems very much more international, but a good minority of your existing sort of stock, shall we say, are still in the U.S. and SMBs. A lot of your direct peers in the restaurant space are stepping up when it comes to the direct sales force. It seems like you're now, as you mentioned, rebranded SkyTab as well. Would you follow your peers in terms of a larger direct sales force or more rely on the more traditional Shift4 route when it comes to gateway M&A-driven growth, et cetera?

It's a great question. We have been scaling our sales force, our direct sales force, but in a pretty deliberate and measured way. We have kind of a higher bar for capital allocation around the SMB space, especially in our more mature markets than our peers. So like the idea of chasing them is not a good example. It's actually our Head of Marketing was challenging me around the SkyTab brand and what we could do to elevate it. And I was very candid with him to say, if we look at what our peers spend on sales and marketing, we're not going to come close to that. But the Shift4 brand is a much larger, much more powerful, much more visible one. And so why should we have two different products when we could leverage the Shift4 brand and our presence in the many tens of thousands of restaurants that we're already in. So it's a relatively simplistic move to simplify the product names to lead the part, but I think it will have some meaningful value. And it's just a sign that we have a very, very disciplined approach to customer acquisition cost. We spend far less than our peers, and this still help us. It's a good step to gain incremental progress. We are adding direct sales people to the tune that you mentioned, but with the capital discipline that I think really differentiates us, like we will not chase the capital curve around customer acquisition costs that we see some of our peers doing. And yes, will still grow nicely.

Our next question will come from Dan Perlin with RBC Capital Markets.

I wanted to just touch on maybe the backlog for a second. I think you're implying like $32 billion embedded in the guide, that's down a bit from the $35 billion last quarter. And so the question really is just have we reached a point now where like the burn rate is greater than maybe the net new signings? I know last quarter you installed $6 billion and you signed $6 billion. So just trying to kind of work through that framework a little bit?

Yes. It's still kind of a relatively new disclosure for us as we think about the backlog. And it's a relatively new form of measurement for us. I would say it shouldn't be that much of a surprise for a slight step down when you consider the other comments made by Chris that we experienced more enterprise volume in the quarter than we necessarily expected. And there are chunky enterprises, whether it be Alterra, Ikon Pass is a multibillion-dollar opportunity and a handful of others. So we didn't view this as a change in kind of our relative progress. Keep in mind, most of our SMB opportunity never hits that backlog. But we did see a little bit of, I would call it, enterprise volume that was faster than we anticipated in Q4.

Yes, that totally puts. Kind of staying on that same vein, if you think about the end-to-end volume guide, it's a pretty reasonable band that you guys put out for 15% to 24%. It sounds like this year it's totally more towards SMB versus maybe some of the enterprise that we've seen in the past. And so the question is really just how does that impact the visibility that you might have in terms of forecasting that line item? Or does that not really matter?

Just to clarify that one, Dan, when you say you're referring to the Americas versus the worldwide when you talk about when you set those two numbers?

I was really talking about -- I was really talking about total end-to-end volume, kind of total volume that you guys are kind of calling out $240 billion to $260 billion. And then it sounded like in the way you guys were describing maybe that book of business as you're thinking about it, it sounds like tilting a little more towards SMB this year as opposed to more enterprise maybe in the years past. Is there more visibility that you have or less visibility because it's SMB and so it's trickier. I guess the point is if you have a large implementation for enterprise clients, usually you have those in queue exactly the time lines. SMB can be a little more spotty. So I'm just wondering if that increases or makes it harder to forecast that line.

Well, indulge me why we kind of travel around the world because there are nuances to this. In the Americas, our SMB forecasts are pretty reliable. I mean, again, this is a 28-year-old business. Our SMB presence has never dwindled. The change that you saw in the business over the last few years is that enterprise was entering the mix for the first time. And the relative contribution of enterprise has matured. So again, talking about just kind of the Americas for a second, it's a relatively mature business. Our SMB progress is quite easy to predict. And in the enterprise, to your point, longer lead time, better visibility. And the mix of SMB to enterprise is more mature there. Now when you go outside of the U.S., the SKU is heavily skewed towards SMB. And this isn't because we're strategically limited in any way. This is the reality that SMBs make decisions quickly, same day. The higher you go up in the spectrum, the longer they take to make decisions. So if you follow our shareholder letters over the course of the past couple of years, we only just began internationally a couple of years ago, a lot of SMB-oriented wins sort of the green shoots of larger hotel groups and things like that. Those are just starting to play through in this year, but again, still heavily SMBs skewed. There's one area of guesswork, it is how many SMB merchants can we add internationally over the course of the year. We are anticipating an acceleration there. But to give you a sense for how we predict it, we have a pretty wide swath of data. We act as a payment service provider for large PSPs. So we know what SMB production can look like in good, bad and in different scenarios throughout Europe. And we believe several thousand merchants a month is a very achievable result on top of kind of the 1,000 plus that we've been executing on relatively recently. So I would say yes, you're believing that we can execute against that cross-sell plan and that build out of that sales force. But the numbers that we have are quite grounded and I think a reasonable reality.