Shift4 Payments Inc
For the period ended Jun 30, 2024. Filed Aug 9, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 9, 2024
FOUR$43.96+2.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-10.
0001794669-24-000016
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001794669-24-000026
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 123 previous paragraphs and 151 current paragraphs.
73 unchanged; 31 reworded; 28 added; 18 removed; 1 previous and 19 current paragraphs rearranged.
Tables are not compared: 18 previous and 32 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (28)
Current report
Recent Acquisitions
Current report
Revel
Current report
On June 13, 2024, we completed the acquisition of Revel Systems, Inc. (“Revel”) and its subsidiaries. Revel offers a cloud-based POS system primarily for multi-location merchants, focusing on restaurants, as well as back office and marketing tools that we believe will strengthen our presence within the restaurant and retail markets.
Current report
Vectron
Current report
On June 14, 2024, we acquired a majority stake in Vectron Systems AG (“Vectron”). Based in Germany, Vectron is a supplier of POS systems to the restaurant and hospitality verticals and we believe also provides us with local product expertise and a European distribution network of POS resellers.
Current report
Payments-based revenue increased by $155.7 million, or 26%, compared to the prior year period, primarily due to:
Current report
•The amortization of intangible assets recognized in connection with recent acquisitions.
Current report
Advertising and marketing expenses remained consistent for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.
Current report
The increase in other income was primarily due to transactional gains related to foreign currency in 2024, as compared to losses in 2023.
Current report
Changes in the fair value of investments in securities for the three months ended June 30, 2024 were not significant.
Current report
Results of Operations
Current report
Six months ended June 30, 2024 compared to six months ended June 30, 2023
Current report
Revenues (in millions)
Current report
Payments-based revenue increased by $299.8 million, or 27%, compared to the prior year period, primarily due to:
Current report
•The increase in end-to-end payment volume of $24.4 billion, or 50%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.
Current report
Cost of Sales
Current report
Operating Expenses
Current report
•The amortization of intangible assets recognized in connection with recent acquisitions.
Current report
The increase in other income was primarily due to transactional gains related to foreign currency in 2024, as compared to losses in 2023.
Current report
Interest expense remained consistent for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.
Current report
The effective tax rate for the six months ended June 30, 2024 was approximately (0.5)%, compared to the effective tax rate for the six months ended June 30, 2023 of approximately (14)%.
Current report
(a)For the three months ended June 30, 2024, consisted of $7.6 million of restructuring costs and $6.1 million of acquisition-related costs. For the six months ended June 30, 2024, primarily consisted of $9.0 million of restructuring costs and $8.7 million of acquisition-related costs. For the three months ended June 30, 2023, primarily consisted of $3.8 million of restructuring costs and $2.0 million of acquisition-related costs. For the six months ended June 30, 2023, primarily consisted of $5.8 million of acquisition-related costs and $4.2 million of restructuring costs.
Current report
(d)See Note 13 to the accompanying condensed consolidated financial statements for more information on the TRA.
Current report
•Revenue recognition;
Current report
•Business combinations and the valuation of acquired assets and liabilities;
Current report
•Impairment assessments;
Current report
•Useful lives of equipment for lease, property, plant and equipment, residual commission buyouts, capitalized customer acquisition costs, and intangible assets; and
Current report
•Income taxes.
Removed paragraphs (18)
Previous report
We acquired Credorax, Inc. d/b/a Finaro (“Finaro”) on October 26, 2023. Finaro’s principal activities consist of the provision of integrated acquiring and payment processing services to merchants located in Europe and the United Kingdom, through the development of software to be used for online payment processing and related activities. Finaro provides the acquiring services through Credorax Bank Limited, its licensed credit institution in Malta (the “Bank”). The main activity of the Bank is providing acquiring services to Finaro’s customers. It is a principal member of Visa and MasterCard (the “Card Networks”). It may acquire merchants, issue cards, and carry out all the related activities without the need for sponsorship by another third party. The Bank also accepts deposits and issues loans. Since the Bank is domiciled outside the U.S., all of its banking assets, deposits, revenues and income are associated with foreign activities. In addition, Finaro provides merchants with gateway services, which allow them to securely accept omni-channel payments globally using multiple payment methods and currencies. As part of its gateway offerings, Finaro provides hosted payment pages, anti-fraud services, security services, token management and connectivity to global payment processors including alternative payment methods.
Previous report
Recent Developments
Previous report
On May 8, 2024, our Board of Directors approved a new stock repurchase program, effective immediately. The stock repurchase program authorizes us to repurchase up to $500.0 million of our Class A common stock and will expire on December 31, 2025, subject to the terms of the program, market conditions, contractual restrictions and other factors.
Previous report
Repurchases under the program may be made in the open market, in privately negotiated transactions or otherwise, with the amount and timing of repurchases depending on market conditions and corporate needs, subject to the terms of the program. Open market repurchases will be structured to occur within the pricing and volume requirements of Rule 10b-18 under the Exchange Act. We may also, from time to time, enter into Rule 10b5-1 trading arrangements under the Exchange Act to facilitate repurchases of our shares of common stock under this authorization.
Previous report
This program does not obligate us to acquire any particular amount of common stock. The program replaces any and all prior repurchase programs, and the program may be extended, modified, suspended or discontinued at any time at the Board’s discretion.
Previous report
Pending Acquisition
Previous report
Revel Systems, Inc.
Previous report
On May 8, 2024, we entered into a definitive agreement to acquire Revel Systems, Inc. and its subsidiaries for approximately $250.0 million of total purchase consideration, comprised entirely of cash on hand. We expect the acquisition to close in the second quarter of 2024, subject to customary closing conditions.
Previous report
Payments-based revenue increased by $144.1 million, or 28%, compared to the prior year period, primarily due to:
Previous report
•The amortization of new intangible assets as a result of our recent acquisitions.
Previous report
The increase in other income, net was primarily due to foreign currency transactional gains during the three months ended March 31, 2024.
Previous report
(a)For the three months ended March 31, 2024 and 2023, primarily consisted of $2.6 million and $3.9 million of acquisition-related costs, respectively.
Previous report
(d)See Note 13 to the accompanying consolidated financial statements for more information on the TRA.
Previous report
Stock repurchases
Previous report
Leases
Previous report
As of March 31, 2024, we are obligated under non-cancellable operating leases for our premises, which expire through November 2030. Future rent payments associated with outstanding operating leases total $26.7 million, with $8.4 million payable within twelve months.
Previous report
Bank Deposits
Previous report
Credorax Bank Limited (part of Finaro), a licensed credit institution in Malta, issues deposits to corporate counterparties and to individual retail customers. As of March 31, 2024, there were $50.5 million of deposit liabilities. Upon maturity of these instruments, or certain other events, we would be obligated to make payment to the depositors. We expect the balance of bank deposits to continue to decline during 2024.
Reworded paragraphs (31)
Previous wording
Residual commissions represent monthly payments to third-party distribution partners. These costs are typically based on a percentage of payment-based revenue.
Current wording
Residual commissions represent monthly payments to third-party distribution partners. These costs are typically based on a percentage of payments-based revenue.
Previous wording
Depreciation and amortization expense consists of depreciation and amortization expenses related to merchant relationships, trademarks and trade names, residual commission buyouts, equipment, leasehold improvements, other intangible assets, and property, plant and equipment. We depreciate and amortize our assets on a straight-line basis. Leasehold improvements are depreciated over the lesser of the estimated life of the leasehold improvement or the remaining lease term. Maintenance and repairs, which do not extend the useful life of the respective assets, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from two years to twenty years.
Current wording
Depreciation and amortization expense consists of depreciation and amortization expenses related to merchant relationships, trademarks and trade names, residual commission buyouts, equipment under lease, leasehold improvements, other intangible assets, and property, plant and equipment. We depreciate and amortize our assets on a straight-line basis. Leasehold improvements are depreciated over the lesser of the estimated life of the leasehold improvement or the remaining lease term. Maintenance and repairs, which do not extend the useful life of the respective assets, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over their estimated useful lives which range from two years to twenty years.
Previous wording
Other income, netprimarily consists of other non-operating items. This includes transactional gains and losses related to foreign currency.
Current wording
Other income (expense), netprimarily consists of other non-operating items. This includes transactional gains and losses related to foreign currency.
Previous wording
Unrealized gain on investments in securities represents adjustments to the fair value of our investments in securities.
Current wording
Unrealized gain (loss) on investments in securities represents adjustments to the fair value of our investments in securities.
Previous wording
Income tax benefit (expense) represents federal, state, local and foreign income taxes.
Current wording
Income tax benefit represents federal, state, local and foreign income taxes.
Previous wording
Net income attributable to noncontrolling interests arises from net income from the non-owned portion of businesses where we have a controlling interest but less than 100% ownership. This represents the noncontrolling interests in Shift4 Payments, LLC and its consolidated subsidiaries, which is comprised of the income allocated to Continuing Equity Owners as a result of their proportional ownership of LLC Interests.
Current wording
Net income attributable to noncontrolling interests arises from net income from the non-owned portion of businesses where we have a controlling interest but less than 100% ownership. This represents the noncontrolling interests in Shift4 Payments, LLC and its consolidated subsidiaries, which is comprised of the income allocated to Continuing Equity Owners as a result of their proportional ownership of LLC Interests. In addition, this represents the income allocated to shareholders of Vectron common stock besides us.
Previous wording
(a)Depreciation and amortization expense includes depreciation of equipment under lease of $11.9 million and $7.2 million for the three months ended March 31, 2024 and 2023, respectively.
Current wording
(a)Depreciation and amortization expense includes depreciation of equipment under lease of $13.0 million and $8.2 million for the three months ended June 30, 2024 and 2023, respectively.
Previous wording
Gross revenue increased by $160.4 million, or 29%, compared to the prior year period. Gross revenue is comprised of payments-based revenue and subscription and other revenues.
Current wording
Gross revenue increased by $190.0 million, or 30%, compared to the prior year period. Gross revenue is comprised of payments-based revenue and subscription and other revenues.
Previous wording
•The increase in end-to-end payment volume of $11.1 billion, or 50%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Current wording
•The increase in end-to-end payment volume of $13.3 billion, or 50%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.
Previous wording
Subscription and other revenues increased by $16.3 million, or 45%, compared to the prior year period. The increase in subscription and other revenues was primarily driven by higher SaaS revenue associated with our SkyTab solutions as well as the impact of acquisitions completed in 2023.
Current wording
Subscription and other revenues increased by $34.3 million, or 93%, compared to the prior year period. The increase in subscription and other revenues was primarily driven by higher SaaS revenue associated with our SkyTab solutions as well as the impact of recent acquisitions.
Previous wording
The 28% increase in network fees was primarily due to the increase in payments-based revenue, which also increased 28%, compared to the prior year period.
Current wording
The 24% increase in network fees was primarily due to the increase in payments-based revenue, which increased 26%, compared to the prior year period.
Previous wording
Gross revenue less network fees increased by $63.7 million, or 32%, compared to the prior year period, primarily due to the increase in end-to-end payment volume. See Key Performance Indicators and Non-GAAP Measures for a discussion and reconciliation of gross revenue less network fees.
Current wording
Gross revenue less network fees increased by $92.5 million, or 41%, compared to the prior year period, primarily due to the increase in end-to-end payment volume. See Key Performance Indicators and Non-GAAP Measures for a discussion and reconciliation of gross revenue less network fees.
Previous wording
The increase in other costs of sales was primarily driven by our recent acquisitions and increased software development cost amortization.
Current wording
The increase in other costs of sales was primarily driven by our recent acquisitions and incremental residual commissions associated with revenue growth.
Previous wording
In the future, if we conclude it is probable that we will be able to realize additional tax benefits associated with the TRA, it could result in a material increase to the TRA liability. As of March 31, 2024, we have not recognized the remaining $272.2 million liability under the TRA after concluding it was not probable that we will be able to realize the remaining tax benefits based on estimates of future taxable income. See Note 13 to the accompanying unaudited condensed consolidated financial statements for more information on the TRA.
Current wording
In the future, if we conclude it is probable that we will be able to realize additional tax benefits associated with the TRA, it could result in a material increase to the TRA liability. As of June 30, 2024, we have not recognized the remaining $284.8 million liability under the TRA after concluding it was not probable that we will be able to realize the remaining tax benefits based on estimates of future taxable income. See Note 13 to the accompanying unaudited condensed consolidated financial statements for more information on the TRA.
Previous wording
The effective tax rate for the three months ended March 31, 2024 was approximately 5%, compared to the effective tax rate for the three months ended March 31, 2023 of approximately (21)%.
Current wording
The effective tax rate for the three months ended June 30, 2024 was approximately (3)%, compared to the effective tax rate for the three months ended June 30, 2023 of approximately (10)%.
Previous wording
The effective tax rate for the three months ended March 31, 2024 was different than the U.S. federal statutory income tax rate of 21% primarily due to the income allocated to the noncontrolling interest, the full valuation allowances on Shift4 Payments, Inc. and certain corporate subsidiaries in the U.S., and the lower foreign rate differential in overseas jurisdictions compared to the U.S. federal statutory income tax rate. The effective tax rate for the three months ended March 31, 2023 was different than the U.S. federal statutory income tax rate of 21% primarily due to the income allocated to the noncontrolling interest, the full valuation allowances on Shift4 Payments, Inc. and certain corporate subsidiaries in the U.S., and a $4.8 million tax benefit related to the valuation allowance release due to a legal entity restructuring.
Current wording
The effective tax rate for the three months ended June 30, 2024 was different than the U.S. federal statutory income tax rate of 21% primarily due to the income allocated to the noncontrolling interest, the full valuation allowance on Shift4 Payments, Inc., a $5.2 million tax benefit related to the valuation allowance release on certain corporate subsidiaries, and the lower foreign rate differential in overseas jurisdictions compared to the U.S. federal statutory income tax rate. The effective tax rate for the three months ended June 30, 2023 was different than the U.S. federal statutory income tax rate of 21% primarily due to the income allocated to the noncontrolling interest, the full valuation allowances on Shift4 Payments, Inc. and certain corporate subsidiaries in the U.S., and a $1.5 million tax benefit related to the valuation allowance release due to acquired deferred tax liabilities from Focus POS Systems (“Focus”).
Previous wording
The expense for revaluation of contingent liabilities during the three months ended March 31, 2024 was primarily driven by fair value adjustments to contingent liabilities arising from various acquisitions we completed in 2022 and 2023. The expense for revaluation of contingent liabilities during the three months ended March 31, 2023 was primarily driven by the remeasurement of the contingent liability related to the acquisition of Online Payments Group.
Current wording
The expense for revaluation of contingent liabilities during the six months ended June 30, 2024 was primarily driven by fair value adjustments to contingent liabilities arising from various acquisitions we completed in 2022 and 2023. The expense for revaluation of contingent liabilities during the six months ended June 30, 2023 was primarily driven by the remeasurement of the contingent liability related to the acquisition of Online Payments Group.
Previous wording
The unrealized gain on investments in securities for both the three months ended March 31, 2024 and 2023 was primarily due to fair value adjustments to our non-marketable equity investment in Space Exploration Technologies Corp, commonly known as SpaceX.
Current wording
The unrealized gain on investments in securities for both the six months ended June 30, 2024 and 2023 was primarily due to fair value adjustments to our non-marketable equity investment in Space Exploration Technologies Corp, commonly known as SpaceX.
Previous wording
We use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include: gross revenue less network fees, which includes interchange and assessment fees; earnings before interest expense, interest income, income taxes, depreciation, and amortization (“EBITDA”); and Adjusted EBITDA.
Current wording
We use supplemental measures of our performance which are derived from our consolidated financial information but which are not presented in our condensed consolidated financial statements prepared in accordance with GAAP. These non-GAAP financial measures include: gross revenue less network fees, which includes interchange and assessment fees; earnings before interest expense, interest income, income taxes, depreciation, and amortization (“EBITDA”); and Adjusted EBITDA.
Previous wording
(c)See Note 12 to the accompanying consolidated financial statements for more information on the investments in non-marketable securities.
Current wording
(c)See Note 12 to the accompanying condensed consolidated financial statements for more information on the investments in non-marketable securities.
Previous wording
(e)Consisted of equity-based compensation expense for RSUs, including employer taxes for vested RSUs. See Note 19 to the accompanying consolidated financial statements for more information on equity-based compensation.
Current wording
(e)Consisted of equity-based compensation expense for RSUs, including employer taxes for vested RSUs. See Note 19 to the accompanying condensed consolidated financial statements for more information on equity-based compensation.
Previous wording
We have historically sourced our liquidity requirements primarily with cash flow from operations and, when needed, with debt or equity financing. The principal uses for liquidity have been acquisitions, capital expenditures, share repurchases and debt service. As of March 31, 2024, our cash and cash equivalents balance was $522.9 million, of which approximately $123.4 million was held outside of the U.S. by our foreign legal entities. We also have $57.3 million of funds deposited in a sponsor bank merchant settlement account that is legally restricted and not available for use in operations. This amount is presented as “Restricted cash” in the unaudited condensed consolidated balance sheet. In addition, “Settlement assets” includes $122.3 million of cash that will be used to settle merchant liabilities. The cash included within Settlement assets is typically paid to merchants within a few days of receipt in order to settle related liabilities.
Current wording
We have historically sourced our liquidity requirements primarily with cash flow from operations and, when needed, with debt or equity financing. The principal uses for liquidity have been acquisitions, capital expenditures, share repurchases and debt service. As of June 30, 2024, our cash and cash equivalents balance was $205.0 million, of which approximately $115.9 million was held outside of the U.S. by our foreign legal entities. We also have $74.8 million of funds deposited in a sponsor bank merchant settlement account that is legally restricted and not available for use in operations. This amount is presented as “Restricted cash” in the unaudited condensed consolidated balance sheet. In addition, “Settlement assets” includes $123.5 million of cash that will be used to settle merchant liabilities. The cash included within Settlement assets is typically paid to merchants within a few days of receipt in order to settle related liabilities.
Previous wording
For the three months ended March 31, 2024, net cash provided by operating activities of $56.7 million was primarily a result of net income of $28.5 million adjusted for non-cash expenses, including depreciation and amortization of $66.1 million, equity-based compensation of $22.8 million, and partially offset by the unrealized gain on investments in securities of $(11.0) million and the impact from settlement activity of $(58.3) million. Settlement assets includes both cash and receivables from card networks. From period to period, the mix of cash and receivables included in Settlement assets may change, driving increases or decreases in operating cash flow.
Current wording
For the six months ended June 30, 2024, net cash provided by operating activities of $172.8 million was primarily a result of net income of $83.0 million adjusted for non-cash expenses, including depreciation and amortization of $135.8 million and equity-based compensation of $37.1 million, partially offset by the unrealized gain on investments in securities of $(10.8) million and the impact from settlement activity of $(54.0) million. Settlement assets includes both cash and receivables from card networks. From period to period, the mix of cash and receivables included in Settlement assets may change, driving increases or decreases in operating cash flow.
Previous wording
For the three months ended March 31, 2023, net cash provided by operating activities of $79.4 million was primarily a result of net income of $20.4 million adjusted for non-cash expenses, including depreciation and amortization of $47.6 million, equity-based compensation of $20.9 million, revaluation of contingent liabilities of $7.0 million, and unrealized gain on investments in securities of $(8.9) million. This was partially offset by an impact from working capital items of $(8.1) million.
Current wording
For the six months ended June 30, 2023, net cash provided by operating activities of $171.3 million was primarily a result of net income of $57.2 million adjusted for non-cash expenses, including depreciation and amortization of $97.6 million, equity-based compensation of $34.0 million, revaluation of contingent liabilities of $12.6 million, and unrealized gain on investments in securities of $(8.9) million. This was partially offset by an impact from working capital items of $(24.0) million.
Previous wording
Net cash used in investing acti vities was $39.7 million for the three months ended March 31, 2024, an increase of $8.3 million compared to net cash used in investing activities of $31.4 million for the three months ended March 31, 2023. This increase was primarily the result ofa $9.7 million increase in purchases of equipment to be leased in connection with the growth of the SkyTab POS offering.
Current wording
Net cash used in investing acti vities was $381.5 million for the six months ended June 30, 2024, an increase of $273.5 million compared to net cash used in investing activities of $108.0 million for the six months ended June 30, 2023. This increase was primarily the result of a $265.1 million increase in net cash paid for acquisitions.
Previous wording
Net cash used in financing activities was $29.8 million for the three months ended March 31, 2024, an increase of $22.8 million compared to net cash used in financing activities of $7.0 million for the three months ended March 31, 2023. This increase was primarily due to $20.3 million of bank deposits being returned to depositors and a $3.8 million increase in payments for withholding tax related to vesting of restricted stock units.
Current wording
Net cash used in financing activities was $100.8 million for the six months ended June 30, 2024, a decrease of $14.4 million compared to net cash used in financing activities of $115.2 million for the six months ended June 30, 2023. This decrease was primarily due to a $80.9 million decrease in payments for the repurchase of common stock, partially offset by $70.8 million of bank deposits being returned to depositors in 2024.
Previous wording
In December 2023, the Board authorized a new stock repurchase program (the “December 2023 Program”), pursuant to which we are authorized to repurchase up to $250.0 million shares of our Class A common stock through December 31, 2024. The December 2023 Program replaces our prior program which expired on December 31, 2023. As of March 31, 2024, $250.0 million remains available under the December 2023 Program.
Current wording
In May 2024, the Board authorized a new stock repurchase program (the “May 2024 Program”), pursuant to which we are authorized to repurchase up to $500.0 million of our Class A common stock through December 31, 2025. The May 2024 Program replaces our prior stock repurchase program from December 2023. During thesix months ended June 30, 2024, we repurchased 230,400 shares of Class A common stock for$15.9 million, including commissions paid, at an average price paid of$68.79 per share. As of June 30, 2024,$484.2 million remains available under the May 2024 Program.
Previous wording
We believe that our cash and cash equivalents and future cash flow from operations will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next twelve months and into the foreseeable future based on our current operating plan.
Current wording
We believe that our cash and cash equivalents and future cash flow from operations will be sufficient to fund our operating expenses and capital expenditure requirements for at least the next twelve months and into the foreseeable future based on our current operating plan. Our material cash requirements include the following contractual obligations:
Previous wording
As of March 31, 2024, we had $1,772.5 million of fixed rate debt principal outstanding with maturities beginning in 2025. Future interest payments associated with the outstanding debt total $73.5 million, with $24.0 million payable within twelve months.
Current wording
As of June 30, 2024, we had $1,772.5 million of fixed rate debt principal outstanding with maturities beginning in 2025. Future interest payments associated with the outstanding debt total $63.1 million, with $24.0 million payable within twelve months. In addition, we have $3.8 million of finance lease liabilities.
Previous wording
As of March 31, 2024, the fair value of contingent liabilities to potentially be paid out in cash was $20.3 million, with $18.3 million payable within twelve months. As of March 31, 2024, the maximum amount of contingent liabilities to potentially be paid out in cash was $24.0 million, with $21.9 million payable within twelve months.
Current wording
As of June 30, 2024, the fair value of contingent liabilities to potentially be paid out in cash was $36.6 million, with $17.5 million payable within twelve months. As of June 30, 2024, the maximum amount of contingent liabilities to potentially be paid out in cash was $56.2 million, with $20.0 million payable within twelve months.
Previous wording
Our discussion and analysis of our historical financial condition and results of operations for the periods described is based on our audited consolidated financial statements, and our accompanying unaudited condensed consolidated financial statements, each of which have been prepared in accordance with U.S. GAAP. The preparation of these historical financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Current wording
Our discussion and analysis of our historical financial condition and results of operations for the periods described is based on our audited consolidated financial statements, and our accompanying unaudited condensed consolidated financial statements, each of which have been prepared in accordance with U.S. GAAP. The preparation of these historical financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions and judgments in certain circumstances that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application, while in other cases, significant judgment is required in selecting among available alternative accounting standards the allow different accounting treatment for similar transactions. We consider these policies requiring significant management judgment to be critical accounting policies, which are:
Rearranged current paragraphs (19)
Current report — wording carried from elsewhere
See Note 2 to the accompanying unaudited condensed consolidated financial statements for more information.
Current report — wording carried from elsewhere
The expense for revaluation of contingent liabilities during the three months ended June 30, 2024 was primarily driven by fair value adjustments to contingent liabilities arising from various acquisitions we completed in 2022 and 2023. There were no significant revaluations during the three months ended June 30, 2024. The expense for revaluation of contingent liabilities during the three months ended June 30, 2023 was primarily driven by the remeasurement of the contingent liability related to the acquisition of Online Payments Group.
Current report — wording carried from elsewhere
Comparison of Results for the Six Months Ended June 30, 2024 and 2023
Current report — wording carried from elsewhere
The following table sets forth the consolidated statements of operations for the periods presented:
Current report — wording carried from elsewhere
(a)Depreciation and amortization expense includes depreciation of equipment under lease of $24.9 million and $15.4 million for the six months ended June 30, 2024 and 2023, respectively.
Current report — wording carried from elsewhere
Gross revenue increased by $350.4 million, or 30%, compared to the prior year period. Gross revenue is comprised of payments-based revenue and subscription and other revenues.
Current report — wording carried from elsewhere
•Growth in end-to-end payment volume outpaced payments-based revenue growth, primarily due to our continued onboarding of larger merchants with lower unit pricing than our existing customer base.
Current report — wording carried from elsewhere
Subscription and other revenues increased by $50.6 million, or 69%, compared to the prior year period. The increase in subscription and other revenues was primarily driven by higher SaaS revenue associated with our SkyTab solutions as well as the impact of recent acquisitions.
Current report — wording carried from elsewhere
The 26% increase in network fees was primarily due to the increase in payments-based revenue, which increased 27%, compared to the prior year period.
Current report — wording carried from elsewhere
Gross revenue less network fees increased by $156.2 million, or 36%, compared to the prior year period, primarily due to the increase in end-to-end payment volume. See Key Performance Indicators and Non-GAAP Measures for a discussion and reconciliation of gross revenue less network fees.
Current report — wording carried from elsewhere
The increase in other costs of sales was primarily driven by our recent acquisitions and incremental residual commissions associated with revenue growth.
Current report — wording carried from elsewhere
The increase in general and administrative expenses was primarily due to expenses associated with our growth, which includes the impact of our recent acquisitions.
Current report — wording carried from elsewhere
The increase in depreciation and amortization expense was primarily due to:
Current report — wording carried from elsewhere
•Increased equipment under lease associated with the growth of our SkyTab offering, and
Current report — wording carried from elsewhere
Professional expenses included expenses associated with acquisitions. The increase in professional expenses was primarily driven by higher acquisition-related costs as compared to the prior year period.
Current report — wording carried from elsewhere
The decrease in interest income was primarily due to a decrease in our average interest-earning cash balance.
Current report — wording carried from elsewhere
In the future, if we conclude it is probable that we will be able to realize additional tax benefits associated with the TRA, it could result in a material increase to the TRA liability. As of June 30, 2024, we have not recognized the remaining $284.8 million liability under the TRA after concluding it was not probable that we will be able to realize the remaining tax benefits based on estimates of future taxable income. See Note 13 to the accompanying unaudited condensed consolidated financial statements for more information on the TRA.
Current report — wording carried from elsewhere
The effective tax rate for the six months ended June 30, 2024 was different than the U.S. federal statutory income tax rate of 21% primarily due to the income allocated to the noncontrolling interest, the full valuation allowance on Shift4 Payments, Inc., a $5.2 million tax benefit related to the valuation allowance release on certain corporate subsidiaries, and the lower foreign rate differential in overseas jurisdictions compared to the U.S. federal statutory income tax rate. The effective tax rate for the six months ended June 30, 2023 was different than the U.S. federal statutory income tax rate of 21% primarily due to the income allocated to the noncontrolling interest, the full valuation allowances on Shift4 Payments, Inc. and certain corporate subsidiaries in the U.S., a $4.8 million tax benefit related to the valuation allowance release due to a legal entity restructuring and a $1.5 million tax benefit related to the valuation allowance release due to acquired deferred tax liabilities from Focus.
Current report — wording carried from elsewhere
There have been no material changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Our material cash requirements include the following contractual obligations.