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Organization, Basis of Presentation and Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2024
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Organization, Basis of Presentation and Significant Accounting Policies | Organization, Basis of Presentation and Significant Accounting Policies Organization Shift4 Payments, Inc. (“Shift4 Payments” or “the Company”) was incorporated in Delaware in order to carry on the business of Shift4 Payments, LLC and its consolidated subsidiaries. The Company is a leading independent provider of software and payment processing solutions in the United States (“U.S.”) based on total volume of payments processed. Basis of Presentation The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The consolidated financial statements include the accounts of Shift4 Payments, Inc. and its wholly-owned subsidiaries. Shift4 Payments, Inc. consolidates the financial results of Shift4 Payments, LLC, which is considered a variable interest entity. Shift4 Payments, Inc. is the primary beneficiary and sole managing member of Shift4 Payments, LLC and has decision making authority that significantly affects the economic performance of the entity. As a result, the Company consolidates Shift4 Payments, LLC and reports a noncontrolling interest representing the economic interest in Shift4 Payments, LLC held by Rook Holdings Inc. (“Rook”). All intercompany balances and transactions have been eliminated in consolidation. The assets and liabilities of Shift4 Payments, LLC represent substantially all of the consolidated assets and liabilities of Shift4 Payments, Inc. with the exception of certain cash balances, amounts payable under the Tax Receivable Agreement (“TRA”), and the aggregate principal amount of $690.0 million of 2025 Convertible Notes and $632.5 million of 2027 Convertible Notes (together, the “Convertible Notes”) that are held by Shift4 Payments, Inc. directly. As of December 31, 2024 and 2023, $52.0 million and $3.6 million of cash, respectively, w as directly held by Shift4 Payments, Inc. As of December 31, 2024 and 2023, the TRA liability was $365.5 million and $5.1 million, respectively. In connection with the issuance of the Convertible Notes, Shift4 Payments, Inc. entered into Intercompany Convertible Notes with Shift4 Payments, LLC, whereby Shift4 Payments, Inc. provided the net proceeds from the issuance of the Convertible Notes to Shift4 Payments, LLC in the amount of $1,322.5 million. Shift4 Pa yments, Inc., which was incorporated on November 5, 2019, has not had any material operations on a standalone basis since its inception, and all of the operations of the Company are carried out by Shift4 Payments, LLC and its subsidiaries. Change in Presentation of Consolidated Balance Sheets Prior year balances have been adjusted to present “Current portion of TRA liability” and “Noncurrent portion of TRA liability” on their own line items rather than within “Accrued expenses and other current liabilities” and “Other noncurrent liabilities” on the Company’s Consolidated Balance Sheets to conform to the current period presentation. Prior year balances have been adjusted to present “Investments in securities” within the line item “Other noncurrent assets” on the Company’s Consolidated Balance Sheets to conform to the current period presentation. Change in Presentation of Consolidated Statements of Cash Flows During the fourth quarter of 2024, the Company elected to change its presentation of the cash flows associated with “Settlement activity, net” from “Operating activities” to present them as “Financing activities” within its Consolidated Statements of Cash Flows. Prior year balances have been adjusted to conform to the current period presentation. The following table presents the effects of the change in presentation within the Consolidated Statements of Cash Flows:
| Year Ended December 31, 2023
| As Previously Reported |  | Adjustment |  | As Adjusted
Cash flows from operating activities |  |  |  |  |
Settlement activity, net | $ | 42.3 |  |  | $ | (42.3) |  |  | $ | — |
Net cash provided by operating activities | $ | 388.3 |  |  | $ | (42.3) |  |  | $ | 346.0 |
Cash flows from financing activities |  |  |  |  |
Settlement activity, net | $ | — |  |  | $ | 42.3 |  |  | $ | 42.3 |
Net cash used in financing activities | $ | (152.2) |  |  | $ | 42.3 |  |  | $ | (109.9) |
Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include estimates of fair value of acquired assets and liabilities through business combinations, fair value of contingent liabilities related to earnout payments, deferred income tax valuation allowances, amounts associated with the Company’s tax receivable agreement with Rook and certain affiliates of Searchlight Capital Partners, L.P. (together, the “Continuing Equity Owners”), allowance for doubtful accounts, income taxes, and noncontrolling interests. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates. Cash and Cash Equivalents and Restricted Cash Highly liquid investments with maturities of three months or less at the date of purchase are considered to be cash equivalents and are stated at cost, which approximates fair value. The Company’s cash equivalents consist of highly liquid investments in money market funds. On September 30, 2024, the Company entered into the Settlement Line Credit Agreement (the “Settlement Line Agreement”), by and between Shift4 LLC, as the borrower, and Citizens Bank, N.A. (“Citizens”), as the lender, providing for a settlement line of credit with an aggregate available amount of up to $100.0 million (the “Settlement Line”). The purpose of the Settlement Line is to provide financing for certain settlement obligations of Shift4 LLC’s merchants and to eliminate the requirement for cash collateral under the sponsorship agreement with Citizens (the “Sponsorship Agreement”), which was amended in conjunction with the closing the Settlement Line Agreement. The Settlement Line is scheduled to mature on September 29, 2025, subject to extensions. Draws under the Settlement Line bear interest at a rate per annum equal to either (x) a daily simple SOFR based rate (subject to a 0.0% floor), plus an applicable margin of 0.75%, or (y) to the extent required by the Settlement Line Agreement upon the occurrence of certain specified events, an alternate base rate (equal to the highest of the Federal Funds Effective Rate plus 0.50%, the daily simple SOFR rate (subject to a 0.0% floor) plus 1.00%, and the prime rate announced by Citizens from time to time). In addition to making periodic interest payments on the principal amount of outstanding draws under the Settlement Line, the Company is required to pay an unused fee under the Settlement Line in respect of the unused availability thereunder at a rate equal to 0.15% per annum. As of December 31, 2024, there were $73.2 million of borrowings against the Settlement Line. The borrowings against the Settlement Line have been deposited in an account owned and controlled by Citizens. The deposit and borrowing have been netted on the Company’s Consolidated Balance Sheet because a right of offset exists and the parties intend to net settle. The Company’s European and U.K. business includes settlement processing assets and liabilities. These assets primarily include settlement-related cash and funds receivable from card networks. Cash and cash equivalents held on behalf of merchants and other payees are included within “Settlement assets” on the Consolidated Balance Sheet. The changes in settlement cash and cash equivalents are included within “Settlement activity, net” within Financing activities on the Company’s Consolidated Statements of Cash Flows. The following table provides a reconciliation between cash and cash equivalents on the Consolidated Balance Sheets and the Consolidated Statements of Cash Flows:
| December 31, 2024 |  | December 31, 2023
Cash and cash equivalents | $ | 1,211.9 |  |  | $ | 455.0 |
Restricted cash | — |  |  | 84.4 |
Cash and cash equivalents included in Settlement assets | 226.7 |  |  | 182.4 |
Total cash and cash equivalents and restricted cash on the Consolidated Statements of Cash Flows | $ | 1,438.6 |  |  | $ | 721.8 |
The Company maintains its cash with what are widely considered to be high credit quality financial institutions. U.S. cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250 thousand per bank. The Company maintains cash and cash equivalent balances in excess of FDIC limits. Settlement Assets and Liabilities Settlement assets and liabilities are balances related to the settlement process which involves the transferring of funds between card issuers, merchants and other third parties. The Company currently operates under two different models (1) a sponsorship model and (2) a direct member model. In North America, the Company operates under the sponsorship model and outside North America the Company primarily operates under the direct member model. Sponsorship Model In North America, the Company operates under the sponsorship model. In order for the Company to provide payment processing services, Visa, MasterCard and other payment networks require sponsorship by a member clearing bank. The Company has an agreement with banks and financial institutions (the “Sponsoring Member”), to provide sponsorship services to the Company. The sponsorship services allow the Company to route transactions under the Sponsoring Members’ membership to clear card transactions through card networks. Under this model, the standards of the payment networks restrict the Company from performing funds settlement and require that these funds be in the possession of the Sponsoring Member until the merchant is funded. Accordingly, settlement assets and obligations resulting from the submission of settlement files to the network or cash received from the network in advance of funding the network are the responsibility of the Sponsoring Member and are not recorded on the Company’s Consolidated Balance Sheets. Direct Member Model The Company’s European and U.K. business operates as a full acquirer and without a sponsor bank. Under the direct member model, the Company’s Consolidated Balance Sheets include settlement assets and liabilities that represent balances arising from the settlement process which involves the transferring of funds between card issuers, payment networks, processors, and merchants, as well as collateral held to manage merchant credit risk. As a processor, the Company facilitates the clearing and settlement activity for the merchant and records settlement assets and liabilities on the Consolidated Balance Sheets upon processing a payment transaction. Settlement assets represent cash received or amounts receivable primarily from payment networks or bank partners. Settlement liabilities primarily represent amounts payable to merchants. Settlement assets are in excess of Settlement liabilities due to prefunding provided to certain merchants. Amounts included on the Consolidated Balance Sheets as Collateral held by card networks relate to collateral required by the card networks to operate as a direct member. Bank Deposits The Company previously operated a licensed credit institution in Malta, and had issued deposits to corporate counterparties and to individual retail customers. In connection with the Company’s change of the entity from a bank to a payment institution, all deposits were refunded in 2024. Accounts Receivable Accounts receivable are primarily comprised of amounts due from the Company’s customers. Most receivables are typically received within ten business days following the end of the month. In addition, accounts receivable includes amounts due from merchants for point-of-sale (“POS”) software, support services, and other miscellaneous service fees, as well as receivables related to chargeback transactions, as described below. Disputes between a cardholder and a merchant periodically arise as a result of, among other things, cardholder dissatisfaction with merchandise quality, unsatisfactory merchant services, nondelivery of goods or nonperformance of services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the disputed amount is refunded to the cardholder through the acquiring bank and charged to the merchant. If the merchant has inadequate funds, the Company bears credit risk. In North America, the Company’s sponsor bank holds merchant funds that are available to meet merchant chargeback liabilities if the merchant has inadequate funds to the meet the obligation. Total merchant funds held at the Company’s sponsor bank totaled $6.6 million and $9.0 million as of December 31, 2024 and 2023, respectively. These amounts are not recorded on the Company’s Consolidated Balance Sheets. The carrying amount of accounts receivable is reduced by an allowance for doubtful accounts that reflects management’s best estimate of accounts that will not be collected. The allowance for doubtful accounts is primarily comprised of (1) credit risk associated with processing receivables where the credit card or automatic clearing house (“ACH”) transaction to settle the customer accounts was rejected and the Company estimates an amount to be uncollectible (2) transactions disputed by a cardholder in which the Company bears the credit risk (chargeback receivables) and (3) a portion of gateway and other merchant billing receivables for which the Company estimates amounts to be uncollectible. The allowance is based on historical loss experience, any current or forecasted risks identified through collection matters, and current economic trends. Any change in the assumptions used may result in an additional allowance for doubtful accounts being recognized in the period in which the change occurs. Changes in the allowance related to chargeback receivables are recognized within “Cost of sales” in the Consolidated Statements of Operations. Changes in the allowance for all other receivables are recognized within “General and administrative expenses” in the Consolidated Statements of Operations. The change in the Company’s allowance for doubtful accounts was as follows:
| Year Ended December 31,
| 2024 |  | 2023 |
Beginning balance | $ | 22.7 |  |  | $ | 18.1 |  |
Additions to expense | 6.5 |  |  | 9.2 |  |
Write-offs, net of recoveries and other adjustments | (8.2) |  |  | (4.6) |  |
Ending balance | $ | 21.0 |  |  | $ | 22.7 |  |
Accounts Payable Accounts payable are primarily comprised of amounts due to the Company’s sponsor bank, payment networks, financial institutions and other third parties for interchange and processing fees, as well as other third party suppliers and vendors. Inventory Inventory represents credit and debit card terminals, POS systems and electronic cash registers on hand and not in service. Inventory is recorded using the weighted average cost method. Inventory deemed to have costs greater than their respective values are reduced to net realizable value as a loss in the period recognized. Property, Plant and Equipment, Net Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the asset’s estimated useful life. 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. The estimated useful life of each asset category is as follows:
| Useful life
Equipment | 3-5 years
Capitalized software | 3-5 years
Leasehold improvements | 5-10 years*
Furniture and fixtures | 5 years
Vehicles | 5 years
*Not to exceed remaining lease term. Goodwill Goodwill represents the excess of the purchase price over the fair value of net tangible and intangible assets acquired in a business combination. The Company evaluates goodwill for impairment annually at October 1 and whenever events or circumstances make it more likely than not that impairment may have occurred. The Company has determined that its business comprises one reporting unit. The Company has the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of a reporting unit is greater than its carrying amount. The Company considers factors in performing a qualitative assessment including, but not limited to, general macroeconomic conditions, industry and market conditions, company financial performance, changes in strategy, and other relevant entity-specific events. If the Company elects to bypass the qualitative assessment or does not pass the qualitative assessment, a quantitative assessment is performed. Residual Commission Buyouts, Net Residual commission buyouts primarily represent amounts paid to a third-party distribution partner to buy out future residual commission streams that will be owed to them. The typical buyout payment to the partner is comprised of a lump sum payment due immediately and a future contingent payment dependent on attrition rates and/or other financial metrics within the respective merchant portfolios. Contingent consideration for residual commission buyouts associated with asset acquisitions is included in the initial cost of the assets acquired. Subsequent changes in contingent consideration are recognized as an adjustment to the cost basis of the acquired assets. Amortization is computed using the straight-line method. Residual commission buyouts associated with asset acquisitions are amortized over an estimated useful life of four years, and residual commission buyouts associated with business combinations are amortized over a weighted average estimated useful life of eight years. Other Intangible Assets, Net Other intangible assets, net consists of items such as merchant relationships, acquired technology, trademarks and trade names, and capitalized software development costs. The Company capitalizes software development costs in developing internal use software when capitalization requirements have been met. Costs prior to meeting the capitalization requirements are expensed as incurred. Amortization of other intangible assets is computed using the straight-line method over the estimated useful life of each type of asset, which ranges from one to twenty years. Impairment of long-lived assets The Company evaluates long-lived assets (including intangible assets) for impairment whenever events or circumstances indicate that the carrying amounts of such assets may not be recoverable. An asset is considered impaired when the carrying amount of the asset exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If impaired, the asset’s carrying value is written down to its fair value. During 2023, in conjunction with the acquisition of Finaro, the Company ceased development on several in-process software development projects. It was determined that the intellectual property obtained in the Finaro transaction was better suited for the objectives of these projects. The total impairment charge associated with these projects was $18.6 million. Crypto Settlement Assets and Liabilities The Company recognizes a liability accompanied by an asset of the same value to reflect its obligation to safeguard the crypto settlement assets it holds on behalf of users of The Giving Block’s platform. These crypto settlement assets are comprised of numerous cryptocurrencies that are traded on numerous cryptocurrency exchanges. The liabilities and assets are remeasured at each reporting date at the fair value of the crypto settlement assets, which is determined using quoted prices from cryptocurrency exchanges. Crypto settlement assets are recorded within “Prepaid expenses and other current assets” and crypto settlement liabilities are recorded within “Accrued expenses and other current liabilities” on the Company’s Consolidated Balance Sheets. The Company’s agent, which acts as a cryptocurrency exchange and custodian, holds the cryptographic key information of the crypto settlement assets and is primarily obligated to secure the assets and protect them from loss or theft. The Company maintains the internal recordkeeping of the assets. The estimated fair value of the Company’s crypto settlement assets and crypto settlement liabilities was $5.7 million and $3.5 million as of December 31, 2024 and 2023, respectively. Equipment for Lease Equipment for lease represents terminals and POS systems that are provided under the Company’s software as a service (“SaaS”) agreements. Equipment for lease is stated at cost, less accumulated depreciation. Certain costs incurred in connection with the assembly and delivery of leased assets to the merchant are capitalized as part of the cost of such assets. Depreciation commences when new equipment is first deployed to a merchant and is computed using the straight-line method. Equipment is depreciated over an estimated useful life of four years. Leases The Company periodically enters into agreements in which it is the lessee, including office leases and warehouse space. These agreements meet the criteria for recognition as leases under Accounting Standards Codification (“ASC”) 842: Leases (“ASC 842”). Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is reassessed if the terms of the lease are chan ged. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. For these agreements, the Company recognizes an operating lease right-of-use asset and an operating lease liability based on the present value of the minimum lease payments over the non-cancelable lease term. Operating lease expense is recognized within “General and administrative expenses” in the Consolidated Statements of Operations on a straight-line basis over the period of the lease. Revenue Recognition ASC 606: Revenue from Contracts with Customers (“ASC 606”) provides a single model to determine when and how revenue is recognized. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue using a five-step model resulting in revenue being recognized as performance obligations within a contract have been satisfied. The steps within that model include: (i) identifying the existence of a contract with a customer; (ii) identifying the performance obligations within the contract; (iii) determining the contract’s transaction price; (iv) allocating the transaction price to the contract’s performance obligations; and, (v) recognizing revenue as the contract’s performance obligations are satisfied. Judgment is required to apply the principles-based, five-step model for revenue recognition. Management is required to make certain estimates and assumptions about the Company’s contracts with its customers, including, among others, the nature and extent of its performance obligations, its transaction price amounts and any allocations thereof, the events which constitute satisfaction of its performance obligations, and when control of any promised goods or services is transferred to its customers. The Company provides its merchants with an end-to-end payments offering that combines its payments platform, including its proprietary gateway and breadth of software integrations, and its suite of technology solutions. The Company primarily earns revenue through volume-based payment and transaction fees, as well as subscription revenue for its software and technology solutions. Payments-Based Revenue Payments-based revenue includes fees for payment processing and gateway services. Payment processing fees are primarily driven as a percentage of payment volume. They may also have a fixed fee, a minimum monthly usage fee and a fee based on transactions. Gateway services, data encryption and tokenization fees are primarily driven by per transaction fees as well as monthly usage fees. Included in payments-based revenue are fees earned from our international payments platform, strategic enterprise merchant relationships, and alternative payments methods, including cryptocurrency and stock donations. T he Company satisfies its performance obligations and recognizes transaction fees upon authorization of a transaction by the merchant’s bank. These transaction fees represent the full amount of the fee charged to the merchant, including interchange and payment network costs paid to the card brands pursuant to the transactions the Company facilitates through the network while performing an end-to-end payment obligation. The Company’s performance obligation is to stand-ready to provide payment processing services for each day during the duration of the payment processing agreement. Providing payment processing services involves multiple promises including: 1) payment processing, 2) gateway services including tokenization and data encryption, 3) risk mitigation, and 4) settlement services. The Company considers each of these promises to be inputs to produce a combined output of providing a fully secured and integrated end-to-end payment processing service to a merchant. Further, the combination of these services is transformative in nature in that the significant integration allows for front-end and back-end risk mitigation, merchant portability, third-party software integrations, and enhanced reporting functionality. The Company applies the right to invoice practical expedient to payment processing services as each performance obligation is recognized over time and the amounts invoiced are reflective of the value transferred to the customer. Payment processing fees are recognized on a gross basis (gross of network fees) as the Company is the principal in the delivery of the payment processing solution to its merchants because it controls the service on its payments platform. The Company also contracts directly with its merchants and has complete pricing latitude on the processing fees charged to its merchants. As such, it bears the credit risk for network fees and transactions charged back to the merchant. Subscription-Based Revenue The Company also generates revenues from recurring fees which are based on the technology deployed by the merchant. This includes statement fees, fees for the Company’s proprietary business intelligence software and other annual fees, and other miscellaneous services such as help desk support and warranties on equipment. Annual fees are recognized as revenue over the respective period the fee covers, which is generally one year or less. The Company’s SaaS agreements include multiple performance obligations. For such agreements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company estimates standalone selling prices based on the fair value of each product and service. As part of the SaaS fees for its POS systems provided to merchants, the Company identified the following separate performance obligations under ASC 606: (1)Software: The Company provides a “Hybrid Cloud” agreement which includes on-premise software as well as a cloud component. The on-premise solution interacts with the cloud service to provide an end-to-end integrated solution to the merchant. As the on-premise software and cloud-based service are transformative in nature, they are not distinct performance obligations. The revenue allocated to software from the monthly SaaS fee qualifies as a service and revenue is recognized ratably over time as the performance obligation represents a stand-ready obligation to provide the service. (2)Hardware: The Company’s standard business practice is to provide hardware to its merchants as a lease. The hardware is typically accounted for as an operating lease and the revenue allocated to this performance obligation is recognized ratably over the contract term. In limited instances, hardware is sold to the customer. These transactions are typically the result of customer preference. (3)Other support services: The Company offers customers technical support services and the leased hardware. Technical support services include the promise to provide the merchant with software updates if and when available. The Company also provides customers with assurance that its equipment will function in accordance with contract specifications over the lease term. Revenue allocated to this performance obligation is recognized ratably over time as the performance obligation represents a stand-ready obligation to provide the service. Other Revenue Other revenue includes revenue derived from hardware sales, software license sales, third-party residuals, and fees charged for technology support to merchants. Capitalized Customer Acquisition Costs The Company incurs costs to obtain payment processing contracts with customers, primarily in the form of upfront processing bonuses provided to the Company’s internal sales team and to the Company’s software partners, which consist of independent software vendors and value-added resellers. The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if it expects to recover the costs. Capitalized customer acquisition costs are amortized ratably over the estimated life of the customer, which is genera lly four years. Treasury Stock The Company periodically purchases its own common stock that is traded on public markets as part of an announced stock repurchase program. The Company records repurchases of common stock at cost in treasury stock on the Company’s Consolidated Balance Sheets. Upon retirement, the Company allocates the value of treasury stock between Additional paid-in capital and Retained earnings. The Company typically retires all repurchased shares within the quarter of repurchase. Noncontrolling Interests Noncontrolling interests primarily represents the economic interests of LLC Interests held by Rook. Income or loss is attributed to the noncontrolling interests based on the weighted average LLC Interests outstanding during the period. The noncontrolling interests’ ownership percentage will fluctuate over time as Rook elects to exchange LLC Interests for shares of Class A common stock, and as the number of shares of Class A common stock outstanding otherwise changes. Additionally, as of December 31, 2024, the Company had a 75% controlling interest in Vectron Systems AG (“Vectron”). The Company consolidates 100% of Vectron’s assets, liabilities, revenues and expenses. The Company recognized a noncontrolling interest representing the 25% economic interest in Vectron not held by the Company, which amounted to $23.7 million as of December 31, 2024 and was calculated as the number of shares of Vectron’s common stock not owned by the Company, multiplied by the price per share of Vectron’s common stock as of the acquisition date. Equity-based Compensation The Company’s equity-based compensation consists of restricted stock units (“RSUs”) and performance RSUs (“PRSUs”) issued to certain employees and non-employee directors. Equity-based compensation expense is recorded within “General and administrative expenses” in the Consolidated Statements of Operations. The Company accounts for forfeitures when they occur. RSUs Compensation expense for RSUs is recognized on a straight-line basis over the requisite service period based on the fair value of the award on the date of grant. PRSUs Vesting for PRSUs is typically subject to satisfying objective operating performance conditions. Compensation expense for PRSUs is based on the fair value of the award on the date of grant. Compensation expense is recognized during the vesting period only when it is probable that the operating performance conditions will be achieved. The Company records a cumulative adjustment to compensation expense for PRSUs if there is a change in the determination of the probability that the operating performance conditions will be achieved. In recent years, expense associated with PRSUs has been immaterial. Income Taxes Shift4 Payments, Inc. is the sole managing member of Shift4 Payments, LLC, a partnership that is not subject to tax. Any taxable income or loss from Shift4 Payments, LLC is passed through and included in the taxable income or loss of its members, including Shift4 Payments, Inc. Shift4 Payments, Inc. is subject to U.S. federal income taxes, in addition to state and local income taxes with respect to Shift4 Payments, Inc.’s allocable share of any taxable income or loss of Shift4 Payments, LLC. In addition, Shift4 Payments, LLC wholly owns various U.S. and foreign subsidiaries which are taxed as corporations for tax reporting. Taxable income or loss from these subsidiaries is not passed through to Shift4 Payments, LLC. Instead, such taxable income or loss is taxed at the corporate level subject to the prevailing corporate tax rates. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date. The Company recognizes DTAs to the extent it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that the Company is able to realize DTAs in the future in excess of their net recorded amount, an adjustment to the DTA valuation allowance would be recorded, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company records interest and penalties related to uncertain tax positions in the provision for income taxes in the Consolidated Statements of Operations. Basic and Diluted Net Income Per Share The Company applies the two-class method for calculating and presenting net income per share, and separately presents net income per share for Class A common stock and Class C common stock. In applying the two-class method, the Company determined that undistributed earnings should be allocated equally on a per share basis between Class A and Class C common stock. Under the Company’s Certificate of Incorporation, the holders of the Class A and Class C common stock are entitled to participate in earnings ratably, on a share-for-share basis, as if all shares of common stock were of a single class, and in such dividends as may be declared by the Company’s Board of Directors (the “Board”). Holders of the Class A and Class C common stock also have equal priority in liquidation. Shares of Class B common stock do not participate in earnings of Shift4 Payments, Inc. As a result, the shares of Class B common stock are not considered participating securities and are not included in the weighted-average shares outstanding for purposes of basic net income per share. Investments in securities Investments in securities are comprised of the Company’s investments in equity securities. The Company’s investments in equity securities are non-marketable investments which have no readily determinable fair values and are generally measured using the measurement alternative, which is defined as cost, less impairment, adjusted for observable price changes from orderly transactions for identical or similar investments of the same issuer. Investments in non-marketable equity securities totaled $2.5 million and $62.2 million as of December 31, 2024 and 2023, respectively, and are included in “Other noncurrent assets” in the Consolidated Balance Sheets. Adjustments for these investments, if any, are recorded in “Gain on investments in securities” on the Consolidated Statements of Operations. During the year ended December 31, 2024, the Company sold $121.1 million of non-marketable equity securities and remeasured certain of its investments in securities based on secondary offerings of identical securities by the respective companies in 2024. Research and Development Costs The Company expenses research and development costs as incurred. Research and development expenses, which consists primarily of third-party costs, were $4.3 million, $1.2 million, and $0.5 million for the years ended December 31, 2024, 2023, and 2022, respectively, and are included in “General and administrative expenses” in the Consolidated Statements of Operations. Business Combinations Upon acquisition of a company, the Company determines if the transaction is a business combination, which is accounted for using the acquisition method of accounting. Under the acquisition method, once control is obtained of a business, the assets acquired and liabilities assumed are recorded at fair value. The Company uses estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates of fair value are based upon assumptions it believes to be reasonable, but which are inherently uncertain and unpredictable. Measurement period adjustments are reflected at the time identified, up through the conclusion of the measurement period, which is the time at which all information for determination of the values of assets acquired and liabilities assumed is received, and is not to exceed one year from the acquisition date. The Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. Additionally, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information and reevaluates these estimates and assumptions periodically and records any adjustments to preliminary estimates to goodwill, provided the Company is within the measurement period. If outside of the measurement period, any subsequent adjustments are recorded to the Company’s Consolidated Statements of Operations. Concentration Risk The Company’s merchant processing activity in North America is facilitated by one vendor. The Company believes that this vendor maintains appropriate backup systems and alternative arrangements to avoid a significant disruption of the processing in the event of an unforeseen event. A majority of the Company’s revenue is derived from the processing of card transactions. Because the Company is not a “member bank” in North America, in order to process these bank card transactions, the Company has entered into a sponsorship agreement with a member bank. The agreement with the bank sponsor requires, among other things, that the Company abide by the by-laws and regulations of the credit card companies. If the Company breaches the sponsorship agreement, the bank sponsor may terminate the agreement and, under the terms of the agreement, the Company would have 180 days to identify an alternative bank sponsor. Recent Accounting Pronouncements Accounting Pronouncements Adopted In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Improvements to Reportable Segment Disclosures, to help enhance disclosures about significant segment expenses by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in ASU 2023-07 became effective for the Company’s 2024 annual financial statements. The adoption did not have a significant impact on the Company’s consolidated financial statements. In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring the fair value of the equity security. ASU 2022-03 also clarifies that an entity cannot recognize and measure a contractual sale restriction as a separate unit of account. The amendments in ASU 2022-03 became effective for the Company on January 1, 2024 on a prospective basis. The adoption did not have a significant impact on the Company’s consolidated financial statements. Accounting Pronouncements Not Yet Adopted In January 2025, the SEC issued Staff Accounting Bulletin No. 122 (“SAB 122”), which rescinds the interpretive guidance included in SAB 121 regarding the accounting for obligations to safeguard crypto-assets an entity holds for users of its crypto platform. The guidance in SAB 121 required entities that hold crypto-assets on behalf of platform users to recognize a liability accompanied by an asset of the same value on its balance sheet to reflect the entity’s obligation to safeguard the crypto-assets held for its platform users. Therefore, beginning in 2025, the Company will no longer recognize crypto settlement assets and liabilities on its Consolidated Balance Sheets. The adoption of SAB 122 will have no impact on the Company’s Consolidated Statements of Operations or Consolidated Statements of Cash Flows. In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Topic 220): Disaggregation of Income Statement Expenses, which requires additional disclosure of certain amounts included in the expense captions presented on the Statements of Operations as well as disclosures about selling expenses. ASU 2024-03 is effective on a prospective basis, with the option for retrospective application, for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. Besides the additional disclosures noted above, the Company does not believe ASU 2024-03 will have a significant impact on its financial statement disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures, which provides qualitative and quantitative updates to the rate reconciliation and income taxes paid disclosures, among others, in order to enhance the transparency of income tax disclosures, including consistent categories and greater disaggregation of information in the rate reconciliation and disaggregation by jurisdiction of income taxes paid. ASU 2023-09 is effective on a prospective basis beginning in 2025. Besides the additional disclosures noted above, the Company does not believe ASU 2023-09 will have a significant impact on its financial statement disclosures.

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