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Shift4 Payments (FOUR +6%) is shifting into high gear following news late Friday this payments processor will join the S&P MidCap 400. We think joining the index is a feather in its cap and a sign that the company continues to grow nicely since its IPO debut in June 2020, when it priced at $23 per share. This positive news was welcome following a Q3 earnings miss last week. However, there have also been a number of high profile wins for the company in recent weeks.

• Since we did not cover its Q3 report in-depth last week, let's take a quick look. Despite facing some consumer softness in spend, FOUR still posted impressive revenue growth of 50.2% yr/yr to $365.1 mln. Unfortunately, that was light of analyst expectations. FOUR was also a bit light on EPS. However, what stood out to us was how profitable FOUR is. It reported huge Q3 adjusted EBITDA margin at a record 51.3%.
• During Q3, FOUR experienced the customary seasonal spending lift in July and August as consumers took vacations and travelled more. However, spending in restaurants moderated and most customers in that vertical were experiencing a roughly -3% decline in same store comps. FOUR also saw some modest softness in other verticals in September as leisure travel subsided in conjunction with back to school.
• Restaurants are a huge vertical for FOUR as its point-of-sale (POS) terminals are used in about a third of table service restaurants in the US. Also, FOUR says about 40% of the hotels in the country are Shift4 customers and a significant portion of the stadiums in the US. As such, its results are impacted by macro issues to a large degree, especially consumer spending levels, inflation, interest rates etc.
• In light of the macro headwinds, FOUR said it was really pleased with what was a reasonably strong Q3. FOUR felt it did a good job executing on the variables that it can control. FOUR was able to post records among volume, gross revenue less network fees, adjusted EBITDA and adjusted free cash flow. It was also one of FOUR's strongest quarters for new logo wins, especially within hospitality. FOUR has also won a lot of stadium deals lately.
• Shift4 was also excited about recently acquiring a majority stake in Germany-based Vectron Systems, one of the largest European suppliers of POS systems to the restaurant and hospitality verticals. The deal brought in 65,000 restaurants that were using Vectron's software but that was not bundled with a payment offering. A key differentiator for FOUR in the US is that it combines software, hardware and payments into one device. Europe has been slower to adopt this bundled approach, so FOUR sees a good opportunity.

Overall, investors are clearly pleased to see Shift4 join the S&P MidCap 400. Index funds will be required to buy FOUR, but the milestone also should raise the company's profile. It also shows how much the company has grown since its IPO debut. Finally, the stock has been in a nice uptrend since mid-May despite the macro headwinds on consumer spend. We think this bodes well for 2025 assuming consumer spend picks up.