TOST - Earnings call 3 2023

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Operator

Good afternoon. My name is Cole, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Toast earnings conference call. [Operator Instructions] I'll now turn the call over to Michael Senno, Senior Vice President of Finance.

You now may begin.

Michael Senno

Cole. Thanks, Earnings the Toast's [indiscernible] Quarter Call XXXX. XX, Conference to Third for ended Welcome are Comparato; remarks, CEO, and call session. today's On Chris Gomez, followed our open be CFO, COO, will with will prepared which by Q&A Elena Narang; Aman

like start, your draw statement I'd safe attention press in today's Before release. the harbor to we to included

Act. this we'll make the that forward-looking considered be meaning call, statements of business During within and Securities Exchange the may related to the our

statements, including expenditures, All regarding historical profit statements, financial are forward-looking the quarter operational in operational other of guidance expectations and and growth fourth and our and furute those financial outlook, expected facts management's future including full business for margin year performance outlook, growth, 'XX.

as by as and to only of no forward-looking obligation Forward-looking today, law, or take statements required revise these update statements. our except we reflect views

in to different and filings of a the discussion cautionary refer cause Please results press could language SEC our expectations. release for from our that actual risks and the today's uncertainties materially to

During discuss are substitute certain measures measures. non-GAAP be These to intended not our will call, GAAP results. for we non-GAAP financial this a

and marketing comparable stated, research these to Please earnings detailed measures. of SEC expense the expense, expense revenue, release gross on non-GAAP administrative of general cost all are margin, otherwise GAAP most and measures and gross filings refer reconciliations Unless sales references on to call a for non-GAAP and our to this and and basis. profit development

Relations investors.toasttab.com. with turn over will call, the releases to the me accompanying press this at the investor both presentation, And Investor available our Chris. and be including let call a of replay that, on Finally, website

Christopher Comparato

everyone, Michael. this us Thank you, joining for Thank you, afternoon.

over third delivering grew net efficient on year-over-year. X,XXX XX% ARR objective. been results locations added We durable our and has execution the in and on focus quarter that reflects and growth, Our

million in top scale and adjusted the we $XX balance the with quarter. driving line ] to EBITDA continue [ business, totaled We growth efficiencies as

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As Aman as of will September, we announced CEO in start over the take XXXX.

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Aman Narang

Chris. of team. customers leadership our Toast business, be it what for and, course, is our you, today your Thank the passion without wouldn't and

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up, about the wrap front excited as Chris of To opportunity we're mentioned, in us.

well durable future strong generate in can partner area to and for an on and customers and community, shareholders. to the business [ value our we focused drive are while efficient growth long-term sustained are building being of a that restaurant ] We positioned

of think us, energized without of have. I'm none will opportunity momentum It and the about ahead be to Elena. Toasters. I'll motivated group by A we employees. I And this our off you about I'm possible we the to that restaurant efforts it transform saying this As of tireless individuals talented the that, all with pass to [indiscernible] thank of the special lead as industry. excited and goes

Elena Gomez

employees Thanks, our want Aman, everyone, for for work. also quarter thank you, thank to great another joining. and I incredible of

scalable model, $X innovative a driving significant driving over billion growth With positioned ARR engine growth differentiated all-in-one expansion. at high team level, XX% to continue Our and at forward. to execute continues delivering go-to-market a in well and platform, scale we're going efficient margin business at

continuing ARPU increase $X.XX and in to growth translating ARR on The the growth. XX% year-over-year of revenue was back expansion strong location

profit sixth gross how EBITDA recurring Growth year-over-year. XX. improvement we for margin of points of [indiscernible] year-over-year. XX% adjusted Our our was recurring streams Adjusted with up streams, million, percentage margin [indiscernible] XX fintech exceeded gross profit totaled and subscription consecutive this margin EBITDA we the calculate $XXX a and marks recurring representing million, ] profit [ on gross streams $XX XX% quarter and over of Rule are the

We sustained effect motion. our our flywheel localized over by That go-to-market driven was momentum from in X,XXX net go-to-market locations. adding the QX, primarily

to increase, location rep productivity and year-over-year so local a contributing has As market restaurant solid rep increase tenure SMB adds. in share

serve over the restaurant goal Our been has TAM entire to always time.

across of we over We incremental approach market internationally, are momentum increasingly location growth growth making both up in supplementing and and with sustained progress SMB resulting XX%, locations. down XXX,XXX our even as in

remains primary core Our focus SMB the on segment.

deepened smaller different covers, our enterprise expanding mix We SMB penetration and SaaS and the will broadened internationally, TAM, have and dynamics. and customer GP including across evolve customers

profit. growth Our focus the which as same portfolio to efficient ARR all. that mid-teens growth, to is expand We payout at we is same number Star in economics of plan metric the is and incremental manage maintaining healthy North maximize unit to our ensuring the while months, drive the

growth XX% mid- well SaaS impact have while acquisition SaaS as ARPU with to X% ARPU growth. some live reflecting to SaaS in shift. growth ARR mix continuing balance balance sustained plan cohort third to We on continue and location from upfront to We're we high the we In ARPU. a sales velocity the capitalized ARPU [indiscernible] lower QX digits, as strong year-over-year, location driven in the by increase momentum quarter, single our exit optimize growth location as to grew

long-term Our remains same. the algorithm growth

internationally, come. restaurant as to We breadth restaurant just ARR and for positioned well differentiated the well both ARPU a shoots motion and growth as green over long the with XX% runway traction U.S. increase growing of to stained location have we're platform, go-to-market SMB locations a across locations years healthy proven on of full segments through

ability and innovation the and refining proposition. Similarly, scale value pricing customer product and the in our enhance upsell as we over delivering term packaging, to ARPU our conviction SaaS healthy we count, growth have ongoing to motion through drive scaling customer long

X% both XX% average per Solutions. $XX.X GPV was FinTech $XXX grew down third to processing location year-over-year revenue and respectively. increased and to to quarter profit $XXX billion, Moving million, an million a basis, On gross GPV year-over-year. slightly annualized

the impacted extended was to Similar segments TAM. lap location a of as processing in slight change and as shift year-over-year mix per tailwind we inflation to the we QX, from [indiscernible] GPV the

quarter. slowdown of the since third which have Trends in transaction GPV modest we remained half a In processing addition, the back in the quarter, in saw same-store stable decline then. in in resulted a per volume, location

for at GPV remains current for broader the near the Given year-over-year locations per processing environment [indiscernible] QX. macro GPV mixed, we levels in trends to decline and term remain in

million demand remains On led as nonpayment gross FinTech solutions by quarter Toast Capital, the rates profit the offering healthy default $XX in steady. for contributed and in remain

our allows take to to balanced POS access capital health position with to with prudently to [indiscernible] the while fast, and of access continue We restaurants to our and real-time approach [indiscernible] capital. data grow us a helping customers unique to monitor flexible

basis points XX was basis net was Net fintech XX XX contributing products take points. rate basis points. with rate take Core other

year Absent those impacts, from while onetime benefited a year-over-year. accrual a included the approximately take rate onetime was core prior flat true-up quarter This cost credit.

anticipate to net year-over-year in quarter-over-quarter total rate be and range and we a a similar on core QX, both take basis. In

increased to acquisition revenue more customers Turning hardware. location primarily adding costs. Hardware due due both customer margins to costs. improved lower and ads year-over-year shipping year-over-year, Hardware to existing

Payback business mid-teen takes while incremental within team On our using continuing our for account the new making customer and expenses targeted operating in gross and and our across level grew recurring remain grow costs driving maintaining of healthy to XX% dollar-based the manage months portfolio. period, payback acquisition our a profit and which periods upsell. both into team We on targeted staying marketing investments side, economics go-to-market upsell unit the We're year-over-year. leverage. sales focused

Shifting to R&D.

the XX% highlights also more including locks cafes deeper volume leveraging retail unique incremental bakeries It [indiscernible] Toast restaurant Toast different for of and Toast. offering example quarter. -- needs launch, the product Our year-over-year is customers. penetration serving the innovation product investments another drives to grew for customers revenue in super drive and through our transaction how location for our by of streams third

flat credit-related Excluding result G&A and $XX We've management. on efficiency leverage quarter, expenses related as focus debt million in G&A reserves count seen of capital, was of bad to disciplined and our primarily year-over-year. Toast a the head in meaningful

and streams of our point credit-related streams gross recurring was XXX margin and year-over-year, our XX% profit diligence increased percentage scaling profit and XX%, efficiently we $XX That's Excluding a was in as a in our expenses, result as debt recurring driving line million our a improvement the the and to quarter, marking bad gross In growth going G&A a continue to on of in margin healthy the basis quarter leverage of QX expect adjusted overhead business. seventh EBITDA cost operating of top consecutive total, expansion. percentage forward.

we million EBITDA. margins out. long-term target continue flow in Overall, expect Free to we in leverage adjusted as line towards roughly the we march previously operating cash laid our with building $XX was QX,

As largely based But reminder, working as will EBITDA timing similar follow free payments. over a adjusted cash on of should a time, GPV flow and capital fluctuate trajectory trends.

Now let turn me guidance. to

quarter, $X fourth expected of EBITDA Adjusted $X the to be billion to $X.XX to expect at in XX% range the be in to million. of the For $XX midpoint. million billion, range year-over-year is we growth the representing revenue

to XXXX. we're GPV growth seasonally quarter location in decline into in EBITDA also position expectation sequential QX, per our lower third the the to strengthen slower compared adjusted and GPV for reflects In making to addition our investments the year-over-year heading

adjusted in the grow million at million expect to million, at full in the our continue $XX representing year, midpoint year XX% EBITDA $XXX versus an the midpoint. of last to the be $XX approximately EBITDA revenue improvement to now we expect adjusted to of For range and guidance

We're significant as manner durable accomplished work Toast we up, a the well business extremely in we that the has our long-term us throughout far in of long-term the we us. continue value business to ahead that the generate of of remains that positioned thus delivering wrap to growth delivers and business And on while a this XXXX. are ahead to executing [indiscernible] the shareholders. opportunity scaling To build operating on proud opportunity leverage and customers are driving

Now Q&A. operator to the begin the over I'll call to turn

Operator

[Operator Instructions]

with is UBS. question Tim Chiodi from first Our

Unknown Analyst

within I on ability thoughts want the portion of pricing to business. your your take to touch potential or the core subscription on

year hoping ways different think of pricing an So -- with that and have stand where us others. give could you have competitors was Shopify a update past on pricing terms I taken few Square, in the over Clover, taken in you so that you potential.

Aman Narang

paying for Tim. are question, coming our across it by pricing. as both over in requires we customers will at understand there. looked investment what as of also coming the I'll Toast And Thanks opportunity and see start and customers, in saying time. innovation new see that the calls, our at payments out across are customer previous our SaaS that prices they're product higher distribution at and that said base we've or We'll customers curve terms increase

that over we're can confident so time. increased and And we drive pricing

market in to at and our share how We front if look of transparent package rates. ARPU of also pricing we're fintech value-based the customers. both that price. to soft products at want and offering make aware lever to as we're drive as terms also gain and at sure locations both across target we an opportunity well our to -- you We're in see that important We that opportunity see us

in we're increase term, our ability long to the it. confident prices, in through we're think working and I So

Unknown Analyst

take the around just Intech Great. brief rate. question numbers a is follow-up more of And

ex other nonpayments-related not, a X whether slightly, be capital point or it processors forward, bit payment support of talk And the fintech leverage would take in of it net in some it, fintech the more data that line? the gross believe that the roughly if maybe I center or costs on looking little the about potential with on and line, rate items would accruals to that we there, what the year-over-year maybe or whether just the that of year-over-year. other see rate mentioned some are COGS So up normalize basis was COGS be basis, been a flat you have take

Elena Gomez

scale And position fair rate of can obviously, be operational as with long we core there's through we'll Yes. transaction. term, price, gradually I a investing bigger, our even Thanks, get we'll a increase infrastructure course, trying driving think opportunity have that's over Tim. have cost It's to to that's in And -- And take as excellence the either also and Look, working negotiate to just and negotiating. then pack our disposal. per payments partners drive question. think just we're then both our at our in -- an our I down further. we the leveraging we

the So start as I we over both there's an but time. our of opportunity on think pricing cost things, side optimize also

Operator

question William is Stephen next Our from Blair. with Sheldon

Stephen Sheldon

over first, Aman you And congrats on Chris well, help to of all CEO. and as it accomplished to as taking congrats on

the on said just expected it the down be in some. guidance, you quarter think that's versus Just GPV you in mainly fourth seems sequential third number the a quarter. down to location I in And step per the that's put slight revenue up

can if you visibility about talk of restaurant versus into in that you normal any how much be that? spending, seasonality have revenue weakening may consumer just So

Elena Gomez

sure. Yes,

a So question. most fair it's of it, Stephen,

is late September pre in location, I the saw in commented October. really script, and So which we the something GPV into continuing

calculus. was per primary -- the location is QX. GPV also is seasonally, that But GPV lower in So remember,

recently a same-store sales. the So most both the -- reason we're factors but role, those in trends of seeing reason played is the primary

Stephen Sheldon

Got it.

the keep helpful. of Okay. to growth or wins and of new the recent the maybe need between making there And force to do growth sales significantly location keep talk you you're to think you're sales sequential additions to That's making. last quarters, in upside. when I on adding investments the then you location mix have guess, maybe to headcount And just investments force adding about about you keep quarters? keep sales location

Aman Narang

you if adds Yes. look I Stephen. our Good XX%. Look, location year-over-year, are think up question, net

marketing are back [indiscernible]. terms And cold lot the in we're sales sure making tracking what and towards a Elena so to with investment in of of that And mentioned that. our

I across invest, in think always whether on gain it's of terms to trying be an to continue in trying opportunity that we're are upsell board. areas in. where grow see continue There are think We've it's the be business. we're about to we earlier. international, whether the investing to still right, to business bulk in or business the terms some market where economics But of we're to making coming strategic of the But share new assets. growth and I talked it's is the before, we new to balanced upmarket in managing sure we're overall, enterprise, through our core

Elena Gomez

we're just pipeline showing on to really expectations. would have as our I through, and got on consistent just sales Yes. well. healthy Aman build what said, And add, is strong our execution, to to thanks set to team we've and up that a QX a track

of So I our when growth. big 'XX, all into ARR driver think you which to that be together, put will we're continue acquisition momentum a going that

Operator

from question Sachs. with Will Goldman Our is next Nance

William Nance

or subscription the I also wanted to on the a ARPU ask question side on side.

out now? like You made trend on locations it's playing little coming to color trending on Is per of a like. of a some here? on sounds I'm that's kind ARPU color location And putting TPV on, software mix stuff location, if on. prior sort GPV macro the book are comments down interpreting weighing where per guess of And like aside, smaller looking i.e., using what similar less And shift Any bit front then that quarters, going on I provided that the ARPUs maybe software? right, location, smaller the there how from progresses there's some maybe location. related on just thoughts your per you in

Elena Gomez

Yes, question. fair

at and the core look, in success is opportunities remains frankly, hopefully So our our across our more SMB actually, level, TAM. highest SMB the entire

different as we're So leveraging [indiscernible] so our e-com segments opportunities. growth example seeing And the level, both extended international, zooming progress [indiscernible]. at in as after continues good like dynamics. right we're and But that ARPU get to capitalizing just see a we we're or us we're and to location basis. kind the balancing going right? TAM, going ARR on acquisition really product always that on ongoing great be into of those GPV innovation, highest location And out, is And an ARPU see now we'll earnout momentum. of And

we're front delivering $XXX balancing great trying and motion, those ARR to reframe talked different upsell as land a the question book, I'd of about expand it to -- because a I TAM, and to optimize international we're [indiscernible] extending SaaS So million our in you To think I year-over-year, team. ARR as e-com. lot back we've example. the the is mentioned, actually your And like on 'XX parts

The mix than is couple of quarters a ago. less comparable what are we

our business through and Star how that's for us, really So ARR, North And on operate the and basically. through. we is

rep -- just So ARR and also all comped are reps performance, it's reflect goals. around our financial goals are but also how the

is program ARR on bonus Our growth. company

business truly the as we manage how it's well. So

William Nance

sense. the guess it. I total Got macro then on That makes point. just And

about broadly we consistent space. As which other think softening with same-store companies in sales, the

function about to business -- with the the take combat you prospects. X environment are of to of [indiscernible] sale and where instead any initial sort nature. of softening guess, X, that to say, have you how you some more upfront, things of are get have there are thinking a So buy do to how strategies little in reaction that kind go-to-market an I conversations that? as -- sales difficult you like for like thinking particularly the on mean, less same-store from I get merchants? the "Hey, hardware you maybe I side we're Is going expect potential bit about

Aman Narang

anything our tenure execution as to our as which and customer different. more QX range, the be SMB growth of about is that net the business and SMB growing core seen guidance, is we just continue in markets. continue seen tied that really -- really our density, and core location talked mentioned confident haven't And business. flywheel we we to believe in our you if growing Well, in to look and status, in materially rates, win haven't rep into we these at getting on And in in our we X,XXX our funnel being top we

And of anything to platform. looking to buy less are less our haven't the so customers receptive pipeline we seen to purchasing in Toast suggest or that

Operator

Our next JPMorgan.. question is from Huang Tien-Tsin with

Tien-Tsin Huang

extend And on the all question, side, the given if seen any you Capital maybe your Will's to customers Toast here, a changing side? changing are seeing follow-up consumer haven't Chris on what moderation the best you their you're to behavior of the on here, just credit,

Elena Gomez

question, Thank Yes, question. you the for a Tien-Tsin. fair it's

line in been with expectations. have [indiscernible] Our our

customers. And so -- our and from demand we're seeing healthy

change plans are So our meeting a move lot and program. the we're have around. the very needed overall, healthy to risk formations the That -- in we moment. to. have program It's macro very if were and of our very is to confident controls at all to ability don't throttle a the we way around and said, managing place well program, turn, But program if our the and we healthy also the in quickly expectations the

Tien-Tsin Huang

some thing. hear forcing any seeing more ground? to like in competitors lot we all changing doesn't the those, around but a whether to at of their kind Great Okay. monetization your little or -- really a it's payment like It verticalizing on questions look competition Are if you of it, of you sound change the competitiveness that get strategies bit question.

Aman Narang

a the competitive back a Yes. is than go business of Thanks, data And we this do Look, been growth And anything our built our as carefully. within -- I'll a own lot tied believe always just we've more more up what said had we has market. to this track Tien-Tsin. program we've to else. I just really competitive execution strong to like earlier,

win in as look net if tracking just terms of said, at and our in back by think of own we're activity to tracking That we're really I it adds QX. our pipeline the the just confidence of the the And speaks performance team top a And rates, go-to-market our of you funnel, day. pipeline, go and team competitor. business. our -- just execution every And the being

Operator

next from Our Kupferberg Jason America. is of with Bank question

Jason Kupferberg

seeing to you still ARPU. And on on some revenue, see Toast. will, is revenue growth you robust, upside, here but been that we've the we obviously, just So accustomed from of rate slower the kind if talked about didn't

some that quarter, parts quantify slowed late maybe about as the as QX? you the the And Can any strong same-store in might you quite sales business perhaps have same-store seen call-outs just other I weren't talked that mean in slowdown latter might point. in much of have you how You sales down envisioned?

Elena Gomez

Yes.

coming So that sort In really that into take the talked question guidance your as it's in seeing macro -- the let to October. we start balance per that location particular, September, of for in level, in the me but there's at your you're we lots question, so year reflects the of -- trend, down. about, see the the GPV highest continuing

remains the in into still And the so macro QX year play a healthy, business the momentum the that the But reflects role. out, just zooming have our guidance of we regardless exiting macro.

So alongside as [Audio on cost growth leverage operating a healthy over million And well think Gap] delivered we this driving year. as in $XXX discipline. we've

really of that. So proud

that this but it, management paying course, about of we're to team the despite So of attention the of ahead macro, sentiment doesn't us. opportunity change the

think but position say obviously, the will X going I'll continue us as growth. in really long-term I help got in well, core businesses -- we've our to which we're some business is the us some invest, for to of thing investments emerging

Jason Kupferberg

Right. of there? share seen in just terms then see critical that the the what That can to part I productivity become coming back sort to you still the more you've going even perhaps Anything of you growth an to headroom in upsell just now? they're makes extent team going story And productivity. of think And And gains of the forward. team, Right. sense. size mentioned their you

Aman Narang

we lot team upsell going Yes. and for the is Good and that's new see us. business, question. continue been it to build after mentioned [indiscernible] And as we do in looking Look, team newer, call, mentioned Thanks, for new it opportunity a more and plus. out, this XX think Jason. the years I is an It's refine mature. around as we

of as the growing this of team part terms motion growth between the time. story ARPU in an see new how script, the everything continue I over to we time. mentioned how from there's we think over long expand And the we important in and to of lending term, the optimize that in our We team as restaurants headroom partner

Operator

with Stanley. Baer Instructions] Our question next Morgan from is [Operator Josh

Josh Baer

I on commentary. hoping double-click GPV the was you could per location

seeing the data down far relates trading the to as or number If items into other restaurant as as what just insights provide on of ticket you could it behaviors any or consumer sales.

Elena Gomez

Yes, I'll free and jump take to feel that in, Aman.

So average last steady quarters. the pretty ticket over has actually held several

factor. as that's a much So not

when would October. that we I the quarter say, it's the same-store of really, towards really think saw into is I end And sales.

data. and there's trains that. at as looking yet paying maybe we're yet seen in And we data. not that's we're been factor, seeing attention So -- either in Obviously, frictions, but we're the to past a that our haven't

Josh Baer

expertise, industry follow-up, wanted sticking your longer-term just position ask about the given then And your impacts. you to a view your I on Great. and and the GLP-Xs GPV, near-term, to in

Christopher Comparato

behavior significant We're a remain the indicates Josh, have don't due best impact, laser-focused industry business. to in We technology not their Chris. or manage giving this seeing GLP-X Good anything on is question. change that expect a the Ozempic. we platform to consumer it to and

So at and remain restaurants again, cornerstone consumers confident related a seeing we're to anything for activity will it. not dining

Operator

Our with Baird. last is from Dave Koning question

David Koning

on a Capital. up follow To little Toast about question Tien-Tsin's

tremendous had success. You

the instead of over you growth forward? quarters. You've I'm of expect a last grow X little massive was but this to little core wondering, guess the I going business Xx grown to the do that a sequentially. to handful of kind going closer probably And forward slower quarter

Elena Gomez

Yes. product. last you just that loan added want the XXX-day over year, we to remind I a

to a mindful to a loans. proxy But term, stay is seeing post range lot I as it capital and be the say the We're was in healthy. in a of in probably expect So percentage would back your the similar customers way near it. about I that their demand think a of come is But renew GPV good comparisons. would of

not about we're of at growth all. concern program the so seeing And the any

David Koning

Got you.

just say understood forward growth? going sure right. what as subscription expect And you you I as year-over-year a the QX I Okay. in make ARPU And maybe so, just in if -- want follow-up, Did to well? mid-single-digit to high single-digit

Elena Gomez

commentary around you just digits. some out really high And was My give on in single that. the to the ARPU to texture to was that Yes. to to be QX high zoom mid- actually up

customer As be mix, to some which we overall, we and But we're expect customers ARR, we're for XXX,XXX optimize continue as the gradual. want from momentum. getting locations, to I what with optimizing And that that we upfront we commented to land of impact on earlier.

So that's characterize that. how I'd

term. just One ARPU about the about that, add thinking I'm question. would thinking It's long over to your thing as I

several can all together which our grow out to script, ARPU several and is As things for you his over to which the or group. opportunity there But think the and drive packaging, going what's the [indiscernible], you what whether about that put that's then ARPU it, we XX% expansion. paying whether help value innovation, think levers steadily. next and a we There's we about, terminal just have of about that Today, customers the pricing over than continued is years we more upsell are of growing just that our look ARPU, have we whether of think like? early, about Aman level team, couple which frame zooming us that talked may that's in very see to it's

going grow SaaS growth And continue ARR exit so to as very we over we're and healthy XXXX to we're that time. have confident ARPU

Operator

questions, for remarks. We closing back pass so I'll the to no have further any call team the management

Christopher Comparato

appreciate you And in my for your forward, strong you. our customer Thank have our is well last you're and and Aman Toasters Elena and thoughtful I thank you hands and you, your to with importantly, all point day. base. Thank more wishes. Thank to questions. great a moving

Elena Gomez

Chris. you, Thank

Aman Narang

Chris. Thanks,

Operator

Thank That you participation. your for today's call. concludes conference

You may disconnect your now line.

Toast (TOST) 7 Nov 232023 Q3 Earnings call transcript