Q1 2022 Toast Inc Earnings Call
The second quarter and full year 2022.
Forward looking statements reflect our views only as of today and except as required by law. We undertake no obligation to update or revise these forward looking statements. Please refer to the cautionary language in today's press release, and our SEC filings for a discussion of the risks and uncertainties that could cause actual results to differ materially from our expectations.
During this call we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures.
Yes, otherwise stated all references on this call to cost of revenue gross profit and gross margin settling than selling and marketing expense research and development expense and general and administrative expense are on a non-GAAP basis.
Finally, both the press releases and the replay of this call, including the accompanying investor presentation will be available on our Investor Relations website at investors doctors tab Dot com.
With that let me turn the call over to Chris.
Yes.
Yeah.
Thank you Michael and good afternoon, everyone.
<unk> delivered a strong first quarter coming in well ahead of expectations across the board.
We added a record number of net new locations to our platform as we continue to lead the digitization of the $800 billion restaurant industry and penetrate our $55 billion market opportunity.
Our performance is a function of continued execution on our three core growth drivers increase.
Increasing the number of restaurant locations on our platform delivering product innovations. So restaurants use more of our platform to drive success with all of their stakeholders and deepening our ability to serve all segments of the market.
Despite being one of the largest industries in the world restaurants have been underserved by technology with one of the lowest levels of Digitization of any sector running our restaurants is also incredibly complex and competitive business.
Dominic a tight labor market.
Supply chain constraints and inflation have only magnified the challenges the stakes have never been higher for our restaurant owners to embrace technology to help them improve operational efficiency and increase sales. So they can thrive in this dynamic new world.
Over the next several years, we expect every restaurant to operate on a unified digital platform.
And just like we've seen in other industries restaurants that embrace a digital platform performed better.
As the restaurant industry goes through this wholesale digital transformation, we expect restaurant spend on technology to increase closing the gap with other industries amid this secular shift to digital and the cloud toast is executing on a generational opportunity to become the trusted partner restaurants need.
And to serve as the industry's technology backbone.
We are leading restaurants into a new era of hospitality.
With our laser focus on restaurants, and a proven track record of innovation, we felt the best in class platform that offers restaurants everything they need to win the day.
Delight their guests attract and retain employees manage supplier relationships and ultimately do what they love and thrive we understand the unique needs of restaurants of any size or concept in a way that no. Other platform can and we are adding more capabilities to help serve every segment of the market and expand our reach.
<unk>.
Now turning to our results for the quarter revenue increased 90% year over year to $535 million in the first quarter and <unk> increased 66% year over year to $637 million. This was driven by an acceleration in subscription revenue growth from the addition of new.
<unk> and continued customer adoption of our growing portfolio of products as well as strong growth in <unk> <unk>.
Customers using four or more core modules beyond point of sale and payments reached 60% in Q1 contributing to the robust 103% year over year growth in subscription revenue.
<unk> on our platform increased 98% year over year to $18 billion in Q1 and for the first time ever we exceeded 5000 net new locations in a quarter. We ended Q1 with approximately 62000 live locations on our platform up nearly 45% year over year and.
We're still just scratching the surface of this massive long term opportunity even as our IRR has more than tripled over the past two years. It still represents only about 1% of our 55 billion market opportunity in the U S.
On the back of our strong start to the year, we increased our full year revenue guidance by 6% at the midpoint of the range, which implies 48% year over year growth. We also improved our adjusted EBITDA outlook as we focus on driving efficient growth.
I wanted to add additional context on our investment levels. This year.
Our Q1 results are further evidence of the momentum in our business and the reason we have conviction to invest to capture the massive market opportunity in front of us at the same time the current environment calls for heightened discipline and we're actively evaluating our spend to make sure we scale and are sustainable.
Efficient manner that means identifying efficiency opportunities throughout our business and directing our investments only to areas that drive growth and have a proven return profile. We've shown in the past, we can grow efficiently and deliver profits with a proven go to market approach that games leverage with scale health.
The unit economics, and disciplined cost management, we're confident we will drive sustained strong growth and healthy long term profitability. Our updated guidance implies a margin improvement in the second half of the year and we expect to continue on that trajectory moving forward.
Now I want to turn to how we are executing on our core growth drivers as the restaurant industry undergoes the secular shift to digital and the cloud driving location growth is a key priority and we're leaning into this and a number of ways to build on our momentum we continue to benefit from our proven scalable go to market for me.
The restaurant industry is a uniquely local business and our model feeds on that as we've seen in our most established markets as our penetration increases and more customers in our market experience our superior product offering the number of referrals in inbound leads accelerate creating a flywheel.
Will affect that drives strong and efficient growth, we're investing in less developed markets to build that same flywheel and as we build this muscle broadly across more markets. We expect it to continue to drive efficient location growth.
Not only are we rapidly adding locations we are seeing that our new customers are leveraging more of our products from.
From the onset a strong signal of the demand for our broader platform software our crew for locations booked in Q1 approximately doubled from just two years ago, we've seen strong uptake for our guests modules as we've significantly enhanced our products to help customers cater to the evolving.
Needs over the past two years, our payroll and team management offering is also building momentum and we continue to see a significant opportunity to attach more products to our existing customer base, an important indication of our long term <unk> growth potential.
Let me share with you a few examples of the strong demand we are seeing across restaurant segments.
This quarter, we expanded our relationship with Union Square Hospitality group, which has created some of new York's most beloved restaurants cafes and bars.
Theyre expanding toast 16, total locations, including Gramercy Tavern Union Square Cafe, the modern and their daily provisions concepts. In addition to our tosto handheld point of sale and kitchen operations.
U S. H G will manage their multiple concepts in menu configurations, using our multilocation menu management.
We're also planning on using toast for hotel restaurants to manage their marta location, allowing them to seamlessly charged to hotel rooms during the payment process.
This quarter, we also expanded our nonbank cakes are national bakery chain.
Nothing bunk case expanded its relationship with toast purchasing our product for 70, new locations in Q1, which would increase our partnership to over 500 locations. In the next 12 months. They are using <unk> to drive revenue and helped build a seamless purchase process for their guests.
<unk> are growing fast casual Mexican food chain expanded with toast in Q1, they were alive with toast in 13 locations using our taxco, our toes flex and Multilocation management products and they signed a contract to add several more locations in the next 12 months using all of these products addition.
Holly to koby is adding our kitchen display system and their current locations.
In addition to our broad and growing platform. We also continue to grow our extensive partner ecosystem, which now includes more than a 180 partners across large national food and beverage suppliers technology integration partners and local partners. This quarter, we extended our reseller.
<unk> with U S foods, a leading foodservice distributor that works with approximately 250000 restaurants and foodservice operators, we focused on continuing to strengthen our partner network to give our customers seamless access to every product and service they need further enhancing the value our platform <unk>.
<unk>.
Shifting to product innovation I talked to many of our customers every quarter and a consistent theme I hear is they didn't get into the restaurant industry, because they love technology, but they do realize that the industry is going through a digital transformation and they need a partner who they can grow with so they can do what.
They love that's why we consider toast and extension of R&D for the restaurant industry, we give restaurants, all the tools they need to run their business integrated point of sale and payments mobile ordering and delivery marketing and loyalty team management friction access to frictionless access to capital.
<unk> and a growing array of integrated services to meet the evolving needs of our customers.
We've built an array of products that serve restaurant owners at their core but also create a better experience for all stakeholders in the restaurant ecosystem guests employees and suppliers there tends to be a flywheel between happier employees, leading to happier restaurant guests.
And both contributing to more successful better run restaurants, we're continuing to invest in products to further differentiate our platform by enhancing and deepening the touch points between restaurants, and each stakeholder and with our integrated platform as restaurants add more of our products. It's strengthen.
The the flywheel, creating powerful network effects for our customers.
And supplier management, we're making great progress with our extra shaft product, which provides accounts payable automation and inventory management, which restaurants facing supply chain challenges and inflation. We're seeing just how important it is to help our customers manage profitability by easily comparing the cost of a menu item.
Versus what they're charging and longer term, we have opportunities to expand the services, we offer restaurants in this area and further optimize and automate their supplier management.
Our payroll and team management product speed up employee on boarding simplified payroll and ensure employees are paid on time with restaurants still facing labor challenges, if youre not providing a great employee experience and paying your employees quickly.
It will be more difficult for you to hire and retain great talent, which impacts the guest experience and sales, we believe both selling payroll into our existing customer base and continuing to innovate in this space to help restaurants offer employees, even more services that can differentiate them in this tough labor market.
Represent meaningful growth opportunities going forward.
As we continue to build scale and drive growth in our core segments. Another key growth strategy is to position toast to increase penetration in all restaurant segments and expand to new markets.
With our laser focus on serving in the restaurant industry, we're uniquely able to adapt our platform to meet the specific needs of different types of restaurants. One example from this quarter.
Is targeted for quick service restaurants, we've built an offering that better suits the needs of these restaurants and helps them get result, even quicker as I mentioned, we also announced post for hotel restaurants, a new solution designed to meet the unique needs of hotel restaurant operators post now integrates with several hotel manage.
<unk> software providers, allowing us to better serve this segment.
Focused on continuing to adapt our product and packaging to serve the specific needs of each type of restaurant in order to drive deeper penetration across segments in.
In addition, as we discussed last quarter, we exceeded and initial investments in international this year, we believe our best in class product offerings and go to market approach translates well to other markets, which will enable us to tap into a broader tam and become another driver growth driver longer term.
Before closing I wanted to thank our customers and employees.
The restaurant industry remains resilient, even amid the many macro challenges across the globe and we are incredibly proud to be able to partner with our customers.
As they navigate these challenges.
And thank you to our great employees for helping you get off to a great start in 2022 and built on our terrific operating momentum.
We're still very early in our journey and we're confident that by continuing to relentlessly execute on our strategy will create significant value for our customers and shareholders.
Over the long term.
Finally, before I pass the call over to Elena to go through our financials.
I wanted to congratulate her on her one year anniversary at post what an incredible year it's been.
Elena I am excited to partner with you on this journey ahead and now Elena I will turn it over to you.
Thanks, Chris that one year went really fast and equally I'm excited about the partnership and thank you everyone for joining to start I wanted to Echo Chris' I'm thinking both our customers for their continued partnership and the entire tools team, whose dedication and tireless work led to another great quarter.
Thanks to them that we got off to a great start in 2022 coming in ahead of our expectations across our key metrics. This is evidence of our solid operating momentum and the power of our industry leading platform. We're still in the very very early stages of this massive opportunity to provide restaurants with all the.
Products and services, they need as the industry transition to digital and navigate new challenges.
As Chris mentioned, the number of net new locations added to our platform accelerated in Q1 to over 5000, and we ended the quarter with approximately 62000 locations.
Driving location growth that is one of our key priorities and we're investing to build on this momentum and continue to efficiently increase our market penetration.
Total revenue grew 90% year over year to $535 million and air are hit $637 million as of the end of Q1 up 66% from last year.
As we discuss are our is our core operational metrics and the best indication of our underlying growth and we continue to see healthy trends in both our recurring revenue stream.
And payments, which underpin our growth.
Subscription services revenue growth accelerated to a robust 103% in the first quarter driven by a strong growth in new locations as well as increasing adoption of our portfolio of SaaS products by new and existing customers.
As of March 31, 2020% to 60% of our total locations News Corps are more core product on top of our integrated Pos and payment solution compared to 51% a year ago, reflecting the benefit of our continued product innovation.
With customers using more of our end to end platform. Our SaaS Rpms continued to increase at a healthy clip, but growing our two is particularly evident in our new location. The average first RFP for new bookings in Q1 has more than doubled in just two years to nearly 6000.
<unk> continue to adopt more of our products are booking.
In addition, we still have meaningful opportunity to drive deeper product adoption, among our existing customer base overtime.
We believe the trends in new booking and the upsell opportunity quite until a long runway to drive continued <unk> growth.
One example is the growing adoption of our payroll product, which Chris alluded to in Q1, approximately 30% of our total bookings included close payroll on initial sale up from 15% last year.
Seeing early benefits from expanding our sales effort to focus on existing restaurants that switch to the <unk> platform.
In addition, the majority of new restaurant openings coming onto our platform continue to attach to us payroll at the time of booking.
We're still early in this opportunity and it's an example, where we can.
To increase attach rates up booking and drive up sell to existing customers to drive further growth.
Longer term, we have the potential to layer on more features and services for our restaurant employees.
Our customers differentiate themselves in a tight labor market, while unlocking incremental monetization on our platform.
Moving to the financial Technology solutions revenue grew 93% to 438 million Fintech solutions gross profit, which is net of payment transaction costs and what we operationally as well operationally is the second component of our recurring revenue was $91 million in the quarter, a 66% year over year.
That was driven by <unk> growth of 98% to $18 billion.
<unk> GTD per processing location remains strong at an average of $1 2 million as a reminder, we typically see seasonally higher GP per processing location in the second and third quarter.
As we noted last quarter, our debit and credit mix with return to pre COVID-19 trends, while the mix of card not present volume continues to moderate with consumers, increasing increasingly returning to dining and restaurants.
Total gross profit grew 38% year over year, and 23% quarter over quarter to 101 million gross margin improved by over 250 basis points compared to Q4 to 18, 9% boosted by improvements across our subscription services and tech solutions and hardware margins looking at our recurring revenue.
Subscription and Fintech gross profit of $135 million or 73% increase year over year, reflecting the strong customer growth and healthy increases across both SaaS and Fintech solutions.
Turning to our customer acquisition costs, we're focused on maintaining efficient unit economics, as we invest to scale the business and our track record of attractive payback periods continue to give us the confidence to lean into the significant opportunity in front of us.
As a reminder, operationally, we manage our hardware and professional services gross profit of customer acquisition cost hardware costs remain elevated and increased year over year due to higher freight and product cost related to supply chain dynamics compared to Q4 hardware cost improved quarter over quarter of trade expenses decline off peak level.
And we benefited from one time adjustments were.
We're in the process of strategically increasing our hardware inventory, enabling us to shift to a lower to lower cost shipping methods, while continuing to deliver product to our customers in a timely manner.
While we expect hardware costs to remain high over the next few quarters, we believe they will normalize over time.
Leverage lower cost shipping methods and focus on optimizing other parts of our supply chain.
Sales and marketing as our other customer acquisition expense after reducing our sales force at the onset of Covid, we're investing to rebuild the team in order to continue to drive market share as part of that in Boston, We are strengthening our presence in less penetrated areas. The power of our go to market approach is that we increased market share in a territory.
We see increasing inbound leads to referrals and from brand awareness, resulting in higher productivity for our sales reps that flywheel effect enables us to scale efficiently as we gain traction and we're investing to build the foundation to kick start that flywheel and more and more markets.
Even as we increased investment in sales and marketing we've maintained consistent efficiency, we believe measuring sales and marketing expense as a percentage of recurring revenue is the best indication of how we're executing sales and marketing as a percent of recurring revenue to decline significantly after the cost cuts in the first half of 2020 and has now.
Held in the same range seven quarters since then.
Driven by an increasing number of new locations or adding to the platform each quarter and continued growth in <unk>. This is this gives us further conviction to lean into the large opportunity we have ahead.
As we do so we continue to manage our unit economics, and we're confident that as we gain scale will deliver leverage on our sales and marketing cost overtime.
Moving down the P&L, we're also investing in research and development to build out our platform. This includes deepening the integration and features on your products like payroll and extra shot, which we believe represents strong monetization opportunity longer term. In addition, as Chris mentioned, we're adding capabilities to better serve different restaurant segment, which will push.
And I could penetrate segments were where we've typically had less of a problem.
Similar to last quarter, the increase in general and administrative costs were mainly due to public company related expenses.
Overall, adjusted EBITDA of negative $45 million in Q1 was better than our expectations. The outperformance reflects continued strength in <unk> and <unk> revenue growth. In addition to the progress on reducing hardware costs as we navigate the challenging macro environment.
Now, let me turn to guidance for the second quarter, we expect revenues to be in the range of 635 million to 665 million, which represents 53% year over year growth at the midpoint, we expect adjusted EBITDA to be in the range of $60 million to negative 59 four.
For the full year, we're increasing our revenue expectations by 6% at the midpoint to reflect the momentum in software revenue growth and our expectation for GB G PD growth to remain strong.
We now expect full year revenue to be in the range of $2 5 billion to $2, five 5 billion, which represents 48% year over year growth at the midpoint.
Following our strong Q1 performance. We're also raising our adjusted EBITDA guidance to be in the range of negative 195 million to negative $175 million for 2022.
Reflects the targeted investments, we're making across sales and marketing and research and development could drive the core growth strategy of critical highlighted.
Given the critical demand for our products growing our too as customers do more with us and the massive market opportunity in front of US. We're confident that these investments will deliver strong returns.
While these investments are resulting in higher burn today make no mistake, we remain focused on working towards long term profitability in the current environment has only increased urgency.
<unk> actively driving efficiencies across the company and tightly managing all discretionary spend in order to help fund our key growth initiatives, while improving profitability.
Making sure we have a lean cost structure is a priority it will enable us to stay nimble as we rapidly grow and gain operating leverage with scale our guidance implies that EBITDA margins will improve by 200 basis points in the second half of the year compared to the first half and we're positioning the business to continue to deliver consistent margin improvement.
With durable top line growth in 2023 and beyond.
In closing we're off to a great start in 2022 evidence of our strong execution and industry leading platform. The restaurant industry is going through a generational shift to digital and our priority is to further cement our leadership position as the trusted platform of choice for the restaurant industry, we believe through our portfolio.
Oh of offerings, we can help restaurant food sales improve efficiency retain employees and thrive in one of the most competitive industry and as we execute on that we believe it will translate into strong durable growth and healthy profit over the long term.
Now I'll turn the call back over to the operator to start our Q&A.
Thank you Elena.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on itself from keypad.
I'll pause here for just a moment to compile the Q&A roster.
Your first question is from the line of Tien Tsin Huang of Jpmorgan.
Tim Your line is open.
Okay. Thank you so much really great results here and I appreciate all of your comments, Chris I wanted to ask about your I think I wrote down here driving efficient growth.
<unk> tightened disciplined those kind of things I think you also talked about.
Watching discretionary spend can you just elaborate on what that might look like.
What investments are non negotiable for you in terms of growing.
Where you might see a little bit of.
Bill tightening if you want to call it that thank you.
Yeah, Chris I can comment that for sure I can make and you can add.
Sure.
At the highest level of great questions.
You know things that are non <unk>.
Not not something we would.
Not in Boston right, we're going to really focus continue to focus in and sales we're going to continue to focus in R&D, we're going to focus on areas that really drive high ROI. That's really important it's non negotiable for us to not go after this market opportunity given the momentum we're seeing given the signals that we're getting from our customers.
Et cetera. So those are non negotiable trust areas, where we're focused on discretionary.
Managing tightly are things such as overhead discretionary expenses of course are typical <unk> type of things and also over time really trying to gain leverage in our G&A function.
Yes.
Perfect. Thank you for that my quick follow up just the 2000 net new locations records head of where we had.
Can you keep it up does that nominal level sustainable given what you see any callouts on churn or.
Types of restaurants or channels that did especially well thank you.
Yes, so I can tell you.
My answer is that.
Okay, I was going to say absolutely.
We believe we're grabbing market share in multiple segments of our core segments. Our core SMB segment is performing extremely well and it continues to drive the largest portion of opportunity and then we're continuing to see success upmarket in Midmarket and enterprise and we're seeing some pull in that market.
So we absolutely believe that we can sustain the growth that we're seeing on location acquisition I'll remind you that we're still very early in our Tam penetration today, we're only about 7% of the 860000 restaurants across the U S.
So we're certainly.
Focused on consistent execution on our unit economics tell us that we should continue to go fast on that lens.
Yes.
Excellent I appreciate it thank you.
Thank you Tim from the next question is from the line of Stephen Sheldon with William Blair. Steven Your line is open.
Hey, Thanks for taking my questions.
Wanted to I wanted to kind of follow up on the location additions great results. There and you just talked about some areas seeing growth.
Curious if you've seen any changes on the churn levels. I mean, I think you have some natural churn just given the heavy weighting towards F&B, but.
Your customers I think fared significantly better than industry average during the pandemic. So curious if you've continued to see moderation, there and just general outperformance versus industry averages.
Yes, we are we've actually not seen that and we've actually seen churn remained low something we're really proud of and it's just a testament to the power of the platform.
So we're really encouraged by the fact that churn has remained relatively low.
Got it.
That's great to hear.
On the expansion into <unk> I guess from a product side are you needing to build out or develop anything new to support these customers and I guess just as an example poorly gsr's have a much bigger focus on drive throughs. So just curious what the expansion into <unk> could mean, when you think about the product roadmap.
Okay.
Yes, so we have a solid kyocera customer base today, but we feel we have the potential to grow faster.
Moving forward. So think of think of the platform as we have this restaurant breadth and depth platform, but now we're adapting it to specific segments.
To further accelerate our growth so take <unk>, it's basically a tailored set of products that are packaged and priced and.
In a way that makes sense for <unk> businesses, so tying mobile ordering.
To KBS and then the ability to SMS text message a guest when the order is ready that's a super fast flywheel and were seeing results, where restaurants are telling us are good. Examples there is a restaurant chain called belt at Taco.
On us when they apply that packaging and configuration to their concept, they're increasing throughput by more than 20%. So really think about our segmentation work as adopting the platform to be really concept specific which allows these concepts to then move faster. So that's really what's.
Happening with the segmentation strategy, which is.
<unk> is just one example, toast our hotel restaurants is yet another example.
It's great to hear congrats on the results.
Thank you Steven.
Next question is from the line of Timothy Chiodo of Credit Suisse. Timothy Your line is open.
Yeah.
Great. Thanks, a lot for taking the question I wanted to ask about what's implied in the guide in terms of the payback periods have been incredibly impressive and stable I was just wondering if you would just give a comment on what might be implied there for that stability for the rest of the year, particularly in light of the comments that you made around some of the cost savings initiatives in terms of the shipping cost that you might be looking at.
And also the potential for the hardware cost to normalize maybe not this year, but over time, thanks a lot.
Yes, great question. Thanks.
We actually have very healthy payback periods and consistent with what we've and that's despite the elevated hardware cost that we've experienced over the last couple of quarters. Our goal as I mentioned in the last call continues to be to be in the mid teens and we have confidence we'll be able to accomplish that through.
This year.
Excellent. Thank you and a very helpful and a follow up is on the financial technology solutions take rate it was a little bit higher than maybe some of US would have expected maybe you could just comment on was there anything that came through there maybe from the capital side that might have contributed or is that really just more of the pure payments that take rate was a little bit higher than maybe we had forecasted.
Yes, that's helped US capital continues to be just not material for our total results, but but as I mentioned.
Some of the debit and we had a little bit higher debit in Q1 than typical.
That's really the <unk> the.
The dynamic that is.
Causing our take rates to see what it is I would just tell you that we believe that take rates that you see in Q1 is a reasonable take rate for the for the near term and then I would always just take this opportunity to make sure to zoom out and just think about take rate is just one dimension of our business right. We really think about our business beyond <unk>.
Right and you saw the performance in our SaaS business as well. So I would just encourage you to look at the broader picture beyond take rate.
Excellent really helpful looks like there might have been something else there, but that's really helpful to clarify thank you.
Sure.
Thank you Timothy the next question is from the line of Josh Baer of Morgan Stanley Josh Your line is open.
Great. Thanks for the question and congrats on a great quarter wanted.
Wanted to talk about <unk>.
I guess to what extent from from your data.
Where restaurants are able to pass on some higher cost to their customers and just thinking about the benefit to you as far as your payments revenue stream from GPP.
And then I have a follow up.
Yeah, we had that so thanks for the question, we've seen really healthy <unk> per processing location and obviously.
We know that it's an inflationary environment and we're seeing our customers.
Play with pricing, but really the demand has been really strong. So we're encouraged by that.
That's really what is reflecting in our and our confidence in our guide but also.
Strong execution in Q1, and really strong demand all the way around.
Great.
That's clear, especially given omicron impacts or rail in January in Q1, I guess on the strong guide.
Maybe thinking month to month throughout Q1 or into April or even into May just wondering if you are seeing any signs of consumer weakening just given the focus on macro environment and inflation.
And thinking about.
Forward expert expectations on GPP.
I can jump in yeah. So.
We've not seen any.
Material impact.
On the current sort of macro trends there is no evidence of a slowdown from our perspective on restaurant spend in fact like we feel restaurants are seeing healthy demand from consumers.
A good example is dine in if you look at restaurants across the U S. Running toast dine in is up 46% year over year from Q1 of 2021 to Q1 of this year. So that's a really healthy dynamic that tells us that consumers are going back into restaurants.
And doing it quite frequently.
Especially post Covid. So we think that trend will continue and we think the consumer demand is high and we believe that restaurants have pricing power to play with pricing to continue to serve those consumers. So we don't see any.
Any evidence of a slowdown or a material risk on that front.
Very helpful. Thank you.
Thank you Josh. Your next question is from the line of will Nance with Goldman Sachs. Your line is open.
Hey, guys good afternoon or good evening, thanks for taking my question.
I wanted to maybe ask a few questions on the efficiency initiatives that you guys talked about obviously very nice to hear particularly.
Particularly in the current environment.
Taking a second look at spending so that'll be well received I guess my question is more longer term and I totally get that investing in profitable growth is the focus for now and there's no reason to slow down and I don't think any of us want to pin you down on a near term target of profitability.
As you guys look out farther.
How this business can kind of scale to profitability over time, how do you think about the long term profitability profile and maybe what's the sort of the path of the building blocks to getting there.
Yeah, Great question I'll take that so we don't we don't have a specific target to share today, but it's really important that we're balancing sustained sort of durable growth with improving profitability, which is a huge priority for us, which I hope came through in our scripts and at the highest level, we're positioning the business.
For consistent margin improvement as we look into the back half of 2022, which was reflected in the guide.
And going forward from there we want to focus on consistent improvement in our margin profile.
And longer term, we believe an integrated model, which we always talk about and most of them. We have multiple monetization streams, which will be highly profitable in a steady state. So when you look at the various components do you think about strong unit economics, you think about investing in R&D, and then really getting scale in our G&A. So theres a bunch of <unk>.
<unk>, we have but we are focused on building a lean cost structure, which will allow us to pivot and really continue to.
Sustained high growth profile with a very lean cost structure, along the way so with that I would say that.
We will see a consistent improvement in margin over time, but I'm not going to share a specific timeframe our target today.
Got it okay I appreciate the call so that definitely came across on the scalp.
Second question unrelated was more on the on the software side interesting stat on that new business coming on at around 6000, RPM is like 50% higher than where the businesses today as you look maybe could you talk a little bit about the process of upsell on the on the existing customer base, what does that look like and what's the success.
<unk> had in getting some of the existing customers to adopt say something like the payroll products or additional modules.
Yes.
And I'll, let you comment as well, but we've been investing in upsell. We started as an up sell team in 2020. We also have an ability for our customers to go onto tow shop, which allows them to.
Byproduct online as well.
But our upsell team is very much focused in building that muscle.
Selling incremental products to our existing install base and payroll has been a great example of that we're early in that opportunity.
But we're definitely in this upsell team was an investment we made in 2020 built on it in 2021 and continue to invest and see good signal there as well.
And that's what's reflected.
In all of our overall <unk> growth and as well even in the.
Consistency of our execution and positioning the entirety of the platform naturally having impact across our entire sales sales base, but I'll, let him comment.
Yeah.
Okay.
Thanks, David I think you hit it actually we are focused on.
Scaling up her.
Sales and marketing team both on new business will deliver a quote and we're also scaling up power.
Self service capability into the ecommerce until shop, let our customers buy from us they want.
Got it thanks for taking my questions appreciate all the color and there Nashville today.
Okay.
Thank you. Thank you will.
Your next question is from the line of Dave Koning with Baird. Your line is open.
Oh, Yeah, Hey, guys a couple of questions I guess first of all a little similar to the last one your subscription.
Revenue up 103% I think it was mid forties growth in locations and mid Forty's growth in average revenue per location, but how much of that is just bigger locations and then how much of it is.
Kind of what you described before just a lot more selling to your kind of existing group of locations.
Yes.
It's.
Okay.
Yeah.
Go ahead, Atlanta, if he wants.
It's a little bit of both I mean, firstly I just kudos to the sales team for their great execution, and what Youre seeing in the SaaS growth being over 100, and up a 100% and having record locations. It's really adoption from both both new and existing customers and also a higher sale of booking which is.
Which we talked about on the script and naturally coming back to the positioning of the entirety of the platform upfront, which is obviously really important and an indicator of our confidence and our ability to position the entire the entirety of the platform and have a higher booking our pud booking at ups.
Front.
Okay.
Yes.
Alright vacation is it's not one clarification is its not its not bigger locations. It is just doing a much better job at selling the entirety of the platform both upfront as well as downstream, but it's not as if we're going after bigger bigger locations, it's really just making doing a better job at some of the platform story.
Two existing locations that are suddenly similarly sized.
Yes, Scott So that's what I was kind of getting at so that's really that's great and I guess my second question sequentially. I think your guidance is revenue up something like 19% to 24% I guess, that's very normal seasonality to.
To be up but is are all segments expected to be up kind of in that same range or is there going to be some divergence.
Yeah.
I'd say were seeing strength across our entirety of our business.
Okay got you well great job. Thank you.
Yeah.
Thank you Dave. Your next question is from the line of Josh Beck with Keybanc, Josh Your line is open.
Thank you for taking the question I wanted to drill down on the the subscription or two certainly.
Can use to grow at a really nice clip, even though the multi product adoption.
Adoption, just very slightly expanded less so does this mean.
That your customers are gravitating towards some of these larger products just not sure if there's any maybe call out on the drivers there.
Yeah, I mean, I think I think what I'm hearing.
Yeah.
Yeah.
Sorry, Josh.
Effectively our customers are telling us that they want more and more from the platform. So I think what youre seeing is youre seeing us.
Better position the platform story upfront as well as downstream.
And then they are telling us that they want to see.
Even more innovation within those.
Modules across the platform.
A good example is what Elena referenced for payroll we're.
We're doing a much better job at attaching payroll upfront as well as upselling it downstream.
But then restaurants are coming back to us saying over time.
We'd love for you to when you look at the employee value proposition to recruit onboard develop manage pay retain employees.
That has its own roadmap of opportunity.
And that'll be over the long haul that we continue to innovate on top of the existing <unk> base.
So we expect.
We will continue to see the modules used by average customer tick up but then we will continue to.
If all of that module landscape over time.
Yeah.
Okay, Great and maybe just a follow up.
The guidance certainly you're picking up with full year revenue at the midpoint are nicely above the b I think it's about $95 million just listening to answers it.
Sounds like it's pretty broad based across across the business.
Any any call outs, where you know.
Things just materialized quite a bit better than what you were maybe forecast 90 days ago to drive.
Upward.
The revision in the full year.
Yeah, No I think you know heading into the year. If you think back 90 days ago, We had you know.
Little bit of Omnicom ahead that there was a there's a big macro that we.
We factored into our guidance and what we've really seen is.
Strong <unk> growth and strong momentum in our business and so that's really what's reflected in the guide.
And actually I would say that what we're balancing now it's the same thing we're balancing the macro we're balancing making sure we're investing in a lean cost structure.
Just being prudent with what we see.
Yeah.
Fantastic. Thank you both.
Thank you Josh.
Your next question is from the line of Brett Franklin with Piper Sandler.
Your line is open.
Thank you I guess, one for Chris one follow up for Elena Chris You were excited about payroll I think nine months ago, clearly payroll continues to.
Perform well both.
New customer attach and now it sounds like better cross sell into the installed base you have 62000 locations.
Today.
Looking out three to five years, what is the potential here do you think a third of those locations could can attach the payroll could you get a 50% penetration loved.
Better understand.
Based on 97 of success here, where it could look like in five years.
Yes, I am.
Not going to give you a number but what.
What I know and talking to restaurants every day is that they need more technology capability too.
Not just pay their employees, but to recruit onboard develop them plan their scheduled pay them and then retain them. So we see that value chain just within the employee stakeholder and.
And we built out a road map from there on what this piece of the platform could become and that excites us because we know every restaurant needs at every restaurant.
To get off of manual processes, and spreadsheets to better attract and retain their employees and pay their employees and employees want to be paid faster.
So we're excited about this section of the platform that continues to perform well, but there's a long journey ahead on its potential I am not going to give you a number except that every restaurant grapples with how to attract and retain their employees and we.
We see we see opportunity there.
Got it so sounds like payroll is just the start of a much bigger ambition you have relative to labor is that software.
Yeah.
Exact perfect and then later.
As a follow up clearly everyone's asking about the cost structure and payback and philosophy.
And I ask it a slightly different way.
I look at the the plan here to lean in you clearly are going to have some some heavier free cash flow investments here this year and next.
But you do have a strong balance sheet $1 $2 billion in cash even with those two years of heavy investments it looks like you're going to have about $900 million in cash exiting 2023, and my question for you is with that much cash even after two years of heavy investments.
Is the model fully funded to two path to free cash flow or do you think you'd have to raise more money just trying to better understand how much cash you actually need to get to.
Positive free cash flow state. Thanks.
Yeah.
Yeah, no it's a fair.
Fair question and I feel like we're in a good position, where with our performance and consistent execution, we're looking to get to free cash flow breakeven and then over the near term I would say Brent so I'm not I'm not worried about.
Additional funding needed to to help us succeed and go after this opportunity.
That's helpful. Thank you that's all I had.
Thank you Brent.
Next question is from the line of Andrew Baum with F N B C. Nico.
Your line is open.
Okay.
Hey, guys. Thanks for taking my question.
Just wanted to touch upon the international opportunity that you guys are are starting to invest in this year, maybe what have you learned over the first three months in.
Sort of timeline, we should think about before you're actually launching live locations outside the U S.
Yeah.
Yeah.
Yeah, No. That's a great question, we're in the early early innings.
And I would I would just remind you that our 2022 years really a foundational year for us.
Got a few customers live and we're getting some really great great feedback and we're learning that the demand is strong.
But that said you know we're in the early innings and this is sort of a multi year journey for us. So I think we're a ways from having meaningful impact on our P&L, but we're encouraged by the early signals from the customers that we're engaging with.
Yes, absolutely I mean, even having a couple of license is a good.
Thanks, Ron.
And then touching on a more modeling point, you mentioned that the hardware cost of goods sold came down pretty considerably.
Straight cost kind of came off peak.
It's even more impressive on a on a net new location basis.
How confident are you that that line item kind of remains relatively stable through the rest of 2022 and doesn't even have room to come down over time.
Yes.
So youre right, we had some benefit in Q1 from some one time benefits and also we had lower freight cost in Q1, I do expect a little bit of a tick up in Q2, but over the long term I feel like we can keep that.
Definitely keep our payback periods and an order, which is the goal of ours, but also I would I would remind you that we do anticipate a hardware costs to remain elevated but definitely something we can manage and we've been strategically shifting to having more inventory, which is allowing us to to lower that shipping cost. So I have a bit more visibility into that.
But other than the uptick in Q2 I think.
Got a good handle on it.
Great Fantastic quarter. Thank you.
Yeah.
Thank you Andrew.
We will now take our last question from the line of our sheet over lot of Bernstein.
Your line is open.
Hi, good afternoon, I want to ask about Bcp's your client extra shifts lost dogs that a significant portion of the restaurant expense base tell us about how you're cross selling extra shifts into your restaurants and more importantly in what ways can you participate in b to B AP automation cloud.
Thank you.
Yeah, Great question.
I'll remind everyone that it is still early for extra shelf.
And we're excited about the opportunity ahead, we just enables our entire sales force to position and sell extra SaaS in Q1. So we're excited about.
Their performance was ahead of our plan in Q1, but we're very much in the early stages of the product roadmap on B to B for example, extra shaft today does a great job of AP automation, great job at inventory management and recipe management. So we can do really good food cost optimization.
But over time the opportunity for this section of the platform is very similar to payroll if you think about the opportunity.
To better manage the book and work with accountants, the opportunity to better work with suppliers and consider bill Bill pay to suppliers. So we see a tremendous opportunity in the back office around supplier management and we're very much in the infancy of.
Of this product roadmap. So that's exactly that's exactly why we went after extra chef and they've been an integral part of our toes team in building out this vision.
Good question.
Thank you.
Thank you Harsha.
I would like to turn the call back over to the presenters at this time.
Okay.
Thank you everyone.
Hi, everyone.
Okay.
I think we're good thank you everyone.
That concludes the post first quarter 2022 earnings call. Thank you all for your participation you may now disconnect your lines.
Okay.