Q1 2023 Toast Inc Earnings Call
Areas with efficiency and cost discipline as we scale the business.
On the back of our strong Q1, we raised full year revenue guidance, 4% at the midpoint, which implies 37% year over year growth and increased our adjusted EBITDA guide with the midpoint of the range at breakeven that increase as a result of the momentum we're seeing in the business.
And our commitment to the efficiency and cost disciplined I just mentioned Alaina will provide more details about our outlook shortly.
We continue to see healthy location growth, adding over 5500 net net new locations in Q1 and ending the quarter with approximately 85000 total lives locations. Our go to market strategy continues to efficiently drive strong IRR growth through both <unk>.
<unk> penetration with traction across the Tam and healthy <unk> growth.
In the SMB space, our differentiated localized sales efforts continue to scale, we see that as we're in markets longer and Rep tenure increases we can move market since a flywheel status, meaning higher inbound volume higher win rates and greater penetration.
And one mid Atlantic City, where the Rep tenure has above average at two plus years the market tipped into a rapid growth stage and increase the number of locations by over 60% in two years to reach over 20% penetration amongst SMB restaurants, when it hit flywheel status.
We saw lead volume increase and it has remained elevated versus prior levels.
This is one example of the growing number of flywheel markets and with only a small fraction of the SMB Tam in flywheel markets. Today, there is still tremendous opportunity ahead.
As Rep tenure and time and market increases, we expect more markets to benefit from the flywheel effect. Our go to market approach creates enabling us to scale efficiently.
So let me highlight some of our recent customer wins from across the Tam.
In SMB.
As Wisconsin Dells based Buffalo Phils planned for this year's busy season, and with positive referrals from other local restaurants, they shifted to toast adopting 13 modules that span every pillar of the toast offering in the front of the house Buffalo fills we'll use kosko handhelds.
To work Theyre multi level dining space and banquet Hall mobile order and pay for additional table efficiency and toast tables for managing their active waitlist as well as several other modules to provide an enhanced guest experience.
Back of house, our payroll and team management solution will streamline onboarding and scheduling with their sizeable seasonal employee base and our kitchen display systems will power smoother kitchen operations. They will also use extra chef to provide better invoice visibility and help ensure too much inventory.
Tori isn't leftover as the busy season wanes.
While the SMB market is an obvious sweet spot for us, we're making good progress across different parts of the Tam and across restaurant types down market and the small SMB space, we're optimizing pricing and packaging to meet the needs of that customer segment, and leveraging an ink e-commerce sales motion and <unk>.
Self service Onboarding to efficiently grow in this segment.
And the regional mid market space Toast recently added eight more locations to Denver based tag restaurant group, bringing the group's full footprint of more than a dozen locations onto toast total was initially serving the fast casual side of tax portfolio and then expand it to higher end FSFR locations to allow.
Tagged to have a single technology platform across its portfolio.
<unk> saw the benefits of a partner who could seamlessly support all operations across its various restaurant types and is adding modules, including third party delivery API integrations for our partner network Multilocation management for easy menu updates invoicing and toast go handheld.
Ices for its full service locations.
Okay.
Moving further up market in the first quarter, we signed a 300 plus location national USR chain that wanted a more innovative technology partner with top notch integration functionality ease of use and better overall reporting visibility across its entire operating ecosystem.
The breadth of these customer wins are clear examples of the power of our restaurant specific integrated Pos and software strategy and in the range of customer sizes and types that we can serve and that only 10% market share for U S restaurant locations, we're still <unk>.
Sorry early in penetrating the domestic Tam, we expect to continue adding locations at a healthy clip or investing to most effectively serve each segment of the Tam.
And we are uniquely positioned to capitalize on the big opportunity ahead of US are focused on the restaurant industry is a key differentiator and tenant of our product strategy. We are building the specific features and capabilities to meet the unique needs of different segments and types of restaurants.
Enabling us to deeply penetrate the entire Tam.
Our toast for hotels product, which integrates seamlessly into hotels property management systems is a clear example of this motion and action. This product has opened up our ability to better serve hotel restaurants, and we're seeing great momentum in the first quarter, we signed family owned Pacific Northwest.
<unk> cornerstone mcmenamin, which selected <unk> for its entire portfolio of 57 pubs and breweries many of which are located on Mcmenamin Hotel properties Mcmenamin was attracted to toast to help streamline operations and to leverage our powerful partner.
<unk>.
They look forward to implementing our all in one solution and using products, including Pms integration, Kosko handhelds, and mobile order and pay to provide food and beverage access in more areas of their unique properties from room service to garden picnics Mcmenemy.
<unk> will also use extra chef to modernize their approach to inventory management and toast online ordering in our kitchen display systems for additional efficiency. We are truly excited about the opportunities to transform guest hospitality experiences.
Another example of where we're investing to further our abilities to more deeply serve each part of the Tam is in enterprise, we're adding enhanced reporting Apis specific features for <unk> like Pos screens designed to help staff enter orders faster and improved Multilocation man.
It's been functionality aimed at making menu changes across hundreds or thousands of locations easier and faster. Additionally, <unk> now has a P to P listed payment solution, which when deployed will meet the unique payment security requirements of this segment and we believe the progress we.
Were making to better serve this customer segment will enable us to further penetrate enterprise.
In addition to investing in areas that can serve different parts of the Tam our product strategy is anchored around building out a suite of solutions tailored for each of our restaurants stakeholders restaurant operators guests employees.
And suppliers and example of this is the recent launch of toast tables, our reservation and Waitlist management solution.
Tables broadens our ability to engage guests and provides our restaurant customers with more nimble ways to manage their operations through a single platform solution. This differentiated offering is seamlessly integrated with the rest of the <unk> platform and allows restaurants to manage operations with one vendor at an affordable.
<unk> price.
Toast tables is off to a fantastic start in March alone toast tables powered over 450000 unique bookings and since going beta just a year ago has reached thousands of restaurant locations a feat that took other reservation providers many years to achieve.
<unk>.
Toast table toast tables is emblematic of our ability to quickly innovate on evolving customer needs over a short period, a small team was able to build a solution get it in the hands of several customers for testing and feedback before it goes in beta and going live or <unk>.
Article focus provides us the room to innovate and tailor features features to the specific needs of restaurants, while our go to market engine and large customer base provide us a rapid feedback loop.
And the ability to scale new products quickly and efficiently.
Yeah.
As we've expanded our product and grown our customer base, we've become smarter about the varying rates customers will adopt our products. This is especially true with the growth and development of our upsell team. This team has grown significantly over the last year and it has allowed us to better balance both cros.
Customer growth and product adoption, we're able to be more strategic about what products do best as part of the upfront sales motion versus at varying times in our customers' journey on toast with our consistent innovation engine differentiated distribution motion.
<unk> and growth of our upsell team, we will continuously evaluate and refine this land and expand approach.
So our teams are operating at full steam and the progress we've had to start the year is proof that our focused strategy to grow locations and being a trusted platform for the restaurant industry.
<unk> to innovate and invest to more deeply serve all segments of the restaurant industry, including building out enterprise and international is paying off we recently had our brand launches in Canada, Ireland and the UK, marking another early step to unlock the significant.
<unk> outside of the U S. As we execute on this growth strategy. We also remain focused on efficiency and cost discipline put us put it in us on track to sustained healthy growth and deliver adjusted EBITDA profit as the year progresses.
Before closing I want to thank our customers and our employees we're off to a great start this year. The team is executing in all the right places to go after the large opportunity ahead of us while operating with efficiency as a north star now I'll turn the call over to Elena.
Thanks, Chris and thank you everyone for joining I wanted to start by thanking the entire <unk> team for your hard work and steady execution are consistent momentum drove another solid quarter with both revenue and adjusted EBITDA exceeding the high end of our guidance ranges, we continue to balance strong topline growth with disciplined investments evidenced by.
Our fifth consecutive quarter of adjusted EBITA margin improvement.
We remain in the early stages of an incredible opportunity to be the trusted technology partner of the restaurant industry with our leading software and payment platform differentiated go to market strategy and focused execution. We believe we have a long runway of sustained top line growth and margin expansion ahead in Q.
One we added over 5500 net new location locations, increasing the total number of live locations on our platform to approximately 85000.
Our go to market engine is executing at a high level and seeing success across the full breadth of the restaurant Tam leading to the continued market share gains. In addition to the strength in SMB as Chris discussed, we're also gaining momentum upmarket with key wins in the middle market segment picking up traction and hotels and leveraging our e-commerce.
<unk> gained share downmarket.
Q2 is typically a seasonally strong quarter for location growth and combined with a strong pipeline and consistent go to market execution. We anticipate net new location adds in Q2 to be north of 6500. Looking further ahead with the combination of consistent sales rep productivity growth, a flywheel markets and traction across.
More parts of the Tam, we expect quarterly net location adds to be closer to the 6000 range in the second half of the year compared to the 5500 quarterly adds we saw in the last in last year's second half.
Total revenue grew 53% year over year to $819 million in the first quarter.
<unk>, which is our core operational metric ended Q1 at $987 million up 55% year over year subscription services revenue grew 70% year over year in the first quarter benefiting from healthy location growth and higher <unk> SaaS <unk> on an IRR basis increased 16% year over year in <unk>.
3% quarter over quarter.
I want to provide some context on <unk> growth going forward overall, we continue to focus on driving total <unk> growth through a combination of both locations and sustainable ARPA expansion over the long term.
Over the last two years, we drove a step function change in SaaS <unk> and doubled our location count and this provided a tailwind the SaaS <unk> and revenue growth.
Looking specifically at <unk> increased nearly 60% since the end of 2020 as we've expanded from our point of sale offering to an integrated platform and shifted to selling the product on a platform basis at the same time, we ramped several key new products all of which led to landing much higher ARPA at booking.
In addition, as Chris discussed as we develop our upsell motion, we have become more sophisticated about optimizing the mix of products to land that booking or upsell team allows us to be more nimble about what we sell upfront and how we grow with customers over time, ensuring we phase in products at the right time for different customers the <unk>.
Once we're making expand across the Tam coupled with adding products and features that are unique to restaurants underpin our two strategic growth vectors locations and <unk> that.
The combination of these two are key to driving total <unk> as we further penetrate the $55 billion market opportunity.
We expect there will be a balance between the two of these in any given year and as we comp against the step up in ARPA growth, we anticipate more moderate <unk> growth.
In 2023.
We remain incredibly confident in the large and growing long term SaaS or <unk> opportunity as we continuously refine both our new business and upsell motions and further differentiate ourselves through ongoing product innovation at over 2000 of <unk> for the full featured product tooth tables is a great example of our ability to expand the <unk>.
The opportunity and address more of their restaurants tech spend.
Our long term confidence is underpinned by the fact that we have a growing base of customers generating <unk>.
A great example of this is the Midwest brewery offering craft beer and food generates about.
About average annual GPT in over 20000, SaaS ARPA. This customer is using a total of nine module, including online ordering mobile order and pay and to a stable. In addition, the customers leveraging multiple kosko handheld and a number of <unk> to streamline operations.
As we expand the platform there are multiple paths, we can offer customers to reach high <unk> approximately 10% of our locations have SaaS are above 10000, that's nearly double the percentage from a previous year.
And at the end of Q1, 42% of locations were taking six plus modules, which is up from 36% in the previous year.
Moving to Fintech solutions first quarter revenue grew 54% to $673 million in gross profit was up 65% year over year to $150 million.
<unk> growth remains healthy and increased 50% year over year to $26 7 billion in Q1 average annualized PV per processing location was approximately $1 4 million up 11% year over year and flat quarter over quarter Q1 year over year revenue growth benefited from the comparison to <unk> in 2022.
We expect <unk> growth to moderate for the balance of the year.
Non payments Fintech products led by <unk> capital drove approximately $26 million of gross profit in Q1 demand for our capital offering remains strong in the quarter as we continue to provide eligible customers fast flexible access to capital.
In the quarter test capital originations totaled approximately $175 million or 70 basis points of GPT, we remain uniquely positioned to manage the risk profile of the portfolio. Thanks to our restaurant Pos and payment processing data that enables us to assess and monitor the health of our restaurants to inform our underwriting processes process and pricing.
And prudently balance risk, while growing the product to help our customers grow.
For example, a deadly sport Nal, a sports bar and rooftop in Northern Virginia, I used a portion of funding received through a toast capital loan to build a new pergola on the roof, adding 16 tables to the rooftop the pergola paid for itself over the span of three five weeks and has contributed to a daily sales volume increase of over 10% month over month so far.
This is a great example of our unique ability to provide our customers access to capital, which in turn benefits our business as customers leverage those loans to increase sales and drive growth insurer when our customer sales grow we grow.
Net net take rate increased 56% to 56 basis points with other fintech product contributing about 10 basis points, which was similar to Q4 looking ahead, we anticipate test capital growth slower than the sequential <unk> growth as Q2 is a seasonally strong for GPT and keep in mind Q1 benefits from higher debit.
Mix, while the mix of credit should increase through the course of the year.
Overall, we continue to expect net take rate to be in the low 50 basis points range in the near term.
In Q1 total gross profit grew nearly 87% year over year and was up 10% quarter over quarter at $189 million, resulting in a total gross margin of 23% looking at our recurring streams subscription and Fintech gross profit totaled $229 million in the first quarter up 71% year over year.
Turning to customer acquisition cost hardware revenue increase year over year due to both strong new bookings and upsell to existing customers as restaurants prepare for peak season hardware margins were slightly or down slightly versus the prior year on a sales and marketing side expenses were up 45, 46% in the first quarter due to growth in the sales team.
Over the past year as well as the timing of certain expenses like payroll tax, which reset in Q1, each year, we expect growth in sales and marketing and slow through the rest of the year as we lap investments we made to scale a sales team over the past year.
As Chris mentioned the launch of Staples is the latest example of how our R&D investments are driving product innovation that is further enhancing the test platform and expanding our potential.
We're also investing to support our expansion up market into the mid market and enterprise segments.
These investments will further differentiate our platform and unlock deeper penetration across the restaurant Tam as proven by the progress we've made in the hotel segment with post for hotel restaurants, and in our ability to offer a tailored set of products and services.
Yes.
Amongst Q3 overall, we remain excited about our product pipeline and ability to drive sustained <unk> location growth over the long term in Q1 total general and administrative expenses increased 45% year over year.
<unk> bad debt and credit related expenses G&A expenses grew 18% year over year, and we expect expect growth to moderate as the year progresses, as we remain focused on driving efficiencies and managing head count.
Bad debt and credit related expenses totaled $15 million in Q1, and the majority of this is due to the reserves related to capital.
Total Q1, adjusted EBITDA was negative $17 million and margin was negative two 1% and over 600 basis point improvement from prior year, excluding bad debt and credit related expenses total opex growth slowed to 35% year over year, and we expect that growth to moderate as the year progresses as we focus on containing <unk>.
Count growth to our most critical growth areas and driving efficiency across the business.
Now, let me turn to guidance for the second quarter, we expect revenue to be in the range of $920 million to $950 million, representing 39% year over year growth at the midpoint. Adjusted EBITDA is expected to be in the range of negative $10 million to zero, representing over 150 basis points of sequential margin improvement at the midpoint.
Based on our strong Q1 performance in Q2 guidance, we increased our full year 2023 revenue expectations by 4% at the midpoint. We now expect full year revenue to be in the range of $3 $71 billion to $3 8 billion, a 37% year over year increase at the midpoint.
Our updated full year adjusted EBITDA guidance range is negative $10 million positive $10 million at the midpoint. This implies we will be breakeven for the full year and profitable for the second half of the year. We also expect free cash flow to turn positive as the year progresses.
The increase in our adjusted EBITDA guidance is a function of both the momentum we're seeing in the business and our relentless focus on our scalable lean cost structure across the business. We are balancing investments in the massive opportunity the technology backbone of the restaurant industry, while staying laser focused on operating efficiencies.
<unk> share gains durable growth and consistent margin expansion in closing Q1 was a great start to the year posting strong financial results and building on the momentum coming out of 2022, we are well positioned to drive sustained <unk> and location and create long term shareholder value Lastly, I want to thank all of.
Of our employees customers and partners are helping to support our continued success.
Now I will turn the call back over to the operator to start our Q&A.
Yes.
Thank you.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
As an additional parameter. Please keep your questions to one question and one follow up question will.
We will pause here briefly ask questions are registered.
Our first question is from Josh Baer with Morgan Stanley . Your line is now open.
Great. Thanks for the question.
Nice quarter.
Momentum both in the mid market up market as well as Downmarket. So a couple of questions. There. How are you balancing product and go to market investments for those different segments, but then second how should we think about the mix shift ahead and any potential impact on <unk> per location.
I can jump in Josh good question.
We're taking a real balanced approach I mean.
Our core engine continues to harm at the next level. So when you look at the core SMB, we continue to be quite confident in that hyper local go to market engine and how well it's performing at the same time, we are encouraged about what we're seeing in Midmarket and enterprise. So I think youre going to continue to see us expand our.
Tam, but just make sure that we're measured in how we go upmarket we're seeing some good call.
But we continue to be a little bit measured in our progress up market. The unit economics look really good but again we.
Our core engines humming upmarket, we're seeing good demand and then I'd say down market, we want to make sure that we don't lose that section of Tam. So when you see us push out E Commerce and self service Onboarding, it's to make sure that the entirety of the restaurant Tam in the U S is addressable by <unk> at the end of the <unk>.
Day, we think we're well positioned to now address the entirety of the Tam given the expansion examples that we've we've shown you.
Yes, just to build on what Chris said, Josh as well, we're going to always keep unit economics in mind, So we're going to come back to the payback period that.
We talk about which is in the mid teens and that's how we're balancing those investments across the segments and pay particular attention to making sure that we we always come back to that in the balance of the person in a balanced way.
Awesome. Thank you.
Thank you Josh. Our next question is from Reena Kumar with UBS. Your line is now open.
Good afternoon, and thanks for taking my question last quarter, you announced the acquisition of <unk>.
Delta <unk> display system could.
Could you.
Can you talk about the integration, how thats progressing and if it's helping you win share upmarket.
Yeah.
Yes, I can take that.
So the integration of Delphi is progressing on track. So we're excited about the teams progress Ken and the team are doing a great job as Youll recall, there were already a partner of toes. So we're already collaborating quite a bit in the field the acquisition of Delphi as part of the continued.
That we've made to help <unk> of all sizes drive speed of service unlock revenue unlocked drive through and become more efficient operations. So we're excited about this it adds internal and external digital menu boards with order coordination within the <unk> platform. So we're very excited about it.
But we are seeing opportunities to increase the lead volume from toast to Delphi, but I think it's important that it's still early in the integration process.
We're going to make sure that strategically we make all the right moves early so that it becomes a foundational component for our go to market across the <unk> and enterprise space, but overall, we're happy with.
Where it is and.
We look forward to reporting some wins to you in future quarters.
Got it.
I'll follow up on international can you just give us an update on how your international expansion is going and you've talked about investing roughly $10 million to $20 million toward.
That segment of the market do you expect investments to further ramp up this year.
Yes, we're taking a very measured approach on international but early it's an early.
Early in our investment there, but early traction has been.
Really solid I would say, it's not going to contribute meaningfully to revenue this year, but now we've got the foundation in place we've done some brand awareness, which is what you guys saw over the last couple of months and so now we're really focused on honing that go to market strategy and continue to build this awareness and then of course build out the platform.
On the product side, so we're not going to split out the investment, but its fair to say, we will invest a little bit more of a we're going to take a very measured approach.
On further investment.
Great. Thank you.
Thank you Rana. Our next question is from Tim Some Wang with Jpmorgan your.
Your line is now open.
Great. Thank you so much really great results here, so it sounds like.
Stronger location additions expectations relative to <unk>.
<unk>.
Maybe a little bit about ratio, which is not surprising so any call outs.
What is driving this.
Momentum in certain geos or restaurant types and locations.
Any additional color would be great.
Thanks.
Sure.
Look as Chris Elena mentioned on the call, we had a strong quarter on that.
We're expecting a record quarter in Q2.
Really proud of the way the team is executing across the board.
In a fundamentally continuing to see the same trend we have mentioned in previous calls where the restaurant density and Rep tenure in our flywheel markets drive improved productivity. A good example of this in the IR deck is.
Mid Atlantic region, where you can see as you get more density in restaurants, you see the productivity improve.
Our competitive win rates are strong and we win the majority of the time when we get into the decision regardless of whether it's <unk> new restaurant opening for some existing and really at the macro level those trends have been largely consistent with previous quarters.
I think we're seeing strong growth in our core SMB segment.
<unk>.
While drilling into new segments, as Chris mentioned in the call including.
Mark with e-commerce, as well as some really great wins in mid market as well.
Terrific.
That's great to hear just maybe to build on that a little bit.
The growth in the upsell.
Teams.
Driving good balance there in terms of win too.
But are you seeing any sort of change in <unk>.
We're surprised maybe I should ask in terms of the types of add ons or services.
Restaurants are looking to add I don't know if its just things that are further from the core legacy payroll.
People are closer to the core if you.
All my questions.
Yes, it's a great question I mean look I think well give a lot of anecdotal example, so we see that when a brand new restaurant opening up a new location and this could be.
An expansion of even an existing restaurant within our within our customer base, we tend to see higher attach of apparel, whereas if a customer that's already.
Open.
We see we call those restaurants switchers rate until we see lower attach it's apparel and then our upsell team takes over and.
Stable too.
So more of the platform overtime.
Over time.
But overall I'll just I'll go back to if you look at our <unk> year over year, it's up 60% and both locations and are contributing.
And at the highest level, we see across our key products employee cloud exercise some of Rguest products like tables, because like I mentioned on the call, we still see lots of opportunity to continue to scale attach and.
New business ARPA on booking is still in the mid $5 range.
And of course, our upsell motion continues to become a bigger factor in terms of.
The composition of revenue growth and we expect that to complement our put initial booking.
Got it.
It's really interesting. Thank you for your time and thanks for disclosing the subscription of the payment. They are that's great to see.
Our next question is from will Nance with Goldman Sachs. Your line is now open.
Hey, guys good afternoon.
Maybe follow up on some of the flywheel markets that you guys have talked about I think you mentioned a greater reliance on inbound channels. In these markets I'm wondering if you can provide any color on how customer acquisition costs vary between flywheel and non firewall market and then looking forward you mentioned e-commerce and more self service.
Being a focus in the future maybe you could just talk about how youre thinking about the outlook for customer acquisition cost in more mature markets in a steady state and maybe how that differs from.
Some of these markets when theyre in more growth mode.
Sure.
Yeah. It's a good question I mean look I think back to what I just shared.
We continue to see that our strongest growth in our densest markets right. So it will be called plywood markets and basically <unk> got higher restaurant density you've got higher Rep tenure.
Higher brand awareness, that's what drives greater productivity, so that's really it.
We see this by the way and all of our markets as we are getting more and more.
Market share, we're not seeing any impact in terms of productivity and in fact, we're seeing strongest our strongest product productivity in those markets.
And.
<unk> got to we've got a good mix and whether it's urban markets suburban markets tier one cities monitoring we're seeing a good mix of markets, where we're seeing this effect and so of course as you've got more markets were stronger productivity and allows us also driven by stronger customer referrals.
We expect to see better unit economics in those markets relative to markets, where we are investing and don't have the same level of rep productivity.
And I think in terms of your question on E. Commerce in mid market. Those markets are still a small portion of our overall customer base and even our overall growth rate of the most of our growth is still coming from our core SMB Tam and in those segments. I think we are learning, but I think as is Atlanta, and Chris mentioned, we're very focused on unit economics.
Across all of our segments, even in the SME and the Lord of the market, we're looking at things like.
Self service on purchase self service Onboarding.
To make sure the unit economics of those customers.
Our healthy even if the <unk> lower one way to think about it will is to look at the entirety of the U S. Tam and make sure that we're adapting our go to market motion, our Onboarding motion, our self service motion to support that sub segment of the U S Tam and.
The conclusion is that the entirety of the U S. Tam is now becoming more readily available to toast thats really the strategy behind that because we don't want to look at the U S. Tam and say well jeez. This sections on addressable because we can adapt to the platform or adapt our motions and what we're seeing is high confidence that we can adapt our.
Emotions and we can adapt the platform so that customers of all sizes and types can subscribe and onboard to toast. So that's really where that's coming from.
Got it I appreciate the detail and then maybe separate question.
In the same vein of growing locations and expanding <unk> on the payment side. There has been a kind of a lot out there in the market on price increases.
And the acquiring space overall I think some of your some of your competitors are putting through some fairly large price increases I guess can you maybe talk about the desire to kind of pull that lever and keep pace with some of the market increases versus maybe marketing against it and using it for taking taking market share in the restaurant space.
Yes, that's good.
Question look, we're always optimizing pricing and packaging.
For new customers and we've done.
Well, we're always optimizing we've not done any wholesale pricing changes for our customer base.
One thing we're testing right now is a usage based fee. This is on our digital ordering suite and this is fairly common in the industry.
We see this as a near term opportunity for us and expect to hear you should expect to hear more from us on this in the future, but in terms of a wholesale price increase that's not something we've done.
Okay.
Understood I appreciate you taking the questions.
Thanks.
Thank you we'll our next question is from Tim <unk> with Credit Suisse. Your line is now open.
Great. Thank you for taking the question strong locations guide that you gave for the next three quarters and sure that transparency was depreciated could you talk a little bit about what youre expecting in terms of any changes at all where the composition across the.
The buckets of <unk>.
Gross adds meaning brand new restaurants, new locations added from your existing customers and then of course, the restaurants that are switching over to you from either legacy or a competitor is there any anything that youre seeing changing there and then theres a follow up on new business formation.
Yeah.
Look I think.
Maybe I'll give you a little bit of a boring answer here, but the.
The mix of <unk> versus existing restaurants.
And our base was relatively even.
Material lift changer.
One thing just to keep in mind is when we talk about new restaurant opening some of that is expansion from existing customers or their base goes up that can play a bigger role and contribute to our growth.
And I think were able to successfully win new restaurant formations as well as assisting existing restaurants that already have a tivo platform in place.
And our win rates on switchers, what I'll call. It as a win rate on switchers does go up with Rep tenure, so that as a tailwind as we get into more of these fiber market that we should expect.
In terms of mix on <unk> the mix of <unk> is up from a year ago.
That's tied to are pushing to Mount a year ago.
And it's good to see the proxy and focus here in that segment. That's allowed us really gained share faster in this segment.
One example of this is actually.
Chris Let me share some customer stories of a customer called Golden crust out of White Plains that started off with 30 locations has recently expanded to 111 locations with us and what they really valued in the platform as all of our <unk> integrations in Woburn asset built in.
And for our platform as well as some of the improvements we've made into our enterprise menu management capability.
And so I think you should expect to see the mix of <unk> continue to tick up in our in our.
In our mix, but.
Overall beyond that nothing else to report.
Okay, great. Thank you and the brief book related follow up is just around when we look at some of the macro data from the fed et cetera that shows.
A combination in food services is the number of new applications being put in at levels that are just.
Higher than they were pre Covid would you say in general that you're seeing across your core markets.
Uptick in new restaurant formation is it relatively similar higher lower relative to maybe what you saw back in 2018 2019 ish period.
Yes, I think we've seen an elevated level of new restaurant openings in our in our portfolio for a while now.
I think thats been going on for a little bit post COVID-19.
And that trend I think is not new at this point.
Excellent point.
It is more around it persisting so that sounds like it is thank you for taking those two questions I appreciate it.
Thanks.
Thank you Tim Our next question is from Stephen Sheldon with William Blair. Your line is now open.
Hey, Thanks, and I'll Echo the congrats on the quarter.
In terms of market share I guess, how much room do you see there to continue replacing legacy vendors micro so low et cetera, and you think about the next few years and on that front have you seen any uptick in interest or conversations from restaurants on some of the legacy vendors, especially given the cyber security issues that one of them <unk>.
Phase I guess is that driven any acceleration in replacement opportunities for Joseph.
Sure when we look at.
I'll go back to what I said earlier, when we get into a decision we've been a majority of the time and really compete well both against on premise.
And cloud lenders and we continue to see the same dynamic where it's really the biggest thing that we see with customers.
Customer density and Rep tenure in our strongest battery markets continues to be the biggest driver of retroactivity and of course. This is Chris mentioned on the call is driven by awareness top funnel referrals and a stronger close rates and so the biggest thing that the team is focused on is is to get into as getting get more of our markets into the flywheel dynamic we've talked about.
And I think as Linda mentioned with a strong quarter on net locations adds in Q1 expect a record quarter in Q2 and obviously.
That speaks to just the great execution from the team across both legacy providers as well as cloud providers.
Hey, Stephen this is Chris some of those examples I gave in my script.
Buffalo fills mcmenamin the tag restaurant group those are all examples of displacing legacy by the way and so we still think theres plenty of legacy out there to go after but now we've obviously built a strong muscle to compete against both cloud as well as legacy, but the examples that I did mentioned.
They were all legacy all legacy displacements.
Perfect. That's really helpful and just as we think about it.
Adjusted EBITDA over the rest of the year seems like it may hit the positive inflection point.
Potentially a little sooner than expected. So just curious if you know.
Relative to what you guided to last quarter as investment spending plans have those changed at all or is it really just about stronger topline trends continued efficiency and youre still planning more or less the same amount of spend on all the different growth and growth initiatives.
I guess kind of underway.
Yes, I mean, I think it's a little bit of both right on the top line you see the momentum and the strong start to the year in Amman, and Chris sort of touched on.
Not only the rep tenure in plywood markets and how those are progressing. We also are seeing a solid <unk> trends ahead of our expectations in Q1, and then in April in line with what we typically see so when you kind of put that together and then you factor in a little bit of the of the macro backdrop and then you look at the expense.
Line <unk>, we've continued to deliver on adjusted EBITA margin improvement like like I said on the script five quarters in a row that discipline is going to continue for the balance of the year and Youll see opex moderate as the year goes on so we're going to lean into the investments, where we have high conviction and where we feel like there's going to be a strong return.
Turn.
And then we'll.
We will scale back investments if they don't do.
Do not meet the hurdles of high ROI, So we're being very cautious and targeted in our investments and that's what you'll see throughout the year.
Great. Thank you.
Our next question is from Jeff Cantwell with Wells Fargo. Your line is now open.
Thanks can you talk some more about your international launch it seems like that's big news.
What are you what is it actually going to look like for example.
Are you still seems already bear in each of those markets equally or.
Are you putting more emphasis in one particular market at the outset.
And then what's your thinking about how quickly you can scale in each of those markets are just trying to kind of get a feel for strategy for the pacing.
If you think about this next leg of your growth. Thanks.
That's fair. So we started we set out and started with investment in English speaking countries and we're really focused right now on honing that go to market motion understanding the landscaping getting brand awareness out there.
<unk> very much like our U S markets are we're seeing really great traction there.
We'll continue to obviously spend time in the UK and Ireland, but so far the focus is get the hone the go to market motion.
The platform today, only our core platform elements of our platform are available we seek to continue to expand the platform that's available to the market and over time, you'll see that drive more meaningful growth, but I think thats like I said on the call. Our prior prior question, it's all going to have a meaning.
For <unk>.
Contribution in the near term, but over the long term, we think of it as a great opportunity for.
For this business.
Okay, Great, which leads to my follow up which is.
Just how do you think about.
Balancing this move internationally with your ongoing drive to improve your profitability overtime I'm curious if there's a way to grow internationally, while also expanding margins and profitability. Thanks, Yes, I mean I think.
The one thing is that relative to our total investment in the business, it's not it's not material.
That said, we like I said earlier, we're really focused on making sure before we can continue to invest we sort of see proven.
The results and we're early in that journey I think towards the back half of the year, we will have a better feel for that but so far we're really encouraged by what we're seeing the demand is healthy.
So we're going to continue to look at that very carefully I think we've got a balance and understand what will that business look like at a steady state obviously and that's what we're thinking about making sure that when we come back to payback periods and unit economics, we try to focus on balancing balancing the whole picture for the company right and so.
But it's going to take some time, we've got to scale that business.
Great. Thanks, very much and congrats on the results.
Thank you.
Thank you Jeff. Our next question is from Josh Beck with Keybanc. Your line is now open.
Yes.
Question.
Go back to.
Some of the macro commentary it feels pretty benign.
Some of the comments that you've made.
When I look at the <unk>.
<unk> per location.
Same store sales proxy kind of been running in the high single digit range.
Other probably more broader consumer payments companies have indicated in March and April we saw things may be slow or skewed towards more.
Non discretionary categories, just curious if you've had obst.
<unk> that are worth.
Call. It same store sales level as we think about building our models here.
Yeah, Hey, Josh.
Demand was solid when we look at Q1 trends demand was solid pretty much as expected.
<unk> came in ahead of our expectations for the quarter.
<unk> per location was up 11% as a reminder, Q1 last year was impacted by omicron, but.
So we're pleased with what we saw across the quarter.
Within the quarter similar to other reports that you are mentioning March was slightly lower but April is consistent with our expectations.
So we continue to see consumers moving more spend to services like dining out versus retail.
We believe that the industry trends.
With restaurant sales are outperforming overall retail so that's encouraging.
And we also think that consumer spend on dining in past economic slowdowns has been pretty resilient. So.
So those are some comments on what we're seeing.
The other thing is it's important to note that the <unk>.
<unk> of our platform to restaurants becomes even more durable.
During tough times, because we help restaurants drive operational efficiencies and then we help restaurants drive revenue. So we feel like we're in a pretty good spot.
<unk> noted the dynamic.
Both from consumers and restaurants, and both are incredibly resilient.
Yes, I mean, just to build on that April .
In line with what we expected and just a reminder may and June in our big months for US, particularly your mother's day and Memorial day weekend.
Keep that in mind, but so far April is in line with what we typically see.
Very helpful and then.
<unk>.
I believe you said about 10% of locations are greater than 10-K.
<unk> I believe that the mix almost doubled you said year over year. So how should we think about maybe what is feeling there and then when you had mentioned the moderation in the us.
<unk> per location.
Should we be thinking about.
Titled level that we're at now.
On slide 20.
T cell from last quarter as we are good.
So should we be looking maybe more like the nominal growth.
Any more context, there would be appreciated.
Yes.
It's a great question, yeah at the highest level to answer that question just directly.
We think about it on for the full year and so I would expect that to moderate somewhere in that plus or minus 10% for the full year, and we think thats, an incredibly healthy, especially when you put it in context to the step up that we had over the last quarter last two years actually.
I think on my script, I said, it was over 60% or 50% growth over two years and so we know that that's not going to continue.
But 10% growth on an annualized basis.
Still very healthy and then when you just zoom out and think about the bigger opportunity all the innovation. We're talking about that's why we have so much conviction about the growth in <unk>, we're seeing momentum in locations, we're seeing our upsell team do really well, we're seeing our ability to go back and sell go.
Back and sell to our installed base.
More consistently so when you look at all of that and then that proof point that you mentioned that 10% of our customers are spending more than 10-K.
That cohort of customers on my script I had a customer that spending 20 km SaaS ARPA. So we're starting to see enough proof points of customers really.
Leveraging the breadth of the platform and we're going to continue to hone this month muscle over time, but I would point you back to our North star continues to be growth in <unk>. We've got two vectors of growth whether it's locations on <unk>, we feel incredibly confident about both of those.
Excellent Thanks Wayne Andrews.
Thank you Josh our last question will be from Dave Koning with Baird. Your line is now open.
Yeah, Hey, guys I appreciate it and I guess another question on profitability.
It looks like the last couple of quarters and really the guidance for the year I think Q assumes incremental EBITDA margins something around low low low double digits on revenue growth or I guess incremental on the GP growth maybe closer to.
$35 $30 to 35% is I mean is that kind of in the ballpark is that kind of know a little bit of a pattern that we should expect going forward.
What was the I didn't hear the first metric he said.
Yes, it was growing incremental EBITDA margin.
Well I think on revenue growth of low double digits.
Yes, I would.
At this point you back to our guidance says.
It's the best way to think about that obviously, we're going to try to continue to deliver.
And we see the momentum in the business, where we want to be balanced with the macro as well, but yes, you should see consistent margin improvement from us in the same way you seen for the last five quarters.
Alright, Thank you and just maybe a quick follow up what was did you give monthly trends I know the 50% GP growth that you give kind of month by month January through March.
Now, we don't we don't give that level of detail, but overall the quarter was strong.
Gotcha, alright, thanks nice job.
Thank you.
I would now like to turn the call back over to the presenters for any closing remarks.
No closing remarks, we thank you all and have a great day.
This concludes today's conference call you May now disconnect your line.