Q4 2023 Toast Inc Earnings Call

Operator: Good afternoon. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Toast Earnings conference call. All lines have been placed on mute to prevent any background noise.

Good afternoon. My name is Kate and I will be your conference operator today at this time I would like to welcome everyone to the Trust earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star, followed by the number two.

Followed by the number one on your telephone keypad, if you would like to withdraw your question Press Star followed by the number two again.

Operator: Thank you. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference. Thanks, Kate.

I'll now turn the call over to Michael Sena Senior Vice President of Finance you May begin your conference.

Thanks, Kim welcome to <unk> earnings Conference call for the fourth quarter and full year ended December 31 2023.

Michael Senno: Welcome to Toast's earnings conference call for the fourth quarter and full year ended December 31, 2023. On today's call, our CEO and co-founder, Aman Narang, and CFO, Elena Gomez, will open with prepared remarks, which will be followed by our Q&A session. Before we start, I'd like to draw your attention to the Safe Harbor Statement included in today's press release. During this call, we will make statements related to our business that may be considered forward-looking within the meaning of the Securities Act and the Exchange Act.

On today's call, our CEO and cofounder of Monterrey, and CFO Elena Gomez will open we're prepared remarks, which will be followed by a Q&A session.

Before we start I'd like to draw your attention to the Safe Harbor statement included in today's press release. During this call. We will make statements related to our business that may be considered forward looking within the meaning of the Securities Act and the Exchange Act all statements other than statements of historical facts.

Michael Senno: All statements, other than statements of historical facts, are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, location growth, future profitability timeline, and margin outlook, as well as the anticipated impact of our restructuring plan and share repurchase program. We look forward to the expected growth and business outlook, including our financial guidance for the first quarter and full year 2024. 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 uncertainty that can cause actual results to differ materially from our expectations.

Our forward looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures location growth future profitability timeline and margin outlook anticipated impact of our restructuring plan and share repurchase program expected growth and business.

Outlook, including our financial guidance for the first quarter and full year 2024.

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.

Michael Senno: During this call, we will discuss certain non-GAAP financial measures, including, but not limited to, non-GAAP subscription services gross profit and non-GAAP financial technology solutions gross profit, which we refer to collectively as our recurring gross profit stream. These are the bases for our top-line guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results.

During this call, we will discuss certain non-GAAP financial measures, including but not limited to non-GAAP subscription services gross profit and non-GAAP financial technology solutions gross profit, which we refer to collectively as a recurring gross profit streams.

These are the basis for our top line guidance.

These non-GAAP measures are not intended to be a substitute for our GAAP results.

Michael Senno: Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures. Unless otherwise stated, all references on this call to cost of revenue, gross profit, and gross margin, sales and marketing expense, research and development expense, and general and administrative expense are on a non-GAAP-based basis. Finally, the press release and our earnings presentation can be found on the Investor Relations website at investors.toastapp.com. We will no longer publish an earnings presentation on a quarterly basis going forward. After the call, a replay will be available on our website.

Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures.

Unless otherwise stated all references on this call is the cost of revenue gross profit and gross margin sales and marketing expense research and development expense and general and administrative expense are on a non-GAAP basis.

Finally, the press release and our earnings presentation can be found on the Investor Relations website at investors <unk> Dot com.

We will no longer publish an earnings presentation on a quarterly basis going forward.

After the call a replay will be available on our website.

Michael Senno: With that, let me turn the call over to Amon. Thank you, Michael. Good afternoon, everyone.

With that let me turn the call over to Omar.

Thank you Michael and good afternoon, everyone and thank you for joining today's conference call.

Aman Narang: And thank you for joining today's conference call. This is my twelfth year since we launched Toast in my basement with Steve Furdette and Jonathan Grun back in 2012. And I'm honored to be here today with all of you and lead this great business as CEO on my first earnings call. Before I recap 2023 and look ahead to 2024.

This is my 12 years since we launched toast in my basement, with Steve <unk> and Jonathan Glenn.

Back in 2012.

And I'm honored to be here today with all of you and lead this great business as CEO on my first earnings call.

Before I recap 2023, and look ahead to 2024.

Aman Narang: I do want to address one topic up front. We've made the difficult but right decision to reduce our headcount by 10%. As you know, Toast grew rapidly over the past few years to support our growing customer community. As we've taken a look across the organization, it has become clear that we grew our team too quickly in some areas, and we need to restructure the organization to best align with our most important priorities. The changes we announced today primarily focus on non-customer-facing roles, and we remain committed to sustaining healthy top-line growth and delivering a best-in-class customer experience. I want to thank every Toast for passing presents, including those who are leaving us, for the important part each of you played in getting us to where we are today.

I do want to address one topic upfront.

We've made the difficult, but right decision to reduce our head count by 10%.

As you know Jos grew rapidly over the past few years to support our growing customer community.

As I've taken a look across the organization it has become clear that would be.

We grew our team to quickly in some areas and we need to restructure the organization to best align with our most important priorities.

The changes we announced today, primarily focused on non customer facing roles and we remain committed to sustaining healthy top line growth and delivering a best in class customer experience.

I want to thank every <unk> surpass can present.

Including those who are leaving us.

For the important part each of you played in getting us to where we are today.

Aman Narang: In the very immediate term, my priority is to ensure we navigate today's decision with empathy and support for those affected. I'm confident we can tap into a renewed sense of optimism for the opportunity ahead. Our defining challenge for 2024 is to operate with a shared urgency against remission, raise the bar on how we collaborate, and maintain a relentless focus on our customers. Over the past decade, we built a leading integrated software platform for the restaurant industry.

In the very immediate term my priority is to ensure we navigate today's decision with empathy and support for those affected.

As we work through this transition.

I'm confident we can tap into a renewed sense of optimism for the opportunity ahead.

Defining challenge for 2024 is to operate with a shared urgency against our mission raised.

It raised the bar on how we collaborate and maintained a relentless focus on our customers.

Over the past decade.

We built a leading integrated software platform for the restaurant industry.

Aman Narang: And since our IPO in September 2021, we've launched so much innovation to help restaurants thrive, products like reservations, websites, scheduling, retail capabilities for restaurants, a full redesign of our POS experience, and more recently, our Toast Now operator app, to name a few. This focus on platform innovation has allowed us to double the number of restaurants on our platform to 106,000 and more than double ARR to over 1.2 billion since the IPO. As we look ahead, our conviction about the future is as strong as ever.

And since our IPO in September 2021, we've launched so much innovation to help restaurants drive.

Products like reservations website scheduling retail capabilities, where restaurants are full redesign of our Pos experience and more recently, our toe style operator to.

To name a few.

This focus on platform innovation has allowed us to double the number of restaurants on our platform to 106000 and more than doubled to.

So over $1 2 billion since the IPO.

As we look ahead.

Our conviction in the future is as strong as ever.

Aman Narang: We are well on our way to becoming the technology platform of choice for the entire restaurant industry. Continuing to deliver on our mission and serving as the technology backbone for restaurants will lead to significant value creation for all our stakeholders, our customers, our shareholders, and, of course, our toasters, who support our community each and every day. To accomplish this, we're focused on four strategic priorities.

We are well on our way to becoming the technology platform of choice for the entire restaurant industry continuing to deliver on our mission and serving up the technology backbone for restaurants will lead to significant value creation for all our stakeholders our customers our shareholders and of course, our coasters that support our communities each and every day.

To accomplish this we're focused on four strategic priorities.

Aman Narang: First, scaling restaurant locations within our core business. Second, driving ARR and ARPU by building products and experiences our customers love. Third, expanding our addressable market by launching and scaling new growth factors, and fourth, setting up the company to scale and deliver ongoing operating leverage. But let me walk through each of these in more detail.

First scaling restaurant locations within our core business.

Second driving IRR and <unk> by building products and experiences our customers love.

Third expanding our addressable market by launching and scaling new growth vectors.

And fourth setting up the company to scale and deliver ongoing operating leverage.

Now, let me walk through each of these in more detail.

Aman Narang: First, we will continue to win market share and scale restaurant locations within our core business. We added over 6,500 net new locations in Q4 and ended the year with approximately 106,000 locations, a 34% increase versus 2022. Our ability to sustain over 30% location growth at this scale is a testament to our competitive differentiation, our all-in-one platform, our localized go-to-market approach, and the consistent execution by our sales and customer success teams. The momentum in our S&B segment has allowed us to double the number of Flybill markets over the past year, with 30% of our markets now in Flybill, defined by over 20% S&B market share. Our rep productivity in flywheel markets is over 10% higher than other markets, leading to faster share gains.

First we will continue to win market share and scale restaurant locations within our core business.

We added over 6500 net locations in Q4 and ended the year with approximately 106000 locations.

A 34% increase versus 2022.

Our ability to sustain over 30% location growth at this scale is a testament to our competitive differentiation.

Our all in one platform.

Localized go to market approach and the consistent execution by our sales and customer success teams.

The momentum in our SMB segments has allowed us to double the number of LIBOR markets over the past year with 30% of our markets now in flywheel.

Signed by over 20% SMB market share.

Our rep productivity in global markets is over 10% higher than other markets leading to faster share gains.

Aman Narang: Even in our most penetrated markets, where we have over 30% market share, we are still gaining share at a healthy clip. These markets are a benchmark for how we expect other markets to evolve over time and give us confidence in sustaining healthy location growth. The foundation of our success starts with high-value, full-serve restaurants, which our go-to-market team has prioritized.

Even in our most penetrated markets, where we have over 30% market share we are still gaining share at a healthy clip.

These markets are a benchmark for how we expect other marks to evolve over time and gives us confidence in sustaining healthy location growth.

The foundation of our success starts with high value full serve restaurants.

Which our go to market team is prioritizing.

Aman Narang: In addition, we're gaining traction across the broader TAM as we expand our product offerings to serve different restaurant types. And as our addressable market grows, we see gradual adjustments in our mix across SMB, mid-market, enterprise, and international restaurants. We expect our food prices to continue to increase and GPB per location to remain above industry averages. Our team continues to ensure we maintain healthy unit economics as we scale locations across these categories. In addition to our SMB market segment, which is the largest share of the market and remains the biggest driver of net ads, we continue to see growth in our mid-market segments, including brands such as Wetzel's Pretzels, The 99, Dirty Dough, and Romano's Macaroni Grill that have joined Toast over the past year. Let me highlight one episode that went from the quarter.

In addition, we're gaining traction across the broader Tam.

As we expand our product offerings to serve different restaurant types.

And as our addressable market grows and we see gradual adjustments in our mix across SMB mid market enterprise and international restaurants.

We expect <unk> to continue to increase and GTP per location to remain above industry averages.

Our team continues to ensure we maintain healthy healthy unit economics, as we scale locations across these categories.

In addition to our SMB market segment, which is the largest share of Mark which is the largest share of the market and remains the biggest driver of net adds we continue to see growth in our mid market segments, including brands such as let those pretzels. The 99 Dirty do tremendous macaroni grill that have joined us over the past year.

Let me highlight one episode went from the quarter.

Carbon prime marketplace and restaurant founded by chef, John <unk>, and Florida opened in October.

Aman Narang: Urban Prime Marketplace and Restaurant, founded by chef Arjan Ikinji in Florida, opened in October. Urban Prime is an upscale FSR with large indoor and outdoor dining areas, as well as a gourmet market featuring a butcher shop, sushi, and wine. After extensive research, Urban Prime selected Toast to consolidate their business across their thriving restaurant and gourmet market and are leveraging our POS terminals, Co. handheld devices, kitchen display systems, online ordering, gift cards, and marketing. Using our restaurant and retail product, they were able to consolidate POS systems across their restaurant and market to simplify their front and back office operations and consolidate all the revenue streams into a single packet. In addition, they've recently switched to Toast Peril to further streamline and simplify their business. It's great to see Urban Prime expand with Toast and recommend several restaurants to Toast.

Urban time, as an upscale SSR with large indoor and outdoor dining areas as well as the gourmet market, featuring a butcher shop sushi and wine.

After extensive research urban prime selected <unk> to consolidate their business across their thriving restaurant and gourmet market and are leveraged leveraging our Pos terminals.

Kosko handheld devices kitchen display systems.

Ordering gift cards and marketing.

Using our restaurant and retail product they were able to consolidate Pos systems across the restaurant and market to simplify their frac their front and back office operations and consolidated all of the revenue streams into a single backend.

In addition, <unk> also recently switched to toast apparel to further streamline and simplify the business.

It's great to see everyone time expand with dose and FERC several restaurants to test.

Aman Narang: Our second priority is driving ARR and ARPU by building products and experiences our customers love. To complement our strong location growth, we are laser-focused on increasing ARR at scale. In 2023, we grew total ARR 35% year-over-year. We believe there's runway in our existing markets to continue to scale locations while also increasing both SaaS and FinTech ARR through product innovation, pricing, and our continued investment in upselling existing customers to our growth sales. Hydropop product attach rates are an important driver of our food.

Our second priority is driving <unk> and ARPA by building products and experiences our customers love.

To complement our strong location growth, we're laser focused on increasing <unk> at scale in 2023, we grew total IRR, 35% year over year.

We believe there is runway in our existing markets to continue to scale location locations. While also increasing both SaaS and syntech era to product innovation pricing and our continued investment and upselling existing customers through our growth sales team.

Hydro product attach rates is an important driver of our food.

Aman Narang: Many of our existing products have plenty of runway to scale, and our product teams continue to act on customer feedback to enhance and expand their terminal attack potential across their customer base. For new customers, earlier this month, we rolled out simpler product packaging that will enable our new business reps to maximize initial product attach and ARPU while balancing strong location growth. And for existing customers, price adjustments is a new lever that we're looking to build into our ongoing R for Growth strategy. We will take a holistic approach across both SAS and FinTech, and you should see progress from us in 2024 that we build on moving forward. One customer that has expanded and adopted more of the platform is Angelo's Ristorante, a classic Italian eatery, in Massachusetts.

Many of our existing products have plenty of runway to scale and our product teams continue to act on customer feedback to enhance and expand our terminal attached potential across our customer base.

For new customers earlier this month, we rolled a simpler simpler product packaging that will enable a new business reps to maximize initial product attach and Arthur while balancing strong location growth.

And for existing customers price adjustments as a new lever that we're looking to build into our ongoing ARPA growth strategy. It will take care of holistic approach across both SaaS and fintech.

And you should see progress from us in 2024 that we build on moving forward.

One customer that is extended and adopted more of a platform is Angela just around in Massachusetts.

Angelus Classic Italian <unk> task behind adding half take out pizzeria with joined toast in 2018.

Aman Narang: Half fine dining, half takeout pizzeria. We joined Toast in 2018. On a busy Friday night, Angelos would send 40 to 50 tickets to the kitchen in a short 15-minute period, and to support this volume, they went looking for a new point of sale system. After looking at 10 different systems, they chose Toast because it best met their needs.

On a busy Friday night Angelo's may send 40 to 50 tickets the kitchen in the short 15 minute period.

And to support this volume they were looking for a new kols.

After looking at 10 different systems, they chose toast because he bet estimate their needs.

Aman Narang: Since joining Toast, Angelo's SAAR has almost doubled. Angelo, the restaurant's owner, has worked closely with us to add more products to grow revenue, including online ordering, catering, and events, and Toast Tables. With Toast Tables, Angelo's hosts can more efficiently manage table turnover and bring in more reservations.

Since joining toast Angela SaaS IRR has almost doubled Angela.

Angela the restaurant's owner has worked closely with us to add more products to grow revenue, including online ordering catering and events until.

Until stable.

With those tables Angeles hosts can more efficiently manage table <unk> turnover and bringing more reservations.

Aman Narang: And as a new payroll customer this year, Angelo is excited about the time and cost savings he's seen so far. All right, so shifting to our next priority, our third priority is expanding our TAM by launching and scaling new growth vectors to complement our success across SMB restaurants. Our product team is hard at work to make Toast an even better fit across enterprise, hotel, restaurant, and international markets. Last week, we announced an agreement with Choice Hotels. Toast will be the brand standard for Cambria and Radisson Hotels as well as a qualified vendor for other Toast brands.

And as a new payroll customer this year Angela is excited about the timing cost savings he has seen so far.

Alright, so shifting to our next priority our third priority is expanding our tam by launching and scaling new growth vectors.

To complement our success across SMB restaurants, our product team is hard at work to make toast and an even better fit across enterprise hotel restaurant and international markets.

Last week, we announced an agreement with choice hotels.

Total will be the brand standard for Cambria, and Radisson hotels as well as a qualified vendor for other choice brands.

Aman Narang: Cambria and Radisson will leverage the breadth of the Toast platform, including Toast online ordering, mobile order and pay, kiosk, and Toast payments to support the different dining options across their properties. We're also thrilled to welcome Caribou Coffee to Toast. They chose us to maximize speed of service across their coffee shops and partner with a scalable restaurant platform to support their expansion plan. And internationally, I'm excited to share that we've exceeded 1,000 locations as of the fourth quarter. The team has worked hard to establish the Toast brand in parts of Canada, the UK, and Ireland using the same localized go-to-market approach that has worked domestically.

Cambria and Radisson will leverage the breadth of the <unk> platform, including toast online ordering mobile order and pay kiosks and <unk> payments to support the different dining options across our properties.

We're also thrilled to welcome caribou coffee to test.

They chose us to maximize speed of service across their coffee shops and partner with the scalable restaurant platform to support their expansion plans.

And internationally I'm excited to share that we've exceeded 1000 locations as of the fourth quarter.

The team has worked hard to establish the <unk> brand in parts of Canada, The UK and Ireland using the same localized go to market approach and it works domestically.

Aman Narang: The customer reception in these markets has been terrific, and it reminds me of what we saw here in the U.S. in the early days, as more of our platform is available in international markets, including online ordering, guest marketing, and reservations. We expect to drive higher ARPU and further improve our payback periods and margins. This is a priority in 2026.

Customer reception of these markets has been terrific and reminds me of what we saw here in the U S. In the early days.

As more of our platform is available in international markets, including online ordering gas marketing and reservations.

We expect to drive higher <unk>.

And further improve our payback periods and margins.

This is a priority in 2024.

Aman Narang: We're confident that, as an enterprise, international markets represent a significant growth opportunity for Toast. Additionally, we're also looking to leverage our differentiated go-to-market engine, our all-in-one platform, and our growing scale to open up new opportunities for us. We're seeding investments in new parts of the TEN where we believe our market position provides a competitive advantage. Restaurant retail is a good example of this, and these nascent initiatives should further complement our growth potential over the long term. Next, our fourth priority is setting up the company to operate and scale to deliver ongoing operating leverage. In 2023, we drew ARR 35% and adjusted EBITDA to $61 million, which was a $175 million improvement year over year.

We're confident that as the enterprise and international markets represent a significant growth opportunity for test.

Additionally, we're also looking to leverage our differentiated go to market engine are all in one platform and our growing scale to open up new opportunities for us with.

We're seeding investments and new parts of the Tam, where we believe our market position provides a competitive advantage.

Restaurant retail is a good example of this and these nascent initiatives initiatives should further complement our growth potential over the long term.

Next our fourth priority is setting up the company to operate and scale to deliver ongoing operating leverage.

In 2023, we grew <unk>, 35% and adjusted EBITDA to $61 million, which was 175 million dollar improvement year over year.

Aman Narang: Our progress shows the scalability of our business as we balance growth and profitability. As we continue to grow, we are committed to the ambitious priorities I laid out above, as well as delivering increased operating leverage, including GAAP operating income profit by the first half of 2025. This effort includes managing stock-based compensation expense with the same discipline that we approach all our expense lines.

Our progress shows the scalability of our business as we balanced growth and profitability.

As we continue to grow we're committed to the ambitious we're committed to the ambitious priorities I laid out above as well as delivering increased operating leverage including GAAP operating income profit by the first half of 2025.

This effort includes managing our stock based compensation expense with the same discipline that we approach all of our expense lines.

Aman Narang: Additionally, as we start to scale free cash flow, our capital allocation approach will evolve. This includes prioritizing organic investments in areas we have signals and conviction that we can grow, looking at M&A if we see the right opportunities, and returning capital to our shareholders. To support this, our board has approved a $250 million share repurchase authorization, which we will leverage opportunistically based on market conditions. We plan to regularly evaluate and optimize our capital allocation priorities, and we will do so with a disciplined and transparent approach. All right, to wrap up, I want to leave you with a few themes that I covered today.

Additionally, as we start to scale, a free cash flow our capital allocation approach will evolve.

This includes prioritizing organic investments in areas, we have signal and conviction that we can grow.

We're looking at M&A, if we see the right opportunities.

And returning capital to our shareholders.

To support this our board has approved a $250 million share repurchase authorization.

Which we will leverage opportunistically based on market conditions.

We plan to regularly evaluate and optimize our capital allocation priorities and we will do so with a disciplined and transparent approach.

Alright to wrap up I want to leave you with a few themes that I cover today.

Aman Narang: We have a large opportunity ahead and have built the foundation to capitalize on it. As we execute our playbook to deliver continued market share gains in our core business, we will invest in parallel and leverage our strengths to open up additional TAM and build new growth curves. We will sustain ARPU and ARR growth through a combination of product innovation and pricing. And we're confident we have a scalable business model, and we'll continue to balance growth and profitability. I want to thank all our toasters, including those who will be leaving us, for your dedication and contribution to Toast. As I said earlier... This week is a tough week.

We have a large opportunity ahead and has built the foundation to capitalize on it.

We execute our playbook to deliver continued market share gains in our core business, we will invest in parallel and leverage our strengths to open up additional Tam and build new growth curves, we will sustain <unk> growth through a combination of product attach and pricing.

And we're confident we have a scalable business model and we will continue to balance growth and profitability.

I want to thank all of our toasters.

Including those who will be leaving us for your dedication and contribution to test.

As I said earlier.

This week is a tough week.

Elena Gomez: But I'm confident that we will move past this and, over time, build a stronger toast. I also want to thank our customers for entrusting us to support this incredible community. And I want to thank our shareholders for believing in us and the potential of this business. Thank you, and now I'll turn it over to Elena. Thank you, Aman, and to everyone for joining us. I'd like to thank all of our sisters for their hard work and commitment, including those we are saying goodbye to today.

But I'm confident that we will move past this and over time build a stronger toast.

I also want to thank our customers for trusting us to support this incredible community.

And I want to thank our shareholders for believing in us and the potential in this business.

And now I'll turn it over to Atlanta.

Thank you and to everyone for joining I'd like to thank all of our testers for their hard work and commitment, including those we are saying goodbye to him okay.

Elena Gomez: Organizational changes like these are hard, though this is a necessary step to streamline how we operate and position us to move faster to capitalize on the opportunity ahead. In 2023, we showed our ability to balance durable growth and profitability. For the year, Toast processed over 125 billion in payment volume, up 38%.

Organizational changes like these are hard.

This is a necessary step to streamline how we operate and position us to move faster to capitalize on the opportunity ahead.

In 2023, we showed our ability to balanced durable growth and profitability for the year <unk> processed over 125 billion in payment volume up 38%.

Elena Gomez: ARR grew 35% and total FinTech and subscription gross profit. Our recurring gross profit streams increased 49% for the year. We are efficiently scaling the business and driving cost discipline, delivering adjusted EBITDA of $61 million, a 6% margin on our recurring gross profit stream, 22 percentage points better than 2020.

<unk> grew 35% and total fintech and subscription gross profit our recurring gross profit streams increased 49% for the year.

And we are efficiently scaling the business and driving cost discipline, delivering adjusted EBITDA of $61 million, a 6% margin on our recurring gross profit stream 22 percentage points better than 2022.

Elena Gomez: Over the past two years, we've embedded durable, efficient growth as a principle for how we operate the business. The midpoints of our 2024 guidance, at 24% growth in our recurring gross profit streams and $210 million in adjusted EBITDA, reinforce this and put us on track for GAAP operating income profitability by the first half of 2025. As you heard from Amon, we are still in the early stages of our growth potential and committed to maintaining the same approach as we lean into the growth opportunity and continue to scale. The three main areas I want to cover today are our fourth-quarter results, our guidance and the impact of our restructuring plan, and our capital allocation approach, including the $250 million share repurchase program we announced today. Starting with our fourth quarter results, we added over 6,500 net locations, increasing our total locations to approximately 106,000, up 34% year over year.

Over the past two years, we've embedded durable efficient growth as a principle for how we operate the business.

The midpoint of our 2024 guidance at 24% growth in our recurring gross profit streams and $210 million and adjusted EBIT reinforces this and puts us on track for GAAP operating income profitability by the first half of 2025.

As you heard from him on we are still in the early stages of aircrafts potential and committed to maintaining the same approach as we lean into the growth opportunity and continue to scale.

The three main areas I want to cover today, our fourth quarter results, our guidance and the impact of our restructuring plan.

And our capital allocation approach, including the $250 million share repurchase program, we announced today.

Starting with our fourth quarter results, we added over 6500 net locations, increasing our total locations to approximately 106000 up 34% year over year.

Elena Gomez: SAS ARR grew 43% year over year, driven by strong location growth and a 7% increase in SAS ARPU as we lean into our customer acquisition momentum and balance ARPU growth. Our SAS Net Retention Rate, or NRR, remained in a healthy range at 117%, led by solid contributions from upsell and location expansion from existing customers. Fourth quarter payments ARR grew 28%, and FinTech gross profit increased 29%. Fourth quarter GPB increased 32% to $33.7 billion. And GPB per location declined modestly year over year, in line with our expectations and consistent with the trends exiting the third quarter. As a reminder, 4th quarter GPV per location is seasonally lower than the 3rd quarter, and payment to ARR reflects the same seasonality. The net take rate was 52 basis points in the quarter.

SaaS <unk> grew 43% year over year, driven by the strong location growth and a 7% increase in SaaS or pill, as we lean into our customer acquisition momentum and balance our growth.

Our SaaS net retention rate or NR remained in a healthy range at 117% led by solid contributions from upsell and location expansion from existing customers.

Fourth quarter payments <unk> grew 28% and Fintech gross profit increased 29%.

Quarter, TPB increased 32% to $33 7 billion.

<unk> per location declined modestly year over year in line with our expectations and consistent with the trends exiting the third quarter.

As a reminder, fourth quarter GP per location is seasonally lower in the third quarter and payments <unk> reflect the same seasonality net take rate was 52 basis points in the quarter.

Our non payments Fintech solutions led by test capital contributed $34 million in gross profit in Q4, reflecting steady healthy demand. We continue to take a balanced approach to growing test capital and our unique position with real time access to Pls data allows us to monitor the health of restaurants.

Elena Gomez: Our non-payment FinTech solutions, led by Toast Capital, contributed $34 million in gross profit in Q4, reflecting steady, healthy demand. We continue to take a balanced approach to growing Toast Capital, and our unique position with real-time access to POS data allows us to monitor the health of restaurants and prudently balance risk while helping our customers grow with fast, flexible access to capital. ARR remains our North Star.

And prudent prudently balance risk, while helping our customers grow as fast.

Flexible access to capital.

<unk> remains our north star as a mom laid out across our two growth factors locations in <unk>, we have multiple levers to sustain healthy aircrafts overtime.

Elena Gomez: As a model laid out across our two growth vectors, locations in our approved, we have multiple levers to sustain healthy ARR growth over time. We will prioritize the highest value locations to extend our success in this segment of the market. At the same time, the breadth of our integrated platform and ongoing product innovation opens up the entire restaurant market to us, and we plan to capitalize on that opportunity to drive further share gains. As we expand, we will remain grounded in unit economics and will tightly manage payback periods across the portfolio to ensure we drive incremental profit as we scale our locations. In 2023, our dollar-based payback period was 14 months, in line with our target for the portfolio and an improvement from 2022, even as we expanded into more parts of the TAM and increased our international investment.

We will prioritize the highest value locations to extend our success in this segment of the market.

At the same time, the breadth of our integrated platform and ongoing product innovation opens up the entire restaurant Tam to us.

Climbed to capitalize on that opportunity to drive further share gains.

As we expand we remain grounded in unit economics, and we will tightly manage payback periods across the portfolio.

To ensure we drive incremental profit as the scale of our locations.

In 2023 are dollar based payback periods of 14 months in line with our target for the portfolio and an improvement from 2022, even as we expanded into more parts of the Tam and increased our international investments.

Elena Gomez: In Fintech, our long-term growth drivers show increasing core net take, take remain, driving towards the lowest cost per transaction and leveraging our unique customer relationships to provide additional FinTech solutions. We anticipate SAS RPU growth to be in the mid-single digits over the near term, driven by increasing attach and price. Across both SAS and FinTech, pricing is a lever that we will use methodically to monetize the value we provide customers. As Amon discussed, this is a capability we are building to be an ongoing part of our growth algorithm over time. Now, turning to our expenses. We manage hardware and services as customer acquisition costs and provide these on a discounted basis to offer an easy, low-friction, on-ramp for customers. Q4 hardware and services gross margin improved 19 percentage points compared to last year, primarily reflecting lower shipping costs and ongoing operational efficiency. Sales and marketing expenses increased 18% year over year in Q4 as we continue to invest in our upsell and international sales team and make targeted investments in our U.S. new business team to drive deeper penetration.

In Fintech, our long term growth drivers are increasing core net take.

Take rate remain driving towards lowest cost per transaction and leveraging our unique customer relationships to provide additional fintech solutions.

We anticipate SaaS <unk> growth to be in mid single digits over the near term driven by increasing attach in pricing.

Across both SaaS and Fintech pricing is a lever that we will use <unk> to monetize the value we provide customers.

As <unk> discussed this is a capability we are building it be an ongoing part of our growth algorithm overtime.

Turning to our expenses.

We manage hardware and services as customer acquisition costs and provide these on a discounted basis to offer an easy low friction on ramp for customers.

Q4, our hardware and services gross margin improved 19 percentage points compared to last year, primarily reflecting lower shipping costs and ongoing operational efficiencies.

Sales and marketing expenses increased 18% year over year in Q4, as we continue to invest in our upsell and international sales teams and make targeted investments in our U S new business team to drive deeper penetration.

Elena Gomez: Sales and marketing as a percentage of our recurring gross profit streams improved by 400 basis points in Q4 relative to last year. Our go-to-market motion is a competitive differentiator and an important part of our ability to efficiently scale the business, enabling us to sustain healthy ARR growth while moderating investments in sales and marketing. R&D expenses grew 17% year-over-year in the fourth quarter.

Sales and marketing as a percentage of our recurring gross profit streams improved by 400 basis points in Q4 relative to last year.

Our go to market motion is a competitive differentiator and an important part of our ability to efficiently scale the business, enabling us to sustain healthy growth, while moderating investments in sales and marketing.

R&D expenses grew 17% year over year and four corner.

Elena Gomez: Our product investments are aligned with our priorities to serve more of the TAM, to expand ARPU by increasing the addressability of our products and serving more of our customers' needs, and to feed longer-term growth initiatives. Complementing these priorities is an emphasis on delivering best-in-class customer experiences and building scalable, resilient infrastructure to support hundreds of thousands of locations. G&A expenses grew 5% year-over-year in the quarter, excluding $20 million of bad debt and credit-related expenses primarily related to reserves for Toast Capital.

Our product investments are aligned with our priorities to serve more of the Tam to expand <unk> by increasing the addressable any of our products and serving more of our customers' needs and to see longer term growth initiatives. Complementing. These priorities is an emphasis on delivering best in class customer experiences and building scalable.

Resilient infrastructure to support hundreds of thousands of locations.

G&A expenses grew 5% year over year in the quarter, excluding $20 million of bad debt and credit related expenses, primarily related to reserves for total capital G&A was up 3%.

Elena Gomez: G&A was up 3%. That's the result of our ongoing efficiency efforts and prudently managing overhead expenses. Adjusted EBITDA was $29 million in the quarter, and the 10% margin on our recurring gross profit streams marked a 19 percentage point improvement from Q4 last year, driven by the combination of continued strong top-line growth and operating leverage as we efficiently scale the business. Free cash flow totaled $81 million in the quarter and $93 million for the full year.

That's a result of our ongoing efficiency efforts and prudently managing overhead expenses.

Adjusted EBITDA was $29 million in the quarter, a 10% margin on our recurring gross profit streams marked a 19 percentage point improvement from Q4 last year driven by the combination of continued strong topline growth and operating leverage as we efficiently scale the business.

<unk>.

Free cash flow totaled $81 million in the quarter and $93 million for the full year, we converted over 100% of adjusted EBITDA to free cash flow with working capital benefiting from stronger GTD trends in December.

Elena Gomez: We converted over 100% of adjusted EBITDA to free cash flow, with working capital benefiting from stronger GPB trends in December. Over time, we anticipate the trajectory of pre-cash flow to broadly mirror adjusted EBITDA. Free cash flow is typically lower in the first quarter each year due to the seasonality of our payments business and the timing of cash bonus payments.

Over time, we anticipate the trajectory of free cash flow to broadly mirror adjusted EBITA.

Free cash flow is typically lower in the first quarter each year due to seasonality of our payments business and the timing of cash bonus payments and this year. In Q1 will also include severance payments.

Elena Gomez: And this year, in Q1, it will also include severance payments. Given these factors, we expect free cash flow to be negative in Q1, then accelerate as the year progresses. In terms of the restructuring we announced today, we anticipate recognizing $45 to $55 million in restructuring and related charges for the year, with most of it falling in Q1. In total, we expect over $100 million in annualized savings, including stock-based compensation, from the restructuring and lower hiring. We will reinvest a portion of the savings into our Highest Conviction Growth Initiative. Our 2024 top-line guidance is for the combination of subscription and FinTech non-GAAP gross profit, or recurring gross profit streams, which is the P&L metric that most closely aligns with ARR. In Q1, we expect 22% top-line growth and $20 million in adjusted EBITDA at mid-term. This reflects slower GPV trends in January due to weather headwinds across many parts of the country.

Given these factors, we expect free cash flow to be negative in Q1 and accelerate as the year progresses.

In terms.

Of the restructuring we announced today, we anticipate recognizing $45 million to $55 million in restructuring and related charges for the year with most of that falling in Q1.

In total we expect over $100 million in annualized savings, including stock based compensation from the restructuring and lower hiring.

We will reinvest a portion of savings into our highest conviction initiatives.

Our 2020 for topline guidance is for the combination of subscription and Fintech non-GAAP gross profit are recurring gross profit screens, which is the P&L metric that most closely aligned with <unk>.

In Q1, we expect 22% top line growth and $20 million and adjusted EBITDA at the midpoint.

This reflects slower <unk> trends in January due to weather headwinds across many parts of the country.

Elena Gomez: GPD has stabilized over the past few weeks, and we continue to closely monitor. Net location ads in 2024 will follow the typical seasonal pattern. We expect a lower Q1, similar to Q1 last year, in the 5500 range.

GTD has stabilized over the past few weeks and we continue to closely monitor.

Net location adds in 2024 will follow the typical seasonal pattern, we expect a lower Q1 similar to Q1 last year in the 5500 range then location adds will peak in Q2 as restaurants repair for busy season.

Elena Gomez: Then, location ads will peak in Q2 as restaurants prepare for business. More broadly, with a healthy pipeline, consistent go-to-market execution, and increasing contribution from new segments as the year progresses. We are well positioned to add more locations to our platform in 2024 than we did in 2023. On a full year basis, the $210 million midpoint of our adjusted EBITDA guidance reflects a nearly $150 million improvement and a margin expansion of 10 percentage points relative to 2023.

More broadly with a healthy pipeline consistent go to market execution, and increasing contribution from new segments as the year progresses.

We are well positioned to add more locations to our platform in 2024 than last year.

On a full year basis that $210 million midpoint of our adjusted EBITDA guidance reflects a nearly $150 million improvement and margin expansion of 10 percentage points relative to 2023.

Elena Gomez: As we drive efficiency and increase profitability, we'll prudently invest in our highest priority growth areas, including product innovation and our go-to-market engines. In addition, we will continue to invest in longer-term initiatives where we have conviction, like international expansion and enterprise, as well as plant seeds in newer initiatives where we see a clear right to win to expand our market opportunity and extend our growth potential. Stock-based compensation is an area we're managing with the same rigor and discipline as other expenses through a combination of disciplined headcount management, including the restructuring plan announced today.

As we drive efficiency and increased profitability.

We'll prudently invest.

In addition, we will continue to invest in longer term initiatives, where we have conviction like international expansion and enterprise as well as plant seeds and newer initiatives, where we see a clear right to win to expand our market opportunity.

And our growth potential.

Stock based compensation is an area, we're managing with the same rigor and discipline as other expenses through a combination of disciplined head count management, including the restructuring plan announced today chain.

Elena Gomez: Changes to equity granting practices and the roll-off of large grants made in 2021 and 2022 over the next couple of years. Our goal is for stock-based comp to decline from 27% in 2023 to low double digits as a percentage of recurring gross profit streams over the medium term. Managing our equity program will also improve dilution.

Changes to equity granting practices and the rollout of large grants made in 2021 and 2022 over the next couple of years. Our goal is for stock based comp to decline from 27% in 2023 to low double digits as a percentage of our recurring gross profit streams over the medium term.

Managing our equity program will also improve dilution we are committed to maintaining net share dilution on our total fully diluted share count, which includes all stock awards to below 2% annually.

Elena Gomez: We are committed to maintaining net share dilution on our total fully diluted share count, which includes all stock awards, to below 2% annually. With a combination of continued adjusted EBITDA margin expansion and leverage in our stock-based compensation, we are on track for GAAP operating income profit by the first half of 2025. As our free cash flow profile grows, our capital allocation strategy will evolve. However, our top priority continues to be investing organically in our business to drive sustainable long-term growth. Even as we strategically invest, we are committed to driving increasing free cash flow. With excess free cash flow, we will evaluate M&A, but we will hold a high bar given the strong organic growth outlook, and we're adding the option to return capital to shareholders to our capital allocation toolkit with a 250 million share repurchase authorization. We do not have a timetable for repurchases and will act judiciously and opportunistically.

With the combination of continued adjusted EBITDA margin expansion and leverage in our stock based compensation. We are on track for GAAP operating income profit by the first half of 2025.

Lastly, let me turn to capital allocation.

As our free cash flow profile grows our capital allocation strategy will evolve our top priority continues to be investing organically in our business to drive sustainable long term growth.

Even as we strategically invest we are committed to driving increasing free cash flow with access free cash flow, we will evaluate M&A.

We'll hold a high bar given the strong organic growth outlook, and we're adding the option to return capital to shareholders to our capital allocation toolkit with a $250 million share repurchase authorization.

We do not have a timetable on repurchases and we will act judiciously and Opportunistically.

Elena Gomez: We plan to regularly optimize across these priorities to do what's best for the business at any given time, and we'll always optimize for long-term shareholder value. To wrap up, we are executing across the board, growing our location count, and driving value for our customers. We are planning to host an Analyst Day during the second quarter, where we will go deeper into our business and share more about our market opportunity and strategy. I'm incredibly excited about what lies ahead for Toast.

We plan to regularly optimize across these priorities to do what's best for the business at any given time, we'll always optimize for long term shareholder value.

To wrap up we are executing across the board growing our location count driving value for our customers seeding new longer term growth initiatives and positioning the company to operate fast and nimble going forward. We are planning to host an analyst day during the second quarter, where we will go to.

Deeper into our business and share more about our market opportunity and strategy.

I'm incredibly excited about what lies ahead for test. Thank you.

Operator: Thank you, and now I'll turn the call back to the operator to begin Q&A. Thank you. At this time, I would like to remind everyone that in order to ask a question, press star then the number one on your telephone keypad.

And now I will turn the call back to the operator to begin Q&A.

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.

Operator: We'll pause for just a moment to compile the Q&A roster. Your first question will be from the line of Will Nance with Goldman Sachs. Your line is now open.

Pause for just a moment to compile the Q&A roster.

Your first question will be from the line of will Nance with Goldman Sachs. Your line is now open.

Aman Narang: Hey guys, appreciate all the color today and congrats on the strong results. You mentioned pricing a couple of times in the prepared remarks, so maybe you could just kind of expand a bit in terms of how you're thinking about pricing. I know it's something you guys have been talking about for the past couple of quarters. And then, Elena, maybe just a numerical clarification on the guidance, the mid-single digit ARPU. Is that on an ending basis, kind of like we discussed last year, or is that more on an ongoing basis over the course of the year? Thanks. Sure, thanks Will.

Hey, guys I appreciate all the color today and congrats on the strong results.

You mentioned pricing a couple of times in the prepared remarks. So maybe you could just kind of expand a bit on in terms of how youre thinking about pricing.

You guys have been talking about for the past couple of quarters.

And then Atlanta, and maybe just a numerical clarification on the guidance. The mid single digits <unk> is that on an ending basis kind of like.

Discussed last year or is that more on an ongoing basis over the course of the year.

Sure. Thanks will.

Aman Narang: I'll start by saying that, if you look at pricing, it's an important lever for us, but we plan to use it gradually as part of a broader strategy. You know, we've been at this for over a decade, and we continue to invest in our restaurant-specific platform to help restaurants thrive. And I think our customers understand that if we continue to invest in this platform, we will increase prices over time. If you look at our new customers that are joining our platform, they're paying us more across both SaaS and FinTech. Over time, we expect that existing customers will make those adjustments gradually, and it's going to be a lever that we'll use over time. Yeah, and I can, Will, you had the question about FAST, and is that an ending point or over the course of the year? And we expect it to be in that range over the course of the year. I got it.

I'll start by saying if you look at pricing, it's an important lever for us.

We plan to use it gradually as part of a broader strategy.

We've been at this for over a decade, and we're continuing to invest in our restaurants specific platform to help restaurants drive.

And I think I can underscore our customers understand that it would be continued investments platform that we will increase prices over time.

If you look at our new customers that are joining our platform. They are paying us more across both SaaS and fintech and.

Overtime, we expect that existing customers, we will make those adjustments gradually.

It's going to be a lever that we use overtime.

Yeah, and I can well you had the question about SaaS and is that an ending point or over the course of the year and we expect it to be in that range over the course of the year.

Got it I appreciate both of those and then maybe just a follow up question on <unk> capital.

Elena Gomez: I appreciate both of those. And then, maybe just a follow-up question on Toast Capital. You know, it's been, I think, a little over a year since you rolled out the longer duration products there. You kind of mentioned prudently managing that. Just wondering if you could kind of talk about your expectations for that product. You know, is there something you guys are kind of looking to get more data on or kind of more history?

That's been I think a little over a year since you rolled out the longer duration products. There you kind of mentioned prudently managing that just wondering if you could kind of talk about your expectations for that product or is there something you guys are kind of looking to get more data on or kind of more history.

Elena Gomez: And, you know, how should we think about the potential for that product as you continue to scale it? Thanks. Yeah, thanks, Will, for the question. So, at the highest level, we're really pleased with the performance of Toast Capital, and customer demand has been really steady, and default rates are in line with our expectations. So, really, confident in the program overall. We did launch the 360-day program last year. Now we've lapped that.

And how should we think about kind of the potential for that product as you continue to scale it.

Yes. Thanks for the question so at the highest level, we're really pleased with the performance of tests capital and customer demand has been really steady and default rates are in line with our expectations. So really really confident in the program. Overall, we did launch a 360 day program last year I think now we've lapped that so we're more in.

Elena Gomez: So we're more in a steady state, I would say in the business, but still seeing healthy demand. And I would expect, over the course of this year, it will grow more in line with the rest of the business. But we'll scale it prudently, as you mentioned, and then, over the longer term, I think we have an opportunity to continue to evolve and offer more FinTech solutions to our customers. But for now, we're going to focus on optimizing this program. It's working well. Got it. Appreciate you taking the time to answer the questions. Congratulations again.

Steady state I would say in the business, but still seeing healthy demand and I would expect.

Over this course of this year it'll grow more in line with the rest of the business.

We'll scale it prudently as he mentioned and then over the longer term I think we have an opportunity to continue to evolve and offer.

More fintech solutions to our customers, but for now we're going to we're going to focus on optimizing this program, it's working well.

Got it I appreciate you taking the questions Congrats again.

Operator: The operator will take the next question. Thank you. The next question will be from the line of Harshita Rawat with Bernstein. Your line is now open. Good afternoon.

Operator, we'll take the next question.

Thank you. The next question will be from the line of <unk> Rawat with Bernstein. Your line is now open.

Good afternoon, and thank you for taking my question can.

Elena Gomez: Thank you for taking my question. Elena, can you talk about the dynamics of gross profit on the FinTech side? Looks like the net take rates came down a little bit. I know there's some seasonality here, but can you talk about the drivers here, especially looking forward?

Can you talk about the dynamics.

Well sit on the Fintech side.

Looks like the you know the net take rates came down a little bit I know, there's some seasonality.

But can you talk about the drivers here, especially looking for Gregg I know sounds good.

Elena Gomez: I know some of your peers have commented on the favorable pricing environment. And then, just as a follow-up, Aman, can you talk about the overall data for Toast and the new business formation, which has been kind of running above trend in the last few years? I'll cover the first question.

Ladies and favorable pricing environment.

And then just as a follow up can you talk about that.

The overall data with Deutsche Bank.

This foundation, which has been kind of running above trend.

Okay.

I'll cover the first question I didn't I didn't hear clearly the second question. So we may ask you to repeat it if that's okay.

Aman Narang: I didn't hear the second question clearly, so we may ask you to repeat it if that's okay. On the take rate question, you know, take rate in Q4 was 52 basis points, 10 basis points of that are related to Toast Capital. Our core take rate was 42 basis points.

On the take rate question take rate in Q4 was 52 basis points 10 basis points of that.

Related to coast capital, our core take rate was 42 basis points.

Elena Gomez: And so that, and that was there were some customer credits in that take great nothing structural to consider over the long term. As we think about take rates over the next year, we'll have that same seasonal pattern we do in Q1 where, because of debit, it's higher, but as the year progresses, we should see it improve, mostly because we're going to continue our cost optimization efforts. We'll have some surgical pricing that's planned for the latter half of the year. And then, longer term, of course, as I always talk about, we always continue to optimize our take rate and drive it up steadily over time. And then your second question: do you mind repeating it?

And so that and that was there were some customer credits in in that take rate nothing structural to.

Consider over the long term as we think about take rate over the next year.

That same seasonal pattern, we do in Q1, where because of Cabot, it's higher but as the year progresses, we should see it improve mostly because we're going to continue our cost optimization efforts will have some surgical pricing.

As planned in the latter half of the year.

And then longer term of course.

Talk about we'll always continue to optimize our take rate and drive it up steadily over time.

And then your second question do you mind repeating it.

Aman Narang: Yeah, of course. So it was about your beta to overall like new business formation on the location ads. I know overall, if I look at new business formation restaurants, it's been running higher versus the long term trend. So just any comments.

Yes of course, so it was about beta two overall net new business formation on the location.

I know overall, if I look at like new business formation restaurants, it's been running higher.

And the long term trend so just any color. Thank you.

Aman Narang: Yeah, thanks, Arshad. Look, we've seen, you know, continued to see a fairly balanced number of new openings and existing restaurants. You know, post-COVID, we saw a bit of tailwind from new restaurants, but that hasn't, you know, that hasn't tailed off in any material way. I'll also just say, if you zoom out, you know, we've been at this for over a decade.

Yes, yes, thanks Harsha.

Continued continue to see fairly balanced between new openings in existing restaurants.

Post Covid, we saw a bit of a tailwind from new restaurants, but that hasnt.

Tailed off in any material way I'd also just say if you zoom out and we've been at this for over a decade.

Aman Narang: And we're the first to build this vertically-integrated, restaurant-specific platform, and we'll continue to invest. And what we see is across both existing restaurants and new restaurants, we see our sales team able to continue to gain market share across both, and this is across FSRs and QSRs. And so, even in a world where there's some movement in terms of the number of new openings, we're confident in our ability to continue to gain market share. Thank you. The next question is from the line of Pascal Wong with JP Morgan. Your line is now open.

And we were the first to build a vertically integrated restaurant specific platform and we'll continue to invest in what we see is across both existing restaurants and the restaurants, our sales team able to continue to gain market share across both and this is across <unk> and <unk> and so even in a world where there's some movements in terms of the number of new openings that were confident in our one.

Will you continue to gain share.

Thank you.

Thank you.

The next question is from the line of Pinson Wong with Jpmorgan. Your line is now open.

Aman Narang: Hi, thank you, and I appreciate all the profitability focus here. So, my question's, Elena, for you, you were spot on with your location outlook here in the second half of 23, and you mentioned you're going to add more in 24 than in 23. A question I get quite often is... How do the new location additions differ from what you've seen in the past year or two years ago? I think there's always this question of, are they smaller GPP potential locations?

Hi, Thank you and I appreciate all the profitability focus here. So my question's Atlanta for you you were spot on with your.

Location outlook here in the second half of 'twenty, three you mentioned youre going to add more than 24, then 23, a question I get quite often is.

How does the new location.

Additions differ than what you've seen in.

In the past year or two years ago I think there's a there's always this question of are they smaller GPP potential locations can you maybe just comment on that.

Aman Narang: Can you maybe just comment on that, bigger picture-wise? Thank you. Yeah, I'm happy to take that since then.

The Big picture wise. Thank you.

Yeah, I'm happy to take that and thanks for the question.

Aman Narang: Thanks for the question. I'll actually repeat what I just said, you know, if you think about our mission, our mission, you know, we've been at this for 12 years now. And we were the first ones to build a platform that was purpose-built for the restaurant industry, and the team is continuing to invest to make it accessible across all restaurants, right, starting in the US and, over time, globally. If you look in the near term, S&Bs continue to drive the majority of our growth, and we see a lot of runway as we gain share. You know, we've talked about how as we get into these markets, I talked about this in my prepared remarks, we see more and more markets getting into a flyable state, which is markets that have over 20% share. And then we're also expanding our products to go after the broader TAM, starting with the U.S. TAM and enterprise market, as well as mid-market and BSMB, and then international markets as well. The impact on GPV, as we expand this TAM, should be minimal and gradual.

What I just said.

You think about.

Our mission our mission we've been at this for 12 years now and we were the first wants to build a platform that is purpose built for the restaurant industry.

And the team is continuing to invest to make it accessible across all restaurants, starting in the U S and over time globally.

If you look at the near term Smbs continue to drive the majority of our growth.

We feel a lot of runway as we gain share we have.

Talked about how as we can in these markets I talked about this in my prepared remarks.

We see more.

More and more markets getting into flight into fiber state, which is markets that have over 20% share in.

And then were also expanding our products to go after the broader Tam starting with the U S. Tam.

And enterprise market and as well as mid market and the SMB and then international markets as well.

The impact to <unk> as we expand the Tam should be minimal and gradual.

Aman Narang: You know, our average location, we expect it will continue to remain above industry averages. And as we mentioned this year, we expect ARPU to continue to grow in 2024 to complement our location growth and be a vector of growth. And the team is very focused on making sure that as we get into new parts of TAM, they're looking at payback periods to make sure that we're healthy in terms of economics across the product. No, thanks for going through that.

Our average location.

We expect we will continue to remain above industry averages.

And as we mentioned like this year, we expect <unk> to continue to grow.

'twenty 'twenty four to complement our location growth and be a vector of growth and the team is very focused on making sure that as we get into new parts of town Theyre looking at payback periods to make sure that we're there.

Unit economics across the prototype.

Great no. Thanks for going through that I, didnt mean to be redundant, but just wanted to cover that and then just maybe as a follow on to that with with <unk> comment just the attach products.

Aman Narang: I didn't mean to be redundant, but just wanted to cover that. Then maybe the follow-on to that with that ARPU comment, just the attached products, is that evolving as well? I know the 43% using 6-Plus has stayed there, but is the composition of products being taken changing at all? I know that a lot of your peers are pushing some of the higher-end stuff like payroll as well. Any update there? Thank you. And I'll jump off.

Evolving as well I know the 43% using the six plus.

It states there but.

The composition of products being taken changing at all I know that a lot of your peers are pushing some of the higher and stuff like payroll as well any update there. Thank you.

Yes.

Aman Narang: Sure, thanks Anshan. Yeah, look, one of the things we just rolled out was pricing and packaging 3.0, the new version, and it's really helping our new business reps optimize with location growth, as well as maximize upfront revenue, and we're balancing that with our upsell team that we're continuing to scale. In terms of the product attach rate, there's nothing that's fundamentally changed. We're seeing healthy growth across our employee cloud products, our FinTech products, our guest products, and the R&D team continues to focus on getting customer feedback as we continue to scale locations to see what ways in which we can increase terminal attach in terms of expanding the product market fit of these products, but we continue to see healthy growth across the portfolio of products that we have. Thank you. Thank you. Thanks, Tiffin.

Sure. Thanks, Edwin Yes look we're seeing one of the things we've just rolled out.

Was pricing and packaging three that owes the new version and it's really helping our new business reps optimize both location growth as well as maximizing.

Aqua front, and we're balancing that with our app with our upsell team that we're continuing to scale in terms of the product take a product attach rates. There's nothing fundamentally changed we're seeing healthy growth across our employee cloud products are fintech products, our guest products.

The R&D team continues to focus on getting customer feedback as we continue to scale locations to see what are ways in which we can increase terminal attached in terms of expanding the product market fit of these products, but we continue to see healthy growth across across the portfolio of products that we offer.

Yeah.

Thank you. Thanks, Steve Thanks, Tien <unk> question, operator, we'll take the next one.

Operator: Operator, we'll take the next one. Thank you. The next question is from the line of Stephen Sheldon with William Blair. Your line is now open.

Thank you. The next question is from the line of Stephen Sheldon with William Blair. Your line is now open.

Aman Narang: Hey, thank you. So great, great to hear that you're now over 30% of the S&P market share in some markets. And I think you noted that in those markets, you're still seeing healthy share gains. But I wonder if market share gains seem to be slowing down some. Once you hit a threshold like that, you reach some level of saturation where it gets a lot harder to grow locations in some of those markets. Yeah, thanks for the question, Sheldon. I mean, I mentioned this in my prepared remarks, but even in our markets where we have the highest S&B penetration, which is over 30%, we're still seeing some of the strongest rep productivity and some of the strongest conversion and productivity. And I think a lot of that is driven by just social proof.

Hey, Thank you.

So great great to hear that you are now over 30% F&B market share in some markets and I think you noted that in those markets, you're still seeing healthy share gains, but curious if market share gains gains seem to be slowing down some.

Once you hit a threshold that you reach some level of saturation, where it gets a lot harder to grow locations and some of those markets.

Yeah. Thanks, Thanks for the question Sheldon I mentioned this in my prepared remarks, but.

Even in our markets, where we have the highest F&B penetration. This is over 30%, we're still seeing some of the strongest rep productivity and some of the strongest conversion and productivity.

A lot of that is driven by just the social proof as we make more customers successful in these markets. We continue to see strong growth.

Aman Narang: As we make more customers successful in these markets, we continue to see strong growth. So we haven't seen any change in terms of the rate at which customers are joining our platform as we gain market share in these local markets. Got it. A couple.

Haven't we haven't seen any.

Any change in terms of.

The rate at which customers are.

By joining our platform as we get market share in these local markets.

Got it that's helpful.

Aman Narang: And then follow up with international modernization seeming like it's picking up. I think you noted a thousand locations in those three markets. How are you thinking about expansion into other markets beyond those three that you've been focusing on so far? Yeah, it's a good question. You know, we are, for the moment, really focused on the markets that we're in. We're still in the early days there.

And then follow up with international monetization seeming like it's picking up I think you noted a thousand locations across those three markets. How are you thinking about expansion into other markets beyond those three that you've been focusing on basketball so far.

Yes, it's a good question.

For the moment, we're really focused on the markets that we're in we're still early in the early days there and we've got we've been focusing on the go to market motion and honing that and building out the platform. So we want to continue.

Aman Narang: And we've got, you know, we've been focusing on the go-to-market motion and honing that and building out the platform. So we want to continue to focus on that, but we'll update you should that change.

Continue to focus there, but we will update you should not change but for the near term. We're focused on the countries that we've talked about which is the U K, Canada and Dublin.

Aman Narang: But for the near term, we're focused on the countries that we've talked about, which are the UK, Canada, and Dublin. The only thing I'll add is that in those markets, we see tremendous potential for growth, right? It's still in the early days of what I think is possible.

The only thing I'll add is in those markets, we see tremendous potential for growth right. It's still in the early days of what I think what's possible. The reception received from these customers. In these markets is very similar to what we saw in the U S. In early days and we want to make sure that.

Aman Narang: The reception we see from these customers in these markets is very similar to what we saw in the U.S. in the early days, and we want to make sure that we're able to get these markets to a great spot before we think about expanding beyond that. Great, thank you. Thank you. The next question is from the line of Dave Koning with Baird. Your line is now open.

Yet we're able to.

Get these markets through a great spot before we think about expanding beyond that.

Great. Thank you.

Thank you.

The next question is from the line of Dave Koning with Baird. Your line is now open.

Elena Gomez: Yeah, hey guys, great job. Um, my first question is, the flow through on recurring GP growth was like 70% to EBITDA the last two quarters. So you're getting, you know, an incredible margin of flow through. And I guess I'm wondering, is that kind of level sustainable? And is there some sort of metric, like EBITDA percent of recurring GP, we could see you give, you know, at some point? Is there some sort of target on that? Yeah, I mean, I'd point you to our guidance.

Yeah, Hey, guys great job.

I guess my first question D flow through on recurring GP growth was like 70% to EBITDA. The last two quarters, So youre getting.

Credible margin kind of flow through and I guess I'm wondering is is that kind of level sustainable and is there some sort of metric like EBITDA percent of recurring G. P. We could see you give at some point is there some sort of target on that.

Yes, I mean, I would point you to our guidance, we're really confident in the guidance that we have paid in and it's reflecting.

Elena Gomez: You know, we're really confident in the guidance that we have, Dave, and it's reflected. You know, if you think about the long-term guidance we've given out. We have ambition to get to 30 to 35% long-term recurring gross profit growth. That was something we talked about, over the long term. Sorry, EBITDA margin.

If you think about the long term guidance, we've given out a.

A few quarters ago that we have ambition to get to 30% to 35% long term recurring gross profit growth that was something we've talked about.

Over the long term.

Alright, EBITA margin and so just keep that in mind that continues to be our focus.

Elena Gomez: And so just keep that in mind; that continues to be our focus. And you see us tracking towards that based on the leverage you've seen in the business over the last several quarters and the guidance that we set today. So our ambitions on EBITDA guidance have been for the long haul. Great, great. Thanks. And then I guess on the Fintech yield, and I think Harshit asked a little bit about this too, it was a little down this year. Are seasonal impacts Q1 being the highest and then going down through the year? Or, because of some pricing actions, could we see a little divergence from kind of the normal yield progression through the year?

And you see us tracking towards that based on the leverage you've seen in the business over the last several quarters and the guidance that we said today. So our ambitions on EBIT guidance Hasnt changed over the long term.

Great Great. Thanks, and then I guess on the Fintech yields I think our she'd asked a little bit about this to it was a little down this year.

The seasonal impacts Q1, being the highest and then going down through the year or because of some pricing actions could we see a little divergence in kind of the normal.

The yield progression through the year.

Elena Gomez: Yeah, Q1 definitely is typically because of debit; you'll see a higher impact. And then as the year progresses, it's not just that we have a marginal amount in for some surgical pricing in the second half of the year. But you'll continue to see us optimize costs, and that's just part of our normal mode of operating, really trying to optimize our cost structure over time. So both will play a role in the second half of Gotcha.

Yes, Q1 definitely is typically because of debit youll see a higher.

Impact and then as the year progresses, it's not just.

Marginal amount and for sure some surgical pricing in the second half of the year, but youll continue to see us optimize cost and Thats just part of our normal.

Mode of operating is really trying to optimize our cost structure over time. So both will play a role in the second half of the year.

Got you thanks, great job.

Elena Gomez: Thanks. Great job. Thank you. The next question is from the line of Tim Chioda with UBS. Your line is now open.

Thank you. Thank you.

The next question is from the line of Tim Chiodo with UBS. Your line is now open.

Aman Narang: Great, thank you. I want to dig in a little bit to the mid-single-digit SaaS ARR per location outlook. There are two components there I want to dig into.

Great. Thank you I wanted to dig in a little bit to the mid single digit SaaS <unk> per location outlook two components. There I want to dig into first is the newer customer cohort and also the potential from the upsell of the back book on the newer customers or the new cohort are you able to put a finer point on what sort of SaaS.

Aman Narang: First is the newer customer cohort and also the potential from the upsell of the back book. On the newer customers or the new cohort, are you able to put a finer point on what sort of SaaS ARR per location level they are coming in at, maybe relative to the total company or relative to last year's new cohort? And then on the existing customers, given you've hired new or added to the sales team for the growth team or the upsell team, maybe you could talk about the contribution to that mid-single-digit growth for the existing customers. Sure.

<unk> per location level that they are coming in at maybe relative to the total company or relative to last year's no new cohort.

And then on the existing customers, giving you hired new or added to the sales team for the growth team or the upsell team maybe you could talk about the contribution to that mid single digit growth for the existing book.

Sure. Thanks for the question.

Aman Narang: Thanks for the question. I think we mentioned this in our last earnings call as well, as we optimize our land and expand motion, the new customers that are joining Toast, our sales team is optimizing the number of locations as well as the product attach rates, and so the ARPU is slightly lower, and then that's complemented by our upsell team, so the upsell team then takes the teams that are regionalized, takes over, and are looking to drive attach rates across the product portfolio. I think if you look at it this way, If you just zoom out for a second and think about the growth potential in the business. We're confident in our ability to continue to drive sustained error outgrowth across both locations and ARPU, and we believe both of those will complement each other. And so I think over time, as we continue to improve the capabilities across our product portfolio and improve our pricing, packaging, and upsell motion, there should be continued levers of growth for us into the future. Okay, thank you.

Look I think we mentioned this in our last earnings call as well our <unk>.

As we optimize our land and expand motion the new customers that are joining toast.

Our sales team is optimizing the number of locations as well as the product catch rates and so the <unk> is slightly lower.

That's complemented with our upsell team that upsell team that takes that those are teams that are realized that takeover and are looking to drive attach rates across the product portfolio.

I think if you look at it.

Zoom out for a second and think about.

The growth potential in the business.

We're confident in our ability to continue to drive sustained aero growth across both locations and <unk> and I think and we believe both of those will complement each other and so I think overtime as we continue to improve.

Capabilities across our product portfolio and improve our pricing and packaging.

And our upsell motion there should be continued levers for us into the future.

Okay. Thank you, Matt so essentially the new customer cohort will be a little bit of a drag on that mid single digit <unk> growth more of the growth will be driven by the other two levers that the existing customers upsell and of course the pricing. It's a fair characterization. So at least for this year I think that's fair I think that's fair I think you should think of pricing as a gradual lever.

Aman Narang: So essentially, the new customer cohort will be a little bit of a drag on that mid single-digit ARPU growth. More of the growth will be driven by the other two levers than the existing customers' upsell. And of course, the pricing, the fair characterization, at least for this year, I think that's fair.

Aman Narang: I think you should think of pricing as a gradual lever, right that complements both locations and product attachments. Thank you so much. Thank you. Thank you. The next question is from the line of Samad Samana with Jeffreys.

Alright that complements both locations and <unk>.

And product attach rates.

Perfect. Thank you so much.

Thank you.

Thank you.

The next question is from the line of Samad Samana with Jefferies. Your line is now open.

Elena Gomez: Your line is now open. Great. Good evening.

Great. Good evening. Thanks for taking my question, maybe just on the international side I know, it's only 1000 locations, but just as we think about that contributing more going forward. How does the average SaaS <unk> for those locations look versus maybe your broader installed base and in similar question how does maybe GP.

Elena Gomez: Thanks for taking my question. Maybe just on the international side, I know it's only a thousand locations, but just as we think about that contributing more going forward, how does the average SAS RQ for those locations look versus maybe your broader installed base? And a similar question, how does maybe GPB per location compare?

Per location compare.

Elena Gomez: And how should we think about that maybe evolving over time as you make more progress in the international market? Yeah, thanks, Amad, for the question. So first of all, as Amad said, we're really pleased with what we're seeing internationally, and we've really focused on the go-to-market process. We started with our core platform, so we expect to add more elements to the platform. So as a result of starting with just the core elements of the platform, the ARCU is obviously lower, but as we add more to the platform, we should see it get closer to what we see in the U.S.

And how should we think about that may be evolving over time as.

As you make more progress in the international markets.

Yes. Thanks, so much for the question. So first of all the demand that we're really pleased with what we're seeing internationally.

And we've really focused on the go to market motion we've started.

With our core platform. So we expect to add more elements to the platform. So as a result of starting with the.

Just the core elements of the platform the Ark, Who's obviously, lower but as we add more to the platform, we should see it get closer to what we see in the U S. So.

Elena Gomez: So that's an opportunity for us, and even with the platform we have, we've had a lot of great success. So we expect to add more to the platform in 24. We'll see that play out over the next, obviously, several years in terms of the impact. And in terms of the profile of customers, they don't look that different than the U.S. Good, and then maybe get on the cop side. Sorry, guys.

That's an opportunity for us and even with the platform. We have we've had a lot of great success.

So we expect to add more to the platform in 'twenty four we will see that play out over the next several years in terms of the impact on our appeal.

And in terms of the profile of customers. They don't look that different than the U S.

Great.

On the cost side.

Sorry go ahead.

Elena Gomez: I've got my, I don't know, please, I'll let you finish that. I was going to go in a different direction. I was just going to say, if you look at our business, the bulk of our net ads continue to come from our core SMB business. We've reached 1,000 locations over a couple of years. We've sealed off the full platform internationally, and we see improvements in our payback periods in our internet economics. That's what we look to put the pedal down even further. And so in terms of any changes to our mix across GPV, you shouldn't expect that to be material in the short term. And then, maybe just on the cost side, I know that doing a reduction in force is a difficult decision.

Oh go ahead.

I believe.

I'll, let you finish that I was going to go a different direction.

I was just going to say if you if you look at our business. The bulk of our net adds continue to come from our core SMB business.

1000 locations over a couple of years.

And as we.

Build out the full platform internationally and see.

The improvements in our factories and our unit economics, that's overlooked it put the pedal down even further and so on.

Terms of any changes to our mix across GB and in ARPA, you shouldn't expect that to be material in the short term.

Understood and then maybe just on the cost side I know that doing a reduction enforce it is a difficult decision I guess stepping away from head count are there any other cost savings measures that you're that you're putting in place. In addition to just the head count reduction anything that we should be aware of that flows as the year progresses as well.

Elena Gomez: I guess, stepping away from headcount, are there any other cost savings measures that you're putting in place in addition to just the headcount reduction? Anything that we should be aware of that will flow as the year progresses as well? We terminated Elise, but just in general, when you zoom out, Samadha, I want to make this very clear, like the restructuring is one of many efforts that we've been working towards efficiency for several quarters, right? We delivered over 175 million of leverage this year, and we're going to continue on across the company to operate in a very disciplined fashion. So you shouldn't see this as a one-time effort on efficiency but just how we run our business. Great, thank you for taking my question. Thank you. The next question will be from the line of Josh Baer with Morgan Stanley. Your line is now open.

And we terminated a lease but just in general when you when you zoom out tomorrow I want to make this very clear.

Restructuring is one of many efforts that we've.

<unk> had been working towards an efficiency for several quarters right we deliver.

$175 million of leverage this year.

And we're going to continue on.

Across the company to operate in a very disciplined fashion. So you shouldn't see this as a onetime effort on efficiency, but just how we run our business.

Great. Thank you for taking my questions.

Thank you.

The next question will be from the line of Josh Baer with Morgan Stanley. Your line is now open.

Aman Narang: Great, thanks for the question. Two on restaurant retail. First, any context for the mix of locations that might have retail or the addressable GPV opportunity not currently on the platform? Yeah. Hey, Josh.

Great. Thanks for the question.

Two on restaurant retail I guess first any context for the mix of locations that might have retail or the addressable GPP opportunity.

Not currently on the platform.

Yeah, Hey, Josh Thanks for the question.

Aman Narang: Thanks for the question. You know, as I mentioned earlier, SMBs continue to drive the majority of our growth, and we see tremendous runway there. I think as we look at, in fact, a lot of the growth and expansion into restaurant retail was driven by our existing restaurants because many of them also offer markets in grocery and wine and wanted a single platform across all these businesses. I think we do think that the GPV and ARPA potential in these businesses, if anything, is stronger. But in terms of just zooming out and thinking about what's driving the bulk of our net ads, it's going to continue to be SMBs and, over time, mid-market enterprises and international and then, beyond that, retail, and restaurant retail. Got it.

As I mentioned earlier, we have you know smbs continue to drive the majority of our growth and we see tremendous runway. There I think as we look at in fact, a lot of the growth and expansion into restaurant retail was driven by our existing restaurants.

Because many of them also offer.

Markets in grocery and wine and wanted a single platform across all of these businesses I think we do think that the TPB aqua potentially if anything is stronger but in terms of just zoom out and think about what's driving the bulk of our net adds it's going to continue to be smbs and overtime, Midmarket and enterprise and international and then beyond that.

Retail restaurant retail.

Got it and then the follow up in regard to retail.

Aman Narang: And the follow-up in regard to retail, you know, perhaps if you have a robust restaurant retail offering, you're part of the way there to more fully serving the retail vertical. Is that a TAM-expansion opportunity that you're considering down the road? Thanks. Yeah, I think so, over time.

<unk> if you have.

Our robust restaurant retail offering your part of the way there to more fully serving the retail vertical is that a tam expanding opportunity that you're considering down the road. Thanks.

Yes, I think so over time, maybe if you just zoom out and think about our capabilities that we offer we started in the restaurant vertical by building. This purpose built platform. That's exclusively built and that's really what's allowed us to scale and gain market share to be one of the market leaders as we think beyond this.

Aman Narang: Like if you just zoom out and think about our capabilities that we offer, you know, we started in the restaurant vertical by building this purpose-built platform that's exclusively built. And that's really what's allowed us to scale and gain market share to become one of the market leaders. As we think beyond this and expand the platform and the portfolio of products that we offer, and the go-to-market engine that we have in the customer success engine that we have, we certainly think there's opportunity for us to expand beyond. But our focus right now is really on markets where food is served, right? That's really you're seeing these lines between restaurants and retail blur. And a lot of these concepts want a single system because they want a single back end that they can use to track all this data.

And expand the platform and the portfolio of products that we offer and the go to market engine that we have and the customer success engine that we have we certainly think there's opportunity for us to expand beyond but our focus right. Now is really end markets, where food is served that's really youre seeing these lines between restaurants and retail blur.

And a lot of these these concepts what a single system because they want a single backend that they can use to track all of this data.

Aman Narang: And, and that's where we're starting. Great, thank you. Thank you. Thanks, Josh. The next question is from the line of Darren Peller with Wolf Research. Your line is now open.

And that's where we're starting.

Great. Thank you.

Yeah Josh.

The next question is from the line of Darrin Peller with Wolfe Research. Your line is now open.

Aman Narang: Thanks, guys. You know, I'd love to hear a little bit more about what's going so well on the enterprise side for a moment. Obviously, you brought up hotels and caribou, and maybe just a little more color on your anticipation there and expectations for that for more progress to come, maybe a bit more on product gaps or product opportunities that you see in that category that you can do some more work on and maybe even add on that front as well. Yeah, thanks for the question, Darren. Look, we're proud of the team's progress over the past year, you know, with new brands like Lookitchoice and Caribou, which I talked about in my prepared remarks. Marriott is also expanding with existing customers like NothingBunkCakes and MTY. You know, we started investing in enterprise business just a couple of years ago, and it's really great to see the progress we've made in such a short period of time.

Thanks, guys I'd love to hear a little bit more about what's what's going so well on the enterprise side for a moment, obviously you brought up hotels in caribou and maybe just a little more color on your anticipation there and expectations for that through more progress to come.

Maybe a bit more on product gaps or product opportunities that you see in that category that you can do some more work on it maybe even at RPM.

On that front as well.

Yes, thanks for the question Derek.

We're proud of the team's progress over the past year.

New brands like if you just look at choice and Caribou, which I talked about in my prepared remarks, Marriott and expansion with existing customers like nothing <unk>.

Just know that we start investing in enterprise business, just a couple of years ago, and it's really great to see the progress we've made.

In a short period of time, and we're also seeing really good healthy pipeline.

Aman Narang: And we're also seeing a really good, healthy pipeline and inbound requests from customers. But you have to keep in mind, you know, these are enterprise customers. These are long sales cycles. And we want to be balanced also in terms of which customers we partner with so as not to distract R&D teams where, you know, a single customer has custom work that can take over, you know, our product roadmaps.

And inbound requests from customers, but you got to keep in mind. These are enterprise customers. These are long sales cycles, and we want to be balanced also in terms of which customers we partner with.

Does not distract our R&D teams were.

A single customer has custom work that can take over.

Product roadmap.

Aman Narang: In terms of some of the capabilities in our crew, you know, I think it starts by building out some of the core capabilities, enterprise config management, you know, publishing, security, compliance, data, APIs. And over time, like if you look at the reasons SMBs choose Toast, all the platform capabilities in terms of, you know, in-store and things like handheld, for example, mobile order and pay and kiosk. We believe over time a lot of those will be applicable in the enterprise market as well. But you should expect this to be a gradual, you know, continued momentum in the market as we expand TAM as opposed to a step function change in terms of how we're gaining share. Maybe just a very quick follow-up on the competitive landscape, meaning more for the SMB side. We obviously continue to hear about other companies' talk. You know, a certain type of pause that could be a..., obviously given the, You don't notice it in that.

In terms of some of the capabilities of our period I think it starts by building out some of the core capabilities Enterprise Config management publishing security compliance data API.

And over time, if you look at the reasons SMB shoes test all of the platform capabilities in terms of <unk>.

In store and things like handheld for example, mobile order and pay and kiosk.

We believe over time, a lot of those will be applicable.

In the enterprise market as well, but you should expect to invest to be a gradual continued momentum upmarket as we expand Tam.

As opposed to a step function change in terms of how we are gaining share.

Okay that makes sense, maybe just very quick follow up is on the competitive landscape, meaning more for the SMB side. We obviously continue to hear about other companies talking about.

Certain type of pause that could be applicable to the restaurant space, but obviously given the customer adds you still continue to show very strong traction you don't notice it in the competitive landscape as much what are you guys on that front, though any changes.

Aman Narang: What are you guys seeing on that front though? Any changes? Yeah, look, I think this has always been a competitive market, right from day one when we started this business. And we continue to believe in what we see in our data, that as we execute and get into more of these markets, restaurants are so local, and the more share we get, the more social proof we have, the more of a flywheel effect it creates. That's the most important trend that we see in our business. You know, our team obviously is tracking win rates and competitive dynamics in the market.

Yes look I think this has always been a competitive market right from day, one when we started this business and we continue to believe and we've seen our data is as we execute and get into more of these markets restaurants, or so local and the more share we get the more of a social proof we have more of a flywheel effect of trade stuff that's the <unk>.

Most important trend that we've seen our business.

Obviously, it's tracking at win rates in competitive dynamics.

The dynamics in the market, but that's really if you think you know we've.

Aman Narang: But that's really, you know, if you think of, you know, we've been at this for so long, and it's really, we've built this vertically integrated platform and expanded it over time. And that's what's really driving our growth more than anything. Thank you. We will now take our last question from the line of Dominic Ball with Redburn Atlantic. Your line is now open.

Been at this for so long and it's really we've built this vertically integrated platform.

<unk> expanded it over time, and that's what's really driving our growth more than anything else.

Yeah.

Thanks, guys.

Thank you. Thank you.

We will now take our last question from the line of Dominic Paul with Redburn Atlantic. Your line is now open.

Aman Narang: Hey guys, thanks for the question. Great job on execution when it comes to location growth, winning market share, and being clearly very, very strong. My question is, since the summer, you have been, shall we say, strongly signaling price increases. I just want to make sure we get a trial in terms of how you approach doing this. Is it raising software prices on old or new merchants? Is it on payment rates? Is it monetizing existing free products? Any more color on this would be great.

Hi, guys. Thanks for the question great job on execution when it comes to vacation growth when the market is clearly very very strong.

My question is since the summer you have been shall we say strongly tweaking the price increases I just want to make sure we get it's Roy in terms of.

How do you approach doing it the raise in software prices on old or new merchant payment.

Payment rates as it monetizing existing free products any more color on this would be would be great. Thank you.

Aman Narang: Thank you. Yeah, yeah. Thanks, Dominic, for the question. Look, as I said earlier, you know, it's, I think it's important to remember that pricing is an important lever, but it's just one lever. And we want to make sure we're using it gradually as part of a broader strategy. You know, one of the focus areas to continue to gain market share and scale is to look at opportunities to continue to expand the terminal attach rates of the products that we have to drive our crew, and that's a really important driver of our crew. In terms of the opportunity specifically in pricing, you know, we look at new customers that are joining our platform. What we see is across both SAAS and payments, they're paying us more than our base, and so we do see an opportunity over time to go back and build this as an ongoing lever, right, as part of our growth algorithm to complement location growth as well as product attach.

Yeah, Yeah, Thanks, Dominic for the question.

As I said earlier.

Is that step and look at the business I think it's important to remember pricing is an important lever, but it's one lever and we want to make sure we're using it gradually as part of a broader strategy.

One of the focus areas, we continue to gain market share and scale is.

To look at opportunities to continue to expand the terminal attach rates of the products that we have to drive ARPA and Thats, a really important driver of ours too.

In terms of the opportunity specifically in pricing you look at new customers that are joining our platform. What we see is across both SaaS and payments they are paying us more than our than our base and so we do see an opportunity over time to go back and build it as an ongoing level.

All of our growth growth algorithm the compliment.

Location location growth as well as product attached.

Aman Narang: And I think you should expect that to be gradual over time, starting with InTech this year and then SAAS in the outreach. Yeah, that's great. And just one more, if that's okay. I mean, your answer to another question around a potential expansion to the retail vertical is sort of that toast for retail restaurants. Is that a potential gateway in the future into serving retail merchants? Or is that too far for now? Yeah, Dominic, as I said earlier, a lot of this was driven by our customer base. You know, if you've got, you know, our customers really pull us into these hybrid restaurant retail concepts because more and more of them offer not just the restaurant environment, but also, they may offer packaged goods in a market, they may offer, you know, go grocery, wine, and so these lines are blurring.

And I think you should expect you should expect that to be gradual over time, starting with <unk>. This year and then SaaS in the out years.

Yeah.

Yes.

Brian just one more if that's okay. I mean, you answer to another question around a potential.

Expansion into the retail boat it's cool.

So the postal retail restaurants that are potential gateway in the future. Some retail mushrooms was that just too.

To follow up on them.

Yeah, Dominic as I said earlier a lot of this was driven by our customer base.

Got it.

Our customers really pulled us into these hybrid restaurant retail concepts, because more and more of them.

Offer not just the restaurant environment, but also they may offer packaged goods in a market. They may offer grocery wine and so these lines are blurring.

Aman Narang: And the way our team thinks about it is that any more food is served. We think that our platform that we've built over the past decade offers us an opportunity to go create tremendous value for those customers, and so we're starting there. And then I think over time, we'll look at where else Toast can be.

The way our team thinks about it as any more food is served.

We think that our platform that we've built over the past decade.

<unk>.

An opportunity to go.

There's tremendous value to those customers and and so we're starting there and then I think over time, we'll look at where else tasks can be applicable.

Aman Narang: Yeah, thanks guys. And again, and again, well done. Cheers. Thank you. Thank you. That will conclude the Q&A session today. At this time, I will turn the call back over to the team for any final closing remarks. Thank you everybody for your time today. This concludes today's conference call. You may now disconnect.

Yes, thanks, guys and again I'm not going to hold.

Yes.

Thank you.

Thank you that will conclude the Q&A session. Today at this time I will turn the call back over to the team for any final closing remarks.

Yes. Thank you everybody for your time today thanks, everyone.

This concludes today's conference call you may now disconnect.

Yeah.