Q1 2024 Toast Inc Earnings Call

May 7, 2024

Operator: Good afternoon. My name is Cameron and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's first quarter 2024 earnings conference call. Today's call will be 45 minutes. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may now begin your conference.

Good afternoon. My name is Cameron and I will be your conference operator today at this time I would like to welcome everyone to post first quarter 'twenty 'twenty four earnings conference call today's call will be 45 minutes I'll now turn the call over to Michael <unk> Senior Vice President of Finance you May now.

Michael: Begin your conference.

Michael: Thank you Cameron welcome.

Michael Senno: Tavern. Welcome to Toast's earnings conference call for the first quarter ended March 31st, 2024. 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'll make statements related to our business that may be considered forward-looking within the meaning of the Securities Act and the Exchange Act.

Michael: Welcome to <unk> earnings Conference call for the first quarter ended March 31 2024.

Michael: On today's call, our CEO and cofounder monitor on and CFO Elena Gomez will open with the prepared remarks, which will be followed by a Q&A session.

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, anticipated impact of our structuring plan and share purchase program, expected growth, and business outlook, including our financial guidance for the second 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.

Michael: Before we started like to draw your attention to the Safe Harbor statement included in today's press release. During this call we'll make statements related to our business that may be considered forward looking within the meaning of the Securities Act and the exchanged at all.

Michael: 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 anticipated impact of our restructuring plan and share repurchase program.

Michael: Expected growth and business outlook, including our financial guidance for the second quarter and full year 2024.

Michael: 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.

Michael Senno: Please refer to the cautionary language in today's press release and our SEC filings for discussion of the risks and uncertainty that could cause actual results to differ materially from our expectations. 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 basis for our top-line guidance.

Michael Senno: Please refer to the cautionary language in today's press release and our SEC filings for discussion of the risks and uncertainty that could cause actual results to differ materially from our expectations. 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.

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

Michael: 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.

Michael: These are the basis for our topline guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and our SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures.

Michael Senno: These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures to the most comparable GAAP measures. 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 basis.

Michael: 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 basis.

Michael Senno: Finally, the press release can be found on the Investor Relations website at investors.toasttab.com. After the call, a replay will be available on our website. And with that, let me turn the call over to Aman.

Michael: Finally, the press release can be found on the Investor Relations website at investors Dot <unk> dot com after the <unk>.

Michael: A replay will be available on our website.

Michael: And with that let me turn the call over to Oman.

Aman Narang: Thank you, Michael, and thank you, everyone, for joining us this afternoon. 2024 is off to a great start with first quarter results ahead of expectations across the board. We added over 6,000 net locations to our platform. Our current growth profit streams increase 33% year over year. And adjusted EBITDA came in at $57 million. A $74 million improvement versus Q1 last year. I'm really proud of how the whole team performed.

Aman Narang: Thank you, Michael, and thank you, everyone, for joining us this afternoon. 2024 is off to a great start with first quarter results ahead of expectations across the board. We added over 6,000 net locations to our platform. Our current gross profit streams increased 33% year-over-year. And adjusted EBITDA came in at $57 million, a $74 million improvement versus Q1 last year. I'm really proud of how the whole team performed.

Oman: Thank you Michael and thank you everyone for joining us this afternoon.

Oman: 24 is off to a great start with first quarter results ahead of expectations across the board.

Oman: We added over 6000 net locations to our platform.

Oman: Our current gross profit streams increased 33% year over year.

Oman: And adjusted EBITDA came in at $57 million.

Oman: A $74 million improvement versus Q1 last year.

Speaker Change: I'm really proud of how the whole team performed.

Aman Narang: And we are well positioned to continue to scale and have a terrific year. Our mission at Toast is to help restaurants delight their guests, do what they love, and thrive. We continue to innovate and drive value for our restaurant community, including with the recent launch of our restaurant management suite, and Upgraded Digital Storefront Suite, and a marketing suite, which for the first time is leveraging AI to help our customers stay one step ahead. We're looking forward to sharing more about our longer-term vision and strategy at our Investor Day on May 29.

Aman Narang: And we are well positioned to continue to scale and have a terrific year. Our mission at Toast is to help restaurants delight their guests, do what they love, and thrive. We continue to innovate and drive value for our restaurant community, including with the recent launch of our restaurant management suite, and the upgraded Digital Storefront Suite, and a marketing suite, which for the first time is leveraging AI to help our customers stay one step ahead.

Speaker Change: And we are well positioned to continue to scale and have a terrific year.

Oman: Our mission at toast is to help restaurants delight, our guests do what they love and thrive.

Oman: We continue to innovate and drive value for our restaurant and community <unk>.

Oman: With the recent launch of our restaurant management suite and.

Oman: An upgraded digital storefront suite.

Oman: And our marketing suite, which for the first time is leveraging AI to help our customers stay one step ahead.

Aman Narang: We're looking forward to sharing more about our longer-term vision and strategy at our Investor Day on May 29th. We've increased our outlook for the full year based on our performance in Q1, and we're all focused on the four strategic priorities I laid out in our February earnings call. One, scaling locations and market share in our core business. Two, driving error to platform growth. 3.

Oman: We're looking forward to sharing more about our longer term vision and strategy at our Investor day on May 29.

Aman Narang: We've increased our outlook for the full year based on our performance in Q1, and we're all focused on the four strategic priorities I laid out in our February earnings call. One, scaling locations and market share in our core business. 2, Driving Error to Platform Growth. 3.

Oman: We've increased our outlook for the full year based on our performance in Q1, and we're all focused on the four strategic priorities I laid out in our February earnings call.

Aman Narang: Expanding addressable market into new adjacencies. And four, setting up the company to scale and deliver ongoing operating leverage. First, scaling restaurant locations and gaining share in our core business. We added over 6,000 locations in the quarter, driven by the combination of our purpose-built restaurant platform and our local go-to-market engine. As we gain momentum in local markets across the country, we continue to see a pliable effect with higher repro activity and faster market share gains, which gives us confidence in sustaining healthy location growth.

Oman: One scaling locations in market share in our core business.

Oman: Two driving are our two platform growth.

Oman: Three expanding address addressable market into new Adjacencies.

Oman: And for setting up the company to scale and deliver ongoing operating leverage.

Aman Narang: Expanding the addressable market into new adjacencies. And four, setting up the company to scale and deliver ongoing operating leverage. First, scaling restaurant locations and gaining share in our core business. We added over 6,000 net restaurant locations in the quarter, driven by the combination of our purpose-built restaurant platform and our local go-to-market engine. As we gain momentum in local markets across the country, we continue to see a pliable effect with higher reproductivity and faster market share gains, which gives us confidence in sustaining healthy location growth.

Oman: First scaling restaurant locations and gaining share in our core business.

Oman: We added over 6000 net locations in the quarter driven by the combination of our purpose built restaurant platform and our local go to market engine.

Oman: As we gain momentum in local markets across the country, we continue to see a flywheel effect with higher rep productivity.

Oman: Faster market share gains.

Oman: Which gives us confidence in sustaining healthy location growth.

Aman Narang: Let me share two recent customer stories that speak to our momentum and the value we create for customers. Tickles Pub is a busy full-service restaurant and bar in downtown Baltimore near Camden Yards and M&T Bank Stadium. They switched to Toast to partner with a technology partner that could handle their volume, streamlined operations, and increased speed of service, particularly on those busy game days. On opening day for the Orioles, they blew through their previous sales record and credit the uplift in part to faster speed of service after implementing Tosco handles, mobile order and pay, and kitchen displacements. Since Switching to Toast,

Oman: Let me share two recent customer stories that speak to our momentum and the value we create for customers.

Oman: <unk> is a busy full service restaurant and bar in downtown Baltimore near Camden yards in FMT Bank Stadium.

Oman: The switch to tell us to partner with the technology partner.

Oman: That could handle the volume streaming.

Oman: To streamline operations and increase speed of service, particularly on those busy game days.

Oman: On opening day for the Orioles, they blew through their previous sales record and credit the uplift in part to faster speed of service after implementing trustco handles mobile order and pay and kitchen display systems.

Oman: Since switching to test.

Aman Narang: They have reduced order-to-delivery times for drinks to under a minute. In addition, the addition of mobile order and pay has opened up a new service model with 20% of food and drink orders coming directly from guests, scanning QR codes at the table and placing the orders themselves. I'm also excited to announce our agreement with Snooze Eatery, a breakfast and lunch concept with over 70 locations nationwide. Snooze needed a technology partner that could support their growth plans and provide a better guest experience with faster and more accurate service. They're rolling out Toast across their footprint, and for the locations they've taken live, they're already seeing benefits. Toast handhelds have increased server capacity, leading to higher sales, higher tips, and greater earnings.

Oman: They have reduced order to delivery times for banks to under a minute.

Oman: And in addition, the addition of mobile order and pay has opened up a new service model with 20% of food and drink orders coming in directly from gas scanning QR codes at the table and facing the orders themselves.

Oman: I'm also excited to announce our agreement with <unk> <unk>.

Oman: For some lunch concept with over 70 locations nationwide.

Oman: News needed a technology partner that could support their growth plans and provide a better guest experience with faster and more accurate service. They are rolling out test across their footprint and for the locations. They have taken the lives they are already seeing benefits.

Oman: <unk> handhelds have increased server capacity.

Oman: Leading to higher sales higher tips and greater earnings as.

Aman Narang: As these two stories highlight, our focus on creating products that drive value for our customers continues to drive our growth. Our second priority is driving monetization and ARPU by building products and experiences our customers love. Earlier this year, we launched a suite-based approach to packaging that simplifies the sales process for customers and our sales reps alike.

Oman: As this is stories highlight our focus on creating products that drive value for our customers continues to drive our growth.

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

Oman: Earlier this year, we launched a suite based approach to packaging that simplifies the sales process for our customers and our sales reps alike.

Aman Narang: Our suites are designed with good, better, and best tiers and create the path for customers to adopt more of our platform over time, as well as provide a framework for us to roll out and monetize new products and features. They cover the breadth and depth of our customers' needs across restaurant operations, guest experience, as well as employee and supplier management. Let's walk through how the suites are adding value for our customers. The Restaurant Management Suite helps multi-location operators access the latest version of our above-store management tools.

Oman: Our suites designed with good better and best tiers and creates a path for customers to adopt more of our platform overtime.

Oman: As well as provide a framework for our store rollout and monetize new products and features.

Oman: They cover the breadth and depth of our customers' needs across restaurant operations guest experience as well as employee and supplier management.

Oman: Let's walk through how the suites are adding value for our customers.

Oman: The restaurant management suite helps multilocation operators access the latest version of our above store management tools.

Aman Narang: And for the first time, access powerful benchmarking data across all restaurants on our platform. A digital storefront suite helps restaurants take control of their online presence, and our marketing suite helps them bring their guests back more often. These launches are just scratching the surface of how Toast can leverage one of the best datasets in the restaurant industry to create value for customers. Let's bring this to life with an example.

Oman: And for the first time.

Oman: Access powerful benchmarking data across all restaurants on our platform.

Oman: Our digital storefront suite helps restaurants take control of their online presence.

Oman: And our marketing suite helps them bring their guests back more often.

Oman: These launches are scratching the surface of how <unk> can leverage one of the best datasets in the restaurant industry to create value for customers.

Oman: To bring this to life with an example.

Aman Narang: WISC is a neighborhood restaurant north of Dallas that recently adopted our AI-powered writing assistant included in our marketing suite. The writing assistant not only does a great job of describing WISC's food and atmosphere, but it has cut the time required to send out a guest engagement campaign by more than half. A recent AI-enhanced marketing campaign drove over $2,500 in sales for WISC in April alone.

Oman: Whisk is a neighborhood restaurant north of Dallas that recently adopted our AI powered riding assistant included in our marketing suite.

Oman: They are writing assistant not only does a great job of describing risks food and atmosphere.

Oman: It has cut the time required to send out a guest engagement campaign by more than half.

Oman: Recent AI enhanced marketing campaign drove about $2500 and sales for risk in April alone.

Aman Narang: Moving to our third priority, expanding our addressable market into new adjacencies. We continue to gain momentum across the first three international countries we launched in, the UK, Canada, and Ireland, and remain confident in the potential these markets have to help us drive growth. In Q1, we expanded the platform internationally with the launch of our integrated online ordering capability, which has been received incredibly well by our customers. And as the year progresses, we expect to launch more of our platform across both in-restaurant operations as well as the guest experience.

Oman: Moving to our third priority expanding our addressable market into new Adjacencies.

Oman: We continue to gain momentum across the first three international countries be launched in the UK, Canada, and Ireland and remain confident in the potential of these markets have.

Oman: To help us drive growth in.

Oman: In Q1, we expanded the platform internationally with the launch of our integrated online ordering capability, which has been received incredibly well by our customers.

Oman: And as the year progresses, and we expect to launch more of our platform across both in restaurant operations as well as the guest experience.

Aman Narang: This should help us drive further product differentiation and expand ARPU across these international markets. With an enterprise edition, we continue to gain momentum across a broad range of customers. The launch of the enterprise tier of our management suite allows our customers to manage their operations at scale and reduce the administrative workload on their corporate team.

Aman Narang: This should help us drive further product differentiation and expand our food across international markets.

Aman Narang: With an enterprise, we continue to gain momentum across a broad range of customers.

Oman: The launch of the enterprise tier of our management suite allows our customers to manage their operations at scale and reduced administrative workload on their corporate teams.

Aman Narang: Our pipeline in this segment remains strong, and we have confidence that we'll continue to increase penetration over time. And beyond international enterprise, we're also investing to open up new opportunities where our vertical platform and our local go-to-market team can be a comparative advantage. Our fourth priority is setting up the company to scale and deliver ongoing operating leverage to complement our growth. As I mentioned, we delivered over $57 million in adjusted EBITDA in the past quarter, a $74 million improvement versus Q1 last year.

Oman: Our pipeline in this segment remains strong and.

Oman: And we have confidence that we will continue to increase penetration over time.

Oman: And beyond International Enterprise, we're also investing to open up open up new opportunities, where our vertical platform.

Oman: And our local go to market team can be a competitive advantage.

Oman: Our fourth priority is setting up the company to scale and deliver ongoing operating leverage to complement our growth.

Oman: As I mentioned, we delivered over $57 million and adjusted EBITDA in the past quarter, a $74 million improvement versus Q1 last year.

Aman Narang: We have aligned our resources on our most important priorities and are building a culture where everyone across the organization is taking efficiency seriously. This has allowed us to increase our full-year guidance and puts us on track to expand margins by over 13 percentage points at the midpoint versus last year without sacrificing our most important growth and innovation initiatives. To wrap up, I'll leave you with a few thoughts. One, I'm confident in how we're executing and thrilled to be leading this team.

Aman Narang: We have aligned our resources on our most important priorities.

Oman: And are building, a culture, where everyone across the organization is taking efficiency seriously.

Oman: This allowed us to increase our full year guidance and puts us on track to expand margins by over 13 percentage points at the midpoint versus last year.

Oman: Without sacrificing our most important growth and innovation initiatives.

Speaker Change: To wrap up I'll leave you with a few thoughts one I am confident in how we're executing and thrilled to be leading this team.

Aman Narang: And two, you know, we're still in the early innings of what is possible and have the foundation in place to capitalize on this incredible opportunity ahead. I want to thank every Toaster for his continued dedication and passion for our mission. We wouldn't be here without you, our customers for entrusting us to support you all, and our investors for believing in us and the potential of this business. Thank you, and now I'll turn the call over to Elena to share more about this quarter's results.

Speaker Change: Two we are still in the early innings of what is possible and have the foundation in place to capitalize on this incredible opportunity ahead.

Aman Narang: I want to thank every toaster already continued this dedication and passion for our mission it wouldnt be here without you our.

Oman: Our customers for entrusting us to support you all.

Aman Narang: And our investors for believing in us and the potential in this business.

Aman Narang: Thank you and now I'll turn the call over to Atlanta to share more about this quarter's results.

Elena Gomez: Thank you, Aman, and to everyone for joining today. To start, I'll reiterate a thank you to our entire Toast team, whose hard work and continued execution led to another successful quarter. Top and bottom line results exceeded expectations, evidence of our operating momentum and disciplined approach to driving both growth and profitability. In the quarter, ARR grew 32%, and total FinTech and subscription gross profit, our recurring gross profit streams, increased 33% year over year. Adjusted EBITDA was $57 million in the first quarter, a 19% margin on our recurring gross profit streams, up 26 percentage points from Q1 last year.

Atlanta: Thank you ma'am and to everyone for joining today.

Speaker Change: I'll start I'll reiterate thank you to our entire <unk> team is hard work and continued execution led to another successful quarter.

Atlanta: Top and bottom line results exceeded expectations evidence of our operating momentum and disciplined approach and driving both growth and profitability.

Aman Narang: In the quarter <unk> grew 32% and total fintech and subscription gross profit our recurring gross profit streams increased 33% year over year.

Aman Narang: Adjusted EBITDA was $57 million in the first quarter, a 19% margin on our recurring gross profit streams up 26 percentage points from Q1 last year.

Elena Gomez: In Q1, we executed on reshaping our cost structure, better aligning our investments with our highest priorities, and positioning ourselves to go faster on key growth initiatives. We now expect slightly higher annualized run rate savings and to capture more in-year savings in 2024 than initially estimated, including in Q1. The first quarter also included one-time cost benefits related to the restructuring.

Aman Narang: In Q1, we executing on reshaping our cost structure better aligning our investments with our highest priorities and positioning ourselves to go faster on key growth initiatives.

Atlanta: We now expect slightly higher annualized run rate savings and to capture more in year savings in 2024 than initially estimated including in Q1.

Aman Narang: The first quarter also included one time cost benefits related to the restructuring.

Elena Gomez: Those factors, coupled with stronger-than-expected GPB as the quarter progressed, led to significant adjusted EBITDA outperformance in Q1 and contributed to the increase in our full-year outlook. Our conviction in the opportunity ahead is stronger than ever. We will reinvest part of the incremental savings in key growth areas. We added over 6,000 net locations in Q1, increasing total live locations to approximately 112,000, up 32% year over year. Our focused vertical strategy and differentiated go-to-market engine, coupled with consistent execution, continue to drive location growth as we deepen penetration across the full breadth of the restaurant family, and with Toast in only 13% of U.S. restaurants and just scratching the surface internationally.

Aman Narang: Those factors, coupled with stronger than expected GPP as the quarter progressed led to significant adjusted EBITDA. After formats in Q1 and contributed to the increase in our full year outlook.

Aman Narang: Our conviction and the opportunity ahead is stronger than ever we will reinvest part of the incremental savings in key growth areas.

Aman Narang: We added over 6000 net locations in Q1, increasing total live locations to approximately 112000 up 32% year over year.

Aman Narang: Our focus vertical strategy and differentiated go to market engine, coupled with consistent execution continue to drive location growth as we deepen penetration across the full breadth of the restaurant town.

Aman Narang: And with toast and only 13% of U S restaurants, and just scratching the surface internationally.

Elena Gomez: We continue to have an opportunity to significantly increase share as we execute our playbook. SAS ARR grew 39% year-over-year, driven by strong location growth and a 5% increase in SAS RPU on an ARR basis. And we continue to expect SAS RPU on an ARR basis to be in the mid-single digits in the near term.

Aman Narang: We continue to have an opportunity to significantly increase share as we execute our playbook.

Aman Narang: SaaS <unk> grew 39% year over year, driven by strong location growth and a 5% increase in SaaS <unk> on an <unk> basis, and we continue to expect SaaS or on an <unk> basis to be in the mid single digits in the near term.

Elena Gomez: Payments ARR and FinTech Gross Profit both grew 26% in the first quarter. GPV increased 30% to $34.7 billion, with GPV per location down 2% year over year. After a softer January related to weather, GPV trends bounced back to similar levels we saw exiting 2023 and consistent with seasonal patterns.

Aman Narang: Payments here are in Fintech gross profit both grew 26% in the first quarter.

Atlanta: <unk> increased 30% to $34 7 billion with <unk> per location down 2% year over year.

Aman Narang: After a softer January related to weather GPT trends bounce back to similar levels, we saw exiting 2023 and consistent with seasonal patterns.

Elena Gomez: That take rate was 55 basis points, and other FinTech products contributed 10 basis points. Additionally, our non-payments FinTech solutions, led by Toast Capital, contributed $34 million in gross profits. Toast Capital continues to perform well. Customers value the fast, low friction access to capital to grow their business, driving healthy demand for the product. As we scale the program, we will diversify and broaden our funding sources. In addition to our existing model, we recently added a forward flow model where a portion of Toast Capital loans are sold to third parties. For loans sold to a third party, we do not take the credit risk.

Aman Narang: Net take rate was 55 basis points and other fintech products contributed 10 basis points.

Aman Narang: Our non payments Fintech solutions led by test capital contributed $34 million and gross profit.

Aman Narang: Total capital continues to perform well customers value the fast low friction access to capital to grow their business driving healthy demand for the product.

Aman Narang: The scale of the program, we will diversify and broaden our funding sources. In addition to our existing model. We recently added a forward flow model, where a portion of test capital loans are sold to third parties.

Aman Narang: For loans sold to a third party, we do not take credit risk as a result, there is a slightly lower revenue take rate and typically no associated bad debt.

Elena Gomez: As a result, there is a slightly lower revenue take rate and typically no associated bad debt. On the P&L, compared to our current model, that translates to lower recurring gross profit for furrowed cloat originations with nearly 100% flow-through. We plan to balance both models as we scale originations and continue to optimize for maximizing risk-adjusted returns. Expense growth moderated in the first quarter as we continue to drive efficiencies and cost discipline coupled with savings from the restructuring actions.

Aman Narang: On the P&L compared to our current model that translates to lower recurring gross profit for FERC originations with nearly 100% flow through.

Aman Narang: We plan to balance both models as we scale originations and continue to optimize for maximizing risk adjusted returns.

Aman Narang: Expense growth moderated in the first quarter as we continue to drive efficiencies and cost discipline, coupled with savings from the restructuring actions as we drive efficiency and increase profitability, we will prudently invest in our highest priority growth areas, including product innovation, our go to market engine.

Elena Gomez: As we drive efficiency and increase profitability, we'll prudently invest in our highest priority growth areas, including product innovation, our go-to-market engine, and new growth sectors to expand our town. Sales and marketing expenses were up 13% year over year.

Aman Narang: And knew that growth factors to expand our Tam.

Aman Narang: Sales and marketing expenses were up 13% year over year, we continue to grow our upsell and international sales team and make targeted investments in our U S new business team to drive deeper penetration.

Elena Gomez: We continue to grow our upsell and international sales teams and make targeted investments in our US new business team to drive deeper penetration. The Q1 restructuring actions impacted our R&D and G&A expense lines more than other parts of the business, resetting the expense growth trajectory in these areas. We expect R&D expenses to grow at a more moderate level as we continue to make targeted investments to drive product innovation and add value for our customers. G&A was down 13% year-over-year, excluding $15 million of bad debt and credit-related expenses, primarily related to reserves for Toast Capital.

Aman Narang: Okay.

Aman Narang: The Q1 restructuring actions impacted our R&D and G&A expense lines more than other parts of the business resetting the expense growth trajectory in these areas.

Aman Narang: We expect R&D expenses will grow at a more moderate level as we continue to make targeted investments to drive product innovation and add value for our customers.

Aman Narang: G&A was down 13% year over year, excluding $15 million of bad debt and credit related expenses, primarily related to reserves for test capital.

Elena Gomez: We expect ongoing operating leverage in G&A, reflecting our continued focus on driving efficiency in G&A as we scale, including through automation and global diversification of our workforce. Free cash flow of negative $33 million in the quarter due to the timing of cash bonus payments and severance payments in Q1. We expect free cash flow to be positive for the remainder of the year and broadly mirror adjusted EBITDA on a full year basis.

Aman Narang: We expect ongoing operating leverage in G&A, reflecting our continued focus on driving efficiency in G&A, as we scale, including through automation and global diversification of our workforce.

Aman Narang: Free cash flow was negative $33 million in the quarter due to the timing of cash bonus payments and severance payments in Q1, we.

Elena Gomez: We expect free cash flow to be positive for the remainder of the year and broadly mirror adjusted EBITDA on a full year basis.

Elena Gomez: Turning to Guidance. For the second quarter, we expect total subscription and fintech gross profit to increase in the 20% to 24% range year over year and adjusted EBITDA to be between $55 million and $65 million. Our top line growth rate is negatively impacted by a few points due to adding forward flow and comping a small one-time benefit last year.

Aman Narang: Turning to guidance for the second quarter, we expect total subscription and Fintech gross profit to increase in the 20% to 24% range year over year, and adjusted EBITDA to be $55 million to $65 million.

Aman Narang: Our top line growth rate is negatively impacted by a few points due to adding forward flow and comping a small one time benefit last year.

Elena Gomez: As a result of our strong start to the year, we've raised our full-year outlook. At the midpoints, we now expect 26% growth in fintech and subscription gross profit and $260 million in adjusted EBITDA, a margin of 19%, marking a 13 percentage point improvement versus 2023. After executing the restructuring, we now have visibility on higher in-year savings than expected, and we set the guidance higher to reflect that. This also factors in our plans to reinvest in key areas of the business to drive sustained growth going forward.

Elena Gomez: As a result of our strong start to the year, we have raised our full year outlook at the midpoint, we now expect 26% growth in Fintech and subscription gross profit and $260 million and adjusted EBITDA, a margin of 19%, marking a 13 percentage point improvement versus two.

Elena Gomez: Thousand 23.

Elena Gomez: After executing the restructuring we now have visibility on higher in year savings than expected and reset the guidance higher to reflect that.

Aman Narang: This also factors in our plans to reinvest in key areas of the business to drive sustained growth going forward.

Elena Gomez: With our increased profit expectations for the year and progress on containing stock-based compensation, we are now on a path to be close to break-even on GAAP operating income by the end of the year. To wrap up, we are making significant progress on meeting our goals and are positioned to deliver strong top and bottom line results in 2024. Our top focus remains delivering value to customers, and we are well positioned to drive durable growth across our core business while building new growth curves.

Aman Narang: With our increased profit expectations for the year and progress on containing stock based compensation. We are now on a path to be close to breakeven on GAAP operating income by the end of the year.

Aman Narang: To wrap up we are making significant progress executing against our goals and are positioned to deliver strong top and bottom line results in 2024 or.

Elena Gomez: Our top focus remains delivering value to customers and we are well positioned to drive durable growth across our core business, while building new growth curves, we announced our first investor day will be held on may 29th at which time, you'll you'll hear more from our leadership team on our market opportunity strategy and growth plan.

Elena Gomez: We announced our first Investor Day will be held on May 29th, at which time you will hear more from our leadership team on our market opportunity, strategy, and growth plans. We are incredibly excited about what lies ahead for Toast and look forward to sharing with you more then. Now, I'll turn the call back over to the operator. Thank you.

Aman Narang: We are incredibly excited about what lies ahead for test and look forward to sharing with you more than.

Speaker Change: Now I will turn the call back over to the operator. Thank you.

Operator: 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, and we'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Josh Baer with Morgan Stanley.

Speaker Change: At this time I would like to remind everyone to ask a question Press Star then the number one on your telephone keypad and we'll pause for just a moment to compile the Q&A roster.

Operator: Your first question is from the line of Josh Baer with Morgan Stanley.

Speaker Change: Your line is open.

Joshua Phillip Baer: Great. Thanks for the question and congrats on a good quarter.

Joshua Phillip Baer: I wanted to ask about net take rates from two perspectives I was hoping you could comment on the interchange settlement and how that should impact take rate as well as an update just around.

Joshua Phillip Baer: Taking price as far as the tactical.

Aman Narang: <unk> gone back to select customers that have off market contracts. Thank you.

Unknown Executive: Yeah, sure, I can, I can take that. So in terms of the Visa MasterCard, Visa MasterCard settlement, it's really early and not final. Our early signal is it's most likely going to impact us in the second half of 2025. That's the early read.

Joshua Phillip Baer: Yes, sure I can I can take that so in terms of the visa Mastercard visa Mastercard settlement, it's really early and not final our early signals, it's most likely going to impact us in the second half of 2025, that's the early read.

Unknown Executive: And also, I would also comment that it won't impact our entire volume of GPV, just at the highest level. So just keep that in mind as you guys update your models. But in the context of pricing, you know, I think your question on take rate, as we've said, you know, we're going to take pricing over time; it's going to be an ongoing cadence of small, steady changes in price, nothing, no step function change in pricing this year.

Unknown Executive: And also I would also comment that it won't impact our entire volume of GTA V. Just at the highest level such as keep keep that in mind as you guys update your models, but in the context of pricing.

Unknown Executive: I think your question on take rate as we've said, we're going to take pricing.

Unknown Executive: Over time, it's going to be an ongoing cadence of small study changes in price nothing no step function change in pricing this year, we're going to see.

Unknown Executive: We're going to start with FinTech in the second half of the year. And just keep in mind, it won't have a meaningful impact in 2024. But over time, you should see us execute against a steady cadence of price adjustments, in particular in places where customers are out of the market. Elena, just to build on that, Josh, it's, you know, as we think about growth, it's really a

Unknown Executive: In the second half of the year and just keep in mind it won't have a meaningful impact in 2024, but over time, you should see us execute against this steady cadence of price adjustments in particular in places where our customers are out of market.

Elena Gomez: And Elena, just to build on that, Josh, it's, you know, as we think about growth, it's really a combination of, if you think about a growth algorithm, it's a combination of product attach rates, product innovation, and pricing. And we're thinking about all three of them as we think about where we are.

Elena Gomez: Atlanta, just to build on that Josh and as we think about growth. Its really a combination of as you think about growth algorithm. It's a combination of product attach rates the product innovation and pricing and we're thinking about all three of them as we think about where we are with 13% market share in the industry.

Elena Gomez: Okay.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you Josh.

Operator: The next question. Operator, we'll take the next question. David Koning with Bayard.

Elena Gomez: The next question operator, we'll take our next question David Koning with Baird.

David John Koning: Your line is now open. Yeah, hey guys, thanks. Yeah, thanks so much. And I guess, first of all, it looks to me like Q2 recurring GP growth is actually a little lower than the back half. It looks to me like you're calling for a re-acceleration in the back half. Is that right? And what would that be attributed to?

David John Koning: Your line is now yeah, hey, guys. Thanks.

David John Koning: Yes. Thanks, so much I guess first of all it looked to me like Q2 recurring GP growth is actually a little lower in the back half you're it looks to me like Youre, calling for a reacceleration in the back half is that right.

David John Koning: What would that be attributed to.

Elena Gomez: Yeah, so a couple things. One, you know, a recurring theme. Let me just start giving context for the full year and then in Q2, there's some dynamics at play. But yes, if you look at the full year, our full year guidance at 26% at the midpoint would imply that obviously, our RGP grows over time. In Q2, there's a few dynamics at play. One is the implementation of forward flow, which we talked about, and we're comparing this one-time benefit to SAS revenue in Q2. So that is contributing to a lower recurring gross profit in Q2. And then we talked about targeted FinTech pricing towards the back half of the year, and that will be slight and gradual.

Speaker Change: Yes, so a couple of things one in our recurring let me just start giving context for the full year and then in Q2 and there is some dynamics at play, but yes. If you look at the full year, our full year guidance at 26% at the midpoint would imply that obviously that our RVP grows over two.

Elena Gomez: <unk> Q2, there's a few dynamics at play one is the implementation of forward flow, which we talked about and we're comping. This onetime benefit to SaaS revenue in Q2. So those are contributing to a lower recurring gross profit in Q2, and then we talked about targeted fintech pricing towards the back half of the year.

Elena Gomez: That will be slight and gradual.

Elena Gomez: Yes.

Elena Gomez: Gotcha. Thank you. And just maybe as a follow-up, you talked about GPV per location being down a bit, just especially because of January. What is, kind of, April, May, June? Would we expect acceleration just because you don't have January, obviously, in Q2?

Speaker Change: Got you. Thank you and just maybe as a follow up you talked about <unk> per location being down a bit just especially because of January what is kind of April may June we expect the acceleration just because you don't have January obviously in Q2.

Elena Gomez: Yeah, so I think you're right, Josh. What happened in Q1, we had January; we recall January was a lighter month, we had the weather pattern that impacted January. As the quarter progressed, we saw GPV get back to sort of sustained levels or seasonal levels. So we're, you know, overall, GPV was down 2% on a per location basis in Q1. As we enter into the first part of Q2, down low single digits as we enter into the quarter.

Speaker Change: Yes, so I think you're right Josh.

Elena Gomez: What happened in Q1, we had Chang recall January was a lighter we have the.

Elena Gomez: Weather pattern that impacted January as the quarter progressed, we saw <unk> get back to sort of sustained levels are seasonal levels order.

Elena Gomez: Overall CTV was down on a per location down 2% in Q1 as we enter into the first part of Q2 down low single digits as we enter into the quarter. So that's what I would say and then back to your question.

Elena Gomez: So that's what I would say. And then back to your question on the guidance on GPV, just keep in mind that GPV towards the back half of the year started to decrease in the back half of last year on a per location basis. So when you look at the end of next, towards the back half of the year, you'll see that the GPV compares better.

Elena Gomez: Question on the.

Elena Gomez: The guidance on <unk>, just keep in mind <unk> towards the back half of the year that started to decrease in the back half of last year on a per location. So when you look at the end of next year towards the back half of the year Youll see that the GTE comparison proved.

David John Koning: Gotcha. Thanks so much. Nice job.

Speaker Change: Got you. Thanks, so much nice job.

Elena Gomez: Okay.

Operator: The next question is from David Hynes with Canaccord Genuities.

Elena Gomez: The next question is from the line of David Hynes with Canaccord Genuity.

David E. Hynes: Your line is now open.

David E. Hynes: Hey, guys, thanks for taking the question. Aman, I'd love to ask about the new suites that were rolled out, the management suite, and the digital storefront marketing suite. If you think about kind of sizing the opportunity in the installed base, how do you think about that? And then maybe you could talk about, are there incumbent technologies there? Is it more of a greenfield opportunity? Like what are the competitive dynamics?

David E. Hynes: Hey, guys. Thanks for taking the question amount I'd love to ask about the new <unk>.

David E. Hynes: Weitz that were rolled out management suite digital storefront marketing suite.

David E. Hynes: About kind of sizing the opportunity in the installed base. How do you think about that and then maybe you could talk about are there incumbent technologies, there or is it more of a greenfield opportunity like one of the competitive dynamics.

Aman Narang: Yeah, hi, DJ, thanks for the question. You know, if you look back on the past couple of years, we've launched a lot of products, and really, the driver behind these suites was to simplify. And so we've introduced these suites to package our products and really simplify the sales process, both for our go-to-market team and our customers, in terms of how easy it is to adopt and leverage the platform. The suites are organized into good, better, and best tiers to help both our customers start off, for example, at one tier, and then over time, as they see value, adopt more of it. And also, as our team is driving more innovation, having a framework where our team can deliver more capabilities without just continuing to launch more and more products. I think it simplifies it for everyone.

Aman Narang: Yeah, Hi, thanks for the question.

David E. Hynes: If you look back the past couple of years, we've launched a lot of products and.

Aman Narang: Really the driver behind these suites was was to simplify.

Aman Narang: And so we've introduced these suites to package of products.

Aman Narang: Really simplified the sales process, both for our go to market team and our customers in terms of how easy it is to adopt.

Aman Narang: And leverage the platform.

Aman Narang: The suites are organized into good better and best tiers.

Aman Narang: To help both let our customers start off for example.

Aman Narang: One tier and then over time as the C value adopt more of it.

Aman Narang: And also as our team is driving more innovation.

Aman Narang: Having a framework where our team can deliver more capabilities without just continuing to launch more and more products I think it simplifies it for everyone.

Aman Narang: And in terms of the types of products and areas we're investing in, of course, we're going to continue to invest in the lines of business and products we offer. This is across commerce, this is restaurant operations, guest experience. We've launched a lot of products there, employee experience, FinTech, and supplier as well. And then I think the other thing that we're tracking very closely is how AI and data play a role.

Aman Narang: In terms of the types of products and areas, we're investing and of course, we're going to continue to invest in the lines of business and products. We offer this as across commerce is the restaurant operations guest experience, we've launched a lot of products that our employee experience fintech.

Aman Narang: Fintech and supplier as well and then I think the other thing that we're tracking very closely is how does AI and data play a role so.

Aman Narang: So, you know, one of the things that we think is really powerful is that we've got one of the most, if not the most powerful data sets in the restaurant industry. And so how do you leverage that to help restaurants be more successful? One example is in our management suite. We've added – restaurant management suite – data benchmarking to help restaurants better understand how they compare relative to their peers, both on sales data, menu data, even what to put on their menus, and so just helping them be smarter by leveraging the data. And then on things like our guest management suite, we're leveraging AI to drive campaigns, again, leveraging all that guest data that's in our platform. So that's another big area of focus for the team.

Aman Narang: One of the things that we think is really powerful as we've got one of the most if not the most powerful data set in the restaurant industry and so how do you leverage leverage that to help restaurants to be more successful. One example is in our management suite with added.

Aman Narang: Restaurant management suite, we've added data benchmarking to help restaurants, better understand how they benchmark relative to their peers.

Aman Narang: Both on sales data menu data, even what to put on menus and so just helping them be smarter by leveraging the data and then on things like our guest management suite or leveraging AI to drive campaigns again, leveraging all that guest data that's in our platform. So that's another big area of focus for us for the team.

David E. Hynes: That makes sense. Thank you.

Speaker Change: Yes that makes sense. Thank you.

Speaker Change: Thank you Jeff.

Operator: Your next question is from the line of Harshita Rawat with Bernstein. Your line is open.

Speaker Change: Your next question is from the line of <unk> with Bernstein. Your line is open.

Operator: Okay.

Harshita Rawat: Good afternoon. Elena, you talked about a 30 to 35% margin target long term, if you think about the percentage of gross profit. Now, as we think about the operating leverage you're achieving in the business and also the kind of pricing, you know, the gradual adjustment as a component, is there a change in thinking about that long-term profitability target and also how should we think about long-term gap profitability as well? Thank you.

Harshita Rawat: Good afternoon, Lino, you talked about 30% to 35% margin target long term, if you think about percentage of gross profit.

Harshita Rawat: Now, we think about the operating leverage in achieving this.

Harshita Rawat: Pricing.

Harshita Rawat: With Josh Vogel component.

Harshita Rawat: Is there a change in thinking about that long term profitability target and also how should we think about long term GAAP profitability. Thank you.

Elena Gomez: Sure. Great question.

Elena Gomez: Sure Great question, So I'll provide context on our long term financial profile at analyst day, but just sort of pivoting back to 2024, our guidance shows significant progress on margin and you've seen us deliver that efficiency and scale over the course of the last several quarters.

Elena Gomez: So, you know, I'll provide context on our long-term financial profile at Analyst Day, but just sort of pivoting back to 2024, our guidance shows significant progress on margin, and you've seen us deliver that efficiency and scale over the course of the last several quarters. So we're going to continue with that discipline, and you heard Aman talk about his strategic priorities he laid out. We're positioning the company really to drive ongoing operating leverage while we're balancing that with growth and innovation. So I don't have an update today, but we'll update you at Analyst Day. And you had a question about the gap. Actually, that's a really good point.

Elena Gomez: So we're going to continue with that discipline and you heard them on talk about his strategic priorities asleep. He's laid out we're positioning the company really to drive ongoing operating leverage while we're balancing that with growth in innovation. So I don't have an update today, but we'll update you at analyst day.

Elena Gomez: You had a question on gap overall. Just keep in mind, we've been very focused on stock-based comp as well as you've heard us talk about that. So that's really what's driving our confidence in the updated guidance on gap on this call. Your next question is from the line of Tien Phinh-Huong with J.P. Morgan.

Elena Gomez: And you had a question on GAAP actually that's a really good point you had a question on GAAP overall.

Elena Gomez: Just keep in mind, we've been.

Elena Gomez: Very focused on stock based comp as well as as you've heard us talk about that so that's really what's driving our confidence in the updated guidance on GAAP on this call.

Elena Gomez: Thanks.

Operator: Your next question is from the line of Tien-Hsien Hoang with J.P. Morgan. Your line is open.

Tien Phinh-Huong: Your next question is from the line of <unk> Huang with JP Morgan Your line is open.

Operator: Yeah.

Operator: <unk>.

Tien-Hsien Hoang: Sorry can you hear me.

Tien-Hsien Hoang: Yeah, now we can't hear you. Yeah, sorry, I'm trying to get a few things here. I was following up on Dave's question on GPV per location. Beyond the second quarter, I know some of the comparisons will help. We do see that on our side as well. But given some of the mixed shifts and different focus, up market, down market, any sort of directional view on GDP per location structurally beyond the macro?

Tien-Hsien Hoang: Yes, we can.

Operator: Yes.

Tien-Hsien Hoang: Yes, sorry, I'm trend yes.

Operator: Yes.

Tien-Hsien Hoang: I was following up on Dave's question on GB per location beyond the second quarter I know some of the compares will hope we do see we do see that.

Tien-Hsien Hoang: On our side as well, but just given some of the mix shifts.

Tien-Hsien Hoang: And different focus upmarket downmarket.

Tien-Hsien Hoang: Sort of directional view on an GBP <unk> location structurally beyond the macro.

Elena Gomez: Yeah, Timson, thanks for the question. There is nothing material to report there.

Speaker Change: Yes, Vincent Thanks for the question nothing material to report there I mean, if you look at the bulk of our growth that is still being driven by our core SMB business.

Speaker Change: And the same effect, we've talked about it the big gain share we're seeing the same flywheel effect.

Speaker Change: It's taken us a decade to get build a business with a built in our SMB business and while we're excited about the potential internationally and enterprise and other segments of the market that's not what's materially driving any changes on GTA V. I mean some of this is just if you think about restaurant sales trends they are stable but.

Speaker Change: Year over year, there were some small DSO that we saw now stabilized.

Speaker Change: In the narrow band.

Speaker Change: I'll just add that as we extend the different parts of the Tam any any mix shift will be very gradual over a long period of time.

Speaker Change: Makes sense, yes, you got a big base here. Okay. Just my quick follow up maybe for you.

Speaker Change: We get a lot of questions on competitive intensity and a lot of your peers are upgrading tech and verticalizing and adding more software content around these verticals are you seeing any.

Speaker Change: Change there and does it.

Speaker Change: Change your sort of focus around product velocity or or going into adjacencies that kind of thing.

Speaker Change: Yes, I mean look we're also investing in a big way to continue to innovate for our customers I talked about some examples with how were leveraging data and AI to just really helped this customer community with this unique data asset that we have.

Elena Gomez: I mean, if you look at the bulk of our growth, that is still being driven by our core SMB business. And, you know, the same effect we've talked about is that as we gain share, we're seeing the same flywheel effect. You know, it's taken us a decade to build the business we've built in our SMB business, and while we're excited about the potential internationally and in enterprise and other segments of the market, that's not what's materially driving any changes at GPB.

Speaker Change: We had a good.

Speaker Change: Maybe I'll start by saying what a great quarter. He felt 6000 net adds I think great momentum in the business and are back to <unk>. This is really speaks to our team's execution, but also our platform and our go to market engine.

Elena Gomez: And.

Elena Gomez: This was always we've said this before on calls, but it's always been a competitive market I think.

Elena Gomez: We continue to see great execution, good win rates productivity and our team from our team is strong.

Elena Gomez: And we continue to believe the biggest thing the biggest factor that's going to drive our growth long term is our own execution getting more of these markets into flywheel getting word of mouth getting customer experience to be the best it can be.

Elena Gomez: I think nothing material to report we track a lot of this very closely across competitors nothing material to report at.

Elena Gomez: At the moment.

Speaker Change: Great well done thank you.

Speaker Change: Thank you Tim.

Elena Gomez: Your next question comes from the line of Peter Heckmann with D. A Davidson your line is open.

Speaker Change: Good afternoon, Thanks for taking my question.

Elena Gomez: I mean, I think some of this is just, if you think about restaurant sales trends, you know, they're stable. But, you know, year over year, there was some small decline that we saw. Now it's stabilized in a narrow band.

Speaker Change: My questions are.

Elena Gomez: Echo what we've already heard but when you think about.

Elena Gomez: That roughly 850000 restaurant locations in the U S I guess.

Elena Gomez: How do you feel about how much of that is addressable by your current solution either.

Elena Gomez: The Turkey option or.

Elena Gomez: Software hardware, but not with payments.

Elena Gomez: How difficult is it will it be as you move upmarket to displace more modern software or more modern.

Elena Gomez: Payment players.

Elena Gomez: Yeah, and I would just add that as we extend the different parts of the TAM, any mix shift will be very gradual over a long period of time.

Speaker Change: Yes, thanks for the question.

Elena Gomez: Look I think if you look at the overall Tam we see Theres a lot of room for us to continue to grow in our core term.

Elena Gomez: Overall, <unk> is about 13% of U S restaurants, as well as I mentioned.

Elena Gomez: Within SMB and mid market that penetration is a little bit higher and mid mid to high teens of course enterprise is still nascent and it's early.

Elena Gomez: Makes sense, yeah, you got a big base here. Okay, just my quick follow-up, maybe for you, Aman, just we get a lot of questions on competitive intensity and a lot of your peers are upgrading tech and verticalizing and adding more software content around these verticals. Are you seeing any change there, and does it change your focus around product velocity or going into adjacencies, that kind of thing.

Elena Gomez: Even in these markets that are the most penetrated where we've got $25, 30% share of the fiber markets we've talked about.

Aman Narang: We see still see some of the strongest growth in terms of net adds in those markets and so the number one focus of the team is to get all of our markets and a viable state.

Aman Narang: As we think about an enterprise you asked about upmarket I think at least what we see is that the adoption of cloud upmarket is lower there is more of the legacy solutions.

Aman Narang: And I think part of why.

Aman Narang: We have expanded our platform to support in our partners like freedom PE is to make the platform more accessible in ways that customers want to buy so we're more flexible up market.

Aman Narang: Yeah, I mean, look, we're also investing in a big way to continue to innovate for our customers. I talked about some examples of how we're leveraging data and AI to just really help this customer community with this unique data asset that we have. And, you know, we had a good—again, maybe I'll start by saying we had a great quarter. You saw the 6,000 net ads.

Aman Narang: Based upon what our customers need and of course, we've got hundreds of partners as well that are on top of our platform that can build on our solution as well. So I think certainly like this.

Aman Narang: I think great momentum is in the business. And back to our—this really speaks to the team's execution, but also our platform and our go-to-market engine. You know, this is always like we've said this before in calls, but it's always been a competitive market. You know, I think we continue to see great execution, good win rates, and strong productivity from our team. And we continue to believe the biggest thing, the biggest factor that's going to drive our growth long-term is our own execution, getting more of these markets into Flywheel, getting word of mouth, and getting the customer experience to be the best it can be. So, nothing material to report. We track a lot of this very closely across competitors; there is nothing material to report at the moment.

Aman Narang: As we think about going up market.

Aman Narang: We're happy with the momentum and the progress we're making.

Aman Narang: We also want to be balanced about making sure that the customers we take on.

Aman Narang: In line with where the platform is growing as we don't want any one customer to take over our roadmap for example.

Aman Narang: Okay.

Speaker Change: Okay. That's helpful and then have.

Aman Narang: Have you talked about whats imply from a net revenue retention basis did you get on your guidance that you think we can see that uptick after the downtick in 'twenty three.

Speaker Change: Yes, we haven't we haven't commented on that specifically.

Aman Narang: So nothing new to report on that today.

Speaker Change: Okay. Thank you.

Aman Narang: Great. Well done. Thank you.

Aman Narang: Your next question is from the line of Stephen Sheldon with William Blair. Your line is open.

Operator: Your next question comes from the line of Peter Heckmann with D.A. Davidson. Your line is open.

Speaker Change: Hey, thanks.

Speaker Change: Chart with you Oman I wanted to get some more detail on the benchmarking analytics.

Peter James Heckmann: How robust those capabilities become and has the support even more differentiation for your platform relative to PD and vendors. It seems like you've been a very favorable spot to provide benchmarking given your size and scale. So how important could you capabilities b to your restaurant owners operators and is this the capability that they've been they've been asking for.

Peter James Heckmann: Good afternoon. Thanks for taking my question. Some of my questions echo what we've already heard, but when you think about, you know, that roughly 850,000 restaurant locations in the U.S., I guess, how do you feel about how much of that is addressable by your current solution, either the turnkey option or software, hardware, but not with payments? How difficult is it for you, will it be as you move up market to display some more modern software or more modern payment players?

Peter James Heckmann: Yes. Thanks for the question Steven they have been asking for it I think.

Operator: Okay.

Peter James Heckmann: As you know at the scale that we're at.

Aman Narang: Yeah, thanks for the question, Pete. Look, I think if you look at the overall TAM, we see there's a lot of room for us to continue to grow in our core TAM. Its overall toast is about, I think, 13% of US restaurants, as Elena mentioned. Within SMB and mid-market, that penetration is a little bit higher, maybe mid to high teens. Of course, enterprise is still nascent, and it's early. You know, even in these markets that are the most penetrated, where we've got a 25-30% share; these are the five markets we talk about.

Aman Narang: We still see some of the strongest growth in terms of net ads in those markets, and so the number one focus of the team is to get all of our markets into buyables. As we think about, in enterprise, what you asked about upmarket, I think at least what we see is that the adoption of cloud upmarket is lower. There are more legacy solutions.

Peter James Heckmann: We've got likely one of the best the best datasets in the restaurant industry.

Aman Narang: And I think, you know, part of why we've expanded our platform to support partners like FreedomPay is to make the platform more accessible in ways that customers want to buy. We're more flexible upmarket, you know, based on what our customers need. And of course, we've got hundreds of partners as well that are on top of our platform that can build on our solution as well. So I think certainly, as we think about going upmarket, we're happy with the momentum and the progress we're making.

Aman Narang: But we also want to be balanced by making sure that the customers we take on, you know, are in line with where the platform is going. So we don't want any one customer to take over our roadmap, for example.

Peter James Heckmann: Okay, that's helpful. And then, have you talked about what's implied from a net revenue retention basis in your annual guidance that you think we can see that uptick after the downtick in 2023? Yeah, we have.

Elena Gomez: Yeah, we haven't, we haven't commented on that specifically. So we have nothing new to report on that today.

Operator: Your next question is from the line of Stephen Sheldon with William Blair. Your line is open.

Aman Narang: Sure.

Aman Narang: And so our team is thinking about what are ways in which we can apply it to really add value for our restaurants.

Stephen Hardy Sheldon: Hey, thanks. I want to start with you, Aman.

Stephen Hardy Sheldon: And one of the use cases that frankly has come up for years at this point is.

Stephen Hardy Sheldon: How can you leverage this data to better understand things like.

Stephen Hardy Sheldon: What are you seeing in terms of sales trends what are you thinking in terms of inflation price adjustments. What are you seeing in terms of what's on the menu pricing in the menu and so there's a whole host of use cases, where our customers value understanding that data across.

Aman Narang: I want to get some more detail on the benchmarking analytics. How robust could those capabilities become? And how does this support even more differentiation for your platform relative to competing vendors? It seems like you'd be in a very favorable spot to provide benchmarking given your size and scale. So how important could these capabilities be to your restaurant owners and operators, and is this a capability that they've been asking for?

Aman Narang: There are geographies zip codes nationally and so that's really what's driving that bench market benchmarking initiatives and the early signs from our customers has been very positive again. It's early so we're still iterating on the product based on customer feedback, but it's leveraging the data that we have.

Aman Narang: Yeah, thanks for the question, Stephen. They have been asking for it. You know, I think, as you know, at the scale that we're at, we've got probably one of the best data sets in the restaurant industry. And so our team is thinking about ways in which we can apply it to really add value for restaurants. And one of the use cases that have come up for years at this point is how can you leverage this data to better understand things like, you know, what are you seeing in terms of sales trends? What are you thinking in terms of inflation and price adjustments? What are you seeing in terms of what's on the menu and the pricing on the menu?

Speaker Change: Very helpful. And then just a quick follow up for Elena on location growth, what's your level of confidence now and being able to surpass 2023 net adds or are you still on track for that given the outperformance in the first quarter and what youre seeing in the.

Aman Narang: And so there's a whole host of use cases where our customers value understanding that data across, you know, their geography, zip codes, nationally. And so that's really what's driving that benchmarking initiative. And the early signs from our customers have been very positive. Again, it's early, so we're still iterating on the product based on customer feedback. But it's leveraging, you know, the data that we have.

Elena Gomez: Very helpful. And then maybe a quick follow-up for Elena on location growth. What's your level of confidence now about being able to surpass 2023 net, as is it still on track for that given the performance in the first quarter and what you're seeing in the pipeline?

Elena Gomez: Pipeline.

Elena Gomez: Yeah, no, absolutely. Stephen, as Aman said, we had a strong start to Q1, and we're seeing a lot of great momentum from the sales team on the ground. You know, Q2 is typically seasonally stronger, and we don't see any reason why that will be different, because we are seeing really good demand and the funnel strong. So overall, we have no reason, you know, we still believe that we'll add more locations in 2024 than we did in 2023.

Elena Gomez: Yes, no absolutely Stephen.

Elena Gomez: <unk> said, we had a strong start to Q1 and we're seeing a lot of great momentum from our sales team on the ground.

Elena Gomez: Q2 is typically seasonally stronger.

Elena Gomez: We don't see any reason why that will be different seen really good demand and the funnel is strong. So overall, we have no reason, we still believe that we will add more locations in 2024, and then we did in 2023.

Stephen Hardy Sheldon: Great, thank you for the nice work.

Speaker Change: Great. Thank you for your network.

Elena Gomez: Thanks.

Operator: Your next question is from the line of Tim Chiodo with UBS. Your line is open.

Speaker Change: Your next question is from the line of Tim <unk> with UBS. Your line is open.

Timothy Edward Chiodo: Great, thank you for taking the question. I want to talk a little bit about the sales team. So you mentioned investing in the upsell team and the international sales teams. I believe the last time that you formally disclosed the size of the overall sales and marketing organization was at the time of the IPO. It was about 730 people, and a subset of that would have been the actual quota-carrying salespeople. Could you just give some directional color on how large that team might be now, how large the 730 might have grown to? Anything to give us some context on the overall size and breadth of the sales team.

Timothy Edward Chiodo: Great. Thank you for taking the question I wanted to talk a little bit about the sales team. So you mentioned investing behind the upsell team. The international sales teams I believe the last time that you formally disclose the size of the overall sales and marketing organization was at the time of the IPO. It was about 730 people in a subset of that would've been.

Timothy Edward Chiodo: The actual quota carrying salespeople could you just give some directional color on how large that team may be know how large the 730 might have grown to anything to give us some context on the overall <unk>.

Timothy Edward Chiodo: And breadth of the sales team.

Timothy Edward Chiodo: Yeah.

Elena Gomez: Yeah, so thanks, Tim, for the question. You know, we've continued to add to the team, of course, since the IPO, as you've seen, as our locations have grown. But keep in mind, this dynamic around flywheels allows us to grow ARR without adding reps. So we're gaining that efficiency and productivity from our sales reps, all the while, to the point you made, growing our upsell team, and investing in international and enterprise. So while I can't give specificity, at the highest level, we feel like we're really balanced across both our new business team, our upsell team, and now these early investments in international. So overall, we're managing to pay back periods, you know, as we always do. And that's how we're thinking about surgically adding to our sales force over time.

Timothy Edward Chiodo: Yes.

Speaker Change: Thanks, Tim for the question.

Speaker Change: We've continued to add to the team of course since the IPO as you've seen us our locations ground, but keep in mind. This dynamic around flywheel to allows us to grow without adding reps that we're gaining efficiency and productivity from our sales reps all the while to the point you made growing our <unk>.

Elena Gomez: Sell team investing behind international and enterprise, so while I cant give specificity at the highest level and we feel like we're really balanced across both our new business team. Our upsell team analyses early investments in international. So overall, we're managing the payback periods as we always do and Thats.

Elena Gomez: How we're thinking about surgically, adding to our sales force over time.

Timothy Edward Chiodo: Great, thank you. And if you don't mind, just a brief numbers follow up. The forward flow for Toast Capital, you mentioned a little bit of an impact for Q2, but just broadly speaking for the rest of the year, roughly what would that have been in terms of gross profit or recurring gross profit impact, i.e., would the recurring gross profit guide have been a point or two higher absent the forward flow change?

Speaker Change: Great. Thank you and if you don't mind, just a brief numbers follow up the forward flow for total capital you mentioned, a little bit of an impact for Q2, but just broadly speaking for the rest of the year roughly what would that have been in terms of gross profit a recurring gross profit impact I E with the recurring gross profit guide.

Timothy Edward Chiodo: I have been a point or two higher absent the forward flow change.

Elena Gomez: Yeah, it's early, Tim, so the impact in 2024 won't be as meaningful as I would give you that context for the balance of the year.

Speaker Change: Yes, it's early 10, so the impact in 2024, it won't be as meaningful as I would.

Elena Gomez: To give you that context for the balance of the year.

Timothy Edward Chiodo: Okay, thanks a lot for taking both of those.

Speaker Change: Okay. Thanks, a lot for taking both of those.

Tim: Thanks, Doug.

Operator: Your next question is from the line of Jason Kupferberg with Bank of America. Your line is now open.

Timothy Edward Chiodo: Your next question is from the line of Jason Kupferberg with Bank of America. Your line is now open.

Jason Alan Kupferberg: Thanks, guys. Just wanted to follow up on the location ads. Obviously, you beat your first quarter guide there, I think, by about 10%. I was hoping you could talk about which segments of the end market drove the upside. And what is your specific expectation for Q2?

Jason Alan Kupferberg: Thanks, guys just wanted to follow up on the location adds obviously you beat your first quarter guide there I think by about 10% I was hoping you could talk about which segments of the end market drove the upside and.

Jason Alan Kupferberg: What is your specific expectation for Q2.

Jason Alan Kupferberg: Net adds.

Aman Narang: Yeah, thanks, Jason. You know, we had, as I mentioned earlier, the bulk of the growth came from our core business. Within our core business, we continue to see that as we get more markets with higher shares, it's driving our productivity. And our team's focus is really getting more and more of our markets into this viable state so we can keep on and on benefiting from the scale that we're at. We are seeing early good momentum within international and enterprise as well.

Jason Alan Kupferberg: Yes, thanks, Jason.

Jason Alan Kupferberg: We had as I mentioned earlier the bulk of the growth came from our core business within our core business, we continue to see.

Aman Narang: As we get more markets with higher share, it's driving our productivity.

Aman Narang: And our team's focus is really getting more and more of our markets into the final state. So that we can keep on and on.

Aman Narang: Benefiting from the scale that Brad.

Aman Narang: Early good momentum within international and enterprise as well.

Aman Narang: Those things I'd say.

Aman Narang: Compared to our F&B business just early so while there is good momentum if you zoom out and think about our core SMB business. We've been at this for a decade and so these new businesses are already contributing and overtime you should expect them to contribute more as a percentage.

Aman Narang: And those teams, I'd say, are compared to our S&B business just early. So while there's good momentum, if you just zoom out and think about our core S&B business, we've been at this for a decade. And so these new businesses, while they're contributing, and over time, you should expect them to contribute more as a percentage. But the bulk of the growth today is really still coming from our core S&B business. And in terms of

Aman Narang: The bulk of the growth today's release still coming from.

Aman Narang: Core SMB business.

Elena Gomez: And in terms of Q2, it's seasonally higher, Jason, but nothing specific, but our momentum is strong.

Aman Narang: In terms of Q2 is seasonally higher Jason.

Aman Narang: Nothing specific but our momentum is strong.

Elena Gomez: Yes.

Jason Alan Kupferberg: Any update on just the percent of locations that are using six or more of the elective products? I know you've been given that each quarter, and I think, if I recall, it kind of stabilized around the second half of last year. So just any updates on that, how that's trending? Yeah, sure, Jason.

Jason: Any update on just the percent of locations that are using six or more of the elective products I know you've been given that each each quarter and I think I recall that it's kind of stabilized around the second half of last year. So just any update on that how that's trending.

Aman Narang: Yeah, sure, Jason. I think that that metric, overall, is just less relevant for us. You know, we've added more and more products that we've packaged up, as I mentioned, into these suites just because it's simpler for sales reps to sell or customers to adopt. We added these good, better, best tiers where, you know, they can start with one version, like, for example, a digital storefront suite. You can start with a version and then add advanced capabilities like websites and advanced versions of online ordering. And so really, the better metric now is adoption of suites at different levels. And, of course, we're tracking that with ARPU.

Jason Alan Kupferberg: Yeah sure Jason I think that metric overall is this less relevant for us we've added more and more products that might be packaged up as I mentioned these suites, just because it's simpler for our sales reps to sell our customers adopt rather these good better best tiers, where they.

Aman Narang: You can start with one version because as an example, a digital storefront suite you can start with version and then add advanced capabilities like websites and advanced versions of online ordering and so clearly the better metric now is adoption of suites at different levels and of course, we're talking about with our fleet.

Speaker Change: Okay. Thank you.

Speaker Change: Thanks, Jason.

Operator: Your next question is from the line of Matt Coad with Autonomous. Your line is open.

Aman Narang: Your next question is from the line of Matt Coad with Autonomous your line is open.

Aman Narang: Sure.

Matthew Coad: Hey guys, thanks for taking the question. I wanted to ask one more on capital. I'm curious, if we look at it from a different perspective, so not the dollars of gross profit but rather the dollars of contribution margin, so think gross profit less your reserve bill, do you think this forward flow agreement will help you kind of like expand the growth of that contribution margin percentage and grow contribution margin going forward?

Matthew Coad: Hey, guys. Thanks for taking my question wanted to ask one more on capital.

Matthew Coad: Curious if we looked at it from a different perspective, so not the dollars of gross profit, but rather the dollars of contribution margin. So thinking gross profit less your reserve build do you think the forward flow agreement will help you kind of expand that at that contribution margin percentage.

Matthew Coad: Gross contribution margin going forward.

Elena Gomez: Yeah, at the highest level, you know, Forward Flow, the model is such that we don't take credit risk. So the margin profile is healthy. And just kind of zooming out, when you think about the capital program, we're really trying to optimize or maximize our risk-adjusted return. So as we scale, we're going to build more partners. And in this case, Forward Flow offers us a really healthy margin profile and still allows us to scale the business as well. So hopefully, that answers your question.

Speaker Change: Yes at the highest level.

Matthew Coad: The model is such that we don't take credit risk.

Elena Gomez: Margin profile is healthy.

Elena Gomez: Just kind of zooming out when you think about the capital program, we're really trying to optimize or maximize our risk adjusted returns as we scale we're going to.

Elena Gomez: Build more partners and in this case workflow offers a really healthy margin profile and still allows us to scale the business as well so.

Elena Gomez: Hopefully that answers your question.

Matthew Coad: Yeah, that's helpful. And then just for my follow-up, Elena, sorry if I'm repeating myself, but curious if you could provide an update on the $100 million of annualized cost savings from the RIF. How much of that did we see in one queue?

Speaker Change: Yeah. That's helpful. And then just for my follow up Atlanta, sorry, Yes.

Speaker Change: Nicky you repeating yourself, but curious if you can provide an update on the $100 million of annualized cost savings from the growth how much of that did we see in <unk>.

Elena Gomez: In one cue, did we, did I say, I don't think we've given the quarterly guidance, to be honest, but I will tell you, because of the fact that we had, we talked about in the script some one-time benefits, we had a little bit higher savings than we anticipated, roughly around $10 million of incremental savings from the $100 million. And just keep in mind that a third of it is related to stock-based compensation.

Matthew Coad: And one Q.

Matthew Coad: Yes.

Elena Gomez: I don't think we've given the quarterly guidance.

Elena Gomez: To be honest, but I will tell you because of the fact that we had.

Elena Gomez: I talked about on the script. Some one time benefits, we had a little bit higher savings than we anticipated roughly around $10 million of incremental savings from the $100 million and just keep in mind and a third of it is related to stock based comp.

Speaker Change: Helpful. Thank you.

Operator: Your next question is from the line of Dominic Ball with Redburn Atlantic. Your line is now open.

Elena Gomez: Your next question is from the line of Dominick <unk> with Redburn Atlantic. Your line is now open.

Dominic Ball: Hey guys, thanks for the question. Great job on taking market share, as always. So it seems like in S&B, the breadth and depth of products offered by Toast is clearly market leading. And my question is, for larger merchants, be that upper mid-market or enterprise, are there any product gaps that you would like to fill? I ask this because the recent Rational Management Suite product release, the benchmarking tool, was really interesting. So, should we expect more product releases in the future specifically geared to larger merchants?

Dominic Ball: Hey, guys. Thanks for the question great job on taking market share that's always.

Dominic Ball: It seems like in the SMB.

Dominic Ball: Products offered by choices is clearly a market leader.

Dominic Ball: My question is for larger motions.

Dominic Ball: Mid market enterprise are there any product gaps that you would like to fill all since this was the recent restaurant management suite release, the benchmarking tools really interesting. So should we expect more product releases in the future specifically to larger margins.

Aman Narang: Hey, Dominic. Thanks for the question. That is the plan, gradually, as we continue to invest across the whole TAM, including enterprise. You know, we – the goal of the restaurant management suite was to provide a capability where we could start to drop in more and more of the capabilities into this suite. And so, whether it's our bus or management tools, whether it's our extensibility and our APIs, security and compliance, config management, there's a whole host of capabilities that we're investing in to make our product a better fit upmarket, including, by the way, drive-through capabilities, as well, over time. And the restaurant management suite allows us to package all of it into a suite that can be used upmarket.

Speaker Change: Hey, Dominic Thanks for the question that is the plan gradually as we continue to invest across the whole time, including enterprise.

Aman Narang: We.

Aman Narang: The Goldman the restaurant management suite was to provide a capability, where we can start to drop in more and more of the capabilities into the suite.

Aman Narang: And so whether it's our above store management tools, whether its our extensibility and API for the security and compliance Config management.

Aman Narang: There's a whole host of capabilities that we're investing in to make our product a better fit upmarket, including by the way drive through capabilities as well over time and so this is this is the plan in the long term.

Aman Narang: The restaurant management suite allows us to package all of it up into a suite that can be used upmarket.

Dominic Ball: That's super interesting. And just one more, if that's okay.

Speaker Change: Absolutely for interest and interest one more if that's the case for international parties, how should we think about the product pipeline the product parity with the U S. And then the subsequent Opex Apache.

Aman Narang: For international growth, how should we think about the product pipeline, the product parity with the U.S., and then the subsequent OPEX attached to that? So what I mean is, because in the U.S., you sort of built these products from scratch, and now that isn't the case when you go international, is there a lower cost of growth? Or, because there are different markets, is there actually a higher initial cost of growth?

Dominic Ball: Thank you.

Aman Narang: So what I mean is because in the U S.

Aman Narang: Building products from scratch now isn't the case when you go international is a lower cost of growth because it was markets they'll actually our initial.

Dominic Ball: <unk> customers. Thank you.

Aman Narang: Yeah. I think, look, maybe I'll just say that we, if you look this quarter, you know, we announced online ordering, integrated online ordering, which is a big feature request from our customers internationally. It's been really well received.

Speaker Change: Yes, I think look maybe I'll, just say that if you look this quarter, we announced the online ordering integrated online ordering which is a big feature requests from our customers internationally. It's been really well received and there is a roadmap to continue to invest and expand.

Aman Narang: And there's a roadmap to continue to invest in and expand the product both from a guest experience standpoint and in restaurant operations to support our international customers. A lot of that is dictated by our customer base. I think the incremental investment to go, to build out the product, certainly not the same as building the product for the U.S. market, given we're building on top of what we built, what we built here over the past decade.

Aman Narang: The product both from a guest experience standpoint in restaurant operations perspective to support our international customers a lot of that is driven by our by our customer base I think the incremental investment to go to build out the product certainly not the same as building the product for the U S market given we're building on top of what we will be built what we've built here over the past decade, and also I think one more thing I'll call out is that we've built.

Aman Narang: And also, I think one more thing I'll call out is that we've built a framework here where, you know, whether it's language or currency or location-specific requirements, payments, for example, are one. The capabilities are reusable across new markets. So as we enter the next scale of markets over time, it should actually allow us to go even faster.

Aman Narang: A framework here, where whether its language or currency or location specific requirements.

Aman Narang: Payments for example is one the capabilities reusable across new market. So as we enter the next scale of markets over time, it should actually allow us to go even faster.

Dominic Ball: Cool, thank you, and great job again. Cheers.

Speaker Change: Thank you and great job again.

Speaker Change: Thank you.

Operator: We will now take our last question from the line of Sheriq Sumar with Evercore ISI. Your line is open.

Aman Narang: We will now take our last question from the line of <unk> <unk> with Evercore ISI. Your line is open.

Sheriq Sumar: Hey, hi, I just wanted to ask about the cadence around the SaaS ARPU for this year. Like, is there any kind of fluctuation that we could expect? And probably, I mean, I know it's kind of a bit too early, but thinking beyond 2024, I mean, just wanted to get a sense for the upsell strategy, or could we expect to see any kind of potential improvement in the SaaS ARPU growth trend? Yeah, Sheriq, I'll take that. So in the near term, we've said mid

Operator: Hey.

Sheriq Sumar: I just wanted to ask about the <unk>.

Sheriq Sumar: Vince around the SaaS our pool.

Sheriq Sumar: This year is there any kind of fluctuation that that we could expect and probably I mean, I know, it's kind of a bit too early but thinking beyond.

Speaker Change: 2020 for I mean, just wanted to.

Speaker Change: On the upsell.

Sheriq Sumar: <unk>.

Speaker Change: Could we expect to see any kind of potential improvement in the SaaS at Google trends from you.

Elena Gomez: Yeah, Sheriq, I'll take that. So in the near term, we've said mid single digits on an ARR basis, and that's still, we feel confident in delivering on that in the near term. You know, zooming out when you think about our opportunity long term, there's really a few things we think about. One is growing our attach, right, and that's through optimizing the rest of the products we have and working on product market fits, the upsell team, pricing, and packaging.

Sheriq Sumar: Yes, sure I'll take that so in the near term.

Speaker Change: Said mid single digits on IRR basis, and Thats still.

Elena Gomez: We feel confident in delivering on that in the near term.

Elena Gomez: Zooming out when you think about our opportunity long term theres really a few things we think about one is growing our attach rate and thats through optimizing.

Elena Gomez: The breadth of products, we have and working on product market fit our upsell team pricing and packaging and then Theres innovation. That's we're continuing to invest in our R&D team to drive future innovation and then of course as we've talked about we will implement an ongoing cadence of small steady pricing pricing changes.

Elena Gomez: And then there's innovation; we're continuing to invest in our R&D team to drive future innovation. And then, of course, as we've talked about, we will implement an ongoing cadence of small steady pricing changes over time, both on the SaaS side, but also on the FinTech side, even though I know you're asking about SaaS ARPUs. So, we have an opportunity over time, you know, to grow our ARPU, but in the near term, mid-single digits is the right process.

Elena Gomez: Over time both.

Elena Gomez: On the SaaS side, but also even on the Fintech side, even though I know you are asking about SaaS rfps. So we have an opportunity over time.

Elena Gomez: To grow our <unk>, but in the near term mid single digits is the right.

Elena Gomez: <unk> proxy on an IRR basis.

Elena Gomez: Okay.

Operator: Operator Roe, I think that will be our call for today.

Elena Gomez: Operator role I think that Robyn <unk> call for today.

Operator: Thank you, everybody.

Elena Gomez: Or if you guys got includes today's conference call you may now disconnect.

Operator: Yes.

Operator: Yeah.

Q1 2024 Toast Inc Earnings Call

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