Q3 2024 Toast Inc Earnings Call
Unknown Executive: will be followed by our Q&A session.
Unknown Executive: 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. 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 and margin outlook, anticipated impact of our restructuring plan, warrant repurchase and share repurchase program, expected growth, and business outlook, including our financial guidance for the fourth quarter and full year 2024.
Before we start I'd like to draw your attention to the Safe Harbor statement included in today's press release.
During this call we will make statements related to our business that may be considered forward looking within the meaning of the Securities Act and the Exchange Act.
All statements other than statements of historical facts are forward looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures location growth future profitability and margin outlook anticipated impact of our restructuring plan warrant repurchase.
And share repurchase program expected growth and business outlook, including our financial guidance for the fourth 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.
Unknown Executive: Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our SEC filings for a discussion of the risks and uncertainty that could cause actual results to differ materially from our expectations.
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.
Unknown Executive: During this call, we will discuss certain non-GAAP financial measures, including but not limited to non-GAAP Subscription Services Gross Profit and non-GAAP Financial Technology Solutions Gross Profit, which we refer to collectively as our recurring gross profit stream. These are the bases for our top-line guidance. These non-GAAP measures are not intended to be a substitute for our GAAP results. 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.
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 referred to collectively as our recurring gross profit streams.
These are the basis for our top line guidance. These.
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.
Search and development expense and general and administrative expense are on a non-GAAP basis.
Unknown Executive: Finally, the press release can be found on the Investor Relations website at investors.tostab.com. After the call, a replay will be available on our website.
Finally, the press release can be found on the Investor Relations website at investors <unk> Dot com after the call a replay will be available on our website.
Unknown Executive: And with that, let me turn the call over to Ron.
Ron: With that let me turn the call over to Ron.
Yeah.
Ron: Thank you, Michael.
Ron: Thank you Michael and thank you everybody for joining us this afternoon.
Ron: And thank you, everybody, for joining us this afternoon. We've delivered another strong quarter. We added approximately 7,000 net locations. Our recurring gross profit streams grew 35% year-over-year. I just believe that I came in at $113 million. And our gap operating income was $34 million.
Ron: Delivered another strong quarter, we added approximately 7000 net locations.
Ron: Our recurring gross profit streams grew 35% year over year.
Ron: Adjusted EBITDA came in at $113 million.
Ron: And our GAAP operating income was $34 million.
Ron: I'm really proud the team and I'm confident we're well positioned to finish out the year strong and bring this momentum with us into 2025.
Ron: I'm really proud of the team, and I'm confident we're well positioned to finish out the year strong and bring this momentum with us into 2025. Our mission at Toast is to help restaurants delight their guests, do what they love, and thrive. We probably served nearly 127,000 locations today. And our long-term ambition is to scale this impact across new geographies, new market segments, and new verticals. As we think about, not just the coming years, but what's possible over the next decade. I firmly believe we can serve many multiples of our current customer count by both increasing market penetration in our current market segments and continuing to expand our addressable markets over time.
Ron: Our mission at test is to help restaurants delight, our guests do what they love.
Ron: We probably serve nearly 127000 locations today.
Ron: Okay.
Ron: And our long term ambition is to scale this impact across new geographies, new market segments and new verticals.
Ron: As we think about not just the coming years, but what's possible over the next decade.
Firmly believe we can serve many multiples of our current customer count by both increasing market penetration in our current market segments and continuing to expand our addressable markets overtime.
Ron: Over the past year, we've been focused on making disciplined investments that align with our most important priorities.
Ron: Over the past year, we've been focused on making discipline investments that align with our most important priorities and support our long-term vision. And we have so much to be proud of. Well, the progress over the past 10 years has been tremendous. We're still early in unlocking the full potential of the opportunity that lies ahead.
Ron: And support our long term vision.
Ron: And we have so much to be proud of.
Ron: While the progress over the past 10 years has been tremendous.
Still early and unlocking the full potential of the opportunity that lies ahead.
Ron: Yes.
Ron: We've increased our outlook for the full year based on our performance in the third quarter and we remain focused on the four strategic priorities, we laid out earlier this year.
Ron: We've increased our outlook for the full year based on our performance in the third quarter, and we remain focused on the four strategic priorities we laid out earlier this year. Number one, scaling locations and market share in our core business. Number two, expanding our offering for restaurants with products customers love. Number three, expanding our addressable market into new adjacencies. And finally, number four, setting up the company to deliver ongoing operating leverage as we scale.
Ron: Number one scaling locations in market share in our core business number two expanding our offering for restaurants with products customers love.
Ron: Number three expanding our addressable market into new Adjacencies.
Ron: And finally number four setting up the company to deliver ongoing operating leverage as we scale.
Ron: First scaling restaurant locations and gaining share in our core business.
Ron: Scaling Restaurant Locations and Gaining Share in Our Core Business. Over the past three years, we've more than doubled our market share in the U.S. including recently signed mid-market brands, Metro Diner, Giordano's Pizza, and Earl Corporation. still only at 14% penetration. Our purpose-built restaurant platform and local go-to-market engine creates a flywheel effect as we increase density in local markets. driving approximately 7,000 net ads in the quarter. Our customers continue to choose Toast as they expand locations. Solidifying our position in the market at The Choice for Growing Successful Restaurants.
Ron: Over the past three years, we've more than doubled our market share in the U S.
Ron: Including recently signed mid market brands.
Ron: Metro Diner, Giordano Pizza and <unk> Corporation.
Ron: We're still only at 14% penetration.
Ron: Our purpose built restaurant platform and local go to market engine creates a flywheel effect as we increased density in local markets.
Ron: Driving approximately 7000 net adds in the quarter.
Ron: Our customers continue to choose toast as they expand locations.
Ron: Solidifying our position in the market as the choice for growing successful restaurants.
Ron: Here's a story that speaks to this momentum. Cultivate Food and Coffee is a full-service restaurant and coffee concept in the Atlanta area that recently opened their third location with Toast. Cultivate uses a variety of toast products to increase speed of service and reduce errors across their locations. For example, servers are able to process orders in half the time. with 80% fewer errors using our Tosco handheld. And even though Cultivate's new location has more complex peril needs than before. Managers are able to save time and process payroll in just minutes through Toast. These time savings add up.
Ron: Here's the story that speaks to this momentum.
Ron: Cultivate food and coffee is a full service restaurant and coffee concept in the Atlanta area that recently opened a third location with toast.
Ron: Cultivate uses a variety of those products to increase speed of service and reduce areas across their locations.
Ron: For example, <unk> was able to process orders and half the time with.
Ron: With 80% fewer errors using our taxco handhelds.
Ron: And even though cultivate new location has more complex payroll Nathan before.
Ron: Managers are able to save time and process apparel.
Ron: In just minutes Stratos.
Ron: These type time savings add up we heard from cultivate that the efficiency gains from dose free them up to create a positive environment for staff.
Ron: We heard from Cultivate that the efficiency gains from Toast free them up to create a positive environment for staff. and memorable experiences for guests.
Ron: And memorable experiences for guests.
Ron: It's stories like this that inspire us and our team to keep innovating.
Ron: It's stories like this that inspire us and our team to keep innovating.
Ron: Alright, moving on our second priority is expanding our offering for restaurants with products and experiences customers love.
Ron: Alright, moving on, our second priority is expanding our offering for restaurants with products and experiences customers love. To help our customers drive demand, we've recently released two new products to help restaurants reach their guests. Branded App, and SMS Marketing. First, our new branded app allows our customers to build best-in-class native app experiences for iOS and Android, including integrated digital ordering, delivery, loyalty, and more. This helps our customers level the playing field with much larger brands at a fraction of the cost. and has been particularly successful with our multi-unit SMBs and mid-market customers. This builds on our website product released earlier this year as we round up the guest-facing products included in our essential premium and pro tiers of our digital storefront suite.
Ron: To help our customers drive demand. We've recently released two new products to help restaurants reached their gas.
Ron: Branded at SMS marketing.
Ron: First our new branded App allows our customers to build best in class Native App experiences for iOS, and Android, including integrated digital ordering delivery loyalty and more.
Ron: This helps our customers level, the playing field with much larger brands at a fraction of the cost.
Ron: And has been particularly successful with our multi unit SMB and mid market customers.
Ron: This builds on our website product release early this year as we round out the guest facing products included our essential premium and CRO tiers of our digital storefront suite.
Ron: With multiple offerings at various price points, we now provide options for a variety of different businesses and show our customers how they can expand with us as they grow. And our customers are already seeing increased guest loyalty through our branded app, Powered Experience. For example, guests who order through the app are four times more likely to be repeat customers than those who order through a restaurant's website.
Ron: With multiple offerings at various price points. We're now we now provide options for a variety of different businesses and show our customers how they can expand with us as they grow.
Ron: And our customers are already seeing increased guest loyalty through our branded app powered experience.
Ron: For example, guests to order through the App are four times more likely to be repeat customers than those order to a restaurants website.
Speaker Change: Pete away, a fast casual Mediterranean restaurant with 37 locations across the Midwest.
Ron: Pitaway, a fast, casual Mediterranean restaurant with 37 locations across the Midwest. saw orders from their newly launched branded app make up almost 15% of the digital sales since their launch. Second, we added a highly requested capability in SMS marketing to our marketing suite to help our customers reach their guests directly and generate more revenue. Our customers will be the first to tell you, SMS marketing just works. Spaghettini, a full-service Italian restaurant in California, attributed over $11,000 in sales to SMS Marketing in its first month alone. It's a critical tool when business is slow. For example, during a quiet period, Segatini sold out their Surf and Turf special after promoting it with a text campaign.
Speaker Change: Orders from their newly launched branded App make up almost 15% of the digital <unk> sales since it launched.
Speaker Change: Second we added a highly requested capability in SMS marketing to our marketing suite to help our customers reach their guests directly and generate more revenue.
Speaker Change: Our customers will be the first tell you SMS marketing just works.
Speaker Change: <unk>, a full service Italian restaurant in California.
Speaker Change: At over 11000 in sales service marketing and its first month alone.
Speaker Change: It's a critical tool when business is slow.
Speaker Change: For example, during our quiet period <unk> sold out there surfing to a special after promoting it with the test campaign.
Speaker Change: Okay.
Speaker Change: But we're not just expanding our offering by releasing new products.
Ron: But we're not just expanding our offering by releasing new products. Our vertical SaaS strategy goes deep and focuses on a wide range of unique restaurant-first capabilities. What we refer to as our thousand little things. This fall alone, we released over a dozen updates across products like Toast Now, benchmarking, kiosks, toast tables, and payroll in response to direct customer feedback.
Speaker Change: Our vertical SaaS strategy goes deep and focuses on a wide range of unique restaurant first capabilities.
Speaker Change: What we referred to as a thousand little things. This fall alone we released over a dozen updates across products like toast now.
Speaker Change: Marking kiosks co stables.
Speaker Change: Errol in response to a direct customer feedback.
Speaker Change: Switching gears, our third priority is.
Ron: Switching gears, our third priority is expanding our addressable market into new adjacencies including food and beverage retail. International, and Enterprise. These new verticals represent meaningful times where we see a right to win. And our investments in these areas position us to drive sustained location growth over the long term. We continue to see great signal across these market segments, which has given us even more conviction to increase our investments in these areas as we head into 2025. In food and beverage retail, we've expanded product functionality to now accept EBT SNAP benefits, which opens up more of the grocery and convenience store camp.
Speaker Change: Is expanding our addressable market into new adjacencies, including food and beverage retail.
International and enterprise.
Speaker Change: These new verticals represent meaningful teams, where we see a right to win.
Speaker Change: Okay.
Speaker Change: And our investments in these areas position us to drive sustained location growth over the long term.
Speaker Change: We continue to see great signal across these market segments, which has given us even more conviction to increase our investments in these areas as we head into 2025.
Speaker Change: In food and beverage retail, we've expanded product functionality to not accept EBT snap benefits, which.
Speaker Change: Which opens up more of the grocery and convenience store Tam.
Ron: We're proud to be able to serve the over 42 million Americans who rely on SNAP. including customers at Gangnam Market, a 28,000 square foot market in Chicago. that does over $10 million in sales annually and manages over 15,000 SKUs. Gangnam Market's owners knew Toast would be able to meet their needs of this new concept because they'd already used Toast in their restaurants in the past. Next in international, we're continuing to see momentum with our month-over-month gains and a charge for our guest products that we rolled out earlier this year, which is helping us drive our unit economics and sales productivity.
Speaker Change: We're proud to be able to serve the over 42 million Americans, who rely on snap.
Speaker Change: Including customers again to market, a 28000 square foot market in Chicago.
Speaker Change: That is over 10 million in sales annually and manages over 15000 skus.
Speaker Change: Kingdoms markets owners, new tools to be able to meet their needs of this new concept because it already use toast and the restaurants in the past.
Speaker Change: Next in international we're continuing to see momentum with our month over month gains and attach for Rguest products have been rolled out early this year, which is helping us drive our unit economics and sales productivity.
Ron: Customers in the UK, Ireland, and Canada can now also access Toast Now, our mobile operator app, where they can view real-time data about their restaurant. is we continue to invest internationally and see the attach rates of our products improve. We have even more conviction in what international markets represent for Toast as long-term growth drivers.
Speaker Change: Customers in the U K, Ireland, and Canada can now also access tests now our mobile operator, App, where they can do real time data about the restaurant.
Speaker Change: As we continue to invest internationally and so the attach rates of our products improve.
Speaker Change: We have even more conviction in what international markets represent for toast as long term growth drivers.
Speaker Change: And with an enterprise I'm excited to announce with one potbelly Sandwich works and we will be deploying <unk> across their 400 plus locations in the U S.
Ron: And with an enterprise, I'm excited to announce we've won Potbelly Sandwich Works and we'll be deploying Toast across their 400 plus locations in the U.S. Our pipeline entering 2025 is really strong, and we continue to make progress across our rollouts with Marriott, NTY Group, NBC, and many others.
Speaker Change: Our pipeline entering 2025 is really strong and we continue to make progress across our rollouts with Marriott Nty group NBC and many others.
Speaker Change: And lastly.
Ron: And lastly, our fourth priority is to continue to deliver ongoing operating leverage as we scale. In 2024, we reshaped our cost structure, positioning us to invest behind our priorities we've laid out to drive durable growth over the long term, while continuing to expand our margins towards the target we presented at our Investor Day. I'm confident in our team's ability to make the right tradeoffs and set us up for the future.
Speaker Change: Our fourth priority.
Speaker Change: Is to continue to deliver ongoing operating leverage as we scale.
Speaker Change: In 2024, we reshaped our cost structure positioning us to invest behind our priorities, we have laid out to drive durable growth over the long term.
Speaker Change: While continuing to expand our margins towards the target we presented at our Investor day.
Speaker Change: I am confident in our team's ability to make the right tradeoffs and set us up for the future.
Speaker Change: As I wrap up.
Ron: As I wrap up. I'm so confident in our team, the plan we have in place, and the opportunity ahead of us. Thank you to every toaster for your dedication and passion for our mission. There's no question we wouldn't be here without you. Thank you to our customers. It's an honor to serve you. And to our investors, thank you for continuing to believe in us and our potential.
Speaker Change: And so confident in our team the plan, we have in place and the opportunity ahead of us.
Speaker Change: Thank you to every toaster for your dedication and passion for our mission. There is no question, we wouldn't be here without you.
Speaker Change: Thank you to our customers, it's an honor to serve you.
And to our investors. Thank you for continuing to believe in us and our potential.
Speaker Change: Now I will turn the call over to Lina to share more about this quarter's results.
Elena: Now I'll turn the call over to Elena to share more about this quarter as well.
Lina: Thank you Mark and thank you to everyone for joining I also want to thank our employees, whose hard work and consistent execution led to another successful quarter with top and bottom line results exceeding expectations.
Elena: Thank you Aman and thank you to everyone for joining. I also want to thank our employees whose hard work and consistent execution led to another successful quarter with top and bottom line results exceeding expectations. In the third quarter, ARR increased 28% and total FinTech and subscription gross profit, our recurring gross profit streams grew 35%. Our strong top line growth is complemented by our efficient and disciplined approach to scaling the business, resulting in adjusted EBITDA of $113 million, a 30% margin on our recurring gross profit streams, and GAAP operating income of $34 million. Third quarter results came in above our expectations, driven by strong top line results, including a higher contribution from Toast Capital and upside to SAS revenue.
Lina: In the third quarter are our increased 28% and total <unk> subscription gross profit our recurring gross profit streams grew 35% our strong topline growth is complemented by our efficient and disciplined approach to scaling the business, resulting in adjusted EBITDA of $113 million.
Lina: A 30% margin on our recurring gross profit streams and GAAP operating income of $34 million.
Lina: Third quarter results came in above our expectations driven by strong topline results, including a higher contribution from test capital and upside to SaaS revenue. We added approximately 7000 net locations in Q3, increasing total locations to nearly a 102002.
Elena: We added approximately 7000 net locations in Q3, increasing total locations to nearly 127,000, up 28% year over year. The combination of our purpose built platform and localized go to market motion continue to drive our momentum. With our strong performance year to date, we remain on track to deliver more net location ads in 2024 versus 2023. SAS ARR grew 33% year-over-year, driven by strong location growth and a 4% increase in SAS ARPU on an ARR-based Subscription revenue increased 44% year-over-year, growing faster than SAF ARR due to ongoing focus across the organization to improve our ARR to revenue conversion.
Lina: 7000 up 28% year over year.
Lina: The combination of our purpose built platform and localized go to market motion.
Lina: <unk> to drive our momentum.
Lina: With our strong performance year to date, we remain on track to deliver more net location adds in 2024 versus 2023.
Lina: SaaS AAR grew 33% year over year, driven by strong location growth and a 4% increase in SaaS or on an IRR basis subscription.
Lina: Revenue increased 44% year over year.
Lina: Brian faster than SaaS AAR due to ongoing focus across the organization to improve our <unk> to revenue conversion.
Elena: Part of that improvement is sustainable going forward, and part of the increase in subscription revenue was a one-time benefit. Payments ARR grew 23% and Fintech gross profit increased 27% in the third quarter. GPD was $41.7 billion, growing 24% year-over-year, with GPD per location down approximately 3% versus last year. That take rate was 56 basis points with a core net take rate of 45 basis We made targeted payment pricing changes for a small cohort of customers in September. It had minimal impact in the quarter, and we expect a small benefit to net trach rate in Q4.
Lina: Part of that improvement is sustainable going forward and part of the increase in subscription revenue was a one time benefit.
Lina: Payments are our grew 23% and Fintech gross profit increased 27% in the third quarter <unk> was $41 7 billion growing 24% year over year with GPT per location down approximately 3% versus last year.
Lina: Net take rate was 56 basis points with a core net take rate at 45 basis points.
Lina: Targeted payment pricing changes for a small cohort of customers in September.
Lina: It had minimal impact in the quarter and we expect a small benefit to net take rate in Q4.
Lina: As we've discussed we are building a motion for ongoing small targeted price adjustments and the pricing as one lever to complement our primary growth drivers over the long term.
Elena: As we've discussed, we are building a motion for ongoing small targeted price adjustments and view pricing as one lever to complement our primary growth drivers over the long term. Gross profit from non-payment FinTech solutions increased to $43 million, driven by healthy demand for Toast Capital. Defaults remain in line with our expectations, and due to continued optimization and the addition of forward flow, bad debt associated with Toast Capital is down relative to prior year, even as we scale the program.
Lina: Okay.
Lina: Gross profit from non payments Fintech solutions increased to $43 million driven by healthy demand for test capital.
Lina: Defaults remain in line with our expectations and due to continued optimization and the addition of <unk>.
Lina: Our debt associated with test capital is down relative to prior year, even as we scale the program.
Lina: Let me share one story that shows how customers value the fast low friction access to capital to grow their business.
Elena: Let me share one story that shows how customers value the fast, low friction access to capital to grow their business. The Bond Group, which owns the popular speakeasy and ice cream shop UES in New York City, used Toast Capital to help with early operations for a new concept called Champagne Problems they opened earlier this year. The quick and seamless access to funding allowed the owner to maintain strategic control of her business while avoiding the time and complexity associated with traditional loans. The Bond Group considers Toast to be an ideal partner for growth, given Toast's unique visibility into their financials and business operations.
Lina: <unk>, which owns the popular speakeasy and ice cream shop, UBS in New York City East Coast capital help with early operations for a new concept called Champagne problems. They opened earlier this year.
Lina: Quick and seamless access to funding allowed the honor to maintain strategic control of her business, while avoiding the time and complexity associated with traditional allowance.
Lina: The bank group considers tends to be an ideal partner for growth given test unique visibility into their financials and business operations and plans to use test capital help with future expansion.
Elena: and plans to use Toast Capital to help with future expansion. Shifting back to the P&L, total operating expenses, including bad debt and credit-related expenses, increased 11% year-over-year in the third quarter, accelerating versus the first half of 2024 due to the planned investments in our highest priority areas. Sales and marketing expenses were up 25% year-over-year in Q3, as we made targeted investments across our TAM expansion areas, upsell, and U.S. go-to-market channels to increase market share gains. R&D increased 5% year-over-year in the third quarter, reflecting investments aligned with our product strategy. As Aman mentioned, we recently announced SMS Marketing, Branded App, and over a dozen new features across our platform, reflecting the continued innovation to further differentiate our offering and provide more value for our customers.
Lina: Shifting back to the P&L as total operating expenses, including bad debt and credit related expenses increased 11% year over year in the third quarter accelerating versus the first half of 2024 due to the planned investments in our highest priority areas.
Lina: Sales and marketing expenses were up 25% year over year in Q3, as we made targeted investments across our Tam expansion areas upsell and <unk> go to market channels to increase market share gains.
Lina: R&D increased 5% year over year in the third quarter, reflecting investments aligned with our product strategy.
Speaker Change: As <unk> mentioned recently, we recently announced SMS marketing branded App and over a dozen new features across our platform, reflecting the continued innovation to further differentiate our offering and provide more value for our customers.
Elena: We're also investing behind our TAM expansion areas. In retail, we're adding more product integrations like accepting SNAP EBT payments and our grocery and convenience segments and deepening our retail inventory management offering. Internationally, we're rolling out more products, including Toast Now, gift cards, and expanding third-party integrations. Excluding $18 million of VAD debt and credit-related expenses, G&A declined 8% year-over-year. We expect to continue operating leverage in G&A as we maintain a focus on driving efficiencies, including through automation and global diversification of our workforce. Adjusted EBITDA was $113 million in the quarter and margins expanded 17 percentage points year-over-year to 30%.
Speaker Change: We're also investing behind our Tam expansion areas in retail and we're adding more product integrations like accepting snap EBT payments in our grocery and convenience segment and deepening our retail inventory management offering internationally, we're rolling out more products, including tests now gift cards and <unk>.
Speaker Change: Expanding third party integrations.
Speaker Change: Excluding $18 million of bad debt and credit related expenses G&A declined 8% year over year.
Speaker Change: We expect to continue operating leverage in G&A as we maintain a focus on driving efficiencies, including through automation and global diversification of our workforce.
Speaker Change: Okay.
Speaker Change: Adjusted EBITDA was $113 million in the quarter and margins expanded 17 percentage points year over year to 30%.
Elena: The strong Q3 results reflect the healthy top-line growth and our commitment to prudently scaling the business while balancing investments in more nascent areas like food and beverage retail, international and enterprise to lay the foundation to deliver durable growth for years to come. Our Q3 margin also benefits from typical payment seasonality. Gap operating income was $34 million in Q3, reflecting our strong operating performance and disciplined approach to managing stock-based compensation expenses, and free cash flow totaled $97 million in the third quarter.
Speaker Change: <unk> Q3 results reflect a healthy topline growth and our commitment to prudently scaling that business, while balancing investments in more nascent areas like food and beverage retail international and enterprise to lay the foundation to deliver durable growth for years to come.
Speaker Change: Our Q3 margin also benefits from typical payments seasonality.
Speaker Change: GAAP operating income was $34 million in Q3, reflecting our strong operating performance and disciplined approach to managing stock based compensation expenses and free cash flow totaled $97 million in the third quarter move.
Elena: Moving to capital allocation. Year-to-date through the third quarter, we repurchased over 2 million shares for $56 million for an average price of $23 per share. Early in the third quarter, we also repurchased a warrant representing 5 million shares, reflecting our focus on reducing dilution. We will continue to be opportunistic based on market conditions and act judiciously in support of building long-term shareholder value. Turning to guidance, for the fourth quarter, we expect total subscription and fintech gross profit to grow in the 32-35% range. Year over year and adjusted EBITDA to be $90 million to $100 million.
Speaker Change: Moving to capital allocation.
Speaker Change: Year to date through the third quarter, we repurchased over 2 million shares for $56 million on an average price of $23 per share.
Speaker Change: Early in the third quarter, we also repurchased the warrant representing 5 million shares, reflecting our focus on reducing dilution.
Speaker Change: We will continue to be opportunistic based on market conditions and act judiciously in support of building long term shareholder value.
Speaker Change: Turning to guidance for the fourth quarter, we expect total subscription and Fintech gross profit to grow in the 32% to 35% range year over year, and adjusted EBITDA to be $90 million to 100 million the sequential decline in adjusted EBITDA and margin compare.
Elena: The sequential decline in adjusted EBITDA and margin compared to the third quarter reflects typical seasonal decline in the fourth quarter of GPV per location, as well as our planned ongoing reinvestment to set ourselves up for sustained healthy growth in both 2025 and over the long term. For the full year, we now expect 32-33% growth in Fintech and Subscription Gross Profit. and $352 million to $362 million in adjusted EBITDA, representing a 26% adjusted EBITDA margin at the midpoint, marking approximately 20 percentage point improvement in margin versus last year. Thus far, in 2024, we have delivered meaningful adjusted EBITDA outperformance and significant margin expansion after resetting our cost structure at the beginning of the year and aligning our investments with our highest priority areas.
Speaker Change: To the third quarter reflects typical seasonal decline in the fourth quarter of <unk> per location as well as our planned ongoing reinvestments to set ourselves up for sustained healthy growth in both 2025 and over the long term.
Speaker Change: For the full year, we now expect 32% to 33% growth in Fintech and subscription gross profit and 352 million to $362 million and adjusted EBITDA, representing a 26% adjusted EBIT margin at the midpoint marketing approximately 20 percentage point improvement.
Speaker Change: In margin versus last year.
Speaker Change: Thus far in 2024, we have delivered meaningful adjusted EBITDA outperformance and significant margin expansion after resetting our cost structure at the beginning of the year and aligning our investments with our highest priority areas.
Elena: As we exit the year, our strong financial profile enables us to invest in the business to position us for both a strong 2025 and long term durable growth. We will focus on balancing growth with modest margin expansion as we march towards the 30 to 35 medium term goal we laid out at Investor Day.
Speaker Change: As we exit the year, our strong financial profile enables us to invest in the business to position us for both a strong 2025 and long term durable growth.
Speaker Change: We will focus on balancing growth with modest margin expansion as we march towards the 30% to 35% medium term goal, we laid out at Investor day.
Speaker Change: To wrap up we are executing across the board and extremely proud of what we have accomplished so far in 2024 and in our position heading into 2025.
Elena: To wrap up, we are executing across the board and extremely proud of what we have accomplished so far in 2024 and in our position heading into 2025.
Unknown Executive: Now I will turn the call back over to the operator to begin Q&A. Thank you and at this time I would like to remind everyone in order to ask a question press star then the number 1 on your telephone keypad and your first question comes from the line of Joshua Baer from Morgan Stanley, please go ahead. Great, thanks for the question. And congrats on a nice quarter. Question is on location growth ahead. Your TAM is expanding execution strong, you benefit from more efficiency in your density markets. And you're talking about bringing the momentum from this year into 2025.
Speaker Change: Now I will turn the call back over to the operator to begin Q&A.
Speaker Change: Thank you and 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 your first question comes from the line of Joe Spak from Morgan Stanley. Please go ahead.
Joe Spak: Great. Thanks for the question.
Joe Spak: Congrats on a nice quarter.
Speaker Change: Question is on location growth ahead. Your Tam is expanding execution strong benefit from more efficiency in your density markets and youre talking about bringing the momentum from this year into 2025.
Ron: Does that mean that you can add more locations in 25 versus 24? Is it a similar number?
Speaker Change: Does that mean that you can add more locations and 25% versus 24 is it a similar number I'm just wondering how youre thinking about the trajectory of location additions.
Ron: Just wondering how you're thinking about the trajectory of Hey, Josh. You know, look, I'll start by saying we've had a great quarter, and we had 7,000 net ads. You know, I think overall, for the year, we've got strong net ads in 2024. It's really led by our flywheel markets and our core business. You know, these flywheel markets continue to drive strong productivity and stronger productivity than our other markets. And the number of flywheel markets continues to increase. In parallel, we're seeing good early momentum in CBG retail and our Horizon One international markets. And that does give us more conviction to invest more in those businesses.
Speaker Change: Hey, Josh.
Speaker Change: Look I'll start by saying, we've had a great quarter and we had 7000 net adds.
Speaker Change: Overall for the year, we've got strong net adds in 'twenty 'twenty four is really led by our fiber markets in our core business. The cycle markets continue to drive strong productivity and stronger productivity than our other markets and number of LIBOR markets continues to increase in parallel we're seeing good early momentum in CPG retail and our horizon one international markets.
Speaker Change: And that does give us more conviction to invest more in those businesses next year.
Ron: Next year, we also had a great win in Top Billing Enterprise. We continue to see momentum there as well, steady momentum.
Speaker Change: We also had a great win in Potbelly in enterprise, we continue to see momentum there as well as steady momentum.
Ron: And if you just zoom out and think about the next decade, which next year, like we recognize that it's critical, like to both scale and drive into to both scale and drive market share in our core US business now, while expanding our TAM across new verticals and new market segments.
Speaker Change: And if you just zoom out and think about the next decade next year like we recognize that it is critical to both scale and drive towards scale and drive market share in our core U S business now, while expanding our tam across new verticals and new market segments and so overall, we're confident of our ability to continue to drive location growth into next year.
Unknown Executive: And so overall, we're confident our ability to continue to drive location growth in the next Okay, got it. Thank you.
Speaker Change: Okay got it thank you.
Speaker Change: Thanks, Josh.
Speaker Change: Your next question is from the line of Samad Samana from Jefferies. Please go ahead.
Samad Samana: Your next question is from the line of Samad Samana from Jeffreys. Please go ahead. Hi, good evening. And thanks for taking my question. It's great to see the strong results. Maybe first I'll start on some of the newer items that you mentioned, the branded app and the SMS marketing. Other ways for you guys to continue to add value that are not Corp.
Samad Samana: Hi, good evening and thanks for taking my question, it's great to see the strong results maybe first I'll start on some of the newer items that you mentioned the branded app in the SMS marketing.
Samad Samana: Other ways for you guys to continue to add value that are not just kind of core inside the restaurant and just how are we thinking about the upsell or cross sell motion does products is in a different type of sale and how should we think about maybe attach rates and then just Elena is there a different gross margin profile for those revenue streams.
Samad Samana: How are we thinking about the upsell or cross-sell motion of those products? Is it a different type of sale? And how should we think about maybe attach rates?
Samad Samana: And then just, Elena, is there a different gross margin profile for those revenue streams?
Speaker Change: Yes, Thanks Ahmad I can start Linda you can jump in after.
Elena: Yeah, thanks, Samad.
Ron: I can start and Elena, you can jump in after. You know, the Brennan app and the SMS marketing tools, they're really nice additions to our guest suite to help our customers drive loyalty and demand. And the early feedback from customers has been great. And we're seeing, especially our mid-market and our multi-unit SMB customers really pick it up. And I think as we think about our longer term growth strategy, it's about driving locations, that's what we're talking about, driving locations in our core business, as well as expanding the TEM. And continuing to invest in our product innovation and continue to make the existing products better.
Speaker Change: The branded App in the SMS marketing tools. They are really nice additions to our guest suite to help our customers drive loyalty and demand and the early feedback from customers has been great and we are seeing especially in mid market.
Speaker Change: And our multi unit SMB customers.
Speaker Change: They pick it up.
Speaker Change: And I think as we think about.
Speaker Change: Our longer term growth strategy, it's both driving locations Thats what were talking about.
Speaker Change: Driving locations on our core business as well as expanding the term and continuing to invest in our product innovation and continue to make the existing products better.
Ron: And so this is just one more step to help us continue to make our guest suite an even stronger product in the market.
Speaker Change: And so this is just one more step to help us continue to make our guest suite and even stronger product in the market.
Elena: Yeah, Samad, to the point on the gross profit for those products, it's too early. But I can just tell you the discipline that we've seen, that you've seen us really execute against and the focus on unit economics and payback periods, that doesn't change as we add more products to our platform. So we'll keep an eye on it, but nothing to report is too early.
Speaker Change: Yes, some onto the point on the gross profit for those products. It's too early but I can just tell you that discipline that we've seen that you've seen us really executing against and our focus on unit economics and payback periods that doesn't change as we add more products to our platform.
Speaker Change: So we'll keep an eye on it but nothing to report it's too early.
Speaker Change: Great and then just a follow up on the price increases you guys. Let us know very clearly that it was going to be very targeted and I think there is some chatter out there on the magnitude that maybe some people have experienced I am curious how long we should think about that rolling through the whole basis is something that will take several quarters.
Samad Samana: Great. And then just a follow up on the on the price increases, you guys, you know, let us know very clearly that it was going to be very targeted. And I think there's some chatter out there on the magnitude that maybe some people have experienced.
Samad Samana: I'm curious how long we should think about that rolling through the whole base? Is this something that'll take several quarters? Is this something that will take several years? And when should we put any kind of expectation on what the tail end will be when it's fully baked into the install base?
Speaker Change: Or is there something that will take several years.
Speaker Change: And when should we any kind of expectation on what the tailwind will be when it's fully baked into the installed base.
Speaker Change: Okay.
Elena: Thanks, Samad, for the question. So just to frame how we think about pricing, you know, Aman alluded to it a little bit just a minute ago. But as we think about the growth algorithm of the business, right, we think about locations and ARPA as the two primary growth levers. And pricing really complements that alongside. And the way we think about it is, you know, we're going to make targeted pricing adjustments and build this muscle over time. And so what you saw us do in Q3 was make very targeted price changes for a small cohort of customers went into effect in September.
Speaker Change: Thanks, so much for the question so just to frame, how we think about pricing.
Speaker Change: Martin alluded to it a little bit just a minute ago, but as we think about that growth algorithm of the business right. We think about locations in our two primary growth levers and pricing really compliment that alongside and the way. We think about it is we're going to make targeted pricing adjustments and build this.
Speaker Change: So over time and so what you saw US do in Q3 was very targeted price changes for a small cohort of customers went.
Speaker Change: It went into effect in September so thats, why we comment minimal impact in Q3, some small impact in Q4.
Elena: So that's why we comment minimal impact in Q3, some small impact in Q4. But I would think about pricing as something that is, you know, going to be with with us for a long time, you know, think about it more of as a long term strategy.
Speaker Change: I would think about pricing is something that is.
Speaker Change: Going to be with with us for a long time to think about it as more of as our long term strategy and occur.
Samad Samana: And occasionally, we will make targeted pricing adjustments where it makes Great, thank you again. Sure.
Speaker Change: Occasionally we will make targeted pricing adjustments, where it makes sense.
Speaker Change: Great. Thank you again.
Unknown Executive: Thanks a lot.
Mark: Sure. Thanks Mark.
Speaker Change: Your next question is from the line of Stephen Sheldon with William Blair. Please go ahead.
Stephen Sheldon: Your next question is from the line of Stephen Sheldon of William Blair, please go ahead. Hey, thanks. And also big congrats on the strong quarter. So one of the really encouraging win with potbellies and enterprise. So just curious how that enterprise pipe you know, it usually takes a lot longer to convert fields there and for customers that you want upmarket, what are some of the bigger factors?
Stephen Sheldon: Hey, Thanks, and also congrats on the strong quarter.
Stephen Sheldon: So wanted to really encouraging win with potbelly for an enterprise. So just curious how that enterprise pipeline is building and I know it usually takes a lot longer to convert.
Stephen Sheldon: There and for customers that you've won up market what are some of the bigger factors that have helped you win versus competitive solutions.
Speaker Change: Thanks Steven.
Ron: Thanks, Stephen. You know, Potbelly is a great win for us. You know, I've actually got one down the street from me in Massachusetts where I live. I've always loved their food and their bottled peppers. So it's a great brand, you know, excited to partner with them to get them rolled out.
Speaker Change: He is a great win for us and I've actually got one down the Street from me, Massachusetts, where I live I've always loved their food and.
Speaker Change: They're bottled peppers.
Speaker Change: Great brand and are excited to partner with them to get them rollout.
Speaker Change: And as we think about just our enterprise pipeline and I think every year. The thing that I see is we continue to build on the previous year, which is a really good sign in terms of just the scale. We're getting the types of opportunities. We are seeing the scale of the opportunities and that's really a testament to of course, our go to market execution, but even more importantly, the investments we've been making in our product.
Ron: And as we think about just our enterprise pipeline, you know, I think every year, the thing that I see is we continue to build on the previous year, which is a really good sign. In terms of just the scale, we're getting the types of opportunities we're seeing, the scale of the opportunities. And that's really a testament to, of course, our go-to-market execution, but even more importantly, the investments we've been making in our product to continue to support and build out the capabilities of market, whether it's enterprise config management, some of the capabilities we offer above store to help restaurants manage at scale.
Speaker Change: To support and build out the capabilities upmarket, whether it's enterprise config management some of the capabilities, we offer above store four.
Speaker Change: To help restaurants manage at scale.
Ron: And I think, you know, the other piece of it is just there's some custom capability that each of these has, and so building out that capability as well is something we're working on.
Speaker Change: And I think the other piece of it is just there is some custom capability that each of these has and so building out that capability as well.
Speaker Change: It's something we're working on.
Ron: I think the way I think about this is enterprise, as we think about the next decade, is an important growth vector for us, but it's going to be steady alongside some of the other growth vectors we've talked about in international enterprise, international and retail, and, of course, our corporate U.S. S&B business.
Speaker Change: In the way to think about this as an enterprise as we think about the next decade as an important growth vector for us, but it's going to be steady alongside some of the other growth vectors, we have talked about international and enterprise.
Speaker Change: Hey, International and retail and of course, our corporate U S SMB business.
Speaker Change: Okay.
Unknown Executive: Great. Thank you.
Speaker Change: Great. Thank you.
Unknown Executive: Thanks.
Speaker Change: Thanks.
Speaker Change: Your next question is from the line of Dominic Bowl Redburn Atlantic Your line is open.
Dominic Ball: Your next question is from the line of Dominic Ball of Redburn Atlantic, your line is open. Hello Aman and Elena. Great job as usual. I mean, really impressed.
Speaker Change: Okay.
Speaker Change: Hello Im on the line.
Speaker Change: Great job as usual I mean really impressed of all software off of expansion can you speak a little bit more towards.
Dominic Ball: Software Arpa Expansion. Can you speak a little bit more towards where the such sharp acceleration quarter and quarter has come from? and then going forward into 2025 how does this also change as you start to win even more retail, international and larger.
Speaker Change: Well the swaps such sharp acceleration quarter on quarter was coming from.
And then going forward into 2025, how does this also change as you start to win even more retail international and larger merchants.
Speaker Change: Yes, sure so the comment.
Elena: Yeah, sure. So the comment to answer your question is what what happened with the step up in SAS revenue this quarter. Really proud, actually, of the team's execution here. There was a focus in the organization to improve our ARR to revenue conversion. The team focused on more specifically improving the billing infrastructure and looking at the end to end quote to cash process. And so that resulted in more ARR converting to revenue. And as I commented, some of that is a one time benefit. We'll see some a little bit more in Q4 on a one time basis.
Speaker Change: Answer your question.
Speaker Change: But what happened with the step up in SaaS revenue this quarter.
Speaker Change: Really proud actually of the team's execution here.
Speaker Change: There was a focus in the organization to improve our <unk> to revenue conversion the team focus on more specifically, improving 1 billion infrastructure and looking at the end to end quote to cash process and so that resulted in more <unk> converting to revenue and as I commented. Some of that is a one time benefit we will see some.
A little bit more in Q4 on a onetime basis.
Elena: But the way you should think about the future is in Q3, we saw ARR revenue conversion higher than we've seen historically. So we won't we shouldn't expect it to be as high as Q3, but certainly higher than historical levels.
Speaker Change: But the way you should think about the future is in Q3, we saw our revenue conversion higher than we've seen historically, so we shouldn't expect it to be as high as Q3, but certainly higher than historical levels.
Ron: And Dominic, just to build on that, you asked about, you know, some of the new segments and what they mean. You know, we've seen slightly higher ARPUs so far in CBG retail than our core U.S. S&B business and smaller ARPU in international markets. But across both of these businesses, you know, Elena and team and all of us are really carefully looking at the economics and contribution margins as we scale them. And if you just look at this here, one of the things I'm really proud of is we've been able to grow these businesses while driving margin expansion this year, which is because there's so much overlap across the core platform and what these new market segments need.
Speaker Change: Okay, and then let me just to build on that you asked about some of the new segments and what they mean.
Speaker Change: We've seen slightly higher <unk>, so far in CPG retail.
Speaker Change: Then our core U S SMB business and smaller ARPA in international markets.
Speaker Change: But across both of these businesses Elena and team and all of US are really carefully looking at the economics and contribution margins as we scale them.
Speaker Change: And if you just look at this year one of the things I'm really proud of is we've been able to grow these businesses, while driving margin expansion this year.
Speaker Change: Because there's so much overlap across the core platform and what these new market segments.
Speaker Change: That's great. Thank you so much if you don't mind me, Jonathan while more I mean can you give us.
Unknown Executive: That's great.
Unknown Executive: Thank you so much.
Unknown Executive: If you don't mind me just asking one more.
Ron: I mean, can you give us any numbers on terms of location wins for International and retail? Yeah, just continued momentum really from our investor day. You know, we I think we had shared some numbers then and, you know, the the progress we're seeing across both has been really positive. In CPG retail, you know, we're seeing good progress across all the whether it's grocery or convenience or bottle shops. And then international, we're continuing to add more and more big products, which is improving a unit economics and productivity. And so just continue to see really good momentum going to next year.
Speaker Change: Any numbers on in terms of location wins for international and retail for this quarter.
Speaker Change: Yeah, just continued momentum really from our Investor day.
Speaker Change: We I think we had shared some numbers then.
Speaker Change: The progress we're seeing across both has been really positive and CPG retail, we're seeing good progress across all of the grocery or convenience or bottle shops.
Speaker Change: And then international will continue to add more and more of the products, which is improving our unit economics and the productivity and so just continue to see really good momentum going into next year and next and 25, we expect to invest more in these businesses based on what the signal we're seeing so far this year.
Ron: And next and 25, we expect to invest more in these businesses based on what signal we're seeing so far this year.
Speaker Change: Thank you.
Timothy Chiodo: Thank you. Your next question is from the line of Timothy Chiodo from UBS. Please go ahead. Great, thanks for taking the question. I want to dig in on Toast Capital a little bit. So this business is a key advantage of you being the system of record. And it's not just about the SaaS and the payments. But clearly, this is another advantage that you have, you're in sort of that pole position.
Speaker Change: Thank you.
Speaker Change: Your next question is from the line of Timothy Chiodo from UBS. Please go ahead.
Timothy Chiodo: Great. Thanks for taking the question I wanted to dig in on post capital a little bit. So this business is a key advantage of you being system of record and it's not just about the SaaS and the payments, but clearly this is another advantage that you have you're in sort of that pulp is issued this topic has become more topical with investors given clover is somewhat leaning into their culver capped.
Timothy Chiodo: This topic has become more topical with investors given Clover is somewhat leaning into their Clover Capital business, Square Capital has been delivering good growth for Square. So with all that as a backdrop, when I look at your volumes as a percentage of GPV, it's sort of in the below 1% level. And the program is still relatively nascent compared to Square Capital. Clearly, that's a very different business, right? Different vertical distribution, merchant size, etc. But they're more in sort of the two and a half percent range.
Timothy Chiodo: <unk> business square capital has been delivering good growth for square so with all of that as a backdrop when I look at your volumes as a percentage of <unk>, it's sort of in the below 1% level and the program is still relatively nascent compared to square capital clearly thats, a very different business different vertical distribution merchant size et cetera.
Speaker Change: But they're more than sort of the two 5% range and I just wanted to see if we could talk a little bit about where you think you might sit longer term is it in that 1% to 2% range could it possibly be higher and they are certainly good arguments on both sides.
Timothy Chiodo: And I just wanted to see if we could talk a little bit about where you think you might sit longer term? Is it in that one to 2% range? Could it possibly be higher? And there are certainly good arguments on both sides.
Ron: Yeah, yeah, thanks, Tim, for the question. It's a fair question. Like, first of all, let me just start by saying, the team's execution here has been excellent. And I think the demand for the product is very clear, right? Customers are valuing the fast, low friction access to capital. And you saw the performance this quarter getting up to $43 million. And the best thing is we continue to optimize the program. Default rates are where we expect them to be. So all in all, it's a really healthy program.
Speaker Change: Yes, Thanks, Tim for the question. It's a fair question first of all let me just start by saying that.
Speaker Change: The team's execution here.
Speaker Change: <unk> has been excellent and I think the demand for the product is very clear right customers are valuing the SaaS flow friction access to capital and you saw the performance this quarter getting up to $43 million.
Speaker Change: And the best thing is we continue to optimize the program default rates are where we expect them to be so all in all it's really healthy program as we think about the long term, we're going to continue to grow it in a balanced way.
Ron: As we think about the long term, we're going to continue to grow it in a balanced way. You know, other companies have different profiles of customers. So you got to take that into consideration. But over the long term, there's no reason why we couldn't grow the program through more attach. I think we just want to make sure we do that in a very balanced risk, risk adjusted manner. But we feel really confident where the team is executing today.
Speaker Change: Other companies have different profiles of customers. So you got to take that into consideration.
Speaker Change: But over the long term there is no reason why we couldn't grow the program through more attach and then can we just wanted to make sure. We do that in a very balanced risks risk adjusted manner, but we feel really confident where the team is executing today.
Speaker Change: Great. Thank you.
Dan Dolev: Great, thank you. Your next question is from the line of Dan Dolev from Mitso, please go ahead. Hey, guys, you know, really amazing results here, you know, just want to ask, like, kind Bigger long-term strategic question in terms of sort of next year. I know you had the Analyst's Day, but you know, is there, you know, in your discussions, have there been any sort of reprioritization to the different. Initiatives that you're going to take, whether international. for recent, you know, involvement of the last few months. Thank you. Yeah.
Speaker Change: Your next question is from the line of Dan <unk> from Mizuho. Please go ahead.
Speaker Change: Yeah.
Speaker Change: Hey, guys.
Speaker Change: The amazing results here, just wanted to ask like kind of.
Speaker Change: Bigger long term strategic question.
Speaker Change: In terms of sort of next year I know you at the analyst day, but.
Speaker Change: Your discussions if theres been any sort of re prioritization.
Speaker Change: To the different.
Speaker Change: Initiatives that youre going to take whether international or any other product given.
The recent.
Speaker Change: Goldman over the last few months. Thank you.
Dan: Yeah, Hey, Dan.
Ron: Hey, Dan. You know, I think a lot of it's consistency with what we outlined at Investor Day. You know, we've seen a really good year in terms of progress against all of our efforts to drive location growth and ARPA growth, and that's, you know, continuing to get more markets into flywheel and continuing to expand our product portfolio in ways that has impact for customers. And, you know, that's really the foundation. As we think about all the future growth opportunities we have, scaling in our core business and driving towards market leadership is foundational. That's the most important thing.
Dan: And I think a lot of it is consistency with what we are.
Dan: Aligned at Investor Day.
Dan: We've seen really good year.
Dan: In terms of progress against all of our efforts to drive location growth in ARPA growth and Thats continuing to get more markets as a flywheel that continuing to expand our product portfolio in ways that has impact for customers and that's really the foundation as we think about all of the future growth opportunities we have.
Dan: Scaling in our core business and driving towards market leadership is foundational that's the most important thing as we think about the future and one of the most important things over the next decade as is.
Ron: As we think about the future, you know, one of the most important things over the next decade is, in addition to scaling our core, investing to open up the TAM in areas where we see really good opportunity, where we think there's a right to win, and where we think there's great economics and overlap with our platform. And so I think the team's done a great job of finding some of those areas, right, like with international, with some of the key markets there, with CBG retail. And we're going to invest some more go-to-market capacity in those areas next year.
Dan: Addition to scaling our core <unk>.
Dan: Investing to open up the Tam in areas, where we see really good opportunity with us right with it we think where there is a right to win and where we think theres, great unit economics and overlap with our platform.
Dan: So I think the team's done a great job of finding some of those areas with international with some of the key markets there with CPG retail and we're going to invest some more go to market capacity in those areas next year, we're going to keep investing in enterprise business and also keep investing in product expansion to make the products that we have better to drive attach rates and so.
Ron: We're going to keep investing in enterprise business and also keep investing in product expansion to make the products that we have better to drive attach rates. And so really the strategy is consistent with what we outlined at Analyst Day.
The strategy is consistent with what we outlined at.
Dan: At Analyst day. There are also a few things that we're doing that are further out right. So we do take some part of our investment.
Ron: There are also a few things that we're doing that are further out, right? So we do take some part of our investment in our R&D product, in our R&D portfolio. And we're looking, we're investing in things that are further out, where we're looking to see, is there any signal? And those are things that are, you know, where the team's learning, whether it's, you know, other categories, other sub-verticals, other international markets.
In our R&D.
Dan: Product.
Dan: R&D portfolio and we're looking we're investing in things that are further out where we're looking to see is there any signal on those other things.
Dan: We're the teams learning whether it's <unk>.
Dan: Other categories other sub verticals other international markets.
Dan: And we'll share more as one that's appropriate.
Unknown Executive: And we'll share more as and when it's appropriate.
Speaker Change: Got it great results on Macys com.
Unknown Executive: Got it.
Unknown Executive: Well, great results. Amazing stuff.
Andrew Bauch: Thank you. Your next question is from the line of Andrew Bauch from Wells Fargo, your line is open.
Speaker Change: Yes.
Speaker Change: Your next question is from the line of Andrew <unk> from Wells Fargo. Your line is open.
Speaker Change: Yeah.
Speaker Change: Hey, guys. This is <unk> on for Andrew.
Unknown Executive: Hey guys, this is Conan on for Andrew. Congrats on the strong quarter. I had a quick question on SAS, SAS RPO. You know, on your own metric was up 4% year over year and just looking at subscription revenue, it was up 12%. Can you go a little bit into what the Yeah, sure. You know, at the highest level, there are differences at times between ARR and revenue based on timing, based on concessions or credits, things like that. And so that's, that's the primary driver between the two. When we talk about SAS ARCU, we're talking about on an ARR basis.
Speaker Change: Congrats on the strong quarter.
Speaker Change: Quick question on SaaS.
Speaker Change: SaaS SaaS our pool.
Speaker Change: On your own metric was up 4% year over year and just looking at subscription revenue. It was up 12% can you go a little bit into what the.
Speaker Change: I guess the differences between the two.
Speaker Change: Yes, sure at the highest level.
Speaker Change: There are differences at times between.
Speaker Change: <unk> and revenue based on timing based on concessions are credits things like that.
Speaker Change: And so that's the primary driver between the two when we talk about SaaS Arco, we're talking about.
Speaker Change: On an <unk> basis, so just keep that in mind.
Elena: So just keep that in mind. And in terms of the 4%, you know, the execution of the team has been strong. And, and we view ARCU, as Aman mentioned, as one of the key growth levers alongside locations. So that's how we think about it.
Speaker Change: And in terms of the 4% the execution of the team has been strong and we view <unk> as <unk> mentioned as one of the key growth levers alongside locations.
Speaker Change: That's how we think about it.
Speaker Change: Great. Thanks.
Speaker Change: Your next question comes from the line of will Nance from Goldman Sachs. Please go ahead.
Will Nance: Your next question comes from the line of Will Nance from Goldman Sachs. Please go ahead. Hey, I appreciate you taking the question. A lot of calls going on tonight, so I'll just ask one. But I wanted to ask about the retail push. It's really exciting. We've kind of seen it out in the wild. I've heard some great feedback on it.
Speaker Change: And I appreciate you taking the question a lot of calls going on Tonight. So I'll just ask one but I wanted to ask about the retail push really exciting we've kind of seen it out in the wild.
Speaker Change: Some great feedback on it and I'm just curious if you have any incremental thoughts on just how youre thinking about structure and go to market.
Ron: And I'm just curious if you have any incremental thoughts on just how you're thinking about structuring go to market, how you're kind of weighing the, you know, the benefits of, you know, on the one hand, getting scale out of the existing Salesforce versus having a more verticalized or kind of specialty Salesforce for that product. Thanks for taking the question. Good night, guys, and nice results. Yeah, thanks, Will. Yeah, as you said, we continue to see great momentum in retail, you know, across all the subcategories we're playing in. And, you know, if you look at 2025, it's giving us more confidence to invest.
Speaker Change: You are kind of weighing the benefits of on the one hand getting scale out of the existing sales force versus having a more vertical is there kind of a specialty sales force for that product. Thanks for taking the question Tonight, guys and nice results.
Speaker Change: Yes, Thanks, Ralph Yes, as you said, we continue to see great momentum in <unk> and.
Speaker Change: Retail and across all the subcategories, we're playing in and.
Speaker Change: If you look at <unk>.
125, it's giving us more confidence to invest and I think part of it yes like investing strategically.
Ron: And, you know, I think part of it's, yes, like investing strategically, with a team that is very focused on retail. But part of the benefit that we also have is we've got, you know, all the sales reps throughout the country that can help drive top of the funnel and lead flow. So we're thinking through what is the best approach to maximize growth. And that's something we're tweaking and testing.
With the team that is very focused on retail, but part of the benefit that we also have as we've got.
Speaker Change: All the sales reps throughout the country that can help drive top of funnel and lead flow. So we're thinking through what is the best approach to maximize growth and that's something we're tweaking and testing, but at the highest level thinking the progress in the signal we've seen so far this gives us conviction conviction to lean and invest some more next year to see if we can build on the momentum.
Unknown Executive: But at the highest level, thinking of the progress and the signal we've seen so far, this gives us conviction to lean in and invest some more next year to see if we can build on the momentum from this year. And thank you for the report that you shared. Our team appreciates that.
Speaker Change: From this year.
Speaker Change: Thank you for the report that you shared on our team I appreciate that.
Unknown Executive: Thanks, guys. I appreciate you taking the questions.
Speaker Change: Thanks, guys I appreciate you taking the questions.
Speaker Change: Thanks, a lot.
Speaker Change: Your next question is from the line of Nick <unk> from Wedbush. Please go ahead.
Nick Setyan: Your next question is from the line of Nick Setyan from Wedbush, please go ahead. Thanks for taking the question and congrats on a great quarter. You know, the restaurant industry trend seems to have crossed in July. Tick, you know, month over month, all the way through October here. And so the question is, what could that potentially be for? gpv per location could that have in Q3 and to respect to state improvement going forward.
Speaker Change: Yes.
Speaker Change: Thanks for taking the question and congrats on a great quarter.
Speaker Change: The restaurant.
Speaker Change: Seem to have crossed in July and we've seen that.
Speaker Change: Uptake.
Speaker Change: Over months, all the way through October here.
Speaker Change: The question is what could that potentially mean for <unk>.
Speaker Change: The GTD per location could that EFT draft.
Speaker Change: In Q3 and could we see could we start to see an improvement going forward.
Speaker Change: Yes, thanks for the question so GPT.
Elena: Yeah, thanks for the question. So GPV per location was down 3%, you know, consistent actually with, with Q2. And it's been relatively consistent over the last several quarters, as we head into Q4, it'll be in the same same range. And that's what our guidance reflects. And we're monitoring, obviously, always monitoring the macro. It's a tight band, we always say it's going to stay within a tight band, we still continue to believe that. And as we, you know, consider you know, the kind of over the next couple quarters expected to be in that similar trend.
Speaker Change: Location was down 3% consistent actually with with Q2.
Speaker Change: And it's been relatively consistent over the last several quarters as we head into Q4, LLP and the same same range and Thats, what our guidance reflects and we're monitoring obviously always monitoring the macro.
Speaker Change: It's a tight band we always say, it's going to stay within a tight band we still continue to believe that.
Speaker Change: And as we consider.
Speaker Change: Kind of over the next couple of quarters are expected to be in that similar trend.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: We will now take our last question from the line of Jason Kupferberg Bank of America. Please go ahead.
Melissa: We will now take our last question from the line of Jason. Bank of America, please go ahead.
Speaker Change: Hey, this is mark on for Jason I wanted to just ask about the net new adds of 7000.
Melissa: Hey, this is Melissa on for Jason. I wanted to just ask about the net new ads of 7,000 this quarter. Are they fairly balanced between new restaurant openings and competitive takeaways or what can you tell us about the mix there? And a quick question on churn, is it still in the slightly above 10% range on an unrealized basis or are there any updates to that metric? Thank you.
Speaker Change: This quarter are they fairly balanced between new restaurant openings and competitive takeaways or what can you tell us about the mix there and a quick question on churn is it still in the slightly above 10% range on an annualized basis or are there any updates to that Patrick.
Speaker Change: Sure.
Ron: Sure. You know, I think 7000Net adds, it's largely been consistent in terms of the trends we've seen in the past, good mix of new openings, as well as existing restaurants that are switching as they upgrade. And the great thing is our go-to-market team does a great job in either case, you know, we've got some reps hitting photo with more NROs and new openings and some with existing restaurants, and so can compete either way.
Speaker Change: I think.
Speaker Change: It's largely been consistent in terms of the trends we've seen in the past good mix of new openings as well as existing restaurants that are switching is the upgrade.
Speaker Change: And the Great thing is our go to market into the great job in either case, we've got some reps hitting Florida with <unk> and new openings and some with existing restaurants and so.
Speaker Change: Can compete either way and in terms of.
Ron: And in terms of, you know, churn, it's largely aligned with what we've shared historically. When we do see churn, it's typically smaller restaurants. And so they are smaller, and our churn metrics are just in a similar range, similar range.
Speaker Change: Churn with largely aligned with what we've shared historically when we do see churn is typically a smaller restaurants and so they.
Speaker Change: They are a smaller end.
Speaker Change: Our churn metrics.
Speaker Change: Similar similar Rancho update.
Unknown Executive: Yeah, update there. All right.
Speaker Change: Update there.
Speaker Change: Yes.
Speaker Change: Alright, Thank you Ara Thank you everybody.
Unknown Executive: Thank you, everyone. Thank you, everybody.
Speaker Change: This concludes today's conference call. Thank you for joining.
Unknown Executive: And that concludes today's conference call. Thank you for joining.