Q4 2024 Toast Inc Earnings Call
Stretching out in training ♪ Stretching out in training ♪ Stretching out in training ♪
Speaker Change: On today's call, our CEO and cofounder of Monterrey, and CFO Elena Gomez will open with the prepared remarks, which will be followed by a Q&A session.
Speaker Change: Before we start I'd like to draw your attention to the Safe Harbor statement included in today's press release.
Speaker Change: 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 offer.
Speaker Change: 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.
Speaker Change: Station growth tiers.
Speaker Change: Your profitability or margin outlook business and investment strategy expected growth and business outlook, including our financial guidance for the first quarter and full year 2025.
Speaker Change: 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.
Speaker Change: Please refer to the cautionary language in today's press release, and our SEC filings for a discussion of the risks and uncertainties that could cause actual results to differ materially from our expectations.
During this call, we will discuss certain non-GAAP financial measures, 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.
Speaker Change: These are the basis for our top line guidance is 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.
Speaker Change: 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.
Speaker Change: Finally, the press release can be found on the Investor Relations website at investors <unk> Dot com.
Speaker Change: After the call a replay will be available on our website.
Speaker Change: And with that let me turn the call over to him on that.
Speaker Change: Thanks, Michael and thank you everybody for joining us this afternoon.
24 was a great year for test we added a record 28000 net locations are.
Speaker Change: Our recurring gross profit streams grew 34% year over year, adjusted EBITDA grew to $373 million.
Speaker Change: We were GAAP profitable for the first time in the history of the business.
Speaker Change: I'm really proud of our team.
And I'm confident that we're well positioned for a great 2025.
Speaker Change: Our mission is to help restaurants, they like their guess do what they love and pride.
Speaker Change: From day, one our vertical strategy has served us well by focusing on solving the needs of restaurants better than anybody else in the world. This has allowed us to deepen our market share and establish a leadership position across SMB and mid market restaurants here in the U S.
Speaker Change: More recently, we've also started to expand our addressable market into new customer segments.
Speaker Change: Geographies any vertical.
Speaker Change: In 2024, our enterprise team had their best year, yet with marquee wins, including Potbelly.
Speaker Change: Perkins and Hilton Hotel.
Speaker Change: We can continue to drive strong growth across our initial international market.
And our team in food and beverage retail demonstrated in 2024 that we should invest more to grow even faster in 2025.
Speaker Change: Over the next decade.
Speaker Change: We have the opportunity to serve many multiples up 134000 customer locations today.
Not only can we grow market share and scale locations in our core U S. Restaurant segment, we can continue to expand our Tam by building out the platform to support new geographies and new verticals.
Speaker Change: Kraft complex higher GCB merchants, where we have a right to win.
Speaker Change: Our strategy remains consistent with what we shared recently at our Investor day, but we have refreshed our priorities to reflect what is most critical in 2025.
Speaker Change: First.
Speaker Change: Patients in market share in our core U S restaurant business.
Speaker Change: Second demonstrating that our new markets can be material drivers of growth.
Speaker Change: Third increasing customer adoption of our broad platform and driving differentiation through data and AI and lastly, continuing.
Speaker Change: Continue to hold a high bar and investigate invest against our most important priorities well gradually expanding margins.
Speaker Change: Let's again first scaling locations in market share in our core U S restaurant business.
Speaker Change: Despite our strong growth at just 15% market share in the U S restaurant market, we have tremendous headroom to scale.
Speaker Change: In 2024, we increased market share in location count in all of our top 100 markets in the SMB segment.
Speaker Change: Our most penetrated markets continue to see strong growth, which gives us confidence that our flywheel strategy is working and we have the opportunity to scale market share in the years ahead.
Speaker Change: In 2025, we plan to surgically increase sales and marketing investments in our core business.
Speaker Change: Including brand investments to increase awareness and consideration.
As an example, we recently launched our it's the little things campaign that highlights how much the small details matter and hospitality.
And can be the difference between an incredible guest experience versus just an average one.
Speaker Change: This campaign campaign showcased the breadth and depth of our vertically integrated restaurant platform. A reason why more than a third of all James Beard Award winners.
Speaker Change: Over half of our Michigan Star rated U S restaurant.
Speaker Change: Run their businesses on test.
Speaker Change: One of these Michelin stars belongs to Revere fine dining restaurant in Washington D. C that has seen significant time and cost savings.
Speaker Change: Yes.
Speaker Change: So as payroll has cut the time it takes for their small team to do payroll for three hours down one.
Speaker Change: And because it's indicated directly in to tell us it's also more accurate.
Speaker Change: They also use extra shifts to save time and inventory and identify when they're overpaying for ingredients.
Speaker Change: Like when they decided to pull lobster from there. Many recently after seeing the prices of lobster skyrocket.
Speaker Change: Without this data on their fingertips.
Speaker Change: Costs would have been over budget.
Speaker Change: <unk> frees up the revere team and get them out of the back office. So that they can focus on what they do best delivering an award winning testing menu and a great guest experience.
Speaker Change: Yeah.
Moving on our second priority is demonstrating that these new markets can be material drivers of growth.
Speaker Change: 2024, we made great progress across enterprise international and retail.
Speaker Change: And expect to surpass 10000 customer locations across these new segments later this year.
Speaker Change: We're investing in these businesses because customer reception and feedback has been strong and we see the potential for them to drive significant location expansion for many years to come in.
Speaker Change: In 2025, we will invest in our R&D platform and our go to market capacity to drive customer satisfaction win rates and market share across these new markets positioning us for strong growth in 2026 and beyond.
Speaker Change: In our enterprise business as I shared I'm excited to announce that Hilton hotels and resorts has chosen to partner with test as an approved food and beverage kiosk provider <unk>.
Speaker Change: This builds on our growing presence in hotels, including large chains, such as Marriott and choice hotels.
Speaker Change: As well as many independent operators, who see the benefit of the <unk> platform.
Speaker Change: In addition, we've also signed our largest full service restaurant deal with ascend brands, starting with 500, Perkins and Huddle House restaurants.
Speaker Change: <unk> recognized that they needed a modern cloud based technology partner to improve operational efficiency.
Speaker Change: To help the SaaS drive consistently great service and support their ambitious expansion plans.
Speaker Change: Beyond these wins, our pipeline and presence up market has never been stronger and I look forward to welcoming more large brands to test later this year.
Speaker Change: Yes.
Speaker Change: Internationally, you've heard us talk about our growth and positive customer feedback and our international markets. Despite keep missing key parts of our platform that needed to be internationalize.
Speaker Change: We made progress against this throughout 2024, and most recently launched launched our loyalty in restaurant and retail products.
Speaker Change: SaaS RFP for international locations that went live in Q4, 2024 was up 50% year over year.
Speaker Change: And in 2025, we believe we have the necessary surface area across our platform to grow market share expand sales capacity and have a great year.
Speaker Change: And lastly in retail trade.
Speaker Change: 2024 was really a year to test and learn.
Speaker Change: That the same vertically focused approach that has worked so well in restaurant would work for us in food and beverage retail.
Speaker Change: As we brought on initial customers who've had tremendous learnings that has helped shape, our product roadmap and our customer facing strategy across sales marketing and customer success.
Speaker Change: One decision we've made is to scale a dedicated sales team to support our retail efforts to keep our restaurant team focused on increasing market share in our core market and let a specialist team go after this new opportunity.
Speaker Change: Food and beverage retail market, especially in grocery and convenience has historically been served by legacy solutions with relatively low market share across horizontal cloud based central.
Speaker Change: Our vertical approach has resonated with customers because we're going deep on the challenges these customer space, including the need for a mobile inventory tool as well as new service models to make it easier and faster.
Speaker Change: Speed of service manage inventory and efficiency at checkout as well as improve the guest experience.
Speaker Change: To bring this to life, let me share an example.
Speaker Change: Kelly's market and Deca Tech, Georgia, Kelly is a grocery meat deli meats coffee mate Weinberg and.
Speaker Change: And the forecast they actually use two separate point of sale system, because they didn't have something that could work seamlessly across our operations.
Speaker Change: <unk> makes it possible for kellys to really deliver on hospitality.
Speaker Change: For example, a customer sandwich order follows them as they move from the Deli counter over to grocery and then the checkout something other Pos systems struggled to do <unk>.
Speaker Change: <unk> is also able to customize each terminal to the store so that our tos prompts the tip of the coffee bar, but not a grocery checkout.
Speaker Change: And most importantly, with tell us they are able to streamline their purchasing receiving an inventory workflows into a single system to save the team more than 10 hours a week.
Speaker Change: While it is exciting to track our progress and outlook this year.
Speaker Change: At even more conviction about what's possible over the next decade, as we scale market share and expand our term Tam beyond these markets we're in today.
Speaker Change: Brick and mortar businesses continue to be underserved by modern easy to use technology as a.
Speaker Change: Our platform is architected to be able to expand across multiple growth vectors in parallel.
Speaker Change: Next our third priority.
Speaker Change: Is to increase customer adoption of our broad platform and drive differentiation by leveraging data and AI.
Speaker Change: At toast with deeply understand restaurants, the people that work on them and the little things that add up to improving the lives of everyone. In this business. This is reflected is reflected in how we build our products and as fuel.
Speaker Change: Our location growth, while also increasing attach rates and <unk>.
Speaker Change: Our aim is to help solve the hardest challenges our customers face and to do so through a tightly integrated platform that remains easy to use.
Speaker Change: Thats the delicate balance that we work hard to maintain.
Speaker Change: I'll share some examples from the past year.
Speaker Change: For front of house staff with large dozens of enhancements to our core tos suffer the kiosks as well as kitchen display systems.
Speaker Change: To help drive guest engagement and demand we've launched website branded apps SMS marketing powered by AI capability.
And to help restaurants manage cost and complexity, we've improved reporting multilocation management enhanced our payroll and supplier accounting products and launched a benchmarking tool that leverages, our extensive restaurant data to provide actionable insights for our customers.
This benchmarking tool has been a game changer for many of our customers, including our team of either a full service restaurant in Louisville.
Speaker Change: Have user insights to enhance their menu add new specials, and even change their hours of operation to grow their business.
Speaker Change: For example, they noticed that chicken sales were underrepresented in restaurants near them by using that data and.
Speaker Change: And use that to add end market, a fried chicken special on a slower night that boosted Tuesday net revenues by 40%.
Speaker Change: That's the power of our data.
Speaker Change: The scale of our data set and our product platform the opportunity to AI creates and our deep restaurant expertise are a strong foundation to build from as we look to the future.
Speaker Change: We also know how important guest demand and retention are and we will deepen our focus here.
Speaker Change: Our strategy is anchored in helping restaurants improve their top and bottom line and we're confident this will translate into strong ARPA growth in win rates per test over the long term.
Speaker Change: Yes.
Speaker Change: And finally, the wrap up our fourth priority is to continue to hold high margin high bar and invest against what's most important while gradually expanding margins.
Speaker Change: In 2024, you saw us make some tough choices and restructure our investments against what's most important.
Speaker Change: You also saw us dramatically expand margins.
Speaker Change: While continuing to drive strong topline growth.
Speaker Change: In 2025, we will continue to use the same disciplined approach and.
And make investments very deliberately in areas, we see long term opportunity for growth and differentiation.
Speaker Change: The <unk> team does a great job of leveraging data to invest across different market horizons.
Speaker Change: Which will help us continue to balance margin.
Speaker Change: While doubling down on the areas, where we see strong growth potential.
Speaker Change: As I wrap up I want to thank and congratulate the <unk> team for a record 2024, I also want to thank our customers and our investors for having confidence in order.
Speaker Change: I think we have a strong plan for this coming year and more importantly have clarity on what is most important to achieve our goals over the long term.
Speaker Change: Thank you everybody and next I will turn the call over to Elena to share more on this quarter's results and our outlook for 'twenty 'twenty five.
Speaker Change: Thank you ma'am and to everyone for joining the call today I also want to thank our employees for another successful quarter and sort of terrific execution that delivered a record performance throughout the year.
Speaker Change: Our full year results showcase the strength of our business model in what was a transformational year for tests.
We added a record 28 net locations processed approximately 160 billion containment Maya and Grupo <unk> and our recurring gross profit streams, 34%.
Speaker Change: We're delivering that growth at scale in 2024, we added over $400 million in <unk> and processed over a half a percentage point for total U S. GDP.
Speaker Change: On top of the strong top line momentum, we also significantly changed the financial profile of the company.
Speaker Change: Highlighting our efficient approach to scaling the business.
Full year 2024, adjusted EBITDA was $373 million with margins expanding 20 percentage points year over year, and we posted our first full year of GAAP profitability.
Speaker Change: We enter 2025 operating with momentum and from a position of financial strength.
Speaker Change: As you heard from Oman, we see a large and growing opportunity ahead of us to serve many multiples of our customer base.
Our investments in 2025 are primarily directed at accelerating progress in new markets and fortify our strength in our core as we position the company for durable growth over the long term.
Speaker Change: At the same time, we will take the same disciplined approach balancing growth and profitability that you've seen from us.
Speaker Change: That balance is reflected in the midpoint of our 2025 guidance of 24% growth in our recurring gross profit streams and $520 million and adjusted EBITDA, a 30% margin.
Speaker Change: Turning to our results in the fourth quarter, our recurring gross profit streams increased 39% capping off a strong year of topline growth.
Speaker Change: Total monetization measured by our recurring gross profit streams as a percentage of GTD with 93 basis points in the fourth quarter.
That is 10 basis points as a 10 basis point improvement from prior year and reflects our growing share of wallet and the increasing value, we're providing our customers.
Speaker Change: We added approximately 7000 net locations in the quarter growing our total locations approximately 134000 up 26% year over year.
Speaker Change: Looking out we are well positioned to add a comparable number of net locations to our platform in 2025.
Speaker Change: In 2024.
Speaker Change: In Q4, SaaS AAR grew 32% year over year due to our strong location growth and a 5% increase in SaaS offering on <unk>.
Speaker Change: Hey, guys.
Speaker Change: Subscription revenue increased 41% and gross profit of 47% benefiting from the improved air or to revenue conversion, we discussed last quarter, which partially includes a onetime benefit that will not recur in 2025.
Speaker Change: Our SaaS net retention rate remained in a healthy range at 110% in 2024 led by solid contributions from upsell.
Speaker Change: Patient expansion from existing customers.
Speaker Change: Payments there are in thank you.
Speaker Change: It also increased 35% in Q4.
Speaker Change: <unk> was 42 billion up 25% year over year with Q4, GTD relocation down 1% versus the prior year.
Speaker Change: Q4, net take rate was 56 basis points with a core net take rate of 46 basis points.
Speaker Change: We typically see a quarter over quarter decline in payments take rate.
Speaker Change: Regionally.
Speaker Change: However, Q4 payments take rate increased one basis point versus Q3 due to continued cost optimization and the targeted price changes we made in September.
Speaker Change: We're confident in the team's execution and we'll continue to take a balanced approach to pricing, making thoughtful targeted adjustments to complement our primary growth drivers of location additions and product attach.
Speaker Change: Non payments Fintech solutions led by <unk> capital contributed $43 million in gross profit in Q4 for the year <unk> capital originations exceeded $1 billion, reflecting steady healthy demand from our customers test capital bad debt was down for a full year versus 2023, even as gross profit.
Speaker Change: It grew over 20% that.
Speaker Change: That improvement reflects adding the FERC ROE model and lower default rates from optimizing our customer underwriting.
Speaker Change: Looking ahead, we expect bad debt to grow.
Speaker Change: As the program scales and for test capital contribution to take rate to remain in a similar range as in 2024.
Speaker Change: Moving to expenses in Q4 operating expenses, excluding bad debt and credit related expenses increased 12%, reflecting targeted investments in our highest priority growth initiatives.
Speaker Change: That includes expanding our retail specific sales team and seeding new brand ambassadors, which contributed to a 32% year over year increase in sales and marketing.
Speaker Change: R&D grew 2%, while G&A declined 12%, excluding $19 million of bad debt credit related expenses.
Speaker Change: In 2025, our investments will directly in line with the priorities among laid out accelerating our progress in our new markets continuing to drive market share gains in our core and innovation that leverages, our scale and data to further differentiate our vertical offerings.
Speaker Change: Our dollar based payback periods remained in the mid teen months in 2024, we manage payback on a portfolio basis, and our ability to maintain a consistent level as even.
Speaker Change: Even as we increased investment in our Tam expansion areas, demonstrating the strength and efficiency of our core customer group.
Speaker Change: We will continue to manage payback to mid teens on a portfolio basis as we make long term.
Speaker Change: Investments.
Speaker Change: Adjusted EBITA was $111 million in the fourth quarter and margins expanded 18 percentage points year over year to 28%.
Speaker Change: GAAP operating income was $32 million in Q4, reflecting strong operating performance and lower stock comp expense.
Speaker Change: Through disciplined equity management stock based comp of 16% of recurring gross profit streams exiting 2024, and we remain on track to reach our target of low double digit percent.
Speaker Change: Recurring gross profit over the medium term.
Speaker Change: Free cash flow totaled $134 million in Q4 and $306 million for the full year in 2025, we anticipate free cash flow to broadly mirror adjusted EBITA for the full year and expect typical seasonality throughout the year with lower free cash flow.
Speaker Change: The seasonality of our payments business and the timing of annual cash bonus payment.
Speaker Change: Moving to guidance in Q1, we expect total subscription and Fintech gross profit growth in the 27% to 30% range and adjusted EBITDA to be $100 million to a 110.
Speaker Change: On a full year basis, we expect 23% to 25% growth in our recurring gross profit stream we.
Speaker Change: We anticipate higher growth in the first half of the year in the second half of the year, we will lap the improved air or to revenue conversion from comp against related onetime benefits we saw in 2024.
Speaker Change: On a full year adjusted EBITDA guidance of $510 million to $530 million reflects a 30% margin.
Speaker Change: At the midpoint and reaches our 30% to 35% margin target.
Speaker Change: Of expectations.
Speaker Change: Our ability to increase investments in our new markets, while expanding margins is a testament to the durability of our business model and the strength of our position in U S SMB and mid market restaurants.
Speaker Change: With good signals across international food and beverage retail and enterprise, we have confidence in accelerating our investment will drive meaningful penetration over the next years on top of that we will continue to seed investments in longer term opportunities to build our next generation of growth factors.
Speaker Change: In all we are positioning ourselves to deliver healthy growth in 2025 2026 and beyond.
Speaker Change: To wrap up we are executing across the board.
Speaker Change: Our core expanding our Tam and delivering leverage and scale.
Speaker Change: Heading into 2025, we're laser focused on sustaining our momentum and continuing to execute at a high level across the same area.
Speaker Change: We're incredibly excited about what lies ahead for test and are well positioned to capture the massive.
Uh huh.
Speaker Change: Now I will turn back the call over to the operator to begin Q&A.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thank you at this time.
Speaker Change: I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
Speaker Change: Your first question comes from will Nance of Goldman Sachs. Your line is open.
Will Nance: Hey, guys and I appreciate you taking the question congrats on a strong finish to the year.
Will Nance: I wanted to follow up on some of the comments you made around I think Atlanta, just echoed around the strong signals, you're seeing in both international and retail and some of the newer initiatives.
It sounded like you Rejiggered a few of the strategic priorities for investment this year based on some of that feedback that Youre getting you mentioned the <unk>.
Will Nance: Retail I'm wondering if you could just talk about.
Will Nance: Things are progressing versus your expectations.
Will Nance: There was a little bit more emphasis in the upfront commentary around.
Will Nance: Multiples of the current location base.
Will Nance: And I think you also mentioned new verticals as well and so I'm just wondering how kind of the thought process has changed or evolved over time around.
Will Nance: And listen just area that you want to address over time.
Will Nance: Yeah I can start thanks.
Will Nance: First of all 100 risk reinforced that the bulk of the focus of the company is to continue to scale.
Will Nance: The.
Will Nance: Our drive towards leadership in our core U S restaurant segment, that's where we're seeing the bulk of the growth that's where we see the bulk of the investment and I don't want to underplay that in any way.
Will Nance: It's also I think at the same time, it's great to see the signals we are seeing in these new segments.
Will Nance: And I mentioned that we're approaching 10000 locations. This year across the segment, that's a nice milestone for the team and it's really across all of these growth segments you look at.
Will Nance: In retail as I mentioned in my prepared remarks.
Will Nance: This was a year of test to learn and we're seeing the right signals in terms of economics, and <unk> to give us confidence to say, let's go invest and build a dedicated team here against retail and.
Will Nance: Enterprise I think compared to a three years ago, we're seeing much stronger pipeline. The product has come a long way and we're starting to see more consistent wins and I expect that really to continue this year and then in international.
Will Nance: It's a big focus was really expanding SaaS offering.
Will Nance: And we've done that I think is up 50% for <unk> year over year, and so all of that is giving us confidence to say, we should we should invest but again if you look at where we are as a company we're still at 15% market share in the U S restaurants.
Will Nance: Segment in the U S restaurants, and so that still is a big focus area for us as well.
Will Nance: Yes.
Will Nance: Awesome I appreciate that and maybe Atlanta, just a more numerical question.
Will Nance: In the fourth quarter I think the SaaS IRR per location came in a touch higher than what we were expecting and I would say similar on the same store sales number and so just wondering if you have any color on sort of what youre seeing if you can.
Will Nance: Maybe if we're seeing some of that improvement in the international RP will come through in the fourth quarter.
Will Nance: The trends at high level Youre expecting in the near term, particularly around same store sales I know, there's been some chatter around wildfire the weather and stuff in the first quarter any color on in terms of what Youre seeing would be helpful. Thanks.
Speaker Change: Yeah, Let me take the first question on SaaS, <unk> and zoom out and think about the scale of our air are.
Speaker Change: Little bit of movement on on revenue can you can have an impact on <unk>. So I would say we're kind of in the same zone.
Speaker Change: So I feel healthy.
Speaker Change: Healthy down until there's nothing specific about the quarter and keep that scale.
Speaker Change: And then in terms of same store sales in Q4, we saw a little bit of improvement and so you can see <unk> per location was down.
Speaker Change: One one.
Speaker Change: 1%.
Speaker Change: And so that was what really drove Q4.
Speaker Change: And heading into the year in Q1, obviously the fires.
Speaker Change: The storms that hit the country and leap year believe it or not I played a role last year that won't play a role. This year. So all of that combined you will see a bigger decline in Q1 that you saw in Q4, but generally speaking.
Speaker Change: <unk> per location stays in a narrow band and we feel no reason to believe that will be different in 2025.
Speaker Change: So I appreciate you taking the questions.
Speaker Change: Sure. Thanks, Rob.
Joshua Baer: The next question comes from Joshua Baer of Morgan Stanley. Your line is open.
Joshua Baer: Great Congrats on the corner and in the strong guidance I wanted to talk a little bit more about unit economics and it seems like.
Speaker Change: By saying that you managed to payback on a portfolio basis and implies some differences in the payback periods for the different growth.
Speaker Change: Areas in the portfolio, just hoping you could unpack a little bit any insight into some of those differences into customer acquisition costs or SaaS or <unk> <unk> per location across enterprise international and the retail adjacencies.
Will Nance: Sure Joshua.
Will Nance: If you look at the retail business I'll start there.
Will Nance: The cash payback is healthy today, if you look at the.
Will Nance: Tam in the GPU per unit.
Will Nance: <unk> has to be stronger than the average restaurant and so that gives us confidence and wanted to invest and that's really where we're investing.
Will Nance: Internationally. It was important that we got <unk>, that's why we focus on that because restaurants internationally tend to be a little bit smaller than in the U S. And then enterprise I think it's really very deal specific it just really depends on the deal but overall if you look at the portfolio of customers. We brought on because you are signing up hundreds of customers at a time typically the CAC in the economics there are strong.
Will Nance: I think one thing to Atlanta, and the finance team do a great job of is really making sure we're managing to overall paybacks and overall economics, that's why we've been able to expand margins for the past couple of years.
Will Nance: But we're also looking at it at a segment basis and I think in each of these segments.
Will Nance: Part of the reason, we have confidence to invest more whether it's in retail internationally, because we're seeing the right signals in our data, we're seeing them improve and that gives us confidence to invest more.
Will Nance: And in fact, if you look at international our unit productivity of our reps internationally is actually better than what it was in the us two or three years into the business and that's also giving us some confidence to lean in and invest more.
Will Nance: Overall long term as we think about the growth vectors, we see these as big.
Will Nance: We see all of them.
Will Nance: Massive there are opportunities all of these new times over the next decade.
Will Nance: That's very helpful and just wanted to give you the opportunity to just talk a little bit about AI.
Will Nance: We've seen some previews for some capabilities around optimizing.
Will Nance: Restaurants, and back office and menus and ingredients just wanted to see like where.
Will Nance: Where you are as far as products in the market and customer reception to that thank you.
Will Nance: Sure Josh.
Will Nance: We're investing.
Will Nance: The great thing with dose as we've got this amazing opportunity because we've got this amazing dataset that we're sitting on tougher and so so far there are a few wins, we've talked about I mentioned benchmarking as an example, we're starting to see restaurants really use that now whether it's on leveraging it to look at recommended menu items or inflation trends or how to price the menu or.
Will Nance: Even fraud. So that's been that's been I think a nice win with where customers are leveraging the data in our tools are making it.
Will Nance: Italy accessible.
Will Nance: Similarly in sushi, if it's early but we're starting to see it is really about helping the restaurant gms be smarter about how to leverage the data around sales and staffing and food cost again to make good decisions and again make that data actionable.
Will Nance: And then lastly on generative AI specifically.
Will Nance: We've done some nice things up marketing front, because as you can imagine in a restaurant tours on marketers and platforms. It's really makes it easy to create compelling campaigns on email and text and so that's helped make those products even more valuable.
And as I think about like the.
Will Nance: In the medium term like this year next year.
Will Nance: The focus for us on AI is really from a restaurant perspective is really on how do we improve service like what are the ways in which we can make servers and at the point of sale smarter.
Will Nance: I would like data driven up sells for example.
Will Nance: Do you make the experience more personalized at the point of transaction.
Speaker Change: Those of you that remember the show chairs like.
Speaker Change: Personalized experience that's something we think we can we can create with our data. So that's a big focus area for us and then over the long term we are tracking some of the trends in voice and video just because theres a lot of that happening there in the AD space and.
Speaker Change: There is a lot of manual restaurant workflows, where we think we can help.
Speaker Change: The next question comes from David Hynes of Canaccord Genuity. Your line is open.
David Hynes: Hey, guys congrats on the nice quarter and excellent 'twenty 'twenty four.
Speaker Change: Im on another nice enterprise data point in the quarter.
Speaker Change: Maybe you could just talk a little bit about what the pipeline looks like there and no.
Speaker Change: How are you thinking about positioning the product whether it's more open more composed of ball what differentiates you guys as you push upmarket and pursue those opportunities.
Jay: Yes sure Jay.
Speaker Change: And I think it's nice to see the momentum I think this year. This past couple of quarters, we saw top early and Hilton and Perkins and Huddle House recently, and that's really a testament of the team and the work they've done over the past couple of years to really build out the platform. If you think of the two or three years ago. We just didn't have the capabilities needed to go up market at that level of scale.
Speaker Change: So it's been everything from building out enterprise Config manage management is like how do you manage and publish menus and all the <unk> that exist at a corporate level down to the stores.
Speaker Change: About of secured income security and compliance needs.
Speaker Change: Things like API and to your point, the compose ability of the product.
Speaker Change: There's a lot that's happening there and I think that.
Speaker Change: The Great news is we're seeing our customers see it and see the value of it and so.
Speaker Change: And our pipeline is really I think has never been stronger overall than we.
Speaker Change: We are committed to continue to invest in this time, we see the market opportunity here in the U S and I think every year, we should continue to make steady progress here of market.
Speaker Change: Great and then just a follow up for you quickly on the retail.
Speaker Change: I know, it's very early days there, but the.
Speaker Change: The proof points and the early customers like what do they look like from an RP contribution a margin contribution standpoint compared to maybe your normal SMB.
Speaker Change: Restaurant type of customer.
Speaker Change: Kind of help me think about the size of those customers and how that could impact the financial model.
Speaker Change: Yes, it's a good question DJ it's early.
Speaker Change: So I think we're a ways from kind of where we ultimately settle out.
Speaker Change: But so far what we've seen is the economics overall are really healthy.
Speaker Change: And the industry average for customers is higher than.
But.
The restaurant averages so thats like.
Speaker Change: An early indicator that we have some potential to drive greater ARPA in GB per location overtime, but because it's so early and because there's within retail various.
Speaker Change: Amongst many sub segments, it's really too early for us to say where will the dust settle but so far with the customers.
Speaker Change: We see.
Speaker Change: We feel really good and as <unk> said earlier.
Speaker Change: One massive opportunity for us to drive.
Speaker Change: Thrive over the long term.
Speaker Change: Okay sounds good thank you guys.
Speaker Change: Thank you Peter.
Speaker Change: Your next question comes from Timothy Chiodo with UBS. Your line is open.
Timothy Chiodo: Great. Thank you for taking the question I wanted to dig into.
Timothy Chiodo: The more medium term outlook or growth algorithm for IRR per location. So more recently, it's been in the call it 4% to 5% range mid single digits.
Timothy Chiodo: Believe the algorithm has been the new customers coming in and maybe slightly lower than total company average, partially due to land and expand a little bit of a shift down market maybe the international.
Timothy Chiodo: And initially lower SaaS arb too, but definitely you mentioned the existing customers, adding new modules. You just gave the new disclosure on international <unk> up 50%.
Timothy Chiodo: Extended modules there and then of course, there's the pricing element, which you mentioned would be something beyond 2024, so with all those moving parts is mid single digits. The right number that investors should consider for call. It the medium term or longer term SaaS ARPA growth or are there other factors that you would add or subtract.
Timothy Chiodo: From that list.
Timothy Chiodo: I think in the near term I say mid single digits is the right number.
Timothy Chiodo: I hear you by the way there are lots of puts and takes of that business is getting more complex.
Timothy Chiodo: And if you just zoom out like our goal is to maximize the IRR you think about locations product attach an upsell and pricing and so all of those variables go into it and we very much recognize that ultimately the way we're going to do that is by driving towards market leadership.
Timothy Chiodo: I think as we think about like medium and longer term.
Timothy Chiodo: We've talked a lot in this call about Tam expansion I wanted I wanted to reinforce that the team is also incredibly focused on the land and expand motion.
Timothy Chiodo: We're looking at the attach rates across the existing product portfolio, we're looking to make those products.
Timothy Chiodo: Better and better to serve the Tam.
Continue to improve the way that we can serve that Tim a lot of the work we're doing on data and AI and if you think about.
Timothy Chiodo: And all the data we have across guests and employees and suppliers, we see an opportunity there and so over the long term, there's a huge focus there.
Timothy Chiodo: To continue to find ways to create more value for customers, which I think ultimately will translate to stronger ARPA.
Timothy Chiodo: But in but in terms of your question I would say like I think the way to think about that is that the.
Timothy Chiodo: In the near term I think that mid single digit. So there isn't one way to think about it and in the longer term, we'll come back to you.
Speaker Change: Great. Thank you and the Super quick follow up is just when you say near term just roughly that's about what's implied in the fiscal year 2025 guide keeping in that roughly mid single digit range is that fair.
Timothy Chiodo: Yes, that's right.
Timothy Chiodo: Perfect. Thank you so much.
Speaker Change: Thanks, Doug.
Speaker Change: The next question comes from Dan <unk> with Mizuho. Your line is open.
Speaker Change: Hey, guys. Thanks for taking my question Oh, great results.
Speaker Change: Hopefully I didn't miss it but it looks like the payment <unk> accelerated significantly.
Speaker Change: 235% can you maybe unpack the change.
Speaker Change: Hopefully you didn't address it already I appreciate it.
Tim: Can you sorry can you repeat the question Tim.
Speaker Change: Sorry, Budd. Thank you it looks like the payments are.
Speaker Change: Accelerated meaningfully in Q4.
Speaker Change: I Wonder if you cannot do that.
Speaker Change: For us yes.
Dan: Thank you Dan.
Dan: So typically what we see in Q4, because the seasonality we typically see.
Dan: Our take rate come down in Q4, right and as the team has done a lot of work on cost optimization, we implemented a price change in September until what Youre seeing in our in our take rate is really.
Dan: An increase related to that price change and so that's how you should think about it.
Dan: Those are the sort of the puts and takes obviously, there's a lot going on underneath the hood, but those are the primary.
Dan: I would call out.
Speaker Change: Great. Thanks for taking my question and great quarter appreciate it.
Dan: Thanks, Ed.
Speaker Change: The next question comes from Samad Samana with Jefferies. Your line is open.
Samad Samana: Hi, good evening, thanks for taking my questions.
Samad Samana: Maybe first one for you if you think about Mary and if you think about potbelly some of your larger wins.
Samad Samana: And maybe what the rollout cadence <unk>, the hunting and cadence west for Marriott, how should we think about how that would apply to maybe the wins you called out today with Hilton.
Samad Samana: And just what did you learn what those other big wins and how should we apply that to what you just announced in terms of the big deals today.
Samad Samana: Yeah.
Samad Samana: Thanks, so much.
Samad Samana: Not all of these enterprise wins are the same.
Samad Samana: Within the hotel business Whats nice is a lot of the franchisees that Marriott or Hilton or choice hotels is actually overlap and so we've got pulled into some of these deals and I think it gives us more upside in terms of the franchisees taking toast across all of their brands.
Samad Samana: Across the hotel space, though the wins have been.
Samad Samana: Got to get the.
Samad Samana: Corporate location and then you've got to work with the franchisees, whereas in some of the other brands that we work with they're it's a commitment across.
Samad Samana: Certain number of locations with a certain rollout plan and so it just really depends on the deal.
Samad Samana: And more and more I think especially as we go into the core restaurants segment, we've seen more often than not is it.
Samad Samana: Our rollout plan that's aligned on upfront.
Samad Samana: As part of the as part of the wind or the booking of the deal.
Speaker Change: Understood and then Elena maybe just a follow up for you.
Speaker Change: Call that the tougher comp created by the IRR conversion dynamic in the back half of 'twenty four.
Speaker Change: Is it fair to think about the first half growth that you're that you are implying is the right way to think about what growth for the full year would've been if not for that that headwind in the back half or maybe just help us understand how much you're baking into that and what the what's kind of the pro forma growth would've looked like.
Speaker Change: Yes, and we haven't quantified specifically.
Speaker Change: The <unk> conversion.
Speaker Change: So I would I don't want to quantify it here, but the way to think about it is the benefit that we received in 2024 in the second half had a bit more had onetime benefits we've talked about that.
Speaker Change: That will not be the case in 2025, and so what we have today exiting the year is kind of the visibility we have today, obviously, we ended it better.
Speaker Change: But that's a good proxy is to look at the second half of the year and just knowing that where we are today, obviously, we aim to do better as we exit the year and as we get more visibility.
Speaker Change: Great Congrats on the wholesales team on a great quarter.
Thanks, so much.
Speaker Change: Your next question is from <unk> Rawat with Bernstein. Your line is open.
Speaker Change: Hi, good afternoon.
Speaker Change: I wanted to follow up on your market share gains comments.
Speaker Change: Our core U S segment.
Speaker Change: What are you seeing with respect to market share gains and fly the Martinez deal and what percentage of your market.
Speaker Change: <unk>.
Speaker Change: And just for.
Speaker Change: Follow up all of a sudden international.
Speaker Change: Getting the right signals from the international market are you also kind of rethinking your distribution strategy.
Thank you.
Speaker Change: Yes, Thanks Sheila.
If you look at the 28000 net adds we had in 2024, which was a record for test.
Speaker Change: The bulk of the growth came from our F&B core SMB business and so the way we've done that as you know.
Speaker Change: Markets continue to perform really well these markets.
Speaker Change: <unk> performed better than the average.
Speaker Change: Average more markets I don't know the exact stat in terms of how many markets and flywheel, but.
Speaker Change: More market centered flywheel again, this year and so I think that the core of the health of the core SMB business is strong.
Speaker Change: International was a question about you said, what's the distribution strategy.
Speaker Change: Yeah, No I was just thinking about it.
Speaker Change: The 10-K distribution in terms of just getting also falling a little bit muscle partnership approach internationally.
Speaker Change: Yes, it's a good question Sheila we are exploring a few different options I think for US right now the focus is in these initial markets. We're in we want to make sure we execute really well and we.
Speaker Change: We have a path to the kind of success, we've had in the U S here over the past decade.
Speaker Change: And we are replicating largely the U S model, because it's worked really well and we believe it's replicable.
Speaker Change: As we look beyond these markets I think one of the factors. We're looking closely at is.
Speaker Change: What is the GPS for location and the <unk> potential in some of these markets and Thats really whats going to drive our distribution strategy. That's one of the variables of course, the other variable. We're looking at is just what's the competitive landscape.
Speaker Change: What's the penetration of cloud.
Speaker Change: And some of the other complexities.
Speaker Change: That are different by market.
Speaker Change: And so we are using that to think through like would we ever consider it reseller strategy, we consider a different distribution strategies III commerce.
Speaker Change: But we're not there yet is really the focus right now is to continue to scale in these existing international markets, we have launched it.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: We will now take our last question from the line.
Speaker Change: <unk>.
Speaker Change: Bryan Keane with Deutsche Bank. Your line is open.
Speaker Change: Hi, guys congrats on the solid results.
Speaker Change: I guess just two questions if I may I guess.
Speaker Change: First question I know you guys made some public comments in the fourth quarter at a conference you guys were expecting more of the 100 to 200 basis point of EBITDA margin expansion, obviously with the guide today suggests something quite a bit greater than that I think it's $2 60 to almost 400 or something about that can you just talk a little bit about.
Speaker Change: Kind of what's changed I guess from an EBITDA margin expansion from the fourth quarter two to the guide.
Speaker Change: Yeah. Thanks for the question. So we believe the midpoint of our guidance really reflects healthy growth and ongoing gains and profitability I'll start there in December when we made those comments when completed our planning process. So we continue to refine that as we got into the year, but really the key point we wanted to.
Speaker Change: Unveil when were at the conference was our margin expansion in 2025 would be significantly less than 2024, and that's because of what amount of just laid out right. We're investing for growth and we've seen a lot of really positive signals from these opportunities to drive margin expansion.
Speaker Change: And so that's really what what ultimately changes.
Speaker Change: <unk> completed our process.
Speaker Change: But also we had more visibility and sort of the key point was to make sure we set that expectation around our margin expansion.
Speaker Change: No. That's helpful. And then just as a quick follow up on the pricing changes that started in September how do we think about that going through 2025 and enter the following year's 26 and beyond just how much of an impact that will have or will have a similar impact each year or.
Speaker Change: Is it kind of just a one time benefit that laps in September of this year.
Speaker Change: Yes, it's a fair question. So the pricing Youre talking about is a fintech price change we made in September.
Speaker Change: Zoom out and tell you to think about our primary growth algorithm for the business is driving locations and product attach and pricing is complementary to that and what youll see in terms of our strategy. Its us make small ongoing very gradual pricing changes across both SaaS and fintech that's factored into our.
Speaker Change: Guidance and Thats really the strategy you will see us execute against over the next several years. So at any point in time, there will not be an outsized.
Speaker Change: Impact from pricing.
Speaker Change: Our guidance, obviously reflects the strategy I just laid out.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.