Toast, Inc. Q3 FY2024 earnings call

• Added approximately 7,000 net locations. Recurring gross profit streams grew 35% year-over-year. Adjusted EBITDA was $113 million and GAAP operating income was $34 million.
• Launched new products like branded app and SMS marketing. Branded app helps customers build native app experiences for iOS and Android. SMS marketing helps reach guests directly. Also released over a dozen updates across products like Toast Now, benchmarking, kiosks, etc., based on customer feedback.
• Expanding addressable market into new adjacencies: food and beverage retail (expanded product functionality to accept EBT/SNAP benefits), international (month-over-month gains in attach for guest products, Toast Now available in UK, Ireland, Canada), and enterprise (deploying Toast across Potbelly Sandwich Works' 400+ locations in the U.S. and making progress with Marriott, NTY Group, NBC, etc.).
• Focused on delivering ongoing operating leverage by reshaping cost structure, positioning to invest behind priorities and expand margins towards target set at Investor Day.

Recurring gross profit streams grew 35% year-over-year. ARR increased 28%. Total fintech and subscription gross profit (recurring gross profit streams) grew 35%. SaaS ARR grew 33% year-over-year with a 4% increase in SaaS ARPU on an ARR basis. Subscription revenue increased 44% year-over-year. 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.

• Fourth quarter: Total subscription and Fintech gross profit expected to grow in the 32% to 35% range year-over-year, and adjusted EBITDA to be $90 million to $100 million.
• Full year 2024: Expect 32% to 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.

Q: Josh Baer from Morgan Stanley asked about location growth ahead, whether 2025 location additions will be more than 2024.

A: Aman Narang said they had 7,000 net adds in 2024, led by flywheel markets and core business, with good early momentum in CBG Retail and Horizon One international markets, and confident in continuing to drive location growth in 2025.

Q: Samad Samana from Jefferies asked about upsell/cross sell motion of branded app and SMS marketing, and gross margin profile.

A: Aman Narang said branded app and SMS marketing are additions to guest suite to help drive loyalty and demand. Elena Gomez said it's too early to report on gross profit for those products but discipline on unit economics and payback periods continues.

Q: Stephen Sheldon from William Blair asked about enterprise pipeline with Potbelly and factors helping win vs competitive solutions.

A: Aman Narang said Potbelly is a great win, enterprise pipeline builds on previous years, with go-to-market execution and product investments helping, and enterprise is an important growth vector for next decade.

Q: Dominic Ball from Redburn Atlantic asked about SaaS ARPA expansion, location wins for international and retail.

A: Elena Gomez said step up in SaaS revenue was due to focus on improving ARR to revenue conversion. Aman Narang said continued momentum in international and retail, with good progress in CPG retail and international product additions improving unit economics.

Q: Timothy Chiodo from UBS asked about Toast Capital.

A: Elena Gomez said Toast Capital has strong demand, team is executing well, and they'll continue to grow it in a balanced way.

Q: Dan Dolev from Mizuho asked about reprioritizations of initiatives for next year.

A: Aman Narang said strategy is consistent with Investor Day, focusing on scaling core business and investing in new TAM areas with good opportunity, and consistent with previous efforts.

Q: Will Nance from Goldman Sachs asked about go-to-market structure for retail push.

A: Aman Narang said they're thinking through the best approach to maximize growth in retail, with investment in a focused team and leveraging existing sales reps for top-of-funnel.

Q: Nick Setyan from Wedbush asked about GPV per location and trends.

A: Elena Gomez said GPV per location was down 3% consistent with Q2, expected to stay in similar range in fourth quarter.

Q: Melissa from Bank of America asked about mix of net new adds and churn.

A: Aman Narang said net new adds are a mix of new openings and existing restaurants switching, churn is largely in historical range, typically smaller restaurants with smaller impact on ARR.