Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Toast Inc (TOST, Financial) reported first quarter results that exceeded expectations, with significant year-over-year growth in recurring gross profit streams by 33%.
- Adjusted EBITDA for the quarter was $57 million, marking a $74 million improvement compared to Q1 of the previous year.
- The company successfully added over 6,000 net new locations during the quarter, demonstrating strong market penetration and growth in its core business.
- Toast Inc (TOST) launched new suites including restaurant management, digital storefront, and marketing suites, enhancing product offerings and customer value.
- International expansion is progressing well with positive reception in the U.K., Canada, and Ireland, and the launch of integrated online ordering capabilities.
Negative Points
- Despite overall growth, GPV per location was down 2% year-over-year, indicating some challenges in per-location revenue generation.
- Free cash flow was negative $33 million in the quarter, influenced by timing of cash bonus and severance payments.
- The company faces ongoing competitive pressures as peers also upgrade technology and expand software offerings.
- While international expansion shows promise, significant investments and adaptations are required to tailor products to local markets.
- The forward flow model for Toast Capital, while reducing credit risk, results in a slightly lower revenue take rate and impacts recurring gross profit.
Q & A Highlights
Q: Congrats on a good quarter. Wanted to ask about net take rates from 2 perspectives. I was hoping you could comment on the interchange settlement and how that should impact take rates as well as an update just around taking price as far as the tactical approach of going back to select customers that have off-market contracts.
A: Elena Gomez - Toast, Inc. - CFO: Yes, sure. I can take that. So in terms of the Visa-Mastercard settlement, it's really early and not final. Our early signal is it's most likely going to impact us in the second half of 2025. That's the early read. And also, I would also comment that it won't impact our entire volume of GPV, just at the highest level. So just keep that in mind as you guys update your models. But in the context of pricing, I think your question on take rate, as we've said, we're going to take pricing over time, it's going to be an ongoing cadence of small steady changes in price. No step function change in pricing this year. We're going to start with fintech in the second half of the year. And just keep in mind, it won't have a meaningful impact in 2024. But over time, you should see us execute against a steady cadence of price adjustments, in particular, in places where customers are out of market.
Q: I guess first of all, it looked to me like Q2 recurring GP growth is actually a little lower than the back half year. It looks to me like you're calling for a re-acceleration in the back half. Is that right? And what would that be attributed to?
A: Elena Gomez - Toast, Inc. - CFO: Yes, so a couple of things. One, recurring -- let me just start giving context for the full year and Q2, there's some dynamics at play. But yes, if you look at the full year, our full year guidance at 26% at the midpoint would imply that, obviously, our GP grows over time. Q2, there's a few dynamics at play. One is the implementation of forward flow, which we talked about, and we're comping this onetime benefit to SaaS revenue in Q2. So those are contributing to a lower recurring gross profit in Q2. Then we talked about targeted fintech pricing towards the back half of the year. And that will be slight and gradual.
Q: Aman, I'd love to ask about the new suites that were rolled out, management suite, digital storefront, marketing suite. As you think about kind of sizing the opportunity in the installed base, how do you think about that? And then maybe you could talk about, are there incumbent technologies there? Is it more of a greenfield opportunity? Like what are the competitive dynamics?
A: Aman Narang - Toast, Inc. - Co-Founder, CEO & Director: Yes. DJ, thanks for the question. If you look back the past couple of years, we've launched a lot of products. And really, the driver behind these suites was to simplify. And so we've introduced these suites to package our products and really simplify the sales process, both for our go-to-market team and our customers in terms of how easy it is to adopt and leverage the platform. The suites are organized into good, better, and best tiers to help both let our customers start off, for example, at one tier and then, over time as they see value, adopt more of it. And also as our team is driving more innovation, having a framework where our team can deliver more capabilities without just continuing to launch more and more products. I think it simplifies it for everyone.
Q: So Elena, you talked about 30% to 35% margin target long term as you think about percentage of gross profit. As now we think about the operating leverage you're achieving in the business and also kind of driving the gradual adjustment as a component, is there a change in thinking about that long-term profitability target? And also, how should we think about long-term GAAP profitability as well?
A: Elena Gomez - Toast, Inc. - CFO: Sure, great question. So I'll provide context on our long-term financial profile at Analyst Day. But just sort of pivoting back to 2024, our guidance shows significant progress on margin. And you've seen us deliver that efficiency and scale over the course of the last several quarters. So we're going to continue with that discipline. And you heard Aman talk about his strategic priorities as he's laid out. We're positioning the company really to drive ongoing operating leverage while we're balancing that with growth and innovation. So I don't have an update today but we'll update you at Analyst Day. And you had a question on GAAP, actually, that's a really good point. You had a question on GAAP. Overall, just keep in mind, we've been very focused on stock-based comp as well as you've heard us talk about that. So that's really what's driving our confidence in the updated guidance on GAAP on this call.
Q: Sorry, can you hear me?
A: Elena Gomez - Toast, Inc. - CFO: Yes. Now we can.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
