- Net Locations Added: 8,000 net locations, a new quarterly record.
- Recurring Gross Profit Streams: Increased 29% year-over-year.
- Adjusted EBITDA: $92 million, representing a 27% margin on recurring gross profit streams.
- GAAP Income Profitability: Achieved ahead of expectations.
- Total Locations: Approximately 120,000, up 29% year-over-year.
- SaaS ARR Growth: 35% year-over-year.
- Payments ARR Growth: 24% year-over-year.
- Fintech Gross Profit: $344 million, increased 29% year-over-year.
- GPV (Gross Payment Volume): $40.5 billion, up 26% year-over-year.
- Net Take Rate: 54 basis points, with core net take rate flat at 45 basis points.
- Non-Payments Fintech Solutions Gross Profit: $34 million.
- Total Operating Expenses: Up 2% year-over-year.
- Sales and Marketing Expenses: Increased 16% year-over-year.
- R&D Expenses: Declined 4% year-over-year.
- G&A Expenses: Down 12% year-over-year, excluding $50 million of bad debt and credit-related expenses.
- Free Cash Flow: $108 million in the second quarter.
- Share Repurchase: $49 million in shares repurchased year-to-date.
- Warrant Repurchase: Repurchased a warrant for 5.2 million shares for $60 million.
- Q3 Guidance: Total subscription and fintech gross profit to increase 23% to 27% year-over-year; adjusted EBITDA of $70 million to $80 million.
- Full Year Guidance: 27% to 29% growth in fintech and subscription gross profit; adjusted EBITDA of $285 million to $305 million.
Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Toast Inc (TOST, Financial) added a record 8,000 net locations in Q2 2024, increasing total locations to about 120,000, up 29% year-over-year.
- Recurring gross profit streams increased by 29% year-over-year, totaling $344 million.
- Adjusted EBITDA came in at $92 million, representing a 27% margin on recurring gross profit streams.
- Toast Inc (TOST) achieved GAAP income profitability ahead of expectations.
- The company increased its full-year outlook, expecting 27% to 29% growth in fintech and subscription gross profit and $285 million to $305 million in adjusted EBITDA.
Negative Points
- GPV per location was down 3% year-over-year, reflecting a decline in same-store sales.
- The net take rate contribution from non-payments fintech solutions was slightly lower due to the introduction of forward flow.
- Operating expenses are expected to increase in the second half of the year as the company reinvests savings into high-priority areas.
- Churn rate is slightly above 10% on an annualized basis, up slightly relative to a year ago.
- There is a noted seasonality in net location adds, with Q2 typically being the strongest quarter, implying lower adds in the second half.
Q & A Highlights
Q: Has there been any change in restaurant health in the last couple of months?
A: (Elena Gomez, CFO) In Q2, our GPV per location was down 3%, and it's been relatively consistent as we head into Q3. The macro environment is dynamic, but we've proven resilient through various economic cycles. GPV grew 26% to $40 billion this quarter, showing our confidence in managing the business through different economic conditions.
Q: What kind of products are resonating with your customers today?
A: (Aman Narang, CEO) Our platform offers a broad range of capabilities, including data and AI tools like our benchmarking tool and generative AI in our CRM tool. Products like Toast Tables, catering, online ordering, and our new website product have received positive feedback. Our payroll product, scheduling, and Tips product are also gaining traction. We are focused on driving strong ARPU growth in the medium and long term.
Q: How do you think about adding additional headcount to go-to-market functions given the macro environment?
A: (Aman Narang, CEO) We continue to see healthy unit economics in our core business and new segments. Our record 8,000 net adds in Q2 were driven by our core US SMB and mid-market business. We are excited about adding sales capacity in international and retail markets in the second half, given the strong performance in our core SMB business.
Q: Are there specific portions of the end markets where there's a bigger legacy replacement opportunity?
A: (Aman Narang, CEO) The enterprise segment and retail markets have significant legacy systems, similar to what the restaurant business was like 10 years ago. International markets also have a lot of legacy systems. We focus on customer feedback, payback periods, unit economics, and NPS to allocate capital across these growth vectors.
Q: Can you talk about the progress of your upsell teams and their impact on SaaS ARPU?
A: (Aman Narang, CEO) Our upsell teams are critical for driving ARPU growth. We are pleased with their progress and continue to refine our land and expand motion. Our R&D team is also focused on product-led growth, especially for products that are easier to adopt and activate.
Q: Can you expand on the contribution from new areas like food and beverage retail and international?
A: (Aman Narang, CEO) International and retail are growing nicely. We have 2,000 live locations internationally and 1,000 booked locations in retail. However, the bulk of our adds are still coming from our core US SMB business. We aim to make these new areas more significant contributors over the next few years.
Q: Can you unpack GPV per location and its impact on your metrics?
A: (Elena Gomez, CFO) GPV per location was down 3% in Q2, primarily due to same-store sales declining year-over-year. There is a small portion related to mix, but the primary driver is same-store sales. There hasn't been any fundamental change in check size or order size.
Q: What investments are needed in food and beverage retail and international?
A: (Aman Narang, CEO) We are in the early stages for these new businesses. Customer reception has been positive, and we see a lot of opportunity in replacing legacy solutions. We are working on features like inventory management, e-commerce, and payment support. Internationally, we are gradually bringing our products to market.
Q: What are you hearing from customers about your AI initiatives like Sous Chef?
A: (Aman Narang, CEO) It's still early, but we are focused on leveraging AI to create value for our customers. Examples include generative AI in our guest marketing tools and benchmarking data to help restaurants make smarter decisions. Sous Chef serves as an umbrella for various AI-driven recommendations and insights.
Q: Are you changing any assumptions around gross retention for the back half of the year?
A: (Elena Gomez, CFO) No material change in our assumptions. Churn is slightly above 10% on an annualized basis, mostly due to out-of-business churn, which has a low impact on ARR. We are still on track to add more net locations in 2024 than in 2023.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
