Toast (TOST) 7 Nov 24 2024 Q3 Earnings call transcript

Toast, a leading restaurant technology company, recently reported a robust third quarter performance, highlighting significant growth and strategic initiatives that position the company for continued success in the future.

Key Themes and Trends

Toast's Q3 earnings call, led by CEO and Co-Founder Aman Narang and CFO Elena Gomez, showcased a company that is not only thriving in its core business but also expanding into new market segments and verticals. The company added approximately 7,000 net locations, reflecting a 35% year-over-year growth in gross profit. This expansion is driven by Toast's purpose-built restaurant platform and local go-to-market engine, which is creating a significant impact in local markets.

Moreover, Toast's focus on disciplined investments aligns with its long-term vision, with a strong emphasis on scaling locations and market share in its core business. The company's mission to help restaurants delight their guests and do what they love is resonating, with nearly 127,000 locations served today. Toast's ambition is to scale this impact across new geographies, market segments, and verticals, signaling a promising outlook for the company's future growth.

Strategic Priorities and Innovation

Toast's strategic priorities are centered around scaling locations and market share in its core business, expanding its offering for restaurants, and expanding its addressable market into new adjacencies. The company's recent investments in new products and capabilities, such as Branded App and SMS Marketing, have been well-received by customers, with multi-unit SMBs and mid-market customers particularly benefiting from these innovative solutions. These offerings not only help restaurants reach their guests directly but also generate more revenue through targeted marketing strategies.

Toast's vertical SaaS strategy is also paying off, with significant progress in food and beverage retail, international markets, and enterprise segments. The company's expansion into these areas represents meaningful TAMs, further enhancing Toast's market position and long-term growth prospects.

Financials and Market Positioning

Toast's financial performance in Q3 was impressive, with ARR increasing by 28% and total fintech and subscription gross profit growing by 35%. These results reflect the company's strong top-line growth and efficient scaling efforts. The company's adjusted EBITDA came in at $113 million, with a 30% margin on its recurring gross profit streams, signaling a healthy financial profile and a solid foundation for future investments.

Toast's market positioning is also noteworthy, with the company winning key enterprise customers like Potbelly Sandwich Works, reflecting its ability to compete and succeed in larger markets. This strategic win, alongside ongoing rollouts with Marriott, MTY Group, NBC, and other notable brands, underscores Toast's position as a leading player in the restaurant technology space.

Challenges and Future Outlook

While Toast's Q3 performance was strong, there are challenges ahead, particularly in the form of ongoing reinvestments and planned growth strategies that will impact adjusted EBITDA in the short term. However, these investments are seen as necessary to set the company up for sustained healthy growth in 2025 and beyond. Toast's focus on balancing growth with modest margin expansion is a prudent strategy, positioning the company for long-term success.

Conclusion

Toast's third quarter earnings call highlighted a company that is not only executing well in its core business but also innovating and expanding into new areas, demonstrating a clear strategic vision for future growth. The company's strong financial performance, strategic wins, and focus on customer-centric solutions position Toast as a leader in the restaurant technology sector, well-positioned for continued success in the years to come.