Q3 2024 Earnings Summary
- Strong Location Growth Expected to Continue: Toast added approximately 7,000 net locations in Q3 2024, increasing total locations to nearly 127,000, and management is confident in their ability to continue driving location growth into next year. ,
- Expansion into New Markets and International Growth: Toast is seeing positive signals in international markets and food and beverage retail, with plans to invest more in these businesses in 2025, potentially expanding their addressable market and driving sustained location growth over the long term. ,
- Successful Upsell of New Products and Enterprise Wins: Strong customer adoption of new products like Branded App and SMS Marketing is enhancing ARPU and cross-sell opportunities, particularly among mid-market and multi-unit SMB customers. Additionally, the win of Potbelly Sandwich Works and a strong enterprise pipeline indicate success in moving upmarket, further expanding Toast's market share. ,
- Declining GPV per Location: Gross Payment Volume (GPV) per location decreased by 3% year-over-year in Q3, consistent with Q2, and this trend is expected to continue into Q4. This suggests challenges in driving higher transaction volumes at existing locations, potentially impacting revenue growth.
- Early-Stage Revenue Streams with Uncertain Impact: New product offerings like the Branded App and SMS Marketing tools are still in early stages, with management stating it's "too early" to report on their gross profit contributions. The uncertain impact of these products may limit their contribution to near-term revenue and profitability.
- Investments in New Markets May Not Yield Immediate Returns: The company is increasing investments in areas such as international markets and food and beverage retail, which are in nascent stages. These expansions carry risks and may dilute focus from the core business, potentially affecting overall financial performance if they do not achieve favorable returns.
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Location Growth Outlook
Q: Will you add more locations in '25 vs '24?
A: We've had a great quarter with 7,000 net adds , and strong net adds in 2024. Led by our flywheel markets driving strong productivity , we're confident in our ability to continue driving location growth into next year. -
Price Increases Impact
Q: How long will price increases roll through the base?
A: We made very targeted price changes for a small cohort of customers, effective in September. Minimal impact in Q3, small impact in Q4. Pricing is a long-term strategy, and we'll occasionally make targeted adjustments where it makes sense. -
Software ARPU Expansion
Q: What's driving the sharp acceleration in software ARPU?
A: We improved our ARR to revenue conversion by enhancing billing infrastructure and quote-to-cash processes. This resulted in more ARR converting to revenue. Some of this is a one-time benefit , so future quarters won't be as high as Q3 but higher than historical levels. -
Enterprise Pipeline Growth
Q: How is the enterprise pipeline building?
A: We're continuing to build on previous years with increasing scale and opportunities. This reflects our go-to-market execution and investments in product capabilities upmarket. Enterprise is an important growth vector for us over the next decade. -
Capital Business Outlook
Q: Where will capital volumes as % of GPV be longer term?
A: Our execution has been excellent, with $43 million in performance this quarter , and default rates are as expected. We'll continue to grow the program in a balanced way , and there's no reason we couldn't grow through more attach while ensuring a balanced risk-adjusted manner. -
GPV per Location Trend
Q: Has GPV per location troughed in Q3?
A: GPV per location was down 3%, consistent with Q2 , and has been relatively stable over several quarters. As we head into Q4, it will be in the same range, as reflected in our guidance. We expect a similar trend over the next couple of quarters. -
Strategic Priorities Ahead
Q: Any re-prioritization of initiatives for next year?
A: Our strategy remains consistent with what we outlined at Investor Day. We're focusing on scaling our core business and expanding into areas with good opportunities like international and CPG retail. We're investing more in these areas based on positive signals. -
Net Adds and Churn
Q: Are the 7,000 net adds balanced between openings and takeaways?
A: The 7,000 net adds are consistent with past trends , showing a good mix of new openings and existing restaurants upgrading. Churn is largely aligned with historical patterns, impacting smaller ARR due to smaller restaurants. -
Retail Go-To-Market Strategy
Q: How are you approaching retail go-to-market strategy?
A: We see great momentum in retail, giving us confidence to invest more in 2025. We're investing strategically with a team focused on retail and leveraging our existing sales reps to drive lead flow. We're tweaking and testing the best approach to maximize growth. -
New Product Upsell Strategy
Q: How are you upselling Branded App and SMS Marketing?
A: These are valuable additions to our guest suite to help customers drive demand. Early feedback is great, especially among mid-market and multi-unit SMB customers. It's part of our long-term growth strategy to drive locations and expand our TAM. Gross profit impact is too early to report, but our focus on unit economics and payback periods remains. -
International and Retail Wins
Q: Any numbers on location wins for international and retail?
A: We're seeing continued momentum since Investor Day. Progress across both international and retail is positive. In CPG retail, there's good progress across grocery, convenience, and bottle shops. Internationally, we're adding more products, improving unit economics and productivity. We plan to invest more in these businesses in '25 based on current signals. -
ARR vs. Revenue Growth
Q: What's the difference between SaaS ARPU and subscription revenue growth?
A: Differences between ARR and revenue are due to timing, concessions, or credits. When discussing SaaS ARPU, we're referring to an ARR basis. The team's execution has been strong.