Q4 2024 Earnings Summary
- Toast achieved record net adds of 28,000 locations in 2024, with the bulk of growth coming from the core SMB business, strengthening its market share and demonstrating healthy expansion.
- Payments ARR accelerated to 35% growth in Q4, driven by price changes and cost optimizations, improving take rate and contributing to strong top-line growth.
- Toast is successfully expanding into new segments, approaching 10,000 locations across these areas, with positive signals in unit economics and ARPU, indicating potential for significant long-term growth beyond the core U.S. restaurant market.
- Toast expects a bigger decline in GPV per location in Q1 2025 compared to Q4 2024, citing factors such as fires, storms, and the leap year effect, which may indicate weakening same-store sales trends.
- The increase in payments take rate due to the targeted price changes made in September might be a one-time benefit that lapses, potentially limiting future growth in payments ARR.
- Management was unable to provide specific data on the percentage of markets in the 'flywheel' stage, suggesting a possible lack of visibility into key operational metrics critical for assessing market share gains.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +29% (from $1,036M to $1,338M) | Total Revenue grew by 29% driven primarily by strong gains in Financial Technology Solutions revenue (+28% from $852M to ~$1,090M) despite a near 99% drop in Subscription Services revenue. This suggests a restructuring of revenue streams and a focus on high-volume, transaction-driven growth, which outweighed declines in other segments. |
Operating Income | Turned positive (+$32M vs. -$56M) | Operating Income improved sharply by $88M, transitioning from a loss in Q4 2023 to a profit in Q4 2024. This turnaround was supported by robust revenue gains, especially in Financial Technology Solutions, along with significant cost reductions such as lower SG&A expenses. |
Net Income | Reversed from a -$36M loss to a $33M gain | Net Income shifted from a $36M loss to a $33M gain, reflecting the combined impact of improved operating income and efficient cost management. The recovery is a result of higher revenue and an enhanced operating margin from both top-line growth and effectiveness in expense control. |
Earnings per Share (Basic) | Swing from -$0.06 to $0.06 | EPS improvement directly mirrors the net income turnaround, as EPS shifted from a negative value to a positive $0.06. This change highlights the impact of better profitability and effective management of the share count relative to earnings. |
Subscription Services Revenue | -99% (from $141M to $2M) | Subscription Services revenue plummeted almost 99%, indicating a dramatic reduction in this revenue stream. This could be due to a strategic shift or reclassification of revenue sources which contrasts sharply with previous periods, where Subscription Services played a significant role. |
Financial Technology Solutions Revenue | +28% (from $852M to ~$1,090M) | Financial Technology Solutions revenue increased by approximately 28%, driven by growth in the number of restaurant locations and an uptick in Gross Payment Volume. This segment's robust performance reflects the company's ability to scale its transaction-based services and capitalize on increasing consumer demand. |
SG&A Expenses | Decreased significantly (from $188M to $78M) | SG&A expenses fell prominently by $110M, indicating a strong focus on cost reduction. This decline, which includes lower employee-related and lease termination costs, contributed significantly to improved operating margins and overall profitability compared to Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Total subscription and fintech gross profit growth | Q1 2025 | no prior guidance | 27% to 30% | no prior guidance |
Adjusted EBITDA | Q1 2025 | no prior guidance | $100 million to $110 million | no prior guidance |
Recurring gross profit streams growth | FY 2025 | no prior guidance | 23% to 25% | no prior guidance |
Adjusted EBITDA | FY 2025 | no prior guidance | $510 million to $530 million, 30% margin at the midpoint | no prior guidance |
Free cash flow | FY 2025 | no prior guidance | Mirrors adjusted EBITDA with seasonal factors | no prior guidance |
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Investment in New Segments
Q: How are investments in retail, international, and enterprise progressing?
A: Toast is seeing strong signals in new segments like retail, international, and enterprise, which gives them confidence to invest more. In retail, after a year of testing, they've observed positive unit economics and ARPU, leading to the decision to build a dedicated team. Enterprise shows a much stronger pipeline compared to 2–3 years ago, with more consistent wins expected this year. Internationally, SaaS ARPU is up 50% year-over-year, reinforcing their focus on expansion. Despite these investments, the primary focus remains on scaling the core U.S. restaurant segment, where they hold only 15% market share. -
ARR per Location Growth Outlook
Q: Is mid-single-digit ARR per location growth sustainable?
A: In the near term, Toast expects ARR per location growth to remain in the mid-single-digit range, as reflected in their FY2025 guidance. They focus on maximizing ARR through locations, product attach, upsell, and gradual pricing changes. While aiming to create more value for customers to drive stronger ARPU over the long term, mid-single digits is the appropriate expectation for now. -
EBITDA Margin Expansion Guidance Update
Q: Why has EBITDA margin expansion guidance increased?
A: Toast now guides for greater EBITDA margin expansion than previously indicated due to completing their planning process and gaining more visibility. While the margin expansion in 2025 will be significantly less than in 2024, they are investing for growth based on positive signals from opportunities. The previous comments made in December didn't reflect the finalized plans. -
Payments ARR Acceleration due to Pricing
Q: What drove the acceleration in payments ARR to 35%?
A: The acceleration in payments ARR to 35% is primarily due to a price change implemented in September, which increased the take rate. Typically, Q4 sees the take rate decrease due to seasonality, but the pricing change and cost optimization efforts offset this. While there's complexity under the hood, these are the primary factors contributing to the acceleration. -
Unit Economics Across Segments
Q: How do unit economics vary across growth segments?
A: In the retail segment, the CAC payback is healthy, with GPV per unit higher than the average restaurant, supporting further investment. Internationally, improving SaaS ARPU was crucial due to smaller restaurant sizes; productivity of international reps is better than in the U.S. 2–3 years into the business. Enterprise deals are deal-specific but generally show strong CAC and unit economics, allowing Toast to expand margins while investing in new segments. -
Enterprise Pipeline and Upmarket Strategy
Q: How is Toast progressing in the enterprise market?
A: Toast's enterprise pipeline has never been stronger, with recent wins like Potbelly, Hilton, Perkins, and Huddle House. Investments in platform capabilities, such as enterprise configuration management, security, compliance, and APIs, have enabled steady progress upmarket. They are committed to continued investment in this area to capitalize on the significant U.S. market opportunity. -
SaaS ARPU Trends and Same-Store Sales
Q: What trends are seen in SaaS ARPU and same-store sales?
A: SaaS ARR per location remains in a healthy zone, with no specific factors affecting the quarter. In Q4, same-store sales showed slight improvement, with GPV per location down 1%, which drove the quarter's performance. Heading into Q1, factors like fires, storms, and the absence of a leap year are expected to result in a larger decline compared to Q4. Overall, GPV per location stays in a narrow band, and they expect no significant changes for 2025. -
Market Share Gains in Core U.S. Markets
Q: How are market share gains in core U.S. markets progressing?
A: In 2024, Toast added 28,000 net locations, a record for the company, with the bulk of growth from the core SMB business. Flywheel markets continue to perform better than the Toast average, with more markets entering flywheel status this year. This indicates strong health in the core SMB segment, contributing to their current 15% market share in U.S. restaurants. -
ARR Conversion Dynamics Affecting Comparisons
Q: How do ARR conversion dynamics affect growth comparisons?
A: The benefits from ARR conversion in the second half of 2024, including one-time benefits, will not recur in 2025, creating tougher year-over-year comparisons in the back half of the year. While Toast hasn't quantified the exact impact, they acknowledge that current visibility reflects these factors and aim to outperform as they gain more visibility throughout the year. -
Retail Segment's Financial Impact
Q: How does the retail segment impact the financial model?
A: Although it's early, the retail segment shows overall healthy economics, with customer averages higher than restaurant averages. This suggests potential to drive greater ARPU and GPV per location over time. Given the various subsegments within retail, it's too soon to predict the final impact, but it's viewed as a significant opportunity to drive ARR in the long term. -
AI Investments and Product Development
Q: What progress is being made with AI initiatives?
A: Toast is leveraging its extensive data set for AI investments. They've introduced benchmarking tools aiding menu recommendations, pricing, and fraud detection. Early adoption of Sous Chef helps GMs make data-driven decisions on sales, staffing, and food costs. In generative AI, they're enhancing marketing tools to help restaurateurs create compelling email and text campaigns, making these products more valuable. Medium-term focus is on improving service through data-driven upsells and personalized experiences at the point of sale. Long-term, they're exploring voice AI and video to streamline manual workflows.