Toast, Inc. Class A

Good afternoon. My name is Cole, and I'll be the conference operator today. At this time, I would like to welcome everyone to the Toast Earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star 1 on your telephone keypad. If you'd like to withdraw your question, press the pound key. I'll now turn the call over to Michael Sino, Senior Vice President of Finance and Strategy, Treasury and Investor Relations. You may begin your conference.

Thank you, Cole. Welcome to Toast's earnings conference call for the second quarter and the June 30th, 2023. On today's call, our CEO, Chris Camperotto, COO, Aman Narang, and CFO, Elena Gomez, We'll open with prepared remarks, which will be followed by our Q&A session. Before we start, I'd like to draw your attention to the Safe Harbor Statement included in today's press release. During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of the Securities and the Exchange Act. All statements other than statements of historical facts are forward-looking statements including those regarding management's expectations of future financial and operational performance and operational expenditures, location growth, future profit and margin outlook, expected growth and business outlook, including our financial guidance for the third quarter and full year 2023. Forward-looking statements reflect our views only as of today, and except as required by law, we undertake no obligation to update or revise these forward-looking statements. Please refer to the cautionary language in today's press release and our SEC filings for a discussion of the risks and uncertainty that could cause actual results to differ materially from our expectations. During this call, we will discuss certain non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. Please refer to our earnings release and SEC filings for detailed reconciliations of these non-GAAP measures the most comparable GAAP measures. Unless otherwise stated, all references on this call to cost of revenue, gross profit and gross margin, sales and marketing expense, research and development expense, and general and administrative expense are on a non-GAAP basis. Finally, both the press release and replay of this call, including the accompanying investor presentation, will be available on our investor relations website at investors.toasttab.com. With that, let me turn the call over to Chris.

Thank you, Michael, and thank you, everyone, for joining us this afternoon. We sustained our operating momentum in Q2, posting strong results across the board, further evidence of Toast's unique positioning to help lead the digital transformation of the restaurant industry and empower the restaurant community to do what they love and thrive. We achieved notable milestones this quarter, surpassing $1 billion in ARR and posting positive adjusted EBITDA and free cash flow for the first time as a public company, which speaks to the consistent execution of our strategy. First, we're focused on driving location growth. And in Q2, we set a record for quarterly net new location additions with over 7,500 and ended the quarter with approximately 93,000 locations. Second, we're working to serve all segments of the restaurant industry. In June, we announced a deal naming Toast as an approved vendor for Marriott's Select Service Hotels, a clear proof point that we can push deeper into the restaurant TAM and unlock the restaurant space or the enterprise space. And lastly, we are focused on continued product innovation to open up more segments of the TAM and better serve our customers. The Toast for Hotel Restaurants offering and newer offerings like Toast Tables and the recently announced Catering at Events product are all examples of the product advancements we're making. These efforts are translating into strong results. In the second quarter, On a year-over-year basis, total revenue increased 45% to $978 million, and GPV was up 38% to $32.1 billion. ARR finished up $1.1 billion, up 45% from last year and more than double from two years ago, evidence of our ability to scale the business through both increased penetration across the TAM and healthy ARPU growth. Coupled with our strong top line and operational performance, we delivered adjusted EBITDA of positive $15 million in Q2 compared to a $33 million loss in the prior year, reflecting an over 600 basis point improvement in adjusted EBITDA margins. The combination of durable top-line growth and consistent margin improvement is the result of our dedication to balancing investments in key growth areas with efficiency and cost discipline as we scale the business. On the back of our healthy first half results and operating momentum, we raised full-year revenue guidance to 41% year-over-year growth at the midpoint and increased our adjusted EBITDA guide to a range of $15 million to $35 million. We remain focused on driving efficient, durable growth and expect continued margin expansion as we march towards the long-term target margins that we previously shared with you. A core tenet of our product strategy is to position our platform to expand deeper into the TAM. Toast for hotel restaurants and our expanding enterprise capabilities were key in unlocking the Marriott opportunity. The deal we announced enables our team to sell the Toast platform to Marriott Select Service hotels in the US and Canada. There's a range of food and beverage service models across Marriott Select Service properties, from full-service dining to quick service to poolside ordering. The flexibility of our platform to meet the unique needs of different restaurant sizes and formats in the select service level was another important differentiator for Marriott. While it's still early, we've taken a small number of Marriott locations live already, and we look forward to bringing the power of our platform to more Marriott properties moving forward and continuing to go deeper in the enterprise segment. Another way our product is unlocking the ability to go deeper into the TAM and better serve all restaurant stakeholders is by expanding support to the numerous restaurant service models. In our last Voice of the Restaurant Industry survey, restaurants reported they are managing seven service models on average, including catering. And last week, we announced the launch of Toast Catering and Events, a new product fully integrated with the Toast point of sale, to help restaurants seamlessly manage large catering orders and event planning. It incorporates order tracking, initial quotes, and helps with contracts. And once booked, events get integrated to calendars and orders are fed directly to the kitchen at the right time. The product also creates invoices and allows for direct digital payment through Toast. This builds on the invoicing product that we announced last October and bolsters our ability to more deeply serve parts of the TAM as we estimate over 60% of SMB restaurants offer catering in addition to their on-premise business. Other product enhancements we've recently made include the launch of our next generation digital ordering suite. Since we first introduced online ordering in 2014, we've facilitated more than 250 million commission-free orders for our customers. Based on customer input, our enhanced digital ordering suite offers a mobile optimized design, search engine optimized menus, and website customization capabilities. In addition, we've updated the checkout experience to improve conversion. These efforts are targeted to help customers increase sales and build and maintain direct relationships with their guests. However, we made a mistake in how we approach monetizing the value of this suite. Listening to our customers is a core ethos for how we operate, and our day-to-day efforts are guided by a relentless focus on being the restaurant community's trusted partner. It was on this basis, and after extensive constructive discussions with our customers, that we decided to remove the 99-cent consumer-facing fee from Toast's digital ordering channels. As we continue to innovate with new products and further strengthen the value we provide customers, we are well-positioned to monetize our offering commensurate with that value. We will be more thoughtful on how we adjust pricing going forward and we recognize the importance of considering the impact to all stakeholders as we do that. We remain committed to the same high level of transparency and partnership with customers that we've always delivered. To wrap up, I want to thank our customers and employees. Our mission to empower the restaurant community to delight their guests, do what they love, and thrive guides our efforts and underpins our strategy. We raised the bar in the first half of the year, driving record location additions, launching new products and service models to move deeper into all aspects of the TAM, and delivering on our goal of adjusted EBITDA profitability. In short, the Toast platform is resonating with customers, we have momentum across all segments, and we're still in the early stages of tapping the massive opportunity to be the restaurant industry's trusted technology partner. We're confident that continuing to execute on our strategy and mission will generate significant long-term value for our customers, our community, and our shareholders. Now I'll turn the call over to Aman to discuss our go-to-market performance.