Toast, Inc. Class A

Good afternoon. My name is Prika, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's second quarter 2024 earnings conference call. Today's call will be 45 minutes. I'll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin your conference.

Thank you, operator. Welcome to Toast's earnings conference call for the second quarter and to June 30th, 2024. On today's call, our CEO and co-founder, Aman Narang, and CFO, Elena Gomez, will 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 Act 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 profitability and margin outlook, anticipated impact of our restructuring plan, Warrant Repurchase and Share Repurchase Program, Expected Growth and Business Outlook, including our financial guidance for the third quarter and full year 2024. 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 questionary language in today's press release and our SEC filings for a discussion of the risk, and uncertainty that could cause actual results to differ materially from our expectations. During this call, we will discuss certain non-GAAP financial measures, including but not limited to non-GAAP subscription services gross profit and non-GAAP financial technology solutions gross profit, which we refer to collectively as our recurring gross profit streams. These are the basis for our top line guidance. 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 to 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, the press release can be found on the investor relations website at investors.toasttab.com. After the call, a replay will be available on our website. And with that, let me call, turn the call over to Aman.

Thank you, Michael. And thank you everyone for joining us this afternoon. We had a strong second quarter. We added a record 8,000 net locations. Our current gross profit streams increased 29% year over year. Adjusted EBITDA came in at $92 million, and we've achieved GAAP income profitability ahead of expectations. I'm really proud of how the team performed, and we're well positioned to continue to scale and have a strong second half. Our mission at Toast is to help restaurants delight their guests, do what they love, and thrive. At our first Investor Day in May, we shared the opportunity, strategy, and drivers behind our momentum. At about 13% share in U.S. restaurants, we have an incredible opportunity out of us to scale and become the platform of choice serving this amazing industry. Our products and data assets combined with our local go-to-market engine and customer success teams uniquely position us to drive both location and our food expansion and sustain durable growth over the long term. In addition to scaling across U.S. SMB and mid-market restaurants, we're thoughtfully laying the foundation to expand our TAM across key international markets, enterprise restaurant chains, as well as food and beverage retail. The team has done a great job of identifying segments of the market where we have a right to win without distracting from our ability to scale in our core market segments. And these investments allow us to expand our TAM and support our ability to drive durable growth and shareholder returns. We've increased our outlook for the full year based on our performance in the first half, and we're all focused on the four strategic priorities we laid out earlier this year. One, scaling locations and market share in our core business. Two, expanding our offering for restaurants with products customers love. Three, expanding our addressable market into new adjacencies. And four, setting up the company to deliver ongoing operating leverage as we scale. So first, scaling restaurant locations and gaining share in our core business. Our record 8,000 net ads in the second quarter were driven by our purpose-built restaurant platform and our local go-to-market engine. As we gain momentum in local markets across the country, we continue to see a flywheel effect with higher rep productivity and faster market share gains. In fact, in our top 10 flywheel markets across the country, with the highest market share, we saw 50% more wins on average in Q2 versus non-fiable markets. This gives us confidence in our ability to continue to drive strong market share gains over time. And we're gaining share because restaurants see the impact we can have on their businesses. I'll spotlight one recent example that speaks to the value we bring. Bezoria, a growing fast casual concept in Great Atlanta, switched to toast from another cloud provider to help fuel their next stage of growth. By complementing our POS terminals with self-ordering kiosks for guests and kitchen display systems across their food and prep lines, they've reduced average order times by five minutes. And as a result, Bezoria estimates that they've increased revenue by 25% across their locations. Switching gears, our second priority is expanding our offering for restaurants with products and experiences customers love. Our platform and partner ecosystems serves all the restaurant stakeholders, operators, guests, employees, and suppliers, and creates value across many dimensions, including supporting new revenue streams, driving throughput, and simplifying operations. Last quarter, I talked about the launch of product suites across good, better, and best tiers to simplify how we sell and how our customers adopt our products. We're starting to see this have an impact. For example, since we launched our digital storefront suite in the spring, approximately 30% of book locations upgraded to our pro tier, which includes our new website product. And this website product works in concert with the rest of our digital suite to help restaurants build a great online presence. As we continue to mature our product suites, we're confident we will see similar trends across our platform, which will in turn help us drive Product Attach and ARR. Internationally, across the UK, Canada, and Ireland, Our team has been hard at work building out the platform to drive both differentiation and our proof. In the first half, we launched several products, including online ordering, mobile order and pay, gift cards, and kiosk. Attach rates are surpassing expectations. As an example, nearly half of international June bookings adopted Toast online ordering. Tahini's is a Canadian quick-serve restaurant that's already rolled out toast across 42 locations. but plans to double their location count next year. One of the highlights for Tahini's has been a 15% increase in check sizes on their kiosk versus ordering at a POS terminal. They credit this increase to our kiosk's ability to prompt for data-driven upsells via beautiful custom images of their dishes for items that go better together. And this growth in revenue has helped them invest more back into their business to support their ambitious growth goals. Our team has plans to roll out more products internationally this year, including guest marketing, restaurant retail, toast tables, as well as our Patel PMS integration. And with 2,000 live locations as of Q2, we are excited about our progress and continue to remain bullish on the long-term potential given how early we are in the international opportunity. Next, our third priority is expanding our addressable market into new adjacencies including enterprise and food and beverage retail. We recently expanded our partnership with Wetzel's Pretzels, assigning an extension for another 100 stores, in addition to the 300 locations already on our platform. We continue to roll our toast across a number of marquee brands, including Wetzel's and Barbecue Holdings, which are part of fast-growing MTY brands. And the improvements we have made to our platform, combined with our strong pipeline, gives us confidence in steadily increasing enterprise penetration over time. As I mentioned in our investor day in May, the work we've put in over the past decade building our platform has allowed us to enter new verticals, including grocery, convenience stores, and bottle shops. There are 220,000 locations and $660 billion in spend in these markets alone in the U.S. And so far, we've booked 1,000 new customers. We see a significant growth opportunity here, in part because so much of this market is still using legacy on-prem solutions and see the benefits of an integrated cloud platform. For example, Victory Hospitality Group in Portland, Maine, recently launched three markets on Toast in addition to their portfolio of award-winning restaurants that have been with us since 2016. Since adding Toast, their staff has been able to offer better service to their guests. by making back office tasks, including inventory management, much more streamlined. We see examples like this across many of our early retail customers and have confidence that we can drive significant growth in this segment. And finally, our fourth priority is to deliver operating leverage in our core business as we scale both to drive shareholder returns and have the capital available to invest into our nascent market segments. Our adjusted EBITDA was 92 million in the second quarter, a $77 million improvement from a year ago. I'm very proud of the team's ability to both drive strong growth and this level of margin expansion in a short period of time. And as we look to the second half of the year, we will invest more back into our business to support our growth plans while working towards our long-term margin goals. To wrap up, I'm confident in how we're executing. We're still in the early innings and are prepared to capitalize on the opportunity ahead. I want to thank every toaster for their continued dedication and passion for our mission, our customers for entrusting us to support them, our partners for helping us enable this great ecosystem, and of course our investors for believing in us and the potential in this business. Now I'll turn the call over to Lena to share more about this quarter's results.