Toast, Inc. Class A

Good afternoon. My name is Breaker and I will be your conference operator today. At this time, I would like to welcome everyone to TOS second quarter, 2024 earnings conference call. Today's call will be 45 minutes. I'll now turn the call over to Michael Seno, senior vice president of finance. You may begin your conference.

Thank you, operator. Welcome to TOS earnings conference call for the second quarter and the June 30th, 2024. On today's call, our CEO and co-founder, Amman 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 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, 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 reconciliation 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 .toasttab.com after the call or replay will be available on our website. And with that, let me turn the call over to Amam.

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 -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 TEM 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 TEM 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 -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-flywheel 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 in their businesses. I'll spotlight one recent example that speaks to the value we bring. Visoria, a growing fast casual concept in Greater 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, Visoria 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 ecosystem 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 food. 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 a Potel 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 dressable market into new adjacencies, including enterprise and food and beverage retail. We recently expanded our partnership with Metzels Pretzels by signing an extension for another 100 stores in addition to the 300 locations already on our platform. We continue to roll out toast across a number of marquee brands, including Metzels 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 US. And so far, we've booked a thousand 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 the 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 nation 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 enable this great ecosystem, and of course our investors for believing in us and the potential in this business. Now it's time to call over to Lena to share more about this quarter's results.

Thank you, Eman and to everyone for joining. I also want to thank our employees. Your continued focus on execution delivered another strong quarter with top and bottom line results above expectations. In the second quarter, ARR grew 29% driven by strong location growth and continued ARPU expansion. Total FinTech and subscription gross profit, our recurring gross profit stream, also increased 29% year over year and totaled 344 million. Adjusted EBITDA was 92 million, representing a 27% margin on our recurring gross profit streams. We reached gap profitability earlier than expected, an important milestone we have been working towards, and further evidence of our ability to drive durable, efficient growth. In Q2, we added approximately 8,000 net locations, a new quarterly record, increasing our total locations to about 120,000, up 29% year over year. Location growth was primarily driven by continued share gains in our core US SMB and mid-market customer segment, complemented by the contributions across international, enterprise, and food and beverage retail. As a reminder, Q2 is our seasonally strongest quarter of the year, as restaurants prepare for peak season and we typically see lower quarterly net adds in the second half. SAS ARR grew 35% year over year, driven by strong location growth and a -single-digit increase in SAS ARR on an ARR basis. Payments ARR grew 24% and FinTech gross profit increased 23% in Q2. GPV was $40.5 billion, up 26% year over year, with GPV per location down about 3% versus prior year, consistent with recent quarterly trends. Net take rate was 54 basis points, with core net take rate flat year over year at 45 basis points. Our non-payments FinTech solutions, led by Toast Capital, contributed $34 million in gross profit and eight basis points to the net take rate. The net take rate contribution is slightly lower than prior periods due to the introduction of forward flow, which comes with a lower take rate per dollar of origination, but carries no credit risk. The expanding capacity with diverse funding sources enables us to prudently grow the program and optimize across models to maximize risk-adjusted returns. We are on track for the targeted payments pricing increase we've discussed and expect it to have a small impact on core net take rate in the second half of the year. Over time, ongoing price adjustments will be one of the several drivers of our long-term growth algorithm. Total operating expenses were up 2% year over year in the quarter, reflecting a full quarter of savings from restructuring actions taken earlier in the year. We anticipate operating expense growth will increase in the second half as we reinvest savings into our highest priority areas across -to-market, product, TAM expansion to drive sustained long-term growth. We'll maintain the same disciplined investment approach we've employed and remain focused on driving efficiencies across the business to fund investments and drive margin expansion. Sales and marketing expenses increased 16% year over year in Q2 as we continue to grow our upsell and international sales teams and make targeted investments in our US -to-market motion to drive deeper penetration. R&D expenses declined 4% year over year in Q2. We expect to see the impact of reinvestment starting in Q3. We're making targeted investments aligned with our product strategy to provide a differentiated platform for our core SMB and mid-market customers, innovate new products that create value for our customers, and expand into new TAMs. Excluding $15 million of bad debt and credit-related expenses, G&A was down 12% year over year. We will continue to drive efficiency within G&A, including through automation and global diversification of our workforce, and expect ongoing operating leverage. Bad debt associated with toast capital was lower relative to prior periods, benefiting from the addition of forward flow and the continued optimization of the program. Our progress in growing adjusted EBITDA combined with containing stock-based compensation expenses resulted in our first quarter of GAAP operating income profit reaching $5 million in the quarter. Free cash flow totaled $108 million in the second quarter, driven by strong adjusted EBITDA and a benefit from working capital due to the seasonality of our payments business. Moving to capital allocation. Year to date, we have repurchased $49 million in shares. At the start of Q3, we also opportunistically repurchased a warrant for $5.2 million shares expiring in 2027 for $60 million. The warrant repurchase aligns with our broader capital allocation strategy to maximize shareholder value, in part by reducing dilution. We view it as an accelerated, efficient share repurchase and use of cash we would have otherwise allocated for opportunistic stock repurchases. As a result, we anticipate a slower pace of buyback through the balance of the year, although we will remain opportunistic based on market conditions. Now turning to guidance. For the third quarter, we expect total subscription and fintech gross profit to increase in the 23% to 27% range -on-year and adjusted EBITDA to be $70 million to $80 million. Following our strong first half performance, we are increasing our full year outlook. We now expect 27% to 29% growth in fintech and subscription gross profit and $285 to $305 million in adjusted EBITDA. At the midpoints, it represents a 22% margin, a 16% improvement versus 2023. We expect to be around breaking even on a gap basis for the remainder of the year. After benefiting from the restructuring savings in the first half of the year, our guidance includes investment in key areas of the business, which are concentrated in the back half of the year. This is also driving the quarterly fluctuations in adjusted EBITDA margins. Our expectations for the full year margins are representative of how we are managing the business and capture our growth investments and efficiency gains. We plan to build off of our full year 2024 margin and steadily progress towards our medium and long-term targets. To wrap up, we are extremely proud of our execution and momentum through the first half of 2024. We are on track for a strong second half of the year and well positioned to sustain high growth and margin expansion over the long term. Now I will turn the call back over to the operator to begin Q&A.

Thank you. We will begin the question and answer session. At this time, I would like to remind everyone in order to ask a question to please press star and the number one on your telephone keypad. Your first question comes from Tian Cisen Hai with JP Morgan. You may proceed.

Good afternoon. Good results here. I just want to ask on the second half, if there has been any change in restaurant health in the last couple of months since we last got together, I understand the location addition seasonality comment, but any other observations on the macro side? Thank you.

Thanks for the question. In Q2, our GPV per location was down 3% and as we head into Q3, it is in that same range. It has been relatively consistent. Our guidance reflects that as I laid out on the call. That said, the macro dynamic and we also know a couple of other data points about our restaurants have proven to be resilient through various economic cycles. But of course, we're going to continue to monitor it and just zooming out as we think about GPV growing 26% at 40 billion this quarter. We have a lot of confidence in our ability to manage the business through to various economic cycles.

Thank you. The next question comes from Dan Dulev with Mizzouho.

Hey guys. Thanks for taking my question. I want to ask about subscription ARRs. I think it looks pretty strong and the annual number looks actually really good. I want to know what kind of product they're donating to your customers today. Because the upsell performance, at least from what we're seeing here, looks pretty good in the context of the thing, so-so per location. Thanks for

your question, Dan. There's a broad range of capabilities we shared across our platform at Analyst Day. And this is everything from things like data and AI. We shared our benchmarking tool and the feedback from our customers has been positive. Generative AI and leveraging that in our CRM tool. Sous chef is another area we're excited about to help be an umbrella for all of our AI innovation. So that's one area that the team's excited about. And then across our platform, we've talked about how the platform has commerce, guest, employee cloud, and SNA and fintech. And across all of those areas, there's work the team is putting in to help continue to refine and iterate on the product. So on guest, for example, our toast tables product, catering, online ordering, CRM, our new website product has been good feedback on. On the employee cloud side, there's a lot of focus on our payroll product working in conjunction with our scheduling and our tips product. We'll continue to work on the product market fit in our supplier and accounting product. And I'll just wrap by saying a lot of the focus we have as a team, all the work we're doing in suites is really to make sure that we're driving strong our food growth in the medium and long term. You know, we recognize this is an important growth driver for the business.

Got it. Great quarter and great momentum.

Thank you, Dan. Thanks,

Tom.

Your next question comes from William Nance with Goldman Sachs. Your line is open.

Hey, guys. I appreciate taking the question. Nice to see another strong quarter. I wanted to ask, maybe sticking with the macro thing from St. James question a second ago, just on decision to make some of the incremental investments. You know, I think there's been a lot of focus on the macro recently. And I guess when you think about adding additional headcount to go to market functions, you know, like, how do you think about sort of the mix of net ads and, you know, those that are coming from sort of new restaurant openings versus competitive takeaways? And, you know, I guess the genesis of the question is, you know, have you seen any impact on just sort of the opportunity out there as sort of new restaurant location formation sort of slows? Are you actually seeing that in the numbers? And how do you kind of how do you kind of marry that with the decision to accelerate the investments in the back half? Thanks.

Yeah, great question. Well, thanks. Thanks for asking. In terms of like the mix of NROs and existing, we've continued to see not a fundamentally different pattern. And in our team is has the ability to sign and convert both existing restaurants and NROs. If I just zoom out, you think about like the progress we've made. One thing I want to start by saying is I'm really proud of the team's performance. We had a record 8,000 net ads in Q2. And I was reflecting on how 8K is an important milestone for us. You know, you look at our ARPU at 12K plus and we're approaching 100 million in ARR that we added in a quarter. And you just think about sustaining this level of growth quarter after quarter for the next decade. I think it's a great outcome. In Q2 specifically, a lot of the net ads came from our core US SMB and mid-market business. As you can imagine, it's taken us a decade to build our SMB business. And as I mentioned on the call, one of the things I'm really proud of is our top 10 flyable markets continue to be really productive. In fact, they had 50% more wins versus not the flyable markets. And flyable markets have expanded 5X in the last three years. So while we're excited about adding capacity, sales capacity in international retail, and we will look to do that in the second half, I'm really proud of the progress we've made in our core SMB business. And to your question about investing, I think it's a fair question. Ultimately, we see really healthy payback periods in the economics in our core business. And we see nice growth drivers in some of these new segments that we're getting into. And so as long as we continue to see our economics be healthy, we're going to look to continue to invest.

Thanks, TotalSense. Appreciate you taking the question.

Thanks, Will. Your next question comes from Stephen Shelton with William Blair. You're not anything.

Hey, thanks, and nice work in the quarter. You know, if you kind of expanded some of these adjacent markets, like grocery convenience stores, etc., I think Amani talked about the big opportunities to replace legacy on-prem solutions. So just wanted to broaden that and ask if there, as you look at the end markets Tosas is pursuing, are there specific portions where there's bigger legacy replacement opportunities than others? Do you think about SMB restaurants, enterprise restaurants, international, and again, those adjacent markets, which you hit on in your prepared comments?

Yeah, thanks for the question, Stephen. I think we've mentioned in the calls in the past that the enterprise segment, the conversion cycles are slower. So there is more legacy off-market. We also see that within retail that there are some very specific needs and there isn't a great cloud provider that has taken over the space. In fact, it reminds me a little bit of what the restaurant business was like 10 years ago. And so those are the two segments that I see a lot of opportunity in. But even if you look at the international markets, for larger restaurants with higher GPV, the trend and pattern we see is a lot of legacy still out there. And so one of the big challenges for us is to really think about asset allocation across all of these growth vectors. And the thing that we're focused on is what is the customer feedback we're getting? What are our payback periods? What are your economics? What is our NTS? And those are some of the drivers that help us determine how we allocate capital across these different growth vectors and where we see ultimately long term the biggest growth potential across these market segments.

Got it. Very helpful. Thank you. Thanks, Stephen.

Your next question comes from Ken Chiodo with UBS. Your line is open.

Great. Thank you for taking the question. I have an upfront question around the upsell teams and Land and Expand, but if you don't mind, I was hoping to also clarify something for the second half guidance. For the upsell teams in the Land and Expand, those are two things that you focused on last year, hiring more of the upsell folks in the fourth quarter, I believe. And maybe you could just talk a little bit about the progress that you're seeing with those teams as those additional heads that might have been brought on later last year, probably becoming more productive. And I think that's a good point, Stephen, as we think about them contributing to SAS ARR per location in the back half of the year and beyond. And then actually, I'll just throw in the guidance clarifier, if you don't mind. If I'm not mistaken, the prior guidance would have implied GPB per location being a little bit better in the second half. And now it's slightly maybe a down tick there. So is it fair to say that the guidance is actually absorbing a little bit more macro pressure and you were still able to raise the guide despite that incremental macro pressure?

Yeah, I mean, that's a fair. Let me think about I'm trying to think about Q1, but that's a fair assessment, Tim. Our guidance does reflect our latest thinking. And what we've seen is it's been relatively consistent in terms of same-source sales. It's been in this narrow band, GPB per location. So that's how we think about it. And we anticipate it to be in a narrow band for the back half of the year. But that's factored into our guidance on a -over-year basis.

Thank you. And on Upsell, Tim, on your question on Upsell, two years in, I'll start by saying we're learning a lot. We'll continue to optimize this in conjunction with our new business team. And this team is a critical component of driving the drive ARPU growth because the new business team, first and foremost, is focused on growing locations. And as our platform continues to improve, I talked about the question earlier about how do we think about the product portfolio and what customers are looking for. As we continue to mature our platform and as we continue to invest in these suites to make our products easier to buy and sell, this Upsell team is critical to making sure that we continue to drive ARPU growth to complement the great location growth that we're seeing. And the last thing is we've talked in the past about Toast Shop and product growth. That's another thing the R&D team is very focused on, especially for products where the ability to adopt and activate is easier. So I think two years in, we're pleased with the progress the Upsell team has made. There's still work to do. And we're committed to making sure that we continue to refine our land and expand motion across our new business team and our Upsell team.

Great. Thank you on both of those.

Next

up. Thank you, Tim. The next question comes from Hashita Rollett with Bernstein. Good afternoon.

Very strong location ads. Can you maybe expand upon the contributions also from new areas like food and beverage retail and international? And then Elena, Hashim, I have to think about location ads and treaty. I know you've mentioned seasonality, kind of driven headwind. Thank you. Sure.

Thanks. Thanks, Hashita. International retail are growing nicely as we said, shared analyst day, international, the 2000 locations live. Started to see the investments we're making to expand the platform that's resonating really well with our customers. And our team has got more to sell in their bag, which has been great. And we're going to continue to invest to bring more of our platform as it's shared in the past internationally before we really put the pedal down in some of these markets on go to market capacity. And on retail, you know, again, really proud of the progress teams made. This is, you know, a Star Wars project that's gotten to 1000 locations booked relatively quickly. But if you remember that if you zoom out and think about this, you know, our core business in the U.S., we've been at it for 11 years now relative to these markets, these new businesses that are still early, doesn't have the same level of sales capacity, the same maturity in the product. And so the bulk of the ads are coming from our core business. And, you know, the thing we talked about, the five-wheel effect is still the primary driver of our growth. And as you think about the next few years, you think about especially by the next decade, of course, our aspirations are to continue to expand not just in our core business, but also make these new areas more significant contributors. And we're working on that.

Yeah. And, Hersheita, on your question on the second half, you know, first of all, I just echo Amman's comments. We had a strong first half of the year on net location ads, the demand and funnel remain strong, and we're still on track to add more net locations in 24 than we did in 23. And that's off a bigger base. I'll just reiterate what I said in the script, which is Q2 quarterly net ads tend to be obviously higher than the rest of the year, given seasonality. So just think about that as you plan your models for the second half. But confident that the team is executing well. Thank

you.

We now have Josh Bear with Morgan Stanley. Your line is open.

Great. Thank you for the question. So I was hoping you could unpack GPV per location just a bit more. Any impact from changing mix on that metric? And then I was hoping you could dig into the trends you're seeing just across seated diner, a number of ticket items and check sizes.

Thanks. Yeah, I'm happy to unpack that. So just to put it in context, you know, Q2 was down 3% August year to date, you know, in the same zone, as I mentioned. And most of that, the primary driver of that is same-source sales declining year over year. So that's the primary driver. There's a small portion related to mix, but it's mostly really same-source sales declining. And that trend has been relatively consistent. And in terms of, you know, the different pockets of our segments, we haven't seen, you know, a notable pattern that's different across our segments.

And just to add to that, in terms of check size or order size, there hasn't been any fundamental change. And I think if you look at these changes, these are very gradual and in a narrow band. And I think, as Laina mentioned, have been a pattern that we've seen over the past year.

Excellent.

Thanks. Your next question comes from Matt Coat with Autonomous.

Hey, guys. Thanks for taking the question here. I wanted to dig in a little bit more on the investments needed in food and beverage retail and international. At the Investor Day, you talked about how you've already made a lot of investments to kind of get to product parity there and build out the platforms and all the modules that you need. But it sounds like there's still a good amount of investment that needs to be done. So I was hoping you could touch on that and maybe use like a baseball analogy, right? Like, what ending are we in in terms of building out the platform for those two new verticals right now?

Yeah, I think it's a fair question, Matt. I'm not going to use a baseball analogy, but I'll say that our core business in the US, you know, we're in year 12 or 11 and we're in year two and year one for these other businesses to give you some context. But look, I'll start by saying, like, you know, I think the customer reception has been amazing. It's been really positive. This victory hospitality story that I shared on the call, we see a lot of these stories across our customer base. And I think one of the big drivers is that there's a lot of legacy solutions and the ability to move it to this all in one approach in the cloud. It really resonates with our customers in the space in terms of the features. And I think one of the ones we shared at Analyst Day that continues to resonate a lot is the ability to manage inventory on the floor. We continue to hear feedback, but that's a feature and a capability. And I think there's some capabilities around that that adds a lot of efficiency for staff. On e-commerce also, because you think of these retailers offering e-commerce capabilities, important. And so having that built into the back end and integrated is really valuable. And then, Matt, your question on Roadmap, you know, there's work to do. If you think of the tour in 20,000 locations we laid out, you know, there's work to do on the fuel integrations. That's an area we're working on. We're working on the payment side, supporting SNAP and EBT. There's some work in grocery around deli scale management. But we also get a lot on the platform. When you think about a platform, we get a lot across things like payroll and payments and scheduling that's built in that that can really be reused. And so we see this as a great opportunity where the return investment, our ability to build in the segment is really, really high. And then international, I think it's not the same lift. I know I talked about a lot of products, but it's not nearly the same lift to be able to bring these products to market internationally. But as you can imagine, we've taken a decade to build this platform in the U.S. and to support internationalization, it's a gradual process that the team is working on.

Yeah, the only thing I would build upon what you said, Amon, is, you know, as I mentioned at Analyst Day, we take a very we take capital allocation, obviously, as a strategy and some guiding principles. And as we think about these emerging businesses, we have a very thoughtful, gated way that we approach investing. And so we wait to see signal before we incrementally invest. So that that's just a discipline we have. And you'll continue to see that as we grow these businesses.

Really helpful. Thanks, guys. Thanks, Matt.

Thank you, Mark. And your next question comes from David Hines with Kenneco OJNT. The line is open.

Hey, thanks for taking the question, guys. Excellent results. Amon, I'd love to get an update from you on what you're hearing from customers with respect to interest and your opportunity with AI, you know, whether that's Sous Chef or some of the other initiatives you have underway. And I guess how you think these could contribute to the financial model over time?

Yeah, thanks for the question, DJ. Look, I think it's still early. I think the world of AI, you know, one of the things that the team is really focused on is how do we leverage AI to create value for our customers? That's a mantra that we've been reinforcing over and over with our with our team and just really make sure that the work we're doing is landing with customers. And one great example of this is, you know, the work we did in our in our guest marketing tools. So you think of restaurateurs, they're not marketers. And so the ability to have generative AI create great campaigns for them when they're on their floor and have that drive demand for them. And this is all the text and the ability to actually send out these campaigns is a great example of leveraging AI, generative AI to actually create value and create help create demand for restaurants. And we've seen examples already, certainly where it's actually having a big impact on the activation and adoption of the product. Another example on the data side is benchmarking. So as you can imagine, we've got one hundred and twenty thousand plus restaurants on the platform. And so we've got this amazing data set that we can leverage. And the team is thinking through what are all the ways in which we can add value. And one of them is just leveraging the data to help restaurants be smarter. You think of how restaurants think about simple things like what to put on menus or how to price menus, how to think about inflation. There's not a lot of data that's been there historically. And so the ability to actually log in the toast and say, tell me my zip code, what's going on, has been really, really well received. And with Susha specifically, the idea is it's an umbrella. Think of it like chat GPT is like an umbrella where you can get prompts, you can get recommendations, you can also over time, you can search to get get feedback in terms of how to run a better restaurant. And so there are many ideas the team is considering within that umbrella and benchmarking or some of the work we're doing with with serum or examples of that where this prompt can give you recommendations on how to leverage your data to be smarter or to to drive demand.

Yeah, it makes sense. We did the demo of the benchmarking product down in New York and it's pretty slick. So thanks for the call. All right. Thanks, Richard.

Thank you. We now have some on with Jeffrey.

Hi, good evening. Thanks for taking my question. So, Elena, I just I know I hear you on the back half guidance around that ads and the commentary. I just wanted to ask, are you changing any of your assumptions around what you're expecting for gross retention as you think about the back half on what the net ads ultimately look like? And I guess any observation on what you saw in the second quarter around turn or retention metrics inside of the install base?

Yeah, broadly speaking, now I think the team has been executing well, no material change in how we're thinking about business. And on turn, you know, we're slightly above the 10% range on an annualized basis, which is up slightly relative to a year ago, but very similar to where it's been the last few quarters. And it continues to be predominantly out of business turn. So the impact are are is low right on an AR basis. So we built that into it. The net ads that you see we pulled in our turn assumptions and no material change there.

Gotcha. And I apologize if I miss this, but do you guys still have the view that you'll add more net ads this year than last year? I think you'd previously said that, and I'm not sure if I heard that on this call or not.

Yeah, I answered that a few minutes ago. So, yes, you did hear that.

Okay, great. Thank you.

No problem.

Thanks, Matt.

We will now take our last question from the line of Andrew Bortch with Wells Fargo. Your line is open.

Hey, this is Conan on for Andrew. Thanks for taking the question. I wanted to focus a little bit on the macro again, just in the case that we see, you know, slower restaurants spend environment materialized throughout the back half. What are some of the offsets built into the business or levers you can pull from the cost side to manage impacts near term and what are you embedding into the guide?

Thanks. Yeah, no, thanks. Any question, Andrew or Conan for Andrew. Look, at the highest level, let me start by saying the value of the toast platform is durable during tough times, and we've proven that over cycles. But more importantly, we've proven that we're able to adapt the business quickly. So, you know, as we became more of a lean company earlier in the year, it just positions us to absorb changes in the macro and enables us to move faster if we need to. So if we needed to take action, we would. That said, right now what we're seeing is same for sales decline is really what's driving the GPV per location was down 3% in Q2. We're seeing that same zone as we start the quarter here and our guidance reflects that. We know the macro is dynamic, of course, and but we also know restaurants have proven to be resilient. So confident in the guide that we gave and we'll just continue to monitor.

Got it. Thank you.

Thank you. Thank you. I would like to hand it back to imagine team for some final remarks.

Thanks for the time, everyone.

This does complete today's call. Thank you all for joining. You may now disconnect your line and enjoy the rest of your day.