Toast, Inc. Class A

Good afternoon. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to the Toast first quarter 2025 earnings conference call. Today's call will be 45 minutes. I will now turn the call over to Michael Ceno, Senior Vice President of Finance. You may begin your conference.

Thank you, Tamika, and welcome everybody to Toast earnings conference call for the first quarter ended March 31st, 2025. On today's call, our CEO and co-founder, Aman Narain, 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 or 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, business and investment strategy, expected growth and business outlook, including our financial guidance for the second quarter and full year 2025. 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 or 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 current 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.serstab.com. After the call, a replay will also be available on our website. And with that, let me turn the call over to Aman.

Thank you, Michael. And thank you everybody for joining us this afternoon. We've had a great start to the year with results ahead of expectations. In Q1, we added over 6,000 locations. Our recurring growth profit streams grew 37% year over year. Adjusted EBITDA grew to $133 million, and our gap operating income was $43 million. Our mission at Toast is to help restaurants delight their guests, do what they love, and thrive. We power approximately 140,000 customers' locations globally, and we continue to believe we have a much larger opportunity to serve many multiples of that number over the next decade, both by growing share in our core U.S. S&B markets as well as accelerating growth in our new geographies, new verticals, and in enterprise. In Q1, we saw strong momentum in our bookings across all of our market segments, including marquee wins in Applebee's and Topgolf that speak to our ability to serve large complex operations at scale. While we're paying close attention to what's going on in the macro environment around us, we remain confident in our ability to execute. The momentum we've seen to start this year gives us confidence we should see record net ads in Q2. And as such, we have raised the 2025 full outlook based on our performance. Let me share a brief update on the four priorities I laid out for the business to start the year. The first, scaling locations and market share in our core US restaurant business. Second, demonstrating that our new markets can be material drivers of growth. Third, increasing customer adoption of our broad platform and driving differentiation through data and AI And lastly, continuing to hold a high bar and investing against our most important priorities while gradually expanding margins. The first, scaling locations and market share in our core U.S. restaurant business. We continue to see strong momentum at scale within our core U.S. S&B segment, which is driving the majority of our growth. Our recipe continues to be at the intersection of a vertical platform approach combined with a differentiated in-market go-to-market team. This drives strong win rates, where we win a majority of the time across all of our key competitors. We grew locations in essentially all of our markets across our SMB 10 versus last year, and our flywheel markets continue to see above average rep productivity. Sales AE productivity across new bookings was up in Q1 year over year, which is what is giving us confidence into Q2 in the balance of the year. The product and engineering teams continue to leverage both customer and sales feedback to prioritize the roadmap needed to support durable location growth in our core segment over the long term. This includes investments in the thousand little things that differentiates our platform for restaurants, including things like language support for non-native English speakers, memberships for businesses like wineries and clubs, as well as more complex entertainment concepts, including one of our newest customers, Topgolf. If you have been to a Topgolf location, you'll know that Topgolf pairs its leading modern golf entertainment experience with a full-serve restaurant and bar. They wanted a POS partner that could deliver seamless hospitality to guests across their entire operation. at scale. Guests want to be able to order and add to their check quickly without disrupting their golf game. And our handhelds help them take orders and payments of the golf bag, Arcadia streamlines kitchen operations, and our bus store multi-location management tools help them track and manage all aspects of their operation centrally. We're really excited to partner with an industry-leading concept like Topgolf, a customer that really speaks to the versatility of the Toast platform. Next, moving on, our second priority is demonstrating that our new markets can be material drivers of growth. As I had mentioned to start the year, we expect to cross 10,000 locations across international, food and beverage retail, and enterprise in 2025. And we remain on track to do that. We continue to build out the platform to support the broader TAM across these exciting new segments and have key proof points that speak to our progress. In enterprise, we recently announced Applebee's, part of Dine Brands, which is our largest win in terms of committed locations. Applebee's wanted a platform that was both easy to use and easy to deploy across their operation. They're leveraging our handhelds to improve guest experience, kitchen display screens to drive kitchen efficiency, as well as our above-store enterprise management suite. In food and beverage retail, we're taking the same vertical approach that works so well in restaurants to build out the retail platform, including recently added inventory linking to support more advanced customers. One of those retailers is Beer on the Wall, This is a three-location bottle shop and beer cafe in Illinois. They've got a full retail operation and manage nearly 10,000 SKUs with Toast Retail, but that's complemented by a cozy bar that's almost like a coffee shop. Managing inventory at Beer on the Wall used to take over 60 hours a week and required someone to add and manage items separately across the three locations. And since switching to Toast, they've been able to eliminate nearly 40 hours of work weekly since one person can manage it across their entire business by leveraging our advanced inventory capabilities. The staff loves how efficient, easy-to-use Toast is across both front-of-house and back-of-house tasks. And lastly, in international, we continue to see great momentum as well. We've expanded our offering to include loyalty, email marketing, and guestbook. Our expanded guest products are resonating with international customers, with guests attached doubling over the past year for our most recent locations that went live. We're confident that ARPU will continue to scale internationally as we launch more of the platform and grow adoption. Still early days, and we have a long runway ahead of us, but I'm excited about the progress we've made this quarter across these new segments. Each of them represents a significant growth opportunity for us, and we will continue to invest in our product and our go-to-market capacity to accelerate growth. I'm more bullish than I've ever been that these new market segments will represent a material part of our location growth over the long term. Next, our third priority is to increase customer adoption of our broad platform and drive differentiation through data and AI. From day one, our vertical focus on restaurants has helped us build a differentiated platform that not only serves this broad market from small coffee shops to Michelin-rated restaurants, but also allows us to build an all-in-one platform that works better together. We continue to see increasing attach rates across many of our products and see AI as a unique opportunity to accelerate this growth. Last spring at our investor day, we announced Sous Chefs, our AI agent and assistant that supports restaurant operators. It's currently being piloted with customers with promising early results, and we're continuing to improve it based on customer feedback. We expect Sous Chef will be an operator's companion, driving business insights across the data, troubleshooting common issues, and executing actions to help manage all aspects of the business from menus and ordering to employee management and scheduling to managing their digital presence and marketing. We're also building on Sous Chef with a broader AI-powered intelligence engine we're calling Toast IQ with features that combine our restaurant expertise data, and AI to make our products even more powerful for our customers. To bring this to life with an example, one of our early customers, Mission Boathouse in Beverly, Massachusetts, saw approximately 6% higher average order volume in the first weekend after adding our new menu upsell tool powered by ToastIQ, a boost that's having a real impact with server tips as well. And our digital tip tool, which pulls key guest data directly into the POS and handhelds, is an important step towards creating highly personalized in-store experiences for guests. Our second example is Felipe's Taqueria, who's using our AI-powered advertising tool to run Google ad campaigns for six of their restaurant locations and are seeing over a 10x return on ad spend. As you know, restaurant operators are strapped for time, and AI presents a unique opportunity to make our platform both easier to use and more powerful across a range of use cases. We're really early in this journey, and we'll continue to invest here to both differentiate our platform and bring increasing value to our customers. Shifting gears, our fourth priority here, lastly, is to continue to hold a high bar and invest against what's most important while gradually expanding margins. In Q1, we achieved our medium-term margin goals we laid out at investor day ahead of our target, and our updated full-year guidance now firmly reflects that. It's been a great start to the year. I'm so proud of the team's ability to drive both strong growth and healthy margin expansion. As I said at the start, I'm confident in our and our customers' ability to navigate a dynamic macro environment. We believe we're well positioned to have a strong year while continuing to invest against what's most important. To wrap up, I want to thank the Toast team for another great quarter. We wouldn't be here without you and your dedication and your passion. It goes without saying. Thank you as well to our customers and our investors for continuing to believe in us and our potential. We've got a great opportunity ahead of us, a strong place, and most importantly, the right team to get us there. Now I'll turn the call over to Elena to share more details about the quarter.