Toast, Inc. Q4 FY2024 Earnings Call

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's Fourth Quarter and Full Year 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, Sarah. Welcome to Toast's earnings conference call for the fourth quarter and full year ended December 31, 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, business and investment strategy, expected growth, and business outlook, including our financial guidance for the first 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 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 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. With that, let me turn the call over to Aman.

Thank you, Michael, and thanks to everyone for being here this afternoon. 2024 was a remarkable year for Toast: we added a record 28,000 net locations, our recurring gross profit streams grew by 34% year-over-year, adjusted EBITDA increased to $373 million, and we achieved GAAP profitability for the first time in our history. I take pride in our team and am optimistic about our strong position going into 2025. Our mission at Toast is to help restaurants satisfy their guests, pursue their passions, and succeed. From the beginning, our vertical strategy has effectively focused on meeting the needs of restaurants better than anyone else globally. This focus has allowed us to increase our market share and establish a leading position in the SMB and mid-market restaurant sectors in the US. Recently, we have started to expand our reach into new customer segments, geographies, and verticals. In 2024, our enterprise team had a standout year with significant wins such as Potbelly, Perkins, and Hilton Hotels. We are experiencing solid growth in our initial international markets, and our food and beverage retail team showed in 2024 that investing more could help accelerate our growth in 2025. Over the next decade, we have the chance to serve many more than the 134,000 customer locations we currently have. We can grow our market share and increase our locations in the core US restaurant sector, while also expanding our total addressable market by developing our platform to support new areas and verticals among complex, higher GPV merchants where we have a competitive advantage. Now, let’s focus on increasing locations and market share in our core US restaurant business. Despite our impressive growth, we currently hold only a 15% market share in the US restaurant sector, leaving us with significant potential to grow. In 2024, we increased our market share and location count in all of our top 100 markets in the SMB segment. Our most penetrated markets continue to show robust growth, reinforcing our belief that our flywheel strategy is effective and that we can scale our market share in the future. In 2025, we intend to strategically enhance our sales and marketing investments in our core business, including brand initiatives to boost awareness and consideration. For instance, we recently launched our "It's the Little Things" campaign to emphasize the importance of small details in hospitality, which can elevate a guest experience from average to extraordinary. This campaign highlighted the extensive capabilities of our vertically integrated restaurant platform, explaining why over a third of all James Beard Award winners and more than half of Michelin-starred restaurants in the US rely on Toast. One of these Michelin-starred establishments is Reverie, a fine-dining restaurant in Washington, D.C., which has benefited significantly from Toast. Toast Payroll has reduced their payroll processing time from three hours to one hour, and because it is directly integrated into our system, it is also more accurate. They additionally utilize xtraCHEF to streamline inventory management and identify when they're overpaying for ingredients, such as when they decided to remove lobster from their menu after noticing price hikes. Without this real-time data, their menu costs could have exceeded budget. Next, we want to show that our new markets can be significant growth drivers. In 2024, we made substantial progress in enterprise, international, and retail, aiming to exceed 10,000 customer locations across these new segments later this year. We are investing in these areas because the feedback from customers has been strong, indicating potential for considerable location growth in the coming years. In 2025, we will enhance our R&D platform and go-to-market capacity to improve customer satisfaction, win rates, and market share in these emerging markets, setting us up for robust growth in 2026 and beyond. In our enterprise sector, I’m pleased to announce that Hilton Hotels & Resorts has chosen to partner with Toast as an approved POS provider for food and beverage. This builds on our expanding presence in hotels, including major brands like Marriott and Choice Hotels, as well as many independent operators attracted to the benefits of the Toast platform. Additionally, we've secured our largest full-service restaurant agreement with Ascent Brands, beginning with 500 Perkins and Huddle House locations. Ascent recognized their need for a modern cloud-based technology partner to enhance operational efficiency, ensure consistently great service, and support their ambitious growth plans. Furthermore, our pipeline and presence in larger markets have never been stronger, and I’m eager to welcome more major brands to Toast later this year. Internationally, we’ve seen growth and positive customer feedback in our markets despite lacking essential elements of our platform that needed international adaptation. We made progress on this front throughout 2024, including the recent launch of our Loyalty and Restaurant Retail products. In Q4 2024, SaaS ARPU for international locations was up 50% year-over-year, and we believe that in 2025 we will have the necessary groundwork across our platform to continue growing market share, expanding sales capacity, and achieving a successful year. Finally, in retail, 2024 was a year of experimentation and learning. We believed that the vertical-focused approach that succeeded in restaurants would be effective in food and beverage retail, and as we onboarded initial customers, we learned valuable lessons that shaped our product roadmap and strategies in sales, marketing, and customer success. We made the decision to form a dedicated sales team for retail to allow our restaurant team to concentrate on increasing market share in our main market, enabling specialists to tackle this new opportunity. The food and beverage retail sector, particularly in grocery and convenience stores, has traditionally been supported by older solutions with a relatively low market share against horizontal cloud-based offerings. Our vertical strategy has resonated with customers as we address the unique challenges they encounter, including the need for a mobile inventory tool and new service models that enhance speed, inventory management, efficiency at checkout, and overall guest experience. To illustrate, take Kelly's Market in Decatur, Georgia, which combines grocery, deli, coffee, and wine bar elements. Before Toast, they relied on two separate POS systems that couldn't operate seamlessly throughout the business. Now, Toast enables Kelly's to enhance their hospitality— for instance, a customer's sandwich order follows them from the deli counter to grocery and then to checkout, a challenge other POS systems struggled with. Kelly's can also customize each terminal in the store; our POS prompts customers for tips at the coffee bar but not at grocery checkout. Most importantly, with Toast, they're able to integrate their purchasing, receiving, and inventory processes into one streamlined system, saving the team over 10 hours each week. While it's gratifying to monitor our progress this year, I am even more excited about the possibilities for the next decade as we increase market share and extend our total addressable market beyond our current scope. Brick-and-mortar businesses remain underserved by modern, user-friendly technology, and our platform is designed to grow across multiple vectors simultaneously. Our third priority is to enhance customer adoption of our comprehensive platform and drive differentiation through data and AI. At Toast, we have a deep understanding of restaurants, the people who work in them, and the nuances that improve lives across the industry. This understanding informs our product development and has propelled our location growth while increasing attach rates and ARPU. Our goal is to address the toughest challenges faced by our customers through a highly integrated yet user-friendly platform, a balance we diligently strive to maintain. To share some highlights from the past year, we launched numerous enhancements to our core POS software, kiosks, and kitchen display systems for front-of-house staff. To promote guest engagement and demand, we introduced Websites, Branded Apps, and AI-powered SMS Marketing. To assist restaurants in managing costs and complexities, we improved reporting and multi-location management, enhanced our payroll and supplier/accounting offerings, and rolled out a benchmarking tool that utilizes our extensive restaurant data to give actionable insights to our customers. This tool has proved transformative for many clients, such as Äta, a full-service restaurant in Louisville, which leveraged our insights to refine their menu, introduce new specials, and adjust their operating hours to boost business. For example, by noticing that chicken was underrepresented in nearby restaurants using our data, they added and marketed a fried chicken special on a slower night, resulting in a 40% increase in Tuesday revenues; that's the impact of our data. The scale of our data set, product platform, and the opportunities that AI offers, combined with our profound restaurant knowledge, provide a strong foundation for future growth. We also recognize the significance of guest demand and retention and will increase our focus in this area. Our strategy is rooted in assisting restaurants to enhance both their top- and bottom-lines, and we are confident this will lead to substantial ARPU growth and win rates for Toast over the long term. In conclusion, our fourth priority is to maintain high margins and invest thoughtfully in crucial areas while progressively expanding margins. In 2024, we made challenging decisions and restructured our investments to focus on what matters most. Consequently, we significantly expanded our margins while also achieving strong growth. In 2025, we will continue with this disciplined approach, making deliberate investments in areas where we foresee long-term growth and differentiation. The Toast team excels at using data for investments across various market horizons, which will enable us to balance margins while reinforcing our focus on areas with considerable growth potential. As I finish, I want to express my gratitude and congratulations to the Toast team for an exceptional 2024. I also want to thank our customers and investors for their trust in us. We have a solid plan for the upcoming year and, more crucially, a clear understanding of what’s essential to meet our long-term objectives. Thank you all. Now, I’ll turn the call over to Elena, who will provide more information on this quarter’s results and our outlook for 2025.

Thank you, Aman, and to everyone for joining the call today. I also want to thank our employees for another successful quarter and for the terrific execution that delivered our record performance throughout the year. Our full year results showcase the strength of our business model in what was a transformational year for Toast. We added a record 28,000 net locations, processed approximately $160 billion in payment volume, and grew both ARR and our recurring gross profit streams 34%. We're delivering that growth at scale; in 2024, we added over $400 million in ARR and processed over 0.5 percentage point of total US GDP. On top of the strong top-line momentum, we also significantly changed the financial profile of the company, highlighting our efficient approach to scaling the business. For the full year 2024, adjusted EBITDA was $373 million, with margins expanding 20 percentage points year-over-year, and we posted our first full year of GAAP profitability. We enter 2025 operating with momentum and from a position of financial strength. As you heard from Aman, we see a large, and growing, opportunity ahead of us to serve many multiples of our customer base. Our investments in 2025 are primarily directed at accelerating progress in new markets and fortifying our strength in our core as we position the company for durable growth over the long-term. At the same time, we will take the same disciplined approach to balancing growth and profitability that you've seen from us. That balance is reflected in the midpoints of our 2025 guidance of 24% growth in our recurring gross profit streams and $520 million in adjusted EBITDA, a 30% margin. Turning to our results. In the fourth quarter, our recurring gross profit streams increased 39%, capping off a strong year of top-line growth. Total monetization, measured by our recurring gross profit streams as a percentage of GPV, was 93 basis points in the fourth quarter. That's a 10-basis-point improvement from the prior year and reflects our growing share of wallet and the increasing value we're providing our customers. We added approximately 7,000 net locations in the quarter, growing our total locations to approximately 134,000, up 26% year-over-year. Looking out, we are well positioned to add a comparable number of net locations to our platform in 2025 as in 2024. In Q4, SaaS ARR grew 32% year-over-year due to our strong location growth and a 5% increase in SaaS ARPU on an ARR basis. Subscription revenue increased 41% and gross profit 47%, benefiting from the improved ARR to revenue conversion we discussed last quarter, which partially includes a one-time benefit that will not recur in 2025. Our SaaS net retention rate remained in a healthy range at 110% in 2024, led by solid contributions from upsell and location expansion from existing customers. Payments ARR and fintech gross profit both increased 35% in Q4. GPV was $42 billion, up 25% year-over-year with Q4 GPV per location down 1% versus the prior year. Q4 net take rate was 56 basis points with core net take rate of 46 basis points. We typically see a quarter-over-quarter decline in payments take rate in Q4 from a seasonally higher credit mix, however, Q4 payments take rate increased 1 basis point versus Q3 due to continued COGS optimization and the targeted price changes we made in September. We're confident in the team's execution and will continue to take a balanced approach to pricing, making thoughtful, targeted adjustments to complement our primary growth drivers of location additions and product attach. Non-payments fintech solutions, led by Toast Capital, contributed $43 million in gross profit in Q4. For the year, Toast Capital originations exceeded $1 billion, reflecting steady, healthy demand from our customers. Toast Capital bad debt was down for the full year versus 2023, even as gross profit grew over 20%. That improvement reflects adding the forward flow model and lower default rates from optimizing our customer underwriting process. Looking ahead, we expect bad debt to grow off the lower base as the program scales, and for Toast Capital's contribution to take rate to remain in a similar range as in 2024. Moving to expenses. In Q4, operating expenses excluding bad debt and credit-related expenses increased 12%, reflecting targeted investments in our highest priority growth initiatives. That includes expanding our retail specific sales team and seeding new brand investments, which contributed to a 32% year-over-year increase in sales and marketing expenses. R&D grew 2% while G&A declined 12%, excluding $19 million of bad debt and credit-related expenses. In 2025, our investments will directly align with the priorities Aman laid out: accelerating progress in our new markets, continuing to drive market share gains in our core and innovation that leverages our scale and data to further differentiate our vertical offerings. Our dollar-based payback period remained in the mid-teen months in 2024. We manage payback on a portfolio basis and our ability to maintain a consistent level even as we increase investment in our TAM expansion areas demonstrates the strength and efficiency of our core customer group. We will continue to manage payback to the mid-teens on a portfolio basis as we make long-term growth investments. Adjusted EBITDA was $111 million in the fourth quarter and margins expanded 18 percentage points year-over-year to 28%. GAAP operating income was $32 million in Q4, reflecting strong operating performance and lower stock comp expense. Through disciplined equity management, stock-based comp was 16% of our recurring gross profit streams exiting 2024 and we remain on track to reach our target of low double-digit percent of recurring gross profit over the medium-term. Free cash flow totaled $134 million in Q4 and $306 million for the full year. In 2025, we anticipate free cash flow to broadly mirror adjusted EBITDA for the full year, and expect typical seasonality throughout the year with lower free cash flow due to the seasonality of our payments business and the timing of annual cash bonus payments. Moving to guidance. In Q1, we expect total subscription and fintech gross profit growth in the 27% to 30% range and adjusted EBITDA to be $100 million to $110 million. On a full year basis, we expect 23% to 25% growth in our recurring gross profit streams. We anticipate higher growth in the first half of the year. In the second half of the year, we will lap the improved ARR to revenue conversion and comp against related one-time benefits we saw in 2024. Our full year adjusted EBITDA guidance of $510 million to $530 million reflects a 30% margin at the midpoint, and reaches our 30% to 35% medium-term margin target ahead of our expectations. Our ability to increase investments in our new markets, while expanding margins is a testament to the durability of our business model and the strength of our position in US SMB and mid-market restaurants. With good signals across international, food and beverage retail, and enterprise, we have confidence accelerating our investment will drive meaningful penetration over the next few years. On top of that, we will continue to seed investments in longer-term opportunities to build our next generation of growth vectors. In all, we are positioning ourselves to deliver healthy growth in 2025, 2026 and beyond. To wrap up, we are executing across the board, growing our core, expanding our TAM, and delivering operating leverage as we scale. Heading into 2025, we're laser-focused on sustaining our momentum and continuing to execute at a high level across those same three areas. We are incredibly excited about what lies ahead for Toast, and are well-positioned to capture the massive opportunity ahead. Now, I'll turn back the call over to the operator to begin Q&A.

Thank you. Your first question comes from Will Nance of Goldman Sachs. Your line is open.

Thank you for taking my question. Congratulations on finishing the year strong. Aman, I want to follow up on your comments regarding the positive signals in both international and retail, as well as some of the newer initiatives. It seems you've adjusted some of your strategic investment priorities based on the feedback you've received. You mentioned retail, and I’d like to know how things are progressing compared to your expectations. There was also more focus in your initial remarks on servicing multiple locations, and you mentioned new verticals too. I'm curious about how your thinking has evolved regarding the areas you want Toast to address over time. Thank you.

I can begin. Thank you, Will. First, I want to emphasize that the majority of our focus continues to be on scaling and achieving leadership in our core US restaurant segment, which is where we are experiencing most of our growth and investment. I want to highlight this as it remains a key priority for us. At the same time, it's encouraging to see positive signals in our new segments. We are nearing 10,000 locations this year across these areas, which is an important milestone for our team. This growth is evident in all our segments. In retail, as I noted earlier, this year has been about testing and learning, and we are observing favorable signs regarding unit economics and average revenue per user, which gives us the confidence to invest and establish a dedicated team in retail. Regarding enterprise, we have a significantly stronger pipeline compared to two or three years ago, our product has improved, and we are beginning to achieve more consistent successes, which I anticipate will continue this year. In international markets, our main objective has been to increase SaaS average revenue per user, which we have successfully accomplished, seeing a 50% increase year-over-year at launch. All these developments give us the confidence to invest further. However, it’s important to note that we still hold a 15% market share in the US restaurant segment, which remains a vital focus for us.

I appreciate that, Elena. I have a question related to the numbers. In the fourth quarter, the SaaS ARR per location was slightly higher than our expectations, as was the same-store sales figure. Can you provide some insight into what you're observing? Are we seeing improvements in international ARPU in the fourth quarter, and what trends do you anticipate in the near term, especially concerning same-store sales? I know there has been some discussion about wildfires and weather impacts in the first quarter. Any information you can share would be helpful. Thank you.

Yeah. Let me take the first question on SaaS ARPU. And if you zoom out and think about the scale of our ARR, a little bit of movement on revenue can have an impact on ARPU. So, I would say we're kind of in the same zone. So, I feel healthy zone, and I feel there's nothing specific about the quarter. Just keep that scale in mind. And then, in terms of same-store sales, Q4, we saw a little bit of improvement. And so, you can see GPV per location was down 1%. And so that was what really drove Q4. And heading into the year in Q1, obviously, the fires, the storms that hit the country and leap year, believe it or not, played a role last year, that won't play a role this year. So, all that combined, you'll see a bigger decline in Q1 than you saw in Q4. But generally speaking, GPV per location stays in a narrow band and we feel no reason to believe that will be different in 2025.

Awesome. Appreciate you taking the questions.

Sure.

Thanks, Rob.

Great. Congrats on the quarter and the strong guide. I wanted to talk a little bit more about unit economics, and it seems like by saying that you managed payback on a portfolio basis implies some differences in the payback periods for the different growth areas in the portfolio. Just hoping you could unpack a little bit any insight into some of those differences into customer acquisition costs or SaaS ARPU, GPV per location, across enterprise, international, and the retail adjacencies.

Sure, Joshua. Starting with the retail business, the customer acquisition cost payback is currently healthy. The total addressable market and gross payment volume per unit are typically stronger than the average restaurant, which gives us confidence to invest. Internationally, we focused on increasing the software as a service average revenue per user because restaurants tend to be smaller than those in the United States. For enterprise, it largely depends on the specifics of each deal. However, when we consider the broad range of customers we've signed, typically, the customer acquisition cost and unit economics are strong as we're onboarding hundreds of customers simultaneously. Our finance team is effective at managing overall paybacks and unit economics, which has allowed us to expand margins over the past few years. We are also analyzing it on a segment basis. The reason we feel confident about investing more, whether in retail or internationally, is that we're observing positive signals in our data, which are improving and encouraging further investment. Notably, in the international sector, the productivity of our representatives is currently better than it was in the US two or three years ago, providing us additional confidence to commit further resources. Looking at the long-term prospects, we see these growth opportunities as significant potential for annual recurring revenue over the next decade.

That's very helpful. And just wanted to give you, Aman, the opportunity to talk a little bit about AI. We've seen some previews for some capabilities around optimizing restaurants and back-office and menus and ingredients. Just wanted to see what like where you are as far as products in the market and customer reception to that? Thank you.

Sure, Josh. We're making investments. The great thing with Toast is that we have an incredible opportunity because we possess a valuable data set. So far, there have been a few wins we've mentioned, such as benchmarking. We've noticed restaurants starting to utilize this for recommended menu items, inflation trends, pricing strategies, and even fraud detection. This has been a positive outcome as customers are using the data and our tools have made it easily accessible. In Sous Chef, although it's still early, we're beginning to see it assist restaurant managers in making informed decisions about sales, staffing, and food costs by making this data actionable. Additionally, in the realm of generative AI, we've introduced some effective marketing solutions since restaurateurs typically aren’t marketers. Our platform simplifies the creation of engaging campaigns on email and text, enhancing the value of those products. Looking at the medium-term, our focus this year and next on AI is primarily about enhancing service in restaurants. We aim to make servers smarter at the point of sale, like implementing data-driven upselling and personalizing the transaction experience. If you remember the show Cheers, we're trying to create a similar personalized experience with our data. This is a key area for us. In the long-term, we're also monitoring trends in voice AI and video as there are many developments in AI that could enhance manual restaurant workflows where we believe we can provide assistance.

Hey, guys. Congrats on the nice quarter and excellent 2024. Aman, another nice enterprise data point in the quarter. Maybe you could just talk a little bit about what the pipeline looks like there? And how you're thinking about positioning the product, whether it's more open, more composable? What differentiates you guys as you push upmarket and pursue those opportunities?

Certainly. It's encouraging to see the momentum we've built over the past few quarters with clients like Potbelly, Hilton, Perkins, and Huddle House. This reflects the team's hard work in developing our platform. Just two or three years ago, we lacked the necessary capabilities to reach that level of scale in the market. We have focused on areas such as enterprise configuration management to effectively manage and publish corporate-level menus and configurations at individual stores. We've also addressed security and compliance needs, developed APIs, and enhanced the product's composability. The positive news is that our customers are recognizing and appreciating the value we provide. Our pipeline is stronger than ever, and we are dedicated to continued investment. We see significant market opportunities in the US, and we expect to make consistent progress in moving upmarket each year.

Great. And then, Elena, just a follow-up for you quickly on the retail segment. I know it's very early days there, but the proof points from the early customers, like what do they look like from an ARPU contribution, a margin contribution standpoint compared to maybe your normal SMB restaurant type of customer? Just kind of help me think about the size of those customers and how they could impact the financial model?

It's a good question. It's early, and I think we're still figuring out where we ultimately land, but so far, the overall economics are strong. The average for customers is higher than the restaurant averages, which suggests we have the potential to increase ARPU and GPV per location over time. However, since it's still early and there are many subsegments within retail, it's premature to predict the final outcomes. But we feel optimistic about our current customers, and as Aman mentioned earlier, this presents a significant opportunity for us to drive ARR in the long run.

Great. Thank you for taking the question. I want to dig into the more medium-term outlook or growth algorithm for ARR per location. So, more recently, it's been in the, call it, 4% to 5% range mid-single-digits. And I believe the algorithm has been the new customers coming in maybe slightly lower than total company average, partially due to land and expand, a little bit of a shift down market, maybe the international coming on at initially lower SaaS ARPU. But definitely, you mentioned the existing customers adding new modules. You just gave the new disclosure on international ARPU up 50% as you've expanded the modules there. And then, of course, there's the pricing element, which you mentioned would be something beyond 2024. So, with all those moving parts, is mid-single-digits the right number that investors should consider for, call it, the medium-term or longer-term SaaS ARPU growth, or are there other factors that you would add or subtract from that list?

Sure, Tim. In the near term, I'd say mid-single-digits is the appropriate figure. I understand your concerns; the business is becoming more complex. Our goal is to maximize Annual Recurring Revenue. Factors like locations, product attachment, upselling, and pricing all play a role in this. We recognize that achieving our goals will depend on moving toward market leadership. Regarding the medium to long term, we've discussed the expansion of our Total Addressable Market, and I want to emphasize that our team is also focused on the land-and-expand strategy. We're examining attach rates across our existing product offerings and working to enhance those products to better serve the expanding market. A significant part of our efforts in data and AI involves leveraging the information we have about guests, employees, and suppliers, which presents opportunities for us. In the long term, we are dedicated to finding ways to create more value for customers, which we believe will lead to a stronger Average Revenue Per User. As for your question, I think it's reasonable to consider mid-single-digits for the near term, and we'll provide further updates for the longer term.

Great. Thank you. And the super quick follow-up is just when you say near-term, just roughly that's about what's implied in the fiscal year 2025 guide keeping in that roughly mid-single-digit range. Is that fair?

Yeah, that's right.

Hey, guys. Thanks for taking my question. Great results. Hopefully, I didn't miss it, but looks like the payments ARR accelerated significantly to 35%. Can you maybe unpack the change? So hopefully, you didn't address it already. I appreciate it.

Sorry, can you repeat the question, Dan?

Sorry about that. Yeah. Looks like the payments ARR accelerated meaningfully in Q4. I wonder if you can unpack that for us.

Yeah. Thank you, Dan. So, typically, what we see in Q4 because of seasonality, right, we typically see, our take rate come down in Q4, right? And as the team has done a lot of work on cost optimization, we implemented a price change in September. And so, what you're seeing in our take rate is really an increase related to that price change. And so that's how you should think about it. So, those are the sort of the puts and takes. Obviously, there's a lot going on underneath the hood, but those are the primary things I would call out.

Great. Well, thanks for taking my question and great quarter. Appreciate it.

Thanks, Dan.

Hi, good evening. Thanks for taking my questions. Maybe first one for you, Aman. If you think about Marriott and if you think about Potbelly, some of your larger wins and maybe what the rollout cadence and/or the hunting cadence was for Marriott, how should we think about how that would apply to maybe the wins you called out today with Hilton and Ascent? And just what did you learn with those other big wins, and how should we apply that to what you just announced in terms of the big deals today?

Thanks, Samad. Not all of our enterprise wins are identical. In the hotel sector, many franchisees that operate Marriott, Hilton, or Choice Hotels overlap with each other. This has allowed us to be involved in some of these deals, providing us with greater potential for these franchisees to utilize Toast across all their brands. However, winning in the hotel space typically requires securing the corporate location first and then collaborating with the franchisees. In contrast, other brands we work with often involve a clear commitment to a certain number of locations and a specific rollout plan. The nature of each deal varies, but as we engage more in the core restaurant segment, we have frequently encountered rollout plans that are agreed upon upfront during the deal negotiation.

Yeah. It's a good question, Samad. We haven't quantified specifically, but the way to think about it is the tougher comp created by the ARR conversion dynamic in the back half of '24. Is it fair to think about the first half growth that you're implying is the right way to think about what growth for the full year would have been if not for that headwind in the back half, or maybe just help us understand how much you're baking into that and what the kind of pro forma growth would have looked like?

Great. Congrats to the whole Toast team on a great quarter.

Thanks, Samad.

Hi, good afternoon. Aman, I want to follow-up on your market share gains comments in your core US restaurant segment. What are you seeing with respect to market share gains in your flywheel market versus non-flywheel? And what percentage of your markets are now in flywheel? And just a follow-up also on international. As you're kind of getting the right signals from the international market, are you also kind of rethinking your distribution strategy abroad? Thank you.

Thank you, Harshita. In 2024, we achieved a record of 28,000 net additions, with most of the growth coming from our core SMB business. The flywheel markets are performing exceptionally well, exceeding the Toast average. We added more markets to the flywheel this year, although I don't have the exact number. Overall, the core SMB business remains strong. Regarding international, you asked about our distribution strategy.

Yeah. No, I was just thinking about if you're rethinking distribution in terms of just also following a little bit more of a partnership approach internationally?

Yeah, it's a good question, Harshita. We are exploring a few different options. I think for us right now, the focus is in these initial markets we're in, we want to make sure we execute really well and we have a path to the kind of success we've had in the US here over the past decade. We're replicating largely the US model because it's worked really well and we believe it's replicable. As we look beyond these markets, one of the factors we're looking closely at is what is the GPV per location and the ARPU potential in some of these markets, and that's really what's going to drive our distribution strategy. That's one of the variables. Of course, the other variable we're looking at is just the what's the competitive landscape, what's the penetration of cloud and some of the other complexities that are different by market. We are using that to think through like would we ever consider a reseller strategy or reconsider a different distribution strategy through e-commerce, but we're not there yet. Really the focus right now is to continue to scale in these existing international markets we have launched in.

Hi, guys. Congrats on the solid results. I guess just two questions if I may. I guess, first question, I know you guys made some public comments in the fourth quarter at a conference. You guys were expecting more the 100 basis point to 200 basis points of EBITDA margin expansion. Obviously, with the guide today suggests something quite a bit greater than that. I think it's 260 basis points to almost 400 basis points or something about that. Can you just talk a little bit about kind of what's changed, I guess, from an EBITDA margin expansion from the fourth quarter to the guide?

Yeah, thanks for the question. So, we believe the midpoints of our guidance really reflect healthy growth and ongoing gains in profitability. I'll start there. In December, when we made those comments, we hadn't completed our planning process. So, we continued to refine that as we got into the year. But really the key point we wanted to convey when we were at the conference was our margin expansion in 2025 would be significantly less than 2024, and that's because of what Aman just laid out, right? We're investing for growth and we've seen a lot of really positive signals from these opportunities to drive margin expansion. And so that's really what ultimately changed is, we completed our process, but also we had more visibility. The key point was to make sure we'd set that expectation around our margin expansion.

No, that's helpful. And then, just as a quick follow-up, on the pricing changes that started in September, how do we think about that going through 2025 and into the following years '26 and beyond? Just how much of an impact that will have? Will it have a similar impact each year? Or is it kind of just a one-time benefit that lapsed in September of this year?

Yeah, it's a fair question. So, the pricing you're talking about is the fintech price change we made in September. I'd zoom out and tell you to think about our primary growth algorithm for the business is driving locations and product attach, and pricing is complementary to that. What you'll see in terms of our strategy is us to make small ongoing, very gradual pricing changes across both SaaS and fintech. That's factored into our guidance. That's really the strategy you'll see us execute against over the next several years. So, at any point in time, there will not be an outsized impact for pricing. Our guidance obviously reflects the strategy I just laid out.

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