Toast, Inc. Q1 FY2025 Earnings Call

Good afternoon. My name is Tamika, and I will be your conference operator today. At this time, I would like to welcome everyone to Toast's First Quarter 2025 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, Tamika and welcome to Toast's earnings conference call for the first quarter ended March 31st, 2025. 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 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 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 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 net locations, our recurring gross profit streams grew 37% year-over-year, adjusted EBITDA grew to $133 million, and our GAAP 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 customer 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. SMB market 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 adds in Q2. And as such, we have raised our 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 U.S. 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. So, 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. SMB 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 total addressable market versus last year and our flywheel markets continue to see above-average representative productivity. Sales AE productivity across new bookings was up in Q1 year-over-year, which is what is giving us confidence into Q2 and 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 differentiate 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 eatertainment 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 bars. 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 at the golf bay, our kitchen display systems streamline kitchen operations, and our above-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 to our second priority, demonstrating that our new markets can be material drivers of growth. As I 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 total addressable market 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 café 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 and 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 offerings to include loyalty, email marketing, and guest book. Our expanded guest products are resonating with international customers with guest attachment doubling over the past year for our most recent locations that went live. We're confident that average revenue per user will continue to scale internationally as we launch more of the platform and grow adoption. It's 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 Chef, our AI 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 their 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 ToastIQ, 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 Boat House 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 on 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. A second example is Felipe's Taqueria, which is using our AI-powered advertising tool to run Google Ad campaigns for six of their restaurant locations and are seeing over 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 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 that 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 plan in 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.

Thank you, Aman and to everyone for joining. To start, I would also like to thank our employees whose continued execution across the business led to another strong quarter with top and bottom-line results exceeding expectations. In the first quarter, ARR grew 31% and total fintech and subscription gross profit, our recurring gross profit streams, increased 37% year-over-year. Adjusted EBITDA was $133 million for the quarter, with margins expanding 13 percentage points year-over-year to 32%, and GAAP operating income was $43 million. We increased our outlook for the full year, reflecting our strong first quarter. Consumer trends remained stable through early May. We are closely monitoring the macro environment and are well prepared to manage through any scenario as we execute on our priorities in the year ahead. And we're confident restaurants will remain resilient while navigating this dynamic macro environment as they have in the past. In Q1, we added over 6,000 net locations, up relative to net adds in Q1 last year. At the end of the quarter, total locations were approximately 140,000, up 25% year-over-year. We're deepening our penetration in the core and as you heard from Aman, gaining momentum across all our verticals with exciting recent customer additions like Applebee's and Topgolf. Based on the momentum we have to start the year, we're set up to increase location net adds year-over-year in 2025 versus 2024 and are tracking for a record quarter of net adds in Q2. At only 10% of our 1.4 million location total addressable market across the customer segments we currently serve and with a significant opportunity to expand our total addressable market over time, we have a lot of confidence that we will serve multiples of our location count over time. SaaS ARR grew 32% year-over-year, driven by strong location growth and a 5% increase in SaaS ARPU on an ARR basis. Subscription revenue increased 38% and gross profit grew 45%, benefiting from the improved ARR to revenue conversion we discussed last year. We expect subscription revenue growth to return to more normalized levels in the second half of the year. Payments ARR grew 31% and fintech gross profit increased 32% in the first quarter. GPV was $42 billion, growing 22% year-over-year with GPV per location down 3% versus last year. While we expect total GPV will follow the typical strong seasonal pattern in Q2, we anticipate GPV per location will remain down in a similar range on a year-over-year basis. Net take rate was 59 basis points. Payments net take rate was 48 basis points, up 3 bps from a year ago from ongoing cost optimization efforts and targeted pricing moves we made last year. Non-payment fintech solutions led by Toast Capital contributed $47 million in gross profit. Toast Capital continues to perform well. We're seeing solid growth in originations and defaults remain in line with our expectations. As a reminder, Toast Capital serves an important need for our customers, providing fast, efficient access to capital. Our insight into the health of our customers gives us this unique ability to assess credit quality and make underwriting decisions. We are confident in our ability to manage the risk associated with Toast Capital and expect Toast Capital's contribution to net take rate to remain in the 10 basis points range. Moving to expenses. In Q1, operating expenses, excluding bad debt and credit-related expenses increased 12%. This primarily reflects a 25% increase in sales and marketing expenses from investments to grow our sales representatives across core, international, and retail plus support our brand marketing campaign. Research and development and general and administrative expenses, excluding $22 million of bad debt and credit-related expenses were essentially flat. Adjusted EBITDA was $133 million with a margin of 32%, achieving our medium-term margin goal of 30% to 35%, well ahead of target. The strong Q1 results reflect a healthy top-line growth and solid execution, along with our commitment to prudently scale the business while investing in our growth areas. Free cash flow was $69 million. Free cash flow is seasonally lower in Q1 compared to the rest of the year due to the timing of cash bonus payments and seasonality of GPV. We expect free cash flow to broadly mirror adjusted EBITDA for the full year. We repurchased $17 million in shares in Q1 and remain opportunistic based on market conditions. Turning to guidance. For the second quarter, we expect total subscription and fintech gross profit to grow in the 26% to 29% range year-over-year and adjusted EBITDA to be $130 million to $140 million. As a result of our strong start to the year and continued momentum across the business, we raised our full-year outlook. At the midpoint, we now expect 26% growth in fintech and subscription gross profit and $550 million in adjusted EBITDA, a margin of 31%, up 5 percentage points versus 2024. Our guidance factors in stable consumer trends as well as a slightly higher tariff expense related to our hardware. Overall, we are on track for another year of strong top-line growth and expanding profitability, while continuing to invest in our highest priority long-term growth initiatives. To wrap up, we are executing across the board and are confident in the large opportunity ahead of us. We remain focused on positioning the company for durable growth by sustaining our momentum in our core and growing the contributions from our new growth curves to drive long-term value. Now, I'll turn the call back over to the operator to begin Q&A.

Thank you for the question. I'd like to discuss the payback periods for some of our significant enterprise wins. We often analyze various metrics on a per location basis, but when considering a large client like Applebee's, which involves substantial wins, it's reasonable to expect that the unit economics at that scale would be lower. Could you elaborate on the sales and marketing expenditures and resources required to secure a customer like that? Also, how do the payback periods for these large wins compare to the overall payback periods, which I believe were recently reported to be in the mid-teens in months?

Yes, great question. Thank you, Tim. First, I want to express our excitement about having Applebee's join the Toast family. The team has executed really well, and this addition builds on the momentum we've established in serving larger customers, reflecting the significant investments we've made in our product to cater to this segment. We are quite optimistic about it. Regarding your point, we manage the business by considering total payback periods and unit economics, with a primary focus on ARR growth, which we aim to maintain in the mid-teens range. For enterprise deals, we evaluate them individually, and since the ARR booked in these agreements is substantial, the paybacks are very favorable. It's important to note that these are significant deals. Additionally, we assess LTV to CAC across all segments, and it's generally strong, as churn rates for enterprise customers tend to be lower. Overall, we are very pleased with our management of the enterprise business, and in this particular deal, ARPU is also quite healthy. In summary, I see enterprise as a robust area for us to continue growing.

Thank you, Elena. And the minor follow-up is, I believe the vast majority, all but maybe one or two of your enterprise signings thus far have been attaching payments. Is that still generally the trend and the expectation?

Yes. No, that's right. The majority of our customers attach payments. And even when payments are not in the deal, the economics are still attractive.

Hey guys. Thanks and nice job. Maybe you could just start off revisiting again how you see the macro trending, just a little more on what the company is seeing from a same-store sales perspective and just new business formation and maybe build that into the degree of conservatism potentially embedded in guidance just given the rate of growth you just showed us versus the outlook going forward relative to cyclicality? Thanks guys.

Thank you, Darrin. So, I think if you look at same-store sales and consumer trends, they remain stable year-to-date, and they've been in line really with the last few quarters. And one thing that's given us confidence in Q2 and the record net adds we talked about was our sales productivity, our AE productivity is actually up year-over-year. New business formations are also stable. And so I think that's really what's giving us confidence in our outlook in terms of net adds this year. And in terms of guidance, maybe Elena can talk.

Yes. No, I will to Aman's point, we've got a lot of momentum exiting Q1 and into Q2, which has given us that confidence to raise our outlook. And at the end of the day, we feel very optimistic that we have the ability to manage on the things we can control. We're mindful, of course, of the macro. And we're planning, as I said in my script, for the continuation of the trends that we've seen, but confident to manage our guidance through really a range of macro outcomes. So, feeling really good we can navigate the backdrop we're in.

Yes. That's great. And just a quick follow-up would be around pricing. You guys have clearly demonstrated strong attach rates driving your ability to have pricing where value add is offered. Maybe just talk about what you're seeing now and more importantly, in a different kind of macro, do you still see that as an opportunity? Or do you have to be more careful on that front? Thanks guys.

Yes. It's actually a very fair question. Look, at the highest level, as you know, ARR is our North Star, and our growth algorithm is really focused on growing locations and product attach. Pricing is a small lever. And I think we have to take a very balanced approach in this macro, obviously, and be conscious of what it feels like to be a customer during this macro. And so we got to balance sort of doing the right thing for our customers, but also making sure we hit our plans, and I'm confident we can do both very well.

Thank you for your questions. First, I would appreciate an update on the potential timing for a broader rollout of AI solutions like Sous Chef and ToastIQ. I believe these solutions could significantly benefit our clients, and they seem to be performing well in some pilot programs. How do you envision monetizing these solutions as they are rolled out? Will it be more of an upsell with a separate or additional module, or do you plan to incorporate them into core solutions, thus enhancing our pricing over time?

Thank you, Stephen. I want to emphasize that it's still early in this process, but it's evident that AI will significantly influence our business and the industry as a whole. We’re dedicated to preparing the entire organization to effectively incorporate AI, especially before we engage with customers. This includes various aspects like our operations, software development, customer support, general administration, sales, and marketing. It's essential that we stay ahead to become a leading AI-focused company. Regarding our restaurant clients, they typically lack technological expertise and are often pressed for time. Therefore, we need to assist them in recognizing the value these tools can bring, which is a primary focus for our team. For instance, with the ToastIQ release, we are introducing an intelligence engine that will enhance every Toast product over time. We're already observing positive trends, such as increased check sizes from our AI-enabled upsell module and effective marketing campaigns facilitated by AI-generated content. We’re seeing restaurants successfully driving demand through emails and ads on platforms like Google and social media, so it's encouraging to witness these initial positive outcomes, albeit still in the early stages. As for the Sous Chef, think of it as a helpful assistant for restaurants that provides data insights and works as a chat-based tool for our customers and support teams. For example, it may indicate when sales forecasts for Mondays and Tuesdays are off, or when certain items are consistently out of stock. We are also developing a language interface that allows Sous Chef to interact with our backend systems. This means users can easily manage tasks such as removing an item from the menu or adjusting delivery settings. Our primary goal is to enhance customer impact through AI and foster an AI-centric culture. If we can achieve meaningful customer results, we're optimistic that monetization will naturally follow over time. However, we’re currently concentrated on providing value to our customers.

Got it. Makes sense. Thanks. And then just a quick follow-up. It would be great to just get an update on the international traction. And specifically, are there commonalities on the types of locations you're winning in Canada, U.K., and Ireland? And are there any early signs you're seeing a positive referral or word-of-mouth activity picking up?

Yes, Stephen, when we observe the international traction, it resembles the early phases of Toast in the U.S. Our average gross payment volume per location in the U.S. outpaces industry averages, and we’re witnessing a similar trend internationally. The progress has been impressive, and as I mentioned earlier, we are exceeding our targets across all segments. Customer sentiment remains strong as we work on fully internationalizing the platform. At a high level, cities like Toronto and London are not fundamentally different from Boston or New York. There are numerous markets, including North America, Western Europe, Australia, and New Zealand, where the gross payment volume per location is robust. Therefore, our main strategy is to replicate the successful approach we've taken in the U.S. Regarding your inquiry about referral channels, it's still early days. Although we've gained good initial traction in these markets, it's not yet comparable to what we're experiencing in the U.S. I believe we will observe more development over time.

Hi everyone. Hi Aman, Elena, and Michael. Great set of results. You clearly demonstrated Toast's ability to fend off competition from cloud-native POS systems, shall we say. But DoorDash, which is a partner and now maybe an emerging competitor has sort of relaunched its POS system. They're also acquiring seven rooms to deepen their hospitality software suite. How do you find this progression as some partners become more like direct competitors? And does this push Toast to invest a little bit more into local like Toast?

Yes, that's a great question, Dominic. Our strategy from the very beginning has been to build the best platform for restaurants, and we believe there is still a lot of work to do in further developing the platform. We're confident in our execution and what our R&D, platform, and product teams are focused on. Over the past decade, we've led the way with our platform, including our all-in-one cloud, handheld devices, guest products, as well as increasing emphasis on data and AI. We will continue to invest in differentiating and enhancing the platform. Regarding your question about local strategy, we believe our approach is unique compared to others. We are focused on bringing guests into stores, and our efforts in that area are specific to what we can do with our platform, independent of broader market activities.

Hi, great results here and thanks for taking my question. So, if we were to enter a steeper recession, can you talk about how you would expect to manage your cost base versus continuing to invest in the business?

Yes. Thanks, Rayna. Great question. So, we've navigated through very dynamic times in the past, including COVID. And as we said, we haven't seen a change in consumer trends so far. And we know restaurants have proven to be resilient through really a range of macro scenarios. And so when you think about that, that's the context that we operate in. But of course, if we did see pressure in the business, we've been decisive in the past when we're faced with a downturn, and we pulled back spending in areas that are non-revenue generating. And we really be balanced in that, right? We want to make sure we think about this business over the long-term as well. So, we'd be balanced. But overall, I think this team is ready to navigate under any scenario, and we'll be decisive in doing so. confident we can navigate.

We are absolutely exploring. Look, our enterprise team, one of the things that's exciting is that the pipeline that we see across enterprise has never been stronger. Just as we're getting more proof points, I think it's getting the word out and it's also helping us continue to get more interest. And so certainly, I think we continue to see great opportunity. On IHOP specifically, to your question, that's the current deal is for Applebee's, just to be clear.

Thank you for taking my question. The results look great. I want to revisit the enterprise win with Applebee's. Can you help us understand the pitch? I assume it involves both driving growth for them and increasing efficiency. Any KPIs you can share? Also, this segment of the market had some skeptical investors who thought you couldn't win. How do you see this as a key player for large chains and enterprises? Are you currently having more conversations with other restaurants like Applebee's?

Yes, absolutely. As I mentioned, our enterprise pipeline is stronger than ever, and we are engaged in discussions with numerous brands. With increasing proof points, it's clear that Applebee's is just one among many, including Marriott, Hilton, Choice Hotels, Perkins, and Potbelly, as our platform advances in the upmarket segment. I am confident about our investments in the platform and see this area of the market as a significant opportunity moving forward. Regarding why they chose to buy, Applebee's values our industry-leading handheld ToastCo device, which enables taking orders and payments at the table, thus helping with check sizes, tips, and faster table turnover. Additionally, our kitchen management and KDS tools are crucial for their modernization efforts, along with our above-store management capabilities. In fact, for Applebee's, we're replacing an in-house solution they previously used. The value proposition often begins within the restaurant walls, where some benefits we offer to small- and medium-sized businesses also apply to enterprise customers. As we expand our above-store capabilities, more of the market becomes accessible to us. Long-term, we view this as a significant growth opportunity.

Yes, it's a great question. Look, I think at the highest level, the team is executing well. And as you know, we really focus on ARR as sort of the long-term metric that we're looking at in the business. So, really pleased with the results and also really thinking about long-term market growth and the many levers that we have to grow that over time, but really good execution on the team.

Thank you for the question and congratulations on a great quarter. I wanted to revisit ToastIQ in response to the earlier question. I understand it's still early, but could you provide some insights on the go-to-market strategy or the pricing philosophy? The press release suggests that the value is significant, and there are many different products included with ToastIQ. Any additional context would be appreciated.

I appreciate the question and congratulations on a strong quarter. Regarding ToastIQ, I understand it's still early, but I'd like to share some insights on our approach to pricing. To be honest, pricing isn't our primary focus right now. The landscape is evolving rapidly, especially with AI, and we're committed to keeping our customers updated on these trends. Our team is dedicated to ensuring we provide meaningful support to our clients, allowing them to leverage these advancements effectively. While we're encouraged by the initial outcomes from the case studies, it's important to recognize that these products are not yet fully scaled and we need to validate their effectiveness further. However, if we continue to observe positive patterns, we see monetization as a potential avenue. By assisting restaurants with areas such as increasing check sizes, enhancing guest experiences, improving sales forecasting, and attracting more customers, we're addressing significant challenges they face, like underutilized seating. We're exploring numerous opportunities and as we witness tangible results, we will certainly consider monetization as well. While I can't provide a definitive answer on pricing right now, this is where we currently stand.

Hi Aman, Elena, and Michael. Great set of results. You clearly demonstrated Toast's ability to fend off competition from cloud-native POS systems, shall we say. But DoorDash, which is a partner and now maybe an emerging competitor has sort of relaunched its POS system. They're also acquiring seven rooms to deepen their hospitality software suite. How do you find this progression as some partners become more like direct competitors? And does this push Toast to invest a little bit more into local like Toast?

Yes, that’s a great question, Dominic. From the beginning, our strategy has been to create the best platform for restaurants. We believe there is still much work to be done to enhance the platform instead of becoming complacent. Our execution has shown consistent results. The R&D, platform, and product teams are focused on maintaining our leadership in the industry over the past decade with our all-in-one cloud solutions, handheld devices, guest products, and increasingly with data and AI. We are committed to investing in ways that set us apart and expand the platform. Regarding our local strategy, it operates independently from others. We are focused on what we can uniquely excel at, which is attracting guests into stores. We continue to explore specific ways to achieve this, which is distinct to our platform, irrespective of market trends.

Your first question is from Timothy Chiodo with UBS.

Hey guys. Thanks and nice job. Maybe you could just start off revisiting again how you see the macro trending, just a little more on what the company is seeing from a same-store sales perspective and just new business formation and maybe build that into the degree of conservatism potentially embedded in guidance just given the rate of growth you just showed us versus the outlook going forward relative to cyclicality?

Thank you, Darrin. So, I think if you look at same-store sales and consumer trends, they remain stable year-to-date, and they've been in line really with the last few quarters.

Yes. Thanks, Rayna. Great question. So, we've navigated through very dynamic times in the past, including COVID. And as we said, we haven't seen a change in consumer trends so far. And we know restaurants have proven to be resilient through really a range of macro scenarios.

We are absolutely exploring. Look, our enterprise team, one of the things that's exciting is that the pipeline that we see across enterprise has never been stronger.

Hey, thank you for taking my question. Nice set of results here. I want to revisit the enterprise win with Applebee's and across a couple of vectors, I guess, number one, can you help us understand the pitch?

Yes, absolutely. As I mentioned, our enterprise pipeline has never been stronger, and we are having conversations with numerous brands.

Your next question is from the line of Darrin Peller with Wolfe Research.

Thanks, Dan, for the question. Yes, take rate is up 4 basis points year-over-year in Q1. So really, really pleased with the progress that we've made. And it's really a combination of things, Dan. It's not any single one thing.

Yes. Thank you for that.

Good morning. Elena, I want to ask about hardware and the impact from tariffs, acknowledging the uncertainty in the dynamic environment. I know you talked about slightly higher hardware expenses for the year. Maybe just talk about, I guess, the sensitivity around the tariff scenarios and also your ability to pass on some of the costs to your customers?

Yes. Thanks, Harshita. It's a very relevant question, something we've been paying a lot of attention to. So, look, based on the current rules, the incremental costs associated with tariffs are manageable and reflected in the guidance and the outlook I shared today.

Thanks. And as a follow-up, Elena, just remind us of the location growth algorithm in terms of share from new location adds, existing restaurants, adding new locations, market share churn and now you have the growing new vectors in terms of enterprise, international, food and beverage, retail?

At a high level, the balance between new and existing is relatively stable. As we consider our net additions to the platform, the core remains the main source of growth. However, as we invest in new total addressable markets, you will notice that they will start to contribute more over time, especially as we move into the latter half of the year.

Thanks for the question and congrats on a great quarter. I did want to come back to ToastIQ as a follow-up to the earlier question.

Yes. Thanks, Josh. Look, I would just reiterate that we've got a great team here focused on maximizing the potential for growth across the board, and I feel really positive about the future.

Yes, it's a great question. Look, I think at the highest level, the team is executing well. And as you know, we really focus on ARR as sort of the long-term metric that we're looking at in the business.

This concludes today's conference call. Thank you for joining. You may now disconnect.