8-K: Toast Inc. Achieves Profitability, Exceeds Expectations in Second Quarter 2024

Toast, Inc. reported strong second-quarter 2024 results, achieving GAAP profitability and adding a record number of net new locations.

Summary

• Toast, Inc. announced its financial results for the second quarter of 2024, ending June 30, 2024.
• The company added approximately 8,000 net new locations during the quarter.
• Annualized recurring run-rate (ARR) grew by 29% year-over-year to $1.5 billion as of June 30, 2024.
• Toast achieved a GAAP operating income of $5 million in the second quarter, a significant improvement from a loss of $80 million in the same quarter of the previous year.
• Net income for the quarter was $14 million, compared to a net loss of $98 million in the second quarter of 2023.
• Adjusted EBITDA was $92 million, a substantial increase from $15 million in the prior year's second quarter.
• Gross Payment Volume (GPV) increased by 26% year-over-year to $40.5 billion.
• Total locations increased by 29% year-over-year to approximately 120,000.
• GAAP subscription services and financial technology solutions gross profit was $330 million, up 27% year-over-year.
• Non-GAAP subscription services and financial technology solutions gross profit grew 29% year-over-year to $344 million.
• Net cash provided by operating activities was $124 million, and Free Cash Flow was $108 million for the quarter.

Sentiment

Score: 9

Explanation: The document conveys a very positive sentiment due to the company achieving profitability, strong growth metrics, and positive future guidance. The tone is optimistic and confident.

Positives

• Toast achieved GAAP profitability ahead of expectations.
• The company added a record number of net new locations.
• ARR grew significantly, indicating strong recurring revenue.
• There was a substantial improvement in operating income, net income, and Adjusted EBITDA compared to the previous year.
• The company saw strong growth domestically and internationally, including new verticals like food and beverage retail.
• Toast's customer experience is strengthened by platform and data investments.
• The company generated positive net cash from operating activities and free cash flow.
• Toast has secured commitments from larger customers, including Sonnys BBQ, Uno Pizzeria & Grills, Hwy 55, and PPX Hospitality Group.
• Toast received multiple workplace awards, highlighting a positive work environment.

Negatives

• Hardware and professional services continue to operate at a loss, with a gross loss of $43 million in Q2 2024.
• The company incurred restructuring expenses of $4 million in Q2 2024.

Risks

• The company's forward-looking statements are subject to various risks and uncertainties, which could cause actual results to differ materially.
• The company's ability to achieve its financial targets depends on various factors, including customer satisfaction, pricing, competitive offerings, and economic conditions.
• The company's non-GAAP financial measures may not be comparable to those of other companies.

Future Outlook

Toast expects non-GAAP subscription services and financial technology solutions gross profit in the range of $345 million to $355 million and Adjusted EBITDA in the range of $70 million to $80 million for the third quarter ending September 30, 2024. For the full year ending December 31, 2024, Toast expects non-GAAP subscription services and financial technology solutions gross profit in the range of $1,340 million to $1,360 million and Adjusted EBITDA in the range of $285 million to $305 million.

Management Comments

• Toast CEO and Co-Founder Aman Narang stated that the team executed incredibly well in the second quarter and delivered strong results, including adding a record number of net locations and achieving GAAP profitability ahead of expectations.
• He also mentioned that they are sustaining growth at scale while expanding margins by taking a disciplined approach to investing resources against their most important priorities.
• He noted that they continue to see strong growth domestically across restaurant types while building on their momentum internationally and across exciting new verticals like food and beverage retail.

Industry Context

Toast's strong performance reflects the ongoing digital transformation in the restaurant industry, with increasing adoption of technology platforms for point of sale, payments, and operations. The company's focus on AI-powered innovations also aligns with the industry's growing interest in leveraging AI to enhance customer experiences and streamline operations.

Comparison to Industry Standards

• Toast's 29% ARR growth is strong compared to other SaaS companies in the restaurant tech space, such as Olo (which reported 25% year-over-year growth in Q1 2024) and Block (formerly Square) which has a broader market but reported 16% growth in their software and services division in Q1 2024.
• The achievement of GAAP profitability is a significant milestone, as many high-growth tech companies in the sector are still operating at a loss. For example, Olo reported a net loss of $10.8 million in Q1 2024.
• Toast's Adjusted EBITDA of $92 million in Q2 2024 is a substantial improvement compared to the $15 million in Q2 2023, indicating improved operational efficiency. This compares favorably to companies like Lightspeed, which reported an adjusted EBITDA loss of $10.5 million in their most recent quarter.
• The addition of 8,000 net new locations is a strong indicator of market penetration and customer adoption, which is a key metric for growth in this industry. This is a higher growth rate than many of its competitors, such as Block, which added 100,000 new sellers in Q1 2024, but across a much broader range of industries.

Stakeholder Impact

• Shareholders will likely react positively to the company's profitability and strong growth.
• Employees will be encouraged by the company's positive performance and workplace awards.
• Customers will benefit from the company's continued investment in its platform and customer experience.
• Suppliers and creditors will likely view the company as a stable and reliable partner.

Next Steps

• Toast will host a live conference call on August 6, 2024, to discuss the results.
• The company will continue to focus on expanding its platform and investing in technology and infrastructure.
• Toast will continue to monitor and adapt to market conditions and customer needs.

Key Dates

Keywords

SaaS, Restaurants, Financial Technology, ARR, EBITDA, GPV, Profitability, Growth, Locations, Payments