Toast: Leading the Restaurant Industry with Strong Growth and Expansion

2024-02-20

Toast, a prominent integrated software platform catering to the restaurant industry, conducted its earnings conference call for the fourth quarter and full year ending on December 31st, 2023. The call was headlined by CEO and co-founder, Aman Narang, and CFO, Elena Gomez. Throughout the call, they delved into various topics encompassing the company's performance, strategic objectives, customer success anecdotes, and future avenues for growth.

During the discussion, a key focal point revolved around Toast's dedication to fostering robust top-line growth, delivering unparalleled customer experiences, and operating with a collective sense of urgency in pursuit of their mission. Over the last decade, Toast has transformed into a leading platform, serving a vast network of over 106,000 restaurants and amassing an Annual Recurring Revenue (ARR) exceeding $1.2 billion since their Initial Public Offering (IPO) in September 2021. The company has laid a solid groundwork and is keen on expanding restaurant locations within their core operations, driving ARR and Average Revenue Per User (ARPU), broadening the addressable market, and positioning the company for sustained operational efficiency.

Toast has witnessed success in onboarding new brands onto its platform, with recent additions such as Wetzel's Pretzels, The 99, Dirty Dough, and Romano's Macaroni Grill. These brands have reaped the benefits of Toast's services by consolidating their business functions, streamlining front and back-office procedures, and simplifying their operations.

In 2023, the company placed a significant emphasis on augmenting ARR and ARPU. This was achieved by bolstering total ARR by 35% year over year and enhancing ARPU through product innovations, expanding locations, and strategic investments in pricing strategies and upselling to existing clientele. An illustrative case is Angelo's Ristorante, whose Software as a Service (SaaS) ARR nearly doubled post their integration with Toast. Through Toast Tables, they efficiently managed table turnover, attracted more reservations, and consequently realized savings in time and costs.

Toast is actively broadening its Total Addressable Market (TAM) by targeting enterprise clients, hotel restaurants, and international markets. They have solidified their presence in regions like Canada, the UK, and Ireland by adopting a localized go-to-market strategy. Recently, the company unveiled a partnership with Choice Hotels to become the brand standard for Cambria and Radisson Hotels, thereby extending their market reach.

In terms of financial performance, Toast processed over $125 billion in payment volume in 2023, marking a 38% surge from the previous year. They reported an adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of $61 million, signifying a notable 22 percentage point enhancement compared to 2022. The company's projections for 2024 encompass a 24% growth in recurring gross profit streams and an anticipated $210 million in adjusted EBITDA.

Toast's primary objective is to attain Generally Accepted Accounting Principles (GAAP) operating income profitability by the first half of 2025. Their strategy involves managing stock-based compensation, organic investments for sustainable long-term expansion, evaluating Merger and Acquisition (M&A) prospects, and potentially executing a $250 million share repurchase program to distribute capital to shareholders.

In conclusion, Toast's earnings conference call underscored the company's robust performance, strategic imperatives, customer success narratives, and future growth prospects. Positioned as a frontrunner in the restaurant industry, Toast is poised to sustain its growth trajectory and uphold its leadership position in the market.