Toast's Strong Q1 Results and Expansion Plans Drive Optimistic Outlook
2023-07-30
Toast, a leading technology platform for the restaurant industry, held its earning call meeting to discuss its financial performance, growth strategies, and product innovation for the first quarter of 2023. The meeting covered several important topics, with the standout being the company's strong first quarter results, including top line growth and margin improvement.
One of the most interesting points discussed during the meeting was the integration of Delphi Display Systems into Toast. CEO Chris Comparato expressed satisfaction with the progress of the integration and commended the team for their efforts. Delphi was already a partner of Toast, so there was existing collaboration between the two companies. The acquisition of Delphi brings internal and external digital menu boards with order coordination to the Toast platform. This integration aligns with Toast's commitment to helping Quick Service Restaurants (QSRs) enhance their speed of service, increase revenue, and improve operational efficiency. Toast has identified opportunities to increase lead volume from Toast to Delphi, and the company aims to strategically leverage this integration as a foundational component of their go-to-market strategy in the QSR and enterprise space.
The market outlook for Toast is positive, driven by its strong financial results in the first quarter and projected revenue growth in the second quarter. The company expects a year-over-year growth of 39% at the midpoint and an improvement in adjusted EBITDA. Furthermore, full-year revenue expectations have been increased by 4% at the midpoint, with a projected 37% year-over-year increase. Toast aims to achieve breakeven adjusted EBITDA for the full year and positive free cash flow. The company is focused on driving efficiency, operating efficiencies, and consistent margin expansion while balancing investments in technology and market expansion. Overall, Toast is well-positioned for sustained growth and aims to create long-term shareholder value.
During the meeting, Toast highlighted several key drivers of its business. Firstly, strong growth in the core SMB segment, which encompasses Small and Medium-sized Businesses, was a significant factor. Additionally, the company discussed its expansion into new segments, such as on-market e-commerce and mid-market. Toast also emphasized its focus on upselling additional services and add-ons to existing customers, as well as increasing Annual Recurring Revenue (ARR) year over year. Opportunities to scale attachment of key products, including employee cloud, xtraCHEF, and guest products like Tables, were also mentioned. The company's upsell motion was identified as a significant contributor to revenue growth. Moreover, Toast emphasized its focus on flywheel markets with higher restaurant density, higher rep tenure, and higher brand awareness, as these factors lead to greater productivity. Lastly, the company highlighted its ability to gain market share in different types of markets without impacting productivity.
In terms of product and service plans, Toast aims to displace legacy providers and expand into international markets. The company is actively investing in English-speaking countries for its international launch and is focused on honing its go-to-market motion, building brand awareness, and expanding its platform in the market. Toast sees international expansion as a long-term opportunity for the business.
The meeting also discussed key performance indicators (KPIs) that provide insights into the company's growth and competitive performance. Net adds, which refer to the number of new customers or locations added to the company's platform, had a strong quarter, and the company expects a record quarter in Q2. Restaurant density, which measures the number of restaurants or locations in a specific area, was highlighted as a driver of improved productivity in flywheel markets. The company's competitive win rates, which indicate its success in winning customers over competitors, were also mentioned as a positive metric.
Overall, Toast's outlook for the quarter and full year is positive, with expected revenue growth, sequential margin improvement, and profitability anticipated in the second half of the year. The company's strong Q1 results and momentum from the previous year provide optimism for its financial performance.
The meeting was attended by various participants, including Narang - Chief Operating Officer, Will Nance - Analyst from Goldman Sachs, Tim Chiodo - Analyst from Credit Suisse, Stephen Sheldon - Analyst from William Blair, Jeff Cantwell - Analyst from Wells Fargo Securities, Josh Beck - Analyst from KeyBanc Capital Markets, and Dave Koning - Analyst from Baird. The presence of analysts from reputable firms indicates the market's interest in Toast's financials and outlook. The diverse group of participants, including the Chief Operating Officer, further emphasizes the significance of the company's financial performance to investors and the market.
Toast's expansion and success in the restaurant industry were key points discussed during the meeting. The company has formed partnerships with restaurant groups and is investing in enhancing its features and capabilities to cater to different types of restaurants. Toast's product strategy focuses on providing solutions for restaurant operators, guests, employees, and suppliers. The recent launch of Toast Tables, a reservation and waitlist management solution, demonstrates the company's commitment to further penetrate the U.S. restaurant market and capitalize on future opportunities.