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01/10 23:07
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary indicates strong financial performance with increased GAAP operating income, SaaS ARR, and payments ARR. The Q&A section supports continued market share gains and resilient consumer behavior. Although some questions about technology contributions and monetization strategies were not fully addressed, the overall sentiment is positive due to strong financial metrics, optimistic guidance, and the potential for continued growth and innovation.
ARR (Annual Recurring Revenue) Surpassed $2 billion for the first time, doubling in just 2 years. This represents a 30% year-over-year growth. The growth is attributed to the strength and diversity of the business model, with both payments and SaaS ARR each exceeding $1 billion for the first time.
Total fintech and subscription gross profit Increased 34% year-over-year, with a total take rate of 98 basis points across SaaS and fintech. This growth reflects the growing value the platform provides to customers.
Adjusted EBITDA $176 million for the quarter, with margins expanding 5 percentage points year-over-year to 35%. This improvement is due to robust top-line growth and efficiencies throughout the P&L.
GAAP operating income $84 million, up from $34 million a year ago. This increase is driven by strong adjusted EBITDA and disciplined management of stock-based compensation.
Net location adds Approximately 7,500 net locations added in Q3, ending the quarter with 156,000 total locations, up 23% from a year ago. This growth is attributed to consistent market share gains and traction in new TAMs.
SaaS ARR Grew 28% year-over-year, driven by location growth and a mid-single-digit increase in SaaS ARPU on an ARR basis.
Subscription revenue and gross profit Subscription revenue increased 29%, and subscription gross profit grew 32%. SaaS gross margin improved to 79%, up from 77% a year ago, due to continued SaaS COGS optimization.
Payments ARR and fintech gross profit Payments ARR increased 31%, and fintech gross profit grew 35% year-over-year. GPV (Gross Payment Volume) was $52 billion, growing 24% year-over-year. Payments take rate increased 4 basis points from a year ago, benefiting from cost optimization, targeted pricing moves, and new products like surcharging.
Non-payments fintech solutions Contributed $58 million in gross profit and 11 basis points in take rate. Incremental origination volume was unlocked due to enhanced underwriting processes.
Free cash flow $153 million in Q3 and $564 million on a trailing 12-month basis, nearly 100% conversion from adjusted EBITDA.
Toast IQ: An AI assistant for restaurant operators that provides fast answers, proactive insights, and direct actions. It has been adopted by over 25,000 restaurants since its rollout in early October, with over 235,000 uses so far.
Toast Advertising: A tool that allows operators to launch campaigns across Google and Meta with AI-powered recommendations and ROI reporting. It has shown significant impact, such as generating $400,000 in sales for Pizza by the Sea in Florida.
International Expansion: Toast is expanding its platform globally, with notable wins in Ireland, the U.K., and Canada. International SaaS ARPU is up 20% year-over-year.
Food and Beverage Retail: Gaining traction with customers like Tri-County Meat Markets and DeLallo Italian Market. Toast is expanding its sales team and retail offerings to support this vertical.
Enterprise Growth: Secured its two largest deals ever this year, with a strong pipeline for future growth. Enterprise, international, and retail segments are collectively on pace to reach $100 million in ARR this year.
ARR Growth: Annual Recurring Revenue (ARR) surpassed $2 billion, doubling in just two years. Both payments and SaaS ARR exceeded $1 billion for the first time.
Margin Expansion: Core business operates at a 40% EBITDA margin, with incremental margins tracking higher. Adjusted EBITDA for Q3 was $176 million, a 35% margin.
New TAMs (Total Addressable Markets): Investing in new verticals, geographies, and segments with the potential to surpass the core business. Aims to scale from 156,000 locations to 500,000 and beyond.
AI and Data Differentiation: Leveraging AI and data to enhance platform capabilities, such as Toast IQ and Toast Advertising, to drive customer adoption and differentiation.
Market Conditions: Economic uncertainties and market conditions could impact the company's ability to sustain growth, particularly in new TAMs and international markets.
Competitive Pressures: The company faces competition in its core U.S. SMB business and new markets, which could affect its ability to maintain high win rates and market share.
Regulatory Hurdles: Potential regulatory changes in international markets and the U.S. could pose challenges to the company's operations and expansion plans.
Supply Chain Disruptions: Higher tariff costs and potential supply chain issues could impact hardware and professional services gross profit.
Strategic Execution Risks: Investments in new TAMs and international markets require significant upfront costs, and there is a risk of not achieving the expected scale or market leadership.
Economic Uncertainties: Economic conditions could affect GPV growth and customer spending, impacting the company's financial performance.
Operational Challenges: Scaling operations in international markets and new verticals may present operational complexities and risks.
Revenue and ARR Growth: Toast surpassed $2 billion in ARR for the first time and aims to scale to $5 billion and $10 billion in ARR over time. Management expects to sustain growth over 20% at a multibillion-dollar scale by 2026.
Market Expansion: Toast plans to expand its TAM into new verticals and geographies, aiming to scale from 156,000 locations to 500,000 locations and beyond. International SaaS ARPU is up 20% year-over-year, and enterprise, international, and food and beverage retail segments are collectively on pace to reach $100 million in ARR this year, with potential to grow to $1 billion ARR over time.
AI and Data-Driven Innovations: Toast is focusing on AI-driven products like Toast IQ and Toast Advertising to enhance customer experience and operational efficiency. Toast IQ has been adopted by over 25,000 restaurants since October, and Toast Advertising is driving significant ROI for customers.
Profitability and Margins: Toast's core business operates at a 40% EBITDA margin, and the company is investing in new growth areas while maintaining healthy payback periods. Adjusted EBITDA for 2025 is expected to reach $615 million, with margins expanding over time.
Guidance for Q4 2025: Toast expects total fintech and subscription gross profit to grow 22%-25% year-over-year in Q4 2025, with adjusted EBITDA projected between $140 million and $150 million.
Share Repurchase Program: Year-to-date through the third quarter, we repurchased 1.5 million shares or $54 million. We will continue to be opportunistic based on market conditions and act judiciously in support of building long-term shareholder value.
The earnings call summary indicates strong financial performance with increased GAAP operating income, SaaS ARR, and payments ARR. The Q&A section supports continued market share gains and resilient consumer behavior. Although some questions about technology contributions and monetization strategies were not fully addressed, the overall sentiment is positive due to strong financial metrics, optimistic guidance, and the potential for continued growth and innovation.
The earnings call reflects a positive sentiment due to strong financial performance, strategic partnerships, and growth in new and existing markets. Despite a sequential decline in EBITDA due to strategic investments, the overall guidance remains optimistic. The Q&A section highlights confidence in product innovation and market expansion, with analysts showing interest in Toast's strategic direction. The raised full-year guidance and new partnerships, such as with Amex, further support a positive outlook. Given these factors, the stock price is likely to experience a positive movement in the short term.
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