Toast, Inc. (NYSE:TOST) Q4 2023 Earnings Call Transcript

Toast, Inc. (NYSE:TOST) Q4 2023 Earnings Call Transcript February 15, 2024

Toast, Inc. beats earnings expectations. Reported EPS is $-0.07, expectations were $-0.11. Toast, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon. My name is Kate and I will be your conference operator today. At this time, I would like to welcome everyone to the Toast Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I’ll now turn the call over to Michael Senno, Senior Vice President of Finance. You may begin the conference.

Michael Senno: Thanks Kate. Welcome to Toast’s earnings conference call for the fourth quarter and full year ended December 31st, 2023. On today’s call are CEO and Co-Founder, Aman Narang; and CFO, Elena Gomez. We’ll open our 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 can be 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 or future financial and operational performance and operational expenditures, location growth, future profitability timeline and margin outlook, anticipated impact of our restructuring plan and share repurchase program, expected growth and business outlook, including our financial guidance for the first quarter and full year 2024.

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 uncertainties 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 topline 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 and our earnings presentation can be found on the Investor Relations website at investors.toasttab.com. We will no longer publish an earnings presentation on a quarterly basis going forward. After the call, a replay will be available on our website. With that, let me turn the call over to Aman.

Aman Narang: Thank you, Michael. Good afternoon everyone and thank you for joining today’s conference call. This is my 12th year since we launched Toast in my basement with Steve Forde and Jonathan Grimm back in 2012. And I’m honored to be here today with all of you and leave this great business as CEO on my first earnings call. Before I recap 2023 and look ahead to 2024, I do want to address one topic upfront. We’ve made the difficult but right decision to reduce our headcount by 10%. As you know, Toast grew rapidly over the past three years to support our growing customer community. As we’ve taken a look across the organization, it has become clear that we grew our team to quickly in some areas, and we need to restructure the organization to best align with our most priorities.

The changes we announced today primarily focused on noncustomer-facing roles and we remain committed to fitting healthy topline growth and delivering a best-in-class customer experience. I want to thank every Toaster passing present, including those who are leaving us for the important part, each of you played in getting us to where we are today. In the very immediate term, my priority is to ensure we navigate today’s decision with empathy and support for those affected. As we work through this transition, I’m confident we can tap into a renewed sense of optimism for the opportunity is. Our designing challenge for 2024 is to operate with a shared urgency against our mission, raise the bar on how we collaborate, and maintain a relentless focus on our customers.

Over the past decade, we’ve built a leading integrated software platform for the restaurant industry. And since our IPO in September 2021, we’ve launched so much innovation to help restaurants thrive, products like reservations, websites, scheduling, retail capabilities for restaurants, a full redesign of our POS experience, and more recently, our Toast-style operator app, to name a few. This focus on platform innovation has allowed us to double the number of restaurants in our platform to 106,000 and more than ARR to over $1.2 billion in IPO. As we look ahead, our conviction in the future is as strong as ever. We are well on our way to becoming the technology platform of choice for the entire restaurant industry. Continuing to deliver on our mission and serving as the technology backbone for restaurants will lead to significant value creation for all our stakeholders, our customers, our shareholders, and of course, our Toasters that support our community each and every day.

To accomplish this, we’re focused on four strategic priorities: first, scaling restaurant locations within our core business; second, driving ARR and ARPU by building products and experiences our customers love; third, expanding our addressable market by launching and scaling new growth vectors; and fourth, setting up the company to scale and deliver ongoing operating leverage. Now, let me walk through this in more detail. First, we will continue to win market share and scale restaurant locations within our core business. We added over 6,500 net locations in Q4 and ended the year with approximately 106,000 locations, a 34% increase versus 2022. Our ability to sustain over 30% location growth at this scale is a testament to our competitive differentiation.

Our all-in-one platform, our localized go-to-market approach, and the consistent execution by our sales and customer success teams. The momentum in our SMB segment has allowed us to double the number of flywheel markets over the past year, with 30% of our markets now in flywheel defined by over 20% SMB market share. Our rep productivity in flywheel markets is over 10% higher than other markets, leading to faster share gains. Even in our most penetrated markets where we have over 30% market share, we are still gaining share at a healthy clip. These markets are a benchmark for how we expect other markets to evolve over time and gives us confidence in sustaining healthy location growth. The foundation of our success starts with high-value full-serve restaurants, which our go-to-market team is prioritizing.

In addition, we’re gaining traction across the broader TAM as we expand our product offerings to serve different restaurant types. And as our addressable market grows and we see gradual adjustments in our mix across SMB, mid-market, enterprise, and international restaurants. We expect ARPU to continue to increase and GPV permission to remain above industry averages. Our team continues to ensure we maintain a healthy unit economics as we scale locations across these categories. In addition to our SMB market segment, which is our largest share — which is the largest share of the market and remains the biggest driver of net adds. We continue to see growth in our mid-market segment, including brands such as Wetzel’s Pretzels, The 99, Dirty Dough, Romano’s Macaroni Grill, that have joined Toast for the past year.

Let me highlight what FSR went from the quarter. Urban Prime marketplace and restaurant honored by Chef Ercan Ekinci in Florida opened in October. Urban Prime is an upscale FSR with large indoor and outdoor dining areas, as well as the broader market featuring a butcher shop, sushi and wine. After extensive research, Urban Prime selected Toast to consolidate their business across their thriving restaurant and gourmet market and are leveraging our POS terminals, Toast handle devices, pitch-display systems, online ordering, gift cards and marketing. Using our restaurant’s retail product, they were able to consolidate POS systems across their restaurant, end markets to simplify their front and back office operations and consolidate all the ride streams into a single back end.

In addition, they’ve also recently switched to Toast payroll to further streamline and simplify their business. It’s great to see Urban Prime expand with Toast and refer several restaurants to Toast. Our second priority is driving ARR and ARPU by building products and experiences our customers love. To complement our strong location growth, we are laser-focused on increasing ARR at scale. In 2023, we grew total ARR 35% year-over-year. We believe there is runway in our existing markets to continue to scale locations while also increasing blast and fintech ARR to product innovation, pricing and our continued investment in upselling existing customers through our growth sales team. [Indiscernible] product attach rates is an import of ARPU, many of our existing products have plenty of runway to scale and our product teams continue to act on customer feedback to enhance and expand their terminal attack potential across our customer base.

New customers, earlier this month, we rolled out simpler product packaging that will enable our new business reps to maximize initial product attach and ARPU, while benchmark strong location growth. And for existing customers, price adjustments is a new lever that we’re looking to build into our ongoing ARPU strategy. We’ll take a holistic approach across both SaaS and Fintech, and you should see progress from us in 2024 that we build on moving forward. One customer that has extended and adopted more of the platform is Angelo’s Ristorante in Massachusetts. Angelo’s is a classic Italian Eatery half fine dining, half tea cafeteria with joint Toast. On a busy Friday night, Angelo’s may send 40 to 50 tickets of kitchen in the short 15-minute period.

And to support this volume, they’re when looking for a new POS. After looking at 10 different systems, they chose Toast because we estimate their needs. Since joining Toast, Angelo’s SaaS ARR has almost doubled. Angelo, the restaurant owner has worked closely with us to add more products to grow revenue, including online ordering, catering events and Toast Tables. With Toast Tables, Angelo’s host can more efficiently manage stable table turnover and bring in more reservations. As a new payroll customer this year, Angelo is excited about the timing and cost savings we’ve seen so far. So, shifting to our next priority. Our third priority is expanding our TAM by launching and scaling new growth vectors. To complement our success across restaurants, our product team is hard at work to make Toast an even better fit across enterprise, hotel restaurants and international markets.

Last week, we announced an agreement with Choice Hotels. Toast will be the brand standard for Cambria and Radisson Hotels as well as a qualified vendor for other choice brands. Cambria and Radisson will leverage the best of the Toast platform, including Toast Online Ordering, Mobile Order & Pay, Kiosk and Toast Payments to support the different dining options across their properties. We are also thrilled to welcome Caribou Coffee to Toast. They chose us to maximize speed of service across their coffee shops and partner with a scalable restaurant platform to support their expansion plans. And internationally, I’m excited to share that we meet at 1,000 locations as of the fourth quarter. The team has worked hard to establish the Toast brand in parts of Canada, the UK and Ireland using the same localized go-to-market approach that has worked domestically.

The customer reception in these markets has been terrific, and it reminds me what we saw here in the US in the early days. As more of our platform is available at international markets, online ordering, guest marketing and reservations, we expect to drive higher ARPU and further improve our payback trajectory and margins. This is a priority in 2024. We’re confident that as the enterprise and international markets represent a significant growth opportunity for Toast. Additionally, we’re also looking to leverage our differentiated go-to-market engine, our all-in-one platform and our growing scale open up new opportunities for us. We’re seeding investments in new parts of the TAM where we believe our market position provides a competitive advantage.

Restaurant retail is a good example of this, and these nascent initiatives should further complement our growth potential over the long-term. Next, our fourth priority is setting up the company to operate and scale to deliver ongoing leverage. In 2023, we grew ARR 35% and adjusted EBITDA to $61 million, which was a $175 million improvement year-over-year. Our progress shows the scalability of our business as we balance growth and profitability. As we continue to grow, we’re committed to the ambitious priorities I laid out above as well as delivering increased operating leverage, including GAAP operating income profit by the first half of 2025. This effort includes managing our stock-based compensation expense with the same discipline that we approach all our expense lines.

Additionally, as we start to scale free cash flow, our capital allocation approach will evolve. This includes prioritizing organic investments in areas we have signal and conviction that we can grow, looking at M&A if we see the right opportunities and returning capital to our shareholders. To support this, our Board has approved a $250 million share repurchase authorization, which we will leverage opportunistically based on market conditions. We plan to regularly evaluate and optimize our capital allocation priorities and we will do so with a disciplined and transparent approach. All right. To wrap-up, I want to leave you with a few points that I covered today. We have a large opportunity ahead and have built the foundation to capitalize on it.

As we execute our playbook to deliver continued market share gains in our core business, we will invest in parallel and leverage our strengths to open up additional TAM and build new growth curves. We will sustain ARPU and ARR growth through a combination of product attach and pricing, and we’re confident we have a scalable business model, and we’ll continue to balance growth and profitability. I want to thank all our toasters including those who will be leaving us for your dedication and contribution to test. As I said earlier, this week is a tough week. But I’m confident that we will move past this and over time, build a stronger Toast. I also want to thank our customers for entrusting us to support this incredible community. And I want to thank our shareholders for believing in us and the potential in this business.

Thank you and now I’ll turn it over to Elena.

Elena Gomez: Thank you, Aman and to everyone for joining. I’d like to thank all of our testers for their hard work and commitments, including those we are saying goodbye today. Organizational changes like these are hard though this is a necessary step to streamline how we operate and position us to go faster to capitalize on the opportunity ahead. In 2023, we showed our ability to balance durable growth and profitability. For the year, Toast processed over $125 billion in payment volume, up 38%. ARR grew 35% and total fintech and subscription gross profit, our recurring gross profit streams increased 49% for the year. And we are efficiently scaling the business and driving cost discipline, delivering adjusted EBITDA of $61 million, a 6% margin on our recurring gross profit stream, 22 percentage points better than 2022.

Over the past two years, we’ve embedded durable efficient growth out of a principle of how we operate the business. The midpoints of our 2024 guidance at 24% growth in our recurring gross profit streams and $210 million in adjusted EBITDA reinforces this and puts us on track for GAAP operating income profitability by the first half of 2025. As you heard from Aman, we are still in the early stages of our growth potential and committed to maintain the same approach as we lean into the growth opportunity and continue to scale. The three main areas I want to cover today are our fourth quarter results, our guidance and the impact of our restructuring lens, and our capital allocation approach, including the $250 million share repurchase program we announced today.

Starting with our fourth quarter results. We added over 6,500 net locations, increasing our total locations to approximately 106,000, up 34% year-over-year. SaaS ARR grew 43% year-over-year, driven by the strong location growth and a 7% base in SaaS ARPU as we lean into our customer acquisition momentum and balance ARPU growth. Our SaaS net retention rate remained in a healthy range at 117% led by solid contributions from upsell and location expansion from existing customers. Fourth quarter payments ARR grew 28% and fintech gross profit increased 29%. Fourth quarter GPV is 32% to $33.7 billion, and GPV per location declined modestly year-over-year, in line with our expectations and consistent with the trend exiting the third quarter. As a reminder, fourth quarter GPV relocation is seasonally lower than the third quarter, and payment ARR reflects the same seasonality.

Net take rate was 52 basis points in the quarter. Our non-payment fintech solutions led by Toast Capital, contributed $34 million in gross profit in Q4, reflecting steady healthy demand. We continue to take a balanced approach to growing Toast Capital and our unique position with real-time access to POS data allows us to monitor the health of restaurants and prudently balanced risk while helping our customers grow as fast, flexible access to capital. ARR remains our North Star. As Aman laid out, our two growth vectors, locations in ARPU, we have multiple levers to sustain healthy ARR growth over time. We will prioritize the highest value locations to extend our success in this segment of the market. At the same time, the breadth of our integrated platform and ongoing product innovation, opens up the entire restaurant TAM to us and we plan to catalyze or that opportunity to drive further share gains.

As we expand, we will remain grounded in unit economics and will tightly manage payback periods across the portfolio to ensure we drive incremental profit as we scale our locations. In 2023, our dollar-based payback period was 14 months, in line with our target for the quarter and an improvement from 2022 to even as we expanded into more parts of the hand and increased our international investment. In fintech, our long-term growth drivers for increasing core net take — take rate remain, driving towards lowest cost per transit leveraging our unique customer relationships to provide additional fintech solutions. We anticipate SaaS ARPU growth to be in mid-single digits over the near-term, driven by increasing attach and pricing. Across both SaaS and fintech, pricing is a lever that we will use methodically to monetize value we provide customers.

As Aman discussed, this is a capability we are building to be an ongoing part of our growth algorithm over time. Turning to our expenses, we manage hardware and services as customer acquisition costs and provide these on a discounted basis to offer an easy, low friction on-ramp for customers. Q4 hardware and services gross margin improved 19 percentage points compared to last year, primarily reflecting lower shipping costs and ongoing operational efficiencies. Sales and marketing expenses increased 18% year-over-year in Q4 as we continue to invest in our upsell and international sales team and make targeted investments in our US new business team to drive deeper penetration. Sales and marketing as a percentage of our recurring gross profit streams improved by 400 basis points in Q4 relative to last year.

Our go-to-market motion is a competitive differentiator and an important part of our ability to efficiently scale the business, enabling us to sustain healthy ARR growth while moderating investments in sales and marketing. R&D expenses grew 17% year-over-year in the fourth quarter. Our product investments are aligned with our priorities to serve more of the TAM to expand ARPU by increasing the addressability of our products and serving more of our customers’ needs and to see longer term growth initiatives. Complementing these priorities is an emphasis on delivering best-in-class customer experiences and building scalable, resilient infrastructure to support hundreds of thousands of locations. G&A expenses grew 5% year-over-year in the quarter, excluding $20 million of bad debt and credit-related expenses primarily related to reserves for Toast Capital, G&A was up 3%.

That’s a result of our ongoing efficiency efforts and prudently managing overhead expense. Adjusted EBITDA was $29 million in the quarter, the 10% margin on our recurring gross profit streams marked a 19 percentage point improvement from Q4 last year, driven by the combination of continued strong topline growth and operating leverage as we efficiently scale the business. Free cash flow totaled $81 million in the quarter and $93 million for the full year. We converted over 100% of adjusted EBITDA to free cash flow with working capital benefiting from stronger GPV trends in December. Over time, we anticipate the trajectory of free cash flow to broadly mirror adjusted EBITDA. Free cash flow is typically lower in the first quarter each year due to seasonality of our payments business and the timing of cash bonus payments and this year in Q1 will also include severance payments.

Given these factors, we expect free cash flow to be negative in Q1, then accelerate as the year progresses. In terms of the restructuring we announced today, we anticipate recognizing $45 million to $55 million in restructuring and related charges for the year, with most of it falling in Q1. In total, we expect over $100 million in annualized savings, including stock-based compensation from the restructuring and lower hiring. We will reinvest a portion of savings into our highest conviction growth initiatives. Our 2024 topline guidance is for the combination of subscription and fintech non-GAAP gross profit, our recurring gross profit streams which is the P&L metric that most closely aligns with ARR. In Q1, we expect 22% topline growth and $20 million in adjusted EBITDA at the midpoint.

This reflects slower GPV trends in January due to weather headwinds across many parts of the country. GPV has stabilized over the past few weeks, and we continue to closely monitor. Net location as in 2024 will follow the typical seasonal pattern, we expect a lower Q1 similar to Q1 last year in the 5,500 range, then location adds will peak in Q2 as restaurants prepare for busy season. More broadly, with a healthy pipeline, consistent go-to-market execution and increasing contribution from new segments as the year progresses, we are well positioned to add more locations to our platform in 2024 than last year. On a full year basis, the $210 million midpoint of our adjusted EBITDA guidance reflects a nearly $150 million improvement and margin expansion of 10 percentage points relative to 2023.

As we drive efficiency and increase profitability, we’ll prudently invest in our highest priority growth areas, including product innovation and our go-to-market engine. In addition, we will continue to invest in longer term initiatives where we have conviction like international expansion and enterprise as well as plant seeds and newer initiatives where we see a clear right to win to expand our market opportunity and extend our growth potential. Stock-based compensation is an area we’re managing with the same rigor and discipline as other expenses. Through a combination of disciplined headcount management, including the restructuring plan announced today, changes to equity granting practices and the roll-off of large grants made in 2021 and 2022 over the next couple of years, our goal is for stock-based comp to decline from 27% in 2023 to low double-digits as a percentage of our recurring gross profit streams over the medium term.

Managing our equity program will also improve dilution. We are committed to maintaining net share dilution of total fully diluted share count, which includes all stock awards to below 2% annually. With the combination of continued adjusted EBITDA margin expansion and leverage in our stock-based compensation, we are on track for GAAP operating income profit by the first half of 2025. Lastly, let me turn to capital allocation. As our free cash flow profile grows, our capital allocation strategy will evolve. Our top priority continues to be investing organically in our business to drive sustainable long-term growth. Even as we strategically invest, we are committed to driving increasing free cash flow. With excess free cash flow, we will evaluate M&A.

So we will hold a high bar given the strong organic growth outlook, and we’re adding the option to return capital to shareholders to our capital allocation tool kit with a $250 million share repurchase authorization. We do not have a timetable on repurchases and will act judiciously and opportunistically. We plan to regularly optimize across these priorities to do what’s best for the business at any given time. We will always optimize for long-term shareholder value. To wrap-up, we are executing across the board, growing our location count, driving value for our customers, seeding new longer term growth initiatives and positioning the company to operate fast and nimble going forward. We are planning to host an Analyst Day during the second quarter where we will put deeper into our business and share more about our market opportunity and strategy.

I’m incredibly excited about what lies ahead for Toast. Thank you. And now I’ll turn the call back to the operator to begin Q&A.

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Q&A Session

Operator: Thank you. [Operator Instructions] Your first question will be from the line of Will Nance with Goldman Sachs. Your line is now open.

Will Nance: Hey guys. Appreciate all the color today and congrats on the strong results. You mentioned pricing a couple of times in the prepared remarks. So maybe you could just kind of expand a bit on in terms of how you’re thinking about pricing. I know it’s something you, guys, have been talking about in the past couple of quarters. And then, Aman, maybe just a numerical clarification on the guidance, the mid-single-digit ARPU. Is that on an ending basis, kind of like we discussed last year? Or is that more on an ongoing basis over the course of the year? Thanks.

Aman Narang: Sure. Thanks, Will. I’ll start by saying, if you look at pricing, it’s an important lever for us, but we plan to use it gradually as part of a broader strategy. We’ve been at this for over a decade, and we’re continuing to invest in our restaurant-specific platform, to help restaurant’s drive. And I think our customers understand that we continue to invest in this platform that we will increase prices over time. If you look at our new customers that are joining our platform, they’re paying us more across both SaaS and fintech. And over time, we expect that existing customers, we will make those adjustments gradually, and it’s going to be a lever that we’ll use over time.

Elena Gomez: Yes. And I can — Will, you had the question about SaaS and is that an ending point over the course of the year, and we expect it to be in that range over the course of the year.

Will Nance: Got it. I appreciate both of those. And then maybe just a follow-up question on Toast Capital, that’s been, I think, a little over a year since you rolled out the longer duration products there. You kind of mentioned prudently managing that. Just wondering if you could kind of talk about your expectations for that product? Is there something you, guys, are kind of looking to get more data on or kind of more history? And how should we think about kind of the potential for that product as you continue to scale it. Thanks.

Elena Gomez: Yes. Thanks Will for the question. So, at the highest level, we’re really pleased with the performance of Toast Capital and customer demand has been really steady and default rates are in line with our expectations to, really confident in the program overall. We did launch the 360 program last year. Now, we’ve lapped that. So, we’re more in a steady state, I would say, in the business but still seeing healthy demand. And I would expect over this course of this year, it will grow more in line with the rest of the business. But we’ll scale it prudently, as you mentioned. And then over the longer term, I think we have an opportunity to continue to evolve and offer more fintech solutions to our customers. But for now, we’re going to focus on optimizing this program. It’s working well.

Will Nance: Got it. Appreciate you taking the questions. Congrats again.

Aman Narang: Operator, we’ll take the next question.

Operator: Thank you. The next question will be from the line of Harshita Rawat with Bernstein. Your line is now open.

Harshita Rawat: Good afternoon. Thank you for taking my question. Elena, can you talk about the dynamics on the gross profit on the fintech side. Looks like the net take rates came down a little bit. I know there’s some seasonality here, but can you talk about the drivers here, especially looking forward? I know some of your peers have commented on favorable pricing environment. And then just as a follow-up, Aman, can you talk about the overall data for Toast to new business formation which has been kind of running above trend over the last period? Thank you.

Elena Gomez: I’ll cover the first question. I didn’t hear clearly the second question so we may ask you to repeat it if that’s okay. On the take rate question, take rate in Q4 was 52 basis points, 10 basis points of that is related to Toast Capital. Our core take rate was 42 basis points. And so that — and that was — there were some customer credits in that take rate. Nothing structural to consider over the long-term. As we think about take rate over the next year, have that same seasonal pattern we do in Q1 where because of debit, it’s higher. But as the year progresses, we should see it improve mostly because we’re going to continue our cost optimization efforts, we’ll have some surgical pricing that’s planned in the latter half of the year. And then longer term, of course, as I will talk about, we always continue to optimize our take rate and drive it up steadily over time. And then your second question, do you mind repeating it?

Harshita Rawat: Yes, of course. So, it was about your beta to overall like new business formation on the location adds. I know overall, if I look at like new business formation restaurants, it’s been running higher versus trend on the long-term trend. So, just any comments there. Thank you.

Aman Narang: Yes. Thanks Harshita. Look, we’ve seen continue to see fairly balanced between new opening existing restaurants. Post-COVID, we saw a bit of tailwind from new restaurants, but that hasn’t tailed off in any material way. I’d also just say, if you zoom out, we’ve been at this for over a decade. And we’re the first to build this vertically innovative restaurant-specific platform, and we’ll continue to invest. And what we see is across both existing restaurants and new restaurants, we see our sales team able to continue to create market share across both. This is across FSRs and QSRs. And so even in a world where there’s some movement in terms of the number of new openings, and we’re confident in our ability to continue to gain share.

Harshita Rawat: Thank you.

Operator: Thank you. The next question is from the line of Tien-Tsin Huang with JPMorgan. Your line is now open.

Tien-Tsin Huang: Thank you and I appreciate all the profitability focus here. So, my question, Elena, for you, you were spot on with your location outlook here in the second half of 2023. You mentioned you’re going to add more in 2024 than 2023. A question I get quite often is how did the new location additions differ than what you’ve seen in the past year or two years ago. I think there’s a — there’s always this question of other smaller GPV potential locations. Can you maybe just comment on that big picture-wise? Thank you.

Aman Narang: Yes. I’m happy, Tien-Tsin. Thanks for the question. I’ll repeat what I just said. If you think about our mission. We’ve been at this for 12 years now. And we were the first ones to build a platform that was purpose-built for the restaurant industry. And the team is continuing to invest to make it accessible across all restaurants, right, starting in the US and over time globally. If you look in the near-term, like SMBs continue to drive the majority of our growth, and we see a lot of — as we gain share. We’ve talked about how as we get into markets, I talked about this in my prepared remarks. We see more and more markets getting into [Indiscernible] state, which is markets that have over 20% share. And then we’re also expanding our products to go after the broader TAM, starting with the US TAM, and enterprise market as well as mid-market and DSMB and then in international markets as well.

The impact to GPV as we expand the TAM should be minimal and gradual. Our average location, we expect will continue to remain above industry averages. And as we mentioned, like this year, we expect ARPU to continue to grow in 2024 to complement our location growth and be a vector of growth. And the team is very focused on making sure that as we get into new parts TAM, there are looking at payback periods to make sure that we’re help getting economics across the broader TAM.

Tien-Tsin Huang: Great. No, thanks for going through that. I didn’t mean to be redundant, but just wanted to cover that. Then just maybe as a follow-on with that ARPU comment, just the attached products. Is that evolving as well? I know the 43% using 6 plus has stayed there, but is the composition of products be taken changing at all? I know that a lot of your peers are pushing some of the higher-end stuff like payroll as well. Any update there? Thank you and I’ll jump off.

Aman Narang: Sure. Thanks, Tien-Tsin. Yes. Look, we’re seeing — one of the things we just rolled out was pricing and packaging 3.0, the new version, and it’s really helping our new business reps optimize with location growth, as well as maximizing our ARPU upfront, and we’re balancing that with our upsell team that we’re continuing to scale. In terms of the product attach rates, there’s nothing that’s fundamentally changed. We’re seeing healthy growth across our employee cloud products, our fintech products, our guest products. And the R&D team continue to focus on getting customer feedback as we continue to scale locations to see what are ways in which we can increase terminal attach in terms of expanding the product market fit for these products. But we continue to see healthy growth across the portfolio of products that we offer. Thanks Tien-Tsin. Operator, we’ll take the next one.

Operator: Thank you. The next question is from the line of Stephen Sheldon with William Blair. Your line is now open.

Stephen Sheldon: Hey, thank you. So great to hear that you’re now over 30% SMB market share in some markets. And I think you noted in those markets, you’re still seeing healthy share gains. But curious if market share gains seem to be slowing down some once you hit a threshold like that, you reach some level of saturation where it gets a lot harder to grow locations in some of those markets?

Aman Narang: Yes. Thanks for the question Sheldon. I mean, I mentioned this in my prepared remarks, but even in our markets where we have the highest SMB patient, this is over 30%. We’re still seeing some of the strongest rep productivity and some of the strongest conversion in productivity. I think a lot of that is driven by just the social proof as we make more customers successful in these markets. We continue to see strong growth. So, we haven’t seen any change in terms of the rate at which customers are joining our platform as we get more share in these local markets.

Stephen Sheldon: Got it. That’s helpful. And then a follow-up with international monetization, seeming like it’s picking up. I think you noted a 1,000 locations those three markets. How are you thinking about expansion into other markets beyond those three that you’ve been focusing investment on so far?

Elena Gomez: Yes, it’s a good question. We are — for the moment, we’re really focused on the markets that we’re in. We’re still early in the early days there, and we’ve got — we’ve been focusing on the go-to-market motion and honing that and building out the platform. So, we want to continue to focus there, but we’ll update you should not change. But for the near-term, we’re focused on the contributions that we’ve talked about, which is the UK, Canada, and Dublin.

Aman Narang: The only thing I’ll add in those markets, we see tremendous potential for growth, right? It’s still in the early days of I think what’s possible. The reception received from these customers in these markets is very similar to what we saw in the U.S. or early days, and we want to make sure that we’re able to get these markets to a great spot before we think about expanding beyond that.