Toast, Inc. (NYSE:TOST ) Q4 2021 Earnings Conference Call February 15, 2022 5:00 PM ET

Josh Baer - Morgan Stanley

Brent Bracelin - Piper Sandler

Stephen Sheldon - William Blair

Andrew Bauch - SMBC Nikko

Kartik Mehta - Northcoast Research

Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.

00:04 Good afternoon, everyone and welcome to Toast Fourth Quarter 2021 Earnings Conference Call. I'm Edward Parker, (ph) Investor Relations. Today, our CEO, Chris Comparato; and CFO, Elena Gomez will join us and discuss our fourth quarter and full year results. After their prepared remarks, we'll take questions.

00:19 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 considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

00:39 All statements other than statements of historical fact are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, expected growth, and business outlook, including our financial guidance for the first quarter and full year 2022.

00:56 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.

01:14 During this call, we will present both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for GAAP results. Please refer to our press release, which lays out the detailed reconciliation of GAAP to non-GAAP measures, including some new adjustments we've made this quarter. Both the press releases and a replay of this call, including the accompanying investor presentation will be available on our Investor Relations website.

01:36 With that, I'd like to turn the call over to Chris.

01:41 Thanks, Edward and thank you all for taking the time to join us today. Toast delivered a strong fourth quarter and fiscal year 2021, as restaurants need for an all-in-one platform to help them thrive has only become more important. Before I jump into our results for the fourth quarter and fiscal year, I want to provide you with an overview of our business.

02:06 First, let me remind you about our big ambitions. We have an amazing opportunity to empower the restaurant community around the world to delight their guests, do what they love and thrive. That is our mission. Toast provides restaurants with an all-in-one digital technology platform that combines point of sale, front of house, back of house and guest facing technology integrated with financial technology and payments all built with the restaurant success in mind.

02:38 Toast works for all restaurants regardless of size, concept or cuisine from independent cafes to enterprise brands. We serve every stakeholder from the guest to the GM or owner to the waitstaff, to the chef, suppliers and the entire ecosystem. This past year was transformational for Toast, as we executed on our plan and became a publicly traded company.

03:06 Our initial public offering in September was a big milestone for our company and our customer community and the momentum continued through the end of the year, resulting in a very strong Q4. Our community grew rapidly as we added more restaurants to our platform and as the percentage of live customers on our platform using four or more modules continued to increase. This is a result of our strong focus on execution.

03:32 Let me share a few financial highlights. During the quarter, revenue increased 111% year-over-year to $512 million and annualized recurring run rate or ARR increased 74% year-over-year to $568 million. This was driven by continued strength in gross payment volume or GPV, the addition of new locations to our platform as we capture market share and continued customer adoption of our growing portfolio of products.

04:08 The industry continues to rebound from the impact of COVID-19 and GPV on our platform increased to $17 billion in Q4, a 125% increase year-over-year. We ended the quarter with approximately 57,000 live locations on our platform, up from approximately 40,000 locations in Q4 of 2020, representing a 41% increase year-over-year.

04:38 As our customer community grew, we also saw accelerated adoption of our platform as a percentage of customers using four or more core modules beyond point of sale and payments increased from 48% in Q4 of 2020 to 59% in Q4 of 2021. As a result, our software-as-a-service ARPU increased year-over-year by 30% from Q4 of 2020. Finally, as customers rely on Toast to run their businesses, our net retention continues to be strong and was 135% for 2021 as Elena will discuss in a few minutes.

05:21 Now I'd like to take a moment and provide some context on the industry as a whole. Throughout 2021, the operating environment remains challenging for restaurant operators as they face the dual challenges of shifting workforce dynamics in a sustained labor shortage alongside rising input prices due to supply chain disruption and accompanying inflation.

05:48 As you can imagine, it is challenging to run a restaurant in this environment and we are committed now more than ever to being the true partner to the restaurant industry just as we've been since the onset of the pandemic and for the last 10 years. With this backdrop, what we have learned in our history serving the industry is that restaurant operators are incredibly resilient.

06:15 Even before COVID-19, the industry was transforming, dining itself was changing from mobile order and pay at the table to delivery and online ordering. The pandemic accelerated these changes. When looking at the performance of restaurants on the Toast platform, we have been impressed by their ability to take full advantage of the platform's capabilities to reinvent their business and navigate the impact of COVID-19. Later this month, we will publish the first addition of our quarterly restaurant trends report, which gives visibility into the overall state of the restaurant industry through sales data from restaurants on the Toast platform.

06:57 Let me share a few highlights today. As the industry rebounded from the impact of COVID-19 in 2021, restaurant sales as measured by same store GMV or gross merchandise volume on the Toast platform increased by 41% year-over-year from 2020 to 2021. Overall, same-store sales of Toast customers continue to exceed pre-COVID levels as evidenced by GMV per location, increasing nearly 6% from Q4 2019 to Q4 2021.

07:35 These are just a few strong signs that the restaurant industry, while continually battle tested is resilient. We will continue to lobby congress to replenish the Restaurant Revitalization Funds, but we are also glad to see Toast adoption contributing to restaurant success and helping restaurants navigate through this difficult time.

08:02 To better support our customers in the restaurant industry at large, as they re-imagine their businesses, we hosted thousands of restaurant operators for a virtual addition of Spark, our restaurant innovation event where we previewed the newest Toast technology. During the course of the day, we unveiled an entire suite of new products designed to help restaurants take control of their finances, navigate the labor shortage, regain control of third-party delivery and better manage their P&Ls. This -- the response from our customer community was overwhelmingly positive.

08:37 So let me share two examples. As many of you know, there are substantial demand for faster access to capital in the restaurant industry, as both their point of sale and payments processor for restaurants we have unprecedented visibility into the health of their business. Nearly two years ago, we introduced Toast Capital, which allows restaurants to borrow money and pay that money back as a percentage of daily sales. Restaurants absolutely love this product as they pay back more on busy days and less on slow days.

09:12 At Spark, we introduced a new longer duration loan product, and the demand for this new product has been robust. During calendar year 2021, we originated over $100 million in Toast -- in total Toast Capital loans. A second highlight from Spark was the introduction of an enhanced suite of products designed to help restaurants maintain control of takeout and delivery. With Orders Hub, Toast has helped more than 20,000 restaurants manage both takeout and delivery orders from first-party Toast ordering channels and third-party providers.

09:54 Toast is the first restaurant technology platform to deliver direct integrations with the five largest third-party delivery brands, DoorDash, Caviar, Grubhub, Postmates, and Uber Eats. And our performance center provides unique visibility into the profitability of each channel when used together this new suite of products enables our customer community to truly take control of their takeout and delivery business. We're excited about how our customers are using these new products announced at Spark and how they further our position as the leading all in one platform for restaurants.

10:33 Throughout the quarter, we experienced robust demand in the market for the Toast platform. In 2021, we added around 17,000 new restaurant locations on the platform. Throughout Q4, we saw incredible demand across all segments, from single location SMB restaurants to regional mid-market and large enterprise brands. This quarter, we signed a new deal with Sinelli Concepts, the holding company for multiple national restaurant and retail brands, including Which Wich Superior Sandwiches, Pachinko, Gelato Cafe, Birdguesa Tenders & Tots, SuperNova and Earth Burger.

11:15 Sinelli Concepts is looking to improve efficiency by moving its business to a digital platform. It will be rolling out Toast to 250 locations nationwide for point of sale, kitchen display systems and kiosks. We also signed a new deal with Cohn Restaurant Group, which is rolling out Toast for front of house with Toast Go and order and pay at the table and back of house with our kitchen display system. Cohn Restaurant Group will use Toast at 35 locations both in California and Hawaii and will continue its efforts in converting its entire technology stack to a best-in-class cloud-based platform.

11:55 Pavement Coffeehouse, an independent and locally-owned coffee house with eight shops in Boston and Cambridge, purchased Toast POS and payroll in Q4. Toast is replacing multiple vendors for loyalty, payroll, gift cards and online order. By consolidating on Toast, customers like Pavement Coffeehouse can see lower total cost and experience the benefits of an integrated platform, common UI, shared data and a single partner -- a single partner relationship to manage. In addition to the exciting growth across our customer community, we also welcomed a new Board member to our Board of Directors in Q4.

12:42 Hilarie Koplow-McAdams joined the Toast Board of Directors on November 30. If you're not familiar with Hilarie, she has spent more than three decades in operating leadership roles devoted to accelerating high growth software companies through sales, business development, customer success and more.

Currently, she is a venture partner with New Enterprise Associates, NEA, a venture capital firm. Prior to NEA, Hilarie served as the President of New Relic, President of Global Sales at Salesforce and also held executive roles at Intuit Inc. and Oracle Corporation. We are really excited about having Hilarie on our Board. Welcome to the team, Hilarie.

13:28 Before I wrap up and pass the call to Elena, I thought it would also be helpful to tee up our primary focus areas that we look forward to updating you on in 2022. The first is our focus on being the trusted platform of choice for the restaurant industry. There are approximately 860,000 restaurant locations across the U.S. and we see an enormous opportunity ahead within this large addressable market.

13:59 As evidenced by our growth in Q4, there is tremendous demand for the Toast platform as restaurant operators navigate the new normal. Toast is the all-in-one technology platform built exclusively for restaurants by people who understand their specific needs. Second, our industry has been through a massive transition during the past two years. To help our customer community navigate this transition, we will continue to invest in their success for commitment to customer success and support.

14:35 Third, given our momentum in mid-market and enterprise, we are confident in our ability to serve restaurants of all types and sizes. I shared earlier just a few examples of mid-market and enterprise wins this past quarter, and we will continue to invest in our capability here. Finally, we have a substantial opportunity to provide our platform to international locations. As discussed earlier, we estimate our total addressable market at least doubles the U.S. opportunity if we look globally. In late 2021, we started our initial investment to cede our international expansion.

15:19 With that. I will close by saying, I am honored and humbled to be part of supporting the restaurant industry through this past year. I'm also equally excited about 2022. Restaurants are resilient, they make up the social fabric of our community and we believe our commitment to aligning our success with restaurant success will lead to a stronger and exciting future ahead. I'd like to thank our customers, our partners and our Toast employees for their hard work and support in 2021. The financial results we're sharing today wouldn't be possible without your confidence in our platform, commitment to the industry, and unwavering support for our vision.

16:08 Now I'd like to hand it over to our CFO, Elena Gomez.

16:11 Thanks, Chris. And I just want to echo the -- thank you to our employees and to our customers. 2021 has been an unforgettable year. And I appreciate your commitment and dedication to our company. So I'm going to remind you, as I get into results, that we will refer to GAAP and non-GAAP measures. Refer to today's press release for a reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures.

16:43 As Chris mentioned, we had a strong Q4 to exit 2021 and to cap off the year we became a public company. With continued momentum in Q4, we outperformed all key metrics, which is testament to the strong execution of our collective team. We are proud of the new locations we added to our platform through 2021, which reflect the value of our all-in-one digital platform.

17:07 In Q4, we generated revenue of $512 million, up 111% year-over-year and $1,705 million for the full year 2021, a 107% increase year-over-year. We closed the year at $568 million in ARR, up 74% year-over-year. We continue to believe ARR is our North Star metric. As Chris said, we ended the year with approximately 57,000 live locations on our platform compared to 40,000 in Q4 2020, representing a 41% year-over-year growth.

17:44 In addition, we're also proud to report that our net retention rate also referred to as NRR, which we reported in our S1 to be greater than 110% for the last five years was 135% in 2021. NRR comprises both SaaS and fintech solutions revenue, both of which had a retention rate above 110%. SaaS NRR was strong to the expansion of locations from our existing customers as well as customers adding more products.

18:12 From a fintech perspective, we have shared with you that in 2021, we've benefited from higher debit and credit mix as well as higher card not present volume. In 2022, we anticipate these trends will have largely stabilized and as such we expect NRR going forward to trend closer to 110% as we shared in the S1.

18:32 Our subscription services revenue grew 86% year-over-year to $54 million in the fourth quarter, driven by an increase in customers adopting more of our SaaS products. As of the end of 2021, 59% of our Toast locations use four or more core products on top of our integrated POS and payment solution as compared to 48% a year ago.

18:56 Our financial technology solutions revenue grew 117% year-over-year to $421 million in the fourth quarter driven by GPV of $17 billion, which had an increase of 124% year-over-year. GPV is driven by transactions processed on our platform. Since early 2021, annualized GPV per process location continues to remain strong at an average of $1.3 million per location.

19:23 As a reminder, our GPV per location dropped by 45% at the onset of COVID but has steadily returned to above pre-COVID levels. As we have stated before, there's quarterly seasonality with our financial technology solutions revenue as restaurants on average generally performed better in the second and third quarters. Given that we continue to anticipate seasonal fluctuations in the annualized GPV per location from quarter-to-quarter. However, on an annualized basis, our GPV per location is consistent and remains durable.

19:54 For the fourth quarter, non-GAAP gross profit, which excludes stock-based compensation and depreciation and amortization expense that was a mouthful, (ph) came in at $82 million, up 54% year-over-year. In addition to the growth in our customer base, this growth was driven by higher revenue per location, which in turn has been driven by continued growth in average revenue per unit known as ARPU for both SaaS and financial technology solutions. We are pleased with our ARPU performance as a driver to non-GAAP gross profit and we believe that such performance can be sustainable.

20:27 Drilling down into our ARPU performance, we've seen our SaaS ARPU increase as a result of continued adoption of our platform by both new and existing customers. We continue to invest in our technology and remain highly focused on driving innovation across our product portfolio. Our fintech solutions ARPU is up more than 50% from Q4 2019 or pre-COVID levels, primarily as a result of GPV per location and card not present volume.

20:55 As a reminder, two factors that influence fintech solutions ARPU are the mix of card not present volume and the debit credit mix. Consumers continue to utilize digital channels and as such, we believe the card not present volumes will remain elevated. The debit credit mix has returned to pre-COVID levels.

21:14 Turning to hardware cost of revenue as shared in the last earnings call, our freight costs remain elevated due to supply chain dynamics. We continue to believe they will remain elevated through the near term. Despite increased hardware cost, however, we remain confident in our ability to deliver hardware for our customers.

21:32 Before I turn to operating expenses, I want to remind you that we use customer acquisition cost and payback metrics to measure the performance of our business and guide our investment decisions. We are proud to share that our payback period for the full year 2021 was approximately 12 months. Our healthy unit economics and strong payback periods continue to make us feel confident in our ability to invest for durable growth.

21:55 Now let's turn to our operating expenses, which I will review on a non-GAAP basis. In Q4, we continue to invest in sales and marketing and research and development to capture our TAM and build out our platform. Additionally, general and administrative cost increased as a result of operating as a public company. This includes cost from the adoption of the new credit loss -- of the new credit losses accounting standard in Q4 and increased investment to support the growth of our business. As a result of these investments, adjusted EBITDA for the fourth quarter was negative $45 million for Q4 and negative $42 million for the full year 2021.

22:33 Now let me turn to guidance. For the first quarter, we expect revenue to be in the range of $469 million to $499 million, which represents 72% year-over-year growth at the midpoint. We expect adjusted EBITDA to be in the range of negative $65 million to negative $55 million. For the full year 2022, we expect revenue to be in the range of $2,349 million to $2,409 million, which represents 48% year-over-year growth at the midpoint and adjusted EBITDA to be in the range of negative $240 million to negative $200 million.

23:08 As you can see, we are deliberately investing to drive long-term growth. The stakes have never been higher for restaurants. The restaurant industry is going through massive change driven by undeniable trends in the world across labor, supply chain and guest adoption of technology. Our investments in 2022 are reflective of this opportunity we have ahead of us. With only approximately 7% market share here in the United States, we continue to believe we are in the early innings of this opportunity. As such, we will continue to invest in research and development as well as in sales and marketing to cost effectively capture our market share.

23:48 Our primary focus is on being the trusted platform of choice for the restaurant industry. Our business is performing well and there is enormous demand for the Toast platform as restaurants need to streamline their operations, increase revenue and retain great employees. Our ambition continues to be to serve restaurants all around the world. And with that we will be making foundational investments in 2022 to drive growth internationally. We look forward to updating you on this multi-year journey in future quarters.

24:18 In closing, our strong 2021 performance demonstrates our success in capturing market share. We are built to serve large -- built to serve a large and growing addressable market and we've shown we can execute at scale with healthy unit economics. We continue to believe we are uniquely positioned to drive durable growth for ourselves and for the restaurants using our platform.

24:40 Now I'd like to turn the call back to the moderator for our Q&A session.

24:46 All right. Thank you very much, Chris and Elena. Let's go ahead and start our Q&A session. Please use the raise the hand function in Zoom to ask your question. And our first question comes from Josh Baer with Morgan Stanley. Josh, please go ahead.

25:04 Great. Thank you for the question. So I wanted to get some context on the pace of location additions in '22. If you could provide any insight into how you're thinking about that and maybe tying into the ramp of sales reps and capacity and where are you today or in '22 versus 2019 from that perspective?

25:29 Yeah, I can start. At the highest level without me guiding for locations, we've intentionally invested, Josh, in adding to our sales force. And we've often said that TAM is our number one priority and then ARPU will follow. We're actually balancing both. But we're pretty excited about the locations we added on our platform in 2021. And we see no reason why we wouldn't continue to have success, adding locations, frankly, very efficiently to with the 12 month payback period that we experienced in 2021. We feel confident to make this investment and we'll continue to see growth on our platform.

26:11 Great. And related as far as location additions that you've been seeing, any way to break down where you are having the most success or where you are strategically focused as far as competitive wins, new geographies in the U.S. that are under penetrated. And if it is competitive, is it from legacy vendors or are you going after cloud replacements? And then I guess lastly, new restaurant formations and if that's a strategic priority just winning an outsized share of the new restaurant formations? Thank you.

26:52 Yeah. I can -- yeah. Go ahead.

26:51 Either way. Josh, we've seen broad momentum across multiple sectors of our business in multiple geos, I wouldn't say there's any one geo or sector that has grown faster. We're seeing really good traction in SMB, really good momentum in mid-market and enterprise, as I referenced with those examples. And we have teams across the U.S. embedded in local communities going after their market. So we feel good about our position. I'd say, we believe that we have the capability to serve restaurants of different types, formats and sizes than any of our competition. So we feel good about our position, and we're seeing steady demand on that front.

27:45 Thanks, Josh. Let's go to Tien-Tsin Huang of JPMorgan, please.

27:49 Hey. Thanks so much. Good to see all of you all here today. Thanks for the time. Just to hear you loud and clear on the investing, I think it makes lot of sense, time is now to do it. So with the investments across developing new products, I know you're working really hard to build new products, and of course, customer acquisition. Just trying to better understand how you're prioritizing those two isn't changed versus maybe 90 days ago and is your LTV to CAC thinking still the same versus 90 days ago? Just trying to better understand the OpEx, given the wider EBITDA loss for the year.

28:24 Yeah. No. It's a -- took (ph) a question. Let me just start by saying we have a ton of confidence and conviction about our opportunity and that has not changed at all, actually. In fact, I would say after our performance in 2021, we have even more conviction. And so our prioritization has always been, let's focus on capturing the opportunity ahead with the TAM. And we know we're in the early innings, as you know. And we also have seen some data points, proof points. Demand continues to be strong and customers engaging on our platform, whether that's NRR, as you saw that we talked about or just consistent addition of locations to our platform.

29:04 And so we're going to remain very disciplined and have a lot of rigor about our investments and point investments to things that will drive growth. And then, of course, back to your timing point, the pandemic really amplified the need that customers have for technology and to make their operations more efficient. And we believe when you put all that data together, we're well positioned to capture that opportunity. So it's really important that we're intentional about this investment. I would tell you, it doesn't mean we're not thinking about profitability, so I don't want you to take that from this at all. In fact, in our executive alignment -- in our comp plans, we've aligned on the fact that we do, at the right time need to drive operating leverage, right? We're going to drive and orient to durable growth today. But of course, over time, we will drive operating leverage.

29:59 Yeah. That makes great sense. If you don't mind, just a quick follow-up. Just thinking about the first quarter, Elena. Just any puts and takes there with revenue. And I know seasonality is always something to think about. I know we're coming out of it hopefully. And I don't know if there's anything to call out with GMV or locations, return or growth in the first quarter versus the fourth? Thank you.

30:19 Yeah. That's a great question. So I would just point to a couple of things. As a reminder, last year at this time, vaccines were coming back and people were coming back, right. So just don't forget that as you guys. I know a lot of you look at sequential moves. So pay attention to that because we had a big surge last year. We didn't expect that to repeat this year, right, because we've now been unfortunately used to this kind of quasi environment, we're operating in. But even without that dynamic from last year, there's always seasonality in our payments, as you know. So Q1 tends to be a quarter where the seasonality is such that we have lower GPV than, say, Q2 and Q3. So that was not much -- that's not what -- that did not surprise us.

31:05 I would tell you we had a little bit of Omicron in the early part -- late days of December and early part of January, but we believe that's transitory and frankly behind us at this point. The other thing I'll point to that you may not see in the guidance is we anticipate SaaS will continue to increase. So you will see that sequential increase Q4 to Q1. So that's -- I hope that gives you enough color to kind of give you the backdrop for Q1.

31:35 Thanks very much. Let's go to Josh Beck at KeyBanc. Josh?

31:43 Thank you so much for taking the question. I wanted to maybe start with a higher-level question. I think one that is surfacing a lot is really what's the impact of a full reopening, hopefully, as we progress through the year. There's obviously puts and takes against your model. So just kind of curious how you're trying to embed that into the outlook. And what are some of the more important factors we should be keying in on there?

32:16 Yeah, I mean, I could jump in at a high level and Elena, feel free to support it. But I mean, listen, we're excited about 2022. We're seeing really strong demand. We're executing well. So our mindset is sort of a growth oriented mindset to go after locations in the TAM and support the restaurant community as it starts to recover. If you zoom out, this is an industry that's largely been underserved by great technology. And in the past two years, they've gone from crisis to survival to recovery and now to a time frame that I think it's time to thrive.

32:57 So personally, as a team and as a management team and a company and a Board, we're excited about 2022 because we think it's going to be a little bit of a renaissance coming back to the restaurant industry. Though it's been difficult for the past two years, we're certainly excited about what lies ahead and some of the momentum that we may see across the entire business.

33:23 Yeah. I mean, I think in our guidance, as we entered into the year, there's a few trends that really, really, we pay attention to that you guys are familiar with. Card not present is one of those, debit and credit mix, all those impact our fintech ARPU. So for card not present, I said in my script, we do believe consumer behavior has largely changed. I think all of us are probably using online ordering more than we did in the past. And so we believe some of that behavior is going to persist. And we -- therefore, we believe CNP will remain somewhat elevated. Debit and credit mix has largely come back to pre-COVID levels, so we factored that into our thinking.

34:06 And then I would just call out on the COGS side, as I mentioned in the script, we have elevated freight costs, and we believe that's going to persist for the near term. We're keeping an eye on it, of course. But that's -- those are the things that come to mind when you ask a little bit about what do we think about recovery. I think we've seen Omicron come and go, which is great. I think it shows restaurants are resilient. And so we're considering that in our calculus as well.

34:36 Very helpful. Just a follow-up. The payback period I believe you said was 12 month, which is well below the pre-COVID level, so I imagine there's perhaps some positive surprise there. As you think about the future, what range are you comfortable that trending towards maybe over what time? Just curious if you could give us any thoughts on how we should be thinking about the payback period from here?

35:08 Yeah. No, I mean, we're proud of our payback. I wouldn't say it was a surprise. I think my finance team would get really mad at me, if we said it was a surprise because actually it wasn't a surprise, like I think we are so focused on unit economics and payback periods. But we did benefit from -- in the first part of the year, we had -- if I say the puts and takes in the first part of the year, we had higher card not present and just higher take rates, obviously, but then you counter that with freight costs being elevated, so all those puts and takes really come into play there. But as I think about the future, as we said in our S1, as long as our payback period is in the mid-teens, I'm happy with that. Obviously, we're always going to do better. We're always going to try to make our operation more efficient, but I'm happy with that. So I would think about that as more of a longer-term trend than what we had in 2021.

36:13 Great. Thanks, Josh. Why don't we go to Brent Bracelin at Piper Sandler? Brent, you there?

36:21 Guys, good afternoon. Thanks for letting me on here. Two questions, if I could. Maybe Chris, we'll start with you. I'd love to hear early feedback on the Toast restaurant card, pay card, pay now features. What have you learned so far? I know we're really early but can be a pretty exciting and incremental lever for you over time. So I'd love to hear any sort of early feedback there on those cards. And then one quick follow-up for Elena. I can't hear you.

36:51 Sorry about that. Yeah, Brent. Good question. I think it's still early. I mean, we launched them in November. It's been a couple of months, not even a full quarter. But we remain really excited. We're putting a lot of investment behind those teams to make sure that those cards have a good product market fit. Listen, we believe in faster payments to restaurants. We believe in faster early wage access for employees. We believe those two fundamental dynamics help the restaurant industry succeed and for each restaurant operator to have better control of their financials. So they make a ton of sense but it's early days. We're excited about the products, and we're continuing to test and iterate and gain customer feedback and listen to our customer base about what we need to tweak to make them better and better. So stay tuned.

37:42 Perfect. And then, Elena, I saved a tough one for you. If I go back and look at quarterly seasonality, we only have post-COVID quarterly seasonality. And so in some regards, we have a big sequential drop in Q2 in one year. Another year, we have a big sequential rise in Q2. I'm just -- as we kind of think about going forward towards a normal environment, do you have any general sense for us how we should think about like quarter-to-quarter seasonality of the business, given it's been so dynamic in the last couple of years?

38:17 Yeah. No, Brent, that's a really good question. I had to go back and myself for the reason you described than it was before my time. But I think the thing we'll call out is Q2 and Q3 summer months tend to be our high GPV per location quarters. Q1 tends to be the lower quarter, and same with Q4 with the holidays and whatnot. So warm weather gets people out, and that's why you see a lot of increase in our GPV going in Q2 and Q3. So you should expect that more, hopefully, more normal this year going into 2022. And that's how we think about it, too. That's how we planned.

38:57 Perfect. Helpful color there and look forward to seeing it.

39:03 Thanks, Brent. Next question, let's go to Mayank Tandon from Needham.

39:10 Thank you. Chris, you mentioned the investments in international and enterprise. Could you talk about what are the unique challenges you expect to face as you penetrate these opportunities? In other words, what are the keys to success based on your experience so far with Toast?

39:28 Sure. Now, let's start with enterprise. So we've been in the enterprise space for years and collaborating with our largest customers, it's really making sure that, number one, the platform is as scalable and reliable as possible to support their needs on expansion. So that includes a lot of above-store reporting, multi-level analysis of their business. So it just needs -- we need to make sure that the platform is a core centerpiece of their architecture as they scale their businesses. So that's number one. Number two, it's important to make sure that we've got strong APIs. As I mentioned back in the IPO, we've got 150-plus technology partners that stitch into our platform on a daily basis. And large enterprises require more complexity around architecture, so they love the fact that we've got a strong partner ecosystem and strong APIs that go along with it.

40:26 I'd say the third dimension is making sure that the enterprise has strong reporting. So just the data elements and the data sharing capabilities of the platform are critically important. So we continue to invest in those pieces of the road map, so that the enterprises have the right analytics and insights that they need to properly run their business. But we're confident about our position in the mid-market and enterprise space. And as I referenced, the win with Sinelli, it allows us to really accomplish enterprises that are different. They could be an FSR, it could be a QSR, but the strength of the platform to support multiple segments of the restaurant industry is pretty strong.

41:11 On international, it's going to be early days. I mean, this is more about building the proper foundation to go-to-market in key markets with the product market fit that helps every restaurant be successful in the early days of those international markets. So I'm going to temper expectations that it's going to be a foundational year and a building year for international as we put the team in place, the products in place and our execution in place to make sure that customers have a fantastic experience. And Elena, you may want to add to that. But it's just a reminder that international is going to be the early days. So in terms of location count and driving ARR, it's going to be lower than perhaps, obviously, what we've seen in the U.S. for years.

42:03 Yeah, I think the only thing I would add is just making sure that we get the product localized for -- if there's any languages that we need to consider, of course, that's important and making sure that we invest in that over the long term but also being measured about our investment and just making sure we learn in 2022 is really important to us.

42:23 And then as a quick follow-up, just given the war for talent, are you able to hire the sales people and the engineers and other key people to be able to hit those demand targets that you've set for yourself?

42:35 Yeah. No, I mean, big shout-out to our people team and our talent acquisition team. They've stayed on goal. So when we look at 2021 and the momentum going into 2022, that team's done a fantastic job to find the best talent in key markets and help us scale and execute. So yeah, we've been able to keep pace.

43:00 Thank you. Our next question is from Stephen Sheldon at William Blair. Stephen, please go ahead.

43:05 Hey. Thanks. Really nice job on top line results and great to hear that you're starting to focus more on the international opportunity. Wondering, if you could just talk some about the trends you're seeing when you first win new customers. Are -- what trends are you seeing in terms of the size of initial packages? And what are some of the main products that newer customers are frequently, I guess, including when they're first signing up for Toast?

43:30 Yeah, I mean, I can tell you, Stephen, so when we looked a couple of years ago, our initial -- our customers was at -- would typically add about two products. That's well over four now and we talked about 50% of our customers more than four products. The typical products are online ordering, Toast Co. devices, gift cards, those are all really, loyalty, all really popular products. And also with our new customers, a lot of them are adopting the payroll product. We see the majority of our new customers adopting the payroll product. So we're excited about that. And of course, there's an opportunity to sell that to our existing installed base as well.

44:17 Got it. That's helpful. And then I guess, just when I think about the -- as we think about the sales capacity investments, I guess, where are you focusing incremental sales resources at this time? Has there been any shift towards maybe focusing more on gaining market share in existing markets versus expanding into new markets? I mean, would just love an update on what you're seeing in terms of sales efficiency, especially some of the markets where you've been operating maybe the longest.

44:44 Yeah. That's a good question. I mean, it's a little bit of both, making sure that we're broadening our presence in newer markets and adding reps into those markets. Again, we're constantly testing and iterating how many reps it takes to accomplish our TAM goals within a market. So I'd say on one front, it's, again, broadening that base of reps in new markets. But then similar to markets like New England, we continue to put reps into New England to go after deeper sections of TAM and really just make sure that we've got broad brand awareness within those older legacy markets where Toast has been executing, but we can actually put more reps into it and even be more successful. So I think it comes back to the fact that we're still in the early days or early innings, as Elena mentioned, of our TAM penetration. Today, we're 7% of the U.S. TAM, so that gives us strong belief that there's enough demand to continue to ramp that go-to-market engine.

45:58 Thanks, Stephen. Our next question is from Dan Dolev at Mizuho. Dan, please go ahead.

46:04 Hey. Thank you. Appreciate taking the questions. Two quick ones. Just, I saw the take rate. I think, Elena, you mentioned that the debit/credit mix stabilized to pre-COVID. I may have misunderstood you but it looks like the take rate has been stable sequentially. Can you maybe give us some more detail on what's driving the stabilization in the take rate sequentially despite kind of the movement, the shift from debit to credit? Thank you.

46:38 Yeah. So actually, our take rate, I think, is slightly down in Q4, and that's primarily because we're getting back to normal on debit and credit. CNP is remaining elevated and so I feel comfortable with where we are. And stable is probably a pretty solid term in terms of how we think about 2022. But I would just remind you, the beauty of the model, right, is both take rate but then we also have an opportunity to monetize through SaaS. So I would just encourage you as you think about our growth, consider both the take rate but also the SaaS ARPU as well.

47:20 Got it. Thank you. And then just a quick follow-up, more from a strategic perspective. I believe NCR made an announcement last week that they're considering alternatives. Obviously, they're a huge player with Aloha. Obviously, you're not going to discuss any specific M&A, but is the strategy now still pretty much organic or will you be willing to look at maybe opportunities to opportunistically bolster your portfolio? Thank you.

47:49 Yeah, it's a good question. mean, Dan, listen, I mean, our organic growth engine continues to be really strong and the team's executing at an extremely high level. So I think that motion and that growth lever is going to continue. Will we assess strategic opportunities when we see them on the landscape, whether it's within a line of business or more broadly? Perhaps, like I think those opportunities will exist as a growth lever in our future. We've proven that with our acquisition of xtraCHEF and then also our acquisition of StratEx two years ago. So we feel confident in our M&A stance, but I'll remind everybody that the organic growth engine continues to execute extremely well, and we're going to continue to prioritize that.

48:40 Got it. Really appreciate the color. Thanks again.

48:46 Thanks, Dan. And our next question is from Andrew Bauch of SMBC Nikko. Andrew, please go ahead.

48:52 Hey, guys. Thanks for taking my question. Nice set of results, considering the COVID challenges that you're facing in the quarter. I wanted to speak to the Capital business. You mentioned the $100 million originated in 2021, which is pretty promising. And you also said that the long duration loans that you introduced at Spark were a key variable in that accelerating growth. I mean, how much of that contributed to the $100 million if you could contextualize it? And maybe higher level, what percentage would you -- or kind of how should we think about what's addressable within your base for that product?

49:35 Yeah. It's good question. I think if you step back into the shoes of a restaurant, restaurants desire capital to run their business. They want to have working capital. They want to grow, whether it's new locations or renovate or add a patio. They want to purchase equipment or they may need emergency funding. So we actually think capital is deeply strategic to help the restaurant industry thrive moving forward. Having multiple products within lending is key because it's not one-size-fits-all. So you're going to see us continue to innovate and test different types of products within Toast Capital. It's still the early days of what Toast Capital could be as a percentage of our entire business.

50:23 So we're not going to give you sort of the splits between products, but we know that we are on the right path with what we're seeing. And we feel like we've got a significant advantage because we have all the data that flows through the restaurant. So that allows us to effectively underwrite restaurants and really have visibility into the effectiveness and then the payback on those loans. So it's -- we feel like we're in a strong position. We're going to continue to invest in this aspect of the business. But I'll remind you, it's still a small portion of the business today.

50:57 Definitely understood. Then my follow-up would be the four-plus module adoption rising 10 points from last year is obviously super impressive. I mean, how should we think about where that metric goes, be it in 2022 and maybe in the long term?

51:16 Yeah. I think that's a really good question. I would say our ARPU growth will be steady but having a steep growth is probably not the way I would model it. I would just plan for steady improvement in our ARPU over time. And that's what the innovation we have today, not to mention the innovation that's coming. So that's how I would think about it, Andrew. And then on Toast Capital, the only thing I would add is the growth we've seen is, obviously, we're very encouraged by it. Chris is right, it's early days. The impact to our financials is not material today. But what we love about that program is we're testing and learning, right? We're testing and learning each time. So we started out with 90-day loans. Now we're testing longer duration loans. And that's a motion that we're going to continue to try to do as we expand what's possible with Toast Capital.

52:10 Got it. Thank you for the color, guys.

52:13 Thanks, Andrew. Our final question comes from Kartik Mehta of Northcoast Research. Kartik, please go ahead.

52:22 Thank you. I'm wondering for you, as you've had so much success, what the competition has done. And if they've done anything different in the last six months.

52:33 Yeah. I can take that. I mean, listen, as I mentioned earlier, the restaurant industry has been underserved by great technology, so it's no surprise that there's been competition for the past 10 years. I mean, it's a competitive space. But what I like about our position is, number one, we're seeing really strong demand for the platform, and that's a very good signal for us to continue to execute. Number two, we're seeing healthy win rates. And you're seeing strong payback periods, healthy win rates, so that gives us even more confidence in our execution. So while there's competition, we feel like we are the leading platform to help the restaurant industry grow. And it comes back to the platform.

53:20 Being an end-to-end restaurant-specific platform that's not multiproduct but it's a true platform across the board from front-of-house to back-of-house, that's a key success factor, and we're going to continue to execute on that path. So we feel good about our position within the competitive landscape. And while there's been announcements over time, I mean, there's been announcements for the past few years on the competitive landscape of restaurants. But we just continue to execute and raise the bar and support our customers. At the end of the day, we want to make sure that every customer has a fantastic experience when they run Toast.

54:02 Perfect. Thank you very much. I appreciate it.

54:08 Well, all right, everyone, thank you very much. That concludes our call. We look forward to speaking with you all next quarter, and have a great afternoon.