Toast (NYSE:TOST) Beats Q3 Expectations, Shares Rise 20.7% in Stock Report

Stock history –

Restaurant software platform toast (NYSE:) met Wall Street's revenue expectations in the third quarter of fiscal 2024, increasing revenue 26.5% year-over-year to $1.31 billion. GAAP earnings of $0.07 per share were 392% above analyst consensus estimates.

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Toast (TOST) Q3 CY2024 Highlights:

• Revenue: $1.31 billion vs. analyst estimates of $1.29 billion (in line)
• EPS: $0.07 vs. analyst estimates of $0.01 ($0.06 beat)
• EBITDA: $113 million vs. analyst estimates of $78.53 million (43.9% beat)
• EBITDA forecast for the full year is at the midpoint of $357 million, above analyst estimates of $305.2 million
• Gross margin (GAAP): 24.7%, an increase from 22% in the same quarter last year
• Operating margin: 2.6%, compared to -5.7% in the same quarter last year
• EBITDA margin: 8.7%, an increase from 3.4% in the same quarter last year
• Free cash flow margin: 7.4%, down from 8.7% in the previous quarter
• Annual Recurring Revenue: $1.55 billion at the end of the quarter, up 27.6% year over year
• Market capitalization: $18.06 billion

“Toast delivered a strong third quarter, adding approximately 7,000 net new locations, increasing our recurring gross profit streams1 by 35% and achieving Adjusted EBITDA of $113 million. We are well positioned to end the year successfully and carry this momentum into 2025. Our differentiated vertical software platform is the foundation of this success, and we continue to innovate to deliver more value to our customers: This fall, we launched new products such as Branded Mobile App and SMS Marketing, as well as over a dozen feature updates.” said Toast CEO and co-founder Aman Narang.

Company OverviewToast (NYSE:TOST), founded by three MIT engineers in a local bar in Cambridge, provides integrated point-of-sale (POS) hardware, software and payment solutions for restaurants.

Hospitality and restaurant software (ETR:)

Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM) are two of the largest software categories, dominated by companies like Microsoft (NASDAQ:), Oracle (NYSE:), and Salesforce.com (NYSE:). Today, the secular trend of mass customization is driving vertical software that tailors ERP and CRM functions to specific industry needs. Restaurants are a prime example, with a number of bespoke software providers emerging in recent years to develop unique operating systems that combine tax and accounting software, order management and delivery, and supply chain management. Another example are hotels and other catering providers.

Sales growth

A company's long-term performance is an indicator of overall business quality. While every company can experience short-term success, high-performing companies enjoy sustained growth over several years. Over the last three years, Toast grew its revenue at a compound annual growth rate of an incredible 48.1%. This is encouraging because it shows that Toast's offerings are resonating with customers – a helpful starting point.

In the quarter, Toast delivered outstanding year-over-year sales growth of 26.5% and revenue of $1.31 billion was in line with Wall Street estimates.

Looking ahead, sell-side analysts expect revenue to grow 23% over the next 12 months, slowing from the last three years. Nevertheless, this forecast is remarkable and shows that the market with its products and services is on the rise.

Annual recurring revenue

Investors interested in Toast should also keep an eye on annual recurring revenue (ARR) in addition to reported revenue. While a SaaS company's reported revenue may include low-margin items such as implementation fees, ARR is the sum of the next 12 months of contracted revenue that comes solely from software subscriptions or the high-margin, predictable revenue streams that make SaaS companies so valuable.

Over the last year, Toast's ARR growth has been fantastic, with an average year-over-year increase of 31% and a value of $1.55 billion in the most recent quarter. This performance was consistent with revenue growth and shows that customers are willing to rely on the company's technology for several years. Its growth also makes Toast a more predictable company, providing tailwinds to its valuation since investors typically favor companies with recurring revenue.

Efficiency in customer acquisition

The payback period of customer acquisition costs measures the months it takes a company to recoup the money spent on acquiring a new customer. This metric can be used to assess how quickly a company can break even on its sales and marketing investments.

It's relatively expensive for Toast to acquire new customers, as its CAC payback period was 101.6 months in the quarter. The company's performance shows that it operates in a competitive market and needs to continue investing to maintain its growth trajectory.

Key takeaways from Toast's Q3 results

We were impressed by Toast's upbeat EBITDA forecast for the next quarter, which exceeded analyst expectations. We were also pleased that gross margin improved. On the other hand, the ARR (Annual Recurring Revenue) fell short of analysts' expectations. In summary, we think this was a solid quarter. Shares rose 20.7% to $39.42 immediately following the report.