Toast, Inc. Q2 FY2024 earnings

Toast reported a profitable second quarter of fiscal 2024, with total revenue of $1.24 billion, up 27.0% from the prior-year quarter. Gross profit rose 37.5% to $286 million. Gross margin was 23.0%, up 1.8 percentage points from a year earlier. The company posted GAAP operating income of $5 million, compared with an operating loss of $80 million in the second quarter of 2023. Net income was $14 million, compared with a net loss of $98 million. Diluted earnings per share was $0.02, compared with -$0.19.

For the six months ended June 30, 2024, revenue was $2.32 billion, up 29.0% from the prior-year period. Gross profit was $537 million, up 40.6%. Gross margin was 23.2%, up 1.9 percentage points. The company reported an operating loss of $49 million, narrowed from an operating loss of $173 million. Net loss was $69 million, narrowed from a net loss of $179 million. Diluted loss per share was -$0.13, compared with -$0.34. Operating margin was -2.1%, up 7.5 percentage points.

Operational momentum remained strong. Annualized recurring run-rate as of June 30, 2024 was $1.5 billion, up 29% year over year. Gross payment volume increased 26% to $40.5 billion. Total Locations grew 29% to approximately 120,000, and Toast added approximately 8,000 net new Locations in the quarter. Payments ARR was $743 million, up 24%, while subscription ARR was $730 million, up 35%. Adjusted EBITDA was $92 million, compared with $15 million in the prior-year quarter. Non-GAAP subscription services and financial technology solutions gross profit was $344 million, up 29%.

Cash generation improved. Net cash provided by operating activities was $124 million in the quarter, up 148.0%, and $104 million for the six months, compared with -$5 million in the prior-year period. Capital expenditures were $16 million in the quarter, up 45.5%, and $29 million for the six months, up 38.1%. Free cash flow, a non-GAAP measure, was $108 million in the quarter and $75 million for the six months. Deferred revenue was $65 million, up 22.6% from the prior-year quarter. Remaining performance obligations were $749 million, up 29.4%.

Management issued guidance for the third quarter and for the full year. For the third quarter, Toast expects non-GAAP subscription services and financial technology solutions gross profit of $345 million to $355 million, 23-27% growth compared with the third quarter of 2023, and Adjusted EBITDA of $70 million to $80 million. For the full year, the company expects non-GAAP subscription services and financial technology solutions gross profit of $1,340 million to $1,360 million, 27-29% growth compared with 2023, up from 25-27% growth, and Adjusted EBITDA of $285 million to $305 million, up from $250 million to $270 million.

Toast signed several larger customers in the quarter, including Sonny's BBQ, Uno Pizzeria Grills, Hwy 55, and PPX Hospitality Group, which owns brands including Legal Sea Foods, representing a cumulative commitment of more than 200 locations across the U.S. The company also launched an AI innovation hub, and a Toast survey found that 57% of restaurants surveyed reported already using or wanting to use AI-powered experiences. The main risks remain tied to the restaurant industry and the company's dependence on gross payment volume. MD&A notes seasonality, with financial technology solutions revenue per Toast Processing Location historically stronger in the second and third quarters, and points to risk factors in the 2023 Form 10-K and the second-quarter Form 10-Q. The February 2024 restructuring plan and related expenses also remain a factor in year-to-date results.