Business Overview and History

Toast, Inc. is a leading cloud-based, all-in-one digital technology platform purpose-built for the entire restaurant community. Founded in 2011, the company has emerged as a true innovator in the restaurant technology space, providing a comprehensive suite of software-as-a-service (SaaS) products and financial technology solutions that cater to the diverse needs of restaurants of all sizes.

Toast's journey began in 2011 when three entrepreneurs, Aman Narang, Steve Fredette, and Jonathan Grimm, recognized the significant challenges facing the restaurant industry. They set out to create a platform that would revolutionize the way restaurants operate, empowering them to delight their guests, do what they love, and ultimately, thrive.

Initially operating under the name Opti Systems, Inc., the company changed its name to Toast, Inc. in 2012. In its early years, Toast focused on developing its core point-of-sale system and financial technology solutions to serve small- and medium-sized restaurants. The company faced challenges as it worked to establish its technology and integrate payment processing capabilities. However, Toast was able to steadily grow its customer base and expand the functionality of its platform to address the diverse needs of its restaurant clients.

A significant milestone for Toast came in 2021 when the company went public on the New York Stock Exchange. This provided Toast with additional capital to invest in its business and further scale its operations. Over the next few years, Toast continued to enhance its platform, adding capabilities in areas like marketing, payroll, and inventory management to become a more comprehensive operating system for restaurants.

Despite the challenges posed by the COVID-19 pandemic, which impacted many of Toast's restaurant customers, the company was able to maintain its growth trajectory. Toast navigated supply chain disruptions and changes in consumer behavior by providing flexible solutions to help its clients adapt. The company also expanded beyond its initial restaurant focus, moving into adjacent verticals like food and beverage retail.

Today, Toast serves over 134,000 locations across the United States, processing approximately $160 billion in payment volume annually. The company has established itself as a leader in restaurant technology, partnering with a diverse set of customers ranging from small independents to large national chains. Toast's success has been built on its deep understanding of the restaurant industry and its ability to deliver an integrated platform that helps its clients streamline operations, engage customers, and grow their businesses.

Financial Performance and Outlook

Toast has demonstrated impressive financial growth in recent years. In the fiscal year 2024, the company reported record revenue of $4.96 billion, representing a 28% year-over-year increase. This growth was fueled by a 26% expansion in the company's customer base, which reached approximately 134,000 locations by the end of the year.

The company's recurring gross profit streams, which include subscription services and financial technology solutions, grew by 34% year-over-year, reaching $1.42 billion in 2024. This solid performance, coupled with disciplined cost management, enabled Toast to achieve its first full year of GAAP profitability, with a net income of $19 million.

Looking ahead, Toast's management has provided guidance for 2025 that reflects the company's continued momentum. The company expects its recurring gross profit streams to grow between 23% and 25% year-over-year, while adjusted EBITDA is projected to reach $510 million to $530 million, representing a 30% margin at the midpoint.

For the first quarter of 2025, Toast anticipates 27% to 30% growth in total subscription and fintech gross profit, with adjusted EBITDA expected to be between $100 million and $110 million. The company plans to invest in accelerating progress in new markets while continuing to drive market share gains in its core US restaurant business.

Toast's financial performance has been strong across its three main product segments: subscription services, financial technology solutions, and hardware and professional services. In fiscal year 2024, subscription services revenue grew to $706 million, up 41% compared to the prior year. Financial technology solutions revenue increased by 27% year-over-year to $4.05 billion, driven by the expansion of Toast's customer base and growth in payment transaction volume. Hardware and professional services revenue totaled $201 million, up 14% from the previous year.

Expansion into New Markets and Verticals

While Toast's core business has been focused on the restaurant industry, the company has recently taken steps to expand its addressable market by targeting new verticals and geographies.

In 2024, Toast made significant progress in its enterprise and international segments. The company secured high-profile partnerships with Hilton Hotels & Resorts and Ascent Brands, which owns the Perkins and Huddle House restaurant chains. These wins demonstrate Toast's ability to scale its solutions to serve the needs of larger, more complex organizations.

Internationally, Toast has laid the groundwork for growth, launching key product features such as loyalty programs and retail solutions in its existing markets. The company has also reported a 50% year-over-year increase in SaaS ARPU for international locations that went live in the fourth quarter of 2024, highlighting the potential of these new markets.

Additionally, Toast has identified the food and beverage retail sector as a promising growth opportunity. The company has made strategic investments in developing specialized solutions for grocery stores, convenience stores, and other retail establishments that operate in the food and beverage space. While still in the early stages, this initiative has received positive feedback from initial customers, reinforcing Toast's belief in the viability of this new market.

Risks and Challenges

As Toast continues to expand its business, the company faces several risks and challenges that investors should be aware of.

One key risk is the highly competitive nature of the restaurant technology industry. Toast competes with a range of providers, including legacy point-of-sale platforms, payment solutions, and specialized technology vendors. The company's ability to maintain its market-leading position will depend on its ability to continue innovating and delivering superior products and services.

Additionally, Toast's reliance on the restaurant industry, which can be cyclical and vulnerable to macroeconomic conditions, poses a risk. Factors such as changes in consumer spending, labor shortages, and supply chain disruptions can all impact the financial health of Toast's customers, potentially affecting the company's revenue and growth.

Regulatory compliance is another area of concern. As Toast expands its financial technology offerings, it must navigate a complex web of regulations related to payment processing, lending, and data privacy. Failure to comply with these regulations could result in fines, legal penalties, and reputational damage.

Despite these challenges, Toast's robust financial performance, strong customer relationships, and commitment to innovation position the company well to navigate the evolving landscape and capitalize on the significant opportunities ahead.

Financials

Toast's financial performance has been strong, with impressive revenue growth and improving profitability. The company's focus on recurring revenue streams, such as subscription services and financial technology solutions, has contributed to its financial stability and growth potential. Toast's ability to achieve GAAP profitability in 2024 demonstrates its progress towards sustainable financial performance.

In the most recent fiscal year (2024), Toast reported annual revenue of $4.96 billion, with a net income of $19 million. The company generated $360 million in annual operating cash flow and $306 million in annual free cash flow. For the fourth quarter of 2024, Toast recorded revenue of $1.338 billion, representing a 39% year-over-year growth, and a net income of $32 million.

Toast operates primarily in the United States, with some limited international presence in Ireland, the United Kingdom, and Canada. However, the majority of revenue is derived from the US market.

Liquidity

Toast maintains a strong liquidity position, which allows the company to invest in product development, expand into new markets, and weather potential economic challenges. As of December 31, 2024, Toast reported $903 million in cash and cash equivalents, with an additional $325 million available through its credit facility.

The company's debt-to-equity ratio stood at 0.015, indicating a conservative approach to leverage. Toast's current ratio of 2.44 and quick ratio of 2.29 suggest that the company has ample resources to meet its short-term obligations and maintain financial flexibility.

Conclusion

Toast's remarkable journey from a startup to a market-leading provider of restaurant technology solutions is a testament to the company's vision, execution, and deep understanding of the industry it serves. With a comprehensive platform, a growing customer base, and a promising expansion strategy, Toast is well-positioned to continue redefining the future of restaurant technology.

As the company navigates the competitive landscape and adapts to changing industry dynamics, investors will closely monitor Toast's ability to maintain its momentum, drive innovation, and deliver sustainable financial growth. The company's 2025 guidance, which reflects its confidence in the long-term potential of its business, is a positive signal for those looking to capitalize on the ongoing transformation of the restaurant industry.

Toast's strong performance in 2024, including the addition of 28,000 net locations and the achievement of its first full year of GAAP profitability, sets a solid foundation for future growth. With plans to invest in accelerating progress in new markets while continuing to drive market share gains in its core US restaurant business, Toast is positioned to deliver healthy growth in 2025, 2026, and beyond as it scales its business and expands its total addressable market.