Toast, Inc. (TOST) Earnings Call Transcript & Summary

All right. Let's get started. My name is Josh Baer, Software Analyst here at Morgan Stanley. And we are joined today by the CEO of Toast, Aman Narang; and Elena Gomez, CFO. Thank you so much for joining us.

Thanks for having us.

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Aman, I want to start with you. Obviously, you've been a very big part of strategy since the beginning of this company. But now that you are in the CEO position, can you talk about your strategic priorities today looking ahead?

Yes. Thanks for the question, Josh, and thank you, everybody, for joining us today. When Steve, John and I started this company 12 years ago, our mission was really to help restaurateurs on a better business. That was really the foundation for why we got started. And really proud of this incredible business we've built over the past, what, 12 years that it's been. And we've got a great culture internally. We've got a great set of customers. As I think about the future, it's really about building on the foundation that we have, tweaking what we have. And it starts with just making sure, one, we've got a great management team that's aligned and rowing in the same direction. Two, making sure there is clarity in where we're going long term in terms of our strategy and clarity on our priorities in [indiscernible]. We're thinking a lot about what are ways in which we can continue to refine our culture, amp up our culture where we can to drive a performance culture and make sure that our resources are aligned with our most important priorities. To the extent that I can, I'm trying to spend time with the front line, whether it's with our customers and our employees, just to understand and get a pulse of what's going on. And in terms of the business priorities, the strategic priorities of the business, step one is to continue to make sure that we're scaling locations in our core U.S. SMB business. We continue to believe there's tremendous runway in our core U.S. SMB business. And as we do that, we're also opening up new parts of the TAM, whether it's international or retail or enterprise, we talked about, think about 1,000 locations internationally. We're focused on making sure that product adjacencies that are relevant for Toast continue to become a bigger part of our platform. And this is existing products that we have as well as new adjacencies that we can add on over time. And then, of course, we want to build a durable business making sure that we're balancing growth and profitability as we continue to scale.

Great overview. And maybe starting with your point number one on scaling locations. Location growth to me is one of the most important metrics for you because it really gets at some of the key investor debate, competition and TAM. You ended the year with over 100,000 locations, and you added 27,000 just in 2023. And then last quarter, you've talked about being able to add more than 27,000 looking ahead. When we started out after IPO, there was no location guidance. And then maybe we got a quarter ahead. And then we got guidance for the back -- like 2 quarters, the back half of the year and now a whole year. So the question is what is giving you confidence in a pretty bullish location add for next year? And you talk a little bit about the visibility into that number.

Yes. I mean, look, it starts by being really proud of what the team has been able to achieve. Starting with our go-to-market team and our customer success team, that's really the foundation of the growth that we've seen. One of the things that we've talked about in the past is, as we get into these markets, restaurants are still local, right. What's going on in San Francisco and Boston is totally different. And so what we see in these local markets is as we get word of mouth, as we get a brand out there, that's the driver of our funnel, our conversion, our rep productivity because restaurants buy on social proof. And so it's such an important component of how we've been able to scale locations. And so really, our core SMB business is really an important driver, right, of that? And then I think complementing that with the rest of the organization, our focus on restaurants from day 1 -- right from day 1, we've been vertically focused on restaurants. It's allowed us to build a product and a platform and a customer success motion that complements our go-to-market team. And I think those are all of the reasons why we've got confidence to continue to scale locations.

Yes. Just to build on that, I think the commentary we made, adding more restaurants in '24 than '23 is really based on, to Aman's point, the go-to-market motion, having momentum exiting '23 into 2024. Pipeline is strong as we enter the quarter, but also the focus on the core is one thing. As we're extending in different parts of the TAM, we're also seeing increasing traction in international and increasing traction in enterprise. So when you put that all together, and I would just comment -- double down on the comment that Aman said around rep productivity and tenure. That's what gives us that confidence in the core business, which continues to be the primary growth engine today. But as these other emerging businesses increasing traction, that also complements that. So when you zoom out and you say, what do we think about 2024, that gives us lot of confidence.

Excellent. And we'll definitely get into enterprise and international from that expanding TAM opportunity. Do you want to hit on the go-to-market and the flywheel, the efficiency that you see. You talk about it. Occasionally, we get metrics that illustrate once you start gaining share in a market, you actually become more efficient and more effective. So I was hoping that you could talk a little bit about that flywheel, why it occurs? How much more room is there to run? And at some point, do we get into kind of an S-curve penetration where that might slow down?

Yes, for sure. If you look at the different markets that we're in, one of the terms we use internally is based upon how much market share we have, we define these markets into different groups. And as we get to about 20% share, we call those markets flywheel markets. And so at the end of '22, about 15% of our markets were in this flywheel state. A year later, at the end of '23, that number is up to about 30%. And in these markets where we have this level of share, which helps, as I mentioned, helps our funnel, helps conversion, helps our rep productivity; we see about 10% better productivity than we do in an average market. Even in the markets that have the most penetration, so these are markets that have about 30% penetration, we're still gaining share at a rapid clip. That's really what gives us confidence in this -- and our ability to continue to grow and scale and gain share. And I think, as we -- to your point about terminal S-curve maturation, of course, as we get to terminal share, you will see, right, you will start to see that slow down. We have not seen that in any of our markets yet. And that's why we're investing in such a big way, in markets like in our international business, in enterprise, in retail to complement that because we've got to get ready now, right, to invest in those businesses now to set that up for the future.

Excellent. So maybe shifting to international. You talked about 1,000 locations now outside of the U.S. Could you talk a little bit about trends that you're seeing there? What should we expect? Can we expect similar adoption curves in these other markets as we've seen in the U.S.?

Yes. No, I can comment on that. So first of all, the 1,000 locations is a really important marker for us, just speaks to the success we've had. And we've been investing behind that. Most of the focus has been on building out the go-to-market engine in sort of the English-speaking countries like U.K., Dublin and Canada. But we've just started with the core elements of the platform. We haven't even extended to the breadth of the platform that's available, things like digital, online ordering, extra chef, et cetera. So there are certain elements of the platform, the guest-facing products, that as we add those internationally, which are not available today, we'll see not only an increase in ARPU, driving the payback periods that we want, but also an increase in win rate. So we're -- and even without that, we got to 1,000 restaurants. So that's one really important point is that we haven't even extended the breadth of the platform. The other piece is, as we reflect on the motion and the traction we're seeing, the patterns we're seeing in these markets, very much what we saw in the U.S. in early days. And so that also gives us conviction to continue to invest there. So we're super encouraged by what we're seeing. The customer reception has been really positive. A lot of those customers internationally will go to our website and ask for the products available in the U.S. So that's the other proof point that we're seeing and that happens all the time.

Excellent. And then -- similar question on the enterprise. We've seen or we've heard about some success with some hotel chains up in the enterprise and some other restaurant chains. Can you talk a little bit about what to expect as far as enterprise penetration?

Yes. Before I jump into enterprise, we'll have customers that will go to our U.S. website, they'll see the breadth of the platform, and they'll say, "No, we know it's available. We've seen it on the website." They're just looking at the wrong page. So there's a lot of push to get some of those products out there internationally. In terms of enterprise business, we didn't have much of an enterprise business 2 years ago. If you look at the success of brands like Marriott and MTY and NBC and Caribou Coffee and Choice Hotels, these are all in the last couple of years. And again, it's just a testament to the team for all the progress we've been able to make upmarket relatively quickly. As I talk to customers, the theme that I hear is, within the 4 walls of a restaurant, they see Toast as best-in-class. Whether it is the terminals to take orders, the kitchen management, the handhelds to take orders and payments or the kiosk solutions to drive self-service. Where we want to continue to improve and mature is really our above store capability. So this is things like enterprise configuration management, scheduled publishing, security and compliance, APIs for partners, extensibility. Those are really the areas that we're investing in. And I think one of the things that we're trying to be balanced about is as we think about all of the vectors of growth for Toast and our core SMB business, we're investing to open up that market. We're adding adjacencies within the SMB business, international and enterprise. We want to make sure that as we invest in enterprise, we don't have any one customer take over our road map. And it's really important to us that it's a shared cloud platform that all of our customers are using, including SMB customers and enterprise customers. And so we're being thoughtful and judicious in terms of how we bring customers on to our platform. And I think you should expect this trend to continue, where we have customers gradually join our platform and bring us upmarket and contribute to our growth.

Perfect. Maybe shifting gears, talk a little bit about GPV. GPV per location. We've definitely seen some pressure for a number of factors, inflation, tailwinds going away. I guess -- wanted to ask what you're seeing in the current environment and what is embedded in this year's guidance?

Yes, I'll take that. So in the fourth quarter, what you saw is GPV per location down 1%. Most of that was driven by just volume coming down and to a lesser extent, mix. That was consistent with what we saw in Q3. So we started seeing this volumes go down in Q3. So as we were setting guidance for 2024, we also had this January dynamic where weather really across the country impacted the restaurant ecosystem. So when you put all those together, volumes slowing in the second half of '23, January weather, it's felt prudent to have a measured approach to the GPV for the balance of the year. Since then, though, GPV has largely stabilized through February. So we feel confident. But at the highest level, I think we want to stay measured around 2024.

Okay. That's helpful. Turning to fintech and take rates. One of the more topical areas as far as taking -- ability to go back to certain customers and increase pricing that's off market. So I wanted to talk about that dynamic a little bit. What is the plan there? What should expectations be as far as the impact from that?

Yes. If you think about like the growth of Toast and what our growth algorithm is, I'll start by saying it's, as you all know, step one is locations, continuous scale of locations. We believe there's an opportunity for Toast to be the platform of choice for all restaurants. We believe restaurants are better if Toast is installed. Next is adjacencies, and we started with the point of sale and over time, we've added more and more products. We see opportunity to continue to refine that to drive ARPU. And third is pricing. So it's 1 of 3 vectors that's driving our growth algorithm. Within pricing specifically across -- before I jump into fintech. Across both SaaS and fintech, we see a relatively wide distribution of what customers are paying for like products. And newer customers that are joining our platform and have joined over the past couple of years are paying meaningfully more. And so that gives us some confidence in terms of our ability to adjust prices over time. And also, we've never really built out even like an inflation muscle -- inflation adjustment muscle, where you're taking price gradually in software, for example, just to counteract inflation. On fintech specifically, Josh, we've seen over the past couple of years, as you all might know, price increases from the networks that we have not passed on to our customers. And so that is really step one, as we think about our pricing muscle is to adjust those prices gradually to account for those changes that we saw from the networks. And I think over time, we want it to be a long-term muscle. I wouldn't think of price as something that is one and done thing. We do have some short-term opportunities that we see. But really, it's about stepping back and saying, we've talked to the management team about this, how do we build this as a long-term muscle in our growth algorithm? I say going back to, you've got locations, you've got ARPU driven by the adjacencies in our platform and then pricing as another vector to drive our growth.

Yes. The only thing I would add there is, as we've continued to innovate, the customers have pulled us. They expect, as we innovate, their prices will move, right? And so as long as we continue to be very transparent about that innovation ongoing, we are in a position of confidence in terms of our ability to drive price.

Got it. And just to clarify, as far as the mix of the customer base where you're taking some price and maybe in relation to your conversation about kind of the ongoing dynamics around pricing, like are we going to see this show up near term as far as net take rates? Or will it sort of just be blended in the model on a go...

I can take that. So we should see some of that show up in the second half of the year, and I made those comments on the earnings call and [indiscernible] you forget. But -- we were pretty clear that you should start seeing some of that in the back half of the year. But keep in mind, because we're -- because of the second half initiative, the bigger impact is really 2025. So just keep that in mind. But zooming out, if you just think about our opportunity around take rate broadly and this is over time, we still are operating with the same principle of there's really 2 ways to influence that, right? One is price, which we've talked about. The other is how we optimize our cost structure and our infrastructure on a per transaction basis. And that continues to be a discipline that we have a whole team focused on, which Aman and I spent a lot of time with that team, just understanding what is the long-term road map of our optimization. And that's -- in the partners we work with in our ecosystem, there's room to expand that take rate over time. And then in addition to that, just imagine all of the innovation in and around fintech that we still are early in the phase of our fintech opportunities. So to the extent we can drive more digital products and innovate around fintech, that gives us another opportunity to drive that take rate over time. Now those are longer-term initiatives, but still areas where we have a lot of confidence, it's a natural extension of the breadth of offerings that we have.

Excellent. One other thing that impacts take rates is mix in addition to price and cost. So just wondering if there's any context as you are ramping international business going upmarket in the enterprise, how will the increasing mix of those segments impact take rate?

Yes. I think at the highest level, because the core SMB and because we're focused on high-value customers, the movement of our take rate based on mix will be very gradual. I don't see that as a near-term headwind, if you will. It will impact it, but slowly over time.

Got it. Similar questions on the software side. In regard to price, is there any near-term opportunity around pricing in relation to software? Is that further down the line? Is it more through packaging and extra value, if you could talk about price and software?

You want to take it?

Sure. I'll go back to -- if you look at the distribution of our customers across both the SaaS and fintech, we see a distribution for like products. And so when we think about SaaS, I think there's a few different things. One is, as older cohorts mature, making sure those adjustments are made so that the distribution narrows. And second thing is looking at just an inflation muscle so that we can just adjust prices gradually just to counteract inflation. And I think the third piece, which you hinted at was, as we've expanded our platform -- we started off the business with point of sale, that's all we sold, and there wasn't any need to think too much about being thoughtful about how you might package all of this, right? Because you have one product, you show up, you talk about it. We embedded payments, and that was largely still the software and the payments. And over time, we've expanded this platform now where it's got 5 lines of business. You've got commerce. Within commerce, you've got different solutions. You've got guests, which is the guest experience. You've got employee experience, which is payroll and scheduling and more. You've got fintech, that's got a few products and then you've got our supply and accounting product. And so I think one of the opportunities for us, and we've rolled out some innovation here is to just think hard about what are ways in which we can make our products easier to buy and sell, like easier for our customers to absorb and easier for our sales team to present. And so that's a big area of focus. This is to simplify some of the different solutions we have into different, as Elena mentioned, good, better, best tier. It also helps with our sales motion, because it allows us to show up in a sales cycle and have a conversation where not only does it simplify the sales motion upfront, but it also allows the sales rep to then figure out what should be moved to the expand motion in terms of what are the packages I want to focus on first and what are the packages that they can focus on later. So that's a big area of focus that we think is a material driver of just both, let's say price, but also, frankly, our attach rates and our activation of our platform.

Yes. The only thing I would add to what Aman said, is, as we've heard feedback from our customers, they really think about what do I pay Toast in aggregate? So what's their total cost of ownership. And so as a pricing strategy, we have to be super thoughtful and intentional about how we deliver that, right? So we've decided, hey, we're going to -- a, we know we can monetize across both as long as we continue to innovate and show the value, of course, that's like table stakes. But as long as we do that, then it's really -- we just want to be very surgical about how we do that because to them, whether it's fintech or SaaS, it is still price. And so that's one of the things that we're trying to balance and thread that needle.

Got it. Elena, you guided to mid-single-digit software ARPU growth for this year, that's obviously down from high single digits, low double digits before that. Like what's driving that trend? And with this conversation on software ARPU in mind, like what can we expect on a go-forward basis?

Yes. No, you're right. We've guided to mid-single digits. So part of that is the optimization that you've seen us deploy over the last several quarters around what do we land upfront versus what do we upsell over time. So as I think about and we think -- really think about ARPU over time and in 2024, it's really thinking about it in a few different ways. One is, have we optimized our product market with the breadth of products we have today. And so we're going to always continue to innovate to ensure that for the products we have in the bag, they're completely optimized because we know that, a, there's a lot of attach yet to go. We're not at our terminal attach rates with the products we have. So let's just do the best we can to make sure we're constantly innovating, adjusting, tweaking the product based on customer feedback to drive that attach. So that's one is just let's focus on the existing products driving attach. And then you sort of say, well, now we have new and existing customers, how do we think about those? So for our new customers, Aman alluded to this, but packaging is a way to drive and optimize that land upfront through the good, better, best model, where a customer depending on where they are on their maturity curve will land at a different price point. And that is -- that serves us really well for 2 reasons. One, the customer sees that they can grow with us over time. For the rep that's a more effective, efficient transaction. And then for the upsell team, for the back book, then we have a set -- we know the platform is there, the upsell team can then come back either in that dimension of good, better, best and/or through data, understand what are the elements of the platform that would really be valuable for this customer today that they don't already have. And so we're optimizing that upsell motion as we speak. So that's how we think about and how we land at that mid-single 5%-ish range for ARPU growth.

Yes. I just want to reinforce one important point that Elena made, which is if you go back and look at the 12 years in this business, when we first started out selling to restaurants, we were really selling a small subsegment of the customer base. We couldn't serve all restaurants. And it's taken us a decade plus to serve more and more of the customer base, whether it's an SMB or it's a mid-market enterprise and internationally, of course. And I think as we look at our product portfolio that we've either been organically built the Toast sort of through M&A, one of the things that you hear from customers is they value these solutions being better together. Because having all these solutions work together saves them time, which, as you can imagine, as a small business owner is so valuable. A simple example of this is we see massive adoption of our digital ordering products because the order goes straight from a website that's powered by Toast into the kitchen and the code times in the kitchen allow guests to better understand when the food will be available for pickup or delivery. And so there's lots and lots of examples like this. We're having it all tightly coupled and work together makes a huge difference. These solutions that we have, though, are on the same journey. That's the point I want to reinforce that Elena made, which is the point of sale, it's taken us time to serve the broader market. And we're very, very aware of making -- very cognizant in making sure that as we expand the product portfolio and attach rates, we're not doing it at the expense of NPS. And so it's really, really important that as we scale into more of the market, that customers have a great experience. And so that's a big focus area for the team. But -- and going back to the thing that I'm anchored on, as you talk to customers, you consistently hear is they value like a lot of these solutions working together. And so that's really what gives us confidence long term and our ability to expand the product portfolio. And then lastly, I just add the point in price, which is we've never -- you think of single -- mid-single digits, and you think mid-single digits, and you think about pricing as a lever just on inflation alone, is the lever we have not leveraged. And I think that is something that as Elena mentioned, our customers very much understand that we're investing so much in R&D, and as part of that innovation, gradual price adjustments are very reasonable. And that will also help drive -- can help drive ARPU growth. And so those 2 things, I think, over time, should be a tailwind for SaaS [indiscernible].

Very helpful. I want to shift gears and talk about profitability. I've had a lot of conversations with many investors in this room around profitability over the years. Valuation, talking about gross profit multiples or growth -- adjusted gross profit multiples. Now with significant margin improvement and a strong EBITDA guide, there's an EBITDA multiple we can all talk about. So a big change. So I wanted to talk about efficiency and that margin expansion. Maybe to start, last quarter, you announced a reduction in force headcount. And wanted to ask about what led to that decision when you're seeing really strong growth. And if you could give a little more context on that?

Yes, I can start. Maybe you can add to it. We came out of COVID, and you saw restaurants reopening at a rapid clip. You saw, frankly, demand outstrip supply in many cases, demand for restaurants. And we grew to take advantage of the opportunity in front of us and grew rapidly. And I think just coming in with a fresh pair of eyes is even though I've been here a long time, I just want to step back and look at the whole business holistically and see -- like where are we actually investing? How are we investing our resources? And as we -- as we look at it together as a management team, I think we all kind of came to the conclusion that in some areas, we may be invested a little bit too quickly. And so what's an example. We looked at the management [indiscernible] and wanted to bring the management team, frankly, closer to the work. We saw that as an opportunity in the business to actually help us go faster and improve our cost structure. We looked at all the initiatives and the investments we had across the entire business in R&D and G&A. And we felt like there was an opportunity for us to do fewer things better and really just focus the team. And that was an area that we looked at as we looked at efficiency. We protected our customer-facing teams in sales and customer success to take advantage of the growth in front of us. And I think, frankly, like a lot of this is really about opening up some investment also as we start to gain more conviction to put the pedal down, right, in some of these areas that are still early for Toast. Of course, our core SMB business, right? We'll continue to scale it, but it's got -- we're not dramatically expanding sales capacity, for example, in our U.S. SMB business. But if you look at international, if we look at enterprise, if we look at retail, those are opportunities for us long term. And so I think this rightsizing our cost structure allows us to take advantage of those opportunities when we see it.

Great. And then as far as thinking about the cadence of this year, obviously, we have Q1 guidance, full year guidance, but when should we see the timing of these savings and thinking about margins throughout the year?

Yes, it's a good question. So the total savings just from the reduction force is about $100 million in annualized savings, I think, over 12 months. But a couple of things to think about. One is 2/3 or so of that savings is on a non-GAAP basis and then the remainder is on stock-based comp. So for those of you who've got models, that should be how you split it up. But also the timing of it is really important. We notified the employees in February. Some of our employees have left us as of February. Other employees will leave us as the year goes on, just they've got to complete a few initiatives. So you'll see that bleeding through the P&L over time. And so that's how I would say, you guys think about it. And embedded in that was an assumption around driving stock-based comp down obviously over time as well.

On the topic of stock-based comp, kind of the next thing to look forward to from a profitability perspective, GAAP operating positive in the first half of '25, is there anything else that you need to do in order to reach that goal beyond sort of managing stock-based comp?

Yes. Look, I think the really important thing I want to convey is, as we set out, what gave us the confidence, first of all, to guide to GAAP profitability in the first half of 2025 was you've seen us deliver over the last year, almost $175 million of operating leverage to the business already. And so that gave us confidence to guide to what we did in 2024, which was roughly $150 million at the midpoint. So that's on a non-GAAP basis. In addition to that, we've shared some guidance around driving stock-based comp down over time, managing dilution. And it's just a discipline in how we're going to operate. And things that you may not see on paper are things such as making sure all of our leaders understand for every single employee, there's a stock-based component to that employee. So now all of our leaders across the company are seeing in their budget, stock-based comp and they're managing to that. So that's a discipline we started about a year ago. It's taking hold. People are starting to think that way. I think that will change the DNA of how we think. So all of that combined, when you put it all together, what we think about is how do we build an enduring business that's growing and at the same time, do that in a very disciplined way. And so as you think about the credibility of us saying that, just look back at our performance in the last year.

Perfect. One other new piece from Q4 was the share repurchase authorization. So in the context of capital allocation, can you talk a little bit about what you're trying to achieve with the buyback and then also how that fits in with M&A?

Sure. So at the highest level, becoming free cash flow positive was just an opportunity for us to step back as a team and just think about our capital allocation strategy, just as a matter of good hygiene. What should be really clear is we're going to continue to invest in our core business. That is our #1 priority, and we'll continue to do that. Given where we are, given about the opportunity we have, we've got so much opportunity ahead that -- make no mistake, that's where we're going to focus. M&A will continue to be opportunistic as we see -- we're constantly canvassing the market for opportunity, to the extent something would be a natural adjacency and/or accelerate our product road map and make sense from an economic standpoint or a financial standpoint. Those are things we'll look at, I would say, opportunistically, but the hurdle is pretty high on something like that. It's got to be incredibly strategic and meet the criteria I just talked about. And then the repurchase authorization is just another tool in our capital allocation toolkit that opportunistically, if it makes sense, we'll execute on that. But the key point is we're going to continue to focus on our core business.

Got it. Wanted to come back to revisit mix and the impact of enterprise and international. And we talked about some of the impact or lack thereof kind of take rate. But more broadly, when you think about unified payments versus potentially separating payments, when you think about the software ARPU in these new segments, like as international and enterprise increase in mix, what can we expect as far as the impact to GPV per location and software ARPU?

Let me take that.

Yes, go for it.

So if you look at our growth -- if you look at our growth algorithm today and where we're seeing most of our growth, it is coming through our U.S. SMB business. And we look in these markets to see, as I mentioned earlier, you look at like what kind of share we have -- we look at what kind of share we have at full-serve restaurants, we break it down by GPV. And we have a lot of conviction that we can continue to grow in our bread and butter in terms of what we do today. I think over time, you'll see us invest in some of these new growth areas, try to go faster, whether it's upmarket enterprise or with international. And you'll see as a result, some mix shift over time, right? I think -- regardless of that though, in each of these market segments, we're looking actively at what are the payback periods, what are the gross margins, what are the unit economics. We understand that really well in the core U.S. SMB business. But as we get into these new businesses, and they become more material, that's an important focus for us, to make sure that on a blended basis, they make sense. And I think to some extent, as we continue -- like our mission, like our -- we're here because we think every restaurant in America is better off with Toast. And over time, we believe there's an opportunity to do that globally as well. And so we want restaurants that are not only in U.S. SMB, we want enterprise brands. We want mid-market brands. We want food trucks on our platform to join Toast. And so to the extent that there's changes there on whether it's GPV or an ARPU, they're going to be gradual because the core of our growth still is coming from our U.S. SMB business. But we're not shying away from it. We think it's a great thing as more and more restaurants join the platform. And Elena here, of course, is actively making sure that across -- and the team is actively making sure that across these new segments, we feel really good about data economics, just like we do for our U.S. SMB business.

Yes. And like the one calculus we do internally is like as we're thinking about extending into different parts of the TAM, the incremental gross profit from that incremental customer is incredibly important. That's how we think about it. And so -- and also you have to balance that with something like international, which is early in its journey. Like if we were to just look at international today with its payback period, you might say, well, we wouldn't do that. But actually, we will because we know we have conviction that we will get payback periods to be very much in line once we extend the product that we have today because today, we only have a core part of the platform. But that's just a great example of investing because we know that we will manage the overall payback periods of the company and manage international or newer segments over time to -- closer to what the U.S. payback periods are. So that's how we think about it. It's almost like a portfolio-based approach to the business.

Got it. That makes sense. I want to ask a few on competition. Obviously, you're gaining market share, see that in your location numbers, but competition is still important. So I want to start with in your -- traditionally, your core segment, are there any changes to note as far as the competitors, win rate? What's the competitive landscape looks like today?

The team is actively tracking it. One of the things we do a great job of internally is really, really good data to understand what's going on throughout the funnel. And the theme that we consistently see is our own ability to build an amazing brand. As I mentioned earlier, restaurants are very local. And so getting to share, getting to build a brand, getting a -- building a great brand is really the flywheel that allows us to scale. And that's still been the -- as we look at our data, that is the #1 signal that we see. Certainly, there's ups and downs and small changes competitively, but we continue to believe the #1 driver of our ability to gain share and be a market leader in the space over time is our own execution, whether it's in go-to-market, customer success, the product innovation. Right from day 1, one of the things that was an important strategic choice that we made was just being exclusively focused on this restaurant segment, like vertically focused on restaurants. And I think that allows us to just have the entire organization's energy on solving for this one vertical. And so we believe that we can continue to stay one step ahead. And of course, we track competition. But there's nothing material that we see in our data that's changing. Even from day 1, it's always been a competitive market, and that trend continues.

Got it. Could you -- a similar question about thinking about enterprise and also international. How does the competitive landscape differ in those different market segments?

I would say for international, highly fragmented, it presents an opportunity. And in fact, when we were evaluating a couple of years ago, almost 2 years ago, we're evaluating how will we enter into international? Does it really make sense. One of the facts or data that we were looking at was what is the competitive landscape, obviously, internationally. And what we found is a lot of the same players, some smaller bespoke players, but a lot of the same players that we win in the U.S. against -- like when we go toe to toe, we have good win rates against, that gave us the confidence that as long as there's nothing fundamentally different about a restaurant in EMEA versus the U.S., we should be able to have success. And that's proven to be the case. It's still very highly fragmented, I would say. A lot of the same players that we see here and a lot of similar patterns in terms of our win rates.

Okay.

The only thing I'll add on international is there's a lot more legacy on-prem solutions that we've seen, more so than the U.S. internationally because there's a lot of solutions in the low end of the market, but as you go into more complex restaurants with higher GPV, there's actually more legacy internationally than there is now in the U.S. with all of the players that are here. And I think in enterprise, there's a set of players that support that space -- that go after that enterprise space. And so as we're building out the platform to go upmarket, we're seeing some different competitors than we do in our core SMB space. I think in the core SMB space, we often see these horizontal cloud solutions, right, that we compete most against. As you look at enterprise, there are some specific solutions that are just focused on that niche, and so it's just a different set of players that we're seeing.

In regard to expanding internationally, does it make sense to continue organically? Is there any possibility of M&A when you start thinking about different countries?

Yes. I mean we've explored just looking at -- like we do as part of our M&A playbook is looking across globally at assets that would make sense. So nothing to report there, but of course, that's an opportunity if we wanted to go faster. But so far, we're focused on the team and what they're doing, and they've had great success without that. The other thing I would say internationally is there are ways to work with partners that can also help us where we wouldn't need to necessarily do an M&A transaction, but plenty of partners that want to partner with Toast across EMEA.

Last question with the time remaining, Toast Capital, how should we think about the importance of that business, what to expect going forward? And if there's anything to add on those other fintech solutions that we might see in the future?

Yes. I mean, I think we'll -- the program is working quite well, all the way around. We're managing the risk well. The default rates are exactly what we expect them to be. But most importantly, we're solving a customer need. And that's continuing, we're seeing a lot of great demand from our customers. And so the growth you've seen is now more in a steady state. I think we'll continue to see that relative to GPV in that same zone. But like you said, over the long term, I think there's an opportunity in that team. There's a whole team focused on what does the fintech solutions look like for our customers over the long term. So nothing to report today, but really pleased with where Toast Capital is.

Excellent. Thank you very much, Elena and Aman, for the conversation. Thanks.

Thank you.

Thank you for your time.