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As Toast Trims Staff and Growth Slows, Subscription Revenues Gain 49%

Toast’s latest quarterly earnings were marked by the announcement of a 10% headcount reduction, even as subscription revenues increased but growth across some metrics slowed.

As reported Thursday (Feb. 15) after the markets closed, the company said it was trimming 550 positions.

CEO Aman Narang said on the call that staffing cuts came because the company grew its team “too quickly” in some areas.

Investors sent the shares 1% higher after hours. 

Delving into the company’s results, the CEO said the company added more than 6,000 new locations in the latest quarter, to more than 106,000. The company has doubled its Flywheel Markets through the past year, defined as markets where it has more than 20% market share.

Slowing Growth Metrics

The company noted in its earnings materials that total revenues were up 35% year over year (YoY) in the December quarter to more than $1 billion, but that growth rate is slower than the more than 50% growth rate seen earlier in the year over corresponding periods in 2023. Subscription revenues were up 49%, down from more than 70% logged earlier in 2023.  

“We believe there’s runway in our existing markets to continue to scale locations, while also increasing … product innovation,” the CEO said. The company materials show that annualized recurring revenue run rates were 35% in the most recent quarter, down from YoY growth seen as recently as the beginning of the year.   

“SMBs [small to mid-sized businesses] continue to drive the majority of our growth,” said Narang, who added, “We see tremendous runway there.” He said that the lines between retail and restaurants continues to “blur,” and many firms want a single system, with a single back end that they can use to track and manage all facets of their operations.

CFO Elena Gomez said on the call that non-payment-related FinTech solutions led by Toast Capital contributed $34 million in gross profit in the most recent quarter. 

Looking ahead, in the current quarter, Gomez said, the company expects 22% top line growth, and the lower growth is in part tied to weather-related headwinds. Net location additions will be seasonal, she said, with about 5,500 additions in the current quarter. 

Asked on the call about the status of Toast Capital, management said that the operations are performing well and that default rates are in line with expectations.