Toast, Inc. (TOST) Q4 2022 Earnings Call Transcript

Toast, Inc. (NYSE:TOST) Q4 2022 Earnings Conference Call February 16, 2023 8:30 AM ET

Company Participants

Michael Senno - VP, Investor Relations and Strategic Finance

Elena Gomez - CFO

Christopher Comparato - Chairman, CEO & Director

Aman Narang - Co-Founder, Co-President, COO & Director

Conference Call Participants

Dan Dolev - Mizuho Securities

Stephen Sheldon - William Blair & Company

Timothy Chiodo - Crédit Suisse

Joshua Baer - Morgan Stanley

Andrew Bauch - SMBC Nikko

Rayna Kumar - UBS

Tien-Tsin Huang - JPMorgan Chase & Co.

William Nance - Goldman Sachs Group

Josh Beck - KeyBanc Capital Markets

Darrin Peller - Wolfe Research

Operator

Good afternoon. My sanction is Emily, and I will beryllium your convention usability today. At this time, I would for illustration to invited everyone to nan Toast net convention call. [Operator Instructions].

I'll now move nan telephone complete to Michael Senno, Vice President of Investor Relations and Strategic Finance. You whitethorn statesman your conference.

Michael Senno

Thank you, Emily. Welcome to Toast net convention telephone for nan 4th fourth and twelvemonth ended December 31, 2022. On today's telephone are CEO, Chris Comparato, and CFO, Elena Gomez, will unfastened aliases prepared remarks. They will past beryllium joined by our COO, Aman Narang, for our Q&A session.

Before we start, I'd for illustration to tie your attraction to nan safe harbor connection included successful today's property release. During this call, we'll make statements related to our business that whitethorn beryllium considered forward-looking wrong nan meaning of nan Securities and nan Exchange Act. All statements different than statements of humanities facts are forward-looking statements, including those regarding management's expectations of early financial and operational capacity and operational expenditures, early profit and separator outlook, expected maturation and business outlook, including our financial guidance for nan first 4th and afloat twelvemonth 2023.

Forward-looking statements bespeak our views only arsenic of today, and isolated from arsenic required by law, we undertake nary responsibility to update aliases revise these forward-looking statements. Please mention to nan cautionary connection successful today's property merchandise and our SEC filings for a chat of nan risks and uncertainty that could origin existent results to differ materially from our expectations.

During this call, we will talk definite non-GAAP financial measures. These non-GAAP measures are not intended to beryllium a substitute for our GAAP results. Please mention to our net merchandise and SEC filings for elaborate reconciliations of these non-GAAP measures to nan astir comparable GAAP measures.

Unless different stated, each references connected this telephone to costs of revenue, gross profit and gross margin, income and trading expense, investigation and improvement disbursal and wide and administrative disbursal are connected a non-GAAP basis.

Finally, some nan property merchandise and a replay of this call, including nan accompanying investor presentation, will beryllium disposable connected our Investor Relations website astatine investors.toasttab.com.

With that, fto maine move nan telephone complete to Chris.

Christopher Comparato

Thank you, Michael, and convey you, everyone, for joining america this morning. Toast vanished 2022 pinch different 4th marked by beardown apical statement maturation of complete 50%, further separator betterment and continued merchandise innovation. Our coagulated results passim nan twelvemonth are a awesome testament to nan value of our battle-tested squad and accordant execution connected our strategy, driving location growth, much profoundly serving each segments of nan edifice manufacture and pushing nan manufacture guardant done bold merchandise innovation.

The complexity of moving a edifice is only increasing. This was peculiarly evident complete nan past twelvemonth pinch restaurants facing inflation, proviso concatenation challenges and labour constraints while continuing to accommodate arsenic guests request a much seamless experience.

With that backdrop, nan request for restaurants to leverage exertion to amended efficiency, turn income and quickly accommodate is much captious than ever. And nan worth of Toast each successful 1 integer level continues to grow. We added astir 23,000 nett caller locations to our level successful 2022 and nan percent of locations attaching 6 aliases much SaaS modules accrued by astir 10 points grounds of beardown customer demand.

There are countless examples of really Toast is helping our customers present amended apical and bottommost statement results, including Alpine Inn, a tavern successful California unlocked a 76% summation successful gross since adding Toast Mobile Order & Pay, driving higher cheque sizes, a amended impermanent acquisition and helping negociate nan labour shortage.

Another illustration is Silver Diner, which rolled retired Toast to 21 locations. Since implementing our platform, servers utilizing Tosco handhelds are capable to screen 1 to 2 much tables than before, decreasing array move times by an mean of 3 to 5 minutes, providing tangible ratio benefits. These examples besides show really our level feeds a virtuous rhythm that creates a amended acquisition for edifice ecosystem, enabling unit to beryllium much businesslike and effective leads to happier employees, which translates to a amended acquisition for guests who leaves higher tips and reenforce nan edifice arsenic a awesome spot to activity for employees.

This move leads to much successful amended tally restaurants. And arsenic restaurants usage much of our integrated platform, it strengthens nan cycle, creating powerful web effects for our customers. Restaurants run successful a competitive, quickly evolving manufacture wrong profit margins, magnifying nan value of technology. And pinch nan worth of our industry-leading level tin offer, we spot a generational opportunity to service arsenic nan industry's exertion backbone. We are still successful nan early stages of our imaginable marketplace opportunity moreover aft our maturation complete nan past fewer years, little than 10% of U.S. edifice locations astir nan Toast platform, and our Q4 ARR only represents astir 2% of nan $55 cardinal marketplace opportunity, leaving a agelong runway of maturation up arsenic we proceed to execute.

Turning to our Q4 results. On a year-over-year basis, full gross grew 50% to $759 million. ARR accrued 59% to $901 cardinal and GPV was up 49% to $25.5 billion. Sustaining our apical statement momentum while delivering accordant separator description passim 2022 is grounds of some nan scalability of our business exemplary and our committedness to balancing investments successful cardinal maturation areas pinch ratio and costs discipline.

In Q4, adjusted EBITDA improved to an $18 cardinal loss. We besides sustained patient location growth, adding astir 5,500 nett caller locations successful Q4 to extremity nan twelvemonth pinch astir 79,000 full unrecorded locations. We consistently executed connected our proven, scalable go-to-market strategy passim 2022, and we proceed to use from nan flywheel effects we've discussed successful much and much markets.

As we summation penetration, we're assured that we tin proceed to efficiently turn locations and ARR. Underpinning our location maturation is beardown request crossed edifice segments. In summation to momentum pinch SMB restaurants, we proceed to summation traction upmarket pinch larger customers arsenic we put successful our platform.

I'll item a fewer bookings from nan past quarter. After moving pinch Toast astatine their bud dairy nutrient hallway location, Cameron Mitchell restaurants is rolling retired Toast to each edifice brands successful their multi-concept FSR focused portfolio. They were impressed pinch really Toast easy supported various partners and tech integrations and saw imaginable for Toast to beryllium their trusted tech partner arsenic nan institution grows.

In summation to our API integrations, Cameron Mitchell is utilizing our multi-location guidance module to thief standardize operations and easy configure menus. They are utilizing our Toast Go handhelds for smoother eating experiences successful nan beforehand of location and our room show systems to amended back-of-house operations. They besides scheme to proceedings further features that will further thief them power nan impermanent experience.

Here, northbound of Boston, Michael's Harborside is simply a well-known waterfront eatery pinch a important uptick successful business successful warmer months. After enduring different engaged play of payroll and scheduling symptom successful an outdated POS, they look to Toast to thief revamp their approach. In summation to our robust all-in-one platform, Michael's Harborside was attracted to our payroll and squad guidance solution to thief digitally onboard their influx of seasonal labor alteration workers to independently switch shifts utilizing our Sling app and dramatically trim play clip spent connected payroll from nan hr positive they were utilized to.

Michael's Harborside is besides excited to leverage Toast handhelds to thief servers activity their various rooms, decks and outdoor eating spaces business erstwhile nan engaged play returns. California-based bubble T shop Teaspoon selected Toast to beryllium their tech partner astatine 45 locations successful their franchise-focused, quickly expanding footprint, Teaspoon was impressed by a restaurant-specific enterprise-grade features, our beardown customer references and our proven way grounds of onboarding and supporting franchise-based QSRs. With Toast, Teaspoon will connection franchisees a turnkey all-in-one solution that includes our Toast Go handhelds for statement busting, our room show systems for back-of-house experience, our integer kiosks, which they spot arsenic a existent differentiator to power labour costs. They will besides leverage Toast multi-location management, our scheduling and payroll products and other cook for invoice automation.

On apical of our location maturation momentum, customers for illustration Teaspoon proceed to connect much products. As of nan extremity of Q4, 41% of our customers attached 6 aliases much SaaS modules. That percent has much than doubled successful conscionable 2 years acknowledgment to our continued level description , improving packaging designed to alteration our income squad to efficiently connect much products astatine booking and nan increasing momentum of our multichannel upsell strategy.

These factors contributed to nan subscription gross expanding complete 90% year-over-year successful 2022, and we proceed to spot a important opportunity to further grow SaaS ARPU complete time. Helping our customers win by unlocking maturation and expanding ratio is astatine nan bosom of our business and is what informs our merchandise invention arsenic nan needs of guests quickly germinate and nan value of processing incremental gross streams grow, restaurants are progressively diversifying into much work models.

Our sound of nan edifice manufacture study from past twelvemonth recovered that connected average, restaurants employment 7 different work models. In Q3, we launched Toast invoicing, enabling restaurants to efficiently negociate wholesale and catering orders, on pinch their halfway edifice business successful 1 integrated system. Over 5,000 customers person already utilized our invoicing merchandise to streamline their billing and costs processes and pinch an mean transaction worth complete $650, it's besides an opportunity for these customers to turn their business.

To further grow nan work models disposable done our platform, today, we announced nan acquisition of Delphi Display Systems, a starring supplier of integer paper and drive-through products Integrating Delphi into nan Toast level will alteration america to connection drive-through capabilities connected our level for nan first time, giving our customers nan action to employment this captious work exemplary to turn their business and connection guests a much omnichannel experience.

Adding a drive-through offering and integer paper boards enhances our offering for some mini and ample quick-serve restaurants. In Q2 of past year, we launched Toast for quick-serve restaurants, and we've seen beardown follow-through successful our chimney from QSRs complete nan past fewer quarters. Drive-thru is simply a captious work exemplary for QSRs and has go an moreover much important complete nan past fewer years. We're excited to invited nan Delphi squad to our Toast family and partner much profoundly to service these restaurants.

We scheme to proceed to adhd much capabilities to our QSR offering successful 2023 to thrust moreover deeper penetration successful this conception going forward. Last week, we announced our bid pinch Google integration, expanding our suite of integer ordering products, this capacity expands nan online scope of our restaurants by providing visibility successful Google Search and Google Maps and unlocks different transmission for customers to turn their online ordering business. Order pinch Google is afloat integrated pinch our platform, making it easy for restaurants to update their menus and hours successful 1 spot and seamlessly negociate bid flow.

Together pinch online ordering and nan Toast takeout app, we proceed to connection restaurants much options to turn their off-premise business efficiently pinch commission-free online ordering while enabling them to connection guests a cost-efficient, seamless experience.

In summation to our wide platform, our extended partner ecosystem continues to expand. During Q4, we exceeded 200 partners successful our network, which encompasses exertion integration partners, section partners and ample nationalist nutrient and beverage suppliers. Our increasing partner ecosystem gives customers entree to a wide scope of products and services to meet nan needs of their edifice complementing our existing expanding level and further enhancing nan worth Toast provides to customers.

Over half our customers are utilizing a partner integration coming done our API module. And these customers are utilizing 3 integrations connected average. Customers that usage our partner integrations person complete 30% higher full ARPU and a little churn complaint than customers not utilizing API integrations, grounds of nan worth our partner ecosystem adds for customers and really it enhances our platform. This is different illustration of nan reinforcing benefits from our level arsenic we jointly thief customers grow, our partners turn and we grow. Thank you to our partners for sharing successful nan ngo to thief nan edifice manufacture thrive.

So arsenic we move into 2023, we are focused connected continuing to execute connected nan aforesaid strategy that has been delivering accordant beardown results. First, arsenic we proceed to thrust location growth, customer spot will ever beryllium nan instauration of everything we do. The opportunity up is monolithic and ensuring we are nan trusted level for nan edifice manufacture arsenic our business scales is ever our apical priority. Second, merchandise invention is integral to our DNA. We person an breathtaking pipeline of caller products to thief edifice owners further optimize their operations and to build connected nan suites of products we connection restaurants to deepen their touch points pinch their astir important stakeholders, guests, labor and suppliers.

Third, we will support investing to much profoundly service each segments of nan edifice industry. This includes tailored offerings to amended service edifice types for illustration QSRs and enhancing nan capabilities for customer segments for illustration mid-market and enterprise.

And fourth, we will proceed building retired our world business, while we're still very early, nan imaginable opportunity is significant, and we look guardant to taking nan adjacent steps successful nan multiyear journey. Our attraction connected balancing cardinal investments pinch disciplined costs guidance passim 2022 sets america up good to support our operating momentum and present different twelvemonth of beardown durable maturation successful 2023.

We expect to present 32% gross maturation for afloat twelvemonth 2023 astatine nan midpoint of our guidance scope while driving further separator betterment arsenic we advancement toward adjusted EBITDA profitability by nan extremity of nan year. We stay committed to prudently investing to capitalize connected nan important marketplace opportunity while efficiently scaling our business.

As we commencement nan year, nan macroeconomic backdrop remains uncertain, while nan edifice manufacture has continued to execute comparatively well, we're alert location is little visibility connected user trends and restaurants proceed to run successful a move environment. Our apical privilege is to proceed to thief restaurants leverage our level to flooded nan challenges they look and look stronger.

The uncertainty besides calls for america to stay flexible. We've proven our expertise to navigate uncertainty successful nan past and we're good prepared to accommodate quickly to immoderate alteration successful trends. Our advancement complete nan past twelvemonth to guarantee a thin costs building positions america to move moreover faster arsenic nan situation evolves and nan elasticity to support a disciplined maturation mindset arsenic we execute against nan monolithic opportunity ahead.

As we move nan page connected 2022 and look up to 2023, I want to convey our increasing customer organization for their assurance successful Toast, our labor for their attraction and dedication, and our extended web of partners, investors and others who proceed to support Toast and nan broader edifice community. While we've accomplished a batch together complete nan past year, we judge we are conscionable getting started, and we're excited astir nan opportunity successful nan years to come.

Now I'll move nan telephone complete to Elena.

Elena Gomez

Good morning, and thanks, Chris, and convey you, everyone, for joining. I want to commencement pinch a outcry retired to nan full Toast team, convey you for different awesome 4th and accordant execution and difficult activity that drove our beardown capacity passim nan past year. We sustained our operating momentum successful Q4, exceeding nan precocious extremity of our scope connected some our gross and adjusted EBITDA guidance. Our industry-leading package and payments level continues to thrust coagulated apical statement maturation while our committedness to scalable, businesslike maturation has resulted successful 4 consecutive quarters of adjusted EBITDA separator improvement. And we're conscionable getting started. .

We're still successful nan early stages of a generational opportunity to beryllium nan edifice industry's trusted exertion partner pinch smart targeted investments successful merchandise invention to proceed to grow our industry-leading level mixed pinch nan aforesaid accordant disciplined execution we delivered successful 2022, we judge we person a agelong runway of apical and bottommost statement maturation ahead.

In Q4, we added astir 5,500 nett caller locations, expanding nan full number of unrecorded locations connected our level to astir 79,000, our differentiated go-to-market attack and nan beardown execution of our income squad led to accordant beardown nett location adds passim nan year, enabling america to prolong astir 40% year-over-year location growth.

As demonstrated successful galore examples Chris conscionable shared, we're seeing occurrence crossed nan afloat breadth of our edifice segments, maintaining our spot successful SMB while building momentum upmarket. Total gross grew 50% year-over-year to $769 cardinal successful nan 4th quarter. For nan afloat twelvemonth 2022, full gross of $2.7 cardinal was up 60% from nan erstwhile year. ARR, which is our halfway operational metric, closed nan twelvemonth astatine $901 million, up 59% year-over-year.

Subscription gross and fintech gross profit, nan cardinal components of our recurring gross totaled $232 cardinal successful Q4, up 73% year-over-year, driven by our continued location maturation and patient ARPU maturation crossed some SaaS and fintech. Our 2022 capacity resulted successful a full nett retention rate, aliases NRR, of 118%. That's down from 135% successful 2021. As a reminder, we anticipated nan diminution since 2021 benefited from GPV betterment and higher separator debit and in installments non-present measurement during COVID, which stabilized successful 2022.

Our SaaS NRR accrued 5 points to 128%, driven by our momentum and upsell, continued location description from existing customers and debased churn. Subscription services gross grew 76% year-over-year successful Q4, while full SaaS ARPU accrued astir 20% and is up by much than 50% from 2 years agone arsenic we proceed to spot caller customers subordinate nan level pinch higher ARPU and existing customers adopt much products.

As of nan extremity of Q4, 41% of our edifice locations connect 6 aliases much SaaS modules compared to conscionable 32% past year, and nan mean SaaS ARPU for this cohort is importantly higher than our wide SaaS ARPU. This is simply a awesome illustration of nan longer-term ARPU imaginable arsenic we proceed to grow nan platform, optimize our packaging and refine our upsell motion.

Moving to fintech solutions. Revenue grew 52% to $640 million, and gross profit was up 71% year-over-year to $137 cardinal successful nan 4th quarter. GPV maturation remained coagulated and accrued 49% to $25.5 cardinal successful Q4. Average annualized GPV per processing location was conscionable beneath $1.4 million, up 7% year-over-year and somewhat beneath Q3 levels, successful statement pinch emblematic seasonal patterns.

We besides proceed to use from our nonpayment fintech products and services led by Toast Capital. These products drove astir $24 cardinal of gross profit successful Q4. Our increasing Toast Capital offering provides eligible customers pinch fast, elastic entree to superior to turn their business. And arsenic our customers turn and grow their business, we turn pinch them. For example, a steakhouse successful Georgia utilized costs from Toast Capital to instal powered curtains to enclose its patio during colder months. That opened up astir 70 further seats driving incremental income successful nan wintertime and contributed to 20% income maturation successful 2022, providing nan edifice a awesome ROI.

We're uniquely positioned to negociate nan consequence floor plan of our portfolio and prudently standard nan offering, our edifice POS and costs processing information provides penetration to measure and show nan wellness of a edifice to pass our underwriting process and pricing. Loans are repaid utilizing a information of each restaurant's regular costs measurement reducing repayment risk. Our banking business besides includes a nonaccomplishment headdress to connection further protection.

These factors alteration america to equilibrium consequence while helping our customers turn and continuing to grow our business. Net return complaint accrued to 54 ground points, driven by nan maturation successful different fintech products, somewhat offset by nan seasonal higher in installments operation akin to what we typically spot successful Q4. We expect nett return complaint to stay successful a akin scope successful 2023.

In Q4, full gross profit grew 110% year-over-year and 5% quarter-over-quarter to $172 million, resulting successful full gross separator of 22.4%. Looking astatine our recurring stream, subscription and fintech gross profit totaled $207 cardinal successful nan 4th quarter, up 78% year-over-year, showcasing nan powerfulness of our integrated business model.

Turning to customer acquisition costs. Hardware margins improved somewhat owed to little shipping costs. Hardware gross decreased year-over-year owed to nan pricing and packaging of bundled merchandise sales. Excluding that impact, hardware gross accrued driven by upsell and location growth. Our income and trading investments proceed to present coagulated returns arsenic evidenced by our accordant nett caller location adds each quarter. We expect to proceed to efficiently standard our go-to-market motor arsenic we thrust deeper penetration and build a flywheel effect successful much markets complete time.

Managing customer acquisition costs and maintaining patient portion economics is simply a cardinal attraction arsenic we standard nan business and thief pass our finance decisions. For nan afloat twelvemonth successful 2022, our payback play was successful statement pinch our expectations astatine astir 15 months. We stay assured successful our expertise to standard our portion economics arsenic we use from expanding marketplace penetration, nan rep tenure driving nan productivity of our income team, opportunities to optimize hardware costs and continued momentum successful ARPU growth.

As Chris highlighted, our bid pinch Google integration is nan latest illustration of nan ongoing merchandise invention resulting from our R&D investments and we person an breathtaking pipeline of caller products and capabilities connected pat for 2023 that will further heighten our level and unlock much worth for our customers and thrust sustained ARPU successful location complete nan agelong term.

In Q4, full wide and administrative expenses accrued 39% year-over-year. Excluding bad indebtedness and credit-related expenses, G&A expenses grew 5% year-over-year arsenic we started to thigh nan step-up successful nationalist institution costs and use from operating leverage. Bad indebtedness and credit-related expenses totaled $18 cardinal successful Q4, which includes bad indebtedness connected outstanding receivables arsenic good arsenic liabilities related to Toast Capital and different fintech offerings.

As a reminder, we expect bad indebtedness and credit-related expenses related to Toast Capital to summation arsenic we turn nan program. The wide operating separator for Toast Capital is patient and accretive to nan wide business, and we judge suggestive of nan wellness of nan program.

Total Q4 adjusted EBITDA was antagonistic $18 cardinal and separator was 2.3% complete 600 ground points betterment from nan anterior year. This advancement is simply a nonstop consequence of our attraction connected having a thin costs building mixed pinch durable apical statement growth. The improvements to our costs building and committedness to disciplined investing and ratio put america successful a awesome position to thrust sustained separator improvements successful 2023 and summation our expertise to accommodate quickly successful this move environment.

Now fto maine move to guidance. For nan first quarter, we expect gross to beryllium successful nan scope of $745 cardinal to $775 million, representing 42% year-over-year maturation astatine nan midpoint. Adjusted EBITDA is expected to beryllium successful nan scope of antagonistic $30 cardinal to antagonistic $20 million. Our guidance reflects a emblematic seasonal diminution successful GPV per processing location arsenic Q1 is historically nan lowest 4th of nan year.

For afloat twelvemonth 2023, we expect gross to beryllium successful nan scope of $3.57 cardinal to $3.66 billion, which represents 32% year-over-year maturation astatine nan midpoint, antagonistic $10 million. At nan midpoint, this implies a 370 ground constituent separator betterment and astir $100 cardinal profit betterment compared to 2022. We besides stay connected target to present a quarterly adjusted EBITDA profit by nan extremity of 2023.

To supply immoderate further discourse connected our guidance, we intend to support a balanced attack successful 2023 pinch disciplined targeted investments to capitalize connected nan opportunity to beryllium nan trusted level for nan edifice industry, while staying thin and businesslike arsenic we scale. We besides scheme to make further investments successful longer-term initiatives, specified arsenic building endeavor capabilities and expanding internationally, which some grow our marketplace opportunity and position Toast for sustained beardown maturation complete nan agelong term.

Now looking beyond 2023, we're assured that our integrated package and payments exemplary will proceed to standard efficiently, arsenic full subscription positive fintech gross profit successful our halfway business compounds complete time, we expect to show meaningful operating leverage. As we execute larger scale, we expect adjusted EBITDA arsenic a percent of full subscription positive fintech gross profit to scope 30% to 35% range.

This financial floor plan reflects our existent business operation and does not facet successful nan effect from nascent semipermanent opportunities for illustration description into endeavor conception aliases international. We intend to execute nan aforesaid playbook going guardant balancing ratio and separator betterment pinch disciplined targeted investments to capitalize connected nan monolithic opportunity successful our halfway business, which we judge will thrust respective years of sustained beardown growth.

As we equilibrium maturation and profitability each year, our extremity is to consistently transcend nan norm of 40 connected nan way to our target separator -- target financial profile. Certain years that whitethorn mean delivering much separator description and successful immoderate years, we whitethorn determine to put much to deepen penetration aliases summation our ARPU potential. We'll measure those decisions successful nan discourse of optimizing our semipermanent rate travel potential.

And fixed nan size of nan opportunity up and nan powerfulness of our integrated package and payments model, we expect to run supra nan Rule of 40 moreover arsenic our halfway business grows into this separator profile. Subscription and fintech are our recurring gross profit streams and nan ground connected which we run nan business and serves arsenic nan anchor for our separator and really we measure our operating expenses. We expect a operation of improving portion economics and leverage connected overhead costs to thrust nan way to 30% to 35% margins.

I'll item a fewer cardinal areas we will spot leverage arsenic our full ARR continues to scale. In addition, arsenic we've discussed, income and rep productivity is correlated pinch some rep tenure and marketplace penetration. We've seen this move play retired successful our flywheel markets and expect that arsenic we proceed to thrust higher penetration and arsenic rep tenure increases, income and trading costs will proceed to go much efficient.

Longer term, we expect hardware and services separator to amended arsenic we spot nan afloat use from displacement to little costs shipping and further proviso concatenation optimization positive accrued ratio successful onboarding caller customers. Our attraction connected costs subject and ratio will besides beryllium evident successful G&A. We expect operating leverage starting successful 2023 and our underlying G&A expenses to use from automation and accrued standard complete time. Our semipermanent G&A floor plan besides factors successful in installments liability expenses proportionate pinch nan maturation successful Toast Capital.

In closing, 2022 was a beardown twelvemonth for Toast, and we proceed to person a batch of condemnation astir our semipermanent opportunity. The accordant execution crossed nan institution led to durable maturation wherever our attraction connected ratio and disciplined costs guidance drove meaningfully separator improvement. We stay successful very early stages of an unthinkable marketplace opportunity and are assured that continuing to relentlessly execute our strategy will lead to sustained location and ARPU maturation and create important semipermanent shareholder value. I want to convey each of our labor customers and partners, and we look guardant to an breathtaking 2023.

Now I'll move nan telephone backmost complete to nan usability to commencement our Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first mobility coming comes from Dan Dolev pinch Mizuho.

Dan Dolev

Great results. Much admit it. So I do person a mobility astir -- 2 questions, a mobility and a speedy follow-up astir nan SaaS thing. So -- if I look astatine your SaaS growth, gross per customer was fundamentally for illustration flattish and for illustration somewhat down year-over-year. And what happened there? Like I deliberation a batch of group were very bullish aliases expecting pinch monolithic maturation successful that SaaS gross per customer? And past I person a speedy follow-up.

Elena Gomez

Yes. So SaaS -- truthful first of all, I conscionable want to complement our upsell squad and our maturation squad for positioning nan level and really, we're seeing a batch of momentum there. And I besides want to punctual you that our SaaS ARPU wide is up 20%, Dan, and complete 2 years, up 50%. So I conscionable want to commencement location and supply that context. And besides SaaS gross successful Q4 was up 75%. So really, really really proud of measurement nan squad has executed. And we're going to proceed to spot advancement arsenic we innovate much connected our platform, we're going to proceed to spot much customers bringing connected much upfront arsenic we onshore customers astatine a higher ARPU, but besides our upsell squad is having really bully advancement truthful far.

Dan Dolev

Got it. It's really helpful. And past my follow-up is connected for illustration ARPU trends into 2023. How should we deliberation astir nan gait of location ads successful 2023 and nan cadence for nan year?

Elena Gomez

Yes. In position of location ads, like, first of all, again, a complement to nan execution by nan income squad successful 2022, and we proceed to spot momentum heading into 2023. The chimney is beardown and nan income squad is executing well. So nan 1 point I would constituent you to is Q1 seasonally typically little than Q2 and Q3. So conscionable support that successful mind. But we proceed to judge we've sewage momentum successful nan business astatine this point.

Dan Dolev

Great. Great results. Congratulations.

Operator

Our adjacent mobility comes from Stephen Sheldon pinch William Blair.

Stephen Sheldon

I wanted to commencement with, I guess, a much high-level question. And I cognize you're still early successful gaining marketplace stock crossed astir markets. But if you conscionable looked astatine immoderate of your much mature markets, does it look for illustration location marketplace stock caps retired aliases slows down successful a definite threshold? And possibly it's still excessively early to cognize that, but I conjecture asked different way, do you deliberation it's harder to get that first 20% location marketplace stock successful a definite market? Or is it harder to get nan adjacent 20% if you much often person to unseat different SaaS incumbent. And I conjecture moreover pinch immoderate of nan flywheel dynamics that you're intelligibly seeing.

Christopher Comparato

Yes, Stephen, awesome question. Look, I deliberation we proceed to spot nan aforesaid move wherever arsenic we summation marketplace stock and get marketplace density and rep tenure up successful these markets, nan productivity of our reps and our easiness continues to improve. That's nan inclination we proceed to see. And I deliberation that's not only successful position of nan productivity, but besides nan triumph rates we spot against our competitors. And truthful location is thing successful our information that we're seeing that says that we tin proceed to turn into plywood markets. And I deliberation successful position of your question, whether it's nan first 20% of nan past 20%, I'll show you nan first 10% is what's nan hardest.

Stephen Sheldon

Got it. That's really helpful. And conscionable a follow-up, awesome to spot nan bid pinch Google integration, would emotion to get your thoughts connected really large of an opportunity that mightiness be, what benignant of topline maturation implications location could and whether those immoderate notable effect connected portion economics for orders and payments that travel done location comparative to your existing online ordering solutions?

Christopher Comparato

Yes, it's a bully question. I deliberation it's ace important for immoderate edifice to meet nan impermanent and user wherever they are. So we're beautiful bullish connected nan opportunity pinch Google. Seamlessly integrating pinch them truthful arsenic our user is connected Google Maps aliases searching connected Google and past connecting to nan restaurants first-party online ordering capacity is simply a captious occurrence facet and it streamlines some nan gross connect arsenic good arsenic nan productivity of nan teams. It besides eliminates third-party edifice should beryllium taken advantage of that and we deliberation it's a unsocial opportunity successful nan market.

Stephen Sheldon

Great. Nice results.

Operator

The adjacent mobility comes from Timothy Chiodo pinch Credit Suisse.

Timothy Chiodo

I want to talk a small spot astir nan nett return complaint for fintech. So 54 ground points successful nan quarter. And nan remark was that adjacent year, nan anticipation is for that return complaint to beryllium astir successful that aforesaid range. But fixed immoderate of nan pricing comments by Clover and Fiserv wide successful nan past quarter, they saw a large output uptick and took immoderate pricing. There's besides nan ramping of Toast Capital. And there's besides been immoderate reports of tests of value increases that you've been considering successful nan marketplace. Those 3 factors propose that possibly location could beryllium immoderate upside to that return rate. And I was hoping you could conscionable remark connected those factors and nan pricing changes successful particular.

Elena Gomez

Yes. No. So bully question, Tim. Thanks for nan question. First of all, complement to nan Toast Capital squad for nan momentum and really nan truth that we're gathering nan request that we're seeing from our customers connected Toast Capital, and that decidedly plays into nan return complaint for nan quarter. And conscionable retrieve that Q4 in installments is seasonally higher. So successful Q4, we had successful our halfway return complaint a spot of a little return rate, of course. But conscionable support successful mind, year-over-year, our return complaint has increased.

And past I deliberation what we often talk about, and I'll conscionable punctual everyone, we're ever focused connected some pricing and costs optimization, but costs optimization is important complete nan agelong term. And that's conscionable a musculus that we person built successful nan institution that we're focused on. And past finally, I would conscionable zoom retired and opportunity that nan return complaint overall, there's opportunity to -- a longer-term opportunity to connection products to thrust much costs measurement and thrust much integer transaction. And then, of course, there's opportunity to optimize pricing. And I'll fto Aman remark connected your circumstantial mobility astir pricing.

Aman Narang

Sure. Thanks, Elena. Tim, look, we're focused connected gaining marketplace share, right? And we're ever testing pricing, for illustration pricing and packaging is thing we're ever optimizing, but there's thing worldly to study successful position of changes successful our pricing and our return rate.

Timothy Chiodo

Okay. I really admit that. The very, very little follow-up is you mentioned nan $24 million, I believe, for Q4 for Toast Capital and return card, and it was $17 cardinal past quarter. So I mightiness person missed it. Did you springiness a afloat twelvemonth number for those aliases conscionable nan 2nd half?

Elena Gomez

No, we haven't fixed nan afloat year.

Operator

The adjacent mobility comes from Rayna Kumar pinch UBS.

Rayna Kumar

You gave immoderate really adjuvant item connected nan macro backdrop. Just funny connected your existent '23 guidance. Does that presume macro gets worse aliases it remains arsenic is?

Elena Gomez

Yes, it's a adjacent question. We contemplated nan macro and our guidance was pinch that successful nan backdrop, we felt for illustration our guidance was prudent conscionable fixed that there's uncertainty retired there. But we've seen resilience successful our customers and restaurants successful nan past. So that's besides successful our calculus arsenic well.

Rayna Kumar

Got it. That's helpful. And past you proceed to amended nan percent of customers utilizing elective products. Can you talk a small spot astir really request has evolved for elective products successful caller months? And are you uncovering it easier aliases much difficult to waste these products fixed nan macro situation we're in?

Christopher Comparato

I deliberation it's little astir nan macro environment, and it's much astir restaurants wanting to adopt an all-in-one solution and past besides person really beardown -- really beardown partner ecosystem connected apical of that platform. So astatine nan extremity of nan day, if you deliberation astir nan restaurants challenges, they're facing labour challenges, ostentation and really to thrust apical statement growth.

So having a level that connects those dots and allows them to beryllium overmuch much businesslike is what we're after. So we're seeing that worth proposition resonate successful nan market, some for SMB arsenic good arsenic upmarket. And we want to make judge that we springiness them awesome exertion astatine their fingertips to thrust improvements and do that pinch our partner ecosystem arsenic well. So we're seeing that broader take of modules based connected that worth proposition.

Operator

The adjacent mobility comes from Tien-Tsin Huang pinch JPMorgan.

Tien-Tsin Huang

Great maturation here. Just wanted to -- I think, Elena, aliases Chris, you mentioned breathtaking caller products for fiscal '23. Just curious, is that much of nan Google assortment aliases products connected enterprise? Just hoping to springiness a small spot much spirit connected nan powerfulness of a representation present for nan year.

Christopher Comparato

Yes. No, it's a bully question. You're going to spot pilots and opportunities crossed each lines of business. So some impermanent facing. You deliberation astir nan Delphi acquisition this morning, bringing Ken and nan squad into our fold truthful that we tin much broadly service QSR restaurants, specifically pinch drive-through capabilities. So you're going to spot guest-facing opportunities, employee-facing opportunities wrong our worker unreality and payroll guidance solution. And past obviously, successful nan backmost office, arsenic restaurants conflict nutrient costs ostentation successful and astir other cook is simply a unsocial opportunity to proceed to show visibility and value search crossed nan edifice assemblage truthful that they tin optimize their spend.

So I'd opportunity it's a broad-based onslaught connected different opportunities crossed nan different stakeholders. But again, pinch nan ngo of empowering restaurants of each types to amended their operations.

Tien-Tsin Huang

I admit that response. Just my speedy follow-up then, possibly conscionable reasoning astir -- I cognize a batch of questions astir nan outlook here. But are you expecting a precocious level immoderate alteration successful maturation creation betwixt location maturation and ARPU successful '23 versus '22? Just trying to get a consciousness of comparative maturation present successful we should expect to change?

Elena Gomez

Yes. No, nan creation sensing of our location should beryllium comparatively consistent. Like I deliberation nan 1 point we said is nan level resonates pinch various parts of nan market. So whether it's QSR, FSR, aliases whether it's smaller-format restaurants, larger format restaurants. So I deliberation nan breadth of our offering has allowed america to resonate successful different parts of nan TAM. And truthful we expect that to beryllium consistent.

Christopher Comparato

On nan merchandise side, we're conscionable perpetually investing to summation our TAM -- and past SaaS, arsenic Elena mentioned, connected nan call, is up 20% year-over-year, and we proceed -- expect to proceed to spot that successful '23 arsenic well.

Tien-Tsin Huang

Great. Thanks for nan thoughts.

Operator

The adjacent mobility comes from Josh Baer pinch Morgan Stanley.

Joshua Baer

Great. Thanks for nan question. With Delphi coming connected committee and innovations astir QSR and hospitality, not truthful agelong ago, what are immoderate of nan different large areas of innovation, merchandise features, functionality that are needed to further unlock upmarket?

Christopher Comparato

Yes. Very akin to what I conscionable mentioned, Josh. I deliberation you're going to spot america push retired solutions successful our level that thief each stakeholder successful nan restaurants thrive. So guest-facing omnichannel experiences, we want restaurants to meet nan impermanent wherever they are. So whether it's online done a hunt done Google aliases successful drive-thru aliases in-store done stalls aliases astatine nan table, we want to make judge that we create an astonishing group of impermanent experiences and work models that let nan edifice to thrust apical line, but past besides let their unit to beryllium productive.

If you spell wrong nan restaurant, a bully illustration pinch Silver Diner, we're seeing advancement connected unit productivity amidst labour changes for restaurants gaining productivity done our level truthful that they tin amended dainty their guests, person unit productivity spell up and past spot happier consumers, happier employees, higher tips and wages, higher summons sizes and a flywheel wrong nan edifice that improves nan edifice itself.

And past arsenic I mentioned successful nan backmost office, we judge there's opportunities to amended link nutrient costs optimization backmost into nan proviso concatenation truthful that nan edifice is optimizing their cost. So you're going to spot opportunities crossed these different stakeholder groups. And that's what gets america excited astir nan all-in-one level because our ngo is to make judge that we're advancing this level truthful that each of these stakeholders tin thrive.

Joshua Baer

Is location immoderate appetite to accelerate world description done M&A?

Elena Gomez

Right now, it's a adjacent question. I mean I deliberation conscionable our wide M&A accuracy for world isn't different than it is for our wide business. So we're looking astatine is location thing that gets america to marketplace faster? Or is location thing that's complementary to our merchandise roadworthy map.

Right now, our attraction is building disconnected of nan instauration we started successful 2022 internationally, and I don't expect that will person a worldly effect aliases a meaningful effect anyhow successful 2023.

Operator

The adjacent mobility comes from Will Nance pinch Goldman Sachs.

William Nance

Can you walk a small clip connected immoderate of nan macro trends that you guys saw passim nan 4th fourth and into nan first quarter? We've heard from different immoderate benignant of SMB software-oriented names successful nan marketplace talking astir a impermanent slowdown and uptake connected caller package platforms. I'd statement nan benignant of package ARPU description was a small lower, nett adds a small little than successful nan 3rd quarter. The caller unit income data, peculiarly for dining, suggests that spending has been peculiarly robust successful January aliases into 2023 though. So possibly you could conscionable talk astir immoderate of nan macro trends you're seeing and really things benignant of progressed complete nan 4th fourth and whether you guys are seeing nan aforesaid benignant of traction successful nan extremity marketplace truthful acold successful 2023?

Christopher Comparato

Sure. Good question, Will. So we're not seeing meaningful changes successful user request aliases spending crossed our business. So restaurants are seeing demand, and it's successful statement pinch our expectations for what I would telephone historical seasonality trends. We proceed to spot consumers moving much walk to services for illustration eating retired versus nutrient astatine home. Certainly, January, immoderate of nan signals from January connected unit income were beardown pinch continued spot for nutrient services, but we're not really seeing immoderate worldly aliases meaningful effect successful user request aliases crossed restaurants.

As we've mentioned before, I deliberation we mentioned this past quarter, user walk connected eating has proven beautiful resilient during past economical slowdowns. So I deliberation that keeps america optimistic that what we're seeing will hopefully continue. That being said, we're beautiful mindful of nan mixed macro signals and we're monitoring things closely.

I deliberation nan past constituent I would make is our level really helps restaurants accommodate and beryllium resilient during reliable times. And if you look astatine nan past 2.5 years, we've been incredibly successful allowing restaurants to set their business, accommodate and person stronger survivability. So I deliberation our level becomes really valuable successful reliable marketplace conditions, and that's what we're seeing pinch things for illustration our SaaS ARPU maturation and customers utilizing much modules connected nan platform.

So successful general, it's enactment nan people and proceed to beryllium mindful of nan signals that are retired there.

Elena Gomez

Yes. And also, Josh, I would show you 2 things. One is our location adds successful Q4 were successful statement pinch what we expected and comparable to Q3. So not down and not beneath our expectations. And I'd besides reenforce our ARPU is up year-over-year, 20% and up complete 2 years, 50%. So conscionable support that successful mind arsenic you see Q4. .

William Nance

Got it. Yes. I spot those numbers. And past possibly a follow-up mobility connected Toast Capital. The relationship, I deliberation you mentioned connected nan timing and immoderate of nan rev rec connected revenues, and astir of that is upfront upon origination. Can you conscionable talk done benignant of nan drivers of that bad indebtedness disbursal connected a quarterly basis? You benignant of called retired nan sum full of each of credit-related expenses successful nan P&L. Like really do we deliberation astir nan narration betwixt that and revenue? Is that besides mostly booked upfront?

Elena Gomez

Yes. So nan measurement to deliberation astir that is -- and truthful without we gave you benignant of a proxy, but nan measurement to deliberation astir what drives that is really nan tenure of nan loan. So if it's a 90-day, 270-day aliases 360 day, that's going to person a different reserve, if you will. And past nan creditworthiness of nan customers, truthful each nan emblematic underwriting that you would expect plays into really we reserve for imaginable early losses. That's nan study that nan squad does.

William Nance

Got it. And astir of that is booked upfront astatine origination arsenic opposed to complete nan life of loan?

Elena Gomez

Correct.

William Nance

I admit you return my questions.

Operator

Our adjacent mobility comes from Darrin Peller pinch Wolfe.

Darrin Peller

Nice results. Could we conscionable touch connected nan thought process astir nan profitability cadence again. I cognize you've talked astir it and that was really helpful, nan descent you gave america connected nan semipermanent margins. But conscionable considering your views connected trade-off connected investments and timing connected inflection and really conscionable updated thoughts connected erstwhile you deliberation we could beryllium showing much pronounced profitability levels would emotion to perceive immoderate thoughts.

Elena Gomez

Yes. Thanks for nan question. So I think, hopefully, you tin spot from really we've executed successful nan past twelvemonth that we've consistently delivered separator improvement. And truthful that's beautiful intentional attraction by this guidance squad that won't change. And truthful we're going to proceed to equilibrium and that's a really important point I want group to perceive is we're going to equilibrium this opportunity because we person truthful overmuch condemnation astir our opportunity astatine this moment.

And truthful arsenic you deliberation astir nan adjacent mates of years, we're going to proceed to still person patient growth, but astatine nan aforesaid time, proceed to present separator description pinch this thought that we're going to beryllium balancing and exceeding nan Rule of 40. That's really we -- our ambition is to scheme successful that way. So that's what I would show you.

And I deliberation it's important for you to recognize that we will not -- our way to that separator floor plan whitethorn not ever beryllium linear. So arsenic opportunities coming themselves, we want that elasticity to benignant of thin into that investment.

Darrin Peller

That's helpful. And conscionable a speedy follow-up, and I admit that. I conscionable -- if you could conscionable touch connected really nan beforehand book ARPU has trended? Is it still astir 6,000 level you guys person spoken astir successful nan past? Or is it alteration astatine all?

Elena Gomez

No, we're decidedly successful that zone. .

Darrin Peller

Great. Great. It looks for illustration there's immoderate some traction going forward. All right. Appreciate it, guys.

Operator

The adjacent mobility comes from Josh Beck pinch KeyBanc.

Josh Beck

I want to inquire a small spot astir nan payback assumption. Certainly, a really bully consequence this twelvemonth successful nan mid-teens. And it sounds for illustration efficiency-wise, you consciousness for illustration there's much opportunity. So arsenic we look guardant into '23 and beyond, really important is headcount growth? And is that a bully reference constituent conscionable to deliberation astir successful position of efficiency?

Elena Gomez

Yes. I mean, I deliberation -- truthful a mates of things. One is we ever benignant of negociate to that mid-teens, Josh. And -- nan commentary we thin to make connected flywheel markets is really important because that -- arsenic we spot much rep tenure and we get deeper into a market, we're going to spot productivity increase, and we're going to spot that play out.

And truthful arsenic we proceed to replicate these flywheel markets, nan request to adhd capacity that we've added for illustration arsenic an illustration that we've added successful nan past fewer years will beryllium less, right? We should beryllium capable to proceed to summation rep productivity, which will thrust immoderate of that leverage that we expect and will let america to enactment wrong nan payback periods that we consciousness are healthy.

Christopher Comparato

And conscionable to adhd to that, Josh, we've been opportunistic. So nan upsell team, for example, we've seen bully advancement successful ARPU growth, bully -- nan connect rates of our impermanent products are holding arsenic we adding much locations. There's tons of upside connected our other shaft and payroll products fixed they aren't penetrated successful our base. So we're investing successful immoderate of nan emerging markets and upsell -- but to Elena's point, nan biggest driver we consciousness successful our mature markets is really driving marketplace density and driving nan tenure were reps up.

Josh Beck

Okay. And past possibly a follow-up a small spot to Darren's mobility conscionable astir nan target P&L. Thank you for nan the framework. It's very helpful. But yes, I mean, really should we framework up nan sky astir nan type of standard that's required. And past what type of effect could because I judge that, that floor plan excludes endeavor and world for illustration should those factors beryllium included? Would it beryllium much truthful successful nan income and marketing, go-to-market spend? Just funny really to deliberation astir those 2 items?

Elena Gomez

Yes. No, acknowledgment for nan telephone out. You're precisely right. Look, I see those emerging investments to much for illustration options to proceed to prolong our maturation complete time. But I deliberation what you should perceive is we person a large opportunity ahead, and we consciousness assured we tin proceed to compound our ARR and fintech gross profit for nan adjacent -- for nan years -- adjacent years to come. And that's going to beryllium some continued R&D investment, obviously, to proceed to deepen our penetration and thrust much ARPU.

And nan 1 measurement to deliberation astir it is we'll beryllium -- what we'd for illustration to deliberation is that astatine a larger scale, we tin thrust that profit separator profile. So -- that's astir apt nan champion measurement I tin deliberation astir it. I don't want to beryllium precise connected nan timing because, arsenic I said, we want to person that elasticity to put into opportunities arsenic nan marketplace evolves, but we'll ever benignant of travel backmost to this conception that we want to transcend nan Rule of 40 complete time.

Darrin Peller

Makes sense.

Operator

Our last mobility coming comes from nan statement of Andrew Bauch pinch SMBC Nikko.

Andrew Bauch

First mobility connected Delphi. How overmuch of this are you contributing successful nan afloat twelvemonth gross guideline aliases from nan EBITDA perspective. And past person a speedy follow-up aft that.

Elena Gomez

Yes. Delphi is not worldly to our 2023 P&L. But it is important strategically to our QSR offering. So conscionable see that complete nan agelong term.

Andrew Bauch

Got it. And past looking astatine nan semipermanent financial profile, very adjuvant to benignant of prime isolated of these pieces. Could you springiness america a consciousness connected what you're utilizing location for your terminal fintech and subscription gross margins perchance connected each line?

Elena Gomez

Yes, we're not going to springiness that detail. But overall, I deliberation you should expect to spot leverage successful nan full business complete time, but we're going to proceed to equilibrium that pinch investing successful R&D and innovation, obviously, to proceed to thrust that ARPU complete time.

Andrew Bauch

But nan gross separator statement should beryllium reasonably stable, we tin assume? .

Elena Gomez

I'm not going to remark connected that.

Andrew Bauch

All right.

Operator

Those are each nan questions we person clip for today. So I would for illustration to move nan telephone backmost complete to nan presenters.

Christopher Comparato

Okay. Thank you all. Have a awesome day.

Operator

Thank you, everyone, for joining america today. This concludes our call, and you whitethorn now disconnect your lines.