Good afternoon, everyone, and welcome to Toast's Third Quarter 2021 Earnings Conference Call. I'm Alice Lopatto, Vice President of Investor Relations. Today, our CEO, Chris Comparato; and CFO, Elena Gomez, will join us and discuss our third quarter results. After their prepared remarks, we will take questions..

Before we start, I'd like to draw your attention to the safe harbor statement included in today's press release..

During this call, we'll make statements related to our business that may be considered forward-looking within the meaning of Section 27A of the Securities Exchange Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended..

All statements other than statements of historical fact are forward-looking statements, including those regarding management's expectations of future financial and operational performance and operational expenditures, expected growth and business outlook, including our financial guidance for the fourth quarter and full year 2021..

Forward-looking statements reflect our views only as of today and except as required by law, we undertake no obligation to update or revise these forward-looking statements.

Please refer to the cautionary language in today's press release and our Form 10-Q which will be filed with the SEC this afternoon for a discussion of the risks and uncertainties that may cause actual results to differ materially from expectations..

During this call, we may present both GAAP and non-GAAP financial measures. These non-GAAP measures are not intended to be a substitute for our GAAP results. The reconciliation of GAAP to non-GAAP measures is intended in today's -- is included in today's earnings press release.

Both the press release and a replay of this call, including the accompanying investor presentation, will be available on our Investor Relations website..

With that, I would like to turn it over to Chris. .

Thanks, Alice. Welcome, everyone, to our first earnings call as a public company. I am Chris Comparato, CEO of Toast. I'm excited to be with you today to share my thoughts on our company, our opportunity and our Q3 performance.

Given that it's our very first earnings call, I'd like to start by zooming out a bit and providing you an overview of our business, the restaurant industry and our opportunity..

Toast provides restaurants with an all-in-one technology platform that combines point-of-sale, front of house, back of house and guest-facing technology integrated with financial technology and payments, all built with the restaurant's success in mind.

Toast works for all restaurants regardless of size, concept or cuisine, from independent cafes to enterprise brands. At Toast, our mission is to empower the restaurant community to delight their guests, do what they love and thrive..

When we say restaurant community, we mean every stakeholder, from the guest to the GM or owner, to the wait staff, to the chef, to the suppliers and the entire ecosystem.

Together, we believe we can delight guests with fast and seamless service, make employees happier with higher wages, tips and a better work experience and help restaurants be more successful with increased sales, deeper customer relationships and lower employee turnover.

Our success is tied to our customers' success, and working with them to be better together underpins everything that we do..

At no time was that commitment tested more than during the onset of the COVID-19 pandemic.

We responded by accelerating certain product releases, which empowered restaurants to provide a contactless dining experience, fulfill online takeout and delivery orders and communicate with their customers as we all navigated constantly changing public health business and consumer pressures.

In addition, we supported grassroots campaigns and lobbied Congress directly on behalf of restaurants. We are proud to see that these efforts have resulted in overall same-store sales of Toast customers exceeding pre-COVID levels and continuing to improve..

Market research suggests that there are approximately 860,000 restaurants in the U.S. alone. Collectively, the industry is one of the largest employers, providing jobs to more than 11 million people and generating nearly $700 billion of sales each year, around 3% of the U.S. GDP.

Yet it has one of the lowest levels of tech spend as a percentage of sales of any sector..

If you've worked in a restaurant, you know it's a complex business with a lot of moving parts.

They operate with low margins, high employee turnover, highly perishable products and complex regulations, yet many restaurants continue to run on legacy systems, pen and paper or disconnected horizontal and point solutions, each with their own costs and barriers to scalability..

So we believe there is a massive opportunity for us to support this industry as it grows and evolves and as its tech spend closes the gap with that of other sectors. We're conservatively estimating our current serviceable addressable market, or SAM, at approximately $15 billion.

We see an approximately $55 billion total addressable market, or TAM, in the U.S. for restaurant technology spend by 2024. This TAM at least doubles if we look globally. As we continue to grow and add more products to our portfolio, we believe we have the right strategy to go after this massive opportunity..

This strategy starts with our relentless focus on product innovation. Our powerful platform integrates software with our payment processing system, supporting over 15 products.

Because our platform is all-in-one covering every aspect of a restaurant's operation, Toast restaurants are empowered to use that data to unlock new insights and further optimize their businesses, which has led to higher sales and margins, more seamless operations and lower employee turnover..

Our customers provide us tremendous insight into our product road map. A major example of this is our recent acquisition of xtraCHEF in June. We heard from customers how challenging it has been to manage their supply chain, especially during the last 1.5 years.

In a survey, over half of our customer community told us that high operating costs and food costs were a top challenge.

By simply snapping photos of supplier invoices, coding and categorizing, our customers will have access to digitize line item details that are accurate and available to their team from anywhere and can unlock insights into purchasing behavior, supplier optimization, financial performance and ultimately savings..

Our unique go-to-market strategy serves as a competitive differentiator for us, knowing that the restaurant market is hyper local we've invested in a sales force and a customer success team of localized, field-based industry experts trusted by these local communities.

Our employees live in these communities and dine in these restaurants, night in and night out, and our true partners to our customers..

When we create raving fans, they spread the word throughout a region. This is why approximately 2/3 of our new locations come from inbound channels and 1/5 from customer or partner referrals.

This creates further efficiency in our go-to-market motion, and our sales productivity typically increases as our positive reputation spreads within a local restaurant community..

Our ongoing expansion is supported by our customer success team, who brings vast technical and industry knowledge to the restaurants we work with quickly accessible through a single point of contact, 24 hours a day, 7 days a week, 365 days a year, critical to avoiding downtime in an industry that is always on and does so much of their business on weekends and holidays..

We also have a robust ecosystem of over 150 suppliers, tech and local partners. These relationships enable us to deliver more value to customers while providing significant visibility into customer adoption.

This data can lead to valuable insights into selectively pursuing M&A opportunities, which was the case in our acquisition of Stratix for payroll management and xtraCHEF for invoice and accounts payable solutions..

Now I'd like to go into the details for the quarter. In Q3, we delivered strong results across the board. We grew revenue 105% year-over-year to $486 million, an annual recurring run rate, or ARR, growth 77% year-over-year to $544 million.

This was driven by strong gross payment volume, or GPV, growth of 123% year-over-year, landing at $16.5 billion and strong customer adoption of our products. As of Q3, 56% of our Toast locations used 4 or more products on top of our integrated POS and payment solution compared to 44% a year ago..

We continue to see a consistent trend of guests returning to restaurants as well as off-premise trends such as online ordering, delivery and takeout sustain, which demonstrates that these consumer behaviors are here to stay for the long term..

Let me now share with you some customer wins in the quarter. We signed a new deal with Fat Tuesday, a national chain known for its frozen drinks.

Fat Tuesday is rolling out toast at 40 locations nationwide and will build its entire technology stack on toast starting with our point of sale, order and pay at the table, kitchen display screens and multi-location management products.

Organic juice bar Clean Juice has franchise locations in 28 states and is making ordering, payments and delivery more seamless with Toast..

In Q3, Clean Juice expanded with Toast, renewing its agreement for 121 locations and adding a commitment to bring Toast to 50 net new locations.

Clean Juice uses Toast point-of-sale, Toast Go devices, Toast Flex terminals, Toast kitchen display systems and kiosks, along with our gift card software, multichannel location management and API ecosystem integrations..

We also expanded our relationship with Eggs Up Grill, a rapidly growing breakfast, brunch and lunch brand. Eggs Up Grill currently uses Toast point-of-sale, Toast Flexes, Toast Go devices and Toast printers. This quarter, they signed an agreement to expand Toast to an additional 30 locations.

With new revenue channels developed during the pandemic, Eggs Up Grill saw a 13% increase in 2021 sales compared to 2019 and 60% ahead of 2020..

Next week, on November 16, we'll host Spark, our inaugural restaurant innovation event. At Spark, we will share major new product releases and provide a sneak peek into our innovation road map. The name for our event is a reference to the Spark that lights a stove or an oven to make the magic of a restaurant happen.

It also alludes to the spark of imagination that leads to innovation and transformative change. This all-virtual 2-hour event will consist of keynotes, product updates and guest speakers, including world-renowned chef, restaurateur, humanitarian and Toast customer, Jose Andres..

You'll hear about how we're moving the restaurant industry forward with innovative new products that empower the restaurant, the guests and employees. If you'd like more information on attending the event, please contact our investor relations team at ir@toasttab.com or visit our website for more information and to sign up..

As part of our continued efforts to support the restaurant community, we recently signed a public letter from the Independent Restaurant Coalition, advocating for replenishment of the restaurant revitalization fund.

We've also joined the Pledge 1% movement to donate our capital to fund social impact programs through our philanthropic group, Toast.org..

Before I turn the call over to Elena to walk you through the financials, I wanted to thank our employees, our customers, our partners and our shareholders for their support in helping us achieve a major milestone in becoming a public company.

Restaurants are resilient and they make up the social fabric of our community, and we believe our commitment to aligning our success with the success of the restaurant community will lead to a stronger and exciting future ahead..

Now I'd like to hand it over to our CFO, Elena Gomez. .

Thanks, Chris. Before I begin, I want to take a moment to recognize the entire Toast team on their efforts to become a public company, and a special call out to my own Toast finance team. It's because of the collective efforts of this team that we are where we are today. I also want to thank our existing and new shareholders.

We are excited to be on this journey with you as a public company. .

While we are proud of this milestone, we are just getting started. As Chris mentioned, we believe we have a total addressable market of $55 billion in the U.S., and we estimate the global TAM to be twice as large.

As a leader in one of the world's largest industries, we've built a unique business model to address this opportunity and support rapid growth at scale..

Before I go into the results of the quarter, let me share with you why we have a powerful business model. First, we have proven we can achieve high growth at scale.

Second, we have an integrated software and payments model Thus, we benefit from not only the predictability of SaaS, but also from the increase in transaction volumes as our customers grow. Third, our all-in-one platform, combined with our boots-on-the-ground, go-to-market strategy, keeps our customers happy and drive strong retention.

Finally, as our customers continue to expand with us, we've been able to maintain strong unit economics..

subscription services, financial technology solutions, hardware and professional services. We consider subscription services and financial technology solutions as our recurring revenue streams..

Subscription services revenue is generated from our SaaS products such as digital ordering, delivery and team management, to name a few. Financial technology solutions revenue is generated primarily from facilitating payment transactions and also includes fees earned for loans we offer through our Toast capital program.

We recognize our Financial Technology Solutions revenue on a gross basis..

We consider our other 2 revenue streams, hardware and professional services revenue, as onetime and effectively part of our customer acquisition costs. We price them competitively to minimize barrier to entry..

Since the majority of our revenue comes from financial technology solutions, we believe annual recurring run rate, or ARR, which excludes transaction-based costs, is the operational metric that best reflects the scale and growth of our business.

You can find the full definition of ARR in our earnings press release and our Form 10-Q for the third quarter..

The key drivers of ARR include growth of restaurant locations on our platform, the adoption of our SaaS products and the total GPV processed..

Before I turn to the results for the quarter, please note again, we will refer to both GAAP and non-GAAP financial measures. Please refer to today's press release for the reconciliation of GAAP to non-GAAP financial performance and additional disclosures regarding these measures..

I'll now turn to the results for the third quarter. We delivered strong performance in the first quarter as a public company. In Q3, we continue to see growth from both new locations as well as an increase in GPV on our platform as the restaurant industry continues to recover..

Additionally, customers continue to adopt more Toast products. As a result, in Q3, we delivered revenue of $486 million, up 105% year-over-year, an ARR of $544 million, up 77% year-over-year. Our subscription services grew 67% year-over-year to $46 million in the third quarter, driven by the increase in customers adopting more of our SaaS products..

In Q3, 56% of our Toast locations use 4 or more products on top of integrated POS and payment solution as compared to 44% a year ago. Our financial technology solutions revenue grew 115% year-over-year to $404 million in the third quarter, driven by our strong GPV of $16.5 billion in Q3, up 123% year-over-year.

We anticipate our financial technology solutions revenue to normalize as GPV per location returns to normal patterns..

For the third quarter, non-GAAP gross profit, which excludes stock-based compensation expense, came in at $89 million, up 75% year-over-year driven by growth in our customer base and higher revenue per location driven by an increase in SaaS ARPU and elevated GPV..

As we shared with you previously, our freight costs are elevated in Q3 due to supply chain dynamics. While they're not as high as anticipated, we do believe they will remain elevated through the near term. Despite increased costs, we continue to be very confident in our ability to deliver hardware for our customers..

Now let's turn to our operating expenses, which I will review on an adjusted non-GAAP basis, which excludes stock-based compensation expense for each line item. Before I do, I do want to remind you that we use customer acquisition cost and payback metrics to measure the performance of our business and guide our investment decisions.

With this in mind, in Q3, we continue to invest in sales and market -- sales and marketing and research and development to capture our TAM and build out our platform..

General and administrative expenses were elevated due to our transition to a public company and rebuilding the foundation to scale our business. Adjusted EBITDA for the third quarter was negative $10 million compared to roughly breakeven a year ago.

In Q3, we had free cash flow negative of $21 million compared to roughly breakeven a year ago and positive $53 million in Q2. Our Q2 free cash flow result was primarily impacted by a onetime benefit related to interchange billing terms..

Now let me turn to guidance. For the fourth quarter, we expect revenue to be in the range of $465 million to $495 million, which represents 98% growth at the midpoint. We expect adjusted EBITDA to be in the range of negative $50 million to negative $40 million.

For the full year 2021, we expect revenue to be in the range of $1.655 million to $1.685 million, which represents 103% year-over-year growth at the midpoint and adjusted EBITDA to be in the range of negative $46 million to negative $36 million..

While I'm not providing 2022 guidance, I want to remind you that financial technology solutions revenue is benefiting from elevated GPV per location, which we anticipate will normalize as we exit 2021 into 2022..

In closing, our strong Q3 performance demonstrates our success in continuing to execute and to capture market share as the industry continues rapid digital transformation, built to serve a large and growing addressable market, we've shown we can execute at scale with healthy unit economics.

With this foundation in place, we believe we are uniquely positioned to drive durable growth for ourselves and for the restaurants using our platform. .

Now I'd like to turn the call back over to the moderator for our Q&A session. .

Great. Thanks, Chris and Elena. We'll go ahead and start our Q&A session. Our first question comes from Will Nance of Goldman Sachs. .

Congrats on a strong quarter. You highlighted the strength in the same-store sales at Toast customers. And I think you also called out the potential for volume per live location to normalize over the course of 2022.

Can you maybe just expand a bit on kind of what you're seeing on a per location? And how elevated are we relative to trend?.

And then if I think about some of the things going on today, maybe a little bit higher inflation and just the fact that your customers relative to the -- prior to the pandemic are using so much more technology, you called out the higher attach rates. .

Is there a potential that we could run rate at a higher level of sales or live location on the other side, just given the investments that your client base has made in technology?.

Yes, it's a fair question. Let me try to characterize that. So we're definitely seeing elevated GPV per location. But as we continue to go into the deeper part of the TAM, we also expect that to get closer to the average. So I would just consider that as you think about your long-term modeling. .

Got it. That's helpful. And then maybe just on the attach rates that you're seeing the nice momentum and increased adoption of, I think it was 4 and more products.

I mean, can you talk about where you think the biggest opportunities from your existing product lineup is? What's kind of resonating the most in the market?.

Yes. No, definitely. I mean I think, obviously, our Toast Go devices and our digital products are clearly, things that we're encouraged by, but we're also really encouraged by the adoption of our payroll product. And we're seeing a significant amount of our new restaurant openings attach that as we continue.

And so we're continuing to see that from a lot of -- like I said, our new customers and equally starting to see a little bit of that even from our existing customer base..

So one thing I talk about often is through our total ARPU, and you can see that I use an example, just to give you a perspective of what's possible. We have a customer, a donut shop, that can do end-to-end in our platform, 23,000 of ARPU. So it just kind of speaks to what's possible with ARPU. .

Got it. Congrats again on the first quarter at the gate. .

Our next question comes from Josh Baer of Morgan Stanley. .

I wanted to ask about TAM and the opportunity ahead from a couple of different angles.

So one within the U.S., like where specifically are you investing and focusing on? Is there a greenfield in the U.S.?.

Yes. Thanks for the question, Josh. I mean, listen, in the U.S., as of the end of Q2, we were only 6% market penetration for the TAM in the U.S. So we see a broad-based opportunity to go after the majority of TAM.

If you serve 860,000 restaurants, we believe at least 2/3 of that are accessible to Toast today, both in SMB mid-market and I'd say, the lower end of enterprise. .

So we think there's a very long runway for TAM adoption and location acquisition, and we've seen broad-based momentum across the U.S. .

There's no specific geographic differences. We've just been penetrating multiple markets in parallel. .

Great.

And then on the maybe lower end of enterprise or upmarket, are there products or features that are needed to more fully address that, I don't know, fast food or just upmarket enterprise? Like how should investors think about that opportunity within your TAM?.

Sure. We continue to innovate on the platform, for example, on multi-location management, the ability to manage menus and pricing across locations, the ability to publish across multiple locations. So those innovations are organic and continue..

I would say the other area I would point you to is our strong partner ecosystem. It's super important to have strong APIs and an ecosystem of partners that you can cultivate so that you can offer to an enterprise brand of best-of-breed architecture.

So I'd say those are the 2 areas that jump out at us in terms of levels of investment and what we need to do to support larger customers. .

All right. Our next question comes from Josh Beck of KeyBanc. .

Can you hear me?.

We can. .

Yes, we can. .

We can hear you, yes. .

Excellent. I wanted to go back to xtraCHEF, obviously, the supply chain has fortunately really been raveled in a lot of different ways in the last 1.5 years. And certainly, it's being felt in the restaurant industry.

So maybe just help us understand where you are with that acquisition? What type of strategic discussions it's enabling? And really where you'd like to take that in the next few years?.

Sure. Great question, Josh. Our progress with xtraCHEF is going extremely well. The integration process has gone well. The team is continuing to execute well in terms of performance. And we're investing pretty heavily in backing innovation in and around what I would call accounts payable automation as well as food cost optimization.

We think there's a unique opportunity to automate even more of the back office..

If you think about monetizing things like bill pay and other activities on the back end of restaurants that are critical to their success to interface with suppliers, but then also optimize their costs and optimize their inventory. Running a restaurant is really difficult.

And if you think about razor thin margins and the focus on operational efficiency, we think xtraCHEF really is the cornerstone of back office automation. So we're super excited about investing in that road map..

But first steps first, we need to make sure that we execute the integration well and continue to gain adoption, and you'll see more of that in 2022. And I'll talk a little bit about this next week at Spark. .

Fantastic. And maybe just a follow-up question around the sales and marketing efficiency. Obviously, you are starting to rightfully invest in this opportunity we can look at some external metrics like incremental revenue, recurring revenue per sales and marketing dollar. And all these metrics look very healthy.

So maybe just provide us some qualitative context with the efficiency, how that's trending and where you'd like to see that head in the future?.

Yes, I'm glad you asked the question, Josh. We are relentless in our focus on payback periods and just our efficiency overall. And we continue to see customers adopting in a self-directed mode as an example. So there's many ways that we can continue to monitor efficiency.

So I would say, I feel very confident with what our payback periods are today, and we'll continue to monitor them over the next several quarters ongoing. .

Our next question comes from Stephen Sheldon of William Blair. .

I wanted to ask about the labor shortages and the hiring challenges that are facing restaurants. And I guess it's kind of 2-parter.

One, has it influenced the urgency of restaurants to sign up for your platform or increased demand for the uptake of specific modules like handhelds and order pay at the table? And then two, has the issue changed any priorities from a product development standpoint to bring to market solutions that could help restaurants, especially if this is going to be a persistent issue? I know maybe we need to wait for Spark for that, but just thought I'd ask.

.

Yes, I'll take it. Great question, Stephen. So yes, your premise is dead on, restaurants are forced to adapt and drive as much operational efficiency as they can with minimal staff. And much of our product around team management and handhelds allows them to sort of adapt and engage their employees and allow them to offer better service to consumers..

So if you think about order and pay at the table and Toast Go devices, for example, that allows the staff to be that much more efficient to handle, not just existing guests, but even increase the number of tables within the restaurant that they can serve.

We've seen examples of restaurants that have increased their tables while maintaining or lowering their staff, but becoming as efficient as they were in the past.

So we think order and pay at the table and -- what we call digital dine-in as well as the Toast Go device allowing you to build new service models within the restaurant itself are critically important..

And restaurants recognize that, and they recognize that these innovations really benefit them and create better employee engagement as well as better consumer experiences, to be honest with you. So I think that's going to continue to hold true even past the COVID pandemic..

As far as where we're investing, we're investing, I'd say, broadly across many of these tools. If you look at sort of the digital dine-in experience, we're continuing to invest heavily in scan and pay at the table, order and pay at the table. We're continuing to make sure that it works in conjunction with the Toast Go device.

So if the consumers and the wait staff need to complement each other, there's this continued service model, where it's not one or the other, but it's both..

That way, a wait staff can manage many more tables, but consumers can also have the delightful experience of order and pay at the table. But then we're also broadly investing in other areas of team management in and around payroll for example, the ability to manage tips.

So tune in next week, and you'll hear a little bit more about some of these products, but I'd say it's broad-based investment across the board. .

Our next question comes from Brent Bracelin of Piper Sandler. .

I want to build on the narrative of the talent shortage in the restaurant industry. Anecdotally, we're seeing and using the digital dine-in options that you guys are enabling here more often..

What is the penetration rate? What's the adoption as you look at the broader customer base, do -- or half of the customers now kind of empowering and at digital kind of ordering at the table? Or is there a broader opportunity to cross-sell those? Just give us a starting point kind of where we're at today and then the potential to help some of those small restaurants address these issues.

And one quick follow-up for Elena. .

Yes, Brent, great question. I think we're in the early days of this adoption. I mean we're talking about new service models within the restaurant itself. So you see employees adapting to these new service models. But then you also see in parallel consumers adapting to how to use these products and consumers starting to get used to it.

So I'd say we're in the early days of adoption..

But I think we're super excited about the growth ahead because then the methodology within the restaurant starts to change. And the restaurants that are really embracing these technologies are doing much better than non-toast restaurants that aren't adopting a similar set of technologies.

So we're seeing the proof points, but I'd argue much of the runway is ahead of us, and much of that opportunity is ahead of us. .

Helpful color there. And then, Elena, as we just think about the subscription services revenue, it looked like growth accelerated year-over-year slightly versus kind of the year-year growth last quarter..

Is that just driven by lands with new customers that are taking more products and modules? Is that driven by cross-sell? What kind of drove some of the strength in subscription services growth this quarter?.

Yes. It's all of the above. I think the metric I'd point you to, Brent, is the percentage of customers with more than 4 modules. You see that steady increase over time, and we're really encouraged by that. And when you look at initial implementation, we still have most customers adopting more than 4 products at one time.

And so at initial launch, so I think all of that is really driving that SaaS revenue. It's multiple dimensions. .

Got it. A higher attach across lands and expands. .

Yes. .

Our next question comes from DJ Hynes of Canaccord. .

Congrats on the good start here. Chris, I want to ask -- look, I think some of the drivers for new restaurants to onboard Toast during the pandemic were a little bit unique, right? You had things like online ordering and curbside pickup and delivery, all became really important.

I'm wondering if you're seeing any change or maybe normalization of the drivers of new customer acquisition today? And maybe you could touch on some of the cohort dynamics of that COVID group expansion, growth, that sort of thing would be helpful?.

Yes. The first thing, DJ, is -- I mean, we've seen broad momentum. If you zoom out we've seen broad momentum of growth of our platform within restaurants and then outside of COVID, right? And I think there's 3 things that really drive restaurants to leverage our platform..

Number one, the depth and breadth of the platform and the restaurant specificity to the functions and features that the restaurants need to operate. So we feel like we've got the broadest and deepest restaurant-specific platform in the market..

Number two, we're obsessed with customers' happiness and building trust on the platform, and that starts in the go-to-market motion and carry through all the elements of Toast downstream. So making sure that restaurants have a great experience when they use our platform is critically important.

And then number three, it's really the engine of innovation, I mean we've been innovating on this platform for 9 years. I mean we launched integrated online ordering back in 2014..

So many of the products that restaurants are adopting were pre-COVID products that are now built into the platform, simple and easy to use, and we're expanding upon those products, but then also looking for other control points that make the lives of restaurants difficult and what can we do to collapse those control points into this unified operating system to make their life easier..

So I'd argue that restaurants are starting to see the benefits of this type of platform to their future and Toast restaurants are proving that they can perform and perform quite well. They've been incredibly resilient, and we're proud of that. .

Yes, yes. Super helpful color. And maybe just as a follow-up for Elena. You had a comment in your prepared remarks around confidence to procure hardware to serve your customers.

I just want to double-click there and make sure that we're not going to have any supply chain issues sneak up on us, and that you'll have what you need to kind of onboard all your new customers in Q4 and I guess into next year?.

Yes. No, I feel actually confident in this, DJ. As you know, During COVID, obviously, that was -- we were battlefield tested in terms of supply chain, and we felt it was really important to make sure we did not disrupt our customers' onboarding and making sure they had what they needed to get going. And so it's no different now.

I think we're paying attention, of course, to the elevated freight costs and being thoughtful about that. But we're confident we are focused on not disrupting our customers and not opting our growth rate either as a result of supply chain issues. .

Our next question comes from Tien-Tsin Huang of JPMorgan. .

Congrats on the listing and the great results out the gate here. Just on the supply chain stuff, I want to make sure on the hardware side, if there's anything surprising there. Do you have a good read on what's happening there? Looks like hardware came in quite strong in the quarter.

I'm assuming that's more tied to new locations versus refreshes? Just curious what trends you're seeing on the hardware side. .

Yes. No, it's definitely tied to new locations, and we feel really good, like I mentioned with DJ, about our confidence in making sure we get the hardware in the customers' hands that need it. And we've been able to prove -- navigate that fairly well. I'm actually proud of our hardware team for navigating so well during the pandemic. .

Good. Just to zoom in on the fourth quarter revenue guide a little bit. I guess the midpoint is a little bit below the third quarter, so sequentially, I'm just trying to think about the factors as we think about seasonality and weather and other factors.

Any call outs there?.

Yes. I mean I think you hit it on the head. It's really the seasonality that we typically see on the payment front that is reflected in our guidance, but we'll continue to see growth in our SaaS revenue, et cetera. So -- The guidance reflects that seasonality. .

Our next question comes from Mayank Tandon of Needham. .

Congrats on the quarter. I was going to ask you more of a topical question.

Can you share any metrics around win rates, competitive takeaways to give us a feel for how Toast is faring versus some of your competition, like, let's say, TouchBistro, Square, Clover, et cetera? Maybe just some -- any metrics that would be helpful to put your share gains in perspective, that would be very helpful. .

Yes. No, it's a good question. I mean we're not going to comment specifically on win rates versus any one competitor. We've seen a lot of success across the board. Like I mentioned, it's mostly due to the depth and breadth of the platform and our obsession with customer happiness and then the innovation behind that..

But in general, we compete against legacy players, Cloud 1.0 players and point solutions, but we feel like we're in a good position to compete well and differentiate ourselves and sort of win the hearts and minds of restaurants moving forward. .

Elena, a quick follow-up for you.

Could you provide any perspective on the payments margin? Any noticeable shift in terms of debit, credit and card-present versus not-present, just so when you think about our models into 2022?.

Yes. It's a fair question. So card-not-present has been stabilizing, but I would say it's elevated a little bit above pre-COVID levels, and we think that's in part because we've been investing in a lot of our digital products. So there's a little dynamic there. But take rate, obviously, in Q3 came down a bit, and that's on its way to normalization.

And then debit credit mix is also trending back to pre-COVID levels, and I would expect that over time to normalize. .

Our next question comes from Dan Dolev of Mizuho. .

Yes, Dan, you're on mute. .

Am I better now? Can you hear me now?.

Yes, we can hear you. .

yes, we can, yes. .

Okay. Sorry about that. Congrats on the first quarter out. So on the -- at the S-1, you gave a lot of detail on locations. And correct me if I'm wrong, I didn't see that in the press release. And sorry, I jumped on late because we were on another earnings. I just wanted to know if that -- did I miss that metric? Or is it not available? Or... .

Yes. Dan, so it's a fair question. We're going to be disclosing locations more likely on an annualized basis. But the primary reason is because we're focused on -- as we talk about our powerful business model, we talk about both integrated payments of SaaS and payments together.

And so ARR is a metric we believe is most reflective of the growth of our business and really how we manage the business internally..

So I would tell you, both locations were in line with expectations, even though we're not going to disclose that number, and ARPU was slightly ahead of our expectations for the third quarter. .

Understood. And then my follow-up is on just gross payment volume and you might have covered it, and I apologize because I did jump on late, but kind of the sequential deceleration in GPV growth Q3 versus Q2 and then that big jump Q2 versus Q1.

Is there any -- are there any data points you can provide some color on what's causing that or maybe that 2Q was abnormally high of that? That's kind of my understanding. .

No, what typically, summer months have some seasonality in there. So you should consider that in your models. Q2 and Q3 are typically elevated, but we're seeing, as I noted in the script, some elevated GTV per location, and we expect that over time to normalize. .

Understood. Congrats again on the first quarter. .

Thanks, Dan. .

Thanks, Dan. .

And our last question comes from Andrew Bauch of SMBC. .

I just wanted to touch upon the EBITDA guide here. I mean I know that you're investing pretty heavily against the big market opportunity.

But thinking about this business in the long run, how should we think about what EBITDA margins would look like under certain levels of growth? And maybe a sense of the long run kind of profile of this business?.

Yes. The -- so for the near term, we view this opportunity is massive, and we're going to invest for growth. and that's what we've been talking about for some time. Obviously, we will continue to focus on payback period on unit economics.

So just appreciate that behind the scenes, we have that good hygiene internally to make sure we're managing how we invest, where we invest, focus on investments that drive growth. And so as we get further into the public markets, I'll share more about our long-term profitability.

But for the near term, we should focus on the fact that we will be investing for growth. .

Great. And looking forward to Spark. .

Thank you. .

All right, everyone. Well, that concludes our call. Thank you so much for joining us today, and we look forward to speaking with you next quarter. Have a good one..