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Toast, Inc. (NYSE:TOST)
Q3 2021 Earnings Call
Nov 09, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Alice Lopatto

Good afternoon, everyone, and welcome to Toast 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 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.

Chris Comparato -- Chief Executive Officer

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 waitstaff, 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 customer's 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. GPV.

Yet, it has one of the lowest levels of tech spend as a %age 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 roadmap. 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 year and a half. 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 digitized 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 hyperlocal, 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 are true partners to our customers. When we create raving fans, they spread the word throughout our region.

This is why approximately two-thirds of our new locations come from inbound channels and one-fifth 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, seven 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 adaption. This data can lead to valuable insights into selectively pursuing M&A opportunities, which was the case in our acquisition of StraEx 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 adaption of our products. As of Q3, 56% of our Toast locations used four or more products on top of our integrated POS and payments 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 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 & 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 15 that 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 roadmap. 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, two-hour event will consist of keynotes, product updates, and guest speakers, including world-renowned chef, restaurateur humanitarian, and Toast's customer, Jose Andres.

You'll hear about how we're moving the restaurant industry forward with innovative new products that empower the restaurant, the guest, 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.

Elena Gomez -- Chief Financial Officer

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

Now, let me walk you through how we generate revenue. We generate revenue in four ways: 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 other two revenue streams, hardware and professional services revenue, as one time and effectively part of our customer acquisition costs. We price them competitively to minimize barriers 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 adaption 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 a restaurant the industry continues to recover. Additionally, customers continue to adapt more Toast products. As a result, in Q3, we delivered revenue of 486 million, up 105% year over year; and 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 adapting more of our SaaS products. In Q3, 56% of our Toast locations use four or more products on top of integrated POS and payment solutions 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 one-time 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 and continued to execute and 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.

Alice Lopatto

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

Will Nance -- Goldman Sachs -- Analyst

Hi, everyone. Good afternoon and congrats on a strong quarter. You highlighted the strength in the same-store sales at Toast customers and, you know, 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, you know, maybe a little bit higher inflation, and just the fact that your customers, relative to the -- you know, prior to pandemic, are using so much more technology, you call that the higher attach rates.

You know, is there a potential that we could run rate at a higher level of sales per live location on the other side, just given the investments that your client base has in the technology? 

Elena Gomez -- Chief Financial Officer

Yeah, 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.

Will Nance -- Goldman Sachs -- Analyst

That's helpful. And then maybe just on the attached rate that you're saying, you know, the nice momentum and increased adaption of these four more products. I mean, can you talk about, you know, where you think the biggest opportunity is from your existing product lineup is? What's kind of resonating the most in the market?

Elena Gomez -- Chief Financial Officer

Yeah, 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 adaption of our payroll product. And we're seeing a significant amount of our new restaurant openings attached 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 for our total ARPU, and you can see that -- you know, I use an example just to give you perspective of what's possible.

We have a customer, a donut shop, that can do in our platform 23K of ARPU. So, just kind of speaks to, you know, what's possible with ARPU. 

Will Nance -- Goldman Sachs -- Analyst

Got it. Super helpful. Appreciate you taking on my questions, and congrats again on the first quarter at the gate.

Elena Gomez -- Chief Financial Officer

Thanks.

Alice Lopatto

Our next question comes from Josh Baer of Morgan Stanley. Josh, please go ahead.

Josh Baer -- Morgan Stanley -- Analyst

Great. Thanks for the question. 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?

Chris Comparato -- Chief Executive Officer

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. You know, if you serve 860,000 restaurants, we believe at least two-thirds of that are accessible to Toast today, both in SMB and mid-market, and I'd say, the lower end of enterprise. So, we think there's a very long runway for TAM adaption 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.

Josh Baer -- Morgan Stanley -- Analyst

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 if fast food or just upmarket enterprise, like how should investors think about that opportunity within your TAM? Thank you.

Chris Comparato -- Chief Executive Officer

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 a best-of-breed architecture. So, I'd say those are the two areas that jump out at us in terms of levels of investment and what we need to do to support larger customers.

Josh Baer -- Morgan Stanley -- Analyst

Thanks, Chris. Congrats.

Chris Comparato -- Chief Executive Officer

Thanks.

Alice Lopatto

Right. Our next question comes from Josh Beck of KeyBanc. Josh, are you there?

Josh Beck -- KeyBanc Capital Markets -- Analyst

Yes, I am. Can you hear me?

Chris Comparato -- Chief Executive Officer

We can.

Alice Lopatto

Yes, we can.

Elena Gomez -- Chief Financial Officer

We can hear you, yes.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Excellent. Well, I thank your team for the question here. I wanted to go back to xtraCHEF. Obviously, the supply chain has, you know, unfortunately really been rattled and a lot of different ways in the last year and a half.

And certainly, you know, it's been 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?

Chris Comparato -- Chief Executive Officer

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. You know, 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 that the cornerstone of back-office automation. So, we're super excited about investing in that roadmap.

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

Josh Beck -- KeyBanc Capital Markets -- Analyst

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 dollars.

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 ahead of the future?

Elena Gomez -- Chief Financial Officer

Yeah, I'm glad you asked a question, Josh. We are relentless in our focus on payback periods and just our efficiency overall, and we continue to see customers adapting in a soft 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, you know, several quarters ongoing.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very helpful. Thank you.

Alice Lopatto

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

Stephen Sheldon -- William Blair -- Analyst

Hi, Chris. Hi, Elena. Thanks for taking my questions.

Chris Comparato -- Chief Executive Officer

Hi, Stephen.

Stephen Sheldon -- William Blair -- Analyst

I wanted to ask about the labor shortages and the hiring challenges that are facing the restaurant. And I guess it's kind of two-part or -- one, is it influence 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 the restaurant, you know, especially if there's going to be a persistent issue? I know maybe we need a way for Spark for that but just thought I'd ask.

Chris Comparato -- Chief Executive Officer

Yeah, I'll take it. Great question, Stephen. So, yeah, your premises is dead on. You know, restaurants are being forced to adapt and derive as much operational efficiency as they can with minimal staff. And, you know, much of our product around team management and handhelds allows them to sort of adapt and engage their employees and allow them to offer a better service to consumers.

So, if you think about Order & 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 & Pay at the Table and digit -- what we call digital dining, 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, you know, we're investing I'd say broadly across many of these tools.

If you look at sort of the digital dining experience, we're continuing to invest heavily in scan and pay at the table,  Order & 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 waitstaff 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 waitstaff can manage many more tables but consumers can also have the delightful experience of Order & 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 investments across the board.

Stephen Sheldon -- William Blair -- Analyst

Great. Thank you. Congrats.

Alice Lopatto

Our next question comes from Brent Bracelin of Piper Sandler. Please go ahead.

Brent Bracelin -- Piper Sandler -- Analyst

Thanks for taking the question here. I want to build on the narrative of the talent shortage in the restaurant industry. Anecdotally, we're seeing and using the digital dining options that you guys are enabling here more often. What is the penetration rate? What's the adaption? As you look at the broader customer base, do or half of the customers now kind of empowering a naval of digital kind of ordering at the table, or is there a broader opportunity across all those? Just give us the starting point kind of where we're at today, and then the potential to help some of those smaller restaurants address these issues. And one quick follow-up for Elena. 

Chris Comparato -- Chief Executive Officer

Yeah, Brent, great question. I think we're in the early days of this adaption. 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 adaption.

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 adapting a similar set of technology. 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.

Brent Bracelin -- Piper Sandler -- Analyst

Helpful color there. And then, Elena, as we just think about the subscription services revenue, it looks like growth accelerated year over year slightly versus kind of the 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-selling? What kind of drove some of the strength in subscription services growth this quarter?

Elena Gomez -- Chief Financial Officer

Yeah, it's all the above. I think the metric I'd point you to, Brent, is the percentage of customers with more than four 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 adapting more than four products at one time.

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

Brent Bracelin -- Piper Sandler -- Analyst

At a higher cross lands and expands. Thank you.

Elena Gomez -- Chief Financial Officer

Yep.

Alice Lopatto

Our next question comes from DJ Hynes of Canaccord. Please go ahead.

DJ Hynes -- Canaccord Genuity -- Analyst

Hey, Chris and Elena, congrats on a 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 got 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, the drivers of new customer acquisition today? And maybe could touch on some of the cohort dynamics of that COVID group, you know, expansion, growth, that sort of thing would be helpful.

Chris Comparato -- Chief Executive Officer

You know, the first thing, DJ, is we -- I mean, we've seen broad momentum. If you zoom out, we've seen broad momentum of growth of our platform within restaurants in and outside of COVID, right? And I think there's three 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, you know, we're obsessed with customers' happiness and building trust on the platform.

And that starts in the go-to-market motion and carries 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 nine 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, you know, Toast restaurants are proving that they can perform and perform quite well. They've been incredibly resilient and we're proud of that. So --

DJ Hynes -- Canaccord Genuity -- Analyst

Yeah, super helpful color. And maybe just a follow-up for Elena. You had a comment on your prepared remarks around, you know, confidence to procure hardware to serve your customers. I just want to double check there and make sure that, you know, 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.

Elena Gomez -- Chief Financial Officer

Yeah, no, I feel actually confident in this, DJ. As you know, during COVID, obviously, that was a real battlefield tested in terms of supply chain and we felt it was really important to make sure we did not disrupt our customer's 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 disrupting our growth rate either as a result of supply chain issues.

DJ Hynes -- Canaccord Genuity -- Analyst

Yeah, good stuff. Thanks, guys.

Alice Lopatto

Thank you. Our next question comes from Tien-Tsin Huang of JPMorgan. Please go ahead.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Hi. Thanks. Congrats on the listing and the great results at 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 trend you're seeing on the hardware side.

Elena Gomez -- Chief Financial Officer

Yeah, no, it's definitely tied to new locations. And we feel really good like I mentioned with DJ about our confidence and making sure we get the hardware in the customer's 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.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Good. The -- and just to zoom in on the fourth quarter, revenue got a little bit -- I guess the midpoint is a little bit below, the third quarter sequentially. I'm just trying to think about the factors as we think about seasonality and weather and other factors. Any callouts there?

Elena Gomez -- Chief Financial Officer

Yeah, 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 and in our SAS revenue et. So, the guidance reflects that seasonality.

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Good stuff. Thanks.

Alice Lopatto

Our next question comes from Mayank Tandon of Needham. Please go ahead.

Mayank Tandon -- Needham and Company -- Analyst

Thanks, Alice. Good evening, Chris and Elena, congrats on the quarter. I was going to ask you if a topical question. Can you share any metrics around win rates, competitive takeaways to give us a feel for how a tool is faring versus some of your competition like, let's say, TouchBistro, Square, Clover, etc? Maybe just some any metrics that would be helpful to put your share gains in perspective that'll be very helpful.

Thank you so much.

Chris Comparato -- Chief Executive Officer

Yeah, no, it's a good question. I mean, we're not going to comment specifically on win rates, you know, versus any one competitor. You know, 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.

Mayank Tandon -- Needham and Company -- Analyst

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?

Elena Gomez -- Chief Financial Officer

Yeah, it's a fair question. So, you know, card not present has been stabilizing, but I would say it's elevated a little bit above, you know, pre-COVID levels. And we think that's in part because we've been investing in a lot of our digital products. So, there is 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.

Mayank Tandon -- Needham and Company -- Analyst

Great. Thank you so much. 

Elena Gomez -- Chief Financial Officer

Sure.

Alice Lopatto

Thank you. Our next question comes from Dan Dolev of Mizuho. Please go ahead. Might not really seeing -- 

Elena Gomez -- Chief Financial Officer

Dan, you're on mute.

Chris Comparato -- Chief Executive Officer

Yeah, Dan, you're on mute.

Dan Dolev -- Mizuho Securities -- Analyst

Am I better now? Can you hear me now?

Elena Gomez -- Chief Financial Officer

Yeah, we can hear you. 

Chris Comparato -- Chief Executive Officer

Yeah, we got you.

Dan Dolev -- Mizuho Securities -- Analyst

OK. Sorry about that. Congrats on the first quarter out. So, on 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 want to know if -- did I miss that metric or is it not available or --

Elena Gomez -- Chief Financial Officer

Yeah. 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 --  you know, as we talk about our powerful business model, we talk about both integrated payments, so 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 our number, and ARPU was slightly ahead of our expectations for the third quarter.

Dan Dolev -- Mizuho Securities -- Analyst

Understood. And then my follow up is on just close payment volume, and you might have covered it and I apologize because I did jump on late. But kind of the sequential deceleration in our -- 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 Q2 was abnormally high? That kind of -- 

Elena Gomez -- Chief Financial Officer

Well, typically summer months have some seasonality in their so you should consider that in your models. Q2 and Q3 are typically elevated but we're seeing -- you know, as I noted in the script, some elevated GPV per location and we expect that over time to normalize.

Dan Dolev -- Mizuho Securities -- Analyst

Understood. Thank you, and congrats again on the first quarter.

Elena Gomez -- Chief Financial Officer

Thanks, Dan.

Chris Comparato -- Chief Executive Officer

Thanks, Dan.

Alice Lopatto

And our last question comes from Andrew Bauch of SMBC. Please go ahead.

Andrew Bauch -- SMBC Nikko Securities -- Analyst

Hey, guys. Thanks for squeezing me in here. 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, you know, thinking about this business in the long run, you know, how should we think about what EBITDA margins would look like under, you know, certain levels of growth, and maybe a sense of the, you know, long-run kind of profile this business? 

Elena Gomez -- Chief Financial Officer

Yeah. You know, the -- so, for the near term, we view this opportunity as massive and we're going to invest for growth. And that's what we've been talking about for some time. Obviously, over -- we will continue to focus on payback period and unit economics. So, just to 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 investment to 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.

Andrew Bauch -- SMBC Nikko Securities -- Analyst

Great. Thank you. And looking forward to Spark.

Chris Comparato -- Chief Executive Officer

Thank you.

Alice Lopatto

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.

Duration: 47 minutes

Call participants:

Alice Lopatto

Chris Comparato -- Chief Executive Officer

Elena Gomez -- Chief Financial Officer

Will Nance -- Goldman Sachs -- Analyst

Josh Baer -- Morgan Stanley -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Brent Bracelin -- Piper Sandler -- Analyst

DJ Hynes -- Canaccord Genuity -- Analyst

Tien-Tsin Huang -- JPMorgan Chase and Company -- Analyst

Mayank Tandon -- Needham and Company -- Analyst

Dan Dolev -- Mizuho Securities -- Analyst

Andrew Bauch -- SMBC Nikko Securities -- Analyst

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